U.S. SECURITIES AND EXCHANGE
COMMISSION
Washington, D. C. 20549
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 March 31, 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 or (IRS employer identification
organization) Number)
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 May 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 March 31, 2005 3
Condensed Consolidated Statements of Operations for the Three and
Six Months Ended March 31, 2005 and 2004 5
Condensed Consolidated Statements of Cash Flows for the Three and
Six Months Ended March 31, 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)
March 31,
2005
----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 582,262
Accounts receivable, principally trade, less allowance
for doubtful accounts of $323,523 5,702,704
Inventories 2,588,783
Deferred taxes 265,200
Prepaid expenses and other current assets 480,113
-----------
TOTAL CURRENT ASSETS 9,619,062
-----------
PROPERTY AND EQUIPMENT -at cost, less
accumulated depreciation and amortization of $1,598,732 621,449
OTHER ASSETS 645,146
-----------
TOTAL ASSETS $10,885,657
===========
See accompanying Notes to the Condensed Consolidated Financial Statements
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31,
2005
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and capital leases payable - current portion $ 21,938
Accounts payable and accrued expenses 2,466,700
Deferred revenue 543,898
-----------
TOTAL CURRENT LIABILITIES 3,032,536
Note payable to bank 1,215,676
Notes and capital leases payable - less current portion 11,509
Deferred taxes 65,500
-----------
TOTAL LIABILITIES 4,325,221
-----------
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 (204,351)
-----------
TOTAL STOCKHOLDERS' EQUITY 6,560,436
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,885,657
===========
See accompanying Notes to the Condensed Consolidated Financial Statements
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Six Months
Ended March 31,
2005 2004
------ ------
Product sales $6,816,678 $7,179,266
Subcontract sales 305,533 143,535
Service revenue 2,257,139 2,269,176
---------- ----------
Total revenues 9,379,350 9,591,977
---------- ----------
Cost of product sales 4,789,938 4,918,277
Cost of subcontract sales 250,066 119,668
Cost of service revenue 1,466,132 1,634,977
Selling, general and administrative 2,873,591 2,870,519
Interest expense 37,422 40,495
Depreciation and amortization 115,515 88,447
Loss on equity investment 22,000 32,000
---------- ----------
9,554,664 9,704,383
---------- ----------
(Loss) before (benefit) from income taxes (175,314) (112,406)
---------- ----------
(Benefit) from income taxes:
Current (55,000) (27,800)
Deferred (5,000) (17,200)
---------- ----------
(60,000) (45,000)
---------- ----------
Net (Loss) $ (115,314) $ (67,406)
========== ==========
(Loss) Per Common Share:
Basic (Loss) Per Share $ (0.02) $ (0.02)
========== ==========
Diluted (Loss) Per Share $ (0.02) $ (0.02)
========== ==========
Weighted average number of common shares outstanding 5,151,324 4,441,037
Weighted average number of common and dilutive
common share equivalents outstanding 5,151,324 4,441,037
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 March 31,
2005 2004
----- ------
Product sales $3,568,295 $4,160,318
Subcontract sales 207,400 64,600
Service revenue 1,136,752 1,165,253
---------- ----------
Total revenues 4,912,447 5,390,171
---------- ----------
Cost of product sales 2,320,722 2,815,526
Cost of subcontract sales 170,385 54,153
Cost of service revenue 745,598 837,695
Selling, general and administrative 1,515,400 1,507,778
Interest expense 14,521 21,125
Depreciation and amortization 57,758 40,004
Loss on equity investment 12,000 12,000
---------- ----------
4,836,384 5,288,281
---------- ----------
Income before provision for income taxes 76,063 101,890
---------- ----------
Provision for income taxes:
Current 24,000 34,400
Deferred 12,000 8,600
---------- ----------
36,000 43,000
---------- ----------
Net Income $ 40,063 $ 58,890
========== ==========
Income per common share
Basic income per share $ 0.01 $ 0.01
========== ==========
Diluted income per share $ 0.01 $ 0.01
========== ==========
Weighted average number of common shares outstanding 5,165,787 4,718,991
Weighted average number of common and dilutive
common shares outstanding 5,216,424 5,178,703
See accompanying Notes to the Condensed Consolidated Financial Statements
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months
Ended March 31,
2005 2004
------ ------
OPERATING ACTIVITIES
Net (loss) $(115,314) $ (67,406)
Adjustments to reconcile net (loss)to net cash
provided by(used in) operating activities:
Depreciation and amortization 115,515 88,447
Deferred tax (benefit) (5,000) (17,200)
Loss on equity investment 22,000 32,000
Changes in operating assets and liabilities:
Accounts receivable, net 690,128 (27,944)
Inventories 73,035 (672,493)
Prepaid expenses and other current assets (201,439) (209,936)
Other assets (5,757) (25,204)
Accounts payable and accrued expenses (40,010) 161,591
Deferred revenue 37,898 (25,638)
-------- --------
NET CASH PROVIDED BY(USED IN)OPERATING ACTIVITIES 571,056 (763,783)
-------- --------
INVESTING ACTIVITIES
Purchases of property and equipment (211,466) (30,004)
-------- --------
NET CASH (USED IN) INVESTING ACTIVITIES (211,466) (30,004)
-------- --------
FINANCING ACTIVITIES
Principal repayments on notes payable and capital lease obligations (33,463) (89,435)
Payments and proceeds from note payable bank - net (700,000) 590,174
Proceeds from exercise of stock options and warrants 27,628 351,610
-------- --------
NET CASH (USED IN)PROVIDED BY FINANCING ACTIVITIES (705,835) 852,349
-------- --------
NET (DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (346,245) 58,562
Cash and cash equivalents at beginning of period 928,507 293,186
-------- --------
Cash and cash equivalents at end of period $582,262 $351,748
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 5,455 $130,519
Interest $ 40,163 $ 48,277
See accompanying Notes to the Condensed Consolidated Financial Statements
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 2005 AND 2004
(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 six
months ended March 31, 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 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 March 31, 2005 and 2004 and have been included in accounts
receivable. There were no billings in excess of costs and estimated profits at
March 31, 2005 and 2004.
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
SIX MONTHS ENDED MARCH 31, 2005 AND 2004
(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 (5.75% at March 31, 2005) which was to expire
in October 2005. In April, 2005, the Company and its bank agreed to an extension
in its credit facility until 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 March 31, 2005, the full amount of the Credit Facility was available under
the borrowing base calculation and $1,215,676 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 March 31, 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 six months ended March 31, 2004.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation: (SFAS 123") 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 123 requires compensation expense to be recorded (i)
using the new 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 earning per share would have been had the
Company adopted the new 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
SIX MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
5. STOCK OPTIONS (Continued)
The Company adopted SFAS No. 148 "Accounting for Stock-Based Compensation -
Transition and Disclosure. This statement amended SFAS 123, "Accounting for
Stock-Based Compensation." As permitted under SFAS 123, the Company continues to
apply APB 25. As required under SFAS 148, the following table presents pro forma
net income (loss) attributable to and diluted net income (loss) per shares as if
the fair value-based method had been applied to all awards.
Three Months Ended March 31, Six Months Ended March 31
2005 2004 2005 2004
Net (Loss) Income $40,063 $58,890 $(115,314) $(67,406)
Fair Value of Options issued to
employees and directors 5,237 5,237
----- -----
Pro Forma Net Loss $34,826 $58,890 $(120,551) $(67,406)
Weighted Average Shares Outstanding 5,165,787 4,718,991 5,151,324 4,441,037
Pro Forma Net Income (Loss) $.01 $.01 $(.02) $(.02)
The Black-Scholes option valuation model was used to estimate the fair value of
the options granted during the six months ended March 31, 2005. There were no
options granted to employees during the six months ended March 31, 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. For example, the expected volatility is estimated based on the
most recent historical period of time equal to the weighted average life of the
options granted. Options issued under the Company's option plans have
characteristics that differ from traded options. In the Company's opinion, this
valuation model does not necessarily provide a reliable single measure of the
fair value of its employee stock options. Principal assumptions used in applying
the Black-Scholes model along with the results from the model 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
SIX MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
6. EARNINGS (LOSS) PER SHARE
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("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 March 31, Six Months ended March 31,
Basic EPS Computation 2005 2004 2005 2004
---------------------------------- ------------------------------------
Net Income (Loss) available to common
stockholders $40,063 $58,890 $(115,314) (67,406)
Weighted average outstanding shares 5,165,787 4,718,991 5,151,324 4,441,037
Basic Earnings (Loss) Per Share $.01 $.01 ($.02) ($.02)
==== ==== ====== ======
Diluted EPS Computation
Net Income (Loss) available to common
stockholders $40,063 $58,890 $(115,314) $(67,406)
======= ======= ========== =========
Weighted-average shares-basic 5,165,787 4,718,991 5,151,324 4,441,037
--------- -------- --------- ---------
Plus: Incremental shares from
assumed conversions
Employee Stock Options* 33,123 147,680
Warrants* 17,514 312,032
------ -------
Dilutive common shares 50,637 459,712
------ -------
Adjusted weighted average shares diluted 5,216,424 5,178,703 5,151,324 4,441,037
--------- --------- --------- ---------
Diluted Earning (Loss) Per Share $.01 $.01 ($.02) ($.02)
==== ==== ===== ======
* All options and warrants were antidilutive in the six months ended 2005 and
2004.
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
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
SIX MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
7. RECENT ACCOUNTING PRONOUNCEMENT (continued)
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 interim or 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% which was to expire in October 2005. In April 2005, the Company and
its bank agreed to an extension in its credit facility until 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 March 31, 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 March
31, 2005, $1,215,676 was owed under the Credit Facility.
Net cash provided by operations for the six months ended March 31, 2005 amounted
to $571,056 as compared to cash used in operations of $763,783 for the
comparable prior year. The increase in cash provided by operations was primarily
due to a $718,072 increase in collection of accounts receivable and from a
$745,528 decrease in inventory purchases. The net cash inflow of $571,056 from
operations during the 2005 period along with cash on hand was used for equipment
purchases of $211,000 and to decrease bank borrowing by $700,000. During the six
months of 2005, proceeds of $27,628 were received from the exercise of stock
options by employees to purchase common stock under the Company's stock options
plan. During the prior year six month period financing activities included
$316,200 of proceeds from the exercise of warrants to purchase common stock by
Genterra Inc. and $35,410 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 3.17 to 1 at March 31, 2005 compared to 2.88 to 1 at March 31,
2004.
Item 2. Management's Discussion and Analysis or
Plan of Operations
Results of Operations
Revenues and Gross Profit
Three Months Ended Six Months Ended
March 31, March 31,
2005 2004 2005 2004
---- ---- ---- ----
(In thousands of dollars)
Product Revenue $3,568 $4,160 $6,817 $7,179
Subcontract Revenue 207 65 306 144
Service Revenue 1,137 1,165 2,257 2,269
Total Revenue 4,912 5,390 9,380 9,592
Gross Profit Product 1,247 1,345 2,027 2,261
Gross Profit Subcontract 37 10 56 24
Gross Profit Service 391 328 791 634
Total Gross Profit 1,675 1,683 2,874 2,919
Gross Margin Product % 35% 32% 30% 31%
Gross Margin Subcontract % 18% 15% 18% 17%
Gross Margin Service % 34% 28% 35% 28%
Revenues
The Company's product revenues during the three and six months ended March 31,
2005 decreased 14% and 5% 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 six months periods is from a decline in
product shipments in the Dallas, Texas market area. 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 and has realized
increased bookings over the past 30 days.
Subcontract revenue increased during the current three and six 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 decreased slightly during the three and six month periods of
2005. The decrease in both periods is primarily due to a decrease in call-in
service revenue compared to the prior periods.
Item 2. Management's Discussion and Analysis or
Plan of Operations
Gross Profit
Gross profit on product revenues for the three and six months ended March 31,
2005 decreased 7% and 10% compared to the respective 2004 periods. The decrease
in absolute gross profit is primarily related to lower product sales from the
Dallas, Texas market (noted above). The increase in gross margin percentage
during the current three month period is related to several projects having
higher than normal gross margins. The decrease in the gross margin percentage
during the six month period is due to lower sales with increased overhead.
Gross profit related to subcontract revenues for the three and six months ended
March 31, 2005, increased in absolute terms as the Company was responsible for
larger electrical installation projects. In addition, the gross margin
percentage was higher during the three and six months of 2005 as higher markups
were obtained on electrical installations.
Gross profit on service revenues for the three and six months ended March 31,
2005, increased even though there was a slight decline in service revenues. The
increase in gross profit and gross margin percentage for these periods was due
to certain reductions in service technicians.
Income Before Tax
The decline in income and increase in loss before income taxes during the three
and six months ended March 31, 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 remained at approximately the same
levels as the prior year periods and are geared to support higher product
revenues. Interest expense decreased during 2005 due to lower borrowing levels.
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 six month periods
of 2005 the Company recorded a loss of $12,000 and $22,000, 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 a 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 March 31, 2005 amounted to
$11,100,000 as compared to $12,800,000 at September 30, 2004 and $15,800,000 at
March 31, 2004. This order position reflects large orders received for several
subway complexes which will be deliverable over several years as the projects
are released. In addition, the backlog includes $1.0 million of orders for
communication and announcement systems from several transit car manufacturers,
that will be shippable over the next 24 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 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.
The Registrant's Annual Meeting of Stockholders was held on March 10,
2005. At the meeting, Stockholders considered and voted upon:
(1) the election of seven (7) directors to Synergx's Board of Directors,
(2) the selection of Marcum & Kleigman LLP as Synergx's independent auditiors
for the fiscal year ending September 2005
The seven nominees for director were unopposed and were, accordingly
elected by the Stockholders. The following table details the votes cast for,
against and abstained from voting on each matter considered by the Stockholders.
----------------------------- -------------- ------------ ---------------
MATTER FOR AGAINST ABSTAINED
Daniel Tamkin 4,354,648 315,368 N/A
John Poserina 4,621,224 48,792 N/A
Henry Schnurbach 4,386,844 283,172 N/A
Joseph Vitale 4,361,458 308,558 N/A
Dennis McConnell 4,346,706 323,310 N/A
J Ian Dalrymple 4,621,890 48,126 N/A
Mark I. Litwin 4,621,258 48,758 N/A
----------------------------- -------------- ------------ ---------------
Auditors 4,633,831 35,799 386
----------------------------- -------------- ------------ ---------------
Item 5. Other Information.
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
Part II - OTHER INFORMATION
(b) Reports on Form 8-K
None
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: May 12, 2005