##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from                to
 Commission file number I-4334
 SUNAIR SERVICES CORPORATION
 (Exact Name of Registrant as Specified in Its Charter)
 Florida
    
    59-0780772(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)595 South Federal Highway, Suite 500Boca Raton, Florida
    
    33432(Address of Principal Executive Offices)
    
    (Zip Code)
  (Registrants Telephone Number, Including Area Code)
  (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
  þ o
  o o þ
  o þ




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##### 



SUNAIR SERVICES CORPORATION AND SUBSIDIARIES
 INDEX
  
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Condensed Balance Sheets as of June 30, 2007 (unaudited) and September 30, 2006

3Consolidated Condensed Statements of Operations for the Nine Months Ended June 30, 2007 and 2006 (unaudited)

5Consolidated Condensed Statements of Operations for the Three Months Ended June 30, 2007 and 2006 (unaudited)

6Consolidated Condensed Statements of Cash Flows for the Nine Months Ended June 30, 2007 and 2006 (unaudited)

7Notes to Unaudited Consolidated Condensed Financial Statements

9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

17Item 3. Quantitative and Qualitative Disclosures About Market Risk

21Item 4. Controls and Procedures

22PART II. OTHER INFORMATIONItem 1. Legal Proceedings

22Item 1A. Risk Factors

22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

22Item 3. Defaults Upon Senior Securities

22Item 4. Submission of Matters to a Vote of Security Holders

22Item 5. Other Information

22Item 6. Exhibits

22SignaturesEX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO
  2




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##### Table of Contents



PART
I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 SUNAIR SERVICES CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED BALANCE SHEETS 
AS OF JUNE 30, 2007 AND SEPTEMBER 30, 2006
(UNAUDITED)
 JUNE 30, 2007
    
    
    SEPTEMBER 30, 2006ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    2,589,970
    
    
    $
    1,601,110Accounts receivable, net
    
    
    5,170,364
    
    
    
    4,919,595Income tax receivable
    
    
    
    
    
    
    352,393Interest receivable
    
    
    55,000
    
    
    
    11,084Inventories, net
    
    
    2,703,862
    
    
    
    2,328,205Deferred tax asset
    
    
    
    
    
    
    137,387Prepaid and other current assets
    
    
    1,539,252
    
    
    
    1,163,508Note receivable  current
    
    
    
    
    
    
    334,986Total Current Assets
    
    
    12,058,448
    
    
    
    10,848,268PROPERTY, PLANT, AND EQUIPMENT, net
    
    
    2,205,401
    
    
    
    2,538,434OTHER ASSETS:Deferred tax asset
    
    
    45,541
    
    
    
    Note receivable
    
    
    2,000,000
    
    
    
    2,000,000Software costs, net
    
    
    3,805,149
    
    
    
    3,938,465Customer list, net
    
    
    11,532,919
    
    
    
    11,247,099Goodwill
    
    
    56,894,723
    
    
    
    52,818,269Other assets
    
    
    276,499
    
    
    
    522,427Total Other Assets
    
    
    74,554,831
    
    
    
    70,526,260TOTAL ASSETS
    
    $
    88,818,680
    
    
    $
    83,912,962
  3




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SUNAIR SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF JUNE 30, 2007 AND SEPTEMBER 30, 2006
(UNAUDITED)
 JUNE 30, 2007
    
    
    SEPTEMBER 30, 2006LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    3,876,440
    
    
    $
    2,743,523Accrued expenses
    
    
    3,574,984
    
    
    
    2,831,162Unearned revenues
    
    
    1,317,896
    
    
    
    589,365Customer deposits
    
    
    3,209,260
    
    
    
    2,677,364Capitalized leases, current portion
    
    
    8,336
    
    
    
    8,796Notes payable, current portion
    
    
    422,648
    
    
    
    138,374Total Current Liabilities
    
    
    12,409,564
    
    
    
    8,988,584LONG TERM LIABILITIES:Capitalized leases, net of current portion
    
    
    13,999
    
    
    
    20,027Notes payable, net of current portion
    
    
    3,629,957
    
    
    
    1,723,642Note payable -related party
    
    
    5,000,000
    
    
    
    5,000,000Revolving line of credit
    
    
    7,000,000
    
    
    
    8,000,000Deferred tax liability
    
    
    
    
    
    
    112,226Total Long Term Liabilities
    
    
    15,643,956
    
    
    
    14,855,895TOTAL LIABILITIES
    
    
    28,053,520
    
    
    
    23,844,479COMMITMENTS & CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock, no par value, 8,000,000 shares
authorized, none issued and outstanding
    
    
    
    
    
    
    Common stock, $.10 par value, 100,000,000 shares
authorized, 13,091,088 and 13,007,559 shares issued
and outstanding
at June 30, 2007 and September 30, 2006, respectively
    
    
    1,309,109
    
    
    
    1,300,757Additional paid-in capital
    
    
    52,371,800
    
    
    
    51,548,768Retained earnings
    
    
    6,915,152
    
    
    
    7,200,197Accumulated other comprehensive gain  cumulative translation adjustment
    
    
    169,099
    
    
    
    18,761Total Stockholders Equity
    
    
    60,765,160
    
    
    
    60,068,483TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    88,818,680
    
    
    $
    83,912,962
  4




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SUNAIR SERVICES CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS 
FOR THE NINE MONTHS ENDED JUNE 30, 2007 AND 2006
(UNAUDITED)
 FOR THE NINE
    
    
    FOR THE NINEMONTHS ENDED
    
    
    MONTHS ENDEDJUNE 30, 2007
    
    
    JUNE 30, 2006SALES
    
    $
    49,306,413
    
    
    $
    36,074,674COST OF SALES
    
    
    19,594,822
    
    
    
    13,853,832GROSS PROFIT
    
    
    29,711,591
    
    
    
    22,220,842SELLING AND ADMINISTRATIVE EXPENSES
    
    
    30,390,898
    
    
    
    24,825,017LOSS FROM OPERATIONS
    
    
    (679,307
    )
    
    
    (2,604,175
    )OTHER INCOME (EXPENSES):Interest income
    
    
    166,583
    
    
    
    4,086Interest expense
    
    
    (949,391
    )
    
    
    (978,948
    )Gain on disposal of assets
    
    
    10,513
    
    
    
    Other income
    
    
    
    
    
    
    47,946Total Other Income (Expenses)
    
    
    (772,295
    )
    
    
    (926,916
    )LOSS FROM OPERATIONS BEFORE INCOME TAXES
    
    
    (1,451,602
    )
    
    
    (3,531,091
    )INCOME TAX BENEFIT
    
    
    445,205
    
    
    
    1,580,456LOSS FROM CONTINUING OPERATIONS
    
    
    (1,006,397
    )
    
    
    (1,950,635
    )INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF
INCOME TAX (PROVISION) FOR OR BENEFIT OF $372,759 AND $(174,244)
IN 2007 AND 2006, RESPECTIVELY
    
    
    (640,133
    )
    
    
    304,627GAIN ON
THE DISPOSAL OF ASSETS FROM DISCONTINUED OPERATIONS, NET OFINCOME
TAX PROVISION OF $821,426
    
    
    1,361,476
    
    
    
    NET LOSS
    
    $
    (285,054
    )
    
    $
    (1,646,008
    )BASIC AND DILUTED INCOME (LOSS) PER SHARE:CONTINUING OPERATIONS
    
    $
    (0.08
    )
    
    $
    (0.16
    )DISCONTINUED OPERATIONS
    
    $
    0.06
    
    
    $
    0.02NET LOSS
    
    $
    (0.02
    )
    
    $
    (0.14
    )WEIGHTED AVERAGE SHARES OUTSTANDING:BASIC
    
    
    13,058,119
    
    
    
    12,117,794DILUTED
    
    
    13,058,119
    
    
    
    12,117,794
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SUNAIR SERVICES CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND 2006
(UNAUDITED)
 FOR THE THREE
    
    
    FOR THE THREEMONTHS ENDED
    
    
    MONTHS ENDEDJUNE 30, 2007
    
    
    JUNE 30, 2006SALES
    
    $
    17,440,730
    
    
    $
    13,810,527COST OF SALES
    
    
    7,055,732
    
    
    
    5,378,652GROSS PROFIT
    
    
    10,384,998
    
    
    
    8,431,875SELLING AND ADMINISTRATIVE EXPENSES
    
    
    10,408,742
    
    
    
    9,298,279LOSS FROM OPERATIONS
    
    
    (23,744
    )
    
    
    (866,404
    )OTHER INCOME (EXPENSES):Interest income
    
    
    47,165
    
    
    
    1,762Interest expense
    
    
    (273,683
    )
    
    
    (310,503
    )Other income
    
    
    
    
    
    
    47,946Total Other Income (Expenses)
    
    
    (226,518
    )
    
    
    (260,795
    )LOSS FROM OPERATIONS BEFORE INCOME TAXES
    
    
    (250,262
    )
    
    
    (1,127,199
    )INCOME TAX (PROVISION) BENEFIT
    
    
    (83,279
    )
    
    
    828,857LOSS FROM CONTINUING OPERATIONS
    
    
    (333,541
    )
    
    
    (298,342
    )LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME
TAX BENEFIT OF $372,579 AND $111,298 IN 2007 AND 2006, RESPECTIVELY
    
    
    (332,226
    )
    
    
    (185,234
    )NET LOSS
    
    $
    (665,767
    )
    
    $
    (483,576
    )BASIC AND
DILUTED LOSS PER SHARE:CONTINUING OPERATIONS
    
    $
    (0.03
    )
    
    $
    (0.02
    )DISCONTINUED OPERATIONS
    
    $
    (0.02
    )
    
    $
    (0.01
    )NET LOSS
    
    $
    (0.05
    )
    
    $
    (0.03
    )WEIGHTED AVERAGE SHARES OUTSTANDING:BASIC
    
    
    13,091,088
    
    
    
    13,060,559DILUTED
    
    
    13,091,088
    
    
    
    13,060,559
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SUNAIR SERVICES CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2007 AND 2006
(UNAUDITED)
 FOR THE NINE
    
    
    FOR THE NINEMONTHS ENDED
    
    
    MONTHS ENDEDJUNE 30, 2007
    
    
    JUNE 30, 2006CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (285,054
    )
    
    $
    (1,646,008
    )Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:Depreciation
    
    
    691,590
    
    
    
    659,483Amortization
    
    
    1,754,442
    
    
    
    1,509,594Deferred taxes
    
    
    (20,380
    )
    
    
    (1,127,702
    )Bad debt reserve
    
    
    (80,753
    )
    
    
    137,992Inventories reserve
    
    
    137,962
    
    
    
    29,698Gain on disposal of assets
    
    
    (2,193,415
    )
    
    
    Equity based compensation
    
    
    486,385
    
    
    
    486,217Stock based compensation
    
    
    45,000
    
    
    
    (Increase) decrease in Assets:Accounts receivable
    
    
    (16,097
    )
    
    
    292,550Income tax receivable
    
    
    352,393
    
    
    
    Interest receivable
    
    
    (43,916
    )
    
    
    10,250Inventories
    
    
    (499,982
    )
    
    
    (625,800
    )Prepaid and other current assets
    
    
    (297,219
    )
    
    
    (1,245,231
    )Other assets
    
    
    358,601
    
    
    
    (41,954
    )Increase (decrease) in Liabilities:Accounts payable and accrued expenses
    
    
    1,472,791
    
    
    
    (839,627
    )Unearned revenue
    
    
    76,505
    
    
    
    367,775Leases payable
    
    
    (1,462
    )
    
    
    Income taxes payable
    
    
    (1,195
    )
    
    
    Customer deposits
    
    
    491,090
    
    
    
    648,214Net Cash Provided By (Used In) Operating Activities
    
    
    2,427,286
    
    
    
    (1,384,549
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property, plant, and equipment
    
    
    (296,563
    )
    
    
    (441,929
    )Software development costs
    
    
    (281,388
    )
    
    
    (436,892
    )Cash paid for business acquisitions
    
    
    (2,598,432
    )
    
    
    (11,695,506
    )Net Proceeds from disposition of property
    
    
    2,344,980
    
    
    
    Net Cash Used In Investing Activities
    
    $
    (831,403
    )
    
    $
    (12,574,327
    )
  7




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SUNAIR SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2007 AND 2006
(UNAUDITED)
 FOR THE NINE
    
    
    FOR THE NINEMONTHS
    
    
    MONTHSENDED
    
    
    ENDEDJUNE 30, 2007
    
    
    JUNE 30, 2006CASH FLOWS FROM FINANCING ACTIVITIES:Repayment of line of credit (net)
    
    
    (1,000,000
    )
    
    
    (1,500,000
    )Repayment of notes payable
    
    
    (70,156
    )
    
    
    (96,930
    )Payment on capital leases
    
    
    (22,191
    )
    
    
    (37,589
    )Proceeds from note receivable
    
    
    334,986
    
    
    
    Proceeds from sale of common stock, net
    
    
    
    
    
    
    13,655,672Net Cash Provided By (Used In) Financing Activities
    
    
    (757,361
    )
    
    
    12,021,153Effect of exchange rate fluctuations on cash
    
    
    150,338
    
    
    
    39,303NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    988,860
    
    
    
    (1,898,420
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    1,601,110
    
    
    
    3,220,699CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    2,589,970
    
    
    $
    1,322,279SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for income taxes
    
    $
    
    
    
    $
    Cash paid during the period for interest
    
    $
    1,071,750
    
    
    $
    978,948SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:Common stock issued in acquisitions
    
    $
    300,000
    
    
    $
    100,000Debt incurred in acquisitions
    
    $
    2,235,000
    
    
    $
    1,475,000
  8




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SUNAIR SERVICES CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
For the Nine Months Ended June 30, 2007 and June 30, 2006
(UNAUDITED)
 1. Basis of Consolidated Financial Statement Presentation
  2. Significant Accounting Policies
 Use of Estimates
  Accounts Receivable
  Inventories
  Property, Plant, and Equipment
  Buildings and improvements
    
    10 to 30 yearsMachinery and equipment
    
    4 to 10 yearsAutomobiles
    
    4 to 10 years
  Software Costs
  9




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Goodwill and other intangible assets
  Accounting for Impairment or
Disposal of Long-Lived Assets.
  Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
  Reclassifications
     Revenue Recognition
  10




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Advertising Costs
  Research and Development
  Foreign Currency Translation
 Telecom
FM Ltd.
 Comprehensive Income
  Recent Accounting Pronouncements
     3. Acquisitions
 Acquisition of Spa Creek Services, LLC D/B/A Pest Environmental Services (Spa Creek)
  11




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Good will
    
    $
    5,732,933Customer list
    
    
    262,000Accounts Receivable
    
    
    132,929Inventory
    
    
    66,475Fixed assets
    
    
    30,000Customer deposits
    
    
    (279,917
    )Accrued expenses
    
    
    (211,001
    )Total
    
    $
    5,733,419
 Acquisition of Par Pest Control, Inc. D/B/A Paragon Termite & Pest Control (Paragon)
  Acquisition of Pestec Pest Control, Inc. (Pestec)
  Acquisition of Ron Fee, Inc. (Ron Fee)
    Good will
    
    $
    3,348,432Customer list
    
    
    1,554,000Accounts receivable
    
    
    235,000Inventory
    
    
    91,000Fixed assets
    
    
    440,000Accounts payable
    
    
    (92,432
    )Customer deposits
    
    
    (22,000
    )Notes payableautos
    
    
    (29,000
    )Total
    
    $
    5,525,000
  Acquisition of Archer Exterminators, Inc. (Archer)
  12




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Good will
    
    $
    2,660,622Customer list
    
    
    1,110,000Accounts receivable
    
    
    33,318Inventory
    
    
    3,500Fixed assets
    
    
    146,127Prepaid Expenses
    
    
    215,178Deferred Revenue
    
    
    (677,539
    )Customer deposits
    
    
    (40,806
    )Total
    
    $
    3,450,400
 Pro-Forma Results of Operations
  Nine months ended June 30,2007
    
    2006Revenues
    
    $
    50,795,203
    
    
    $
    44,721,631Net  income (loss)
    
    
    (201,393
    )
    
    
    (771,450
    )Net  income (loss) per share:Basic
    
    
    (.02
    )
    
    
    (.06
    )Diluted
    
    
    (.02
    )
    
    
    (.06
    )
 4. Inventories
 Inventories consist of the following:
 June 30,
    
    
    September 30,2007
    
    
    2006Materials
    
    $
    1,875,846
    
    
    $
    1,430,453Work-in-process
    
    
    188,364
    
    
    
    170,491Finished goods
    
    
    639,652
    
    
    
    727,261$
    2,703,862
    
    
    $
    2,328,205
  5. Income per Common Share
  6. Preferred Stock
  7. Revolving Line of Credit
  13




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8. Notes Payable












9. Stock Options








WeightedNumber of
    
    
    AverageShares
    
    
    Exercise PriceBalances, beginning of period
    
    
    665,054
    
    
    $
    8.00Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Cancelled
    
    
    (20,000
    )
    
    $
    4.79Balances, end of period
    
    
    645,054
    
    
    $
    8.10 14




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Options Outstanding
    
    Options ExercisableExercise
    
    
    
    
    
    Weighted Average
    
    Weighted AveragePrice
    
    Number Outstanding
    
    Remaining Life
    
    Exercise Price
    
    Number Exercisable$
3.23
    
    
    35,000
    
    
    
    8
    
    
    $
    3.23
    
    
    
    8,750$4.79
    
    
    40,000
    
    
    
    3
    
    
    $
    4.79
    
    
    
    40,000$5.00
    
    
    166,667
    
    
    
    6
    
    
    $
    5.00
    
    
    
    83,334$5.35
    
    
    20,000
    
    
    
    7.5
    
    
    $
    5.35
    
    
    
    20,000$5.60
    
    
    90,000
    
    
    
    6.5
    
    
    $
    5.60
    
    
    
    56,250$6.09
    
    
    17,500
    
    
    
    7.5
    
    
    $
    6.09
    
    
    
    4,375$13.78
    
    
    94,962
    
    
    
    1
    
    
    $
    13.78
    
    
    
    94,962$11.40
    
    
    180,925
    
    
    
    7
    
    
    $
    11.40
    
    
    
    90,463645,054
    
    
    
    
    
    
    
    
    
    
    
    398,134
 Fair Value
    10. Segment Information
   2007
    
    
    2006Net revenues:Lawn and pest control services
    
    $
    39,186,678
    
    
    $
    33,157,360Telephone communications
    
    
    10,119,735
    
    
    
    2,917,314Total net revenues
    
    $
    49,306,413
    
    
    $
    36,074,674Operating income (loss):Lawn and pest control services
    
    $
    3,469,340
    
    
    $
    2,427,224Telephone communications
    
    
    658,758
    
    
    
    (813,489
    )Unallocated Company expenses
    
    
    (4,807,405
    )
    
    
    (4,217,910
    )Total operating loss
    
    $
    (679,307
    )
    
    $
    (2,604,175
    )
 15




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11. Discontinued Operations
      2007
    
    
    2006High Frequency Radio
    
    $
    
    
    
    $
    463,047Percipia, Inc.
    
    
    (1,012,892
    )
    
    
    15,824Pre-tax income (loss) from discontinued operations
    
    
    (1,012,892
    )
    
    
    478,871Income tax (Provision) Benefit
    
    
    372,759
    
    
    
    (174,244
    )Income (Loss) from discontinued operations, net of income tax effect
    
    
    (640,133
    )
    
    
    304,627Gain on sale
of assets from discontinued operations
    
    
    2,182,902
    
    
    
    Income tax Provision
    
    
    (821,426
    )
    
    
    Gain on sale of assets from discontinued operations net of income tax effect
    
    
    1,361,476
    
    
    
    
 12. Subsequent Event
  16




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##### Table of Contents



Item 2. Managements Discussion And Analysis of Financial Condition and Results of Operations
 Cautionary Statement Regarding Forward Looking Information:
  Overview:
    Acquisitions:
 
    
    June 2005 we acquired the issued and outstanding stock of Middleton Pest Control,
Inc., our platform company, a leading provider of lawn and pest control services in
Florida.
    
    July 2005 we acquired substantially all the assets of Four Seasons Lawn and Pest
Control, Inc.
    
    December 2005 we acquired substantially all the assets of Spa Creek Services, LLC,
D/B/A Pest Environmental Services, Inc.
    
    January 2006 we acquired substantially all the assets of Par Pest Control, Inc.
    
    February 2006 we acquired substantially all the assets of Pestec Pest Control, Inc.
    
    March 2006 we acquired substantially all the assets of Ron Fee, Inc.
    
    December 2006 we acquired substantially all the assets of Archer Exterminators, Inc.
    
    April 2007 we acquired substantially all the assets of David Burke, Inc., D/B/A
Florida Exterminating
    
    May 2007 we acquired substantially all the assets of Summer Rain Fertilization
Company
 Dispositions:
 
    
    September 2006 we sold substantially all the assets of Sunair Electronics, Inc. our
high frequency radio business
    
    November 2006 we sold real estate associated with the previously sold high
frequency radio business
    
    August 1, 2007 we sold all the issued and outstanding stock of Percipia, Inc., a
wholly owned subsidiary operating in our Telephone Communications business segment
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##### Table of Contents



Results of Operations:
 Continuing Operations:
 Revenues:
      Gross Margins:
   18




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##### Table of Contents



Selling, General and Administrative Expenses (SG&A):
     Interest Expense (net):
  Discontinued Operations:
   19




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##### Table of Contents



2007
    
    
    2006High Frequency Radio
    
    $
    
    
    
    $
    463,047Percipia, Inc.
    
    
    (1,012,892
    )
    
    
    15,824Pre-tax income (loss) from discontinued operations
    
    
    (1,012,892
    )
    
    
    478,871Income tax (Provision)
Benefit
    
    
    372,759
    
    
    
    (174,244
    )Income (Loss) from discontinued operations, net
of income tax effect
    
    
    (640,133
    )
    
    
    304,627Gain on sale
of assets from discontinued operations
    
    
    2,182,902
    
    
    
    Income tax Provision
    
    
    (821,426
    )
    
    
    Gain on sale of assets from discontinued operations net of income tax effect
    
    $
    1,361,476
    
    
    $
    
 Net Income:
   Liquidity:
     20




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##### Table of Contents



Capital Resources:
     
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
    21




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Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures.
  Changes in internal control over financial reporting.
  
 PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 31.1
    
    Certification by Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 200231.2
    
    Certification by Interim Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification by Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 200232.2
    
    Certification by Interim Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
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##### Table of Contents



SIGNATURES
  SUNAIR SERVICES CORPORATIONDate: August 14, 2007
    
    
    
    /s/ JOHN J. HAYESJohn J. HayesPresident and Chief Executive OfficerDate: August 14, 2007
    
    
    
    /s/ EDWARD M. CARRIERO, JR.Edward M. Carriero, Jr.Interim Chief Financial Officer
 23