Sunair Electronics, Inc.
Table of Contents



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) August 6, 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:

     
o
  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
   
o
  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
   
o
  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2 (b))
 
   
o
  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 August 23, 2004, relating to the acquisition by Sunair Electronics, Inc. of the outstanding stock of Percipia, Inc., and its wholly owned subsidiary, Percipia Networks, Inc.

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:

 


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PERCIPIA, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2004 and 2003

CONTENTS

         
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors of
Percipia, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheet of Percipia, Inc. (“Company”), and its wholly-owned subsidiary, Percipia Networks, Inc. (“Subsidiary”), as of June 30, 2004 and the related statements of operations, stockholders’ equity (deficiency) and cash flows for the years ended June 30, 2004 and 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards. Those standards required that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Percipia, Inc. and Subsidiary as of June 30, 2004 and the results of its operations and its cash flows for the years ended June 30, 2004 and 2003, in conformity with generally accepted accounting principles.

Berenfeld Spritzer Shechter and Sheer
Certified Public Accountants
Sunrise, FL
September 30, 2004

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PERCIPIA, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET
As of June 30, 2004
         
ASSETS
       
Current Assets:
       
Cash
  $ 17,690  
Accounts receivable (net of allowance for doubtful accounts of $48,485)
    425,417  
Deferred tax asset
    653,000  
Inventory
    380,750  
 
   
 
 
Total current assets
    1,476,857  
 
   
 
 
Property and equipment (net of accumulated depreciation of $296,329)
    95,453  
 
   
 
 
Other Assets
       
Software costs (net of accumulated amortization of $642,010)
    2,223,390  
Note receivable from affiliate
    79,010  
Deposits
    1,352  
 
   
 
 
Total other assets
    2,303,752  
 
   
 
 
Total Assets
  $ 3,876,062  
 
   
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
       
Current Liabilities
       
Accounts payable
  $ 239,098  
Accrued expenses and other current liabilities
    286,216  
Deferred tax liability
    860,000  
Sales tax payable
    203,375  
Interest payable
    66,286  
Unearned revenues
    145,106  
Capital leases
    38,875  
Bank line of credit
    99,300  
 
   
 
 
Total current liabilities
    1,938,256  
 
   
 
 
Long-Term Debt
       
Notes payable
    1,428,089  
 
   
 
 
Total Liabilities
    3,366,345  
 
   
 
 
Stockholders’ Equity:
       
Common stock (1,000,000 shares authorized, no par value, 167,218 shares issued and outstanding)
    818,500  
Retained earnings
    (308,783 )
 
   
 
 
Total stockholder’s equity
    509,717  
 
   
 
 
Total Liabilities and Stockholders’ Equity
  $ 3,876,062  
 
   
 
 

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PERCIPIA, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the Years Ended June 30, 2004 and 2003
                 
    2004
  2003
Revenues
  $ 1,943,781     $ 3,371,845  
Cost of revenues
    1,005,495       1,494,801  
 
   
 
     
 
 
Gross profit
    938,286       1,877,044  
Selling, general and administrative expenses
    1,161,356       1,681,360  
 
   
 
     
 
 
Income (loss) from operations
    (223,070 )     195,684  
 
   
 
     
 
 
Other income (expenses):
               
Other income
          1,560  
Loss on litigation
    (20,000 )      
Interest expense
    (212,162 )     (112,500 )
 
   
 
     
 
 
Total other expense
    (232,162 )     (110,940 )
 
   
 
     
 
 
Income (loss) before benefit from (provision for) income taxes
    (455,232 )     84,744  
Benefit from (provision for) income taxes
               
Current
           
Deferred
    177,000       33,000  
 
   
 
     
 
 
Total benefit from (provision for) income taxes
    177,000       33,000  
NET INCOME (LOSS)
    (278,232 )     117,744  
Retained earnings, beginning of year
    (30,551 )     (148,295 )
 
   
 
     
 
 
Retained earnings, end of year
  $ (308,783 )   $ (30,551 )
 
   
 
     
 
 

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PERCIPIA, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 2004 and 2003
                 
    June 30,   June 30,
    2004
  2003
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net income (loss)
  $ (278,232 )   $ 117,744  
Adjustments to reconcile net income (loss) to net cash provided (used in) by operating activities
               
Depreciation and amortization
    261,248       186,012  
Change in allowance for doubtful accounts
    33,485       (5,000 )
(Increase) decrease in:
               
Accounts receivable
    84,591       123,423  
Employee advances
    112,503       (51,163 )
Inventory
    91,972       (218,973 )
Deferred tax asset
    (311,000 )     (168,000 )
Prepaid expenses and other current expenses
    (699 )     722  
Increase (decrease) in:
               
Cash overdraft
    (211,671 )     211,671  
Accounts payable
    (61,278 )     (133,708 )
Accrued expenses and other current liabilities
    35,920       92,616  
Deferred tax liability
    134,000       135,000  
Unearned revenues
    68,568       (170,568 )
Sales tax payable
    (65,152 )     70,099  
Interest payable
    46,953       19,333  
Income taxes payable
           
 
   
 
     
 
 
Net cash provided by (used in) operating activities
    (58,792 )     209,208  
 
   
 
     
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Purchase of property and equipment
    (35,315 )     (62,362 )
Software development costs
    (561,317 )     (612,091 )
 
   
 
     
 
 
Net cash used in investing activities
    (596,632 )     (674,453 )
 
   
 
     
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Note receivable from affiliate
    11,286       13,441  
Note receivable from related party
    3,878       2,687  
Sale of common stock
    315,000       56,000  
Proceeds from loan payable
    286,539       395,779  
Capital lease payments
    (42,889 )     (72,542 )
Proceeds from line of credit
    99,300        
 
   
 
     
 
 
Net cash provided by financing activities
    673,114       395,365  
 
   
 
     
 
 
NET INCREASE (DECREASE) IN CASH
    17,690       (69,880 )
Cash, beginning of year
          69,880  
 
   
 
     
 
 
Cash, end of year
  $ 17,690     $  
 
   
 
     
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
Cash paid during the year for interest
  $ 145,876     $ 93,167  
 
   
 
     
 
 
Cash paid during the year for income taxes
  $     $  
 
   
 
     
 
 

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PERCIPIA, INC. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2004 and 2003

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of business

The Company and Subsidiary were each incorporated under the laws of the State of Ohio on July 1, 2000 as a result of a tax-free spin-off from Intercontinental Software Solutions, Inc. The Company provides installation and maintenance of telephony systems. In addition, the Company develops and customizes software for telephony systems to various industries, most notably hospitality.

Principles of consolidation

The financial statements reflect the accounts of Percipia, Inc. and its wholly-owned subsidiary, Percipia Networks, Inc. All significant inter-company balances and transactions have been eliminated upon consolidation.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.

Accounts receivable

The Company provides for estimated losses on accounts receivable based on prior bad debt experience and a review of existing customer receivables.

Inventory

Inventory is valued at lower of cost or market value, using the average cost method.

Property and equipment

Property and equipment is depreciated over an estimated useful life of 5 to 7 years on a straight line basis.

Software costs

The Company capitalizes certain costs associated with software development in accordance with Statement of Financial Accounting Standard #86(FASB) “Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. The Company computes amortization based on the ratio of current gross revenues related to the product to the total current and anticipated future gross revenues for that product.

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PERCIPIA, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2004 and 2003

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue recognition and unearned revenues

Installation revenues are considered earned at the time the project is completed. Maintenance contracts are recorded as unearned revenues at the time of collection and are recognized as income monthly over the term of the contract.

Advertising costs

The Company recognizes advertising costs as incurred. Advertising expense for the years ended June 30, 2004 and 2003 was $3,562 and $2,001, respectively.

Impairment of long-lived assets

The Company reviews long-lived assets for impairments 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 asset 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.

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 asserts if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Fair value of financial instruments

The carrying amounts of cash and cash equivalents, accounts receivable, inventory, accounts payable and accrued liabilities, approximately fair value due to the short-term maturities of these assets and liabilities. Other financial instruments approximate their fair values by the use of quoted market prices and other approximate valuation techniques, based on information available as of year-end.

NOTE 2 — NOTE RECEIVABLE FROM AFFILIATE

The Company has a note receivable due from an affiliated company. The note has no stated interest rate or maturity date. Management believes that the note is fully collectible.

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PERCIPIA, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2004 and 2003

NOTE 3 — PROPERTY AND EQUIPMENT

Property and equipment consists of the following at June 20, 2004:

         
Furniture and fixtures
  $ 59,649  
Machinery and equipment
    332,131  
 
   
 
 
 
    391,783  
Accumulated depreciation
    ( 296,329 )
 
   
 
 
Total
  $ 95,454  
 
   
 
 

Depreciation expense for the years ended June 30, 2004 and 2003 was $44,006 and $73,512, respectively.

NOTE 4 — BANK LINE OF CREDIT

The Company has a line of credit with a financial institution. The maximum credit limit is $100,000. Interest is charged at 5.00 % annually and there is no stated maturity date. The line is callable by the financial institution at any time.

NOTE 5 — NOTES PAYABLE

The Company has a note payable with a financial institution. The original amount of the note was $324,258 with interest due monthly at 6.5%, maturing on April 27, 2008. The balance on the note at June 30, 2004 was $312,388. The balance of the note was paid off on August 11, 2004.

The Company has 13 separate notes payable to third parties totaling $1,115,701 as of June 30, 2004. These notes have varying interest rates between 7% and 21% per annum and mature at various dates through June 22, 2006. Each of these notes was paid in full on August 11, 2004.

NOTE 6 — INCOME TAXES

The Company follows the liability method of accounting for income taxes. Under this method deferred tax liabilities and assets are recognized for the expected future tax consequences of temporary differences between the carrying amount and the tax basis of assets and liabilities at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. As a result of timing differences associated with the carrying value of investments in marketable securities the company has recorded net deferred tax assets and liabilities.

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PERCIPIA, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2004 and 2003

NOTE 6 — INCOME TAXES (Continued)

The benefit from income taxes in consolidated statements of operations consists of the following:

                 
    2004
  2003
Current:
               
Federal
  $     $  
State
           
 
               
 
   
 
     
 
 
             
 
   
 
     
 
 
Deferred:
               
Federal
    155,000       28,800  
State
    22,000       4,200  
 
   
 
     
 
 
 
    177,000       33,000  
 
   
 
     
 
 
Total
  $ 177,000     $ 33,000  
 
   
 
     
 
 

As of June 30, 2004, the component of the deferred tax liabilities is as follows:

                 
    Deferred   Deferred
    Tax Liability   Tax Asset
Net operating loss carryover
  $     $ 635,000  
Tax/book basis of software costs
    (860,000 )      
Allowance for doubtful accounts
          18,000  
 
   
 
     
 
 
 
  $ (860,000 )   $ 653,000  
 
   
 
     
 
 

The Company has approximately $1,648,000 in net operating loss carryforwards which expire beginning in 2021.

NOTE 7 — BENEFIT PLAN

The Company has a savings plan under Section 401(k) of the Internal Revenue Code. The savings plan allows eligible employees to contribute up to 15% of their compensation on a pre-tax basis. Additionally, the plan includes a Company matching contribution of 10% of the employees’ contribution up to 6% of the employees base compensation. Under the plan, the Company’s matching contributions for the years ended June 30, 2004 and 2003 were $1,534 and $5,666, respectively.

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PERCIPIA, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2004 and 2003

NOTE 8 — LEASE COMMITMENT

The Company leases its office and warehouse space. The lease calls for $2,777 per month until August 31, 2006. Future lease payment commitments are as follows for the year ended June 30:

         
2005
  $ 39,032  
2006
    5,576  
 
   
 
 
Total
  $ 39,032  
 
   
 
 

Rent expense for the years ended June 30, 2004 and 2003 was $36,868 and $66,463, respectively.

NOTE 9 — CONTINGENCY

The Company is currently involved in a legal matter with a customer in which the customer is demanding a refund of $19,283 for certain services and goods provided by the Company. While management intends to vigorously defend itself against this claim, the Company has reserved $20,000 for a potential loss from a negative judgment. This amount is included in accrued expenses at June 30, 2004.

NOTE 10 — SUBSEQUENT EVENTS

On August 6, 2004, 100% of the common shares of each of Percipia, Inc. and Subsidiary were purchased by Sunair Electronics, Inc., resulting in the Company becoming a wholly-owned subsidiary of Sunair. The stock was purchased for $660,000 and 190,000 shares of common stock of Sunair. Sunair also purchased all of the outstanding stock options of Percipia for approximately $53,550, which is considered part of the acquisition price. In connection with the purchase, Sunair also paid in full all the outstanding notes payable of Percipia.

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(b) Pro Forma Financial Information.

     The following pro forma financial information is filed herewith:

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PERCIPIA, INC. AND SUBSIDIARY
PRO FORMA FINANCIAL INFORMATION

CONTENTS

         
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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 Percipia, Inc. (“Percipia”), and its wholly-owned subsidiary, Percipia Networks, Inc. (“Subsidiary”), each organized under the laws of the State of Ohio.

On August 6, 2004, the Registrant, Sunair Electronics, Inc. (“Sunair”) completed an acquisition (the “Acquisition”) of all the issued and outstanding common stock of Percipia and Subsidiary. The Acquisition was consummated pursuant to the terms and provisions of a Stock Purchase Agreement dated August 6, 2004. As a result, Percipia became a wholly owned-subsidiary of Sunair. The consideration paid by Sunair consisted of cash of $713,550 (including $53,550 paid to retire all outstanding stock options of Percipia) and 190,000 shares of its common stock valued at $997,500 based on an average price of $5.25 over the thirty days prior to the Acquisition.

The unaudited pro forma condensed combined balance sheet gives effect to the 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
As of June 30, 2004
                                                 
    Sunair                   Pro-           Pro-
    Electronics, Inc.   Percipia, Inc.           Forma           Forma
    Historical
  Historical
  Total
  Adjustments
          Combined
ASSETS
                                               
Cash
  $ 1,684,526     $ 17,690     $ 1,702,216     $ (713,550 )     1     $ 988,666  
Accounts receivable, net
    1,297,293       425,417       1,722,710                     1,722,710  
Inventory
    6,906,744       380,750       7,287,494                     7,287,494  
Deferred tax assets
            653,000       653,000                       653,000  
Investments
    4,968,068             4,968,068                     4,968,068  
Property and equipment, net
    585,881       95,453       681,334                     681,334  
Software costs, net
          2,223,390       2,223,390       476,610       2       2,700,000  
Notes receivable and other assets
    522,347       80,362       602,709                     602,709  
Investment in subsidiary
                      1,711,050       1        
 
                            (1,711,050 )     2          
Goodwill
                      724,723       2       724,723  
 
   
 
     
 
     
 
     
 
             
 
 
Total Assets
  $ 15,964,859     $ 3,876,062     $ 19,840,921     $ 487,783             $ 20,328,704  
 
   
 
     
 
     
 
     
 
             
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                               
Accounts payable
  $ 357,281     $ 239,098     $ 596,379     $             $ 596,379  
Accrued expenses and other liabilities
          555,877       555,877                     555,877  
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       1,466,964                     1,466,964  
 
   
 
     
 
     
 
     
 
             
 
 
Total Liabilities
    357,281       3,366,345       3,723,626                     3,723,626  
 
   
 
     
 
     
 
     
 
             
 
 
Common stock
    381,662       818,500       1,200,162       19,000       1          
 
                            (818,500 )     2       400,662  
Additional paid-in capital
    2,873,606             2,873,606       978,500       1       3,852,106  
Retained earnings (deficit)
    12,352,310       (308,783 )     12,043,527       308,783       2       12,352,310  
 
   
 
     
 
     
 
     
 
             
 
 
Total Stockholders’ Equity
    15,607,578       509,717       16,117,295       487,783               16,605,078  
 
   
 
     
 
     
 
     
 
             
 
 
Total Liabilities and Stockholders’ Equity
  $ 15,964,859     $ 3,876,062     $ 19,840,921     $ 487,783             $ 20,328,704  
 
   
 
     
 
     
 
     
 
             
 
 

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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            
    Electronics, Inc.   Percipia, Inc.   Pro Forma   Pro Forma
    Historical
  Historical
  Adjustments
  Combined
Revenues
  $ 5,951,143     $ 1,680,832     $     $ 7,631,975  
Cost of revenues
    3,284,769       726,773             4,011,542  
 
   
 
     
 
     
 
     
 
 
Gross profit
    2,666,374       954,059             3,620,433  
Selling, general and administrative expenses
    1,557,428       796,696             2,354,124  
 
   
 
     
 
     
 
     
 
 
Income (loss) from operations
    1,108,946       157,363             1,266,309  
Other income (expenses):
    170,467       (183,317 )           (12,850 )
 
   
 
     
 
     
 
     
 
 
Income (loss) before benefit from (provision for) income taxes
    1,279,413       (25,954 )           1,253,459  
Benefit from (provision for) income taxes
    (372,100 )     10,122             (361,978 )
 
   
 
     
 
     
 
     
 
 
NET INCOME (LOSS)
  $ 907,313     $ (15,832 )   $     $ 891,481  
 
   
 
     
 
     
 
     
 
 
Pro-forma net income per common share
                               
Basic
  $ 0.24                     $ 0.22  
 
   
 
                     
 
 
Diluted
  $ 0.23                     $ 0.22  
 
   
 
                     
 
 
Weighted average of pro-forma shares outstanding:
                               
Basic
    3,797,004                       3,987,004  
 
   
 
                     
 
 
Diluted
    3,905,854                       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            
    Electronics, Inc.   Percipia, Inc.   Pro Forma   Pro Forma
    Historical
  Historical
  Adjustments
  Combined
Revenues
  $ 5,910,739     $ 2,908,581     $     $ 8,819,320  
Cost of revenues
    3,293,258       1,300,641             4,593,899  
 
   
 
     
 
     
 
     
 
 
Gross profit
    2,617,481       1,607,940             4,225,421  
Selling, general and administrative expenses
    1,770,079       1,355,733             3,125,812  
 
   
 
     
 
     
 
     
 
 
Income (loss) from operations
    847,402       252,207             1,099,609  
Other income (expenses):
    312,676       (141,950 )           170,726  
 
   
 
     
 
     
 
     
 
 
Income (loss) before benefit from (provision for) income taxes
    1,160,078       110,257             1,270,335  
Benefit from (provision for) income taxes
    (384,250 )     (43,000 )           (427,250 )
 
   
 
     
 
     
 
     
 
 
NET INCOME (LOSS)
  $ 775,828     $ 67,257     $     $ 843,085  
 
   
 
     
 
     
 
     
 
 
Pro-forma net income per common share
                               
Basic
  $ 0.20                     $ 0.21  
 
   
 
                     
 
 
Diluted
  $ 0.21                     $ 0.21  
 
   
 
                     
 
 
Weighted average of pro-forma shares outstanding:
                               
Basic
    3,797,004                       3,987,004  
 
   
 
                     
 
 
Diluted
    3,751,037                       3,941,037  
 
   
 
                     
 
 

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SUNAIR ELECTRONICS, INC AND SUBSIDIARY

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 August 6, 2004, Sunair paid $660,000 in cash and issued an aggregate number of 190,000 shares of its common stock in exchange for all of the issued and outstanding shares of Percipia and Subsidiary. On or around that date, Sunair also purchased all of the outstanding stock options of Percipia for $53,550.

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

         
Cash
  $ 17,690  
A/R
    425,417  
Inventory
    380,750  
Deferred tax assets
    653,000  
Fixed assets
    95,453  
Software
    2,700,000  
Note receivable and other assets
    80,362  
Goodwill
    724,723  
Accounts payable
    (239,098 )
Accrued liabilities
    (555,877 )
Deferred tax liability
    (860,000 )
Unearned revenues
    (145,106 )
Line of Credit
    (99,300 )
Notes Payable
    (1,428,089 )
Capital leases
    (38,875 )
 
   
 
 
Total
  $ 1,711,050  
 
   
 
 

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NOTE 3 – PRO FORMA ADJUSTMENTS

1.   Reflects common stock of Sunair issued at $.10 par value and additional paid-in capital as a result of the issuance, and the cash disbursed in connection with the acquisition of Percipia.
 
2.   To reflect consolidation of the common stock and retained deficit of Percipia and to reflect adjustment from book value to market value. The excess of purchase price over the book value was allocated first to increase the software costs to the appraised value on the date of purchase. The remainder was 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: October 20, 2004
  By:   /s/ SYNNOTT B. DURHAM
     
      Synnott B. Durham
      Chief Financial Officer