UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number I-4334
SUNAIR ELECTRONICS, INC.
--------------------------------------------------------------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-0780772
--------------------------------------------------------------------- --------------------------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
3005 SW THIRD AVE., FT. LAUDERDALE, FL. 33315
--------------------------------------------------------------------- ----------------------------
(ADDRESS OR PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER (INCLUDING AREA CODE) (954) 525-1505
--------------------------
NONE
--------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Registrant's common stock - par value 10 cents, outstanding as of August 16,
2004 - 4,006,620 shares.
Transitional Small Business Disclosure format. Yes [ ] No [X]
SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION:
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED CONDENSED BALANCE SHEETS - -
JUNE 30, 2004 AND SEPTEMBER 30, 2003 3
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
NINE MONTHS ENDED JUNE 30, 2004 AND 2003 4
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
THREE MONTHS ENDED JUNE 30, 2004 AND 2003 5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
NINE MONTHS ENDED JUNE 30, 2004 AND 2003 6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 7-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED CONDENSED STATEMENTS 12-15
ITEM 3. CONTROLS AND PROCEDURES 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 2. CHANGES IN SECURITIES 17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18-28
SIGNATURES 19
-2-
PART I. FINANCIAL INFORMATION
SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
ASSETS
06/30/04 9/30/03
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 1,684,526 $ 1,022,175
Accounts receivable 1,297,293 1,768,772
Interest receivable 155,784 108,510
Inventories 6,906,744 7,053,241
Short term investments 2,001,190 1,500,000
Prepaid and other current assets 31,577 20,008
----------- -----------
Total Current Assets 12,077,114 11,472,706
INVESTMENTS 2,966,878 2,988,383
NOTE RECEIVABLE 334,986 334,986
PROPERTY, PLANT, AND EQUIPMENT, net 585,881 681,095
----------- -----------
TOTAL ASSETS $15,964,859 $15,477,170
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 357,281 $ 611,458
Income taxes payable -- 219,959
----------- -----------
Total Current Liabilities 357,281 831,417
INCOME TAXES PAYABLE, net of current
portion -- 122,000
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 2,000,000
shares authorized, none issued and
outstanding -- --
Common stock, $.10 par value, 25,000,000
shares authorized, 3,816,620, and
3,738,170 shares issued and outstanding
at June 30, 2004 and
September 30, 2003, respectively 381,662 373,817
Additional paid-in-capital 2,873,606 2,704,939
Retained earnings 12,352,310 11,444,997
----------- -----------
Total Stockholders' Equity 15,607,578 14,523,753
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $15,964,859 $15,477,170
=========== ===========
The accompanying notes are an integral part of these financial statements
-3-
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
NINE MONTHS ENDED
--------------------------
06/30/04 06/30/03
----------- -----------
SALES $ 5,951,143 $ 3,436,094
COST OF SALES 3,284,769 2,000,778
----------- -----------
GROSS PROFIT 2,666,374 1,435,316
SELLING, GENERAL & ADMINISTRATIVE
EXPENSES 1,557,428 1,268,095
----------- -----------
OPERATING INCOME 1,108,946 167,221
OTHER INCOME:
INTEREST INCOME 189,488 219,718
OTHER, NET (19,021) 9,710
----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,279,413 396,649
PROVISION FOR
INCOME TAXES (372,100) (140,300)
----------- -----------
NET INCOME $ 907,313 $ 256,349
=========== ===========
NET INCOME PER SHARE:
BASIC $ 0.24 $ 0.07
=========== ===========
DILUTED $ 0.23 $ 0.07
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 3,797,004 3,693,797
=========== ===========
DILUTED 3,885,942 3,758,856
=========== ===========
The accompanying notes are an integral part of these financial statements
-4-
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
--------------------------
06/30/04 06/30/03
----------- -----------
SALES $ 1,420,687 $ 1,135,355
COST OF SALES 765,750 647,780
----------- -----------
GROSS PROFIT 654,937 487,575
SELLING, GENERAL & ADMINISTRATIVE
EXPENSES 527,254 376,191
----------- -----------
OPERATING INCOME 127,683 111,384
OTHER INCOME:
INTEREST INCOME 65,005 54,148
OTHER, NET (14,976) 26,960
----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 177,712 192,492
PROVISION FOR
INCOME TAXES (63,500) (68,500)
----------- -----------
NET INCOME $ 114,212 $ 123,992
=========== ===========
NET INCOME PER SHARE:
BASIC $ 0.03 $ 0.03
=========== ===========
DILUTED $ 0.03 $ 0.03
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 3,816,620 3,696,251
=========== ===========
DILUTED 3,905,854 3,751,310
=========== ===========
The accompanying notes are an integral part of these financial statements
-5-
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
--------------------------
06/30/04 06/30/03
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 907,313 $ 256,349
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
DEPRECIATION 118,396 103,406
AMORTIZATION 21,505 21,505
(INCREASE) DECREASE IN ASSETS:
ACCOUNTS RECEIVABLE 471,479 (287,447)
INTEREST RECEIVABLE (47,274) 79,557
INVENTORIES 146,497 (1,628,443)
PREPAID AND OTHER CURRENT ASSETS (11,569) (32,244)
INCREASE (DECREASE) IN LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (254,177) 189,530
INCOME TAXES PAYABLE (341,959) (568,709)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 1,010,211 (1,866,496)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT, AND EQUIPMENT (23,182) (50,520)
PURCHASES OF INVESTMENTS (501,190) 81,877
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (524,372) 31,357
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
EXCERCISE OF STOCK OPTIONS 176,512 11,250
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 176,512 11,250
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 662,351 (1,823,889)
CASH AND CASH EQUIVALENTS, AT BEGINNING
OF PERIOD 1,022,175 2,422,833
----------- -----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 1,684,526 $ 598,944
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR INCOME TAXES $ 718,000 $ 855,000
=========== ===========
The accompanying notes are an integral part of these financial statements
-6-
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF CONSOLIDATED FINANCIAL STATEMENT PRESENTATION
THE ACCOMPANYING UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
HAVE BEEN PREPARED BY THE COMPANY PURSUANT TO THE RULES AND REGULATIONS
OF THE SECURITIES AND EXCHANGE COMMISSION AND IN ACCORDANCE WITH THE
INSTRUCTIONS TO FORM 10-QSB AND DO NOT INCLUDE ALL THE INFORMATION AND
FOOTNOTE DISCLOSURES NORMALLY INCLUDED IN CONSOLIDATED FINANCIAL
STATEMENTS PREPARED IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED STATES OF AMERICA. THE INFORMATION FURNISHED IN
THE INTERIM FINANCIAL STATEMENTS INCLUDES NORMAL RECURRING ADJUSTMENTS
AND REFLECTS ALL ADJUSTMENTS, WHICH, IN THE OPINION OF MANAGEMENT, ARE
NECESSARY FOR A FAIR PRESENTATION OF SUCH FINANCIAL STATEMENTS. FOR
FURTHER INFORMATION REFER TO THE CONSOLIDATED FINANCIAL STATEMENTS AND
FOOTNOTES THERETO INCLUDED IN THE COMPANY'S MOST RECENT AUDITED
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN ITS
SEPTEMBER 30, 2003 ANNUAL REPORT ON FORM 10-KSB. OPERATING RESULTS FOR
THE NINE MONTHS ENDED JUNE 30, 2004 ARE NOT NECESSARILY INDICATIVE OF
THE RESULTS THAT MAY BE EXPECTED FOR THE YEAR ENDING SEPTEMBER 30,
2004.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
----------------
THE PREPARATION OF FINANCIAL STATEMENTS IN CONFORMITY WITH ACCOUNTING
PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA REQUIRES
MANAGEMENT TO MAKE ESTIMATES AND ASSUMPTIONS THAT AFFECT THE REPORTED
AMOUNTS IN THE CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING
NOTES. ACTUAL RESULTS COULD DIFFER FROM THOSE ESTIMATES.
ACCOUNTS RECEIVABLE
-------------------
ACCOUNTS RECEIVABLE CONSIST OF BALANCES DUE FROM SALES. THE COMPANY
MONITORS ACCOUNTS RECEIVABLE AND PROVIDES ALLOWANCES WHEN CONSIDERED
NECESSARY. AS OF JUNE 30, 2004 AND SEPTEMBER 30, 2003 ACCOUNTS
RECEIVABLE WERE CONSIDERED TO BE FULLY COLLECTIBLE, ACCORDINGLY NO
ALLOWANCE FOR DOUBTFUL ACCOUNTS WAS PROVIDED. IF AMOUNTS BECOME
UNCOLLECTIBLE, THEY WILL BE CHARGED TO OPERATIONS WHEN THAT
DETERMINATION IS MADE. THE COMPANY HAS LIMITED EXPOSURE TO BAD DEBT AS
DOMESTIC SALES ARE PRIMARILY TO THE U.S. GOVERNMENT OR LARGER DEFENSE
CONTRACTORS. INTERNATIONAL SALES ARE PRIMARILY CASH IN ADVANCE OF
SHIPMENT OR LETTERS OF CREDIT.
INVESTMENTS
-----------
CERTAIN INVESTMENTS THAT MANAGEMENT HAS THE INTENT AND ABILITY TO HOLD
TO MATURITY ARE REPORTED AT COST, ADJUSTED FOR AMORTIZATION OF PREMIUMS
AND ACCRETION OF DISCOUNTS THAT ARE RECOGNIZED IN INTEREST INCOME USING
THE INTEREST METHOD OVER THE PERIOD TO MATURITY.
MARKETABLE AND DEBT SECURITIES WHICH MANAGEMENT HAS CLASSIFIED AS
TRADING ARE CARRIED AT FAIR VALUE WITH NET UNREALIZED GAINS AND LOSSES
REPORTED IN OPERATIONS. REALIZED GAINS AND LOSSES ON MARKETABLE EQUITY
AND DEBT SECURITIES ARE RECOGNIZED UPON SALE USING THE SPECIFIC
IDENTIFICATION METHOD.
INVENTORIES
-----------
INVENTORIES, WHICH CONSIST OF RAW MATERIALS, WORK-IN-PROCESS, AND
FINISHED GOODS, ARE STATED AT THE LOWER OF COST OR MARKET VALUE, COST
BEING DETERMINED USING THE FIRST IN, FIRST OUT METHOD. FIXED AND
VARIABLE MANUFACTURING COSTS AND OVERHEAD ARE INCLUDED IN THE CARRYING
VALUES OF FINISHED GOODS AND WORK-IN-PROCESS. THE COMPANY RECORDS
RESERVES FOR INVENTORY SHRINKAGE AND OBSOLESCENCE, WHEN CONSIDERED
NECESSARY. FOR THE NINE MONTHS ENDED JUNE 30, 2004 INVENTORY SHRINKAGE
AND OBSOLESCENCE RESERVES INCREASED $62,607.
-7-
PROPERTY, PLANT, AND EQUIPMENT
------------------------------
PROPERTY, PLANT AND EQUIPMENT ARE CARRIED AT COST. DEPRECIATION IS
PROVIDED OVER THE ESTIMATED USEFUL LIVES OF THE ASSETS USING BOTH THE
STRAIGHT-LINE AND ACCELERATED METHODS. THE ESTIMATED USEFUL LIVES USED
TO COMPUTE DEPRECIATION ARE AS FOLLOWS:
BUILDINGS AND IMPROVEMENTS 10 TO 30 YEARS
MACHINERY AND EQUIPMENT 4 TO 10 YEARS
THE COST OF MAINTENANCE AND REPAIRS IS CHARGED TO EXPENSE AS INCURRED;
RENEWALS AND BETTERMENTS ARE CAPITALIZED. WHEN PROPERTIES ARE RETIRED
OR OTHERWISE DISPOSED OF, THE COST OF SUCH PROPERTIES AND THE RELATED
ACCUMULATED DEPRECIATION ARE REMOVED FROM THE ACCOUNTS. ANY PROFIT OR
LOSS IS CREDITED, OR CHARGED TO INCOME.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
-----------------------------------------------------------------------
THE COMPANY REVIEWS LONG-LIVED ASSETS FOR IMPAIRMENT WHENEVER EVENTS OR
CHANGES IN CIRCUMSTANCES INDICATE THAT THE CARRYING AMOUNT OF AN ASSET
MAY NOT BE RECOVERABLE. RECOVERABILITY OF ASSETS TO BE HELD AND USED IS
MEASURED BY A COMPARISON OF THE CARRYING AMOUNT OF AN ASSET TO FUTURE
UNDISCOUNTED CASH FLOWS EXPECTED TO BE GENERATED BY THE ASSET. IF SUCH
ASSETS ARE CONSIDERED TO BE IMPAIRED, THE IMPAIRMENT TO BE RECOGNIZED
IS MEASURED BY THE AMOUNT BY WHICH THE ASSETS EXCEEDS THE FAIR VALUE.
ASSETS TO BE DISPOSED OF ARE REPORTED AT THE LOWER OF THE CARRYING
AMOUNT OR FAIR VALUE LESS COSTS TO SELL.
REVENUE RECOGNITION
-------------------
THE COMPANY AND ITS SUBSIDIARY USE THE ACCRUAL BASIS OF ACCOUNTING.
SALES REVENUES ARE RECORDED WHEN PRODUCTS ARE SHIPPED AND TITLE HAS
PASSED TO UNAFFILIATED CUSTOMERS. INTEREST AND DIVIDENDS EARNED ON
INVESTMENTS ARE RECORDED WHEN EARNED.
FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
THE CARRYING AMOUNTS OF CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE,
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES, APPROXIMATE FAIR VALUE DUE TO
THE SHORT-TERM MATURITIES OF THESE ASSETS AND LIABILITIES. THE FAIR
MARKET VALUE OF OTHER FINANCIAL INSTRUMENTS IS PROVIDED BY THE USE OF
QUOTED MARKET PRICES AND OTHER APPROPRIATE VALUATION TECHNIQUES, BASED
ON INFORMATION AVAILABLE AT YEAR-END.
INCOME TAXES
------------
THE COMPANY ACCOUNTS FOR INCOME TAXES USING SFAS NO. 109, "ACCOUNTING
FOR INCOME TAXES", WHICH REQUIRES RECOGNITION OF DEFERRED TAX
LIABILITIES AND ASSETS FOR EXPECTED FUTURE TAX CONSEQUENCES OF EVENTS
THAT HAVE BEEN INCLUDED IN THE FINANCIAL STATEMENTS OR TAX RETURNS.
UNDER THIS METHOD, DEFERRED TAX LIABILITIES AND ASSETS ARE DETERMINED
BASED ON THE DIFFERENCE BETWEEN THE FINANCIAL STATEMENT AND TAX BASES
OF ASSETS AND LIABILITIES USING ENACTED TAX RATES IN EFFECT FOR THE
YEAR IN WHICH THE DIFFERENCES ARE EXPECTED TO REVERSE. A VALUATION
ALLOWANCE IS RECORDED FOR DEFERRED TAX ASSETS IF IT IS MORE LIKELY THAN
NOT THAT SOME PORTION OR ALL OF THE DEFERRED TAX ASSETS WILL NOT BE
REALIZED.
RESEARCH AND DEVELOPMENT
------------------------
EXPENDITURES FOR RESEARCH AND DEVELOPMENT ARE CHARGED TO OPERATION AS
INCURRED.
-8-
3. INVENTORIES
INVENTORIES CONSIST OF THE FOLLOWING
06/30/04 9/30/03
---------- ----------
MATERIALS $1,885,109 $2,352,471
WORK IN PROGRESS 4,317,208 3,957,855
FINISHED GOODS 704,427 742,915
---------- ----------
$6,906,744 $7,053,241
========== ==========
4. EARNINGS PER COMMON SHARE -
BASIC EARNINGS PER SHARE AMOUNTS ARE COMPUTED BY DIVIDING THE NET
INCOME BY THE WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING.
DILUTED EARNINGS PER SHARE AMOUNTS ARE COMPUTED BY DIVIDING NET INCOME
BY THE WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK, COMMON STOCK
EQUIVALENTS, AND STOCK OPTIONS OUTSTANDING DURING THE PERIOD.
5. INVESTMENTS -
INVESTMENTS INCLUDE PRIVATE EXPORT FUNDING CORPORATION (PEFCO) NOTES.
THESE NOTES ARE GUARANTEED BY THE EXPORT-IMPORT BANK OF THE UNITED
STATES, AN AGENCY OF THE UNITED STATES. THE COMPANY HAS CLASSIFIED
THESE SECURITIES AS "HELD-TO-MATURITY" SECURITIES, IN ACCORDANCE WITH
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 115, "ACCOUNTING
FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES".
HELD-TO-MATURITY SECURITIES ARE RECORDED AT AMORTIZED COST.
AMORTIZATION OF RELATED DISCOUNTS OR PREMIUMS IS INCLUDED IN THE
DETERMINATION OF NET INCOME.
6. INCOME TAXES:
DURING 1995, IT WAS DETERMINED THAT CONTINUED OPERATIONS OF ITS
INTEREST CHARGE-DOMESTIC INTERNATIONAL SALES CORPORATION (IC-DISC)
SUBSIDIARY'S TAX ELECTION WAS NO LONGER ADVANTAGEOUS TO THE COMPANY.
ACCORDINGLY, THE TAX ELECTION OF THE SUBSIDIARY WAS DISCONTINUED AND
ITS RETAINED EARNINGS OF APPROXIMATELY $3,200,000 WERE DISTRIBUTED TO
THE COMPANY. FEDERAL TAX REGULATIONS PROVIDE FOR THE TAXATION OF SUCH
DISTRIBUTION OVER A TEN YEAR PERIOD IN EQUAL ANNUAL INCREMENTS.
UTILIZING THE MAXIMUM TAX RATES, THE INCOME TAX CONSEQUENCE OF SUCH
DISTRIBUTION WILL APPROXIMATE $122,000 PER YEAR. NO INTEREST IS PAYABLE
ON THIS UNPAID PORTION.
7. PREFERRED STOCK:
AT JUNE 30, 2004, THE COMPANY HAD 2,000,000 AUTHORIZED SHARES OF
PREFERRED STOCK, NO PAR VALUE, THAT MAY BE ISSUED AT SUCH TERMS AND
PROVISIONS AS DETERMINED BY THE BOARD OF DIRECTORS. NONE ARE
OUTSTANDING.
-9-
8. STOCK OPTIONS:
AT THE FISCAL YEAR ENDED SEPTEMBER 30, 2003, OPTIONS TO PURCHASE
270,000 SHARES AT $2.25 PER SHARE HAD BEEN ISSUED TO KEY EMPLOYEES OF
THE COMPANY. ON NOVEMBER 6, 2003, THE COMPANY'S MAJORITY SHAREHOLDER
SOLD 1,994,000 COMMON SHARES TO AN UNRELATED THIRD PARTY, WHEREBY THE
NEW SHAREHOLDER OWNS APPROXIMATELY 53% OF THE COMPANY. DUE TO THE
MAJORITY CHANGE IN OWNERSHIP, ALL OF THE COMPANY'S OUTSTANDING STOCK
OPTIONS BECAME FULLY VESTED AND EXERCISABLE ON NOVEMBER 6, 2003.
OPTIONS FOR 45,600 WERE EXERCISED IN FISCAL 2003 AND 78,450 WERE
EXERCISED IN THE FIRST NINE MONTHS OF FISCAL 2004. 145,950 STOCK
OPTIONS ARE CURRENTLY EXERCISABLE. THE OPTIONS GRANTED SHALL BE
EXERCISABLE UP TO AND INCLUDING FIVE YEARS FROM THE DATE OF GRANT.
9. RECENT ACCOUNTING PRONOUNCEMENTS
IN NOVEMBER 2002, THE FASB ISSUED INTERPRETATION NO. 45, "GUARANTOR'S
ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING
INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS" WHICH EXPANDS PREVIOUSLY
ISSUED ACCOUNTING GUIDANCE AND DISCLOSURE REQUIREMENTS FOR CERTAIN
GUARANTEES. THE INTERPRETATION REQUIRES AN ENTITY TO RECOGNIZE AN
INITIAL LIABILITY FOR THE FAIR VALUE OF AN OBLIGATION ASSUMED BY
ISSUING A GUARANTEE. THE INITIAL RECOGNITION AND INITIAL MEASUREMENT
PROVISIONS OF FIN NO. 45 ARE APPLICABLE TO A COMPANY ON A PROSPECTIVE
BASIS TO GUARANTEES ISSUED OR MODIFIED AFTER DECEMBER 31, 2002.
HOWEVER, THE DISCLOSURE REQUIREMENTS IN FIN NO. 45 ARE EFFECTIVE FOR A
COMPANY'S FINANCIAL STATEMENTS FOR PERIODS ENDING AFTER DECEMBER 15,
2002. THE COMPANY IS NOT A PARTY TO ANY AGREEMENT IN WHICH IT IS A
GUARANTOR OF INDEBTEDNESS OF OTHERS THEREFORE THE INTERPRETATION DID
NOT AFFECT THE COMPANY'S FINANCIAL POSITION, RESULTS OF OPERATIONS OR
CASH FLOWS.
IN JANUARY 2003, THE FASB ISSUED INTERPRETATIONS NO. 46, "CONSOLIDATION
OF VARIABLE INTEREST ENTITIES". FIN NO. 46 ADDRESSES CONSOLIDATION BY
BUSINESS ENTERPRISES OF VARIABLE INTEREST ENTITIES (FORMERLY SPECIAL
PURPOSE ENTITIES OR "SPES"). THE COMPANY DOES NOT HAVE ANY VARIABLE
INTEREST ENTITIES AS DEFINED BY FIN NO. 46 AND THEREFORE THE
INTERPRETATION DID NOT AFFECT THE COMPANY'S FINANCIAL POSITION, RESULTS
OF OPERATIONS OR CASH FLOWS.
IN DECEMBER 2002, THE FASB ISSUED SFAS NO. 148, "ACCOUNTING FOR
STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE". SFAS NO. 148
DOES NOT ALTER THE PROVISIONS OF SFAS 123, NOR DOES IT REQUIRE
STOCK-BASED COMPENSATION TO BE MEASURED UNDER THE FAIR-VALUE METHOD.
RATHER, SFAS 148 PROVIDES ALTERNATIVE TRANSITION METHODS TO COMPANIES
THAT ELECT TO EXPENSE STOCK-BASED COMPENSATION USING THE FAIR-VALUE
APPROACH UNDER SFAS NO. 123. THE COMPANY WILL CONTINUE TO ACCOUNT FOR
STOCK-BASED COMPENSATION IN ACCORDANCE WITH APB NO. 25. THE COMPANY HAS
ADOPTED THE DISCLOSURE-ONLY PROVISIONS OF SFAS NO. 148. AS SUCH, THE
COMPANY DOES NOT EXPECT THIS STANDARD TO HAVE A MATERIAL IMPACT ON ITS
FINANCIAL POSITION OR RESULTS OF OPERATIONS.
IN APRIL 2003, THE FASB ISSUED STATEMENT NO. 149, "AMENDMENT OF
STATEMENT NO. 133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES".
THIS STATEMENT AMENDS AND CLARIFIES FINANCIAL ACCOUNTING AND REPORTING
FOR DERIVATIVE INSTRUMENTS, INCLUDING CERTAIN DERIVATIVE INSTRUMENTS
EMBEDDED IN OTHER CONTRACTS AND FOR HEDGING ACTIVITIES UNDER STATEMENT
NO. 133, "ACCOUNTING FOR DERIVATIVES INSTRUMENTS AND HEDGING
ACTIVITIES." THE PROVISIONS OF THIS STATEMENT ARE EFFECTIVE FOR ALL
DERIVATIVES AND HEDGING ACTIVITIES ENTERED INTO AFTER JUNE 30, 2003.
THE COMPANY DID NOT HAVE ANY DERIVATIVES OR HEDGING ACTIVITIES AND
THEREFORE THE STANDARD DID NOT AFFECT THE COMPANY'S FINANCIAL POSITION,
RESULTS OF OPERATIONS OR CASH FLOWS.
-10-
IN MAY 2003, THE FASB ISSUED SFAS NO. 150 "ACCOUNTING FOR CERTAIN
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND
EQUITY". SFAS NO. 150 ESTABLISHES STANDARDS ON THE CLASSIFICATION AND
MEASUREMENT OF CERTAIN INSTRUMENTS WITH CHARACTERISTICS OF BOTH
LIABILITIES AND EQUITY. THE PROVISIONS OF SFAS NO. 150 ARE EFFECTIVE
FOR FINANCIAL INSTRUMENTS ENTERED INTO OR MODIFIED AFTER MAY 31, 2002
AND TO ALL OTHER INSTRUMENTS THAT EXIST AS OF THE BEGINNING OF THE
FIRST INTERIM FINANCIAL REPORTING PERIOD BEGINNING AFTER JUNE 15, 2003.
SFAS NO. 150 DID NOT HAVE A MATERIAL EFFECT ON THE COMPANY'S FINANCIAL
STATEMENTS.
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------------------------------------------------------------------
INFORMATION REGARDING FORWARD LOOKING STATEMENTS:
-------------------------------------------------
SOME OF THE STATEMENTS IN THIS FORM 10-QSB, INCLUDING THOSE THAT CONTAIN THE
WORDS "ANTICIPATE," "BELIEVE," "PLAN," "ESTIMATE," "EXPECT," "SHOULD," "INTEND"
AND OTHER SIMILAR EXPRESSIONS, ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THOSE
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OR
THOSE OF OUR INDUSTRY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THOSE FORWARD-LOOKING
STATEMENTS. AMONG THE FACTORS THAT COULD CAUSE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENT TO DIFFER MATERIALLY FROM THOSE DESCRIBED OR IMPLIED IN THE
FORWARD-LOOKING STATEMENTS ARE GENERAL ECONOMIC CONDITIONS, COMPETITION,
POTENTIAL TECHNOLOGY CHANGES, CHANGES IN OR THE LACK OF ANTICIPATED CHANGES IN
THE REGULATORY ENVIRONMENT IN VARIOUS COUNTRIES, THE ABILITY TO RAISE ADDITIONAL
CAPITAL TO FINANCE EXPANSION, THE RISKS INHERENT IN NEW PRODUCT AND SERVICE
INTRODUCTIONS AND THE ENTRY INTO NEW GEOGRAPHIC MARKETS AND OTHER FACTORS
INCLUDED IN OUR FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC").
COPIES OF OUR SEC FILINGS ARE AVAILABLE FROM THE SEC OR MAY BE OBTAINED UPON
REQUEST FROM US. WE DO NOT UNDERTAKE ANY OBLIGATION TO UPDATE THE INFORMATION
CONTAINED HEREIN, WHICH SPEAKS ONLY AS OF THIS DATE.
GENERAL:
--------
SUNAIR ELECTRONICS, INC. IS A FLORIDA CORPORATION ORGANIZED IN 1956. IT IS
ENGAGED IN THE DESIGN, MANUFACTURE AND SALE OF HIGH FREQUENCY SINGLE SIDEBAND
COMMUNICATIONS EQUIPMENT AND THE SOFTWARE DEVELOPMENT, DESIGN, INTEGRATION
TESTING AND DOCUMENTATION OF C4ISR SYSTEMS UTILIZED FOR LONG RANGE VOICE AND
DATA COMMUNICATIONS IN FIXED STATION, MOBILE AND MARINE FOR MILITARY AND
GOVERNMENTAL APPLICATIONS.
SUNAIR PRODUCTS AND ENGINEERING CAPABILITIES ARE MARKETED BOTH DOMESTICALLY AND
INTERNATIONALLY AND ARE PRIMARILY INTENDED FOR STRATEGIC MILITARY AND OTHER
GOVERNMENTAL APPLICATIONS. SALES ARE EXECUTED DIRECT THROUGH SYSTEMS ENGINEERING
COMPANIES, WORLDWIDE COMMERCIAL AND FOREIGN GOVERNMENTAL AGENCIES OR DIRECT TO
THE U.S. GOVERNMENT.
SUNAIR'S LINE OF EQUIPMENT IS COMPOSED OF PROPRIETARY HF/SSB RADIO EQUIPMENT AND
ANCILLARY ITEMS SOLD AS OPERATING UNITS OR COMBINED INTO SOPHISTICATED SYSTEMS
THAT MAY INTERFACE WITH WORKSTATIONS, ANTENNAE, POWER SOURCES, MODEMS, MESSAGE
SWITCHING DEVICES, CRYPTOGRAPHIC EQUIPMENT SOFTWARE AND THE LIKE PROVIDED BY
OTHERS. SUNAIR PRODUCTS EMPLOY ADVANCED SOLID STATE DESIGNS WITH COMPUTER
CONTROLLED NETWORKING CAPABILITIES. IN ADDITION, THE COMPANY CUSTOM DESIGNS
SYSTEMS INCORPORATING VARIOUS COMBINATIONS OF EQUIPMENT INTO RACKS AND CONTROL
CONSOLES THAT MAY INTERFACE WITH VALUE ADDED PRODUCTS AND SYSTEMS OF OTHER
MANUFACTURERS.
-12-
LIQUIDITY:
----------
FOR THE FIRST NINE MONTHS ENDED JUNE 30, 2004, THE COMPANY HAD POSITIVE CASH
FLOW FROM OPERATIONS OF $1,010,211 DUE TO PAYMENTS RECEIVED AGAINST INCREASED
REVENUES IN THE FOURTH QUARTER OF FISCAL 2003 AND THE SECOND QUARTER OF FISCAL
2004. ACCOUNTS RECEIVABLE DECREASED DUE TO PAYMENTS RECEIVED FOR LARGER
SHIPMENTS MADE IN THE SECOND QUARTER OF FISCAL 2004.
CASH FLOWS USED BY INVESTING ACTIVITIES FOR THE NINE MONTHS ENDED JUNE 30, 2004
WERE $524,372 WHICH CONSISTED OF SHORT TERM INVESTMENTS IN COMMERCIAL PAPER AND
PURCHASES OF SMALL QUANTITIES OF COMPUTER EQUIPMENT.
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES FOR THE NINE MONTHS ENDED JUNE 30,
2004 WERE $176,512 PROVIDED BY THE EXERCISE OF STOCK OPTIONS.
DURING THE FIRST NINE MONTHS OF FISCAL 2004, THE COMPANY HAD SHORT TERM
INVESTMENTS AND CASH OR CASH EQUIVALENTS MORE THAN ADEQUATE TO COVER KNOWN
REQUIREMENTS, UNFORESEEN EVENTS OR UNCERTAINTIES THAT MIGHT OCCUR. THE COMPANY'S
KNOWN REQUIREMENTS CONSIST OF NORMAL OPERATING EXPENSES. DURING THIS NINE MONTH
PERIOD, CASH AND CASH EQUIVALENTS HAD AN AVERAGE BALANCE OF $2,072,000 AS
OPPOSED TO AN AVERAGE BALANCE OF $1,506,000 FOR THE TWELVE MONTHS ENDED
SEPTEMBER 30, 2003. CASH EQUIVALENTS ARE TAX EXEMPT MONEY MARKET FUNDS THAT ARE
READILY AVAILABLE FOR IMMEDIATE USE SHOULD THE OCCASION ARISE. IT IS ANTICIPATED
THAT THE COMPANY WILL REMAIN AS LIQUID DURING FISCAL 2004. THE CURRENT RATIO OF
THE COMPANY AS OF JUNE 30, 2004 WAS 33.8 COMPARED TO 13.8 AS OF SEPTEMBER 30,
2003.
THE COMPANY RECORDS RESERVES FOR INVENTORY SHRINKAGE AND OBSOLENSCENCE, WHEN
CONSIDERED NECESSARY. AS OF JUNE 30, 2004, ACCOUNTS AND NOTES RECEIVABLE WERE
CONSIDERED TO BE FULLY COLLECTIBLE, ACCORDINGLY NO ALLOWANCE FOR DOUBTFUL
ACCOUNTS WAS PROVIDED. IF AMOUNTS BECOME UNCOLLECTIBLE, THEY WILL BE CHARGED TO
OPERATIONS WHEN THAT DETERMINATION IS MADE.
NON CASH INTERIM RESERVES ARE MAINTAINED TO COVER ITEMS SUCH AS WARRANTY REPAIRS
IN PROCESS AND OTHER CHARGES THAT MAY BE IN DISPUTE. ALL MONETARY TRANSACTIONS
ARE IN U.S. DOLLARS AND NO LETTERS OF CREDIT INVOLVE FOREIGN EXCHANGE.
CAPITAL RESOURCES:
------------------
DURING THE FIRST NINE MONTHS OF FISCAL 2004, $23,182 WAS SPENT FOR CAPITAL
ASSETS. THESE FUNDS WERE PRIMARILY USED FOR NEW COMPUTER HARDWARE. NO
EXPENDITURES ARE COMTEMPLATED FOR PLANT EXPANSION OR EXTENSIVE MAINTENANCE IN
FISCAL 2004. THE COMPANY HAS NO LONG TERM DEBT, HOWEVER, THE COMPANY MAY INCUR
DEBT TO FINANCE ACQUISITIONS. LIABILITIES CONSIST OF CURRENT ACCOUNTS PAYABLE,
ACCRUED EXPENSES RELATED TO THE CURRENT ACCOUNTING PERIOD, AND THE CURRENT AND
LONG TERM PORTION OF INCOME TAXES PAYABLE.
-13-
RESULTS OF OPERATIONS:
----------------------
FIRST NINE MONTHS OF FISCAL YEAR ENDED 2004 COMPARED TO FIRST NINE MONTHS OF
FISCAL YEAR ENDED 2003.
DURING THE THIRD QUARTER OF THE CURRENT FISCAL YEAR ENDED JUNE 30, 2004,
SHIPMENTS OF $1,420,687 WERE UP 25.1% OR $285,332 FROM THE SAME QUARTER ONE YEAR
AGO DUE TO CONTINUED SHIPMENTS ON A LARGE CONTRACT FROM ONE U.S. CUSTOMER. THE
REMAINING SHIPMENTS FOR THIS CONTRACT ARE DUE TO BE INCLUDED IN FOURTH QUARTER
SHIPMENTS. SHIPMENTS FOR THE FIRST NINE MONTHS ENDED JUNE 30, 2004 WERE
$5,951,143, UP FROM SHIPMENTS OF $3,436,094 OR 73.2% FOR THE SAME PERIOD ONE
YEAR AGO. SHIPMENTS TO A FOREIGN NAVY AND TO ONE U.S. CUSTOMER ACCOUNTED FOR A
LARGE PORTION OF TOTAL SHIPMENTS.
DOMESTIC SHIPMENTS FOR THE FIRST NINE MONTHS OF THE CURRENT FISCAL YEAR WERE
$3,798,949, OR 63.8% OF TOTAL SALES, UP $911,677 OR 31.6% FOR THE SAME PERIOD
ONE YEAR AGO. EXPORT SHIPMENTS FOR THE NINE MONTHS ENDED JUNE 30, 2004 WERE
$2,152,194 OR 36.2% OF TOTAL SALES, UP $1,603,372 OR 292.1% DUE TO SHIPMENT OF A
LARGE CONTRACT RECEIVED IN THE FIRST QUARTER OF FISCAL 2004.
BACKLOG OF $2,732,000 WAS LOWER AT JUNE 30, 2004 COMPARED TO $5,494,000 AT JUNE
30, 2003 DUE TO ORDERS DELAYED SLIGHTLY UNTIL THE FOURTH QUARTER OF THE CURRENT
FISCAL YEAR. PROJECTED ORDERS REMAINING ON MULTI-YEAR CONTRACTS RECEIVED IN 1999
AND 2000 ARE NOT INCLUDED IN THIS BACKLOG.
COST OF SALES WAS LOWER AT 55.2% OF SALES IN THE FIRST NINE MONTHS OF FISCAL
2004 AS COMPARED TO 58.2% OF SALES FOR THE SAME PERIOD ONE YEAR AGO DUE TO
PRODUCT MIX. INVENTORIES DECREASED 2.1% OR $146,497 FOR THE FIRST NINE MONTHS OF
FISCAL 2004 DUE TO CURRENT SHIPMENTS OF INVENTORY PURCHASED IN PRIOR PERIODS.
INVENTORY LEVELS ARE ANTICIPATED TO CONTINUE TO DECLINE IN THE CURRENT YEAR DUE
TO PROCUREMENTS OF INVENTORY IN PRIOR PERIODS TO MEET FUTURE REQUIREMENTS.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES INCREASED $287,333 OR 22.7% DUE TO
INCREASED RESEARCH AND DEVELOPMENT EXPENDURES FOR PRODUCT DESIGN TO MEET CURRENT
AND FUTURE CUSTOMER DEMANDS. EXPENSES CONTINUE TO BE INCURRED FOR EXPANDED
MARKET EXPOSURE AND INCREASED PRODUCT APPLICATIONS. MARKETING EXPENSES INCREASED
DUE TO EXTENSIVE TRAVEL IN THE THIRD QUARTER TO PURSUE EXISTING AND PLANNED
PROJECTS IN THE MIDDLE EAST AS WELL AS THE PACIFIC RIM.
INTEREST INCOME DECREASED SLIGHTLY AS LOWER YIELDS CONTINUE ON INVESTMENTS.
OTHER INCOME AND EXPENSES INCREASED SLIGHTLY DUE TO REDUCED INCOME ON SCRAP
SALES.
SALES FOR THIS REPORTING QUARTER HAVE PRODUCED FAVORABLE RESULTS. WITH THESE
LARGE SHIPMENTS OF SUNAIR STANDARD PRODUCTS THE BACKLOG REMAINS AT ABOVE AVERAGE
LEVELS DUE TO RECEIPT OF RECURRING DOMESTIC ORDERS.
MARKETING IS FOLLOWING UP ON OPPORTUNITIES FOUND ON A RECENT TRIP THROUGH ASIAN
AND MIDDLE EAST COUNTRIES. TWO MAJOR SYSTEMS PROJECTS ARE BEING PURSUED AND
PROGRESS IS SHOWING STRONG ORDER CHANCES FOR OUR HF PRODUCTS ON FOUR SHIPBOARD
AND FAST PATROL BOAT PROGRAMS IN THOSE GEOGRAPHIC AREAS.
DOMESTIC OPPORTUNITIES RELATED TO DEPARTMENT OF HOMELAND SECURITY (DHS)
REQUIREMENTS FOR CONTINGENCY OPERATIONS ARE TAKING SHAPE. PROJECTS HAVING
RECURRING NEEDS AND TECHNOLOGY ADVANCEMENTS ARE IN CLOSING STAGES. A
MODIFICATION OF A PRIOR ORDERING AGREEMENT WITH AN AGENCY OF THE DHS HAS BEEN
FINALIZED AND INCREASED ORDERS ARE ANTICIPATED IN THIS FOURTH QUARTER. SHIPMENTS
OF THESE ORDERS WILL BE REALIZED IN FISCAL 2005.
-14-
RESULTS OF OPERATIONS: (CONTINUED)
----------------------
DURING 1995, IT WAS DETERMINED THAT CONTINUED OPERATIONS OF ITS INTEREST
CHARGE-DOMESTIC INTERNATIONAL SALES CORPORATION (IC-DISC) SUBSIDIARY'S ELECTION
WAS NO LONGER ADVANTAGEOUS TO THE COMPANY. ACCORDINGLY, THE ELECTION OF THE
SUBSIDIARY WAS DISCONTINUED AND ITS RETAINED EARNINGS OF APPROXIMATELY
$3,200,000 WERE DISTRIBUTED TO THE COMPANY. FEDERAL TAX REGULATIONS PROVIDE FOR
THE TAXATION OF SUCH DISTRIBUTION OVER A TEN YEAR PERIOD IN EQUAL ANNUAL
INCREMENTS. UTILIZING THE MAXIMUM TAX RATES, THE INCOME TAX CONSEQUENCES OF SUCH
DISTRIBUTION WILL APPROXIMATE $122,000 PER YEAR. NO INTEREST IS PAYABLE ON THIS
UNPAID PORTION.
SUBSEQUENT EVENTS:
------------------
ON AUGUST 9, 2004, THE COMPANY ANNOUNCED THE ACQUISITION OF THE OUTSTANDING
STOCK OF PERCIPIA, INC. AND PERCIPIA NETWORKS, INC., COLUMBUS, OHIO, FOR A TOTAL
CONSIDERATION OF $660,000 CASH AND THE ISSUANCE OF 190,000 SHARES OF SUNAIR
COMMON STOCK. IN CONJUNCTION WITH THE PURCHASE, SUNAIR WILL LIQUIDATE
APPROXIMATELY $1,600,000 OF PERCIPIA'S DEBT.
-15-
ITEM 3. CONTROLS AND PROCEDURES
--------------------------------
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. THE TERM "DISCLOSURE
CONTROLS AND PROCEDURES" IS DEFINED IN RULE 13a - 15(e) OF THE SECURITIES
EXCHANGE ACT OF 1934, OR THE EXCHANGE ACT. THIS TERM REFERS TO THE CONTROLS AND
PROCEDURES OF A COMPANY THAT ARE DESIGNED TO ENSURE THAT INFORMATION REQUIRED TO
BE DISCLOSED BY A COMPANY IN THE REPORTS THAT IT FILES UNDER THE EXCHANGE ACT IS
RECORDED, PROCESSED, SUMMARIZED AND REPORTED WITHIN REQUIRED TIME PERIODS. OUR
CHIEF EXECUTIVE OFFICER AND OUR CHIEF FINANCIAL OFFICER HAVE CONCLUDED, BASED ON
THEIR EVALUATION AS OF JUNE 30, 2004, THAT OUR DISCLOSURE CONTROLS AND
PROCEDURES ARE EFFECTIVE FOR RECORDING, PROCESSING, SUMMARIZING AND TIMELY
REPORTING THE INFORMATION WE ARE REQUIRED TO DISCLOSE IN OUR REPORTS FILES UNDER
THE EXCHANGE ACT.
(B) CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING. THERE WERE NO CHANGES
IN THE COMPANY'S INTERNAL CONTROLS OVER FINANCIAL REPORTING DURING THE LAST
FISCAL QUARTER THAT HAVE MATERIALLY AFFECTED, OR ARE REASONABLY LIKELY TO
MATERIALLY AFFECT THE COMPANY'S INTERNAL CONTROL OVER FINANCIAL REPORTING.
-16-
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
-17-
PART II OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
14 REVISED CODE OF BUSINESS CONDUCT AND ETHICS
31.1 CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002.
31.2 CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002.
32.1 CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002.
32.2 CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002.
(B) REPORTS ON FORM 8-K
ON JULY 29, 2004, THE COMPANY FILED A FORM 8-K DISCLOSING
INFORMATION UNDER ITEM 12.
-18-
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
SUNAIR ELECTRONICS, INC.
/S/ JAMES E. LAURENT
DATE: AUGUST 16, 2004 ---------------------------
JAMES E. LAURENT, PRINCIPAL
EXECUTIVE OFFICER
/S/ SYNNOTT B. DURHAM
DATE: AUGUST 16, 2004 ----------------------------
SYNNOTT B. DURHAM, PRINCIPAL
ACCOUNTING OFFICER
-19-