**   FORM      10-QSB**

**June 30,      2007**

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

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----

|                                                                                                                   |   |                      |       |
|------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|------------|
|                                                                                                                   |   |                      |       |
| SYNERGX                  SYSTEMS INC. AND SUBSIDIARIES                                                                 |   |                      |       |
|                                                                                                                   |   |                      |       |
| CONDENSED                  CONSOLIDATED BALANCE SHEET                                                                  |   |                      |       |
|                                                                                                                   |   |                      |       |
| (Unaudited)                                                                                                            |   |                      |       |
|                                                                                                                   |   |                      |       |
|                                                                                                                   |   |                      |       |
|                                                                                                                   |   | June                  30, |       |
|                                                                                                                   |   | 2007                      |       |
| ASSETS                                                                                                                 |   |                      |       |   |
|                                                                                                                   |   |                      |       |   |
| CURRENT                  ASSETS                                                                                        |   |                      |       |   |
|   Cash                                                                                                       |   | $                         | 306,778    |   |
|   Accounts                  receivable, principally trade, less allowance                                    |   |                      |       |   |
|      for                  doubtful accounts of $350,035                                       |   |                      | 4,518,576  |   |
|   Inventories,                  net                                                                          |   |                      | 3,806,161  |   |
|   Deferred                  taxes                                                                            |   |                      | 562,500    |   |
|   Prepaid                  expenses and other current assets                                                 |   |                      | 930,907    |   |
|   Income                  Tax Receivable                                                                     |   |                      | 82,000     |   |
|   Note                  Receivable                                                                           |   |                      | 66,110     |   |
|                                                                                                                   |   |                      |       |   |
| TOTAL                  CURRENT ASSETS                                                                                  |   |                      | 10,273,032 |   |
|                                                                                                                   |   |                      |       |   |
| PROPERTY                  AND EQUIPMENT -at cost, less                                                                 |   |                      |       |   |
|    accumulated                  depreciation and amortization of $1,754,540                             |   |                      | 826,152    |   |
|                                                                                                                   |   |                      |       |   |
| OTHER                  ASSETS                                                                                          |   |                      | 82,629     |   |
|                                                                                                                   |   |                      |       |   |
| DEFERRED                  TAXES                                                                                        |   |                      | 20,600     |   |
|                                                                                                                   |   |                      |       |   |
|                                                                                                                   |   |                      |       |   |
|                                                                                                                   |   |                      |       |   |
| TOTAL                  ASSETS                                                                                          |   | $                         | 11,202,413 |   |
|                                                                                                                   |   |                      |       |
|                                                                                                                   |   |                      |       |   |
| See                  accompanying Notes to the  Condensed Consolidated Financial                  Statements |   |                      |       |   |

----

|                                                                                                        |   |                      |       |
|-------------------------------------------------------------------------------------------------------------|--------|---------------------------|------------|
|                                                                                                        |   |                      |       |
| SYNERGX                  SYSTEMS INC. AND SUBSIDIARIES                                                      |   |                      |       |
|                                                                                                        |   |                      |       |
| CONDENSED                  CONSOLIDATED BALANCE SHEET                                                       |   |                      |       |
|                                                                                                        |   |                      |       |
| (Unaudited)                                                                                                 |   |                      |       |
|                                                                                                        |   |                      |       |
|                                                                                                        |   |                      |       |
|                                                                                                        |   | June                  30, |       |
|                                                                                                        |   | 2007                      |       |
| LIABILITIES                  AND STOCKHOLDERS' EQUITY                                                       |   |                      |       |   |
|                                                                                                        |   |                      |       |   |
| CURRENT                  LIABILITIES                                                                        |   |                      |       |   |
|                                                                                                        |   |                      |       |   |
|    Note                  payable to bank                                                     |   | $                         | 1,729,084  |   |
|    Notes                  payable - current portion                                          |   |                      | 23,381     |   |
|    Accounts                  payable and accrued expenses                                    |   |                      | 2,643,207  |   |
|    Deferred                  revenue                                                         |   |                      | 905,750    |   |
|                                                                                                        |   |                      |       |   |
| TOTAL                  CURRENT LIABILITIES                                                                  |   |                      | 5,301,422  |   |
|                                                                                                        |   |                      |       |   |
|                                                                                                        |   |                      |       |   |
|                                                                                                        |   |                      |       |   |
|                                                                                                        |   |                      |       |   |
|    Notes                  payable - less current portion                                     |   |                      | 72,549     |   |
|                                                                                                        |   |                      |       |   |
| TOTAL                  LIABILITIES                                                                          |   |                      | 5,373,971  |   |
|                                                                                                        |   |                      |       |   |
|                                                                                                        |   |                      |       |   |
|                                                                                                        |   |                      |       |   |
| STOCKHOLDERS'                  EQUITY                                                                       |   |                      |       |   |
|                                                                                                        |   |                      |       |   |
|   Preferred                  stock, 2,000,000 shares authorized-                                  |   |                      |       |   |
|      none                  issued and outstanding                                  |   |                      | --         |   |
|   Common                  stock, 10,000,000 shares authorized, $.001                              |   |                      |       |   |
|      par                  value; issued and outstanding 5,210,950 shares           |   |                      | 5,209      |   |
|   Additional                  Paid in Captal                                                      |   |                      | 6,827,565  |   |
|   Accumulated                  deficit                                                            |   |                      | (1,004,332 | ) |
|                                                                                                        |   |                      |       |   |
| TOTAL                  STOCKHOLDERS' EQUITY                                                                 |   |                      | 5,828,442  |   |
|                                                                                                        |   |                      |       |   |
|                                                                                                        |   |                      |       |   |
| TOTAL                  LIABILITIES AND STOCKHOLDERS' EQUITY                                                 |   | $                         | 11,202,413 |   |
|                                                                                                        |   |                      |       |
|                                                                                                        |   |                      |       |   |
| See                  accompanying Notes to the Condensed Consolidated Financial                  Statements |   |                      |       |   |
|                                                                                                        |   |                      |       |   |

----

| SYNERGX                    SYSTEMS INC. AND SUBSIDIARIES                                                        |   |                                                                   |      |    |   |   |
|-----------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|-----------|---------|--------|--------|
|                                                                                                            |   |                                                                   |      |    |   |   |
| CONDENSED                    CONSOLIDATED STATEMENTS OF OPERATIONS                                              |   |                                                                   |      |    |   |   |
|                                                                                                            |   |                                                                   |      |    |   |   |
| (Unaudited)                                                                                                     |   |                                                                   |      |    |   |   |
|                                                                                                            |   |    For                  the Three Months Ended June 30, |
|                                                                                                            |   | 2007                                                                   |      |    | 2006   |   |
|                                                                                                            |   |                                                                   |      |    |   |   |   |   |
| Product                    sales                                                                                |   | $                                                                      | 2,867,969 |    |   | $      | 2,455,869 |   |
| Subcontract                    sales                                                                            |   |                                                                   | 60,900    |    |   |   | 126,782 |   |
| Service                    revenue                                                                              |   |                                                                   | 1,245,506 |    |   |   | 1,348,117 |   |
|                                                                                                            |   |                                                                   |      |    |   |   |   |   |
| Total                    revenues                                                                               |   |                                                                   | 4,174,375 |    |   |   | 3,930,768 |   |
|                                                                                                            |   |                                                                   |      |    |   |   |   |   |
|                                                                                                            |   |                                                                   |      |    |   |   |   |   |
| Cost                    of product sales                                                                        |   |                                                                   | 2,365,456 |    |   |   | 1,764,823 |   |
| Cost                    of subcontract sales                                                                    |   |                                                                   | 51,122    |    |   |   | 103,115 |   |
| Cost                    of service revenue                                                                      |   |                                                                   | 550,202   |    |   |   | 701,758 |   |
| Selling,                    general and administrative                                                          |   |                                                                   | 1,258,257 |    |   |   | 1,426,133 |   |
| Depreciation                    and amortization                                                                |   |                                                                   | 40,773    |    |   |   | 37,461 |   |
|                                                                                                            |   |                                                                   |      |    |   |   |   |   |
| Total                    operating expenses                                                                     |   |                                                                   | 4,265,810 |    |   |   | 4,033,290 |   |
|                                                                                                            |   |                                                                   |      |    |   |   |   |   |
| (Loss)                    from operations                                                                       |   |                                                                   | (91,435   | )       |   |   | (102,522 | ) |
|                                                                                                            |   |                                                                   |      |    |   |   |   |   |
| Other                    (expenses):                                                                            |   |                                                                   |      |    |   |   |   |   |
|   Interest                    expense                                                                 |   |                                                                   | (36,145   | )       |   |   | (27,610 | ) |
|   (Loss)                    on equity investment                                                      |   |                                                                   | 0         |    |   |   | (18,000 | ) |
|                                                                                                            |   |                                                                   |      |    |   |   |   |   |
|                                                                                                            |   |                                                                   | (36,145   | )       |   |   | (45,610 | ) |
|                                                                                                            |   |                                                                   |      |    |   |   |   |   |
| (Loss)                    before (benefit) from income taxes                                                    |   |                                                                   | (127,580  | )       |   |   | (148,132 | ) |
|                                                                                                            |   |                                                                   |      |    |   |   |   |   |
| (Benefit)                    provision for income taxes:                                                        |   |                                                                   |      |    |   |   |   |   |
|    Current                                                                                       |   |                                                                   | 0         |    |   |   | 5,000 |   |
|    Deferred                                                                                      |   |                                                                   | (51,000   | )       |   |   | (55,000 | ) |
|                                                                                                            |   |                                                                   | (51,000   | )       |   |   | (50,000 | ) |
|                                                                                                            |   |                                                                   |      |    |   |   |   |   |
| (Loss)                    from continuing operations                                                            |   |                                                                   | (76,580   | )       |   |   | (98,132 | ) |
|                                                                                                            |   |                                                                   |      |    |   |   |   |   |
| Discontinued                    operations (Note 8):                                                            |   |                                                                   |      |    |   |   |   |   |
|    (Loss)  from                    discontinued operations                             |   |                                                                   |      |    |   |   | (12,782 | ) |
|    Income                    tax (benefit)                                                       |   |                                                                   |      |    |   |   | (4,000 | ) |
|                                                                                                            |   |                                                                   |      |    |   |   |   |   |
| (Loss)                    from discontinued operations                                                          |   |                                                                   |      |    |   |   | (8,782 | ) |
|                                                                                                            |   |                                                                   |      |    |   |   |   |   |
| Net                    (Loss)                                                                                   |   | $                                                                      | (76,580   | )       |   | $      | (106,914 | )  |
|                                                                                                            |   |                                                                   |      |    |   |   |
| (Loss)                    Per Common Share                                                                      |   |                                                                   |      |    |   |   |   |   |
|    Basic                    (loss) from continuing operations                                    |   | $                                                                      | (0.01     | )       |   | $      | (0.02 | )  |
|    Basic                    (loss) from discontinued operations                                  |   |                                                                   | 0.00      |    |   |   | 0.00 |   |
|    Basic  (loss)                    Per Share                                          |   | $                                                                      | (0.01     | )  |   | $      | (0.02 | )  |
|                                                                                                            |   |                                                                   |      |    |   |   |   |   |
|   Diluted                    (loss) from continuing operations                                        |   | $                                                                      | (0.01     | )  |   | $      | (0.02 | )  |
|   Diluted                    (loss) from discontinued operations                                      |   |                                                                   | 0.00      |    |   |   | 0.00 |   |
|   Diluted                    (loss) Per Share                                                         |   | $                                                                      | (0.01     | )  |   | $      | (0.02 | )  |
|                                                                                                            |   |                                                                   |      |    |   |   |   |   |
| Weighted                    average number of common shares outstanding                                         |   |                                                                   | 5,210,950 |    |   |   | 5,210,950 |   |
|                                                                                                            |   |                                                                   |      |    |   |   |   |   |
| Weighted                    average number of common and dilutive                                               |   |                                                                   |      |    |   |   |   |   |
|   common                    share equivalents outstanding                                             |   |                                                                   | 5,210,950 |    |   |   | 5,210,950 |   |
|                                                                                                            |   |                                                                   |      |    |   |   |   |   |
| See                    accompanying Notes to the Condensed Consolidated Financial                    Statements |   |                                                                   |      |    |   |   |   |   |

----

|                                    SYNERGX                      SYSTEMS INC. AND SUBSIDIARIES |   |                                                              |       |    |   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|------------|---------|--------|--------|
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |
|                               CONDENSED                      CONSOLIDATED STATEMENTS OF OPERATIONS                     |   |                                                              |       |    |   |   |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |
|                      (Unaudited)                                                                                                                                    |   |                                                              |       |    |   |   |
|                                                                                                                                                                                                                                                                         |   |   For                    the Nine months ended June 30, |       |
|                                                                                                                                                                                                                                                                         |   | 2007                                                              |       |    | 2006   |   |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
| Product                      sales                                                                                                                                                                                                                                           |   | $                                                                 | 7,908,860  |    |   | $      | 7,122,271 |   |
| Subcontract                      sales                                                                                                                                                                                                                                       |   |                                                              | 227,600    |    |   |   | 430,067 |   |
| Service                      revenue                                                                                                                                                                                                                                         |   |                                                              | 3,756,785  |    |   |   | 3,817,752 |   |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
| Total                      revenues                                                                                                                                                                                                                                          |   |                                                              | 11,893,245 |    |   |   | 11,370,090 |   |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
| Cost                      of product sales                                                                                                                                                                                                                                   |   |                                                              | 5,903,154  |    |   |   | 5,241,970 |   |
| Cost                      of subcontract sales                                                                                                                                                                                                                               |   |                                                              | 185,509    |    |   |   | 343,755 |   |
| Cost                      of service revenue                                                                                                                                                                                                                                 |   |                                                              | 1,968,291  |    |   |   | 2,052,553 |   |
| Selling,                      general and administrative                                                                                                                                                                                                                     |   |                                                              | 4,057,259  |    |   |   | 4,016,175 |   |
| Depreciation                      and amortization                                                                                                                                                                                                                           |   |                                                              | 122,319    |    |   |   | 115,657 |   |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
| Total                      operating expenses                                                                                                                                                                                                                                |   |                                                              | 12,236,532 |    |   |   | 11,770,110 |   |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
| (Loss)                      from operations                                                                                                                                                                                                                                  |   |                                                              | (343,287   | )       |   |   | (400,020 | ) |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
| Other                      income (expenses):                                                                                                                                                                                                                                |   |                                                              |       |    |   |   |   |   |
|   Interest                      expense                                                                                                                                                                                                                            |   |                                                              | (100,748   | )       |   |   | (81,189 | ) |
|   Gain/(loss)                      on  equity investment                                                                                                                                                                                                 |   |                                                              | 82,673     |    |   |   | (60,000 | ) |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
|                                                                                                                                                                                                                                                                         |   |                                                              | (18,075    | )       |   |   | (141,189 | ) |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
| (Loss)                      before (benefit) from income taxes                                                                                                                                                                                                               |   |                                                              | (361,362   | )       |   |   | (541,209 | ) |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
| (Benefit)                      provision for income taxes:                                                                                                                                                                                                                   |   |                                                              |       |    |   |   |   |   |
|    Current                                                                                                                                                                                                                                                    |   |                                                              | 2,000      |    |   |   | (178,000 | ) |
|    Deferred                                                                                                                                                                                                                                                   |   |                                                              | (63,000    | )       |   |   | (35,000 | ) |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
|                                                                                                                                                                                                                                                                         |   |                                                              | (61,000    | )       |   |   | (213,000 | ) |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
| (Loss)                      from continuing operations                                                                                                                                                                                                                       |   | $                                                                 | (300,362   | )  |   | $      | (328,209 | )  |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
| Discontinued                      operations (Note 8):                                                                                                                                                                                                                       |   |                                                              |       |    |   |   |   |   |
|    (Loss)                      from discontinued operations                                                                                                                                                                                                   |   |                                                              |       |    |   |   | (147,636 | ) |
|    Current                      income tax (benefit)                                                                                                                                                                                                          |   |                                                              |       |    |   |   | (48,000 | ) |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
| (Loss)                      from discontinued operations                                                                                                                                                                                                                     |   |                                                              |       |    |   |   | (99,636 | ) |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
| Net                      (loss)                                                                                                                                                                                                                                              |   | $                                                                 | (300,362   | )  |   | $      | (427,845 | )  |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
| (Loss)                      Per Common Share:                                                                                                                                                                                                                                |   |                                                              |       |    |   |   |   |   |
|   Basic                      (loss)  from continuing operations                                                                                                                                                                                          |   | $                                                                 | (0.06      | )  |   | $      | (0.06 | )  |
|   Basic                      (loss) from discontinued operations                                                                                                                                                                                                   |   |                                                              | 0.00       |    |   |   | (0.02 | )  |
|   Basic                      (loss) Per Share                                                                                                                                                                                                                      |   | $                                                                 | (0.06      | )  |   | $      | (0.08 | )  |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
|   Diluted                      (loss) from continuing operations                                                                                                                                                                                                   |   | $                                                                 | (0.06      | )  |   | $      | (0.06 | )  |
|   Diluted                      (loss) from discontinued operations                                                                                                                                                                                                 |   |                                                              | 0.00       |    |   |   | (0.02 | )  |
|   Diluted                      (loss) Per Share                                                                                                                                                                                                                    |   | $                                                                 | (0.06      | )  |   | $      | (0.08 | )  |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
| Weighted                      average number of common shares outstanding                                                                                                                                                                                                    |   |                                                              | 5,210,950  |    |   |   | 5,204,742 |   |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
| Weighted                      average number of common and dilutive                                                                                                                                                                                                          |   |                                                              |       |    |   |   |   |   |
|    common                      share equivalents outstanding                                                                                                                                                                                                  |   |                                                              | 5,210,950  |    |   |   | 5,204,742 |   |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
|                                                                                                                                                                                                                                                                         |   |                                                              |       |    |   |   |   |   |
| See                      accompanying Notes to the  Condensed Consolidated Financial                      Statements                                                                                                                                               |   |                                                              |       |    |   |   |   |   |

----

| SYNERGX                        SYSTEMS INC. AND SUBSIDIARIES                                                                                                                                        |   |                                                                        |       |    |   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------|------------|---------|--------|--------|
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |
| CONDENSED                        CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                                                                              |   |                                                                        |       |    |   |   |
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |
| (Unaudited)                                                                                                                                                                                         |   |                                                                        |       |    |   |   |
|                                                                                                                                                                                                |   | For                        the Nine Months Ended June 30,    |       |
|                                                                                                                                                                                                |   | 2007                                                                        |       |    | 2006   |   |
| OPERATING                        ACTIVITIES                                                                                                                                                         |   |                                                                        |       |    |   |   |   |   |
| Net  (Loss)                        from continuing operations                                                                                                                             |   | $                                                                           | (300,362   | )  |   | $      | (328,209 | )  |
|  Adjustments                        to reconcile net  (loss)  to net cash (used                        in)                                                                 |   |                                                                        |       |    |   |   |   |   |
|      provided                        by operating activities:                                                                                                              |   |                                                                        |       |    |   |   |   |   |
|          Depreciation                        and amortization *                                                                                        |   |                                                                        | 143,694    |    |   |   | 126,352 |   |
|          Deferred                        tax  (benefit)                                                                                      |   |                                                                        | (63,000    | )  |   |   | (25,000 | )  |
|          Share-based                        compensation                                                                                               |   |                                                                        | 23,571     |    |   |   |   |   |
|          Gain                        on sale of equity investment                                                                                      |   |                                                                        | (82,673    | )  |   |   |   |   |
|          Loss                        on equity investment                                                                                              |   |                                                                        |       |    |   |   | 60,000 |   |
|   Changes                        in operating assets and liabilities:                                                                                                                     |   |                                                                        |       |    |   |   |   |   |
|     Accounts                        receivable, net                                                                                                                             |   |                                                                        | 1,500,172  |    |   |   | 1,348,721 |   |
|     Inventories                                                                                                                                                                 |   |                                                                        | (1,765,721 | )  |   |   | (188,729 | )  |
|     Prepaid                        expenses and other current assets                                                                                                            |   |                                                                        | (592,996   | )  |   |   | (60,942 | )  |
|     Income                        tax receivable                                                                                                                                |   |                                                                        |       |    |   |   | (226,000 | )  |
|     Other                        assets                                                                                                                                         |   |                                                                        | (547       | )  |   |   | 9,431 |   |
|     Accounts                        payable and accrued expenses                                                                                                                |   |                                                                        | 568,125    |    |   |   | (556,540 | )  |
|     Deferred                        revenue                                                                                                                                     |   |                                                                        | 1,316      |    |   |   | 22,656 |   |
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |   |   |
| Net                        cash (used in) provided by continuing operations                                                                                                                         |   |                                                                        | (568,421   | )  |   |   | 181,740 |   |
| Net                        cash provided by operating activities of discontinued                        operation                                                                                   |   |                                                                        | 0          |    |   |   | 39,350 |   |
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |   |   |
| NET                        CASH (USED IN) PROVIDED BY  OPERATING ACTIVITIES                                                                                                               |   |                                                                        | (568,421   | )  |   |   | 221,090 |   |
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |   |   |
| INVESTING                        ACTIVITIES                                                                                                                                                         |   |                                                                        |       |    |   |   |   |   |
|   Proceeds                        from sale of equity investment                                                                                                                          |   |                                                                        | 9,218      |    |   |   |   |   |
|   Proceeds                        from note receivable                                                                                                                                    |   |                                                                        | 7,346      |    |   |   |   |   |
|   Purchases                        of property and equipment                                                                                                                              |   |                                                                        | (193,884   | )  |   |   | (276,516 | )  |
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |   |   |
| Net                        cash (used in) investing activities of continuing                        operations                                                                                      |   |                                                                        | (177,320   | )  |   |   | (276,516 | )  |
| Proceeds                        from sale of discontinued operations                                                                                                                                |   |                                                                        |       |    |   |   | 518,000 |   |
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |   |   |
| NET                        CASH  (USED IN) PROVIDED BY INVESTING ACTIVITIES                                                                                                               |   |                                                                        | (177,320   | )  |   |   | 241,484 |   |
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |   |   |
| FINANCING                        ACTIVITIES                                                                                                                                                         |   |                                                                        |       |    |   |   |   |   |
|   Principal                        payments on notes payable                                                                                                                              |   |                                                                        | (20,301    | )  |   |   | (30,723 |   |
|   Payments                        and proceeds from note payable bank - net                                                                                                               |   |                                                                        | 799,912    |    |   |   | (540,074 | )  |
|   Proceeds                        from exercise of stock options and warrants                                                                                                             |   |                                                                        |       |    |   |   | 9,203 |   |
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |   |   |
| NET                        CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                                                                                                          |   |                                                                        | 779,611    |    |   |   | (561,594 | )  |
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |   |   |
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |   |   |
| NET                        INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                                                                                         |   |                                                                        | 33,870     |    |   |   | (99,020 | )  |
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |   |   |
| Cash                        and cash equivalents at beginning of period                                                                                                                             |   |                                                                        | 272,908    |    |   |   | 465,650 |   |
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |   |   |
| Cash                        and cash equivalents at end of period                                                                                                                                   |   | $                                                                           | 306,778    |    |   | $      | 366,630 |   |
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |
| SUPPLEMENTAL                        CASH FLOW INFORMATION:                                                                                                                                          |   |                                                                        |       |    |   |   |   |   |
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |   |   |
| Cash                        paid during the period for:                                                                                                                                             |   |                                                                        |       |    |   |   |   |   |
|      Income                        taxes                                                                                                                                   |   | $                                                                           | 12,911     |    |   | $      | 45,070 |   |
|      Interest                                                                                                                                                              |   | $                                                                           | 103,674    |    |   | $      | 82,150 |   |
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |   |   |
| NON-CASH                        INVESTING AND FINANCING ACTIVITIES                                                                                                                                  |   |                                                                        |       |    |   |   |   |   |
| Note                        receivable in amount of $73,455 obtained in consideration                        for sale of                        equity investment .                                 |   |                                                                        |       |    |   |   |   |   |
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |   |   |
| Included                        in the nine months ended June 30, 2006, was the purchase                        of equipment for                        $54,716  through financing.       |   |                                                                        |       |    |   |   |   |   |
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |   |   |
| *                        Depreciation of $21,375 and $10,695 is included in cost of                        product and                        service sales for the nine months ended June 30, 2007 |   |                                                                        |       |    |   |   |   |   |
| and                        2006, respectively.                                                                                                                                                      |   |                                                                        |       |    |   |   |   |   |
|                                                                                                                                                                                                |   |                                                                        |       |    |   |   |   |   |
| See                        accompanying Notes to the Condensed Consolidated Financial                        Statements                                                                             |   |                                                                        |       |    |   |   |   |   |

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**.**

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|                                          |   |   |    |   |                                                              |   |                                                                                    |   |                     |   |
|-----------------------------------------------|--------|--------|---------|--------|-------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------|--------|--------------------------|--------|
|                                          |   | 2006   |    |   | Weighted                  Average Exercise                  Price |   | Weighted                  Average Remaining Contractual                  Term |   | IntrinsicValue           |   |
|                                          |   |   |    |   |                                                              |   |                                                                                    |   |                     |   |
| Outstanding                  October 1, 2006  |   |   | 108,000 |   |                                                              | $      | 2.50                                                                                    |   | 3.4                  Yrs |   |   | -0- |   |
| Granted                                       |   |   | 10,000  |   |                                                              |   | 1.70                                                                                    |   | 4.6                  Yrs |   |   | -0- |   |
| Forfeited                                     |   |   | (2,000  | )      |                                                              |   | 2.50                                                                                    |   | 2.6                  Yrs |   |   | -0- |   |
| Outstanding                  June 30, 2007    |   |   | 116,000 |   |                                                              |   | 2.43                                                                                    |   | 2.8                  Yrs |   |   | -0- |   |
| Exercisable                  at June 30, 2007 |   |   | 42,400  |   |                                                              |   | 2.50                                                                                    |   | 2.6                  Yrs |   |   | -0- |   |

|                                          |   | 2007   |    |   | WeightedAverageGrant                  Date Fair                  Value |   |
|-----------------------------------------------|--------|--------|---------|--------|-----------------------------------------------------------------------------|--------|
|                                          |   |   |    |   |                                                                        |   |
| Nonvested                  at October 1, 2006 |   |   | 86,400  |   |                                                                        | $      | 1.21 |   |
| Vested                                        |   |   | (21,600 | )      |                                                                        |   | 1.21 |   |
| Granted                                       |   |   | 10,000  |   |                                                                        |   | 1.50 |   |
| Forfeited                                     |   |   | (1,200  | )      |                                                                        |   | 1.21 |   |
| Nonvested                  at June 30, 2007   |   |   | 73,600  |   |                                                                        | $      | 1.25 |   |

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|                                                                                                                                |   | June                  30, 2006 |      |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|-----------|
|                                                                                                                                |   | Three                  Months  |      |   | Nine                  Months |   |
| Net                  (Loss)                                                                                                         |   | $                              | (106,914  | ) |   | $ | (427,845 | ) |
| Less:                  Fair Value of Options issued to   employees                  and directors, net of income tax |   |                           | (4,713    | ) |   |   | (14,139 | ) |
| Pro                  Forma Net (loss)                                                                                               |   | $                              | (111,627  | ) |   | $ | (441,984 | ) |
|                                                                                                                                |   |                           |      |   |   |   |   |   |
| Weighted                  Average Basic Shares                                                                                      |   |                           | 5,210,950 |   |   |   | 5,204,742 |   |
| Weighted                  Average Diluted Shares                                                                                    |   |                           | 5,210,950 |   |   |   | 5,204,742 |   |
|                                                                                                                                |   |                           |      |   |   |   |   |   |
| Basic                  Net Loss Per Share as Reported                                                                               |   | $                              | (.02      | ) |   | $ | (.08 | ) |
| Basic                  Pro Forma Net Loss per share                                                                                 |   | $                              | (.02      | ) |   | $ | (.08 | ) |
|                                                                                                                                |   |                           |      |   |   |   |   |   |
| Diluted                  Net Loss Per Share as Reported                                                                             |   | $                              | (.02      | ) |   | $ | (.08 | ) |
| Diluted                  Pro Forma Net Loss per share                                                                               |   | $                              | (.02      | ) |   | $ | (.08 | ) |

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|                                           |   | June                  30, 2006 |     |
|------------------------------------------------|--------|--------------------------------|----------|
|                                           |   | Three                  Months  |     |   | Nine                  Months |   |
| Sales                                          |   | $                              | 225,024  |   |   | $ | 1,397,781 |   |
| Cost                  of Sales                 |   |                           | 273,991  |   |   |   | 1,110,681 |   |
| Operating                  expenses            |   |                           | 230,857  |   |   |   | 701,778 |   |
| Operating                  (loss) before taxes |   | $                              | (279,824 | ) |   | $ | (414,678 | ) |
|                                           |   |                           |     |   |   |   |   |   |
| Gain                  on sale of assets        |   |                           | 267,042  |   |   |   | 267,042 |   |
|                                           |   |                           |     |   |   |   |   |   |
| (Loss)                  income before taxes    |   | $                              | (12,782  | ) |   | $ | (147,636 | ) |

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|                                                                           |   |   Three                Months Ended   June                30,   |   |   | Nine                Months EndedJune                30,          |   |
|--------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------|--------|
|                                                                           |   |  2007                                                                               |   |   |  2006                                                  |   |   |  2007  |   |   |  2006 |   |
|                                                                           |   |                                                                                               |   |   |     (In                thousands of dollars) |   |   |   |   |
| Product                Revenue                                                 |   | $                                                                                                  | 2,868  |   |                                                             | $      | 2,456 |   |   | $ | 7,909 |   |   | $ | 7,122 |   |
| Subcontract                Revenue                                             |   |                                                                                               | 61     |   |                                                             |   | 127 |   |   |   | 227 |   |   |   | 430 |   |
| Service                Revenue                                                 |   |                                                                                               | 1,245  |   |                                                             |   | 1,348 |   |   |   | 3,757 |   |   |   | 3,818 |   |
| Total                Revenue                                                   |   | $                                                                                                  | 4,174  |   |                                                             | $      | 3,931 |   |   | $ | 11,893 |   |   | $ | 11,370 |   |
|                                                                           |   |                                                                                               |   |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Gross                Profit Product                                            |   |                                                                                               | 503    |   |                                                             |   | 691 |   |   |   | 2,006 |   |   |   | 1,880 |   |
| Gross                Profit Subcontract                                        |   |                                                                                               | 10     |   |                                                             |   | 24 |   |   |   | 42 |   |   |   | 86 |   |
| Gross                Profit Service                                            |   |                                                                                               | 695    |   |                                                             |   | 646 |   |   |   | 1,789 |   |   |   | 1,766 |   |
| Total                Gross Profit                                              |   | $                                                                                                  | 1,208  |   |                                                             | $      | 1,361 |   |   | $ | 3,837 |   |   | $ | 3,732 |   |
|                                                                           |   |                                                                                               |   |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Gross                Margin Product %Gross                Margin Subcontract % |   |                                                                                               | 1816   | %%     |                                                             |   | 2819 | %% |   |   | 2519 | %% |   |   | 2620 | %% |
| Gross                Margin Service %                                          |   |                                                                                               | 56     | %      |                                                             |   | 48 | % |   |   | 48 | % |   |   | 46 | % |

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|                                           |   | June                  30, 2006 |     |
|------------------------------------------------|--------|--------------------------------|----------|
|                                           |   | Three                  Months  |     |   | Nine                  Months |   |
| Sales                                          |   | $                              | 225,024  |   |   | $ | 1,397,781 |   |
| Cost                  of Sales                 |   |                           | 273,991  |   |   |   | 1,110,681 |   |
| Operating                  expenses            |   |                           | 230,857  |   |   |   | 701,778 |   |
| Operating                  (loss) before taxes |   | $                              | (279,824 | ) |   | $ | (414,678 | ) |
|                                           |   |                           |     |   |   |   |   |   |
| Gain                  on sale of assets        |   |                           | 267,042  |   |   |   | 267,042 |   |
|                                           |   |                           |     |   |   |   |   |   |
| (Loss)                  income before taxes    |   | $                              | (12,782  | ) |   | $ | (147,636 | ) |

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