SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 and 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 15, 1996
(April 1, 1996)
HALIFAX CORPORATION
(Exact name of registrant as specified in charter)
Virginia 2-84160-W 54-0829246
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number Identification No.)
5250 Cherokee Avenue, Alexandria, Virginia 22312
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 750-2202
Not Applicable
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
(a) In accordance with a Plan of Merger ("Plan") attached as
Exhibit A hereto which was duly adopted by the board of directors
of both parties to the merger, CMS Automation, Inc. ("CMS"), a
Virginia corporation, merged into CMSA Acquisition Corporation
("CMSA"), a Virginia corporation wholly owned by Halifax
Corporation, a Virginia corporation. CMS merged into CMSA on the
following basis. Pursuant to the Plan, each issued and
outstanding share of CMS common stock was converted into, and
become exchangeable for, the number of shares of validly issued,
fully paid and nonassessable common stock of Halifax equal to a
conversion ratio meaning a fraction, the numerator of which is
139,630 and the denominator of which is equal to the sum of the
number of shares of CMS issued and outstanding on the effective
date of the merger plus the number of shares that would be
represented by the conversion of $450,000 worth of debt to
equity. In this regard, CMS shareholders who held promissory
notes of CMS in the amount of $450,000 converted said debt to
equity in CMS. In addition to the initial issuance of 139,630
shares of Halifax stock to CMS shareholders which was based on
the net equity value of CMS, Halifax stock will be awarded
annually for three (3) years subsequent to the merger to the CMS
shareholders on a pro-rate basis, excluding Halifax stock issued
as a result of the conversion of debt to equity, having a value
equal to one-third of the net after tax income of CMSA operating
as a wholly owned subsidiary of Halifax.
The assets acquired included accounts receivable and the
inventory and equipment used in conducting and operating the
business of CMS which consists of computer systems integration
including wide area and local area networking, consulting,
application development and training.
Closing of the transaction took place on April 1, 1996 with a
Certificate of Merger issued by the State Corporation Commission
of Virginia effective April 9, 1996.
Item 7. Financial Statements and Exhibits
(a) & (b) It is impracticable to provide the required financial
statements and pro forma financial information at the time of the
filing of this report. Said financial statements and information
will be filed as soon as available but not later than 60 days
from the date of this report.
(c) Attached as Exhibit A is a copy of the plan of acquisition as
contained in the Agreement and Plan of Reorganization entered
into by the parties.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of April 1, 1996, by
and among HALIFAX CORPORATION, a Virginia corporation ("Parent"), CMSA
ACQUISITION CORPORATION, a Virginia corporation and a wholly-owned subsidiary
of Parent ("Sub"). CMS AUTOMATION, INC., a Virginia corporation (the
"Target") (Sub and Target being hereinafter collectively referred to as (the
"Constituent Corporations") and those individuals who are shareholders of the
Target on the Closing Date ("Shareholders").
ARTICLE III
PLAN OF MERGER
3.1 Conversion of Target Shares in the Merger. Pursuant to this Agreement, at
the Effective Time, by virtue of the Merger and without any action on the
part of any holder of any capital stock of Target; each issued and
outstanding share of Target Common Stock, other than Target Dissenting
Shares (as defined in Section 3.4 hereof), shall be converted into, and
become exchangeable for, the number of shares of validly issued, fully paid
and nonassessable common stock of Parent ("Parent Common Stock") equal to
the Conversion Ratio. In this Agreement, the term "Conversion Ratio" means
a fraction, the numerator of which is equal to 139,630 and the denominator
of which is equal to the sum of the number of shares of Target Common Stock
issued and outstanding as of the Closing plus the number of shares that
would be represented by the conversion of $450,000 of debt to equity. In
this regard, prior to Closing, Shareholders who hold promissory notes of the
Target in the amount of $450,000 (hereafter sometimes separately referred to
as "Converting Shareholders") shall convert the notes to Target equity. The
consideration referred to in this Section 3.1, together with any cash
payments in lieu of fractional shares as provided herein, and the Contingent
Additional Purchase Price Consideration set forth in Section 3.6 hereof is
hereinafter referred to as the "Merger Consideration."
3.2 Status of Sub Shares. At the Effective Time, by virtue of the Merger and
without any action on the part of any holder of any capital stock of Sub,
each issued and outstanding share of common stock of Sub shall continue
unchanged and remain outstanding as a share of common stock of the Surviving
Corporation.
3.3 Exchange of Company Capital Stock Certificates. (a) On or prior to the
Closing Date, Parent shall deposit with the Escrow Agent (as that term is
defined below) the certificates representing shares of Parent Common Stock
required to effect the exchange referred to in Section 3.3(b) below. Parent
shall also deposit with the Escrow Agent the cash payment in lieu of
fractional shares referred to in Section 3.3(d) below. Shares of Parent
Common Stock into which shares of Target Common Stock shall be converted in
the Merger shall be deemed to have been issued at the Effective Time and the
Shareholders shall have full voting rights with respect to such shares
immediately following the Effective Time. In addition, the Shareholders
shall be entitled to receive any dividends or other distributions with a
record date after the Effective Time.
(b) From and after the Effective Time, each holder of a certificate which
immediately prior to the Effective Time represented outstanding shares of
Target Common Stock, other than shares with respect to which dissenters'
rights, if any, are granted by reason of the Merger under the VGCL, shall be
entitled to receive in exchange therefor, upon delivery thereof to Williams,
Mullen, Christian & Dobbins (the "Escrow Agent"), and following the period
of the Escrow, a certificate or certificates representing the number of
whole shares of Parent Common Stock into which such holder's shares of Target
Common Stock were converted pursuant to Section 3.1 and cash in lieu of any
fractional shares of such Parent Common Stock pursuant to
Section 3.3(d). From and after the Effective Time, Parent shall be entitled
to treat the certificates which immediately prior to the Effective Time
represented shares of Target Common Stock and which have not yet been
surrendered for exchange as evidencing the ownership of the number of full
shares of Parent Common Stock into which the shares of Target Common Stock
represented by such certificates shall have been converted pursuant to
Section 3.1, notwithstanding the failure to surrender such certificates.
However, notwithstanding any other provision of this Agreement, until
holders or transferees of certificates which immediately prior to the
Effective Time represented shares of Target Common Stock have surrendered
them for exchange as provided herein, no dividends shall be paid with
respect to any shares represented by such certificates and no
payment for fractional shares shall be made. Such dividends or other
distributions with a record date after the Effective Time shall be held
by the Escrow Agent in trust for the benefit of such holders of undelivered
certificates. Upon surrender of a certificate which immediately prior to
the Effective Time represented outstanding shares of Target Common Stock,
there shall be paid to the holder of such certificate the amount of any
dividends which theretofore became payable, but which were not paid by
reason of the foregoing, with respect to the number of whole shares of
Parent Common Stock represented by the certificate or certificates issued
upon such.
(c) As soon as practicable after the Effective Time, the Escrow Agent shall
mail to each holder of record of a certificate or certificates that
immediately prior to the Effective Time represented outstanding shares of
Target Common Stock (collectively, the "Target Certificates") (i) a form
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to Target Certificates shall pass, only upon
actual delivery of Target Certificates to the Escrow Agent) and (ii)
instructions for use in effecting the surrender of Target Certificates
in exchange for certificates representing shares of Parent Common Stock.
Upon surrender of Target Certificates for cancellation to the Escrow
Agent, together with a duly executed letter of transmittal and such other
documents as the Escrow Agent shall reasonably require and following the
period of the Escrow, the holder of such Target Certificates shall receive
in exchange therefor a certificate representing that number of whole shares
of Parent Common Stock into which the shares of Target Common Stock
represented by Target Certificates so surrendered shall have been converted
pursuant to the provisions of Section 3.1 less any adjustments pursuant to
Section 4.5 hereof, and Target Certificates so surrendered shall forthwith
be canceled. Notwithstanding the foregoing, neither the Escrow Agent nor
any party hereto shall be liable to a holder of shares of Target
Common Stock for any shares of Parent Common Stock or dividends
or distributions thereon delivered to a public official pursuant
to applicable escheat laws.
(d) Notwithstanding any other provision of this Agreement, no certificates
or scrip for fractional shares of Parent Common Stock shall be issued upon
the surrender for exchange of Target Certificates pursuant to this Article
III in the Merger and no Parent Common Stock dividend, stock split or
interest shall relate to any fractional security, and such fractional
interests shall not entitle the owner thereof to vote or to any other
rights of a security holder. In lieu of any such fractional shares, each
holder of Target Common Stock who would otherwise have been entitled to a
fraction of a share of Parent Common Stock upon surrender of Target
Certificates for exchange pursuant to this Article III, shall be entitled
to receive from the Escrow Agent a cash payment in lieu of such fractional
share equal to such fraction multiplied by the Valuation Price of $7.00
per share of Parent Common stock.
3.4 Dissenting Shares. Notwithstanding anything to the contrary contained in
this Agreement or the Merger Agreement, holders of shares of Target Common
Stock with respect to which dissenters' rights, if any, are granted by
reason of the Merger under the VGCL and who do not vote in favor of the
Merger and otherwise comply with the VGCL ("Target Dissenting Shares"),
shall not be entitled to shares of Parent Common Stock pursuant to Section
3.1, unless and until the holder thereof shall have failed to perfect or
shall have effectively withdrawn or lost such holder's right to dissent from
the Merger under the VGCL, and shall be entitled to receive only the payment
provided for pursuant to the VGCL. If any such holder shall have failed to
perfect or shall have effectively withdrawn or lost such holder's
dissenters' rights under the VGCL, such holder's Target Dissenting
Shares shall thereupon be deemed to have been converted into and to
have become exchangeable for, as of the Effective Time, the right to
receive the Merger Consideration.
3.5 Closing of Transfer Books. From and after the Effective Time, the stock
transfer books of Target shall be closed and no transfer of shares of Target
Common Stock shall thereafter be made. If, after the Effective Time, Target
Certificates are presented to Parent, they shall be canceled and exchanged
for the Merger Consideration in accordance with the procedures set forth in
this Article III.
3.6 Contingent Additional Purchase Price Consideration. (a) In addition to
the Parent Common Stock transferred to Shareholders at Closing, on or before
May 31, 1997, 1998, and 1999, Parent shall deliver to the Shareholders
shares of Parent Common Stock having a value, as determined by the then
current market value of the Parent Common Stock, equal to one-third of the
net after tax income of Sub (Formerly Target) operating as a wholly owned
subsidiary of Parent for each of the tax years ending March 31, 1997, 1998
and 1999. Such additional shares of Parent Common Stock shall be distributed
among the Shareholders on a pro rate basis, based on the Shareholders holdings
as of the date of Closing and set forth in Exhibit A hereto; provided,
however, that for the purposes of determining a Shareholder's pro rate
share, any shares of Target received by such Shareholders as a result of
converting a promissory note into equity of Target prior to the Merger
pursuant to Article III hereof shall not be included. For the purposes of
this paragraph only, the first period for calculating the additional
consideration shall commence January 1, 1996 and continue through March 31,
1997. The two remaining periods shall consist of twelve month intervals
beginning April 1, 1997 and April 1998, respectively. Notwithstanding the
foregoing, the parties hereto agree that (i) for the purposes of determining
the additional shares of Parent Common Stock due to the Shareholders for the
period ending March 31, 1997, the fair market value of the Parent Common
Stock shall be deemed to be $7.00 per share and (ii) for the purposes of
determining the additional shares of Parent Common Stock due to the
Shareholders for the periods ending March 31, 1998 and 1999, the fair
market value of the Parent Common Stock shall not exceed $10.00 per
share or be less than $6.00 per share.
Notwithstanding anything contained herein to the contrary, in the event that
a distribution of shares of Parent Common Stock pursuant to this Section
3.6, in combination with shares previously distributed pursuant to Article
III, would increase the number of outstanding shares of Parent Common Stock
by more than 20.0% of the number of outstanding shares of Parent Common
Stock outstanding immediately before the Closing, Parent may deliver in lieu
of additional shares of Parent Common Stock, to the Shareholders a cash
payment equal to the value of the shares of Parent Common Stock they would
have received pursuant hereto. (b) Sub's after-tax net income shall be
determined by Parent's accounting firm. For purposes of calculating
the Contingent Additional Purchase Price Consideration the following
factors will be in effect:
(i) Sub's tax liability will be calculated as if Sub was an
independent entity and the tax rate of the Sub will be no more than Parent's
overall corporate tax rate.
(ii) Sub will get the benefit of any allowable tax-loss carry
forward from Target.
(iii) For purposes of calculating additional consideration none of
the Parent corporate overhead will be assigned to Sub other than costs
transferred from Sub to Parent.
(iv) Only Sub operating debt will be assigned to Sub.
(v) Future acquisitions of similar companies will not affect
additional consideration calculations.
(c) Parent shall notify the Shareholders in writing no later than May 31 of
each year of the accountant's determination of Sub's after-tax net income
and of the number of additional shares, if any, that the Shareholders are
entitled to receive. Such notice shall include a copy of the accountants
calculations. The Shareholders shall then have 30 days to deliver to Parent
a written notice disputing the accountant's calculations. In the event
the Shareholders deliver such a notice, such dispute shall be submitted
for arbitration in accordance with Section 10.8 hereof.
3.7 Closing. The closing (the "Closing") of the transactions contemplated by
this Agreement shall take place (a) at the offices of Target at 10:00 a.m.,
local time on April 1, 1996, or the second business day immediately
following the date on which the last of the conditions set forth in Article
VII hereof is fulfilled or waived, or (b) at such other time and place and
on such other date as Parent and Target shall agree (the "Closing Date").
<PAGE>
Item 7. Financial Statements and Exhibits
A. Financial Statements of Business Acquired
The following Audited Financial Statements of CMS Automation, Inc. (CMSA) are
included as Exhibits 99(a) and 99(b) to this Current Report on Form 8-K:
Audited Financial Statements dated December 31, 1995 including
Independent Auditor's Report
Balance Sheet
Statement of Income
Statement of Cash Flows
Notes to Financial Statements
Audited Financial Statements dated December 31, 1994 including
Independent Auditor's Report
Balance Sheet
Statement of Income
Statement of Cash Flows
Notes to Financial Statements
B. Pro Forma Financial Information
Unaudited Pro Forma Combined Condensed Financial Statements
The following unaudited pro forma combined condensed financial statements
have been prepared by Halifax's management from the consolidated financial
statements of Halifax and CMSA. The Unaudited Pro Forma Combined Condensed
Statement of Earnings reflects adjustments as if the acquisition transaction
had occurred on April 1, 1995. The Unaudited Pro Forma Combined Condensed
Balance Sheet reflects adjustments as if the CMSA transaction had occurred
on March 31, 1996. See "Note 1 - Basis of Presentation." The unaudited pro
forma adjustments described in the accompanying notes are based upon
preliminary estimates and certain assumptions that management of Halifax
believes are reasonable in the circumstances.
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of financial position or results of operations that
would have resulted if the CMSA transaction had occurred on the applicable
dates indicated above. Moreover, they are not intended to be indicative of
future results of operations or financial position. The pro forma combined
condensed financial statements should be read in conjunction with the
historical consolidated financial statements of Halifax and related notes
thereto, included in the Corporation's Annual Report on Form 10-K for the
year ended March 31, 1996; and the historical financial statements of
CMSA and related notes thereto, included in this Current Report on Form 8-K.
<PAGE>
<TABLE>
Unaudited Pro Forma Combined Condensed Statement of Earnings
<CAPTION>
For the Year Ended
March 31, 1996 December 31, 1995 Proforma Proforma
Halifax CMSA Adjustments Combined
($ In thousands, except per share data)
<C> <C> <C> <C>
Revenues $ 47,159 $ 21,249 $ 68,408
Operating costs & Expenses:
Cost of Services 41,675 14,582 56,257
Selling, General &
Administrative Expenses 3,650 6,300 14(c) 9,964
Total Operating Costs &
Expenses 45,325 20,882 14 66,221
Operating Income 1,834 367 (14) 2,187
Interest Expense 573 543 (240)(d) 876
Other Income (Expense), Net - 68 68
Earnings Before Tax 1,261 (108) 226 1,379
Income Taxes 498 1 89(e) 588
Net Income/(Loss) $ 763 $ (109) 137 791
Earnings per Share $ .65 N/A $ .60
Weighted Average Number of
Common Shares Outstanding # 1,171,254 N/A # 1,310,884
<FN>
See accompanying notes to unaudited pro forma combined condensed financial statements
</TABLE>
<PAGE>
<TABLE>
Unaudited Pro Forma Combined Condensed Balance Sheet
As of
March 31, 1996 December 31, 1995 Proforma Proforma
Halifax CMSA Adjustments Combined
($ In thousands)
<S> <C> <C> <C> <C>
Assets:
Current Assets:
Cash & Cash Equivalents $ 2,743 $ 98 $ 2,841
Receivables, Net 11,734 3,212 14,946
Inventory, Net 2,792 2,176 4,968
Other Current Assets 566 57 623
Total Current Assets 17,835 5,543 23,378
Property & Equipment, Net 4,527 1,412 5,939
Costs in Excess of Net Assets
Acquired & Other Assets 2,313 185 348(a) 2,846
Total Assets 24,675 7,140 348 32,163
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable & Accrued Expenses 11,462 1,500 12,962
Current Maturities Debt 556 4,327 (4,327)(a) 556
Unearned Revenues & Other - 324 324
Total Current Liabilities 12,018 6,151 (4,327) 13,842
Long-Term Operating Debt 739 450 3,877(a)(b) 5,066
Mortgage Note 2,574 - 2,574
Other Liabilities 560 12 572
Total Liabilities 15,891 6,613 (450) 22,054
Stockholders' Equity:
Common Stock 518 97 (97)(a) 518
Additional Paid-In Capital 3,401 706 446(a)(b) 4,553
Treasury Stock at Cost (388) - 173(a)(b) (215)
Retained Earnings (Deficit) 5,253 (276) 276(a) 5,253
Total Stockholders' Equity 8,784 527 798 10,109
Total Liabilities & Stockholders' Equity $ 24,675 $ 7,140 $ 348 $ 32,163
<FN>
See accompanying notes to unaudited pro forma combined condensed financial statements
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying Unaudited Pro Forma Combined Condensed Statement of
Earnings presents the historical results of operations of Halifax for its
fiscal year ended March 31, 1996 and the historical results of operations
for CMSA for its fiscal year ended December 31, 1995 with pro forma
adjustments as if the CMSA transaction had been consummated as of April 1,
1995. The Unaudited Pro Forma Combined Condensed Balance Sheet presents the
historical balance sheets of Halifax and CMSA as of March 31, 1996 and
December 31, 1995, respectively, with pro forma adjustments as if the
CMSA transaction had been consummated as of March 31, 1996, in a transaction
accounted for as a purchase in accordance with Generally Accepted Accounting
Principles.
2. Pro Forma Adjustments
a. To record the consideration assumed to be exchanged for CMSA
consisting of Halifax's common stock and the assumption of CMSA
short-term debt and its conversion to long-term debt by Halifax;
and to record the estimated expense of the transaction.
Halifax Treasury Stock $ 93,000
Halifax Additional Paid-In Capital $ 434,000
CMSA Common Stock Extinguished $ (97,000)
CMSA Additional Paid-In Capital Extinguished $ 706,000)
CMSA Retained Earnings Extinguished $ 276,000
Halifax Cost in Excess of Net Assets Acquired
& Other Assets $ 348,000
Halifax Additional Paid-In Capital $ 348,000
Halifax Long-Term Operating Debt $ 4,327,000
CMSA Current Maturities Debt $(4,327,000)
CMSA Net Book Value $ 527,000
Number of Halifax Common Shares Exchanged @ $7.00 each $ 75,345
Average Cost of Halifax Treasury Share $ 1.24
Halifax Treasury Stock at Cost $ 388,000
Number of Halifax Treasury Shares 311,786
Estimated expenses of the Transaction $ 348,000
<PAGE>
b. To record the issuance of common stock to satisfy
long-term notes payable of CMSA.
CMSA Long-Term Notes Payable $ (450,000)
Treasury Stock Exchanged $ 80,000
Additional Paid-In Capital $ 370,000
Number of Halifax Common Shares Exchanged @ $7.00 each 64,285
Average Cost of Treasury Stock Share $ 1.24
Treasury Stock at Cost $ 388,000
Number of Treasury Shares 311,786
c. To record the amortization of estimated cost in excess of
net assets including capitalizable acquisition costs acquired
in the CMSA transaction over an estimated life of 25 years.
Halifax Selling General & Administrative Expense $ 14,000
Halifax Cost in excess of Net Assets Acquired in
the Transaction $ 348,000
Amortization Period. 25 years
d. To record estimated interest expense at the Halifax's
cost of borrowing under its borrowing agreement, resulting from
the assumption of the CMSA short-term debt and the conversion of
the CMSA long-term notes payable.
Reduction in CMSA interest expense due to conversion of debt
to equity and change from short-term to long-term debt. $ (543,000)
Interest expense on CMSA average outstanding debt converted to
long-term at Halifax borrowing rates. $ 303,000
e. To record the total income tax effect, using a 39.5% rate, on
the net pro forma adjustments.
The accompanying unaudited pro forma combined condensed financial statements
do not include the effects of any estimated transition or restructuring
costs which may be incurred in connection with integrating the operations of
CMSA into Halifax. It is not feasible at this time to estimate these
costs. Similarly, no effects for changes in costs related to CMSA employee
pension benefits have been included as such changes cannot be estimated at
this time.
<PAGE>
The Unaudited Pro Forma Combined Condensed Statement of Earnings does not
reflect any net cost savings or economies of scale that management believes
would have been achieved had the CMSA transaction occurred on April 1,
1995.
C. Exhibits
Exhibit No. Description
99(a) Audited Financial Statements of CMS Automation, Inc.,
for the year ended December 31, 1995, and related Notes to
Financial Statements.
99(b) Audited Financial Statements of CMS Automation, Inc., for
the year ended December 31, 1994, and related Notes to
Financial Statements.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HALIFAX CORPORATION
(Registrant)
Date: June 17, 1996 By:
Howard C. Mills,
President & Chief Executive Officer
Date: June 17, 1996 By:
John D. D'Amore
Vice President & Controller
<PAGE>
Index to Exhibits
Exhibit No. Description Page
99(a) Audited Financial Statements of CMS Automation, Inc., 19
for the year ended December 31, 1995, and related
Notes to Financial Statements
99(b) Audited Financial Statements of CMS Automation, Inc., 38
for the year ended December 31, 1994, and related
Notes to Financial Statements
<PAGE>
CMS AUTOMATION, INC.
Financial Statements
December 31, 1995 and 1994<PAGE>
CMS AUTOMATION, INC.
Table of Contents
Page
Independent Auditors' Report 2
Exhibit
A Balance Sheets 3-4
B Statements of Income 5
C Statements of Changes in Stockholders' Equity 6
D Statements of Cash Flows 7-8
Notes to Financial Statements 9-15
Independent Auditors' Report on Additional Information 16
Schedule
1 Schedules of Operating Expenses 17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
CMS Automation, Inc.
Richmond, Virginia:
We have audited the accompanying balance sheet of CMS Automation,
Inc. as of December 31, 1995, and the related statements of income, changes
in stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
Except as explained in the following paragraph, we conducted our
audit in accordance with generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
Because we were not engaged as auditors until after December 31,
1994, we were not present to observe the physical inventory taken at that
date, and we have not satisfied ourselves by means of other auditing
procedures about inventory quantities. Also, we have not applied audit
procedures necessary to satisfy ourselves about the classifications and
amounts comprising the balance sheet at December 31, 1994. The amount of
the inventory at December 31, 1994, and other significant aspects of the
balance sheet at that date, including classifications and amounts,
materially affect the determination of the results of operations and
cash flows for the year ended December 31, 1995. Accordingly, the scope of
our work was not sufficient to enable us to express, and we do not express,
an opinion on the accompanying statements of income, changes in
stockholders' equity, and cash flows for the year ended December 31,
1995, or on the consistency of application of accounting
principles with the preceding year.
In our opinion, the balance sheet referred to in the first
paragraph presents fairly, in all material respects, the financial position
of CMS Automation as of December 31, 1995, in conformity with generally
accepted accounting principles.
<PAGE>
The 1994 financial statements were reviewed by us, and our report
thereon, dated July 20, 1995, except for Note 14, as to which the date is
December 20, 1995, stated we were not aware of any material modifications
that should be made to those statements for them to be in conformity with
generally accepted accounting principles. However, a review is
substantially less in scope than an audit and does not provide a basis for
the expression of an opinion on the financial statements taken as a whole.
Keiter, Stephens, Hurst, Gary & Shreaves
March 23, 1996
2
<PAGE>
Exhibit A
<TABLE>
CMS AUTOMATION, INC.
Balance Sheets
December 31, 1995 (Audited) and 1994 (Unaudited)
<CAPTION>
1995 1994
Assets (Audited) (Unaudited)
<S> <C> <C>
Current assets:
Cash $ 97 954 $ 22 473
Accounts receivable, net of allowance for
uncollectible accounts of $50,000 in 1995
and $15,000 in 1994 3 212 001 3 595 750
Inventory 2 176 089 2 308 661
Loans to employees 16 875 13 325
Loans to officers 26 028 16 292
Prepaid expenses 13 621 6 491
Refundable income taxes - 71 255
Total current assets 5 542 568 6 034 247
Fixed assets 2 824 461 2 268 153
Less accumulated depreciation 1 411 842 1 024 047
Net fixed assets 1 412 619 1 244 106
Software, net of amortization 61 791 81 601
Organization costs, net of amortization 22 080 26 503
Franchise fee, net of amortization 3 042 3 542
Deposits 23 756 28 830
Client lists 49 500 -
Investment 24 664 -
Total other assets 184 833 140 476
$ 7 140 020 $ 7 418 829
<FN>
See accompanying notes to financial statements.
</TABLE>
3
<PAGE>
Exhibit A
CMS AUTOMATION, INC.
<TABLE>
Balance Sheets
December 31, 1995 (Audited) and 1994 (Unaudited)
<CAPTION>
1995 1994
Liabilities and Stockholders' Equity (Audited) (Unaudited)
<S> <C> <C>
Current liabilities:
Short-term debt $ 4 203 658 $ 2 181 973
Notes payable, current portion 117 743 189 831
Capital lease obligation, current portion 4 674 20 365
Accounts payable 1 422 351 3 237 644
Unearned revenues 320 183 445 776
Accrued expenses 78 161 139 600
Customer deposits 3 112 53 864
Income taxes payable 1 000 -
Total current liabilities 6 150 882 6 269 053
Notes payable, less current portion 450 000 547 743
Capital lease, less current portion - 4 674
Deferred credit 12 618 12 946
Total liabilities 6 613 500 6 834 416
Commitments
Stockholders' equity:
Common stock, $.20 par value; 750,000 shares
authorized; 484,226 and 467,399 shares issued
and outstanding at December 31, 1995 and 1994,
respectively 96 845 93 480
Additional paid-in capital 705 758 658 123
Retained earnings (deficit) ( 276 083) ( 167 190)
Total stockholders' equity 526 520 584 413
$ 7 140 020 $ 7 418 829
<FN>
See accompanying notes to financial statements.
</TABLE>
4
<PAGE>
Exhibit B
CMS AUTOMATION, INC.
<TABLE>
Statements of Income
For the Years ended December 31, 1995 (Audited) and 1994 (Unaudited)
<CAPTION>
1995 1994
(Audited) (Unaudited)
<S> <C> <C>
Sales $ 21 248 701 $ 26 982 367
Cost of sales 14 582 334 19 617 630
Gross profit 6 666 367 7 364 737
Operating expenses 6 299 738 6 923 808
Operating income 366 629 440 929
Other income (expense):
Miscellaneous income 139 333 160 397
Interest income 3 872 142
Interest expense ( 543 231) ( 569 582)
Loss on asset disposal - ( 792)
Loss from investment ( 29 496) -
Litigation settlement ( 45 000) -
Total other expense ( 474 522) ( 409 835)
Income (loss) before provision for income tax ( 107 893) 31 094
Provision for income taxes (benefit) 1 000 ( 1 851)
Net income (loss) $( 108 893) $ 32 945
<FN>
See accompanying notes to financial statements.
</TABLE>
5
<PAGE>
Exhibit C
CMS AUTOMATION, INC.
<TABLE>
Statements of Changes in Stockholders' Equity
For the Years ended December 31, 1995 (Audited) and 1994 (Unaudited)
<CAPTION>
Additional Retained Total
Common Stock Paid-In Earnings Stockholders'
Shares Amount Capital (Deficit) Equity
<S> <C> <C> <C> <C>
Balance, December
31, 1993 467 399 $ 93 480 $ 658 123 $( 177 846) $ 573 757
Prior period adjustment - - - ( 22 289) ( 22 289)
Net income - - - 32 945 32 945
Balance, December
31, 1994 467 399 93 480 658 123 ( 167 190) 584 413
Stock issued 16 827 3 365 47 635 - 51 000
Net loss - - - ( 108 893) ( 108 893)
Balance, December
31, 1995 484 226 $ 96 845 $ 705 758 $( 276 083) $ 526 520
<FN>
See accompanying notes to financial statements.
</TABLE>
6
<PAGE>
Exhibit D
CMS AUTOMATION, INC.
<TABLE>
Statements of Cash Flows
For the Years ended December 31, 1995 (Audited) and 1994 (Unaudited)
<CAPTION> 1995 1994
(Audited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $( 108 893) $ 32 945
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 432 260 415 220
Loss on disposal of assets - 792
Loss from investment 29 496 -
(Increase) decrease in:
Accounts receivable 370 463 347 134
Inventory 132 572 ( 40 201)
Prepaid expenses ( 7 130) 161
Refundable income taxes 71 255 ( 1 851)
(Decrease) increase in:
Accounts payable ( 1 815 293) 311 010
Unearned revenues ( 125 593) 187 145
Income taxes payable 1 000 -
Accrued expenses ( 61 439) 33 227
Customer deposits ( 50 752) ( 8 800)
Deferred credit ( 328) 12 946
Net cash provided by (used in) operating activities ( 1 132 382) 1 289 728
Cash flows from investing activities:
Acquisition of fixed assets ( 556 308) ( 247 269)
Acquisition of intangible assets ( 69 232) ( 91 915)
Decrease (increase) in deposits 5 074 ( 14 036)
Proceeds from asset disposal - 400
Investment advances ( 54 160) -
Net cash used in investing activities ( 674 626) ( 352 820)
Cash flows from financing activities:
Proceeds from short-term debt, net of repayments 2 021 685 ( 614 892)
Repayment of long-term debt ( 169 831) ( 356 679)
Repayment of capital lease obligations ( 20 365) ( 22 693)
Proceeds from long-term debt - 200 000
Proceeds from stock issued 51 000 -
Net cash provided by (used in) financing activities 1 882 489 ( 794 264)
<FN>
See accompanying notes to financial statements.
</TABLE>
7
<PAGE>
Exhibit D
CMS AUTOMATION, INC.
<TABLE>
Statements of Cash Flows, Continued
For the Years ended December 31, 1995 (Audited) and 1994 (Unaudited)
<CAPTION>
1995 1994
(Audited) (Unaudited)
<S> <C> <C>
Net increase (decrease) in cash $ 75 481 $ 142 644
Cash at beginning of period 22 473 ( 120 171)
Cash at end of period $ 97 954 $ 22 473
Supplemental disclosures of cash flow information:
Interest $ 571 154 $ 571 057
Income taxes - -
<FN>
See accompanying notes to financial statements.
</TABLE>
8
<PAGE>
CMS AUTOMATION, INC.
Notes to Financial Statements
(1) Accounting policies:
The accounting and reporting policies of CMS Automation, Inc.,
conform to generally accepted accounting principles. The following
describe the more significant of those policies:
(a) Organization:
The Company was incorporated in January, 1990, for the
primary purpose of sales and service of computer hardware,
software and networking. The Company has locations in
the Eastern part of the United States.
(b) Inventories:
Inventories are valued at the lower of cost or market, with
cost being determined by the average cost method.
(c) Fixed assets:
Fixed assets are stated at cost. Depreciation is computed
by the use of accelerated and straight-line methods and is
based on the estimated useful life of the asset.
(d) Other assets:
Software and organization costs are being amortized over
periods of thirty-six to sixty months. Franchise fees are
being amortized over 10 years.
(e) Unearned revenues:
Unearned revenues result from customer contract prepayments.
This results in a large amount of revenue being received prior
to its realization. These unearned revenues are shown as
current liabilities on the balance sheet and are amortized
monthly over the terms of the contracts.
9
<PAGE>
CMS AUTOMATION, INC.
Notes to Financial Statements, Continued
(1) Accounting policies, continued:
(f) Credit risk:
Financial instruments which potentially subject the Company
to concentrations of credit risk consist principally of cash
and receivables.
The Company maintains its cash balances in several financial
institutions. The balances are insured by the Federal
Deposit Insurance Corporation up to $100,000 in each
institution.
The Company has funds in excess of $100,000 in a financial
institution.
Receivables consist principally of trade accounts receivable
resulting from sales to customers primarily in the Eastern
part of the United States. Credit is extended to customers
after an evaluation for credit worthiness.
(g) Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(2) Loans to Officers:
Loans to officers are unsecured advances to the officers of the
Corporation. No interest is currently being charged on these
advances.
(3) Fixed assets:
The following comprise the Corporation's fixed assets at December
31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Support equipment $ 2 073 115 $ 1 571 645
Furniture and fixtures 616 448 591 761
Vehicles 20 396 20 396
Leasehold improvements 114 502 84 351
$ 2 824 461 $ 2 268 153
</TABLE>
(4) Investment:
In 1995, the Company advanced $54,160 to an entity that is expected
to be accounted for under the equity investment rules. This entity
had a loss in 1995, of which CMS Automation reduced its investment
by $29,496, its share of the total loss.
(5) Short-term debt:
In September 1991, the Corporation entered into an agreement with ITT
Commercial Financial Corporation to borrow funds under an accounts
receivable line of credit. This agreement allows the Corporation to
borrow funds up to $5,000,000 at December 31, 1994, based upon the
eligible accounts receivable submitted to ITT Commercial Financial
Corporation. Principal repayments are made as the monies from the
eligible accounts receivable are collected. Interest is charged
monthly on the outstanding balance at prime plus 1.5%. This agreement
is secured by inventory, fixed assets, accounts receivable, and
intangibles. This agreement was terminated in 1995.
During 1995, the Company entered into an agreement with IBM Credit
Corporation for wholesale financing. This agreement allows the
Company to borrow funds up to $7,000,000, based upon eligible
accounts receivable, and inventory. Interest is charged on the
outstanding balance at prime plus 3.25%. This agreement is secured
by accounts receivable, inventory, fixed assets and intangibles. It
is guaranteed by the shareholders of the Company.
(6) Notes payable:
The following comprise the Company's notes payable at December 31,
1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Term note payable to Signet Bank, due in monthly
installments of $10,000 plus interest at 9.25%,
through May, 1996. Secured by accounts
receivable, inventory, equipment, general
intangibles and subordination agreement.
Guaranteed by stockholders. $ 70 000 $ 170 000
Unsecured term note payable to G. Nolde, due in monthly
installments of $4,951 including interest at 8%, through
October, 1996. 47 743 101 002
Unsecured term note payable to I. Cox, due in monthly
installments of $1,719 including interest at 8%, through
October, 1995. $ - $ 16 572
Unsecured subordinated demand note to G. Nolde with
interest at 8%. 285 000 285 000
Unsecured subordinated demand note to I. Cox with
interest at 8%. 165 000 165 000
Total long-term debt 567 743 737 574
Less current maturities 117 743 189 831
$ 450 000 $ 547 743
The future maturities of long-term debt at December 31, 1994 are as follows:
Thereafter $ 450 000
$ 450 000
</TABLE>
(7) Capital leases:
The Corporation has acquired equipment under the provisions of
long-term leases. For financial reporting purposes, minimum lease
rentals relating to these leases have been capitalized.
<TABLE>
<CAPTION> 1995 1994
<S> <C> <C>
Equipment costs $ 57 752 $ 57 752
Accumulated depreciation 26 224 21 707
$ 31 528 $ 36 045
</TABLE>
12
<PAGE>
CMS AUTOMATION, INC.
Notes to Financial Statements, Continued
(7) Capital leases, continued:
The following is a schedule by years of future minimum lease
payments under capital leases together with the present value of the
net minimum lease payments as of December 31, 1995:
Year ended December 31:
1996 $ 4 736
Total minimum lease payments 4 736
Less amount representing interest ( 62)
Present value of net minimum lease payments $ 4 674
Current portion $ 4 674
(8) Income taxes:
The provision (benefit) for income taxes consists of the
following:
1995 1994
Current $ 3 300 $( 1 851)
Deferred ( 2 300) -
Total $ 1 000 $( 1 851)
Deferred income taxes are provided for differences in timing, in
reporting income for financial statement and tax purposes, arising
from differences in the methods of accounting for bad debts,
inventory, and litigation settlements.
For tax purposes, bad debts are expensed as incurred, while the
allowance method is used for financial purposes. Inventory for
income tax purposes includes Section 263A costs which are not
included for financial statement purposes. For financial statement
purposes litigation settlements are expensed as incurred, while for
tax purposes they are deductible when paid.
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income
tax expense is the tax payable or refundable for the period plus or
minus the change during the period in deferred tax assets and
liabilities.
13
<PAGE>
CMS AUTOMATION, INC.
Notes to Financial Statements, Continued
(8) Income taxes, continued:
Net deferred tax assets are composed of the following:
1995 1994
Deferred tax assets arising from:
Temporary differences $ 24 565 $ 9 356
AMT credits 15 101 17 401
Valuation allowance ( 39 666) ( 26 757)
Net deferred tax asset $ - $ -
The Company has alternative minimum tax credit carryforwards of
approximately $15,000 which are available to offset future federal
income tax liability. The Company also has contribution
carryforwards of approximately $8,000 which expire in 1999.
(9) Commitments:
The Corporation leases its facilities in Virginia, Georgia and
South Carolina. Total net rent expense under facility leases for
1995 and 1994 was $293,624 and $349,648, respectively. The
Corporation was also obligated under a lease for an automobile.
Lease expense under this agreement was $4,193 and $7,188 for 1995
and 1994, respectively. Future obligations under these leases as of
December 31, 1995 are as follows:
Minimum Minimum
Rental Sublease
Payments Receipts
1996 $ 257 755 $ 21 467
1997 240 520
1998 207 589
1999 35 552
(10) Profit sharing plan:
The Corporation has a qualified contributory profit-sharing plan
covering substantially all of its employees. Annual contributions
are at the discretion of the Board of Directors but may not exceed
the maximum amount allowable under applicable provisions of the
Internal Revenue Code. No contribution was made for 1995 and 1994.
14
<PAGE>
CMS AUTOMATION, INC.
Notes to Financial Statements, Continued
(11) Business combinations:
On May 31, 1994, the Company acquired the net assets of Systems
Integration Associates, Inc. for $17,000, in a business combination
accounted for as a purchase.
(12) Prior period adjustment:
A prior period adjustment of $22,289 was made to retained earnings
at December 31, 1993 to account for an overstatement of refundable
income taxes.
(13) Subsequent event:
Effective April 1, 1996, CMS Automation, Inc. merged into CMSA
Acquisition Corporation, a wholly-owned subsidiary of Halifax
Corporation.
15
<PAGE>
INDEPENDENT AUDITORS' REPORT ON ADDITIONAL INFORMATION
To the Stockholders
CMS Automation, Inc.
Richmond, Virginia:
Our report on our audit of the basic financial statements of CMS
Automation, Inc., for the year ended December 31, 1995 appears on page 2.
That audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules of operating expenses
are presented for purposes of additional analysis and are not a required
part of the basic financial statements. Such information has not been
subjected to the auditing procedures applied in the audit to the basic
financial statements, and accordingly, we express no opinion on it. The
additional information for the year ended December 31, 1994 has been
subjected to the inquiry and analytical procedures applied in the review of
the basic financial statements, and we are not aware of any material
modifications that should be made thereto.
Keiter, Stephens, Hurst, Gary & Shreaves
March 23, 1996
<PAGE>
Schedule 1
CMS AUTOMATION, INC.
Schedules of Operating Expenses
For the Years ended December 31, 1995 and 1994
1995 1994
Operating expenses:
Advertising $ 43 330 $ 24 491
Amortization 44 464 30 561
Auto expenses 109 643 103 495
Bad debts 58 763 75 515
Commissions 378 218 571 471
Contributions 1 150 1 691
Depreciation 387 795 384 659
Dues and subscriptions 17 473 19 896
Employee benefit programs 190 246 201 032
Freight 150 435 162 236
Insurance 45 807 59 059
Miscellaneous 18 339 193
Office expense 64 193 53 459
Outside services 71 506 82 531
Payroll taxes 296 952 330 533
Penalties 36 430 72 446
Printing services 18 513 29 669
Professional fees 63 431 54 287
Recruitment 24 632 14 296
Rent 333 103 349 648
Repairs and maintenance 20 639 12 730
Salaries 3 353 877 3 588 069
Small equipment and tools 5 189 9 485
Supplies 34 172 24 866
Taxes and licenses 48 249 85 889
Telephone 217 793 223 069
Training 48 756 54 986
Travel and entertainment 152 147 244 403
Utilities 64 493 59 143
Total operating expenses $ 6 299 738 $ 6 923 808
See independent auditors' report on additional information.
17
<PAGE>
CMS AUTOMATION, INC.
Financial Statements
December 31, 1994<PAGE>
CMS AUTOMATION, INC.
Table of Contents
Page
Independent Auditors' Report 2
Exhibit
A Balance Sheet 3-4
B Statement of Income 5
C Statement of Changes in Stockholders' Equity 6
D Statement of Cash Flows 7-8
Notes to Financial Statements 9-15
Independent Auditors' Report on
Additional Information 16
Schedule
1 Schedule of Operating Expenses 17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
CMS Automation, Inc.
Richmond, Virginia:
We were engaged to audit the accompanying balance sheet of CMS
Automation, Inc. as of December 31, 1994, and the related statements of
income, changes in stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management.
Because we were not engaged as auditors until after the end of the
year, we were not present to observe the taking of physical inventories at
December 31, 1994 and 1993 (stated at $2,308,661 and $2,268,460,
respectively), and we were unable to satisfy ourselves concerning inventory
quantities on hand at those dates by other auditing procedures.
Since the inventory balances as of December 31, 1994 and 1993,
materially affect the determination of financial position, results of
operations, and cash flows, the scope of our work was not sufficient to
enable us to express, and we do not express, an opinion on the financial
statements referred to in the first paragraph.
Keiter, Stephens, Hurst, Gary & Shreaves 1996
<PAGE>
Exhibit A
CMS AUTOMATION, INC.
Balance Sheet
December 31, 1994
Assets
Current assets:
Cash $ 22 473
Accounts receivable, net of allowance
for uncollectible accounts of $15,000 3 595 750
Inventory 2 308 661
Loans to employees 13 325
Loans to officers 16 292
Prepaid expenses 6 491
Refundable income taxes 71 255
Total current assets 6 034 247
Fixed assets 2 268 153
Less accumulated depreciation 1 024 047
Net fixed assets 1 244 106
Software, net of amortization 81 601
Organization costs, net of amortization 26 503
Franchise fee, net of amortization 3 542
Deposits 28 830
Total other assets 140 476
$ 7 418 829
See accompanying notes to financial statements.
3
<PAGE>
Exhibit A
CMS AUTOMATION, INC.
Balance Sheet
December 31, 1994
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debt $ 2 181 973
Notes payable, current portion 189 831
Capital lease obligation, current
portion 20 365
Accounts payable 3 237 644
Unearned revenues 445 776
Accrued expenses 139 600
Customer deposits 53 864
Total current liabilities 6 269 053
Notes payable, less current portion 547 743
Capital lease, less current portion 4 674
Deferred credit 12 946
Total liabilities 6 834 416
Commitments
Stockholders' equity:
Common stock, $.20 par value; 750,000 shares
authorized; 467,399 shares issued and
outstanding 93 480
Additional paid-in capital 658 123
Retained earnings ( 167 190)
Total stockholders' equity 584 413
$ 7 418 829
See accompanying notes to financial statements.
4
<PAGE>
Exhibit B
CMS AUTOMATION, INC.
Statement of Income
For the Year ended December 31, 1994
Sales $ 26 982 367
Cost of sales 19 617 630
Gross profit 7 364 737
Operating expenses 6 923 808
Operating income 440 929
Other income (expense):
Miscellaneous income 160 397
Interest income 142
Interest expense ( 569 582)
Loss on asset disposal ( 792)
Total other expense ( 409 835)
Income before provision
for income tax 31 094
Provision for income taxes (benefit):
Federal -
State ( 1 851)
Total provision for
income taxes
(benefit) ( 1 851)
Net income $ 32 945
See accompanying notes to financial statements.
5
<PAGE>
Exhibit C
CMS AUTOMATION, INC.
<TABLE>
Statement of Changes in Stockholders' Equity
For the Year ended December 31, 1994
<CAPTION>
Additional Total Stock-
Common Stock Paid-In Retained holders'
Shares Amount Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1993 467 399 $ 93 480 $658 123 $(177 846) $573 757
Prior period adjustment - - - ( 22 289) ( 22 289)
Net income - - - 32 945 32 945
Balance, December 31,
1994 467 399 $ 93 480 $658 123 $(167 190) $ 584 413
<FN>
See accompanying notes to financial statements.
</TABLE>
6
<PAGE>
Exhibit D
CMS AUTOMATION, INC.
Statement of Cash Flows
For the Year ended December 31, 1994
Cash flows from operating activities:
Net income $ 32 945
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 415 220
Loss on disposal of assets 792
(Increase) decrease in:
Accounts receivable 347 134
Inventory ( 40 201)
Prepaid expenses 161
Refundable income taxes ( 1 851)
(Decrease) increase in:
Accounts payable 311 010
Unearned revenues 187 145
Accrued expenses 33 227
Customer deposits ( 8 800)
Deferred credit 12 946
Net cash provided by operating
activities 1 289 728
Cash flows from investing activities:
Acquisition of fixed assets ( 247 269)
Acquisition of intangible assets ( 91 915)
Decrease (increase) in deposits ( 14 036)
Proceeds from asset disposal 400
Net cash used in investing
activities ( 352 820)
Cash flows from financing activities:
Repayment of short-term debt, net of advances ( 614 892)
Repayment of long-term debt ( 356 679)
Repayment of capital lease obligations ( 22 693)
Proceeds from long-term debt 200 000
Net cash used in financing
activities ( 794 264)
See accompanying notes to financial statements.
7
<PAGE>
Exhibit D
CMS AUTOMATION, INC.
Statement of Cash Flows, Continued
For the Year ended December 31, 1994
Net increase in cash $ 142 644
Cash at beginning of period ( 120 171)
Cash at end of period $ 22 473
Supplemental disclosures of cash flow information:
Interest $ 571 057
Income taxes -
See accompanying notes to financial statements.
8
<PAGE>
CMS AUTOMATION, INC.
Notes to Financial Statements
(1) Accounting policies:
The accounting and reporting policies of CMS Automation, Inc.,
conform to generally accepted accounting principles. The following
describe the more significant of those policies:
(a) Organization:
The Company was incorporated in January, 1990, for the
primary purpose of sales and service of computer hardware,
software and networking. The Company has locations in the
Eastern part of the United States.
(b) Inventories:
Inventories are valued at the lower of cost or market, with
cost being determined by the average cost method.
(c) Fixed assets:
Fixed assets are stated at cost. Depreciation is computed
by the use of accelerated and straight-line methods and is
based on the estimated useful life of the asset.
(d) Other assets:
Software and organization costs are being amortized over
periods of thirty-six to sixty months. Franchise fees are
being amortized over 10 years.
(e) Unearned revenues:
Unearned revenues result from customer contract
prepayments. This results in a large amount of revenue
being received prior to its realization. These unearned
revenues are shown as current liabilities on the balance
sheet and are amortized monthly over the terms of the
contracts.
9
<PAGE>
CMS AUTOMATION, INC.
Notes to Financial Statements, Continued
(1) Accounting policies, continued:
(f) Credit risk:
Financial instruments which potentially subject the Company
to concentrations of credit risk consist principally of cash
and receivables.
The Company maintains its cash balances in several financial
institutions. The balances are insured by the Federal
Deposit Insurance Corporation up to $100,000 in each
institution. The Company has funds in excess of $100,000 in
a financial institution.
Receivables consist principally of trade accounts receivable
resulting from sales to customers primarily in the Eastern
part of the United States. Credit is extended to customers
after an evaluation for credit worthiness.
(g) Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
(2) Loans to Officers:
Loans to officers are unsecured advances to the officers of the
Corporation. No interest is currently being charged on these
advances.
(3) Fixed assets:
The following comprise the Corporation's fixed assets at December
31, 1994:
Support equipment $ 1 571 645
Furniture and fixtures 591 761
Vehicles 20 396
Leasehold improvements 84 351
$ 2 268 153
10
<PAGE>
CMS AUTOMATION, INC.
Notes to Financial Statements, Continued
(4) Letter of Credit:
The Company has a $40,000 Standby Letter of Credit which expires
August 31, 1995. There were no outstanding balances at
December 31, 1994.
(5) Short-term debt:
In September 1991, the Corporation entered into an agreement with
ITT Commercial Financial Corporation to borrow funds under an
accounts receivable line of credit. This agreement allows the
Corporation to borrow funds up to $5,000,000 at December 31,
1994, based upon the eligible accounts receivable submitted to ITT
Commercial Financial Corporation. Principal repayments are made as
the monies from the eligible accounts receivable are collected.
Interest is charged monthly on the outstanding balance at prime plus
1.5%. This agreement is secured by inventory, fixed assets,
accounts receivable, and intangibles.
(6) Notes payable:
The following comprise the Company's notes payable at
December 31, 1994:
Term note payable to Signet Bank, due in monthly
installments of $10,000 plus interest at 9.25%,
through May, 1996. Secured by accounts
receivable, inventory, equipment, general
intangibles and subordination agreement.
Guaranteed by stockholders. $ 170 000
Unsecured term note payable to G. Nolde, due in monthly
installments of $4,951 including interest at 8%, through
October, 1996. 101 002
Unsecured term note payable to I. Cox, due in monthly
installments of $1,719 including interest at 8%, through
October, 1995. 16 572
Unsecured subordinated demand note to G. Nolde with
interest at 8%. 285 000
11
<PAGE>
CMS AUTOMATION, INC.
Notes to Financial Statements, Continued
(6) Notes payable, continued:
Unsecured subordinated demand note to I. Cox with
interest at 8%. $ 165 000
Total long-term debt 737 574
Less current maturities 189 831
$ 547 743
The future maturities of long-term debt at December 31, 1994
are as follows:
1996 $ 97 743
Thereafter 450 000
$ 547 743
(7) Capital leases:
The Corporation has acquired equipment under the provisions of
long-term leases. For financial reporting purposes, minimum lease
rentals relating to these leases have been capitalized.
Equipment costs $ 57 752
Accumulated depreciation 21 707
$ 36 045
The following is a schedule by years of future minimum lease
payments under capital leases together with the present value of
the net minimum lease payments as of December 31, 1994:
12
<PAGE>
CMS AUTOMATION, INC.
Notes to Financial Statements, Continued
(7) Capital leases, continued:
Year ended December 31:
1995 $ 21 609
1996 4 736
Total minimum lease payments 26 345
Less amount representing interest ( 1 306)
Present value of net minimum lease
payments $ 25 039
Current portion $ 20 365
Noncurrent portion 4 674
$ 25 039
(8) Income taxes:
The provision (benefit) for income taxes consists of the
following:
Current $( 1 851)
Deferred -
Total $( 1 851)
Deferred income taxes are provided for differences in timing,
in reporting income for financial statement and tax purposes,
arising from differences in the methods of accounting for bad
debts and inventory.
For tax purposes, bad debts are expensed as incurred, while the
allowance method is used for financial purposes. Inventory for
income tax purposes includes Section 263A costs which are not
included for financial statement purposes.
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the period
plus or minus the change during the period in deferred tax assets
and liabilities.
13
<PAGE>
CMS AUTOMATION, INC.
Notes to Financial Statements, Continued
(8) Income taxes, continued:
Net deferred tax assets are composed of the following:
Deferred tax assets arising from:
Temporary differences $ 9 356
AMT credits 17 401
Valuation allowance ( 26 757)
Net deferred tax asset $ -
The Company has alternative minimum tax credit carryforwards
of approximately $17,500 which are available to offset
future federal income tax liability. The Company also has
contribution carryforwards of approximately $8,400 which expire in
1999.
(9) Commitments:
The Corporation leases its facilities in Virginia, North Carolina,
South Carolina and New York.
Total net rent expense under these leases for 1994 was $349,648.
The Corporation is also obligated under a lease for an automobile.
Lease expense under this agreement was $7,188 for
1994. Future obligations under these leases as of December 31, 1994
are as follows:
Minimum Minimum
Rental Sublease
Payments Receipts
1995 $ 317 316 $ 55 676
1996 313 993 48 507
1997 301 757 48 507
1998 207 589
1999 35 552
(10) Profit sharing plan:
The Corporation has a qualified contributory profit-sharing plan
covering substantially all of its employees. Annual contributions
are at the discretion of the Board of Directors but may not
exceed the maximum amount allowable under applicable provisions
of the Internal Revenue Code. No contribution was made for 1994.
(11) Business combinations:
On May 31, 1994, the Company acquired the net assets of Systems
Integration Associates, Inc. for $17,000, in a business combination
accounted for as a purchase.
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<PAGE>
CMS AUTOMATION, INC.
Notes to Financial Statements, Continued
(12) Prior period adjustment:
A prior period adjustment of $22,289 was made to retained earnings
at December 31, 1993 to account for as overstatement of refundable
income taxes.
(13) Subsequent events:
The Company has entered into an agreement with IBM Credit
Corporation for wholesale financing. This agreement allows the
Company to borrow funds up to $7,000,000, based upon eligible
accounts receivable, and inventory. Interest is charged
on the outstanding balance at prime plus 3.25%. This agreement is
secured by accounts receivable, inventory, fixed assets and
intangibles. It is guaranteed by the shareholders of the Company.
Effective April 1, 1996, CMS Automation, Inc. merged into CMSA
Acquisition Corporation, a wholly-owned subsidiary of Halifax
Corporation.
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<PAGE>
INDEPENDENT AUDITORS' REPORT ON ADDITIONAL INFORMATION
To the Stockholders
CMS Automation, Inc.
Richmond, Virginia:
Our report on our audit of the basic financial statements of CMS
Automation, Inc., for the year December 31, 1994 appears on page 2. That
audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule of operating expenses is
presented for purposes of additional analysis and is not a required part
of the basic financial statements. Such information has not been subjected
to the auditing procedures applied in the audit to the basic
financial statements, and accordingly, we express no opinion on it.
Keiter, Stephens, Hurst, Gary & Shreaves
May 22, 1996
<PAGE>
Schedule 1
CMS AUTOMATION, INC.
Schedule of Operating Expenses
For the Year ended December 31, 1994
Operating expenses:
Advertising $ 24 491
Amortization 30 561
Auto expenses 103 495
Bad debts 75 515
Commissions 571 471
Contributions 1 691
Depreciation 384 659
Dues and subscriptions 19 896
Employee benefit programs 201 032
Freight 162 236
Insurance 59 059
Miscellaneous 193
Office expense 53 459
Outside services 82 531
Payroll taxes 330 533
Penalties 72 446
Printing services 29 669
Professional fees 54 287
Recruitment 14 296
Rent 349 648
Repairs and maintenance 12 730
Salaries 3 588 069
Small equipment and tools 9 485
Supplies 24 866
Taxes and licenses 85 889
Telephone 223 069
Training 54 986
Travel and entertainment 244 403
Utilities 59 143
Total operating expenses $ 6 923 808
See independent auditors' report on additional information.
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