U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D. C.  20549





FORM
10-Q


(Mark
One)


xQUARTERLY REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934




For the
fiscal quarter ended December
31, 2008





oTRANSITION REPORT UNDER SECTION
13 OR 15(d) OF THE EXCHANGE ACT




For the
transition period from  to
__________________




Commission
file number 0-17580








SYNERGX
      SYSTEMS INC.(Exact name of small business
      issuer as specified in its
charter)






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








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




Indicate
by check mark whether the registrant (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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x   
No o




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





Large accelerated filer o
            Accelerated filer oNon-accelerated filer o  (Do not check if a smaller reporting company)
            Smaller reporting company x





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




There
were 5,210,950 shares outstanding of registrant’s common stock, par value $.001
per share, as of February 13, 2009.





Transitional
Small Business Disclosure Format (check one): Yes o   No x











INDEX







PagePart I – Financial
      Information (unaudited)Item 1.
            Financial
      Statements.Condensed
      Consolidated Balance Sheet at December 31, 2008 and
      September 30, 2008
            3Condensed
      Consolidated Statements of Operations for the Three Months
      Ended December 31, 2008 and 2007
            5Condensed
      Consolidated Statements of Cash Flows for the Three
      Months Ended December 31, 2008 and 2007
            6Notes to the
      Condensed Consolidated Financial Statements
            7Item 2.
            Management’s
      Discussion and Analysis of Financial Condition and Results
      of Operations
            14Item 3.
            Quantitative and
      Qualitative Disclosures About Market Risk
            19Item 4.
            Controls and
      Procedures
            19Part II – Other
      InformationItem 1.
            Legal
      Proceedings
            20Item 2.
            Unregistered Sales
      of Equity Securities and Use of Proceeds
            20Item 3.
            Defaults Upon Senior
      Securities
            20Item 4.
            Submission of
      Matters to a Vote of Security Holders
            20Item 5.
            Other
      Information
            20Item 6.
            Exhibits
            20Signatures
            
            21









SYNERGX
SYSTEMS INC. AND SUBSIDIARIES













December
      31,
            
            
            September
      30,2008
            
            
            2008ASSETSCURRENT
      ASSETSCash
            
            $
            849,792
            
            
            $
            262,742Accounts
      receivable, principally trade, less allowancefor doubtful
      accounts of $302,299
            
            
            6,088,736
            
            
            
            5,270,911Inventories,
      net
            
            
            2,373,096
            
            
            
            1,948,466Prepaid
      expenses and other current assets
            
            
            725,042
            
            
            
            988,083TOTAL
      CURRENT ASSETS
            
            
            10,036,666
            
            
            
            8,470,202PROPERTY
      AND EQUIPMENT -at cost, lessaccumulated
      depreciation and amortization of $2,151,238
            
            
            765,283
            
            
            
            815,719and
      $2,091,000, repectivelyOTHER
      ASSETS
            
            
            240,646
            
            
            
            250,195TOTAL
      ASSETS
            
            $
            11,042,595
            
            
            $
            9,536,116




See
accompanying Notes to the  Condensed Consolidated Financial
Statements
  3




SYNERGX
SYSTEMS INC. AND SUBSIDIARIES


December
      31,
            
            
            September
      30,2008
            
            
            2008LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESNote
      payable to bank
            
            
            1,130,292
            
            
            --Notes
      payable - current portion
            
            
            27,553
            
            
            
            27,553Accounts
      payable and accrued expenses
            
            
            3,645,857
            
            
            
            2,993,697Deferred
      revenue
            
            
            1,635,217
            
            
            
            1,613,453TOTAL
      CURRENT LIABILITIES
            
            
            6,438,919
            
            
            
            4,634,703Note
      payable to bank
            
            
            --
            
            
            
            517,873Notes
      payable - less current portion
            
            
            49,837
            
            
            
            56,662TOTAL
      LIABILITIES
            
            
            6,488,756
            
            
            
            5,209,238STOCKHOLDERS'
      EQUITYPreferred
      stock, 2,000,000 shares authorized-none
      issued and outstanding
            
            
            --
            
            
            
            --Common
      stock, 10,000,000 shares authorized, $.001par
      value; issued and outstanding 5,210,950 shares
            
            
            5,211
            
            
            
            5,211Additional
      paid in captal
            
            
            6,852,937
            
            
            
            6,849,706Accumulated
      deficit
            
            
            (2,304,309
            )
            
            
            (2,528,039
            )TOTAL
      STOCKHOLDERS' EQUITY
            
            
            4,553,839
            
            
            
            4,326,878TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            11,042,595
            
            
            $
            9,536,116




See
accompanying Notes to the Condensed Consolidated Financial
Statements
  4




SYNERGX
SYSTEMS INC. AND SUBSIDIARIES
   (Unaudited)


For
      the Three Months
              ended
              December
      31,2008
            
            
            2007Product
      sales
            
            $
            3,793,746
            
            
            $
            3,801,208Subcontract
      sales
            
            
            569,634
            
            
            
            149,612Service
      revenue
            
            
            1,295,071
            
            
            
            1,320,926Total
      revenues
            
            
            5,658,451
            
            
            
            5,271,746Cost
      of product sales
            
            
            2,873,537
            
            
            
            3,133,778Cost
      of subcontract sales
            
            
            439,253
            
            
            
            122,600Cost
      of service revenue
            
            
            795,517
            
            
            
            576,752Selling,
      general and administrative
            
            
            1,253,319
            
            
            
            1,330,723Depreciation
      and amortization
            
            
            62,933
            
            
            
            50,001Total
      operating expenses
            
            
            5,424,559
            
            
            
            5,213,854Income
      from operations
            
            
            233,892
            
            
            
            57,892Interest
      expense
            
            
            (8,163
            )
            
            
            (47,530
            )Income
      before provision for income taxes
            
            
            225,729
            
            
            
            10,362Provision
      for income taxes:Current
            
            
            2,000
            
            
            
            1,500Net
      income
            
            $
            223,729
            
            
            $
            8,862Earnings
      Per Common Share:Basic  and
      diluted earnings per share
            
            $
            0.04
            
            
            $
            0.00Basic
      and diluted weighted average number ofcommon
      shares outstanding
            
            
            5,210,950
            
            
            
            5,210,950




See
accompanying Notes to the  Condensed Consolidated Financial
Statements
  5




SYNERGX
SYSTEMS INC. AND SUBSIDIARIES
  CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
  (Unaudited)


For
      the Three Months
              Ended
              December
      31,2008
            
            
            2007OPERATING
      ACTIVITIESNet
      income
            
            $
            223,729
            
            
            $
            8,862Adjustments
      to reconcile net  income  to net cash provided
      by(used
      in ) operating activities:Depreciation
      and amortization *
            
            
            70,058
            
            
            
            57,127Share-based
      compensation
            
            
            3,231
            
            
            
            7,157Changes
      in operating assets and liabilities:Accounts
      receivable, net
            
            
            (817,825
            )
            
            
            1,245,463Inventories,
      net
            
            
            (424,630
            )
            
            
            (169,800
            )Prepaid
      expenses and other current assets
            
            
            263,041
            
            
            
            (47,317
            )Other
      assets
            
            
            (383
            )
            
            
            (2,328
            )Accounts
      payable and accrued expenses
            
            
            652,160
            
            
            
            (989,574
            )Deferred
      revenue
            
            
            21,764
            
            
            
            10,029NET
      CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
            
            
            (8,855
            )
            
            
            119,619INVESTING
      ACTIVITIESProceeds
      from note receivable
            
            
            --
            
            
            
            68,182Purchases
      of property and equipment, net
            
            
            (9,690
            )
            
            
            (43,324
            )NET
      CASH  (USED IN) PROVIDED BY INVESTING ACTIVITIES
            
            
            (9,690
            )
            
            
            24,858FINANCING
      ACTIVITIESPrincipal
      payments on notes payable
            
            
            (6,824
            )
            
            
            (6,448
            )Proceeds
      from note payable bank
            
            
            612,419
            
            
            
            147,557NET
      CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            605,595
            
            
            
            141,109NET
      INCREASE  IN CASH
            
            
            587,050
            
            
            
            285,586Cash
      at beginning of the period
            
            
            262,742
            
            
            
            253,091Cash
      at end of the period
            
            $
            849,792
            
            
            $
            538,677SUPPLEMENTAL
      CASH FLOW INFORMATION:Cash
      paid during the period for:Income
      taxes
            
            $
            3,982
            
            
            $
            10,800Interest
            
            $
            7,419
            
            
            $
            46,556*
      Depreciation of $7,125 is included in cost of product and service
      sales for the three months endedDecember
      31, 2008 and 2007, respectively.




See
accompanying Notes to the Condensed Consolidated Financial
Statements




6




SYNERGX SYSTEMS INC. AND
SUBSIDIARIES




NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




(UNAUDITED)





NOTE
1.  BASIS OF PRESENTATION





The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial
information.  Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements.  In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary in order not to make the financial statements misleading
have been included. Results for the three months ended December 31, 2008 are not
necessarily indicative of the results that may be expected for the fiscal year
ending September 30, 2009. For further information, refer to the consolidated
financial statements and footnotes thereto included in Synergx Systems Inc.
(“Synergx” or “the Company”) and Subsidiaries’ annual report on Form 10-KSB for
the year ended September 30, 2008.





NOTE
2.  REVENUE RECOGNITION





Product
sales include sales of systems, which are similar in nature, that involve fire
alarm, life safety and security (CCTV and card access), transit (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 of billings, and billings in excess of costs and estimated
profits.  Costs and estimated profits in excess of billing were
$344,000 and $747,000 at December 31, 2008 and 2007, respectively and have been
included in other current assets.  Billings in excess of costs and
estimated profits were $889,000 and $98,000 at December 31, 2008 and 2007,
respectively and have been included in deferred revenue.  Product
sales for short term contracts are recognized when the services are performed or
the product has been delivered, which is when title to the product and risk of
loss have been substantially transferred to the customer and collection is
reasonably assured.





Subcontract
sales principally represent revenues related to electrical installation of
wiring and piping performed by others for the Company when the Company acts as
the prime contractor and sells its products along with electrical
installation.  Revenue is recognized when these services are performed
at the job site.





Service
revenue from separate maintenance contracts is recognized on a straight-line
basis over the terms of the respective contract, which is generally one
year.  The unearned service revenue from these contracts is included
in current liabilities as deferred revenue.  Non-contract service
revenue is recognized when services are performed.





7





SYNERGX
SYSTEMS INC. AND SUBSIDIARIES





NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





(UNAUDITED)





NOTE
3.  SIGNIFICANT CUSTOMERS AND SUPPLIERS





The
Company does business directly and indirectly through electrical contractors to
New York City Transit Authority.  Net sales to this authority
represented approximately 24% and 32% of total net sales in the three months
ended December 31, 2008 and 2007, respectively.





One
customer provided sales of 10% or more of total sales (amounting to 15%) in the
three months ended December 31, 2008 and no customer provided sales of 10% or
more for the three months ended December 31, 2007.  Accounts
receivable from a significant customer amounted to $868,000 at December 31,
2008.





Three
suppliers each accounted for more than 10% of the Company’s cost of sales for
the three months ended December 31. 2008 (those suppliers amounted to 17%, 15%
and 12%, respectively).   One supplier accounted for more than
10% of the Company’s cost of sales for the three months ended December 31, 2007
(amounting to 13%).





NOTE
4.  INVENTORIES





Inventories
are stated at the lower of cost (first-in, first-out) or market and consist
primarily of raw materials and parts for service and at December 31, 2008 and
2007, reflects an inventory allowance of $666,000 and $437,000, respectively for
slow movement and obsolescence.





NOTE
5.  NOTE PAYABLE BANK





The
Company had a $3.5 million dollar revolving credit facility with TD Banknorth
(“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 credit facility was amended 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% (3.50 % at December 31, 2008 and 5.25% at September 30,
2008).   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
December 31, 2008 and September 30, 2008, the full amount of the Credit Facility
was available under the borrowing base calculation and $1,130,000 and $518,000,
respectively, was outstanding under this facility.





The
Credit Facility includes certain restrictive covenants, which among other
things, impose limitations on declaring or paying dividends, acquisitions, and
capital expenditures.  The Company is also required to maintain
certain financial ratios and tangible net worth covenants.  At
December 31,2008, the Company was in
compliance with all its financial covenant requirements.





8




SYNERGX
SYSTEMS INC. AND SUBSIDIARIES




NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




(UNAUDITED)





NOTE
6.  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 three months ended December 31,
2007 and 2008 are presented below:






Shares
            
            
            Weighted Average
      Exercise Price
            
            Weighted
              Average Remaining
      Contractual Term
            
            WeightedAverage
              Grant
      Date
              Fair
      ValueOutstanding October
      1, 2007
            
            
            116,000
            
            
            $
            2.43
            
            2.8
    Yrs
            
            $
            1.24Outstanding December
      31, 2007
            
            
            116,000
            
            
            
            2.43
            
            2.5
    Yrs
            
            
            1.24Outstanding October
      1, 2008
            
            
            57,000
            
            
            
            2.43
            
            1.8
    Yrs
            
            
            1.24Outstanding December
      31, 2008
            
            
            57,000
            
            
            
            2.43
            
            1.5
    Yrs
            
            
            1.24Exercisable at
      December 31, 2008
            
            
            30,200
            
            
            $
            2.45
            
            1.2
    Yrs
            
            $
            1.21




A summary
of the option activity of nonvested shares at December 31, 2007 and 2008 is
presented below:




Grant
      Date
              Fair
      ValueNonvested at October
      1  2007
            
            73,600
            
            $1.25Nonvested at
      December 31, 2007
            
            73,600
            
            1.25Nonvested at October
      1, 2008
            
            26,800
            
            1.24Nonvested at
      December 31, 2008
            
            26,800
            
            $1.24




9




SYNERGX
SYSTEMS INC. AND SUBSIDIARIES




NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




(UNAUDITED)





NOTE
7.  EARNINGS (LOSS) PER SHARE





The
Financial Accounting Standards Board (“FASB”) issued “SFAS” No. 128, “Earnings
Per Share”, which requires companies to report basic and diluted earnings per
share (“EPS”) computations.  Basic EPS excludes dilution and is based
on the weighted-average common shares outstanding and diluted EPS gives effect
to potential dilution of securities that could share in the earnings of the
Company.




For
      the Three Months
              ended
              December
      31,2008
            
            
            2008Basic EPS
      ComputationNet Income
            
            $
            223,729
            
            
            $
            8,862Weighted average
      outstanding shares
            
            
            5,210,950
            
            
            
            5,210,950Basic net income per
      share
            
            $
            .04
            
            
            $
            .00Diluted EPS
      Computation Net
      Income
            
            $
            223,729
            
            
            $
            8,862Weighted-average
      shares
            
            
            5,210,950
            
            
            
            5,210,950Plus: Incremental
      shares from assumed conversionsEmployee Stock
      Options*
            
            
            --
            
            
            
            --Adjusted
      weighted-average shares
            
            
            5,210,950
            
            
            
            5,210,950Diluted net income
      per share
            
            $
            .04
            
            
            $
            .00




*All
stock options outstanding during the three month period ened December 31, 2008
and December 31, 2007 were anti-dilutive.  However, in the future the
stock options may be dilutive if the market price of the Company’s common stock
increases over $1.70.




10




SYNERGX
SYSTEMS INC. AND SUBSIDIARIES




NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




(UNAUDITED)





NOTE
8.  INCOME TAXES





The
effective income tax rate differs from the statutory rate for the three months
ended December 31, 2008 and 2007 due to the expected use of net operating loss
carryforwards.




The
Company accrues interest and penalties related to unrecognized tax benefits in
income tax expense. This methodology is consistent with previous
periods.  No accrual for interest and penalties related to uncertain
tax positions was required as of December 31, 2008.  As of
December 31, 2008, the Company was subject to U.S. Federal and State Income
Tax examinations for the tax years ending September 30, 2005 through 2008, but
at the present time, no examinations are pending or in progress.




NOTE
9.  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.  In June 2008,
Firecom purchased an additional 225,568 shares and in January 2009, Firecom
purchased another 490,000 additional shares increasing its beneficial ownership
to 2,068,012 shares equal to 40% of the Company’s outstanding common
stock.





Mr. Paul
Mendez, the Company’s President and Chief Executive Officer also serves as
Chairman of the Board of Directors and Chief Executive Officer of Firecom. On
June 10, 2008, the Company entered into an employment agreement with Mr. Mendez
under which the Company would pay Mr. Mendez an annual base salary of
$20,000.  The employment agreement was modified in January 2009 to
increase Mr. Mendez’s salary, retroactive to October 1, 2008, at an annual base
salary of $250,000 and during the three months 3ended December 31, 2008 the
Company recorded $62,500 of compensation expense for Mr.
Mendez..  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. For the three months
ending December 31, 2008 the Company paid Firecom $53,000 for the services of
this individual which costs, which includes reimbursement for salary, payroll
taxes and other employee benefits for such full-time employee are included in
cost of service revenue.





The
Company and Firecom have entered into several transactions 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 commission
related to these sales which amounted to $6,000 for the three months ended
December 31, 2008 and there were no such transactions for the three months ended
December 31, 2007.  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 $3,000 during the three months ended
December 31, 2008 and there were no such transactions during the three months
ended December 31, 2007.   The Company from time to time has
purchased and sold certain products used in Firecom’s
business.  During the three months ended December 31, 2008 and 2007,
these products were sold to Firecom for $43,000 and $10,000, respectively. The
Company has a consulting agreement with Firecom pursuant to which Firecom
provides certain hardware and software engineering and field trouble-shooting
services.  In offering these services, Firecom. has agreed to keep
information confidential and refrain from use of the information in its
business 
 As of
December 31, 2008 and September 30, 2008, the Company owed Firecom $0 and
$3,000, respectively, included in Accounts
Payable.
 
 As of
December 31, 2008 and September 30, 2008, Firecom owed the Company $43,000 and
$34,000 respectively, included in Accounts
Receivable.





11





SYNERGX
SYSTEMS INC. AND SUBSIDIARIES




NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




(UNAUDITED)




NOTE
10.  NEW ACCOUNTING PRONOUNCEMENTS





In
February 2008, the FASB staff issued Staff Position No. 157-2, Effective Date of FASB Statement
No. 157(“FSP 157-2”). FSP 157-2 delayed the effective date of SFAS
157 for nonfinancial assets and non-financial liabilities, except for items that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The provisions of FSP 157-2 are effective
for the Company’s fiscal year beginning October 1, 2009; however, the
Company does not expect the provisions to have a material impact, if any, on our
financial statements.





In
May 2008, the FASB issued Statement No. 162, “The Hierarchy of Generally Accepted
Accounting Principles,”(“SFAS 162”) which identifies the sources of
accounting principles and the accounting framework for selecting the principles
to be used in the preparation of financial statements of non-governmental
entities that are presented in conformity with U.S. generally accepted
accounting principles (“GAAP”). SFAS 162 is effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning
of Present Fairly in Conformity with GAAP.”The Company does not expect
the adoption of SFAS 162 to have an impact on its financial
statements.





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





12





SYNERGX
SYSTEMS INC. AND SUBSIDIARIES




NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




(UNAUDITED)





NOTE
11.  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.





NASDAQ
has subsequently suspended 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, April
17, 2009 and will be reinstated on Monday, April 20, 2009.





As a
result, if, at any time before April 23, 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 April 23, 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.  The Company is analyzing what effect, if any, a delisting
would have on the Company’s financial condition and liquidity.





13




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





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





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





References
to 2008 and 2007 within the Management’s Discussion and Analysis of Financial
Condition and Results of Operations refers to the three months ended December
31, 2008 and December 31, 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 Credit Facility was amended 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% (3.50% at December 31, 2008 and
5.25% at September 30, 2008). As a result, the bank debt is being classified as
a current liability at December 31, 2008. 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 December 31, 2008 and September
30, 2008, the full amount of the Credit Facility was available under the
borrowing base calculation and $1,130,292 and $518,000, respectively, was
owed under the Credit Facility.




Net cash
used in operations for the three months ended December 31, 2008 was $8,855
compared to $119,619 of cash provided by operations for the comparable prior
year period, an increased use of $128,474.  This $128,474 increase was
primarily due to an increase of $352,346 in the net use in cash for operating
assets and liabilities in 2008 as compared to 2007, partially offset by an
increase of $214,867 in net income in 2008.  Cash used for operating assets
and liabilities in 2008 was used to fund certain projects that will be delivered
after December 31, 2008.




In 2008,
the net cash outflow of $8,855 from operations, cash used for equipment
purchases of $9,690 and note payments of $6,824 were financed by bank borrowing
of $25,369. Additional bank borrowing of $587,050 increased the Company’s
cash balance at December 31, 2008.





14


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





The ratio
of the Company’s current assets to current liabilities (current ratio) decreased
to approximately 1.56 to 1 at December 31, 2008 compared to 1.83 to 1 at
September 30, 2008. Working capital declined to $3.6 million at December 31,
2008 compared to $3.8 million at September 30, 2008. This decline and the
decrease in the current ratio are related to $1.1 million of bank debt being
classified as a current liability at December 31, 2008.





Results
of Operations





Revenues
and Gross Profit





Three
      Months Ended
              December
      31,2008
            
            
            2007(In
      thousands of dollars)Product
      Sales
            
            $
            3,794
            
            
            $
            3,801Subcontract
      Sales
            
            
            569
            
            
            
            150Service
      Revenue
            
            
            1,295
            
            
            
            1,321Total
      Revenue
            
            $
            5,658
            
            
            $
            5,272Gross
      Profit Product
            
            $
            920
            
            
            $
            667Gross
      Profit Subcontract
            
            
            131
            
            
            
            27Gross
      Profit Service
            
            
            499
            
            
            
            744Total
      Gross Profit
            
            $
            1,550
            
            
            $
            1,438Gross
      Profit Product %
            
            
            24
            %
            
            
            18
            %Gross
      Profit Subcontract %
            
            
            23
            %
            
            
            18
            %Gross
      Profit Service %
            
            
            39
            %
            
            
            56
            %Total
      Gross Profit %
            
            
            27
            %
            
            
            27
            %


Revenues





The
Company's product sales decreased slightly during the three months ended
December 31, 2008 to $3,794,000 compared to $3,801,000 for the prior year
period. The decline in product sales was from decreases in sales of audio/visual
and security products (primarily from transit projects).  However,
during the 2008 period, additional fire alarm revenue almost entirely offset
these declines as product sales benefited from higher fire alarm revenue from
the installation of a fire alarm system from the building owner and tenants at a
major new retail outlet center in our Long Island, NY territory amounting to
$635,000 (a job of this size is unusual for this area and is not expected to
occur often) and from the installation of the Company’s new Comtrak system
upgrade at a large building in New York City. Revenue from this upgrade program
began in December, 2008 and is expected to continue in future
periods.





Subcontract
sales increased during the current three month period to $569,000 from $150,000
in the comparable prior year period.  During the 2008 period, the
Company was responsible as prime contractor for the electrical installation of a
major new retail outlet center amounting to sales of $387,000 and for several
other large electrical installations projects compared to a few small electrical
installations in 2007.





Service
revenues decreased 2% during the current three month period (2008)  as
compared to the comparable prior year period due to declines in both
call-in-service on fire alarm systems (replacement parts and service required by
buildings) and service contract revenue.




15


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




Gross
Profit





Gross
profit from product sales for the three months ended December 31, 2008 increased
38% to $920,000 compared to $667,000 for the prior year period. The improvement
in absolute gross margin and the 6% increase in gross margin percentage are
primarily attributable to a shift in product mix to higher margin sales of fire
alarm projects in 2008 whereas the 2007 period included sales from a very low
gross margin public address system.  Gross profit margin as a
percentage of product sales was 24% in 2008 compared to 18% in
2007.





Gross
profit related to subcontract sales for the three months ended December 31, 2008
increased in absolute terms as the Company was responsible for a greater number
of electrical installations by third parties (subcontract work) which included
one large installation at a major retail outlet center in 2008 (noted above).
The higher gross profit margin percentage in 2008 is due to higher margin
percentage received on the major retail outlet center project compared to the
three months of 2007 as mark ups on electrical installations were lower on the
few small electrical installation in 2007.





Gross
profit from service revenues decreased $245,000 to $499,000 during the three
months ended December 31, 2008 as a result of a decline in both call-in-service
on fire alarm systems (replacement parts and service required by buildings) and
service contract revenue and from certain additions in the number of service
technicians as the Company increased its customer support staffing levels
(during 2008) and rebalanced it’s staff to better serve customer requirements.
In addition, the Company added certain service administration staff in 2008,
which included a dedicated operating executive whose expenses are included in
cost of service.





Profit
Before Taxes





The
$215,000 increase in income before income taxes during the three months ended
December 31, 2008 includes $112,000 of higher gross profit, $77,000 of lower
selling, general and administrative expenses compared to 2007, and $39,000 of
lower interest expense. The improvement in gross profit was primarily due
to  a shift to higher margin sales of fire alarm projects in 2008,
primarily attributable to a large installation at a major retail outlet center
(noted above), which increased gross profit $357,000 from product and
subcontract sales and partially offset a $245,000 decline in gross profit from
service revenue (noted above). The decrease selling, general and administrative
expenses resulted from savings related to certain reductions in administrative
and information technology personnel.  Interest expense decreased
$39,000 due to the effect of both lower interest rates as a result of a lower
prime rate lower borrowing levels during 2008.





Tax
Provision





The
Company’s income tax expense for the three month periods of 2008 and 2007
represents minimum state and local income or franchise taxes. No income tax
expense was recorded for the operating profit for the three months ended
December 31, 2008 and 2007 due to the expected use of the net operating loss
carryforwards.





16


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





Order
Position





The
Company’s order position, excluding service, at December 31, 2008 was
$11,900,000 as compared to $12,500,000 at September 30, 2008 and $9,800,000 at
December 31, 2007.  The Company expects to fulfill a significant
portion of its order position over the next twelve months. Due to the fact that
the Company’s products are sold and installed as part of larger mass transit
construction projects, there is typically a delay between the booking of the
contract and its revenue realization.  The order position includes,
and the Company continues to bid on projects that might include, significant
subcontractor labor (electrical installation performed by
others).   The Company expects to be active in seeking orders
where the Company would act as a prime contractor and be responsible for
management of the project as well as electrical installation.





Significant
Customers and Suppliers





The
Company does business directly and indirectly through various electrical
contractors to New York City Transit Authority.  Net sales to this
authority represented approximately 24% and 32% of total net sales in the three
months ended December 31, 2008 and 2007, respectively.




One
customer provided sales of 10% or more of total sales (amounting to 15%) in the
three months ended December 31, 2008 and no customer provided sales of 10% or
more for the three months ended December 31, 2007.  Accounts
receivable from a significant customer amounted to $868,000 at December 31,
2008.





Three
suppliers each accounted for more than 10% of the Company’s cost of sales for
the three months ended December 31. 2008 (those suppliers amounted to 17%, 15%
and 14%)   One supplier accounted for more than 10% of the
Company’s cost of sales for the three months ended December 31, 2007 (amounting
to 13%).




Related Party
Transactions




At
September 30, 2008, Firecom, Inc. (“Firecom”) (a privately owned company
involved in the firm alarm business) owned 1,578,012 shares or approximately 30%
of the Company’s outstanding shares of common stock.  In January 2009,
Firecom purchased 490,000 additional shares increasing its beneficial ownership
to 2,068,012 shares equal to approximately 40% of the Company’s outstanding
common stock.
 
 Mr. Paul
Mendez, the Company’s President and Chief Executive Officer also serves as
Chairman of the Board of Directors and Chief Executive Officer of Firecom. On
June 10, 2008, the Company entered into an employment agreement with Mr. Mendez
under which the Company would pay Mr. Mendez an annual base salary of
$20,000.  The employment agreement was modified in January 2009 to
increase Mr. Mendez’s salary, retroactive to October 1, 2008, at an annual base
salary of $250,000 and during the three months ended December 31, 2008 the
Company recorded $62,500 of compensation expense for Mr.
Mendez.  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. For the three months
ending December 31, 2008 the Company paid Firecom $53,000 for the services of
this individual which costs, which includes reimbursement for salary, payroll
taxes and other employee benefits for such full-time employee, are included in
cost of service revenue.
  17
 
 The
Company and Firecom have entered into several transactions 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 commission
related to these sales which amounted to $6,000 for the three months ended
December 31, 2008 and there were no such transactions for the three months ended
December 31, 2007.  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 $3,000 during the three months ended
December 31, 2008 and there were no such transactions during the three months
ended December 31, 2007.   The Company from time to time has
purchased and sold certain products used in Firecom’s
business.  During the three months ended December 31, 2008 and 2007,
these products were sold to Firecom for $43,000 and $10,000, respectively. The
Company has a consulting agreement with Firecom pursuant to which Firecom
provides certain hardware and software engineering and field trouble-shooting
services.  In offering these services, Firecom. has agreed to keep
information confidential and refrain from use of the information in its
business 
 As of
December 31, 2008 and September 30, 2008, the Company owed Firecom $0 and
$3,000, respectively, included in Accounts
Payable.
 
 As of
December 31, 2008 and September 30, 2008, Firecom owed the Company $43,000 and
$34,000 respectively, included in Accounts
Receivable.
  Other





On April
21, 2008, the Company received a letter from the NASDAQ Stock Market 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.





NASDAQ
has subsequently suspended 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, April
17, 2009 and will be reinstated on Monday, April 20, 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.





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.





18





Item
3.  Quantitative and Qualitative Disclosures About Market
Risk





Not
applicable





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





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





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





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





There
have been no changes in the Company’s internal controls over financial 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 this Quarterly Report.





A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control systems are
met.  Because of the inherent limitations in all control systems no
evaluation of control can provide absolute assurance that all control issues, if
any, within a company have been detected.  Such limitations include
the fact that human judgment in decision-making can be faulty and that
breakdowns in internal control can occur because of human failures, such as
simple errors or mistakes or intentional circumvention of the established
process.





19





Part
II – OTHER INFORMATION





Item
1.  Legal Proceedings.




Not
Applicable





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




Not
applicable





Item
3.  Defaults Upon Senior Securities.




Not
applicable





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




None




Item
5.  Other Information.




None





Item
6.  Exhibits





(a)   
Exhibits




31.1
            Certification of
      Paul Mendez pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 200231.2
            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 200232.1
            Certifications of
      Paul Mendez and John A. Poserina pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002




20





SIGNATURES







Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.






SYNERGX
      SYSTEMS INC
                (Registrant)Date: February
      13, 2009
              /s/
              Paul
      MendezPaul
      MendezChief
      Executive OfficerDate: February
      13, 2009
              /s/
              John
      A. PoserinaJohn
      A. PoserinaChief
      Financial Officer(Principal
      Accounting and Financial
      Officer),Secretary
      And
      Director










21