##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K/A
 (Amendment No. 1)
  þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For
the fiscal year ended March 31, 2005 or
 o
    
    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 1-08964
 Halifax Corporation
  Virginia
    
    54-0829246(State or other jurisdiction of incorporation of organization)
    
    (IRS Employer Identification No.)5250 Cherokee Avenue, Alexandria, VA
(Address of principal executive offices)
    
    22312
(zip code)
 (703) 750-2202
  Title of each class
    
    Name of each exchange on which registeredCommon Stock ($.24 par value)
    
    American Stock Exchange
 None
 þ o
 o
 o þ
   Class
    
    Outstanding at June 30,2005Common Stock$0.24 par value
    
    
    3,172,206




---



##### 



pageItem 8.
    
    Financial Statements and Supplementary Data
    
    
    1Reports of Independent Registered Public Accounting Firms
    
    
    1Consolidated statements of operations for the years ended March 31, 2005, 2004 and 2003
    
    
    3Consolidated balance sheets as of March 31, 2005 and 2004
    
    
    4Consolidated statements of cash flows for the years ended March 31, 2005, 2004 and 2003
    
    
    5Consolidated statements of changes in stockholders deficit for the years endedMarch 31, 2005, 2004 and 2003
    
    
    6Notes to consolidated financial statements
    
    
    7Schedule II, Valuation and Qualifying Accounts
    
    
    27PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    28Signatures
    
    
    29




---



##### 



EXPLANATORY NOTE




---



##### 



Item 8. Financial Statements and Supplementary Data
  
      
 1




---



##### 



2




---



##### 



HALIFAX CORPORATION   FOR THE YEARS ENDED MARCH 31, 2005, 2004 AND 2003
 2005
    
    
    2004
    
    
    2003Revenues
    
    $
    62,006
    
    
    $
    49,537
    
    
    $
    50,418Operating costs and expenses:Cost of services
    
    
    57,872
    
    
    
    43,609
    
    
    
    44,200Gross margin
    
    
    4,134
    
    
    
    5,928
    
    
    
    6,218Selling expense
    
    
    1,530
    
    
    
    1,254
    
    
    
    1,102Marketing expense
    
    
    241
    
    
    
    534
    
    
    
    652General and administrative
    
    
    3,725
    
    
    
    3,086
    
    
    
    3,127Abandonment of lease
    
    
    179
    
    
    
    
    
    
    
    Operating (loss) income
    
    
    (1,541
    )
    
    
    1,054
    
    
    
    1,337Interest expense
    
    
    (663
    )
    
    
    (591
    )
    
    
    (649
    )Other income
    
    
    
    
    
    
    15
    
    
    
    20(Loss) income before income taxes
    
    
    (2,204
    )
    
    
    478
    
    
    
    708Income tax (benefit) expense
    
    
    (793
    )
    
    
    (3,750
    )
    
    
    60Net (loss) income
    
    $
    (1,411
    )
    
    $
    4,228
    
    
    $
    648(Loss) earnings per common share-basic
    
    $
    (.46
    )
    
    $
    1.60
    
    
    $
    .30(Loss) earnings per common share-diluted *
    
    $
    (.46
    )
    
    $
    1.54
    
    
    $
    .30Weighted average number of common shares
outstanding  basic
    
    
    3,043,465
    
    
    
    2,638,345
    
    
    
    2,175,781Weighted average number of common shares
outstanding  diluted
    
    
    3,094,922
    
    
    
    2,787,656
    
    
    
    2,212,360
 
 * No effect is given to dilutive securities for loss periods. See notes to consolidated financial statements
 3




---



##### 



HALIFAX CORPORATION  CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2005 AND 2004
 March 31,2005
    
    
    2004ASSETSCURRENT ASSETSCash
    
    $
    1,264
    
    
    $
    430Trade accounts receivable, net
    
    
    12,468
    
    
    
    9,364Inventory, net
    
    
    5,600
    
    
    
    5,845Prepaid expenses and other current assets
    
    
    487
    
    
    
    599Deferred tax asset
    
    
    3,814
    
    
    
    1,204TOTAL CURRENT ASSETS
    
    
    23,633
    
    
    
    17,442PROPERTY AND EQUIPMENT, net
    
    
    1,608
    
    
    
    1,598GOODWILL
    
    
    6,129
    
    
    
    3,879OTHER INTANGIBLE ASSETS, net
    
    
    1,309
    
    
    
    727OTHER ASSETS
    
    
    141
    
    
    
    149DEFERRED TAX ASSET
    
    
    930
    
    
    
    2,696TOTAL ASSETS
    
    $
    33,750
    
    
    $
    26,491LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    5,955
    
    
    $
    3,024Accrued expenses
    
    
    4,776
    
    
    
    3,699Deferred maintenance revenues
    
    
    3,776
    
    
    
    2,543Current portion of long-term debt
    
    
    17
    
    
    
    29Notes payable
    
    
    662
    
    
    
    494TOTAL CURRENT LIABILITIES
    
    
    15,186
    
    
    
    9,789LONG-TERM BANK DEBT
    
    
    9,463
    
    
    
    7,227OTHER LONG-TERM DEBT
    
    
    3
    
    
    
    19SUBORDINATED DEBT  AFFILIATE
    
    
    2,400
    
    
    
    2,400DEFERRED INCOME
    
    
    278
    
    
    
    337TOTAL LIABILITIES
    
    
    27,330
    
    
    
    19,772COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITYPreferred stock, no par value authorized 1,500,000, issued 0 shares
    
    
    
    
    
    
    Common stock, $.24 par value:Authorized - 6,000,000 sharesIssued  3,427,640 in 2005 and 3,167,096 in 2004Outstanding   3,170,956 in 2005 and 2,910,412 in 2004
    
    
    827
    
    
    
    764Additional paid-in capital
    
    
    9,011
    
    
    
    7,962Accumulated deficit
    
    
    (3,206
    )
    
    
    (1,795
    )Less treasury stock at cost  256,684 shares in 2005 and 2004
    
    
    (212
    )
    
    
    (212
    )TOTAL STOCKHOLDERS EQUITY
    
    
    6,420
    
    
    
    6,719TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    33,750
    
    
    $
    26,491
 See notes to consolidated financial statements
 4




---



##### 



HALIFAX CORPORATION   FOR THE YEARS ENDED MARCH 31, 2005, 2004 AND 2003
 2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net (loss) earnings
    
    $
    (1,411
    )
    
    $
    4,228
    
    
    $
    648Adjustments to reconcile net income to net
Cash provided by (used in) operating activities:Depreciation and amortization
    
    
    1,159
    
    
    
    762
    
    
    
    657Deferred income tax
    
    
    (844
    )
    
    
    (3,805
    )
    
    
    Changes in assets and liabilities:Decrease (increase) in accounts receivable
    
    
    (2,382
    )
    
    
    (328
    )
    
    
    2,496Decrease (increase) in inventory
    
    
    439
    
    
    
    (353
    )
    
    
    185Decrease (increase) in prepaid expenses and other
current assets
    
    
    128
    
    
    
    (320
    )
    
    
    27Decrease (increase) in other assets
    
    
    14
    
    
    
    30
    
    
    
    302Increase (decrease) in accounts payable,
accrued expenses and other current liabilities
    
    
    3,430
    
    
    
    (457
    )
    
    
    (1,997
    )(Decrease) increase in deferred maintenance
Revenues
    
    
    227
    
    
    
    (66
    )
    
    
    97Increase (decrease) in deferred income
    
    
    (59
    )
    
    
    199
    
    
    
    (60
    )Net cash provided by (used in) operating activities
    
    
    701
    
    
    
    (110
    )
    
    
    2,355Cash flows from investing activities:Purchase of property and equipment
    
    
    (861
    )
    
    
    (672
    )
    
    
    (346
    )Payment for acquisitions (net of cash acquired)
    
    
    (824
    )
    
    
    (416
    )
    
    
    Net cash (used in) provided by investing activities
    
    
    (1,685
    )
    
    
    (1,088
    )
    
    
    (346
    )Cash flows from financing activities:Proceeds from debt borrowings
    
    
    33,195
    
    
    
    25,204
    
    
    
    19,234Repayments of debt
    
    
    (31,461
    )
    
    
    (23,699
    )
    
    
    (20,787
    )Retirement of subordinated debt affiliate
    
    
    
    
    
    
    (1,600
    )
    
    
    Proceeds from private placement
    
    
    
    
    
    
    1,200
    
    
    
    Costs associated with private placement
    
    
    
    
    
    
    (45
    )
    
    
    Proceeds from sale of stock upon exercise of
stock options
    
    
    84
    
    
    
    
    
    
    
    1Net cash provided by (used in) financing activities
    
    
    1,818
    
    
    
    1,060
    
    
    
    (1,552
    )Net increase (decrease) in cash
    
    
    834
    
    
    
    (138
    )
    
    
    457Cash at beginning of year
    
    
    430
    
    
    
    568
    
    
    
    111Cash at end of year
    
    $
    1,264
    
    
    $
    430
    
    
    $
    568
 See notes to consolidated financial statements
 5




---



##### 



HALIFAX CORPORATION
 FOR THE YEARS ENDED MARCH 31, 2005, 2004, AND 2003
 Common Stock
    
    
    Additional
    
    
    
    
    
    
    Treasury StockPaid-In
    
    
    AccumulatedShares
    
    
    Par Value
    
    
    Capital
    
    
    Deficit
    
    
    Shares
    
    
    Cost
    
    
    TotalMarch 31, 2002
    
    
    2,432,297
    
    
    
    588
    
    
    
    5,015
    
    
    
    (6,671
    )
    
    
    256,684
    
    
    
    (212
    )
    
    
    (1,280
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    648
    
    
    
    
    
    
    
    
    
    
    
    648Exercise of
Stock Options
    
    
    750
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1March 31, 2003
    
    
    2,433,047
    
    
    
    588
    
    
    
    5,016
    
    
    
    (6,023
    )
    
    
    256,684
    
    
    
    (212
    )
    
    
    (631
    )Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,228
    
    
    
    
    
    
    
    
    
    
    
    4,228Issuance of
Common Stock
    
    
    734,049
    
    
    
    176
    
    
    
    2,946
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,122March 31, 2004
    
    
    3,167,096
    
    
    
    764
    
    
    
    7,962
    
    
    
    (1,795
    )
    
    
    256,684
    
    
    
    (212
    )
    
    
    6,719Net (Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,411
    )
    
    
    
    
    
    
    
    
    
    
    (1,411
    )Issuance of
Common Stock
    
    
    260,544
    
    
    
    63
    
    
    
    1,049
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,112March 31, 2005
    
    
    3,427,640
    
    
    $
    827
    
    
    $
    9,011
    
    
    $
    (3,206
    )
    
    
    256,684
    
    
    $
    (212
    )
    
    $
    6,420
 See notes to consolidated financial statements
 6




---



##### 



HALIFAX CORPORATION   FOR THE YEARS ENDED MARCH 31, 2004, 2003 AND 2002
  Business Activity
 Principles of Consolidation
 Use of Estimates
 Accounts Receivable
  Inventory
 Property and Equipment
 Machinery and equipment
    
    3-10 yearsFurniture and fixtures
    
    5 yearsBuilding improvements
    
    5-10 yearsVehicles
    
    4 years
  7




---



##### 



Goodwill and Intangible Assets
 Deferred Maintenance Revenues
 Revenue Recognition
 Income Taxes
 Comprehensive Income
 Stock-Based Compensation
 8




---



##### 



Year Ending March 31,(Amounts in thousands except share data)
    
    2005
    
    
    2004
    
    
    2003Net (loss) income (as reported)
    
    $
    (1,411
    )
    
    $
    4,228
    
    
    $
    648Deduct: stock-based compensation expense
determined under the fair value method,
Net of tax
    
    
    (106
    )
    
    
    (175
    )
    
    
    (250
    )Proforma net (loss) income
    
    $
    (1,517
    )
    
    $
    4,053
    
    
    $
    398(Loss) earnings per common share (as
reported):Basic
    
    $
    (.46
    )
    
    $
    1.60
    
    
    $
    .30Diluted
    
    $
    (.46
    )
    
    $
    1.54
    
    
    $
    .30Proforma (Loss) earnings per common share:Basic
    
    $
    (.50
    )
    
    $
    1.54
    
    
    $
    .18Diluted
    
    $
    (.50
    )
    
    $
    1.45
    
    
    $
    .18
 Earnings Per Common Share
 Concentration of Risk
  Recent Pronouncements
  9




---



##### 



Trade accounts receivable consist of:
    
    March 31,(Amounts in thousands)
    
    2005
    
    
    2004Amounts billed
    
    $
    12,373
    
    
    $
    9,332Amounts unbilled
    
    
    393
    
    
    
    180Total
    
    
    12,766
    
    
    
    9,512Allowance for doubtful accounts
    
    
    (298
    )
    
    
    (148
    )Total
    
    $
    12,468
    
    
    $
    9,364
  March 31,Property and equipment consists of:
    
    
    
    
    
    
    
    
    
    Estimated(Amounts in thousands)
    
    2005
    
    
    2004
    
    
    Useful LivesMachinery and equipment
    
    $
    3,600
    
    
    $
    3,153
    
    
    3-10 yearsFurniture and fixtures
    
    
    255
    
    
    
    423
    
    
    5 yearsBuilding improvements
    
    
    599
    
    
    
    637
    
    
    5-10 yearsVehicles
    
    
    150
    
    
    
    137
    
    
    4 yearsTotal
    
    
    4,604
    
    
    
    4,350Accumulated depreciation
    
    
    (2,996
    )
    
    
    (2,752
    )Total
    
    $
    1,608
    
    
    $
    1,598
      10




---



##### 



Current assets
    
    $
    973Property and equipment
    
    
    80Goodwill
    
    
    1,470Trade name
    
    
    700Other intangible assets
    
    
    810Total assets acquired
    
    
    4,033Total liabilities assumed
    
    
    1,657Purchase price
    
    $
    2,376
    (Amounts in thousands except per share
    
    Year Ended
    
    
    Year Endeddata)
    
    March 31, 2005
    
    
    March 31, 2004Revenues
    
    $
    60,677
    
    
    $
    56,176Net (loss) income
    
    
    (1,042
    )
    
    
    4,384(Loss) earnings per share:Basic
    
    $
    (.46
    )
    
    $
    1.54Diluted
    
    $
    (.46
    )
    
    $
    1.48
     11




---



##### 



2005
    
    
    2004EstimatedAmortizationperiod
    
    
    Gross
    
    
    Accumulated
    
    
    Net
    
    
    Gross
    
    
    Accumulated
    
    
    Net(Amounts in thousands):
    
    (in months)
    
    
    Assets
    
    
    Amortization
    
    
    Assets
    
    
    Assets
    
    
    Amortization
    
    
    AssetsClient master contracts
    
    
    60-90
    
    
    
    1,345
    
    
    
    (196
    )
    
    
    1,149
    
    
    
    635
    
    
    
    (46
    )
    
    
    589Backlog
    
    
    48
    
    
    
    96
    
    
    
    (38
    )
    
    
    58
    
    
    
    96
    
    
    
    (14
    )
    
    
    82Subcontractor provider network
    
    
    36
    
    
    
    64
    
    
    
    (41
    )
    
    
    23
    
    
    
    64
    
    
    
    (15
    )
    
    
    49Non compete
    
    
    24-36
    
    
    
    109
    
    
    
    (30
    )
    
    
    79
    
    
    
    9
    
    
    
    (2
    )
    
    
    76$
    1,614
    
    
    $
    (305
    )
    
    $
    1,309
    
    
    $
    804
    
    
    $
    (77
    )
    
    $
    727
   12




---



##### 



2006
    
    $
    3222007
    
    
    2722008
    
    
    2312009
    
    
    2212010
    
    
    150Thereafter
    
    
    113Total
    
    $
    1,309
  13




---



##### 



March 31,(Amounts in thousands)Long-term debt consists of:
    
    2005
    
    
    2004Revolving credit agreement dated June 29, 2005 maturing June 30, 2007 with a
maximum borrowing limit of $12.0 million. Amounts available under this agreement
are determined by applying stated percentages to the Companys eligible receivables
and inventory. At March 31, 2005 and 2004, $2.6 million and $2.3 million,
respectively, was available to the Company under the terms of the agreement. The
facility bears interest at the banks prime rate plus 3/4%. The interest rate at
March 31, 2005 and 2004 was 5.75% and 5.00%, respectively.Total bank debt
    
    $
    9,463
    
    
    $
    7,2277% Convertible subordinated debenture with an affiliate (see Note 13) dated January
27, 1998. Principal due in full on July 1, 2007. Interest payable semiannually in
arrears beginning
August 1, 1998. Convertible to common stock by note holder at any time at a
conversion price of $3.19 per common share. Subsequent to year end the notes were
paid in full.
    
    
    400
    
    
    
    400Subordinated note with an affiliate (see Note 13) dated October 8, 1998. Principal
due on July 1, 2007. Interest accrues annually at 8%.
    
    
    690
    
    
    
    690Subordinated note with an affiliate (see Note 13) dated October 13, 1998.
Principal due on July 1, 2007. Interest accrues annually at 8%.
    
    
    310
    
    
    
    310Subordinated note with an affiliate (see Note 13) dated November 2, 1998.
Principal due on July 1, 2007. Interest accrues annually at 8%. Subsequent to year
end the notes were paid in full.
    
    
    500
    
    
    
    500Subordinated note with an affiliate (see Note 13) dated November 5, 1998.
Principal due on July 1, 2007. Interest accrues annually at 8%. Subsequent to year
end the notes were paid in full.
    
    
    500
    
    
    
    500Subtotal  debt affiliated parties
    
    
    2,400
    
    
    
    2,4005% Notes issued to former Microserv shareholders (see Note 4) Subsequent to year
end the notes were paid in full.
    
    
    494
    
    
    
    4946% notes issued to former AlphaNational shareholders due March 31, 2006 (see Note 4)
    
    
    168
    
    
    
    Other debt. Interest rates 0.0% to 1.9% due in 48 and 36 months.
    
    
    20
    
    
    
    48Total debt
    
    
    12,545
    
    
    
    10,169Less current maturities
    
    
    679
    
    
    
    523Total long-term debt
    
    $
    11,866
    
    
    $
    9,646
 14




---



##### 



(Amounts in thousands)
 Year endedMarch 31,
    
    Total2006
    
    $
    6792007
    
    
    32008
    
    
    11,863Total
    
    $
    12,545
     March 31,(Amounts in thousands)2005
    
    
    2004Accrued lease payments
    
    $
    1,369
    
    
    $
    1,162Accrued vacation
    
    
    906
    
    
    
    804Accrued payroll
    
    
    1,431
    
    
    
    979Payroll taxes accrued and withheld
    
    
    231
    
    
    
    183Other accrued expenses
    
    
    839
    
    
    
    571$
    4,776
    
    
    $
    3,699
    15




---



##### 



WeightedAverageNumber of
    
    
    Exercise PriceShares
    
    
    Per ShareOutstanding at April 1, 2002
    
    
    365,250
    
    
    $
    5.30Granted
    
    
    51,000
    
    
    
    3.50Exercised
    
    
    (750
    )
    
    
    2.60Forfeited/Expired
    
    
    (3,083
    )
    
    
    3.25Outstanding at March 31, 2003
    
    
    412,417
    
    
    
    5.09Granted
    
    
    38,000
    
    
    
    5.16Exercised
    
    
    
    
    
    
    Forfeited/Expired
    
    
    (32,500
    )
    
    
    5.49Outstanding at March 31, 2004
    
    
    417,917
    
    
    
    5.07Granted
    
    
    96,800
    
    
    
    4.56Exercised
    
    
    (21,500
    )
    
    
    3.48Forfeited/Expired
    
    
    (32,500
    )
    
    
    3.77Outstanding at March 31, 2005
    
    
    460,217
    
    
    $
    5.13
 16




---



##### 



Options OutstandingWeighted Average
    
    
    Options Outstanding
    
    
    
    
    
    
    Options ExercisableRange of
    
    Options
    
    
    Remaining
    
    
    Weighted Average
    
    
    Options
    
    
    Weighted AverageExercise Prices
    
    Outstanding
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Exercise price$10.25
    
    
    24,250
    
    
    3 years
    
    $
    10.25
    
    
    
    24,250
    
    
    $
    10.257.03
    
    
    10,500
    
    
    4 years
    
    
    7.03
    
    
    
    10,500
    
    
    
    7.035.57-7.56
    
    
    82,000
    
    
    5 years
    
    
    6.02
    
    
    
    82,000
    
    
    
    6.205.38-7.06
    
    
    71,500
    
    
    6 years
    
    
    5.76
    
    
    
    71,481
    
    
    
    5.761.80-4.05
    
    
    87,000
    
    
    7 years
    
    
    3.51
    
    
    
    50,672
    
    
    
    3.303.10-5.00
    
    
    50,167
    
    
    8 years
    
    
    3.47
    
    
    
    15,667
    
    
    
    3.784.11-5.70
    
    
    38,000
    
    
    9 years
    
    
    5.16
    
    
    
    4,628
    
    
    
    4.114.45-5.02
    
    
    96,800
    
    
    10 years
    
    
    4.61
    
    
    
    72,000
    
    
    
    4.58$2.60-$7.56
    
    
    460,217
    
    
    
    
    
    
    $
    5.13
    
    
    
    149,750
    
    
    $
    5.45
       (Amounts in thousands)
    
    2005
    
    
    2004
    
    
    2003Current expense:Federal
    
    $
    
    
    
    $
    14
    
    
    $
    18State
    
    
    51
    
    
    
    136
    
    
    
    42Total current:
    
    
    51
    
    
    
    150
    
    
    
    60Deferred expense:Federal
    
    
    (688
    )
    
    
    (3,712
    )
    
    
    State
    
    
    (156
    )
    
    
    (188
    )
    
    
    Total deferred:
    
    
    (844
    )
    
    
    (3,900
    )
    
    
    Income tax (benefit) expense
    
    $
    (793
    )
    
    $
    (3,750
    )
    
    $
    60
 17




---



##### 



(Amounts in thousands)
    
    2005
    
    
    2004Deferred tax assets:Accounts receivable reserves
    
    $
    115
    
    
    $
    60Inventory reserve
    
    
    661
    
    
    
    380Inventory capitalization
    
    
    102
    
    
    
    92Depreciation/amortization
    
    
    209
    
    
    
    77Accrued compensation/vacation
    
    
    348
    
    
    
    321Abandonment of space
    
    
    69
    
    
    
    AMT credit carryforwards
    
    
    93
    
    
    
    88Net operating loss carryforward
    
    
    3,039
    
    
    
    2,748Deferred gain on building sale
    
    
    107
    
    
    
    1344,744
    
    
    
    3,900Deferred tax liabilities:
    
    
    
    
    
    
    4,744
    
    
    
    3,900Valuation allowance
    
    
    
    
    
    
    Net deferred tax asset
    
    $
    4,744
    
    
    $
    3,900
     2005
    
    
    2004
    
    
    2003(Benefit) provision for income taxes
    
    
    (34.0
    )%
    
    
    34.0
    %
    
    
    34.0
    %(Reduction) increase in taxes resulting from:State taxes, net of federal benefit
    
    
    (7.1
    )
    
    
    6.2
    
    
    
    5.0Other state taxes, net of federal benefit
    
    
    
    
    
    
    12.2
    
    
    
    0.0Permanent items
    
    
    4.0
    
    
    
    9.1
    
    
    
    0.0Other
    
    
    1.1
    
    
    
    (1.1
    )
    
    
    (7.8
    )Change in valuation allowance for deferred tax assets
    
    
    
    
    
    
    (845.0
    )
    
    
    (22.8
    )Total
    
    
    (36.0
    )%
    
    
    (784.6
    )%
    
    
    8.4
    %
 18




---



##### 



(Amounts in thousands)
 Year ending March 31,2006
    
    $
    7132007
    
    
    4952008
    
    
    2922009
    
    
    2072010
    
    
    102Thereafter
    
    
    Total minimum lease payments
    
    $
    1,809
         19




---



##### 



(Amounts in thousands)
    
    2005
    
    
    2004
    
    
    2003Interest
    
    $
    644
    
    
    $
    611
    
    
    $
    649Income taxes
    
    
    
    
    
    $
    81
    
    
    $
    22Disclosure of non-cash financing activities:6% notes payable to former AlphaNational shareholders
    
    $
    168
    
    
    $
    
    
    
    $
    5% notes payable to former Microserv shareholders
    
    $
    
    
    
    $
    494
    
    
    $
    Common stock issued for the purchase of AlphaNational
    
    $
    1,028
    
    
    $
    
    
    
    $
    Common stock issued for the purchase of Microserv
    
    $
    
    
    
    $
    1,871
    
    
    $
    Fees to investment bankers
    
    $
    
    
    
    $
    117
    
    
    $
    Fair value of assets acquired
    
    $
    
    
    
    $
    1,619
    
    
    $
    Warrants issued in connection with private placement
    
    $
    
    
    
    $
    69
    
    
    $
    
 20




---



##### 



(Amounts in thousands except share data)
    
    
    
    
    
    Years Ended March 31,2005
    
    
    2004
    
    
    2003Numerator for earnings per share:Net income
as reported-Basic
    
    $
    (1,411
    )
    
    $
    4,228
    
    
    $
    648Interest on convertible subordinated
debt (net of tax)
    
    
    
    
    
    
    77
    
    
    
    Net Earnings-Dilutive
    
    $
    (1,411
    )
    
    $
    4,305
    
    
    $
    648Denominator:Denominator for basic earnings per share-Weighted-average shares outstanding
    
    
    3,043,465
    
    
    
    2,638,345
    
    
    
    2,175,781Effect of dilutive securities:7% convertible debenture
    
    
    
    
    
    
    97,324
    
    
    
    Employee stock options
    
    
    42,243
    
    
    
    43,226
    
    
    
    36,579Non qualified stock options
    
    
    564
    
    
    
    2,124
    
    
    
    Warrants
    
    
    8,650
    
    
    
    6,637
    
    
    
    Dilutive potential common shares
Denominator for diluted earnings per
share  adjusted weighted-average
shares and assumed conversions
    
    
    3,094,922
    
    
    
    2,787,656
    
    
    
    2,212,360Earnings per
share-Basic:
    
    $
    (.46
    )
    
    $
    1.60
    
    
    $
    .30Earnings per
share-Diluted
    
    $
    (.46
    )
    
    $
    1.54
    
    
    $
    .30
     21




---



##### 



(Amounts in thousands except share data)
 June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,2004
    
    
    2004
    
    
    2004
    
    
    2005(2)Revenues
    
    $
    13,441
    
    
    $
    14,809
    
    
    $
    15,605
    
    
    $
    18,151Gross Margin
    
    
    1,665
    
    
    
    1,671
    
    
    
    (36
    )
    
    
    834Net income
    
    $
    91
    
    
    $
    44
    
    
    $
    (1,035
    )
    
    $
    (511
    )Basic earnings per share
    
    $
    .03
    
    
    $
    .02
    
    
    $
    (.33
    )
    
    $
    (.16
    )Diluted earning per share
    
    $
    .03
    
    
    $
    .01
    
    
    $
    (.33
    )
    
    $
    (.16
    )
 June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,2003
    
    
    2003
    
    
    2003
    
    
    2004(1)Revenues
    
    $
    10,676
    
    
    $
    12,461
    
    
    $
    13,380
    
    
    $
    13,020Gross Margins
    
    
    1,320
    
    
    
    1,496
    
    
    
    1,578
    
    
    
    1,534Net income
    
    $
    51
    
    
    $
    152
    
    
    $
    202
    
    
    $
    3,823Basic earnings per share
    
    $
    .02
    
    
    $
    .06
    
    
    $
    .07
    
    
    $
    1.31Diluted earning per share
    
    $
    .02
    
    
    $
    .06
    
    
    $
    .07
    
    
    $
    1.25
 
     22




---



##### 



23




---



##### 



Proforma Statement of Operations (Unaudited)
 For the year ended(amounts in thousands, except share data)
    
    March 31, 2005Actual
    
    
    Adjustments
    
    
    ProformaRevenues
    
    $
    62,006
    (1)
    
    $
    (13,580
    )
    
    $
    48,426Operating loss
    
    
    (1,541
    ) (2)
    
    
    (2,240
    )
    
    
    (3,781
    )Interest Expense
    
    
    663
    (3)
    
    
    483
    
    
    
    180(Loss) income before income taxes
    
    
    (2,204
    ) (2)
    
    
    (1,757
    )
    
    
    (3,961
    )Income tax (benefit) expense
    
    
    (793
    ) (4)
    
    
    (632
    )
    
    
    (1,425
    )Net (loss) income
    
    $
    (1,411
    )
    
    $
    (1,125
    )
    
    $
    (2,536
    )(Loss) earnings per share basic
    
    $
    (0.46
    )
    
    
    
    
    
    $
    (0.83
    )(Loss) earnings per share- diluted
    
    $
    (0.46
    )
    
    
    
    
    
    $
    (0.83
    )
  (1)
    
    Reflects the elimination of in revenues attributable to the secure network services business
as a result of its sale.
 (2)
    
    Reflects the reduction of gross margin attributable to the secured networks services business
as a result of the sale.
 (3)
    
    Interest savings as a result of assumed reduction in notes payable of $9.0 million using sale
proceeds(4)
    
    Income tax effect of the foregoing adjustments
 Proforma Statement of Operations (Unaudited)
 For the year ended(amounts in thousands, except share data)
    
    March 31, 2004Actual
    
    
    Adjustments
    
    
    ProformaRevenues
    
    $
    49,537
    (1)
    
    $
    (9,481
    )
    
    $
    40,056Operating loss
    
    
    (1,541
    ) (2)
    
    
    (1,040
    )
    
    
    14Interest Expense
    
    
    576
    (3)
    
    
    526
    
    
    
    50Income before income taxes
    
    
    478
    (2)
    
    
    (514
    )
    
    
    (36
    )Income tax (benefit) expense
    
    
    (3,750
    ) (4)
    
    
    (185
    )
    
    
    (3,935
    )Net income
    
    $
    4,228
    
    
    $
    (329
    )
    
    $
    3,899Earnings per share basic
    
    $
    1.60
    
    
    
    
    
    
    $
    1.48Earnings per share- diluted
    
    $
    1.54
    
    
    
    
    
    
    $
    1.40
  (1)
    
    Reflects the elimination of in revenues attributable to the secure network services business
as a result of its sale.
 (2)
    
    Reflects the reduction of gross margin attributable to the secured networks services business
as a result of the sale.
 (3)
    
    Interest savings as a result of assumed reduction in notes payable of $9.0 million using sale
proceeds(4)
    
    Income tax effect of the foregoing adjustments
 24




---



##### 



Proforma Statement of Operations (Unaudited)
 For the year ended(amounts in thousands, except share data)
    
    March 31, 2003Actual
    
    
    Adjustments
    
    
    ProformaRevenues
    
    $
    50,418
    (1)
    
    $
    (11,444
    )
    
    $
    38,974Operating loss
    
    
    1,337
    (2)
    
    
    (1,112
    )
    
    
    225Interest Expense
    
    
    629
    (3)
    
    
    526
    
    
    
    103Income before income taxes
    
    
    708
    (2)
    
    
    (586
    )
    
    
    122Income tax (benefit) expense
    
    
    60
    (4)
    
    
    (211
    )
    
    
    (151
    )Net income
    
    $
    648
    
    
    $
    (375
    )
    
    $
    273Earnings per share basic
    
    $
    0.30
    
    
    
    
    
    
    $
    0.13Earnings per share- diluted
    
    $
    0.30
    
    
    
    
    
    
    $
    0.12
  (1)
    
    Reflects the elimination of in revenues attributable to the secure network services business
as a result of its sale.
 (2)
    
    Reflects the reduction of gross margin attributable to the secured networks services business
as a result of the sale.
 (3)
    
    Interest savings as a result of assumed reduction in notes payable of $9.0 million using sale
proceeds(4)
    
    Income tax effect of the foregoing adjustments
  25




---



##### 



Proforma-Balance Sheet (Unaudited)
 For the years endedMarch 31, 2005
    
    
    
    
    
    
    
    
    
    
    March 31, 2004As
    
    
    Adjust-
    
    
    
    
    
    
    As
    
    
    Adjust-reported
    
    
    ments
    
    
    Proforma
    
    
    reported
    
    
    ments
    
    
    ProformaASSETSCURRENT ASSSETSCash
    
    $
    1,264
    (2)
    
    $
    12,500
    
    
    $
    4,420
    
    
    $
    430
    (2)
    
    $
    12,500
    
    
    $
    3,586(5)
    
    
    (9,344
    )
    
    
    
    
    
    
    
    (5)
    
    
    (9,344
    )Trade accounts receivable, net
    
    
    12,468
    (1)
    
    
    (1,949
    )
    
    
    10,519
    
    
    
    9,364
    (1)
    
    
    (1,949
    )
    
    
    7,415Inventory, net
    
    
    5,600
    
    
    
    
    
    
    
    5,600
    
    
    
    5,845
    
    
    
    
    
    
    
    5,845Prepaid expenses and other current assets
    
    
    487
    (1)
    
    
    (16
    )
    
    
    471
    
    
    
    599
    (1)
    
    
    (16
    )
    
    
    583Deferred tax asset
    
    
    3,814
    (3)
    
    
    (3,039
    )
    
    
    775
    
    
    
    1,204
    (3)
    
    
    (1,204
    )
    
    
    TOTAL CURRENT ASSETS
    
    
    23,633
    
    
    
    (1,848
    )
    
    
    21,735
    
    
    
    17,442
    
    
    
    (13
    )
    
    
    17,429PROPERTY AND EQUIPMENT, net
    
    
    1,608
    (1)
    
    
    (64
    )
    
    
    1,544
    
    
    
    1,598
    (1)
    
    
    (64
    )
    
    
    1,534GOODWILL AND OTHER INTANGIBLE ASSETS
(net)
    
    
    7,438
    
    
    
    
    
    
    
    7,438
    
    
    
    4,606
    
    
    
    
    
    
    
    4,606OTHER ASSETS
    
    
    141
    
    
    
    
    
    
    
    141
    
    
    
    149
    
    
    
    
    
    
    
    149DEFERRED TAX ASSET
    
    
    930
    
    
    
    632
    
    
    
    1,526
    
    
    
    2,696
    (3)
    
    
    (1,650
    )
    
    
    1,046TOTAL ASSETS
    
    $
    33,750
    
    
    $
    (1,280
    )
    
    $
    32,470
    
    
    $
    26,491
    
    
    $
    (1,727
    )
    
    $
    24,764LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    5,955
    (1)
    
    $
    (500
    )
    
    $
    5,455
    
    
    $
    3,024
    (1)
    
    $
    (500
    )
    
    $
    2,524Accrued expenses
    
    
    4,776
    (1)
    
    
    (229
    )
    
    
    8,115
    
    
    
    3,699
    (1)
    
    
    (229
    )
    
    
    5,795(3)
    
    
    725
    
    
    
    
    
    
    
    
    (3)
    
    
    725(4)
    
    
    3,193
    
    
    
    
    
    
    
    
    (4)
    
    
    1,950(5)
    
    
    (350
    )
    
    
    
    
    
    
    
    (5)
    
    
    (350
    )Deferred maintenance revenues
    
    
    3,776
    
    
    
    
    
    
    
    3,776
    
    
    
    2,543
    
    
    
    
    
    
    
    2,543Current portion of long-term debt
    
    
    17
    
    
    
    
    
    
    
    17
    
    
    
    29
    
    
    
    
    
    
    
    29Notes payable
    
    
    662
    (5)
    
    
    (494
    )
    
    
    168
    
    
    
    494
    (5)
    
    
    (494
    )
    
    
    TOTAL CURRENT LIABILITIES
    
    
    15,186
    
    
    
    2,345
    
    
    
    17,531
    
    
    
    9,789
    
    
    
    1,102
    
    
    
    10,891LONG-TERM BANK DEBT
    
    
    9,463
    (5)
    
    
    (6,100
    )
    
    
    3,363
    
    
    
    7,227
    (5)
    
    
    (6,100
    )
    
    
    1,127OTHER LONG-TERM DEBT
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    19
    
    
    
    
    
    
    
    19SUBORDINATED
DEBT-AFFILIATE
    
    
    2,400
    (5)
    
    
    (1,400
    )
    
    
    1,000
    
    
    
    2,400
    
    
    
    (1,400
    )
    
    
    1,000DEFERRED INCOME
    
    
    278
    
    
    
    
    
    
    
    278
    
    
    
    337
    
    
    
    
    
    
    
    337TOTAL LIABILITIES
    
    
    27,330
    
    
    
    (5,155
    )
    
    
    22,175
    
    
    
    19,772
    
    
    
    (6,398
    )
    
    
    13,374STOCKHOLDERS EQUITYCommon Stock
    
    
    827
    
    
    
    
    
    
    
    827
    
    
    
    764
    
    
    
    
    
    
    
    764Additional paid in capital
    
    
    9,011
    
    
    
    
    
    
    
    9,011
    
    
    
    7,962
    
    
    
    
    
    
    
    7,962(Accumulated deficit) retained earnings
    
    
    (3,206
    ) (6)
    
    
    5,000
    
    
    
    669
    
    
    
    (1,795
    ) (6)
    
    
    5,000
    
    
    
    2,876(7)
    
    
    (1,125
    )
    
    
    
    
    
    
    
    (7)
    
    
    (329
    )Less treasury stock at cost
    
    
    (212
    )
    
    
    
    
    
    
    (212
    )
    
    
    (212
    )
    
    
    
    
    
    
    (212
    )TOTAL STOCKHOLDERS EQUITY
    
    
    6,420
    
    
    
    3,875
    
    
    
    10,295
    
    
    
    6,719
    
    
    
    4,671
    
    
    
    11,719TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY
    
    $
    33,750
    
    
    $
    (1,280
    )
    
    $
    32,470
    
    
    $
    26,491
    
    
    $
    (1,727
    )
    
    $
    24,764
 
 (1)
    
    Reflects the elimination of net assets sold in connection with the sale of the secure
network services business.(2)
    
    Reflects the cash proceeds received from the sale of $12.5 million and includes amounts held in
escrow at closing of $3.0 million, which is reflected in the cash balance.(3)
    
    Records the provision for income taxes utilizing the net operating loss carryforward and
estimated additional income taxes.(4)
    
    Reflects estimated transaction costs, fees and expenses(5)
    
    Reflects the approximate use of $9.0 of the proceeds to repay indebtedness(6)
    
    Reflects the estimated gain on sale of secure network services business (after contingencies
are resolved), net of taxes and transaction costs.(7)
    
    Impact on earnings for the elimination of earnings for the secure network services business 26




---



##### 



Schedule II, Valuation and Qualifying Accounts
  Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atbeginning
    
    
    
    
    
    
    
    
    
    
    end ofof year
    
    
    Additions
    
    
    Deductions
    
    
    YearYear Ended March 31, 2003Allowance for doubtful
Accounts
    
    $
    290,000
    
    
    $
    120,000
    
    
    $
    140,000
    
    
    $
    270,000Allowance for inventory
Obsolescence
    
    $
    600,000
    
    
    $
    165,000
    
    
    $
    135,000
    
    
    $
    630,000Year Ended March 31, 2004Allowance for doubtful
Accounts
    
    $
    270,000
    
    
    $
    84,000
    
    
    $
    206,000
    
    
    $
    148,000Allowance for inventory
Obsolescence
    
    $
    630,000
    
    
    $
    379,000
    
    
    $
    57,000
    
    
    $
    952,000Year Ended March 31, 2005Allowance for doubtful
Accounts
    
    $
    148,000
    
    
    $
    179,000
    
    
    $
    29,000
    
    
    $
    298,000Allowance for inventory
Obsolescence
    
    $
    952,000
    
    
    $
    1,044,000
    
    
    $
    280,000
    
    
    $
    1,716,000
 27




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##### 



PART IV
 Item 15. Exhibits, Financial Statement Schedules
 3.
    
    Exhibits23.1
    
    Independent Registered Public Accounting Firm Consent23.2
    
    Independent Registered Public Accounting Firm Consent31.1
    
    Certification of Charles L. McNew, Principal Executive Officer, of Halifax Corporation dated
June 16, 2006.31.2
    
    Certification of Joseph Sciacca, Principal Financial Officer, of Halifax Corporation dated June 16, 2006.
 28




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##### 



SIGNATURES
   /s/Charles L. McNewCharles L. McNewPresident and Chief Executive Officer
    
    Date: June 16, 2006/s/ Joseph Sciacca
    
    Date: June 16, 2006Joseph SciaccaVice President, Finance andChief Financial Officer
 29