3
HALIFAX CORPORATION
FORM 10-Q
JUNE 30, 2001
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 June 30, 2001
( ) 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.
(X)Yes ( )No
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. 2,023,436
shares outstanding as of August 9, 2001.
HALIFAX CORPORATION
CONTENTS
PART I. FINANCIAL INFORMATION
page
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2001 (Unaudited)
and March 31, 2001 4
Consolidated Statements of Operations - Three Months Ended
June 30, 2001 and 2000 (Unaudited) 5
Consolidated Statements of Cash Flows - Three Months Ended
June 30, 2001 and 2000 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 17
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
Item 1. FINANCIAL STATEMENTS
HALIFAX CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share data)
June 30, 2001 March 31, 2001
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 107 $ 231
Trade accounts receivable net of reserve of $226
and $319 at June 30, 2001 and March 31, 2001 8,199 8,643
Inventory net of reserve of $700 at June 30, 2001
and March 31, 2001 2,813 2,889
Prepaid expenses and other current assets 371 612
TOTAL CURRENT ASSETS 11,490 12,375
PROPERTY AND EQUIPMENT, net 1,811 1,956
GOODWILL, net 3,139 3,192
OTHER ASSETS 510 443
TOTAL ASSETS $ 16,950 $ 17,966
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 3,155 $ 2,604
Accrued expenses 5,437 8,386
Deferred maintenance revenue 994 855
Current portion of long-term debt 632 632
Income taxes payable 15 -
TOTAL CURRENT LIABILITIES 10,233 12,477
LONG-TERM BANK DEBT 4,111 2,886
SUBORDINATED DEBT - AFFILIATE 4,000 4,000
Deferred Income 501 516
TOTAL LIABILITIES 18,845 19,879
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, no par value authorized 1,500,000,
issued 0 shares - -
Common stock, $.24 par value:
Authorized - 6,000,000 shares
Issued - 2,322,370 as of June 30, 2001 and March 31,
2001
Outstanding - 2,023,436 as of June 30, 2001 and
March 31, 2001 562 562
Additional paid-in capital 4,710 4,710
Accumulated deficit (6,955) (6,973)
Less Treasury stock at cost - 298,934 shares as June
30, 2001 and March 31, 2001 (212) (212)
TOTAL STOCKHOLDERS' DEFICIT (1,895) (1,913)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 16,950 $ 17,966
See notes to consolidated financial statements
See Form 10-K for the fiscal year ended March 31, 2001
HALIFAX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands except share and per share data)
Three Months Ended
June 30,
2001 2000
Revenues $ 10,817 $ 12,910
Cost of services 9,641 12,380
Gross Margin 1,176 530
Marketing, general and administrative 986 566
Operating income (loss) 190 (36)
Interest expense 157 178
Embezzlement costs - 254
Income (loss) from continuing operations
before income taxes 33 (468)
Income taxes 15 15
Income (loss) from continuing operations 18 (483)
Discontinued operations:
Income from discontinued operations - 244
Gain on sale of discontinued operations (net of
taxes of $200) - 1,594
Net income $ 18 $ 1,355
Earnings per common share - basic:
Continuing operations $ .01 $ (0.24)
Discontinued operations - 0.12
Gain on disposition of discontinued operations - 0.79
$ .01 $ 0.67
Earnings per common share - diluted:
Continuing operations $ .01 $ (0.24)
Discontinued operations - 0.12
Gain on disposition of discontinued operations - 0.79
$ .01 $ 0.67
Weighted number of shares outstanding:
Basic 2,023,436 2,020,956
Diluted 2,023,436 2,023,882
See notes to consolidated financial statements
HALIFAX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
Three Months Ended
June 30,
2001 2000
Cash flows from operating activities:
Net income $ 18 $ 1,355
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 208 344
Income from discontinued operations - (244)
Gain on sale of discontinued operations - (1,594)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 444 (1,242)
Decrease (increase) in inventory 76 (79)
Decrease in other assets 174 217
(Decrease) increase in accounts payable and
accrued expenses (2,398) 167
Increase in income taxes payable 15 109
Increase (decrease) in deferred maintenance 139 (289)
Decrease in deferred income (15) (16)
Total adjustments (1,357) (2,627)
Net cash used by continuing operations (1,339) (1,272)
Cash flows from investing activities:
Acquisition of property and equipment (10) (155)
Net proceeds from the sale of discontinued - 5,500
operations
Net cash (used) provided in investing activities (10) 5,345
Cash flows from financing activities:
Proceeds from borrowing of long-term debt 6,350 8,992
Retirement of long-term debt (5,125) (13,611)
Proceeds from sale of stock upon exercise of stock
options - 27
Net cash provided (used) by financing activities 1,225 (4,592)
Net decrease in cash (124) (519)
Cash at beginning of period 231 1,800
Cash at end of period $ 107 $ 1,281
See notes to consolidated financial statements
Halifax Corporation
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited 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,
2001 are not necessarily indicative of the results that may be
expected for the year ending March 31, 2002. For further information
refer to the consolidated financial statements and notes thereto
included in the Halifax Corporation Annual Report on Form 10-K for the
year ended March 31, 2001.
Effective April 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133, as amended, establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contract
and for hedging activities. Under SFAS 133, certain contracts that
were not formerly considered derivatives may now meet the definition
of a derivative. The adoption of SFAS 133 did not have a significant
impact on the financial position, results of operations, or cash flows
of the Company.
Recent Accounting Pronouncements:
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"),
"Business Combinations." SFAS 141 requires the purchase method of
accounting for business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interests method. The Company does not
believe that the adoption of SFAS 141 will have a significant impact
on its financial statements.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible
Assets", which is effective January 1, 2002. SFAS 142 requires, among
other things, the discontinuance of goodwill amortization. In
addition, the standard includes provisions for the reclassification of
certain existing recognized intangibles as goodwill, reassessment of
the useful lives of existing recognized intangibles, reclassification
of certain intangibles out of preciously reported goodwill and the
identification of reporting units for purposes of assessing potential
future impairments of goodwill. SFAS 142 also requires the Company to
complete a transitional goodwill impairment test six months from the
date of adoption. The Company is currently assessing, but has not yet
determined , the impact of SFAS 142 on its financial position and
results of operations.
Note 2 - Embezzlement
In March 18, 1999, the Company announced that an internal investigation
had revealed a material embezzlement by the former controller of the
Company's subsidiaries. The embezzlement occurred over a four year
period and aggregated approximately $15.4 million of which
approximately $15 million was embezzled from the Company and $400,000
prior to its acquisition by Halifax. After net recoveries through
March 31, 2001, as discussed below, the cumulative net embezzlement
loss to the Company before taxes was approximately $7.7 million.
For the three months ended June 30, 2001 and 2000, the Company incurred
costs related to the ongoing recovery effort of approximately $0 and
$254,000, respectively.
On January 9, 2001, the Securities & Exchange Commission issued a
formal order of investigation of the Company and unnamed individuals
concerning trading activity in the Company's securities, periodic
reports filed by the Company with the SEC, certain accounting and
financial matters and internal accounting controls. The Company is
cooperating fully with the SEC. In addition, the Company has received
an SEC subpoena for documents related to these matters. The staff of
the SEC has advised that the inquiry is confidential and should not be
construed as an indication by the Commission or its staff that any
violation of law has occurred, or has an adverse reflection on any
person, entity or security. The Company believes the investigation is
primarily related to the previously reported embezzlement by one the
Company's former employees.
Note 3 - Discontinued Operations
On June 2, 2000, the Company executed and delivered a Stock Purchase
Agreement dated as of May 31, 2000, with U.S. Facilities, Inc., a
Delaware corporation ("Buyer") providing for the sale by the Company to
Buyer of the Company's operational outsourcing business (the
"Business"). The closing of the transactions contemplated in the
Agreement (the "Closing") took place simultaneously with the execution
and delivery thereof, effective as of May 31, 2000.
At the Closing the Company sold to Buyer, all of the capital stock of
its wholly-owned subsidiary, Halifax Technical Services, Inc. for a
purchase price of $5,600,000, of which $5,500,000 was paid by Buyer to
the Company at Closing with the balance of $100,000 due on the first
anniversary of the Closing.
Summary operating results of the Discontinued Operations are as
follows:
For the three months ended
June 30,
2001 2000
Revenue $ - $ 4,636,000
Costs and expenses - 4,392,000
Income from discontinued
operations $ - $ 244,000
Note 4 - Tax Matters
At June 30, 2001, the Company has a net operating loss carryforward of
approximately $8.6 million virtually all of which expires in fiscal
2019. Income tax expense (primarily state taxes), for the three months
ended June 30, 2001 and 2000 was $15,000.
Note 5 - Debt
On December 8, 2000, the Company entered into a new revolving credit
agreement which refinanced the Company's revolving credit line.
Advances under the revolving agreement are collateralized by a first
priority security interest on all the Company's assets as defined in
the financing and security agreement. The agreement also contains
certain financial covenants and reporting covenants. The agreement
matures on August 31, 2002.
The Company signed a banking agreement on September 1, 1999 as amended
on December 21, 1999, which refinanced the Company's revolving credit
and debt. The Company further amended its banking agreement on July 5,
2000, which extended the agreement through July 1, 2001. The Company
agreed to make certain accelerated payments on the term loan portion of
its debt, apply a portion of future settlement proceeds (see Note 2),
if any, to term debt balances outstanding, and to reduce its maximum
line on the revolving credit agreement to $6,000,000. The Company was
in non-compliance under the terms of its revolving credit agreement and
term loan facilities at March 31, 2000. As part of the amended
agreement, the bank waived the non-compliance with the financial
covenant. In accordance with the terms of the new banking arrangement,
the Company made additional principal payments on the Tier II and Tier
III Term Notes. All assets of the Company remain as collateral in
accordance with the prior agreement. In addition, the Company paid
certain fees in connection with the amendment and was to be subject to
additional monthly fees commencing January 1, 2001 if the current
banking arrangement had not been refinanced. The debt under this
agreement was paid in full on December 8, 2000.
The revolving credit agreement prohibits the payment of dividends or
distributions as well as the payment of principal or interest on the
Company's outstanding subordinated debt, which is owned by an
affiliate. Interest expense on Subordinated Debt is accrued on a
current basis.
The Company was not in compliance with its credit and security
agreement at June 30, 2001. Its lender has agreed to an amendment to
waive the violations. It is the intention of the lender and the
Company to restructure the covenants to assure that compliance can be
achieved through March 31, 2002.
In September 1999, the Company entered into an agreement with a major
supplier of digital communications switch hardware for the Company's
United States Army contract. Approximately $5,500,000 of outstanding
accounts payable arising since March 31, 1999 due to the supplier was
converted to a note payable which is being paid over 18 months with
interest at 8.5%. The balance of the note due on June 30, 2001 was
$632,000.
Note 6 - Earnings per Share
The following table sets forth the computation of basic and diluted earnings
per share.
Three Months Ended
June 30,
2001 2000
Numerator for earning per share:
Net income as reported from
Continuing operations $ 18,000 $ (483,000)
Discontinued operations - 244,000
Gain on disposition of discontinued operations - 1,594,000
Net income $ 18,000 $ 1,355,000
Denominator:
Denominator for basic earnings per share -
weighted-average shares 2,023,436 2,020,956
Effect of dilutive securities:
7% Convertible Debenture - -
Employee stock options - 2,926
Dilutive potential common shares:
Denominator for diluted earnings per
share weighted number of shares
outstanding 2,023,436 2,023,882
Basic earnings per common share:
Income (loss) from continuing operations $ .01 $ (0.24)
Discontinued operations - 0.12
Gain on disposition of discontinued operations - 0.79
$ .01 $ 0.67
Diluted earnings per common share
Income (loss) from continuing operations $ .01 $ (0.24)
Discontinued operations - 0.12
Gain on disposition of discontinued operations - 0.79
$ .01 $ 0.67
Item 2
Management's Discussion and Analysis
of Financial Conditions and
Results of Operations
Forward-Looking Statements
Certain statements in this Quarterly 10-Q Report constitute "forward-
looking statements" within the meaning of the United States Private
Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements
of the Company, or industry results, to be materially different from
any future results, performance, or achievements expressed or implied
by such forward-looking statements. Such factors include, among
others, the following: general economic and business conditions in the
Company's market area, inflation, continuation of favorable banking
arrangements, the availability of capital to finance planned growth,
ramifications of the embezzlement referenced herein, changes in
government regulations, availability of skilled personnel and
competition, which may, among other things impact on the ability of the
Company to implement its business strategy.
Forward-looking statements are intended to apply only at the time they
are made. Moreover, whether or not stated in connection with a forward-
looking statement, the Company undertakes no obligation to correct or
update a forward-looking statement should the Company later become
aware that it is not
likely to be achieved. If the Company were to update or correct a
forward-looking statement, investors and others should not conclude
that the Company will make additional updates or corrections
thereafter.
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto. (Tabular
information: dollars in thousands, except per share amounts).
Three Months Ended June 30,
Results of Operations 2001 2000 Change %
Revenues $ 10,817 $ 12,910 (2,093) (16%)
Cost of services 9,641 12,380 (2,739) (22%)
Percent of revenues 89% 96%
Gross margin 1,176 530 646 122%
Percent of revenues 11% 4%
Marketing, general & administrative 986 566 420 74%
Percent of revenues 9% 4%
Operating income (loss) 190 (36) 226 N/M
Percent of revenues 2% 0%
Interest expense 157 178 (21) (12%)
Embezzlement recovery costs - 254 (254) N/M
Income (loss) from continuing
operations before income taxes 33 (468) 501 N/M
Income tax expense 15 15 - -
Income (loss) from continuing
operations 18 (483) 501 N/M
Income from discontinued operations - 244 (244) N/M
Gain on sale of discontinued
operations - 1,594 (1,594) N/M
Net income $ 18 $ 1,355 (1,337) N/M
Earnings per common share-basic:
Continuing operations $ .01 $ (0.24)
Discontinued operations - 0.12
Gain on sale of discontinued
operations - 0.79
$ .01 $ 0.67
Earnings per common share-diluted:
Continuing operations $ .01 $ (0.24)
Discontinued operations - 0.12
Gain on sale of discontinued
operations - 0.79
$ .01 $ 0.67
Weighted average number of common
shares outstanding - basic 2,023,436 2,020,956
Weighted average number of common
shares outstanding - diluted 2,023,436 2,023,882
N/M - Not Meaningful
During the latter part of fiscal 2001, we realigned our
organization as a result of the economic slowdown. These
adjustments along with a renewed focus on our core competencies,
contributed to the modest first quarter profit.
Revenues
Revenues for the quarter ended June 30, 2001 declined 16% due to
decreased hardware sales offset somewhat by higher service and
recurring revenues on long-term contracts. The decline was compounded
by lengthening sales cycles and increased price competition brought on
by the economic slowdown.
Gross Margin, Costs and Expenses
Cost of services decreased 22% due to reductions in hardware
sales, cost containment measures undertaken in the fourth quarter
of fiscal 2001 and a modest shift in sales mix in higher margin
services.
Marketing, general and administrative expense increase 74%,
principally due to the increased from the creation of the Company
wide marketing group, associated marketing and promotional
investments and workshops, increases and the upgrade and
consolidation of the Company's accounting systems, professional
fees, and business insurance.
Operating Income
Operating income increased from a loss of $36,000 for the three
months ended June 30, 2000 to income of $190,000 for the three
months ended June 30, 2001. The improved ratios and profitability
in operating income reflected significant declines in costs of
services arising from expense controls, efficiencies gained in
consolidating dispatch, logistics and warehouse functions and the
higher service margins brought about by new marketing efforts.
Interest
Interest expense declined 12% and was attributable to lower
interest rates and lower levels of borrowing compared to the prior
year.
Discontinued Operations
In June of 2000 the Company completed its sale of its operational
outsourcing division. The income from discontinued operations and
the gain on sale of discontinued operations for the period ended
June 30, 2000 reflected the transaction.
Embezzlement Costs
Embezzlement costs reflect legal costs associated with certain
ongoing recovery efforts. There were no embezzlement costs
incurred during the three months ended June 30, 2001 compared to
$254,000 for the three months ended June 30, 2000. For additional
discussion see "Embezzlement Matter" in Note 2 to the condensed
consolidated financial statements.
Income Taxes
The Company has net operating loss from carryforwards
approximately $8.6 million will substantially reduce income taxes
in future periods.
The Company's income tax provision for income taxes for the three
months ended June 30, 2001 and 2000 was $15,000.
Net Income
For the quarter ended June 30, 2001, net income was $18 thousand
compared to $1.355 million for the quarter ended June 30, 2000.
Included in net income for June 30, 2000 was income from and gain
on sale of discontinued operations of $1.838 million. Excluding
these items from net income, the Company would have reported a
loss of $483,000 as compared to net income of $18,000 for the
three months ended June 30, 2001. The improved results from
continuing operations highlighted the impact on costs and expense
controls and improved product and services mix. It is expected
that continued cost containment procedures and aggressive
marketing program will continue to have positive effects of future
operations.
Factors That May Affect Future Results
The Company's future operating results may be affected by a number of
factors including uncertainties relative to national economic
conditions, especially as they affect interest rates, industry factors,
the Company's ability to successfully increase its business and
effectively manage expense margins.
The Company must continue to effectively manage expense margins in
relation to revenues by directing new business development towards
markets that complement or improve existing service lines. The Company
must also continue to emphasize operating efficiencies through cost
containment strategies, reengineering efforts and improved service
delivery techniques.
The Company serves its customer base by providing consulting,
integration, networking, maintenance and installation services. This
industry has been characterized by rapid technological advances that
have resulted in frequent introduction of new products, product
enhancements and aggressive pricing practices, which also impacts
pricing of service activities. The Company's operating results could
be adversely affected by industry-wide pricing pressures, the ability
of the Company to recruit, train and retain personnel integral to the
Company's operations and the presence of competitors with greater
financial and other resources. Also, the Company's operating results
could be adversely impacted should the Company be unable to effectively
achieve the revenue growth necessary to provide profitable operating
margins in various operations. The Company's plan for growth includes
intensified marketing efforts, an expanding commercial sales program,
strategic alliances and, where appropriate, acquisitions that expand
market share. There can be no assurances these efforts will be
successful.
Liquidity and Capital Resources
Historically the Company's primary sources of funding have been cash
flows from operations and borrowing under our credit facilities. In
prior years through a series of private placements, the Company issued
$4 million of subordinated notes due July 1, 2002 to Research
Industries Incorporated, a private investment company and an affiliate
of the Company. At June 30, 2001, the Company's working capital was
$1.257 million and its current ratio of 1.12. Improvement in the
Company's financial strength was attributable to more stringent cash
management, accelerated collection activities and improved inventory
and expense management. Pursuant to the Company's credit facility the
Company is required to satisfy two financial covenants; funded debt to
EBITDA and fixed charge coverage ratio. The Company was not in
compliance with the funded debt ratio. The lender has waived the
covenant violation at June 30, 2001. The Company and the lender are in
the process of restructuring the credit facility and expect the
agreement to be completed in the near future.
Capital expenditures for the three months ended June 30, 2001 have been
substantially reduced from prior periods. The Company does not expect
capital expenditures to increase significantly during the current
fiscal year.
The subordinated debt agreements with an affiliate totaled $4 million
at June 30, 2001. The credit facility agreement dated December 8, 2000
prohibits the payments of principal or interest on the subordinated
debt. (See Note 6 to the consolidated financial statements.)
In September 1999, the Company entered into an agreement with a major
supplier of digital communications switch hardware for the Company's
United States Army contract where approximately $5,500,000 of
outstanding accounts payable arising since March 31, 1999 due to the
supplier was converted to a note payable which is being paid over 18
months with interest at 8.5%. The balance of the note at June 30, 2001
was $632,000.
The Company believes that funds generated from operations, bank
borrowings, and investing activities should be sufficient to meet its
current operating cash requirements through March 31, 2002 although
there can be no assurances that all the aforementioned sources of cash
can be realized.
Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to changes in interest rates, primarily as
result of bank debt to finance its business. The floating interest debt
exposes the Company to interest rate risk, with the primary interest
rate exposure resulting from changes in the LIBOR rate. It is assumed
in the table below that the LIBOR rate will remain constant in the
future. Adverse changes in the interest rates or the Company's
inability to refinance its long-term obligations may have a material
negative impact on the Company's operations.
The definitive extent of the Company's interest rate risk is not
quantifiable or predictable because of the variability of future
interest rates and business financing requirements. The Company does
not believe such risk is material. The Company does not customarily
use derivative instruments to adjust the Company's interest rate risk
profile.
The information below summarizes the Company's sensitivity to market
risks as of June 30, 2001. The table presents principal cash flows and
related interest rates by year of maturity of the Company's funded
debt. Note 6 to the consolidated financial statements in the annual
report on Form 10-K contains descriptions of the Company's funded debt
and should be read in conjunction with the table below (amount in
thousands).
Period Ending
June 30,
( Amounts in thousands)
Long-term debt (including current 2002 2003 Total Debt Fair Value
maturities)
Revolving credit agreement at the
LIBOR rate plus 2.5%. Due August
31, 2002. Average interest rate of
7.5%. $ - $ 4,111 $ 4,111 $ 4,111
7% subordinated note from affiliate
due January 27, 2003. - 2,000 2,000 1,960
8% subordinated notes from affiliate
due July 1, 2002. - 2,000 2,000 2,000
Subordinated debt dated September 2,
1999 with interest at 8.5%. 632 - 632 632
Total fixed debt 632 4,000 4,632 4,592
Total debt $ 632 $ 8,111 $ 8,743 $ 8,703
At present, all transactions are billed and denominated
in U.S. dollars and consequently, the Company does not currently
have any material exposure to foreign exchange rate fluctuation risk.
Item 3.
Quantitative and Qualitative
Disclosures about Market Risk
The Company is exposed to market risk from changes in interest rates.
Adverse changes in interest rates can have a material effect on the
Company's operations.
At June 30, 2001, the Company had $8,743,000 of debt outstanding of
which $4,632,000 bears fixed interest rates. If the interest rates
charged to the Company on its variable rate debt were to increase
significantly, the effect could be materially adverse to future
operations.
The Company conducts a limited amount of business overseas,
principally in Western Europe. At present all transactions are billed
and denominated in U.S. dollars and consequently, the Company does not
currently have any material exposure to foreign exchange rate
fluctuation risk.
Part II. Other Information
Item 6. Exhibits and 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: August 10, 2001 By: s/Charles L. McNew
Charles L. McNew
President & CEO
Date: August 10, 2001 By: s/Joseph Sciacca
Joseph Sciacca
Vice President, Finance & CFO
EXHIBITS
Exhibit 20 Audit Committee Charter