U.S. SECURITIES AND EXCHANGE
COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal quarter ended June 30, 2005
-------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 0-17580
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SYNERGX SYSTEMS INC.
(Exact name of small business issuer as specified in its charter)
Delaware 11-2941299
(State or jurisdiction of incorporation (IRS employer identification Number)
or organization)
209 Lafayette Drive, Syosset, New York 11791
(Address of Principal Executive Offices) (Zip code)
(516) 433-4700
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes[ X ] No[ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 4, 2005, 5,192,118
shares of Registrant's Common Stock were issued and outstanding.
Transitional Small Business Disclosure Format (check one) Yes[ ] No[ X ]
INDEX
Part I - Financial Information (unaudited) Page
Item 1. Financial Statements.
Condensed Consolidated Balance Sheet at June 30, 2005 3
Condensed Consolidated Statements of Operations for the Three and
Nine Months Ended June 30, 2005 and 2004 5
Condensed Consolidated Statements of Cash Flows for the Three and
Nine Months Ended June 30, 2005 and 2004 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or Plan of Operations 13
Item 3. Controls and Procedures 17
Part II - Other Information
Item 1. Legal Proceedings. 18
Item 2. Changes in Securities. 18
Item 3. Defaults Upon Senior Securities. 18
Item 4. Submission of Matters to a Vote of Security Holders. 18
Item 5. Other Information. 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 20
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30,
2005
-----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 901,851
Accounts receivable, principally trade, less allowance
for doubtful accounts of $323,523 5,322,083
Inventories 2,765,938
Deferred taxes 260,200
Prepaid expenses and other current assets 377,918
-----------
TOTAL CURRENT ASSETS 9,627,990
-----------
PROPERTY AND EQUIPMENT -at cost, less
accumulated depreciation and amortization of $1,648,400 637,595
OTHER ASSETS 604,322
-----------
TOTAL ASSETS $10,869,907
===========
See accompanying Notes to the Condensed Consolidated Financial Statements
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30,
2005
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and capital leases payable - current portion $ 18,615
Accounts payable and accrued expenses 2,208,825
Deferred revenue 529,377
------------
TOTAL CURRENT LIABILITIES 2,756,817
Note payable to bank 1,424,964
Notes and capital leases payable - less current portion 7,032
Deferred taxes 65,500
------------
TOTAL LIABILITIES 4,254,313
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, 2,000,000 shares authorized-
none issued and outstanding -
Common stock, 10,000,000 shares authorized, $.001
par value; issued and outstanding 5,192,118 shares 5,192
Capital in excess of par 6,759,595
Accumulated deficit (149,193)
------------
TOTAL STOCKHOLDERS' EQUITY 6,615,594
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,869,907
============
See accompanying Notes to the Condensed Consolidated Financial Statements
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
June 30,
2005 2004
--------- ----------
Product sales $3,773,773 $4,808,106
Subcontract sales 154,600 117,338
Service revenue 1,220,456 1,155,628
--------- ---------
Total revenues 5,148,829 6,081,072
--------- ---------
Cost of product sales 2,470,855 3,007,134
Cost of subcontract sales 126,337 95,110
Cost of service revenue 802,638 812,035
Selling, general and administrative 1,538,038 1,579,157
Interest expense 22,048 18,823
Depreciation and amortization 57,758 44,223
Loss on equity investment 33,000 20,000
--------- ---------
5,050,674 5,576,482
--------- ---------
Income before provision for income taxes 98,155 504,590
--------- ---------
Provision for income taxes:
Current 38,000 195,800
Deferred 5,000 7,200
--------- ---------
43,000 203,000
--------- ---------
Net Income $ 55,155 $ 301,590
========= =========
Earnings per common share
Basic Earnings per share $ 0.01 $ 0.06
========= =========
Diluted Earnings per share $ 0.01 $ 0.06
========= =========
Weighted average number of common shares outstanding 5,192,118 4,788,312
Weighted average number of common and dilutive
common share equivalents outstanding 5,211,120 5,116,631
See accompanying Notes to the Condensed Consolidated Financial Statements
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Nine Months Ended June 30,
2005 2004
---------- ------------
Product sales $ 10,590,451 $ 11,987,372
Subcontract sales 460,133 260,873
Service revenue 3,477,595 3,424,804
----------- -----------
Total revenues 14,528,179 15,673,049
----------- -----------
Cost of product sales 7,260,793 7,925,411
Cost of subcontract sales 376,403 214,778
Cost of service revenue 2,268,770 2,447,012
Selling, general and administrative 4,411,629 4,449,676
Interest expense 59,470 59,318
Depreciation and amortization 173,273 132,670
Loss on equity investment 55,000 52,000
----------- -----------
14,605,338 15,280,865
----------- -----------
(Loss) Income before (benefit) provision for income taxes (77,159) 392,184
----------- -----------
(Benefit) provison for income taxes:
Current (17,000) 168,000
Deferred - (10,000)
----------- -----------
(17,000) 158,000
----------- -----------
Net (Loss) Income $ (60,159) $ 234,184
=========== ===========
(Loss) Earnings Per Common Share:
Basic (Loss) Earnings Per Share $ (0.01) $ 0.05
=========== ===========
Diluted (Loss) Earnings Per Share $ (0.01) $ 0.05
=========== ===========
Weighted average number of common shares outstanding 5,164,922 4,555,944
Weighted average number of common and dilutive
common share equivalents outstanding 5,164,922 5,064,697
See accompanying Notes to the Condensed Consolidated Financial Statements
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Month Ended June 30,
2005 2004
-------- ----------
OPERATING ACTIVITIES
Net (loss) income $ (60,159) $ 234,184
Adjustments to reconcile net (loss) income to net cash
provided by(used in) operating activities:
Depreciation and amortization 173,273 132,670
Deferred tax (benefit) - (10,000)
Loss on equity investment 55,000 52,000
Changes in operating assets and liabilities:
Accounts receivable, net 1,070,749 (788,616)
Inventories (104,120) (772,020)
Prepaid expenses and other current assets (99,244) (64,922)
Other assets (6,023) (18,875)
Accounts payable and accrued expenses (297,885) 87,974
Deferred revenue 23,377 55,713
---------- ----------
NET CASH PROVIDED BY(USED IN)OPERATING ACTIVITIES 754,968 (1,091,892)
---------- ----------
INVESTING ACTIVITIES
Purchases of property and equipment (277,280) (67,426)
---------- ----------
NET CASH (USED IN) INVESTING ACTIVITIES (277,280) (67,426)
---------- ----------
FINANCING ACTIVITIES
Principal payments on notes payable and capital lease obligations (41,260) (98,620)
Payments and proceeds from note payable bank - net (490,712) 925,173
Proceeds from exercise of stock options and warrants 27,628 448,197
---------- ----------
NET CASH (USED IN)PROVIDED BY FINANCING ACTIVITIES (504,344) 1,274,750
---------- ----------
NET (DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (26,656) 115,432
Cash and cash equivalents at beginning of period 928,507 293,186
---------- ----------
Cash and cash equivalents at end of period $ 901,851 $ 408,618
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 6,995 $ 130,519
Interest $ 62,211 $ 70,416
See accompanying Notes to the Condensed Consolidated Financial Statements
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary in order to make the
financial statements not misleading have been included. Results for the three
and nine months ended June 30, 2005 are not necessarily indicative of the
results that may be expected for the fiscal year ending September 30, 2005. For
further information, refer to the consolidated financial statements and
footnotes thereto included in Synergx Systems Inc. ("Synergx" or "the Company")
and Subsidiaries' annual report on Form 10-KSB for the year ended September 30,
2004.
2. REVENUE RECOGNITION
Product sales include sales of systems, which are similar in nature, that
involve fire alarm, life safety and security (CCTV and card access), transit (on
board systems) and communication (paging, announcement and audio/visual).
Product sales represent sales of product along with the integration of technical
services at a fixed price under a contract with an electrical contractor or end
user customer or customer agent. Product sales are allocated using a constant
gross profit percentage over the entire contract, and are recognized, using the
percentage-of-completion method of accounting. The Company utilizes a
units-of-work performed method to measure progress towards completion of the
contract. The effects of changes in contract terms are reflected in the
accounting period in which they become known. Contract terms provide for billing
schedules that differ from revenue recognition and give rise to costs and
estimated profits in excess of billings, and billings in excess of costs and
estimated profits. Costs and estimated profits in excess of billing were not
material at June 30, 2005 and have been included in accounts receivable. There
were no billings in excess of costs and estimated profits at June 30, 2005.
Subcontract sales principally represent revenue related to electrical
installation of wiring and piping performed by others for the Company when the
Company acts as the prime contractor and sells its products along with
electrical installation. Subcontract revenue is also recognized during the
entire project using the percentage-of-completion method of accounting as
electrical installation is performed at the job site.
Service revenue from separate service contracts is recognized on a straight-line
basis over the term of the respective contract, which is generally one year.
Non-contract service revenue is recognized when services are performed.
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. INVENTORIES
Inventories are priced at the lower of cost (first-in, first-out) or market and
consist primarily of raw materials.
4. LONG TERM DEBT
The Company has a $3 million revolving credit facility with Hudson United Bank
(the "Credit Facility"). The Credit Facility carries an interest rate of prime
plus 1/4% on outstanding balances (6.25% at June 30, 2005) which expires June 1,
2007. The Credit Facility is secured by all assets of the Company and all of its
operating subsidiaries. Advances under this Credit Facility are measured against
a borrowing base calculated on eligible trade receivables and inventories.
At June 30, 2005, the full amount of the Credit Facility was available under the
borrowing base calculation and $1,424,964 was outstanding under this facility.
The Credit Facility includes certain restrictive covenants, which among other
things, impose limitations on declaring or paying dividends, acquisitions, and
capital expenditures. The Company is also required to maintain certain financial
ratios and tangible net worth covenants. At June 30, 2005 the Company was not in
default with any of its financial covenants.
5. STOCK OPTIONS
In February 2005, the Board of Directors approved a grant of 130,000 stock
options with a fair market value of $157,094 to certain employees, officers and
directors of the Company under the 2004 Stock Option Plan. The stock options
vest ratably over five years and are exercisable at $2.50 per share, which
exercise price was above market at the time of grant. There were no stock
options granted during the nine months ended June 30, 2004.
In October 1995, Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" prescribes accounting and reporting
standards for all stock-based compensation plans, including employee stock
options, restricted stock, employee stock purchase plans and stock appreciation
rights. SFAS No. 123 requires compensation expense to be recorded (i) using the
fair value method or (ii) using the existing accounting rules prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations with pro forma disclosure of
what net income and earnings per share would have been had the Company adopted
the fair value method. The Company intends to continue to account for its stock
based compensation plans in accordance with the provisions of APB 25.
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
5. STOCK OPTIONS (Continued)
The Company adopted SFAS No. 148 "Accounting for Stock-Based Compensation -
Transition and Disclosure. This statement amended SFAS No. 123, "Accounting for
Stock-Based Compensation." As permitted under SFAS No. 123, the Company
continues to apply APB 25. As required under SFAS No. 148, the following table
presents pro forma net income (loss) attributable to and diluted net earnings
(loss) per share as if the fair value-based method had been applied to all
awards.
Three Months Ended June 30, Nine Months Ended June 30,
2005 2004 2005 2004
Net Income (Loss) $ 55,155 $ 301,590 $ (60,159) $ 234,184
Less: Fair Value of Options issued to
employees and directors (7,855) -- (13,092) --
---------- ---------- ----------- -----------
Pro Forma Net Income (Loss) $ 47,300 $ 301,590 $ (73,251) $ 234,184
========== ========== =========== ===========
Weighted Average Basic Shares 5,192,118 4,788,312 5,164,922 4,555,944
Weighted Average Diluted Shares 5,211,120 5,116,631 5,164,922 5,064,697
Pro Forma:
Basic Net Earnings (Loss) per share $.01 $.06 ($.01) $.05
Diluted Net Earnings (Loss) per share $.01 $.06 ($.01) $.05
The Black-Scholes option valuation model was used to estimate the fair value of
the options granted during the nine months ended June 30, 2005. There were no
options granted to employees during the nine months ended June 30, 2004. The
model includes subjective input assumptions that can materially affect the fair
value estimates. The model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and that are fully
transferable. The expected volatility is estimated based on the most recent
historical period of time equal to the weighted average life of the options
granted. Principal assumptions used in applying the Black-Scholes model along
with the results from the model for the nine months, ended June 30, 2005 were as
follows:
Assumptions:
Risk-free interest rate 3.58%
Dividend 0
Expected life in years 5 years
Expected volatility 84%
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
6. EARNINGS (LOSS) PER SHARE
The Financial Accounting Standards Board ("FASB") issued "SFAS" No. 128,
"Earnings Per Share", which requires companies to report basic and diluted
earnings per share ("EPS") computations. Basic EPS excludes dilution and is
based on the weighted-average common shares outstanding and diluted EPS gives
effect to potential dilution of securities that could share in the earnings of
the Company. Diluted EPS reflects the assumed issuance of shares with respect to
the Company's employee stock option plan and warrants.
Three Months ended June 30, Nine Months ended June 30,
Basic EPS Computation 2005 2004 2005 2004
-------------------------------- ----------------------------------
Net Income (Loss) available to common
stockholders $ 55,155 $ 301,590 $ (60,159) $ 234,184
Weighted average outstanding shares 5,192,118 4,788,312 5,164,922 4,555,944
Basic Earnings (Loss) Per Share $.01 $.06 ($.01) $.05
==== ==== ====== ====
Diluted EPS Computation
Net Income (Loss) available to common
stockholders $ 55,155 $301,590 $ (60,159) $ 234,184
======= ======== ========== =========
Weighted-average shares-basic 5,192,118 4,788,312 5,164,922 4,555,944
--------- --------- ---------- ---------
Plus: Incremental shares from
assumed conversions
Employee Stock Options* 12,563 87,863 125,746
Warrants* 6,439 240,456 383,007
------ ------- -------
Dilutive common shares 19,002 328,319 508,753
------ ------- -------
Adjusted weighted average shares diluted 5,211,120 5,116,631 5,164,922 5,064,697
--------- --------- --------- ---------
Diluted Earnings (Loss) Per Share $.01 $.06 ($.01) $.05
==== ==== ===== ====
* All options and warrants were antidilutive in the nine months ended 2005.
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
7. RECENT ACCOUNTING PRONOUNCEMENT
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Shared-Based
Payment," which addresses the accounting for share-based payment transactions in
which an enterprise receives employee services in exchange for (a) equity
instruments of the enterprise or (b) liabilities that are based on the fair
value of the enterprise's equity instruments or that may be settled by the
issuance of such equity instruments. SFAS No. 123 (revised 2004) requires an
entity to recognize the grant-date fair-value of stock options and other
equity-based compensation issued to employees in the income statement. SFAS No.
123 (revised 2004) generally requires that an entity account for such
transactions using the fair-value-based method, and eliminates the intrinsic
value method of accounting in APB 25, which was permitted under SFAS No. 123, as
originally issued. The revised statement also requires entities to disclose
information about the nature of the share-based payment transactions and the
effects of those transactions on the financial statements. SFAS No. 123 (revised
2004) is effective for small business issuers for the first annual reporting
period that begins after December 15, 2005. The Company is currently evaluating
the impact that this statement will have on its financial condition, or results
of operations and cash flows.
Item 2. Management's Discussion and Analysis or Plan of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $3 million revolving credit facility with Hudson United
Bank (the "Credit Facility"). This credit facility carries an interest rate of
prime plus 1/4% and expires June 1, 2007. Advances under the Credit Facility are
measured against a borrowing base calculated on eligible trade receivables and
inventories. The Credit Facility is secured by all assets of the Company and all
of its operating subsidiaries.
The Credit Facility includes various covenants, which among other things,
impose limitations on declaring or paying dividends, acquisitions and capital
expenditures. The Company is also required to maintain certain financial ratios
and tangible net worth covenants. At June 30, 2005, the Company was not in
default with any of its financial covenants and at such time the full amount of
the Credit Facility was available under the borrowing base calculation. At June
30, 2005, $1,424,964 was owed under the Credit Facility.
Net cash provided by operations for the nine months ended June 30, 2005
amounted to $754,968 as compared to cash used in operations of $1,091,892 for
the comparable prior year. The increase in cash provided by operations was
primarily due to a $1,859,365 increase in collection of accounts receivable. The
net cash inflow of $754,968 from operations during the nine months ended 2005
along with cash on hand was used for equipment purchases of approximately
$277,000 and to decrease bank borrowing by approximately $490,000. During the
nine months ended 2005, proceeds of $27,628 were received from the exercise of
stock options by employees to purchase common stock under the Company's stock
option plan. During the prior year nine month period, financing activities
included $316,200 of proceeds from the exercise of warrants to purchase common
stock by Genterra Inc., $70,000 of proceeds from exercise of warrants to
purchase common stock by an unaffiliated investor, and $61,997 from the exercise
of stock options by employees to purchase common stock under the Company's stock
option plan.
The ratio of the Company's current assets to current liabilities increased
to approximately 3.49 to 1 at June 30, 2005 compared to 3.12 to 1 at June 30,
2004.
Item 2. Management's Discussion and Analysis or Plan of Operations
Results of Operations
Revenues and Gross Profit
Three Months Ended Nine Months Ended
June 30, June 30,
2005 2004 2005 2004
---- ---- ---- ----
(In thousands of dollars)
Product Sales $3,774 $4,808 $10,590 $11,987
Subcontract Sales 155 117 460 261
Service Revenue 1,220 1,156 3,478 3,425
------ ------ ------- -------
Total Revenue $5,149 $6,081 $14,528 $15,673
====== ====== ======= =======
Gross Profit Product $1,303 $1,801 $ 3,330 $ 4,062
Gross Profit Subcontract 29 22 84 46
Gross Profit Service 417 344 1,209 978
------ ------ ------ ------
Total Gross Profit $1,749 $2,167 $ 4,623 $ 5,086
====== ====== ====== ======
Gross Margin Product % 35% 37% 31% 34%
Gross Margin Subcontract % 19% 19% 18% 18%
Gross Margin Service % 34% 30% 35% 29%
Revenues
The Company's product revenues during the three and nine months ended June 30,
2005 decreased 22% and 11% from the respective 2004 periods. These decreases in
product revenues resulted from slow economic activity in both the Company's
principal New York City market and its Dallas, Texas market. The major decrease
in product revenue during the three and nine month periods is from a decline in
product shipments in the Dallas, Texas market area from unusually high sales for
the comparable 2004 period. In the Dallas market area, the Company has put into
effect certain cost reduction initiatives with a view towards pricing
aggressively in that competitive market place. This has resulted in increased
bookings since March 31, 2005, which has increased the Dallas order position for
future delivery.
Subcontract sales increased during the current three and nine month periods as
the Company was responsible for several large electrical installations during
the 2005 periods compared to various small electrical installation projects in
2004 periods.
Service revenues increased slightly during the three and nine month periods of
2005. The increase in both periods is primarily due to an increase in service
contracts resulting from the addition of new service customers and from certain
customers who converted to "all in" contracts that cover call-in service.
Accordingly, there was a decrease in call-in service on fire alarm systems
(replacement parts and service required by buildings).
Item 2. Management's Discussion and Analysis or Plan of Operations
Gross Profit
Gross profit on product sales for the three and nine months ended June 30, 2005
decreased 28% and 18% compared to the respective 2004 periods. The decrease in
absolute gross profit is primarily related to lower product sales from the
Dallas market during both periods (noted above). The absolute gross profit
decline during the three month period ended June 30, 2005 was also caused by
lower product revenue in the New York market area. The decrease in gross margin
percentage during the current three and nine month periods is due to lower sales
on which to absorb overhead; with overhead remaining at the same level as the
prior year periods due to the relative fixed nature of these costs. The Company
is evaluating certain overhead reductions which would take effect over the next
six to nine months.
Gross profit related to subcontract sales for the three and nine months ended
June 30, 2005, increased in absolute terms as the Company was responsible for
larger electrical installation projects. In addition, the gross margin
percentages during the three and nine months of 2005 were consistent with the
percentage in the 2004 periods.
Gross profit and gross margin percentage on service revenues for the three and
nine months ended June 30, 2005 increased. These increases were due to certain
reductions in the number of service technicians and a decrease in the use of
overtime.
Income Before Tax
The decline in income before income taxes during the three and nine months ended
June 30, 2005, respectively, is primarily due to the decrease in gross profit
related to lower product sales from the Dallas, Texas market area. The decrease
in product gross profit was partially offset by higher gross profit from
subcontract and service revenues. The increase in service gross profit was
caused in part by a decrease in technical staff. In addition, selling, general
and administrative expenses decrease slightly but remain at a level geared to
support higher product sales. Interest expense increased during the three months
ended June 2005 due to higher interest rates. Depreciation expense increased
during the 2005 periods from recent investments in a new computer operating
software system which will enable the Company to better manage project costs in
the future. For the three and nine month periods of 2005 the Company recorded a
loss of $33,000 and $55,000, respectively, on its equity in the operating loss
of Secure 724 LP.
Tax Provision
The Company's current income tax provision represents federal, state and local
income taxes. Deferred taxes represent the net change in deferred tax assets and
in non-current deferred tax liability as it related to differences between
financial reporting and tax bases of assets and liabilities.
Item 2. Management's Discussion and Analysis or Plan of Operations
Order Position
The Company's order position, excluding service, at June 30, 2005 amounted to
$11,026,000 as compared to $12,800,000 at September 30, 2004 and $15,155,000 at
June 30, 2004. This order position reflects large orders for several subway
complexes which will be deliverable over several years as the projects are
released. While quotation activity is brisk, there is no assurance when orders
will be received and whether the order position will increase. Due to the fact
that the Company's transit products are sold and installed as part of larger
mass transit construction projects, there is typically a delay between the
booking of the contract and its revenue realization. The order position includes
and the Company continues to bid on projects that might include significant
subcontractor labor (electrical installation performed by others). The Company
expects to be active in seeking orders where the Company would act as a prime
contractor and be responsible for management of the project as well as
electrical installation.
Item 3. Controls and Procedures
Evaluation of disclosure controls and procedures. At the period end of this
Quarterly Report on Form 10-QSB, the Company's management, including the
Company's Chief Executive Officer and Chief Financial Officer evaluated the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on that evaluation, the Company's Chief Executive Officer
and Chief Financial Officer have concluded, as of the end of the quarter covered
by this report, that:
The Company's disclosure controls and procedures are designed to ensure that
information required to be disclosed by the Company in the reports it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified.
That Company's disclosure controls and procedures are effective to ensure that
such information is accumulated and communicated to the Company's management,
and made known to the Company's Chief Executive Officer and Chief Financial
Officer, to allow timely decision regarding the required disclosure.
Changes in internal control over financial reporting.
There have been no changes in the Company's internal controls over financial
report that have materially affected, or is reasonably likely to materially
affect the Company's internal controls over financial reporting during the
period covered by this Quarterly Report.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable
Item 3. Defaults Upon Senior Securities.
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on form 8-K.
(a) Exhibits
31.1 Certification of Daniel S. Tamkin pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of John A. Poserina pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certifications of Daniel S. Tamkin and John A. Poserina pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
On July 25, 2005, the Board of Directors elected Mr. Harris
Epstein as a director and as a member of the Audit Committee. Mr. Epstein
replaced Mr. Henry Schnurbach in these positions.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SYNERGX SYSTEMS INC
(Registrant)
/S/ John A. Poserina
------------------------------
John A. Poserina,
Chief Financial Officer
(Principal Accounting and
Financial Officer), Secretary
and Director
Date: August 12, 2005