HALIFAX CORPORATION
FORM 10-Q
SEPTEMBER 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 September 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. 2,008,935 as of November
11, 1997
HALIFAX CORPORATION
CONTENTS
PART I. FINANCIAL INFORMATION
page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 1997
(Unaudited) and March 31, 1997 3
Condensed Consolidated Statements of Earnings - Three and
Six Months EndedSeptember 30, 1997 and 1996 (Unaudited) 4
Condensed Consolidated Statements of Stockholders'
Equity - Six Months Ended September 30, 1997 and
1996 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended September 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
<TABLE>
Item 1. FINANCIAL STATEMENTS
HALIFAX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND MARCH 31, 1997
<CAPTION>
SEPTEMBER 30, MARCH 31, 1997*
1997
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash
$ 661,000 $ 268,000
Accounts receivable 19,522,000 22,013,000
Inventory 7,409,000 6,860,000
Prepaid expenses and other current
assets 1,783,000 2,002,000
TOTAL CURRENT ASSETS 31,143,000
29,375,000
PROPERTY AND EQUIPMENT, at cost less
accumulated 6,740,000 6,624,000
depreciation and amortization
OTHER ASSETS AND COST IN EXCESS OF NET
ASSETSACQUIRED,
net of accumulated amortization 2,998,000 3,233,000
TOTAL ASSETS
$ 39,113,000 $41,000,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses
$ 8,488,000 $ 12,450,000
Current portion of long-term debt &
mortgage note payable 1,183,000 1,206,000
TOTAL CURRENT LIABILITIES 9,671,000 13,656,000
LONG-TERM DEBT AND OTHER LIABILITIES
19,198,000 16,821,000
TOTAL LIABILITIES 28,869,000 30,477,000
STOCKHOLDERS' EQUITY
Common stock 544,000 542,000
Additional paid-in capital 4,392,000 4,358,000
Retained earnings
5,521,000 5,836,000
10,457,000 10,736,000
Less treasury stock at cost
213,000 213,000
TOTAL STOCKHOLDERS' EQUITY
10,244,000 10,523,000
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 39,113,000 $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 AND SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
September 30 September 30
<S> <C> <C> <C> <C>
1997 1996 1997 1996
Revenues $18,673,000 $20,531,000 $36,708,000 $ 36,171,000
Operating costs and
expenses:
Cost of services 16,912,000 19,636,000 33,725,000 32,287,000
Selling, general
and administrative 1,183,000 80,000 2,364,000 2,421,000
Total operating costs 18,095,000 19,716,000 36,089,000 34,708,000
and expenses
Operating income 578,000 815,000 619,000 1,463,000
Interest expense
382,000 279,000 807,000 492,000
Income before income 196,000 536,000 (188,000) 971,000
taxes
Income taxes
78,000 217,000 (74,000) 383,000
Net earnings $ 118,000 $319,000 $ (114,000) $ 588,000
Net earnings per
common and common $ .06 $ .16 $ (.05) $ .29
equivalent share -
primary
Net earnings per
common and common
equivalent share - $ .06 $ .16 $ (.05) $ .29
fully diluted
Weighted average number
of common shares
outstanding - 2,062,207 2,041,011 2,060,831 2,027,388
primary
Weighted average number
of common shares
outstanding - fully 2,073,911 2,057,196 2,072,535 2,041,131
diluted
</TABLE>
See notes to Condensed Consolidated Financial Statements.
insert table
<TABLE>
HALIFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Unaudited)
<CAPTION>
Additional
Common Treasury Stock
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
Net Income - - - (114,000) - - (114,000)
Cash - - - (201,000) - - (201,000)
Dividends
Exercise of
Stock 2,000
Options 6,800 34,000 - - - 36,000
Balance
Sept 30, 2,265,666 $ 544,000 $ 4,392,000 $ 5,521,000 258,234 $(213,000) $ 10,244,000
1997
Balance
April 1, 1,480,015 $ 518,000 $ 3,401,000 $ 5,253,000 311,786 $(388,000) $8,784,000
1996
Net income - - - 588,000 - - 588,000
Cash - - - (179,000) - - (179,000)
Dividends
Exercise of
Stock 23,000 8,000 149,000 - - - 157,000
Options
CMSA
Acquisition - - 803,000 - (139,630) 175,000 978,000
Balance
Sept 30, 1,503,015 $ 526,000 $ 4,353,000 $5,662,000 172,156 $ (213,000) $10,328,000
1996
</TABLE>
See notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
HALIFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Unaudited)
<CAPTION>
Six Months Ended
September 30
1997 1996
<S> <C> <C>
Cash flows from operating
activities:
Net income $ (114,000) $ 588,000
Adjustments to reconcile net
income to net
cash provided (used) by
operating activities:
Depreciation and amortization 618,000 510,000
Decrease (increase) in 2,491,000 (6,375,000)
accounts receivable
Decrease (increase) in (549,000) (442,000)
inventory
Decrease (increase) in other 321,000 30,000
assets
(Decrease) increase in
accounts payable and
accrued expenses (3,918,000) (174,000)
Total adjustments (1,037,000) (6,451,000)
Net cash provided (used) by (1,151,000) (5,865,000)
operating activities
Cash flows from investing
activities:
Acquisition of CMSA 0 (348,000)
Acquisition of property and
equipment, net of (644,000) (345,000)
purchased operations
Net cash used in investing (644,000) (693,000)
activities
Cash flows from financing
activities:
Proceeds from borrowing of 19,382,000 14,486,000
long-term debt
Retirement of long-term debt (17,029,000) (10,160,000)
Issuance of treasury stock - 0 (348,000)
CMSA Acquisition
Cash dividends paid (201,000) (179,000)
Proceeds from sale of stock
upon exercise of
stock options 36,000 158,000
Net cash provided (used) by 2,188,000 4,414,000
financing activities
Net (decrease) increase in cash 393,000 (2,144,000)
Cash at beginning of period 268,000 2,743,000
Cash at end of period $ 661,000 $ 599,000
See notes to Condensed Consolidated Financial Statements.
</TABLE>
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 and six month periods ended September 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, 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
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
Company ("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
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share", which establishes new standards for computing
and disclosing earnings per share. The Statement requires dual
presentation of "basic" and "diluted" earnings per share, each as
defined therein, which replaces primary and fully diluted earnings
per share, respectively, required under the current guidance. SFAS
No. 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Early adoption is
not permitted; however, after the effective date, all prior period
earnings per share data presented will be required to be restated to
conform to the provisions of the new standard. Management does not
currently anticipate that earnings per share computed under the new
standard will differ materially from earnings per share computed and
disclosed under current guidance.
<PAGE>
Item 2
Management's' Discussion and Analysis
of Financial Conditions and
Results of Operations
Results of Operations
Revenues for the second quarter and six months ended September 30,
1997 of $18,673,000 and $36,708,000 represent a decrease of
approximately $1,858,000 or 9% and an increase of $537,000 or 1.5%
respectively over those in the comparable periods ended September
30, 1996. The decrease was due to a decline in orders in an existing
line of business.
Total operating costs and expenses as a percentage of revenues were
91% and 96% for the second quarter and 96% and 89% for the six
months of FY 1998 and FY 1997 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 6% and 7% for the six months of FY 1998
and FY 1997 respectively.
Interest expense for the second quarter and six months increased
between fiscal years from 1.4% of revenue to 2.1% due to increased
borrowing to fund losses from operations.
Net income for the second quarter was $118,000 compared with
$319,000 for the same quarter of the prior year. For the six months
ended September 30, 1997, net loss was $114,000 compared with net
income of $588,000 for the prior year. The company returned to
profitablity in the second quarter after its first quarterly loss in
seven years. Second quarter and six months FY 1998 earnings were
influenced by losses in our new business line of computer-printer
maintenance contracts which have undergone a restructuring program.
Financial Condition
The financial condition of the Company remains solid with working
capital of $19,704,000 and a current ratio of 3.04:1.
Liquidity and Sources of Capital
Net cash outflows from operations were $1,151,000 for the second
quarter of FY 1998 as compared with net cash outflows of $5,865,000
in the comparable period of FY 1997. This comparitive decrease in
net cash outflows resulted from decreases in accounts receivable
during the FY 1998 period. Long-term debt and cash balances
provided the financing for these operating cash outflows. At
September 30, 1997, the Company's Long-term debt increased by
$2,377,000. The Company expects that cash generated from
operations, the sale of its office complex 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 -
At the annual meeting of shareholders held September 7, 1997, the
shareholders voted approval of the Halifax Corporation Non-Employee
Directors Stock Option Plan.
Item 5. Other Information
Properties
On November 5, 1997, the Company concluded the sale of its twin-
building office complex and the lease-back of the Company's
headquarters building. The purchase price was $5.25 million. The
sale will be reported in the Company's fiscal third 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: November 14, 1997 By: s/Howard
C. Mills
Howard C. Mills
President
Date: November 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>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> 10Q-SEPTEMBER-1997
<MULTIPLIER> 1
<CURRENCY> 0
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-1-1997
<PERIOD-END> SEPT-30-1997
<PERIOD-TYPE> 6-MOS
<EXCHANGE-RATE> 1
<CASH> 661,000
<SECURITIES> 0
<RECEIVABLES> 19,552,000
<ALLOWANCES> 0
<INVENTORY> 7,409,000
<CURRENT-ASSETS> 29,375,000
<PP&E> 6,740,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,113,000
<CURRENT-LIABILITIES 9,671,000
<BONDS> 0
0
0
<COMMON> 544,000
<OTHER-SE> 9,913,000
<TOTAL-LIABILITY-AND-EQUITY> 39,113,000
<SALES> 36,708,000
<TOTAL-REVENUES> 36,708,000
<CGS> 33,725,000
<TOTAL-COSTS> 36,089,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 807,000
<INCOME-PRETAX> (188,000)
<INCOME-TAX> (74,000)
<INCOME-CONTINUING> (114,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (114,000)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
