HALIFAX CORPORATION
FORM 10-Q
SEPTEMBER 30, 1998
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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, 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 (IRS Employer Identification No.)
incorporation of organization)
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 November
11, 1998
HALIFAX CORPORATION
CONTENTS
PART I. FINANCIAL INFORMATION
page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1998 (Unaudited) and March 31, 1998 3
Condensed Consolidated Statements of Earnings - Three and
Six Months Ended September 30, 1998 and 1997 (Unaudited) 4
Condensed Consolidated Statements of Stockholders' Equity -
Six Months Ended September 30, 1998 and 1997 (Unaudited 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended September 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 4.Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HALIFAX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND MARCH 31, 1998
SEPTEMBER 30, MARCH 31, 1998*
1998
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 117,000 $ 67,000
Accounts receivable 21,510,000 20,814,000
Inventory 10,138,000 8,203,000
Prepaid expenses and other current assets 2,194,000 2,298,000
TOTAL CURRENT ASSETS 33,959,000 31,382,000
PROPERTY AND EQUIPMENT, at cost less
accumulated 3,317,000 3,578,000
depreciation and amortization
OTHER ASSETS AND COST IN EXCESS OF NET
ASSETS ACQUIRED, net of
accumulated amortization 2,897,000 3,015,000
TOTAL ASSETS $40,173,000 $37,975,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $ 9,610,000 $10,233,000
Accounts payable and accrued expenses
Current portion of long-term debt &
mortgage note payable 500,000 786,000
TOTAL CURRENT LIABILITIES 10,110,000 11,019,000
LONG-TERM DEBT AND OTHER LIABILITIES 19,459,000 16,348,000
TOTAL LIABILITIES 29,569,000 27,367,000
STOCKHOLDERS' EQUITY
Common stock 549,000 544,000
Additional paid-in capital 4,409,000 4,399,000
Retained earnings 5,858,000 5,877,000
10,816,000 10,820,000
Less treasury stock at cost 212,000 212,000
TOTAL STOCKHOLDERS' EQUITY 10,604,000 10,608,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $40,173,000 $37,975,000
</TABLE>
*Condensed from March 31, 1998 Audited Financial Statements. See Form 10-K/A
filed July 10, 1998.
See notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
HALIFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited)
Three Months Six Months
Ended Ended
September 30 September 30
<S> <C> <C> <C> <C>
1998 1997 1998 1997
Revenues $18,306,000 $18,673,000 $35,570,000 $36,708,000
Operating costs and
expenses:
Cost of services 16,731,000 16,912,000 32,054,000 33,725,000
Selling, general 1,220,000 1,183,000 2,526,000 2,364,000
and administrative
Total operating costs 17,951,000 18,095,000 34,580,000 36,089,000
and expenses
Operating income 355,000 578,000 990,000 619,000
Other income 48,000 - 48,000 -
Interest expense 320,000 382,000 675,000 807,000
Income before income 83,000 196,000 363,000 (188,000)
taxes
Income taxes 51,000 78,000 180,000 (74,000)
Net earnings $ 32,000 $ 118,000 $ 183,000 $ (114,000)
Net earnings per
common and common $ .01 $ .06 $ .09 $ (.06)
equivalent share -
primary
Net earnings per
common and common $ .01 $ .06 $ .09 $ (.06)
equivalent share -
fully diluted
Weighted average number
of common shares 2,013,029 2,004,340 2,011,820 2,003,152
outstanding -
primary
Weighted average number
of common shares 2,060,455 2,069,657 2,059,685 2,003,152
outstanding - fully
diluted
</TABLE>
See notes to Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
HALIFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited)
Addition
Common al Treasury
Stock Stock
Paid-In Retained
Shares Par Capital Earnings Shares Cost Total
Value
<S> <C> <C> <C> <C> <C> <C> <C>
Balance
April 1, 2,267,166 $544,000 $4,399,000 $5,877,000 256,684 $(212,000) $10,608,000
1998
Net - - - 183,000 - - 183,000
income
Cash - - - (202,000) - - (202,000)
Dividends
Exercise
of
Stock
Options 2,924 5,000 10,000 - - - 15,000
Balance
Sept 30, $549,000 $4,409,000 $5,858,000 256,684 $(212,000) $10,604,000
1998 2,270,090
Balance
April 1, 2,258,866 $542,000 $4,358,000 $5,836,000 258,234 $(213,000) $10,523,000
1997
Net - - - (114,000) - - (114,000)
Income
Cash - - - (201,000) - - (201,000)
Dividends
Exercise
of
Stock 6,800 2,000 34,000 - - - 36,000
Options
Balance
Sept 30, 2,265,666 $544,000 $4,392,000 $5,521,000 258,234 $(213,000) $10,244,000
1997
</TABLE>
See notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
HALIFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited)
Six Months Ended
September 30
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 183,000 $ (114,000)
Adjustments to reconcile net income to
net
cash provided (used) by operating
activities:
Depreciation and amortization 661,00 618,000
Decrease (increase) in accounts (697,000) 2,491,000
receivable
Decrease (increase) in inventory (1,936,000) (549,000)
Decrease (increase) in other assets 96,000 321,000
(Decrease) increase in accounts
payable and
accrued expenses (649,000) (3,918,000)
Total adjustments (2,525,000) (1,037,000)
Net cash provided (used) by (2,342,000) (1,151,000)
operating activities
Cash flows from investing activities:
Acquisition of property and equipment,
net of (278,000) (644,000)
purchased operations
Net cash used in investing activities (278,000) (644,000)
Cash flows from financing activities:
Proceeds from borrowing of long-term 33,389,000 19,382,000
debt
Retirement of long-term debt (30,533,000) (17,029,000)
Cash dividends paid (201,000) (201,000)
Proceeds from sale of stock upon
exercise of
stock options 15,000 36,000
Net cash provided (used) by financing 2,670,000 2,188,000
activities
Net (decrease) increase in cash 50,000 393,000
Cash at beginning of period 67,000 268,000
Cash at end of period $ 117,000 $ 661,000
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, 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.
<PAGE>
Note B - Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Numerator:
Net earnings $32,000 $118,000 $183,000 $(114,000)
Numerator for basic earnings
per share -
income available to common $ 32,000 $118,000 $183,000 $(114,000)
stockholders
Numerator for diluted
earnings per share -
income available to
common stockholders
after assumed $32,000 $118,000 $183,000 $(114,000)
conversions
Denominator:
Denominator for basic
earnings per share -
weighted-average shares 2,013,029 2,004,340 2,011,820 2,003,152
Effect of dilutive
securities:
Employee stock options 36,320 55,023 40,235 -
Contingent stock- 11,106 10,294 7,630 -
acquisition
7% Convertible
Subordinated Debenture - - - -
Dilutive potential common 47,426 65,317 47,865 -
shares
Denominator for diluted
earnings per
share - adjusted
weighted-average
shares and assumed
conversions 2,060,455 2,069,657 2,059,685 2,003,152
Basic earnings per share $ 0.01 $(0.06) $ 0.09 $ (0.06)
Diluted earnings per share $ 0.01 $ (0.06) $ 0.09 $ (0.06)
</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.
<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, 1998 of
$18,306,000 and $35,570,000 represent decreases of approximately $367,000
or 2% and $138,000 or less than 1% respectively from those in the
comparable periods ended September 30, 1997. The decreases were due to
the delay until the third quarter of awards of contracts and orders that
were expected to be large revenue generators. Net income for the second
quarter was $32,000 compared with $118,000 for the same quarter of the
prior year. For the six months ended September 30, 1998, net income was
$183,000 compared with net loss of $114,000 for the prior year. Second
quarter and six months FY 1998 earnings were also influenced by the
aforementioned delays and resultant under-absorption of indirect costs.
Total operating costs and expenses as a percentage of revenues were 98%
and 97% for the second quarter and 97% and 98% for the six months of FY
1998 and FY 1997 respectively. General & Administrative expense was 7%
and 6% for the six months of FY 1998 and FY 1997 respectively. While
close in absolute terms, these percentages reflect the under absorption of
indirect costs by the Company's contract base through the first half of
1998. Now that anticipated contracts and orders have been awarded, the
second half net income is expected to grow at a higher rate than revenue
as indirect costs should increase only slightly.
Compared to FY 1997, interest expense for the second quarter and six
months of FY 1998 decreased from 1.9% to 1.7% and 2.2% to 2.0% of revenue
respectively due to lower average debt balances during FY 1998 and
declining interest rates.
Financial Condition
The financial condition of the Company remains steady with working
capital of $23,800,000 and a current ratio of 3.4:1.
Liquidity and Sources of Capital
Net cash outflows from operations were $2,342,000 for the six months ended
September 30, 1998 as compared with net cash outflows of $1,151,000 in the
comparable period of FY 1997. During the FY 1998 period, this increase in
net cash outflows resulted from increases in inventory and accounts
receivable which were financed through Long-Term debt rather than
expansion of accounts payable. Long-term debt financed these operating
cash outflows. At September 30, 1998, the Company's Long-term debt
increased by $2,856,000 over March 31, 1998. The Company expects that
cash generated from operations and the Company's line of credit and
subordinated debt will be sufficient to meet its normal operating and
dividend requirements in the foreseeable future.
<PAGE>
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 and
remediating 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 contains 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 4. Submission of Matters to a Vote of Security Holders -
At the annual meeting of shareholders held September 18, 1998, the
Company submitted for approval by the shareholders the following
proposed amendments:
(a) Amendment of the Articles of Incorporation to increase the
authorized Common Stock to 6,000,000 shares and to authorize
the creation of 1,500,000 shares of Preferred Stock.
(b) Amendment of the Company's "1994 Key Employee Stock
Option Plan" to increase the number of
shares issuable from 180,000 to 280,000.
Both proposals were approved by the shareholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Not applicable
(b) Reports on Form 8-K - The Company filed its
borrowing agreement with Crestar Bank
(Fifth Amended and Restated Loan and Security
Agreement dated June 25, 1998) on October 6, 1998.
<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 16, 1998 By: s/Howard C. Mills
Howard C. Mills
President
Date: November 16, 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.
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> 10Q-SEPTEMBER-1998
<MULTIPLIER> 1
<CURRENCY> 0
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-1-1998
<PERIOD-END> SEPT-30-1998
<PERIOD-TYPE> 6-MOS
<EXCHANGE-RATE> 1
<CASH> 117,000
<SECURITIES> 0
<RECEIVABLES> 21,510,000
<ALLOWANCES> 0
<INVENTORY> 10,138,000
<CURRENT-ASSETS> 33,959,000
<PP&E> 3,317,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 40,173,000
<CURRENT-LIABILITIES> 10,110,000
<BONDS> 0
0
0
<COMMON> 549,000
<OTHER-SE> 10,055,000
<TOTAL-LIABILITY-AND-EQUITY> 40,173,000
<SALES> 35,570,000
<TOTAL-REVENUES> 35,618,000
<CGS> 32,054,000
<TOTAL-COSTS> 34,580,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 675,000
<INCOME-PRETAX> 363,000
<INCOME-TAX> 180,000
<INCOME-CONTINUING> 183,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 183,000
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
