U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

~~[X]~~ x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

For the fiscal quarter ended ~~June 30~~ December 31, 2009

~~[ ]~~ o 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)

(Exact name of small business issuer as specified in its charter)

Delaware		11-2941299
(State or jurisdiction of incorporation or organization)		(IRS employer identification Number)

209 Lafayette Drive, Syosset, New York 11791 (Address of Principal Executive Offices) (Zip code) (516) 433-4700 (Issuer’s telephone number)

Indicate by check mark whether the registrant (~~Address~~1) has offiled ~~Principal~~all ~~Executive~~reports ~~Offices~~required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (~~Zip~~or ~~code~~for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (~~516~~or for such shorter period that the registrant was required to submit and post such files). Yes ~~433-4700~~o No o

~~(Issuer’s~~Indicate by ~~telephone~~check ~~number)~~mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

~~Indicate~~Large byaccelerated ~~check~~filer ~~mark~~o ~~whether~~Accelerated ~~the~~filer ~~registrant~~o ~~(1)~~Non-accelerated ~~filed~~filer ~~all~~o ~~reports required to be filed by Section 13 or 15~~(d)Do ofnot ~~the~~check ~~Exchange~~if ~~Act~~a ~~during~~smaller ~~the~~reporting ~~preceding 12 months (or for such shorter period that the registrant was required to file such reports~~company), ~~and~~Smaller ~~(2)~~reporting ~~has~~company ~~been subject to such filing requirements for the past 90 days. Yes~~ x ~~No o~~

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

There were 5,210,950 shares outstanding of registrant’s common stock, par value $.001 per share, as of ~~August~~February 138, ~~2009~~2010.

INDEX

			PAGE
		Page
Part I – Financial Information (unaudited)
Item 1.	~~Item~~Financial 1Statements.	~~Financial Statements.~~
		Condensed Consolidated Balance Sheet at June 30, 2009
	Condensed Consolidated Balance Sheet at December 31, 2009 and September 30, 2009	1
		and September 30, 2008	3
	Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2009 and 2008	2
		Condensed Consolidated Statements of Operations for the
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2009 and 2008	3
		Three Months and Nine Months Ended June 30, 2009 and 2008	5
	Notes to the Condensed Consolidated Financial Statements	4
		Condensed Consolidated Statements of Cash Flows for the
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
		Nine Months Ended June 30, 2009 and 2008	7
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
		Notes to the Condensed Consolidated Financial Statements	8
Item 4.	Controls and Procedures	16
	Item 2.	Management’s Discussion and Analysis of Financial Condition and
Part II – Other Information
		Results of Operations	14
Item 1.	Legal Proceedings	17
	Item 3	Quantitative and Qualitative Disclosures About Market Risk	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
	Item 4.	Controls and Procedures	20
Item 3.	Defaults Upon Senior Securities	17
Part II – Other Information
Item 4.	Submission of Matters to a Vote of Security Holders	17
	Item 1.	Legal Proceedings	20
Item 5.	Other Information	17
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 6.	Exhibits	17
	Item 3.	Defaults Upon Senior Securities	20
Signatures		18
	Item 4.	Submission of Matters to a Vote of Security Holders	21
	Item 5.	Other Information	21
	Item 6.	Exhibits	21
	Signatures		22

2SYNERGX SYSTEMS INC. AND SUBSIDIARIES

SYNERGX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
	June 30,		September 30,
	2009		2008
ASSETS
CURRENT ASSETS
Cash	$	1,169,898	$	262,742
Accounts receivable, principally trade, less allowance
for doubtful accounts of $249,091 and $302,299, respectively		4,687,853		5,270,911
Inventories, net		2,379,220		1,948,466
Prepaid expenses and other current assets		116,676		988,083
TOTAL CURRENT ASSETS		8,353,647		8,470,202
		-		-
PROPERTY AND EQUIPMENT -at cost, less
accumulated depreciation and amortization of $2,270,817		650,386		815,719
and $2,091,000, repectively
OTHER ASSETS		244,350		250,195
TOTAL ASSETS	$	9,248,383		9,536,116

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31, 2009			September 30, 2009
ASSETS

CURRENT ASSETS

Cash	$	1,608,991		$	1,502,471
Accounts receivable, principally trade, less allowance for doubtful accounts of $265,192 and $297,091, respectively		3,059,198			4,030,780
Inventories		1,802,431			1,830,773
Prepaid expenses and other current assets		363,054			312,811

TOTAL CURRENT ASSETS		6,833,674			7,676,835

PROPERTY AND EQUIPMENT -at cost, less accumulated depreciation and amortization of $2,414,377 and $2,354,000, respectively		510,680			559,332

OTHER ASSETS		175,911			186,033
TOTAL ASSETS	$	7,520,265		$	8,422,200

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Notes payable to bank	$	1,475,007		$	1,496,524
Notes payable – current portion		21,335			26,005
Accounts payable and accrued expenses		1,566,220			1,881,793
Deferred revenue		887,062			1,045,667

TOTAL CURRENT LIABILITIES		3,949,624			4,449,989

Notes payable - less current portion		28,329			30,656

TOTAL LIABILITIES		3,977,953			4,480,645

STOCKHOLDERS' EQUITY

Preferred stock, 2,000,000 shares authorized, $.01 par value - none issued and outstanding
Common stock, 10,000,000 shares authorized, $.001 par value; issued and outstanding 5,210,950 shares		5,211			5,211
Additional Paid in Capital		6,864,649			6,861,721
Accumulated deficit		(3,327,548	)		(2,925,377	)

TOTAL STOCKHOLDERS' EQUITY		3,542,312			3,941,555
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	7,520,265		$	8,422,200

See accompanying Notes to the Condensed Consolidated Financial Statements

SYNERGX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
	June 30,		September 30,
	2009		2008
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank	$	1,475,944	$	--
Notes payable - current portion		27,553		27,553
Accounts payable and accrued expenses		2,555,813		2,993,697
Deferred revenue		1,168,695		1,613,453
TOTAL CURRENT LIABILITIES		5,228,005		4,634,703
Note payable to bank		--		517,873
Notes payable - less current portion		36,062		56,662
TOTAL LIABILITIES		5,264,067		5,209,238
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 5,210,950 shares		5,211		5,211
Additional paid in captal		6,858,793		6,849,706
Accumulated deficit		-2,879,688		-2,528,039
TOTAL STOCKHOLDERS' EQUITY		3,984,316		4,326,878
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	9,248,383		9,536,116

SYNERGX SYSTEMS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		For the three months ended December 31,
		2009			2008

Product sales	$	1,579,099		$	3,793,746
Subcontract sales		91,093			569,634
Service revenue		1,281,163			1,295,071
Total revenues		2,951,355			5,658,451

Cost of product sales		1,442,604			2,873,537
Cost of subcontract sales		77,140			439,253
Cost of service revenue		755,270			795,517
Selling, general and administrative		991,182			1,253,319
Depreciation and amortization		63,123			62,933
Total operating expenses		3,329,319			5,424,559

(Loss) income from operations		(377,964	)		233,892

Interest expense		(20,207	)		(8,163	)

(Loss) income before provision for income taxes		(398,171	)		225,729

Provision for income taxes:
Current		4,000			2,000

Net (loss) income	$	(402,171	)	$	223,729

(Loss) Income Per Common Share:
Basic and diluted (loss) income per share	$	(0.08	)	$	0.04

Weighted average number of
common shares outstanding – basic and dilutive		5,210,950			5,210,950

See accompanying Notes to the Condensed Consolidated Financial Statements

SYNERGX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
	For the Three Months Ended June 30,
	2009		2008
Product sales	$	1,643,723	$	2,822,196
Subcontract sales		259,394		397,601
Service revenue		1,281,748		1,319,367
Total revenues		3,184,865		4,539,164
Cost of product sales		1,589,325		2,400,695
Cost of subcontract sales		210,819		339,770
Cost of service revenue		825,519		693,089
Selling, general and administrative		1,004,787		1,732,963
Depreciation and amortization		66,683		62,933
Total operating expenses		3,697,133		5,229,450
(Loss) from operations		-512,268		-690,286
Interest expense		-9,632		-12,409
(Loss) before provision for income taxes		-521,900		-702,695
Provision for income taxes:
Current		5,000		1,000
Deferred		0		50,000
		5,000		51,000
Net (loss)	$	-526,900	$	-753,695
(Loss) Per Common Share
Basic and diluted (loss) per share	$	-0.10	$	-0.14
Weighted average number of common share
equivalents outstanding basic and dilutive		5,210,950		5,210,950

SYNERGX SYSTEMS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the three months ended December 31,
	2009			2008
OPERATING ACTIVITIES
Net (loss) income	$	(402,171	)	$	223,729
Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities:
Depreciation and amortization *		70,248			70,058
Share-based compensation		2,928			3,231
Changes in operating assets and liabilities:
Accounts receivable, net		971,582			(817,825	)
Inventories, net		28,342			(424,630	)
Prepaid expenses and other current assets		(50,243	)		263,041
Other assets		-			(383	)
Accounts payable and accrued expenses		(315,573	)		652,160
Deferred revenue		(158,605	)		21,764
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		146,508			(8,855	)

INVESTING ACTIVITIES
Purchases of property and equipment		(11,474	)		(9,690	)
NET CASH (USED IN) INVESTING ACTIVITIES		(11,474	)		(9,690	)

FINANCING ACTIVITIES
Principal payments on notes payable		(6,997	)		(6,824	)
Proceeds from and (payments of) note payable bank-net		(21,517	)		612,419
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(28,514	)		605,595

NET INCREASE IN CASH		106,520			587,050

Cash at beginning of the period		1,502,471			262,742
Cash at end of the period	$	1,608,991		$	849,792

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid during the period for:
Income taxes	$	11,105		$	3,982
Interest	$	19,755		$	7,419

* Depreciation of $7,125 is included in cost of product and service sales for the three months ended
December 31, 2009 and 2008, respectively.

See accompanying Notes to the Condensed Consolidated Financial Statements

SYNERGX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
	For the Nine Months ended June 30,
	2009		2008
Product sales	$	8,966,635	$	10,056,760
Subcontract sales		1,313,303		900,368
Service revenue		3,854,872		3,952,239
Total revenues		14,134,810		14,909,367
Cost of product sales		7,394,317		8,417,744
Cost of subcontract sales		1,046,210		769,594
Cost of service revenue		2,404,155		1,941,241
Selling, general and administrative		3,412,866		4,622,957
Depreciation and amortization		189,842		171,555
Total operating expenses		14,447,390		15,923,091
(Loss) from operations		-312,580		-1,013,724
Interest expense		-30,069		-95,223
		-		-
(Loss) before provision for income taxes		-342,649		-1,108,947
Provision for income taxes:
Current		9,000		4,000
Deferred				100,000
		9,000		104,000
Net (loss)	$	-351,649	$	-1,212,947
Loss Per Common Share:
Basic and diluted earnings (loss) per share	$	-0.07	$	-0.23
Basic and diluted weighted average number of
common shares outstanding		5,210,950		5,210,950

See accompanying Notes to the Condensed Consolidated Financial Statements

SYNERGX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	For the Nine Months Ended June 30,
	2009		2008
OPERATING ACTIVITIES
Net (loss)	$	-351,649	$	-1,212,947
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization *		211,217		192,931
Deferred taxes		--		100,000
Share-based compensation		9,087		21,471
Changes in operating assets and liabilities:
Accounts receivable, net		583,058		1,343,843
Inventories, net		-430,754		-263
Prepaid expenses and other current assets		871,407		451,567
Other assets		-25,667		-39,641
Accounts payable and accrued expenses		-437,884		-417,947
Deferred revenue		-444,758		467,358
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		-15,943		906,372
INVESTING ACTIVITIES
Proceeds from note receivable				69,429
Purchases of property and equipment, net		-14,372		-151,156
NET CASH (USED IN) INVESTING ACTIVITIES		-14,372		-81,727
FINANCING ACTIVITIES
Principal payments on notes payable		-20,607		-17,386
Proceeds from and payments of note payable bank - net		958,071		-872,680
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		937,464		-890,066
NET INCREASE (DECREASE) IN CASH		907,149		-65,421
Cash at beginning of the period		262,742		253,091
Cash at end of the period	$	1,169,891	$	187,670
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes	$	10,597	$	15,449
Interest	$	28,071	$	91,319
* Depreciation of $21,375 is included in cost of product and service sales for the nine months ended
June 30, 2009 and 2008, respectively.

See accompanying Notes to the Condensed Consolidated Financial Statements

SYNERGX SYSTEMS INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1. ~~BASIS~~ GOING OFCONCERN ~~PRESENTATION~~UNCERTAINTY

~~The~~As discussed ~~accompanying~~in ~~unaudited~~the ~~condensed~~accompanying ~~consolidated~~ financial statements, ~~have~~the ~~been~~Company ~~prepared~~has incontinued ~~accordance~~to incur ~~with~~losses ~~accounting~~from ~~principles~~operations. ~~generally~~In ~~accepted~~addition, in ~~the~~an ~~United~~attempt ~~States~~to ofachieve profitability ~~America~~and ~~for~~positive ~~interim~~cash ~~financial~~flow, ~~information~~management ~~and~~has oninstituted a ~~basis~~cost reduction program that isincluded ~~consistent~~a ~~with~~reduction ~~the accounting principles applied~~ in ~~our~~labor ~~Annual~~and ~~Report~~other oncosts. ~~Form~~Further, ~~10-KSB~~due ~~for~~to the ~~fiscal~~ ~~year~~uncertain ~~ended~~economic ~~September 30~~conditions, ~~2008. Accordingly~~recurring losses, ~~they~~and ~~do not include all of~~ the ~~information~~current ~~and~~unfavorable lending ~~footnotes~~climate, ~~required~~there bycan ~~accounting~~be ~~principles~~no ~~generally~~assurance ~~accepted~~that in the ~~United~~Company ~~States~~will ofbe ~~America~~able ~~for~~to generate ~~complete~~sufficient ~~financial~~cash ~~statements. In~~flow ~~the~~to ~~opinion~~pay ofoff ~~management,~~its ~~all~~entire ~~adjustments~~bank ~~(including~~line ~~normal~~or ~~recurring~~that ~~items)~~it ~~considered~~will ~~necessary~~be successful ~~for~~in arranging a ~~fair~~new ~~presentation~~line of ~~our~~credit ~~results~~on ~~for~~acceptable ~~the~~terms ~~interim periods presented. Results~~ for ~~the~~an ~~three and nine months ended June 30, 2009 are not necessarily indicative of the~~amount ~~results~~sufficient ~~that~~to ~~may~~continue beits ~~expected~~operations ~~for the full fiscal year ending September 30, 2009~~successfully. ~~For~~As ~~further~~a ~~information~~result, ~~refer~~these tofactors raise ~~the~~substantial ~~consolidated~~doubt ~~financial~~with ~~statements~~respect ~~and~~to ~~footnotes thereto included in Synergx Systems Inc. (“Synergx” or “~~the Company~~”) and Subsidiaries~~’s ~~annual~~ability ~~report~~to oncontinue ~~Form~~as ~~10-KSB~~a going ~~for the year ended September 30, 2008~~concern. ~~The Company evaluated subsequent events through the date of issuance of the financial statements.~~

The ~~preparation of~~ financial statements indo ~~conformity~~not ~~with~~include ~~GAAP~~any ~~requires~~adjustments ~~that~~to wereflect ~~make~~the ~~estimates~~possible future ~~and~~effects ~~assumptions~~on ~~that affect~~ the ~~reported~~recoverability ~~amounts of assets, liabilities~~ and ~~disclosures~~classification of ~~contingent~~ assets ~~and~~or ~~liabilities at~~ the ~~date of the financial statements and reported~~ amounts of ~~revenues~~liabilities ~~and~~that ~~expenses~~may ~~during~~result should the ~~reporting~~Company ~~period. These judgments can~~ be ~~subjective~~unable and complex, and consequently actual results could differ materially from those estimates and assumptions. We base our estimates on historical experience and on various other assumptions we believe to becontinue ~~reasonable~~as ~~under~~a going ~~the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources~~concern

NOTE 2. ~~REVENUE~~ BASIS ~~RECOGNITION~~OF PRESENTATION

~~Product~~The accompanying ~~sales~~unaudited ~~include~~condensed ~~sales~~consolidated offinancial ~~systems,~~statements ~~which~~have ~~are~~been prepared ~~similar~~ in ~~nature,~~accordance ~~that~~with ~~involve~~accounting ~~fire~~principles ~~alarm,~~generally ~~life~~accepted ~~safety~~in ~~and~~the United ~~security~~States ~~(CCTV~~of ~~and~~America ~~card~~for ~~access),~~interim ~~transit~~financial ~~(train~~information ~~station platforms)~~ and ~~communication~~on ~~(paging,~~a ~~announcement~~basis ~~and~~that is ~~audio/visual). Product~~consistent ~~sales represent sales of products along~~ with the ~~integration~~accounting ofprinciples ~~technical~~applied ~~services at~~in aour ~~fixed~~Annual ~~price~~Report ~~under~~on Form a10-K ~~contract~~for ~~with~~the anfiscal ~~electrical~~year ~~contractor~~ended orSeptember ~~end user customer (building owner or tenant)~~30, ~~or customer agent~~2009. ~~Product sales for long term contracts are recognized~~Accordingly, they ~~using~~do ~~the~~not ~~percentage-of-completion~~include ~~method~~all of ~~accounting. The~~the ~~effects~~information ofand ~~changes~~footnotes inrequired ~~contract~~by ~~terms~~accounting principles ~~are~~generally ~~reflected~~accepted in the ~~accounting~~United ~~period~~States inof ~~which~~America ~~they~~for ~~become~~complete financial ~~known~~statements. ~~Contract~~In ~~terms~~the ~~provide~~opinion ~~for~~of ~~billing~~management, ~~schedules~~all ~~that~~adjustments (consisting ~~differ~~of ~~from~~normal ~~revenue~~recurring ~~recognition~~accruals) ~~and~~considered ~~give~~necessary ~~rise~~in toorder ~~costs~~not ~~and estimated profits in~~to ~~excess~~make ofthe ~~billings,~~financial ~~and~~statements ~~billings~~misleading inhave ~~excess~~been ~~of costs and estimated profits~~included. ~~Costs~~ ~~and~~Results ~~estimated~~for ~~profits~~the three inmonths ~~excess~~ended ofDecember ~~billing were $68~~31,~~000~~ ~~and $640,000 at June 30,~~ 2009 ~~and~~are ~~September~~not ~~30,~~necessarily ~~2008,~~indicative ~~respectively~~of ~~and~~the results ~~have~~that ~~been~~may ~~included~~be inexpected ~~other~~for ~~current~~the ~~assets. Billings~~full infiscal ~~excess~~year ofending ~~costs~~September ~~and estimated profits were $408~~30,~~000~~ ~~and~~2010. For ~~$841,000~~further ~~at June 30~~information, ~~2009~~refer ~~and~~to ~~September~~the ~~30,~~consolidated ~~2008,~~financial ~~respectively~~statements and footnotes ~~have~~thereto ~~been~~ included in ~~deferred~~Synergx ~~revenue~~Systems Inc. ~~Product~~ ~~sales~~(“Synergx” ~~for~~or ~~short~~“the ~~term~~Company”) and ~~contracts~~Subsidiaries’ ~~are~~annual ~~recognized when~~report ~~the~~on ~~services~~Form ~~are~~10-K ~~performed~~for or the ~~product~~year ~~has~~ended ~~been~~September ~~delivered~~30, 2009. The ~~which~~Company isevaluated ~~when~~subsequent ~~title~~events tothrough the ~~product~~date ~~and~~of issuance ~~risk~~ of ~~loss have been substantially transferred to~~ the ~~customer~~financial ~~and collection is reasonably assured~~statements.

The preparation of financial statements in conformity with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. These judgments can be subjective and complex, and consequently actual results could differ materially from those estimates and assumptions. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carry value of assets and liabilities that are not readily apparent from other sources.

NOTE 3. 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 (train station platforms) and communication (paging, announcement and audio/visual). Product sales represent sales of products 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 for long term contracts are recognized, using the percentage-of-completion method of accounting. 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 $82,000 and $103,000 at December 31, 2009 and September 30, 2009, respectively and have been included in other current assets. Billings in excess of costs and estimated profits were $181,000 and $323,000 at December 31, 2009 and September 30, 2009, respectively and have been included in deferred revenue. Product sales for short term contracts are recognized when the services are performed or the product has been delivered, which is when title to the product and risk of loss have been substantially transferred to the customer and collection is reasonably assured.

Subcontract sales principally represent 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. Revenue is recognized when these services are 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. The unearned service revenue from these contracts is included in current liabilities as deferred revenue. Non-contract service revenue is recognized when services are performed.

SYNERGX SYSTEMS INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3. SIGNIFICANT CUSTOMERS AND SUPPLIERS

The Company does business directly and indirectly through electrical contractors to New York City Transit Authority. Net sales to this authority represented approximately 2% and 18% of total net sales in the three months ended June 30, 2009 and 2008, respectively and 15% and 26% of total net sales in the nine months ended June 30, 2009 and 2008.

Two suppliers each accounted for more than 10% of the Company’s cost of sales for the three and nine months ended June 30, 2009 (those suppliers amounted to 43% and 13%, respectively for the three month period and 18% and 13% for the nine month period). Three suppliers accounted for more than 10% of the Company’s cost of sales for the three months ended June 30, 2008 (amounting to 22%, 12% and 11%) and one supplier accounted for more than 10% of the Company’s cost of sales for the nine months ended June 30, 2008 (amounting to 15%).

NOTE 4. INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or market and consist primarily of raw materials and parts for service and at June 30, 2009 and September 30, 2008 and are net of an inventory allowance of $666,000 and $613,000, respectively for slow movement and obsolescence.

NOTE 5. NOTE PAYABLE BANK

The Company has a $2.5 million dollar revolving credit facility (the “Credit Facility”) with TD Banknorth, N.A. (the “Bank”). This Credit Facility has an annual interest rate of prime plus 2% (5.25% at June 30, 2009 and 5.25% at September 30, 2008) and is to expire on October 1, 2009. Accordingly, the bank debt is being classified as a current liability at June 30, 2009. 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 requirements, imposes limitations on declaring or paying dividends, and making acquisitions and capital expenditures. The Company is also required to maintain certain financial ratios and tangible net worth covenants.

As of June 30, 2009, the Company had a tangible net worth of $3.9 million and, as a result, did not meet the $4.3 million minimum tangible net worth loan covenant contained in the loan agreement with its Bank. The Company has requested a waiver of this violation, but the Bank has refused to grant such a waiver. As a result, the Company’s debt may be callable by the Bank at any time. The Company plans to negotiate with the Bank and also to seek a new lending source, as the line of credit is important to the Company’s liquidity and ability to conduct its operations. There can be no assurance that the Company will be successful in arranging a line of credit on favorable terms. As a result, there is a significant uncertainty with respect to the Company’s ability to continue as a going concern without alternative financing.

At June 30, 2009, $1,476,000 was owed under the Credit Facility. At September 30, 2008, the full amount of the Credit Facility was available under the borrowing base calculation and $518,000 was outstanding under this facility. In view of the Company’s working capital collateral, which is in excess of its present and anticipated credit line, the Company believes financing should be available from another lender, if necessary. The Company anticipates that its existing capital resources and funds expected to be received from operations will be sufficient to satisfy its cash flow requirements through June 30, 2010 assuming that the present financing continues or alternative financing is obtained.

SYNERGX SYSTEMS INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 4. ~~EARNINGS~~ SIGNIFICANT ~~(LOSS)~~CUSTOMERS ~~PER~~AND ~~SHARE~~SUPPLIERS

The Company ~~Financial~~does ~~Accounting~~business ~~Standards~~directly ~~Board~~and ~~(“FASB”)~~indirectly ~~issued~~through ~~“SFAS”~~electrical ~~No.~~contractors ~~128, “Earnings Per Share”, which requires companies~~ to the ~~report~~New ~~basic~~York ~~and~~City ~~diluted~~Transit ~~earnings per share (“EPS”) computations~~Authority. ~~Basic~~Net ~~EPS~~sales ~~excludes~~to ~~dilution~~this ~~and~~authority represented isapproximately ~~based~~12% ~~on the weighted-average common shares outstanding~~ and ~~diluted~~23% ~~EPS~~of ~~gives~~total ~~effect~~net tosales ~~potential~~in ~~dilution~~the ofthree ~~securities~~months ended ~~that~~December ~~could~~31, ~~share~~2009 inand ~~the~~2008, ~~earnings of the Company~~respectively.

	For the Three Months						For the Nine Months
	ended June 30,						ended June 30,
Basic and Diluted EPS Computation	2009			2008			2009			2008
Net (Loss)	$	(526,900	)	$	(753,695	)	$	(351,649	)	$	(1,212,947	)
Weighted average outstanding shares		5,210,950			5,210,950			5,210,950			5,210,950
Basic and Diluted net (loss) per share	$	(.10	)	$	(.14	)	$	(..07	)	$	(.23	)

No customer provided sales of 10% or more for the three months ended December 31, 2009. One customer provided sales of 10% or more of total sales (amounting to 15%) in the three months ended December 31, 2008. No customer owed the Company more than 10% of total accounts receivable at December 31, 2009 and one customer owed the Company an account receivable of $868,000 at December 31, 2008,

*AllTwo suppliers ~~stock~~each ~~options~~accounted ~~outstanding~~for ~~during~~more than 10% of the ~~three~~Company’s ~~and~~cost ~~nine~~of ~~month~~sales ~~period~~for the three months ended ~~June~~December 3031, 2009 ~~and~~(those ~~June~~suppliers ~~30,~~amounted ~~2008~~to ~~were~~34% ~~anti-dilutive~~and 10%, respectively). ~~However,~~Three insuppliers ~~the~~accounted ~~future~~for ~~the~~more ~~stock~~than ~~options~~10% ~~may~~of the beCompany’s ~~dilutive~~cost ifof sales for the ~~market~~three ~~price~~months ofended ~~the~~December ~~Company’s~~31, ~~common~~2008 (amounting ~~stock~~to ~~increases~~17%, ~~over~~15% $1and 12%).~~70.~~

NOTE ~~7 INCOME TAXES~~ 5. INVENTORIES

Inventories are stated at the lower of cost (first–in, first–out) or market and consist primarily of raw materials and parts for service. The ~~effective~~cost ~~income~~elements of ~~tax~~inventories ~~rate~~include ~~differs~~materials, ~~from~~labor and overhead. In evaluating whether inventories are stated at the ~~statutory~~lower ~~rate~~of ~~for~~cost or market, the ~~three~~Company considers such factors as the amount of inventory on hand, estimated time required to sell or use such inventory and ~~nine~~current ~~months~~and ~~ended~~expected ~~June~~market conditions. Based 30on this evaluation, the Company records an adjustment to cost of goods sold to reduce inventories to net realizable value if required. At December 31, 2009 and ~~2008~~September as30, no2009 inventories ~~income~~are ~~tax~~reported ~~benefit~~net ~~was~~of ~~recorded~~cumulative ~~for~~inventory ~~the~~write ~~operating~~downs ~~loss~~of ~~during~~$716,000 ~~both~~and $710,000 ~~periods~~respectively, for slow movement and obsolescence.

~~The Company accrues interest and penalties related to unrecognized tax benefits in income tax expense~~NOTE 6. NOTE ~~This~~PAYABLE methodology is consistent with previous periods. No accrual for interest and penalties related to uncertain tax positions was required as of June 30, 2009. As of June 30, 2009, the Company was subject to U.S. Federal and State Income Tax examinations for the tax years ending September 30, 2005 through 2008, but at the present time, no examinations are pending or in progress.BANK

10The Company had a $2.5 million revolving credit facility (the “Credit Facility”) with TD Banknorth (“the Bank”) which expired on October 1, 2009 and at that time certain events of default existed under the loan agreement. At the expiration date, the Bank did not call the loan but has advised the Company that it would not advance any additional funds. In January 2010, the Company entered into a forbearance agreement with the Bank to extend the facility until April 30, 2010, which would allow the Company additional time to satisfy its obligation to the Bank or to obtain alternative financing. If there is further deterioration in the Company’s financial condition, however, the Bank shall have the right to immediately exercise any and all rights and remedies provided under the Credit Facility, including a demand for immediate payment. The forbearance agreement required a principal payment of $200,000 at the time of closing in January 2010 (which was made at that time) and an increase in the interest rate (retroactive to December 1, 2010) from prime plus 2% (5.25%) to the Bank’s base rate plus 3% (6.25% from December 1, 2009 through December 31, 2009) for the duration of the extension period. The agreement requires monthly principal payments of $15,000 in January 2010 increasing to $25,000 per month in February, March and April of 2010. The Bank also charged, and the Company paid, a loan modification and extension fee of $25,000.

The Company’s debt to the Bank is secured by all assets of the Company and all of its operating subsidiaries. Outstanding debt to the Bank is measured against a borrowing base, which is calculated based on eligible accounts receivable and inventories.

The agreement with the Bank includes certain restrictive covenants, which among other things, impose limitations on declaring or paying dividends, acquisitions, and making capital expenditures. The Company is also required to maintain certain financial ratios and tangible net worth covenants. As of September 30, 2009, the Company was not in compliance with certain of its covenants. Compliance with these covenants is not a continued requirement by the bank in conjunction with the agreement to extend the facility to April 30, 2010.

As of December 31, 2009 and September 30, 2009, $1,475,000 and $1,497,000, respectively, was owed to the Bank.

SYNERGX SYSTEMS INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 8 7. ~~RELATED~~EARNINGS ~~PARTY~~(LOSS) ~~TRANSACTIONS~~PER SHARE

AtThe Financial ~~September~~Accounting ~~30,~~Standards ~~2007,~~Board ~~Firecom, Inc.~~ (“~~Firecom~~FASB”) (ahas ~~privately~~issued ~~owned~~guidance ~~company~~which ~~involved~~requires companies into ~~the~~report ~~fire~~basic ~~alarm~~and ~~business)~~diluted ~~owned~~earnings ~~1,352,544~~per ~~shares~~share or(“EPS”) computations. Basic ~~approximately~~EPS ~~26%~~excludes ofdilution ~~the~~and ~~Company’s~~is ~~outstanding~~based ~~shares~~on ofthe weighted-average common ~~stock. In June 2008, Firecom purchased an additional 225,568~~ shares outstanding and indiluted ~~January~~EPS ~~2009,~~gives ~~Firecom~~effect ~~purchased~~to ~~another~~potential ~~490,000~~dilution ~~shares~~of ~~increasing~~securities ~~its~~that ~~beneficial~~could ~~ownership~~share toin ~~2,068,112~~the ~~shares~~earnings ~~equal to 40%~~ of the Company~~’s outstanding common stock~~.

Mr. Paul Mendez, the Company’s President and Chief Executive Officer also serves as Chairman of the Board of Directors and Chief Executive Officer of Firecom. On June 10, 2008, the Company entered into an employment agreement with Mr. Mendez under which the Company would pay Mr. Mendez an annual base salary of $20,000. The employment agreement was modified in January 2009 to increase Mr. Mendez’s salary, retroactive to October 1, 2008, to an annual base salary of $250,000 and, as a result, during the nine months ended June 30, 2009 the Company recorded $188,000 of compensation expense for Mr. Mendez. Mr. Mendez does not participate in the Company’s health-care or other benefit plans. Pursuant to the employment agreement, either the Board of Directors of the Company or Mr. Mendez may terminate his employment without cause and at any time. Mr. Mendez devotes approximately 50% of his time to the affairs of the Company. In the employment agreement with the Company, Mr. Mendez has agreed to certain non-competition and confidentiality provisions.

	For the Three Months Ended December 31,
	2009			2008
Basic and Diluted EPS Computation

Net (loss) income	$	(402,171	)	$	223,729

Weighted average outstanding shares		5,210,950			5,210,950

Basic and diluted net (loss) income per share	$	(0.08)		$	0.04

~~Firecom~~*All stock ~~also~~options ~~provides~~outstanding ~~the~~during ~~Company with a full time employee who serves as President of~~ the ~~Company’s fire alarm products and services activities. For the~~ three ~~and nine~~ months ~~ending~~period ~~June~~ended ~~30,~~December ~~2009 the Company paid Firecom $70~~31,~~000~~ ~~and $156,000, respectively, for the services of this individual, which includes reimbursement for salary,~~2009 ~~payroll taxes~~ and ~~other~~December ~~employee benefits. These expenses are included in cost of service revenue. For the three and nine months ending June 30~~31, 2008 ~~the~~were ~~Company paid Firecom $52,000 and $66,000, respectively, for the same services~~anti-dilutive. ~~For the three and nine months ending June 30~~However, ~~2009~~in the ~~Company~~future ~~paid $12,000 and $37,000, respectively, to Firecom for another employee who serves in a fire alarm administrative~~the ~~function,~~stock nooptions ~~money~~may ~~was~~be ~~paid~~dilutive ~~for~~if ~~this employee during~~ the ~~three~~market ~~and~~price ~~nine~~of ~~months ending June 30, 2008 as~~ the ~~employee began work for the~~ Company’s incommon ~~January~~stock increases ~~2009~~over $1.70.

The Company and Firecom have entered into several transactions that are not financially material to the revenues, gross profit or net income (loss) of the Company. Firecom has provided certain sales leads to the Company for products Firecom does not sell. These sales leads have resulted in additional sales of products to customers.NOTE The Company has paid Firecom a 2% sales commission related to these sales which amounted to $6,000 for the nine months ended June 30, 2009 and there were no such transactions for the nine months ended June 30, 20088. ~~Firecom~~ INCOME has manufactured and sold to the Company certain fire alarm equipment made to the Company’s specifications. This equipment was sold to the Company for $18,000 and $21,000 during the three and nine months ended June 30, 2009, respectively and $12,000 during the three and nine months ended June 30, 2008. The Company from time to time has purchased and sold certain products used in Firecom’s business. During the three and nine months ended June 30, 2009, these products were sold to Firecom for $184,000 and $328,000, respectively. During the three and nine months ended June 30, 2008, these products were sold to Firecom for $14,000 and $44,000, respectively. The Company has a consulting agreement with Firecom pursuant to which Firecom provides certain hardware and software engineering and field trouble-shooting services. In offering these services, Firecom has agreed to keep information confidential and refrain from use of the information in its business.TAXES

AsThe effective ofincome ~~June~~tax 30rate differs from the statutory rate for the three months ended December 31, 2009 and ~~September~~2008 ~~30,~~as ~~2008,~~no income tax benefit was recorded for the loss ~~Company~~incurred ~~owed~~during ~~Firecom~~the $-three 0months -ended ~~and~~December $331,~~000,~~ ~~respectively~~2009 and no income tax expense was recorded during the three months ended December 31, ~~which~~2008 isdue ~~included~~to inthe expected ~~Accounts~~use ~~Payable~~of net operating loss carryforwards on the operating profit.

AsThe Company accrues interest and penalties related to unrecognized tax benefits in income tax expense. This methodology is consistent with previous periods. No accrual for interest and penalties related to uncertain tax positions was required as of ~~June~~December 3031, 2009. As ~~and~~of ~~September 30~~December 31, ~~2008~~2009, ~~Firecom~~the ~~owed~~Company was subject to U.S. Federal and State Income Tax examinations for the ~~Company~~tax ~~$141~~years ending September 30,~~000~~ ~~and~~2006 ~~$34~~through 2009,~~000~~ ~~respectively~~but at the present time, ~~which~~no isexaminations ~~included~~are inpending ~~Accounts~~or ~~Receivable~~in progress.

~~NOTE~~At December 931, 2009, the Company had net operating loss carryforwards for federal income tax purposes of approximately $2.1 million that may be used to offset future taxable income. ~~NEW~~These ~~ACCOUNTING~~loss ~~PRONOUNCEMENTS~~carryforwards will expire in the years 2026 through 2029.

In June 2009, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162", ("SFAS 168"), which is effective forNOTE ~~the Company on July 1, 2009~~9. RELATED ~~SFAS 168~~PARTY does not alter current GAAP, but rather integrates existing accounting standards with other authoritative guidance. Under SFAS 168 there will be a single source of authoritative GAAP for nongovernmental entities and will supersede all other previously issued non-SEC accounting and reporting guidance. The adoption of SFAS 168 will not have any impact on the Company’s financial position or results of operations.TRANSACTIONS

InAt September ~~June~~30, ~~2009~~2008, ~~FASB issued SFAS No. 167~~Firecom, ~~"Amendments to FASB Interpretation No~~Inc. ~~46(R)"~~ (~~"SFAS 167"~~“Firecom”). ~~SFAS 167 amends FIN 46~~(~~R),~~a ~~"Consolidation~~privately ofowned ~~Variable Interest Entities (revised December 2003)—an interpretation of ARB No. 51" to require an enterprise to perform an analysis to determine whether the~~company ~~enterprise's~~involved ~~variable interest or interests give it a controlling financial interest~~ in ~~a variable interest entity. This analysis identifies~~ the ~~primary~~fire ~~beneficiary~~alarm ofand alife ~~variable~~safety ~~interest~~business) ~~entity~~owned as1,578,112 ~~one~~shares ~~with~~or approximately ~~the~~30% ~~power to direct the activities~~ of ~~a variable interest entity that most significantly impacts~~ the ~~entity'~~Company’s ~~economic~~outstanding ~~performance~~shares ~~and the obligation to absorb losses~~ of ~~the entity that could potentially be significant to the variable interest~~common stock. In ~~SFAS 167~~January ~~will~~2009, ~~become~~Firecom ~~effective~~purchased ~~for~~another ~~the Company on October 1~~490,000 shares ~~2010.~~increasing ~~The~~its ~~Company~~beneficial ~~anticipates~~ownership ~~that~~to ~~the~~2,068,112 ~~adoption~~shares, ofequal ~~SFAS 167~~to ~~will~~approximately 40% ~~not have a significant impact on their consolidated financial position or results~~ of ~~operations~~the ~~since~~Company’s ~~they~~outstanding ~~currently~~common ~~do not have any variable interest entities~~stock.

InMr. ~~May 2009~~Paul Mendez, the ~~FASB~~Company’s ~~issued~~President ~~SFAS~~and ~~No. 165,~~Chief ~~"Subsequent~~Executive ~~Events"~~Officer ~~("SFAS 165").~~also ~~SFAS 165~~serves ~~establishes~~as Chairman ~~general~~of ~~standards~~the Board of ~~accounting~~Directors ~~for~~ and ~~disclosures~~Chief Executive Officer of ~~events~~Firecom. ~~that~~On June ~~occur~~10, ~~after~~2008, the ~~balance~~Company ~~sheet~~entered ~~date~~into ~~but~~an ~~before~~employment ~~financial~~agreement ~~statements~~with ~~are~~Mr. ~~issued~~Mendez under orwhich ~~are~~the ~~available~~Company towould bepay ~~issued~~Mr. ~~The~~Mendez ~~Company~~an ~~adopted~~annual ~~SFAS 165~~base onsalary ~~June 30,~~of $20,000. The employment agreement was modified in January 2009 to increase Mr. ~~The~~Mendez’s ~~adoption~~salary, retroactive to October 1, 2008, to an annual base salary of ~~SFAS 165~~$250,000. ~~had~~Mr. noMendez ~~impact~~does onnot ~~their~~participate ~~financial~~in ~~position~~the Company’s health-care or ~~results~~other benefit plans. Pursuant to the employment agreement, either the Board of ~~operations~~Directors of the Company or Mr. Mendez may terminate his employment without cause and at any time. Mr. Mendez devotes approximately 50% of his time to the affairs of the Company. In the employment agreement with the Company, Mr. Mendez has agreed to certain non-competition and confidentiality provisions.

11Firecom also provides the Company with a full time employee who serves as President of the Company’s fire alarm products and services activities. For the three months ended December 31, 2009 the Company paid Firecom $52,000 for the services of this individual, which includes reimbursement for salary, payroll taxes and other employee benefits. These expenses are included in cost of service revenue. For the three months ended December 31, 2008, the Company paid Firecom $53,000 for the same services. Also, for the three months ended December 31, 2009, the Company paid $20,000 to Firecom for another employee who serves in a fire alarm administrative function. No reimbursement for this employee was made during the three months ended December 31, 2008 as the employee began work for the Company in January 2009.

SYNERGX SYSTEMS INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 9 ~~NEW~~. RELATED ~~ACCOUNTING~~PARTY ~~PRONOUNCEMENTS~~TRANSACTIONS (continued)

InThe Company ~~April~~and ~~2009,~~Firecom have entered into several transactions that are not financially material to the ~~FASB~~revenues, ~~issued~~gross ~~FSP~~profit Noor net income (loss) of the Company. ~~141R-1~~ Firecom ~~"Accounting~~has provided certain sales leads to the Company for products ~~Assets~~Firecom ~~Acquired~~does ~~and~~not ~~Liabilities~~sell. ~~Assumed~~These insales aleads ~~Business~~have ~~Combination~~resulted ~~That~~in ~~Arise~~additional sales ~~from~~of ~~Contingencies"~~products ~~("FSP~~to ~~141R-1")~~customers. ~~FSP~~The ~~141R-1~~Company ~~amends~~has ~~the~~paid ~~provisions~~Firecom ina ~~SFAS 141(R)~~2% ~~for~~sales commission ~~the~~related ~~initial~~to ~~recognition~~these ~~and~~sales ~~measurement~~which amounted to $6,000 ~~subsequent~~for ~~measurement~~the ~~and~~three ~~accounting~~months ended December 31, 2008 and ~~disclosures~~there were no such transactions for ~~assets~~the three months ended December 31, 2009. Firecom has manufactured and ~~liabilities~~sold ~~arising~~to ~~from~~the Company ~~contingencies~~certain infire ~~business~~alarm ~~combinations~~equipment made to the Company’s specifications. ~~FSP~~The cost ~~141R-1~~of ~~eliminates~~this equipment to the ~~distinction~~Company ~~between~~was ~~contractual~~$3,000 ~~and~~for ~~non-contractual~~the ~~contingencies~~three months ended December 31, ~~including~~2008 and there were no such transactions for the ~~initial~~three ~~recognition~~months ~~and~~ended December ~~measurement~~31, ~~criteria~~2009. The inCompany ~~SFAS 141(R)~~from time to time has purchased and sold ~~instead~~certain ~~carries~~products ~~forward~~used ~~most~~in ofFirecom’s business. During the ~~provisions~~three months inended ~~SFAS 141~~December 31, 2009 and 2008, these products were sold to Firecom for $38,000 ~~acquired~~and ~~contingencies~~$43,000, respectively. The ~~FSP~~Company ~~141R~~has a consulting agreement with Firecom pursuant to which Firecom provides certain hardware and software engineering and field trouble-1shooting isservices. The ~~effective~~Company has ~~for~~not ~~all~~incurred ~~business~~any ~~acquisitions~~expenses ~~occurring~~during onthe orthree ~~after~~months ~~October 1~~ended December 31, 2009 and 2008. In ~~The~~offering ~~impact~~these ofservices, ~~the~~Firecom ~~adoptions~~has ~~will~~agreed beto ~~dependent~~keep information ~~upon~~confidential ~~the~~and ~~extent~~refrain ~~and~~from ~~nature~~use of ~~any future~~the ~~acquisitions~~information in its business.

InAs ~~April~~of December ~~2009~~31, ~~the~~2009 ~~FASB issued FASB Staff Position SFAS No. 107-1~~ and ~~APB~~September ~~No. 28-1~~30 ,2009, ~~"Interim~~the ~~Disclosures~~Company ~~about~~owed ~~Fair~~Firecom ~~Value of Financial Instruments" ("FSP 107~~$-~~1 and APB 28~~0-~~1").~~ ~~This FSP amends SFAS No. 107, "Disclosures about Value of Financial Instruments"~~ and ~~APB Opinion No. 28~~ $24,000, ~~"Interim Financial Reporting"~~respectively, to ~~require~~which ~~disclosures~~is ~~about~~included ~~fair value of financial instruments not measured on the balance sheet at fair value~~ in ~~interim~~Accounts ~~financial statements as well as in annual financial statements~~Payable. ~~FSP~~As ~~107-1 and APB 28-1 applies to all financial instruments within the scope~~ of ~~SFAS 107~~December ~~and~~31, 2009 ~~requires all entities to disclose the methods~~ and ~~significant~~September ~~assumptions~~30, ~~used~~2009, toFirecom ~~estimate~~owed the ~~fair value of financial instruments. FSP 107-1 and APB 28-1 became effective for the~~ Company ~~on June 30~~$31,000 ~~2009.~~and ~~The adoption~~$63,000 ofrespectively, ~~this~~which ~~FSP~~is ~~did~~included ~~not~~in ~~have~~Accounts ~~a significant impact on the Company’s consolidated financial statements~~Receivable.

InEffective October ~~May~~1, ~~2008~~2009, the ~~FASB~~Company ~~issued~~entered ~~SFAS~~into ~~No. 162,~~a ~~"The~~lease ~~Hierarchy~~with ofFirecom ~~Generally~~to ~~Accepted~~lease ~~Accounting~~1,500 square ~~Principles"~~feet ~~("SFAS 162").~~of ~~This~~office ~~statement~~space ~~identifies~~and ~~the~~500 ~~sources~~square feet of ~~accounting~~warehouse ~~principles~~space and ~~the~~use ~~framework~~of common ~~for~~areas ~~selecting~~at ~~the~~Firecom’s ~~principles~~facility toin beWoodside, ~~used~~NY. This infacility will ~~the~~serve ~~preparation~~as ofthe ~~financial~~Company’s ~~statements~~new ofservice ~~nongovernmental~~center ~~entities~~for ~~that~~New ~~are~~York ~~presented~~City. The inlease ~~conformity~~became ~~with~~effective ~~generally~~October ~~accepted~~1, ~~accounting~~2009 ~~principles~~and inends ~~the~~December ~~United States (the GAAP hierarchy)~~31, 2014. Lease ~~This~~payments ~~Statement~~begin ~~was~~January ~~effective~~1, ~~60 days~~2010 ~~following~~with ~~the~~base ~~SEC's~~rent ~~approval~~ of ~~the~~$2,500 per ~~Public~~month ~~Company~~($30,000 ~~Accounting~~per ~~Oversight~~year) ~~Board~~and ~~amendments~~additional torent ~~AU Section 411, "The Meaning~~ of ~~Present~~approximately ~~Fairly~~$15,000 inper year ~~Conformity~~to ~~With~~cover ~~Generally~~capital ~~Accepted~~improvements ~~Accounting~~and ~~Principles."~~building taxes. The ~~adoption~~rent payments ofbegin ~~this~~January ~~statement~~1, ~~did~~2010, ~~not~~and ~~have~~there aare ~~material~~no ~~effect~~charges onfor utilities services or the ~~Company’s~~use ~~consolidated~~of ~~financial~~common ~~statements~~space.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" ("SFAS 161"). SFAS 161 requires enhanced disclosures regarding an entity's derivative and hedging activities. These enhanced disclosures include information regardingNOTE how and why an entity uses derivative instruments; how derivative instruments and related hedge items are accounted for under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", and its related interpretations; and how derivative instruments and related hedge items affect an entity's financial position, financial performance and cash flows10. SPECIAL ~~The~~COMMITTEE ~~Company~~TO ~~adopted~~CONSIDER ~~SFAS 161 as of January 1, 2009. The adoption of SFAS 161 had no impact on the Company’s financial position~~STRATEGIC ~~or results of operations.~~OPPORTUNITIES

In October ~~December 2007~~2009, ~~the~~with ~~FASB~~consideration ~~issued~~to ~~SFAS~~the ~~No. 141~~Company’s ~~(revised~~working ~~2007),~~capital ~~("SFAS 141R")~~requirements, ~~"Business Combinations", which replaces SFAS No. 141. The statement retains~~ the ~~purchase~~Company’s ~~method~~Board of ~~accounting~~Directors ~~for~~formed ~~acquisitions,~~a ~~however,~~Special itCommittee ~~includes~~of ~~changes~~independent outside indirectors ~~the~~to ~~way~~explore ~~assets~~ and ~~liabilities~~consider ~~are~~various ~~recognized~~strategic inalternatives including ~~purchase~~proposals ~~accounting.~~for Itadditional ~~also~~debt ~~changes~~ or the ~~recognition~~issuance of ~~assets~~additional ~~acquired~~equity capital, ~~and~~the ~~liabilities~~sale ~~assumed~~of ~~arising~~one ~~from~~or ~~contingencies,~~more ~~requires~~of the ~~capitalization~~Company’s lines of ~~in-process~~business ~~research~~or ~~and~~the ~~development~~sale of atthe ~~fair~~Company ~~value,~~in ~~and~~an ~~requires~~effort ~~the~~to ~~expensing~~enhance ofstockholder ~~acquisition-related~~value. ~~costs~~The asSpecial ~~incurred.~~Committee is ~~SFAS 141R~~authorized ~~will~~to ~~become~~negotiate ~~effective~~on ~~for~~behalf of the ~~Company~~Board ~~beginning~~of ~~October 1,~~Directors ~~2009~~ and ~~will apply prospectively~~ to ~~business~~consider, pursue ~~combinations~~and ~~completed~~accept on or ~~after~~reject ~~that~~any ~~date.~~proposals ~~The~~received, ~~impact~~subject ofto ~~the~~required stockholder ~~adoption~~approval ofand ~~SFAS 141R~~other ~~will~~terms bethat ~~dependent on~~ the ~~extent~~Special ~~and nature of any future acquisitions~~Committee determines.

~~In February 2007, the FASB issued SFAS No. 159, "~~The Special ~~Fair~~Committee’s ~~Value~~members ~~Option~~include ~~for~~Harris ~~Financial~~Epstein ~~Assets~~ and ~~Financial~~Ronald ~~Liabilities"~~P. ~~("SFAS 159")~~Fetzer. ~~SFAS 159~~The Special ~~permits~~Committee ~~companies~~has toretained ~~choose~~Ladenburg toThalmann ~~measure~~as ~~certain~~its independent financial advisor ~~instruments~~to ~~and~~assist ~~other~~it ~~eligible~~in ~~items~~its atevaluation ~~fair~~of ~~value~~strategic ~~when the items are not otherwise currently required to be measured at fair value~~alternatives. ~~Under SFAS~~ ~~159,~~The Special ~~the~~Committee ~~decision~~has toalso ~~measure~~retained ~~items~~independent atlegal ~~fair~~counsel. ~~value~~There is ~~made~~no assurance atthat ~~specified election dates on an irrevocable instrument-by-instrument basis. Companies electing~~ the ~~fair~~Special ~~value~~Committee ~~option~~will ~~would~~consummate bea ~~required~~transaction ~~to recognize changes in fair value in earnings and to expense upfront cost and fees associated with the item~~ for ~~which~~a strategic ~~the~~alternative ~~fair value option is elected. Companies electing the fair value option are required~~ to ~~distinguish,~~address on the face of the statement of financial position, the fair value of assets and liabilities for which the fair value option has been elected and similar assets and liabilities measured using another measurement attribute. SFAS 159 became effective for the Company’s oncapital ~~October 1, 2008~~needs. See Note ~~The~~11 ~~adoption~~Subsequent ofEvent ~~SFAS 159~~– ~~did~~Merger ~~not have any impact on their consolidated financial position or results of operations as they did not elect the fair value option~~Agreement.

127

SYNERGX SYSTEMS INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 9 11. ~~NEW~~SUBSEQUENT ~~ACCOUNTING~~EVENT ~~PRONOUNCEMENTS~~- ~~(continued)~~MERGER AGREEMENT

InOn January ~~September~~22, ~~2006~~2010, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and enhances disclosures about fair value measurements. SFAS 157 applies when other accounting pronouncements require fair value measurements; it does not require new fair value measurements. The “Company ~~adopted SFAS 157 on October 1~~, ~~2008~~Firecom ~~for financial assets~~ and ~~liabilities~~FCI ~~carried~~Merger ~~at fair value and non financial assets and liabilities that are recognized or disclosed on a recurring basis~~Corp. ~~The adoption did not have a material effect on our consolidated financial statements. In February 2008~~, ~~the FASB issued FASB Staff Position 157-2, which provides for~~ a ~~one~~newly-~~year deferral of the provisions of SFAS 157~~formed ~~for non~~wholly-~~financial~~owned ~~assets~~subsidiary ~~and~~of ~~liabilities~~Firecom ~~that are recognized or disclosed at fair value in~~ (the ~~consolidated~~“Merger ~~financial statements on a non-recurring basis. FASB Staff Position 157-2 will become effective for the Company beginning October 1~~Sub”), ~~2009.~~entered ~~The~~into ~~Company~~an ~~anticipates~~Agreement and ~~that~~Plan ~~the adoption~~ of ~~FASB~~Merger ~~Staff~~(the ~~Position~~“Merger ~~SFAS 157-2 will not have a significant impact on their consolidated financial position or results of operations~~Agreement”).

~~NOTE~~The Merger 10Agreement provides for Firecom to acquire the Company through a merger of Merger Sub with and into the Company (the “Merger”), with the Company to be the surviving corporation. ~~NASDAQ~~Pursuant ~~CONTINUED~~to ~~LISTING~~the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of common stock of the Company (other than any shares owned by Firecom or Merger Sub, by the Company as treasury stock, or by any stockholders who are entitled to, and who properly exercise, appraisal rights under Delaware law) will be cancelled and will be converted automatically into the right to receive $0.60 in cash, without interest.

OnThe Merger ~~April~~Agreement ~~21,~~contains ~~2008,~~customary ~~the~~covenants ~~Company~~and ~~received~~agreements, aincluding covenants ~~letter~~relating ~~from~~to the ~~Nasdaq~~conduct ~~Listing~~of ~~Qualifications~~the ~~Department~~Company’s ~~(”NASDAQ”)~~business ~~notifying~~between the ~~Company~~date ~~that~~of the ~~for~~signing 30of ~~consecutive~~the ~~days,~~Merger Agreement and the ~~bid~~closing ~~price~~of the Merger. The completion of the ~~Company’s~~Merger ~~common~~is ~~stock~~subject ~~has~~to ~~closed~~fulfillment ~~below~~of the customary ~~minimum~~closing ~~$1.00~~conditions, ~~per~~adoption ~~share~~of ~~requirement.~~the ~~The~~Merger ~~Company~~Agreement ~~had~~and ~~been~~the ~~provided~~Merger ~~with~~by vote ~~180~~of ~~calendar~~holders ~~days~~of ~~(originally~~a majority ~~until~~of ~~October~~the ~~20,~~outstanding ~~2008)~~shares toof ~~regain~~Common ~~compliance. If,~~Stock at ~~any~~a ~~time~~special ~~before~~meeting ~~October~~to ~~20,~~be ~~2008,~~called after the ~~bid~~Company ~~price~~files ofwith ~~the~~and ~~Company’s~~obtains ~~common~~clearance ~~stock~~from ~~closed~~the atSEC ~~$1.00~~staff ~~per~~of ~~share~~the requisite ~~for~~proxy amaterial ~~minimum~~and completion of 10the ~~consecutive~~Merger ~~business~~by ~~days~~April 30, 2010. One ~~then~~closing ~~NASDAQ~~condition ~~would~~is ~~provide~~that ~~the~~holders ~~Company~~of ~~with~~not ~~written~~more ~~notification~~than ~~that~~an aggregate itof ~~had~~10% ~~complied~~of ~~with~~the ~~NASDAQ~~Company’s ~~bid~~outstanding ~~price~~shares ~~requirement. NASDAQ~~of ~~then~~Common ~~suspended~~Stock ~~the~~have ~~enforcement~~sought appraisal ofrights ~~the~~in ~~Rule~~accordance ~~from~~with ~~October~~Delaware ~~16,~~General ~~2008~~Corporation ~~through July 28, 2009~~Law. As aThe transaction ~~result,~~is ~~the~~not ~~Company~~subject ~~had until August 5, 2009~~ to ~~regain~~a ~~compliance~~financing condition.

OnIn addition, ~~August~~during 6,the ~~2009,~~period from the ~~Company~~date ~~received~~of athe ~~letter~~Merger ~~from~~Agreement ~~NASDAQ~~though February ~~stating~~8, ~~that~~2010 (the “Solicitation Period”), the Company, ~~had~~and ~~not~~its ~~regained~~officers, directors, ~~compliance~~employees ~~with~~and ~~the~~representatives, ~~minimum~~may ~~bid~~solicit ~~price~~third ~~requirement~~parties ~~under~~to ~~Listing~~make ~~Rule~~a Superior ~~5550~~Proposal (aas defined in the Merger Agreement)~~(2)~~ byto ~~August~~acquire 5,the Company. After ~~2009~~the ~~and,~~termination asof athe ~~result~~Solicitation Period, ~~its~~the Company ~~common~~may ~~stock~~negotiate ~~would~~and beconsider ~~subject~~a toSuperior ~~delisting~~Proposal from ~~The~~a ~~Nasdaq~~Permitted ~~Capital~~Party (as ~~Market~~defined ~~unless~~in the ~~Company~~agreement) ~~requested~~or on an ~~appeal~~unsolicited ~~before~~basis after the termination of the ~~Nasdaq~~Solicitation ~~Hearings~~Period ~~Panel~~(an “Unsolicited Party”). ~~Accordingly,~~The ~~unless~~Company and the ~~Company~~Special ~~requests~~Committee’s representatives solicited third parties and several interested parties have indicated an ~~appeal~~interest as of February 8, ~~trading~~2010 and are considered Permitted Parties. In the event the Merger Agreement is terminated by reason of the Company’s ~~common~~consideration ~~stock~~of ~~will~~a Superior beProposal, ~~suspended~~the atCompany ~~the~~would ~~opening~~not ofhave ~~business~~to onpay ~~August~~any 17termination fee to Firecom with respect to a Superior Proposal submitted by a Permitted Party, ~~2009~~but would ~~and~~have to pay a fee in the ~~Company’s~~amount ~~common~~of ~~stock~~$200,000 ~~will~~with berespect ~~removed~~to ~~from~~a ~~listing~~Superior Proposal ~~and~~submitted ~~registration~~by onan Unsolicited Party. In either event, upon termination of the ~~Nasdaq~~Merger ~~Stock~~Agreement, ~~Market~~the Company would have to reimburse Firecom’s expenses, not to exceed $100,000.

After ~~consideration of its options~~the Merger, the Company ~~does not intend to request a hearing before the Panel and its common stock~~ will be ~~delisted~~a ~~from~~privately-held ~~Nasdaq at the opening of business on August 17, 2009~~corporation. The Company determined that it would be difficult for the Company to maintain the Nasdaq Stock Market’s listing criteria on an ongoing basis and it would be in the best interests of the Company to allow its common stock to be delisted from the Nasdaq Capital Market.

The foregoing ~~Company~~summary isof ~~working~~certain ~~with~~terms aof ~~market~~the ~~maker~~Merger toAgreement ~~have~~does ~~its~~not ~~common~~purport ~~stock~~to be ~~quoted~~complete, onand ~~the~~is ~~OTC~~subject ~~Bulletin~~to ~~Board. The~~and ~~Company’s~~qualified ~~common~~in ~~stock~~its ~~will~~entirety ~~not~~by bereference ~~immediately~~to ~~eligible~~the Merger toAgreement, ~~trade~~a oncopy ~~the~~of ~~OTC~~which ~~Bulletin~~is ~~Board~~filed ~~after~~as ~~delisting~~Exhibit 2.1 to Form 8-K on January 22, 2010.

13NOTE 12 NASDAQ DELISTING

The ~~Item~~Company’s 2common stock was delisted from the NASDAQ Stock Market (“NASDAQ”) on August 17, 2009 because the Company’s common stock did not meet the minimum bid price requirements of NASDAQ. ~~Management~~ The Company determined that it would be unlikely that it would be able to meet the NASDAQ Stock Market’s ~~Discussion~~listing criteria on an ongoing basis and ~~Analysis~~it would therefore be in the best interest of ~~Financial~~the ~~Condition~~Company and its ~~Results~~shareholders ofto ~~Operation~~allow its common stock to be delisted.

Since the delisting the Company common stock has traded on the pink sheet market under the symbol SYNX.PK.

Note 13. FAIR VALUE OF FINANCIAL INSTRUMENTS

GAAP establishes a framework for measuring fair value and requires certain disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

SYNERGX SYSTEMS INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

the following tables set forth by level within the fair value hierarchy the Company’s financial assets that were accounted for at fair value on a recurring basis at December 31, 2009 and September 30, 2009 according to the valuation techniques the Company used to determine their fair values:

Fair Value Measurements Using Inputs Considered As:

	Fair Value		Level 1		Level 2		Level 3
Cash 9/30/09	$	1,502,471	$	1,502,471	$	-	$	-
Total 9/30/09	$	1,502,471	$	1,502,471	$	-	$	-
Cash 12/31/09	$	1,579,099	$	1,579,099	$	-	$	-
Total 12/31/09	$	1,579,099	$	1,579,099	$	-	$	-

NOTE 14. NEW ACCOUNTING PRONOUNCEMENTS

In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for the consolidation of variable interest entities (“VIEs”). The elimination of the concept of a qualifying special-purpose entity (“QSPE”) removes the exception from applying the consolidation guidance within this amendment. This amendment requires an enterprise to perform a qualitative analysis when determining whether or not it must consolidate a VIE. The amendment also requires an enterprise to continuously reassess whether it must consolidate a VIE. Additionally, the amendment requires enhanced disclosures about an enterprise’s involvement with VIEs and any significant change in risk exposure due to that involvement, as well as how its involvement with VIEs impacts the enterprise’s financial statements. Finally, an enterprise will be required to disclose significant judgments and assumptions used to determine whether or not to consolidate a VIE. This amendment is effective for financial statements issued for fiscal years beginning after November 15, 2009. The Company does not believe the impact of this amendment on its consolidated financial statements will be material.

In June 2009, the FASB issued the FASB Accounting Standards Codification (the “Codification”). The Codification became the single source for all authoritative GAAP recognized by the FASB to be applied for financial statements issued for periods ending after September 15, 2009. The Codification does not change GAAP and did not have a material impact on its consolidated financial statements.

Other recently issued accounting pronouncements are not expected to have a material impact on the Company’s financial position or results of operations.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report contains forward-looking statements. These are statements that relate to future periods and include statements regarding our future strategic, operational and financial plans, anticipated or projected revenues, expenses and operational growth, markets and potential customers for our products and services, plans related to sales strategies and efforts, the anticipated benefits of our relationships with strategic partners, our ability to compete, the adequacy of our current facilities and the performance of our current and future products and services.

You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may”, “ ”should”, “expects”, “anticipates”, “estimates”, “believes”, ”plans”, or “projects”. ~~Our~~ Our actual results may differ materially from any forward-looking statements. We We caution you not to place undue reliance on these forward-looking statements. The forward-looking events discussed in this quarterly report may not occur, and actual events and results may differ materially and are subject to risks and uncertainties. The forward-looking statements speak only as of the date hereof, and we expressly disclaim any obligation to publicly revise these forward-looking statements to reflect events or circumstances after the date of this filing.

References to 2009 and 2008 within the Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~refer~~refers to the three ~~and nine~~ months ended ~~June 30~~December 31, 2009 and ~~June~~December 3031, 2008, respectively.

Liquidity and Capital Resources

The current ~~ratio~~economic ofrecession ~~the~~is ~~Company’s~~making ~~current~~it ~~assets~~very difficult to ~~current~~maintain ~~liabilities~~revenue levels ~~(current~~and ~~ratio)~~margins ~~decreased~~as toprojects ~~approximately~~are 1being postponed and customers are asking for price reductions.60 toSince 1the atbeginning ~~June~~of ~~30,~~the 2009 ~~compared~~calendar toyear, ~~1.83~~we tohave incurred 1losses atas ~~September~~a ~~30,~~result ~~2008.~~of ~~Working~~slower ~~capital~~economic ~~declined~~activity toand ~~$3.1~~delays ~~million~~in atthe release ~~June~~of ~~30,~~transit ~~2009~~project ~~compared~~shipments torequested $3by New York City Transit.8 ~~million~~These delays atin ~~September~~transit 30project shipments continue to affect our revenues, ~~2008~~income and liquidity. ~~This~~To ~~decline~~offset ~~and~~these ~~the~~price ~~decrease~~reductions inand ~~the~~shipment ~~current~~delays, ~~ratio~~management has ~~are~~implemented ~~principally~~reductions ~~related~~in tostaffing ~~the~~levels ~~classification~~and ofoverheads ~~the~~in ~~$1,475,944~~order ~~balance~~to ~~drawn~~lower operating onexpenses ~~the~~and ~~Company’s~~return $2to profitability.5 These ~~million~~cost ~~dollar~~reductions took ~~revolving~~effect ~~credit~~at ~~facility~~different (periods during 2009, the ~~“Credit~~last ~~Facility”)~~being asin aAugust ~~current~~2009, ~~liability~~and are atexpected ~~June~~to 30approximate $1,700,000 ~~2009~~on an annualized basis.

The ~~Credit~~ratio of ~~Facility~~the ~~with~~Company’s TDcurrent ~~Banknorth,~~assets ~~N.A.~~to current liabilities (~~the~~current ~~“Bank”~~ratio) ~~has~~remained the ansame ~~annual~~at ~~interest~~approximately ~~rate~~1.73 ofto ~~prime~~1 ~~plus 2% (5.25%~~ at ~~June~~December 3031, 2009) and isat toSeptember ~~expire on October 1~~30, 2009. ~~Since~~Working itcapital ~~expires~~declined byto ~~its~~$2.9 ~~terms~~million ~~within~~at ~~one~~December ~~year~~31, ~~the~~2009 ~~bank~~compared ~~debt~~to $3.2 ismillion ~~being classified as a current liability~~ at ~~June~~September 30, 2009. ~~Advances~~This ~~under~~decline ~~the~~in ~~Credit~~working ~~Facility~~capital ~~are measured~~is ~~against~~principally arelated ~~borrowing~~to ~~base~~the ~~calculated~~cash onrequirement ~~eligible~~to ~~receivables~~fund ~~and~~the ~~inventory. The~~$402,171 ~~Credit~~net ~~Facility~~loss ~~is secured by all assets of~~ during the ~~Company~~three ~~and~~months ~~all~~ended ofDecember ~~its~~31, ~~operating subsidiaries~~2009.

The Company had a $2.5 million revolving credit facility (the “Credit Facility”) with ~~includes~~TD ~~various~~Banknorth ~~covenants,~~(“the Bank”) which ~~among~~expired ~~other~~on ~~requirements~~October 1, ~~imposes~~2009 ~~limitations~~and onat ~~declaring~~that time certain events of default existed under the loan agreement. At the expiration date, the Bank did not call the loan but advised the Company that it would not advance any additional funds. In January 2010, the Company entered into a forbearance agreement with the Bank to extend the facility until April 30, 2010, which would allow the Company additional time to satisfy its obligation to the Bank or ~~paying~~to ~~dividends~~obtain alternative financing. If there is further deterioration in the Company’s financial condition, however, the Bank shall have the right to immediately exercise any and ~~making~~all ~~acquisitions~~rights and ~~capital~~remedies ~~expenditures~~provided under the Credit Facility, including a demand for immediate payment. The forbearance agreement required a principal payment of $200,000 at the time of closing in January 2010 (which was made at that time) and an increase in the interest rate (retroactive to December 1, 2010) from prime plus 2% (5.25%) to the Bank’s base rate plus 3% (6.25% from December 1, 2009 through December 31, 2009) for the duration of the extension period. The ~~Company~~agreement isrequires ~~also~~monthly principal ~~required~~payments of $15,000 in January 2010 increasing to ~~maintain~~$25,000 ~~certain~~per ~~financial~~month ~~ratios~~in February, March and ~~tangible~~April ~~net~~of ~~worth~~2010. ~~covenants~~The Bank also charged, and the Company paid, a loan modification and extension fee of $25,000.

As of June 30, 2009, the Company had a tangible net worth of $3.9 million and, as a result, did not meet the $4.3 million minimum tangible net worth loan covenant contained in the loan agreement with its Bank. The ~~Company has requested a waiver of this violation, but the Bank has refused to grant such a waiver. As a result, the~~ Company’s debt ~~may be callable by the Bank at any time. The Company plans~~ to ~~negotiate with~~ the Bank ~~and~~is ~~also~~secured toby ~~seek~~all aassets ~~new lending source, as the line~~ of ~~credit is important to~~ the Company’s ~~liquidity~~ and ~~ability~~all ~~to conduct~~ of its ~~operations~~operating subsidiaries. ~~There~~ Outstanding ~~can~~debt beto ~~no assurance that~~ the ~~Company~~Bank ~~will~~is bemeasured against ~~successful in arranging~~ a ~~line~~borrowing ~~of credit on favorable terms. As a result~~base, ~~there~~which is acalculated ~~significant~~based ~~uncertainty~~on ~~with~~eligible ~~respect to the Company’s ability to continue as a going concern without~~accounts ~~alternative~~receivable ~~financing~~and inventories.

AtThe agreement ~~June~~with ~~30, 2009, $1,476,000 was owed under~~ the ~~Credit~~Bank ~~Facility. At~~includes ~~June~~certain ~~30,~~restrictive ~~2009 and September 30~~covenants, ~~2008,~~which ~~the~~among other ~~full~~things ~~amount~~impose oflimitations ~~the~~on ~~Credit~~declaring ~~Facility~~or ~~was~~paying ~~available under the borrowing base calculation. In view of the Company’s working capital collateral~~dividends, ~~which is in excess of its present and anticipated credit line~~acquisitions, ~~the~~and ~~Company~~making ~~believes~~capital ~~financing should be available from another lender, if necessary~~expenditures. The Company ~~anticipates~~is ~~that~~also ~~its~~required ~~existing capital resources and funds expected~~ to bemaintain certain ~~received~~financial ~~from~~ratios ~~operations~~and ~~will~~tangible benet ~~sufficient~~worth tocovenants. As ~~satisfy~~of ~~its cash flow requirements through June~~ September 30, ~~2010~~2009, ~~assuming that~~ the ~~present~~Company ~~financing~~was ~~continues~~not orin ~~alternative~~compliance ~~financing~~with iscertain ~~obtained~~of its covenants.

14Compliance with these covenants is not a continued requirement by the Bank in conjunction with the agreement to extend the facility to April 30, 2010.

As discussed in the accompanying financial statements, the Company has continued to incur losses from operations. In addition, in an attempt to achieve profitability and positive cash flow, management has instituted a cost reduction program that included a reduction in labor and other costs. Further, due to the uncertain economic conditions, recurring losses, and the current unfavorable lending climate, there can be no assurance that the Company will be able to generate sufficient cash flow to pay off its entire bank line or that it will be successful in arranging a new line of credit on acceptable terms for an amount sufficient to continue its operations successfully. As a result, these factors raise substantial doubt with respect to the Company’s ability to continue as a going concern.

The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts of liabilities that may result should the Company be unable to continue as a going concern.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Cash Flows

Net cash provided ~~used~~by in operations for the ~~nine~~three months ended ~~June~~December 3031, 2009 was $15146,~~936~~ 508 as compared to $8,855 of cash being ~~provided~~used by operations ~~of $906,372~~ for the comparable prior year period, aan ~~decrease~~increase of $~~922~~155,~~308~~363. ~~This~~The $~~922~~146,~~308~~508 ~~decrease~~of in cash provided by operations was primarily due to $1475,~~682,383~~503 ~~less~~of cash generated by net reductions in operating assets and liabilities in ~~the nine months ended June 30,~~ 2009 ~~partially~~(primarily ~~offset~~related byto acollection ~~net~~of accounts ~~loss~~receivable indue to the ~~nine~~timing ~~months~~of ~~ended~~payments ~~June~~on ~~30,~~long ~~2009~~standing ~~that~~projects) which was ~~$861,298~~partially ~~lower~~offset ~~than~~by the net loss ~~for~~of ~~the~~$402,171 ~~comparable period~~ in ~~2008~~2009. ~~The~~ ~~reduction~~In incomparison for ~~operating~~the ~~assets~~three ~~and~~months ~~liabilities~~ended inDecember ~~2009~~31, ~~was~~2008, ~~negatively~~there ~~affected~~was by a ~~$430,754~~net increase inof operating ~~inventories~~assets ~~for~~and ~~certain~~liabilities ~~projects~~of ~~that~~$305,873 ~~will~~(which beresulted ~~delivered~~from ~~after~~an ~~June~~increase ~~30,~~in accounts ~~2009.~~receivables ~~The~~related ~~reduction~~to inhigher ~~operating~~sales ~~assets~~ and ~~liabilities~~increased ininventories ~~2008~~which were ~~primarily~~purchased ~~resulted~~in ~~from~~anticipation ~~a $1,343,843 collection~~ of ~~accounts~~project ~~receivable~~releases). ~~due~~This toincrease ~~the~~partially offset ~~timing~~$223,729 of ~~payments~~net onincome ~~long~~for ~~standing~~the ~~projects~~2008 ~~involving~~three ~~retainage~~month period.

In 2009, the net cash ~~outflow~~inflow of $15146,~~936~~508 from operations ~~plus~~less investing activities of for equipment purchases of $1411,~~372~~474 (compared to $~~151~~9,~~156~~690 of equipment purchases in 2008) and financing activities for note and bank debt payments of $2028,~~607~~ 514 resulted in net cash ~~outflow~~inflow of $50106,~~915~~520. This $50106,~~915~~520 ~~outflow~~inflow ~~was~~increased ~~funded by additional bank borrowing of 958,071 and~~ the ~~balance used to increase the~~ Company’s cash balance to $1,~~169~~608,~~898~~991 at ~~June~~September 30, 2009. In ~~the nine months ended June 30,~~ 2008, the Company’s ~~primarily~~$8,855 ~~used~~ cash ~~provided~~outflow, ~~from~~primarily acaused ~~reduction~~by an increase in its operating assets and operating liabilities, towas ~~reduce~~offset ~~its~~by ~~bank~~additional bank borrowing toof $612,419 so that at December 31, 2008 the Company’s bank debt was $1,~~197~~130,~~886~~292 atand ~~June~~it 30had $849,792 as its cash balance at December 31, 2008.

The current economic recession is making it very difficult to maintain revenue levels and margins as projects are being postponed and customers are asking for price reductions. Since the beginning of the 2009 calendar year, we have incurred losses as a result of slower economic activity and delays in the release of transit project shipments requested by New York City Transit. These delays in transit project shipments continue to affect our revenues, income and liquidity. To offset these price reductions and shipment delays, we have reduced selling expenses, primarily from certain staff eliminations. While recent larger new orders for an audio/visual project and a security project have been received and are scheduled for shipment beginning in July 2009, management has implemented further reductions in staffing levels and overheads in order to lower operating expenses and return to profitability. These cost reductions took effect on August 1, 2009 and will approximate $700,000 on an annualized basis.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Results of Operations

	Three Months Ended						Nine Months Ended
	Three Months Ended December 31,
	June 30,						June 30,
	2009			2008
	2009			2008			2009			2008
	(In thousands of dollars)
	(In thousands of dollars)
Product Sales	$	1,579		$	3,794
Product Sales	$	1,644		$	2,822		$	8,967		$	10,057
Subcontract Sales		91			569
Subcontract Sales		259			398			1,313			900
Service Revenue		1,281			1,295
Service Revenue		1,282			1,319			3,855			3,952
Total Revenue	$	2,951		$	5,658
Total Revenue	$	3,185		$	4,539		$	14,135		$	14,909
Gross Profit Product	$	136		$	920
Gross Profit Product		55			421			1,573			1,639
Gross Profit Subcontract		14			131
Gross Profit Subcontract		48			58			267			131
Gross Profit Service		526			499
Gross Profit Service		456			626			1,451			2,011
Total Gross Profit	$	676		$	1,550
Total Gross Profit	$	559		$	1,105		$	3,291		$	3,781
Gross Profit Product %		9	%		24	%
Gross Margin Product %		3	%		15	%		18	%		16	%
Gross Profit Subcontract %		15	%		23	%
Gross Margin Subcontract%		19	%		15	%		20	%		15	%
Gross Profit Service %		41	%		39	%
Gross Margin Service %		36	%		47	%		38	%		51	%
Total Gross Profit %		23	%		27	%

Revenues

The Company’'s ~~revenue~~product sales decreased by $12,~~354~~215,000 ~~(29.8~~or 58%) ~~for~~during the three months ended ~~June~~December 3031, 2009 ~~and~~to ~~decreased~~$1,579,000 compared to $~~774~~3,794,000 (5for the prior year period.2% The decline in product sales was from decreases in sales of all product categories, represented by fire alarm, audio/visual and security products (primarily from transit projects). The prior year 2008 period benefited from the installation of a fire alarm system by the building owner and tenants at a major new retail outlet center in our Long Island, NY territory amounting to $635,000 (a job of this size is unusual for this area and is not expected to occur often) and from the ~~nine~~installation of the Company’s new Comtrak system upgrade at a large building in New York City. Revenue from this upgrade program began in December, 2008, amounted to $171,000 during the three months ~~then~~of 2008 ~~ended~~and is on going and expected to be completed in 2012. Security and communication product sales declined by over $1.0 million in 2009 primarily due to continued delays by New York City Transit Authority in the release of subway station security and communication projects. Sales of audio/visual products declined $430,000, in the 2009 period, because of the loss of the principal sales people and project engineers of this product line and the Company’s inability to find qualified replacements.

~~The Company's product~~ Subcontract sales decreased ~~(42%)~~by ~~during the three months ended June 30, 2009 to~~ $1478,~~644,~~000 ~~compared~~during ~~to $2,822,000 for~~ the ~~prior~~current ~~year~~three ~~period.~~month The decrease in product sales resulted from declines in sales of audio/visual, fire alarm, and security products. The largest decline came from delays in the release of projects by New York City Transit Authority, which delays contributed to over half of the decrease in product sales in the 2009 quarter. The weakening economy also adversely affected sales of our audio/visual products during this period. ~~Product sales also decreased (11%) during the nine months ended June 30, 2009~~ to $891,~~967,~~000 from ~~compared to~~ $10569,~~057,~~000 ~~for~~in the comparable prior year period. During ~~The decrease in product sales in~~ the ~~nine month period was principally related to decreases in sales of security products. This decline primarily resulted~~2008 ~~from delays in the release of projects by New York City Transit Authority. However~~period, ~~in 2009, product sales benefited from~~ the ~~installation of the~~ Company’s ~~new~~was ~~Comtrak~~responsible ~~system~~as ~~upgrade~~prime atcontractor afor ~~large building in New York City. Revenue from this upgrade program began in December, 2008 and is expected to continue in future periods. During~~ the ~~nine months ended June 30, 2009, the revenues from this upgrade ($156,000 of product sales), from~~ electrical installation of a ~~fire alarm system at a~~ major new retail outlet center ~~$53,000~~amounting ofto ~~product~~ sales) ~~and from installation~~ of ~~a large display signage at a convention center (~~$~~861~~387,000 and offor ~~product~~several ~~sales)~~other ~~partially~~large ~~offset~~electrical ~~the~~installations ~~declines~~projects incompared ~~product~~to ~~sales~~a ~~from~~few small ~~security~~electrical ~~products~~installations in 2009.

~~Subcontract~~Service revenues ~~sales~~ decreased 1% during the current three month period ~~to $259,000 from $398,000 in the comparable prior year period. The decrease in the three month period of~~ (2009) ~~is primarily due to the Company being responsible~~ as ~~prime contractor for the installation of one large project as~~ compared ~~to two projects in the 2008~~ ~~three month period. Subcontract revenues increased during the nine month period of 2009~~ to ~~$1,313,000 from $900,000 in~~ the ~~comparable~~ prior year period. ~~During~~due ~~the~~to ~~nine month period of 2009, the Company was responsible as prime contractor for the electrical installation of~~ a ~~large~~decline ~~display~~in ~~signage at a convention center ($132,000 of subcontract sales) and for installation at a major new retail outlet center ($239,000 of sales)~~ call-in-service ~~our~~on ~~Long Island, NY territory involving a~~ fire alarm systems ~~system~~ (~~involving a~~replacement ~~building~~parts ~~owner~~ and ~~tenants)~~service ~~and~~required ~~for~~by ~~several other large electrical installations projects compared to a few smaller electrical installations in 2008~~buildings). ~~In 2009, jobs of these size and nature are unusual for this area and are not expected to occur often.~~

Service revenues decreased 3% and 2% during the current three and nine month periods (2009) as compared to the comparable prior year period primarily due to the decrease, in both periods, in call-in-service on fire alarm systems (replacement parts and service required by buildings).11

16Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Gross Profit

~~The Company’s gross~~ Gross profit ~~decreased~~from byproduct ~~$546,000~~sales ~~(49%)~~ for the three months ended ~~June~~December 3031, 2009 ~~and~~ decreased 85% to $~~490~~136,000 ~~(13%)~~compared to $920,000 for the ~~nine~~prior ~~months~~year ~~then~~period. ~~ended~~The decline in absolute gross margin and the 15% decrease in gross margin percentage are primarily attributable to the major decline in product sales and the inability to absorb overhead due to the relative fixed nature of certain of these costs. Gross profit margin as a percentage of product sales was 9% in 2009 compared to 24% in 2008.

Gross profit ~~from~~related ~~product~~to subcontract sales for the three months ended ~~June~~December 3031, 2009 decreased ~~87% to $55,000 compared to $421,000 for the prior year period. The decrease~~ in absolute ~~gross~~terms ~~profit~~as ~~and~~ the ~~12%~~Company ~~decrease~~was inresponsible ~~gross~~for ~~margin~~fewer ~~percentage~~number ~~are~~of electrical ~~primarily~~installations ~~attributable to the major declines in product revenue from audio/visual (affected~~ by ~~the~~third ~~weakening economy)~~parties ~~and security~~ (~~caused~~subcontract ~~by lack of releases of projects from New York City Transit Authority~~work). ~~Gross~~ ~~profit~~The ~~margin~~three asmonth period ~~a percentage~~ of ~~product sales was 3% for the three months ended June 30, 2009 compared to 15% for the three months ended June 30,~~ 2008 ~~and~~included ~~reflects~~one ~~decline~~large ininstallation ~~sales~~at toa ~~fully~~major ~~absorb~~retail ~~overheads,~~outlet ~~which are relatively fixed in nature~~center. ~~Gross profit from product sales for the nine months ended June 30, 2009 decreased 4% to $1,573,000 compared to $1,639,000 for the~~ ~~prior~~The ~~year~~higher ~~period.~~gross ~~Gross~~ profit margin ~~as a~~ percentage ~~of product sales for the nine months was 18%~~ in ~~2009 compared to 16% in~~ 2008. ~~The decline in absolute gross profit resulted from lower product sales and related gross profit. In spite of lower sales, there~~ was adue 2%to ~~increase~~higher ~~in gross~~ margin percentage ~~primarily~~received ~~attributable~~on tothe ~~certain~~major ~~reductions~~retail inoutlet center project ~~engineering~~compared ~~and~~to ~~direct~~the three ~~labor~~months ~~staff~~of in 2009 ~~and~~as amark ~~shift~~ups inon ~~product~~electrical ~~mix~~installations towere ~~higher~~lower ~~margin~~on ~~sales of fire alarm projects in 2009 whereas~~ the ~~2008 period included~~ ~~sales~~few ~~from~~small aelectrical ~~very~~installation ~~low~~in ~~gross margin public address system~~2009.

Gross profit ~~related~~from toservice ~~subcontract~~revenues ~~sales~~improved ~~for the three months ended June 30~~$27,000 ~~2009~~to ~~decreased~~ $10526,000 induring ~~absolute terms as~~ the ~~Company~~three months ~~was~~ended ~~responsible~~December ~~for~~31, ~~a fewer number of electrical installations by third parties (subcontract work). For the nine month period of~~ 2009, ~~gross~~in ~~profit~~spite ~~from subcontract revenues increased $136,000 from both the installation~~ of a ~~large~~decline ~~display~~in ~~signage~~call-in-service aton afire alarm ~~convention~~systems ~~center and from the electrical installation~~ (~~subcontract~~replacement ~~work)~~parts atand aservice ~~major~~required ~~retail~~by ~~outlet center (noted above~~buildings). The improvement ~~higher~~resulted ~~gross~~from ~~profit~~certain ~~margin~~reductions ~~percentage~~ in the ~~three~~number ~~and nine months~~ of ~~2009~~service technicians isas ~~due to higher margin percentage received on~~ the ~~installation~~Company ofreevaluated ~~the~~its ~~large~~customer ~~display~~support ~~signage~~staffing ~~and~~levels (during ~~electrical~~2009). ~~installation~~These atcost areductions ~~major~~more ~~retail~~than ~~outlet~~offset ~~center compared to~~ the ~~three~~decline ~~months of 2008 as mark ups on electrical installations were lower on the few smaller~~in ~~electrical installation~~ call-in-service ~~2008~~noted above.

Gross profit from service revenues decreased $170,000 to $456,000 during the three months ended June 30, 2009 and decreased $560,000 to $1,451,000 during the nine months ended June 30, 2009 as a result of a decline in call-in-service on fire alarm systems (replacement parts and service required by buildings). Gross profit in 2009 was also negatively affected by additions in the number of service technicians as the Company increased its customer support staffing levels (during 2009) and rebalanced its staff to better serve customer requirements. In addition, the Company added certain service administration staff in 2009, which included a dedicated operating executive whose expenses are included in cost of service.

Loss Before Taxes

The $~~181~~623,~~000~~900 ~~decrease~~increase in loss before income taxes during the three months ended December ~~June 30~~31, 2009 is primarily attributed to $~~728~~901,000 of lower ~~selling,~~gross ~~general~~margin due to the decline in product and ~~administrative~~subcontract ~~expenses~~sales and from ~~$3,000~~higher depreciation of $190 ~~lower~~and interest expense ~~compared~~of to$12,044 ~~2008~~in 2009. ~~These~~The ~~cost~~increase ~~reductions~~in ~~amounting~~interest toexpense of $~~731~~12,~~000~~044 ~~were~~is ~~offset~~primarily bydue ~~$546,000~~to the effect of ~~lower~~higher borrowing levels during 2009. The decrease in gross profit plus higher depreciation and interest amounts to $913,000, which was ~~primarily~~offset ~~due~~in topart by a ~~decline~~net $262,000 reduction in ~~gross~~selling, general ~~profit~~and ~~caused~~administrative expenses and by ~~lower~~$27,000 ~~product~~of ~~sales~~higher ~~and~~gross profit on service revenue ~~(noted~~compared ~~above)~~to 2008. ~~Selling~~The decrease in selling, general and administrative expenses during the ~~2008~~2009 period ~~included~~was aprimarily ~~provision~~due ofto ~~$355,000~~cost reductions ~~for~~efforts ~~separation costs related~~ to ~~the~~lower ~~resignation~~overhead ~~of the Chief Executive Officer of the Company~~expenses. ~~Further~~Savings ~~savings~~from inthis ~~2009~~effort came from reductions of personnel in sales, administration, information technology, and research and development and from lower costs for professional fees, insurance ~~all~~premiums in(due anto ~~effort~~negotiated reductions), and commissions (due to lower sales). ~~overhead~~These ~~expenses.~~cost ~~The~~reductions ~~decrease~~were innet ~~interest~~of $107,025 of additional costs incurred ~~expense~~in is2009 ~~due~~involving a Special Committee to ~~the~~explore ~~effect~~strategic ofopportunities. ~~lower~~See Special ~~borrowing~~Committee ~~levels~~to ~~during~~Explore ~~2009~~Strategic Opportunities and Subsequent Event – Merger Agreement following.

The $766,000 reduction in loss before taxes during the nine months ended June 30, 2009 is primarily attributed to $1,210,000 of lower selling, general and administrative expenses and from $65,000 of lower interest expense compared to 2008. Selling, general and administrative expenses during the 2008 period included a provision of $547,000 for separation costs for the resignation of both the Chief Executive Officer (noted above) and the President of Casey Systems (which occurred during the quarter ending March 31, 2008). Further savings in 2009 came from reductions of personnel in sales, administration, information technology and research and development, all in an effort to lower overhead expenses. These cost reductions were offset by $490,000 of lower gross profit (as enumerated above). The decrease in interest expense was due to the effect of lower borrowing levels during 2009.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Tax Provision

The Company’s current income tax expense for the three ~~and nine~~ month periods of 2009 and 2008 represent minimum state and local income or franchise taxes. No income tax ~~expense~~ benefit was recorded for the ~~operating~~ loss ~~for~~incurred during the three ~~and nine~~ months ended December ~~June 30~~31, 2009 and ~~2008. The~~no ~~Company’s deferred~~ income tax expense ~~for~~was recorded during the ~~nine~~three months ended ~~June~~December 3031, 2008 ~~included~~due ato ~~$100,000~~the ~~valuation~~expected ~~allowance~~use inof ~~that~~net ~~period~~operating loss carryforwards on the operating profit.

Order Position

The Company’s order position, excluding service, at ~~June~~December 3031, 2009 was $108,~~400~~690,000 as compared to $129,~~500~~000,000 at September 30, ~~2008~~2009 and $1211,800,000 at ~~June~~December 3031, 2008, primarily from mass transit construction projects. The Company expects to fulfill a significant portion of its order position over the next twelve months. 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. The Company has not, however, been successful in obtaining any significant new mass transit contracts and in November 2009 decided to withhold bidding on work involving transit authorities (See Plan of Operations below).

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Plan of Operations

During fiscal 2010, management intends to maintain its cost reduction initiatives and to focus on marketing programs for the sale of fire alarm and security products and to further develop its service contract business. During 2010, management’s focus on sale of security products will be to schools and hotels.

Effective November 2009, the Company decided to withhold bidding on major transit related projects since these projects extend over long periods of time and historically have been subject to extensive delays in equipment approval and acceptance (which is problematic in the need for maintaining staffing levels and project profitability) and are subject to changes in funding by the related agencies for these projects (which requires the Company to maintain a large bank line of credit). However, the Company will continue to bid on projects of very short duration that could be completed quickly, and make box type sales that do not require extensive engineering labor. At December 31, 2009, outstanding orders to electrical contractors (to New York City Transit Authority) for transit projects totaled $5.3 million and completion of these projects are dependent on release and completion dates requested by the transit authority. One of these project’s completion could extend to 2011. Sales of transit projects represented 12% or $343,000 and 23% or $1,345,000 respectively of the total sales in the three months ended December 31, 2009 and 2008, respectively.

The Company’s two audio/visual salespeople and two project engineers are no longer with the Company. The Company does not believe it can find qualified replacements for these employees. The Company’s inability to find qualified employees, coupled with historical low gross margins on audio/visual sales, has resulted in the Company being unable to pursue audio/visual projects in 2010. The Company will complete certain audio/visual projects in 2010 but does not expect to participate in future audio/visual sales. At December 31, 2009 orders for audio/visual products amounted to $192,000.

Significant Customers and Suppliers

The Company does business directly and indirectly through electrical contractors to New York City Transit Authority. Net sales to this authority represented approximately 212% and 1823% of total net sales in the three months ended ~~June~~December 3031, 2009 and 2008, respectively ~~and 15% and 26% of total net sales in the nine months ended June 30, 2009 and 2008~~.

No ~~other~~ customer provided sales of 10% or more for the three ~~or nine~~ months ended ~~June~~December 3031, 2009. One ~~and~~customer provided sales of 10% or more of total sales (amounting to 15%) in the three months ended December 31, 2008. Accounts receivable ~~had~~from noa significant customers amounted to $868,000 at ~~June~~December 3031, 2008, and no customer owed the Company more than 10% of total accounts receivable at December 31, 2009.

Two suppliers each accounted for more than 10% of the Company’s cost of sales for the three ~~and nine~~ months ended ~~June~~December 3031, 2009 (those suppliers amounted to 4334% and 13 10%, respectively ~~for the three month period and 18% and 13% for the nine month period)~~. Three suppliers accounted for more than 10% of the Company’s cost of sales for the three months ended ~~June~~December 3031, 2008 (amounting to 2217%, 1215% and 1112%) ~~and one supplier accounted for more than 10% of the Company’s cost of sales for the nine months ended June 30, 2008 (amounting to 15%)~~.

Related Party Transactions

At September 30, ~~2007~~2008, Firecom, ~~Inc.~~ (~~“Firecom”) (~~a privately owned company involved in the fire alarm and life safety business) owned 1,~~352~~578,~~544~~112 shares or approximately 2630% of the Company’s outstanding shares of common stock. In ~~June 2008, Firecom purchased an additional 225,568 shares and in~~ January 2009, Firecom purchased another 490,000 shares increasing its beneficial ownership to 2,068,112 shares, equal to approximately 40% of the Company’s outstanding common stock.

Mr. Paul Mendez, the Company’s President and Chief Executive Officer also serves as Chairman of the Board of Directors and Chief Executive Officer of Firecom. On June 10, 2008, the Company entered into an employment agreement with Mr. Mendez under which the Company would pay Mr. Mendez an annual base salary of $20,000. The employment agreement was modified in January 2009 to increase Mr. Mendez’s salary, retroactive to October 1, 2008, to an annual base salary of $250,000 ~~and, as a result, during the nine months ended June 30, 2009 the Company recorded $188,000 of compensation expense for Mr~~. ~~Mendez.~~ Mr. Mendez does not participate in the Company’s health-care or other benefit plans. Pursuant to the employment agreement, either the Board of Directors of the Company or Mr. Mendez may terminate his employment ~~without~~ without cause and at any time. Mr. Mendez devotes approximately 50% of his time to the affairs of the Company. In the employment agreement with the Company, Mr. Mendez has agreed to certain non-competition and confidentiality provisions.

Firecom also provides the Company with a full time employee who serves as President of the Company’s fire alarm products and services activities. For the three ~~and nine~~ months ended ~~ending~~December ~~June 30~~31, 2009 the Company paid Firecom $7072,000 ~~and $156,000, respectively,~~ for the services of this individual, which includes reimbursement for salary, payroll taxes and other employee benefits ~~for such full-time employee~~. These expenses are included in cost of service revenue. For the three ~~and nine~~ months ~~ending~~ended ~~June~~December 3031, 2008 the Company paid Firecom $5253,000 ~~and~~for the same services. For the three months ended December 31, 2009 the Company paid $6620,000 to Firecom for another employee who serves in a fire alarm administrative function. No reimbursement for this employee was made during the three months ended December 31, 2008 as the employee began work for the Company in January 2009.

1813

Item 2. Management’'s Discussion and Analysis of Financial Condition and Results of ~~Operation~~Operations

respectively, for the same services. For the three and nine months ending June 30, 2009 the Company paid $12,000 and $37,000, respectively, to Firecom for another employee who serves in a fire alarm administrative function, no money was paid for this employee during the three and nine months ending June 30, 2008 as the employee began work for the Company in January 2009.

The Company and Firecom have entered into several transactions that are not financially material to the revenues, gross profit or net income (loss) of the Company:

· Firecom has provided certain sales leads to the Company for products Firecom does not sell. These sales leads have resulted in additional sales of products to customers. The Company has paid Firecom a 2% sales commission related to these sales which amounted to $6,000 for the ~~nine~~three months ended ~~June~~December 3031, ~~2009~~2008 and there were no such transactions for the ~~nine~~three months ended ~~June~~December 3031, ~~2008~~2009.

· Firecom has manufactured and sold to the Company certain fire alarm equipment made to the Company’s specifications. This equipment was sold to the Company for $183,000 ~~and $21,000~~ during the three ~~and nine~~ months ended ~~June~~December 3031, ~~2009~~2008, ~~respectively~~ and ~~$12,000~~there ~~during~~were ~~the~~no ~~three~~such ~~and~~transactions ~~nine~~for the three months ended ~~June~~December 3031, ~~2008~~2009.

· The Company from time to time has purchased and sold certain products used in Firecom’s business. During the three ~~and nine~~ months ended ~~June~~December 3031, 2009, ~~these products were sold to Firecom for $184,000~~ and ~~$328,000, respectively. During the three and nine months ended June 30,~~ 2008, these products were sold to Firecom for $1438,000 and $4443,000, respectively. Profit margins on sales to Firecom approximate the margins on sales to other customers.

The Company has a consulting agreement with Firecom pursuant to which Firecom provides certain hardware and software engineering and field trouble-shooting services. In offering these services, Firecom has agreed to keep information confidential and refrain from use of the information in its business. We plan to investigate other cost saving measures with Firecom and will enter into other agreement if they are beneficial to our business.

As of December ~~June 30~~31, 2009 and September 30, ~~2008~~2009, the Company owed Firecom $-18,000 ~~0 -~~ and $324,000, respectively, which is included in Accounts Payable. As of December ~~June 30~~31, 2009 and September 30, ~~2008~~2009, Firecom owed the Company $~~141~~31,000 and $3463,000 respectively, which is included in Accounts Receivable.

~~Other~~Special Committee to Consider Strategic Opportunities

~~Approximately~~In October ~~32%~~2009, ofwith consideration to the Company’s ~~employees~~working ~~are~~capital ~~covered~~requirements, the byCompany’s ~~collective~~Board ~~bargaining~~of ~~agreements. On~~Directors ~~March~~formed 9,a ~~2009,~~Special ~~the~~Committee ~~union~~of ~~representing~~independent outside ~~hourly~~directors ~~employees~~to explore and ~~the~~consider ~~Company~~various ~~ratified~~strategic aalternatives including ~~Collective~~proposals ~~Bargaining~~for ~~Agreement~~additional ~~expiring~~debt ~~March~~or 9,the ~~2012~~issuance of additional equity capital, ~~providing~~the ~~for~~sale anof ~~increase~~one inor ~~salaries~~more ~~and~~of ~~benefits~~the ~~averaging~~Company’s ~~approximately~~lines 4%of ~~per~~business ~~year~~or the sale ~~over~~of the ~~life~~Company in an effort to enhance stockholder value. The Special Committee is authorized to negotiate on behalf of the ~~contract~~Board of Directors and to consider, pursue ~~but~~and ~~with~~accept noor ~~increase~~reject inany ~~the~~proposals ~~first~~received, ~~year~~subject ofto required stockholder approval and other terms that the ~~contract~~Special Committee determines.

~~NASDAQ~~The Special ~~Continued~~Committee’s ~~Listing~~members include Harris Epstein and Ronald P. Fetzer. The Special Committee has retained Ladenburg Thalmann as its independent financial advisor to assist it in its evaluation of strategic alternatives. The Special Committee has also retained independent legal counsel. There is no assurance that the Special Committee will procure or receive offers for a strategic alternative to address the Company’s capital needs, and if it does, that an agreement for a transaction will be reached, approved or consummated. See Subsequent Event – Merger Agreement.

OnSubsequent ~~April~~Event ~~21,~~- 2008, the Company received a letter from the Nasdaq Listing Qualifications Department (”NASDAQ”) notifying the Company that for 30 consecutive days, the bid price of the Company’s common stock has closed below the minimum $1.00 per share requirement. The Company had been provided with 180 calendar days (originallyMerger until October 20, 2008) to regain compliance. If, at any time before October 20, 2008, the bid price of the Company’s common stock closed at $1.00 per share for a minimum of 10 consecutive business days, then NASDAQ would provide the Company with written notification that it had complied with NASDAQ’s bid price requirement. NASDAQ then suspended the enforcement of the Rule from October 16, 2008 through July 28, 2009. As a result, the Company had until August 5, 2009 to regain compliance.Agreement

On January ~~August 6~~22, ~~2009~~2010, the “Company, ~~received~~Firecom, aand ~~letter~~FCI ~~from~~Merger ~~NASDAQ~~Corp., ~~stating~~a ~~that~~newly-formed wholly-owned ~~the~~subsidiary ~~Company~~of ~~had~~Firecom ~~not regained compliance with~~ (the ~~minimum~~“Merger ~~bid price requirement under Listing Rule 5550(a~~Sub”)~~(2)~~, byentered ~~August~~into 5,an ~~2009~~ Agreement and, asPlan aof ~~result,~~Merger ~~its common stock would be subject to delisting from The Nasdaq Capital Market unless~~ (the ~~Company~~“Merger ~~requested an appeal before the Nasdaq Hearings Panel~~Agreement”). ~~Accordingly,~~On ~~unless~~January ~~the~~14, ~~Company requests an appeal~~2010, ~~trading of~~ the Company’s ~~common~~reported ~~stock~~that ~~will~~its beSpecial ~~suspended~~Committee atof the ~~opening~~Board of ~~business~~Directors onof ~~August 17, 2009 and~~ the Company’s ~~common~~(the ~~stock~~“Special ~~will~~Committee”) behad ~~removed~~commenced ~~from~~discussions ~~listing~~with ~~and~~Firecom regarding ~~registration~~a onproposed ~~the~~merger ~~Nasdaq Stock Market~~transaction.

19The Merger Agreement provides for Firecom to acquire the Company through a merger of Merger Sub with and into the Company (the “Merger”), with the Company to be the surviving corporation. Pursuant to the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of common stock of the Company (other than any shares owned by Firecom or Merger Sub, by the Company as treasury stock, or by any stockholders who are entitled to, and who properly exercise, appraisal rights under Delaware law) will be cancelled and will be converted automatically into the right to receive $0.60 in cash, without interest.

~~Item~~The Merger ~~2. Management~~Agreement was entered into after negotiations between Firecom and the Special Committee, completion of the due diligence review and analysis, receipt by the Special Committee of an opinion from its financial advisor to the effect that the merger consideration payable to the public stockholders of the Company was fair, from a financial point of view, recommendation of the Special Committee, and approval by the Company’s ~~Discussion~~Board ~~and~~of ~~Analysis~~Directors (with representatives of ~~Financial~~Firecom ~~Condition~~having recused themselves from the Board meeting). On January 22, 2010, Ladenburg Thalmann & Co. Inc, delivered an opinion to the Special Committee that, as of the date of the opinion and ~~Results~~subject to the limitations contained therein, the consideration to be received by the Company’s stockholders pursuant to the Merger is fair to such stockholders from a financial point of ~~Operation~~view.

After consideration of its options, the Company does not intend to request a hearing before the Panel and its common stock will be delisted from Nasdaq at the opening of business on August 17, 2009. The Company determined that it would be difficult for the Company to maintain the Nasdaq Stock Market’s listing criteria on an ongoing basis and it would be in the best interests of the Company to allow its common stock to be delisted from the Nasdaq Capital Market.14

~~The~~Item ~~Company is working with a market maker to have its common stock quoted on the OTC Bulletin Board~~2. ~~The Company’~~Management's ~~common~~Discussion ~~stock~~and Analysis ~~will~~of ~~not~~Financial beCondition ~~immediately~~and ~~eligible~~Results toof ~~trade on the OTC Bulletin Board after delisting.~~Operations

20The Merger Agreement contains customary representations and warranties of the Company, Firecom and Merger Sub. The Merger Agreement also contains customary covenants and agreements, including covenants relating to the conduct of the Company’s business between the date of the signing of the Merger Agreement and the closing of the Merger. The completion of the Merger is subject to various conditions set forth in the Merger Agreement, including fulfillment of the customary closing conditions, adoption of the Merger Agreement and the Merger by vote of holders of a majority of the outstanding shares of Common Stock at a special meeting to be called after the Company files with and obtains clearance from the SEC staff of the requisite proxy material and completion of the Merger by April 30, 2010. The Company’s stockholders will have statutory appraisal rights in accordance with the Delaware General Corporation Law. One closing condition is that holders of not more than an aggregate of 10% of the Company’s outstanding shares of Common Stock have sought such appraisal rights. The transaction is not subject to a financing condition. Upon the Merger, the Company will become a wholly-owned subsidiary of Firecom. As of the Effective Date, the directors of the Company will resign and be replaced by designees of Firecom.

~~Item~~In addition, 3during the period from the date of the Merger Agreement though February 8, 2010 (the “Solicitation Period”), the Company, and its officers, directors, employees and representatives, may solicit third parties to make a Superior Proposal (as defined in the Merger Agreement) to acquire the Company. ~~Quantitative~~Any third party solicited during the Solicitation Period or who contacted the Company during such Period, and ~~Qualitative~~who ~~Disclosures~~the ~~About~~Special ~~Market~~Committee believes ~~Risk~~in good faith to have the financial capability to effect a Takeover Proposal, and who executes an Acceptable Confidentiality Agreement by February 16, 2010 would be a “Permitted Party.” After the termination of the Solicitation Period and until the earlier of the effectiveness of the Merger or the termination of the Merger Agreement, the Company may negotiate and consider a Superior Proposal from a Permitted Party or from a person who contacted the Company on an unsolicited basis after the termination of the Solicitation Period (an “Unsolicited Party”). The Company and the Special Committee’s representatives solicited third parties and several interested parties have indicated an interest as of February 8, 2010 and are considered Permitted Parties. In the event the Merger Agreement is terminated by reason of the Company’s consideration of a Superior Proposal, the Company would not have to pay any termination fee to Firecom with respect to a Superior Proposal submitted by a Permitted Party, but would have to pay a fee in the amount of $200,000 with respect to a Superior Proposal submitted by an Unsolicited Party. In either event, upon termination of the Merger Agreement, the Company would have to reimburse Firecom’s expenses, not to exceed $100,000.

After the Merger, the Company will be a privately-held corporation. There will be no public market for the Company’s Common Stock, no price quotations with respect to sales prices of the Company’s Common Stock in the public market, the registration of the Company’s Common Stock under the federal securities laws will be terminated, and neither the Company nor its executive officers, directors and 5% stockholders will be required to file periodic reports with the SEC.

The foregoing summary of certain terms of the Merger Agreement does not purport to be complete, and is subject to and qualified in its entirety by reference to the Merger Agreement, a copy of which is filed as Exhibit 2.1 to Form 8-K on January 22, 2010.

NASDAQ Delisting

The Company’s common stock was delisted from the NASDAQ Stock Market (“NASDAQ”) on August 17, 2009 because the Company’s common stock did not meet the minimum bid price requirements of NASDAQ. The Company determined that it would be unlikely that it would be able to meet the NASDAQ Stock Market’s listing criteria on an ongoing basis and it would therefore be in the best interest of the Company and its shareholders to allow its common stock to be delisted.

Since the delisting the Company common stock has traded on the pink sheet market under the symbol SYNX.PK.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable

Item 4. Controls and Procedures Evaluation of disclosure controls and procedures.

(a) Disclosure Controls and Procedures

The Company’s management, with the participation of its principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Company’s principal executive officer and principal financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were adequate and effective.

(b) Changes in Internal Controls

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended ~~June~~ December 3031, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II – OTHER INFORMATION

Item 1. Legal Proceedings.

~~From~~In ~~time~~the normal tocourse ~~time~~of weits ~~may~~operations, bethe aCompany ~~party~~has been, or from time to ~~various~~time may be, named in legal ~~proceedings~~actions ~~arising~~seeking inmonetary damages. While the outcome ~~ordinary~~of ~~course~~these ofmatters ~~our~~cannot ~~business.~~be Weestimated with certainty, and certain matters are in early or discovery stages of litigation, management does not ~~currently~~expect, based ~~subject~~upon toconsultation ~~any~~with legal counsel and insurance coverage, that such actions will have a material ~~legal~~effect ~~proceedings~~on the Company's business or financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

~~None.~~Not applicable

Item 3. Defaults Upon Senior Securities.

~~None.~~Not applicable

Item 4. Submission of Matters to a Vote of Security Holders.

~~The Registrant’s Annual Meeting of Stockholders was held on July 28, 2009. At the meeting, Stockholders considered and voted upon:~~None

(1) the election of five (5) directors to Synergx’s Board of Directors,

The five 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	WITHHELD	NOT VOTED
Paul Mendez	4,432,382	182,116	596,452
John Poserina	4,341,248	273,250	596,452
Harris Epstein	4,404,878	209,620	596,452
Peter Barotz	4,397,669	216,829	596,452
Ronald Fetzer	4,388,749	225,749	596,452

None.

Item 5. Other Information.

None.

Item 6. Exhibits

(a) Exhibits

31.1 Certification of Paul Mendez pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.1	Certification of Paul Mendez 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 Paul Mendez and John A. Poserina pursuant to Section 906 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~~17

32.1 Certifications of Paul Mendez and John A. Poserina pursuant to Section 906 of the Sarbanes-Oxley Act of 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)
	By:	/s/ Paul Mendez
Date: February 9, 2010	/s/	Paul Mendez
		Paul Mendez, Chief Executive Officer Date: August 14, 2009
		Paul Mendez
		Chief Executive Officer
Date: February 9, 2010	/s/	John A. Poserina
		John A. Poserina
		Chief Financial Officer
		(Principal Accounting and Financial Officer),
		Secretary And Director

	By:	/s/ John A. Poserina
		John A. Poserina,
		Chief Financial Officer (Principal Accounting and Financial Officer), Secretary and Director Date: August 14, 2009

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