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, 2003_______________________
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number________________0-17580__________________________
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 February 6, 2004, 4,706,728
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 December 31, 2003 3
Condensed Consolidated Statements of Operations for the Three Month
Periods Ended December 31, 2003 and 2002 5
Condensed Consolidated Statements of Cash Flows for the Three Month
Periods Ended December 31, 2003 and 2002 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Controls and Procedures 16
Part II - Other Information
Item 1. Legal Proceedings. 19
Item 2. Changes in Securities. 19
Item 3. Defaults Upon Senior Securities. 19
Item 4. Submission of Matters to a Vote of Security Holders. 19
Item 5. Other Information. 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
Part I - FINANCIAL INFORMATION
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
December 31,
2003
--------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 338,805
Accounts receivable, principally trade, less allowance
for doubtful accounts of $415,405 5,300,582
Inventories 2,672,943
Deferred taxes 321,200
Prepaid expenses and other current assets 318,908
-----------
TOTAL CURRENT ASSETS 8,952,438
-----------
PROPERTY AND EQUIPMENT -at cost, less
accumulated depreciation and amortization of $1,401,093 384,960
OTHER ASSETS 709,455
-----------
TOTAL ASSETS $10,046,853
===========
See accompanying Notes to the Condensed Consolidated Financial Statements
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
December 31,
2003
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and capital leases payable - current portion $ 47,150
Accounts payable and accrued expenses 2,336,680
Deferred revenue 377,391
-----------
TOTAL CURRENT LIABILITIES 2,761,221
Note payable to bank 1,560,676
Notes and capital leases payable - less current portion 40,657
Deferred taxes 17,900
-----------
TOTAL LIABILITIES 4,380,454
-----------
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 4,687,394 shares 4,687
Capital in excess of par 6,296,600
Accumulated deficit (634,888)
-----------
TOTAL STOCKHOLDERS' EQUITY 5,666,399
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,046,853
===========
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,
2003 2002
----------- ------------
Product sales $ 3,018,948 $ 3,291,305
Subcontract sales 78,935 270,899
Service revenue 1,103,923 1,075,315
----------- -----------
Total revenues 4,201,806 4,637,519
----------- -----------
Cost of product sales 2,102,751 2,263,483
Cost of subcontract sales 65,515 210,514
Cost of service 797,282 727,761
Selling, general and administrative 1,362,741 1,329,143
Interest expense 19,370 10,118
Depreciation and amortization 48,443 44,678
Loss on equity investment 20,000
----------- -----------
4,416,102 4,585,697
----------- -----------
(Loss) Income before (benefit) provision for
income taxes (214,296) 51,822
----------- -----------
(Benefit) provision for income taxes:
Current (62,200) 24,000
Deferred (25,800) 6,000
----------- -----------
(88,000) 30,000
----------- -----------
Net (Loss) Income (126,296) $ 21,822
=========== ===========
(Loss) earnings per common share
Basic (loss) earnings per share $ (0.03) $ 0.01
=========== ===========
Diluted (loss) earnings per share $ (0.03) $ 0.01
=========== ===========
Weighted average number of common shares outstanding 4,166,103 3,748,850
Weighted average number of common and dilutive
common shares outstanding 4,166,103 3,930,489
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,
2003 2002
---------- ----------
OPERATING ACTIVITIES
Net (loss) income $(126,296) $ 21,822
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization 48,443 44,678
Deferred (benefit) tax (25,800) 6,000
Provision for doubtful accounts 4,000 (14,709)
Loss on equity investment 20,000
Changes in operating assets and liabilities:
Accounts receivable 489,339 (513,327)
Inventories (224,373) (510,077)
Prepaid expenses and other current assets (2,712) (7,270)
Other assets (35,752) (52,259)
Accounts payable and accrued expenses (589,584) 945,554
Deferred revenue (57,500) 13,421
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (500,235) (66,167)
--------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment (9,321) (58,221)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (9,321) (58,221)
--------- ---------
FINANCING ACTIVITIES
Principal payments on notes payable and capital lease obligations (69,326) (39,476)
Payments and proceeds from revolving line of credit - net 305,176 178,653
Proceeds from exercise of stock options and warrants 319,325
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 555,175 139,177
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 45,619 14,789
Cash and cash equivalents at beginning of period 293,186 200,201
--------- ---------
Cash and cash equivalents at end of period $ 338,805 $ 214,990
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 130,519 $ 4,707
Interest $ 27,200 $ 12,147
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the quarter ended December 31, 2003 and 2002, the Company incurred no
capital lease obligations 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, 2003
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited 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 months ended December 31, 2003 are not
necessarily indicative of the results that may be expected for the fiscal year
ending September 30, 2004. 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, 2003.
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 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, 2003 and 2002 and have been included in accounts
receivable. There were no billing in excess of costs and estimated profits at
December 31, 2003 and 2002.
Subcontract sales principally represents 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 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, 2003
(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
On October 9, 2003, the Company entered into a new $3 million revolving credit
facility with Hudson United Bank (the "Credit Facility"). The Credit Facility
has an interest rate of prime plus 1/4% on outstanding balances (4.5% at
December 31, 2003) and expires in October 2005. 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 receivables and inventory.
Initial proceeds from the new Credit Facility were used to pay off a former
credit facility with Citizens Business Credit. At December 31, 2003 the full
amount of the Credit Facility was available under the borrowing base calculation
and $1,561,000 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 December 31, 2003 the Company was
not in default with any of its financial covenants.
5. EXERCISE OF WARRANTS AND STOCK OPTIONS
Mirtronics the largest stockholder of the Company had outstanding warrants to
purchase 620,000 shares of the Company's Common Stock, which were issued in
1998, and were exercisable at any time until December 31, 2003 at an exercise
price of $.51 per share. Mirtronics exercised these warrants in December 2003
for a total consideration of $316,200.
During the three months ending December 31, 2003, employee stock options to
purchase 6,250 shares of Common Stock were exercised for a total consideration
of $3,125.
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
THREE MONTHS ENDED DECEMBER 31, 2003
(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 options,
non-employee stock options and warrants. The Company did not have stock based
compensation for the three months ended December 31, 2003 or 2002
For the Three Months ended December 31,
Basic EPS Computation 2003 2002
----------- -----------
Net (Loss) Income available to common stockholders $ (126,296) $ 21,822
Weighted average outstanding shares 4,166,103 3,748,850
Basic (Loss) EPS $ (.03) $ .01
=========== ===========
Diluted EPS Computation
(Loss) Income available to common stockholders
and assumed conversions $ (126,296) $ 21,821
----------- -----------
Weighted-average shares 4,166,103 3,748,850
----------- -----------
Plus: Incremental shares from assumed conversions
Employee Stock Options* 40,730
Warrants* 140,909
Dilutive potential common shares N/A 181,639
----------- -----------
Adjusted weighted-average shares 4,166,103 3,930,489
=========== ===========
Diluted (Loss) EPS $ (.03) $ .01
=========== ===========
*All warrants and options were antidilutive in 2003 and 340,000 warrants were
antidilutive for 2002 and therefore not included in the above calculations.
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
THREE MONTHS ENDED DECEMER 31, 2003
(UNAUDITED)
7. INVESTMENT IN SECURE 724 L.P.
On May 29, 2003, the Company (through a special purpose Nova Scotia subsidiary)
acquired 25% of the equity of Secure 724 LP ("Secure 724 LP"), an Ontario
limited partnership, from Nafund Inc. ("Nafund") in consideration of (a) 300,000
shares of Common Stock; (b) warrants to purchase 50,000 shares of Common Stock
at $1.15 per share for 24 months; (c) agreeing to provide secured loans of up to
Cdn$300,000 (which was approximately $225,000 U.S. at December 31, 2003) to
Secure 724 LP pro rata with equity/loans to be provided by Nafund and tied to
certain development milestones and (d) 150,000 shares of Common Stock to be
issued in the future upon Secure 724 LP satisfying the milestones and Nafund
providing the funding. Either the Company and/or Nafund can elect not to provide
all or any part of the above funding (regardless of whether the milestones are
attained). If milestones are attained and either the Company and/or Nafund
elects not to provide all or part of the above funding it would have its equity
reduced based on a formula.
The 25% investment in Secure 724 L.P. for 300,000 shares of Common Stock and
warrants to purchase 50,000 shares of Common Stock was valued at $432,500. This
investment is accounted for utilizing the equity method and is included in OTHER
ASSETS. The underlying equity of this investment on the date of the transaction
was approximately $73,000; resulting in goodwill of approximately $359,500;
which will not be amortized but will be tested for impairment. For the three
month ended December 31, 2003, a $20,000 adjustment to the equity investment was
recorded to reflect the Company's 25% portion of the operating loss of Secure
724 LP.
In connection with initial capital contribution per the partnership agreement,
the Company advanced $18,158 (Cdn$25,000) to Secure 724 LP in May 2003 and upon
reaching milestones advanced $125,089 (Cdn$175,000) in August 2003. These notes
receivable bear interest at a rate of 4% and mature in May 2006 and August 2006,
respectively.
This transaction was submitted to the stockholders of Synergx (as two directors
of Synergx are directors of Secure 724 LP) and approved at its Annual Meeting on
March 26, 2003.
There can be no assurance that the investment in Secure 724 LP will be
profitable.
8. OTHER EVENTS
Report Business Solutions
On November 20, 2003, the Company's Board of Directors approved entering into a
revised agreement to organize a new Ontario limited partnership to acquire and
operate the business of RePort Business Solutions ("RePort") in partnership with
NSC Holdings Inc. ("NSCH") and Nafund Inc. ("Nafund")
This transaction was originally submitted to the stockholders of Synergx for
approval at its Annual Meeting on March 26, 2003 because two directors of
Synergx are directors of Nafund and one is also a director and principal
SYNERGX SYSTEMS INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
THREE MONTHS ENDED DECEMBER 31, 2003
(UNAUDITED)
8. OTHER EVENTS (Continued)
of NSCH. Management believes that the revised structure and consideration are
within the scope of the stockholder approval.
Pursuant to the revised agreement (which is subject to approval by NSCH's bank
and completion of definitive documentation), the Company, through a subsidiary,
would acquire from Nafund, 25% of the Class B equity units of RePort in
consideration of the issuance to Nafund of 150,000 shares of Common Stock.
RePort which is currently a division of NSCH, provides software to the
independent international investment counseling, portfolio management and
brokerage community. Located in Toronto, Ontario, RePort's software links
external or outsourced trading, custodian, broker and bank systems in internal
diverse security and asset management systems and contact information systems
and electronic filing and documentation systems. RePort will provide these and
related back office services to NSCH (which is an investment counselor/money
manager) and to other third party investment counselors, money managers, funds
and similar entities.
There can be no assurance however that this transaction will take place.
9. STOCK SPLIT
On July 7, 2003, the Company's Board of Directors declared a 2-for-1 stock split
of its outstanding stock. The stock split took the form of a dividend whereby
the Company issued on July 25th to each shareholder of record at the close of
business on July 18, 2003 one additional share for every share held on that
date. The financial statements and footnotes have been adjusted to reflect this
stock split.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
In October 2003, the Company entered into a new $3 million revolving credit
facility with Hudson United Bank. (the "Credit Facility") This credit facility
has an interest rate of prime plus 1/4% and expires in October 2005. Initial
proceeds from the new credit facility were used to pay off a credit facility
with Citizens Business Credit. 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
and tangible net worth covenants. At December 31, 2003, 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
December 31, 2003, $1,561,000 was owed under the Credit Facility.
Net cash (used) by operations for the three months ended December 31, 2003
amounted to ($500,235) as compared to ($66,167) for the comparable prior year
period. The increase in cash being used by operations was due to a ($214,000)
operating loss in the 2003 quarter compared to an operating profit of $52,000 in
the comparable 2002 period and due to an increase in working capital
requirements in order to pay down accounts payable and accrued expenses by
$100,245 in excess of accounts receivable collections and for an increase in
inventory for projects expected to be shipped after December 31, 2003. The net
cash outflow of $(500,235) from operations during 2003 coupled with equipment
purchases of ($9,321) were funded by an increase of $305,176 in bank borrowing
and from $316,200 of proceeds from exercise of warrants to purchase common stock
by Mirtronics and $3,125 from exercise of stock options by employees to purchase
common stock.
The ratio of the Company's current assets to current liabilities increased to
approximately 3.20 to 1 at December 31, 2003 compared to 2.19 to 1 at December
31, 2002. The increase in the current ratio is due to an improvement in cash
flow since December 31, 2002 due to the return to profitable operations through
September 30, 2003, from $319,325 of proceeds from the exercise of warrants and
employees stock options, and from a major reduction in 2003 of accounts payable
and accrued expenses from higher collections of accounts receivable in 2003.
Working capital increased to a high level of $6.2 million at December 31, 2003
compared to $5.3 million at December 31, 2002; while bank borrowing increased by
$544,000 since December 31, 2002.
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Revenues and Gross Profit
Three Months Ended
December 31,
--------------------------
2003 2002
(In thousands of dollars)
Product Revenue $3,019 $3,292
Subcontract Revenue 79 271
Service Revenue 1,104 1,075
------ ------
Total Revenue $4,202 $4,638
Gross Profit Product $ 916 $1,028
Gross Profit Subcontract 13 60
Gross Profit Service 307 348
------ ------
Total Gross Profit $1,236 $1,436
Gross Profit Product % 30% 31%
Gross Profit Subcontract % 16% 22%
Gross Profit Service % 28% 32%
------- -------
Total Gross Profit % 29% 31%
Revenues
The Company's product revenues during the three months ended December 31, 2003
were $3,019,000 compared to $3,292,000 for the prior year period. This decrease
of 8% was caused in part by certain revenues from New York City Transit projects
where approvals for production and shipment were received late in the quarter
and accordingly production was delayed. The decrease in product revenues also
reflects softness in the Company's principal New York City market for its other
products. However, product revenues in our Dallas, Texas market area improved
significantly from the very low 2002 level. In the Dallas, Texas market, higher
product revenues resulted from certain cost reduction initiatives implemented
during the last twelve months which allowed the Company to price aggressively in
that competitive market. We continue to quote business aggressively in both that
area and in New York City Metropolitan area. As a consequence, new order
bookings improved for the three months ended December 31, 2003 and new orders
remain at a near record level.
Subcontract revenue decreased during the current three month period to $79,000
from $271,000 in the comparable prior year period. The Company was responsible
for various small electrical installations during the 2003 period as compared to
two large electrical installation projects in 2002.
Service revenues increased during the current three month period primarily due
to an increase in service contracts as the Company expanded its service base
into the Long Island, New York market area for fire alarm systems.
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Gross Profit
Gross profit on product revenues for the three months ended December 31, 2003,
decreased 11% to $916,000 compared to $1,028,000 for the prior year period. The
decrease in absolute gross profit is primarily related to lower product sales
(noted above) and related gross margin The decrease in gross profit percentage
in 2003 to 30% compared to 31% in 2002 reflects lower sales in which to absorb
certain fixed overhead costs. Over the last two years, certain project engineers
were added to support product expansion in an effort to increase product sales
to a higher level. While the Company's fixed overhead cost base increased the
product revenue increase did not occur by December 31, 2003. A combination of
lower sales and increased overhead contributed to a lower gross margin
percentage.
Gross profit related to subcontract revenues for the three months ended December
31, 2003 decreased in absolute terms as the Company was responsible for a
smaller amount of electrical installation. In addition, the gross profit
percentage was lower during the three months of 2003 as mark ups on electrical
installations were lower due to the competitive environment during this period.
Gross profit from service revenues during the three months ended December 31,
2003 decreased in spite of the increase in service revenue. The gross profit
decline was due from an increase in technicians to support higher service
revenue, salary increases and technicians moving up to higher paying categories.
These cost increases could not be fully absorbed by price increases to service
contracts.
Income Before Tax
The decline in income before income taxes during the three months ended December
31, 2003 is primarily due to the decrease in gross profit caused by lower
product revenues and related gross margin and from the relative fixed nature of
certain overhead costs (noted above). This decline in income before tax was also
caused by lower gross profit from subcontract revenues and from service
revenues. In addition, selling, general and administrative expenses increased
(3%) to support higher product sales and from higher insurance costs during
2003. Interest expense increased during 2003 due to higher borrowing levels. For
2003, the Company also recorded a loss of $20,000 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
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, 2003 was
$16,150,000 as compared to $16,500,000 at September 30, 2003 and $12,620,000 at
December 31, 2002. This near record order position, reflects recent large new
orders received for several subway complexes which will be deliverable over
several years as the projects are released and reflects recent increased new
orders in our Dallas, Texas market area.
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
In addition, the backlog includes $1.8 million of orders for communication and
announcement systems from several transit car manufacturers, that will be
shippable over the next 15 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.
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. Changes in Securities.
Mirtronics the largest stockholder of the Company had outstanding warrants
to purchase 620,000 shares of the Company's Common Stock, which were issued in
1998, and were exercisable at any time until December 31, 2003 at an exercise
price of $.51 per share. Mirtronics exercised these warrants in December 2003
for a total consideration of $316,200.
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.
Subsequent to December 31, 2003, the Company filed a post-effective
amendment No. 1 to Form S-8 Registration Statement (Reoffer Prospectus) for
86,322 shares of Common Stock which provides for the sales thereof by certain
executive officers and directors.
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 pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certifications of John A. Poserina pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None
Other
The information in Item 2 and Item 6 regarding shares of Common Stock have
been adjusted for a 2 for 1 stock split that took the form of a dividend that
was distributed on July 25, 2003.
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 12, 2004