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) June 7, 2005

SUNAIR ELECTRONICS, INC.

Florida		1-04334		59-0780772
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(I.R.S. Employer 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))

 

 

Section 1 — Registrant’s Business and Operations

Item 1.01. Entry into a Material Definitive Agreement.

This Current Report on Form 8-K/A amends the Form 8-K filed with the Commission on June 10, 2005, relating to the acquisition by Sunair Electronics, Inc. (the “Company”), through its subsidiary, Sunair Southeast Pest Holdings, Inc. (“Sunair Southeast”), of 100% of the issued and outstanding capital stock of Middleton Pest Control, Inc., a Florida corporation (“Middleton”) for an aggregate purchase price of: (i) $35.0 million in cash; (ii) $5.0 million in the form of a subordinated promissory note; and (iii) 1,084,599 shares of the Company’s common stock, in accordance with a stock purchase agreement, dated June 7, 2005, among Sunair Southeast and the selling shareholders of Middleton.

Following the closing of the Middleton acquisition, the Company and the selling shareholders of Middleton determined that the final number of shares of the Company’s common stock to be issued to the selling shareholders of Middleton should be 1,028,807 shares pursuant to the stock purchase agreement, not 1,084,599 shares as previously contemplated. Accordingly, new stock certificates representing an aggregate amount of 1,028,807 shares of the Company’s common stock were issued to the selling shareholders of Middleton, and the original stock certificates representing an aggregate of 1,084,599 shares of the Company’s common stock were cancelled. The newly issued stock certificates bear the restrictive legend contained on the original stock certificates, and are dated June 7, 2005, the date of the closing of the stock purchase agreement.

Section 9 — Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

This Current Report on Form 8-K/A contains the information required by Item 9.01 of Form 8-K relating to the Middleton acquisition.

(a)		Financial Statements of Business Acquired.
		The financial statements of Middleton are attached as Exhibit A to this Current Report on Form 8-K/A.
(b)		Pro Forma Financial Information.
		The pro forma financial information relating to the Middleton acquisition are attached as Exhibit B to this Current Report on Form 8-K/A.

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.

EXHIBIT A

TABLE OF CONTENTS

UNAUDITED FINANCIAL STATEMENTS
Comparative Balance Sheet			1
Comparative Statements of Income and Retained Earnings			2
Comparative Statements of Cash Flows			3
AUDITED FINANCIAL STATEMENTS
Independent Auditor’s Report			4
Comparative Balance Sheet			5-6
Comparative Statement of Income			7
Comparative Statement of Shareholders’ Equity			8
Comparative Statement of Cash Flows			9
Notes to Financial Statements			10

MIDDLETON PEST CONTROL, INC.

COMPARATIVE BALANCE SHEET
MARCH 31, 2005
(Unaudited)

		March 31,				December 31,
		2005				2004
ASSETS
Current Assets:
Cash		$	1,769,171			$	1,245,777
Accounts receivable			1,522,971				1,333,943
Inventory			467,235				492,706
Prepaid expenses and other current assets			626,211				389,104
Total current assets			4,385,588				3,461,530
Property and equipment (net of accumulated
depreciation of $3,680,435)			1,573,705				1,545,621
Other Assets			63,582				59,096
Total Assets		$	6,022,875			$	5,066,247
LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities
Accounts payable		$	839,942			$	412,064
Accrued expenses and other current liabilities			807,848				694,601
Deferred revenues							—
Customer deposits			1,481,435				1,338,229
Current portion of long-term debt			99,232				109,251
Total current liabilities			3,228,457				2,554,145
Long-Term Debt
Notes payable			380,132				396,110
Total Liabilities			3,608,589				2,950,255
Stockholder’s Equity:
Common stock Class A (par value $1.00 per share, 500 shares
authorized, issued and outstanding)			500				500
Additional paid-in capital			23,227				23,227
Retained earnings			2,390,559				2,092,265
Total stockholder’s equity			2,414,286				2,115,992
Total Liabilities and Stockholder’s Equity		$	6,022,875			$	5,066,247

See Independent Auditors’ Report and Notes to the Financial Statements

MIDDLETON PEST CONTROL, INC.

COMPARATIVE STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)

		2005				2004
Revenues		$	7,950,369			$	7,001,890
Cost of revenues			5,454,091				4,458,420
Gross profit			2,496,278				2,543,470
Selling, general and
administrative expenses			1,954,016				1,983,518
Income from operations			542,262				559,952
Other income (expenses):
Gain on disposal of equipment			—				1,500
Interest income			1,773				773
Interest expense			(6,939	)			(2,372	)
Total other expense			(5,166	)			(99	)
NET INCOME			537,096				559,853
Retained earnings, January 1			2,092,265				2,468,423
Shareholder distributions			(238,802	)			(622,095	)
Retained earnings, March 31		$	2,390,559			$	2,406,181

MIDDLETON PEST CONTROL, INC.

COMPARATIVE STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)

		2005				2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	537,096			$	559,853
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation			126,010				107,614
(Increase) decrease in:
Accounts receivable			(189,028	)			(83,714	)
Inventory			25,471				(33,516	)
Prepaid expenses and other current assets			(237,107	)			(189,065	)
Other assets			(4,486	)			11,626
Increase (decrease) in:
Accounts payable			427,878				440,911
Accrued expenses and other current liabilities			113,247				111,883
Deferred revenues			—				(39,574	)
Customer deposits			143,206				270,383
Net cash provided by operating activities			942,287				1,156,401
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment			(154,094	)			(73,222	)
Net cash used in investing activities			(154,094	)			(73,222	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principle payments of notes payable			(25,997	)			(21,203	)
Distributions to shareholders			(238,802	)			(622,095	)
Net cash used in financing activities			(264,799	)			(643,298	)
NET INCREASE IN CASH			523,394				439,881
Cash, January 1			1,245,777				1,807,370
Cash, March 31		$	1,769,171			$	2,247,251
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest		$	6,939			$	2,372
Cash paid during the year for income taxes		$	—			$	—

March 24, 2005

Board of Directors
Middleton Pest Control, Inc.
Orlando, Florida

INDEPENDENT AUDITOR’S REPORT

We have audited the accompanying balance sheets of Middleton Pest Control, Inc. as of December 31, 2004 and 2003, and the related statements of income, retained earnings, and cash flows for the years then ended. 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 audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Middleton Pest Control, Inc., as of December 31, 2004 and 2003, and the results of its activities and cash flows for the years then ended in conformity with generally accepted accounting principles in the United States.

MIDDLETON PEST CONTROL, INC.
COMPARATIVE BALANCE SHEET

		December 31,
		2004				2003
ASSETS
CURRENT ASSETS
Cash		$	1,245,777			$	1,807,370
Accounts receivable			1,333,943				1,090,203
Inventories			492,706				434,842
Employee advances			11,406				10,924
Prepaid expenses			377,698				258,113
Total Current Assets			3,461,530				3,601,452
PROPERTY AND EQUIPMENT
Leasehold and building improvements			540,122				558,536
Equipment			364,976				277,921
Vehicles			2,332,604				2,371,298
Computer equipment			695,102				629,341
Office furniture and equipment			517,543				468,136
In progress fixed assets			649,699				17,034
			5,100,046				4,322,266
Less allowance for depreciation			(3,554,425	)			(3,220,871	)
Net Property and Equipment			1,545,621				1,101,395
OTHER ASSETS
Deposits and other assets			59,096				64,086
Total Other Assets			59,096				64,086
Total Assets		$	5,066,247			$	4,766,933

See accompanying notes to financial statements.

MIDDLETON PEST CONTROL, INC.
COMPARATIVE STATEMENT OF INCOME

		Years Ended December 31,
		2004				2003
Net sales		$	30,164,101			$	25,102,352
Cost of sales			16,892,863				13,862,088
Gross profit			13,271,238				11,240,264
General and administrative expenses			11,219,470				9,752,629
Income from operations			2,051,768				1,487,635
Other income (expense)
Gain on sale of assets			6,000				15,301
Interest income			4,124				2,701
Interest expense			(12,621	)			(12,668	)
Total other income (expense)			(2,497	)			5,334
Net income		$	2,049,271			$	1,492,969

See accompanying notes to financial statements.

MIDDLETON PEST CONTROL, INC.
COMPARATIVE STATEMENT OF SHAREHOLDERS’ EQUITY

		Common				Paid-in				Retained
		Stock				Capital				Earnings
Balance at December 31, 2002		$	500			$	23,227			$	1,255,490
Net Income											1,492,969
Distributions											(280,036	)
Balance at December 31, 2003			500				23,227				2,468,423
Net Income											2,049,271
Distributions											(2,425,429	)
Balance at December 31, 2004		$	500			$	23,227			$	2,092,265

See accompanying notes to financial statements.

MIDDLETON PEST CONTROL, INC.
COMPARATIVE STATEMENT OF CASH FLOWS

		Years Ended December 31,
		2004								2003
OPERATING ACTIVITIES
Net income		$	2,049,271							$	1,492,969
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			469,341								644,022
Gain on sale of assets			(6,000	)							(15,301	)
Changes in operating assets and liabilities:
(Increase) in accounts receivable			(243,740	)							(207,626	)
(Increase) in inventories			(57,864	)							(97,498	)
(Decrease) Increase in prepaid expenses and advances			(120,067	)							36,479
Increase in customer deposits			242,819								63,430
Increase in accounts payable and accrued expenses			258,262								227,539
Decrease (Increase) in deposits and other assets			4,988								(9,899	)
(Decrease) in deferred revenue			(199,033	)							(262,612	)
Net Cash Provided by Operating Activities			2,397,977								1,871,503
INVESTING ACTIVITIES
Purchases of vehicles and equipment			(267,664	)							(281,870	)
Building improvements			(13,828	)							(20,529	)
Purchase of in progress assets			(632,075	)							0
Proceeds from sale of vehicles and equipment			6,000								24,205
Net Cash Used in Investing Activities			(907,567	)							(278,194	)
FINANCING ACTIVITIES
Shareholder distributions			(2,425,429	)							(280,036	)
Borrowings			450,000								0
Payments on short and long-term borrowings			(76,574	)							(93,782	)
Net Cash Used in Financing Activities			(2,052,003	)							(373,818	)
(Decrease) Increase in Cash and Cash Equivalents			(561,593	)							1,219,491
Cash at Beginning of Year			1,807,370								587,879
Cash at End of Year		$	1,245,777							$	1,807,370
Interest paid — see Note B

See accompanying notes to financial statements.

MIDDLETON PEST CONTROL, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE A — SIGNIFICANT ACCOUNTING POLICIES

Middleton Pest Control, Inc. was incorporated in the state of Florida on December 1, 1977. The Company operates sixteen branch locations in the Central Florida area.

Accounts receivable are recorded at net realizable value. Uncollectible accounts are written off in the period in which management deems them to be uncollectible and are immaterial in relation to sales. These accounts are turned over to collection agencies and, if recovered, are credited against bad debts. Receivables are due from customers in the state of Florida.

Inventories are recorded at the lower of cost or market. Cost is determined by the FIFO (first-in, first-out) method.

Cash and cash equivalents are all highly liquid investments with a maturity of three months or less. Some of these cash funds are invested in a tax-exempt money fund which is not insured by the FDIC.

Property and equipment are recorded at cost and depreciated over the estimated useful lives of the assets. Depreciation is computed using the straight-line method as follows:

Vehicles		3 - 5 years
Equipment		5 years
Furniture & Fixtures		5 - 7 years

Effective January 1, 1989, the Company elected to be taxed as a Small Business Corporation under Subchapter S of the Internal Revenue Code. All taxable income is apportioned to the shareholders for inclusion in their individual income tax returns. This election was terminated on June 30, 1994. From July 1, 1994 to February 28, 1998, the corporation was liable for state and federal income taxes on taxable income earned. As of March 1,1998 the corporation has elected to again be S-Corporation (see note D).

MIDDLETON PEST CONTROL, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE B — LONG-TERM DEBT AND LEASES

Long-term debt consists of the following:

		2004				2003
Notes payable to First National Bank of Central Florida. Borrowings are repaid over a 3 to 5 year term. Interest is due at rates ranging from 6.75% to 8.0%. Notes are secured by vehicles.		$	31,032			$	66,760
Note payable to Bank of America payable in 50 monthly installments of $2,522.32 including principal and interest at 6.8%. Note is secured by equipment.			38,491				65,175
Note payable to Bank of America in monthly installments of $5,793.64 including interest at 5.25%. Note is secured by computer equipment and matures 9/29/08.			235,838				0
Note payable to Bank of America in interest only installments of 5.6% Note is secured by office build out and matures 3/29/11.			200,000				0
Less current portion:			(109,251	)			(80,901	)
		$	396,110			$	51,034

     Interest paid in 2004 and 2003 totaled $12,621 and $12,668, respectively.

Maturities of long-term borrowings as of December 31, 2004, are as follows:

2005		$	109,251
2006			70,969
2007			60,219
2008			64,922
2009			0
Thereafter			200,000
		$	505,361

MIDDLETON PEST CONTROL, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE B — LONG-TERM DEBT AND LEASES — CONTINUED

Rental expense for property operating leases amounted to $932,393 and $852,272 in 2004 and 2003, respectively. The Company also leases vehicles over terms ranging from 3 to 5 years. Vehicle lease expense amounted to $1,038,529 and $785,243 in 2004 and 2003 respectively. Payments due under noncancellable operating leases that have initial or remaining terms in excess of one year as of December 31, 2004, are as follows:

						Property Leases				Vehicle Leases				Total
			2005			$	798,881				1,135,027				1,933,908
			2006				653,764				878,608				1,532,372
			2007				591,084				521,453				1,112,537
			2008				561,449				226,275				787,724
			2009				445,595				114,555				560,150
		Thereafter					763,976				72,818				836,794
						$	3,814,749				2,948,736				6,763,485

NOTE C — DEFERRED REVENUE

One of the services offered by Middleton Pest Control is an annual pest control program. The customer pays in advance for one year of service which includes an initial treatment and three subsequent treatments during the year. Deferred revenue represents sales invoiced for which the production has not yet been made. The sales and production are accounted for by branch and adjusted monthly.

NOTE D — INCOME TAXES

Beginning March 1, 1998 the corporation elected to be a small business corporation (S-Corporation). As an S-Corporation the corporate net profit or loss is reported on the shareholders’ individual income tax returns. There is no state or federal income tax liability.

NOTE E — RETIREMENT PLAN

The company matches employee contributions to its 401K plan at a rate of 40%. Contributions for 2004 and 2003 were $122,562 and $71,216 respectively.

EXHIBIT B

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

CONTENTS

		Page
INTRODUCTION TO PRO FORMA FINANCIAL INFORMATION			1
CONSOLIDATING BALANCE SHEET AS OF MARCH 31, 2005			2
CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2005			3
CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004			4
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED			5

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 Middleton Pest Control, Inc.(“Middleton”).

On June 7, 2005 (“Effective Date”), the Registrant, Sunair Electronics, Inc (“Sunair”) completed an acquisition (the “Acquisition”) of all the issued and outstanding common stock of Middleton. The Acquisition was consummated pursuant to the terms and provisions of a Stock Purchase Agreement dated as of June 7, 2005. As a result, Middleton became a wholly owned-subsidiary of Sunair. The consideration paid by Sunair consisted of cash of $35,000,000, 1,028,807 shares of its $.10 par value common stock valued at $10,000,000 based on an average price of $9.72 over the thirty trading days prior to the Acquisition and a promissory note of $5,000,000. Interest due on the note payable is at prime, payable semi-annually. The note matures on June 7, 2010.

The unaudited pro forma condensed combined balance sheet gives effect to the Acquisition as if it had occurred on March 31, 2005. The unaudited pro forma combined statements of operations for the year ended September 30, 2004 and the six months ended March 31, 2005 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 March 31, 2005 or October 1, 2004 or 2003. 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, 2004 and the related notes included in this Current Report on Form 8-K/A.

SUNAIR ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
MARCH 31, 2005

		Sunair and																See Note 3
		Subsidiaries				Middleton				Combined				Pro-forma				Pro-forma				Pro-forma
		Historical				Historical				Total				Adjustments				Adjustments				Combined
ASSETS
Cash		$	1,894,814			$	1,769,171			$	3,663,985			$	10,904,000				1
															(9,149,762	)			2			$	5,418,223
Accounts receivable, net			3,375,073				1,522,971				4,898,044												4,898,044
Interest receivable			10,875								10,875												10,875
Inventory			7,106,299				467,235				7,573,534												7,573,534
Prepaid and other current assets			809,022				626,211				1,435,233												1,435,233
Deferred tax asset			969,000								969,000												969,000
Investments			25,850,238								25,850,238				(25,850,238	)			2				—
Property and equipment, net			660,205				1,573,704				2,233,909												2,233,909
Software costs, net			4,037,384								4,037,384												4,037,384
Customer list															10,500,000				3				10,500,000
Notes receivable			70,604								70,604												70,604
Investment in subsidiary			—								—				53,100,000				2
															(53,100,000	)			3				—
Other assets			(35,183	)			63,582				28,399				96,000				1				124,399
Goodwill			852,683				—				852,683				40,185,714				3				41,038,397
Total Assets		$	45,601,014			$	6,022,874			$	51,623,888			$	26,685,714							$	78,309,602
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable		$	1,131,976			$	839,942			$	1,971,918			$	3,100,000				1			$	5,071,918
Accrued expenses and other liabilities			845,189				807,848				1,653,037				—								1,653,037
Income tax payable			186,950								186,950				261,400				4				448,350
Deferred tax liability			1,368,282								1,368,282												1,368,282
Unearned revenues			100,689								100,689				—								100,689
Customer deposits			—				1,481,435				1,481,435												1,481,435
Bank line of credit			47,000								47,000												47,000
Due to shareholder			22,800								22,800												22,800
Loan from parent			—								—												—
Notes payable and capital leases			23,028				479,363				502,391				11,000,000				1				11,502,391
															5,000,000				2				5,000,000
Total Liabilities			3,725,914				3,608,588				7,334,502				19,361,400								26,695,902
Common stock			901,487				500				901,987				102,881				2
															(500	)			3				1,004,368
Additional paid-in capital			27,612,264				23,227				27,635,491				9,897,119				2
															(23,227	)			3				37,509,383
Retained earnings (deficit)			13,320,818				2,390,559				15,711,377				(2,390,559	)			3
															(261,400	)			4				13,059,418
Translation adjustment			40,531				—				40,531				—								40,531
Total Stockholders’ Equity			41,875,100				2,414,286				44,289,386				7,324,314								51,613,700
Total Liabilities and Stockholders’ Equity		$	45,601,014			$	6,022,874			$	51,623,888			$	26,685,714							$	78,309,602

SUNAIR ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 2005

		Sunair													See Note 3
		Electronics, Inc.				Middleton				Pro-forma					Pro-forma				Pro-forma
		Historical				Historical				Adjustments					Adjustments				Combined
Revenues		$	9,940,320			$	15,669,377			$	—							$	25,609,697
Cost of revenues			5,537,526				10,764,908				—								16,302,434
Gross profit			4,402,794				4,904,469				—								9,307,263
Selling, general and administrative expenses			3,419,467				4,262,344				—								7,681,811
Income from operations			983,327				642,125				—								1,625,452
Other income:			99,980				28,089				—								128,069
Income before provision for income taxes			1,083,307				670,214				—								1,753,521
Provision for income taxes			(347,800	)			—				(261,400	)			4				(609,200	)
NET INCOME		$	735,507			$	670,214			$	—							$	1,144,321
Pro-forma net income per common share
Basic		$	0.14															$	0.18
Diluted		$	0.11															$	0.15
Weighted average of pro-forma shares outstanding:
Basic			5,412,524																6,441,331
Diluted			6,667,402																7,696,209

SUNAIR ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2004

		Sunair													See Note 3
		Electronics, Inc.				Middleton				Pro-forma					Pro-forma				Pro-forma
		Historical				Historical				Adjustments					Adjustments				Combined
Revenues		$	9,885,375			$	28,948,849			$	—							$	38,834,224
Cost of revenues			5,685,222				18,874,447				—								24,559,669
Gross profit			4,200,153				10,074,402				—								14,274,555
Selling, general and administrative expenses			2,747,579				7,755,583				—								10,503,162
Income from operations			1,452,574				2,318,819				—								3,771,393
Other income:			178,001				1,768				—								179,769
Income before provision for income taxes			1,630,575				2,320,587				—								3,951,162
Provision for income taxes			(500,855	)			—				(905,000	)			4				(1,405,855	)
NET INCOME		$	1,129,720			$	2,320,587			$	—							$	2,545,307
Pro-forma net income per common share Basic		$	0.30															$	0.52
Diluted		$	0.29															$	0.51
Weighted average of pro-forma shares outstanding:
Basic			3,830,487																4,859,293
Diluted			3,919,127																4,947,933

SUNAIR ELECTRONICS, INC AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

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

NOTE 2 – STOCK PURCHASE AGREEMENT

     On June 7, 2005, Sunair paid $35,000,000 in cash, gave a promissory note of $5,000,000 and issued an aggregate number of 1,028,807 shares of its $0.10 par value common stock (totaling $10,000,000) in exchange for all of the issued and outstanding shares of Middleton Pest Control, Inc. Sunair also estimated closing costs of approximately $1,700,000 and a charge of approximately $1,400,000 for Middleton’s built-in capital gains tax for a total purchase price of approximately $53,100,000.

     The following table set forth the preliminary allocation of the purchase price to Middleton’s tangible and intangible assets acquired and liabilities assumed as of March 31, 2005

Cash		$	1,769,171
A/R			1,522,971
Inventory			467,235
Prepaid assests			626,211
Fixed assets			1,573,704
Other assets			63,582
Customer list			10,500,000
Goodwill			40,185,714
Accounts payable			(839,942	)
Accrued liabilities			(807,848	)
Customer deposits			(1,481,435	)
Notes payable — vehicles			(26,337	)
Notes payable			(453,026	)
Total		$	53,100,000

NOTE 3 – PRO FORMA ADJUSTMENTS

	1.		To reflect a Bank Line of Credit acquired by Sunair of $11,000,000 less $96,000 in closing costs to complete the acquisition of Middleton.
	2.		Reflects common stock of Sunair issued at $.10 par value and additional paid-in capital as a result of the issuance, the promissory note given and the cash disbursed in connection with the acquisition of Middleton. Also included in the investment and recorded to accounts payable are acquisition costs of $1,700,000 and the estimated tax effect of built-in capital gains of 1,400,000 as a result of Middleton relinquishing its status as an S-Corporation.

	3.		To reflect consolidation of the common stock, additional paid-in capital and retained earnings of Middleton and to reflect adjustment from book value to market value. The excess of purchase price over the book value was allocated first to customer lists at the appraised value on the date of purchase. The remainder was allocated to goodwill.
	4.		Middleton Pest Control, Inc. had elected in 1998 to be taxed as a Small Business Corporation under Subchapter S of the Internal Revenue Code. All taxable income was apportioned to the shareholders for inclusion in their individual income tax returns. The Company is reflecting the effect of Federal and State income taxes at a blended rate of 39%, as if Middleton was combined with Sunair as a “C” corporation.