HALIFAX CORPORATION
FORM 10-Q
SEPTEMBER 30, 1996
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 period ended
September 30, 1996
(x) 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 filled 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 filings 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 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 the latest practicable date. 1,330,859 as
of November 11, 1996.
HALIFAX CORPORATION
CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements page
Condensed Consolidated Balance Sheet - September 30, 1996
(Unaudited) and
March 31, 1996 3
Condensed Consolidated Statements of Income - Three and Six
Months Ended
September 30, 1996 and 1995 (Unaudited) 4
Condensed Consolidated Statements of Stockholders'Equity - Six
Months
Ended September, 1996 and 1995 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows - Six Months
Ended
September 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 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2 Changes in Securities 10
Item 3. Default Upon Senior Securities 10
Item 4. Submission of Matters for a Vote of Security Holders
10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8K 10
<TABLE>
Item 1. FINANCIAL STATEMENTS
HALIFAX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND MARCH 31, 1996
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1996*
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $599,000 $2.743,000
Trade accounts receivable 21,749,000 11,639,000
Inventory 5,838,000 2,792,000
Prepaid expenses and other 593,000 814,000
current assets
TOTAL CURRENT ASSETS 28,779,000 17,988,000
PROPERTY AND EQUIPMENT, at cost less
accumulated 5,798,000 4,527,000
depreciation and amortization
INTANGIBLES AND OTHER ASSETS, net of
accumulated 2,941,000 2,313,000
amortization
TOTAL ASSETS $37,518,000 $24,828,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued $13,042,000 $11,508,000
expenses
Current portion of long-term debt 1,025,000 556,000
TOTAL CURRENT LIABILITIES 14,067,000 12,064,000
LONG-TERM DEBT AND OTHER LIABILITIES 13,123,000 3,980,000
TOTAL LIABILITIES 27,190,000 16,044,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock 526,000 518,000
Additional paid-in capital 4,353,000 3,401,000
Retained earnings 5,662,000 5,253,000
10,541,000 9,172,000
Less treasury stock - at cost 213,000 388,000
STOCKHOLDERS' EQUITY 10,328,000 8,784,000
TOTAL LIABILITIES AND STOCKHOLDERS' $37,518,000 $24,828,000
EQUITY
<FN>
*Condensed from March 31, 1996 Audited Financial Statements. See Form
10K filed June 28, 1996.
See notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
HALIFAX CORPORATION
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For The Three and Six Months Ended September 30, 1996 and 1995
(Unaudited)
<CAPTION>
Three Months Ended Six Months
September 30 Ended
September
30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $20,531,000 $9,076,000 $36,171,000 $18,022,000
Operating costs and
expenses:
Cost of services 19,636,000 7,831,000 32,287,000 15,548,000
Selling, general and 80,000 803,000 2,421,000 1,615,000
administrative expenses
Total operating costs 19,716,000 8,634,000 34,708,000 17,163,000
and expenses
Operating income 815,000 442,000 1,463,000 859,000
Litigation expense -0- 260,000 -0- 260,000
Interest expense 279,000 135,000 492,000 243,000
Income before income 536,000 47,000 971,000 356,000
taxes
Income taxes 217,000 20,000 383,000 141,000
Net income $319,000 $27,000 $588,000 $215,000
Net income per common $.24 $.02 $.45 $.18
share:
Weighted average number
of common 1,321,171 1,168,229 1,315,375 1,174,279
shares outstanding
<FN>
See notes to Consensed Consolidated Financial Statements.
</FN>
</TABLE>
HALIFAX CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 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>
Balance
April 1, 1,480,015 $518,000 $3,401,000 $5,253,000 311,786 $(388,000) $8,784,000
1996
Net - - - 588,000 - - 588,000
Income
Cash - - - (179,000) - - (179,000)
Dividends
Stock 23,000 8,000 149,000 - - - 157,000
Options
CMSA - - 803,000 - (139,630) 175,000 978,000
Acquisito
n
Balance
September 1,503,015 $526,000 $4,353,000 $5,662,000 172,156 $(213,000) $10,328,000
30, 1996
Balance
April 1, 1,480,015 $518,000 $3,401,000 $4,795,000 299,686 $(313,000) $8,401,000
1995
Net - - - 215,000 - - 215,000
Income
Cash - - - (152,000) - - (152,000)
Dividends
Purchase
of - - - - 12,100 (75,000) (75,000)
Treasury
Stock
Balance
September 1,480,000 $518,000 $3,401,000 $4,858,000 311,786 $(388,000) $8,389,000
30, 1995
<FN>
See notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
HALIFAX CORPORATION
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITIED)
<CAPTION>
Six Months Ended
September 30
1996 1995
<S> <C> <C>
Cash flows from operating
activities:
Net income $ 588,000 $ 215,000
Adjustments to reconcile net income
to net
cash provided by operating
activities:
Depreciation and amortization 510,000 292,000
Decrease (Increase) in accounts (6,375,000) 1,811,000
receivable
Decrease (Increase) in inventory (442,000) 310,000
Decrease (Increase) in other 30,000 (45,000)
assets
(Decrease) Increase in accounts
payable (174,000) (1,115,000)
and accrued expenses
Total adjustment (6,451,000) 1,253,000
Net cash provided (used) by (5,865,000) 1,468,000
operating activities
Cash flows from investing
activities:
Acquisition of CMSA (348,000) -0-
Acquisition of property and (345,000) (92,000)
equipment net of purchased
operations
Proceeds from sale of property and -0- 3,000
equipment
Net cash used in investing (693,000) (89,000)
activities
Cash flows from financing
activities:
Proceeds from borrowing of long- 14,486,000 5,627,000
term debt
Retirement of long-term debt (10,160,000) (6,704,000)
Insuance of treasury stock - CMSA 108,000 -0-
Acquisiton
Cash dividends paid (179,000) (152,000)
Proceeds from sale of stock upon 158,000 -0-
exercise of stock options
Purchase of treasury stock -0- (75,000)
Net cash (used )provided by 4,414,000 (1,304,000)
financing activities
Net decrease in cash (2,144,000) 75,000
Cash beginning of period 2,743,000 18,000
Cash end of period $ 599,000 $ 93,000
<FN>
See notes to condensed consolidated financial statements
</FN>
</TABLE>
Halifax Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 and six month periods
ended September 30, 1996 are not necessarily indicative of the results
that may be 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 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 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 closing.
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 six month periods ended September 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.
Pro Forma
Information
Six Months Ended
September 30,
1996** 1995
Revenue $36,171,000 $28,912,000
Net Income $ 588,000 $ 214,000
Earnings Per common Share $ .45 $ .16
Weighted Average Number of
Common Share Outstanding 1,315,375 1,313,918
** Actual Results for the period
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 SFAS No.121 did not have a material
effect on the Company's consolidated earnings and financial condition.
Part 1, Item 2.
Management's' Discussion and Analysis
of Financial Condition and
Results of Operations
Results of Operations
Revenues for the second quarter and six months ended September 30, 1996
were $20.5 million and $36.2 million representing growth of 126% and
100% respectively over comparable revenues for the same periods in the
prior year of $9.1 million and $18.0 million. The increases are due
approximately equally to internal growth and the CMSA acquisition.
Total operating costs and expenses as a percentage of revenues were 96%
and 95% for both the second quarter and six months of FY 1997 and FY
1996 respectively. During the second quarter of FY 1997, a change was
made to the accounting structure of the CMSA operation, acquired in the
first quarter, to align its accounting structure to that of the Company.
As a result of conforming the accounting structure, a year-to-date total
of approximately $858,000 of expense was reallocated from general &
administrative expense to cost of sales and services. General &
administrative expense was 7% of revenue for the six months and is
expected to approximate 7 to 9% over FY 1997 as experienced in prior
years by the Company.
During the second quarter of FY 1996, $260,000 of litigation expense
associated with a trial of a lawsuit previously described was incurred.
Interest expense for the second quarter and six months remained level
between fiscal years at 1.4% of revenue.
Net income for the second quarter was $319,000 compared with $27,000 for
the same quarter of the prior year. For the six months ending September
30, 1996, net income was $588,000 compared with $215,000 for the prior
year. The prior year was affected by the aforementioned litigation
expense. Net income for the second quarter versus first quarter of FY
1997 increased by 19% on a 31% increase in revenues. Third and fourth
quarter revenues are expected to be comparable to those of the second
quarter, although profit margins could improve.
Liquidity and Sources of Capital
The financial condition of the Company remains strong with working
capital of $14.7 million and a current ratio of 2.05. Long-term debt
has increased over $9 million between March 31, 1996 and September 30,
1996 and has been applied to convert CMSA short-term account receivable
financing to long-term financing at reduced interest rates and to the
purchase of inventory to support the internal growth of the Company's
computer services division.
On September 30, 1996, the Company's line of credit was increased from
$7.5 million to $8.5 million. $7.5 million was outstanding as of
September 30, 1996. The Company expects that cash generated form
operations and the Company's line of credit will be sufficient to meet
its normal operating and dividend requirements in the foreseeable
future.
Part II. Other information
Item 1. Legal Proceedings
Commercial Business System, Inc. v. Halifax Corporation et al.
Plaintiff's claim, which has been the subject of judicial proceedings
since August of 1990 and was consolidated with a similar claim against
BellSouth, went to trial on October 18, 1995, resulting in a jury
verdict against Halifax, a former employee and a non-employee, for
wrongful interference with a prospective business relationship. The
jury award for compensatory damages plus interest has been overturned by
the judge in the case and final judgment entered in favor of Halifax.
The plaintiff has been granted the right to appeal this decision
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
At the annual meeting of security holders, held September 20, 1996, the
then current members of the Board of Directors were re-elected and the
appointment of Ernst & Young to serve as independent accountants for the
Company and its subsidiaries for the year ending March 31, 1997, was
ratified.
Item 5. Other information - Not applicable
Item 6. Exhibits and Reports on Form 8-K
The following exhibits and reports included herein:
(a) Exhibits - Not applicable
(b) Reports on Form 8K - None
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: November 14, 1996
By: s/Howard C. Mills
Howard C. Mills
President
Date: November 14, 1996
By: s/John D. D'Amore
John D. D'Amore
Vice President,
Finance & Accounting
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.
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, Finance &
Acccounting
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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> 10Q-SEPTEMBER-1996
<MULTIPLIER> 1
<CURRENCY> 0
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-1-1996
<PERIOD-END> SEP-30-1996
<PERIOD-TYPE> 6-MOS
<EXCHANGE-RATE> 1
<CASH> 599,000
<SECURITIES> 0
<RECEIVABLES> 21,749,000
<ALLOWANCES> 0
<INVENTORY> 5,838,000
<CURRENT-ASSETS> 28,779,000
<PP&E> 5,798,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 37,518,000
<CURRENT-LIABILITIES> 14,067,000
<BONDS> 0
0
0
<COMMON> 526,000
<OTHER-SE> 10,015,000
<TOTAL-LIABILITY-AND-EQUITY> 37,518,000
<SALES> 36,171,000
<TOTAL-REVENUES> 36,171,000
<CGS> 32,287,000
<TOTAL-COSTS> 34,708,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 492,000
<INCOME-PRETAX> 971,000
<INCOME-TAX> 383,000
<INCOME-CONTINUING> 588,000
<DISCONTINUED> 0
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</TABLE>
