UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2004

Commission file number 1-10875

J.L. Halsey Corporation

(Exact name of registrant as specified in its charter)

Delaware		01-0579490
(State of incorporation)		(I.R.S. Employer Identification No.)

103 Foulk Rd, Suite 205Q, Wilmington, DE 19803

(Address of principal executive office) (Zip code)

Registrant’s telephone number: (302) 691-6189

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.

Yes ý No o

Indicate by checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

Yes o No ý

As of January 31, 2005, J.L. Halsey Corporation had 82,193,063 shares of common stock, $.01 par value, outstanding.

J.L. HALSEY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	December 31, 2004			June 30, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	27,778,849		$	28,880,201
Deferred income taxes	93,562			93,562
Prepaid expenses	11,767			57,233
Prepaid expenses related to discontinued operations	298,300			216,625
Total current assets	28,182,478			29,247,621
Restricted cash related to discontinued operations	2,218,175			2,385,844
Fixed assets, net	4,281			10,014
Total assets	$	30,404,934		$	31,643,479

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	183,582		$	264,174
Accrued expenses remaining from discontinued operations	3,343,205			4,205,732
Total current liabilities	3,526,787			4,469,906
Deferred income taxes	93,562			93,562
Total liabilities	3,620,349			4,563,468

Commitments and contingencies (Note 5)

Stockholders’ equity:
Common stock, $.01 par value; authorized 200,000,000 shares; 89,522,280 shares issued at December 31, 2004 and June 30, 2004. 82,193,063 shares outstanding at December 31, 2004 and June 30, 2004	895,223			895,223
Additional paid-in capital	275,063,911			275,063,911
Accumulated deficit	(206,261,013		)	(205,965,587		)
Treasury stock (at cost), 7,329,217 shares at December 31, 2004 and June 30, 2004	(42,913,536		)	(42,913,536		)
Total stockholders’ equity	26,784,585			27,080,011
Total liabilities and stockholders’ equity	$	30,404,934		$	31,643,479

The accompanying notes are an integral part of these financial statements.

J.L. HALSEY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended December 31,
	2004				2003

General and administrative expenses	$	387,461			$		549,030
Loss from operations	(387,461			)	(549,030			)
Interest income	130,305				59,059
Loss from continuing operations	(257,156			)	(489,971			)
Gain on disposal of discontinued operations	116,981				234,444
Net loss	$	(140,175		)	$	(255,527		)
Loss per share from continuing operations—basic and diluted	$		(0.00	)	$	(0.01		)
Net loss per share—basic and diluted	$		(0.00	)	$	(0.00		)
Weighted average number of shares outstanding: basic and diluted	82,193,063				82,193,063

The accompanying notes are an integral part of these financial statements.

J.L. HALSEY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Six Months Ended December 31,
	2004				2003

General and administrative expenses	$		782,003		$	1,250,517
Loss from operations	(782,003			)	(1,250,517			)
Interest income	227,814				117,271
Loss from continuing operations	(554,189			)	(1,133,246			)
Gain on disposal of discontinued operations	258,763				852,483
Net loss	$	(295,426		)	$		(280,763	)
Loss per share from continuing operations—basic and diluted	$	(0.01		)	$		(0.01	)
Net loss per share—basic and diluted	$	(0.00		)	$		(0.00	)
Weighted average number of shares outstanding: basic and diluted	82,193,063				82,193,063

The accompanying notes are an integral part of these financial statements.

J.L. HASLEY CORORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Six Months Ended December 31,
	2004				2003
Cash flows from operating activities:
Net loss	$		(295,426	)	$	(280,763	)
Adjustments to reconcile net loss to net cash flows from operating activities of continuing operations:
Gain on disposal of discontinued operations	(258,763			)	(852,483		)
Depreciation and amortization	5,733				4,969
Changes in assets and liabilities:
Prepaid expenses	45,466				63,678
Accounts payable and accrued expenses	(80,592			)	(116,027		)
Net cash flows used in continuing operations	(583,582			)	(1,180,626		)
Net cash flows (used in) provided by discontinued operations	(517,770			)	491,773
Net cash flows used in operating activities	(1,101,352			)	(688,853		)
Cash flows from investing activities:
Continuing operations
Additions to property and equipment	—				(6,120		)
Net cash flows used in investing activities	—				(6,120		)
Net decrease in cash and cash equivalents	(1,101,352			)	(694,973		)
Cash and cash equivalents, beginning of period	28,880,201				23,219,618
Cash and cash equivalents, end of period	$	27,778,849			$	22,524,645

The accompanying notes are an integral part of these financial statements.

J.L. HALSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004

(Unaudited)

1. Basis of Presentation

J.L. Halsey Corporation, together with its subsidiaries (“Halsey” or the “Company,” sometimes referred to as “we” or “us”), is a company in transition. In response to substantial cuts in reimbursement under the Medicare program in the late 1990’s, Halsey’s predecessor sold all four of its operating businesses to raise cash and succeeded in fully repaying all of its creditors. Halsey has one reportable segment and the Company’s principal assets include approximately $28 million in cash and net operating loss carryforwards (“NOLs”) of approximately $182 million. The Company has considered several asset redeployment strategies, including the possible acquisition of an operating business. Our management has recommended to our board of directors (the “board”) and our board has concurred, that the Company should pursue the acquisition of an operating business as the best way to attempt to increase the value of our existing assets.

Discontinued Operations

Halsey is the successor to NovaCare, Inc. (“NovaCare”), which was a national leader in physical rehabilitation services, orthotics and prosthetics and employee services. The changes to Medicare reimbursement in the late 1990’s had detrimental effects on NovaCare and its competitors and customers. The prior operating business most affected by the Medicare changes was the long-term care services segment in which NovaCare provided therapists to skilled nursing facilities. This business was disposed of in fiscal 1999 with the shutdown of certain of its operations in the western United States during the third fiscal quarter and the sale of the remaining operations on June 1, 1999. NovaCare’s former outpatient services segment was disposed of through the sales of its orthotics & prosthetics (“O&P”) and physical rehabilitation and occupational health (“PROH”) businesses. The O&P business was sold to Hangar Orthopedic Group, Inc. in July of 1999 and the PROH business was sold to Select Medical Corporation in November of 1999. The Company’s former employee services segment was disposed of through NovaCare’s sale of its interest in NovaCare Employee Services (“NCES”) in October of 1999 to a subsidiary of Plato Holdings, Inc. (“Plato”) as part of a tender offer by Plato for all of NCES’s outstanding shares. With cash raised from the sales of its businesses, the Company repaid all of its bank debt in the summer of 1999, and in January of 2000, the Company retired its publicly-traded subordinated debt.

Recent and Current Activities

NovaCare sold its name as part of the sale of the PROH business and subsequently changed its name to NAHC, Inc. (“NAHC”). On June 18, 2002, in a transaction approved by NAHC’s stockholders at a special meeting, NAHC merged with and into Halsey, its wholly-owned subsidiary. As used herein, the “Company” refers to Halsey, NAHC and NovaCare. The purpose of the merger between NAHC and Halsey was to implement transfer restrictions on the Company’s common stock in order to preserve the Company’s net operating losses.

For the past several years, the Company has tried to maximize the assets that it has retained, including old accounts receivable, Medicare receivables and appeals, and tax claims and to minimize liabilities retained after the sales of the operating businesses. The Company has made significant progress on these matters. The Company has collected virtually all of its remaining receivables other than amounts which are the subject of litigation or arbitration. A subsidiary of the Company has retained six employees and two consultants to carry out the general and administrative functions specified above. These resources have been supplemented with outside financial, tax, legal and systems resources when required by management and the board. No members of the current board were members prior to the Company selling its operating businesses.

The Company has reflected substantially all of its results of operations and cash flows, for the current and all prior periods as discontinued operations except for its remaining general and administrative activities, which are treated as continuing operations. All of the Company’s financial assets are in cash items as defined under the Investment Company Act of 1940 (the “40 Act”), which, the Company believes, should exclude it from the definition of an investment company.

These statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the Company’s consolidated financial statements

and the notes thereto for the year ended June 30, 2004. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of Company management, the condensed consolidated financial statements for the unaudited interim periods include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the results for such interim periods.

2. Discontinued Operations

At December 31, 2004 and June 30, 2004, assets and liabilities from discontinued operations consisted of:

	December 31, 2004		June 30, 2004
Restricted cash in support of workers’ compensation liabilities	$	2,218,175	$		2,385,844
Prepaid expenses pertaining to insurance deposits	298,300		216,625
Total assets related to discontinued operations	2,516,475		2,602,469

Accrued expenses remaining from discontinued operations	3,343,205		4,205,732
Total liabilities related to discontinued operations	$	3,343,205	$	4,205,732

The Company has fully reserved its accounts receivables remaining from discontinued operations which consist primarily of trade accounts receivable and Medicare related receivables which were owed to the Company prior to the disposition of the Company’s long-term care services business in 1999. The Company believes that the probability of collecting these receivables is remote and the Company will most likely cease its collection efforts in fiscal 2005, therefore the Company has fully reserved these receivables to reduce their net realizable value to zero. If any of these receivables are collected, the Company will record a gain in the period of collection. The accrued expenses remaining from discontinued operations primarily consist of liabilities, which arose prior to or as a result of the disposition transactions. These liabilities include costs for litigation, workers compensation claims, professional liability claims, and other liabilities.

The $116,981 gain on disposal of discontinued operations recorded for the three months ending December 31, 2004 relates to adjustments to the $374.1 million loss on disposal of discontinued operations which was originally recorded in fiscal year 2000. The adjustments consists of a gain resulting from a refund from the Company’s workers compensation insurance carrier in the amount of $210,000, offset by additional expense accruals of $93,000 to adjust other liabilities remaining from discontinued operations. The additional expense accruals include amounts for litigation related costs and legacy insurance expenses.

The $258,763 gain on disposal of discontinued operations recorded for the six months ending December 31, 2004, primarily relates to adjustments to the $374.1 million loss on disposal of discontinued operations which was originally recorded in fiscal year 2000. The adjustments consist primarily of a gain resulting from a tax related refund of $400,000 and a refund from the Company’s workers compensation insurance carrier in the amount of $210,000, offset by additional expense accruals of $351,000 to adjust other liabilities remaining from discontinued operations. The additional expense accruals include amounts for litigation related costs and legacy insurance expenses.

The $234,444 gain on disposal of discontinued operations recorded for the three months ending December 31, 2003, relates to adjustments to the $374.1 million loss on disposal of discontinued operations which was originally recorded in fiscal year 2000. The adjustments consist primarily of the realization of certain receivables in excess of book value totaling $258,000 and reductions in tax related liabilities in the amount of $187,000 offset by additional expense accruals of $211,000 to adjust other liabilities remaining from discontinued operations.

The $852,483 gain on disposal of discontinued operations recorded for the six months ending December 31, 2003, relates to adjustments to the $374.1 million loss on disposal of discontinued operations which was originally recorded in fiscal year 2000. The adjustments consist primarily of the realization of certain receivables in excess of book value totaling $570,000, tax related refunds and liability adjustments of $498,000 offset by additional expense accruals of $216,000 to adjust other liabilities remaining from discontinued operations.

3. Net Income (Loss) Per Share

The following table sets forth the computation and reconciliation of net loss per share-basic:

	For the Three Months Ended December 31,								For the Six Months Ended December 31,
	2004				2003				2004				2003
Loss from continuing operations	$	(257,156		)	$	(489,971		)	$	(554,189		)	$	(1,133,246	)
Gain on disposal of discontinued operations	116,981				234,444				258,763				852,483
Net loss	$		(140,175	)	$		(255,527	)	$		(295,426	)	$	(280,763	)

Weighted average shares outstanding:
basic and diluted	82,193,063				82,193,063				82,193,063				82,193,063
Loss per share from continuing operations:
basic and diluted	$		(0.00	)	$		(0.01	)	$		(0.01	)	$	(0.01	)
Gain per share on disposal of discontinued operations: basic and diluted	0.00				0.00				0.00				0.01
Net loss per share: basic and diluted	(0.00			)	(0.00			)	(0.00			)	(0.00		)

4. Income taxes

The Company received a federal income tax refund in September 2004 in the amount of $399,580 as a result of an amendment of the Company’s 1996 tax return. The refund consisted of a tax refund of $368,045 and interest of $31,535, which was recorded as a gain on disposal of discontinued operations on the statement of operations.

5. Commitments and Contingencies

Halsey is party to certain claims, suits and complaints, which arose in the ordinary course of its prior operating businesses and in the course of selling its operating businesses. Described below are certain claims, suits or complaints, which, in the opinion of management, could have a material adverse effect on the Company’s business, financial condition, results of operations and liquidity.

The financial statements reflect management’s best estimate of the cost to litigate these cases. The Company’s accruals assume that one case goes all the way to trial and assumes that there will not be an adverse ruling or judgment in any of these matters; if the Company suffers an adverse ruling or judgment, there may be a material adverse effect on the Company and its financial condition.

Walmsley and Sullivan v. NAHC, Inc. et. al. During the third quarter of fiscal 2002, this action was filed in the Court of Common Pleas for the County of Philadelphia, PA by Walmsley and Sullivan, two former employees against the Company and its officer and directors. The suit seeks damages in excess of $3 million as a result of alleged breaches of contracts to pay certain bonuses, and other claims. The Company strongly disagrees with the allegations in the complaint and intends to vigorously defend this action. The Company has sued both Walmsley and Sullivan in federal court in Arizona. This suit claims damages related to bonuses paid to Walmsley and Sullivan. During the third quarter of fiscal 2004 several depositions were completed in this case and more are expected in the near future. The Company now believes that there is a strong possibility that this case will go to trial and the Company has accrued for the estimated costs to defend this case in accordance with the Company’s policies. The Company estimates that a potential trial in the Arizona action will occur sometime in 2005. A trial in the Pennsylvania action will likely not occur for several years after 2005 and there is still significant discovery to undertake in that action. The outcomes of these actions are not possible to predict and the Company has reserved estimates of the costs of litigating both of these actions, but these estimates do not reflect the possibility of an adverse ruling or a judgment against the Company or a settlement.

NovaCare v. Stratford Nursing Home. The Company filed this collection lawsuit over three years ago to collect on a receivable of approximately $145,000, which the Company has fully reserved. Stratford counter-claimed with numerous theories asserting that the Company instead owed Stratford money. Although Stratford’s principal claims

were dismissed by the court, Stratford in the last quarter of fiscal year 2003 has quantified its remaining counter-claims at approximately $1 million. The Company believes that the theories on which these damages are based are inconsistent with the contract between the parties and with the conduct of each party. As of December 31, 2004, this case is pending in the U.S. District Court for the Southern District of New Jersey (Camden). The outcome of this action is not possible to predict and the Company has reserved an estimate of the cost of litigating this action, but this estimate does not reflect the possibility of an adverse ruling or a judgement against the Company or a settlement.

Other Miscellaneous Cases and Claims

Ronald Shostack v. Wasserstein, et. al. Shostack has sued several former directors of the Company who were also directors of NCES, as well as other NCES officers and directors. Several of these individuals have notified the Company that they believe that the Company is legally obligated to indemnify them against any costs or liability as a result of this suit. The Company believes this analysis is incorrect and has not agreed to indemnify those individuals. In fiscal year 2004, the Company did however agree to pay Shostack $45,000 as a settlement on behalf of some of the Company’s former directors. This amount was recorded as a liability and a related expense by the Company as of June 30, 2004 and was paid in July 2004.

Miscellaneous Claims.

The Company has recorded reserves to pay several dozen small claims (most will be $50,000 or less) that it has identified related to two of its previous operating businesses.

In July 2004, the Company received notification that a former customer had filed for Bankruptcy protection under the US Bankruptcy Code Chapter 11. The Company may or may not have to return some or all of the amounts that it has collected from this former customer over the past two years. The total amount collected by the Company over the past two years was $2 million. The Company has not recorded a liability at this time since it is not possible to determine if a potential liability is probable based on the information available to us at this time. If in fact the Company is notified in the future by the Bankruptcy Court that an amount must be repaid to the former customer, we believe that we may have legal defenses to support the retention of payments collected from our former customer.

Uninsured Professional Liability Claims

The Company is a defendant in six professional liability claims and had previously purchased professional liability insurance policies from PHICO Insurance Company. One claim was settled in the second quarter by the Company’s insurance company with no payment or obligation required by the Company. On February 2, 2002, a Pennsylvania court authorized state insurance regulators to liquidate the insolvent PHICO Insurance Company, which had provided professional liability insurance policies to the Company. As a result, PHICO will not be permitted to pay any claims on behalf of the Company. The Company believes, however, that various state insurance guaranty funds will pay most of the claims on the Company’s behalf. Based on its discussion with the state guaranty funds and its review of claims during the third quarter of 2004, the Company believes that a payment may be required to settle one professional liability claim that may exceed the amount available to the Company under the applicable state guaranty fund limits. The Company recorded an accrual and related expense of $100,000 in the third quarter of 2004 equal to the estimated cost to settle the claim less the amount that would be paid by the state guaranty fund. This amount has not been paid as of December 31, 2004. The Company believes that no other claims will exceed the amounts available to the Company under the applicable state guaranty fund limits. There is no assurance, however, that each claim will settle within those limits and there is no excess insurance policy in place that would pay settlements or awards in excess of those limits. Therefore, in the event that the Company’s current assessment is incorrect, and the amounts required to pay on these claims are in excess of any amounts paid by guaranty funds, the Company will be required to fund these claims. The Company’s management does not believe that any of these claims are material.

Workers’ Compensation Loss Payments

During the first quarter of fiscal year 2003, the NovaCare workers’ compensation insurance carrier notified the Company that the purchaser of NCES (“the Purchaser”) who is responsible for making certain claim payments required by NovaCare’s insurance policy deductibles has defaulted on those payment obligations. The Purchaser has funds that have been prepaid to this insurance carrier for claim payments under deductibles on the NovaCare policies as well as other unrelated workers’ compensation policies of the Purchaser. In management’s opinion, the deposits held by the insurance carrier are sufficient to pay the Company’s obligations on the unrelated workers’ compensation policies as well as the NovaCare policies.

J. L. HALSEY CORPORATION AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Overview

J. L. Halsey Corporation, together with its subsidiaries (“Halsey” or the “Company”, sometimes referred to as “we” or “us”), is a company in transition. In response to substantial cuts in reimbursement under the Medicare program in the late 1990’s, Halsey’s predecessor sold all four of its operating businesses to raise cash and succeeded in fully repaying all of its creditors. Halsey has one reportable segment, and the Company’s principal assets include approximately $28 million in cash and net operating loss carryforwards (“NOLs”) of approximately $182 million. The Company has considered several asset redeployment strategies, including the possible acquisition of an operating business. Our management has recommended to our board of directors (the “board”) and our board has concurred, that the Company should pursue the acquisition of an operating business as the best way to attempt to increase the value of our existing assets.

Discontinued Operations

Halsey is the successor to NovaCare, Inc. (“NovaCare”), which was a national leader in physical rehabilitation services, orthotics and prosthetics and employee services. The changes to Medicare reimbursement in the late 1990’s had deleterious effects on NovaCare and its competitors and customers. The prior operating business most affected by the Medicare changes was the long-term care services segment in which NovaCare provided therapists to skilled nursing facilities. This business was disposed of in fiscal 1999 with the shutdown of certain of its operations in the Western United States during the third fiscal quarter and the sale of the remaining operations on June 1, 1999. NovaCare’s former outpatient services segment was disposed of through the sales of its orthotics & prosthetics (O&P) and physical rehabilitation and occupational health (PROH) businesses. The O&P business was sold to Hangar Orthopedic Group, Inc. in July of 1999 and the PROH business was sold to Select Medical Corporation in November of 1999. The Company’s former employee services segment was disposed of through NovaCare’s sale of its interest in NovaCare Employee Services (“NCES”) in October of 1999 to a subsidiary of Plato Holdings, Inc. as part of a tender offer by Plato for all of NCES’s outstanding shares. With cash raised from the sales of its businesses, the Company repaid all of its bank debt in the summer of 1999, and in January of 2000, the Company retired its publicly-traded subordinated debt.

Recent and Current Activities

For the past several years, the Company has tried to maximize the assets that it has retained, including old accounts receivable, Medicare receivables and appeals, and tax items and to minimize liabilities retained after the sales of the operating businesses. The Company has made significant progress on these matters. The Company has collected virtually all of its remaining receivables other than amounts which are the subject of litigation or arbitration. A subsidiary of the Company has retained six employees and two consultants to carry out the general and administrative functions specified above. These resources have been supplemented with outside financial, tax, legal and systems resources when required by management and the board. No members of the current board were members prior to the Company selling its operating businesses.

Results of Operations for the Three Months Ended December 31, 2004 and December 31, 2003

Continuing Operations. Continuing operations consist of general and administrative expenses and interest income. General and administrative expenses consist primarily of compensation for personnel, professional services, which include consultants, legal fees and accounting, audit and tax fees, and administrative expenses associated with operating as a public company.

The loss from continuing operations for the three-month period ended December 31, 2004 was $257,156 compared to $489,971 for the same period last year. The decrease of approximately $233,000 is primarily due to reductions in professional fees of $179,000, legal expense of $31,000, insurance expense of $15,000 and an increase in interest income of $71,000, offset by increases in salary expense of $49,000 and office related expense of $14,000. The decrease in expenses was primarily the result of the Company’s success in resolving various legacy related matters. The increase in interest income is due to a general increase in market interest rates. Loss from continuing operations for the three-month period ended December 31, 2004 consisted of general and administrative expenses of $387,461 reduced by interest income of $130,305.

There is no provision for or benefit from income taxes for the three month periods ended December 31, 2004 and 2003, as the Company incurred losses and could not utilize, for financial reporting or income tax purposes, the loss incurred in those periods. The Company has NOLs of approximately $182 million as of December 31, 2004. The Company will not recognize an income statement benefit for any previously incurred or future operating losses or future tax deductions until such time as management believes it is more likely than not that the Company’s future operations will generate sufficient taxable income to be able to realize such benefits. Accordingly, the Company has provided a full valuation allowance against the net deferred tax assets at December 31, 2004.

Discontinued Operations. Discontinued operations consist of gains or losses as a result of adjustments to the $374.1 million loss on disposal of discontinued operations which was originally recorded in fiscal year 2000. Gains primarily include amounts received in excess of book value for trade accounts receivable and Medicare related indemnification receivables which were owed to the Company prior to the disposition of the Company’s long-term care services business in 1999. Losses primarily include expenses incurred or adjustments to liabilities which were owed by the Company prior to the disposition of the Company’s long-term care services business in fiscal year 2000.

The $116,981 gain on disposal of discontinued operations recorded for the three months ending December 31, 2004 relates to adjustments to the $374.1 million loss on disposal of discontinued operations which was originally recorded in fiscal year 2000. The adjustments consists of a gain resulting from a refund from the Company’s workers compensation insurance carrier in the amount of $210,000, offset by additional expense accruals of 93,000 to adjust other liabilities remaining from discontinued operations. The additional expense accruals include amounts for litigation related costs and legacy insurance expenses.

Net loss

Net loss was $140,175 for the three-month period ended December 31, 2004 compared to a net loss of $255,527 for the same period last year. The primary reasons for the decrease in net loss were a decrease in general operating expenses of $162,000 and an increase in interest income of $71,000, offset by a decrease in gain on disposal of discontinued operations of $117,000.

Results of Operations for the Six Months Ended December 31, 2004 and December 31, 2003

The loss from continuing operations for the six-month period ended December 31, 2004 was $554,189 compared to $1,133,246 for the same period last year. The decrease of approximately $579,000 is primarily due to reductions in salary expense of $50,000, office related expense of $7,000, professional fees of $261,000, legal expense of $118,000, insurance expense of $32,000 and an increase in interest income of $111,000. The decrease in expenses was primarily the result of the Company’s success in resolving various legacy related matters. The increase in interest income is due to a general increase in market interest rates. Loss from continuing operations for the six-month period ended December 31, 2004 consisted of general and administrative expenses of $782,003 reduced by interest income of $227,814.

There is no provision for or benefit from income taxes for the six-month periods ended December 31, 2004 and 2003, as the Company incurred losses and could not utilize, for financial reporting or income tax purposes, the loss incurred in those periods. The Company has NOLs of approximately $182 million as of December 31, 2004. The Company will not recognize an income statement benefit for any previously incurred or future operating losses or future tax deductions until such time as management believes it is more likely than not that the Company’s future operations will generate sufficient taxable income to be able to realize such benefits. Accordingly, the Company has provided a full valuation allowance against the net deferred tax assets at December 31, 2004.

Net loss

Net loss was $295,426 for the six-month period ended December 31, 2004 compared to a net loss of $280,763 for the same period last year. The primary reasons for the increase in net loss were a decrease in gain on disposal of discontinued operations of $594,000 offset by a decrease in general operating expenses of $468,000 and an increase in interest income of $111,000.

Liquidity and Capital Resources

Cash Flows

At December 31, 2004, cash and cash equivalents totaled $27,778,849 compared to $28,880,201 at June 30, 2004. The decrease in cash was the result of cash used in operating activities of the Company.

Our primary source of cash in the first two quarters of fiscal year 2005 was an income tax refund from the Internal Revenue Service in the amount of $399,580, a refund from one of our workers compensation insurance carriers in the amount of $210,258 and interest income of $227,814. Sources of cash in previous periods have included the collection of old accounts receivables, Medicare receivables and appeals and interest income generated by our investment of cash and cash equivalents. We currently have invested our cash and cash equivalents in short term instruments with maturities of 90 days or less. We expect to have similar holdings exclusively until we acquire an operating business.

We have concentrated our efforts on conserving our cash while considering our strategic alternatives. However, our use of cash has fluctuated from quarter to quarter and we anticipate that this pattern may continue.

Our primary use of cash to date has been for costs in pursuit of the collection of accounts receivables, Medicare receivables and appeals, defending claims against the Company as well as general and administrative expenses for operations and in evaluating strategic alternatives.

We expect our current cash will fund our current operations for the foreseeable future. In the event that we decide to purchase an operating business, our capital requirements may exceed our current resources. In such a case, we would have to seek additional debt or equity financing from private or public sources. To the extent we raise additional capital by issuing equity securities, ownership dilution to existing stockholders will result, and future investors may be granted rights superior to those of existing stockholders. To the extent that we borrow funds, the lenders of such funds will have claims to our assets before there can be any distribution to our stockholders. There can be no assurance, however, that additional financing, either debt or equity, will be available from any source or, if available, will be available on terms acceptable to us.

Legal claims

The Company is currently defending two lawsuits (Walmsley and Sullivan v. NAHC, Inc. and NovaCare v. Stratford, (See Note 5) and management believes the Company should prevail in both instances. The Company has accrued for the potential costs of litigating these claims, but the Company does not, and has not, accrued for the payments that could result from an adverse ruling, judgment or a settlement of these claims until the Company believes that it is probable that such a payment will be made.

Uninsured Professional Liability Claims

Workers’ Compensation Loss Payments

have been prepaid to this insurance carrier for claim payments under deductibles on the NovaCare policies as well as other unrelated workers’ compensation policies of the Purchaser. In management’s opinion, the deposits held by the insurance carrier are sufficient to pay deductible obligations on the unrelated workers’ compensation policies as well as the NovaCare policies.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Long-Term Contractual Obligations

The Company has no long-term contractual obligations other than the run off of workers compensation insurance and professional liability insurance for its legacy businesses described below.

Critical Accounting Policies and Estimates

In Halsey’s Form 10-K for the year ended June 30, 2004, the Company disclosed its critical accounting policies and estimates upon which Halsey’s financial statements are derived. There have been no changes to these policies since June 30, 2004. Readers are encouraged to review these disclosures in conjunction with the review of this Form 10-Q.

Risks Factors

The stock transfer restrictions implemented in the merger of NAHC, Inc. and J. L. Halsey Corporation may delay or prevent takeover bids by third parties and may delay or frustrate any attempt by stockholders to replace or remove the current management.

The shares of common stock issued by the Company in the merger are subject to the transfer restrictions that, in general, prevent any individual stockholder or group of stockholders from acquiring in excess of 5% of the outstanding common stock of the Company. The types of acquisition transactions that the Company may undertake therefore will be limited unless the board of directors waives the transfer restrictions. The transfer restrictions also may make it more difficult for stockholders to replace current management because no single stockholder may cast votes for more than 5% of the Company’s outstanding shares of common stock, unless that stockholder held more than 5% of our common stock before the merger.

The Company may not be profitable from operations.

The Company’s ability to become profitable depends on management’s ability to find and execute on a profitable asset redeployment strategy. The Company incurred substantial net losses from continuing operations in the previous three fiscal years ended June 30, 2004, 2003 and 2002. The Company has reported net income for the fiscal years ended June 30, 2004, 2003 and 2002; however, the Company currently has no operations and thus there can be no assurance that it will be profitable in future periods. Net income in fiscal year 2004 was due to gains on discontinued operations primarily related to federal income tax refunds. Net income in fiscal year 2003 was primarily due to gains on discontinued operations including changes in receivable reserves, the reversal of liability accruals and the release of reserves no longer necessary as a result of the settlement of various lawsuits and settlements with some state tax authorities. The net income in fiscal year 2002 was primarily due to the realization of certain receivables in excess of book value, the release of reserves no longer necessary as a result of the settlement of various lawsuits and a settlement with the Internal Revenue Service.

The Company may not be able to realize the benefits of our NOL carryforwards.

Our ability to use our potential tax benefits in future years will depend upon the amount of our otherwise taxable income. If we do not redeploy our assets in a manner that generates profits and sufficient taxable income in future years, the NOLs will not be needed or used and therefore will provide no benefit to the Company. If the Company experiences a change of ownership within the meaning of Section 382 of the Internal Revenue Code, the Company will not be able to realize the benefit of its net operating loss, capital loss and tax credit carryforwards.

Uncertainties related to legacy assets and liabilities

The Company continues to manage a relatively small number of legacy assets and liabilities remaining from the period prior to the discontinuance of its operations. These remaining legacy assets consist of old receivables that are the subject of litigation or arbitration, and appeals of Medicare billing denials. The Company has established significant reserves against these assets because of the uncertainty regarding their collectability. The Medicare changes in the late 1990’s had deleterious effects on the entire industry, including the financial status of companies that owe us money. Also, the companies and Medicare have asserted defenses to our claims.

The Company is defending two remaining suits against it. (See Note 5). Our management believes that we should prevail on each of these claims against us. However, there is uncertainty and cost related to the claims. The outcome of these matters is not possible to predict and the current reserves include only estimates of the costs of litigating, but do not reflect the possibility of a settlement, an adverse ruling or a judgment against the Company

The Company may be considered an Investment Company.

The 40 Act requires registration as an investment company for companies that are engaged primarily in the business of investing, reinvesting, owning, holding or trading securities. Unless an exclusion or safe harbor applies, a company may be deemed to be an investment company if it owns “investment securities” with a value exceeding 40% of the value of its total assets on an unconsolidated basis, excluding government securities and cash items. A general exclusion is provided for companies that are engaged primarily in a business other than investing.

From the time of its public offering until November 19, 1999, the Company continued to operate one or more of its healthcare or professional employment businesses and, therefore, was not an investment company because it was primarily engaged in a business other than investing. Since November 1999, the Company has been engaged in litigation (managing significant claims for and against the Company), arbitration and other activities as part of winding down the various liabilities and assets from its former operating businesses. The Company believes it has been involved primarily in a business other than investing since November 1999. There is a risk that the Securities and Exchange Commission (“SEC”) may take a contrary view.

The Company believes that there are several exclusions from the definition of an investment company available to it. First, the Company does not meet the 40% test with respect to the composition of its assets. Fewer than 40% of its assets are in categories that the Company believes could be considered to be “investment securities.” Second, the Company has placed assets that could be considered “investment securities” into “cash items.” All of the Company’s holdings are in cash items. Cash items are excluded from the calculation to determine whether a company meets the 40% test.

In the event that the SEC disagrees with the Company’s analysis, the Company may be required to register as an investment company under the Investment Company Act of 1940 or seek an exemption from the SEC that would exclude the Company from the definition of an investment company.

J. L. HALSEY CORPORATION AND SUBSIDIARIES

PART I—OTHER INFORMATION

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes in the Company’s exposure to market risk from June 30, 2004.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the quarterly period ended December 31, 2004, David R. Burt, our Chief Executive Officer and acting Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Based on these evaluations, he believes that:

(a) our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and

(b) our disclosure controls and procedures were effective in ensuring that material information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has not been any change in our internal control over financial reporting that occurred during the quarterly period ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			J. L. HALSEY CORPORATION
			(Registrant)

	By		/s/ David R. Burt
			David R. Burt
			President, Chief Executive Officer, and acting Chief Financial Officer
			Principal Executive and Principal Financial and Accounting Officer

			Date: February 14, 2005

INDEX TO EXHIBITS

J.L. HALSEY CORPORATION

Exhibit No.		Exhibit

3.1		Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 filed with the Securities and Exchange Commission on February 5, 2002, file no. 333-82154.)

3.2		First Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3(b to the Company’s Annual Report on Form 10-K for the year ended June 30, 2002.)

31		Certification of Principal Executive Officer and acting Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a). **

32		Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002. **

** Filed herewith.

Part No.	Item No.	Description

I		FINANCIAL INFORMATION

	1	Financial Statements
		—Unaudited Condensed Consolidated Balance Sheets as of December 31, 2004 and June 30, 2004

		—Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2004 and 2003

		—Unaudited Condensed Consolidated Statements of Operations for the Six Months Ended December 31, 2004 and 2003

		—Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2004 and 2003

		—Unaudited Notes to Condensed Consolidated Financial Statements

	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations

	3	Quantitative and Qualitative Disclosures About Market Risk

	4	Controls and Procedures

II		OTHER INFORMATION

	1	Legal Proceedings
	2	Unregistered Sales of Equity Securities and Use of Proceeds
	3	Defaults Upon Senior Securities
	4	Submission of Matters to a Vote of Security Holders
	5	Other Information
	6	Exhibits

Signatures

Index to Exhibits

Delaware

01-0579490

CONDENSED CONSOLIDATED BALANCE SHEETS

J.L. HALSEY CORPORATION AND SUBSIDIARIES

Results of Operations for the Three Months Ended December 31, 2004 and December 31, 2003

Results of Operations for the Six Months Ended December 31, 2004 and December 31, 2003

Liquidity and Capital Resources

Cash Flows

PART II—OTHER INFORMATION

ITEM 1—LEGAL PROCEEDINGS

None

ITEM 3—DEFAULTS UPON SENIOR SECURITIES

ITEM 5—OTHER INFORMATION