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HALIFAX CORPORATION
FORM 10-Q
JUNE 30, 1998
<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 Actof 1934
For the quarterly period ended June 30, 1998
( ) 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.
2,013,406 as of August 5, 1998
HALIFAX CORPORATION
CONTENTS
PART I. FINANCIAL INFORMATION
page
Item 1.
Financial Statements
Condensed Consolidated Balance Sheets - June 30, 1998
(Unaudited) and March 31, 1998 3
Condensed Consolidated Statements of Earnings -
Three Months Ended June 30, 1998 and 1997 (Unaudited) 4
Condensed Consolidated Statements of Stockholders'
Equity - Three MonthsEnded June 30, 1998 and 1997
(Unaudited) 5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended June 30, 1998 and 1997 (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 6.Exhibits and Reports on Form 8-K 10
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HALIFAX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND MARCH 31, 1998
June 30, 1998 March 31, 1998*
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash
$ 138,000 $ 67,000
Accounts receivable 22,231,000 20,814,000
Inventory 9,002,000 8,203,000
Prepaid expenses and other current assets
2,081,000 2,298,000
TOTAL CURRENT ASSETS
33,452,000 31,382,000
PROPERTY AND EQUIPMENT, at cost less
accumulated 3,476,000 3,578,000
depreciation and amortization
OTHER ASSETS AND COST IN EXCESS OF NET ASSETS
ACQUIRED, net of accumulated amortization
3,002,000 3,015,000
TOTAL ASSETS
$39,930,000 $ 37,975,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses
$ 10,678,000 $ 10,233,000
Current portion of long-term debt & mortgage
note payable 500,000 786,000
TOTAL CURRENT LIABILITIES 11,178,000 11,019,000
LONG-TERM DEBT AND OTHER LIABILITIES
18,090,000 16,348,000
TOTAL LIABILITIES 29,268,000 27,367,000
STOCKHOLDERS' EQUITY
Common stock 544,000 544,000
Additional paid-in capital 4,403,000 4,399,000
Retained earnings
5,927,000 5,877,000
10,874,000 10,820,000
Less treasury stock at cost
212,000 212,000
TOTAL STOCKHOLDERS' EQUITY
10,662,000 10,608,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 39,930,000 $37,975,000
</TABLE>
*Condensed from March 31, 1998 Audited Financial Statements. See Form 10-K
/A filed June 30, 1998.
See notes to Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
HALIFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997 (Unaudited)
Three Months Ended
June 30
<S> <C> <C>
1998 1997
Revenues $ 17,264,000 $ 18,035,000
Operating costs and
expenses:
Cost of services 15,323,000 16,813,000
Selling, general and 1,306,000 1,181,000
administrative
Total operating costs and 16,629,000 17,994,000
expenses
Operating income 635,000 41,000
Interest expense 355,000 425,000
Income before income taxes 280,000 (384,000)
Income taxes (129,000) (152,000)
Net earnings $ 151,000 $ (232,000)
Net earnings per common
share -basic $ .08 $ (.12)
Net earnings per common
share - diluted $ .07 $ (.12)
Weighted average number of
common shares 2,010,597 2,001,951
outstanding - basic
Weighted average number of
common shares 2,058,900 2,001,951
outstanding - diluted
</TABLE>
See notes to Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
HALIFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997 (Unaudited)
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, 2,267,16 $ 544,000 $ 4,399,000 $5,877,000 256,684 $(212,000) $10,608,000
1998 6
Cash - - - (101,000) - - (101,000)
Dividends
Net income - - - 151,000 - - 151,000
Exercise of
Stock 750 - 4,000 - - - 4,000
Options
Balance
June 30, 2,267,916 $ 544,000 $ 4,403,000 $5,927,000 256,684 (212,000) $10,662,000
1998
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
Options 3,000 1,000 16,000 - - - 17,000
Balance
June 30, 2,261,866 $ 543,000 $ 4,374,000 $5,503,000 258,234 $ (213,000) $ 10,207,000
1997
</TABLE>
See notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
HALIFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997 (Unaudited)
Three Months Ended
June 30
1998 1997
<S> <C> <C>
Cash flows from operating
activities:
Net income $ 151,000 $ (232,000)
Adjustments to reconcile net income
to net
cash provided (used) by operating
activities:
Depreciation and amortization 330,000 295,000
Decrease (increase) in accounts (1,417,000) 3,150,000
receivable
Decrease (increase) in inventory (799,000) (334,000)
Decrease (increase) in other 163,000 213,000
assets
(Decrease) increase in accounts
payable and
accrued expenses 434,000 (2,453,000)
Total adjustments (1,289,000) 871,000
Net cash provided (used) by
operating activities (1,138,000) 639,000
Cash flows from investing
activities:
Acquisition of property and
equipment, net of
purchased operations (166,000) (255,000)
Net cash used in investing
activities (166,000) (255,000)
Cash flows from financing
activities:
Proceeds from borrowing of long- 23,611,000 9,136,000
term debt
Retirement of long-term debt (22,139,000) (9,609,000)
Cash dividends paid (101,000) (100,000)
Proceeds from sale of stock upon
exercise of stock options 4,000 17,000
Net cash provided (used) by
financing activities 1,375,000 (556,000)
Net (decrease) increase in cash 71,000 (172,000)
Cash at beginning of period
67,000 267,000
Cash at end of period $ 138,000 $ 95,000
</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, 1998 are not necessarily indicative of the results
that may be expected for the year ending March 31, 1999. For
further information refer to the consolidated financial
statements and footnotes thereto included in the Halifax
Corporation Annual Report on Form 10-K/A for the year ended March
31, 1998.
Note B - Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share.
<TABLE>
<CAPTION>
Three Months
Ended
June 30,
1998 1997
<S> <C> <C>
Numerator:
Net earnings $ 151,000 $ (232,000)
Numerator for basic earnings per
share - income available to common $ 151,000 $ (232,000)
stockholders
Numerator for diluted
earnings per share -income available
to common stockholders after assumed
conversions $ 151,000 $ (232,000)
Denominator:
Denominator for basic
earnings per share -
weighted-average shares 2,010,597 2,001,951
Effect of dilutive securities:
Employee stock options 44,150 -
Contingent stock- 4,153 -
acquisition
7% Convertible Subordinated - -
Debenture
Dilutive potential common shares 48,303 -
Denominator for diluted
earnings per
share - adjusted weighted-
average shares and assumed 2,058,900 2,001,951
conversions
Basic earnings per share $ 0.08 $ (0.12)
Diluted earnings per share $ 0.07 (0.12)
</TABLE>
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.
Item 2
Management's' Discussion and Analysis
of Financial Conditions and
Results of Operations
Results of Operations
Revenues for the first quarter of fiscal 1999 of $17,264,000
represent a decrease of approximately $771,000 or 4% from those
in the first quarter of fiscal 1998. The decrease was due to not
receiving significant expected orders on large communications
contracts held by the Company with the Federal Government which
have been adversely impacted by Year 2000 issues in the Federal
Government..
Cost of services, as a percentage of revenue, decreased from 93%
in the first quarter of fiscal 1998 to 89% in the first quarter
of fiscal 1999. The improvement in this margin resulted from the
combination of lower direct costs, especially parts usage and
labor, in the Company's computer-printer maintenance business and
a cost mix at HTSC which emphasized higher margin services work.
Selling, general and administrative expenses as a percentage of
revenue was 7.6% in the first quarter of fiscal 1999 as
contrasted to 6.5% in the first quarter of fiscal 1998.
Interest expense in the fiscal 1999 period was 2.0% of revenue
versus 2.4% in fiscal 1998.
Financial Condition
The financial condition of the Company remains sound with working
capital of $22,300,000 and a current ratio of 2.99:1.
Liquidity and Sources of Capital
Net cash outflows from operations were $1,138,000 for the first
quarter of fiscal 1999 as compared with net cash inflows of
$639,000 in the comparable period of fiscal 1998. 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.
As reported on Form 10K/A dated March 31, 1998, the Company signed
a new banking agreement on June 25, 1998 which restructured the
Company's debt as presented at March 31, 1998 except for the
"7% Convertible Subordinated Debenture" and the "Other Notes
Payable." The new debt structure consists of a revolving
line of credit and two term loans which in total make $17.5 million
of credit available to the Company.
Year 2000 Compliance
As a service provider to commercial and government entities for
the assessment, remediation, and testing for year 2000 readiness
of computer desktop devices and networks, the Company does not
certify "Compliance" in its contract agreements. The Company
provides customers with test results which it represents to be
correct as backed up by test documentation.
Halifax has established and is implementing a program for
compliance of its own hardware, software, and files. The Company
is planning for the remediation of in-house systems associated
with accounting/finance, service call management, local and wide
area networks, messaging systems, and administration. Some of
these features are being taken care of as a by-product of the
Company's program to web-enable (Internet) many of its systems to
meet customer requirements and/or promote efficiency and
competitive advantage. Activities are currently underway
assessing the Company's systems and applications. In order to
judge the stability of its business supply chain, the Company has
initiated a comprehensive process of contacting clients, vendors
and suppliers to ascertain their preparation for this issue. The
Company estimates its costs to be fully compliant by mid-1999 at
$200,000.
Forward-Looking Statements
The above may contain certain forward-looking statements which
are based on management's current views and assumptions regarding
future events and financial performance. Reference should be
made to Item 7 of Halifax Corporation's Annual Report on Form 10-
K/A for the fiscal year ended March 31, 1998 concerning "forward-
looking statements" for a description of the important factors
that could cause actual results to differ materially from those
discussed above.
Part II. Other Information
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, 1998 By: s/Howard C. Mills
Howard C. Mills
President & CEO
Date: August 14, 1998 By: s/John D. D'Amore
John D. D'Amore
Vice President Finance
& CFO
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-JUNE-1998
<MULTIPLIER> 1
<CURRENCY> 0
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-1-1998
<PERIOD-END> JUN-30-1998
<PERIOD-TYPE> 3-MOS
<EXCHANGE-RATE> 1
<CASH> 138,000
<SECURITIES> 0
<RECEIVABLES> 22,231,000
<ALLOWANCES> 0
<INVENTORY> 9,002,000
<CURRENT-ASSETS> 33,452,000
<PP&E> 3,476,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,930,000
<CURRENT-LIABILITIES> 11,278,000
<BONDS> 0
0
0
<COMMON> 544,000
<OTHER-SE> 10,330,000
<TOTAL-LIABILITY-AND-EQUITY> 39,930,000
<SALES> 17,264,000
<TOTAL-REVENUES> 17,264,000
<CGS> 15,323,000
<TOTAL-COSTS> 16,629,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 355,000
<INCOME-PRETAX> 280,000
<INCOME-TAX> (129,000)
<INCOME-CONTINUING> 151,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,000
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.07)
</TABLE>
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