HALIFAX CORPORATION
FORM 10-Q
JUNE 30, 1996
<PAGE>
FORM 10Q -- QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 312905 eff. 4/26/93.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
( X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
( )Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________________ to ___________________
Commission file Number 1-8964
Halifax Corporation
(Exact name of registrant
as specified in its charter)
Virginia 54-0829246
(State or other jurisdiction of incorporation of organization) (IRS Employer
Identification No.)
5250 Cherokee Avenue, Alexandria, VA 22312
(Address of principal executive offices)
Registrant's telephone number, including area code (703) 750-2202
N/A
(former name, former address and former fiscal year, if changed since last
report)
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. (X)Yes ( )No
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under
a plan confirmed by a court.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
1,311,359 as of June 13, 1996
<PAGE>
HALIFAX CORPORATION
CONTENTS
PART I. FINANCIAL INFORMATION
page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30, 1996 (Unaudited) and
March 31, 1996
Condensed Consolidated Statements of Income - Three Months Ended
June 30, 1996 and 1995 (Unaudited) 4
Condensed Consolidated Statements of Stockholders' Equity - Three Months
Ended June 30, 1996 and 1995 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows - Three Months Ended
June 30, 1996 and 1995 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II OTHER INFORMATION
Item 1.Legal Proceedings 9
Item 2.Changes in Securities 9
Item 3.Defaults Upon Senior Securities 9
Item 4.Submission of Matters to a Vote of Security Holders 9
item 5.Other Information 9
Item 6.Exhibits and Reports on Form 8-K 9
<PAGE>
Item 1. Financial Statements
HALIFAX CORPORATION
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND MARCH 31, 1996
<CAPTION>
JUNE 30, 1996 MARCH 31, 1996*
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 241,000 $2,743,000
Trade accounts receivable 14,859,000 11,639,000
Inventory 5,311,000 2,792,000
Prepaid expenses and other current assets 1,469,000 814,000
TOTAL CURRENT ASSETS 21,880,000 17,988,000
PROPERTY AND EQUIPMENT, at cost less accumulated
depreciation and amortization 5,930,000 4,527,000
INTANGIBLES AND OTHER ASSETS, net of accumulated
amortization 2,902,000 2,313,000
TOTAL ASSETS $ 30,712,000 $ 24,828,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 8,375,000 $11,508,000
Current portion of long-term debt 605,000 556,000
TOTAL CURRENT LIABILITIES 8,980,000 12,064,000
LONG-TERM DEBT AND OTHER LIABILITIES 11,763,000 3,980,000
TOTAL LIABILITIES 20,743,000 16,044,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock 519,000 518,000
Additional paid-in capital 4,226,000 3,401,000
Retained earnings 5,437,000 5,253,000
10,182,000 9,172,000
Less treasury stock - at cost 213,000 388,000
STOCKHOLDERS' EQUITY 9,969,000 8,784,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 30,712,000 $ 24,828,000
<FN>
*Condensed from March 31, 1996 Audited Financial Statements. See Form 10-K filed June 28, 1996.
See notes to Financial Statements.
</TABLE>
<PAGE>
HALIFAX CORPORATION
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED JUNE 30, 1996, AND 1995 (Unaudited)
<CAPTION>
Three Months Ended
June 30
1996 1995
<S> <C> <C>
Revenues $ 15,640,000 $ 8,946,000
Operating costs and expenses:
Cost of services 12,651,000 7,717,000
Selling, general and administrative 2,341,000 812,000
Total operating costs and expenses 14,992,000 8,529,000
Operating income 648,000 417,000
Interest expense 213,000 108,000
Income before income taxes 435,000 309,000
Income taxes 166,000 121,000
Net income $ 269,000 $ 188,000
Net income per common share $ .21 $ .16
Weighted average number of common shares
outstanding 1,309,612 1,180,329
<FN>
See notes to Financial Statements.
</TABLE>
<PAGE>
HALIFAX CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995 (Unaudited)
<CAPTION>
Common Stock Additional Treasury Stock
Paid-In Retained
Shares Par Value Capital Earnings Shares Cost Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance
April 1, 1996 1,480,015 $518,000 $3,401,000 $5,253,000 311,786 $(388,000) $8,784,000
Cash Dividends - - - ( 85,000) - - ( 85,000)
Net Income - - - 269,000 - - 269,000
Stock Options 3,500 1,000 22,000 - - - 23,000
CMSA Acq. - - 803,000 - (139,630) 175,000 978,000
Balance
June 30, 1996 1,483,515 $ 519,000 $4,226,000 $5,437,000 172,156 $(213,000) $ 9,969,000
Balance
April 1, 1995 1,480,015 $518,000 3,401,000 $4,795,000 299,686 $(313,000) $8,401,000
Cash Dividends - - - ( 76,000) - - ( 76,000)
Net Income - - - 188,000 - - 188,000
Balance
June 30, 1995 1,480,015 $ 518,000 $3,401,000 $4,907,000 299,686 $(313,000) $8,513,000
<FN>
See notes to Financial Statements.
</TABLE>
<PAGE>
HALIFAX CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995 (Unaudited)
<CAPTION>
Three Months Ended
June 30
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 269,000 $ 188,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 257,000 145,000
Decrease in accounts receivable 369,000 1,954,000
Decrease in inventory 34,000 360,000
Decrease (increase) in other assets (587,000) 159,000
(Decrease) in accounts payable and
accrued expenses (10,413,000) (1,573,000)
Total adjustments (10,340,000) 1,045,000
Net cash (used) provided by operating activities (10,071,000) 1,233,000
Cash flows from investing activities:
Acquisition of property and equipment (140,000) (56,000)
Net cash used in investing activities (140,000) (56,000)
Cash flows from financing activities:
Proceeds from borrowing of long-term debt 12,199,000 2,108,000
Retirement of long-term debt (4,429,000) (2,795,000)
Cash dividends paid (85,000) (76,000)
Stock options exercised 24,000 -
Net cash provided (used) by financing activities 7,709,000 (763,000)
Net (decrease) increase in cash (2,502,000 414,000
Cash beginning of period 2,743,000 18,000
Cash end of period $ 241,000 $ 432,000
<FN>
See notes to Financial Statements.
</TABLE>
<PAGE>
Halifax Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Condensed Consolidated Financial Statements
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three
month period ended June 30, 1996 are not necessarily indicative of the results
that maybe expected for the year ending March 31, 1997. For further
information refer to the consolidated financial statements and footnotes
thereto included in the Halifax Corporation Annual Report on Form 10-K for the
year ended March 31, 1996.
Note B - Acquisition
In accordance with a Plan of Merger ("Plan") 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 became exchangeable for, the number of
sharesof validly issued, fully paid and nonassessable common stock of
Halifax equal to aconversion 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 utstanding 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 of 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. Results of CMSA operations have been included since the
date of the transactions.
Note C - Pro Forma Financial Information
The following unaudited pro forma combined summary statement of operations
information presents the historical results of operation of the Company
and CMSA for the three month periods ended June 30, 1996 and 1995, with pro
forma adjustments as if the acquisition transaction had been consummated as
of the beginning of the periods presented. The pro forma information is
based upon certain estimates and assumptions the management of the Company
believes are reasonable in the circumstances. The unaudited pro forma
information is not necessarily indicative of what the results of operations
actually would have been if the transaction had occurred on the date
indicated. Moreover, they are not intended to be indicative of future
results of operations.
<TABLE>
<CAPTION>
Pro Forma Information
Three Months Ended
June 30,
1996** 1995
<S> <C> <C>
Revenue $ 15,640,000 $ 13,645,000
Net Income $ 269,000 $ 187,000
Earnings Per common Share $ .21 $ .14
Weighted Average Number of
Common Share Outstanding 1,309,612 1,319,959
<FN>
** Actual Results for the period
</TABLE>
Note D - Contingent Matters
The Company is a co-defendant or is defendant in various lawsuits. The
Company provides for costs related to contingencies when a loss is probable
and the amount is reasonably determinable. In the opinion of management,
based on advice of counsel, that the ultimate resolution of any contingencies,
to the extent not previously provided for, will not have a material adverse
effect on the financial condition of the Company. However, depending on the
amount and timing of an unfavorable resolution of these contingencies, it is
possible that the Company's future results of operation or cash flows could
be materially affected in a particular quarter.
Note E - New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," effective April 1, 1996. SFAS No. 121
requires that certain long-lived assets to be held and used be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Additionally, SFAS
No. 121 requires that certain long-lived assets to be disposed of
be reported at the lower of carrying amount or fair value less cost to
sell. The adoption of this standard did not have a material effect on the
Company's consolidated earnings and financial condition.
<PAGE>
Item 2
Managements' Discussion and Analysis
of Financial Conditions and
Results of Operations
Results of Operations
Revenues for the first quarter of fiscal 1997 of $15,640,000 represent an
increase of approximately $6,694,000 or 75% over those in the first quarter
of FY 1996. The increase was due largely to the acquisition of CMSA
although 18% of the growth came from existing lines of business.
Costs of services, as a percentage of revenue, decreased from 86% in the
first quarter of 1996 to 81% in the first quarter of FY 1997. Improvement
in this margin resulted from the combination of a different cost mix at
CMSA. Selling, general and administrative expenses as a percentage of
revenue increased from 9% in the first quarter of fiscal 1996 to 15% in the
first quarter of FY 1997. This increase also resulted from the combination
of the different cost mix of CMSA.
Net income for the quarter of $269,000 or 21 cents per share represents an
increase over the first quarter of FY 1995 of $81,000 and 5 cents per share
or 43% and 31% respectively.
Interest expense in both periods was 1% of revenue. This relationship was
maintained in FY 1997 by combined borrowing under the Company's new
borrowing agreement representing significant interest rate reductions over
CMSA's prior credit.
Financial Condition
The financial condition of the Company remains strong with working capital
of $12,900,000 and a current ratio of 2.43:1.
Liquidity and Sources of Capital
Net cash outflows from operations were $10,071,000 for the first quarter of
FY 1997 as compared with net cash inflows of $1,233,000 in the comparable
period of FY 1996. The paydown of accrued liabilities for a large hardware
delivery order made in the fourth quarter of FY96 accounted for the
significant outflow of cash in the first quarter of FY 1997. Long-term debt
and cash balances provided the financing for this significant reduction of
current accounts payable. At FY end 1996, the Company's Long-term debt
had been significantly reduced and cash balances increased by prepayments
received for the aforementioned hardware delivery order. The Company
expects that cash generated from operations and the Company's line of credit
will be sufficient to meet its normal operating and dividend requirements in
the foreseeable future.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings - Not applicable
Item 2. Changes in Securities - Not applicable
Item 3. Defaults upon Senior Securities - Not applicable
Item 4. Submission of Matters to a Vote of Security Holders - Not applicable
Item 5. Other Information - Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Not applicable
(b) Reports on Form 8-K - Reports on Form 8-K disclosing the
acquisition of CMS Automation, Inc. ("CMSA") were
filed on April 15, 1996 and June 17, 1996.
<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: August 14, 1996 By: s/Howard C. Mills
Howard C. Mills
President
Date: August 14, 1996 By: s/John D. D'Amore
John D. D'Amore
Vice President & Controller
For a menu of Halifax Corporation news releases available by fax 24 hours
(no charge) or to retrieve a specific release, please call 1-800-758-5804,
ext. 391950, or access the address http://www.prnewswire.com on the
Internet.
<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: By:
Howard C. Mills
President
Date: By:
John D. D'Amore
Vice President & Controller
For a menu of Halifax Corporation news releases available by fax 24 hours
(no charge) or to retrieve a specific release, please call 1-800-758-5804,
ext. 391950, or access the address http://www.prnewswire.com on the
Internet.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> 10Q-JUNE-1996
<MULTIPLIER> 1
<CURRENCY> 0
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-1-1996
<PERIOD-END> JUN-30-1996
<PERIOD-TYPE> 3-MOS
<EXCHANGE-RATE> 1
<CASH> 241,000
<SECURITIES> 0
<RECEIVABLES> 14,859,000
<ALLOWANCES> 0
<INVENTORY> 5,311,000
<CURRENT-ASSETS> 21,880,000
<PP&E> 5,930,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,712,000
<CURRENT-LIABILITIES> 8,980,000
<BONDS> 0
0
0
<COMMON> 519,000
<OTHER-SE> 9,450,000
<TOTAL-LIABILITY-AND-EQUITY> 30,712,000
<SALES> 15,640,000
<TOTAL-REVENUES> 15,640,000
<CGS> 12,651,000
<TOTAL-COSTS> 14,992,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 213,000
<INCOME-PRETAX> 435,000
<INCOME-TAX> 166,000
<INCOME-CONTINUING> 269,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 269,000
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
