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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 and 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 19, 1999
HALIFAX CORPORATION
(Exact name of registrant as specified in charter)
Virginia 2-84160-W 54-0829246
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
5250 Cherokee Avenue, Alexandria, Virginia 22312
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 750-2202
Not Applicable
(Former name or former address, if changed since last report)
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Item 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
This Form 8-K is being filed to report the resignation of the
Company's former independent accountants and the engagement of new
independent accountants
(a)(1) Ernst & Young LLP (the "Former Accountants") resigned as the
independent accountants for Halifax Corporation (the "Company") on
October 19, 1999.
No report prepared by the Former Accountants on the consolidated
financial position of Halifax Corporation at March 31, 1999 and
1998, and the consolidated results of operations and its cash
flows of each of the three years in the period ended March 31,
1999, contained an adverse opinion or disclaimer of opinion, or
was qualified or modified as to uncertainty, audit scope, or
accounting principles.
In connection with the audit conducted by the Former Accountants
for the fiscal year ended March 31, 1999, which was concluded on
September 7,1999, and which included the consolidated balance
sheets of Halifax Corporation as of March 31, 1999 and 1998, and
the related consolidated statements of operations, changes in
stockholder's equity (deficit) and cash flows for each of the
three years in the period ended March 31, 1999, there were no
disagreements between the Company and Ernst & Young on any matter
of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements,
if not resolved to the satisfaction of Ernst & Young, would have
caused them to make reference thereto in their report on the
financial statements for those years.
The fiscal year 1999 audit was completed on September 7, 1999 with
the issuance, by Ernst & Young, of a clean opinion as presented in
the Company's Form 10-K which was filed with the SEC on September
9, 1999.
On October 5, 1999 the Company received a letter, dated September
7, 1999, from Ernst & Young addressed to the Audit Committee. The
letter indicated that Ernst & Young had noted "matters of internal
control and its operation" that they considered to be "material
weaknesses". The letter also indicated that,
"these conditions were considered in determining the nature,
timing, and extent of the procedures performed in our audit
of Halifax Corporation's consolidated financial statements,
and that this report does not affect our audit report dated
September 7, 1999 on those financial statements".
On August 25, 1999, Ernst & Young delivered a presentation to the
Halifax Audit Committee. The presentation was designed to present
the audit process and related conclusions in some detail. No
reference was made during the conduct of this presentation to any
material weaknesses at Halifax.
The September 7th letter which was received on October 5th
described the Company's operations as consisting of the operations
of the parent company and a wholly owned subsidiary, Halifax
Technology Services Company ("HTSC"). It further indicated that,
"HTSC operated in a decentralized environment and utilized a
separate accounting function from the Corporate office. As a
result, many transactions affecting HTSC were not under the
control of Halifax Corporation's Chief Financial Officer. To
maintain strong internal controls in a decentralized
operating environment such as Halifax Corporation, corporate
oversight of the subsidiary's operations and financial
reporting are essential. As indicated in our 1998 Report to
the Audit Committee, the Company's operating style did not
provide for an optimal level of financial reporting oversight
of HTSC by the corporate office. This lack of Corporate
oversight in the decentralized environment proved to be a
material weakness in the internal control structure as
evidenced by the embezzlement and restatement of the 1998 and
1997 financial statements."
The letter went on to say,
"In 1998, we recommended the Company's organizational
structure be changed to bring the accounting function at HTSC
under the direct control of the corporate office and
consolidate the accounting functions into one location."
The June 5, 1998, Letter on Internal Control delivered to the
Company by Ernst & Young, after describing the decentralized
operating environment referenced above, stated,
"While the Chief Financial Officer does have interaction with
HTSC's accounting staff on a periodic basis, he does not have
direct control over this group. This separate structure
facilitates a lack of consistency of accounting policies and
practices and does not provide for an optimal level of
financial reporting oversight of the subsidiary by Company
financial management."
The letter went on to say,
"We recommend that the Company's organizational structure be
changed to bring the accounting function at HTSC under the
direct control of the Company's chief financial officer. In
addition, we recommend that the Company consider
consolidating many of the accounting functions into one
location to reduce costs and increase consistency related to
the financial operations on a consolidated basis."
The opening paragraph of this same 1998 letter stated,
"we noted no matter involving internal control and its
operation that we consider to be material weaknesses..."
The identical quote was included in Ernst & Young's 1997 Report to
the Audit Committee.
In a response to the Halifax Audit Committee, dated August 7,
1998, the Company adopted Ernst & Young's first recommendation
indicating that,
"The authority over the HTSC accounting department has been
assigned to the Company's CFO." However, in response to the
second recommendation the Company stated, "The department
will remain in Richmond since it currently operates a
different accounting system.than employed at HQ. The Company
has a variety of accounting and management requirements .....
which are not currently available from any one system. We
expect to operate on these two systems for the foreseeable
future although we will make all adjustments to integrate the
systems, accounting personnel and locations that are
effective and cost conscious."
Immediately upon the discovery of the embezzlement event, the
Company consolidated all check writing, cash and cash management
functions under Halifax Corporate. On July 19, 1999, the Company
hired a new executive vice president to consolidate all of the
Company's administrative and accounting functions. That
individual was named to the additional post of Chief Financial
Officer on September 9, 1999.
(a)(2) Effective October 26, 1999, the Board of Directors appointed
the accounting firm of Deloitte & Touche LLP as independent
public accountants for the Company based on the recommendation of
the Audit Committee, to replace Ernst & Young. The Company, during
the two most recent fiscal years and the subsequent interim period
prior to the engagement of Deloitte & Touche LLP did not consult
with Deloitte & Touche LLP with regard to any of the matters
listed in Regulation S-K Items 304 (a) (i) or (ii).
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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: October 26, 1999 By:
s/John J. Reis
John J. Reis
President
Date: October 26, 1999 By: s/Charles L. McNew
Charles L. McNew
Executive V.P. & 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.
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Ernst & Young LLP
1225 Connecticut Avenue, N.W.
Washington, D.C. 20036
Phone (202) 327-6000
October 22, 1999
Mr. John J. Reis
President & CEO
Halifax Corporation
5250 Cherokee Avenue
Alexandria, VA 22312
Dear Mr. Reis:
This is to confirm that the client-auditor relationship between HALIFAX
CORPORATION (Commission File Number 0-12712) and Ernst & Young LLP has
ceased.
Very truly yours,
/s/ Ernst & Young LLP
Copy to Office of the Chief Accountant
SECPS Letter File
Securities and Exchange Commission
Mail Stop 11-3
450 fifth Street, N.W.
Washington, D.C. 20549
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
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Ernst & Young LLP
1225 Connecticut Avenue, N.W.
Washington, D.C. 20036
Phone (202) 327-6000
October 26, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Gentlemen:
We have read Item 4 of Form 8-K dated October 26, 1999, of Halifax
Corporation and are in agreement with the statements contained in the
first, second, third, fourth, fifth, seventh and eighth paragraphs
therein. We make no comment with respect to the other statements of the
registrant contained therein.
Very truly yours,
/s/ Ernst & Young LLP
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
