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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K
(Mark One)

( X) Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended March 31, 2001
( ) Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 (Fee Required)

For the transition period from _______ to ______

Commission file Number 1-08964

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered

Common Stock ($.24 par value) American Stock Exchange

Securities registered pursuant to Section 12 (g) of the Act:


None
(Title of class)

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

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )





The aggregate market value of the voting stock held by non-
affiliates of the Registrant as of
June 22, 2001 was $3,002,834 computed based on the closing price
for that date.

Indicate the number of shares outstanding of each of the
issuer's classes of stock, as of the latest practicable date.




Class Outstanding at June 22, 2001

Common Stock 2,023,436
$0.24 par value






DOCUMENTS INCORPORATED BY REFERENCE

-None-




Certain statements in this Annual 10-K 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 operations and 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.


PART I

Item 1. General Description of the Business

Halifax Corporation (the "Company"), headquartered in Alexandria,
Virginia is principally focused on providing a comprehensive range
of information technology services and solutions to a broad base
of commercial and governmental customers.

The Company provides a wide array of services and solutions which
are designed to enable customers to focus on using their
enterprise system rather than maintaining it.

The Company's major initiatives presently consist of the following:

* Seat Management provides complete life cycle management of
all desk top PCs, servers and printers, which allows the
enterprise staff to focus on core responsibilities.

* Enterprise Maintenance Solutions provides maintenance
services on a nationwide basis, serving over 20,000 locations and
more than 250,000 pieces of equipment through a variety of
programs including: on-call and resident maintenance and repair
service agreements, warranty services for major original equipment
manufacturers, preventive maintenance, asset tracking, maintenance
outsourcing support, equipment installs, and moves and changes and
depot and mail-in services. Services are provided through a
network of offices dispatched by the Halifax National Support
Center. Strategic alliances are maintained with certain OEMs
(Original Equipment Manufacturer) and integrators.

* Network Security Solutions provides cost effective, best
practice solutions for information security problems confronting
our customers. The focus is on solutions which are minimally
intrusive to the operations. The range of services provided
includes security policy development, firewall installation and
configuration, virtual private network (VPN) installation,
intrusion detection, network vulnerability assessments, public key
infrastructure (PKI) implementations, URL filtering, and managed
security services.

* e.Business/e.Government Development provides technical and
creative services for interactive business solutions via the
internet. Specifically, the services include
internet/intranet/extranet web site development, web hosting,
information delivery, supply chain management, process management,
workflow automation, and application integration.

* Communication Services provides engineering, installation,
maintenance and logistic support services for various government
agencies, including the Army and the U.S. Army National Guard.
Orders are placed with the Company primarily using two multi-task
support contracts, Long Term Life Cycle Support (LTLCS) and
Digital Switch Systems Modernization Program (DSSMP).

The Company has developed an important presence in the eastern
United States, while seeking to provide services nationwide for
selected engagements.

The Company's general business strategy is to secure a prominent
position as a leading provider of the broad range of information
technology services and solutions to address the needs of a
marketplace which continue to increase dependency on technology.

Investment in the Company involves various risks. Additionally,
certain of the information contained herein may be deemed to
constitute "forward looking statements".

HISTORY

The Company was incorporated in Virginia in 1967 as Halifax
Engineering, Inc., the successor to the business begun as a sole
proprietorship in 1967. On April 1, 1970, Halifax acquired the
Field Service Division of United Industries. This expanded the
business base in technical services and field engineering. In
1991 the Company's name was changed to Halifax Corporation.

On June 30, 1993, the Company acquired the services division of
Electronic Associates, Inc. The division expanded the Company's
non-federal business and provided an additional service line for
simulator operations, maintenance and integration.

On April 1, 1996, the Company completed the acquisition of
privately held CMS Automation, Inc. (CMSA) a Richmond, Virginia
computer systems integration company. On November 25, 1996, the
Company, through its wholly owned subsidiary, CMSA, acquired the
ongoing computer network integration business of Consolidated
Computer Investors, Inc. (CCI) of Hanover, Maryland. The combined
entity name was changed to Halifax Technology Services Company
(HTSC), a wholly owned subsidiary of Halifax Corporation. On
April 1, 1999, HTSC was merged into Halifax Corporation and began
operating as the Technology Services Division of the Company.

On May 31, 2000 the Company sold its Operational Outsourcing
business (See Note 17 to the consolidated financial statements)
which was non-core to the Company's long-term growth strategy.
The Company's Operational Outsourcing Division provided complete
facilities management and maintenance outsourcing capabilities to
assist institutional, government and commercial clients in
outsourcing facilities operations.

The Company maintains its principal executive offices at Halifax
Office Park, 5250 Cherokee Avenue, Alexandria, Virginia 22312.
Its telephone number is (703) 750-2202, and its website is
www.hxcorp.com.

Embezzlement Matter

On March 18, 1999, the Company announced that an internal
investigation had revealed a material embezzlement by the former
controller of one 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 was
approximately $7.7 million.

The embezzlement had a material effect on the Company's financial
statements. During the year ended March 31, 2001, the Company
recovered $1,600,000 (net of recovery costs of $1,156,000).
During the year ended March 31, 2000, the Company recovered
$2,250,000 (net of recovery costs of $250,000) in conjunction with
its embezzlement recovery activities. The specific terms and
conditions associated with the payments, including the identity of
the parties, are subjects of confidentiality agreements that
preclude disclosure. The embezzlement loss for fiscal 1999 was
$6,093,000, offset by $3,500,000 in recoveries (net of recovery
costs of $1,000,000), resulting in a net embezzlement loss for
fiscal year 1999 of $2,593,000.

Federal Government Contracts

A significant portion of the Company's revenues have historically
been derived from contracts and subcontracts with the United
States Government. Excluding the sale of HTSI ("Discontinued
Operations") in fiscal years 2001, 2000 and 1999, the Company
received revenues from 15, 29 and 25 Government contracts,
respectively, which accounted for approximately 26%, 25% and 36%,
respectively, of the Company's total revenues. The embezzlement
matter did not involve or affect the Company's fulfillment of its
Government contracts nor its accounting thereof, and it did not
trigger any termination provisions under government contracts.

The services of the Company are performed under cost reimbursable,
time-and-materials, and fixed-price contracts and subcontracts.
Under cost reimbursable contracts, the Government reimburses the
Company for its allowable costs permitted by Government
regulations and pays the Company a negotiated fixed fee, incentive
fee, award fee or combination thereof. For time-and-materials
contracts, the Company receives a fixed hourly rate intended to
cover salary costs attributable to work performed on the contracts
and related indirect expenses, as well as a profit margin, and
reimbursement for other direct costs. Under fixed-price contracts,
the Government pays the Company an agreed-upon price for services
rendered. In addition, under certain fixed price contracts,
incentive fees are permitted if established performance goals are
met or exceeded and penalties are imposed if goals are not
attained. Under fixed-price contracts and time-and-materials
contracts, the Company bears any risk of increased or unexpected
costs that may reduce its profits or cause it to sustain losses.

The Company's Government contracts and subcontracts are subject to
termination, reduction or modification as a result of changes in
the Government's requirements or budgetary restrictions. When
the Company participates as a subcontractor, it is subject to the
risk that the primary contractor may fail or become unable to
perform the prime contract.

All Government contracts are subject to termination at the
convenience of the Government. If a contract were to be
terminated for convenience, the Company would be reimbursed for
its allowable costs incurred up to the date of termination and
would be paid a proportionate amount of the stipulated profits or
fees attributable to the work actually performed. Since the
inception of the Company's Federal Government contracting
activities, the Government has only terminated four contracts with
the Company for convenience.

Contracts with the Government are generally complex in nature and
require Halifax to comply with numerous Federal regulations
regarding discrimination in the hiring of personnel, fringe
benefits for employees, safety, safeguarding classified
information, responsibility for Government property, fire
prevention, equipment maintenance, record keeping and accounting,
management qualifications, drug free work place and numerous other
matters. The Company has not experienced any material difficulty
in complying with applicable Federal regulations.

The Company is sensitive to the present climate in the Government
with respect to fraud, waste and abuse, and has adopted a Code of
Business Ethics and Standards of Conduct and associated Company
procedures. In addition, all employees receive training in ethics
and associated Company procedures, and a hot line has been
established to encourage reporting of potential ethical
violations.

Under certain circumstances the Government can suspend or debar
individuals or firms from obtaining future contracts with the
Government for specified periods of time. Any such suspension or
debarment could have a material adverse effect upon the Company.
The books and records of the Company are subject to audit by the
Defense Contract Audit Agency (DCAA), which can result in
adjustments to contract costs and fees. Audits by DCAA have been
completed for years through fiscal year 1999 with minimal
adjustment to the Company's cost accounting records and contract
revenue reimbursement.

With the sale of the Company's Operational Outsourcing Division on
May 31, 2000, the Company's dependence on Government contracts has
been materially reduced.

Commercial and State/Municipal Government Contracts

The Company continues to work towards expanding its commercial and
state/municipal government business. Commercial revenues are
being pursued by targeting non-federal and outsourcing
opportunities. The Company's expanding development of information
technology services and solutions follows from its prior
acquisition strategy where some expanded capabilities were brought
into the Company. State/municipal government contracts may expand
from privatization opportunities.

The following table reflects the distribution of revenues (in
thousands) by type of customer excluding Discontinued Operations
(see Management Discussion and Analysis for further discussion):





Years Ended March 31,

2001 2000 1999

Commercial $ 21,246 41% $ 23,394 44% $ 23,725 40%

State/Local 17,139 33% 16,435 31% 13,866 24%

Federal
Government 13,365 26% 13,701 25% 21,480 36%

Total $ 51,750 100% $ 53,530 100% $ 59,071 100%



Type of Contracts

The following table reflects the distribution of revenues (in
thousands) by type of contract excluding Discontinued Operations,
for the periods indicated:



Years Ended March 31,

2001 2000 1999

Cost
reimbursable $ - N/A $ 341 1% $ 363 1%

Time & materials 4,458 9% 2,851 5% 3,878 6%

Fixed-price 47,292 91% 50,338 94% 54,830 93%

Total $51,750 100% $ 53,530 100% $ 59,071 100%


Accounts Receivable

Trade accounts receivable at March 31, 2001 and 2000 represented
48% and 49% of total assets, respectively. Accounts receivable are
comprised of billed and unbilled receivables. Billed receivables
represent invoices presented to the customer. Unbilled
receivables represent future payments due from the customer for
which invoices
will not be presented until a later period. The reasons invoices
are not presented may be categorized as follows:
(1) fee and cost retainage rights of the Government; (2) billable
documents in transit; (3) excess of actual direct and
indirect costs over amounts currently billable under cost
reimbursement contracts to the extent they are expected to be
billed and collected; and (4) revenues recognized in excess of
billings on fixed-price contracts arising from the use of the
percentage of completion method.

The financing of receivables requires bank borrowings and the
payment of associated interest expense. Interest expense is not
reimbursable under Government contracts.

For a summary of the amounts of unbilled receivables as of March
31, 2001 and 2000, see Note 3 to the consolidated financial
statements.

Backlog

Excluding Discontinued Operations, the Company's funded backlog for
services as of March 31, 2001, 2000 and 1999 was $37,500,000,
$14,000,000 and $25,000,000, respectively. "Funded" backlog
represents commercial orders and Government contracts to the
extent that funds have been appropriated by Congress and allotted
to the contract by the procuring Government agency. Some of the
Company's contract orders provide for potential funding in excess
of the monies initially provided by the Government. Additional
monies are subsequently and periodically authorized in the form of
incremental funding documents. The excess of potential future
funding over funding provided represents unfunded backlog. A
majority of the Company's customer orders or contract awards and
extensions for contracts previously awarded are received or occur
at various times during the year and may have varying periods of
performance.

Marketing

Marketing involves the determination of customer needs that match
the services offered by the Company. This is accomplished through
the Company's sales and marketing group which develops service and
solutions offerings, conducts sales calls, attends trade shows,
and builds a network of customer knowledge and confidence in the
Company. Those activities, along with the development of strategic
alliances and the reputation the Company has built, represent the
normal manner in which the Company's business is generated.

The Company contracts with the Federal Government, State/Local
Governments and commercial entities, each of which requires a
different marketing approach. The Federal Government maintains
that it buys from companies rather than having companies sell to
it; thus, marketing is more related to keeping abreast of the
Government's specified needs versus building markets within the
Government for the Company's services. However, the Company
conducts a large portion of its business within the commercial and
state/local government sectors, and consequently uses traditional
marketing approaches to determine commercial customer needs and to
enhance the chances that its services will be considered for those
needs.

The Company's ability to compete successfully for Government work
is largely dependent on recognizing Government requirements and
opportunities, the submission of responsive and cost-effective
proposals, and a reputation for the successful completion of
government contracts. Recognition of Government requirements and
opportunities come from inclusion on bidders lists, conducting
seminars, participation in activities of professional
organizations and from literature published by the Government and
other organizations.

Competition

The Company has numerous competitors in all areas in which it does
business. Some competitors are large diversified firms having
substantially greater financial resources and larger technical
staffs than the Company, including, in some cases, the
manufacturers of the systems being supported. Customer in-house
capabilities can also be deemed to be competitors of the Company
in that they perform certain services which might otherwise be
performed by the Company. It is not possible to predict the
extent of competition which present or future activities of the
Company will encounter because of changing competitive conditions,
customer requirements, technological developments and other
factors. The principal competitive factors for the type of service
business in which the Company is engaged are technology skills,
quality, responsiveness, ability to perform within estimated time
expense limits and pricing. Technology services are predominately
concentrated on the Mid-Atlantic coast and enterprise maintenance
services are conducted on a nationwide basis.

Personnel

On March 31, 2001, the Company had 265 employees, of whom 8 were
part-time. Because of the nature of services provided, many
employees are professional or technical personnel with high levels
of training and skills, including engineers, and skilled
technicians and mechanics. The Company believes its employee
relations are excellent. Although many of the Company's personnel
are highly specialized and there is a nationwide shortage of
certain qualified technical personnel, the Company has not
experienced material difficulties obtaining the personnel required
to perform under its contracts and generally does not bid on
contracts where difficulty may be encountered in hiring personnel.
The Company interfaces with a labor union on one of its government
contracts. To date, relations have been excellent. Management
believes that the future growth and success of the Company will
depend, in part, upon its continued ability to retain and attract
highly qualified personnel.

Item 2. Properties

On November 6, 1997, the Company sold its headquarters office
complex for $5,250,000 and leased back the building. The
transaction generated other income of $1,490,000 of which $715,000
was deferred and is being amortized over the 12 year lease-back of
its headquarters building. The net sale proceeds were applied to
the reduction of debt.

The Company is obligated under 17 short-term facility leases
connected with its operations. The total rent expenses under
existing leases were $972,000, $1,123,000 and $1,188,000 for the
years ended March 2001, 2000 and 1999, respectively.

Item 3. Legal Proceedings

On January 9, 2001 the Securities & Exchange Commission issued a
formal order directing private 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 as an adverse reflection on any person,
entity or security. The Company believes the investigation is
primarily related to the previously reported embezzlement by one
of the Company's former employees.

There are no material pending legal proceedings to which the
Company is a party. The Company is engaged in ordinary routine
litigation incidental to the Company's business to which the
Company is a party.

Item 4. Submission of Matters to a Vote of Security Holders

None


PART II


Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters

The Company's Common Stock, par value $0.24, is listed on the
American Stock Exchange

At June 22, 2001, there were approximately 687 holders of record of
the Company's Common Stock as reported by the Company's transfer
agent.

The following table sets forth the quarterly range of high and low
sales prices on the American Stock Exchange.

Fiscal Year 2001 Fiscal Year
2000

Fiscal Quarter High Low High Low

April - June (a) $7.25 $5.00 $ - $ -
July - Sept. 6.25 5.25 7.125 4.50
Oct. - Dec. 5.75 2.75 7.125 4.50
Jan. - March 3.87 2.50 8.00
5.93

(a) The Company's stock did not trade from March 17, 1999 until
September 13, 1999 due to an American Stock Exchange trading halt.
Upon the filing of the Company's 10-K for the year ended March 31,
1999, trading was resumed.

The Company did not declare a cash dividend to be paid in fiscal
year 2001 nor 2000, and there is no assurance the Company will do
so in future periods. The Company's current bank loan agreement
prohibits the payment of dividends.

Recent Sales of Unregistered Securities.
None.

Item 6. Selected Financial Data

The following table includes certain selected financial data
adjusted for Discontinued Operations (see Note 15 to the
consolidated statements) of the Company (amounts in thousands,
except per share data).





2001 2000 1999 1998 1997

Revenue - Continuing Operations $ 51,750 $ 53,530 $ 59,071 $ 56,219 $ 57,341
Income (loss) from
Continuing operations (840) 1,385 (5,316) (5,512) (3,640)
Discontinued operations 244 928 17 (88) 320
Gain on sale of discontinued
operations 1,694 - - - -
Net income (loss) $ 1,098 $ 2,313 $ (5,299) $ (5,600) $ (3,320)

Total Assets $ 17,966 $ 27,808 $ 38,735 $ 30,967 $ 37,776
Long-term obligations $ 6,886 $ 12,793 $ 12,505 $ 12,923 $ 15,956
Income (loss) per common
share - basic
Continuing operations $ (.42) $ .70 $ (2.64) $ (2.75) $ (1.83)
Discontinued operations .12 .47 .01 (.04) .16
Gain on sale on discontinued
operations .84 - - - -
$ .54 $ 1.17 $ (2.63) $ (2.79) $ (1.67)

Income (loss) per common
share - diluted
Continuing operations $ (.42) $ .69 $ (2.64) $ (2.75) $ (1.83)
Discontinued operations .12 .46 .01 (.04) .16
Gain on sale on discontinued
operations .84 - - - -
$ .54 $ 1.15 $ (2.63) $ (2.79) $ (1.67)
Weighted average number of
shares outstanding
Basic 2,022,811 1,984,014 2,012,611 2,006,603 1,985,599
Diluted 2,022,811 1,999,811 2,012,611 2,006,603 1,985,599

Dividends per common share $ - $ - $ .20 $ .20 $ 1.87



Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations

Certain statements under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
elsewhere in this Annual 10-K 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 operations and planned growth, ramifications
regarding the embezzlement matter and changes in government
regulations and competition, which may, among other things, affect
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.

Readers are referred to the "Factors that May Affect Future
Results" section within this Item 7 of Form 10-K which identifies
important risk factors that could cause actual results to differ
from those contained in the forward-looking statements.
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto. All
information is based on the Company's fiscal year ended March 31.
(Tabular information: dollars in thousands, except per share
amounts).

Results of operations and related notes thereto have been adjusted
for Discontinued Operations. (See Note 17 to the consolidated
financial statements.)




Years Ended March 31,

Results of Operations 2001 2000 Change % 2000 1999 Change %

Revenues $51,750 $53,530 $(1,780) -3% $53,530 $59,071 $(5,541) -9%

Cost of services 50,281 51,183 (902) -2% 51,183 58,031 (6,848) -12%
Percent of revenues 97% 96% 96% 98%

General and Administrative 2,886 2,096 790 38% 2,096 2,052 44 2%
Percent of revenues 6% 4% 4% 3%

Total operating cost and
expenses 53,167 53,279 (112) -.2% 53,279 60,083 (6,804) -11%
Percent of revenues 103% 100% 100% 102%

Operating (loss) income (1,417) 251 (1,668) N/M 251 (1,012) 1,263 N/M
Percent of revenues -3% 0% 0% -2%

Interest expense 955 1,066 (111) -10% 1,066 1,050 16 2%

Other expense (income) 45 (55) 100 N/M (55) 773 (828) N/M

Embezzlement (recovery)
expense (1,600) (2,250) (650) -29% (2,250) 2,593 (4,843) N/M
(Loss) income before taxes
and discontinued operations (817) 1,490 (2,307) N/ M 1,490 (5,428) 6,918 N/M

Income tax expense (benefit) 23 105 (82) -78% 105 (112) 217 N/M

(Loss) income from continuing
operations (840) 1,385 (2,225) N/M 1,385 (5,316) 6,701 N/M

Discontinued operations 244 928 (684) -74% 928 17 911 N/M

Gain on sale of discontinued
operations 1,694 - 1,694 N/M - - - -
Net income (loss) $ 1,098 $ 2,313 (1,215) -53% $ 2,313 $(5,299) $ 7,612 N/M

Earnings (loss) per share -
basic

Continuing operations $ (.42) $ .70 $ .70 $ (2.64)
Discontinued operations .12 .47 .47 .01
Gain on sale of discontinued
operations .84 - - -
$ .54 $ 1.17 $ 1.17 $ (2.63)

Earnings (loss) per share -
diluted

Continuing operations $ (.42) $ .69 $ .69 $ (2.64)
Discontinued operations .12 .46 .46 .01
Gain on sale of discontinued
operations .84 - - -
$ .54 $ 1.15 $ 1.15 $ (2.63)


N/M = not meaningful


Revenues

Revenues for the fiscal year ended March 31, 2001 decreased 3% from
2000 primarily due to modest reductions in hardware sales and
service orders caused by a lengthening purchase decision cycles
related to general slow down of the economy.

Revenues for the fiscal year ended March 31, 2000 decreased 9% from
1999 principally due to reductions in orders from the U.S. Army on
a digital communications switch contract. This was partially
offset by the ramp-up of deliveries under the Company's seat
management contract with the Virginia Department of
Transportation.

Operating Costs and Expenses

Cost of services for the fiscal year ended March 31, 2001 decreased
2% from 2000 which was proportional to the decrease in hardware
and services revenue discussed above. During the fourth quarter,
the Company increased its reserve for inventory valuation by
$700,000 due to uncertainties in the market brought on by the
economic downturn.

Cost of services for the fiscal year ended March 31, 2000 decreased
12% from 1999, which was somewhat larger than the comparable
revenues decline. Although revenues declined the fixed price
lower margin U.S. Army business which declined was somewhat offset
by growth in the higher margin technology services which resulted
in cost of services decreasing at a higher percentage than the
percentage of decrease in revenue. In addition, 1999 costs of
services included certain unusual charges related to inventory
obsolescence of approximately $1.7 million due to potential Y2K
issues and the write-off of an under performing maintenance
services contract.

During the year ended March 31, 2001, general and administrative
expenses increased 38% or $790,000 over fiscal year 2000. This
was due primarily to increases in professional fees, insurance
costs and upgrade and consolidation of the Company's accounting
system.

General and administrative expenses increased 2% in 2000 from 1999
principally as a result of increases in staffing in key strategic
areas offset by reductions in depreciation expense.

Operating Income

The Company incurred an operating loss of $1,417,000 during the
fiscal year ended March 31, 2001 due primarily to the reductions
in revenue and the increase in general and administrative expenses
as discussed above.

As a result of the margin improvement arising from the sales mix
change and the reduction in general and administrative expenses,
the Company generated operating income of $251,000 in 2000 as
compared to an operating loss of $1.0 million in 1999.

Interest and Other Income or Expense

Interest expense declined $111,000 or 10% to $955,000 during the
year ended March 31, 2001 compared to 2000 principally due to
reduced borrowings and lower interest rates.

Interest expense increased 2% in 2000 as compared to 1999,
primarily due to higher interest rates and the large amount of
debt outstanding during the first half of fiscal year 2000.

Other expense of $45,000 in 2001 resulted from the disposition of
certain obsolete fixed assets.

Other income was $55,000 in 2000 as compared to expense of $773,000
in 1999 which was principally related to one-time write-offs of
certain fixed assets in 1999.

Embezzlement Recovery

During the years ended March 31, 2001 and 2000, net embezzlement
recoveries were $1.6 million and $2.25 million, respectively (net
of recovery costs of $1,156,000 and $250,000, respectively).

The loss of approximately $2.6 million in 1999 was net of $3.5
million of total net recoveries realized from certain recovered
assets (net of recovery costs) and insurance proceeds. For
additional discussion see "Embezzlement Matter" in Item 1 and Note
2 of the consolidated financial statements.

Income Taxes

As a result of the Company's historical losses (principally from
the embezzlement), the Company generated significant loss
carryforwards (both federal and state). At March 31, 2001 and
2000, the Company had remaining net operating loss carryforwards
amounting to approximately $8.6 million and $10.2 million,
respectively. Due to the uncertainty of future realization, the
Company has not recorded a net benefit for these operating loss
carryforwards in its financial statements.

Discontinued Operations

In May 2000, the Company sold its Operational Outsourcing Division,
and accordingly the financial results for this division have been
reclassified as Discontinued Operations. (See Note 17 to the
consolidated financial statements.)

The net of tax results for Discontinued Operations for 2001, 2000
and 1999 were income of $244,000, $928,000 and $17,000,
respectively. The decrease in net income in fiscal year 2001 was
due to the shortened period of operations as a result of the
disposition on May 31, 2000. The increase in net income from 1999
to 2000 resulted principally from one-time contract modifications
generated by a single customer.

Net income (loss) from Continuing Operations

The 2001 net loss of $840,000 from continuing operations was due
primarily to higher operating expenses offset by embezzlement
recoveries of $1.6 million.

The 2000 net income from continuing operations of $1.4 million was
principally the result of embezzlement recoveries amounting to
$2.25 million.

Net losses from continuing operations in 1999 of $5.3 million were
the result of embezzlement losses of $3.6 million and operating
loss, in the amount of $3.6 million.

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 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, or if successful will be on terms
advantageous to the Company.






Liquidity and Capital Resources 2001 2000 1999

Cash balance at March 31, 2001 $ 231,000 $ 1,800,000 $ 0
Working capital at March 31, 2001 $ (102,000) $ 3,481,000 $ 740,000
Net cash provided by operations
before impact of embezzlement $ 520,000 $ 1,641,000 $ 1,940,000
Net cash recovered (used) related
to embezzlement 1,600,000 5,078,000 (5,421,000)
Net cash provided by (used in)
operating activities $ 2,120,000 $ 6,719,000 $(3,481,000)

Net cash provided by (used in) $ 4,869,000 $ (847,000) $ (651,000)
investment activities
Net cash (used in) provided by $(8,558,000) $(4,072,000) $ 4,132,000
financing activities



At March 31, 2001, the Company had negative working capital of
$(102,000) and a current ratio of 0.99. The reduction in working
capital was attributable to the loss from operations and
significant curtailment of long term debt. Working capital was
provided from the sale of the operational outsourcing division,
embezzlement recoveries and bank borrowings.

At March 31, 2000, the Company had working capital of $3,481,000
and a current ratio of 1.20. In October and November 1998 in a
series of private placements, the Company issued $2 million of
subordinated notes due July 1, 2002 to Research Industries
Incorporated, a private investment company and an affiliate of the
Company. Cash was also provided through bank borrowings.

A summary of future minimum lease payments is in Note 12 to the
consolidated financial statements. Capital expenditures in 2001,
2000, and 1999 were substantially reduced from prior years to
conserve cash. The Company does not expect fiscal year 2002
technology requirements to result in greater capital expenditures
than fiscal year 2001. The Company continues to sublease a
portion of its headquarters building generating approximately
$148,000 annually.

On December 8, 2000, the Company entered into a new revolving
credit agreement with an $8 million maximum credit line which
refinanced the Company's previous revolving credit line. Amounts
available under this agreement are determined by applying stated
percentages to the Company's eligible and unbilled receivables.
As of March 31, 2001, the Company had an outstanding balance of
$2.9 million with an additional $2.0 million available on the line
of credit. Advances under the revolving credit agreement are
collateralized by a first priority security interest in all the
Company's assets as defined in the financing and security
agreement. The agreement also contains certain financial and
reporting covenants. The agreement matures on August 31, 2002.
Although the Company is in compliance with its credit and security
agreement at March 31, 2001, it believes that it may not be in
compliance with certain financial convenants of this agreement in
future periods and the lender has agreed to waive the covenant
violations should they occur for the quarter ending June 30, 2001.
It is the intention of the lender and the Company to restructure
the covenants to assure that compliance can be maintained through
March 31, 2002.

On September 1, 1999, the Company signed a banking agreement,
which was amended on December 21, 1999, which refinanced the
Company's revolving credit line and outstanding 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 to the consolidated financial statements), if any, to term debt
balances outstanding and to reduce its maximum line on its
revolving credit agreement to $6,000,000. The Company was in non-
compliance with certain 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 has not been refinanced. The debt under this
agreement was paid in full on December 8, 2000.

The Revolving Credit Agreements prohibit the payment of dividends
or distributions as well as the payment of principal or interest
on Subordinated Debt. Interest expense on Subordinated Debt is
accrued on a current basis.

The subordinated debt agreements with an affiliate totaled $4
million at March 31, 2001 and 2000. The banking agreements
prohibits the payments of principal or interest. Principal
repayment and interest payable on the subordinated debt agreements
have been extended to July 1, 2002. (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%. $507,000 was
paid in September and October 1999 and payments of $299,965 per
month thereafter. The balance of the note due March 31, 2001 was
$632,000. The Company intends to repay this amount during the
fiscal year ending March 31, 2002.

The Company believes that funds generated from operations, bank
borrowings, embezzlement recoveries and investing activities
should be sufficient to meet its current operating cash
requirements through July 1, 2002, although there can be no
assurances that all the aforementioned sources of cash can be
realized.

The Company will need to amend its current line of credit which
expires on August 31, 2002. There are no assurances that these
efforts will successfully be completed.

Item 7A. 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 March 31, 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 contains descriptions of the Company's funded debt and
should be read in conjunction with the table below (amount in
thousands).




Long-term debt (including current 2002 2003 Total Fair
maturities) Debt Value

Revolving credit agreement at the
LIBOR rate plus 2.5%. Due August
31, 2002. Average interest rate
of 7.5%. $ - $ 2,886 $ 2,886 $ 2,886

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 $ 6,886 $ 7,518 $ 7,478


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 8. Financial Statements and Supplementary Data

Financial statements and supplementary data of the Company are
attached hereto.


Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure

Ernst & Young LLP (the "Former Accountants") resigned as the
independent accountants for Halifax Corporation (the "Company") on
October 19, 1999.

No report prepared by the Former Accountants on the consolidated
financial position of Halifax Corporation at March 31, 1999 and
1998, and the consolidated results of operations and its cash
flows of each of the three years in the period ended March 31,
1999, contained an adverse opinion or disclaimer of opinion, or
was qualified or modified as to uncertainty, audit scope, or
accounting principles.

In connection with the audit conducted by the Former Accountants
for the fiscal year ended March 31, 1999, which was concluded on
September 7,1999, and which included the consolidated balance
sheets of Halifax Corporation as of March 31, 1999 and 1998, and
the related consolidated statements of operations, changes in
stockholders' equity (deficit) and cash flows for each of the
three years in the period ended March 31, 1999, there were no
disagreements between the Company and Ernst & Young LLP on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements,
if not resolved to the satisfaction of Ernst & Young LLP, would
have caused them to make reference thereto in their report on the
financial statements for those years.

The fiscal year 1999 audit was completed on September 7, 1999 with
the issuance, by Ernst & Young LLP, of an unqualified opinion as
presented in the Company's Form 10-K which was filed with the SEC
on September 9, 1999.




PART III

Item 10. Directors and Executive Officers of the Registrant


DIRECTORS

Arch C. Scurlock, age eighty-one, presently Chairman of the Board
of Directors, has been a Director of the Company since 1973. He
has been President and a Director of Research Industries
Incorporated, a private investment company since 1968. He served
from 1969 to 1992 as Chairman of the Board of TransTechnology
Corporation, a manufacturer of aerospace defense and other
industrial products.

Charles L. McNew, age forty-nine, joined the Company in July 1999
and was appointed President and Chief Executive Officer on May 8,
2000. He had been acting President and CEO from April 14, 2000 to
May 7, 2000 and prior to that was Executive Vice President and
Chief Financial Officer. From July 1994 through July 1999 prior
to joining the Company, Mr. McNew was Chief Financial Officer and
later Chief Operating Officer of NumereX Corporation, a public
Company that develops and markets communications and information
products and services.

John H. Grover, age seventy-two, became a Director of the Company
in 1984. He has served as Executive Vice President, Treasurer and
Director of Research Industries Incorporated since 1968, and as a
Director of TransTechnology Corporation from 1969 to 1992.

John M. Toups, age seventy-five, and has been a Director of the
Company since 1993. Mr. Toups served as President and CEO of
Planning Research Corporation (PRC) from 1978 to 1987. Prior to
that he served in various executive positions with PRC. For a
short period of time in 1990, he served as interim Chairman of the
Board and CEO of the National Bank of Washington and Washington
Bancorp and is currently a Director of CACI International, Inc.,
an information technology company, NVR, Inc. a home builder
company, Thermatrix, Inc., an air emissions control technology
company, Andrulis Corporation, an information systems company and
GTSI, a reseller of software/hardware company.




Thomas L. Hewitt, age sixty-two, has been a Director of the
Company since March 2000. Mr. Hewitt founded Federal Sources in
December of 1984, a market research and consulting firm, and
served as the Company's CEO until the recent sale of the Company
in 2000. Prior to founding Federal Sources, Mr. Hewitt served as
a Senior Vice President of Kentron, an information technology
professional services company acquired by PRC, and held several
senior level positions at CSC, an information technology systems
integration company, including President of the Infonet Government
Systems Division and VP of Program Development of the Systems
Group.

Daniel R. Young, age sixty-seven, became a Director of the Company
in March 2001. Mr. Young, former Vice Chairman and Chief
Executive Officer of Federal Data Corporation (FDC), retired
recently after having served the company in various executive
capacities for more that two decades. He joined FDC in 1976 as
the Executive Vice President, and in 1985, was elected President
and Chief Operating Officer. Following the acquisition in 1995 of
FDC by The Carlyle Group, Mr. Young assumed the position of
President and Chief Executive Officer. In 1998, he was elected
Vice Chairman of the Board of Directors. Before joining FDC, Mr.
Young was an executive with Data Transmission Company. He
ultimately became Executive Vice President, and, prior to that,
held various engineering, sales and management position at Texas
Instruments, Inc. He also served in the U.S. Navy as a sea
officer. Mr. Young is a graduate of the University of Texas where
he earned a B.S. Degree in engineering and a J.D. from the
University of Texas School of Law.

All Directors terms will expire at the Annual Meeting scheduled
for Fall 2001.


OTHER EXECUTIVE OFFICERS

In addition to Mr. McNew, the following persons serve as executive
officers of the Company.

Joseph Sciacca, age forty-eight, Vice President of Finance and
Chief Financial Officer since May 2000. He was appointed
Corporate Controller in December 1999 and provided consulting
services to the Company prior thereto beginning in March 1999.
From September 1996 through September 1998, he was Chief Financial
Officer of On-Site Sourcing, a legal document management services
firm. From 1994 through 1996, he was a principal in a tax and
consulting firm.

James L. May, age sixty-five, Vice President and General Manager,
Computer Maintenance Division. Mr. May has been with Halifax
since April 1, 1997. Prior to joining the Company, Mr. May was an
independent Consultant from 1992 to 1997. Prior to that time Mr.
May was a Vice President of Decision Data Corporation. Other
positions held include Vice President, Bell Atlantic Corporation,
Sorbus Service Division. Also President and Chief Operating
Officer for Beta Products Corporation. Mr. May has also served on
the Board of Directors for Forney Special Products.

Thomas J. Basile, age forty-seven, Vice President, Sales and
Marketing. Prior to Halifax, Mr. Basile was vice president of
sales for MATCOM, an information technology integration firm,
where he established vertical market eBusiness solutions for
health care, human resources and claims processing. Previously,
he was director of consulting for FDC Technologies, where he was
responsible for the sales and delivery of various information
systems. Earlier experience included marketing and sales
positions with Anderson Consulting, Price Waterhouse Coopers, and
Grant Thornton LLP.

James L. Sherwood, IV, age fifty-nine, is Vice President,
Contracts and Administration. He previously served as Vice
President of the Company's Facilities Services Division. He has
been with the Company and its subsidiaries since 1978.

Robert Santmyer, age forty-one, Vice President and General
Manager, Technology Services Division since June 1999. Prior to
joining Halifax, he was Vice President, Professional Services,
Dictaphone Corporation from September 1998 to June 1999. Other
positions held were General Manager, DCX Systems LTD, a subsidiary
of NumereX Corporation from February 1997 until September 1998;
and from April 1989 until February 1997 Vice President,
Professional Services, MAXM Systems Corporation.

Melvin L. Schuler, age fifty-seven is Vice President,
Communications Services Division. Mr. Schuler has been with
Halifax since 1972, serving in various management positions within
the Communications services line of business.

Director compensation. Each outside Director received $2,000 for
each meeting attended. During the year ended March 31, 2001 there
were five (5) meetings. All directors except Mr. Nashman and Mr.
Young attended all of the Board meetings and the Committees on
which they served. Mr. Nashman resigned from the Board on August
24, 2000 and Mr. Young joined the Board in March 2001. During the
fiscal year ended March 31, 2001 the Company granted options to
purchase on aggregate of 13,000 shares of Halifax common stock at
a price of $7.08 per share to directors.

Section 16 (a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act ("Section 16(a)") requires
Halifax Corporation's Directors, executive officers and persons
who own more than 10% of a registered class of Halifax Corporation
equity securities, to file with the SEC initial reports of
ownership and reports of changes in ownership of common stock and
other equity securities of Halifax Officers, directors and greater
than 10% stockholders are required by SEC regulations to furnish
Halifax with copies of all Section 16(a) forms they file.

To Halifax's knowledge, based solely on review of copies of such
reports furnished to Halifax and written representations that no
other reports were required during the fiscal year ended March 31,
2001, all Section 16(a) filing requirement applicable to its
officers, directors and greater than 10% beneficial owners were
complied with.


Item 11. Executive Compensation

SUMMARY COMPENSATION TABLE

The following table sets forth information relating to the Chief
Executive Officers and other officers whose compensation exceeded
$100,000 serving except as otherwise indicated at the close of the
fiscal year ended March 31, 2001 for services rendered in all
capacities during the fiscal years ended March 31, 2001, 2000, and
1999.



SUMMARY COMPENSATION TABLE

Annual Compensation Long-Term
Compensation
Payouts

Other
Annual All Other
Salary Bonus Compen- Options Compen-
sation SARs sation
Year ($) ($) ($)(1) (#) ($)(2)

Charles L. McNew(3) 2001 200,000 30,000 925(1) 25,000 1,160
2000 100,451 100,000 925 45,000 1,962

John J. Reis(4) 2001 18,328 - 50,000 - 676
Former CEO/President 2000 201,247 150,000 675 25,000 5,948
1999 11,539 - - 50,000 -

Howard C. Mills(5) 2001 - - 50,000 - -
Former CEO/President 2000 38,777 - 52,958 - 1,307
1999 172,603 - 4,697 - 22,900

Joseph Sciacca 2001 130,391 22,000 - 25,000 7,017

James L. May 2001 133,396 5,325 - 10,000 6,225

James L. Sherwood, IV 2001 127,945 6,000 - - 7,156
2000 113,543 6,000 - 5,000 2,390
1999 111,348 3,220 - 5,000 9,453

Robert V. Santmyer 2001 154,988 28,000 - - 5,129
2000 118,466 35,000 - 25,000 -

Melvin L. Schuler 2001 124,961 - - - 6,904
2000 110,921 6,243 - 5,000 2,502
1999 108,764 - - 3,000 2,443

James C. Dobrowolski 2001 22,612 6,000 - - 1,673
2000 117,903 - - - 2,358
1999 113,659 6,864 2,400 8,000 2,130



(1) Value of Company furnished auto.
(2) Amounts contributed to officer under 401(k) plan, and
insurance plans.
(3) Mr. McNew's annual base salary is $200,000.
(4) Mr. Reis' employment with the Company ceased effective April
2000.
(5) Mr. Mills retired from the Company effective April 1, 1999.
The Company entered into a consulting agreement with Mr.
Mills whereby he provides certain advisory services. The
Agreement is for a term of ten years commencing April 1,
1999 and ending March 31, 2009. Mr. Mills receives $50,000
per year, payable monthly, in exchange for his services.




Halifax Corporation
Aggregate Options Exercises in 2001 and Year End Values

Number of Value of
Share Underlying Unexercised in-
Acquired Value Unexercised the-Money
On Realized Options at Options at
Name Exercise ($) 3/31/2001 3/31/2001
(#)
(a) (b) (c) (d) (e)

Arch C. Scurlock
Chairman of the Board
Exercisable - - 7,000 -
Unexercisable - - 2,000 -


Charles L. McNew
CEO
Exercisable - - 15,000 -
Unexercisable - - 55,000 -

Joseph Sciacca
CFO
Exercisable - - 3,000 -
Unexercisable - - 22,000 -

James L. May
V.P. Operations
Exercisable - - 2,500 -
Unexercisable - - 7,500 -

James L. Sherwood
V.P. Contracts
Exercisable - - 6,750 -
Unexercisable - - 13,000 -

Robert V. Santmyer
V.P.
Exercisable - - 8,333 -
Unexercisable - - 16,607 -

Melvin L. Schuler
V.P.
Exercisable - - 7,250 -
Unexercisable - - 5,250 -

James C. Dobrowolski
V.P.
Exercisable 3,600 $2,862 - -
Unexercisable - - - -









Halifax Corporation
Option Grants in 2001
Potential Realizable Value
At Assumed Annual Rates
Number of % of Of Stock Appreciation for
Securities Total Exercise Option Term
Options Options Price Expiration
Name Granted Granted $/Share Date 5% 10%
to
Employees
(a) (b) (c) (d) (e) (f) (g)

Arch C. Scurlock 2,000 1.4% $ 7.06 4/2005 $ 3,901 $ 8,620
Chairman of the Board

Charles L. McNew 25,000 18.1 5.50 5/2005 37,989 83,945
CEO

Joseph Sciacca 15,000 11.1 5.50 5/2005 22,793 50,367
CFO

Thomas J. Basile 45,000 33.5 3.55 2/2006 44,135 97,529
V.P.



Severance Arrangements

On May 8, 2000, the Company entered into an Executive Severance
Agreement ("Agreement") with Mr. McNew in recognition of his
position of high responsibility and authority. The Agreement
provides benefits under certain circumstances including a change
in control of the Company and remains in effect so long as Mr.
McNew continues to be employed by the Company. It confirms that
employment is at will and provides for termination without
additional compensation in the event of death, resignation,
retirement or "for cause," as defined therein. Except in
connection with a change of control event, termination for any
other reason results in compensation equal to twelve (12) months
salary. In the event of termination within one year after a
change in control, Mr. McNew would receive compensation equal to
twenty-four months salary subject to statutory limitations.

In addition, the Company and Executive entered into a letter
agreement dated March 31, 2001 pursuant to which the Company, in
consideration of Executive's continued employment with the Company
through March 31, 2002, agreed to pay to Executive $100,000 as a
severance payment. This payment is based upon the Executive's
current base salary rate and will be paid on normal payroll
payment dates. In addition, Executive agrees to provide the
Company with at least 90 days' notice prior to March 31, 2002, in
the event Executive decides to terminate employment with the
Company as of March 31, 2002.


Item 12. Security Ownership of Certain Beneficial Owners and
Management

The following table sets forth as of May 31, 2001 (1) the number
of shares of the Company's common stock owned beneficially by each
person who owned of record, or is known by the Company to have
owned beneficially, more than 5% of such shares then outstanding
(2) the number of shares owned by each director and officer of the
Company and (3) the number of shares owned beneficially by all
officers and directors as a group. Information as to the
beneficial ownership is based upon statements furnished to the
Company by such persons.



Name of Amount and Nature
Beneficial Owner of Beneficial Percent
Ownership

Research Industries Incorporated (1)(3)(4) 717,530 35.4
123 North Pitt Street
Alexandria, Virginia 22314

Arch C. Scurlock (1)(2) 724,530(5) 35.8
123 North Pitt Street
Alexandria, Virginia 22314

John H. Grover (3) 8,500(5) 0.4
123 North Pitt Street
Alexandria, Virginia 22314

John M. Toups 11,500(5) 0.6
5250 Cherokee Avenue
Alexandria, VA 22312

Thomas L. Hewitt 750(5) *
5250 Cherokee Avenue
Alexandria, VA 22312

Charles L. McNew 16,000(6) 0.7
5250 Cherokee Avenue
Alexandria, VA 22312

Melvin L. Schuler 14,100(6) 0.7
5250 Cherokee Avenue
Alexandria, VA 22312

James L. Sherwood IV 8,975(6) 0.4
5250 Cherokee Avenue
Alexandria, VA 22312

Joseph Sciacca 3,461(6) 0.2
5250 Cherokee Avenue
Alexandria, VA 22312

Alvin E. Nashman(8) 6,000 0.3

John J. Reis(9) 0 *

All officers and directors as a
group, including the above (9) persons 772,255(7) 37.6

* Less than 1%




(1) Research Industries Incorporated is 93% owned by
Arch C. Scurlock, Chairman of the Company's Board of
Directors. Dr. Scurlock is also President and a director of
Research Industries Incorporated.
(2) Includes 715,780 shares owned by Research Industries
Incorporated.
(3) Mr. Grover is also a greater than 5% owner, a director and
Executive Vice President and Treasurer of Research
Industries Incorporated.
(4) Research Industries Incorporated owns $2 million face
amountof the Company's 7% Convertible Subordinated Debenture dated
January 27, 1998 and $690,000, $310,000, $500,000 and
$500,000 face amount of the Company's Promissory Notes dated
October 8, 1998, October 13, 1998, November 2, 1998 and
November 5, 1998, respectively.
(5) Includes options to purchase Common Stock under the Non-
Employee Director Stock Option Plan as follows:
Arch C. Scurlock - 7,000; John H. Grover - 7,000;
John M. Toups - 7,000 and Thomas L. Hewitt - 750
(6) Includes options to purchase Common Stock under the Employee
Stock Option Plan as follows: Charles L. McNew - 15,000;
Joseph Sciacca - 3,333; Melvin L. Schuler - 7,250 and
James L. Sherwood IV - 6,750.
(7) Includes options to purchase 54,083 shares of Common Stock
under Company stock option plans.
(8) Mr. Nashman resigned from the Board on August 24, 2000.
(9) Mr. Reis' employment with the Company ceased April 2000.

Item 13. Certain Relationships and Related Transactions

Incorporated by reference from the Company's Proxy Statement
relating to 2001 Annual Meeting of Shareholders to be filed
pursuant to General Instruction G (3) to Form 10-K.

On May 1, 1986, Ernest L. Ruffner, a director of the Company,
joined the law firm of Pompan, Murray, Ruffner & Werfel. Jacob
Pompan of that firm has represented Halifax in its government
contract affairs since 1984. During the fiscal year ended March
31, 2000, the firm received fees of $53,968 from the Company.
In addition, Mr. Ruffner, as General Counsel, until his
retirement on December 31, 1999, was paid $102,725 for legal
services as General Counsel.

Under a consulting agreement with the Company, Howard Mills
former President and CEO was paid $50,000 for the years ended
March 31, 2001 and 2000. The agreement expires March 31, 2009.

Dr. Alvin Nashman provided consulting services to the Company,
while also performing as a Director of the Company, for which he
was compensated at the rate of $2,000 per month. This
arrangement concluded in September 1999. Mr. Nashman resigned
from the Board on August 24, 2000.

On May 8, 2000, the Company entered into an Executive Severance
Agreement ("Agreement") with Mr. McNew in recognition of his
position of high responsibility and authority. The Agreement
provides benefits under certain circumstances including a change
in control of the Company and remains in effect so long as Mr.
McNew continues to be employed by the Company. It confirms that
employment is at will and provides for termination without
additional compensation in the event of death, resignation,
retirement or "for cause," as defined therein. Except in
connection with a change of control event, termination for any
other reason results in compensation equal to twelve (12) months
salary. In the event of termination within one year after a
change in control, Mr. McNew would receive compensation equal to
twenty-four months salary subject to statutory limitations.


In addition, the Company and Executive entered into a letter
agreement dated March 31, 2001 pursuant to which the Company, in
consideration of Executive's continued employment with the Company
through March 31, 2002, agreed to pay to Executive $100,000 as a
severance payment. This payment is based upon the Executive's
current base salary rate and will be paid on normal payroll
payment dates. In addition, Executive agrees to provide the
Company with at least 90 days' notice prior to March 31, 2002, in
the event Executive decides to terminate employment with the
Company as of March 31, 2002.



PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K

(a) The following documents are filed as part of this report:

1.Consolidated Financial Statements

o Independent Auditors' Reports
o Consolidated Statements of Operations for
the years ended March 31, 2001, 2000 and 1999
o Consolidated Balance Sheets as of March 31,
2001 and 2000
o Consolidated Statements of Cash Flows for
the years ended March 31, 2001, 2000 and 1999
o Consolidated Statements of Changes in Stockholders'
Equity (Deficit) for the years ended
March 31, 2001, 2000 and 1999
o Notes to Consolidated Financial Statements

2. Financial Statement Schedule

o Schedule II, Valuation and Qualifying
Accounts

All other schedules are omitted since they are not applicable, not
required or the required information is included in the
consolidated financial statements or notes thereto.

3. Exhibits

3.1 Articles of Incorporation, as amended. (Incorporated by
reference to Exhibit 3.1 to Form 10-K for the year ended
March 31, 1995.)

3.2 By-laws, as amended. (Incorporated by reference to Exhibit
3.2 to Form 10-K for the year ended March 31, 1995.)

3.3 Articles of Amendment to Articles of Incorporation.
(Incorporated by reference to Exhibit 3.3 to Form 10-K for
the year ended March 31, 2000.)

4.1 Loan and Security Agreement dated January 30, 1989 between
the Company and Crestar Bank. (Incorporated by reference to
Exhibit 4.1 to Form 10-K for the year ended March 31, 1989.)

4.2 First Amendment to Amended and Restated Loan and Security
Agreement between the Company and Crestar Bank dated Dec. 11,
1992 and amended and restated revolving note. (Incorporated
by reference to Exhibit 4.2 to Form 10-K for the Year ended
March 31, 1993.)

4.3 Loan agreement dated June 30, 1993 between the Company and
Crestar Bank. (Incorporated by reference to Exhibit 4.3 to
Form 10-K for the year ended March 31, 1994.)

4.4 Second Amendment to Amended and Restated Loan and Security
Agreement between the Company and Crestar Bank dated November
14, 1994 and amended and restated revolving note.
(Incorporated by reference to Exhibit 4.4 to Form 10-K for
the year ended March 31, 1995.)

4.5 Fifth Amended and Restated Loan and Security Agreement
between the Company and Crestar Bank dated June 25, 1998 and
restated notes (Incorporated by reference to Form 8-K dated
October 6, 1998.)

4.6 Sixth Amended and Restated Loan and Security Agreement
between the Company and Crestar Bank dated September 7, 1999
and restated notes.

4.7 Third Amendment to the Sixth Amended and Restated Loan and
Security Agreement between the Company and SunTrust Bank
(formerly Crestar Bank) dated September 7, 1999 and related
notes.


4.8 Financing and Security Agreement between the Company and Bank
of America, N.A. dated December 8, 2000. (Incorporated by
reference to Exhibit 4.8 to Form 10-Q for the quarter ended
December 31, 2000.)

10.1 1984 Incentive Stock Option and Stock Appreciation Rights
Plan, as amended. (Incorporated by reference to Exhibit 10.3
to the Form 10-K for the year ended March 31, 1989).

10.2 Agreement of purchase and sale with amendments dated June 7,
1992, between the Company and ReCap Inc. for the Halifax
Office Complex. (Incorporated by reference to Exhibit 10.5
of the Form 10-K for the year ended March 31, 1992).

10.3 1994 Key Employee Stock Option Plan. (Incorporated by
reference to Exhibit 10.3 to Form 10-K for the year ended
March 31, 1995).

10.7 Charles L. McNew Executive Severance Agreement dated May 8,
2000. (Incorporated by reference to Exhibit 10.7 to Form 10-
K for the year ended March 31, 2000.)

10.8 Charles L. McNew Executive Severance Agreement, dated
March 31, 2001.

22 Subsidiaries of the registrant.

23 Consent of Deloitte & Touche LLP, Independent Auditors.

23.1 Consent of Ernst & Young LLP, Independent Auditors.

(b) Reports on Form 8-K

None



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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


By /s/Charles L. McNew
Charles L. McNew
President and Chief Executive Officer Date: 6/22/01

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates
indicated.

Signature Title Date


/s/Charles L. McNew President and 6/22/01
Charles L. McNew Chief Executive
Principal Executive Officer Officer, Director



/s/Joseph Sciacca Vice President, 6/22/01
Joseph Sciacca Finance and Chief
Principal Financial and Financial Officer
Accounting Officer


/s/Arch C. Scurlock Chairman of the 6/22/01
Arch C. Scurlock Board of Directors


/s/John H. Grover Director 6/22/01
John H. Grover



/s/Thomas L. Hewitt Director 6/22/01
Thomas L. Hewitt



/s/John M. Toups Director 6/22/01
John M. Toups



/s/Daniel R. Young Director 6/22/01
Daniel R. Young





INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Halifax Corporation:

We have audited the accompanying consolidated balance sheets of
Halifax Corporation and subsidiaries as of March 31, 2001, and
2000, and the related consolidated statements of operations,
changes in stockholders' deficit, and cash flows for the years
then ended. Our audit also included the financial statement
schedule listed in the Index at Item 14(a)2 for the years ended
March 31, 2001 and 2000 . These financial statements and
financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements and financial statement schedule
based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provides a reasonable
basis for our opinion.

In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Halifax Corporation and subsidiaries at March 31, 2001, and 2000,
and the results of their operations and their cash flows for the
years then ended in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.


/s/Deloitte & Touche LLP

McLean, VA
June 15, 2001



INDEPENDENT AUDITORS' REPORT

Report of Independent Auditors
Board of Directors and Stockholders Halifax Corporation

We have audited the accompanying consolidated statements of
operations, changes in stockholders' equity (deficit) and cash
flows of Halifax Corporation for the year ended March 31, 1999.
Our audit also included the financial statement schedule listed in
the index at item 14(a)2 as of March 31, 1999. These financial
statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.

We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated results of
operations and cash flows of Halifax for the year ended March 31,
1999, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial
statement schedule as of March 31, 1999, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth
therein.




/s/Ernst & Young LLP

Washington , D.C.
September 7, 1999








HALIFAX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999
(Amounts in thousands except share and per share data)

2001 2000 1999

Revenues (Note 1) $ 51,750 $ 53,530 $ 59,071

Operating costs and expenses:
Cost of services 50,281 51,183 58,031
General and administrative 2,886 2,096 2,052

Total operating costs and expenses 53,167 53,279 60,083

Operating (loss) income (1,417) 251 (1,012)

Interest expense (955) (1,066) (1,050)
Other (expense) income (45) 55 (773)
Embezzlement recovery (loss) 1,600 2,250 (2,593)
Income (loss) from continuing operations
before income taxes (817) 1,490 (5,428)

Income tax expense (benefit) 23 105 (112)
Income (loss) from continuing operations (840) 1,385 (5,316)
Income from discontinued operations
net of income tax expense of $0, $35 and $12 in 928 17
2001, 2000 and 1999, respectively 244
Gain on sale of discontinued operations (net of
income taxes of $100) 1,694 - -
Net income (loss) $ 1,098 $ 2,313 $ (5,299)

Earnings (loss) per common share-basic:

Continuing operations $ (.42) $ .70 $ (2.64)
Discontinued operations .12 .47 .01
Gain on sale of discontinued operations .84 - -
$ .54 $ 1.17 $ (2.63)

Earnings (loss) per common share-diluted:

Continuing operations $ (.42) $ .69 $ (2.64)
Discontinued operations .12 .46 .01
Gain on sale of discontinued operations .84 - -
$ .54 $ 1.15 $ (2.63)
Weighted average number of common shares
outstanding - basic 2,022,811 1,984,014 2,012,611

Weighted average number of common shares
outstanding - diluted 2,022,811 1,999,811 2,012,611


See notes to consolidated financial statements






HALIFAX CORPORATION
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2001 AND 2000
(Amounts in thousands except share and per share data)
March 31,

2001 2000

ASSETS

CURRENT ASSETS
Cash $ 231 $ 1,800
Restricted cash - 650
Trade accounts receivable (Note 3) 8,643 13,558
Inventory (Note 1) 2,889 4,390
Prepaid expenses and other current assets 612 566

TOTAL CURRENT ASSETS 12,375 20,964

PROPERTY AND EQUIPMENT, net (Notes 1 and 4) 1,956 2,259

GOODWILL, net (Notes 1 and 5) 3,192 4,113

OTHER ASSETS 443 472

TOTAL ASSETS $ 17,966 $ 27,808

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
Accounts payable $ 2,604 $ 4,809
Accrued expenses (Note 7) 8,386 8,080
Deferred maintenance revenue 855 596
Current portion of long-term debt (Note 6) 632 3,962
Income taxes payable - 36

TOTAL CURRENT LIABILITIES 12,477 17,483

LONG-TERM BANK DEBT (Note 6) 2,886 8,793
SUBORDINATED DEBT - AFFILIATE (Note 6) 4,000 4,000
Deferred Income (Note 12) 516 572
TOTAL LIABILITIES 19,879 30,848

COMMITMENTS AND CONTINGENCIES (Note 14)

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 in 2001 and 2,316,370 in 2000
Outstanding - 2,023,436 in 2001 and 2,017,436 in 2000 562 560
Additional paid-in capital 4,710 4,683
Accumulated deficit (6,973) (8,071)
Less Treasury stock at cost - 298,934 and shares in 2001 and 2000 (212) (212)
TOTAL STOCKHOLDERS' DEFICIT (1,913) (3,040)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 17,966 $ 27,808

See notes to consolidated financial statements





HALIFAX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999
(Amounts in thousands)
2001 2000 1999

Cash flows from operating activities:

Net income (loss) $ 1,098 $ 2,313 $ (5,299)

Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:

Depreciation and amortization 998 1,055 1,277
Gain on sale of discontinued operations (1,694) - -
Common stock issued in lieu of interest - 233 -
Loss on sale or disposal of property and
equipment 45 - 773
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 4 10,242 (7,282)
Decrease (increase) decrease in inventory 1,501 (441) 1,309
Decrease (increase) in prepaid expenses and other
current assets 28 2,851 (3,107)
Decrease (increase) in other assets 417 (291) 139
Decrease (increase) in income tax receivable - 808 (226)
(Decrease) increase in accounts payable,
accrued expenses and other current liabilities (185) (10,029) 8,995
(Decrease) increase in income taxes payable (36) 36 -
Decrease in deferred income (56) (58) (60)

Net cash provided by (used in) operating activities 2,120 6,719 (3,481)

Cash flows from investing activities:
Purchase of property and equipment (631) (847) (651)
Net proceeds from sale of discontinued operations 5,500 - -

Net cash provided by (used in) investing activities 4,869 (847) (651)

Cash flows from financing activities:
Proceeds from debt borrowings 25,003 43,207 53,431
Repayments of debt (34,240) (46,677) (48,915)
Restricted cash 650 (650) -
Cash dividends paid - - (403)
Proceeds from sale of stock upon exercise of
stock options 29 48 19

Net cash (used in) provided by financing activities (8,558) (4,072) 4,132

Net (decrease) increase in cash (1,569) 1,800 -
Cash at beginning of year 1,800 - -
Cash at end of year $ 231 $ 1,800 $ -

See notes to consolidated financial statements







HALIFAX CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED MARCH 31, 2001, 2000, AND 1999
(Amounts in thousands except share and per share data)

Common Stock Additional Retained Treasury Stock
Paid-In Earnings
Shares Par Value Capital (Deficit) Shares Cost Total




March 31, 1998 2,267,166 $ 548 $ 4,399 $ (4,682) 298,934 $ (212) $ 53

Cash Dividends
($.20 per share) - - - (403) - - (403)

Net loss - - - (5,299) - - (5,299)

Exercise of
Stock Options 2,924 1 14 - - - 15


March 31, 1999 2,270,090 $ 549 $ 4,413 $(10,384) 298,934 $ (212) $ (5,634)

Net income - - - 2,313 - - 2,313

Exercise of
Stock Options 10,800 2 46 - - - 48

Issuance of
Common Stock
(Note 8) 35,480 9 224 - - - 233

March 31, 2000 2,316,370 $ 560 $ 4,683 $ (8,071) 298,934 $ (212) $ (3,040)


Net income - - - 1,098 - - 1,098

Exercise of
Stock Options 6,000 2 27 - - - 29

March 31, 2001 2,322,370 $ 562 $ 4,710 $ (6,973) 298,934 $ (212) $ (1,913)



See notes to consolidated financial statements.



HALIFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999

1. SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS ACTIVITY

Business Activity - Halifax Corporation (the "Company") provides
information technology services and solutions for commercial and
government activities. These services include seat management,
enterprise maintenance solutions, network security solutions,
eBusiness/eGovernment development and communication services.

Principles of Consolidation - The Company's consolidated financial
statements include the accounts of the Company and its wholly-
owned subsidiaries. Wholly-owned subsidiaries include Halifax
Engineering, Inc., Halifax Realty, Inc., and Halifax Technology
Services, Inc. (HTSI) which was sold effective May 31, 2000 (see
Note 17). All significant intercompany transactions are
eliminated in consolidation.

Accounts Receivable - Receivables are primarily attributable to
long-term contracts or programs in progress for which the related
operating cycles are longer than one year. In accordance with
industry practice, these items are included in current assets.

Inventory - Inventory consists principally of spare computer parts
and computer and computer peripheral hardware and software in the
process of delivery upon resale to customers. All inventories
are valued at the lower of cost or market on the first-in first-
out basis. These inventories are recorded on the consolidated
balance sheet net of allowances for inventory valuation of
$700,000 and $125,000 at March 31, 2001 and 2000, respectively.

Property and Equipment - Property and equipment is stated at cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of 4 years for automotive equipment, 3-10
years for machinery and equipment, 5-10 years for furniture and
equipment and 12 years for building improvements. The Company
examines the carrying value of its property and equipment to
determine whether there are any impairment losses. If indicators
of impairments were present, an impairment loss would be charged
to expense in the period identified. No reduction of property and
equipment was necessary in 2001 or in 2000.

Intangible Assets - Intangible assets, including goodwill in
acquired companies, described in Note 5, is being amortized using
the straight-line method over periods ranging from 10 to 25 years.
The Company examines the carrying value of its goodwill to
determine whether there are any impairment losses if indicators of
impairment are present. If future cash flows are not expected to
be sufficient to recover the asset's carrying amount, an
impairment loss would be charged to expense in the period
identified. No reduction of goodwill for impairment was necessary
in 2001 or in 2000.

Revenue Recognition - Service revenues result from contracts with
various government agencies and private industry. Revenues on
fixed price contracts are recognized using the percentage of
completion method generally determined on the basis of cost
incurred to date as percentage of estimated total cost. Revenues
on time and materials contracts are recognized at contractual
rates as labor hours and materials are expended. Losses are
recognized in the period in which they become determinable.

Income Taxes - Deferred taxes are provided on all temporary
differences measured using enacted tax rates expected to be in
effect during the periods in which the temporary differences
reverse.

Stock-Based Compensation- The Company accounts for stock-based
compensation for employees in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provision of
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation." Under APB No. 25 Compensation
expense is based on the difference, if any, on the measurement
date, between the fair value of the common stock and the exercise
price.

Earnings Per Common Share - The computation of basic earnings per
share is based on the weighted average number of shares
outstanding during the period. Diluted earning per share is based
on the weighted average number of shares including adjustments to
both net income and shares outstanding to assume the conversion of
dilutive common stock equivalents. Due to the loss from
continuing operations in the years ended March 31, 2001, and 1999,
the computation of diluted earnings per share for those years is
based on the weighted average number of shares outstanding during
the period and does not include dilutive common stock equivalents.

Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.

Reclassification - Certain reclassifications have been made in the
2000 and 1999 financial statements to conform to the 2001
presentation. The consolidated statement of operations and
related notes thereto have been adjusted to reflect Discontinued
Operations arising from the sale of the Company's Operational
Outsourcing Division (HTSI). (See Note 17.)

New Accounting Pronouncements - Statements of Financial Accounting
Standards (SFAS) No. 133, " Accounting for Derivative Instruments
and Hedging Activities," is effective for all fiscal years
beginning after June 15, 2000. SFAS 133, as amended, establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts that were not formerly considered derivatives may now
meet the definition of a derivative. The Company will adopt SFAS
133 effective April 1, 2001. Management believes the adoption of
SFAS 133 will have no impact on the financial position, results of
operations , or cash flows of the Company.

Effective for fiscal years beginning after December 15, 1997,
Statement of Financial Accounting Standards No. 130, (SFAS No.
130) "Reporting Comprehensive Income," requires that a full set of
general-purpose financial statements report comprehensive income
and its components. Comprehensive income includes net income,
foreign currency items, minimum pension liability adjustments, and
unrealized gains and losses on certain investments in debt and
equity securities. If an entity has only net income, it is not
required to report comprehensive income. The Company does not
have any comprehensive income items other than net income; thus,
the adoption of SFAS No. 130 had no impact on the Company's
financial position, results of operations or cash flows.

2.EMBEZZLEMENT MATTER

On March 18, 1999, the Company announced that an internal
investigation had revealed a material embezzlement by the former
controller of one 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.

The embezzlement had a material effect on the Company's financial
statements. During the year ended March 31, 2001, the Company
recovered $1,600,000 (net of recovery costs of $1,156,000).
During the year ended March 31, 2000, the Company recovered
$2,250,000 (net of recovery costs of $250,000) in conjunction with
its embezzlement recovery activities. The specific terms and
conditions associated with the payments, including the identity of
the parties, are subjects of confidentiality agreements that
precludes disclosure. The gross embezzlement loss for fiscal 1999
was $6,093,000, which was offset by $3,500,000 in recoveries (net
of recovery costs of $1,000,000), resulting in a net embezzlement
loss for fiscal year 1999 of $2,593,000.

Recoveries relating to the embezzlement were as follows:



Fiscal 2001 $ 2,756,000
Fiscal 2000 and prior 7,000,000
Total recoveries 9,756,000
Recovery costs (2,406,000)
Net recoveries $ 7,350,000


The Company continues to pursue recovery activities from certain
parties although no assurances can be given as to the timing or
extent of such recoveries.

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 as an adverse reflection on any person,
entity or security. The Company believes the investigation is
primarily related to the previously reported embezzlement by one
of the Company's former employees.


3. ACCOUNTS RECEIVABLE



Trade accounts receivable March 31,
consist of:
2001 2000

Amounts billed $ 7,994,000 $ 12,457,000
Amounts unbilled:
Amounts currently billable 968,000 1,414,000
Retainages and amounts - 90,000
awaiting audit
Total 8,962,000 13,961,000
Allowance for doubtful
accounts (319,000) (403,000)
Total $ 8,643,000 $ 13,558,000


Retainages are generally billable upon acceptance of work by
customers or completion of contract audits by the Government.


4. PROPERTY AND EQUIPMENT



Property and equipment consists March 31,
of:
Estimated
2001 2000 Useful Lives

Automotive equipment $ 21,000 $ 354,000 4 years
Machinery and equipment 4,235,000 6,368,000 3 - 10 years
Furniture and fixtures 426,000 1,408,000 5 - 10 years
Building and improvements 447,000 719,000 12 years
Total 5,129,000 8,849,000

Accumulated depreciation and
amortization (3,173,000) (6,590,000)
Total $ 1,956,000 $ 2,259,000


5. GOODWILL

Amortization of Goodwill is calculated using the straight-line
method over the estimated useful lives ranging from 10 to 25
years. Intangibles, included in goodwill, consist of contract
rights and are amortized over ten years. As of March 31, 2001
goodwill consists of $2,594,000 being amortized over 20 years,
$397,000 being amortized over 25 years, $1,253,000 over 24 years,
and $149,000 being amortized over 10 years. Amortization expense
was $210,000 and $237,000 for March 31, 2001 and 2000,
respectively.




March 31,

2001 2000

Goodwill $ 4,393,000 $ 5,479,000
Accumulated Amortization (1,201,000) (1,366,000)
Net Goodwill $ 3,192,000 $ 4,113,000


As a result of the disposition of its operational outsourcing
division (HTSI), the net book value of goodwill was reduced by
approximately $700,000 and resulting annual amortization of
goodwill was reduced by approximately $60,000. (See Note 15)

6. LONG-TERM DEBT



March 31,
Long-term debt consists of: 2001 2000

Revolving credit facility effective December 8, 2000
maturing August 31, 2002 with a maximum line of
$8,000,000. Amounts available under this agreement
are determined by applying stated percentages to the
Company's eligible billed and unbilled receivables.
At March 31, 2001, $4,874,000 was available to the
Company under the terms of the agreement. Interest
accrues on the principal at the LIBOR rate plus 2.5%.
The interest rate at March 31, 2001 was 7.58%. $2,886,000 $ -

Revolving credit agreement amended effective December
21, 1999, and July 5, 2000, with a maximum credit
line of $6,000,000. Amounts available under this
agreement are determined by applying stated
percentages to the Company's eligible billed and
unbilled receivables. At March 31, 2000, $6,680,000
was available to the Company under the terms of the
prior revolving credit agreement. Interest accrues at
LIBOR plus 2.25% depending on a leverage ratio. The
LIBOR rate was 5.91% on March 31, 2000. The note was
paid in full and terminated on December 8, 2000. - 6,677,000

Tier II Term Note dated June 25, 1998. Principal to
be paid in quarterly installments due on the 15th day
of March, June, September and December commencing on
the first scheduled payment date following payment in
full of the Tier III Term Note. Interest accrues on
the principal at the LIBOR rate plus 2.65%. The LIBOR
rate was 5.91% on March 31, 2000. The note was paid
in full on December 8, 2000. - 2,500,000

Tier III Term Note dated June 25, 1998. Principal is
to be paid in $125,000 quarterly installments due on
the 15th day of March, June, September and December
commencing September 1998. Interest accrues on the
principal at the LIBOR rate plus 3.55%. The LIBOR
rate was 5.91% on March 31, 2000. The note was paid -
in full on December 8, 2000. 691,000
Subtotal bank debt 2,886,000 9,868,000

7% Convertible Subordinated Debenture with an
affiliate (see Note 13) dated January 27, 1998.
Principal due in full on January 27, 2003. Interest
payable semiannually in arrears beginning August 1,
1998. May be prepaid by the Company on any date more
than two years after January 27, 1998. Convertible
to common stock by note holder at any time at a
conversion price of $11.72 per common share. 2,000,000 2,000,000

Subordinated note with an affiliate (see Note 13)
dated October 8, 1998. Principal due in full July 1,
2001, extended to July 1, 2002 but may be prepaid by
the Company at any time without penalty. Interest
accrues annually at 8%. 690,000 690,000

Subordinated note with an affiliate (see Note 13)
dated October 13, 1998. Principal due in full July
1, 2001, extended to July 1, 2002 but may be prepaid
by the Company at any time without penalty. Interest
accrues annually at 8%. 310,000 310,000

Subordinated note with an affiliate (see Note 13)
dated November 2, 1998. Principal due in full July
1, 2001, extended to July 1, 2002 but may be prepaid
by the Company at any time without penalty. Interest
accrues annually at 8%. 500,000 500,000

Subordinated note with an affiliate (see Note 13)
dated November 5, 1998. Principal due in full July
1, 2001, extended to July 1, 2002 but may be prepaid
by the Company at any time without penalty. Interest
accrues annually at 8%. 500,000 500,000
Subtotal - debt affiliated parties 4,000,000 4,000,000

Subordinated note dated September 2, 1999. Principal
and interest payments of $299,965 due on the first of
each month. The note bears interest of 8.5%. Total
amount is due as of March 31, 2001. 632,000 2,887,000
Total debt 7,518,000 16,755,000
Less current maturities 632,000 3,962,000
Total long-term debt $6,886,000 $12,793,000




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.

During the year ended March 31, 2000, 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 agreements prohibit the payment of dividends
or distributions as well as the payment of principal or interest
on Subordinated Debt. Interest expense on Subordinated Debt is
accrued on a current basis.

The Company is in compliance with its credit and security
agreement at March 31, 2001. The Company believes that it may not
be in compliance with this agreement in future periods, and its
financial institution has agreed to an amendment to waive any
violations should they occur for the quarter ending June 30, 2001.
It is the intention of the financial institution and the Company
to restructure the covenants to assure 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%. In September and
October 1999, $507,000 was paid and payments of $299,965 per month
were made thereafter. The balance of the note due March 31, 2001
was $632,000. The Company intends to repay this amount during the
fiscal year ending March 31, 2002.

The aggregate annual maturities of long-term debt, based on the
terms of the new banking agreement, are as follows for the fiscal
years ending March 31,:



2002 $ 632,000
2003 6,886,000
2004 -
2005 -
2006 -
Total $ 7,518,000


The carrying value of total debt approximates fair market value at
March 31, 2001 and 2000.

7. ACCRUED EXPENSES

Accrued expenses consist primarily of the following:



March 31,

2001 2000

Accrued lease payments $ 993,000 $ 286,000
Accrued contract costs 3,138,000 3,441,000
Accrued vacation 478,000 820,000
Accrued payroll 540,000 905,000
Payroll taxes accrued and withheld 155,000 105,000
Other accrued expenses 3,082,000 2,523,000
$ 8,386,000 $ 8,080,000



8. STOCK -BASED COMPENSATION

Stock Options - On September 16, 1994, the shareholders approved
the new Key Employee Stock Option Plan ("1994 Plan"). Options
and/or stock appreciation rights expire five years after the date
of grant. The maximum number of shares of the Company's common
stock subject to the 1994 Plan and approved for issuance was
originally 280,000 shares either authorized and unissued or shares
held in treasury. This number is subject to adjustment in the
event of stock splits, stock dividends or other recapitalization
of the Company's common stock. On March 2, 2000, the shareholders
approved amendments to the 1994 Plan which increased the number of
shares available for issuance to 400,000 shares.

A summary of options activity is as follows:



Weighted
Average
Exercise
Number Price Per
of Shares Share




1994 PLAN


Outstanding at March 31, 1998 109,201 $ 6.38

Granted 34,000 7.81
Exercised - -
Cancelled - -

Outstanding at March 31, 1999 143,201 6.72

Granted 202,000 6.07
Exercised (10,800) 4.80
Cancelled (121,033) 6.19

Outstanding at March 31, 2000 213,368 6.50

Granted 134,000 4.70
Exercised (6,000) 4.77
Cancelled (51,518) 6.89

Outstanding at March 31, 2001 289,850 $ 5.60


The following table summarizes the information for options
outstanding and exercisable under the 1994 Plan at March 31, 2001.





Options
Outstanding Options
Weighted Outstanding
Average Weighted Options
Range of Remaining Average Exercisable
Exercise Options Contractual Exercise Options Weighted Average
Prices Outstanding Life Price Exercisable Exercise price

$6.13-7.33 27,600 1 years $ 6.52 27,600 $ 6.52
7.81 8,000 3 years 7.81 4,000 7.81
5.75-7.56 123,250 4 years 6.22 38,416 6.16
3.65-5.50 131,000 5 years 4.68 - -
289,850 $ 5.60 70,016 $ 6.40





A summary of Non-Employee Directors Stock Option Plan activity is as
follows:



Weighted
Average
Exercise
Price Per
Share


Number
of
Shares


Outstanding at March 31, 1998 30,000 $ 10.25

Granted 12,000 7.03

Outstanding at March 31, 1999 42,000 9.33

Granted - -

Outstanding at March 31, 2000 42,000 9.33

Granted 13,000 7.06

Cancelled (8,250) 9.28

Outstanding at March 31, 2001 46,750 $ 8.71


The following table summarizes the information for options outstanding
and exercisable under the Non-Employee Directors Stock Option Plan at March 31,
2001.




Options
Outstanding Options
Weighted Outstanding Options
Average Weighted Exercisable
Range of Remaining Average Weighted
Exercise Options Contractual Exercise Options Average
Prices Outstanding Life Price Exercisable Exercise price

$10.25 24,250 2 years $ 10.25 15,250 $ 10.25
7.03 10,500 3 years 7.03 10,500 7.03
7.06 12,000 5 years 7.06 5,250 7.06
46,750 $ 8.71 31,000 $ 8.62






All stock-based incentive awards granted in 2001, 2000 and 1999
under the 1994 Plan were stock options with 5 year terms which
vest at the end of the third and fourth years. All awards granted
in 1999 under the Non-Employee Directors Stock Options Plan were
stock options with 5 year terms and vest in installments
cumulatively with respect to one-sixtieth of that option stock per
month after the date of grant. Exercise prices of all options
awarded in all years under all plans were equal to the market
price of the stock on the date of grant. The fair value of each of
the Company's option grants is estimated on the date of grant
using Black-Scholes option - pricing model as prescribed by SFAS
No. 123 using the following assumptions for the years ended March
31, 2001, 2000, and 1999: risk-free interest rate of 4.65%, 5.8 %,
and 5.36% respectively, dividend yield of 0%, 0% and 2%
respectively, volatility factor related to the expected market
price of the Company's common stock of .804, .449, and .262,
respectively, and weighted-average expected option life of five
years. The weighted average fair value of options calculated
using the Black-Scholes option pricing model granted during 2001,
2000, and 1999 were $3.01, $ 2.91 and $2.35, respectively.

For purposes of proforma disclosures, the options' estimated fair
values are amortized to expense over the options' vesting periods.
The Company's proforma information for the years ended March 31,
is as follows. Consistent with the provisions of SFAS No. 123,
had compensations cost been determined based on the fair value of
awards granted in 2001, 2000 and 1999 the income and loss
attributable to common shareholders would have been as follows:




Year Ending March 31,
2001 2000 1999

Net income (loss) (as reported) $ 1,098,000 $ 2,313,000 $(5,299,000)
Earnings (loss) per common share
(as reported):
Basic $ .54 $ 1.17 $ (2.63)
Diluted $ .54 $ 1.15 $ (2.63)

Proforma net income (loss) $ 868,000 $ 2,067,000 $(5,354,000)
Proforma earnings (loss) per
common share:
Basic $ .43 $ 1.04 $ (2.66)
Diluted $ .43 $ 1.03 $ (2.66)



9. EMPLOYEE 401(K) RETIREMENT PLAN

The Company sponsors a 401(k) retirement plan covering
substantially all non-union employees with more than 3 months of
service. The plan provides that the Company will contribute an
amount equal to 50% of a participant contribution up to 4% of
salary, and at the Company's discretion, additional amounts based
upon the profitability of the Company. The Company's
contributions were $129,000 in 2001, $198,000 in 2000, and
$230,000 in 1999.

10. EMPLOYEE STOCK PURCHASE PLAN

The Company has an Employee Stock Purchase Plan under which all
employees of the Company are eligible to contribute funds for the
purchase of the Company's common stock on the open market at
market value. Under the Plan, the Company agrees to pay all
brokerage commissions associated with such purchases. There has
not been any significant activity in this Plan for the three years
ended March 31, 2001.


11. INCOME TAXES

Deferred tax assets and liabilities on the balance sheets reflect
the net tax effect of temporary differences between carrying
amounts of assets and liabilities for financial statement purposes
and the amounts used for income-tax purposes. The deferred tax
assets and liabilities are classified on the balance sheets as
current or non current based on the classification of the related
assets and liabilities.

The components of income tax expense (benefit) for continuing
operations are as follows for the years ended March 31:



2001 2000 1999

Current expense (benefit):
Federal $ 5,000 $ 15,000 $ (627,000)
State 18,000 5,000 (55,000)
Total current: 23,000 20,000 (682,000)
Deferred expense (benefit):
Federal - 85,000 505,000
State - - 65,000
Total deferred: - - 570,000
Income tax expense (benefit) $ 23,000 $ 105,000 $ (112,000)



The components of the Company's deferred tax assets and
liabilities consist of the following at March 31:



2001 2000

Deferred tax assets:

Accounts receivable reserves $ 146,000 $ 195,000
Inventory reserve 280,000 119,000
Accrued compensation/vacation 254,000 326,000
AMT credit carryforwards 66,000 59,000
Net operating loss carryforward 3,488,000 3,793,000
Deferred gain on building sale 194,000 221,000
4,428,000 4,713,000

Deferred tax liabilities:

Unbilled accounts receivable-retainage $ - $ 39,000
Depreciation/amortization 434,000 526,000
Contract claims/other 2,000 2,000
436,000 567,000
3,992,000 4,146,000
Valuation allowance (3,992,000) (4,146,000)
Net deferred tax asset $ - $ -



Due to the uncertainty of future realization, the Company has not
recorded a net benefit for these operating loss carryforwards and
other deferred tax assets in its fiscal 2001 and 2000 financial
statements. The change in the valuation allowance of $154,000
results primarily from the decrease in the net operating loss
carryforward due to the use of the carryforward to offset taxable
income in the current year.


The differences between the provision for income taxes at the
expected statutory rate for continuing operations and those shown
in the consolidated statements of operations are as follows for
the years ended March 31:




2001 2000 1999

Provision (benefit) for income taxes
at statutory rate (34.0)% 34.0% (34.0)%
State taxes, net of federal benefit (5.0) 5.8 (4.4)
Other 3.0 4.5 1.0
Valuation allowance 38.8 (39.5) 35.1
Total 2.8% 4.8% (2.3)%


The Company has a $8.6 million of net operating loss carryforwards
virtually all of which expires in fiscal 2019.

12.LEASING ACTIVITY

The Company is obligated under operating leases for office space
and certain equipment. The following are future minimum lease
payments under operating leases as of March 31, 2001:



Year ending March 31,

2002 $ 811,308
2003 741,862
2004 671,593
2005 377,885
2006 442,497
thereafter 1,309,662
Total minimum lease payments $ 4,354,807


Deferred income of $516,000 and $572,000 at March 31, 2001 and
2000 represents the deferred gain on the sale - lease-back of the
Company's office complex. The deferred revenue is being
recognized as a reduction of rent expense over the remaining life
of the lease.

Total rent expense under operating leases was $972,000,
$1,123,000 and $1,188,000 for the years ended March 31, 2001,
2000 and 1999, respectively. The Company sold its office complex
on November 6, 1997 and leased back its headquarters building for
12 years. Aggregate future minimum rentals to be received under
non-cancelable subleases as of March 31, 2001 are $148,000.

13.RELATED PARTY TRANSACTIONS

During the years ended March 31, 2001, 2000 and 1999, the Company
paid $0, $102,575 and $74,250, respectively, for legal services to
a Board member serving as General Counsel; $0, $53,968 and
$88,247, respectively, to a law firm in which the same Board
member is a partner; and $0, $14,000 and $24,000, respectively,
for consulting services to another Board member.

Research Industries, Incorporated, the owner of 715,780 shares or
34.9% of the Company's common stock, owns $2 million face amount
of the Company's 7% Convertible Subordinated Debenture dated
January 27, 1998 and $690,000, $310,000, $500,000 and $500,000
face amount of the Company's Promissory Notes dated October 8,
1998, October 13, 1998, November 2, 1998 and November 5, 1998,
respectively. Interest expense on the subordinated debt totaled
$300,000 for 2001 and 2000. (See Note 6).

On December 1, 1999, the Company issued 35,480 shares of common
stock in the amount of $233,000 in lieu of cash in payment of
interest on notes due to Research Industries through October 31,
1999. The value of the stock was equal to the market price on
date of issue. In December 2000, the Company made a cash payment
of $200,000 to Research Industries for interest due. At March 31,
2001 and 2000, interest payable to Research Industries was
$225,000 and $125,000, respectively.

During the year ended March 31, 2000, the Company paid $105,000 to
a consultant who is now an officer of the Company.

14.COMMITMENTS AND CONTINGENCIES

Cost incurred by the Company on the performance of U.S. Government
contracts are subject to audit by the Defense Contract Audit
Agency (DCAA). In the opinion of management, the final settlement
of these costs will not result in significant adjustments to
recorded amounts.

Upon the death of certain former officers and at the option of
their estates, the Company is committed to purchase 54,112 of
their shares of the Company's common stock at current book value.
At March 31, 2001 and 2000, the book value of the Company was a
deficit and therefore, the Company had no obligation.

There are no material pending legal proceedings to which the
Company is a party. The Company is engaged in ordinary routine
litigation incidental to the Company's business to which the
Company is a party.


15.SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

The Company paid the following amounts for interest and income
taxes during the years ended March 31:



2001 2000 1999

Interest $ 955,000 $ 1,547,000 $ 1,454,000

Income taxes $ 110,000 $ 20,000 $ 325,000




16. Earnings per share

The following table sets forth the computation of basic and
diluted earnings (loss) per share:



Years Ended March 31,

2001 2000 1999

Numerator for earnings per share:

Net (loss) income as reported
from:

Continuing operations $(840,000) $ 1,385,000 $(5,316,000)

Discontinued operations 244,000 928,000 17,000

Gain on sale of discontinued
operations 1,694,000 - -

Net income (loss) $1,098,000 $ 2,313,000 $(5,299,000)

Denominator:

Denominator for basic earnings
per share- 2,022,811 1,984,014 2,012,611
Weighted-average shares
outstanding

Effect of dilutive securities:
7% convertible debenture - - -
Employee stock options - 15,797 -

Dilutive potential common
shares
Denominator for diluted
earnings per
share - adjusted weighted-
average
shares and assumed conversions 2,022,811 1,999,811 2,012,611

Earnings (loss) per share -
basic:

Continuing operations $ (.42) $ .70 $ (2.64)
Discontinued operations .12 .47 .01
Gain on sale of discontinued
operations .84 - -

Basic earnings (loss) per share $ .54 $ 1.17 $(2.63)

Diluted earnings (loss) per
share:

Continuing operations $ (.42) $ .69 $(2.64)
Discontinued operations .12 .46 .01
Gain on sale of discontinued
operations .84 - -
Diluted earnings (loss) per share $ .54 $ 1.15 $ (2.63)


The computation of basic earnings per share is based on the
weighted average number of shares outstanding during the period.
Diluted earning per share is based on the weighted average number
of shares including adjustments to both net income and shares
outstanding to assume the conversion of dilutive common stock
equivalents. Due to the loss from continuing operations in the
years ended March 31, 2001 and 1999, the computation of diluted
earnings per share for those years is based on the weighted
average number of shares outstanding during the period and does
not include dilutive common stock equivalents. For the years
ended March 31, 2001, 2000,and 1999, the convertible debenture was
anti-dilutive and therefore not included in diluted earnings per
share.

17.DISCONTINUED OPERATIONS

During the fourth quarter ended March 31, 2000, the Company
announced a plan to divest itself of its Operational Outsourcing
Division (HTSI). On May 31, 2000 the transaction was consummated.

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 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. The purchase price
remains subject to various adjustments set forth in the Agreement.

A portion of the proceeds received by the Company, in the
approximate amount of $2,900,000, was applied on the date of the
Closing to the repayment of a portion of its outstanding bank
debt.

The Company and the Buyer executed and exchanged at Closing, a
Transition Agreement pursuant to which the Company provided, for a
limited period of time following the Closing, administrative
assistance and other transition services to Buyer in connection
with Buyer's take-over of the Business.

Summary operating results of the Discontinued Operations are as
follows:



For the
Period For the years ended
from April March 31,
1, to May
31,
2000 2000 1999

Revenue $4,636,000 $ 26,246,000 $22,741,000
Costs and expenses 4,392,000 25,283,000 22,712,000
Operating income 244,000 963,000 29,000
Income tax expense - 35,000 12,000
Income from discontinued
operations $ 244,000 $ 928,000 $ 17,000



The assets of Discontinued Operations consisted primarily of
billed and unbilled accounts receivable of $4,473,000 and
$4,854,000, respectively, and related accounts payable and accrued
expenses of $1,973,000 and $2,970,000, respectively for years
ended March 31, 2000 and 1999.

The net book value of goodwill was reduced by approximately
$700,000 on May 31, 2000 and resulting annual amortization of
goodwill was reduced by approximately $60,000.

For the years ended March 31, 2001, 2000 and 1999, interest
expense of approximately $89,000, $522,000 and $404,000,
respectively, was charged to the Discontinued Operations.
Interest expense was allocated to Discontinued Operations based on
the relationship of Discontinued Operations net assets to total
net assets.

18. SEGMENT REPORTING AND SIGNIFICANT CUSTOMERS

The Company has adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information," as required. The Company's business
activities are considerd to be in one business segment which
provides a comprehensive range of information technology services
and solutions to a broad base of commercial and governmental
customers.

Revenues from services rendered to the United States Government
and the relative percentages of such revenues to revenues from
continuing operations for the years ended March 31, 2001, 2000 and
1999 were $13,365,000 (26%), $13,701,000 (25%) and $21,480,000
(36%), respectively. The reduction in United States Government
revenue in fiscal 2000 was primarily a result of reduced
deliveries of digital telecommunications switches under long-term
contracts.


19. UNAUDITED QUARTERLY RESULTS OF OPERATIONS:
(In thousands except for per share data)





June 30, September 30, December 31, March 31,
2000 2000 2000 2001*

Revenue $ 12,910 $ 12,422 $ 14,733 $ 11,685

Operating (loss) income (36) (53) 254 (1,582)

(Loss) income from continuing operations (483) 1,715 23 (2,095)
Net income (loss) $ 1,355 $ 1,715 $ 23 $ (1,995)

Basic earnings per share
Continuing operations $ (.24) $ .85 $ .01 $ (1.04)
Discontinued operations .12 - - -
Gain on sale of discontinued operations .79 - - .05
$ .67 $ .85 $ .01 $ (.99)
Diluted earning per share
Continuing operations $ (.24) $ .80 $ .01 $ (1.04)
Discontinued operations .12 - - -
Gain on sale of discontinued operations .79 - - .05
$ .67 $ .80 $ .01 $ (.99)








June 30, September 30, December 31, March 31,
1999 1999 1999 2000

Revenue $ 15,152 $ 15,344 $ 12,617 $ 10,417

Operating income (loss) 373 137 373 (632)

Income (loss) from continuing operations 24 (123) 2,579 (1,095)
Net income (loss) $ 116 $ 147 $ 2,825 $ (775)

Basic earnings per share
Continuing operations $ .01 $ (.06) $ 1.30 $ (.55)
Discontinued operations .05 .13 .12 .16
$ .06 $ .07 $ 1.42 $ (.39)

Diluted earning per share
Continuing operations $ .01 $ (.06) $ 1.21 $ (.55)
Discontinued operations .05 .13 .11 .16
$ .06 $ .07 $ 1.32 $ (.39)



*Fourth quarter 2001 results include a pretax charge of $700 thousand to
increase the allowance for inventory valuation due to uncertainties in the
market brought on by the economic downturn.



Halifax Corporation

Schedule II, Valuation and Qualifying Accounts

March 31, 2001




Balance at Additions Balance at
beginning charged to end of
of year cost & expense Deductions Year

Year Ended March 31, 2001

Allowance for doubtful
accounts $ 403,000 $ 300,000 $ 384,000 $ 319,000


Allowance for inventory
obsolescence $ 125,000 $ 1,660,000 $ 1,085,000 $ 700,000


Year Ended March 31, 2000

Allowance for doubtful
accounts $ 657,000 $ 510,000 $ 764,000 $ 403,000


Allowance for inventory
obsolescence $ 1,500,000 $ 628,000 $ 2,003,000 $ 125,000


Year Ended March 31, 1999

Allowance for doubtful
accounts $ 372,000 $ 605,000 $ 320,000 $ 657,000


Allowance for inventory
obsolescence $ 356,000 $ 1,680,000 $ 536,000 $ 1,500,000


EXHIBITS

Exhibit 10.8 Executive Severance Agreement Dated March 31, 2001.
Exhibit 23 Consent of Deloitte & Touche LLP, Independent
Auditors
Exhibit 23.1 Consent of Ernst & Young LLP, Independent Auditors