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 December 31, 2002
-------------------------------------
[ ] 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.
(formerly, Firetector Inc.)
-----------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 11-2941299
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(State or jurisdiction of (IRS employer identification Number)
incorporation or organization)
209 Lafayette Drive, Syosset, New York 11791
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(Address of Principal Executive Offices) (Zip code)
(516) 433-4700
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(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 February 11, 2003, 1,874,425
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 as at December 31, 2002
Condensed Consolidated Statements of Operations for the Three Month
Periods Ended December 31, 2002 and 2001
Condensed Consolidated Statements of Cash Flows for the Three Month
Periods Ended December 31, 2002 and 2001
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K
Signatures
Part I - FINANCIAL INFORMATION
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
December 31,
2002
----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 214,990
Accounts receivable, principally trade, less allowance
for doubtful accounts of $414,179 5,557,656
Inventories 2,947,273
Deferred taxes 332,800
Prepaid expenses and other current assets 401,550
----------
TOTAL CURRENT ASSETS 9,454,269
----------
PROPERTY AND EQUIPMENT -at cost, less
accumulated depreciation and amortization of $1,273,109 398,007
OTHER ASSETS 194,090
----------
TOTAL ASSETS $10,046,366
==========
See accompanying Notes to the Condensed Consolidated Financial Statements
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
December 31,
2002
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable - principally to related party $ 92,392
Accounts payable and accrued expenses 3,604,055
Deferred revenue 459,261
Current portion of capital lease obligations 23,152
-----------
TOTAL CURRENT LIABILITIES 4,178,860
Note payable to bank 1,016,622
Notes payable - principally to related party, less current portion 44,910
Capital lease obligations, less current portion 37,984
Deferred taxes 11,600
-----------
TOTAL LIABILITIES 5,289,976
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 1,874,425 shares 1,874
Capital in excess of par 5,523,063
Accumulated Deficit (768,547)
-----------
TOTAL STOCKHOLDERS' EQUITY 4,756,390
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,046,366
===========
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
December 31,
2002 2001
------------- --------------
Product sales $3,291,305 $2,187,916
Subcontract sales 270,899 234,423
Service revenue 1,075,315 1,116,392
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Total revenues 4,637,519 3,538,731
---------- -----------
Cost of product sales 2,263,483 1,723,746
Cost of subcontract sales 210,514 186,813
Cost of service 727,761 801,205
Selling, general and administrative 1,329,143 1,232,774
Interest expense 10,118 22,918
Depreciation and amortization expense 44,678 42,870
---------- -----------
4,585,697 4,010,326
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Income (loss) from operations before provision
for (benefit from) income taxes 51,822 (471,595)
Provsion for (benefit from) income taxes:
Current 24,000 (144,000)
Deferred 6,000 (47,000)
---------- -----------
30,000 (191,000)
---------- -----------
Net Income (loss) $ 21,822 $ (280,595)
========== ===========
Earnings per common share
Basic earnings (loss) per share $0.01 $(0.16)
===== =====
Diluted earnings (loss) per share $0.01 $(0.16)
===== =====
Weighted average number of common shares outstanding 1,874,425 1,704,425
Weighted average number of common and potential dilutive
common shares outstanding 1,965,271 1,704,425
See accompanying Notes to the Condensed Consolidated Financial Statements
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended December 31,
2002 2001
----------- ------------
OPERATING ACTIVITIES
Net income (loss) $ 21,822 $ (280,595)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 44,678 42,870
Deferred tax 6,000 (47,000)
Provision for doubtful accounts (14,709) 6,000
Changes in operating assets and liabilities:
Accounts receivable (513,327) 909,470
Inventories (510,077) (263,585)
Prepaid expenses and other current assets (7,270)
Other assets (52,259) (20,846)
Accounts payable and accrued expenses 945,554 (677,425)
Deferred revenue 13,421 1,987
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NET CASH USED IN OPERATING ACTIVITIES (66,167) (329,124)
---------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment (58,221) (16,428)
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NET CASH USED IN INVESTING ACTIVITIES (58,221) (16,428)
---------- -----------
FINANCING ACTIVITIES
Principal payments on revolving line of credit, long-term
debt, notes payable and capital lease obligations (39,476 (46,302)
Proceeds from revolving line of credit, notes payable
and capital lease obligations 178,653 324,477
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NET CASH PROVIDED BY FINANCING ACTIVITIES 139,177 278,175
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,789 (67,377)
Cash and cash equivalents at beginning of period 200,201 298,420
---------- -----------
Cash and cash equivalents at end of period $ 214,990 $ 231,043
========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 4,707 $ 150,154
Interest $ 12,147 $ 22,916
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended December 31, 2002 and 2001, the Company incurred
no capital lease obilgations for the acquisition of equipment.
See accompanying Notes to the Condensed Consolidated Financial Statements
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2002
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they 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 in order to make the financial statements not
misleading have been included. Results for the three months ended December 31,
2002 are not necessarily indicative of the results that may be expected for the
fiscal year ending September 30, 2003. For further information, refer to the
consolidated financial statements and footnotes thereto included in Synergx
Systems Inc. (formerly Firetector Inc.) ("the Company") and Subsidiaries' annual
report on Form 10-KSB for the year ended September 30, 2002.
At the annual meeting of Firetector Inc stockholders held on May 22, 2002,
stockholders voted to amend the Company's Certificate of Incorporation to change
Firetector's name to SYNERGX SYSTEMS INC.
2. REVENUE RECOGNITION
Product sales include sale 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 (building owner or tenant), or customer agent. Product sales are
allocated using a constant gross profit percentage over the entire contract, and
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 December 31, 2002 and 2001 and have been included in accounts
receivable. There was no billing in excess of costs and estimated profits at
December 31, 2002 and 2001.
Subcontract sales principally represents revenues 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 maintenance contracts is recognized on a
straight-line basis over the terms 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 - Continued
THREE MONTHS ENDED DECEMBER 31, 2002
(UNAUDITED)
3. INVENTORY
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 revolving Credit Facility with Citizens Business Credit
Company of Boston, Massachussetts, (the "Credit Facility"). The credit facility
provides for a $3,000,000 revolving line of credit which expires in December
2004. The Credit Facility provides for interest at prime rate (4.25% at December
31, 2002) plus 1/4% on outstanding balances. At December 31, 2002, $1,016,622
was outstanding under this facility. Advances under the Credit Facility are
measured against a borrowing base calculated on eligible receivables and
inventory. The Credit Facility is secured by all of the assets of the Company
and all of its operating subsidiaries.
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. Citizens Business Credit Company of Boston had modified the requirement
of one of the ratios. At December 31, 2002, the Company was not in default of
any of its covenants as a result of this modification.
5. RECLASSIFICATIONS
Certain accounts in the prior year financial statements have been reclassified
for comparative purposes to conform with the presentation in the current year
financial statements. These reclassifications have no effect on previously
reported income.
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
THREE MONTHS ENDED DECEMBER 31, 2002
(UNAUDITED)
6. EARNINGS (LOSS) PER SHARE
The Financial Accounting Standards Board issued SFAS No. 128 "Earnings Per
Shares" 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 options and warrants.
For the Three Months ended December 31,
2002 2001
---- ----
Basic EPS Computation
Net Income (Loss) available to common stockholders $ 21,822 $(280,595)
Weighted average outstanding shares 1,874,425 1,704,425
Basic EPS (Loss) $.01 $(.16)
==== ======
Diluted EPS Computation
Income (Loss) available to common stockholders
and assumed conversions $ 21,821 $(280,595)
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Weighted-average shares 1,874,425 1,704,425
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Plus: Incremental shares from assumed conversions
Employee Stock Options* 20,391
Warrants* 70,455
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Dilutive potential common shares 90,846 N/A
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Adjusted weighted-average shares 1,965,271 1,704,425
========== ============
Diluted EPS (Loss) $.01 $(.16)
==== ======
*All Warrants and Options were antidilutive for the three month period ended
December 31, 2001 and 170,000 warrants were antidilutive for the three month
period ended December 31, 2002 and therefore not included in the above
calculation.
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
THREE MONTHS ENDED DECEMBER 31, 2002
(UNAUDITED)
7. SUBSEQUENT EVENT
In January 2003, the Company signed two letters of intent to acquire interest in
Avante Technology ("Avante Tech") and Re:Port Business Solutions ("Re:Port") in
partnership with Nafund Inc., a Toronto based private equity fund ("Nafund").
Avante Security Inc., a Canadian corporation ("Avante") designs, develops and
installs security systems and devices in Canada. Utilizing the wireless
technology of the very popular BlackBerry (TM) wireless handheld system,
developed by Research in Motion (RIM), Avante has developed the Secure 7-24
solution. The Secure 7-24 uses wireless technology to transmit alarm and other
data from a secured site to the Avante Command Centre and to multiple RIM pagers
or cellular phones. Applications include transit, security response vehicles,
corporate facilities management, manufacturing, distribution, secured
neighborhoods and residential owners.
Avante and Nafund will organize Avante Tech as a new partnership to exploit the
Secure 7-24 technology solution. Synergx would acquire 25% of Avante Tech's
equity from Nafund in exchange for (a) 225,000 shares of Common Stock; (b)
warrants to purchase 25,000 shares of Common Stock at $2.00 per share for 24
months; and (c) agreeing to provide secured loans of up to Cdn$300,000 to Avante
Tech pro rata with equity/loans to be provided by Nafund and tied to certain
development milestones. In connection with its investment, Synergx would secure
exclusive licenses to exploit the Secure 7-24 technology in its key geographic
markets and/or product lines.
Re:Port is a provider of software to the independent international investment
counseling, portfolio management and brokerage community. Located in Toronto,
Ontario, Re:Port software links external or outsourced trading, custodian,
broker and bank systems to internal diverse security and asset management system
and contact information systems and electronic filing and documentation systems.
Utilizing the software and systems it has developed which are scaleable and able
to provide cost-effective solutions, Re:Port and Nafund will organize a new
entity to offer the types of back office services that have previously been
available only to the largest investment counselors and money managers. Re:Port
would secure a contract to provide such services to a Toronto based investment
management firm which will hold equity in Re:Port. One of Synergx's Directors is
the principal in Re:Port. Synergx would acquire 25% of the Class B Participating
Units (Class B Participating Units will receive distributions of all free cash
flow after the Class A Units have been redeemed) in exchange for (i) 175,000
shares of Common Stock and (ii) warrants to purchase 25,0000 shares of Common
Stock at $2.00 per share for 24 months.
These acquisitions are subject to due diligence, definitive documentation,
finalizing structure of the investment, bank approval and approval by the
Company's stockholders at the next Annual Meeting of Stockholders. Stockholder
approval is being solicited inasmuch as two Directors of Synergx Messrs. Litwin
and Dalrymple, are Directors of Nafund. Moreover, Mr. Litwin is the president of
Nafund and Mr. Dalrymple is on its investment advisory board (but hold no
ownership interest in Nafund). In addition, Mr. Dalrymple is the principal of
NSC Holdings, a Toronto based financial services group. Messrs. Litwin and
Dalrymple have recused themselves from the vote by the Board of Directors.
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
THREE MONTHS ENDED DECEMBER 31, 2002
(UNAUDITED)
7. SUBSEQUENT EVENT (continued)
There can be no assurance that the investment described immediately above will
be consummated or that said investment will prove to be profitable to Synergx.
This investment is subject to the completion of a due diligence investigation to
the satisfaction of Synergx, and the negotiation and execution of definitive
documentation satisfactory to Synergx; until said investigation and definitive
documentation is completed and executed, Synergx's board of directors retains
the right to withdraw from the transaction.
8 - NEW ACCOUNTING PRONOUNCEMENTS
On December 31, 2002, the FASB issued SFAS No.148 ("SFAS 148"), Accounting for
stock-Based Compensation-Transition and Disclosure. SFAS 148 amends SFAS No. 123
("SFAS 123"), Accounting for Stock - Based Compensation, to provide an
alternative method of transition to SFAS 123's fair value method of accounting
for stock-based employee compensation. SFAS 148 also amends the disclosure
provisions of SFAS 123 and APB opinion No. 28, Interim Financial Reporting, to
require disclosure in the summary of significant accounting polices of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and interim
financial statements. While the statement does not amend SFAS 123 to require
companies to account for employee stock options using the fair value method, the
disclosure provisions of SFAS are applicable to all companies with stock-based
employee compensation, regardless of whether they account for that compensation
using the fair value method of SFAS 123, or the intrinsic value method of APB
opinion No. 25. The company will continue to account for stock-based
compensation according to APB opinion No. 25, while the adoption for the second
fiscal quarter ending March 31, 2003 of SFAS 148 requires the Company to provide
prominent disclosures about the effect of SFAS 123 on reported income and will
require the Company to disclose these effects in interim financial statements.
The Company does not expect that the adoption of SFAS 148 will have a
significant impact to the consolidated financial position or results of
operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The Company has a $3 million credit facility with Citizens Business Credit
Company of Boston, (the "Credit Facility") that expires in December, 2004. The
Credit Facility has an interest rate of prime plus 1/4% on outstanding balances.
Advances under the Credit Facility are measured against a borrowing base
calculated on eligible receivables and inventory. 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.
Citizens Business Credit had modified the requirements for one of these ratios.
At December 31, 2002, the Company was not in default with any of its financial
covenants as a result of this modification and at such time owed $1,016,622
under the Credit Facility.
Net cash used by operations for the three months ended December 31, 2002
amounted to $66,167 as compared to $329,124 for the comparable prior year
period. The primary reason for the decrease in cash being used by operations was
due to $51,822 of income before taxes in 2002 compared to a loss before income
taxes of $471,594 in 2001. During 2002, accounts receivable increased due to
higher sales and inventory increased due to purchases being made ahead of
requirements in order to obtain special purchase price discounts from a vendor.
These increases of $1.0 million in working capital where partially funded by a
$946,000 increase to accounts payable and accrued expenses. Accordingly, the net
cash outflow from operation during 2002 was funded by a net increase of $169,000
in borrowing under the Credit Facility.
The ratio of the Company's current assets to current liabilities decreased to
approximately 2.19 to 1 at December 31, 2002 compared to 2.76 to 1 at December
31, 2001. The decrease in the current ratio is due to the increase in 2002 of
inventory related to purchases being made ahead of schedule (to obtain special
purchase price discounts) that were funded by a similar increase in accounts
payable. In addition, the decrease in the current ratio was caused by $587,000
of an improvement in cash flow since December 31, 2001 being used to reduce bank
borrowing at December 31, 2002. However, working capital stayed at a high level
of $5.3 million at December 31, 2002 compared to $5.6 million at December 31,
2001 even though cash was used to reduce bank borrowing to $1.0 million at
December 31, 2002.
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Results of Operations
Revenues and Gross Profit
Three Months Ended
December 31,
------------
2002 2001
(In thousands of dollars)
Product Revenue $3,292 $2,188
Subcontract Revenue 271 234
Service Revenue 1,075 1,116
------- -------
Total Revenue $4,638 $3,538
Gross Profit Product $1,028 $464
Gross Profit Subcontract 60 48
Gross Profit Service 348 315
------- -------
Total Gross Profit $1,436 $827
Gross Profit Product % 31% 21%
Gross Profit Subcontract %
22% 21%
Gross Profit Service % 32% 28%
------- -------
Total Gross Profit % 31% 23%
Revenues
The Company's product revenues during the three months ended December 31, 2002
were $3,292,000 as compared to $2,188,000 for the prior year period. Product
revenues increase 50% in 2002 compared to the same period of 2001, which was
impacted by the general slowdown in economic activity in the Company's principal
markets, New York City and Dallas and from the events of September 11th which
delayed work on several projects involving New York City Transit Authority and
reduced tenant revenue as tenants relocated out of New York City or consolidated
into existing space uptown. The product revenue improvement in 2002 is related
to the New York City market area from the following: 1) release of projects that
have been delayed by the events of September 11th, 2) from a gradual improvement
in tenant activity, 3) higher sales of railcar communication products. However
we have not seen similar improvement in our Dallas, Texas market area which
still has not recovered from the slowdown in economic activity. Accordingly, we
have implemented certain cost reduction initiatives in that market area while we
continue to quote business aggressively.
Subcontract revenue increased during the current three month period to $271,000
from $234,000 in the comparable prior year period. The increase reflects
electrical installation on more projects during the 2002 period.
Service revenue decreased during the current three month period to $1,075,000
from $1,116,000 in the comparable prior year period. The decrease reflects lower
call-in maintenance service on fire systems. The 2001 three month period
benefited from the need for replacement parts in certain buildings effected by
contamination from the events of September 11th.
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Gross Profit
Gross profit on product revenues for the three months ended December 31, 2002,
more than doubled to $1,028,000 as compared to $464,000 in the comparable prior
year period. The improvement in absolute gross margin is primarily due to
increased sales (noted above) and related gross margin. The improvement in gross
margin percentage in 2002 to 31% compared to 21% in 2001 reflects the benefit of
higher sales without a similar increase in overhead cost. While certain
personnel were added to expand product sales, the majority of these overheads
were relatively fixed in nature and therefore higher sales contributed to an
increase in the gross margin percentage. In contrast, the 2001 period saw a
lower gross margin which was caused by the events of September 11th and from the
slowdown in economic activity.
Gross profit related to subcontract revenues for the three months ended December
31, 2002 increased in absolute terms as the Company was responsible for
electrical installation on several fire alarm projects in 2002. Also, the gross
profit percentage was lower during the three months ended December 31, 2001 as
one project was contracted for sale at a lower than normal mark up during that
period.
Gross profit on service revenues for the three months ended December 31, 2002
increased in spite of the decrease in call in service revenues. The call-in
service during 2002 did not require as much replacement parts as the prior year
period and therefore the 2002 period saw an improvement in both gross margin and
the gross margin percentage.
Income Before Tax
The improvement in income before income taxes during the three months ended
December 31, 2002 is primarily due to the increase in gross margin caused by
higher product revenues, from improved margins due to the relative fixed nature
of certain overhead costs (noted above), and from higher gross margin from
subcontract and services revenues. Partially offsetting the improvement in
income before income taxes was an increase of 8% in selling, general and
administrative expenses to support higher product sales and expand product
territory. Favorably affecting income before income taxes were declines in
interest expense (56%) due to lower interest rates and lower borrowing levels
for the three months ending December 31, 2002.
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
non current deferred tax liability as it related to certain timing differences
of book and tax deductions.
Order Position
The Company's order position, excluding service, at December 31, 2002 increased
to $12,620,000 as compared to $12,105,000 at September 30, 2002 and $9,065,000
at December 31, 2001. The increase in order position since September 30, 2002
reflects recent large new orders received for several subway complexes which
will be deliverable over several years as the projects are released. In
addition, the backlog includes $2.0 million of recent orders for communication
and announcement systems from several transit car manufacturers, that will be
shippable over the next 21 month period. 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 products are sold and
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
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
(a) Evaluation of Disclosure Controls and procedures
Based on their evaluation of our disclosure controls and procedures conducted
within 90 days of the date of filing this report on Form 10-QSB, our Chief
Executive Officer and the Chief Financial Officer has concluded that our
disclosure controls and procedures (as defined in Rules 13a - 14(c) and 15(d)
promulgated under the Securities Exchange Act of 1934 are effective.
(b) Changes in Internal Controls
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable
Item 2. Changes in Securities.
Not applicable
Item 3. Defaults Upon Senior Securities.
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable
Item 5. Other Information.
Item 6. Exhibits and Reports on form 8-K.
(a) Exhibits
99 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended December 31, 2002.
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: February 14, 2003
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Daniel S. Tamkin, Chief Executive Officer, and John A. Poserina, Chief
Financial Officer of Synergx Systems certify that:
1. We have reviewed this quarterly report on Form 10-QSB of Synergx Systems
Inc.;
2. Based on our knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on our knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designated such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a dated within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions);
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: February 14, 2003
/s/ Daniel S. Tamkin
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Daniel S. Tamkin
Chief Executive Officer
/s/ John A. Poserina
-----------------------
John A. Poserina
Chief Financial Officer
(Principal Financial and Accounting
Officer), Secretary and Director