HALIFAX CORPORATIONTable of VIRGINIAContents

~~FORM~~HALIFAX CORPORATION of VIRGINIA ~~10-Q~~

~~September 30,~~FORM ~~2009~~10-Q

~~UNITED~~December 31, 2009 ~~STATES~~

SECURITIES ANDTable EXCHANGEof COMMISSIONContents

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

~~FORM~~Washington, D.C. 20549 ~~10-Q~~

~~(Mark~~FORM 10-Q ~~One)~~

~~x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15~~(D)Mark ~~OF THE SECURITIES EXCHANGE ACT OF 1934~~One)

~~FOR~~þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE ~~QUARTERLY~~SECURITIES ~~PERIOD ENDED~~EXCHANGE ~~SEPTEMBER~~ACT ~~30,~~OF ~~2009~~1934

ORFOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009

~~¨ TRANSITION REPORT PURSUANT TO SECTION 13~~ OR ~~15(D) OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~For~~o ~~the transition~~TRANSITION ~~period~~REPORT ~~from~~PURSUANT ~~_______~~TO toSECTION ~~________~~13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

~~Commission file~~For ~~Number 1-08964~~the transition period from to

~~Halifax~~ Commission ~~Corporation~~file ofNumber ~~Virginia (Exact name of registrant as specified in its charter)~~1-08964

Virginia		54-0829246
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

Halifax Corporation of Virginia

5250 Cherokee Avenue, Alexandria, VA	22312
(Address of principal executive offices)	(Zip code)

(Exact name of registrant as specified in its charter)

(703) 658-2400 (Registrant's telephone number, including area code)


Virginia		54-0829246

(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

5250 Cherokee Avenue, Alexandria, VA		22312

(Address of principal executive offices)		(Zip code)

(703) 658-2400

(~~Former~~Registrant’s ~~name~~telephone number, ~~former~~including ~~address~~area ~~and former fiscal year, if changed since last report~~code)

~~Indicate~~ ~~by check mark whether the registrant~~ (1)Former ~~has~~name, ~~filed~~former ~~all~~address ~~reports~~and ~~required~~former tofiscal ~~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)~~year, ~~and~~if ~~(2)~~changed ~~has~~since ~~been~~last ~~subject to such filing requirements for the past 90 days. x Yes ¨ No~~report)

Indicate by check mark whether the registrant (1) has ~~submitted~~filed ~~electronically~~all ~~and~~reports ~~posted on its corporate Website, if any, every Interactive Data File~~ required to be filed ~~submitted~~by ~~and~~Section 13 ~~posted~~or ~~pursuant~~15(d) ~~to Rule 405~~ of ~~Regulation~~the ~~S-T~~Securities (§Exchange ~~232.405~~Act of ~~this chapter)~~1934 during the preceding 12 months (or for such shorter period that the registrant was required to ~~submit~~file such reports), and ~~post~~(2) has been subject to such ~~files)~~filing requirements for the past 90 days. ¨ þ Yes ¨ o No

Indicate by check mark whether the registrant ishas asubmitted ~~large~~electronically ~~accelerated~~and ~~filer,~~posted anon its ~~accelerated~~corporate ~~filer~~Website, aif ~~non-accelerated filer~~any, orevery aInteractive ~~smaller~~Data ~~reporting~~File ~~company.~~required ~~See the~~to ~~definitions~~be ofsubmitted ~~“large~~and ~~accelerated~~posted ~~filer,”~~pursuant to ~~“accelerated~~Rule 405 ~~filer”~~of ~~and~~Regulation S-T ~~“smaller reporting~~(§ ~~company”~~232.405 inof ~~Rule~~this ~~12b-2~~chapter) ofduring the ~~Exchange~~preceding ~~Act.~~12 months ~~Large~~(or ~~accelerated filer~~for ¨such ~~Accelerated~~shorter ~~filer ¨~~period ~~Non-accelerated filer~~that ¨the ~~(Do~~registrant ~~not check~~was ifrequired ato ~~smaller~~submit ~~reporting~~and ~~company,~~post ~~Smaller~~such ~~reporting~~files). ~~company~~o xYes o No

Indicate by check mark whether the registrant is a ~~shell~~large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. ~~(as~~See ~~defined~~the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). ~~¨ Yes x No~~

~~APPLICABLE ONLY~~Large TOaccelerated ~~CORPORATE~~filer ~~ISSUERS:~~o Accelerated filer o Non-accelerated filer o Smaller reporting company þ (Do not check if a smaller reporting company)

Indicate ~~the~~ ~~number~~by ofcheck ~~shares~~mark ~~outstanding~~whether ofthe ~~each~~registrant ofis ~~the~~a ~~issuer's~~shell ~~classes~~company of(as ~~common stock,~~defined asin Rule 12b-2 of the Exchange ~~latest practicable date~~Act). ~~There~~ ~~were~~o ~~3,175,206~~Yes ~~shares of~~þ ~~common stock outstanding as of November 4, 2009.~~No

~~HALIFAX CORPORATION~~APPLICABLE OFONLY ~~VIRGINIA~~TO CORPORATE ISSUERS:

		Page
PART I FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
	Condensed Unaudited Consolidated Balance Sheets – as of September 30, 2009 and March 31, 2009	1
	Condensed Unaudited Consolidated Statements of Operations – For the Three and Six Months Ended September 30, 2009 and 2008	2
	Condensed Unaudited Consolidated Statements of Cash Flows - For the Six Months Ended September 30, 2009 and 2008	3
	Notes to Condensed Consolidated Financial Statements (Unaudited)	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4T.	Controls and Procedures	18
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Submission of Matters to a Vote of Security Holders	20
Item 5.	Other Information	20
Item 6.	Exhibits	20
	Signatures	21

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. There were 3,175,206 shares of common stock outstanding as of February 16, 2010.

iHALIFAX CORPORATION OF VIRGINIA

Item 1. Financial Statements


	Page

PART I FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Condensed Unaudited Consolidated Balance Sheets — as of December 31, 2009 and March 31, 2009		1

Condensed Unaudited Consolidated Statements of Operations — For the Three and Nine Months Ended December 31, 2009 and 2008		2

Condensed Unaudited Consolidated Statements of Cash Flows — For the Nine Months Ended December 31, 2009 and 2008		3

Notes to Condensed Consolidated Financial Statements (Unaudited)		4

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		11

Item 3. Quantitative and Qualitative Disclosures About Market Risk		19

Item 4T. Controls and Procedures		19

PART II OTHER INFORMATION

Item 1. Legal Proceedings		21

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		21

Item 3. Defaults Upon Senior Securities		21

Item 4. Submission of Matters to a Vote of Security Holders		21

Item 5. Other Information		21

Item 6. Exhibits		21

Signatures		22

Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

~~HALIFAX~~i ~~CORPORATION OF VIRGINIA~~

CONDENSED CONSOLIDATEDTable BALANCEof SHEETS (UNAUDITED)Contents

(Amounts in thousands, except share data)	September 30,			March 31,
	2009			2009
ASSETS
CURRENT ASSETS
Cash	$	311		$	484
Restricted cash		-			282
Accounts receivable, net		5,918			6,794
Inventory, net		2,594			2,588
Prepaid expenses and other current assets		305			208
TOTAL CURRENT ASSETS		9,128			10,356
PROPERTY AND EQUIPMENT, net		701			727
GOODWILL		2,918			2,918
OTHER INTANGIBLE ASSETS, net		231			374
OTHER ASSETS		40			56
TOTAL ASSETS	$	13,018		$	14,431
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	2,008		$	2,254
Accrued expenses		1,461			2,292
Deferred maintenance revenues		2,737			2,072
Current portion of long-term debt		199			331
Bank debt		1,527			2,545
Income taxes payable		44			67
TOTAL CURRENT LIABILITIES		7,976			9,561
SUBORDINATED DEBT – AFFILIATE		1,000			1,000
OTHER LONG-TERM DEBT		101			141
DEFERRED INCOME		10			40
TOTAL LIABILITIES		9,087			10,742
COMMITMENTS AND CONTINGENCIES		-			-
STOCKHOLDERS’ EQUITY
Preferred stock, no par value Authorized 1,500,000, none issued or outstanding		-			-
Common stock, $.24 par value, Authorized 6,000,000 shares, Issued 3,431,890 shares, Outstanding, 3,175,206 shares		828			828
Additional paid-in capital		9,118			9,103
Accumulated deficit		(5,803	)		(6,030	)
Less treasury stock at cost – 256,684 shares		(212	)		(212	)
TOTAL STOCKHOLDERS’ EQUITY		3,931			3,689
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	13,018		$	14,431


Item 1.		Financial Statements

~~See accompanying~~HALIFAX ~~Notes~~CORPORATION toOF ~~Condensed Consolidated Financial Statements.~~VIRGINIA

1CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

HALIFAX CORPORATION OF VIRGINIA


	December 31,			March 31,
(Amounts in thousands, except share data)	2009			2009

ASSETS

CURRENT ASSETS
Cash	$	183		$	484
Restricted cash		4			282
Accounts receivable, net		5,936			6,794
Inventory, net		2,589			2,588
Prepaid expenses and other current assets		428			208


TOTAL CURRENT ASSETS		9,140			10,356

PROPERTY AND EQUIPMENT, net		664			727
GOODWILL		2,918			2,918
OTHER INTANGIBLE ASSETS, net		185			374
OTHER ASSETS		38			56


TOTAL ASSETS	$	12,945		$	14,431


LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable	$	2,268		$	2,254
Accrued expenses		1,301			2,292
Deferred maintenance revenues		2,330			2,072
Current portion of long-term debt		186			331
Bank debt		1,715			2,545
Income taxes payable		41			67


TOTAL CURRENT LIABILITIES		7,841			9,561

SUBORDINATED DEBT — AFFILIATE		1,000			1,000
OTHER LONG-TERM DEBT		139			141
DEFERRED INCOME		—			40


TOTAL LIABILITIES		8,980			10,742


COMMITMENTS AND CONTINGENCIES		—			—

STOCKHOLDERS’ EQUITY
Preferred stock, no par value Authorized 1,500,000, none issued or outstanding		—			—
Common stock, $.24 par value, Authorized 6,000,000 shares, Issued 3,431,890 shares, Outstanding, 3,175,206 shares		828			828
Additional paid-in capital		9,126			9,103
Accumulated deficit		(5,777	)		(6,030	)
Less treasury stock at cost — 256,684 shares		(212	)		(212	)

TOTAL STOCKHOLDERS’ EQUITY		3,965			3,689

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	12,945		$	14,431

~~CONDENSED CONSOLIDATED~~See ~~STATEMENTS~~accompanying OFNotes ~~OPERATIONS~~to Condensed Consolidated Financial Statements.

~~FOR THE~~1 ~~THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)~~

	Three Months Ended September 30,						Six Months Ended September 30,
(Amounts in thousand, except share and per share data)	2009			2008			2009			2008
Revenues	$	7,641		$	8,906		$	15,303		$	17,923
Cost of revenues		6,561			7,505			13,130			15,009
Gross margin		1,080			1,401			2,173			2,914
Operating costs and expenses
Selling and marketing expense		198			208			385			404
General and administrative expense		777			846			1,549			1,846
Total operating costs and expenses		975			1,054			1,934			2,250
Operating income		105			347			239			664
Other income (expense)
Other income, net		-			1			152			1
Interest expense		(47	)		( 93	)		(130	)		(176	)
Income before income taxes		58			255			261			489
Income tax expense		14			28			34			59
Net income	$	44		$	227		$	227		$	430
Earnings per share – basic	$	.01		$	.07		$	.07		$	.14
Earnings per share – diluted	$	.01		$	.07		$	.07		$	.14
Weighted average number of shares outstanding
Basic		3,175,206			3,175,206			3,175,206			3,175,206
Diluted		3,190,984			3,176,549			3,183,526			3,176,766

~~See accompanying~~HALIFAX ~~Notes~~CORPORATION toOF ~~Condensed Consolidated Financial Statements.~~VIRGINIA

2CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

~~HALIFAX CORPORATION~~FOR OFTHE ~~VIRGINIA~~THREE AND NINE MONTHS ENDED DECEMBER 31, 2009 AND 2008 (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended						Nine Months Ended
	December 31,						December 31,
(Amounts in thousands, except share and per share data)	2009			2008			2009			2008

Revenues	$	7,659		$	8,120		$	22,963		$	26,043
Operating costs and expenses		6,526			6,826			19,658			21,835


Gross margin		1,133			1,294			3,305			4,208

Selling and marketing		189			183			574			587
General and administrative		768			793			2,317			2,639
Transaction costs		91			—			91			—


Operating income		85			318			323			982

Other income		(1	)		(1	)		(154	)		(2	)
Interest expense		59			80			189			256


Income before income taxes		27			239			288			728

Income tax expense		1			7			35			66


Net income	$	26		$	232		$	253		$	662


Earnings per share — basic	$	.01		$	.07		$	.08		$	.21


Earnings per share — diluted	$	.01		$	.07		$	.08		$	.21


Weighted average number of shares outstanding
Basic		3,175,206			3,175,206			3,175,206			3,175,206
Diluted		3,182,643			3,175,206			3,183,732			3,176,166

~~FOR~~See ~~THE SIX~~accompanying ~~MONTHS~~Notes ~~ENDED~~to ~~SEPTEMBER~~Condensed ~~30,~~Consolidated ~~2009~~Financial ~~AND 2008 (UNAUDITED)~~Statements.

(Amounts in thousands)	Six Months Ended
	September 30,
	2009			2008
Cash flows from operating activities:
Net income	$	227		$	430
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on debt extinguishment		(212	)		-
Depreciation and amortization		339			396
Equity based compensation		15			14
Changes in operating assets and liabilities:
Accounts receivable		876			4,086
Inventory		(6	)		192
Prepaid expenses and other assets		(81	)		-
Accounts payable and accrued expenses		(1,077	)		(1,247	)
Income taxes payable		(23	)		58
Deferred maintenance revenue		665			(1,567	)
Deferred income		(30	)		(30	)
Net cash provided by operating activities		693			2,332
Cash flows from investing activities:
Purchase of property and equipment		(170	)		(55	)
Net increase in restricted cash		282			-
Net cash provided by (used in) investing activities		112			(55	)
Cash flows from financing activities:
Proceeds from bank borrowing		13,972			18,001
Payment of bank debt		(14,778	)		(19,760	)
Payment of auxiliary line of credit		-			(60	)
Payment of other long-term debt		(172	)		(140	)
Net cash used in financing activities		(978	)		(1,959	)
Net (decrease) increase in cash		(173	)		318
Cash at beginning of period		484			232
Cash at end of period	$	311		$	550
Supplemental Disclosure of Cash Flow Information:
Disposal of fully depreciated property and equipment	$	2,144		$	-
Cash paid for interest	$	125		$	136
Cash paid for income taxes	$	57		$	1

See accompanyingTable Notesof to Condensed Consolidated Financial Statements.Contents

3HALIFAX CORPORATION OF VIRGINIA

~~Halifax Corporation~~CONSOLIDATED ofSTATEMENTS ~~Virginia~~OF CASH FLOWS

~~Notes~~FOR ~~to Condensed~~THE ~~Consolidated~~NINE ~~Financial~~MONTHS ~~Statements~~ENDED DECEMBER 31, 2009 AND 2008 (UNAUDITED)

(Unaudited)


	Nine Months Ended
	December 31,
(Amounts in thousands)	2009			2008

Cash flows from operating activities:

Net income	$	253		$	662

Adjustments to reconcile net income to net cash provided by operating activities:
Gain on debt extinguishment		(212	)		—
Depreciation and amortization		480			608
Share-based compensation		23			21
Changes in operating assets and liabilities:
Accounts receivable		858			4,817
Inventory		(1	)		431
Prepaid expenses and other assets		(202	)		26
Accounts payable and accrued expenses		(977	)		(773	)
Deferred maintenance revenue		258			(2,373	)
Income taxes payable		(26	)		61
Deferred income		(40	)		(44	)


Net cash provided by operating activities		414			3,436


Cash flows from investing activities:

Acquisition of property and equipment		(113	)		(81	)
Restricted cash		278			—


Net cash provided by (used in) investing activities		165			(81	)


Cash flows from financing activities:

Proceeds from bank debt		21,327			25,606
Repayment of bank debt		(21,945	)		(28,067	)
Payment of auxiliary line of credit		—			(60	)
Payments of other long-term debt		(262	)		(220	)


Net cash used in financing activities		(880	)		(2,741	)


Net (decrease) increase in cash		(301	)		614

Cash at beginning of period		484			232


Cash at end of period	$	183		$	846


Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	184		$	196

Cash paid for income taxes	$	63		$	4

Assets acquired under capital lease	$	115		$	162

Disposal of fully depreciated property and equipment	$	2,144		$	—

~~Note~~See 1accompanying ~~- Basis~~Notes ofto ~~Presentation~~Condensed Consolidated Financial Statements.

~~Halifax~~3 Corporation of Virginia (the “Company”) is incorporated under the laws of Virginia and provides enterprise maintenance services and solutions for commercial and government activities. These services include high availability maintenance solutions, enterprise logistics solutions and technology deployment and integration. The Company is headquartered in Alexandria, Virginia and has locations to support its operations located throughout the United States.

On SeptemberTable 29, 2009, the Company announced that it would voluntarily delist its common stock from the NYSE AMEX (“AMEX”) by filing a Form 25 with the SEC on October 9, 2009. Effective October 20, 2009, the Company’s common stock was delisted from AMEX. After that date, the Company’s common stock will be quoted in the over-the-counter market in the “Pink Sheets,” a centralized electronic quotation service for over-the-counter securities. The Company expects its common stock will continue to trade in the Pink Sheets, so long as market makers demonstrate an interest in trading in the Company’s common stock. The Company’s new ticker symbol for trading on the Pink Sheets is HALX. Following such delisting, the Company intends to deregister its common stock under the Securities Exchange Act of 1934 (the “Exchange Act”) on or about April 1, 2010, and become a non-reporting company under the Exchange Act. The Company expects that it will file with the SEC a Form 15, Notice of Termination of Registration and Suspension of Duty to File, to terminate its reporting obligations under the Exchange Act on or about April 1, 2010. When the Form 15 has been filed, the Company’s obligation to file reports, and other information under the Exchange Act, such as Forms 10-K, 10-Q and 8-K will be suspended. The deregistration of the Company’s common stock under the Exchange Act will become effective 90 days after the date on which the Form 15 was filed. The Company is eligible to deregister under the Exchange Act because its common stock was held of record by fewer than 300 persons.Contents

~~The Company’s~~Halifax ~~unaudited~~Corporation ~~condensed consolidated financial statements include the accounts~~ of ~~the Company and its wholly-owned subsidiaries. Wholly-owned~~Virginia ~~subsidiaries include Halifax Engineering, Inc. and Halifax Realty, Inc. All significant intercompany transactions are eliminated in consolidation.~~

~~The condensed~~Notes consolidated financial statements of Halifax Corporation of Virginia included herein are unaudited; however, the balance sheet as of March 31, 2009 has been derived from the audited financial statements for that date but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). These financial statements have been prepared by the Company pursuant to ~~the~~Condensed ~~applicable~~Consolidated ~~rules~~Financial ~~and regulations of the~~Statements ~~Securities and Exchange Commission~~ (~~"SEC"~~Unaudited). Under the SEC's regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. All significant intercompany balances and transactions have been eliminated upon consolidation, and all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods covered have been made and are of a normal and recurring nature. The financial statements included herein should be read in conjunction with the consolidated financial statements and the related notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2009. Operating results for the three and six months ended September 30, 2009 are not necessarily indicative of the results to be achieved for the full year.

~~The Company~~Note is1 ~~subject~~— toBasis ~~all~~ of ~~the risks inherent in a company that operates in~~Presentation the intensely competitive enterprise maintenance services and solutions industry. These risks include, but are not limited to, competitive conditions, customer requirements, technological developments, quality, pricing, responsiveness and the ability to perform within estimated time and expense guidelines. The Company’s operating results may be materially affected by the foregoing factors, including its ability to manage costs in relation to revenues due to economic uncertainties.

4Halifax Corporation of Virginia (the “Company”) is incorporated under the laws of Virginia and provides enterprise maintenance services and solutions for commercial and government activities. These services include high availability maintenance solutions, enterprise logistics solutions and technology deployment and integration. The Company is headquartered in Alexandria, Virginia and has locations to support its operations located throughout the United States.

~~Note~~Proposed ~~2 -~~Merger ~~New Accounting Standards~~

~~Effective July~~On 1January 6, ~~2009~~2010, the Company ~~adopted~~entered ~~the~~into ~~Financial~~an ~~Accounting~~Agreement ~~Standards~~and ~~Board~~ Plan of Merger (the “~~FASB~~Merger Agreement”) ~~Accounting~~with ~~Standards~~Global ~~Codification~~Iron ~~(“ASC”)~~Holdings, ~~105-10~~LLC, ~~“Generally~~a ~~Accepted Accounting~~Delaware ~~Principles~~limited –liability ~~Overall”~~company (“~~ASC 105-10~~Parent”). , and ~~ASC~~Global ~~105-10~~Iron ~~establishes~~Acquisition, ~~the~~LLC, ~~FASB~~a ~~Accounting~~Delaware ~~Standards~~limited ~~Codification~~liability company (~~the~~ “~~Codification~~Merger Sub”). asThe ~~the~~Merger Agreement ~~source~~provides ofthat ~~authoritative accounting principles recognized by~~ the ~~FASB~~Company towill bemerge ~~applied~~with byand ~~nongovernmental~~into ~~entities~~Merger inSub (the ~~preparation~~“Merger”) ~~of financial statements in conformity~~ with ~~GAAP. Rules and interpretive~~Merger ~~releases~~Sub ofcontinuing as the ~~SEC~~surviving ~~under~~Company ~~authority~~(the of“Surviving ~~federal~~Entity”). ~~securities~~In ~~laws~~the ~~are~~Merger, ~~also~~each ~~sources~~ share of common ~~authoritative~~stock, ~~GAAP~~par ~~for~~value ~~SEC registrants~~$0. ~~All~~24 ~~guidance~~per ~~contained~~share, inof the ~~Codification~~ ~~carries~~Company, anissued ~~equal~~and ~~level~~outstanding ofimmediately ~~authority. The Codification~~prior ~~superseded~~to ~~all~~the ~~existing~~effective ~~non-SEC~~time ~~accounting~~of ~~and~~the ~~reporting~~Merger ~~standards. All~~ (other ~~non-grandfathered,~~than ~~non-SEC~~shares ~~accounting~~as ~~literature~~to ~~not~~which ~~included~~appraisal inrights ~~the~~are properly ~~Codification~~asserted isunder ~~non-authoritative. The~~Virginia ~~FASB~~law ~~will~~and ~~not~~shares ~~issue~~owned ~~new~~by ~~standards in~~ the ~~form~~Company, ofMerger ~~Statements~~Sub, ~~FASB~~Parent ~~Staff Positions~~ or ~~Emerging~~any ~~Issues~~affiliate ~~Task Force~~of ~~Abstracts. Instead, it will issue Accounting Standards Updates (“ASUs”~~Parent)~~. The~~ ~~FASB~~ will ~~not~~be ~~consider~~converted ~~ASUs~~into asthe ~~authoritative in their own~~ right~~. ASUs~~ ~~will serve only~~ to ~~update~~receive ~~the~~a ~~Codification,~~cash ~~provide~~amount ~~background information~~of ~~about~~$1.20 (the ~~guidance and provide the bases for conclusions on the~~“Merger ~~change(s~~Consideration”) ~~in the Codification~~. ~~References made to FASB guidance throughout~~ ~~this document have been updated for the Codification.~~

~~Effective June~~As ~~30,~~a ~~2009,~~result of the ~~Company adopted FASB ASC 855-10~~Merger, ~~“Subsequent Events – Overall” (“ASC 855-10”). ASC 855 – 10 establishes standards for accounting for and disclosing subsequent events (events which occur after~~ the ~~balance~~Company ~~sheet date~~will ~~but before financial statements are issued or are available to~~ be ~~issued). ASC~~merged ~~855-10~~with ~~requires an entity to disclose the date subsequent events were evaluated~~ and ~~whether~~into ~~that~~Merger ~~evaluation~~Sub, ~~took~~a ~~place~~wholly ~~on the date financial~~owned ~~statements~~subsidiary ~~were~~of ~~issued or were available to be issued~~Parent. ~~The~~Shareholders ~~adoption~~ of ~~ASC 855-10 did not have a material impact on~~ the Company’s ~~consolidated~~will ~~financial condition~~not orown ~~results~~any shares of ~~operations.~~the ~~(See~~Surviving ~~note 16)~~Entity.

InUpon ~~April 2009,~~consummation of the ~~FASB~~Merger, ~~issued~~each ~~additional~~outstanding ~~application~~in-the-money ~~guidance~~option ~~and~~to ~~enhancements~~purchase tothe Company’s ~~disclosures~~common ~~regarding~~stock ~~fair~~will ~~value~~be ~~measurements.~~converted ~~ASC~~into ~~825~~the –right 10to ~~(formerly~~receive ~~“FASB Staff~~a ~~Position~~cash ~~No.~~amount ~~FAS~~equal ~~107-1~~to ~~and~~the ~~APB 28-1”)~~excess, ~~“Interim~~if ~~Disclosures about Fair~~any, ~~Value~~ of ~~Financial~~the ~~Instruments,”~~Merger ~~enhances~~Consideration ~~consistency~~over ~~in financial reporting by increasing~~ the ~~frequency~~exercise ofprice ~~fair~~per ~~value~~share ~~disclosures.~~for ~~ASC~~each ~~820~~share –subject 10to ~~(formerly~~the ~~“FASB~~option, ~~Staff~~less ~~Position~~any ~~No.~~applicable ~~FAS~~withholding ~~157-4”),~~taxes. ~~“Determining Fair Value when~~ In-the-money ~~Volume~~options ~~and Level~~are ofoptions ~~Activity~~that ~~for the Asset or Liability~~ have ~~Significantly~~an ~~Decreased~~exercise ~~and~~price ~~Identifying~~per ~~Transactions~~share ~~that~~less ~~are~~than ~~Not~~$1.20 ~~Orderly,”~~per ~~provides guidelines for making fair value measurements more consistent~~share. ~~The~~Each ~~Company~~outstanding ~~adopted FSP FAS 107~~out-~~1 and APB 28~~of-~~1 effective April 1, 2009 and~~ the-money ~~adoption~~option ~~did~~immediately ~~not~~prior ~~have a material impact~~to onconsummation of the ~~Company’s~~Merger ~~consolidated~~will ~~financial~~be ~~position~~cancelled orwithout ~~results of operations~~consideration.

~~Note~~Consummation 3of -the Merger is subject to various conditions, including the adoption of the Merger ~~Fair~~Agreement ~~Value~~by ~~Measurements~~the Company’s shareholders, the absence of legal prohibitions and the receipt of requisite regulatory approvals. Consummation of the Merger is not subject to a financing condition.

~~In February~~The ~~2008,~~Merger ~~the~~Agreement ~~FASB~~contains ~~issued~~certain ~~ASC~~termination ~~820~~rights —for 10both ~~(formerly~~Parent ~~“Financial~~and ~~Staff~~Merger ~~Position SFAS No. 157-2”)~~Sub, ~~which~~on ~~delayed~~ the ~~effective date of ASC 820 - 10 (formerly~~one ~~“SFAS~~hand, ~~No. 157”) for all non-financial assets~~ and ~~non-financial liabilities except those that are recognized or disclosed at fair value in~~ the ~~financial statements~~Company, on athe ~~recurring~~other ~~basis (at least annually)~~hand. ~~This~~Upon ~~deferral~~termination ~~primarily applied~~of tothe ~~our~~Merger ~~asset~~Agreement ~~retirement~~under ~~obligation~~specified circumstances, ~~which~~including ~~uses~~failure ~~fair~~to ~~value~~obtain ~~measures at~~ the ~~date~~requisite ~~incurred~~shareholder tovote ~~determine~~in ~~our~~favor ~~liability and any property impairments that may occur. The adoption~~ of the ~~provisions~~Merger, failure ofto ~~ASC~~timely ~~820-10~~hold ~~did not have~~ a ~~material impact~~shareholder onmeeting or the Company’s ~~consolidated~~accepting ~~financial~~a ~~position,~~Superior ~~results of operations or cash flows~~Proposal, ~~but requires expanded disclosures regarding~~ the ~~Company’s fair~~ ~~value measurements. The~~ Company ~~has~~is norequired ~~financial~~to ~~instruments~~pay ~~that~~Parent ~~have~~ a ~~materially~~ ~~different~~termination ~~fair~~fee ~~value than the respective instrument’s carrying value. Because the $1.0 million in subordinated notes with an interest rate~~ of ~~8% are with a related party~~$240,000 itand ~~was~~up ~~not practicable~~ to ~~estimate the effect of subjective risk factors~~$200,000 ~~which might influence the value~~ of the ~~debt. The most~~ ~~significant~~reasonable ofexpenses ~~these~~incurred ~~risk~~by ~~factors~~Parent ~~include~~in ~~the~~connection ~~subordination~~with of the ~~debt~~transactions ~~and~~contemplated by the ~~lack~~Merger ~~of collateralization~~Agreement.

~~Note~~Upon 4termination –of the Merger Agreement by the Company due to Parent’s or Merger Sub’s ~~Accounts~~representations ~~Receivable~~and warranties not being correct or Parent’s or Merger Sub’s failure to perform covenants contained in the Merger Agreement where such failure was not cured in all material respects within ten business days following receipt of written notice of such breach by the Company, Parent is required to pay the Company up to $120,000 of the reasonable expenses incurred by Parent in connection with the transactions contemplated by the Merger Agreement.

~~Trade~~Subject to adoption of the Merger Agreement by the Company’s shareholders and the satisfaction of ~~accounts~~the ~~receivable~~other ~~consist~~closing conditions set forth in the Merger Agreement, the Company anticipates completing the Merger during the fourth quarter of: the fiscal year ending March 31, 2010.

(Amounts in thousands)
	September 30, 2009			March 31, 2009
Amounts billed	$	5,936		$	6,732
Amounts unbilled		260			239
Allowance for doubtful accounts		(278	)		(177	)
Accounts receivable, net	$	5,918		$	6,794

Prior to its execution, the Merger Agreement was approved by the Board of Directors of the Company, which based its determination to approve the Merger Agreement on the recommendation of the special committee of the Board of Directors.

NoteTable 5of – InventoryContents

~~Inventory consists~~Further ~~principally~~information ofregarding ~~spare~~this ~~computer~~transaction ~~parts,~~can ~~computer~~be ~~and~~found ~~computer~~in ~~peripherals consumed~~the onCompany’s ~~maintenance~~Current ~~contracts,~~Report ~~and~~on ~~hardware and software held for resale to~~Form ~~customers.~~8-K ~~All~~filed ~~inventories~~with ~~are valued at~~ the ~~lower~~SEC ~~of cost or market, cost being determined principally~~ on ~~the weighted average cost method. The determination of market value involves numerous judgments including estimated average selling prices based upon recent sales volumes~~January 12, ~~industry~~2010 ~~trends, existing customer orders, current contract price, future demand~~ and ~~pricing for its products and technological obsolescence of~~ the Company’s ~~products.~~Definitive IfProxy ~~actual~~Statement ~~market~~Relating to ~~conditions~~Merger ~~are~~or ~~less~~Acquisition ~~favorable~~filed ~~than~~with ~~those~~the ~~projected~~SEC byon ~~management~~February 3, ~~additional inventory write-downs may be required~~2010.

~~The Company’s~~In ~~reserve~~connection ~~for~~with ~~excess~~this ~~and~~proposed ~~obsolete inventory at September 30~~merger, ~~2009~~the ~~and March~~Company ~~31,~~incurred ~~2009 was~~ approximately $~~1.3 million and $1.2 million~~91,000 ~~respectively. During~~in ~~the three months ended September 30, 2009 and 2008, the company recorded~~transaction ~~inventory~~related ~~obsolescence~~costs ~~charges~~which in the ~~amount~~Company ofexpensed ~~$75,000~~during ~~and $60,000, respectively. During~~ the ~~six~~nine months ended ~~September 30~~December 31, 2009 ~~and 2008, the Company recorded inventory obsolescence charges in the amount of $150,000 and $112,000, respectively~~.

~~In valuing~~On ~~its~~January 6, ~~inventory costs~~2010, ~~the~~Nancy ~~Company~~Scurlock ~~considered~~and ~~whether~~ the ~~utility~~Arch ofC. ~~the products~~Scurlock ~~delivered~~Children’s ~~or expected to be delivered at less than cost~~Trust, ~~primarily comprised~~holders of ~~computer parts and equipment consumed on maintenance contracts, had~~the ~~declined. The~~ Company’s ~~concluded~~8% ~~that,~~promissory innotes ~~the~~totaling ~~instances~~an ~~where~~aggregate ~~the~~principal ~~utility~~amount of ~~the products~~$1.0 million ~~delivered~~at orDecember 31, ~~expected~~2009 todue beJuly 1, ~~delivered~~2010, ~~were~~entered ~~less~~into ~~than~~an ~~cost,~~agreement itwith ~~was appropriate~~Parent toand ~~value~~Merger ~~the~~Sub ~~inventory~~to ~~costs~~exchange at ~~cost or market, whichever is lower,~~the ~~thereby~~effective ~~recognizing~~time ~~the cost~~ of the ~~reduction~~Merger inall ~~utility~~of in the ~~period~~Company’s in8% ~~which the~~promissory ~~reduction~~notes ~~occurred~~for ornotes ~~can~~of besame ~~reasonably~~principal amount ~~estimated.~~issued ~~The~~by ~~Company~~the ~~has, therefore,~~entity ~~recorded~~surviving ~~inventory~~the ~~write-downs~~Merger asalong ~~necessary~~with inother ~~each~~modifications ~~period~~such inas ~~order~~an toextension ~~reflect~~of ~~inventory at~~ the ~~lower~~maturity ~~of cost or market~~date.

~~Note~~Voluntary ~~6 –~~Delisting ~~Goodwill and Other Intangible Assets~~

~~The~~ On September 29, 2009, the Company ~~evaluates~~announced ~~goodwill~~that ~~and~~it ~~intangibles~~would voluntarily delist its common stock from the NYSE AMEX (“AMEX”) by filing a Form 25 with anthe ~~indefinite~~SEC ~~life~~on ~~annually~~October 9, 2009. Effective October 20, ~~during~~2009, the ~~third~~Company’s ~~fiscal~~common ~~quarter~~stock was delisted from AMEX, and ~~upon~~is currently quoted in the over-the-counter ~~occurrence~~market ofin ~~certain~~the ~~triggering~~“Pink Sheets,” a centralized electronic quotation service for ~~events~~over-the-counter orsecurities. ~~substantive~~The ~~changes~~Company’s innew ~~circumstances~~ticker ~~that~~symbol ~~indicate~~for ~~that~~trading on the ~~fair~~Pink Sheets is ~~value~~HALX. ofFollowing such delisting, the Company intends to deregister its common stock under the ~~goodwill~~Securities orExchange ~~indefinite~~Act ~~lived~~of ~~intangible~~1934 ~~assets~~(the ~~may~~“Exchange beAct”) ~~impaired~~on or about April 1, in2010, ~~accordance~~(unless ~~with~~deregistration ~~SFAS~~occurs Noearlier based upon the closing of the Merger discussed above). ~~142~~The Company expects that it will file with the SEC a Form 15, ~~“Goodwill~~Notice of Termination of Registration and Suspension ~~Other~~of ~~Intangible~~Duty ~~Assets”~~to ~~(“ASC~~File, ~~Topic~~to terminate its reporting obligations under the Exchange Act on or ~~350-10-05”).~~about ~~Impairment~~April 1, of2010 ~~goodwill~~subject isto ~~tested~~earlier atfiling if the ~~reporting~~Merger ~~unit~~transaction ~~level~~discussed above is completed prior to such time. When the Form ~~The~~15 is filed, the Company’s ~~has~~obligation ~~one~~to ~~reporting~~file ~~unit~~reports, and ~~because~~other ~~none~~information ofunder the ~~components~~Exchange Act, such as Forms 10-K, 10-Q and 8-K will be suspended. The deregistration of the Company’s ~~constitute~~common astock ~~business~~under ~~for~~the ~~which~~Exchange ~~discrete~~Act ~~financial~~will ~~information~~become iseffective 90 ~~available~~days ~~and~~after ~~for~~the date on which the Form 15 was filed. The Company ~~management~~is ~~regularly~~eligible ~~reviews~~to deregister under the ~~results~~Exchange Act, following the filing of its Annual Report on Form 10-K for the year ended March ~~operations~~31, 2010, because its common stock was held of record by fewer than 300 persons.

The ~~goodwill~~ ~~impairment~~Company’s ~~test~~unaudited ~~follows~~condensed aconsolidated ~~two~~financial ~~step~~statements ~~process~~include ~~as defined in ASC Topic 350-10-05. In~~ the ~~first~~accounts ~~step,~~of the Company ~~fair~~and ~~value of a reporting unit is compared to~~ its ~~carrying~~wholly-owned ~~value~~subsidiaries. IfWholly-owned ~~the~~subsidiaries ~~carrying~~include ~~value~~Halifax ~~of a reporting unit exceeds its fair value~~Engineering, ~~the second step of the impairment test is performed for purposes of~~ ~~measuring the impairment~~Inc. Inand ~~the~~Halifax ~~second step~~Realty, ~~the fair value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit to determine an implied goodwill value~~Inc. ~~This~~All ~~allocation~~significant isintercompany ~~similar~~transactions toare aeliminated ~~purchase~~in ~~price allocation~~consolidation. ~~If the carrying amount of the reporting unit’s goodwill~~ ~~exceeds the implied fair value of goodwill, an impairment loss will be recognized in an amount equal to that excess.~~

AsThe ~~the Company~~condensed ~~consists~~consolidated financial statements of ~~only~~Halifax ~~one~~Corporation ~~reporting~~of ~~unit~~Virginia included herein are unaudited; however, ~~and~~the isbalance ~~publicly~~sheet ~~traded~~as of March 31, ~~management~~2009 has been derived from the audited ~~estimates~~financial ofstatements for that date but does not include all disclosures required by accounting principles generally accepted in the ~~fair~~United ~~value~~States ~~were~~of America (“GAAP”). These financial statements have been prepared by ~~weighting~~the ~~three different~~Company ~~valuation~~pursuant ~~methods:~~to the ~~discounted~~applicable ~~cash~~rules ~~flow~~and ~~method,~~regulations of the Securities ~~mergers~~and Exchange Commission (“SEC”). Under the SEC’s regulations, certain information and ~~acquisition~~footnote ~~method~~disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. All significant intercompany balances and antransactions ~~indication~~have tobeen eliminated ~~value~~upon ~~based~~consolidation, onand all adjustments which, in the ~~quoted~~opinion ~~market~~of ~~price~~management, are necessary for a fair presentation of the ~~Company’s~~financial ~~stock.~~position, ~~The~~results ~~Company~~of ~~heavily~~operations ~~weighted~~and cash flows for the ~~discounted~~periods ~~cash~~covered ~~flow method~~have been made and ~~the~~are ~~mergers~~of a normal and ~~acquisition~~recurring ~~method~~nature. The financial statements included herein should be read in ~~determining~~conjunction with the ~~fair~~consolidated ~~value~~financial ofstatements and the ~~reporting~~related ~~unit.~~notes ~~Due~~thereto toincluded in the ~~lack~~Company’s ofAnnual anReport ~~active~~on ~~trading~~Form ~~market~~10-K for the year ~~Company’s~~ended ~~stock~~March 31, ~~the~~2009. ~~Company’s~~Operating ~~quoted~~results ~~market~~for ~~price~~the ~~was~~three ~~not~~and ~~considered~~nine asmonths ~~strong~~ended December 31, 2009 are annot ~~indication~~necessarily indicative of ~~value~~the ofresults to be achieved for the ~~reporting~~full ~~unit~~year.

~~In response~~The toCompany ~~market~~is ~~conditions,~~subject ~~the~~to ~~Company~~all ~~evaluated~~of ~~its~~the ~~goodwill~~risks ~~position~~inherent ~~at March~~in ~~31,~~a ~~2009,~~company bythat ~~comparing~~operates in the ~~fair~~intensely competitive ~~value~~enterprise ofmaintenance ~~the~~services ~~reporting~~and ~~unit~~solutions ~~with~~industry. ~~its carrying~~These ~~value,~~risks ~~including goodwill~~include, ~~and~~but ~~determined~~are not ~~that~~limited ~~the~~to, ~~fair~~competitive ~~value~~conditions, ~~of reporting~~customer ~~unit~~requirements, ~~was~~technological ~~greater~~developments, ~~than~~quality, pricing, ~~the~~responsiveness ~~carrying value~~ and the ~~goodwill~~ability ~~balance~~to ~~and indefinite~~perform ~~lived~~within ~~intangible~~estimated ~~assets~~time ~~were~~and ~~not~~expense ~~impaired~~guidelines. The ~~There~~Company’s ~~were~~operating noresults ~~triggering events~~may ~~during~~be ~~the~~materially ~~second~~affected ~~quarter~~by ofthe ~~fiscal~~foregoing ~~2010~~factors, ~~requiring~~including ~~a goodwill impairment~~its ~~test.~~ability ~~The Company will continue~~ to ~~monitor~~manage ~~its~~costs ~~goodwill~~in ~~and~~relation ~~indefinite-lived intangible~~to ~~and~~revenues ~~long-lived~~due ~~assets~~to ~~for~~economic ~~possible future impairment~~uncertainties.

6Subsequent events have been evaluated through the filing date (February 12, 2010) of these unaudited consolidated financial statements.

~~Note 7 –~~5 ~~Accounts Payable~~

Accounts payableTable represents amounts owed to third parties at the end of the period. The Company included drafts outstanding in accounts payable of approximately $263,000 and $387,000 at September 30, 2009 and March 31, 2009, respectively.Contents

Note 82 ~~– Accrued~~— ~~Expenses~~New Accounting Standards

~~Accrued expenses~~The ~~consist~~Financial Accounting Standards Board (“FASB”) has codified a single source of U.S. GAAP, the “Accounting ~~following:~~Standards Codification.” Unless needed to clarify a point to readers, the Company will refrain from citing specific section references when discussing application of accounting principles or addressing new or pending accounting rule changes.

	September 30,		March 31,
	2009		2009
Accrued lease payments	$	358	$	832
Accrued vacation		21		21
Accrued payroll		398		357
Payroll taxes accrued and withheld		88		143
Interest		330		325
Other accrued expenses		266		614
	$	1,461	$	2,292

Note 3 — Fair Value Measurements

~~Note~~Effective 9April –1, ~~Income~~2009, ~~Taxes~~the Company adopted the provisions of the fair value measurement accounting and disclosure guidance related to non-financial assets and liabilities recognized or disclosed at fair value on a nonrecurring basis. This standard establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements, and clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The provisions also establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows, but requires expanded disclosures regarding the Company’s fair value measurements. The Company has no financial instruments that have a materially different fair value than the respective instrument’s carrying value. Because the $1.0 million in subordinated notes with an interest rate of 8% are with a related party, it was not practicable to estimate the effect of subjective risk factors, which might influence the value of the debt. The most significant of these risk factors include the subordination of the debt and the lack of collateralization.

AsNote ~~of September~~4 ~~30,~~— ~~2009~~Accounts ~~and March 31, 2009, the Company maintained a valuation~~Receivable allowance against deferred tax assets, as the Company concluded it did not meet the “more likely than not” threshold required under ASC-740, “Income Taxes” (formerly, “SFAS No. 109”) to reverse the valuation allowance. As such, the Company’s effective tax rate for the three and six months ended September 30, 2009 and 2008 differs from the statutory rate primarily due to the Company’s utilization of deferred tax assets offset by the associated valuation allowance. The income tax expense for the three and six months ended September 30, 2009 and 2008 consisted primarily of federal and state alterative minimum taxes and other state taxes.

~~The Company’s~~Trade ~~unrecognized~~accounts ~~tax~~receivable ~~benefits~~consist ~~were unchanged during the three and six months ended September 30, 2009. The Company does not anticipate that total unrecognized tax benefits will significantly change due to the settlement~~ of: ~~examinations or the expiration of the statute of limitations within the next twelve months.~~

Note 10 – Credit Facility and Subordinated Debt


(Amounts in thousands)	December 31, 2009			March 31, 2009

Amounts billed	$	5,783		$	6,732

Amounts unbilled		266			239

Allowance for doubtful accounts		(113	)		(177	)


Accounts receivable, net	$	5,936		$	6,794

~~Credit~~Note 5 — Inventory ~~Facility~~

OnInventory ~~June 15,~~consists ~~2009,~~principally ~~the~~of ~~Company~~spare ~~entered~~computer ~~into~~parts, acomputer ~~Business~~and ~~Loan~~computer ~~Agreement~~peripherals ~~(the “Loan~~consumed ~~Agreement”)~~on maintenance contracts, and ahardware ~~Commercial~~and ~~Security~~software ~~Agreement~~held ~~(the~~for ~~“CSA”),~~resale ~~with~~to ~~Sonabank (the “New Credit Facility”)~~customers. ~~The~~ ~~Company~~All ~~also~~inventories are ~~executed~~valued aat ~~promissory note (~~the ~~“Note”)~~lower ~~in favor~~ of ~~Sonabank. Collectively,~~cost ~~the~~or ~~Loan Agreement~~market, ~~the~~ ~~CSA~~cost ~~and~~being ~~the~~determined ~~Note~~principally ~~are~~on ~~referred to as~~ the ~~Loan~~weighted average ~~Documents~~cost method. The ~~Loan Documents~~determination ~~replaced~~of ~~the~~market ~~Company’s~~value ~~Loan~~involves ~~and~~numerous ~~Security~~judgments ~~Agreement~~including estimated ~~with~~average ~~Textron Financial~~selling ~~Corporation,~~prices ~~which~~based ~~terminated~~upon onrecent ~~June~~sales 15volumes, ~~2009~~industry ~~(the~~trends, ~~“Old Credit~~existing ~~Facility”). On~~customer ~~August 26~~orders, ~~2009,~~current ~~the~~contract ~~Company~~price, ~~entered~~future ~~into~~demand anand ~~amendment to~~pricing ~~the~~for ~~note~~its ~~dated~~products ~~June~~and technological ~~15,~~obsolescence ~~2009 in favor~~ of ~~Sonabank effective beginning September 1, 2009. Under~~ the ~~amendment the amount that the~~ Company’s ~~may borrow was increased from $1~~products.5 ~~million~~If toactual ~~$3.0~~market ~~million.~~conditions ~~Additionally,~~are ~~as long as the~~less ~~Company~~favorable ~~maintains~~than athose ~~debt~~projected ~~service~~by ~~coverage ratio of 1.25~~management, ~~the~~additional ~~Company~~inventory write-downs may ~~make quarterly~~be ~~interest payments on the 8% promissory notes dated November 2, 1998 and November 5, 1998~~required.

InThe Company’s reserve for excess and obsolete inventory at December 31, 2009 and March 31, 2009 was ~~connection~~approximately ~~with~~$0.8 million and $1.2 million, respectively. During the ~~amendment~~three months ended December 31, ~~Sonabank~~2009 ~~released~~and 2008, the ~~personal~~Company ~~guarantees~~recorded inventory obsolescence charges in the amount of $0 and ~~Charles~~$100,000, Lrespectively. ~~McNew,~~During the ~~Company’s~~nine ~~Chief~~months ~~Executive~~ended ~~Officer~~December 31, 2009 and ~~Joseph Sciacca~~2008, the Company’s recorded ~~Chief~~inventory ~~Financial~~obsolescence ~~Officer~~charges in the amount of $150,000 and $212,000, respectively.

~~The~~In ~~Loan~~valuing its inventory costs, the Company considered whether the utility of the products ~~Agreement~~delivered ~~has~~or aexpected ~~term~~to be delivered at less than cost, primarily comprised of ~~one~~computer ~~year~~parts and equipment consumed on maintenance contracts, had declined. InThe ~~the~~Company ~~event~~concluded that, in the instances ~~Company~~where ~~pays~~the ~~and~~utility ~~closes a~~of ~~New~~the ~~Credit~~products ~~Facility~~delivered ~~prior~~or expected to ~~June~~be ~~15,~~delivered ~~2010~~were ~~with~~less ~~another~~than ~~lender~~cost, it was appropriate to value the ~~Company~~inventory costs at ~~must~~cost ~~pay~~or amarket, 2%whichever ~~penalty~~is ~~assessed~~lower, ~~based~~thereby onrecognizing the ~~maximum~~cost ~~credit~~of ~~limit~~the ofreduction in utility in the period ~~New~~in which the reduction occurred or can be reasonably estimated. The Company has, therefore, ~~Credit~~recorded ~~Facility~~inventory write-downs as necessary in each period in order to reflect inventory at the lower of cost or market.

~~Under the~~6 Loan Documents, the Company may borrow an amount that may not exceed the lesser of: (i) $3,000,000 or (ii) the borrowing base which is 85% of the value of eligible accounts (as defined in the Note). The amount outstanding under the loan was approximately $1.5 million at September 30, 2009. At September 30, 2009, the Company had approximately $1.3 million available under the line New Credit Facility.

Interest accruesTable on the outstanding balance of the Note at an initial rate of 8% per annum. The interest rate on the New Credit Facility is a variable rate per annum adjusted daily based upon the Wall Street Journal’s prime lending rate plus 2.75%. Under no circumstances will the interest rate be less than 8%. The Company must pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning July 15, 2009.Contents

~~The Company's~~Note ~~Loan~~6 ~~Documents~~— ~~require~~Goodwill ~~the~~and ~~lender’s~~Other ~~approval~~Intangible ~~for the payment of~~Assets ~~dividends or distributions.~~

The ~~New~~Company evaluates goodwill and intangibles with an indefinite life annually during the third ~~Credit~~fiscal ~~Facility~~quarter isand ~~secured~~upon bythe ~~all~~occurrence of certain triggering events or substantive changes in circumstances that indicate that the ~~Company’s~~fair value of goodwill or indefinite lived intangible assets may be impaired. ~~The~~Impairment ~~Company~~of goodwill is ~~required~~ totested ~~assign~~at ~~all~~the ~~receivables~~reporting ~~payments,~~unit ~~collections~~level. The Company has one reporting unit, ~~and~~because ~~proceeds~~none of the components of the Company constitute a business for which ~~receivables~~discrete tofinancial ~~Sonabank~~information is available and ~~post~~for ~~any~~which ofCompany ~~these~~management ~~amounts~~regularly toreviews the results ~~designated~~of ~~lock-box account~~operations.

7The goodwill impairment test follows a two step process. In the first step, the fair value of a reporting unit is compared to its carrying value. If the carrying value of a reporting unit exceeds its fair value, the second step of the impairment test is performed for purposes of measuring the impairment. In the second step, the fair value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit to determine an implied goodwill value. This allocation is similar to a purchase price allocation. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of goodwill, an impairment loss will be recognized in an amount equal to that excess.

~~For~~As ~~more~~the Company consists of only one reporting unit, and is publicly traded, management estimates of ~~information~~the fair value were prepared by weighting three different valuation methods: the discounted cash flow method, the mergers and acquisition method and an indication to value based on the quoted market price of the Company’s ~~Loan~~stock. ~~Agreement~~The ~~see~~Company heavily weighted the discounted cash flow method and the mergers and acquisition method in determining the fair value of the reporting unit. Due to the lack of an active trading market for the Company’s stock, ~~“Management~~the Company’s ~~Discussion~~quoted ~~and~~market price was ~~Analysis~~not ofconsidered ~~Financial~~as ~~Condition~~strong ~~and~~an ~~Results~~indication of ~~Operations~~value —of ~~Liquidity~~the ~~and Capital~~reporting ~~Resources~~unit.”

~~Subordinated~~In response to market conditions, the Company evaluated its goodwill position at March 31, 2009, by ~~Debt~~comparing the fair value of the reporting unit with its carrying value, including goodwill, and determined that the fair value of reporting unit was greater than the carrying value and the goodwill balance and indefinite lived intangible assets were not impaired. In connection with f the proposed Merger (See Note 1), the Company updated its goodwill impairment test as of December 31, 2009, to identify whether a potential impairment of the Company’s recorded goodwill existed. The Company completed its updated impairment test as of December 31, 2009 and determined that there was no impairment to the recorded goodwill balance of $2.9 million The Company will continue to monitor its goodwill and indefinite-lived ~~Affiliates~~intangible and long-lived assets for possible future impairment.

AsNote ~~of September~~7 ~~30,~~— ~~2009~~Accounts ~~and March 31, 2009, Nancy Scurlock and the Arch C. Scurlock~~Payable Children’s Trust, which are shareholders of the Company, held, $500,000 and $500,000 face amount of the Company’s 8% Promissory Notes dated November 2, 1998 and November 5, 1998, respectively. Interest expense on the subordinated debt totaled $20,000 for three months ended September 30, 2009 and 2008, respectively. Interest expense on the subordinate debt totaled $40,000 for the six months ended September 30, 2009 and 2008, respectively. The principal amount outstanding under the subordinated notes was $1.0 million in the aggregate at September 30, 2009. The maturity date of the notes has been extended to July 1, 2010. The balance of accrued but unpaid interest due on the 8% promissory notes to the Affiliates was approximately $322,000 and $302,000 at September 30, 2009 and March 31, 2009, respectively. During the three months ended September 30, 2009, the Company paid $10,000 in accrued interest, ($20,000 in the aggregate) to Nancy Scurlock and the Arch C. Scurlock Children’s Trust.

~~Note~~Accounts 11payable –represents amounts owed to third parties at the end of the period. The Company ~~Gain~~included ondrafts ~~Extinguishment~~outstanding in accounts payable of ~~Debt~~approximately $582,000 and $387,000 at December 31, 2009 and March 31, 2009, respectively.

InNote ~~June 2009,~~8 ~~the~~— ~~Company~~Accrued ~~completed the repurchase of approximately $2.6 million of debt~~Expenses outstanding under the Old Credit Facility for approximately $2.4 million. The repurchase of the debt resulted in the recognition of a gain on extinguishment of debt of approximately $212,000 for the six months ended September 30, 2009, which is included in other income, net on the consolidated statement of operations.

~~Note~~Accrued 12expenses ~~– Stock~~consist ~~Based~~of ~~Compensation~~the following:

During the quarter ended September 30, 2009, there was a grant of stock options to purchase 5,000 shares of common stock at $1.16 under the Company’s 2005 Stock Option and Incentive Plan. There were no terminations/expirations or exercises of options to purchase the Company’s common stock during the three months ended September 30, 2009. For the six months ended September 30, 2009 there were 500 options terminated and no exercises of options to purchase the Company’s common stock.


	December 31,		March 31,
	2009		2009
Accrued lease payments	$	311	$	832
Accrued vacation		21		21
Accrued payroll		210		357
Payroll taxes accrued and withheld		109		143
Interest		331		325
Other accrued expenses		319		614

	$	1,301	$	2,292

~~For the~~7 six months ended September 30, 2009 there were no options terminated and no exercises of options purchase shares under the Company’s 1994 Key Employee Stock Option Plan and Non-Employee Directors Stock Option Plan. No new grants may be made under the 1994 Key Employee Stock Option Plan or Non-Employee Directors Stock Option Plan.

The intrinsicTable value of stock options outstanding at September 30, 2009 was $1,797.Contents

AsNote ~~of September~~9 ~~30,~~— ~~2009,~~Income ~~there was $47,000 of total unrecognized compensation cost~~Taxes ~~related to nonvested share-based compensation arrangements. This cost is expected to be fully amortized in five years.~~

~~For~~As ~~the three~~of ~~months~~December 31, ~~ended~~2009 ~~September~~and 30March 31, 2009, ~~and~~the ~~2008~~Company maintained a valuation allowance against deferred tax assets, as the Company ~~recorded~~concluded ~~share~~it ~~based~~did not meet the “more likely than not” threshold ~~compensation~~to ~~expense~~reverse ofthe ~~approximately~~valuation ~~$8,000~~allowance. ~~and~~As $6such,~~000,~~ ~~respectively.~~the ~~For~~Company’s effective tax rate for the three and ~~six~~nine months ended ~~September 30~~December 31, 2009 and 2008, differs from the statutory rate primarily due to the Company’s ~~recorded~~utilization ~~share~~of ~~based~~deferred tax assets offset by the associated valuation allowance. The ~~compensation~~income tax expense offor ~~approximately~~the ~~$15,000~~three and ~~$14~~nine months ended December 31,~~000,~~ 2009 and 2008 consisted ~~respectively~~primarily of federal and state alterative minimum taxes and other state taxes.

~~Note~~The 13Company’s –unrecognized tax benefits were unchanged during the three and nine months ended ~~Earnings~~December 31, ~~per~~2009. ~~Share~~The Company does not anticipate that total unrecognized tax benefits will significantly change due to the settlement of examinations or the expiration of the statute of limitations within the next twelve months.

~~The computation~~Note of10 ~~basic~~— ~~earnings~~Credit ~~per~~Facility share is based on the weighted average number of shares outstanding during the period. Diluted earnings per share is based on the weighted average number of shares including adjustments to both net income and ~~shares~~Subordinated ~~outstanding when dilutive, including potential common shares from~~Debt ~~options and warrants to purchase common stock using the treasury stock method.~~

8Credit Facility

On June 15, 2009, the Company entered into a Business Loan Agreement (the “Loan Agreement”), and a Commercial Security Agreement (the “CSA”), with Sonabank (the “New Credit Facility”). The Company ~~following~~also ~~table~~executed ~~sets~~a ~~forth~~promissory note (the ~~computation~~“Note”) in favor of ~~basic~~Sonabank. Collectively, the Loan Agreement, the CSA and ~~diluted~~the ~~earnings~~Note ~~per~~are referred to as the Loan Documents. The Loan Documents replaced the Company’s Loan and ~~share~~Security Agreement with Textron Financial Corporation, which terminated on June 15, 2009 (the “Old Credit Facility”). On August 26, 2009, the Company entered into an amendment to the note dated June 15, 2009 in favor of Sonabank effective beginning September 1, 2009. Under the amendment the amount that the Company may borrow was increased from $1.5 million to $3.0 million. Additionally, as long as the Company maintains a debt service coverage ratio of 1.25, the Company may make quarterly interest payments on the 8% promissory notes dated November 2, 1998 and November 5, 1998.

(Amounts in thousands except share data.)	Three Months Ended September 30,				Six Months Ended September 30,
	2009		2008		2009		2008
Numerator for earning per share:
Net income	$	44	$	227	$	227	$	430
Denominator:
Denominator for basic earnings per share weighted-average shares
		3,175,206		3,175,206		3,175,206		3,175,206
Effect of dilutive securities:
Employee stock options		15,778		343		8,320		1,560
Denominator for diluted earnings per share weighted number of shares Outstanding		3,190,984		3,175,549		3,183,526		3,176,766
Basic earnings per common share	$	.01	$	.07	$	.07	$	.14
Diluted earnings per common share	$	.01	$	.07	$	.07	$	.14

In connection with the amendment, Sonabank released the personal guarantees of both, the Company’s Chief Executive Officer and the Company’s former Chief Financial Officer.

~~Note~~The 14Loan ~~– Commitments~~Agreement has a term of one year. In the event that the Company pays and ~~Contingencies~~closes a new credit facility prior to June 15, 2010 with another lender, the Company must pay a 2% penalty assessed based on the maximum credit limit of the New Credit Facility.

~~There~~Under ~~are no~~the ~~material~~Loan ~~pending~~Documents, ~~legal proceedings to which~~ the Company ismay aborrow ~~party.~~an ~~The Company~~amount isthat ~~engaged~~may innot ~~ordinary~~exceed ~~routine~~the ~~litigation~~lesser ~~incidental~~of: to(i) $3,000,000 or (ii) the ~~Company’s business~~borrowing tobase which ~~the~~is ~~Company~~85% isof athe ~~party.~~value ~~While~~of weeligible ~~cannot~~accounts ~~predict~~(as ~~the~~defined ~~ultimate~~in ~~outcome~~the ofNote). ~~these~~The ~~various~~amount ~~legal~~outstanding ~~proceedings,~~under itthe isloan ~~management’s~~was ~~opinion~~approximately ~~that~~$1.7 million ~~the~~at December 31, ~~resolution~~2009. ofAt ~~these~~December 31, ~~matters~~2009, ~~should~~the ~~not~~Company ~~have~~had aapproximately ~~material~~$678,000 ~~effect~~available onunder ~~our~~the ~~financial position~~New ~~or results of operations~~Credit Facility.

Interest accrues on the outstanding balance of the Note 15at –an initial rate of 8% per annum. The ~~Related~~interest ~~Party~~rate ~~Transactions~~on the New Credit Facility is a variable rate per annum adjusted daily based upon the Wall Street Journal’s prime lending rate plus 2.75%. Under no circumstances will the interest rate be less than 8%. The Company must pay regular monthly payments of all accrued unpaid interest due as of each payment date.

AsThe ~~of September 30, 2009, Nancy Scurlock and the Arch C. Scurlock Children’s Trust, which are shareholders, held, $500,000 and $500,000 face amount of the~~ Company’s 8% ~~Promissory~~Loan ~~Notes~~Documents ~~dated~~require ~~November 2, 1998 and November 5, 1998, respectively. The Company paid $10,000 to Nancy Scurlock and~~ the ~~Arch C. Scurlock Children~~lender’s ~~Trust~~ ~~($20,000~~approval ~~in the aggregate)~~ for ~~accrued interest during~~ the ~~three~~payment ~~months ended~~of ~~September~~dividends ~~30, 2009 (See Note 10)~~or distributions.

~~In conjunction~~The ~~with~~New ~~the~~Credit ~~amendment~~Facility tois ~~the~~secured ~~New~~by ~~Credit~~all ~~Facility,~~of ~~Charles~~the LCompany’s assets. ~~McNew,~~The ~~our Chief~~Company ~~Executive~~is ~~Officer,~~required ~~and~~to assign ~~Joseph~~all ~~Sciacca~~receivables payments, ~~our~~collections, ~~Chief~~and ~~Financial~~proceeds ~~Officer,~~of ~~were released~~receivables ~~from~~to ~~the~~Sonabank ~~personal~~and ~~guarantees~~post ~~under~~any of ~~the~~these ~~New~~amounts ~~Credit~~to ~~Facility~~the ~~(See~~designated ~~Note 10)~~lock-box account.

~~Note~~For 16more –information on the Company’s Loan Agreement see, “Management’s Discussion and Analysis of ~~Subsequent~~Financial ~~Events~~Condition and Results of Operations — Liquidity and Capital Resources.”

~~The Company~~Subordinated ~~has~~Debt ~~reviewed~~— ~~subsequent events occurring through November 13, 2009, the~~Affiliates ~~date that these financial statements were issued, and determined that no subsequent events occurred that would require accrual or additional disclosure.~~

9As of December 31, 2009 and March 31, 2009, Nancy Scurlock and the Arch C. Scurlock Children’s Trust, which are shareholders of the Company, held, $500,000 and $500,000 face amount of the Company’s 8% Promissory Notes dated November 2, 1998 and November 5, 1998, respectively. Interest expense on the subordinated debt totaled $20,000 for three months ended December 31, 2009 and 2008, respectively. Interest expense on the subordinated debt totaled $60,000 for the nine months ended December 31, 2009 and 2008, respectively. The principal amount outstanding under the subordinated notes was $1.0 million in the aggregate at December 31, 2009. The maturity date of the notes has been extended to July 1, 2010. The balance of accrued but unpaid interest due on the 8% promissory notes was approximately $322,000 and $302,000 at December 31, 2009 and March 31, 2009, respectively. During the three months ended December 31, 2009, the Company paid $10,000 in accrued interest, ($20,000 in the aggregate) to Nancy Scurlock and the Arch C. Scurlock Children’s Trust. During the nine months ended December 31, 2009, the Company paid $20,000 in accrued interest, ($40,000 in the aggregate) to Nancy Scurlock and the Arch C. Scurlock Children’s Trust.

~~Item 2.~~8 ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

Forward-Looking StatementsTable of Contents

~~Certain statements~~In inconnection ~~this~~with ~~document constitute “forward-looking statements” within~~ the ~~meaning~~ ofproposed ~~the~~Merger ~~Federal~~discussed ~~Private~~in ~~Securities~~Note ~~Litigation Reform Act of 1995. While forward-looking statements sometimes are presented with numerical specificity~~1, ~~they~~the ~~are~~holders ~~based on various assumptions made by management regarding future circumstances over many~~ of ~~which~~the ~~Halifax~~Company’s ~~Corporation of Virginia ("Halifax~~$1,~~" "we~~000,"000 subordinated ~~"our"~~notes ~~or "us")~~ have ~~little~~agreed or no control. Forward-looking statements may be identified by words including “anticipate,” “believe,” “estimate,” “expect” and similar expressions. We caution readers that forward-looking statements, including without limitation, those relating to ~~future business prospects, revenues, working capital, liquidity, and income, are subject to~~ certain ~~risks~~modifications ~~and uncertainties that would cause actual results~~ to ~~differ materially from those indicated in~~ the ~~forward-looking~~ ~~statements. Factors~~notes ~~that~~including ~~could~~extension ~~cause actual results to differ from forward-looking statements include the concentration~~ of ~~our revenues, risks involved in contracting with our customers, including~~ the ~~difficulty~~maturity todates. ~~accurately~~These ~~estimate~~amendments ~~costs when bidding on a contract and the occurrence of start-up costs prior~~ to receiving revenues and contracts with fixed priced provisions, potential conflicts of interest, difficulties we may have in attracting and retaining management, professional and administrative staff, fluctuation in quarterly results, our ability to generate new business, our ability to maintain an effective system of internal controls, risks related to acquisitions and our acquisition strategy, favorable banking relationships, the ~~availability of capital to finance operations, ability to obtain a new credit facility on terms favorable to us, and ability to make payments on~~ outstanding ~~indebtedness,~~notes ~~weakened~~are ~~economic~~contingent conditions, reduced end-user purchases relative to expectations, pricing pressures, excess and obsolete inventory, acts of terrorism, energy prices, risks related to competition and our ability to continue to perform efficiently on ~~contracts, and other risks and factors identified from time to time in~~ the ~~reports~~consummation weof ~~file with~~ the ~~Securities~~ ~~and~~proposed ~~Exchange Commission ("SEC") and the Pink Sheet OTC Markets~~Merger. ~~Should one or more of these risks or uncertainties~~ ~~materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected.~~

~~Forward-looking statements~~Note ~~are~~11 ~~intended~~— toGain ~~apply~~on ~~only~~Extinguishment atof ~~the time they are made. Moreover,~~Debt whether or not stated in connection with a forward-looking statement, we undertake no obligation to correct or update a forward-looking statement should we later become aware that it is not likely to be achieved. If we were to update or correct a forward-looking statement, investors and others should not conclude that we will make additional updates or corrections thereafter.

~~Overview~~In June 2009, the Company completed the repurchase of approximately $2.6 million of debt outstanding under the Old Credit Facility for approximately $2.4 million. The repurchase of the debt resulted in the recognition of a gain on extinguishment of debt of approximately $212,000 for the nine months ended December 31, 2009, which is included in other income, on the condensed consolidated statements of operations.

~~Halifax delivers~~Note ~~enterprise~~12 ~~logistics~~— ~~and~~Stock ~~supply~~Based ~~chain solutions from front-office~~Compensation customer interaction to back-office reverse logistics. We deliver comprehensive, fully integrated services including end-to-end customer support and fulfillment, critical inventory optimization and management, web-based customized reporting, onsite repair services, as well as depot repair and warranty management. We are a nation-wide, high-availability, multi-vendor enterprise maintenance services and solutions provider for enterprises, including businesses, global service providers, governmental agencies and other organizations. We have undertaken significant changes to our business in recent years.

WeDuring ~~offer a~~the ~~growing~~nine ~~list~~months ofended ~~services to businesses~~December 31, ~~global service providers~~2009, ~~governmental agencies,~~there ~~and~~was ~~other~~a ~~organizations.~~grant ~~Our~~of ~~services~~stock ~~are~~options ~~customized~~ to ~~meet each~~purchase ~~customer's needs providing 7x24x365 service~~5,000 ~~personnel~~shares ~~with~~of ~~required~~common ~~security clearances~~stock ~~for~~at ~~certain~~$1.16 ~~governmental~~under ~~programs,~~the ~~project~~Company’s ~~management~~2005 ~~services,~~Stock ~~depot repair~~Option and ~~roll~~Incentive ~~out services~~Plan. During ~~We believe~~ the ~~flexible~~nine ~~services~~months weended ~~offer~~December 31, to2009, ~~our customers~~500 ~~enable~~options usterminated topursuant ~~tailor a solution~~ to ~~obtain~~their ~~maximum~~terms ~~efficiencies within~~and ~~their~~no ~~budgeting~~exercises ~~constraints~~of options occurred.

~~When~~During ~~we are~~the ~~awarded~~nine amonths ~~contract~~ended toDecember 31, ~~provide services~~2009, wethere ~~may~~were ~~incur~~59,000 ~~expenses~~options ~~before~~terminated weand no ~~receive~~exercises ~~any~~of ~~contract~~options ~~payments.~~under ~~This~~the ~~may~~Company’s ~~result~~1994 inKey aEmployee ~~cash~~Stock ~~short~~Option ~~fall~~Plan ~~that~~and ~~may~~Non-Employee ~~impact~~Directors ~~our~~Stock ~~working~~Option ~~capital~~Plan. ~~and~~No ~~financing.~~new ~~This~~grants may ~~also~~be ~~cause~~made ~~fluctuations~~under ~~in operating~~the ~~results~~1994 asKey ~~start-up~~Employee ~~costs~~Stock ~~are~~Option Plan ~~expensed~~or asNon-Employee ~~incurred~~Directors Stock Option Plan.

~~Our~~The ~~goal is~~intrinsic tovalue ~~maintain profitable operations, expand our customer base~~ of ~~clients through~~stock ~~our~~options ~~existing~~outstanding ~~global~~at ~~service provider partners~~December 31, ~~seek~~2009 ~~new~~was ~~global service provider partners and enhance the technology we utilize to deliver cost-effective services to our growing customer base~~$200. ~~We must also effectively~~ manage expenses in relation to revenues by directing new business development towards markets that complement or improve our existing service lines. We must continue to emphasize operating efficiencies through cost containment strategies, re-engineering efforts and improved service delivery techniques, particularly within costs of services, selling, marketing and general and administrative expenses.

10As of December 31, 2009, there was $24,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements. This cost is expected to be fully amortized in five years.

~~The industry~~For inthe ~~which~~three wemonths ~~operate~~ended ~~continues~~December 31, to2009 ~~experience~~and ~~unfavorable~~2008, ~~economic conditions~~the ~~and~~Company ~~competitive~~recorded ~~challenges.~~share Webased compensation ~~continue~~expense toof ~~experience~~approximately ~~significant price~~$8,000 ~~competition~~ and ~~customer~~$7,000, ~~demand~~respectively. ~~for~~For ~~higher~~the ~~service~~nine ~~attainment~~months ~~levels. In~~ended ~~addition~~December 31, ~~there~~2009 isand ~~significant~~2008, ~~price competition in~~ the ~~market~~Company ~~for~~recorded ~~state~~share ~~and local~~based ~~government~~compensation ~~contracts~~expense ~~as a result~~ of ~~budget issues~~approximately $23,000 ~~political pressure~~ and ~~other~~ ~~factors~~$21,000, ~~beyond our control~~respectively.

~~Management’s~~Note 13 — Earnings per Share ~~Plans~~

WeThe ~~are continuing~~computation toof ~~focus~~basic onearnings ~~our~~per ~~core~~share ~~high~~is ~~availability~~based ~~logistics~~on ~~and maintenance services business while at~~ the ~~same~~weighted ~~time~~average ~~evaluating~~number ~~our~~of ~~future strategic~~shares ~~direction. Management~~outstanding ~~must~~during ~~also~~the ~~continue to emphasize operating efficiencies through cost containment strategies, reengineering efforts and improved service delivery techniques~~period. ~~Our~~Diluted ~~cost~~earnings ~~containment~~per ~~strategies~~share ~~included~~is ~~reductions~~based inon ~~force, consolidating~~the ~~and~~weighted ~~reducing~~average ~~our leased facilities, company-wide salary and wage~~number ~~reductions and reductions~~ of ~~other~~shares ~~operating~~including ~~expenses~~adjustments ~~in order~~ to ~~align~~both ~~expenses as~~net aincome ~~result of losses in revenue. During the three~~ and ~~six~~shares ~~months~~outstanding ~~ended September~~when 30dilutive, ~~2009,~~including potential wecommon ~~benefited~~shares from ~~the~~options ~~cost actions undertaken during the last part of fiscal year 2009. We also began marketing our enterprise logistic service offering~~ and ~~began~~warrants to ~~migrate~~purchase ~~away~~common ~~from~~stock ~~contracts~~using ~~where~~the ~~there~~treasury ~~is a high~~stock ~~degree of exposure to inventory obsolescence~~method.

~~The~~9 industry in which we operate continues to experience unfavorable economic conditions and competitive challenges. We continue to experience significant price competition and customer demand for higher service attainment levels. In addition, there is significant price competition in the market for state and local government contracts as a result of budget issues, political pressure and other factors beyond our control.

On SeptemberTable 29, 2009, we announced that we had given formal notice to AMEX of our intention to delist from AMEX and deregister our common stock under the Securities Exchange Act of 1934 on or about April 1, 2010. Our common stock is currently quoted on the Pink Sheets, a centralized electronic quotation service for over-the-counter securities, so long as market makers demonstrate an interest in trading in our stock. However, we can give no assurance that trading in our stock will continue on the Pink Sheets or on any other securities exchange or quotation medium or that its common stock will be actively traded. We intend to continue to make financial information publicly available on our website. Effective October 20, 2009, the new stock symbol for our common stock was HALX.Contents

~~On October~~The 9,following ~~2009,~~table wesets ~~filed~~forth ~~with~~ the ~~SEC~~computation ~~and AMEX a Form 25 relating to the delisting~~ of ~~our~~basic ~~common~~and ~~stock,~~diluted ~~which~~earnings ~~would~~per ~~become effective no earlier than ten days thereafter~~share. ~~Our common stock was delisted from AMEX effective~~ ~~October 20, 2009.~~

We expect that we will also file a Form 15 with the SEC, which will result in the voluntary deregistration of our common stock and immediate suspension of our obligation to file periodic reports under the Securities Exchange Act of 1934, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q or Current Reports on Form 8-K on or about April 1, 2010. The deregistration itself is expected to be made effective by the SEC within 90 days of the filing of the Form 15.


	Three Months Ended				Nine Months Ended
	December 31,				December 31,
(Amounts in thousands except share data)	2009		2008		2009		2008
Numerator for earning per share:

Net income	$	26	$	232	$	253	$	662

Denominator:
Denominator for basic earnings per share weighted-average shares		3,175,206		3,175,206		3,175,206		3,175,206

Effect of dilutive securities:

Employee stock options		7,437		—		8,526		960


Denominator for diluted earnings per share weighted number of shares Outstanding		3,182,643		3,175,206		3,183,732		3,176,166


Basic earnings per common share	$	.01	$	.07	$	.08	$	.21


Diluted earnings per common share	$	.01	$	.07	$	.08	$	.21

11Note 14 — Commitments and Contingencies

~~Results~~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. While management cannot predict the ultimate outcome of these various legal proceedings, ~~Operations~~it is management’s opinion that the resolution of these matters should not have a material effect on our financial position or results of operations.

~~The following~~Note ~~discussion~~15 ~~and~~— ~~analysis~~Related ~~provides~~Party ~~information management believes is~~Transactions relevant to an assessment and understanding of our consolidated results of operations for the three and six months ended September 30, 2009 and 2008, respectively, and should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto.

(amounts in thousands, except share data)	Three months ended September 30,												Six months ended September 30,
Results of Operations	2009			2008			Change			%			2009			2008			Change			%
Revenues	$	7,641		$	8,906		$	(1,265	)		-14	%	$	15,303		$	17,923		$	(2,620	)		-15	%
Cost of revenues		6,561			7,505			(944	)		-13	%		13,130			15,009			1,879			-13	%
Percent of revenues		86	%		84	%								86	%		84	%
Gross margin		1,080			1,401			(321	)		-23	%		2,173			2,914			(741	)		-29	%
Percent of revenues		14	%		16	%								14	%		16	%
Operating costs and expenses
Selling and marketing expense		198			208			(10	)		-5	%		385			404			(19	)		-5	%
Percent of revenues		3	%		2	%								3	%		2	%
General & administrative expense		777			846			(69	)		- 8	%		1,549			1,846			(297	)		-16	%
Percent of revenues		10	%		9	%								10	%		10	%
Total operating costs and expenses		975			1,054			(79	)		-7	%		1,934			2,250			(316	)		-14	%
Percent of revenues		13	%		12	%								13	%		13	%
Operating income		105			347			(242	)		-70	%		239			664			(425	)		-64	%
Percent of revenues		1	%		4	%								2	%		4	%
Other (income) expense
Other income, net		-			(1	)		(1	)		n/m			(152	)		(1	)		151			n/m
Interest expense		47			93			(46	)		-49	%		130			176			(46	)		-26	%
Income before income taxes		58			255			(197	)		-77	%		261			489			(228	)		-47	%
Income tax expense		14			28			(14	)		-50	%		34			59			( 25	)		- 42	%
Net income	$	44		$	227		$	(183	)		-81	%	$	227		$	430		$	(203	)		-47	%
Earnings per share – basic and diluted	$	.01		$	.07								$	.07		$	.14
Weighted average number of common shares outstanding
Basic		3,175,206			3,175,206									3,175,206			3,175,206
Diluted		3,190,984			3,176,549									3,183,526			3,176,766

As of December 31, 2009, Nancy Scurlock and the Arch C. Scurlock Children’s Trust, which are shareholders, held, $500,000 and $500,000 face amount of the Company’s 8% Promissory Notes dated November 2, 1998 and November 5, 1998, respectively. The Company paid $10,000 to Nancy Scurlock and the Arch C. Scurlock Children’s Trust ($20,000 in the aggregate) for accrued interest during the three months ended December 31, 2009. The Company paid $20,000 to Nancy Scurlock and the Arch C. Scurlock Children’s Trust ($40,000 in the aggregate) for accrued interest during the nine months ended December 31, 2009 (See Note 10).

12In conjunction with the amendment to the New Credit Facility, the Company’s Chief Executive Officer and former Chief Financial Officer were released from the personal guarantees under the New Credit Facility (See Note 10).

~~Revenues~~10

Revenues areTable generated from the sale of enterprise logistic services, high availability enterprise maintenance services and technology deployment (consisting of professional services, seat management and deployment services, and product sales). Services revenues include monthly recurring fixed unit-price contracts as well as time-and-material contracts. Amounts billed in advance of the services period are recorded as unearned revenues and recognized when earned. The revenues and related expenses associated with product held for resale are recognized when the products are delivered and accepted by the customer.Contents

~~The composition~~Item 2. Management’s Discussion and Analysis of ~~revenues~~Financial ~~for:~~Condition and Results of Operations

( in thousands)	Three months ended September 30,										Six months ended September 30,
	2009		2008		Change			%			2009		2008		Change			%
Services	$	7,398	$	8,608	$	(1,210	)		-14	%	$	14,839	$	17,228	$	(2,389	)		-14	%
Product held for resale		243		298		(55	)		-18	%		464		695		(231	)		-33	%
Total Revenue	$	7,641	$	8,906	$	(1,265	)		-14	%	$	15,303	$	17,923	$	(2,620	)		-15	%

Forward-Looking Statements

~~Revenues from~~Certain ~~services~~statements ~~for~~in this document constitute “forward-looking statements” within the ~~three~~meaning ~~months~~of the ~~ended~~Federal ~~September~~Private 30Securities Litigation Reform Act of 1995. While forward-looking statements sometimes are presented with numerical specificity, ~~2009~~they ~~decreased~~are ~~14%~~based on various assumptions made by management regarding future circumstances over many of which Halifax Corporation of Virginia (“Halifax,” “we,” “our” or “us”) have little or no control. Forward-looking statements may be $1identified by words including “anticipate,” “believe,” “estimate,” “expect” and similar expressions.2 ~~million~~We caution readers that forward-looking statements, including without limitation, those relating to ~~$7.4~~future business prospects, revenues, working capital, liquidity, and income, are subject to certain risks and uncertainties that would cause actual results to differ materially from $8those indicated in the forward-looking statements.6 ~~million~~Factors ~~during~~that could cause actual results to differ from forward-looking statements include the ~~three~~concentration ~~months~~of ~~ended~~our ~~September~~revenues, risks involved in 30contracting with our customers, ~~2008.~~including ~~For~~the difficulty to accurately estimate costs when bidding on a contract and the ~~six~~occurrence ~~months~~of ~~ended~~start-up ~~September~~costs ~~30,~~prior ~~2009~~to ~~services~~receiving revenues and contracts with ~~decreased~~fixed ~~$2.4~~priced ~~million~~provisions, orpotential ~~14%~~conflicts ~~from~~of ~~$17.2~~interest, ~~million~~difficulties ~~the~~we ~~six~~may ~~months~~have ~~ended~~in ~~September~~attracting 30and retaining management, ~~2008~~professional and administrative staff, fluctuation in quarterly results, our ability to ~~$14.8~~generate ~~million~~new ~~for~~business, our ability to maintain an effective system of internal controls, risks related to the ~~six~~proposed ~~months~~merger ~~ended~~transaction, ~~September~~favorable 30banking relationships, ~~2008.~~the availability ~~The~~of capital to finance operations, ability to obtain a new credit facility on terms ~~decrease~~favorable into ~~services~~us, ~~revenues~~and ~~was~~ability ~~attributable~~to make payments on outstanding indebtedness, weakened economic conditions, reduced end-user purchases relative to ~~the~~expectations, ~~termination~~pricing pressures, excess and obsolete inventory, acts of ~~certain~~terrorism, energy prices, risks related to competition and our ability ~~large~~to ~~nation-wide~~continue ~~enterprise~~to ~~maintenance~~perform efficiently on contracts, and ~~lengthening~~other ~~sales~~risks ~~cycles~~and factors identified from time asto atime ~~result~~in the reports we file with the Securities and Exchange Commission (“SEC”) and the Pink Sheet OTC Markets. Should one or more of ~~continued~~these ~~economic~~risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected.

~~For~~Forward-looking ~~the three~~statements ~~months~~are ~~ended~~intended ~~September~~to ~~30,~~apply ~~2009,~~only ~~product~~at ~~held~~the ~~for~~time ~~resale~~they ~~decreased $55,000,~~are ormade. ~~18%~~Moreover, ~~from~~whether or ~~$298,000~~not tostated ~~$243,000. For~~in ~~the~~connection ~~six~~with ~~months~~a ~~ended September~~forward-looking 30statement, ~~2009,~~we ~~revenues~~undertake ~~from~~no ~~product~~obligation ~~held~~to ~~for~~correct or ~~resale~~update ~~decreased~~a ~~33%,~~forward-looking ~~or $231,000,~~statement ~~from~~should ~~$695,000~~we tolater ~~$464,000~~become ~~compared~~aware tothat ~~the~~it ~~same~~is ~~period~~not ~~last~~likely ~~year.~~to ~~The~~be ~~decrease~~achieved. ~~was~~If ~~attributable~~we were to ~~the~~update ~~de-emphasis~~or oncorrect ~~product~~a ~~sales. We continue to de~~forward-~~emphasize~~looking ~~product~~statement, ~~sales~~investors and ~~intend~~others ~~to focus on our recurring services~~should ~~revenue~~not ~~model. As~~conclude athat ~~result,~~ we dowill ~~not~~make ~~expect~~additional toupdates ~~see~~or ~~any~~corrections ~~material increases in product sales in future periods~~thereafter.

~~For the~~Overview three months ended September 30, 2009, revenues decreased 14%, or $1.3 million, to $7.6 million from $8.9 million. For the six month period ended September 30, 2009, revenues decreased 15% or $2.6 million from $17.9 million to $15.3 million when compared to the six month period ended September 30, 2008. The decrease in revenues was the result of the termination of several contracts and the de-emphasis on product sales, which was partially offset by new business.

~~Operating~~Halifax ~~costs~~delivers enterprise logistics and supply chain solutions from front-office customer ~~expenses~~interaction to back-office reverse logistics. We deliver comprehensive, fully integrated services including end-to-end customer support and fulfillment, critical inventory optimization and management, web-based customized reporting, onsite repair services, as well as depot repair and warranty management. We are a nation-wide, high-availability, multi-vendor enterprise maintenance services and solutions provider for enterprises, including businesses, global service providers, governmental agencies and other organizations. We have undertaken significant changes to our business in recent years.

~~Included within~~We ~~operating~~offer ~~costs~~a growing list of services to businesses, global service providers, governmental agencies, and ~~expenses~~other organizations. Our services are ~~direct~~customized ~~costs~~to meet each customer’s needs providing 7x24x365 service, ~~including~~personnel ~~fringe~~with ~~benefits~~required security clearances for certain governmental programs, ~~product~~project ~~and~~management ~~part costs~~services, depot repair and ~~other~~roll ~~costs~~out services. We believe the flexible services we offer to our customers enable us to tailor a solution to obtain maximum efficiencies within their budgeting constraints.

AWhen ~~large part~~we ofare ~~our~~awarded ~~service~~a ~~costs~~contract ~~are~~to ~~support~~provide ~~costs~~services, ~~and~~we may incur expenses ~~that~~before ~~include~~we ~~direct~~receive any ~~labor~~contract ~~and~~payments. ~~infrastructure~~This ~~costs~~may toresult ~~support~~in ~~our~~a ~~service~~cash ~~offerings.~~short Wefall ~~continue~~that ~~to aggressively~~may ~~pursue~~impact ~~cost~~our ~~containment~~working ~~strategies~~capital and financing. ~~augment~~This ~~our~~may ~~service~~also ~~delivery process~~cause ~~with~~fluctuations ~~automation~~in ~~tools~~operating results as start-up costs are expensed as incurred.

~~On long-term~~Our ~~fixed~~goal ~~unit-price~~is ~~contracts~~to maintain profitable operations, ~~part~~expand ~~costs~~our ~~vary~~customer ~~depending~~base ~~upon~~of ~~the~~clients ~~call~~through our ~~volume~~existing ~~received~~global ~~from~~service ~~customers~~provider ~~during~~partners, seek new global service provider partners and enhance the ~~period~~technology we utilize to deliver cost-effective services to our growing customer base. ~~Many~~We ofmust also ~~these~~effectively ~~costs~~manage ~~are~~expenses ~~volume~~in relation to ~~driven~~revenues ~~and~~by asdirecting ~~volumes~~new ~~increase~~business development towards markets that complement or improve our existing service lines. We must continue to emphasize operating efficiencies through cost containment strategies, ~~these~~re-engineering efforts ~~costs~~and asimproved aservice ~~percentage~~delivery techniques, particularly within costs of ~~revenues increase~~services, ~~negatively~~selling, marketing ~~impacting~~and ~~profit~~general ~~margins~~and administrative expenses.

~~The~~11 variable components of costs associated with fixed price contracts and time and material contracts are part costs, overtime, subcontracted labor, mileage reimbursed, and freight. Parts costs are highly variable and dependent on several factors, based on the types of equipment serviced, equipment age and usage, and environment.

For installationTable services and seat management services, product may consist of hardware, software, cabling and other materials that are components of the service performed. Product held for resale consists of hardware and software.Contents

13The industry in which we operate continues to experience unfavorable economic conditions and competitive challenges. We continue to experience significant price competition and customer demand for higher service attainment levels. In addition, there is significant price competition in the market for state and local government contracts as a result of budget issues, political pressure and other factors beyond our control.

~~Cost~~Management’s ofPlans ~~revenues consists of the following components:~~

( in thousands)	Three months ended September 30,										Six months ended September 30,
	2009		2008		Change			%			2009		2008		Change			%
Services	$	6,354	$	7,239	$	(885	)		-12	%	$	12,721	$	14,377	$	(1,656	)		-12	%
Product held for resale		207		266		(59	)		-22	%		409		632		(223	)		-35	%
Total cost of revenue	$	6,561	$	7,505	$	(944	)		-13	%	$	13,130	$	15,009	$	(1,879	)		-13	%

We are continuing to focus on our core high availability logistics and maintenance services business while at the same time evaluating our future strategic direction. Management must also continue to emphasize operating efficiencies through cost containment strategies, reengineering efforts and improved service delivery techniques. Our cost containment strategies included reductions in force, consolidating and reducing our leased facilities, company-wide salary and wage reductions and reductions of other operating expenses in order to align expenses as a result of losses in revenue. During the three and nine months ended December 31, 2009, we benefited from the cost actions undertaken during the last part of fiscal year 2009. We also began marketing our enterprise logistic service offering and began to migrate away from contracts where there is a high degree of exposure to inventory obsolescence.

~~Cost~~On ~~of services~~January 6, ~~for~~2010, the ~~three~~Company ~~months~~entered ~~ended~~into ~~September~~a ~~30,~~definitive ~~2009~~agreement ~~decreased~~to ~~$885,000,~~be ~~or 12%~~acquired toby ~~$6.3~~Global ~~million~~Iron Holdings, ~~from~~LLC ~~$7.2~~(“Global ~~million~~Iron”), ~~for~~an ~~the~~affiliate ~~same~~of ~~period~~Global ~~in 2008. For~~Equity ~~the~~Capital, ~~six~~LLC, ~~months~~and ~~ended~~merge ~~September~~with ~~30,~~a wholly-owned ~~2009,~~subsidiary ~~cost~~ of ~~services decreased~~Global $1Iron.7 ~~million~~Pursuant orto ~~12%,~~the ~~from~~terms ~~$14.3~~of ~~million~~the tomerger ~~$12.7~~agreement, ~~million~~common stockholders ~~when~~of ~~compared to~~Halifax ~~the~~would ~~same~~receive ~~period~~$1.20 ~~last~~cash ~~year~~per share. The ~~reduction~~per inshare ~~costs~~price ~~was~~represents ~~related~~a to110% ~~the~~premium ~~corresponding~~to ~~reduction~~Halifax’s inaverage ~~revenue,~~trading asprice ~~well~~of as$0.57 ~~cost~~over ~~containment~~the ~~efforts,~~20 ~~and a~~trading ~~shift~~days ~~away~~immediately ~~from~~preceeding the ~~contracts~~announcement ~~with~~of athe ~~high~~execution ~~degree~~ of ~~inventory risk~~the merger agreement.

~~We continue~~The merger is subject to ~~expand~~approval ~~the~~by ~~use~~vote of ~~automation~~holders ~~tools~~of ~~introduced~~two-thirds ~~earlier~~of inHalifax’s ~~the~~outstanding ~~year,~~common ~~which~~stock weand ~~believe,~~other incustomary ~~conjunction~~closing ~~with~~conditions, ~~our~~including ~~on-going~~the ~~cost~~exchange ~~containment~~of ~~efforts,~~outstanding Halifax ~~will~~subordinated ~~reduce~~notes ~~our~~for ~~cost~~notes of the surviving entity. Halifax mailed its proxy materials related to ~~deliver~~the ~~services~~Annual Meeting of Shareholders to ~~our~~be ~~customers.~~held Weon ~~believe~~March 2, ~~these~~2010 at which meeting the Company’s ~~tools~~Shareholders will ~~enable~~consider usand vote upon the merger. Halifax expects the merger to ~~enter~~close ~~new~~in ~~markets~~the first ~~which~~quarter ~~will~~of ~~positively~~2010. ~~affect~~Directors, ~~our~~officers ~~gross~~and key shareholders holding approximately 31% of the ~~margins~~outstanding ~~going~~common ~~forward~~stock have agreed to vote in favor of the transaction.

~~Cost~~In ~~of product~~connection ~~held~~with ~~for~~the ~~resale~~merger ~~decreased~~the ~~$59,000,~~holders ~~from~~of ~~$266,000~~the toCompany’s $~~207~~1,000 ~~for the three month period ended September 30~~,000 ~~2009.~~subordinated ~~Cost~~notes ~~of product held for resale~~have ~~decreased~~agreed ~~$223,000~~to orcertain ~~35%,~~modifications ~~from $632,000~~ to ~~$409,000, for~~ the ~~six~~notes ~~month~~including ~~period ended~~extension ~~September~~of ~~30,~~the ~~2009~~maturity ~~when~~dates. ~~compared~~These amendments to the ~~same~~outstanding ~~period~~notes inare ~~2008.~~contingent ~~The~~on ~~decrease in~~the ~~cost~~merger ofoccurring ~~product held for resale was commensurate~~ with ~~the~~Global ~~reductions in~~Iron’s ~~revenue~~subsidiary.

~~Gross~~On September 29, 2009, we announced that we had notified AMEX of our intention to delist from AMEX. ~~Margin~~We also indicated our intention to deregister our common stock under the Securities Exchange Act of 1934. We intend that this deregistration would occur no later than April 1, 2010 unless deregulation occurs earlier based upon the closing of the merger transaction. Our common stock is currently quoted on the Pink Sheets, a centralized electronic quotation service for over-the-counter securities, so long as market makers demonstrate an interest in trading in our stock. However, we can give no assurance that trading in our stock will continue on the Pink Sheets or on any other securities exchange or quotation medium or that its common stock will be actively traded. We intend to continue to make financial information publicly available on our website. Effective October 20, 2009, the new stock symbol for our common stock was HALX.

~~For~~Our ~~the three~~common ~~and~~stock ~~six~~was ~~months~~delisted ended September 30, 2009 and 2008, our gross margins were $1.1 million compared to $1.4 million, or a decrease of $300,000 for the three month period. For the six months ended September 30, 2009 revenue decreased $700,000, from ~~$2.9~~AMEX ~~million~~effective ~~for the six months ended September 30~~October 20, ~~2008, to $2.2 million. As a percentage of revenue, gross margins decreased 7% and 13%, respectively for the three month and six month periods ended September 30,~~ 2009. As discussed above the decline in gross margins was due to the termination of certain large nation-wide enterprise maintenance contracts and lengthening sales cycles as a result of continued economic uncertainties.

~~Selling~~We expect that we will file a Form 15 with the SEC, following consummation of the previously described merger transaction,, which will result in the voluntary deregistration of our common stock and ~~Marketing~~immediate suspension of our obligation to file periodic reports under the Securities ~~Expense~~Exchange Act of 1934, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q or Current Reports on Form 8-K on or about April 1, 2010. The deregistration itself is expected to be made effective by the SEC within 90 days of the filing of the Form 15.

~~Selling~~12 ~~and marketing expense consists primarily of salaries, commissions, travel costs and related expenses.~~

Selling andTable marketing expense was $198,000 for the three months ended September 30, 2009 compared to $208,000, a decrease of $10,000, or 5%. For the six month period ended September 30, 2009, selling expense was $385,000 compared to $404,000 for the six months ended September 30, 2008, a decrease of $19,000 or 5%. The decrease in selling and marketing expense was the result of reduced personnel costs and lower commission expense.Contents

~~General~~Results ~~and~~of ~~Administrative~~Operations ~~Expense~~

~~Our~~The following discussion and analysis provides information management believes is relevant to an ~~general~~assessment and ~~administrative~~understanding ~~expenses~~of ~~consist~~our ~~primarily~~consolidated results of ~~non-allocated~~operations ~~overhead costs.~~for ~~These~~the ~~costs~~three ~~include~~and ~~executive~~nine months ~~salaries~~ended December 31, ~~accounting~~2009 and 2008, ~~contract administration~~respectively, ~~professional~~and ~~services~~should ~~such~~be asread ~~legal~~in ~~and~~conjunction ~~audit,~~with ~~business~~the ~~insurance,~~unaudited ~~occupancy~~condensed consolidated financial statements and ~~other~~notes ~~costs~~thereto.

For the three months ended September 30, 2009, general and administrative expenses decreased $69,000, or 8%, to $777,000 from $846,000. General and administrative expenses decreased $300,000, or 16%, from $1.8 million for the six months ended September 30, 2008 to $1.5 million during the six months ended September 30, 2009. The decrease in general and administrative expense when compared to last year was attributable to decreases in professional fees related to compliance with Sarbanes-Oxley and SEC reporting last year, reductions in occupancy costs, a reduction in bank fees associated with obtaining new financing and higher depreciation expense related to the automation tools discussed above when compared to the same period last year. Various factors such as changes in the markets due to economic conditions, employee costs and benefits may increase general and administrative expenses and have a negative impact on our earnings in future periods.


(amounts in thousands,
except share data)	Three months ended December 31,												Nine months ended December 31,
Results of Operations	2009			2008			Change			%			2009			2008			Change			%

Revenues	$	7,659		$	8,120		$	(461	)		-6	%	$	22,963		$	26,043		$	(3,080	)		-12	%

Operating costs and expenses		6,526			6,826			(300	)		-4	%		19,658			21,835			(2,177	)		-10	%

Percent of revenues		85	%		84	%								86	%		84	%

Gross margin		1,133			1,294			(161	)		-12	%		3,305			4,208			(903	)		-21	%
Percent of revenues		15	%		16	%								14	%		16	%

Selling and marketing		189			183			6			3	%		574			587			(13	)		-2	%
Percent of revenues		2	%		2	%								2	%		2	%

General & administrative		768			793			(25	)		-3	%		2,317			2,639			(322	)		-12	%
Percent of revenues		10	%		10	%								10	%		10	%

Transaction costs		91			—			91			n/m			91			—			91			n/m
Percent of revenues		1	%		0	%								1	%		0	%

Operating income		85			318			(233	)		-73	%		323			982			(659	)		-67	%
Percent of revenues		2	%		4	%								2	%		4	%

Other income		(1	)		(1	)		—			n/m			(154	)		(2	)		152			7600	%
Interest expense		59			80			(21	)		-26	%		189			256			(67	)		-26	%


Income before income tax		27			239			(212	)		-89	%		288			728			(440	)		-60	%

Income tax expense		1			7			(6	)		86	%		35			66			31			47	%


Net income	$	26		$	232		$	(206	)		-89	%	$	253		$	662		$	(409	)		-62	%

Earnings per share — basic:	$	.01		$	.07								$	.08		$	.21


Earnings per share — diluted:	$	.01		$	.07								$	.08		$	.21


Weighted average number of common shares outstanding
Basic		3,175,206			3,175,206									3,175,206			3,175,206
Diluted		3,182,643			3,175,206									3,183,732			3,176,166

1413

Interest ExpenseTable of Contents

~~Interest~~Revenues expense for the three months ended September 30, 2009 was $47,000 compared to $93,000 for the three months ended September 30, 2008. For the six months ended September 30, 2009 Interest expense was $130,000 compared to $176,000 for the six month period ended last year. The reduction in interest expense was the result of lower average borrowings on our credit facilities.

~~Other~~Revenues ~~Income~~are generated from the sale of enterprise logistic services, high availability enterprise ~~net~~maintenance services and technology deployment (consisting of professional services, seat management and deployment services, and product sales). Services revenues include monthly recurring fixed unit-price contracts as well as time-and-material contracts. Amounts billed in advance of the services period are recorded as unearned revenues and recognized when earned. The revenues and related expenses associated with product held for resale are recognized when the products are delivered and accepted by the customer.

~~On June 15, 2009 the Company repaid its line of credit in full with Textron Financial Corporation.~~ The ~~Company~~composition ~~received a loan discount~~ of ~~approximately~~revenues $212,000, or 8% of the loan outstanding immediately before the payoff, offset by fees in connection with the transaction of approximately $60,000, which included loan origination fees, guarantee fees and amortization of deferred financing costs. As a result, the Company recorded a net gain of approximately $152,000 which is included as other income for ~~the six months ended September 30,~~: ~~2009.~~

Income Tax Expense


	Three months ended December 31,										Nine months ended December 31,
(in thousands)	2009		2008		Change			%			2009		2008		Change			%

Services	$	7,294	$	7,922	$	(628	)		-8	%	$	22,134	$	25,150	$	(3,016	)		-12	%
Product held for resale		365		198		167			84	%		829		893		(64	)		-7	%

Revenues	$	7,659	$	8,120	$	(461	)		-6	%	$	22,963	$	26,043	$	(3,080	)		-12	%

~~For~~Revenues from services for the three months ended ~~September 30~~December 31, 2009, wedecreased ~~recorded~~8%, ~~income tax expense of~~ or $14628,000 ~~compared~~, to $~~28,000~~7.3 million ~~for~~from $7.9 million during the ~~same~~three ~~period~~months inended December 31, 2008. For the ~~six~~nine months ended ~~September~~ 30December 31, we2009 ~~recorded~~services ~~and~~revenues ~~income~~decreased ~~tax~~$3.0 million, ~~provision~~or of12%, from $~~34,000~~25.1 million ~~compared~~ to $~~59,000~~22.1 for the ~~same~~nine ~~period~~months ~~last~~ended ~~year~~September 30, 2008. ~~Our~~The ~~income~~decrease ~~tax~~in ~~expense~~services revenues ~~consists~~was ~~primarily of~~attributable ~~state~~to ~~taxes.~~the ~~The~~termination ~~Company~~of ~~has~~certain alarge ~~net~~nation-wide ~~operating~~enterprise ~~loss~~maintenance contracts ~~carry~~and ~~forward~~lengthening ~~of approximately~~sales ~~$5.6~~cycles ~~million~~as ~~which~~a ~~expires~~result ~~from~~of ~~2019~~continued ~~through~~economic ~~2027~~uncertainties.

~~Net~~For the three months ended December 31, 2009, product held for resale increased $167,000, or 84%, ~~income~~from $198,000 to $365,000. For the nine months ended December 31, 2009, revenues from product held for resale decreased 7%, or $64,000, from $893,000 to $829,000 compared to the same period last year. The decrease was attributable to the de-emphasis on product sales. We continue to de-emphasize product sales and intend to focus on our recurring services revenue model. As a result, we do not expect to see any material increases in product sales in future periods.

For the three months ended ~~September 30~~December 31, 2009, ~~the~~revenues ~~net~~decreased ~~income~~6% ~~was~~or $44461,000, ~~compared~~ to a$7.7 million ~~net~~from ~~income of~~ $~~227,000~~8.1 million. ~~for~~For the ~~comparable~~nine month period inended ~~2008.~~December 31, ~~Net~~2009, ~~income~~revenues ~~for~~decreased ~~the~~12% ~~six~~or ~~months~~$3.1 million ~~ended~~from ~~September~~$26.0 million ~~30,~~to ~~2009 was~~ $~~227,000~~23.0 million when compared to ~~$430~~the nine month period ended December 31,~~000~~ ~~for~~2008. The decrease in revenues was the ~~six~~result of the termination of several contracts ~~months~~and ~~ended~~the ~~September~~de-emphasis 30on product sales, ~~2008~~which was partially offset by new business.

~~Liquidity~~Operating costs and ~~Capital~~expenses ~~Resources~~

AsIncluded ~~of September~~within ~~30,~~operating ~~2009,~~costs weand ~~had~~expenses ~~approximately~~are ~~$311,000~~direct oflabor ~~cash~~costs, onincluding ~~hand.~~fringe ~~Sources of~~benefits, ~~our~~product ~~cash~~and ~~for~~part ~~the~~costs, ~~three~~shipping ~~month~~and ~~period~~other ~~ended~~infrastructure ~~September~~costs ~~30,~~to ~~2009~~support ~~have~~our ~~been~~service ~~from~~offerings. ~~operations~~We continue to aggressively pursue cost containment strategies and augment our ~~revolving~~service ~~credit~~delivery process ~~facility~~with automation tools.

~~We anticipate~~On ~~that~~long-term ~~our~~fixed ~~primary~~unit-price ~~sources~~contracts, ofpart ~~liquidity~~costs ~~will~~vary bedepending ~~cash~~upon ~~generated~~the ~~from~~call volume received ~~operating~~from ~~income~~customers ~~and~~during ~~cash~~the ~~available~~period. ~~under~~Many ~~our~~of ~~new~~these ~~loan~~costs ~~agreement~~are ~~with~~volume ~~Sonabank~~driven and as volumes increase, ~~described~~these ~~below~~costs as a percentage of revenues increase, negatively impacting profit margins.

~~Cash generated~~The ~~from~~variable ~~operations~~components ~~may~~of becosts ~~affected~~associated bywith afixed ~~number~~price ofcontracts ~~factors.~~and ~~See~~time ~~Item~~and ~~1A.~~material contracts are part costs, overtime, subcontracted labor, mileage reimbursed, and ~~“Risk~~freight. ~~Factors”~~Parts costs inare ~~our~~highly ~~Form~~variable ~~10-K~~and ~~for~~dependent on several factors, based on the ~~year~~types ~~ended~~of ~~March~~equipment serviced, 31equipment age and usage, ~~2009~~ and environment.

OnFor ~~June 15,~~installation ~~2009,~~services weand ~~entered~~seat ~~into~~management ~~a Loan Agreement~~services, ~~and~~product amay ~~Commercial~~consist ~~Security~~of ~~Agreement~~hardware, ~~with~~ ~~Sonabank~~software, cabling ~~(the~~and ~~“Loan~~other ~~Agreement”). We~~materials ~~also~~that ~~executed~~are acomponents ~~promissory note in favor~~ of the ~~lender,~~service ~~referred~~performed. toProduct asheld ~~the~~for ~~Note. The Loan~~resale ~~Agreement~~consists ~~replaced~~of ~~our~~hardware ~~Loan~~ and ~~Security Agreement with Textron Financial Corporation, which terminated on June 15, 2009, referred to as the Old Credit Facility~~software.

~~The Loan~~14 Agreement has a term of one year and expires on June 15, 2010. In the event that we pay and close the facility prior to June 15, 2010, we must pay a 2% penalty assessed based on the maximum credit limit of the facility. Under the Loan Agreement, we may borrow an amount that may not exceed the lesser of: (i) $3,000,000 or (ii) the borrowing base which is 85% of the value of our eligible accounts (as defined in the Note). The amount outstanding under the loan was approximately $1.5 million at September 30, 2009. At September 30, 2009, the Company had approximately $1.3 million available under the line New Credit Facility.

Interest accruesTable on the outstanding balance of the Note at an initial rate of 8% per annum. The interest rate on the loan is a variable rate per annum adjusted daily based upon the Wall Street Journal’s prime lending rate plus 2.75%. Under no circumstances will the interest rate be less than 8%. We must pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning July 15, 2009.Contents

15Cost of revenues consists of the following components:

Under the Loan Agreement, we may not pay cash dividends or, other than in the ordinary course of our business, make principal payments on our other debt, including our 8% promissory notes issued to Nancy Scurlock and the Arch C. Scurlock Children’s Trust. Accordingly, in connection with entering into the Loan Agreements, Nancy Scurlock and the Arch C. Scurlock Children’s Trust agreed to forego receiving principal payments on their outstanding notes until our loan with the lender is satisfied. As long as we remain in compliance with the Loan Agreement, we may pay the accrued interest on the 8% promissory notes.


	Three months ended December 31,										Nine months ended December 31,
(in thousands)	2009		2008		Change			%			2009		2008		Change			%
Services	$	6,196	$	6,644	$	(448	)		-7	%	$	18,918	$	21,021	$	(2,103	)		-10	%
Product held for resale		330		182		148			81	%		740		814		(74	)		-9	%

Total Operating costs and expenses	$	6,526	$	6,826	$	300			-4	%	$	19,658	$	21,835	$	(2,177	)		-10	%

~~The lender~~Cost isof ~~not~~services ~~required~~for tothe ~~disburse~~three ~~funds~~months toended ~~us if~~December 31, ~~among~~2009 ~~other~~decreased ~~things~~$448, ~~(i) we or any guarantor is in default under the terms of the Loan Agreement~~000, ~~(ii) any guarantor dies~~ or ~~becomes incompetent or we or any guarantor becomes insolvent~~7%, ~~files~~ ~~a bankruptcy petition or is involved in a similar proceeding, or (iii)~~from ~~there occurs a material adverse change in our or a guarantor’s financial condition or in the value of any collateral securing the loan~~$6. ~~A default~~6 million ~~includes, among other things, our failure~~ to ~~make~~$6.2 million ~~payment~~for ~~when due,~~ the ~~failure~~ tosame ~~comply~~period ~~with or perform any term, obligation covenant or condition contained~~ in ~~the Loan Agreement or a guarantor dies or becomes incompetent~~2008. If aFor ~~default, other than a default on indebtedness (as defined in~~ the ~~Loan~~nine ~~Agreement), is curable and if we have not received notice of a similar default within the preceding 12~~ months, itended ~~may be cured if we~~December 31, ~~after~~ ~~receiving~~2009, ~~written~~cost ~~notice from the lender demanding cure~~ of ~~such~~services ~~default:~~decreased ~~(i) cure~~$2.1 million, ~~the default within 30 days;~~ or ~~(ii) if the cure requires more than 30 days~~10%, ~~immediately~~ ~~initiate~~from ~~steps~~$21.0 million ~~which~~to ~~the~~$18.9 million ~~lender deems in the lender’s sole~~when ~~discretion~~compared to ~~be sufficient to cure~~ the ~~default~~same ~~and~~period ~~thereafter~~last ~~continue and complete all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practicable~~year. If anThe ~~event~~reduction ~~of default occurs or is not cured as described~~ in ~~the~~costs ~~preceding~~was ~~sentence,~~related ~~the~~to ~~commitments and obligations of~~ the ~~lender under the Loan Agreement will immediately~~corresponding ~~terminate~~reduction ~~and,~~in ~~at lender’s option~~revenue, ~~the~~as ~~amounts~~well ~~outstanding~~as ~~under~~cost ~~the~~containment ~~Loan Agreement~~efforts, ~~including principal~~ and ~~interest,~~a ~~may~~shift ~~become~~away ~~immediately~~from ~~due~~contracts ~~and payable. Upon~~with a high ~~default,~~degree ~~the~~of ~~interest~~inventory ~~rate will be increased to 21% per annum~~risk.

We ~~are required~~continue to ~~assign~~expand ~~all~~the ~~receivables~~use ~~payments,~~of ~~collections~~automation tools introduced earlier in the year, ~~and~~which ~~proceeds~~we ofbelieve, ~~receivables~~in conjunction with our on-going cost containment efforts, will reduce our cost to ~~Sonabank~~deliver ~~and~~services to ~~post~~our ~~any~~customers. ofWe believe these ~~amounts~~tools will enable us to ~~the~~enter ~~designated~~new ~~lock-box~~markets which will positively ~~account~~affect our gross margins going forward.

WeCost ~~are required~~of toproduct ~~maintain~~held ~~our~~for ~~primary~~resale ~~operating~~increased ~~accounts~~$148,000 ~~with~~from ~~Sonabank~~$182,000 ~~throughout~~to $330,000 for the three month ~~term~~period ofended ~~the~~December 31, ~~loan~~2009. InCost ~~the~~of ~~event~~product ~~that~~held ~~any~~for ~~main~~resale ordecreased ~~primary~~$74,000, ~~operating~~or ~~accounts~~9%, ~~are~~from ~~not~~$814,000 ~~maintained~~to ~~with Sonabank~~$740,000, for the ~~effective~~nine ~~interest~~month ~~rate~~period ~~will~~ended beDecember 31, ~~increased~~2009 ~~by 2.0%~~when ~~over~~compared to the ~~rate~~same period ~~noted~~in 2008. The decrease in cost of product held for resale was commensurate with the reductions ~~Loan~~in ~~Documents~~revenue.

~~The~~Gross ~~Loan~~Margin ~~Agreement contains representations, warranties and covenants that are customary in connection with a transaction of this type.~~

~~During~~ For the ~~term~~three ofmonths ~~this~~ended ~~loan~~December 31, we2009 ~~may~~and ~~not~~2008, ~~pay~~our ~~principal~~gross onmargins ~~subordinate~~were ~~debt~~$1.1 million, ~~including~~or 15%, ~~the~~compared ~~Nancy~~to ~~Scurlock~~$1.3 million, ~~and~~or ~~the~~16%. ~~Arch~~For C.the ~~Scurlock~~nine ~~Children’s~~months ~~Trust~~ended ~~notes~~December 31, ~~during~~2009 ~~the~~gross margin ~~term~~decreased offrom ~~the Loan Agreement~~$4. ~~Interest~~2 million, ~~may~~or be16%, ~~paid~~to on$3.3 million, ~~our~~or ~~subordinate debt~~14%. ~~during~~As ~~the~~discussed ~~term~~above, of the ~~loan.~~decline ~~During~~in ~~the~~gross margins ~~quarter~~was ~~ended~~due ~~September~~to ~~30,~~the ~~2009, we~~termination ~~made payments~~ of ~~$10,000~~certain tolarge ~~Nancy~~nation-wide ~~Scurlock~~enterprise maintenance contracts and ~~the~~lengthening ~~Arch~~sales C.cycles ~~Scurlock Children’s~~as ~~(Trust,~~a ~~$20,000~~result inof ~~the~~continued ~~aggregate)~~economic uncertainties.

~~We believe~~Selling ~~that our available funds, together with our Loan Agreement, will be adequate to satisfy our current~~ and ~~planned~~Marketing ~~operations for at least through~~Expense ~~fiscal year 2010.~~

WeSelling ~~were in~~and ~~compliance~~marketing ~~with~~expense ~~the~~consists ~~covenants~~primarily of ~~our Loan Agreement at September 30~~salaries, 2009. There can be no assurances we will be able to comply with the covenants or other terms contained in the Loan Agreement. We may not be successful in obtaining a waiver of non-compliance with these financial covenants. If we are unable to comply with the covenants or other terms of the Loan Agreementcommissions, ~~absent~~travel acosts ~~waiver, we will be in default of the Loan Agreement~~ and ~~the lender can take any of the~~related ~~actions discussed above~~expenses.

~~Our revenues~~Selling ~~will~~and ~~continue~~marketing toexpense bewas ~~impacted~~$189,000 byfor the ~~loss~~three ofmonths ~~customers~~ended ~~due~~December 31, to2009 ~~price~~compared to ~~competition~~$183,000 ~~and~~for ~~technological~~the ~~advances.~~three ~~Our~~months ~~future~~ended ~~financial~~December 31, ~~performance~~2008, ~~could be~~an ~~negatively~~increase ~~affected~~of by$6,000, ~~unforeseen~~or ~~factors~~3%. ~~and~~For ~~unplanned~~the ~~expenses.~~nine month ~~See~~period ~~Item 1A.~~ended ~~and~~December 31, ~~“Risk~~2009, ~~Factors”~~selling inexpense ~~our~~was ~~Form~~$574,000 ~~10-K~~compared to $587,000 for the nine ~~year~~months ended ~~March~~ December 31, 2008, a decrease of $13,000, or 2%. The decrease in selling and ~~2009~~marketing expense was the result of reduced personnel costs and lower commission expense.

~~In furtherance~~General of our business strategy, transactions we may enter into could increase or decrease our liquidity at any point in time. If we were to obtain a significant contract or make contract modifications, we may be required to expend our cash or incur debt, which will decrease our liquidity. Conversely, if we dispose of assets, we may receive proceeds from such sales which could increase our liquidity. From time to time, we may entertain discussions concerning acquisitions and ~~dispositions~~Administrative ~~which, if consummated, could impact our~~Expense ~~liquidity, perhaps significantly.~~

16Our general and administrative expenses consist primarily of non-allocated overhead costs. These costs include executive salaries, accounting, contract administration, professional services such as legal and audit, business insurance, occupancy and other costs.

WeFor ~~expect~~the three months ended December 31, 2009, general and administrative expenses decreased to$25,000, ~~continue~~or 3%, to ~~require~~$768,000 ~~funds~~from to$793,000 ~~meet~~for ~~remaining~~the ~~interest~~three months ended December 31, 2008. General and ~~principal~~administrative ~~payment~~expenses decreased $322,000, or 12%, from $2.6 million to $2.3 million for the ~~obligations~~nine months ended December 31, ~~capital~~2009. ~~expenditures~~The decrease in general and ~~other~~administrative ~~non~~expense when compared to last year was attributable to decreases in professional fees related to compliance with Sarbanes-~~operating~~Oxley ~~expenses.~~and ~~Our~~SEC ~~future~~reporting, reductions in occupancy costs, a reduction in bank fees ~~capital~~associated ~~requirements~~with ~~will~~obtaining ~~depend~~new onfinancing ~~many~~and lower depreciation expense related to the automation tools discussed above when compared to the same period last year. Various factors, ~~including~~such ~~revenue~~as ~~growth,~~changes ~~expansion~~in ofthe ~~our~~markets ~~service~~due ~~offerings~~to economic conditions, employee costs and ~~business~~benefits ~~strategy~~may increase general and administrative expenses and have a negative impact on our earnings in future periods.

At15 September 30, 2009, we had working capital of $1.2 million and at March 31, 2009, we had working capital of $795,000. Our current ratio was 1.14 at September 30, 2009 compared to 1.08 at March 31, 2009.

Capital expendituresTable for the six months ended September 30, 2009 were $170,000 as compared to $56,000 for the same period in 2008. We anticipate fiscal year 2010 technology requirements to result in capital expenditures totaling approximately $600,000. We continue to sublease a portion of our headquarters building which reduces our rent expense by approximately $200,000 annually. The lease matures on October 31, 2009 and the Company has entered into a new lease for approximately 2,000 square feet with an adjusted annual rent of approximately $40,000.Contents

~~Our subordinated~~Transaction ~~debt agreements with Nancy Scurlock and the Arch C. Scurlock~~Costs Children’s Trust, which are referred to as affiliates, totaled $1.0 million at September 30, 2009. Pursuant to a subordination agreement between Sonabank and the subordinated debt holders, principal repayment and interest payable on the subordinated debt agreements may not be paid without the consent of Sonabank. On September 30, 2009, each of the affiliates referred to above, held $500,000 face amounts of our 8% promissory notes, with an aggregate outstanding principal balance of $1.0 million. Interest payable to the affiliates was approximately $322,000 at September 30, 2009. The 8% promissory notes mature on July 1, 2010. During the quarter ended September 30, 2009, we made payments of $10,000 to Nancy Scurlock and the Arch C. Scurlock Children’s (Trust, $20,000 in the aggregate).

IfDuring ~~any act of default occurs,~~ the ~~principal~~three ~~and~~months ~~interest~~ended ~~due~~December 31, ~~under~~2009, the 8%Company ~~promissory notes~~incurred ~~issued~~$91,000 ~~under~~of ~~the~~transaction ~~subordinated debt agreement will be due and payable~~costs ~~immediately~~which ~~without~~were ~~any~~comprised ~~action on behalf~~ of the ~~note~~legal ~~holders~~fees ~~and~~associated ~~if not cured, could trigger cross default provisions under our loan agreement~~ with ~~Sonabank. If~~ ~~we do not make a payment of any installment of interest or principal when it becomes due and payable, we are in default. If we breach or default in~~ the ~~performance~~delisting of ~~any covenants contained in~~ the ~~notes and~~Company’s ~~continuance~~common ~~of such breach or default for a period of 30 days after the~~stock ~~notice~~from ~~to us by~~ the ~~note~~AMEX ~~holders~~and orlegal ~~breach~~fees orassociated ~~default~~with ~~in any of~~ the ~~terms~~proposed ~~of borrowings~~merger bytransaction usdiscussed ~~constituting superior indebtedness, unless waived~~ in ~~writing~~Note ~~by the holder of such superior indebtedness within the period provided in such indebtedness not to exceed 30 days, we would be in default on the 8% promissory notes~~1.

~~Off Balance~~Interest ~~Sheet Arrangements~~Expense

~~In conjunction~~Interest ~~with~~expense afor government contract, we act as a conduit in a financing transaction on behalf of a third party. We routinely transfer receivables to a third party in connection with equipment sold to end users. The credit risk passes to the ~~third~~three ~~party~~months atended ~~the~~December 31, ~~point~~2009 ofwas ~~sale of the receivables. The transfers were accounted for as sales~~$59,000 ~~and~~compared asto ~~a result~~$80,000 ~~the related receivables have been~~for ~~excluded from~~ the ~~accompanying~~three ~~condensed~~months ~~consolidated~~ended ~~balance~~December 31, ~~sheets~~2008. ~~The~~For ~~amount paid to us for~~ the ~~receivables~~nine bymonths ~~the~~ended ~~transferee~~December 31, is2009 ~~equal to our carrying value~~interest ~~and~~expense ~~therefore~~was ~~there~~$189,000 iscompared ~~no gain or loss recognized. The end user remits its monthly payments directly~~ to ~~an escrow account held by a third party from which payments are made to the transferee and us~~$256,000 for ~~various services provided to~~ the ~~end~~ ~~users.~~nine Wemonth ~~provide~~period ~~limited~~ended ~~monthly~~December 31, ~~servicing whereby we invoice the end user on behalf of the transferee~~2008. The ~~off-balance sheet transactions had no impact on~~ ~~our~~reduction ~~liquidity~~in orinterest ~~capital~~expense ~~resources.~~was Wethe ~~are~~result ~~not aware~~ of ~~any~~lower ~~event,~~average ~~demand~~borrowings ~~or uncertainty that would likely terminate the agreement or have an adverse affect~~ on our ~~operations~~credit facility.

17Other Income, net

~~Item~~On 3June 15, 2009, the Company repaid its line of credit in full with Textron Financial Corporation. ~~Quantitative~~The Company received a loan discount of approximately $212,000, or 8% of the loan outstanding immediately before the payoff, offset by fees in connection with the transaction of approximately $60,000, which included loan origination fees, guarantee fees and amortization of deferred ~~Qualitative~~financing ~~Disclosures~~costs. ~~About~~As ~~Market~~a ~~Risk~~result, the Company recorded a net gain of approximately $212,000 which is included as other income for the nine months ended December 31, 2009.

WeIncome ~~are exposed~~Tax ~~to changes in interest rates, primarily as a result of using bank debt~~Expense to finance our business. The floating interest debt exposes us to interest rate risk, with the primary interest rate exposure resulting from changes in the prime rate. It is assumed in the table below that the prime rate will remain constant in the future. Adverse changes in the interest rates or our inability to refinance our long-term obligations may have a material negative impact on our results of operations and financial condition.

~~The definitive~~For ~~extent~~the ofthree ~~the~~months ~~interest~~ended ~~rate~~December 31, ~~risk~~2009, isincome ~~not~~tax ~~quantifiable~~expense orwas ~~predictable~~$1,000 compared to $7,000 for ~~because~~the ofthree months ended December 31, 2008. For the ~~variability~~nine ofmonths ~~future~~ended ~~interest~~December 31, ~~rates~~2009, ~~and~~income ~~business~~tax expense ~~financing~~was $35,000 compared to $66,000 for the same period last year. Income tax expense ~~requirements~~consists primarily of state taxes. WeThe doCompany ~~not~~has ~~customarily~~a ~~use~~net ~~derivative~~operating ~~instruments~~loss tocarry ~~adjust~~forward ~~our~~of ~~interest~~approximately ~~rate~~$5.6 million ~~risk~~which ~~profile~~expires from 2019 through 2027.

~~The information~~Net ~~below summarizes our sensitivity to market risks as of September 30,~~income 2009. The table presents principal cash flows and related interest rates by year of maturity of our funded debt. The carrying value of our debt approximately equals the fair value of the debt. Note 6 to the consolidated financial statements in our annual report on Form 10-K for the year ended March 31, 2009 contains descriptions of funded debt and should be read in conjunction with the table below.

(In thousands)
Debt obligations	September 30, 2009
Revolving credit agreement at the prime rate plus 2.75%. Due June 15, 2010. Interest rate at September 30, 2009 of 8.0%.
	$	1,527
Total variable rate debt		1,527
8% subordinated notes payable to affiliate due July 1, 2010		1,000
Other long-term debt (Capital lease obligations)		300
Total fixed rate debt		1,300
Total debt	$	2,827

For the three months ended December 31, 2009, the net income was $26,000 compared to a net income of $232,000 for the comparable period in 2008. Net income for the nine months ended December 31, 2009 was$253,000 compared to $662,000 for the nine months ended December 31, 2009.

~~At September~~Liquidity 30, 2009, we had approximately $2.8 million of debt outstanding of which $1.3 million bore fixed interest rates. If the interest rates charged to us on our variable rate debt were to increase significantly, the effect could be materially adverse to our current and ~~future~~Capital ~~operations.~~Resources

~~We conduct~~As ~~a limited amount~~ of ~~business~~December 31, ~~overseas~~2009, ~~principally~~we inhad ~~Western~~approximately ~~Europe. At the present~~$183,000 ~~all~~of ~~transactions~~cash ~~are~~on ~~billed~~hand. ~~and~~Sources ~~denominated~~of inour ~~U.S.~~cash ~~dollars and~~for ~~consequently,~~the wenine domonth ~~not~~period ~~currently~~ended December 31, 2009 have ~~any~~been ~~material~~cash ~~exposure~~generated tofrom ~~foreign~~operations ~~exchange~~and our ~~rate~~revolving ~~fluctuation~~credit ~~risk~~facility.

~~Item~~We ~~4T.~~anticipate ~~Controls~~that our primary sources of liquidity will be cash generated from operations and cash ~~Procedures~~available under the loan agreement with Sonabank, described below.

~~Quarterly~~Cash ~~Evaluation~~generated offrom ~~the Company’s~~operations ~~Disclosure~~may ~~Controls~~be ~~and~~affected ~~Internal~~by ~~Controls.~~a ~~The~~number ~~Company evaluated the effectiveness~~ of ~~the~~factors. ~~design~~See Item 1A. and ~~operation of its~~ “~~disclosure~~Risk ~~controls and procedures~~Factors” ~~as defined~~ in ~~Rule~~our ~~13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Act"), as of the end of the period covered by this~~ Form 10-QK ~~(“Disclosure~~for ~~Controls”). This evaluation (“Disclosure Controls Evaluation”) was done under~~ the ~~supervision~~year ~~and~~ended ~~with the participation of management~~March 31, ~~including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”)~~2009.

~~The Company’s~~On ~~management~~June 15, ~~with~~2009, ~~the~~we ~~participation~~entered ofinto ~~the~~a ~~CEO~~Loan Agreement, and ~~CFO,~~a ~~also~~Commercial ~~conducted an~~Security ~~evaluation~~Agreement, ofwith Sonabank, (the ~~Company’s~~“Loan ~~internal~~Agreement”). ~~control~~We ~~over~~also ~~financial~~executed ~~reporting,~~a ~~as defined~~promissory note in ~~Rule~~favor ~~13a-15(f)~~ of the ~~Act~~lender, referred to ~~determine~~as ~~whether~~the ~~any~~Note. ~~changes~~The ~~occurred during~~Loan ~~the~~Agreement ~~period~~replaced ~~ended~~our ~~September~~Loan ~~30,~~and ~~2009~~Security ~~that~~Agreement ~~have~~with ~~materially~~Textron Financial ~~affected~~Corporation, orwhich ~~are reasonably~~terminated ~~likely~~on toJune 15, ~~materially affect~~2009, ~~the~~referred ~~Company’s~~to ~~internal~~as ~~control~~the ~~over financial~~Old ~~reporting~~Credit ~~(“Internal Controls Evaluation”)~~Facility.

18The Loan Agreement has a term of one year and expires on June 15, 2010. In the event that we pay and close the facility prior to June 15, 2010, we must pay a 2% penalty assessed based on the maximum credit limit of the facility. Under the Loan Agreement, we may borrow an amount that may not exceed the lesser of: (i) $3,000,000 or (ii) the borrowing base which is 85% of the value of our eligible accounts (as defined in the Note). The amount outstanding under the loan was approximately $1.7 million at December 31, 2009. At December 31, 2009, the Company had approximately $678,000 available under the Loan Agreement.

~~Limitations~~Interest accrues on the ~~Effectiveness~~ ofoutstanding ~~Controls.~~balance ~~Control~~under ~~systems,~~the noLoan ~~matter~~Agreement ~~how~~at ~~well conceived and operated, are designed to provide a reasonable, but not~~ an ~~absolute,~~initial ~~level of~~rate ~~assurance that the objectives~~ of ~~the~~8% ~~control system are met~~per annum. ~~Further,~~The ~~the design~~interest ofrate aunder ~~control system must reflect~~ the ~~fact~~Loan ~~that~~Agreement ~~there~~is ~~are~~a ~~resource constraints,~~variable ~~and~~rate ~~the~~per ~~benefits~~annum ofadjusted ~~controls~~daily ~~must be considered relative to their~~based ~~costs.~~upon ~~Because of~~ the ~~inherent~~Wall ~~limitations~~Street inJournal’s ~~all~~prime ~~control~~lending ~~systems,~~rate noplus ~~evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected~~2. ~~Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected~~75%. ~~The Company conducts periodic evaluation of~~ ~~its internal controls to enhance, where necessary, its procedures and controls.~~

~~Conclusions. The~~16 Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2009 in reaching a reasonable level of assurance that (i) information required to be disclosed by the Company in the reports that it files or submits under the Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure including the remedial actions described below, as of the end of the reporting period covered by this report.

The CompanyTable previously reported on Form 10-K for the year ended March 31, 2009, that there were two material weaknesses in our internal controls over financial reporting. As previously reported, the Company’s has one individual that has dual responsibility for financial statements as well as for the Company’s Information Systems. As a result the Company lacks the appropriate level of separation of duties as that individual has the ability to update and modify these information systems. The Company has hired additional staff and separated the information systems function from financial reporting function and believes that it has remediated this weakness. In addition, we noted a material weakness as of March 31, 2008 related to income tax reporting as a result of the lack of qualified personnel to properly review and administer the Company’s tax matters. With the addition of personnel described above the Company is in the process of training its staff to remediate this weakness.Contents

~~There were~~Under no ~~changes~~circumstances inwill ~~internal~~the ~~controls~~interest ~~over~~rate ~~financial~~be ~~reporting~~less asthan ~~defined~~8%. inWe ~~Rule 13a-15(f)~~must ofpay ~~the~~regular ~~Act~~monthly payments ~~that~~of ~~have~~all ~~materially~~accrued ~~affected,~~unpaid orinterest ~~are~~due ~~reasonably~~as ~~likely~~of ~~to materially~~each ~~affect~~payment ~~internal~~date, ~~controls~~beginning ~~over~~July 15, ~~the Company's internal control over financial reporting~~2009.

19Under the Loan Agreement, we may not pay cash dividends or, other than in the ordinary course of our business, make principal payments on our other debt, including our 8% promissory notes issued to Nancy Scurlock and the Arch C. Scurlock Children’s Trust. Accordingly, in connection with entering into the Loan Agreement, Nancy Scurlock and the Arch C. Scurlock Children’s Trust agreed to forego receiving principal payments on their outstanding notes until the terms of the LoanAagreement have been satisfied. As long as we remain in compliance with the Loan Agreement, we may pay the accrued interest on the 8% promissory notes.

~~PART~~The IIlender is not required to disburse funds to us if, among other things, (i) we or any guarantor is in default under the terms of the Loan Agreement, (ii) any guarantor dies or becomes incompetent or we or any guarantor becomes insolvent, files a bankruptcy petition or is involved in a similar proceeding, or (iii) there occurs a material adverse change in our or a guarantor’s financial condition or in the value of any collateral securing the loan. A default includes, among other ~~OTHER~~things, ~~INFORMATION~~our failure to make payment when due, the failure to comply with or perform any term, obligation covenant or condition contained in the Loan Agreement or a guarantor dies or becomes incompetent. If a default, other than a default on indebtedness (as defined in the Loan Agreement), is curable and if we have not received notice of a similar default within the preceding 12 months, it may be cured if we, after receiving written notice from the lender demanding cure of such default: (i) cure the default within 30 days; or (ii) if the cure requires more than 30 days, immediately initiate steps which the lender deems in the lender’s sole discretion to be sufficient to cure the default and thereafter continue and complete all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practicable. If an event of default occurs or is not cured as described in the preceding sentence, the commitments and obligations of the lender under the Loan Agreement will immediately terminate and, at lender’s option, the amounts outstanding under the Loan Agreement, including principal and interest, may become immediately due and payable. Upon a default, the interest rate will be increased to 21% per annum.

~~Item~~We ~~1. Legal~~are ~~Proceedings~~required to assign all receivables payments, collections, and proceeds of receivables to Sonabank and post any of these amounts to the designated lock-box account.

~~None~~We are required to maintain our primary operating accounts with Sonabank throughout the term of the loan. In the event that any main or primary operating accounts are not maintained with Sonabank, the effective interest rate will be increased by 2.0% over the rate noted in the Loan Agreement.

~~Item~~The ~~2. Unregistered~~Loan ~~Sales~~Agreement ofcontains ~~Equity~~representations, ~~Securities~~warranties and ~~Use~~covenants that are customary in connection with a transaction of this type. ~~Proceeds~~

~~None~~We may not pay principal on subordinated debt, which represents the Nancy Scurlock and the Arch C. Scurlock Children’s Trust notes, during the term of the Loan Agreement. Interest may be paid on our subordinate debt during the term of the loan. During the three months ended December 31, 2009, we made payments of $10,000 to Nancy Scurlock and the Arch C. Scurlock Children’s (Trust, $20,000 in the aggregate).

~~Item~~We ~~3. Defaults~~believe ~~Upon~~that ~~Senior~~our ~~Securities~~available funds, together with our Loan Agreement, will be adequate to satisfy our current and planned operations for at least through fiscal year 2010.

~~None~~We were in compliance with the covenants of our Loan Agreement at December 31, 2009. There can be no assurances we will be able to comply with the covenants or other terms contained in the Loan Agreement in future periods. We may not be successful in obtaining a waiver of non-compliance with the financial covenants in the Loan Agreement, if necessary. If we are unable to comply with the covenants or other terms of the Loan Agreement, absent a waiver, we will be in default of the Loan Agreement and the lender can take any of the actions discussed above.

~~Item~~Our ~~4. Submission~~revenues ofwill ~~Matters~~continue to abe ~~Vote~~impacted by the loss of ~~Security~~customers due to price competition and ~~Holders~~technological advances. Our future financial performance could be negatively affected by unforeseen factors and unplanned expenses. See Item 1A. and “Risk Factors” in our Form 10-K for the year ended March 31, 2009.

~~None~~In furtherance of our business strategy, transactions we may enter into could increase or decrease our liquidity at any point in time. If we were to obtain a significant contract or make contract modifications, we may be required to expend our cash or incur debt, which will decrease our liquidity. Conversely, if we dispose of assets, we may receive proceeds from such sales which could increase our liquidity. From time to time, we may entertain discussions concerning acquisitions and dispositions which, if consummated, could impact our liquidity, perhaps significantly.

~~Item 5. Other~~17 ~~Information~~

NoneTable of Contents

~~Item~~We expect to continue to require funds to meet remaining interest and principal payment 6obligations, capital expenditures and other non-operating expenses. ~~Exhibits~~ Our future capital requirements will depend on many factors, including revenue growth, expansion of our service offerings and business strategy.

Exhibit 10.1	Business Loan Agreement dated June 15, 2009 between Halifax Corporation of Virginia and Sonabank. (Incorporated by reference to Exhibit 10.1 of the Form 8K dated June 15, 2009).
Exhibit 10.2	Commercial Security Agreement dated June 15, 2009 between Halifax Corporation of Virginia and Sonabank. (Incorporated by reference to Exhibit 10.2 of the Form 8K dated June 15, 2009).
Exhibit 10.3	Promissory Note dated June 15, 2009 issued by Halifax Corporation of Virginia in favor of Sonabank. (Incorporated by reference to Exhibit 10.3 of the Form 8K dated June 15, 2009).
Exhibit 31.1	Certification of Charles L. McNew, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification of Joseph Sciacca, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1	Certification of Charles L. McNew, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)
Exhibit 32.2	Certification of Joseph Sciacca, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)

At December 31, 2009, we had working capital of $1.3 million and at March 31, 2009, we had working capital of $795,000. Our current ratio was 1.17 at December 31, 2009 compared to 1.08 at March 31, 2009.

20Capital expenditures for the nine months ended December 31, 2009 were $113,000 as compared to $81, 000 for the same period in 2008.

~~SIGNATURES~~Our subordinated debt with Nancy Scurlock and the Arch C. Scurlock Children’s Trust, which are referred to as affiliates, totaled $1.0 million at December 31, 2009. Pursuant to a subordination agreement between Sonabank and the subordinated debt holders, principal repayment on the subordinated debt may not be paid without the consent of Sonabank. On December 31, 2009, each of the affiliates referred to above, held $500,000 face amounts of our 8% promissory notes, with an aggregate outstanding principal balance of $1.0 million. Interest payable to the affiliates was approximately $322,000 at December 31, 2009. The 8% promissory notes mature on July 1, 2010. During the three months ended December 31, 2009, we made payments of $10,000 to Nancy Scurlock and the Arch C. Scurlock Children’s (Trust, $20,000 in the aggregate). During the nine months ended December 31, 2009, we made payments of $20,000 to Nancy Scurlock and the Arch C. Scurlock Children’s (Trust, $40,000 in the aggregate).

~~Pursuant~~If any act of default occurs, the principal and interest due under the 8% promissory notes issued tounder the ~~requirements~~subordinated debt agreement will be due and payable immediately without any action on behalf of the ~~Securities~~note ~~Exchange~~holders ~~Act~~and if not cured, could trigger cross default provisions under our loan agreement with Sonabank. If we do not make a payment of ~~1934~~any installment of interest or principal when it becomes due and payable, we are in default. If we breach or default in the performance ~~Registrant~~of ~~has~~any covenants contained in the notes and continuance of such breach or default for a ~~duly~~period ~~caused~~of ~~this~~30 days ~~report~~after the notice to beus ~~signed~~by onthe ~~its~~note ~~behalf~~holders or breach or default in any of the terms of borrowings by us constituting superior indebtedness, unless waived in writing by the holder ~~undersigned~~of ~~thereunto~~such superior indebtedness within the period provided in such indebtedness not to exceed ~~duly~~30 days, ~~authorized~~we would be in default on the 8% promissory notes.

~~HALIFAX~~Off ~~CORPORATION~~Balance OFSheet ~~VIRGINIA (Registrant)~~Arrangements

Date: November 13, 2009	By:	/s/Charles L. McNew
		Charles L. McNew
		President & Chief Executive Officer
		(principal executive officer)

In conjunction with a government contract, we act as a conduit in a financing transaction on behalf of a third party. We routinely transfer receivables to a third party in connection with equipment sold to end users. The credit risk passes to the third party at the point of sale of the receivables. The transfers were accounted for as sales, and as a result, the related receivables have been excluded from the accompanying condensed consolidated balance sheets. The amount paid to us for the receivables by the transferee is equal to our carrying value and therefore there is no gain or loss recognized. The end user remits its monthly payments directly to an escrow account held by a third party from which payments are made to the transferee and us, for various services provided to the end users. We provide limited monthly servicing whereby we invoice the end user on behalf of the transferee. The off-balance sheet transactions had no impact on our liquidity or capital resources. We are not aware of any event, demand or uncertainty that would likely terminate the agreement or have an adverse affect on our operations.

Date: November 13, 2009	By:	/s/Joseph Sciacca
		Joseph Sciacca
		Vice President, Finance &
		Chief Financial Officer
		(principal financial officer)

21Table of Contents


Item 3.		Quantitative and Qualitative Disclosures About Market Risk

We are exposed to changes in interest rates, primarily as a result of using bank debt to finance our business. The floating interest debt exposes us to interest rate risk, with the primary interest rate exposure resulting from changes in the prime rate. It is assumed in the table below that the prime rate will remain constant in the future. Adverse changes in the interest rates or our inability to refinance our long-term obligations may have a material negative impact on our results of operations and financial condition.

The definitive extent of the interest rate risk is not quantifiable or predictable because of the variability of future interest rates and business financing requirements. We do not customarily use derivative instruments to adjust our interest rate risk profile.

The information below summarizes our sensitivity to market risks as of December 31, 2009. The table presents principal cash flows and related interest rates by year of maturity of our funded debt. The carrying value of our debt approximately equals the fair value of the debt. Note 5 to the consolidated financial statements in our annual report on Form 10-K for the year ended March 31, 2009 contains descriptions of funded debt and should be read in conjunction with the table below.


(In thousands)
Debt obligations	December 31, 2009

Revolving credit agreement at the prime rate plus 2.75%. Due June 15, 2010. Interest rate at December 31, 2009 of 8.0%.	$	1,715


		1,715


Total variable rate debt

8% subordinated notes payable to affiliate due July 1, 2010		1,000

Other long-term debt (Capital lease obligations)		325


Total fixed rate debt		1,325


Total debt	$	3,040

At December 31, 2009, we had approximately $3.0 million of debt outstanding of which $1.3 million bore fixed interest rates. If the interest rates charged to us on our variable rate debt were to increase significantly, the effect could be materially adverse to our current and future operations.

We conduct a limited amount of business overseas, principally in Western Europe. At the present, all transactions are billed and denominated in U.S. dollars and consequently, we do not currently have any material exposure to foreign exchange rate fluctuation risk.


Item 4T.		Controls and Procedures

Quarterly Evaluation of the Company’s Disclosure Controls and Internal Controls. The Company evaluated the effectiveness of the design and operation of its “disclosure controls and procedures” as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Act”), as of the end of the period covered by this Form 10-Q (“Disclosure Controls”). This evaluation (“Disclosure Controls Evaluation”) was done under the supervision and with the participation of management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”).

The Company’s management, with the participation of the CEO and CFO, also conducted an evaluation of the Company’s internal control over financial reporting, as defined in Rule 13a-15(f) of the Act, to determine whether any changes occurred during the period ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting (“Internal Controls Evaluation”).

Limitations on the Effectiveness of Controls. Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluation of its internal controls to enhance, where necessary, its procedures and controls.

Conclusions. The Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2009 in reaching a reasonable level of assurance that (i) information required to be disclosed by the Company in the reports that it files or submits under the Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure including the remedial actions described below, as of the end of the reporting period covered by this report.

The Company previously reported on Form 10-K for the year ended March 31, 2009, that there were two material weaknesses in its internal controls over financial reporting. As previously reported, the Company’s has one individual that has dual responsibility for financial statements as well as for the Company’s Information Systems. As a result, the Company lacked the appropriate level of separation of duties as that individual has the ability to update and modify these information systems. The Company has hired additional staff and separated the information systems function from financial reporting function and believes that it has remediated this weakness. In addition, we noted a material weakness as of March 31, 2008 related to income tax reporting as a result of the lack of qualified personnel to properly review and administer the Company’s tax matters. With the addition of personnel described above the Company is in the process of training its staff to remediate this weakness.

There were no changes in internal controls over financial reporting as defined in Rule 13a-15(f) of the Act that have materially affected, or are reasonably likely to materially affect internal controls over the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

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

None

Item 5. Other Information

The Company entered into a termination/separation agreement with Mr. Drennen, our Chief Financial Officer, on December 2, 2009. This termination/separation agreement provides that, in the event that the employment of Mr. Drennen is terminated without cause, he would be entitled to receive his then current salary for a period of three months. “Cause” is defined to mean: “A good faith finding by the Company of your failure to perform the duties reasonably assigned to you, dishonesty, gross negligence or misconduct, or your conviction, or your entry of a plea of nolo contendre, to any crime involving more turpitude or any felony.”

Item 6. Exhibits


2.1		Agreement and Plan of Merger by and among Global Iron Holdings, LLC, Global Iron Acquisition, LLC and Halifax Corporation of Virginia dated January 6, 2010 (Schedules and exhibits are omitted pursuant to Regulation S-K, Item 601(b)(2); Halifax Corporation of Virginia agrees to furnish supplementally a copy of such schedules and/or exhibits to the Securities and Exchange Commission upon request.) (Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on January 12, 2010)

10.1		Severance Letter with Rob Drennen

Exhibit 31.1		Certification of Charles L. McNew, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2		Certification of Robert Drennen, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1		Certification of Charles L. McNew, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)

Exhibit 32.2		Certification of Robert Drennen, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)

SIGNATURES

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


		HALIFAX CORPORATION OF VIRGINIA (Registrant)

Date: February 16, 2010	By:	/s/ Charles L. McNew Charles L. McNew
		President & Chief Executive Officer
		(principal executive officer)

Date: February 16, 2010	By:	/s/ Robert Drennen Robert Drennen
		Vice President, Finance &
		Chief Financial Officer
		(principal financial officer)

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