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HALIFAX CORPORATION
FORM 10-Q
DECEMBER 31, 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
Act of 1934. For the period ended December
31, 1998
(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 2,013,406 as of January 31, 1999.
HALIFAX CORPORATION
CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements page
Condensed Consolidated Balance Sheets - December 31, 1998
(Unaudited) and March 31, 1998 3
Condensed Consolidated Statements of Earnings - Three and
Nine Months Ended December 31, 1998 and 1997 (Unaudited) 4
Condensed Consolidated Statements of Stockholders'
Equity - Nine Months Ended December 31, 1998 and 1997
(Unaudited) 5
Condensed Consolidated Statements of Cash Flows - Nine
Months Ended December 31, 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
<TABLE>
<CAPTION>
Item 1. FINANCIAL STATEMENTS
HALIFAX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND MARCH 31, 1998
December 31, MARCH 31,
1998 1998*
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 0 $ 67,000
Accounts receivable 27,699,000 20,814,000
Inventory 9,763,000 8,203,000
Prepaid expenses and other
current assets 2,187,000 2,298,000
39,649,000 31,382,000
TOTAL CURRENT ASSETS
PROPERTY AND EQUIPMENT, at cost less
accumulated 3,162,000 3,578,000
depreciation and amortization
OTHER ASSETS AND COST IN EXCESS OF
NET ASSETS
ACQUIRED, net of accumulated 2,906,000 3,015,000
amortization
TOTAL ASSETS $ 45,717,000 $ 37,975,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued $ 14,168,000 $ 10,233,000
expenses
Current portion of long-term debt
& mortgage note payable 500,000 786,000
TOTAL CURRENT LIABILITIES 14,668,000 11,019,000
LONG-TERM DEBT AND OTHER LIABILITIES
20,068,000 16,348,000
TOTAL LIABILITIES 34,736,000 27,367,000
STOCKHOLDERS' EQUITY
Common stock 549,000 544,000
Additional paid-in capital 4,409,000 4,399,000
Retained earnings 6,235,000
5,877,000
11,193,000 10,820,000
Less treasury stock at cost 212,000 212,000
TOTAL STOCKHOLDERS' EQUITY 10,981,000 10,608,000
TOTAL LIABILITIES AND STOCKHOLDERS' $ 45,717,000 $ 37,975,000
EQUITY
</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.
<TABLE>
<CAPTION>
HALIFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(UNAUDITED)
Three Months Ended Nine Months Ended
December 31, December 31,
<S> <C> <C> <C> <C>
1998 1997 1998 1997
Revenues $23,016,000 $18,232,000 $58,586,000 $54,940,000
Operating costs and
expenses:
Cost of services 20,426,000 52,480,000 49,970,000
16,246,000
Disposal of Inventory - 600,000 - 600,000
Selling, general and
administrative expenses 1,379,000 1,325,000 3,905,000 3,689,000
Total operating costs 21,805,000 56,385,000
and expenses 18,171,000 54,259,000
Operating income 1,211,000 61,000 2,201,000
681,000
Other Income - 776,000 48,000 776,000
Interest expense
391,000 385,000 1,066,000 1,193,000
Income before income 820,000 1,183,000
taxes 452,000 264,000
Income taxes
343,000 178,000 523,000 104,000
Net earnings $477,000 $274,000 $ 660,000 $ 160,000
Net earnings per common $ 0.24 $ 0.14 $ 0.33 $ 0.08
share - basic
Net earnings per common $ 0.23 $ 0.13 $ 0.32 $ 0.08
share - diluted
Weighted average number
of common shares
outstanding - basic 2,013,406 2,009,675 2,012,351 2,005,334
Weighted average number
of common shares
outstanding - diluted 2,044,111 2,084,223 2,054,496 2,067,774
</TABLE>
See notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
HALIFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
Common Additional Treasury Stock
Stock
Paid-In Retained
Shares Par Value Capital Earnings Shares Cost Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance $544,000
April 1, 2,267,166 $ 4,399,000 $ 5,877,000 256,684 $(212,000) $10,608,000
1998
Net Income 660,000
- - - - - 660,000
Cash (302,000) - (302,000)
Dividends - - - -
Exercise of -
Stock 2,924 5,000 10,000
Options - - 15,000
Balance
December $549,000 $ 4,409,000 $ 6,235,000 256,684 $ (212,000) $10,981,000
31, 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 Income -
- - - 160,000 - 160,000
Cash (302,000) - (302,000)
Dividends - - - -
Exercise of
Stock 8,300 2,000 42,000 - - - 44,000
Options
Issuance of
Treasury - - - - (1,550) 1,000 1,000
Stock
Balance
December 2,267,166 $ 544,000 $ 4,400,000 $ 5,694,000 256,684 $ (212,000) $10,426,000
31, 1997
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
HALIFAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
Nine Months Ended
December 31,
1998 1997
<S> <C> <C>
Cash flows from operating
activities:
Net income $ 660,000 $ 160,000
Adjustments to reconcile net income
to net
cash provided (used) by operating
activities:
Depreciation and amortization 992,000 983,000
(Gain) on disposal of property, - (776,000)
plant & equipment
Decrease (increase) in accounts (6,885,000) 2,577,000
receivable
Decrease (increase) in inventory (1,561,000) (559,000)
Decrease (increase) in other 94,000 (232,000)
assets
(Decrease) increase in accounts
payable
and accrued expenses 3,894,000 (2,507,000)
Total adjustments
(3,466,000) (514,000)
Net cash provided by (used) in
operating activities (2,806,000) (354,000)
Cash flows from investing
activities:
Proceeds from sale of - 4,855,000
property and equipment
Acquisition of property and
equipment net of purchased (393,000) (1,202,000)
operations
Net cash provided by (used in)
investing activities (393,000) 3,653,000
Cash flows from financing
activities:
Proceeds from borrowing of long- 42,717,000 26,329,000
term debt
Retirement of long-term debt (39,298,000) (28,497,000)
Cash dividends paid (302,000) (302,000)
Proceeds from sale of stock upon
exercise of stock options 15,000 44,000
Net cash provided (used) by
financing activities 3,132,000 (2,426,000)
Net (decrease) increase in cash (67,000) 873,000
Cash at beginning of period
67,000 268,000
Cash at end of period $ 0 $ 1,141,000
</TABLE>
See notes to condensed consolidated financial statements.<PAGE>
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 nine month periods ended
December 31, 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>
<TABLE>
<CAPTION>
Note B - Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share.
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Numerator:
Net earnings $477,000 $ 274,000 $660,000 $ 160,000
Numerator for basic earnings
per share -
income available to common $477,000 $ 274,000 $660,000 $ 160,000
stockholders
Numerator for diluted
earnings per share -
income available to
common stockholders
after assumed $477,000 $ 274,000 $660,000 $ 160,000
conversions
Denominator:
Denominator for basic
earnings per share -
weighted-average 2,013,406 2,009,675 2,012,351 2,005,334
shares
Effect of dilutive
securities:
Employee stock options 21,755 71,117 34,075 57,865
Contingent stock- 8,950 3,431 8,070 4,575
acquisition
7% Convertible - - - -
subordinated debenture
Dilutive potential 30,705 74,548 42,145 62,440
common shares
Denominator for
diluted earnings per
share - adjusted
weighted-average
shares and assumed 2,044,111 2,084,223 2,054,496 2,067,774
conversions
Basic earnings per share $ 0.24 $ 0.14 $ 0.33 $ 0.08
Diluted earnings per share $ 0.23 $ 0.13 $ 0.32 $ 0.08
</TABLE>
Note C - Contingent Matters
The Company is a co-defendant or is a defendant in various lawsuits wherein any
potential liability is fully insured against. The Company provides for cost
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.
Part 1, Item 2.
Management's' Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations:
Revenues for the third quarter and nine months ended December 31, 1998 of
$23,016,000 and $58,586,000 represent increases of $4,784,000 or 26% and
$3,646,000 or 7% respectively over those in the comparable periods ended
December 31, 1997. The increases are due primarily to phase-in of the LTLCS
Digital Switch Support contract as previously reported.
Total operating costs and expenses as a percentage of revenues were 95% and 99%
for the third quarter and 96% and 99% for the nine months of FY 1999 and FY 1998
respectively. General & Administrative expense was 6.7% for both of the nine
month periods of FY 1999 and FY 1998. These percentages reflect the absorption
of indirect costs by the Company's expanding contract base during the third
quarter of 1999. As previously reported, these percentages at September 30,
1998 were 7% and 6% respectively. 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 1998, interest expense for the third quarter and nine months of
FY 1999 decreased from 2.1% to 1.7% and 2.2% to 1.8% of revenue respectively.
In addition to normal operating income, the Company reported two separate events
occurring during the quarter ended December 31, 1997 which affected income. The
sale of its office complex in Alexandria, Virginia for $5,250,000 resulted in
other income of $1,490,000 of which $714,000 will be amortized over the 12 year
lease-back of its headquarters building. Under FASB 121, the Company also
evaluated the carrying value of its assets based on certain operational changes
resulting in an inventory disposal program where value for unused but useful
items will be realized. This program resulted in additional operating expense
charges of $600,000 in the quarter.
Financial Condition
The financial condition of the Company remains steady with working capital of
$24,981,000 and a current ration of 2.7:1.0
Liquidity and Sources of Capital
Net cash outflows from operations were $2,806,000 for the nine months ended
December 31, 1998 as compared with net cash outflows of $354,000 in the
comparable period of FY 1998. In the FY 1998 third quarter, the net proceeds
from the office-complex sale were used to retire mortgage debt of $2,454,000 and
pay down operating lines-of-credit. Long-term debt financed these December 31,
1998 operating cash outflows. At December 31, 1998, the Company's Long-term
debt increased by 3,720,000 over March 31, 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
immediate future. During the fiscal quarter, the Company issued $2,000,000 of
subordinated debentures to Research Industries, Inc. to serve as working
capital bridge loans while the Company pursued junior capital financing.
The due date of these debentures is April 1, 2000.
<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: February 16, 1999 By: s/Howard C. Mills
Howard C. Mills
President & CEO
Date: February 16, 1999 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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> 10Q-DECEMBER-1998
<MULTIPLIER> 1
<CURRENCY> 0
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-1-1998
<PERIOD-END> DEC-31-1998
<PERIOD-TYPE> 9-MOS
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 27,699,000
<ALLOWANCES> 0
<INVENTORY> 9,763,000
<CURRENT-ASSETS> 39,649,000
<PP&E> 3,162,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 45,717,000
<CURRENT-LIABILITIES> 14,668,000
<BONDS> 0
0
0
<COMMON> 549,000
<OTHER-SE> 10,432,000
<TOTAL-LIABILITY-AND-EQUITY> 45,717,000
<SALES> 58,586,000
<TOTAL-REVENUES> 58,586,000
<CGS> 52,480,000
<TOTAL-COSTS> 56,385,000
<OTHER-EXPENSES> (48,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,066,000
<INCOME-PRETAX> 1,183,000
<INCOME-TAX> 523,000
<INCOME-CONTINUING> 660,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 660,000
<EPS-PRIMARY> .33
<EPS-DILUTED> .32
</TABLE>
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