109813.00100/11447211v.2
Exhibit 99.2
PRO-FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
On June 30, 2005, we entered into an asset purchase agreement with
INDUS Corporation pursuant to which we sold substantially all of the
assets and certain liabilities of our secure network services business.
The purchase price was approximately $12.5 million, subject to
adjustments described in the asset purchase agreement based on the net
assets of the business on the date of closing. The asset purchase
agreement provides that $3.0 million of the purchase price be held in
escrow. Of this amount, $625,000 is held as security for the payment of
our indemnification obligations pursuant to the asset purchase agreement,
if any, and will be released to us eighteen (18) months following the
date of the asset purchase agreement unless a certain key government
contract, referred to as the Key Contract, is not assigned (referred to
as a novation) as of such time. A portion of the escrow amount equal to
$2,000,000 (which includes the portion referenced above for
indemnification obligations), plus any interest or other income earned
thereon, will also serve as security for a payment obligation we have to
INDUS Corporation if the novation of the Key Contract from us to INDUS
Corporation is not approved by such government customer and received
within two years from the date of the asset purchase agreement. The
transaction was completed on June 30, 2005.
The unaudited pro forma financial information presented reflects the
estimated pro forma effect of the sale of the secure network services
business.
Two unaudited pro forma condensed consolidated financial
statements are included herein, as follows:
(a) an unaudited pro forma condensed consolidated
statements of operations for the nine months December
31, 2004 giving effect to the sale of the secure
network services business as if it occurred on April
1, 2004 and the year ended March 31, 2004, giving
effect to the sale of the secure network services
business as if it occurred on April 1, 2003; and
(b) an unaudited pro forma condensed
consolidated balance sheet at December 31, 2004,
giving effect to the sale of the secure
network services business as if it occurred
on April 1, 2004.
The unaudited pro forma condensed consolidated financial statements
include specific assumptions and adjustments related to the sale of the
secure network services business. These pro forma adjustments have been
made to illustrate the anticipated financial effect of the sale of the
secure network services business. The adjustments are based upon
available information and assumptions that we believe are reasonable as
of the date of this filing. However, actual adjustments may differ
materially from the information presented. Assumptions underlying the
pro forma adjustments are described in the accompanying notes, which
should be read in conjunction with the unaudited pro forma condensed
consolidated financial statements. These pro forma condensed
consolidated statements of operations do not include anticipated gain on
the sale of the secure network services business of approximately $5.0
million.
The unaudited pro forma financial statements are presented for
informational purposes only and do not purport to be indicative of the
financial position which would actually have been obtained if the
transaction had occurred in the periods indicated below or which may
exist or be obtained in the future. The information is not
representative of future results of operations or financial position.
The unaudited condensed pro forma financial information is qualified in
its entirety by and should be read in conjunction with the more detailed
information and financial data appearing in the Company's historical
consolidated financial statements and notes thereto included herein the
latest annual report on Form 10-K. In the opinion of management, all
material adjustments necessary to reflect the disposition of the secure
network services business by us have been made. The unaudited pro forma
consolidated financial information should be read in conjunction with the
notes hereto and any historical consolidated financial statements and
notes thereto included in an annual report on Form 10-K for the year
ended March 31, 2004.
Halifax Corporation and Subsidiaries
Pro forma Condensed Consolidated Statement of Operations (unaudited)
For the nine months ended For the year ended
December 31, 2004 March 31, 2004
Actual Adjust- Proforma As Adjust- Proforma
ments reported ments
(amounts in thousands,
except share data)
Revenues $ 43,847 $(9,336) (1) $34,511 $49,537 $ (9,481) (1) $40,056
Operating (loss) income (917) (1,745) (2) (2,662) 1,054 (1,040) (2) 14
Interest Expense 462 (3) 124 576 526 (3) 50
338
(Loss) income before income (1,379) (1,407) (2) (2,786) 478 (514) (2) (36)
taxes
Income tax (benefit expense (479) (4) (986) (3,750) (185) (4) (3,935)
(507)
Net (loss) income $(900) $ (900) $(1,800) $ 4,228 $ 329 $ 3,899
(Loss) income per share - $(0.30) $(0.60) $ 1.60 $ 1.48
basic
Loss income per share - $(0.30) $(0.60) $ 1.54 $ 1.40
diluted
The pro forma adjustment to the historical financial statements are:
(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) Reflects the elimination of interest expense of $338 thousand
and 526 thousand as a result of proposed reduction in the principal balance
of notes payable of approximately $9.0 million for the
nine months ended December 31, 2004 and year ended March 31, 2004,
respectively.
(4) Reflects the income tax effect of the foregoing adjustments.
Halifax Corporation and Subsidiaries
Pro forma Condensed Consolidated Balance Sheet (unaudited)
(amounts in thousands) At December 31, 2004
As reported Adjustments Pro forma
ASSETS
CURRENT ASSSETS
Cash $ 100 $ 12,500 (2) $ 3,256
(9,344) (5)
Trade accounts receivable, net 11,747 (1,949) (1) 9,798
Inventory, net 5,872 5,872
Prepaid expenses and other current assets 834 (16) (1) 818
Deferred tax asset 1,148 (1,148) (3) -
TOTAL CURRENT ASSETS 19,701 43 19,744
PROPERTY AND EQUIPMENT, net 1,624 (64) (1) 1,560
GOODWILL AND OTHER INTANGIBLE
ASSETS (net) 7,235 7,235
OTHER ASSETS 144 144
DEFERRED TAX ASSET 3,231 (1,580) 1,651
TOTAL ASSETS $ 31,935 $ (1,601) $ 30,334
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,298 $ (500) (1) $ 3,798
Accrued expenses 3,839 (229) (1) 5,732
725 (3)
1,747 (4)
(350) (5)
Deferred maintenance revenues 3,796 3,796
Current portion of long-term debt 23 23
Bank Debt 9,698 (6,100) (5) 3,598
Notes payable 494 (494) (5) -
TOTAL CURRENT LIABILITIES 22,148 (5,201) 16,947
OTHER LONG-TERM DEBT 172 172
SUBORDINATED DEBT - AFFILIATE 2,400 (1,400) (5) 1,000
DEFERRED INCOME 293 - 293
TOTAL LIABILITIES 25,013 (6,601) 18,412
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock 825 825
Additional paid in capital 9,003 9,003
Accumulated deficit (2,694) 5,000 (6) 2,306
Less treasury stock at cost (212) - (212)
TOTAL STOCKHOLDERS' EQUITY 6,922 5,000 11,922
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 31,935 $ (1,601) $ 30,334
(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 of
$1.7 million
(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, net of taxes and transaction costs.