UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

                   QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

FOR QUARTER ENDED JUNE 30, 1998                COMMISSION FILE NUMBER 1-4334
                  **************                               *************

                            SUNAIR ELECTRONICS, INC.
********************************************************************************
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            FLORIDA                                     59-0780772
***************************************            ************************
   (STATE OR OTHER JURISDICTION                      (I.R.S. EMPLOYER  
 OF INCORPORATION OR ORGANIZATION)                   IDENTIFICATION NO.)        


3101 SW THIRD AVE., FT. LAUDERDALE, FLA.                     33315
****************************************                 **************
(ADDRESS OR PRINCIPAL EXECUTIVE OFFICE)                   (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE       (954) 525-1505
                                                          **************

                                      NONE
********************************************************************************
      (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE
                                  LAST REPORT)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1)HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES ( X )       NO  (   )


INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THE REPORT.

           CLASS                                     OUTSTANDING AT
*****************************                 ****************************
COMMON STOCK, $0.10 PAR VALUE                  06/30/98 - 3,776,270 SHARES


<PAGE>
                     SUNAIR ELECTRONICS, INC. AND SUBSIDIARY

                                      INDEX
                                      *****
                                                                       PAGE NO.
                                                                       ********
       PART I.   FINANCIAL INFORMATION:

             CONSOLIDATED CONDENSED BALANCE SHEETS - -
                      JUNE 30, 1998 AND SEPTEMBER 30, 1997               3

             CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
                      NINE MONTHS ENDED JUNE 30, 1998 AND 1997.          4

             CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
                      THREE MONTHS ENDED JUNE 30, 1998 AND 1997          5

             CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
                      NINE MONTHS ENDED JUNE 30, 1998 AND 1997           6

             NOTES TO CONSOLIDATED CONDENSED FINANCIAL
                      STATEMENTS                                        7-9

             MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
                      CONSOLIDATED CONDENSED STATEMENTS               10 -11

       PART II.  OTHER INFORMATION                                      12

                                      -2-
<PAGE>
                          PART I. FINANCIAL INFORMATION

                     SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                                   (UNAUDITED)

    ASSETS                                         06/30/98      9/30/97
    ------                                         --------      -------

    CURRENT ASSETS:
    ---------------
       CASH AND CASH EQUIVALENTS                 $ 1,274,323   $ 1,511,013
       ACCOUNTS AND NOTES RECEIVABLE                 523,620       430,294
       INVENTORIES                                 6,995,263     7,590,906
       PREPAID EXPENSES AND OTHER
        CURRENT ASSETS                                79,204        55,863
                                                 -----------   -----------

          TOTAL CURRENT ASSETS                     8,872,410     9,588,076
                                                 -----------   -----------

    INVESTMENT IN MARKETABLE SECURITIES            3,138,921     3,160,423
    -----------------------------------                                   

    PROPERTY, PLANT AND EQUIPMENT-NET                987,671       915,277
    ---------------------------------                                     


    TOTAL ASSETS                                 $12,999,002   $13,663,776
    ============                                 ===========   ===========


    LIABILITIES & SHAREHOLDERS' EQUITY
    ----------------------------------

    CURRENT LIABILITIES:
    --------------------

       ACCOUNTS PAYABLE AND ACCRUED EXPENSES     $   228,424   $   304,980
       CURRENT PORTION OF CAPITALIZED LEASE           14,015        24,585
       CURRENT PORTION OF INCOME TAXES PAYABLE         1,214        29,614
                                                 -----------   -----------

          TOTAL CURRENT LIABILITIES                  243,653       359,179
                                                 -----------   -----------

    LONG-TERM LIABILITIES:
    ----------------------

       LONG-TERM PORTION OF CAPITAL LEASE                  0         8,178
       LONG-TERM PORTION OF INCOME TAXES PAYABLE     766,700       860,000
                                                 -----------   -----------

          TOTAL LONG-TERM LIABILITIES                766,700       868,178
                                                 -----------   -----------


    STOCKHOLDERS' EQUITY
    --------------------
       PREFERRED STOCK, NO PAR VALUE,
          500,000 SHARES AUTHORIZED,
          NO SHARES ISSUED                                 0             0
       COMMON STOCK, $.10 PAR VALUE,
          6,000,000 SHARES AUTHORIZED,
          3,776,270 and 3,932,370 SHARES ISSUED
          and Outstanding at 6/30/98 and 
          9/30/97 respectively                       377,627       393,237
       ADDITIONAL PAID-IN-CAPITAL                  2,606,899     2,606,899
       RETAINED EARNINGS                           9,004,123     9,436,283
                                                ------------   -----------
                                                  11,988,649    12,436,419

    TOTAL LIABILITIES & SHAREHOLDERS' EQUITY     $12,999,002   $13,663,776
    ========================================     ===========   ===========

                                      -3-

<PAGE>
                   CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                                   (UNAUDITED)


                                                     NINE MONTHS ENDED
                                                     -----------------
                                                   06/30/98       6/30/97
                                                   --------       -------

    SALES                                         $2,929,164    $2,891,983
    COST OF SALES                                  2,130,156     1,950,418
                                                  ----------    ----------

    GROSS PROFIT                                     799,008       941,565
    SELLING, GENERAL & ADMINISTRATIVE EXPENSES       958,544     1,079,309
                                                  ----------    ----------

    OPERATING Loss                                 ( 159,536)    ( 137,744)
    OTHER INCOME:
       INTEREST INCOME                               188,434       177,642
       INTEREST EXPENSE                            (   1,491)    (   2,848)
       OTHER, NET                                      5,486         2,953
                                                  ----------    ----------

    INCOME BEFORE PROVISION
    FOR INCOME TAXES                                  32,893        40,003

    PROVISION FOR
     INCOME TAXES                                      1,300         3,200
                                                  ----------    ----------


    NET INCOME                                    $   31,593    $   36,803
                                                  ==========    ==========

    WEIGHTED AVERAGE NUMBER OF COMMON              3,869,414     3,932,370
    SHARES OUTSTANDING
    NET INCOME PER SHARE (BASIC AND DILUTED)      $     0.01    $     0.01
                                                  ==========    ==========

                                      -4-
<PAGE>
                   CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                                  (UNAUDITED)

                                                     THREE MONTHS ENDED
                                                     ------------------
                                                   06/30/98      06/30/97
                                                   --------      --------

    SALES                                         $  559,991    $1,889,123
    COST OF SALES                                    390,504     1,250,120
                                                  ----------    ----------

    GROSS PROFIT                                     169,487       639,003
    SELLING, GENERAL & ADMINISTRATIVE EXPENSES       357,130       310,091
                                                  ----------    ----------

    OPERATING INCOME (LOSS)                        ( 187,643)      328,912
    OTHER INCOME:
       INTEREST INCOME                                61,835        57,000
       INTEREST EXPENSE                                  340     (     820)
       OTHER, NET                                      2,054           830
                                                  -----------    ---------

    INCOME BEFORE PROVISION
     (BENEFIT) FOR INCOME TAXES                    ( 123,414)      385,922

    PROVISION (BENEFIT) FOR
     INCOME TAXES                                  (  47,200)      130,300
                                                  ----------    ----------


    NET INCOME (LOSS)                             $(  76,214)   $  255,622
                                                  ==========    ==========

    WEIGHTED AVERAGE NUMBER OF COMMON SHARES
     OUTSTANDING                                   3,817,622     3,932,370
    NET INCOME PER SHARE (BASIC AND DILUTED)      $    (0.02)   $     0.07
                                                  ==========    ==========


                                      -5-

<PAGE>
                 CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)

                                                     NINE MONTHS ENDED
                                                     -----------------
                                                   06/30/98      06/30/97
                                                   --------      --------

    CASH FLOWS FROM OPERATING ACTIVITIES:
    NET INCOME (LOSS)                           $    31,593   $    36,803
    ADJUSTMENTS TO RECONCILE NET INCOME TO
     NET CASH PROVIDED BY OPERATING ACTIVITIES
        DEPRECIATION AND AMORTIZATION                68,398        75,579
        CHANGES IN OPERATING ACTIVITIES:
          (INCR) ACCOUNTS RECEIVABLE             (   93,326)   (1,119,778)
          DECR IN INVENTORY                         595,643       237,291
          (INCR) DECR IN OTHER ASSETS            (   23,339)       72,157
          (DECR) INCR IN ACCOUNTS PAYABLE AND
                 ACCRUED EXPENSES                (   76,559)   (   39,616)
          (DECR) INCR IN  ACCRUED INCOME TAX     (  121,700)   (    3,200)
                                                -----------    ---------- 

    NET CASH PROVIDED (USED) BY
    OPERATING ACTIVITIES                            380,710    (  734,364)
                                                -----------    ---------- 

    CASH FLOWS FROM INVESTING ACTIVITIES:
    PURCHASE OF PROPERTY, PLANT & EQUIPMENT      (  140,792)   (    8,798)
    SALES OF INVESTMENTS - NET                       21,502            0
                                                -----------    ----------

    NET CASH  USED BY
    INVESTING ACTIVITIES                         (  119,290)   (    8,798)
                                                -----------    ---------- 

    CASH FLOWS FROM FINANCING ACTIVITIES:
    PURCHASE OF OUTSTANDING SHARES               (  479,362)            0
    PRINCIPAL PAYMENT OF CAPITAL LEASE           (   18,748)   (   17,444)
                                                -----------    ---------- 
    NET CASH USED BY FINANCING ACTIVITIES:       (  498,110)   (   17,444)

    NET (DECREASE) IN CASH                        (236,690)    (  760,606)
    CASH AT BEGINNING OF PERIOD                   1,511,013     1,721,839
                                                -----------    ----------


    CASH AT END OF PERIOD                       $ 1,274,323   $   961,233
                                                ===========    ==========

    SUPPLEMENTAL CASH FLOW INFORMATION:
       CASH PAID DURING THE PERIOD              $     1,491   $         0
          FOR INTEREST                          ============  ===========
       CASH PAID DURING THE PERIOD FOR INCOME
          TAXES                                 $   118,000   $         0
                                                ============  ===========

                                      -6-
<PAGE>
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

    1.  BASIS OF PRESENTATION
        THE ACCOMPANYING UNAUDITED FINANCIAL STATEMENTS HAVE BEEN
        PREPARED IN ACCORDANCE WITH THE INSTRUCTIONS TO FORM 10-Q AND DO
        NOT INCLUDE ALL OF THE INFORMATION AND FOOTNOTES REQUIRED BY
        GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR COMPLETE FINANCIAL
        STATEMENTS. IN THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS
        (CONSISTING OF NORMAL RECURRING ACCRUALS) CONSIDERED NECESSARY
        FOR A FAIR PRESENTATION HAVE BEEN INCLUDED. OPERATING RESULTS FOR
        THE NINE MONTHS ENDED JUNE 30, 1998 ARE NOT NECESSARILY
        INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR THE FISCAL
        YEAR ENDING SEPTEMBER 30,1998. FOR FURTHER INFORMATION REFER TO
        THE CONSOLIDATED FINANCIAL STATEMENTS AND FOOTNOTES THERETO
        INCLUDED IN THE COMPANY'S ANNUAL REPORT IN FORM 10-K FOR THE
        FISCAL YEAR ENDED SEPTEMBER 30, 1997.

    2.  ACCOUNTING POLICIES

    (A) PRINCIPLES OF CONSOLIDATION-
        THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS INCLUDE THE
        ACCOUNTS OF THE COMPANY AND ITS SUBSIDIARY. ALL SIGNIFICANT
        INTER-COMPANY ACCOUNTS AND TRANSACTIONS HAVE BEEN ELIMINATED IN
        CONSOLIDATION.

    (B) PROPERTY, PLANT AND EQUIPMENT-
        PROPERTY, PLANT AND EQUIPMENT IS DEPRECIATED OVER THE ESTIMATED
        USEFUL LIVES OF THE ASSETS USING BOTH STRAIGHT-LINE AND ACCELERATED
        METHODS.

    (C) RESEARCH AND DEVELOPMENT COSTS-
        ALL RESEARCH AND DEVELOPMENT COSTS ARE CHARGED TO EXPENSE AS
        INCURRED.

    (D) EARNINGS PER COMMON SHARE-
        EARNINGS PER COMMON SHARE ARE COMPUTED BASED ON WEIGHTED AVERAGE NUMBER
        OF SHARES OUTSTANDING DURING EACH PERIOD.

    (E) INVENTORIES-
        INVENTORIES CONSIST OF THE FOLLOWING:
                                                    06/30/98      9/30/97
                                                  ----------    ---------
                  RAW MATERIALS                   $1,650,488    $1,695,962
                  WORK IN PROCESS                  4,244,790     4,109,569
                  FINISHED GOODS                   1,099,985     1,785,375
                                                  ----------    ----------
                                                  $6,995,263    $7,590,906
                                                  ==========    ==========
    (F) INVESTMENTS -

        INVESTMENTS INCLUDE PRIVATE EXPORT FUNDING CORPORATION (PEFCO) NOTES.
        THESE NOTES ARE GUARANTEED BY THE EXPORT-IMPORT BANK OF THE UNITED
        STATES, AN AGENCY OF THE UNITED STATES. THE COMPANY HAS CLASSIFIED THESE
        SECURITIES AS "HELD-TO-MATURITY" SECURITIES, IN ACCORDANCE WITH
        STATEMENT OF FINANCIAL ACCOUNTING STANDARDS

                                      -7-
<PAGE>

        (SFAS) NO. 115, "ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
        SECURITIES". HELD-TO-MATURITY SECURITIES ARE RECORDED AT AMORTIZED COST.
        AMORTIZATION OF RELATED DISCOUNTS OR PREMIUMS IS INCLUDED IN THE
        DETERMINATION OF NET INCOME.

    3.  INCOME TAXES:

        DURING 1995, IT WAS DETERMINED THAT CONTINUED OPERATIONS OF ITS INTEREST
        CHARGE-DOMESTIC INTERNATIONAL SALES CORPORATION (IC-DISC) SUBSIDIARY'S
        ELECTION WAS NO LONGER ADVANTAGEOUS TO THE COMPANY. ACCORDINGLY, THE TAX
        ELECTION OF THE SUBSIDIARY WAS DISCONTINUED AND ITS RETAINED EARNINGS OF
        APPROXIMATELY $3,200,000 WERE DISTRIBUTED TO THE COMPANY. REGULATIONS
        PROVIDE FOR THE TAXATION OF SUCH DISTRIBUTION OVER A TEN YEAR PERIOD IN
        EQUAL ANNUAL INCREMENTS OF APPROXIMATELY $320,000 PER YEAR. UPON THE
        ASSUMPTION THE COMPANY'S BUSINESS IS PROFITABLE THROUGHOUT THE REMAINING
        SEVEN YEARS OF THE TEN YEAR PERIOD, EXCLUDING SUCH INCREMENTAL INCOME,
        THE AGGREGATE INCOME TAX PAYABLE AS A CONSEQUENCE OF SUCH DISTRIBUTION
        WILL APPROXIMATE A MAXIMUM OF $860,000. INTEREST WILL NO LONGER ACCRUE
        ON THE UNPAID PORTION OF THE TAX AMOUNT.

    4.  PREFERRED STOCK:

        THE COMPANY HAS 500,000 AUTHORIZED SHARES OF PREFERRED STOCK, NO PAR
        VALUE, THAT MAY BE ISSUED AT SUCH TERMS AND PROVISIONS AS DETERMINED BY
        THE BOARD OF DIRECTORS. NONE ARE OUTSTANDING.

    5.  STOCK OPTIONS:

        AS OF DECEMBER 31, 1997 THE COMPANY HAD AUTHORIZED 100,000 SHARES FOR
        NON-QUALIFIED STOCK OPTIONS. NONE HAVE BEEN ISSUED.

    6.  CHANGES IN ACCOUNTING POLICIES:

        IN FEBRUARY 1997, THE FINANCIAL ACCOUNTING STANDARDS BOARD (THE "FASB")
        ISSUED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS ("SFAS") NO. 128,
        "EARNINGS PER SHARE" ("SFAS 128"). SFAS 128 SIMPLIFIES THE STANDARDS FOR
        COMPUTING EARNINGS PER SHARE AND IS EFFECTIVE FOR FINANCIAL STATEMENTS
        FOR BOTH INTERIM AND ANNUAL PERIODS ENDING AFTER DECEMBER 15, 1997.
        EARLIER APPLICATION IS NOT PERMITTED. THE ADOPTION OF SFAS 128 IS NOT
        EXPECTED TO HAVE A MATERIAL IMPACT ON THE COMPANY'S PREVIOUSLY REPORTED
        EARNINGS PER SHARE.

        IN JUNE 1997, THE FASB ISSUED SFAS NO. 130, "REPORTING COMPREHENSIVE
        INCOME" (SFAS NO. 130"). SFAS NO. 130 ESTABLISHES STANDARDS FOR
        REPORTING AND DISPLAY OF COMPREHENSIVE INCOME AND ITS COMPONENTS IN THE
        FINANCIAL STATEMENTS. SFAS NO. 130 IS EFFECTIVE FOR FISCAL YEARS
        BEGINNING AFTER DECEMBER 15, 1997. RECLASSIFICATION OF FINANCIAL
        STATEMENTS FOR EARLIER PERIODS PROVIDED FOR COMPARATIVE PURPOSES IS
        REQUIRED. SUNAIR IS IN THE PROCESS OF DETERMINING ITS PREFERRED FORMAT.
        THE ADOPTION OF SFAS

                                      -8-
<PAGE>

        NO. 130 WILL HAVE NO IMPACT ON SUNAIR'S CONSOLIDATED RESULTS OF
        OPERATIONS, FINANCIAL POSITION OR CASH FLOWS.

        IN JUNE 1997, THE FASB ISSUED SFAS NO. 131, "DISCLOSURES ABOUT SEGMENTS
        OF AN ENTERPRISE AND RELATED INFORMATION" ("SFAS NO. 131"). SFAS NO. 131
        ESTABLISHED STANDARDS FOR THE WAY THAT PUBLIC BUSINESS ENTERPRISES
        REPORT INFORMATION ABOUT OPERATING SEGMENTS IN ANNUAL FINANCIAL
        STATEMENTS AND REQUIRES THAT THOSE ENTERPRISES REPORT SELECTED
        INFORMATION ABOUT OPERATING SEGMENTS IN INTERIM FINANCIAL REPORTS ISSUED
        TO SHAREHOLDERS. IT ALSO ESTABLISHES STANDARDS FOR RELATED DISCLOSURES
        ABOUT PRODUCTS AND SERVICES, GEOGRAPHIC AREAS, AND MAJOR CUSTOMERS. SFAS
        NO. 131 IS EFFECTIVE FOR FINANCIAL STATEMENTS FOR FISCAL YEARS BEGINNING
        AFTER DECEMBER 15, 1997. FINANCIAL STATEMENT DISCLOSURES FOR PRIOR
        PERIODS ARE REQUIRED TO BE RESTATED. SUNAIR IS IN THE PROCESS OF
        EVALUATING THE DISCLOSURE REQUIREMENTS. THE ADOPTION OF SFAS NO. 131
        WILL HAVE NO IMPACT ON SUNAIR'S CONSOLIDATED RESULTS OF OPERATIONS,
        FINANCIAL POSITION OR CASH FLOWS.

    7.  FINANCIAL INSTRUMENTS:

        THE CARRYING AMOUNTS OF CASH AND CASH EQUIVALENTS, ACCOUNTS
        RECEIVABLE, LOANS PAYABLE, ACCOUNTS PAYABLE AND ACCRUED INCOME
        TAXES PAYABLE APPROXIMATE FAIR VALUE DUE TO THE SHORT MATURITY OF
        THE INSTRUMENTS AND RESERVES FOR POTENTIAL LOSSES, AS APPLICABLE.


                                      -9-

<PAGE>
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS

        LIQUIDITY:
        ----------

        DURING THE FIRST NINE MONTHS OF THE CURRENT FISCAL YEAR ENDING JUNE 30,
        1998, THE COMPANY MAINTAINED CASH AND SHORT TERM INVESTMENTS MORE THAN
        ADEQUATE TO COVER KNOWN REQUIREMENTS, UNFORESEEN EVENTS OR UNCERTAINTIES
        THAT MIGHT OCCUR. DURING THE NINE MONTH PERIOD, CASH AND SHORT TERM
        INVESTMENTS MAINTAINED AN AVERAGE BALANCE OF $1,361,000, COMPARED TO AN
        AVERAGE BALANCE OF $1,277,000 FOR THE TWELVE MONTHS ENDED SEPTEMBER
        30,1997 OR AN AVERAGE BALANCE OF $1,626,000 FOR THE TWELVE MONTHS ENDED
        SEPTEMBER 30, 1996. SHORT TERM INVESTMENTS ARE TAX EXEMPT MONEY MARKET
        FUNDS THAT ARE READILY AVAILABLE FOR IMMEDIATE USE SHOULD THE OCCASION
        ARISE. IT IS ANTICIPATED THAT THE COMPANY WILL REMAIN AS LIQUID DURING
        THE REST OF FISCAL 1998. INVENTORIES CONTAIN NO OBSOLESCENCE AS
        ADJUSTMENTS ARE MADE AS THEY OCCUR. ACCOUNTS AND NOTES RECEIVABLE
        CONTAIN NO BAD DEBTS. INTERIM RESERVES ARE MAINTAINED TO COVER
        CANCELLATION CHARGES UNPAID AND ANY FREIGHT CHARGE DISPUTES. ALL
        MONETARY TRANSACTIONS ARE IN U.S. DOLLARS AND NO LETTERS OF CREDIT
        INVOLVE FOREIGN EXCHANGE.

        CAPITAL RESOURCES:
        ------------------

        DURING THE FIRST NINE MONTHS OF THE CURRENT FISCAL YEAR, THE COMPANY
        EXPENDED $140,792 FOR CAPITAL ASSETS. NO EXPENDITURES ARE CONTEMPLATED
        FOR PLANT EXPANSION OR EXTENSIVE MAINTENANCE. THE COMPANY HAS NO LONG
        TERM DEBT AND NONE IS CONTEMPLATED. LIABILITIES CONSIST OF CURRENT
        ACCOUNTS PAYABLE AND EXPENSES RELATED TO THE CURRENT ACCOUNTING PERIOD
        AND THE CAPITAL LEASE.

        RESULTS OF OPERATIONS:
        ----------------------

        DURING THE THIRD QUARTER OF THE CURRENT FISCAL YEAR ENDED JUNE 30, 1998,
        SHIPMENTS WERE $559,991 DOWN FROM $1,221,003 FOR THE QUARTER ENDED MARCH
        31, 1998. SHIPMENTS FOR THE NINE MONTHS ENDED JUNE 30, 1998 WERE
        $2,929,164, UP FROM $2,891,983, OR 1.3% FOR THE SAME PERIOD ONE YEAR AGO
        AND UP $465,797 OR 18.9% FROM THE NINE MONTHS ENDED JUNE 30, 1996.
        EXPORT SHIPMENTS FOR THE NINE MONTHS ENDED JUNE 30, 1998 WERE $807,626
        OR 27.6% OF TOTAL SALES, DOWN $1,054,110 OR 56.6% FROM THE SAME PERIOD
        ONE YEAR AGO. DOMESTIC SHIPMENTS FOR THE FIRST NINE MONTHS OF THE
        CURRENT FISCAL YEAR WERE $2,121,538 OR 105.9% AHEAD OF SHIPMENTS FOR THE
        SAME PERIOD ONE YEAR AGO OF $1,030,247.

                                      -10-

<PAGE>


        RESULTS OF OPERATIONS: (CONTINUED)
        ----------------------

        SHIPMENTS FOR THE FIRST NINE MONTHS WERE SLIGHTLY HIGHER THAN LAST YEAR
        AT THIS TIME DUE TO ORDERS RECEIVED IN THE FOURTH QUARTER OF FISCAL 1997
        WHICH RESULTED IN A BACKLOG AT SEPTEMBER 30, 1997 OF $1,796,000. THE
        BACKLOG FOR THE QUARTER OF FISCAL 1998 ENDED JUNE 30, 1998 WAS $668,000.
        NEGOTIATIONS CONTINUE FOR CONTRACTS WITH BOTH DOMESTIC AND INTERNATIONAL
        CUSTOMERS. THE COMPANY CONTINUES TO BE OPTIMISTIC ABOUT FUTURE
        REQUIREMENTS EVEN THOUGH THE PROCUREMENT CYCLE CONTINUES TO BE EXTREMELY
        LONG DUE TO THE COMPLEXITY OF THE DESIGN OF THE SYSTEM REQUIREMENTS
        EXPERIENCED IN THE MARKET TODAY. NEW MARKET OPPORTUNITIES ARE BEING
        PURSUED IN CENTRAL AND SOUTH AMERICA AND OTHER GEOGRAPHIC AREAS NOT
        COVERED PREVIOUSLY AND THE COMPANY HAS REALIZED SOME BUSINESS FROM THESE
        AREAS AND CONTINUES TO BE OPTIMISTIC FOR INCREASED BUSINESS IN THE
        FUTURE.

        AS DISCUSSED IN OUR REPORT ON FORM 10K FOR FISCAL YEAR ENDED SEPTEMBER
        30, 1997, GMDSS (GLOBAL MARINE DISTRESS AND SAFETY SYSTEM) CAPABILITY
        HAS BEEN ADDED TO OUR PRODUCT LINE TO ADDRESS FUTURE REQUIREMENTS
        MANDATED FOR THE YEAR 1999 AND BEYOND. THIS PRODUCT WAS DEVELOPED BY THE
        COMPANY AT A COST OF APPROXIMATELY $60,000.

        GENERAL AND ADMINISTRATIVE EXPENSES DECREASED $116,765 FROM THE SAME
        PERIOD ONE YEAR AGO DUE TO DECREASED PERSONNEL AND DECREASED R&D
        EXPENSES. THE DIRECT LABOR FORCE CONTINUES AT A REDUCED LEVEL DUE TO
        SUFFICIENT INVENTORY LEVELS IN FINISHED GOODS TO MEET CURRENT
        DELIVERIES.

        THE COMPANY HAS INVESTIGATED THE PENDING YEAR 2000 PROBLEM AND
        DETERMINED THE ISSUE WILL NOT HAVE A MATERIAL IMPACT ON ITS BUSINESS
        OPERATIONS OR ITS FINANCIAL CONDITION. THE COMPANY DOES, HOWEVER, PLAN
        TO REPLACE OLDER SOFTWARE WITH STATE-OF-THE-ART SOFTWARE IN THE YEAR
        1999 FOR MORE EFFICIENT OPERATIONS AND INVENTORY CONTROL. THE COST FOR
        THIS PROJECT IS ESTIMATED AT APPROXIMATELY $75,000.

        THIS QUARTER THE COMPANY BEGAN THE NECESSARY STEPS TO BECOME ISO- 9000
        REGISTERED AND CURRENTLY IS PROCEEDING WITH THE NECESSARY DOCUMENTATION
        AND AUDIT PROCEDURES TO ACCOMPLISH REGISTRATION BY LATE 1998 OR EARLY
        1999.

                                      -11-
<PAGE>

                            PART II OTHER INFORMATION

5.  OTHER INFORMATION

    NONE

6.  EXHIBITS AND REPORTS ON FORM 8-K

    NONE






                                      -12-
<PAGE>


                                   SIGNATURES
                                   ----------



PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.


                                                SUNAIR ELECTRONICS, INC.


                  AUG 11, 1998                  /S/ ROBERT URICHO, JR.
DATE____________________________________        -------------------------------
                                                ROBERT URICHO, JR., PRINCIPAL
                                                EXECUTIVE OFFICER


                  AUG 11, 1998                  /S/ SYNNOTT B. DURHAM
DATE____________________________________        -------------------------------
                                                SYNNOTT B. DURHAM, PRINCIPAL
                                                ACCOUNTING OFFICER



                                      -13-