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 MARCH 31, 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                  03/31/98 - 3,857,370 SHARES


<PAGE>

                    SUNAIR ELECTRONICS, INC. AND SUBSIDIARY

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

        CONSOLIDATED CONDENSED BALANCE SHEETS - -
                MARCH 31, 1998 AND SEPTEMBER 30, 1997              3

        CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
                SIX MONTHS ENDED MARCH 31, 1998 AND 1997.          4

        CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
                THREE MONTHS ENDED MARCH 31, 1998 AND 1997         5

        CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
                SIX MONTHS ENDED MARCH 31, 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                                         03/31/98      9/30/97
    ------                                        ----------   ----------
    CURRENT ASSETS:
       CASH AND CASH EQUIVALENTS                 $ 1,498,549   $ 1,511,013
       ACCOUNTS AND NOTES RECEIVABLE                 971,890       430,294
       INVENTORIES                                 6,851,717     7,590,906
       PREPAID EXPENSES AND OTHER
        CURRENT ASSETS                                58,266        55,863
                                                 -----------   -----------
          TOTAL CURRENT ASSETS                     9,380,422     9,588,076
                                                 -----------   -----------

    INVESTMENT IN MARKETABLE SECURITIES            3,146,088     3,160,423
    -----------------------------------
    PROPERTY, PLANT AND EQUIPMENT-NET                997,413       915,277
    ---------------------------------

    TOTAL ASSETS                                 $13,523,923   $13,663,776
    ============                                 ===========   ===========

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

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

       ACCOUNTS PAYABLE AND ACCRUED EXPENSES     $   348,847   $   304,980
       CURRENT PORTION OF CAPITALIZED LEASE           18,253        24,585
       CURRENT PORTION OF INCOME TAXES PAYABLE        16,214        29,614
                                                 -----------   -----------
          TOTAL CURRENT LIABILITIES                  383,314       359,179
                                                 -----------   -----------

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

       LONG-TERM PORTION OF CAPITAL LEASE                  0         8,178
       LONG-TERM PORTION OF INCOME TAXES PAYABLE     828,900       860,000
                                                 -----------   -----------

          TOTAL LONG-TERM LIABILITIES                828,900       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,
          3,857,370 SHARES ISSUED AND
          OUTSTANDING                                385,737       393,237
       ADDITIONAL PAID-IN-CAPITAL                  2,606,899     2,606,899
       RETAINED EARNINGS                           9,319,073     9,436,283
                                                 -----------   -----------
                                                  12,311,709    12,436,419

    TOTAL LIABILITIES & SHAREHOLDERS' EQUITY     $13,523,923   $13,663,776
    ========================================     ===========   ===========

                                      -3-
<PAGE>
                   CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                                   (UNAUDITED)

                                                       SIX MONTHS ENDED
                                                       ----------------
                                                    3/31/98       3/31/97
                                                  ----------   -----------
    SALES                                         $2,369,173    $1,002,860
    COST OF SALES                                  1,739,652       700,298
                                                 -----------   -----------

    GROSS PROFIT                                     629,521       302,562
    SELLING, GENERAL & ADMINISTRATIVE EXPENSES       601,414       769,218
                                                 -----------   -----------
    OPERATING INCOME                                  28,107     ( 466,656)
    OTHER INCOME:
       INTEREST INCOME                               126,599       120,642
       INTEREST EXPENSE                            (   1,831)    (   2,028)
       OTHER, NET                                      3,432         2,123
                                                 -----------   -----------

    INCOME BEFORE PROVISION
     (BENEFIT) FOR INCOME TAXES                      156,307     ( 345,919)

    PROVISION (BENEFIT) FOR
     INCOME TAXES                                     48,500     ( 127,100)
                                                 -----------   -----------

    NET INCOME                                    $  107,807    $( 218,819)
                                                  ==========    ==========

    WEIGHTED AVERAGE NUMBER OF COMMON              3,895,310     3,932,370
    SHARES OUTSTANDING
    NET INCOME PER SHARE (BASIC AND DILUTED)      $     0.03    $    (0.06)
                                                  ==========    ==========


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

                                                      THREE MONTHS ENDED
                                                      ------------------
                                                    3/31/98       3/31/97
                                                    -------       -------

    SALES                                         $1,221,003    $  540,279
    COST OF SALES                                    912,356       369,565
                                                  ----------    ----------
    GROSS PROFIT                                     308,647       170,714
    SELLING, GENERAL & ADMINISTRATIVE EXPENSES       313,934       402,343
                                                  ----------    ----------

    OPERATING INCOME                               (   5,287)    ( 231,629)
    OTHER INCOME:
       INTEREST INCOME                                63,181        58,975
       INTEREST EXPENSE                            (   1,451)    (     933)
       OTHER, NET                                      2,027           594
                                                  ----------    ----------

    INCOME BEFORE PROVISION
     (BENEFIT) FOR INCOME TAXES                       58,470     ( 172,993)

    PROVISION (BENEFIT) FOR
     INCOME TAXES                                     17,100     (  60,500)
                                                  ----------    ----------


    NET INCOME                                    $   41,370    $( 112,493)
                                                  ==========    ==========

    WEIGHTED AVERAGE NUMBER OF COMMON SHARES
     OUTSTANDING                                   3,861,314     3,932,370
    NET INCOME PER SHARE (BASIC AND DILUTED)      $     0.01    $    (0.03)
                                                  ==========    ==========

                                       -5-
<PAGE>
                 CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
                                  (UNAUDITED)

                                                      SIX MONTHS ENDED
                                                      ----------------
                                                   3/31/98           3/31/97
                                                   -------           --------
    CASH FLOWS FROM OPERATING ACTIVITIES:
    NET INCOME (LOSS)                                $   107,807   $(  218,819)
    ADJUSTMENTS TO RECONCILE NET INCOME TO
     NET CASH PROVIDED BY OPERATING ACTIVITIES
        DEPRECIATION AND AMORTIZATION                     46,439        52,605
        CHANGES IN OPERATING ACTIVITIES:
                (INCR) DECR IN ACCOUNTS RECEIVABLE    (  541,597)   (  136,936)
          (INCR) DECR IN INVENTORY                       739,189    (  382,246)
          (INCR) DECR IN OTHER ASSETS                 (    2,403)   (    4,233)
          (DECR) INCR IN ACCOUNTS PAYABLE AND
                 ACCRUED EXPENSES                         43,867       119,345
          (DECR) INCR IN  ACCRUED INCOME TAX          (   44,500)   (  127,100)
                                                     -----------   -----------
    NET CASH PROVIDED (USED) BY
    OPERATING ACTIVITIES                                 348,802    (  697,384)
                                                     -----------   -----------

    CASH FLOWS FROM INVESTING ACTIVITIES:
    PURCHASE OF PROPERTY, PLANT & EQUIPMENT           (  128,575)   (    2,339)
    SALES OF INVESTMENTS - NET                            14,335             0
                                                     -----------   -----------

    NET CASH FROM (USED BY)
    INVESTING ACTIVITIES                              (  114,240)   (    2,339)
                                                     -----------   -----------
    CASH FLOWS FROM FINANCING ACTIVITIES:
    PURCHASE OF OUTSTANDING SHARES                    (  232,516)            0
    PRINCIPAL PAYMENT OF CAPITAL LEASE                (   14,510)   (   11,518)
                                                     -----------   -----------
                                                      (  247,026)   (   11,518)

    NET (DECREASE) IN CASH                            (   12,464)   (  711,241)
    CASH AT BEGINNING OF PERIOD                        1,511,013     1,721,839
                                                     -----------   -----------


    CASH AT END OF PERIOD                            $ 1,498,549   $ 1,010,598
                                                    ============  ============

    SUPPLEMENTAL CASH FLOW INFORMATION:
       CASH PAID DURING THE PERIOD                   $     1,231   $         0
          FOR INTEREST                              ============  ============
       CASH PAID DURING THE PERIOD FOR INCOME
          TAXES                                      $    30,000   $         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 SIX MONTHS ENDED MARCH 31, 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:
                                                    3/31/98      9/30/97
                                                  ----------    ----------
                  RAW MATERIALS                   $1,675,890    $1,695,962
                  WORK IN PROCESS                  4,057,078     4,109,569
                  FINISHED GOODS                   1,118,749     1,785,375
                                                  ----------    ----------
                                                  $6,851,717    $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 SIX MONTHS OF THE CURRENT FISCAL YEAR ENDING MARCH 31,
        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 SIX MONTH PERIOD, CASH AND SHORT TERM
        INVESTMENTS MAINTAINED AN AVERAGE BALANCE OF $1,248,000, 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 SIX MONTHS OF THE CURRENT FISCAL YEAR, THE COMPANY
        EXPENDED $128,575 FOR CAPITAL ASSETS. NO EXPENDITURES ARE CONTEMPLATED
        FOR PLANT EXPANSION OR EXTENSIVE MAINTENANCE. THE COMPANY HAS NO LONG
        TERM DEBT AND NONE IS CONTEMPLATED OTHER THAN THE LEASE OF THE COMPUTER.
        LIABILITIES CONSIST OF CURRENT ACCOUNTS PAYABLE AND EXPENSES RELATED TO
        THE CURRENT ACCOUNTING PERIOD AND THE CAPITAL LEASE.

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

        DURING THE SECOND QUARTER OF THE CURRENT FISCAL YEAR ENDED MARCH 31,
        1998, SHIPMENTS WERE $1,221,003 UP FROM $1,148,170 FOR THE QUARTER ENDED
        DECEMBER 31, 1997. SHIPMENTS FOR THE SIX MONTHS ENDED MARCH 31, 1998
        WERE $2,369,173, UP FROM $1,002,860, OR 136.2% FOR THE SAME PERIOD ONE
        YEAR AGO AND UP $368,801 OR 18.4% FROM THE SIX MONTHS ENDED MARCH 31,
        1996. EXPORT SHIPMENTS FOR THE SIX MONTHS ENDED MARCH 31, 1998 WERE
        $552,217 OR 23.3% OF TOTAL SALES, UP $138,171 OR 33.4% FROM THE SAME
        PERIOD ONE YEAR AGO. DOMESTIC SHIPMENTS FOR THE FIRST SIX MONTHS OF THE
        CURRENT FISCAL YEAR WERE $1,816,956 OR 208.6% AHEAD OF SHIPMENTS FOR THE
        SAME PERIOD ONE YEAR AGO OF $588,814.


                                      -10-
<PAGE>

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

        SHIPMENTS FOR THE FIRST 6 MONTHS WERE 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 MARCH 31, 1998 WAS $426,000.
        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. NEW MARKET OPPORTUNITIES ARE BEING PURSUED IN CENTRAL AMERICA AND
        OTHER GEOGRAPHIC AREAS NOT COVERED PREVIOUSLY AND THE COMPANY IS
        OPTIMISTIC FOR INCREASED BUSINESS FOR THESE AREAS.

        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 $167,804 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.

        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.


                                      -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.


                                                /S/ ROBERT URICHO, JR.
DATE  MAY 12, 1998                              -----------------------------
                                                ROBERT URICHO, JR., PRINCIPAL
                                                EXECUTIVE OFFICER


                                                /S/ SYNNOTT B. DURHAM
DATE  MAY 12, 1998                              -----------------------------
                                                SYNNOTT B. DURHAM, PRINCIPAL
                                                ACCOUNTING OFFICER



                                      -13-