Sunair Electronics, Inc.
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) October 5, 2004

SUNAIR ELECTRONICS, INC.

(Exact name of registrant as specified in its charter)
         
Florida
   1-04334
   59-0780772
(State or Other Jurisdiction   (Commission   (I.R.S. Employer
of Incorporation)   File Number)   Identification No.)

3005 Southwest Third Avenue
Fort Lauderdale, Florida 33315
(Address of Principal Executive Office) (Zip Code)

(954) 525-1505
(Registrant’s telephone number, including area code)

Not Applicable
(Former Name or Former Address, If Changed Since Last Report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

     
[  ]
  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
    
[  ]
  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
    
[  ]
  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2 (b))
 
    
[  ]
  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c))

 

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Item 9.01 Financial Statements and Exhibits.

This Current Report on Form 8-K/A amends the Form 8-K filed with the Commission on October 12, 2004, relating to the acquisition by Sunair Electronics, Inc., through a wholly-owned subsidiary, Sunair Communications, Limited, a private limited company incorporated in England, of substantially all the assets of Telecom FM Limited, a private limited company incorporated in England.

This Current Report on Form 8-K/A contains the information required by Item 9.01(a)(4) and Item 9.01(b)(2) of Form 8-K.

(a)   Financial Statements of Business Acquired.
 
    The following financial statements are filed herewith:

 

CPM FM Limited (formerly known as Telecom FM Limited)
Financial statements for the years ended 31 May 2004 and 2003

Index

         
    2  
    3  
    5  
    6  
    7  

 

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Report of the independent registered public accounting firm

To the members of CPM FM Limited:

We have audited the accompanying balance sheets of CPM FM Limited as of 31 May 2004 and 2003 and the profit and loss accounts for the years then ended. These financial statements are the responsibility of CPM FM Limited’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards in the United Kingdom and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion the financial statements present fairly, in all material respects, the financial position of CPM FM Limited as of 31 May 2004 and 2003 and the results of its operations for the years then ended, in conformity with generally accepted accounting principles in the United Kingdom.

Accounting principles generally accepted in the United Kingdom vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 25 to the financial statements.

GRANT THORNTON UK LLP
REGISTERED AUDITORS
CHARTERED ACCOUNTANTS
OXFORD

Date: December 15, 2004

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CPM FM Limited
Financial statements for the years ended 31 May 2004 and 2003

Principal accounting policies

Basis of accounting

The financial statements have been prepared under the historical cost convention and in accordance with United Kingdom applicable accounting standards. The principal accounting policies of the company have remained unchanged from the previous year and are set out below.

Cash flow statement

The director has taken advantage of the exemption in Financial Reporting Standard No 1 (revised) from including a cash flow statement in the financial statements on the grounds that the company is wholly owned and its parent publishes a consolidated cash flow statement.

Turnover

Turnover is the total amount receivable by the company for goods supplied and services provided, excluding VAT and trade discounts. Revenue from installation of equipment is recognised on completion. All other revenue is recognised on delivery.

Research and development

Research and development expenditure is written off in the year in which it is incurred.

Depreciation

Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value by equal annual installments over the useful economic life of that asset as follows:

                 
Fixtures, fittings and equipment
     —       25-33 %
Computer equipment
     —       33 %

Investments

Investments are included at cost less amounts written off.

Stocks

Stocks are stated at the lower of cost and net realisable value. Short-term work in progress cost includes all costs incurred in bringing the stock to its current location and condition.

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CPM FM Limited
Financial statements for the years ended 31 May 2004 and 2003

Operating lease agreements

Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged against profits on a straight line basis over the period of the lease.

Pension costs

The company operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those of the company. The annual contributions payable are charged to the profit and loss account.

Deferred taxation

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more, tax.

Deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

Foreign currencies

Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are taken into account in arriving at the operating profit.

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CPM FM Limited
Financial statements for the years ended 31 May 2004 and 2003

Profit and loss account

                         
            2004   2003
    Note   £   £
Turnover
     1       2,782,007       2,916,195  
Cost of sales
             (1,057,597 )     (1,271,036 )
 
            
 		      
 		  
Gross profit
             1,724,410       1,645,159  
Other operating charges
     2       (2,033,740 )     (2,285,076 )
Exceptional items
     3       442,313       —  
 
            
 		      
 		  
Operating profit/(loss)
     4       132,983       (639,917 )
Intercompany debt forgiven
     5       —       (360,777 )
Interest receivable
             2,849       7,165  
Interest payable and similar charges
             (44,241 )     (23,336 )
 
            
 		      
 		  
Profit/(loss) on ordinary activities before taxation
             91,591       (1,016,865 )
Tax on profit/(loss) on ordinary activities
     8       26,871       116,747  
 
            
 		      
 		  
Profit/(loss) for the financial year
     20       118,462       (900,118 )
 
            
 		      
 		  

    All of the activities of the company are classed as continuing.
 
    The company has no recognised gains or losses other than the results for the year as set out above.

    The accompanying accounting policies and notes form part of these financial statements.

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CPM FM Limited
Financial statements for the years ended 31 May 2004 and 2003

Balance sheet

                         
            2004   2003
    Note   £   £
Fixed assets
                        
Tangible assets
     9       18,023       52,890  
Investments
     10       —       500,060  
 
            
 		      
 		  
 
             18,023       552,950  
 
            
 		      
 		  
Current assets
                        
Stocks
     11       901,707       982,215  
Debtors
     12       531,505       891,719  
Cash at bank and in hand
             859,362       259,919  
 
            
 		      
 		  
 
             2,292,574       2,133,853  
Creditors: amounts falling due within one year
     13       2,357,353       1,852,021  
 
            
 		      
 		  
Net current (liabilities)/assets
             (64,779 )     281,832  
 
            
 		      
 		  
Total assets less current liabilities
             (46,756 )     834,782  
Creditors: amounts falling due after more than one year
     14       50,000       1,050,000  
 
            
 		      
 		  
 
             (96,756 )     (215,218 )
 
            
 		      
 		  
Capital and reserves
                        
Called-up equity share capital
     19       1,000       1,000  
Profit and loss account
     20       (97,756 )     (216,218 )
 
            
 		      
 		  
Deficiency in shareholders’ funds
     21       (96,756 )     (215,218 )
 
            
 		      
 		  

The accompanying accounting policies and notes form part of these financial statements.

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CPM FM Limited
Financial statements for the years ended 31 May 2004 and 2003

Notes to the financial statements

1   Turnover
 
    The turnover and profit/(loss) before tax are attributable to the one principal activity of the company. An analysis of turnover is given below:
                 
    2004   2003
    £   £
United Kingdom
     790,195       2,029,714  
Europe
     1,109,325       413,451  
Rest of world
     882,487       473,030  
 
    
 		      
 		  
 
     2,782,007       2,916,195  
 
    
 		      
 		  

2   Other operating income and charges
                 
    2004   2003
    £   £
Distribution costs
     1,421,726       1,560,886  
Administrative expenses
     612,014       724,190  
 
    
 		      
 		  
 
     2,033,740       2,285,076  
 
    
 		      
 		  

3   Exceptional items
                 
    2004   2003
    £   £
Waiver of intercompany debt by group undertakings
     942,373       —  
Provision against investments
     (500,060 )     —  
 
    
 		      
 		  
 
     442,313       —  
 
    
 		      
 		  

4   Operating profit/(loss)
 
    Operating profit/(loss) is stated after charging:
                 
    2004   2003
    £   £
Depreciation of owned fixed assets
     34,867       48,390  
Auditors’ remuneration:
                
Audit fees
     10,300       9,600  
Operating lease costs:
                
Land and buildings
     61,230       60,500  
 
    
 		      
 		  

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CPM FM Limited
Financial statements for the years ended 31 May 2004 and 2003

5   Intercompany debt forgiven
 
    The charge of £nil (2003 — £360,777) relates to the waiver of the intercompany debtor due from CPM FM Development Limited (formerly known as Telecom FM Developments Limited).
 
6   Directors and employees
 
    The average number of staff employed by the company during the financial year amounted to:
                 
    2004   2003
    No   No
Number of sales and marketing staff
     7       8  
Number of administration and support services staff
     12       18  
Number of development staff
     6       7  
 
    
 		      
 		  
 
     25       33  
 
    
 		      
 		  

    The aggregate payroll costs of the above were:
                 
    2004   2003
    £   £
Wages and salaries
     1,104,255       1,244,199  
Social security costs
     128,685       137,774  
Other pension costs
     51,958       59,320  
 
    
 		      
 		  
 
     1,284,898       1,441,293  
 
    
 		      
 		  

7   Director

    Remuneration in respect of the director was as follows:
                 
    2004   2003
    £   £
Emoluments receivable
     131,763       132,240  
Value of company pension contributions to money purchase schemes
     12,995       12,995  
 
    
 		      
 		  
 
     144,758       145,235  
 
    
 		      
 		  

    The director is accruing benefits under the company pension scheme.

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    CPM FM Limited
Financial statements for the years ended 31 May 2004 and 2003

8   Taxation on ordinary activities

(a)   Analysis of charge in the year
                 
    2004   2003
    £   £
Current tax:
                
Corporation tax based on the results for the year at 19% (2003 - 19%)
     (26,206 )     (80,234 )
Under provision in prior year
     (665 )     (36,513 )
 
    
 		      
 		  
Total current tax
     (26,871 )     (116,747 )
 
    
 		      
 		  

(b)   Factors affecting current tax charge

    The tax assessed on the profit/(loss) on ordinary activities for the year is higher than the standard rate of corporation tax in the UK of 19% (2003 - 19%).
                 
    2004   2003
    £   £
Profit/(loss) on ordinary activities before taxation
     91,591       (1,016,865 )
 
    
 		      
 		  
Profit/(loss) on ordinary activities by rate of tax
     17,402       (193,204 )
Expenses not deductible for tax purposes
     (81,331 )     70,479  
Depreciation in excess of capital allowances
     2,192       3,008  
Group relief
     —       57,273  
Adjustments to tax charge in respect of prior year
     (665 )     (36,513 )
(Excess)/ deficit of research and development expense uplift over losses surrendered
     (2,553 )     51,822  
Research and development tax credit
     (26,206 )     (80,234 )
Unrelieved tax losses
     64,290       10,622  
 
    
 		      
 		  
Total current tax (note 8(a))
     (26,871 )     (116,747 )
 
    
 		      
 		  

(c)   Factors that may affect future tax charges
 
    Unrelieved tax losses of £584,000 (2003 - £232,000) remain available to offset against future taxable trading profits. No deferred tax asset has been recognised in respect of these losses as it is considered unlikely to be recovered in the foreseeable future.

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CPM FM Limited
Financial statements for the years ended 31 May 2004 and 2003

9   Tangible fixed assets
                         
    Fixtures,        
    fittings and   Computer    
    equipment   equipment   Total
    £   £   £
Cost
                        
At 1 June 2003 and 31 May 2004
     100,318       107,441       207,759  
 
    
 		      
 		      
 		  
Depreciation
                        
At 1 June 2003
     70,722       84,147       154,869  
Charge for the year
     17,070       17,797       34,867  
 
    
 		      
 		      
 		  
At 31 May 2004
     87,792       101,944       189,736  
 
    
 		      
 		      
 		  
Net book value
                        
At 31 May 2004
     12,526       5,497       18,023  
 
    
 		      
 		      
 		  
At 31 May 2003
     29,596       23,294       52,890  
 
    
 		      
 		      
 		  

10   Investments
         
    Shares in
    group
    undertakings
    £
Cost
        
At 1 June 2003
     500,060  
Amounts written off
       
At 1 June 2003
     —  
Provided in the year
     500,060  
 
    
 		  
At 31 May 2004
     —  
 
    
 		  
Net book amount at 31 May 2004
     —  
 
    
 		  
Net book amount at 31 May 2003
     500,060  
 
    
 		  

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CPM FM Limited
Financial statements for the years ended 31 May 2004 and 2003

    At 31 May 2004 the company held more than 20% of the allotted share capital of the following subsidiary undertakings:
                                 
                    Proportion    
            Proportion   held by    
    Class of share   held by   parent    
    capital held   company   company   Nature of business
CPM Capital PLC (formerly known as Telecom Capital PLC)
                           Credit finance by
 
   Ordinary     100 %     —     way of leasing
 
                                
CPM FM Developments Limited (formerly known as Telecom FM Developments Limited)
   Ordinary     60 %     40 %   Non-trading

    The company has not prepared consolidated financial statements as the ultimate parent undertaking, CPM FM Group Limited, has prepared consolidated financial statements.

11   Stocks
                 
    2004   2003
    £   £
Work in progress
     771,847       832,354  
Finished goods
     129,860       149,861  
 
    
 		      
 		  
 
     901,707       982,215  
 
    
 		      
 		  

12   Debtors
                 
    2004   2003
    £   £
Trade debtors
     401,196       640,471  
Taxation recoverable
     30,492       116,980  
Other debtors
     69,746       81,852  
Prepayments and accrued income
     30,071       52,416  
 
    
 		      
 		  
 
     531,505       891,719  
 
    
 		      
 		  

    The debtors above include the following amounts falling due after more than one year:
                 
    2004   2003
    £   £
Rent deposit recoverable in more than one year
     23,100       23,100  
 
    
 		      
 		  

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CPM FM Limited
Financial statements for the years ended 31 May 2004 and 2003

13   Creditors: amounts falling due within one year
                 
    2004   2003
    £   £
Bank overdraft
     908,043       594,621  
Trade creditors
     461,161       528,631  
Amounts owed to group undertakings
     850,000       464,625  
Other taxation and social security
     41,963       45,567  
Other creditors
     5,814       33,757  
Accruals and deferred income
     90,372       184,820  
 
    
 		      
 		  
 
     2,357,353       1,852,021  
 
    
 		      
 		  

    The bank overdraft is secured by a fixed and floating charge over all assets of the company.

14   Creditors: amounts falling due after more than one year
                 
    2004   2003
    £   £
Loan from TFM pension scheme
     50,000       50,000  
Amount due to immediate parent company
     —       1,000,000  
 
    
 		      
 		  
 
     50,000       1,050,000  
 
    
 		      
 		  

    The loan from TFM pension scheme is repayable on 31 May 2006 with interest being charged at 3% above the Bank of Scotland base rate.

15   Pensions

    The company operates a defined contribution pension scheme for the benefit of the employees. The assets of the scheme are administered by trustees in a fund independent from those of the company.

16   Leasing commitments

    At 31 May 2004 the company had annual commitments under non-cancellable operating leases as set out below.
                 
    Land & Buildings
    2004   2003
    £   £
Operating leases which expire:
                
After more than 5 years
     60,500       60,500  
 
    
 		      
 		  

17   Contingent liabilities

    The company guarantees the bank loans and overdrafts of its subsidiaries and parent company. The total of loans and overdrafts at 31 May 2004 amounted to £ nil (2003 - £ nil ).

    At 31 May 2004 a claim had been made against the company by a customer. Having taken legal advice the company is rigorously defending the action which it believes to be without merit. The director does not consider that any significant financial liability will arise as a result of this matter.

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CPM FM Limited
Financial statements for the years ended 31 May 2004 and 2003

18   Related party transactions
 
    As a wholly owned subsidiary of CPM FM Group Limited, the company is exempt from the requirements of FRS 8 to disclose transactions with other members of the group on the grounds that the accounts are publicly available from Companies House.
 
    At 31 May 2004 the company owed the TFM pension scheme £50,000 (2003: £50,000) as detailed in note 14. Interest payable on this loan during the year was £ 3,383 (2003: £3,455).
 
19   Share capital
 
    Authorised share capital:
                 
    2004   2003
    £   £
505 ‘A’ Ordinary shares of £1 each
     505       505  
495 ‘B’ Ordinary shares of £1 each
     495       495  
 
    
 		      
 		  
 
     1,000       1,000  
 
    
 		      
 		  

Allotted, called up and fully paid:

                                 
    2004   2003
    No   £   No   £
’A’ Ordinary shares of £1 each
     505       505       505       505  
’B’ Ordinary shares of £1 each
     495       495       495       495  
 
    
 		      
 		      
 		      
 		  
 
     1,000       1,000       1,000       1,000  
 
    
 		      
 		      
 		      
 		  

    The shares rank pari passu.

20   Profit and loss account
                 
    2004   2003
    £   £
Balance brought forward
     (216,218 )     683,900  
Accumulated profit/(loss) for the financial year
     118,462       (900,118 )
 
    
 		      
 		  
Balance carried forward
     (97,756 )     (216,218 )
 
    
 		      
 		  

21   Reconciliation of movements in shareholders’ funds
                 
    2004   2003
    £   £
Profit/(loss) for the financial year
     118,462       (900,118 )
Opening shareholders’ (deficit)/funds
     (215,218 )     684,900  
 
    
 		      
 		  
Closing shareholders’ deficit
     (96,756 )     (215,218 )
 
    
 		      
 		  

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CPM FM Limited
Financial statements for the years ended 31 May 2004 and 2003

22   Ultimate parent company
 
    The directors consider that the ultimate parent undertaking of this company is CPM FM Group Limited, a company registered in England and Wales.
 
    The largest group of undertakings for which consolidated financial statements will be drawn up is headed by CPM FM Group Limited.
 
23   Capital commitments
 
    The director has confirmed that there were no capital commitments at 31 May 2004 or 31 May 2003.
 
24   Post balance sheet event
 
    The company sold its trade and assets for US$1,500,000 in September 2004, US$250,000 of which is deferred consideration.
 
25   Summary of the differences between accounting principles generally accepted in the United Kingdom and the United States
 
    The financial statements are prepared in conformity with accounting principles generally accepted in the United Kingdom (U.K. GAAP”) which differ in certain respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”).
 
    As permitted by Item 17 of Form 20-F, the following statements of cash flows were prepared in conformity with U.S. GAAP.
 
    The following is a summary of the significant adjustments to turnover, profit (loss) on ordinary activities, and shareholders’ deficiency when reconciling amounts recorded in the financial statements to the corresponding amounts in accordance with U.S. GAAP
                         
            Year ended   Year ended
            May 31, 2004
   May 31, 2003
Turnover under U.K. GAAP
           £ 2,782,007     £ 2,916,195  
U.S. GAAP adjustments
                        
Turnover of consolidated subsidiaries
     (a )     24,975       78,172  
 
            
 		      
 		  
Turnover under U.S. GAAP
           £ 2,806,982     £ 2,994,367  
 
            
 		      
 		  
                         
            Year ended   Year ended
            May 31, 2004
   May 31, 2003
Profit (loss) on ordinary activities under U.K. GAAP
           £ 118,462     £ (900,118 )
U.S. GAAP adjustments:
                        
Elimination of waiver of intercompany debt of consolidated subsidiaries
     (a )     (534,721 )     360,777  
Profit (loss) on ordinary activities of consolidated subsidiaries
     (a )     (32,097 )     116,111  
Elimination of provision against investments
     (a )     500,060       —  
add another a Reclassification of waiver of intercompany debt by group undertakings to shareholders’ fund
     (b )     (407,652 )     —  
 
            
 		      
 		  
Loss on ordinary activities under U.S. GAAP
           £ (355,948 )   £ (423,230 )
 
            
 		      
 		  

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CPM FM Limited
Financial statements for the years ended 31 May 2004 and 2003

                         
            Year ended   Year ended
            May 31, 2004
   May 31, 2003
Shareholders’ deficiency under U.K. GAAP
           £ (96,756 )   £ (215,218 )
U.S. GAAP adjustments:
                        
Shareholders’ funds of consolidated subsidiaries
     (a )     57,560       625,070  
Elimination of provision against investments
     (a )     500,060       —  
Elimination of consolidated subsidiaries’ capital accounts
     (a )     (500,100 )     (500,100 )
 
            
 		      
 		  
Shareholders’ deficiency under U.S. GAAP
           £ (39,236 )   £ (90,248 )
 
            
 		      
 		  

(a)   Principles of consolidation

    The Company held 100% of the allotted share capital of CPM Capital PLC (formerly known as Telecom Capital PLC) and 60% of the allotted share capital of CPM FM Developments Limited (formerly known as Telecom FM Developments Limited). Under U.K. GAAP, the Company is exempted from consolidating its majority-owned investments, as the ultimate parent undertaking, CPM FM Group Limited, has prepared consolidated financial statements.

    U.S. GAAP require consolidation of all majority-owned subsidiaries.

(b)   Waiver of intercompany debt by group undertakings

    Under U.K. GAAP, waiver of debt to or from related parties are included in the profit and loss account.
 
    Under U.S. GAAP, waiver of debt to or from related parties are included in shareholders’ funds (deficiency) accounts.
 
    Presentational Differences:
 
    Deferred income taxes
 
    Under U.K. GAAP, deferred tax is provided in full on timing differences that result in a obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallize based on current tax rates and laws. Deferred tax assets are recognized to the extent it is regarded as more likely than not that they will be recovered.
 
    Under U.S. GAAP, deferred taxes are provided for all temporary differences on a full asset and liability basis. A valuation allowance is established in respect of those deferred tax assets where it is more likely than not that some portion will not be realized. Under U.S. GAAP, the Company’s net deferred tax assets have been fully valued at both May 31, 2004 and 2003 (resulting in a net deferred tax asset of nil at both dates).
 
    Balance sheet presentation
 
    Under U.K. GAAP, assets in the balance sheet are presented in ascending order of liquidity.
 
    Under U.S. GAAP, assets are presented in descending order of liquidity.

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CPM FM Limited
Financial statements for the years ended 31 May 2004 and 2003

Comprehensive Income (Loss)

The comprehensive income (loss) under U.S. GAAP is the same as net income (loss) under U.S. GAAP for all periods presented.

Cash Flow Statement

The following is a cash flow statement under U.S. GAAP.

                 
    2004
   2003
CASH FLOWS FROM OPERATING ACTIVITIES:
                
Net loss
   £ (355,948 )   £ (423,230 )
Adjustments to reconcile net loss to net cash used in operating activities:
                
Depreciation
     34,867       48,390  
Changes in operating assets and liabilities:
                
(Increase) decrease in:
                
Inventories
     80,508       530,264  
Tax receivable
     90,399       (34,327 )
Accounts receivable
     239,275       (409,877 )
Net investment in finance leases
     324,725       (71,137 )
Prepaid and other current assets
     89,941       (54,465 )
Increase (decrease) in:
                
Accounts payable
     (64,686 )     (572,606 )
Due to related party
     (206,973 )     —  
Accrued expenses and other current liabilities
     (131,432 )     53,711  
 
    
 		      
 		  
Net Cash Provided by (Used In) Operating Activities
     100,676       (933,277 )
 
    
 		      
 		  
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Collections on receivables from related parties
     211,221       —  
Purchase of machinery and equipment
     —       (12,318 )
 
    
 		      
 		  
Net Cash Provided by (Used In) Investing Activities
     211,221       (12,318 )
 
    
 		      
 		  
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Bank overdraft
     313,422       582,290  
 
    
 		      
 		  
Net Cash Provided by Financing Activities
     313,422       582,290  
 
    
 		      
 		  
NET INCREASE (DECREASE) IN CASH
     625,319       (363,305 )
CASH, BEGINNING OF PERIOD:
     262,832       626,137  
 
    
 		      
 		  
CASH, END OF PERIOD
   £ 888,151     £ 262,832  
 
    
 		      
 		  
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
                
Interest paid during the period
   £ 45,083     £ 23,398  
 
    
 		      
 		  
Income taxes paid during the period
   £ 28,619     £ —  
 
    
 		      
 		  
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
                
Waiver of related party debt credited to additional paid-in capital
   £ 407,652     £ —  
 
    
 		      
 		  

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(b)   Pro Forma Financial Information.

     The following pro forma financial information is filed herewith:

 

Table of Contents

SUNAIR ELECTRONICS INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED INFORMATION

CONTENTS

         
    Page
    1  
    2  
    3  
    4  
    5  

 

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SUNAIR ELECTRONICS INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED INFORMATION

INTRODUCTION TO PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma combined financial information gives effect to the acquisition of CPM FM Limited (formerly known as Telecom FM Limited) (“Telecom”).

On October 5, 2004, Sunair Electronics, Inc. (the Registrant), (“Sunair”), through a wholly-owned subsidiary, Sunair Communications, Limited, a private limited company incorporated in England (“SCL”), entered into a definitive Asset Purchase Agreement by and amount SCL, Telecom, a private limited company incorporated in England, and TFM Group Limited, a private limited company incorporated in England and the sole shareholder of Telecom, pursuant to which Sunair acquired substantially all of the assets and assumed certain liabilities of Telecom for $1,500,000 cash.

Sunair deferred payment of $250,000 of the purchase price, which Sunair may set off against any indemnifiable damages pursuant to the Asset Purchase Agreement. Sunair agreed to deliver the deferred payment amount to Telecom no later than ten business days following the one hundred eightieth day after closing, unless any indemnifiable claims remain unresolved at such time.

The transaction was closed on October 11, 2004 and, as stated in the Asset Purchase Agreement, became effective on September 1, 2004.

The unaudited pro forma condensed combined balance sheet gives effect to this acquisition as if it had occurred on June 30, 2004. The unaudited pro forma combined statements of operations for the year ended September 30, 2003 and the nine months ended June 30, 2004 gives effect to the acquisition as if it had occurred at the beginning of the earliest periods presented.

The unaudited pro forma combined financial information has been included as required and allowed by the rules of the Securities and Exchange Commission and is presented for illustrative purposes only. Such information is not necessarily indicative of the operating results or financial position that would have occurred had the acquisition taken place on June 30, 2004 or October 1, 2003 or 2002. The pro forma condensed combined financial statements should be read in conjunction with the Company’s Form 10-KSB for the year ended September 30, 2003 and the related notes included in this Current Report on Form 8-K/A.

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SUNAIR ELECTRONICS, INC. AND SUBSIDIARIES

UNAUDITED PRO-FORMA CONDENSED BALANCE SHEET
June 30, 2004
                                                 
    Sunair   CPM FM           Pro           Pro
    Electronics, Inc.   Limited           Forma           Forma
    Historical (1)
   Historical
   Total
   Adjustments
           Combined
ASSETS
                                                
Cash
   $ 988,666     $ —     $ 988,666     $ (1,250,000 )     (2 )   $ (261,334 )
Accounts receivable, net
     1,722,710       1,404,935       3,127,645                       3,127,645  
Inventories
     7,287,494       1,563,764       8,851,258                       8,851,258  
Deferred tax assets
     653,000       —       653,000                       653,000  
Prepaid expenses and other current assets
                                             204,535  
Investments
     4,968,068       —       4,968,068                       4,968,068  
Property and equipment, net
     681,334       28,805       710,139                       710,139  
Software costs, net
     2,700,000       —       2,700,000                       2,700,000  
Notes receivable and other assets
     602,709       —       602,709                       602,709  
Investment in subsidiary
     —               —       1,500,000       (2 )        
 
                     —       (1,500,000 )     (3 )     —  
Goodwill
     724,723       —       724,723       119,775       (3 )     844,498  
 
    
 		      
 		      
 		      
 		              
 		  
Total Assets
   $ 20,328,704     $ 3,202,039     $ 23,530,743     $ (1,130,225 )           $ 22,400,518  
 
    
 		      
 		      
 		      
 		              
 		  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                                
Accounts payable
   $ 596,379     $ 881,130     $ 1,477,509                     $ 1,477,509  
Bank overdraft
     —       595,444       595,444                       595,444  
Accrued expenses and other liabilities
     555,877       254,870       810,747       250,000       (2 )     1,060,747  
Deferred tax liability
     860,000       —       860,000                       860,000  
Unearned revenues
     145,106       —       145,106                       145,106  
Bank line of credit
     99,300       —       99,300                       99,300  
Notes payable and capital leases
     1,466,964       90,370       1,557,334       —               1,557,334  
 
    
 		      
 		      
 		      
 		              
 		  
Total Liabilities
     3,723,626       1,821,814       5,545,440       250,000               5,795,440  
 
    
 		      
 		      
 		      
 		              
 		  
Common stock
     400,662       1,619       402,281       (1,619 )     (3 )     400,662  
Additional paid-in capital
     3,852,106       3,252,725       7,104,831       (3,252,725 )     (3 )     3,852,106  
Retained earnings (deficit)
     12,352,310       (1,816,702 )     10,535,608       1,816,702       (3 )     12,352,310  
Accumulated other comprehensive loss
                                             (57,417 )
 
                                            
 		  
Total Stockholders’ Equity
     16,605,078       1,380,225       17,985,303       (1,380,225 )             16,605,078  
 
    
 		      
 		      
 		      
 		              
 		  
Total Liabilities and Stockholders’ Equity
   $ 20,328,704     $ 3,202,039     $ 23,530,743     $ (1,130,225 )           $ 22,400,518  
 
    
 		      
 		      
 		      
 		              
 		  

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SUNAIR ELECTRONICS, INC. AND SUBSIDIARIES

UNAUDITED PRO-FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Nine Months ended June 30, 2004
                                         
    Sunair   CPM FM           Pro   Pro
    Electronics, Inc.   Limited           Forma   Forma
    Historical (1)
   Historical
   Total
   Adjustments
   Combined
Revenues
   $ 7,631,975     $ 3,819,315     $ 11,451,290             $ 11,451,290  
Cost of revenues
     4,011,542       3,008,078       7,019,620               7,019,620  
 
    
 		      
 		      
 		              
 		  
Gross profit
     3,620,433       811,237       4,431,670       —       4,431,670  
Selling, general and administrative expenses
     2,354,124       1,273,580       3,627,704               3,627,704  
 
    
 		      
 		      
 		              
 		  
Income (loss) from operations
     1,266,309       (462,343 )     803,966       —       803,966  
Other income (expenses):
                                        
Other expenses
     (12,850 )     (68,250 )     (81,100 )             (81,100 )
Loss on investment in subsidiaries
     —       (891,932 )     (891,932 )     —       (891,932 )
 
    
 		      
 		      
 		      
 		      
 		  
Total other expenses
     (12,850 )     (960,182 )     (973,032 )     —       (973,032 )
 
    
 		      
 		      
 		      
 		      
 		  
Income (loss) before income tax benefit
     1,253,459       (1,422,525 )     (169,066 )     —       (169,066 )
Income tax benefit
     (361,978 )     —       (361,978 )     —       (361,978 )
 
    
 		      
 		      
 		      
 		      
 		  
NET INCOME (LOSS)
   $ 891,481     $ (1,422,525 )   $ (531,044 )   $ —     $ (531,044 )
 
    
 		      
 		      
 		      
 		      
 		  
Pro-forma net income (loss) per common share
                                        
Basic
   $ 0.22     $ —     $ —     $ —     $ (0.13 )
 
    
 		      
 		      
 		      
 		      
 		  
Diluted
   $ 0.22     $ —     $ —     $ —     $ (0.13 )
 
    
 		      
 		      
 		      
 		      
 		  
Weighted average of pro-forma shares outstanding:
                                        
Basic
     3,987,004       —       —       —       3,987,004  
 
    
 		      
 		      
 		      
 		      
 		  
Diluted
     4,095,854       —       —       —       4,095,854  
 
    
 		      
 		      
 		      
 		      
 		  

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SUNAIR ELECTRONICS, INC. AND SUBSIDIARIES

UNAUDITED PRO-FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Year Ended September 30, 2003
                                         
    Sunair   CPM FM           Pro   Pro
    Electronics, Inc.   Limited           Forma   Forma
    Historical (1)
   Historical
   Total
   Adjustments
   Combined
Revenues
   $ 8,819,320     $ 3,994,585     $ 12,813,905             $ 12,813,905  
Cost of revenues
     4,593,899       3,266,444       7,860,343               7,860,343  
 
    
 		      
 		      
 		              
 		  
Gross profit
     4,225,421       728,141       4,953,562       —       4,953,562  
Selling, general and administrative expenses
     3,125,812       1,794,029       4,919,841               4,919,841  
 
    
 		      
 		      
 		              
 		  
Income (loss) from operations
     1,099,609       (1,065,888 )     33,721       —       33,721  
Other income (expenses):
     170,726       (36,370 )     134,356               134,356  
 
    
 		      
 		      
 		              
 		  
Income (loss) before income tax benefit
     1,270,335       (1,102,258 )     168,077       —       168,077  
Income tax benefit
     (427,250 )     —       (427,250 )             (427,250 )
 
    
 		      
 		      
 		              
 		  
NET INCOME (LOSS)
   $ 843,085     $ (1,102,258 )   $ (259,173 )   $ —     $ (259,173 )
 
    
 		      
 		      
 		      
 		      
 		  
Pro-forma net income (loss) per common share
                                        
Basic
   $ 0.21     $ —     $ —     $ —     $ (0.07 )
 
    
 		      
 		      
 		      
 		      
 		  
Diluted
   $ 0.21     $ —     $ —     $ —     $ (0.07 )
 
    
 		      
 		      
 		      
 		      
 		  
Weighted average of pro-forma shares outstanding:
                                        
Basic
     3,987,004       —       —       —       3,987,004  
 
    
 		      
 		      
 		      
 		      
 		  
Diluted
     3,941,037       —       —       —       3,941,037  
 
    
 		      
 		      
 		      
 		      
 		  

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SUNAIR ELECTRONICS, INC AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited pro forma condensed combined financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading.

NOTE 2 — STOCK PURCHASE AGREEMENT

On October 11, 2004 and effective September 1, 2004, Sunair acquired substantially all of the assets and assumed certain liabilities of Telecom for $1,500,000, of which $250,000 was deferred.

The following table set forth the preliminary allocation of the purchase price to Telecom’s tangible assets acquired and liabilities assumed as of June 30, 2004:

         
Inventories
   $ 1,563,764  
Accounts receivable
     1,404,935  
Prepaid and other current assets
     204,535  
Fixed assets
     28,805  
Goodwill
     119,775  
Accounts payable
     (881,130 )
Bank overdraft
     (595,444 )
Accrued expenses
     (254,870 )
Loan payable
     (90,370 )
 
    
 		  
Total
   $ 1,500,000  
 
    
 		  

NOTE 3 — PRO FORMA ADJUSTMENTS

1.   On August 6, 2004, Sunair acquired Percipia, Inc. and its wholly owned subsidiary, Percipia Networks, Inc., as reported on a Form 8-K previously filed with the Securities and Exchange Commission. Sunair’s historical balance sheet as of June 30, 2004 and income statements for the nine months ended June 30, 2004 and year ended September 30, 2003 were adjusted to reflect Percipia’s acquisition.

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2.   Reflects $1,250,000 cash disbursed and $250,000 cash to be disbursed in connection with Sunair’s acquisition of Telecom.
 
3.   Reflects the consolidation of Sunair and Telecom. The excess of the purchase price over the fair value of the net assets acquired amounted to $119,775 and has been allocated to goodwill.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

         
  SUNAIR ELECTRONICS, INC.
 		  
Date: December 20, 2004  By:   /s/ SYNNOTT B. DURHAM    
    Synnott B. Durham   
    Chief Financial Officer