-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SRKVjqPLmVSepSxDCcN5GzLoxWYMvx4Dd3fqC4BlcwE/3mtcGZrLZDyrRnfRUBk1 Is+vPldwGj4/na55xkR94Q== 0000720671-98-000002.txt : 19980218 0000720671-98-000002.hdr.sgml : 19980218 ACCESSION NUMBER: 0000720671-98-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: HALIFAX CORP CENTRAL INDEX KEY: 0000720671 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 540829246 STATE OF INCORPORATION: VA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08964 FILM NUMBER: 98542841 BUSINESS ADDRESS: STREET 1: 5250 CHEROKEE AVE CITY: ALEXANDRIA STATE: VA ZIP: 22312 BUSINESS PHONE: 7037502202 MAIL ADDRESS: STREET 1: 5250 CHEROKEE AVENUE CITY: ALEXANDRIA STATE: VA ZIP: 22312 FORMER COMPANY: FORMER CONFORMED NAME: HALIFAX ENGINEERING INC/VA DATE OF NAME CHANGE: 19911204 10-Q 1 HALIFAX CORPORATION FORM 10-Q DECEMBER 31, 1997 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, 1997 (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 2,010,485 as of January 31, 1998. HALIFAX CORPORATION CONTENTS PART I FINANCIAL INFORMATION Item 1. Financial Statements page Condensed Consolidated Balance Sheets - December 31, 1997 (Unaudited) and March 31, 1997 3 Condensed Consolidated Statements of Earnings - Three and Nine Months Ended December 31, 1997 and 1996 (Unaudited) 4 Condensed Consolidated Statements of Stockholders' Equity - Nine Months Ended December 31, 1997 and 1996 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows - Nine Months Ended December 31, 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 11 Item 2 Changes in Securities 11 Item 3. Default Upon Senior Securities 11 Item 4. Submission of Matters for a Vote of Security Holders 11 Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 11 Item 1. FINANCIAL STATEMENTS HALIFAX CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND MARCH 31, 1997
December 31, MARCH 31, 1997 1997* (Unaudited) (Audited) ASSETS CURRENT ASSETS Cash $ 1,141,000 $ 268,000 Accounts receivable 19,436,000 22,013,000 Inventory 7,419,000 6,860,000 Prepaid expenses and other current assets 1,947,000 2,002,000 TOTAL CURRENT ASSETS 29,943,000 31,143,000 PROPERTY AND EQUIPMENT, at cost less accumulated 3,687,000 6,624,000 depreciation and amortization OTHER ASSETS AND COST IN EXCESS OF NET ASSETS ACQUIRED, net of accumulated 3,261,000 3,233,000 amortization TOTAL ASSETS $36,891,000 $ 41,000,000 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued $ 9,900,000 $ 12,450,000 expenses Current portion of long-term debt & mortgage note payable 1,007,000 1,206,000 TOTAL CURRENT LIABILITIES 10,907,000 13,656,000 LONG-TERM DEBT AND OTHER LIABILITIES 15,558,000 16,821,000 TOTAL LIABILITIES 26,465,000 30,477,000 STOCKHOLDERS' EQUITY Common stock 544,000 542,000 Additional paid-in capital 4,400,000 4,358,000 Retained earnings 5,694,000 5,836,000 10,638,000 10,736,000 Less treasury stock at cost 212,000 213,000 TOTAL STOCKHOLDERS' EQUITY 10,426,000 10,523,000 TOTAL LIABILITIES AND STOCKHOLDERS' $ 36,891,000 $ 41,000,000 EQUITY
*Condensed from March 31, 1997 Audited Financial Statements. See Form 10-K filed June 30, 1997. See notes to condensed consolidated financial statements. HALIFAX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
Three Months Nine Months Ended Ended December 31, December 31, 1997 1996 1997 1996 Revenues $18,232,000 $21,913,000 $54,940,000 $58,084,000 Operating costs and expenses: Cost of services 16,246,000 20,109,000 49,970,000 52,396,000 Disposal of Inventory 600,000 - 600,000 - Selling, general and 1,325,000 936,000 3,689,000 3,357,000 administrative expenses Total operating costs and 18,171,000 21,045,000 54,259,000 55,753,000 expenses Operating income 61,000 868,000 681,000 2,331,000 Other Income 776,000 - 776,000 - Interest expense 385,000 274,000 1,193,000 766,000 Income before income taxes 452,000 594,000 264,000 1,565,000 Income taxes 178,000 235,000 104,000 618,000 Net earnings $ 274,000 $359,000 $160,000 $947,000 Net earnings per common $ 0.14 $ 0.18 $ 0.08 $ 0.48 share - basic Net earnings per common $ 0.13 $ 0.17 $ 0.08 $ 0.47 share - diluted Weighted average number of common shares outstanding - basic 2,009,675 1,997,021 2,005,334 1,981,073 Weighted average number of common shares outstanding - diluted 2,069,369 2,058,664 2,048,886 2,020,151
See notes to condensed consolidated financial statements. HALIFAX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
Common Stock Additional Treasury Stock Paid-In Retained Shares Par Value Capital Earnings Shares Cost Total 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 8,303 2,000 42,000 - - - 44,000 Stock Options Issuance of - - - - (1,550) 1,000 1,000 Treasury Stock Balance December 2,267,169 $ 544,000 $ 4,400,000 $ 5,694,000 256,684 $ (212,000) $ 10,426,000 31, 1997 Balance April 1, 2,220,022 $518,000 $ 3,401,000 $ 5,253,000 467,679 $ (388,000) $ 8,784,000 1996 Net Income - - - 947,000 - - 947,000 Cash Dividends - - - (272,000) - - (272,000) Stock Options 36,911 8,000 162,000 - - - 170,000 HTSC - - 803,000 - (209,445) 175,000 978,000 Acquisitio n Balance December 2,256,933 $ 526,000 $ 4,366,000 $ 5,928,000 258,234 $ (213,000) $ 10,607,000 31, 1996
See notes to condensed consolidated financial statements. HALIFAX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
Nine Months Ended December 31, 1997 1996 Cash flows from operating activities: Net earnings $ 160,000 $ 947,000 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 983,000 772,000 Loss (gain) on disposal of (776,000) 142,000 property, plant & equipment Decrease (increase) in accounts 2,577,000 (7,688,000) receivable Decrease (increase) in inventory (559,000) (1,611,000) Decrease (increase) in other (232,000) (785,000) assets (Decrease) increase in accounts payable and accrued expenses (2,507,000) 398,000 Total adjustments (514,000) (8,772,000) Net cash provided by (used in) operating activities (354,000) (7,825,000) Cash flows from investing activities: Proceeds from sale of 4,855,000 - property and equipment Acquisition of property and equipment net of purchased (1,202,000) (888,000) operations Net cash provided by (used in) investing activities 3,653,000 (888,000) Cash flows from financing activities: Proceeds from borrowing of long- 26,329,000 30,652,000 term debt Retirement of long-term debt (28,497,000) (23,609,000) Issuance of treasury stock - 108,000 Cash dividends paid (302,000) (272,000) Proceeds from sale of stock upon exercise of stock options 44,000 170,000 Net cash provided by (used in) financing activities (2,426,000) 7,049,000 Net (decrease) increase in cash 873,000 (1,664,000) Cash beginning of period 268,000 2,743,000 Cash end of period $ 1,141,000 $ 1,079,000
See notes to condensed consolidated financial statements. 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, 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. 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. 1,550 common shares were issued from Treasury Stock for fiscal year 1997 in recognition of this earn- out provision. 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") On November 25, 1996 through its wholly-owned subsidiary, HTSC, the Company acquired the ongoing computer network integration and business solution business of Consolidated Computer Investors, Inc. ("CCI") of Hanover, Maryland through an asset purchase. These computer network integration and business solution activities operate as a division of HTSC. Note C - Earnings per Share The following table sets forth the computation of basic and diluted earnings per share.
Three Months Nine Months Ended Ended December 31, December 31, 1997 1996 1997 1996 Numerator: Net earnings $274,000 $359,000 $160,000 $947,000 Numerator for basic earnings per share - income available to $274,000 $359,000 $160,000 $947,000 common stockholders Numerator for diluted earnings per share - income available to common stockholders after assumed $274,000 $359,000 $160,000 $947,000 conversions Denominator: Denominator for basic earnings per share - weighted-average 2,009,675 1,997,021 2,005,334 1,981,073 shares Effect of dilutive securities: Employee stock 53,550 54,215 41,504 33,555 options Contingent stock- 6,144 7,428 2,048 5,523 acquisition Dilutive potential common shares Denominator for diluted earnings per share - adjusted weighted-average shares and assumed 2,069,369 2,058,664 2,048,886 2,020,151 conversions Basic earnings per share $0.14 $ 0.18 $ 0.08 $0.48 Diluted earnings per share $0.13 $ 0.17 $ 0.08 $0.47
Note D - 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: In addition to normal operating income, the Company is reporting 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. Revenues for the third quarter and nine months ended December 31, 1997 of $18,232,000 and $54,940,000 represent decreases of $3,681,000 or 17% and $3,144,000 or 5% respectively over those in the comparable periods ended December 31, 1996. The decreases are due to phase-down of the LTLCS Digital Switch Support contract since the beginning of the fiscal year and delays in revenue generation by the new LTLCS contract awarded in November, 1997. Total operating costs and expenses as a percentage of revenues were 99% and 96% for the third quarter and 99% and 96% for the nine months of FY 1998 and FY 1997, respectively. Included in cost of services in the current quarter of FY 1998 is the $600,000 additional operating expense for the inventory disposal program. Without this charge, the ratio to revenues would have been 96% and 95% in the current quarter and year-to- date periods for FY 1998. Interest expense for the third quarter and nine months increased between fiscal years from 1.3% for both periods in FY 1997 to 2.1% and 2.2% in FY 1998 due to increased borrowing to fund losses experienced earlier in the fiscal year and increasing product sales including the acquired operations of CCI which operates as a division of HTSC. Net income for the third quarter was $274,000 compared with $359,000 for the same quarter of the prior year. For the nine months ended December 31, 1997, net income was $160,000 compared with $947,000 for the prior year. Income for the nine-months was off largely due to first-half losses in the Computer Maintenance Division which has now recovered and is operating profitably. Fourth quarter income will be influenced by the current revenue level which is not likely to increase before the new fiscal year. The combination of the $776,000 gain recognized in the quarter on the sale of the office-complex and the $600,000 additional operating expense for the inventory disposal program contributed $176,000 of income to the FY 1998 balances. Financial Condition The financial condition of the Company remains solid with working capital of $19,036,000 and a current ratio of 2.75:1.0. Liquidity and Sources of Capital Net cash used by operating activities during the nine months ended December 31, 1998 was $354,000 compared with $1,151,000 for the first six months of this fiscal year. The net proceeds from the office- complex sale were used to retire mortgage debt of $2,454,000 and paydown operating lines-of-credit. As of December 31, 1997, the permanent commitment on the Company's operating line-of-credit was $12.8 million. A temporary $1.2 million addition to the line-of-credit was in place effective through February 28, 1998. Approximately $12.2 million was outstanding as of December 31, 1997. 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. On January 27, 1998 in a private placement without public registration, the Company issued a $2,000,000 principal amount 7% Convertible Subordinated Debenture due January 2003. The Debenture is convertible to common stock at $11.72 per share. On January 27, 1998, the closing price of the Company's Common stock on the American Stock Exchange was $9.375 per share. Part II. Other information Item 1. Legal Proceedings - Not Applicable Item 2. Changes in Securities On December 11, 1997, the Company filed SEC Form S-8 to register 280,000 shares of the Company's common stock pursuant to the Company's 1994 Key Employee Stock Option Plan and the Non-Employee Directors Stock Option Plan. Item 3. Defaults upon Senior Securities - Not applicable Item 4. Submission of Matters to a Vote of Security Holders - Not applicable . Item 5. Other information On November 6, 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 resulted in other income of $1,490,000 of which $714,000 will be amortized over the 12 year lease-back of the headquarters building. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - Not applicable (b) Reports on Form 8-K - None. 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 14, 1998 By: s/Howard C. Mills Howard C. Mills President Date: February 14, 1998 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. EX-27 2 10Q-DECEMBER-1997
5 10Q-DECEMBER-1997 1 0 MAR-31-1998 APR-1-1997 DEC-31-1997 9-MOS 1 1,141,000 0 19,436,000 0 7,419,000 29,943,000 3,687,000 0 36,891,000 10,907,000 0 0 0 544,000 9,882,000 36,891,000 54,940,000 54,940,000 49,970,000 54,259,000 (776,000) 0 1,193,000 264,000 104,000 160,000 0 0 0 160,000 .08 .08
-----END PRIVACY-ENHANCED MESSAGE-----