<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
Form 10-Q
---------------------
/X/ Quarter report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 31, 1995 or
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period from __________ to ___________
Commission file number 0-5404
_____________________
HADRON, INC.
(Exact name of registrant as specified in its charter)
New York 11-2120726
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9990 Lee Highway
Fairfax, Virginia 22030
(Address of principal executive offices)
Registrant's Telephone number including area code
(703) 359-6404
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
----- -----
As of February 12, 1996, 1,503,685 shares of the Common Stock
of the registrant were outstanding.<PAGE>
HADRON, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Part I Financial Information: Page No.
Item 1. Financial Statements
Consolidated Balance Sheets 3
December 31, 1995 and June 30, 1995
Consolidated Statements 5
of Operations for the Three and Six
Months Ended December 31, 1995 and 1994
Consolidated Statements of 6
Cash Flows for the Six Months Ended
December 31, 1995 and 1994
Notes to Consolidated 7
Financial Statements
Item 2. Management's Discussion and Analysis 10
of Financial Condition and Results
of Operations
Part II Other Information:
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of 16
Security Holders
SIGNATURES<PAGE>
<TABLE>
<CAPTION>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND JUNE 30, 1995
--------------------------------------
DEC. 31, JUNE 30,
ASSETS 1995 1995
______ -------------- --------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $490,500 $640,553
Restricted cash 70,000 120,000
Accounts receivable, net 2,136,858 3,308,394
Escrow receivable 165,000 -
Prepaid expenses and other 73,979 31,230
------------ ------------
Total current assets 2,936,337 4,100,177
------------ ------------
Fixed assets, net 98,122 180,969
Other Assets:
Contractual rights acquired 16,432 28,756
Restricted cash - 10,000
Other 21,745 52,699
------------ ------------
Total other assets 38,177 91,455
------------ ------------
Total assets $3,072,636 $4,372,601
========== ==========
See Notes to Consolidated Financial Statements
-3-
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-3-<PAGE>
<TABLE>
<CAPTION>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND JUNE 30, 1995
-------------------------------------
DEC. 31, JUNE 30,
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) 1995 1995
---------------------------------------------- ------------- -------------
(Unaudited)
<S> <C> <C>
Current liabilities
Current maturities of long-term debt $411,888 $1,185,710
Accounts payable 1,779,909 2,115,895
Other current liabilities 1,507,160 1,777,300
------------- -------------
Total current liabilities 3,698,957 5,078,905
------------- -------------
Note Payable - Related party 300,000 300,000
Long-term debt 43,220 41,180
------------- -------------
Commitments and contingencies
Total Liabilities 4,042,177 5,420,085
------------- -------------
Shareholders' equity (deficit)
Common stock $.02 par; authorized 20,000,000 shares;
Issued : December 31, 1995 - 1,516,185 shares
June 30, 1995 - 1,505,125 shares
Outstanding : December 31, 1995 - 1,503,685 shares
June 30, 1995 - 1,492,625 30,324 30,103
Capital in excess of par 9,783,892 9,767,863
Accumulated deficit (10,260,319) (10,322,012)
------------- -------------
Total (446,103) (524,046)
Less 12,500 shares of treasury stock at cost (523,438) (523,438)
------------- -------------
Total shareholders' equity (deficit) (969,541) (1,047,484)
------------- -------------
Total liabilities and shareholders' equity (deficit) $3,072,636 $4,372,601
======== ========
See Notes to Consolidated Financial Statements
-4-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
-----------------------------------------------------
Six Months Ended Three Months Ended
December 31, December 31,
------------- -------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $10,460,374 $8,837,845 $4,701,403 $4,746,803
------------ ------------ ------------ ------------
Operating costs and expenses:
Costs of revenue 9,353,298 7,753,673 4,352,476 4,152,351
Selling, general and administrative 1,189,329 1,361,319 563,794 703,767
------------ ------------ ------------ ------------
Total operating costs and expenses 10,542,627 9,114,992 4,916,270 4,856,118
------------ ------------ ------------ ------------
Operating income (loss) (82,253) (277,147) (214,867) (109,315)
------------ ------------ ------------ ------------
Other income (expense):
Interest expense, net (110,319) (106,155) (52,257) (30,316)
Gain on sale of assets 255,466 - 255,466 0
Other expense 16,877 13,342 42,849 45,275
------------ ------------ ------------ ------------
Total other expense 162,024 (92,813) 246,058 14,959
------------ ------------ ------------ ------------
Income (loss) before income taxes and
extraordinary gain 79,771 (369,960) 31,191 (94,356)
Provision for income taxes 18,078 2,886 - -
------------ ------------ ------------ ------------
Income (loss) before extraordinary gain 61,693 (372,846) 31,191 (94,356)
Extraordinary gain on extinguishment of debt - 2,718,418 - -
------------ ------------ ------------ ------------
Net income (loss) $61,693 $2,345,572 $31,191 $(94,356)
======== ======== ======== ========
Per share data:
Earnings per common share and common equivalent share:
Income (loss) before extraordinary item $0.04 ($0.25) $0.02 ($0.06)
Extraordinary item - $1.82 - -
------------ ------------ ------------ ------------
Net Income (loss) $0.04 $1.57 $0.02 ($0.06)
======== ======== ======== ========
<PAGE>
Earnings per common share and common equivalent share-
assuming full dilution:
Income before extraordinary item $0.02 $0.01
======== ========
Weighted average number of common shares outstanding:
Primary 1,598,060 1,492,625 1,634,379 1,492,625
Assuming full dilution 2,809,617 2,816,838
See Notes to Consolidated Financial Statements
(Unaudited)
-5-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
------------------------------------------------------
Six Months Ended
December 31,
--------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $61,693 $2,345,572
----------- -----------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 68,264 116,300
Extraordinary gain on extinguishment of debt - (2,718,418)
Gain on sale of assets (255,466) -
Provision for doubtful accounts, net (26,000) -
Other 16,250 -
Changes in assets and liabilities:
Accounts receivable 1,197,536 123,962
Prepaid expenses (42,749) (35,912)
Other assets 30,954 41,219
Restricted cash 60,000 60,000
Accounts payable (335,986) 476,702
Deferred income - (17,098)
Other current liabilities (270,140) (378,492)
Other long-term liabilities 2,040 (42,737)
Net change in assets and liabilities
attributable to asset sale (17,252) -
----------- -----------
Total adjustments 427,451 (2,374,474)
----------- -----------
Net cash provided by (used in) operating
activities 489,144 (28,902)
----------- -----------
Cash flows used for investing activities:
Proceeds from sale of assets 200,750 -
Property additions (66,125) (12,234)
----------- -----------
Net cash used by investing activities 134,625 (12,312)
----------- -----------
<PAGE>
Cash flows from financing activities:
Borrowings on bank and other loans - 960,000
Payments on bank and other loans (773,822) (1,148,222)
----------- -----------
Net cash used in financing activities (773,822) (188,222)
----------- -----------
Net increase (decrease) in cash and cash equivalents
(150,053) (229,358)
Cash and cash equivalents at beginning of period 640,553 518,551
----------- -----------
Cash and cash equivalents at end of period $490,500 $289,193
========== ==========
See Notes to Consolidated Financial Statements
(Unaudited)
-6-
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<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The interim consolidated financial statements for Hadron, Inc. (the
"Company") are unaudited, but in the opinion of management reflect all
adjustments (consisting only of normal recurring accruals) necessary for
a fair presentation of results for such periods. The results of
operations for any interim period are not necessarily indicative of
results for the full year. These consolidated financial statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended June 30, 1995 ("1995 Form 10-K") filed with the Securities and
Exchange Commission.
Income (loss) per share is based on the weighted average number of
common shares outstanding during each quarter and common stock
equivalents, if dilutive. For both the three and six months ended
December 31, 1995 common stock equivalents were included in the income
per share calculation. For both the three and six months ended December
31, 1994 common stock equivalents were not included in the income per
share calculation due to their antidilutive effect on loss per share
before the extraordinary item. Since common stock equivalents had an
antidilutive effect on the Company's loss per share in both the three and
six months ended December 31, 1994, the fully diluted per share data for
these periods is not shown on the Consolidated Statements of Operations.
2. Legal Proceedings
As previously reported, in August, 1991, United Press International,
Inc. ("UPI") filed for reorganization under Chapter 11 of the U.S.
Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of
New York. UPI was owned substantially by New UPI, Inc. ("NUPI"). NUPI
is owned substantially by Infotechnology, Inc. ("Infotech"), and Infotech
beneficially owns 13.5% of the common stock of the Company.
The Company, as a creditor of UPI, filed in September 1992 a
$594,621 proof of claim against UPI, subject to a possible $500,000
setoff. In July, 1993, UPI filed an adversarial action challenging the
Company's proof of claim and demanding $500,000 plus interest based upon
an alleged debt or note payable from the Company to UPI. The Company
later determined that the claimed $500,000 indebtedness of the Company to
UPI had not, and did not, in fact, exist. In March, 1994, the Company
amended its proof of claim to reflect that the Company does not owe any
amount to UPI, and to assert against UPI an aggregate claim of $512,477.
-7-<PAGE>
The litigation between the Company and UPI was stayed after the
proceeding was converted to Chapter 7 of the U.S. Bankruptcy Code in May,
1994, and a Trustee was appointed to administer UPI's estate. The
Trustee is reevaluating the merits of UPI's lawsuit against the Company
and UPI's objection to the Company's claim. A pre-trial conference
regarding the UPI lawsuit is scheduled for May 16, 1996. The Company
does not believe that it will ultimately incur any liability as a result
of the UPI lawsuit and has made no provision in its financial statements
for this matter.
3. Restricted Cash/Note Payable - Related Party
The Company's $70,000 in Restricted Cash at December 31, 1995
represents funds invested in certificates of deposit as collateral for an
irrevocable letter of credit which collateralizes certain payments due to
Equitable Variable Life Insurance Company ("Equitable") pursuant to a
lease amendment dated October 21, 1993 between Equitable, as landlord,
and the Company, as tenant, amending the Company's lease of its principal
offices in Fairfax, Virginia ("Lease Amendment"). The $300,000 Note
Payable - Related Party represents a convertible promissory note ("Note")
dated October 21, 1993 in the original principal amount of $300,000,
executed by Engineering and Information Services, Inc. ("EISI") and SyCom
Services, Inc. ("SyCom"), two wholly owned subsidiaries of the Company
and payable to C.W. Gilluly, Chairman of the Board of Directors and Chief
Executive Officer of the Company. The proceeds of the $300,000 Note were
utilized to obtain the collateral required for the issuance of the
irrevocable letter of credit. For a more detailed description of the
Lease Amendment and the Note, see the 1995 Form 10-K.
4. Extraordinary Gain - FDIC Settlement
On September 14, 1994, the Company entered into a Settlement
Agreement with the Federal Deposit Insurance Corporation ("FDIC"),
pursuant to which the Company paid the FDIC $1,100,000 as consideration
for a complete release from indebtedness totalling $3,905,093. As a
result, the Company recorded an extraordinary gain of $2,718,418 (the
indebtedness released, less $86,675 in related costs incurred) in the
first quarter 1995 fiscal year consolidated financial statements.
5. Sale of Assets - Acumenics
On December 15, 1995, Acumenics Research and Technology, Inc.
("Acumenics"), a subsidiary of the Company which provided legal support
services to the U.S. Government, law firms and corporations, sold to
Labat-Anderson Incorporated (the "Buyer") for $365,750 (the "Purchase
Price") substantially all of its assets (excluding accounts receivable),
effective December 1, 1995. In conjunction therewith, the Buyer assumed
certain liabilities of Acumenics, including certain leases, agreements
and contracts related to the ongoing performance of Acumenics' litigation
support operations.
-8-<PAGE>
In addition, Acumenics agreed to utilize its best efforts to effect
a novation of its contract with the U.S. Department of Justice (the "DOJ
Contract"). A portion of the Purchase Price ($165,000) was placed in
escrow on December 15, 1995, to be released upon the satisfaction of
certain conditions relating principally to Acumenics' effort to effect a
novation of the DOJ Contract. The conditions are administrative and
include i) novation documentation in accordance with the provisions of
the Federal Acquisition Regulations, ii) release of certain financing
liens on Acumenics' assets and iii) request of a contract modification
directing future DOJ payments to the Buyer. Acumenics and Hadron also
agreed that for a period of 10 years, neither of them or any entity
controlled by them would own, manage, operate or control, or participate
in the ownership, management, operation or control of any entity
providing litigation support services, including legal document coding.
As a result of this transaction, the Company recorded a gain of
$255,466 (the proceeds less the book value of the assets and liabilities
transferred and less $16,061 in related costs incurred) in the second
quarter 1996 fiscal year consolidated financial statements.
6. Concentration of Business
The Company has historically been, and continues to be, heavily
dependent upon contracts from various U.S. government agencies. As
reported in various forums, government contractors such as the Company
have experienced, and are expected to experience, increased levels of
competition as overall government expenditures are reduced. This
increased competition will focus on both technical expertise and price.
The Company is marketing its capabilities in various civilian and defense
agencies, as well as in the commercial marketplace, in an effort to
diversify its customer base and to maintain or increase its market share.
-9-<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1995
TO THE THREE MONTHS ENDED DECEMBER 31, 1994
During the three months ended December 31, 1995, the Company's
revenues were approximately $4,701,000, or approximately $45,000 less
than revenues for the three months which ended December 31, 1994. This
represents a 1% decrease in revenue in the quarter ended December 31,
1995, as compared with the quarter ended December 31, 1994.
In December 31, 1995, Acumenics Research and Technology, Inc.
("Acumenics"), a subsidiary of the Company which provided legal support
services to the U.S. Government, law firms and corporations, sold
substantially all of its assets. Revenues excluding Acumenics for the
three months ended December 31, 1995, were approximately $3,468,000, or
approximately $415,000 more than revenues for the three months which
ended December 31, 1994. This represents a 14% increase in revenue in
the quarter ended December 31, 1995, as compared with the quarter ended
December 31, 1994.
The overall decrease in revenue between the three months ended
December 31, 1995 and the three months ended December 31, 1994, was
primarily due to decreases in revenues of Acumenics which reflected a
decline in the business base before the sale of the majority of
Acumenics' assets and the corresponding loss of revenues attributable to
not providing legal support services after the sale closing in December
1995. The increase in revenues when excluding Acumenics is principally
attributable to increased revenues in the Company's wholly-owned
subsidiary, Sycom Services, Inc. ("SyCom"). The SyCom revenue increase
reflects increased staffing on existing contracts and the acquisition of
new contracts.
Operational expenses for the quarter ended December 31,1995, were
approximately $4,916,000, as compared with operational expenses of
approximately $4,856,000 for the quarter ended December 31, 1994. This
minimal increase in operational expenses represents a decrease in general
and administrative costs which was slightly exceeded by an increase in
costs of revenue. The increase in costs of revenue relates to increased
overhead costs.
Costs of revenue for the three months ended December 31, 1995,
increased from 87% of revenues to 93% of revenues as compared with the
corresponding three months ended December 31, 1994. The Company's margin
on direct costs remained constant and the increase in costs of revenue is
attributable to increased overhead costs related to changes in the
proportion of business generated by Hadron's various subsidiaries.
-10-<PAGE>
The Company incurred an operating loss for the quarter ended
December 31, 1995 of approximately $215,000, as compared to an operating
loss of approximately $109,000 for the corresponding quarter of the prior
year.
For the quarter ended December 31, 1995, net interest expense of
approximately $52,000 increased by approximately $22,000 compared to the
corresponding period of the prior year. This increase is due to an
increase in the average debt outstanding during the quarter and a slight
increase in the interest rate on debt tied to the U.S. prime rate.
In the three months ended December 31, 1995, the Company recognized
an gain on the sale of assets of approximately $255,000 related to the
sale of substantially all of Acumenics' assets for $365,750. The gain
was composed of the $365,750 transaction proceeds less the book value of
the assets and liabilities transferred and less $16,061 in related costs
incurred.
The Company recorded a net income of approximately $31,000 in the
three months ended December 31, 1995, as compared with a net loss of
approximately $94,000 for the three months ended December 30, 1994. The
increase in net income is attributable to the inclusion of the
approximately $255,000 gain on the sale of assets in the quarter ended
December 30, 1995 related to the Acumenics' asset sale and no
corresponding item in the quarter ended December 31, 1994. Excluding the
gain on the sale of assets, net income decreased by approximately
$130,000 in the three months ended December 31, 1995 as compared with the
three months ended December 31, 1994. The decline is attributable to
reduced margins, and increased interest and bad debt expenses.
COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 1995
TO THE SIX MONTHS ENDED DECEMBER 31, 1994
During the six months ended December 31, 1995, the Company's
revenues were approximately $10,460,000, or approximately $1,623,000 more
than revenues for the six months which ended December 31, 1994. This
represents an 18% increase in revenue in the six months ended December
31, 1995, as compared with the six months ended December 31, 1994.
The increase in revenue between the six months ended December 31,
1995 and the six months ended December 31, 1994, was primarily due to
increases in revenues of SyCom and Acumenics. The SyCom revenue increase
reflects increased staffing on existing contracts and the acquisition of
new contracts. The increase in Acumenics' revenue, earned predominately
over only five months due to the December 1995 sale, is the result of
obtaining new business through an existing contract and garnering new
commercial business.
Operational expenses for the six months ended December 31,1995, were
approximately $10,543,000, as compared with operational expenses of
approximately $9,115,000 for the six months ended December 31, 1994.
-11-<PAGE>
This represents a 16% increase in operational expenses for the six months
ended December 31, 1995, as compared with the corresponding period ended
December 31, 1994. This increase in expenses reflects a 21% increase in
costs of revenues in conjunction with the 18% revenue increase, offset by
an approximately $172,000 decrease in selling, general and administrative
expenses.
Costs of revenue for the six months ended December 31, 1995,
decreased from 88% of revenues to 87% of revenues as compared with the
corresponding six months ended December 31, 1994. This reflects a change
in the revenue mix as distributed among Hadron's subsidiaries in the six
months ended December 31, 1995, when compared with the revenue
composition for the six months ended December 31, 1994.
The Company incurred an operating loss for the six months ended
December 31, 1995 of approximately $82,000, as compared to an operating
loss of approximately $277,000 for the corresponding period of the prior
year. The Company's improvement was predominately due to increased
revenues, and reduced selling, general and administrative expenses.
For the six months ended December 31, 1995, net interest expense of
approximately $110,000 increased by approximately $4,000 compared to the
corresponding period of the prior year.
In the six months ended December 31, 1995, the Company recognized a
gain on the sale of assets of approximately $255,000 related to the sale
of substantially all of Acumenics' assets for $365,750. The gain was
composed of the $365,750 transaction proceeds less the book value of the
assets and liabilities transferred and less $16,061 in related costs
incurred.
In the six months ended December 31, 1994, the Company recognized an
extraordinary gain of approximately $2,718,000 related to a Settlement
Agreement with the Federal Deposit Insurance Corporation ("FDIC"). In
the Settlement Agreement the Company paid the FDIC $1,100,000 in
consideration for a complete release from indebtedness of approximately
$3,900,000. The Company incurred legal and other professional fees of
approximately $87,000 to consummate the settlement.
The Company recorded a net income of approximately $62,000 in the
six months ended December 31, 1995, as compared with a net income of
approximately $2,346,000 for the six months ended December 31, 1994. The
decrease in net income is attributable to the inclusion of the
approximately $2,718,000 extraordinary gain in the six months ended
December 31, 1994. Excluding the extraordinary gain, the Company's net
income improved by approximately $435,000, from a net loss of
approximately $373,000 in the six months ended December 31, 1994 to net
income of approximately $62,000 in the six months ended December 31,
1995. The improvement is attributable to increased revenues and reduced
expenses.
-12-<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
During the six months ended December 31, 1995, the Company's
operating activities generated cash of approximately $489,000 (See
Consolidated Statements of Cash Flows).
The generation of approximately $489,000 of cash is predominately
the result of a decrease in accounts receivable of approximately
$1,198,000 partially offset by a decrease in accounts payable of
approximately $336,000 and a decrease in other current liabilities of
approximately $270,000. Additionally, $165,000 of the proceeds of the
Acumenics' asset sale have been excluded from cash and cash equivalents
pending the release of such funds from escrow. The cash generated by
operations was utilized principally to reduce the Company's current
maturities on long-term debt which decreased by approximately $774,000,
thus reducing the Company's cash and cash equivalents by approximately
$150,000 during the six months ended December 31, 1995.
The absorption of approximately $29,000 of cash during the six
months ended December 31, 1994 was primarily due to operating losses of
approximately $277,000, offset by depreciation and amortization expense
of approximately 116,000, a decrease in accounts receivable of $124,000
and an increase in accounts payable and other current liabilities of
approximately $81,000.
Management believes the cash from operations and the existing cash
balances and borrowings through Commerce Funding Corporation ("CFC") will
provide the Company with adequate cash resources to meet its obligations
on a short-term basis, provided the Company is able to generate
sufficient billings to be utilized in the Company's financing agreement
with CFC. To supplement CFC, C.W. Gilluly, Chairman of the Board of
Directors and Chief Executive Officer of the Company, has obtained a
personal line of credit in the amount of $300,000 which may be utilized
by the Company as short-term financing. Borrowings from Dr. Gilluly bear
interest at the rate of three percent per annum over the prime rate per
annum published from time to time in The Wall Street Journal. The
Company had borrowings of approximately $275,000 from CFC at December 31,
1995 and had no amounts outstanding from Dr. Gilluly.
Currently, the Company's operations do not generate cash flow
sufficient to cover its monthly operating expenses and made payments
towards reducing its accounts payable and other accrued liabilities.
Furthermore, from time to time, the Company's cash flow is impaired by
funding of Federal contracts and hindered by Federal budget resolution
issues. The Company's ability to meet its liquidity needs on a long-term
basis is dependent on collecting its accounts receivables, including
receivables related to contract close-outs, in a timely fashion, and
ultimately building profitable operations. No assurance may be given,
however, that the Company will be able to maintain this billing base or
build profitable operations.
-13-<PAGE>
Pursuant to the Acumenics asset sale, Labat-Anderson, Incorporated
(the "Buyer") agreed to assume certain liabilities, including certain
leases, agreements and contracts. At December 31, 1995, these assignments
had not been perfected and the Company remained contingently liable for
certain lease obligations.
Effective September 6, 1995, Hadron entered into a new agreement
with CFC. The basis for funding is 80% of all credit worthy government
and commercial billed accounts receivables, with an ability to borrow up
to 98% of billed accounts receivable. Hadron incurs no annual commitment
fee on the credit facility and may cancel the one-year agreement at any
time. Additionally, CFC extends its commitment to financing for all
future contracts awarded to Hadron and its subsidiaries.
The Company, in October 1993, settled a dispute with its Landlord,
Equitable Variable Life Insurance Company ("Equitable"), concerning the
Company's principal premises at 9990 Lee Highway. One of the conditions
of Hadron's settlement with Equitable was that the Company provide
Equitable with an irrevocable letter of credit ("Letter of Credit") in
the amount of $320,000 to collateralize certain payments due Equitable
pursuant to the Lease Amendment. The Company was not able to obtain the
letter of credit using only internally generated or bank-borrowed funds.
C.W. Gilluly, Chairman of the Board of Directors and Chief Executive
Officer of the Company, agreed to make a personal loan in the principal
amount of $300,000 ("Gilluly Loan") to collateralize the Letter of
Credit.
The Gilluly Loan is evidenced by a three-year convertible promissory
note ("Note") due and payable October 21, 1996, executed by EISI and
SyCom and payable to C.W. Gilluly. The Note may, at the option of Dr.
Gilluly, be converted into 1,200,000 restricted shares of the Company's
Common Stock in accordance with agreements dated October 21, 1993 and
amended September 14, 1994. The Note is prepayable at any time, in whole
or in part, upon which Dr. Gilluly is entitled to receive a warrant in
respect of approximately the number of shares of the Company's common
stock that he would have received upon conversion of the Note.
As previously reported, in August, 1991, United Press International,
Inc. ("UPI") filed for reorganization under Chapter 11 of the U.S.
Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of
New York. UPI was owned substantially by New UPI, Inc. ("NUPI"). NUPI
is owned substantially by Infotechnology, Inc. ("Infotech"), and Infotech
beneficially owns 13.5% of the common stock of the Company.
The Company, as a creditor of UPI, filed in September 1992 a
$594,621 proof of claim against UPI, subject to a possible $500,000
setoff. In July, 1993, UPI filed an adversarial action challenging the
Company's proof of claim and demanding $500,000 plus interest based upon
an alleged debt or note payable from the Company to UPI. The Company
later determined that the claimed $500,000 indebtedness of the Company to
UPI had not, and did not, in fact, exist. In March, 1994, the Company
amended its proof of claim to reflect that the Company does not owe any
amount to UPI, and to assert against UPI an aggregate claim of $512,477.
-14-<PAGE>
The litigation between the Company and UPI was stayed after the
proceeding was converted to Chapter 7 of the U.S. Bankruptcy Code in May,
1994, and a Trustee was appointed to administer UPI's estate. The
Trustee is reevaluating the merits of UPI's lawsuit against the Company
and UPI's objection to the Company's claim. A pre-trial conference
regarding the UPI lawsuit is scheduled for May 16, 1996. The Company
does not believe that it will ultimately incur any liability as a result
of the UPI lawsuit and has made no provision in its financial statements
for this matter.
-15-<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
The information provided in Note 2 of the Notes to Consolidated
Financial Statements is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of Hadron, Inc. was held on
December 8, 1995. At the meeting shareholders elected four
directors: Joseph S. Bracewell, C.W. Gilluly,Ed.D., William J.
Howard and Robert J. Lynch, Jr. Each director will serve until his
successor is duly elected and qualified.
Shareholders also considered and approved an amendment to the
Hadron, Inc. 1994 Stock Option Plan to increase the number of shares
reserved for issuance thereunder from 220,000 to 290,000 by a vote
of 1,120,993 in favor, 97,840 votes against and 10,971 abstentions.
Shareholders also ratified the appointment of Coopers and Lybrand,
L.L.P. as independent accounts for the Company for the fiscal year
which ends June 30, 1996. There were 1,186,187 affirmative votes,
29,995 negative votes and 13,621 abstentions relating to the
appointment of Coopers & Lybrand, L.L.P.
(b) Reports on Form 8-K
On January 2, 1996, the Company filed a report on form 8-K
disclosing that on December 15, 1995, Acumenics Research and
Technology, Inc. ("Acumenics"), a subsidiary of the Company which
provided legal support services to the U.S. Government, law firms
and corporations, sold to Labat-Anderson Incorporated (the "Buyer")
for $365,750 substantially all of its assets (excluding accounts
receivable), effective December 1, 1995. In conjunction therewith,
the Buyer assumed certain liabilities of Acumenics, including
certain leases, agreements and contracts related to the ongoing
performance of Acumenics' litigation support operations.
-16-<PAGE>
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.
Date: February 14, 1996 HADRON, INC.
(Registrant)
By:/S/ C.W. Gilluly By:/S/ C.W. Gilluly
C. W. Gilluly Ed.D. C.W. Gilluly Ed.D.
Chief Executive Officer Acting Chief Financial Officer
and Chairman (Principal Financial
(Principal Executive Officer) Officer and Principal
Accounting Officer)
-17-<PAGE>
<TABLE>
<CAPTION>
HADRON, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER SHARE
Six Months Ended Three Months Ended
December 31, December 31,
------------------ --------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income (loss) before extraordinary gain $61,693 ($372,846) $31,191 ($94,356)
Extraordinary gain on extinguishment of debt - 2,718,418 - -
------------ ------------ ------------ ------------
Net Income $61,693 $2,345,572 $31,191 ($94,356)
======== ======== ======== ========
Weighted average shares of common stock outstanding 1,500,507 1,492,625 1,503,685 1,492,625
Weighted average affect of common stock equivalents 97,553 - 130,694 -
------------ ------------ ------------ ------------
Weighted average shares outstanding 1,598,060 1,492,625 1,634,379 1,492,625
======== ======== ======== ========
Income (loss) before extraordinary gain $0.04 ($0.25) $0.02 ($0.06)
Extraordinary gain on extinguishment of debt - $1.82 - -
------------ ------------ ------------ ------------
Net income $0.04 $1.57 $0.02 ($0.06)
======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HADRON, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE ASSUMING FULL DILUTION
Six Months Ended Three Months Ended
December 31, December 31,
-------------- --------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Income $61,693 $31,191
======== ========
Interest expense related to note assumed converted 19,201 $10,026
------------ ------------
Net Income with interest on note assumed converted $80,894 $41,217
======== ========
Weighted average shares of common stock outstanding 1,500,507 1,505,685
Weighted average affect of common stock equivalents 109,110 113,153
Assumed conversion of note payable-related party
into common stock 1,200,000 1,200,000
------------ ------------
Weighted average shares outstanding 2,809,617 2,816,838
------------ -------------
Net income per common share and common share
equivalent - assuming full dilution $0.02 $0.01
======== ========
</TABLE> <PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE SECOND QUARTER 10-Q AND IS QUALIFIED IN
ITS ENTIRELY TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-1-1995
<PERIOD-END> DEC-31-1995
<CASH> 560,500
<SECURITIES> 0
<RECEIVABLES> 2,492,018
<ALLOWANCES> 355,160
<INVENTORY> 0
<CURRENT-ASSETS> 2,936,337
<PP&E> 754,213
<DEPRECIATION> 656,091
<TOTAL-ASSETS> 3,072,636
<CURRENT-LIABILITIES> 3,698,957
<BONDS> 0
<COMMON> 30,324
0
0
<OTHER-SE> (476,427)
<TOTAL-LIABILITY-AND-EQUITY> 3,072,636
<SALES> 10,460,374
<TOTAL-REVENUES> 10,460,374
<CGS> 9,353,298
<TOTAL-COSTS> 10,542,627
<OTHER-EXPENSES> (272,343)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (110,319)
<INCOME-PRETAX> 79,771
<INCOME-TAX> 18,078
<INCOME-CONTINUING> 61,693
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,693
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.02
</TABLE>
