UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20459





FORM
10-KSB




(Mark
One)





[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




For the
fiscal year ended September 30, 2008


OR





[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




Commission
File Number 0-17580





SYNERGX
SYSTEMS INC


(Exact
name of Small Business Issuer in its charter)




Delaware
            11-2941299(State or other
      jurisdiction of  incorporation or organization)
            (I.R.S. Employer
      Identification No.)


209
Lafayette Drive, Syosset, New York  11791


(Address  of
principal executive offices) (zip code)





Issuer's
telephone number, including area code:  (516) 433-4700





Securities
registered pursuant to Section 12(b) of the Act: None





Securities
registered pursuant to Section 12(g) of the Act:





Common
Stock, $.001 par value per share


(Title of
Class)





Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days. YES x     NO
o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrant's   knowledge, in definitive
proxy  or  information statements by reference in Part III
of this Form 10-KSB ( )





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





State
issuer's revenues for its most recent fiscal year: $20,104,332





The aggregate market value of the
voting stock held by non-affiliates of the Registrant, based upon the average
bid and ask prices for the  Registrant's
Common  Stock,  $.001  par  value  per  share,  as
of  December  30,  2008  was $1,170,196
Shares of common stock held by each officer and director and by each person or
group who owns 10% or more of the outstanding common stock have been excluded in
that such persons or groups may be deemed to be affiliates.  This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.





As
of December 30, 2008, the Registrant  had  5,210,950 shares
of Common Stock outstanding.





Documents
Incorporated by Reference: Definitive Proxy Statement to be filed.











FORWARD-LOOKING
STATEMENTS





This
annual 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 actual results may differ materially from any
forward-looking statements.  We caution you not to place undue
reliance on these forward-looking statements.  The forward-looking
events discussed in this annual 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.





PART
I





ITEM 1.
DESCRIPTION OF BUSINESS




OVERVIEW.Synergx
Systems Inc. ("Synergx" or the "Company") is a Delaware corporation organized in
October 1988 to acquire controlling interests in companies engaged in the
design, manufacture, distribution, sale and servicing of fire, life safety,
security, energy management, intercom, audio-video communication and other
systems. Reference to Synergx or the Company include operations of each of its
subsidiaries except where the context otherwise requires.




Synergx's
business is conducted through subsidiaries in the New York City metropolitan
area. Synergx conducts its business in New York principally through Casey
Systems Inc. (“Casey”) its wholly owned subsidiary located in New York City and
Long Island, New York.




CASEY
SYSTEMS.   Synergx’s principal operating subsidiary is
Casey.   Casey has been in the business of designing, servicing
and maintaining building communication systems since
1970.   Today Casey is a diversified systems integrator which, in
addition to its own proprietary line of life safety and building protection
products, also is a premier low-voltage systems provider for a broad range of
video, teleconferencing/ multimedia, audio visual, public address, customer
information, access control, intercoms, security, closed circuit TV (CCTV) and
professional sound systems.   In addition, Casey designs, markets
and supports these systems for the rail and mass transit
industries.




2




Fire and Life
Safety.  For over 30 years Casey has been providing fire and
smoke signaling and detection systems for institutional, municipal, commercial
and residential buildings in the New York City metropolitan
area.  Casey provides services primarily as a sub-contractor to
electrical and general contractors.  Casey also acts as a
general  contractor from time to time as well as engages in direct
sales of products and services to building owners, managers and other
users.  New and modified systems must be installed and maintained in
compliance with local law requirements.  New York City in particular
maintains a very comprehensive and detailed body of regulations to govern the
installation and operation of fire alarm and life safety
systems.  Casey markets its expertise in putting systems on line and
servicing such systems in compliance with these regulations.




Casey has
developed and markets its own proprietary signaling and fire detection
technology known as Comtrak, and also acts as a strategic distributor for
national manufacturers such as Edwards Systems Technology, a General Electric
company.   Casey has installed a number of generations of Comtrak
and other systems in hundreds of facilities in the New York metropolitan
area.    Comtrak and other such systems sold by Casey
control and monitor smoke detectors, pull stations and other devices, supervise
other building systems such as elevators and fans and provide dedicated audio
communication channels for building and emergency personnel.   In
many cases after installation and fire department approval thereof, Casey
continues to provide products and services to such facilities related to the
changing requirements of tenants in such buildings (e.g. smoke detectors and
other devices when tenant spaces are altered) or service contracts to building
owners or managers.





Transit.   Since
1991 Casey has designed, installed and maintained sound, life safety and
security systems for over one hundred transit facilities in the New York City
metropolitan area.   Casey has expanded its capabilities to
handle all low voltage systems and fiber communications systems for mass transit
facilities.  Our staff consists of experienced sales engineers,
project managers, field technicians and administrative support staff who are
experienced with the specialized technical, documentary and critical path
requirements of this market.   Casey markets its products and
services to prime contractors and electrical contractors to serve as the
required systems integrator on projects for the New York City Transit Authority,
Metro-North, The Long Island Railroad, New Jersey Transit, Amtrak and other
agencies.  In nearly all cases the systems integrator hired by the
prime or electrical contractor must be approved by the relevant agency.Our
communications engineers are approved by the New York City Transit Authority and
other agencies.   Casey and its engineers are also certified in
most cases as the sole or one of only a limited number of manufacturers of
numerous systems specified by these agencies.




Engineered Sound
Systems.    Casey has augmented its established
position in marketing engineered life safety systems (proprietary and third
party) by developing a significant business in engineered sound systems for
application to a variety of users including airline terminals, hospitals,
educational facilities and transit facilities (e.g. commuter terminals and
subway stations).  Casey has developed a focused unit with a high
level of experience to penetrate this niche market with significant success as a
substantial portion of Casey’s revenues and order position derives from this
effort.     Casey offers simple analog paging systems
as well as state-of-the-art computerized systems that emphasize speech
intelligibility and high quality music reproduction.   Casey is
an authorized dealer for many leading manufacturers.




3




Audio-Visual.   Casey’s
engineering and sales team work with consultants, architects and construction
managers to design, install and integrate audio visual systems in buildings in
the New York metropolitan areas.    These facilities include
museums, auction houses, advertising agencies, houses of worship, health care
and educational facilities, financial institutions and law
firms.   On these projects Casey oversees software integration,
selects hardware and oversees all aspects of the project installation and
activation.  Systems include audio and video conferencing, video
projection systems, media streaming and command and control
centers.  Casey is an authorized supplier of numerous high quality
national product lines.




Security.   Casey
provides integrated security systems for institutional, municipal, commercial
and residential buildings handling design and engineering, product
specification, installation, maintenance and personnel
training.    Customers include commercial and apartment
buildings, transportation and educational facilities and medical
centers.   Products include indoor-outdoor, perimeter,
pan-tilt-zoom cameras, monitors, wireless command and remote control and
transmission technology.    Casey designs and installs a
full range of card access control systems including scrambled pad-biometrics,
smart cards, swipe cards and proximity readers.  Casey has worked with
many network technologies including encrypted networks.




Service.  Casey
continues to put an increasing priority on the development of an integrated and
efficient service organization. Sales personnel have been dedicated to securing
service contracts and to market service of Comtrak and other projects coming out
of warranty and the renewal of such contracts. To provide efficient and
productivecustomer
service, Casey maintains an office in New York City which houses its New York
service management and offers 24/7 customer support with over 30
manufacturer-trained field service technicians




RESEARCH AND
DEVELOPMENT.   During the fiscal years ended September 30,
2008 and 2007, Synergx spent approximately $335,000 and $304,000, respectively,
for research and development of Synergx's life safety and communication
systems.




CUSTOMERS AND
SUPPLIERS.For
the fiscal year ended September 30, 2008, no customer accounted for more than
10% of Synergx's revenues and at September  30 2008, one customer
accounted for more than10% of Synergx’ s accounts receivable (amounting to
10.4%).  Only one supplier accounted for more than 10% of Synergx's
cost of sales (amounting to 16%) during the year ended September 30,
2008..




For the
fiscal years ended September 30, 2007, one customer accounted for more than 10%
of Synergx's revenues (amounting top 14.4%). . Also, at September 30, 2007, one
customer accounted for more than 10% of Synergx’s accounts receivable (amounting
to 23.7%).  Only one supplier accounted for more than 10% of Synergx’s
cost of sales (amounting to 14%) during the year ended September 30,
2007.




4




The Company
does business directly and indirectly through electrical contractors to New York
City Transit Authority.  Sales to this authority represented
approximately  24 % and  29% respectively of the total sales
in the years ended September 30, 2008 and September 30, 2007.




REGULATIONS.  Synergx
believes that it complies with applicable building codes, zoning ordinances,
occupational, safety and hazard standards and other Federal, state and local
ordinances and regulations governing its business activities. Environmental
regulations do not have a material effect on any of our businesses.




COMPETITION.  Synergx’s
business is competitive; some of Synergx's competitors may have greater
financial resources and may offer a broader line of fire and life safety
products. Synergx also faces competition in the servicing of systems which it
sells. Accordingly, even though Synergx may sell and install a fire and life
safety and/or communications system, it may not receive the contract to service
that system. Synergx, however, believes that it can effectively compete with any
entity which conforms to applicable rules and regulations.




EMPLOYEES.  As
of September 30, 2008, Synergx and its subsidiaries had 89 full time employees,
including 32 New York hourly employees that are covered by a Collective
Bargaining Agreement expiring March 2009.




BUSINESS
CONDITIONS.   Synergx believes that its labor and material
sources are sufficient and that other than normal competitive factors, and what
is discussed above or under "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS", Synergx's operations and industry do not
have any special characteristics which may have a material impact upon its
future financial performance.  Due to the current economic climate,
however, the Company expects to have difficulty instituting price increases to
offset increased costs.




PATENTS AND
TRADEMARKS.The Company does not have any patents on its
systems, but, it uses proprietary technology which it seeks to protect as trade
secrets. The "Firetector," "Casey Systems" and "COMTRAK" trademarks are
registered with the United States Patent and Trademark Office.




RELATIONSHIP WITH
FIRECOM, INC.At September 30, 2007,
Firecom, Inc. (“Firecom”) (a privately owned company involved in the firm alarm
business) owned 1,352,544 shares or approximately 26% of the Company’s
outstanding shares of common stock.  During the fiscal year ended
September 30,.2008, Firecom purchased an additional 225,568 shares increasing
its beneficial ownership to 1,578,012 shares  equal to 30% of the
Company’s outstanding shares of 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 will pay Mr. Mendez an annual base salary of $20,000,
not including any performance bonuses or equity compensation that may be
approved by the Board of Directors and its compensation
committee.   Pursuant to the employment agreement, both the Board
of Directors of the Company and 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 confidentially
provisions.




5




Firecom
also provides the Company with a full time employee who serves as President of
the Company’s fire alarm products and services activities. Since February 2008
the Company paid  Firecom $135,000 for the services of this
individual.





The
Company and Firecom have entered into several transactions in the ordinary
course of business that are not material to the revenues, gross profit or net
income 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 2%
sales commissions related to these sales.  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 $35,000
during the year ended September 30, 2008. The Company from time to time has
purchased and sold certain products used in Firecom’s
business.  During the year ended September 30, 2008 these products
were sold to Firecom for $85,000. 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.




ITEM 2.
DESCRIPTION OF PROPERTY





The
Company leases approximately 16,400 square feet of office, manufacturing and
warehouse space in Syosset, New York under a seven year lease that was to expire
in  June 2007.  In 2006, the lease was extended on similar
terms to expire June 30, 2012.The rental schedule provides for monthly rent of
$18,400 during 2008 with 3.3% yearly increases through the remainder of the term
of the lease.





The
Company has a lease for its service center in New York City that became
effective August 2002 and runs through December 31, 2009.  The lease
is for office and warehouse space. The rental schedule provides for monthly rent
of $7,883 during 2008 plus expenses with 2% yearly increases through the
remainder of the term of the lease.





Management  believes  there
is sufficient space at these facilities for its current and intended
business.





ITEM 3.
LEGAL PROCEEDINGS





In
the normal course of its  operations,  the Company has been,
or from time to time may be, named in
legal  actions  seeking  monetary  damages.  While
the outcome of these matters cannot be estimated with certainty, and certain
matters are in early or discovery stages of litigation, management does not
expect,  based  upon
consultation  with  legal  counsel and insurance
coverage,  that such actions will have a material effect on the
Company's business or financial condition.





ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS





No
matters were submitted to a vote of security holders during the fiscal year
covered by this report except those items voted upon during the annual meeting
of stockholders held in March 2008.





6





PART
II





ITEM
5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS





Synergx's  Common
Stock has been traded on the National  Association  of
Securities Dealer's Inc. Automated  Quotation System ("NASDAQ") since
April 11, 1989  under the "FTEC" symbol and since May 2002 under the
“SYNX” symbol.The
following table shows the high and low bid and ask quotations for each fiscal
quarter from December 31, 2006 through  September 30, 2008
which  quotations  were  obtained  from
the  National  Association  of
Securities  Dealers Inc.





Bid
                                                      
                                                      
                                                      AskQuarter
      Ended
                                                      
                                                      High
                                                      
                                                      
                                                      Low
                                                      
                                                      
                                                      High
                                                      
                                                      
                                                      LowFiscal
      Year Ended September 30, 2007December
      31, 2006
                                                      
                                                      
                                                      2.620
                                                      
                                                      
                                                      
                                                      1.100
                                                      
                                                      
                                                      
                                                      2.720
                                                      
                                                      
                                                      
                                                      1.360March
      31, 2007
                                                      
                                                      
                                                      2.380
                                                      
                                                      
                                                      
                                                      1.380
                                                      
                                                      
                                                      
                                                      2.540
                                                      
                                                      
                                                      
                                                      1.400June
      30, 2007
                                                      
                                                      
                                                      2.350
                                                      
                                                      
                                                      
                                                      1.610
                                                      
                                                      
                                                      
                                                      2.450
                                                      
                                                      
                                                      
                                                      1.810September
      30, 2007
                                                      
                                                      
                                                      2.380
                                                      
                                                      
                                                      
                                                      1.800
                                                      
                                                      
                                                      
                                                      2.590
                                                      
                                                      
                                                      
                                                      1.860


Fiscal
      Year Ended September 30, 2008December
      31, 2007
                              
                              
                              2.200
                              
                              
                              
                              1.220
                              
                              
                              
                              2.300
                              
                              
                              
                              1.250March
      31, 2008
                              
                              
                              1.320
                              
                              
                              
                              0.010
                              
                              
                              
                              2.130
                              
                              
                              
                              0.660June
      30, 2008
                              
                              
                              1.030
                              
                              
                              
                              0.250
                              
                              
                              
                              1.430
                              
                              
                              
                              0.580September
      30, 2008
                              
                              
                              0.870
                              
                              
                              
                              0.250
                              
                              
                              
                              1.000
                              
                              
                              
                              0.260







The
above  quotations  represent  prices  between  dealers,  do
not include
retail  markups,   markdowns  or  commissions  and  may  not  represent   actual
transactions.  As of  December
11,  2008,  there  were 248record  holders  of
Synergx's Common Stock.





On
December 30, 2008, the closing bid and ask prices for the Common Stock were $.25
and $.40, respectively.





On
April 21, 2008, the Company received a letter (the “Letter”) from The NASDAQ
Stock Market (“NASDAQ”) notifying the Company that for the last 30 consecutive
days, the bid price of the Company’s common stock has closed below the minimum
$1.00 per share requirement for continued inclusion in the NASDAQ Stock
Market.  The Company had been provided with 180 calendar days (until
October 20, 2008) to regain compliance.





On
October 20, 2008, the Company received notification that NASDAQ had suspended
for a three-month period the enforcement of rules requiring a minimum $1.00
closing bid price or a minimum market value of publicly held shares.
NASDAQ  has said it will not take any action, effective October 17,
2008,  to delist any security for these concerns during the
suspension. NASDAQ has stated that, given the current extraordinary market
conditions, this suspension will remain in effect through Friday, January 16,
2009.and will be reinstated on Monday, January 19, 2009.





If,
at any time before January 22, 2009, the bid price of the Company’s common stock
closes at $1.00 or greater per share for a minimum of 10 consecutive business
days, then NASDAQ will provide the Company with written notification that it has
complied with Marketplace Rule 4310 (c)  (4) (the “Rule”). If
compliance with the Rule cannot be demonstrated by January 22, 2009, then NASDAQ
will decide whether the Company meets NASDAQ’s listing criteria set forth in the
Rule, except for the bid requirement.  The notification states that,
if the Company meets these criteria, then the Company will be granted an
additional 180 calendar day compliance period.  If the Company is not
granted an additional 180 calendar period, then NASDAQ will provide written
notification that the Company’s securities will be delisted.




7




Management
and the Board of Directors will consider available strategies in order to
satisfy the minimum bid price requirement, however there can be no assurance
that the Company will be able to maintain the listing of its common stock on the
NASDAQ Global market.





In
the event the delisting of the Company’s common stock would occur, the Company
would look to have its common stock trade on a different platform or
exchange.  The Company is analyzing what effect, if any, a delisting
would have on the Company’s financial condition and liquidity.





The
Company has not paid any cash dividends on its Common Stock. Payment of cash
dividends in the foreseeable future is not contemplated by the Company. Whether
dividends are paid in the future will depend on the Company's earnings, capital
requirements, financial condition along with economic and market conditions,
industry standards and other factors considered relevant to the Company's Board
of Directors. Payment of dividends is restricted in certain cases by the
Company's credit facilities. Accordingly, no assurance can be given as to the
amount or timing of future dividend payments, if any.
  Securities
Authorized for Issuance under Equity Compensation Plans


The
table sets forth certain information, as of September 30, 2008, concerning
equity securities authorized for issuance under the 1997 Non-Qualified Stock
Option Plan:





(a)
                
                
                (b)
                
                
                ©Number
      of securities to be issued upon exercise of outstanding options, warrant
      and rights
                
                
                Weighted-average exercise
      price of outstanding options, warrants and rights
                
                
                Number
      of securities remaining available for future issuance under equity
      compensation plans(exclusing securities reflected in column
      (a)Equity
      compensation plans approved by security holders
                
                
                57,000
                
                
                $
                2..36
                
                
                
                277,997Equity
      compensation plans not approved by security holdersTotal
                
                
                57,000
                
                
                $
                2.36
                
                
                
                277,997




8




ITEM
6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS





References
to 2008 and 2007 within the Management’s Discussion and Analysis of Financial
Condition and Results of Operations refers to the fiscal years ended September
30, 2008 and September 30, 2007, respectively.





LIQUIDITY
AND CAPITAL RESOURCES





On
September 30, 2008, the Company had a $3.5 million dollar revolving credit
facility with TD Banknorth, N.A. (the Bank”) (the “Credit Facility”).
This  Credit Facility had an annual interest rate of prime plus 1⁄4% and
was to expire in January  2009. On December 23, 2008, the
Company received a letter from the bank agreeing to extend the expiration date
of the Credit Facility through October 1, 2009, and to revise the facility to
$2.5 million with an increased interest rate of prime plus 2%. Advances under
the Credit Facility are measured  against a  borrowing
base  calculated
on  eligible  receivables  and
inventory.  The Credit Facility is secured by all assets of the
Company and all of its operating  subsidiaries.





The
Credit Facility includes various covenants, which among other things, impose
limitations on declaring or paying dividends, and making acquisitions and
capital expenditures. The Company is also required to maintain certain financial
ratios and tangible net worth covenants.  At September 30, 2008, the
Company did not meet financial covenants related to its debt service coverage
ratio and tangible net worth.  However, the requirements of these
covenants were waived by the bank in conjunction with the agreement to extend
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
owed under the Credit Facility.





Net
cash provided by operations for the year ended September 30, 2008 amounted to
$1,739,000 as compared to $883,000 of cash being used in operations during the
prior year.  The increase in cash being provided by operations was
primarily due to a net decrease of $2,381,000 in operating assets and
liabilities in 2008 partially offset by the higher net loss in
2008.   This decrease reflects a reduction in working capital
from a $5.0 million transit project that was completed in 2008.  This
reduction in working capital was primarily due to a $1.2 million decrease in
accounts receivable. The reduction in working capital was also related to an
increase in deferred revenue related to a project which will be completed in the
fiscal year ending September 30, 2009 and from an increase of $464,000 in
accounts payable and accrued expenses which includes the deferred payment of a
portion of separation costs and advance payments from tenant customers for a
large retail outlet center project.




9




Management's
Discussion and Analysis of Financial
 Condition
and Results of Operations
  In 2008,
the net cash inflow of  $1,739,000 from operations plus $68,000 of
cash proceeds from collection of a note receivable  were used for the
purchases of capital assets of $224,000 (primarily for a new management
information system and test equipment for a new fire alarm product) and to
reduce bank borrowing by $1,553,000.  The Company has working capital
of $3,836,000 at September 30, 2008 and will fund its operations using this
working capital and cash generated from operations.




The
ratio of the Company’s current assets to current liabilities decreased to
approximately 1.83 to 1 at September 30, 2008 compared to 3.01 to 1 at September
30, 2007.  Working capital declined to $3.8 million at September 30,
2008 compared to $6.7 million at September 30, 2007. This decline is related to
funding operations during the past year, a $330,000 reduction in the deferred
tax asset and a $1.5 million reduction in bank borrowing.





RESULTS
OF OPERATIONS





Revenues
and Gross Profit





For
      the years ended September 30,(In
      thousands)2008
                      
                      
                      
                      2007Product
      Sales
                      
                      $
                      13,075
                      
                      
                      $
                      12,953Subcontract
      Sales
                      
                      
                      1,728
                      
                      
                      
                      319Service
      Revenue
                      
                      
                      5,301
                      
                      
                      
                      5,017Total
      Revenue
                      
                      $
                      20,104
                      
                      
                      $
                      18,289Product
      Gross Margin
                      
                      $
                      2,314
                      
                      
                      $
                      2,948Subcontract
      Gross Margin
                      
                      
                      246
                      
                      
                      
                      58Service
      Gross Margin
                      
                      
                      2,584
                      
                      
                      
                      2,485Total
      Gross Margin
                      
                      $
                      5,144
                      
                      
                      $
                      5,491Gross
      Profit Product %
                      
                      
                      18
                      %
                      
                      
                      23
                      %Gross
      Profit Subcontractor %
                      
                      
                      14
                      %
                      
                      
                      18
                      %Gross
      Profit Service %
                      
                      
                      49
                      %
                      
                      
                      50
                      %Total
      Gross Profit %
                      
                      
                      26
                      %
                      
                      
                      30
                      %




Revenues





The
increase in product sales resulted from higher shipments of audio/visual,
security, and fire alarm products in 2008, which offset a decline in revenues
from transit products following the final stages of a $5.0 million project for a
New York City subway station security system. Revenues of $3.5 million from this
project where included in 2007 product sales. The improvement in fire alarm
product revenue is from the installation of a fire alarm system at a major new
retail outlet center and from increased revenues related to tenant changes in
certain buildings.




10




Management's
Discussion and Analysis of Financial


Condition
and Results of Operations





Subcontract
sales increased during 2008 as the Company was responsible as prime contractor
for the electrical installation at a major new retail outlet center and for
several other large electrical installation projects compared to a few smaller
projects in 2007.





Service
revenues increased 6% during 2008 primarily due to an increase in call-in
service on fire alarm systems (replacement parts and service required by
buildings).





Gross
Profit





Gross
profit margin from product sales decreased 22% to $2,314,000. The decline in
absolute gross profit margin and the decrease in gross margin percentage are
primarily attributable to a shift in product mix to lower margin sales of audio
visual and security projects in 2008. Gross profit margin as a percentage of
product sales was 18% in 2008 compared to 23% in 2007.  This decline
in gross profit percentage was due to a shift in product mix to larger projects
with lower margin sales in 2008.  Recent audio-visual, security,
transit projects and the large fire alarm outlet center project involved a lower
gross profit percentage than the Company experienced over the last few years
from its product mix.





Gross
profit margin related to subcontract sales for 2008 increased in absolute terms
as the Company was responsible for a greater number of electrical installations
by third parties (subcontract work) and one large installation at a major retail
outlet center in 2008 (noted above). The gross margin percentage in 2008 is due
to a lower margin percentage received on the major retail outlet center
project.





Gross
profit margin from service revenues increased 4% in absolute terms during 2008
due to the increase in call-in-service on fire alarm systems (noted
above).  Gross margin as a percentage of revenues declined due to
additional costs of service administration staff in 2008.





Selling,
General and Administrative Expenses





11


Management's
Discussion and Analysis of Financial
 Condition
and Results of Operations
  Selling,
General and Administrative Expenses (“S G & A”)
increased  $134,000  in 2008 over 2007 primarily due to
$547,000 in separation costs for the resignation of both the Chief Executive
Officer and the President of Casey Systems.  Partially offsetting
these  separation costs were $185,000 of savings related to the
elimination of expenses for these executive positions (for the remaining part of
2008), and from a $155,000 reduction in selling costs, which primarily reflect
certain staff eliminations.  The Company maintained a high level of
developmental costs for modernizing components of the Company’s proprietary
Comtrak fire alarm system. This program is expected to generate future revenue
and is designed to allow a building owner to enhance the capabilities of its
fire alarm system at a fraction of the cost of a new system replacement and is
expected to generate future revenues to the Company as well as extend the useful
life of the installed base of the Company’s proprietary Comtrak system. In
contrast, 2007 included $96,000 of investment banking  and legal
expenses related to exploring strategic options.


In
2008, S G & A continued to reflect a high level of  sales and
marketing personnel expenses which were geared to support higher product
revenues.  However,  S G & A expenses as a percentage of
sales declined 2.2% to 28.6% in 2008 due to higher sales volume
compared to the relative fixed nature of these costs.





(Loss)
Before Tax





The
$541,000 increase in loss from operations during 2008 includes $347,000 of lower
gross profit margin and $133,000 of higher selling, general and administrative
expenses compared to 2007. The decline in gross profit was primarily due to a
shift  in product mix to lower margin sales of audio/visual, security
and certain fire alarm revenue and related gross margin, which offset higher
gross margin from additional subcontract and service revenues in 2008. The
increase in selling, general and administrative expenses was primarily due to
$547,000 of separation costs in 2008 from the resignation of both the Chief
Executive Officer and the President of Casey Systems (noted
above).   In 2008, depreciation expense increased $20,000
primarily resulting from a new computer system.





Interest
expense decreased $31,000 during 2008 due to the effect of both lower interest
rates and lower borrowing levels.





During
2007, the Company sold its 25% equity investment in Secure 724 LP and reported a
gain of $98,000 on the sale. In 2008, the Company benefited from receipt of
$6,268 of contingent proceeds from this sale.  The sales agreement
provides for an additional variable payment based on sales of Secure 724 product
up to a maximum additional payment of $73,455. The Company received $6,268 and
$1,075 of the variable payment during 2008 and 2007, respectively.





Critical
Accounting Policies





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of  the financial statements and reported amounts of revenues and
expenses during the reporting period.  Actual results could differ
from those estimates.





12





Management's
Discussion and Analysis of Financial


Condition
and Results of Operations





The
Company believes that the estimates and assumptions that are most important to
the portrayal of our financial condition and results of operations, in that they
require subjective or complex judgments, form this basis for the accounting
policies deemed to be most critical to us.  These relate to inventory
and revenue recognition.  We believe estimates and assumptions are
related to  these critical accounting policies are appropriate under
the circumstances.  However, should future events or occurrences
result in unanticipated consequences, there could be a material impact on our
future financial conditions or results of operations.





Order
Position





Synergx’s
order position, excluding service was $12.5 million at September 30,
2008   compared to $11.2 million level at September 30, 2007. The
Company expects to fulfill a significant portion of its order position over the
next twelve months.    While quotation activity is brisk,
there is no assurance when orders will be received and whether the order
position will increase.  Due to the fact that some of
the  Company's products  are sold and
installed  as part of  larger construction  or
mass transit  projects,  there is typically a delay between
the booking of the contract and its revenue realization. The order position from
time to time includes, and the Company continues  to bid on,
projects  that  include   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 responsible for management of the project as
well as  electrical installation.





Plan of
Operations





During  fiscal  2009,  management  intends  to
continue to focus  on intensified marketing  programs
with fire, security and audio/visual products. Management has decided to be more
selective in bidding on transit projects since these projects extend over long
periods of time (which is problematic in the assignment of staff) and are
subject to changes in funding by the agencies these projects relate to.
Management intends to  continue  to contain or monitor fixed
overhead as well as to reduce  variable  costs
through  improved  efficiency and
productivity.   Specifically management is pursuing a strategy of
aggressive  marketing of products and systems to drive more revenue
through established channels of distribution.   Management will
concentrate on these initiatives with a focus on reducing costs thereby
enhancing the Company’s competitiveness which combined  with improved
sales and marketing techniques should result in increased revenues over
time.  However, competition remains severe in many of the Company’s
product categories.  Longer term, management expects increased demand
for the Company’s audio-visual, public address, security and other communication
products.  Recent enhancements  to
Synergx’s  management information systems and methods of approving and
monitoring  project costs  have improved management's
ability to pinpoint waste  and/or third party (supplier or customer)
cost responsibility.  Further enhancements in these areas will be in
progress during 2009.




13






Management's
Discussion and Analysis of Financial


Condition
and Results of Operations





Inflation





The  impact  of  inflation  on
the  Company's  business  operations has not been
material in the
past.  Casey's  labor  costs  are  normally  controlled  by
union  contracts covering a period of three years and its
material  costs have remained  relatively
stable.  However, in July of 2005, the Company and its union agreed to
a new contract, which expires in March 2009, that provides for wage/benefits
increases of approximately 4% in each year.  Under terms of previous
union contracts, certain union members, upon passing certain test requirements,
began moving up to higher paying categories that have multiple salary steps per
year in excess of the 4% contractual level. In addition, the demand for highly
skilled professionals has resulted in the need to assess salary levels in order
to remain competitive.  Management can not predict the results of the
upcoming union negotiation. The Company will try to mitigate the effect of any
increases in labor costs by efficiency initiatives and  expense
reductions.  Due to the current economic climate, the Company expects
to have difficulty instituting price increases to offset increased
costs.





Off-Balance
Sheet Arrangements





As
of September 30, 2008,  the Company did not have any off-balance sheet
debt nordid it have
any material transactions, arrangements, obligations (including contingent
obligations) or other relationships with any unconsolidated entities or other
persons that may have a material current or future effect on financial
condition, changes in financial condition, results of operations, liquidity,
capital expenditures, capital resources, or significant resources or significant
components of revenue or expenses.





Continued
Listing on NASDAQ





On
April 21, 2008 the Company received a letter from the NASDAQ Stock Market
notifying the Company that for the last 30 days, the bid price of the Company’s
common stock has closed below the minimum $1.00 per share requirement for
continued inclusion in the NASDAQ Stock Market.





In
addition, on October 20, 2008, NASDAQ notified the Company that due to
extraordinary market conditions NASDAQ decided, effective October 17, 2008, to
suspend enforcement of the bid price and market value of publicly held shares
requirements through Friday January 16, 2009.





Management
and the Board of Directors will consider available strategies in order to
satisfy the minimum bid price requirement , however there can be no assurance
that the Company will be able to maintain the listing of its common stock on the
NASDAQ Global Market.




14


Management's
Discussion and Analysis of Financial


Condition
and Results of Operations





In
the event the delisting of the Company’s common stock would occur, the Company
would look to have its common stock trade on a different platform or exchange.
The Company is analyzing what effect, if any, a delisting would have on the
Company’s financial condition and liquidity.




15




ITEM
7.  FINANCIAL STATEMENTS





Our
financial statements together with accompanying notes and the reports of our
independent registered public accounting firms, are set forth on the pages
indicated below.




Reports of
      Independent Registered Public Accounting Firms
            F-1Audited Consolidated
      Financial Statements
            F-2Consolidated Balance
      Sheet  September 30, 2008
            F-3


Consolidated
      Statements of Operations Years Ended September 30, 2008 and 2007
            F-5Consolidated
      Statements of Stockholders’ Equity Years Ended September 30, 2008 and
      2007
            F-6Consolidated
      Statements of Cash Flows Years Ended September 30, 2008 and
      2007
            F-7





Notes to
      Consolidated Financial Statements
            F-8




ITEM  8.  CHANGES  IN
AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.





On
September 3, 2008, the Company dismissed Marcum & Kleigman LLP (“M&K”)
as its principal accountants.  The Audit Committee and Board of
Directors participated in and approved the decision to change independent
accountants.





M&K
audit reports on the consolidated financial statements of Synergx Systems Inc.
as of and for the fiscal years ended September 30, 2007 and 2006 (collectively,
the “Financial Statements”) did not contain any adverse opinion or disclaimer of
opinion nor were they qualified or modified as to uncertainty, audit scope or
accounting principles.





In
connection with M&K audits for the two fiscal years ended September 30, 2007
and 2006 and the subsequent interim period through September 5, 2008, there have
been no disagreements with M&K on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of M&K would have cause
it to make reference to the subject matter of the disagreements in connection
with its audit reports on the Financial Statements.  Additionally,
during the two most recent fiscal years through September 30, 2007, there have
been no reportable events, as such term is defined in Item 304(a)(1)(v) of
Registration S-K.




16




ITEM 8A.
CONTROLS AND PROCEDURES





Evaluation of Disclosure
Controls and Procedures





At the
period end of this Annual Report on Form 10-KSB, the Company’s management,
including the Company’s Chief Executive Officer and Chief Financial Officer
evaluated the effectiveness of the design and operation of the Company’s
disclosure controls and procedures.  Based on that evaluation, the
Company’s Chief Executive Officer and Chief Financial Officer have concluded, as
of the end of the fiscal year covered by this report, that:





The
Company’s disclosure controls and procedures are designed to ensure that
information required to be disclosed by the Company in the reports it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified.





The
Company’s disclosure controls and procedures are effective to ensure that such
information is accumulated and communicated to the Company’s management, and
made known to the Company’s Chief Executive Officer and Chief Financial Officer,
to allow timely decision regarding the required disclosure.





There
have been no changes in the Company’s internal controls over financial reporting
that have materially affected, or is reasonably likely to materially affect the
Company’s internal controls over financial reporting during the period covered
by the Annual Report.





Management’s Report on
Internal Control Over Financial Reporting





We, the
Chief Executive Officer and Chief Financial Officer of Synergx Systems Inc. are
responsible for establishing and maintaining adequate internal control over
financial reporting of the Company, as such term is defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934.  The
Company’s internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles in the United States (“U.S.
GAAP”).





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





We
evaluated the effectiveness of the Company’s internal control over financial
reporting as of September 30, 2008, using the criteria for effective internal
control established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.




17




Based on
our evaluation, we concluded that we did not maintain effective internal control
over financial reporting as of September 30, 2008 based on the specified
criteria.  We identified control deficiencies  regarding:
(1) lack of segregation of duties  (2) small size of dedicated
accounting and finance staff to keep abreast of developing U. S. GAAP and SEC
reporting matters.   We believe that these material weaknesses
are due to the fact that we are a small sized company.  During
the  fiscal year ending on September 30, 2009 we intend to develop
additional procedures to address these issues; however, the number of such
employees will still be limited and may prevent adequate controls in the future,
such as segregation of duties, due to cost/benefit of such
remediation.





The
control deficiencies that we identified could result in a misstatement of
account balances that would result in a reasonable possibility that a material
misstatement to our financial statements may not be prevented or detected on a
timely basis.  Accordingly, we have determined that these combined
control deficiencies constitute a material weakness.





In light
of this material weakness, we performed additional analyses and procedures in
order to conclude that our financial statements for the year ended September 30,
2008, included in this Annual Report on Form 10-KSB were fairly stated in
accordance with accounting principles generally accepted in the United
States.  Accordingly, we believe that despite our material weakness,
our financial statements for the year ended September 30, 2008 are fairly
stated, in all material respects, in accordance with accounting principles
generally accepted in the United States.





This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered  public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to
provide only management’s report in this annual report.





18




PART
III





Item
9.  Directors, Executive Officer, Promoters and Control
Persons:  Compliance with Section 16(a) of the Exchange
Act.





The
information required by this Item is incorporated by reference from our
definitive Proxy Statement for the 2008 Annual Meeting of
Stockholders.





Item
10.  Executive Compensation





The
information required by this Item is incorporated by reference from our
definitive Proxy Statement for the 2008 Annual Meeting of
Stockholders.





Item
11.  Security Ownership of Certain Beneficial Owners and
Management





The
information required by this Item is incorporated by reference from our
definitive Proxy Statement for the 2008 Annual Meeting of
Stockholders.





Item
12.  Certain Relationships and Related Transactions





The
information required by this Item is incorporated by reference from our
definitive Proxy Statement for the 2008 Annual Meeting of
Stockholders.





ITEM
13.  EXHIBITS





(a)  Exhibits




Exhibit
      No.
                              
                              Description
      of Exhibit3.1
                              
                              Certificate
      of Incorporation of the Company, as amended (6)3.2
                              
                              By-Laws
      of the Company (2)4.1
                              
                              Specimen
      Common Stock Certificate (2)10.1
                              
                              Credit
      Facility dated October 9, 2003 between Synergx Systems Inc. as borrower
      and Hudson United Bank as lender. (5)10.2
                              
                              Employment
      Agreement between Casey Systems Inc. and Al Koenig dated as
      of  February 17, 2005 (7)10.3
                              
                              Employment
      Agreement between Synergx Systems Inc. and Daniel S. Tamkin dated as of
      October 1, 2005 (7).10.4
                              
                              Second
      Amendment to Revolving Loan Agreement, Promissory Note and Other Loan
      Documents, between Synergx Systems Inc. and TD Banknorth, N.A., dated as
      of September 29, 2006. (8)10.8
                              
                              Form
      of Lease dated February, 2000 between Casey Systems as Tenant and First
      Industrial L.P. as Landlord (3)10.9
                              
                              Form
      of Lease dated July 23rd, 2002   between Systems Service
      Technology Corp as Tenant and Balbo Realty LLC as Landlord
    (4)10.10
                              
                              Form
      of Limited Partnership Agreement dated May 29, 2003 between 3077118 Nova
      Scotia ULC (a Synergx Systems owned company) and Secure 724 LP
      (5)10.11
                              
                              Separation
      Agreement and General Release dated June 2, 2008, between Daniel S. Tamkin
      and Synergx Systems Inc. (9)10.12
                              
                              Employment
      Agreement, dated as of June 10, 2008, between Synergx Systems Inc and Paul
      Mendez (10)22.1
                              
                              Subsidiaries
      of the Registrant *23.1
                              
                              Consent
      of Nussbaum Yates Berg Klein & Wolpow, LLP Independent Registered
      Public Accounting Firm *23.2
                              
                              Consent
      of Marcum & Kliegman LLP Independent Registered Public Accounting Firm
      *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
                              
                              Certification
      of Paul Mendez and  John A. Poserina pursuant
      to  Section 906 of the Sarbanes-Oxley Act of
    2002*









* filed herewith




19




(1)
Reference is made to the correspondingly  numbered Exhibit to
Amendment No. 1 to
the  Company's  Registration  Statement on Form
S-2,  Registration  No. 33-51472,  filed with the
Commission on December 23, 1992, which is incorporated herein by
reference.




(2)
Reference is made to the correspondingly  numbered Exhibit to
Amendment No. 1 to
the  Company's  Registration  Statement on Form
S-1,  Registration  No. 22-26050,  filed with the
Commission on January 23, 1989,  which is incorporated herein by
reference.




(3)  Reference
is made to the correspondingly numbered Exhibit to the Company’s Annual Report
on Form 10-KSB for the Fiscal Year Ended September 30,
2001,  which


Exhibit
is incorporated herein by reference.




(4)  Reference
is made to the correspondingly numbered Exhibit to the Company’s Annual Report
on Form 10-KSB for the Fiscal Year Ended September 30,
2002,  which


Exhibit
is incorporated herein by reference.





(5)
Reference is made to the correspondingly numbered Exhibit to the Company’s
Annual Report on Form 10-KSB for the Fiscal Year Ended September 30, 2003 which
Exhibit is incorporated herein by reference.





(6)
Reference is made to the correspondingly numbered Exhibit to the Company’s
Amendment to Annual Report  on Form 10-KSB/A for the Fiscal Year Ended
September 30, 2002 which Exhibit is incorporated herein by
reference.





(7)  Reference
is made to the correspondingly numbered Exhibit to the
Company’s  Annual Report on Form 10-KSB for the Fiscal Year Ended
September 30, 2005 which Exhibit is incorporated herein by
reference.




(8)  Reference
is made to the correspondingly numbered Exhibit to the
Company’s  Annual Report on Form 10-KSB for the Fiscal Year Ended
September 30, 2006 which Exhibit is incorporated herein by
reference.




(9)  Reference
is made to the correspondingly numbered Exhibit to the
Company’s  Current Report on Form 8-K filed on June 6,
2008.




(10)  Reference
is made to the correspondingly numbered Exhibit to the
Company’s  Current Report on Form 8-K filed on June 11,
2008.




(b)Reports
on Form 8-K





The
Company filed two reports on Form 8-K during the fourth quarter of the fiscal
year ended September 30, 2008.  The reports were filed August 13, 2008
(items 2.02 and 9.01) and September 8, 2008 (item 4.01).




Item
14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES





The
information required by this Item is incorporated by reference from our
definitive Proxy Statement for the 2008 Annual Meeting of
Stockholders.





20




SIGNATURES





Pursuant  to
the  requirements  of  Section  13 or
15(d) of the  Securities Exchange  Act of
1934,  the  Company has duly caused this Report to be signed
on its behalf by the undersigned, hereunto duly authorized.






SYNERGX
      SYSTEMS INC.
                (Registrant)January
      5, 2009
              By:
              /s/ Paul  MendezPaul  MendezChief
      Executive Officer and Director





In  accordance  with
the Exchange Act, this report has been signed below by the
following  persons on behalf of the Company and in the capacities and
on the dates
indicated.








SIGNATURE
            TITLE
            DATE/s/ Paul
      Mendez
            Chairman, Chief
      Executive Officer and Director
            January 5,
      2009


Paul
Mendez/s/ John A.
      Poserina
            Chief Financial
      Officer (Principal Accounting and Financial Officer), Secretary, and
      Director
            January 5,
      2009John A.
      Poserina/s/ Harris
      Epstein
            Director
            January 5,
      2009Harris
    Epstein/s/ Peter
      Barotz
            Director
            January 5,
      2009Peter
    Barotz/s/ Ronald P.
      Fetzer
            Director
            January 5,
      2009Ronald P.
      Fetzer





21




REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM













To the
Board of Directors and


Stockholders
of Synergx Systems Inc.






We have
audited the accompanying consolidated balance sheet of Synergx Systems, Inc. and
subsidiaries (the “Company”) as of September 30, 2008, and the related
consolidated statements of operations, stockholders’ equity, and cash flows for
the year then ended. The Company’s management is responsible for these financial
statements. Our responsibility is to express an opinion on these financial
statements based on our audit.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of September 30,
2008, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.








NUSSBAUM
YATES BERG KLEIN WOLPOW, LLP


Melville,
New York








January
5, 2009








F-1






Report of
Independent Registered Public Accounting Firm







To the
Audit Committee, Board of Directors and Shareholders of Synergx
Systems Inc.





We have
audited the accompanying  consolidated statements of
operations,  stockholders' equity, and cash flows for
the  year ended September 30, 2007 of Synergx Systems Inc. and
its  subsidiaries  (the
“Company”)    These financial  statements are
the  responsibility of the Company's management.
Our  responsibility is to express an  opinion  on
these  consolidated  financial statements  based
on our audits.





We  conducted  our  audits  in  accordance  with  the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit  to obtain
reasonable  assurance about whether the consolidated
financial  statements are free of
material  misstatement.    The Company is not
required to have, nor are we engaged to perform, an audit of its internal
control over financial reporting.  Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s control over
financial reporting.  Accordingly, we express no
opinion.  An audit also includes examining on a test basis evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made
by  management, as well as evaluating  the
overall  financial  statement  presentation.  We
believe  that our  audits provide a reasonable basis for our
opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated results of operations
and  cash flows for the  year ended September 30, 2007, of
Synergx Systems Inc. and its subsidiaries in conformity  with
accounting principles generally accepted in the United States of
America.







/s/
MARCUM & KLIEGMAN LLP


New York,
New York





December
26, 2007















F-2


SYNERGX
SYSTEMS INC. AND SUBSIDIARIES
  CONSOLIDATED
BALANCE SHEET
 September
      30,2008ASSETSCURRENT
      ASSETSCash
                                                          
                                                          $
                                                          263,000Accounts
      receivable, principally trade, less allowancefor
      doubtful accounts of $302,000
                                                          
                                                          
                                                          5,271,000Inventories,
      net
                                                          
                                                          
                                                          1,948,000Prepaid
      expenses and other current assets
                                                          
                                                          
                                                          988,000TOTAL
      CURRENT ASSETS
                                                          
                                                          
                                                          8,470,000PROPERTY
      AND EQUIPMENT -at cost, lessaccumulated
      depreciation and amortization of $2,091,000
                                                          
                                                          
                                                          816,000OTHER
      ASSETS
                                                          
                                                          
                                                          250,000TOTAL
      ASSETS
                                                          
                                                          $
                                                          9,536,000
 See
accompanying Notes to the  Consolidated Financial
Statements
  F-3
 
 SYNERGX
SYSTEMS INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEET
 September
      30,2008LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESNotes
      payable - current portion
                                                              
                                                              
                                                              27,000Accounts
      payable and accrued expenses
                                                              
                                                              
                                                              2,994,000Deferred
      revenue
                                                              
                                                              
                                                              1,613,000TOTAL
      CURRENT LIABILITIES
                                                              
                                                              
                                                              4,634,000OTHER
      LIABILITIESNote payable to bank
                                                              
                                                              
                                                              518,000Notes
      payable - less current portion
                                                              
                                                              
                                                              57,000TOTAL
      LIABILITIES
                                                              
                                                              
                                                              5,209,000COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      EQUITYPreferred
      stock, 2,000,000 shares authorized- none issued and
      outstandingCommon
      stock, 10,000,000 shares authorized, $.001 par value; issued and
      outstanding 5,210,950 shares
                                                              
                                                              
                                                              5,000Additional
      Paid in Captal
                                                              
                                                              
                                                              6,850,000Accumulated
      deficit
                                                              
                                                              
                                                              (2,528,000
                                                              )TOTAL
      STOCKHOLDERS' EQUITY
                                                              
                                                              
                                                              4,327,000TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                                              
                                                              $
                                                              9,536,000
   See
accompanying Notes to the Consolidated Financial Statements
   F-4
 
 SYNERGX SYSTEMS INC.
AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 For
      the years ended September 30,2008
                                                                                        
                                                                                        
                                                                                        2007Product
      sales
                                                                                        
                                                                                        $
                                                                                        13,075,000
                                                                                        
                                                                                        
                                                                                        $
                                                                                        12,953,000Subcontract
      sales
                                                                                        
                                                                                        
                                                                                        1,728,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        319,000Service
      revenue
                                                                                        
                                                                                        
                                                                                        5,301,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        5,017,000Total
      revenues
                                                                                        
                                                                                        
                                                                                        20,104,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        18,289,000Cost
      of product sales
                                                                                        
                                                                                        
                                                                                        10,761,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        10,005,000Cost
      of subcontract sales
                                                                                        
                                                                                        
                                                                                        1,482,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        261,000Cost
      of service revenue
                                                                                        
                                                                                        
                                                                                        2,717,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        2,532,000Selling,
      general and administrative
                                                                                        
                                                                                        
                                                                                        5,759,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        5,625,000Depreciation
      and amortization
                                                                                        
                                                                                        
                                                                                        259,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        198,000Total
      operating expenses
                                                                                        
                                                                                        
                                                                                        20,978,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        18,621,000(Loss)
      from operations
                                                                                        
                                                                                        
                                                                                        (874,000
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (332,000
                                                                                        )Other
      income (expense):Interest
      expense
                                                                                        
                                                                                        
                                                                                        (110,000
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (142,000
                                                                                        )Gain
      on  equity investment
                                                                                        
                                                                                        
                                                                                        6,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        98,000(104,000
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (44,000
                                                                                        )(Loss)
      before (benefit) provision for income taxes
                                                                                        
                                                                                        
                                                                                        (978,000
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (376,000
                                                                                        )(Benefit)
      provision for income taxesCurrent
                                                                                        
                                                                                        
                                                                                        (30,000
                                                                                        )
                                                                                        
                                                                                        
                                                                                        11,000Deferred
                                                                                        
                                                                                        
                                                                                        330,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        159,000300,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        170,000Net
      (Loss)
                                                                                        
                                                                                        
                                                                                        (1,278,000)
                                                                                        
                                                                                        
                                                                                        
                                                                                        (546,000
                                                                                        )(Loss)
      per ShareBasic
      and diluted (loss) per Share
                                                                                        
                                                                                        $
                                                                                        (0.25
                                                                                        )
                                                                                        
                                                                                        $
                                                                                        (0.10
                                                                                        )Basic
      and diltued weighted average number of commonshares
      outstanding
                                                                                        
                                                                                        
                                                                                        5,210,950
                                                                                        
                                                                                        
                                                                                        
                                                                                        5,210,950
 
  See
accompanying Notes to the  Consolidated Financial
Statements
  
 F-5
  SYNERGX SYSTEMS INC. and
SUBSIDIARIES
  CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
  FOR THE YEARS ENDED
SEPTEMBER 30, 2008 and 2007
  
 (ACCUMULATEDTOTAL
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            ADDITIONAL
                                            
                                            
                                            DEFICIT)/STOCKHOLDERS'
                                            
                                            
                                            COMMON STOCK
                                            
                                            
                                            PAID
      IN
                                            
                                            
                                            RETAINEDEQUITY
                                            
                                            
                                            SHARES
                                            
                                            
                                            AMOUNT
                                            
                                            
                                            CAPITAL
                                            
                                            
                                            EARNINGSBalance
      at September 30, 2006
                                            
                                            $
                                            6,105,000
                                            
                                            
                                            
                                            5,210,950
                                            
                                            
                                            $
                                            5,000
                                            
                                            
                                            $
                                            6,804,000
                                            
                                            
                                            $
                                            (704,000
                                            )Net
      (Loss)
                                            
                                            
                                            (546,000
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (546,000
                                            )Stock-based
      compensation
                                            
                                            
                                            28,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            28,000Balance
      at September 30, 2007
                                            
                                            $
                                            5,587,000
                                            
                                            
                                            
                                            5,210,950
                                            
                                            
                                            $
                                            5,000
                                            
                                            
                                            $
                                            6,832,000
                                            
                                            
                                            $
                                            (1,250,000
                                            )Net
      (Loss)
                                            
                                            
                                            (1,278,000
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (1,278,000
                                            )Stock-based
      compensation
                                            
                                            
                                            18,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            18,000Balance
      at September 30, 2008
                                            
                                            $
                                            4,327,000
                                            
                                            
                                            
                                            5,210,950
                                            
                                            
                                            $
                                            5,000
                                            
                                            
                                            $
                                            6,850,000
                                            
                                            
                                            $
                                            (2,528,000
                                            )
 
  
  See
accompanying Notes to the  Consolidated Financial
Statements
   F-6
  SYNERGX
SYSTEMS INC. AND SUBSIDIARIES
  CONSOLIDATED
STATEMENTS OF CASH FLOWS
  For
      the Years Ended September 30,2008
                                                                                                                
                                                                                                                2007OPERATING
      ACTIVITIESNet  (Loss)
      from continuing operations
                                                                                                                
                                                                                                                $
                                                                                                                (1,278,000
                                                                                                                )
                                                                                                                $
                                                                                                                (546,000
                                                                                                                )Adjustments
      to reconcile net  (loss)  to net cash (used
      in)provided
      by operating activities:Depreciation
      and amortization *
                                                                                                                
                                                                                                                
                                                                                                                288,000
                                                                                                                
                                                                                                                
                                                                                                                226,000Deferred
      tax  (benefit)
                                                                                                                
                                                                                                                
                                                                                                                330,000
                                                                                                                
                                                                                                                
                                                                                                                190,000Share-based
      compensation
                                                                                                                
                                                                                                                
                                                                                                                18,000
                                                                                                                
                                                                                                                
                                                                                                                28,000Gain
      on sale of  investment
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                (98,000
                                                                                                                )Changes
      in operating assets and liabilities:Accounts
      receivable, net
                                                                                                                
                                                                                                                
                                                                                                                1,195,000
                                                                                                                
                                                                                                                
                                                                                                                (447,000
                                                                                                                )Inventories
                                                                                                                
                                                                                                                
                                                                                                                93,000
                                                                                                                
                                                                                                                
                                                                                                                (1,000
                                                                                                                )Prepaid
      expenses and other current assets
                                                                                                                
                                                                                                                
                                                                                                                (174,000
                                                                                                                )
                                                                                                                
                                                                                                                (605,000
                                                                                                                )Income
      tax receivable
                                                                                                                
                                                                                                                
                                                                                                                -
                                                                                                                
                                                                                                                
                                                                                                                80,000Other
      assets
                                                                                                                
                                                                                                                
                                                                                                                (44,000
                                                                                                                )
                                                                                                                
                                                                                                                (26,000
                                                                                                                )Accounts
      payable and accrued expenses
                                                                                                                
                                                                                                                
                                                                                                                528,000
                                                                                                                
                                                                                                                
                                                                                                                390,000Deferred
      revenue
                                                                                                                
                                                                                                                
                                                                                                                783,000
                                                                                                                
                                                                                                                
                                                                                                                (74,000
                                                                                                                )NET
      CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
                                                                                                                
                                                                                                                
                                                                                                                1,739,000
                                                                                                                
                                                                                                                
                                                                                                                (883,000
                                                                                                                )INVESTING
      ACTIVITIESProceeds
      from sale of equity investment
                                                                                                                
                                                                                                                
                                                                                                                6,000
                                                                                                                
                                                                                                                
                                                                                                                9,000Proceeds
      from note receivable
                                                                                                                
                                                                                                                
                                                                                                                68,000
                                                                                                                
                                                                                                                
                                                                                                                21,000Purchases
      of property and equipment
                                                                                                                
                                                                                                                
                                                                                                                (224,000
                                                                                                                )
                                                                                                                
                                                                                                                (281,000
                                                                                                                )NET
      CASH  (USED IN) PROVIDED BY INVESTING ACTIVITIES
                                                                                                                
                                                                                                                
                                                                                                                (150,000
                                                                                                                )
                                                                                                                
                                                                                                                (251,000
                                                                                                                )FINANCING
      ACTIVITIESPrincipal
      payments on notes payable
                                                                                                                
                                                                                                                
                                                                                                                (26,000
                                                                                                                )
                                                                                                                
                                                                                                                (27,000
                                                                                                                )Payments
      and proceeds from note payable bank - net
                                                                                                                
                                                                                                                
                                                                                                                (1,553,000
                                                                                                                )
                                                                                                                
                                                                                                                1,141,000Proceeds
      from exercise of stock options and warrantsNET
      CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
                                                                                                                
                                                                                                                (1,579,000
                                                                                                                )
                                                                                                                
                                                                                                                (1,114,000
                                                                                                                )NET INCREASE (DECREASE)
      IN CASH
                                                                                                                
                                                                                                                
                                                                                                                10,000
                                                                                                                
                                                                                                                
                                                                                                                (20,000
                                                                                                                )Cash
      at beginning of the year
                                                                                                                
                                                                                                                
                                                                                                                253,000
                                                                                                                
                                                                                                                
                                                                                                                273,000Cash  at
      end of the year
                                                                                                                
                                                                                                                
                                                                                                                263,000
                                                                                                                
                                                                                                                
                                                                                                                253,000SUPPLEMENTAL
      CASH FLOW INFORMATION:Cash
      paid during the period for:Income
      taxes
                                                                                                                
                                                                                                                $
                                                                                                                23,000
                                                                                                                
                                                                                                                $
                                                                                                                13,000Interest
                                                                                                                
                                                                                                                $
                                                                                                                106,000
                                                                                                                
                                                                                                                $
                                                                                                                146,000NON-CASH
      INVESTING AND FINANCING ACTIVITIESNote
      receivable in amount of $73,000 obtained in consideration for sale of
      equity investment in the year ended September 30, 2007.*
      Depreciation of $29,000 and $27,000 is included in cost of product and
      service sales for the years ended September 30, 2008 and 2007,
      respectively.During
      the year ended September 30, 2008, the Company purchased equipment of
      $22,000 through financing.
  
 See
accompanying Notes to the  Consolidated Financial
Statements
   F-7
  Synergx
Systems Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements
   1.
Summary of Significant Accounting Policies
 
 Business
 
 Synergx
Systems Inc. and Subsidiaries (the ”Company”) operates in one industry segment:
the design, manufacture, distribution, marketing and service of a variety of
data communications products and systems with applications in the fire alarm,
life safety, transit, security and communications industry.  The
Company conducts its business principally in the New York Metropolitan
area.
 
 Principles
of Consolidation
 
 The
consolidated financial statements include the accounts of Synergx Systems
Inc.  and its subsidiaries, all of which are wholly owned. The
principal operating subsidiaries are: Casey Systems Inc. (“Casey”), and Systems
Service Technology Corp. (“SST”). In addition, the Company has a payroll
disbursing subsidiary FT Clearing Inc. and Comco Technologies Inc., a subsidiary
that held the investment in Secure 724 LP, which was sold in March 2007 (see
Note 3).  Significant intercompany items and transactions have been
eliminated in consolidation.
 
 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 on board systems) 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 billings, and billings in excess of
costs and estimated profits.  Costs and estimated profits in excess of
billing were $640,000 at September 30, 2008 and have been included in other
current assets.  Billings in excess of costs and estimated profits
were $841,000 at September 30, 2008 and have been included in deferred
revenue.  Product sales for short term contracts are recognized when
the services are preformed 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.
 
 
 F-8
   Synergx
Systems Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements
 
 Revenue
Recognition (continued)
 
 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.
 
 Use of
Estimates
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements  and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
 
 Accounts
Receivable
 
 Accounts
receivable are reported net of an allowance for doubtful
accounts.  The adequacy of the allowance is determined by management
based on a periodic review of the status of the individual accounts
receivable.
 
 Inventories
 
 Inventories
are priced at the lower of cost (first–in, first–out) or market and consist
primarily of raw materials and parts for service  and at September 30,
2008 reflects an inventory allowance of $613,000 for slow movement and
obsolescense .
 
 Property
and Equipment
 
 Property
and equipment are stated at historical cost.
 
 Depreciation
of machinery and equipment and furniture and fixtures is provided primarily by
the straight–line method over their estimated useful lives (3 to 10
years).
 Amortization
of leasehold improvements is provided by the straight-line method over the life
of the lease or the economic useful life, whichever is shorter.
 
  F-9
   Synergx
Systems Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements
   Other
Assets
 
 Other
assets primarily consist of  security deposits of
$47,000,  goodwill related to the acquisition of Casey Systems of
approximately $34,000, deferred bank fees of $12,000, deferred costs of $26,000
related to required independent approval for the upgrade to the Company’s
Comtrak fire alarm system, which will be amortized over the estimated period of
sales and restricted cash on deposit with the Company’s bank of
$125,000.
 
 The
Company does not amortize goodwill but evaluates whether the carrying value of
goodwill has become impaired. This evaluation is performed on an annual basis
each fiscal year end. The Company has determined that there was no impairment of
goodwill at September 30, 2008.
 
 Advertising
Costs
 
 Advertising
costs are expensed as incurred. Advertising costs for the years ended September
30, 2008 and 2007 amounted to $8,000 and $11,000, respectively.
 
 Research
and Development Costs
 
 Research
and development costs are expensed as incurred.  Research and
development costs for the years ended September 30, 2008 and 2007 amounted to
$335,000 and $304,000, respectively.
 
 Income
Taxes
 
 The
Company accounts for income taxes under Statement of Financial Accounting
Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” Under SFAS
No. 109, the asset and  liability method is used to determine
deferred tax assets and liabilities based on the differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
 
 Loss Per
Share
 
 SFAS No.
128 “Earnings Per Share” requires companies to report basic and diluted earnings
(loss) per share computations.  The basic calculation excludes
dilution and is based on the weighted-average common shares outstanding and the
diluted calculation gives effect to potential dilution of securities that could
share in the results of the Company.   For the years ended
September 30, 2008 and 2007, the impact of employees’ options was anti-dilutive,
therefore these options were excluded from the diluted weighted average common
shares.
  F-10
    Synergx
Systems Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements
 Restricted
Cash
 
 In
connection with the Credit Facility with its bank (see Note 5), the Company has
on deposit $125,000 that is restricted as to use that has been included in other
assets.
 
 Concentration
of Credit Risk
 
 The
Company grants credit to its customers, principally all of which are general or
specialized construction contractors, of which one customer accounted for
approximately 10% of outstanding receivables at September 30,
2008.  The Company does not require collateral to support financial
instruments subject to credit risk.  However, on certain public works
projects the Company can proceed against bonds if payment is not forthcoming
from its customers.
 
 At
September 30, 2008, the Company had cash of approximately $139,000, that is in
excess of insured amount limitations.
 
 Stock
Options and Similar Equity Instruments
 
 Effective
October 1, 2006, the Company adopted the fair value recognition provision of
Statement of Financial Accounting Standards (“SFAS”) No. 123R “Accounting for
Share-Based Payment Compensation,” (Revised 2004), disclosure requirements of
SFAS No. 123R, using the modified-prospective-transition method for stock
options and similar equity instruments (collectively, “Options”) issued to
employees.  As a result, the Company recorded stock based compensation
of $18,000 and $27,785 during years ended September 30, 2008 and 2007,
respectively   The Company has $22,086 of deferred stock based
compensation expense remaining to be expensed over the period from October 2008
through January 2012.
 
 On
January 22, 2007 10,000 stock options were granted at an exercise price of $1.70
per share to be vested ratably over five years.
 
 The
Black-Scholes option valuation model was used to estimate the fair value of the options
granted.  The model includes subjective input assumptions that can
materially affect the fair value estimates. The model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and that are fully transferable.
  The
expected volatility is estimated based on the most recent historical period of
time equal to the weighted average life of the options granted. Principal
assumptions used in
 
 F-11
 
 Synergx
Systems Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements
 
 
 Stock
Options and Similar Equity Instruments (continued)
 
 applying
the Black-Scholes model along with the results from the model are as
follows:
    Assumptions:Risk-free interest
      rate
              4.77%Dividend
              0Expected life in
      years
              5 yearsExpected
      volatility
              154%
 
 2.
Property and Equipment
 
 Property
and equipment  at September 30, 2008 are summarized as
follows:
 
 Machinery
      and equipment
                                      
                                      $
                                      2,593,000Furniture
      and fixtures
                                      
                                      
                                      171,000Leasehold
      improvements
                                      
                                      
                                      143,0002,907,000Less
      accumulated depreciation and amortization
                                      
                                      
                                      2,091,000$
                                      816,000
 
 
 Depreciation
and amortization expense related to these assets were $261,000 and $226,000 for
the years ended September 30, 2008 and 2007, respectively.
 
 3.  Sale
of the Investment in Secure 724 LP
 
 The
Company had a 25% equity investment in and loans to Secure 724 LP which were
determined to be impaired at September 30, 2006 and a charge of $377,264 was
recorded to fully reserve for recovery of these investments.  In March
2007, the company sold its entire interest in Secure 724 LP to Avante Security
(the general managing partner of Secure 724 LP) for consideration of
$97,323.  The Company received cash of $9,218 and a note receivable of
$88,105 on the closing date.  The note was payable with interest
beginning April 30, 2007 with principal payments of $3,673 per month through
August 31, 2007 and a final payment at September 30, 2007.  The
$68,182 final payment of the note was made in October 2007.
 
 The sales
agreement also provides for an additional variable payment based on sales of
Secure 724 LP product up to a maximum additional payment of
$73,455.  This additional payment, if any, will be earned
when,  and if Secure 724 LP generates revenues.  The Company
received $6,268 and $1,075 of the variable payment during 2008 and 2007,
respectively.
   F-12
  Synergx
Systems Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements
 3. Sale
of the Investment in Secure 724 LP (continued)
 
 Total
sale proceeds of $97,323 plus the $1,075 variable payment made through September
30, 2007 was recorded as a $98,398 gain on sale of equity investment during the
year ended September 30, 2007.
 
 4.  Note
Payable to Bank
 
 The
Company had a $3.5 million dollar revolving credit facility with TD Banknorth
(“the Bank”)  (the “Credit Facility”).  The Credit Facility
has an annual interest rate of prime plus 1⁄4% on outstanding balances (5.25% at
September 30, 2008) and was to expire in January 2009.  On December
23, 2008, the credit facility was extended to expire on October 1, 2009, and the
facility was revised to $2.5 million with an increased interest rate of prime
plus 2%.   The Credit Facility is secured by all assets of the
Company and all of its operating subsidiaries.  Advances under this
Credit Facility are measured against a borrowing base calculated on eligible
accounts receivable and inventories.
 
 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.
 
 The
Credit Facility includes certain restrictive covenants, which among other
things, impose limitations on declaring or paying dividends, acquisitions, and
capital expenditures.  The Company is also required to maintain
certain financial ratios and tangible net worth covenants.  At
September 30, 2008, the Company did not meet certain of its financial covenants
related to its debt service coverage ratio and tangible net worth. However, the
requirements of these covenants were waived by the bank in conjunction with the
agreement to extend the Credit Facility.
 
 5. Long
Term Debt – Notes Payable
 
 As of
September 30, 2008, the Company had notes payable associated with purchases of
certain assets of which their annual maturities are as follows:
 
 Notes
      Payable2009
                        
                        $
                        28,0002010
                        
                        
                        26,0002011
                        
                        
                        25,0002012
                        
                        
                        4,0002013
                        
                        
                        1,000Total
                        
                        $
                        84,000
 
    F-13
   Synergx
Systems Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements
  6.  Lease
Commitments
 
 The
Company leases certain office and warehouse space under
non-cancelable  operating leases expiring at various times through
2012. In February 2000, the Company signed a lease for office, manufacturing and
warehouse space in Syosset,  New York.  An additional 700
square feet of space was added to the lease in August 2004 and in 2006, the
lease was extended  on similar terms to expire June 30,
2012.   The  lease provides for monthly rent of $18,400
during 2008 with 3.3% yearly increases through the expiration of the lease in
June 2012.
 
 The
Company has a non-cancelable lease for its service center in New York City that
became effective August 2002 and runs through December 31, 2009.  The
lease is for office
and warehouse space.  The lease provides for monthly rental of $7,883
during the 2008 plus expenses with yearly escalation of 2% each year
thereafter.
 
 The
following is a schedule of future minimum payments, by year and in the
aggregate, under operating leases with initial or remaining terms of one year or
more at September 30, 2008:
  Total
      Operating Leases2009
                      
                      $
                      318,0002010
                      
                      
                      254,0002011
                      
                      
                      238,0002012
                      
                      
                      184,000Total
      minimum lease payments
                      
                      $
                      994,000
 
 Rental
expense amounted to $342,000 and $334,000, for the years ended
September 30, 2008 and 2007, respectively.
 
 7.
Significant Customers and Suppliers
 
 During
fiscal 2008, no customer accounted for more than 10% of sales and one supplier
accounted for more than 10% of the Company’s cost of sales (amounting to
16%).  At September 30, 2008, one customer accounted for 10.4% of
accounts receivable.
 
 During
fiscal 2007, one customer accounted for more than 10% of sales (amounting to
14.4%) and one supplier accounted for more than 10% of the Company’s cost of
sales in 2007 (amounting to 14%).  At September 30, 2007, one customer
accounted for more than 10% of accounts receivable (amounting to
23.7%).
  The
Company does business directly and indirectly through electrical contractors to
New York City Transit Authority.  Sales to this authority represented
approximately  24 % and  29% respectively of the
total  sales in the years ended September 30, 2008 and September 30,
2007.
  
 8.  Income
Taxes
 
 A
reconciliation of the provision (benefit) for income taxes with the amounts
computed by applying the statutory federal income tax rate is as
follows:
 
 
 Year
      Ended September 30, 20082008
                        
                        
                        2007Statutory
      federal income tax rate
                        
                        
                        34
                        %
                        
                        
                        34
                        %Computed
      expected tax (benefit) from (loss) before  income
      tax
                        
                        $
                        (333,000
                        )
                        
                        $
                        (128,000
                        )Increase
      (decrease)in taxes resulting from:State
      and local income tax (benefit), net of Federal income tax
                        
                        
                        4,000
                        
                        
                        
                        9,000Nondeductible
      expenses
                        
                        
                        22,000
                        
                        
                        
                        2,000Valuation
      allowance
                        
                        
                        674,000
                        
                        
                        
                        330,000Other
                        
                        
                        (67,000
                        )
                        
                        
                        (43,000
                        )Income
      tax expense
                        
                        $
                        300,000
                        
                        
                        $
                        170,000
 
 Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes and for net operating losses that are
available to offset future taxable income.  At September 30, 2008, the
Company had net operating loss carryforwards for federal income tax purposes of
approximately $1,600,000 that may be used to offset future taxable
income.  These loss carryforwards will expire in the years 2026
through 2028.
 
 
 
 F-14
 
 
 Synergx
Systems Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements
 
 8.  Income
Taxes (continued)
 
 The
components of deferred tax assets and liabilities at September 30, 2008 consist
of the following:
  Deferred
      Tax Assets
                                        
                                        2008Allowance
      for doubtful accounts
                                        
                                        $
                                        121,000Inventory
      reserve
                                        
                                        
                                        244,000Deferred
      Compensation
      Payables
                                        
                                        
                                        56,000Total
      Deferred Tax
      Asset
                                        
                                        
                                        421,000Valuation
      allowance
                                        
                                        
                                        (421,000
                                        )Net
      Deferred Tax
      Asset
                                        
                                        $
                                        0Non
      Current Deferred Tax Asset/LiabilityNet
      operating loss carryforward  (through
      2028)
                                        
                                        $
                                        623,000Capital
      loss carryforward  (through
      2012)
                                        
                                        
                                        25,000Depreciation
      and
      amortization
                                        
                                        
                                        (125,000
                                        )Other
                                        
                                        
                                        60,000Total
      Non Current Deferred Tax
      Asset
                                        
                                        
                                        583,000Valuation
      allowance
                                        
                                        
                                        (583,000
                                        )Net
      Non Current Deferred Tax
      Asset
                                        
                                        $
                                        0
 
 
 As of
September 30, 2008, the Company has recorded an aggregate valuation allowance of
$1,004,000 against deferred tax assets.  Due to the net operating
losses during these last three years, management has not anticipated profitable
operations to resume at a level that will result in the utilization of the
deferred tax assets.
 
 Effective
October  1, 2007, the Company adopted the provisions of FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109 (“FIN No.
48”).  FIN No. 48 provides that a tax benefit from an uncertain tax
position may be recognized when it is more likely than not that the position
will be sustained upon examination, including resolutions of any related appeals
or litigation processes, based on the technical merits.  In addition,
it provides additional requirements regarding measurement, derecognition,
disclosure, interest and penalties and classification.  The Company’s
policy is to recognize interest and penalties relating to uncertain tax
positions in income tax expense.  At October 1, 2007 and September 30,
2008, there was no accrued interest related to income taxes.  The
impact of the Company’s reassessment of its tax positions in accordance with FIN
No. 48 did not have a material effect on the results of operations, financial
condition or liquidity and the Company did not record any cumulative-effect
adjustment to the opening balance in retained earnings. As of September 30,
2008, the company does not have any unrecognized tax benefits related to various
federal and state income tax matters.
  F-15
   Synergx
Systems Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements
  8.  Income
Taxes (continued)
 
 The
Company is subject to U.S. federal income tax, as well as various state
jurisdictions.  The Company is currently open to audit under the
statute of limitations by the federal and state jurisdictions for the years
ending September 30, 2005 through 2007.  The Company does not
anticipate any material amount of unrecognized tax benefits within the next 12
months.
 
 9.   Stock
Options
 
 In March
2004, the Company and its stockholders adopted a nonqualified stock option plan
(“2004 Plan”), which will expire March 10, 2009, except as to options
outstanding under a prior 1997 Plan. Under the 2004 Plan, the Board of Directors
may grant options to eligible employees at exercise prices not less than 100% of
the fair market value of the common shares at the time the options are granted.
The number of shares of Common
Stock that may be issued shall not exceed an aggregate of up to 10% of the
Company’s issued  and outstanding shares from time to
time.  Options vest at a rate of 20% per year commencing one year
after date of grant.  Issuances under the 2004 Plan are to be reduced
by options outstanding under the prior 1997 nonqualified stock option
plan.
 
 On
January 22, 2007 10,000 stock options were granted at an exercise price of $1.70
per share to be vested ratably over five years.
 
 A summary
of the option activity and changes during the years ended September 30, 2008 and
2007 are presented below:
 
  Weighted
                            Average
                            Exercise
                          
                          Weighted
                            Average
                            Remaining
                            Contractual
                          
                          Weighted
                            Average
                            Grant
      DateShares
                          
                          
                          Price
                          
                          Term
                          
                          Fair
      ValueOutstanding
      October 1,
      2006
                          
                          
                          108,000
                          
                          
                          $
                          2.50
                          
                          3.4
      Yrs
                          
                          
                          1.21Granted
                          
                          
                          10,000
                          
                          
                          
                          1.70
                          
                          5.0 Yrs
                          
                          
                          1.50Forfeited
                          
                          
                          (2,000
                          )
                          
                          
                          2.50
                          
                          3.0
      Yrs
                          
                          
                          1.21Outstanding
      October 1,
      2007
                          
                          
                          116,000
                          
                          
                          
                          2.43
                          
                          2.8
      Yrs
                          
                          
                          1.24Forfeited
                          
                          
                          (59,000
                          )
                          
                          
                          2.50
                          
                          2.0
      Yrs
                          
                          
                          1.21Outstanding
      September 30, 2008
                          
                          
                          57,000
                          
                          
                          
                          2.43
                          
                          1.8
      Yrs
                          
                          
                          1.24Exercisable
      at September 30, 2008
                          
                          
                          30,200
                          
                          
                          $
                          2.45
                          
                          1.4
      Yrs
                          
                          
                          1.21








F-16
 
 Synergx
Systems Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements
 
 9. Stock
Options (continued)
 
 A summary
of the option activity of nonvested shares at September 30, 2007 and 2008, and
changes during the years ended September 30, 2007 and 2008 is presented
below:
  Weighted
                      Average
                      Grant
      DateFair ValueNonvested
      at October 1, 2006
                    
                    
                    86,400
                    
                    
                    $
                    1.21Vested
                    
                    
                    (21,600
                    )
                    
                    
                    1.21Granted
                    
                    
                    10,000
                    
                    
                    
                    1.50Forfeited
                    
                    
                    (1,200
                    )
                    
                    
                    1.21Nonvested
      at September 30, 2007
                    
                    
                    73,600
                    
                    
                    $
                    1.25Vested
                    
                    
                    (11,400
                    )
                    
                    
                    1.25Forfeited
                    
                    
                    (35,400
                    )
                    
                    
                    1.21Nonvested
      at September 30, 2008
                    
                    
                    26,800
                    
                    
                    $
                    1.24
 10.
Contingencies
 
 In the
normal course of its operations, the Company has been, or from time to time may
be, named in legal actions seeking monetary damages.   While the
outcome of these matters can not be estimated with certainty, and certain
matters are in early or discovery stages of litigation, management does not
expect, based upon consultation with legal counsel and insurance coverage, that
any item exists that will have a significant impact on the Company’s business or
financial condition.
 
  F-17
  Synergx
Systems Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements
  11.
Other
 
 Approximately
36% of the Company’s employees are covered by collective bargaining agreements.
On July 10, 2005, the union representing hourly employees and the Company
ratified a Collective Bargaining Agreement expiring March 9, 2009, providing for
an increase in salaries and benefits averaging approximately 4% per year over
the life of
the contract.
 
 The
Company contributes benefits to union employees under the provisions of
collective bargaining agreement.  The plan requires the Company to
make contributions thereto as negotiated in such collective bargaining
agreement.  The Company contributed $622,000 and $608,000 to this plan
for the years ended September 30, 2008 and 2007, respectively.
  Effective
January 1, 1996, the Board of Directors instituted a 401(k) plan for non-union
employees. The plan includes a profit sharing provision at the discretion of the
Board of Directors.  There was no profit sharing contribution in 2008
and 2007.
 
 12.  Related
Party Transactions
 
 At
September 30, 2007, Firecom, Inc. (“Firecom”) (a privately owned company
involved in the firm alarm business) owned 1,352,544 shares or approximately 26%
of the Company’s outstanding shares of common stock.  During 2008,
Firecom purchased an additional 225,568 shares increasing its beneficial
ownership to 1,578,012 shares  equal to 30% of the Company’s
outstanding shares of 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 will pay Mr. Mendez an annual base salary of $20,000.
Pursuant to the employment agreement, both the Board of Directors of the Company
and 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 confidentially 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. Since February 2008
the Company paid  Firecom $135,000 for the services of this
individual.
 
 The
Company and Firecom have entered into several transactions in the ordinary
course of business that are not financially material to the revenues, gross
profit or net income 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 commissions related to these sales.  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 $35,000 during the year ended September 30, 2008. The Company from
time to time has purchased and sold certain products used in Firecom’s
business.  During the year ended September 30, 2008, these products
were sold to Firecom for $85,000. 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.
 
  F-18
  Synergx
Systems Inc. and Subsidiaries
  Notes
to Consolidated Financial Statements
 13.  Other
Events
 
 In
February 2008, the President of Casey Systems resigned and in June 2008 the
Chief Executive Officer resigned.  The separation costs for these
resignations are included in selling, general and administrative expenses on the
Consolidated Statements of Operations in the amount of $547,000 for the year
ended September 30, 2008.
 
 14.
NASDAQ Continued Listing
 
 On April
21, 2008, the Company received a letter (the “Letter”) from The NASDAQ Stock
Market (“NASDAQ”) notifying the Company that for the last 30 consecutive days,
the bid price of the Company’s common stock has closed below the minimum $1.00
per share requirement for continued inclusion in the NASDAQ Stock
Market.  The Company had been provided with 180 calendar days (until
October 20, 2008) to regain compliance.
 
 On
October 20, 2008, the Company received notification that NASDAQ had
suspended  for a three-month period the enforcement of rules requiring
a minimum $1.00 closing bid price or a minimum market value of publicly held
shares. NASDAQ  has said it will not take any action to delist any
security for these concerns during the suspension. NASDAQ has stated that, given
the current extraordinary market conditions, this suspension will remain in
effect through Friday, January 16, 2009.and will be reinstated on Monday,
January 19, 2009.
 
 If, at
any time before January 22, 2009, the bid price of the Company’s common stock
closes at $1.00 or greater per share for a minimum of 10 consecutive business
days, then NASDAQ will provide the Company with written notification that it has
complied with the Marketplace Rule 4310(c) (4) (the “Rule”) . If compliance with
the Rule cannot be demonstrated by January 22, 2009, then NASDAQ will decide
whether the Company meets NASDAQ’s listing criteria set forth in the Rule,
except for the bid requirement.  The notification states that, if the
Company meets these criteria, then the Company will be granted an additional 180
calendar day compliance period.  If the Company is not granted an
additional 180 calendar period, then NASDAQ will provide written notification
that the Company’s securities will be delisted.
 
 Management
and the Board of Directors will consider available strategies in order to
satisfy the minimum bid price requirement, however there can be no assurance
that the Company
will be able to maintain the listing of its common stock on the NASDAQ Global
market.
 
 In the
event the delisting of the Company’s common stock would occur, the Company would
look to have its common stock trade on a different platform or
exchange.
 
  F-19
  Synergx
Systems Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements
 14.
NASDAQ Continued Listing (continued)
 
 The
Company is analyzing what effect, if any, a delisting would have on the
Company’s financial condition and liquidity.
 
 15. Fair
Value of Financial Instruments
 
 SFAS No.
107, “Disclosures about Fair Values of Financial Instruments,” requires
disclosing fair value to the extent practicable for financial instruments which
are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments
disclosed herein is not necessarily representative of the amount that could be
realized or settled, nor does the fair value amount consider the tax
consequences of realization or settlement.
 
 The
carrying amount of cash and cash equivalents, trade receivables and payables,
and short-term debt, approximates fair value because of the near term maturities
of such obligations.  The fair value of long-term debt was determined
based  on current rates at which the Company could borrow funds with
similar remaining maturities, which amount approximates its carrying
value.
 
 16  New
Accounting Pronouncements
 
 In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”). This statement defines fair value, establishes a framework for measuring
fair value in accordance with accounting principles generally accepted in the
United 14. States
(“GAAP”), and expands disclosures about fair value measurements. SFAS 157 does
not require any new fair value measurements. However, for some entities, the
application of SFAS 157 will change current practice. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods
within those fiscal years, with earlier application permitted. The Company does
not expect SFAS 157 to have a material impact on the Company’s financial
position or results of operations.
 
 In
February 2007, the FASB, issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159 provides
companies with an option to report selected financial assets and liabilities at
fair value and establishes presentation and disclosure requirements designed to
facilitate comparisons between companies that choose different measurement
attributes for similar types of assets and liabilities.
SFAS 159 is effective for fiscal years beginning after November 15,
2007.  The Company does not expect SFAS 159 to have a material impact
on the Company’s financial position or results of operations.
   F-20
  Synergx
Systems Inc. and Subsidiaries
 
 Notes to
Consolidated Financial Statements
 
 16  New
Accounting Pronouncements (continued)
 
 Other
recently issued accounting pronouncements are not expected to have a material
impact on the Company’s financial position or results of
operations.