HALIFAX CORPORATION
FORM 10-Q
JUNE 30, 1997
<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, 1997
( ) 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. 2,003,632 as of August 11,
1997
HALIFAX CORPORATION
CONTENTS
PART I. FINANCIAL INFORMATION
page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30, 1997
(Unaudited) and March 31, 1997 3
Condensed Consolidated Statements of Earnings-
Three Months Ended June 30, 1997 and 1996 (Unaudited) 4
Condensed Consolidated Statements of Stockholders' Equity -
Three Months Ended June 30, 1997 and 1996 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows -
Three Months EndedJune 30, 1997 and 1996 (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.Defaults Upon Senior Securities 10
Item 4.Submission of Matters to a Vote of Security Holders 10
Item 5.Other Information 10
Item 6.Exhibits and Reports on Form 8-K 10
Item 1. FINANCIAL STATEMENTS
<TABLE>
HALIFAX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND MARCH 31, 1997
<CAPTION>
JUNE 30, 1997 MARCH 31, 1997*
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 95,000 $ 268,000
Accounts receivable 18,864,000 22,013,000
Inventory 7,194,000 6,860,000
Prepaid expenses and other current assets 1,849,000 2,002,000
TOTAL CURRENT ASSETS 28,002,000 31,143,000
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation and amortization 6,630,000 6,624,000
OTHER ASSETS AND COST IN EXCESS OF NET
ASSETS ACQUIRED, net of accumulated 3,086,000 3 ,233,000
amortization
TOTAL ASSETS $ 37,718,000 $ 41,000,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 9,955,000 $ 12,450,000
Current portion of long-term debt & 1,206,000 1,206,000
mortgage note payable
TOTAL CURRENT LIABILITIES 11,161,000 13,656,000
LONG-TERM DEBT AND OTHER LIABILITIES 16,350,000 16,821,000
TOTAL LIABILITIES 27,511,000 30,477,000
STOCKHOLDERS' EQUITY
Common stock 543,000 542,000
Additional paid-in capital 4,374,000 4,358,000
Retained earnings 5,503,000 5,836,000
10,420,000 10,736,000
Less treasury stock at cost 213,000 213,000
TOTAL STOCKHOLDERS' EQUITY 10,207,000 10,523,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 37,718,000 $ 41,000,000
</TABLE>
*Condensed from March 31, 1997 Audited Financial Statements. See Form 10-K
filed June 30, 1997.
See notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
HALIFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996 (Unaudited)
<CAPTION>
Three Months Ended
June 30
1997 1996
<S> <C> <C>
Revenues $ 18,035,000 $ 15,640,000
Operating costs and expenses:
Cost of services 16,813,000 12,651,000
Selling, general and 1,181,000 2,341,000
administrative
Total operating costs and 17,994,000 14,992,000
expenses
Operating income 41,000 648,000
Interest expense 425,000 213,000
Income before income taxes (384,000) 435,000
Income taxes (152,000) 166,000
Net earnings $ (232,000) $ 269,000
Net earnings per common and
common $ (.11) $ .13
equivalent share - primary
Net earnings per common and
common $ (.11) $ .13
equivalent share - fully
diluted
Weighted average number of
common shares 2,041,891 2,014,640
outstanding - primary
Weighted average number of
common shares 2,041,891 2,026,211
outstanding - fully diluted
</TABLE>
See notes to Condensed Consolidated Financial Statements.
<TABLE>
HALIFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996 (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, 2,258,866 $ 542,000 $ 4,358,000 $ 5,836,000 258,234 $(213,000) $10,523,000
1997
Cash - - - (101,000) - - (101,000)
Dividends
Net Income - - - (232,000) - - (232,000)
Exercise of
Stock 3,000 1,000 16,000 - - - 17,000
Options
Balance
June 30, 2,261,866 543,000 4,374,000 5,503,000 258,234 (213,000 10,207,000
1997
Balance
April 1, 2,220,022 $518,000 $3,401,000 $5,253,000 467,679 $(388,000) $ 8,784,000
1996
Cash - - - (85,000) - - (85,000)
Dividends
Net income - - - 269,000 - - 269,000
Exercise of
Stock 5,250 1,000 22,000 - - - 23,000
Options
CMSA - 803,000 - (209,445 175,000 978,000
Acquisition
Balance
June 30, 2,225,272 $ 519,000 $ 4,226,000 $ 5,437,000 258,234 $(213,000) $ 9,969,000
1996
</TABLE>
See notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
HALIFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996 (Unaudited)
<CAPTION>
Three Months Ended
June 30
1997 1996
<S> <C> <C>
Cash flows from operating
activities:
Net income $ (232,000) $ 269,000
Adjustments to reconcile net
income to net cash provided
(used) by operating activities:
Depreciation and 295,000 257,000
amortization Decrease (increase) in 3,150,000 369,000
accounts receivable
Decrease (increase) in inventory (334,000) 34,000
Decrease (increase) in other assets 213,000 (587,000)
(Decrease) increase in accounts
payable and accrued expenses (2,453,000) (10,413,000)
Total adjustments 871,000 (10,340,000)
Net cash provided (used) by 639,000 (10,071,000)
operating activities
Cash flows from investing
activities:
Acquisition of property and
equipment, net of purchased operations (255,000) (140,000)
Net cash used in investing activities (255,000) (140,000)
Cash flows from financing activities:
Proceeds from borrowing of 9,136,000 12,199,000
long-term debt
Retirement of long-term debt (9,609,000) (4,429,000)
Cash dividends paid (100,000) (85,000)
Proceeds from sale of stock
upon exercise of stock options 17,000 -
Net cash provided (used) by (556,000) 7,709,000
financing activities
Net (decrease) increase in cash (172,000) (2,502,000)
Cash at beginning of period 267,000 2,743,000
Cash at end of period $ 95,000 $ 241,000
</TABLE>
See notes to Condensed Consolidated Financial Statements.
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, 1997 are not necessarily indicative of the results that may
be expected for the year ending March 31, 1998. 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, 1997.
All share and per share presentations take into account the 3:2 common
stock split effective
December 27, 1997
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 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 209,445
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 transaction.
In April 1997, CMSA was renamed to Halifax Technology Services Co.
("HTSC")
Note C - Contingent Matters
The Company is a co-defendant or is defendant in various lawsuits
wherein any potential liability is fully insured against. 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, the ultimate resolution of any
contingencies, to the extent not previously provided for, will not
have a material adverse effect on the financial position or results of
operations 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 D - 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 or financial
position.
In 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 allows companies to continue to measure
compensation cost for stock-based employee compensation plans using
the intrinsic value method of accounting as prescribed in Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. The Company elected to
continue its APB Opinion No. 25 accounting treatment for stock-based
compensation, and has adopted the provisions of SFAS No. 123 requiring
disclosure of the pro forma effect on net earnings and earnings per
share as if compensation cost had been recognized based upon the
estimated fair value at the date of grant for options awarded.
<PAGE>
Item 2
Management's' Discussion and Analysis
of Financial Conditions and
Results of Operations
Results of Operations
Revenues for the first quarter of fiscal 1998 of $18,036,000 represent
an increase of approximately $2,396,000 or 15% over those in the first
quarter of fiscal 1997. The increase was due to growth in existing
lines of business.
Costs of services, as a percentage of revenue, increased from 81% in
the first quarter of fiscal 1997 to 93% in the first quarter of fiscal
1998. The degradation in this margin resulted from the combination of
high direct costs, especially parts usage, in the Company's computer-
printer maintenance business and a cost mix at HTSC which emphasized
low margin computer and system hardware. Selling, general and
administrative expenses as a percentage of revenue was 6.5% in the
first quarter of fiscal 1998 as contrasted to 15% in the first quarter
of fiscal 1997 before the Company aligned the HTSC cost accounting
structure, primarily certain selling costs, to the Company's format.
The net loss for the quarter, $232,000 or $.11 per share, is primarily
due to our new-business line of computer-printer maintenance
contracts.
Interest expense in the fiscal 1998 period was 2.4% of revenue versus
1% in fiscal 1997. The first quarter fiscal 1997 relationship was
lowered by the effect of a large cash prepayment discussed below under
Liquidity and Sources of Capital which retired debt during the first
quarter of fiscal 1997.
Financial Condition
The financial condition of the Company remains solid with working
capital of $16,800,000 and a current ratio of 2.51:1.
Liquidity and Sources of Capital
Net cash outflows from operations were $10,071,000 for the first
quarter of fiscal 1997 as compared with net cash inflows of $639,000
in the comparable period of fiscal 1998. The paydown of accrued
liabilities for a large hardware delivery order made in the fourth
quarter of fiscal 96 accounted for the significant outflow of cash in
the first quarter of fiscal 1997. Long-term debt and cash balances
provided the financing for this significant reduction of current
accounts payable. At fiscal year 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
Commercial Business Systems, 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 was overturned by
the judge in the case and final judgment entered in favor of Halifax.
The plaintiff appealed to the Supreme Court of Virginia which ruled in
favor of the trial judge thereby confirming final judgment in favor of
Halifax.
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
Properties
During 1997, the Company placed its office complex up for sale and
received an offer. However, the offeror was unable to complete the
transaction. The office complex remains for sale and another
agreement to purchase has been received which, if it closes, would
result in a transaction during the Company's 1998 third fiscal
quarter.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Not applicable
(b) Reports on Form 8-K - None
<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, 1997 By: s/Howard C. Mills
Howard C. Mills
President
Date: August 14, 1997 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.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> 10Q-JUNE-1997
<MULTIPLIER> 1
<CURRENCY> 0
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-1-1997
<PERIOD-END> JUN-30-1997
<PERIOD-TYPE> 3-MOS
<EXCHANGE-RATE> 1
<CASH> 95,000
<SECURITIES> 0
<RECEIVABLES> 18,864,000
<ALLOWANCES> 0
<INVENTORY> 7,194,000
<CURRENT-ASSETS> 28,002,000
<PP&E> 6,630,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 37,718,000
<CURRENT-LIABILITIES> 11,161,000
<BONDS> 0
0
0
<COMMON> 543,000
<OTHER-SE> 9,877,000
<TOTAL-LIABILITY-AND-EQUITY> 37,718,000
<SALES> 18,035,000
<TOTAL-REVENUES> 18,035,000
<CGS> 16,813,000
<TOTAL-COSTS> 17,994,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 425,000
<INCOME-PRETAX> (384,000)
<INCOME-TAX> (152,000)
<INCOME-CONTINUING> (232,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (232,000)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
