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 September 30, 1996 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.)
4900 Seminary Road, Suite 800
Alexandria, Virginia 22311
(Address of principal executive offices)
Registrant's Telephone number including area code
(703) 824-0400
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 November 11, 1996, 1,503,684 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
September 30, 1996 and June 30, 1996
Consolidated Statements 5
of Operations for the Three Months Ended
September 30, 1996 and 1995
Consolidated Statements of 6
Cash Flows for the Three Months Ended
September 30, 1996 and 1995
Notes to Consolidated 7
Financial Statements
Item 2. Management's Discussion and Analysis 9
of Financial Condition and Results
of Operations
Part II Other Information:
Item 1. Legal Proceedings 12
SIGNATURES 13<PAGE>
<TABLE>
<CAPTION>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND JUNE 30, 1996
-------------------------------------------------------------
SEPT. 30, JUNE 30,
ASSETS 1996 1996
----------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 54,852 $ 33,865
Restricted cash --- 10,000
Accounts receivable, net 2,341,095 2,680,437
Prepaid expenses and other 94,023 45,224
----------- -----------
Total current assets 2,489,970 2,769,526
----------- -----------
Fixed assets, net 106,289 96,828
----------- -----------
Other assets:
Goodwill, net of amortization --- 4,108
Other 3,955 3,955
----------- -----------
Total other assets 3,955 8,063
----------- -----------
Total assets $ 2,600,214 $ 2,874,417
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
(Unaudited)
<PAGE> - 3 -
<TABLE>
<CAPTION>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND JUNE 30, 1996
-------------------------------------------------------------
SEPT. 30 JUNE 30,
LIABILITIES AND SHAREHOLDERS' DEFICIT 1996 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,633,524 $ 1,821,480
Other current liabilities 1,525,568 1,602,162
----------- -----------
Total current liabilities 3,159,092 3,423,642
----------- -----------
Notes payable - related party 250,000 275,000
Other 46,280 45,260
----------- -----------
Total long-term liabilities 296,280 320,260
Commitments and contingencies
Shareholders' deficit:
Common stock $.02 par; authorized 20,000,000
shares; issued - September 30, 1996, 1,516,185 shares, and
June 30, 1996, 1,516,185
(shares outstanding - September 30, 1996, 1,503,685 shares, and
June 30, 1996, 1,503,685 shares) 30,324 30,324
Additional Capital 9,783,892 9,783,892
Accumulated deficit (10,145,936) (10,160,263)
----------- -----------
Total (331,720) (346,047)
Less 12,500 shares of treasury stock at cost (523,438) (523,438)
----------- -----------
Total shareholders' deficit (855,158) (869,485)
----------- -----------
Total liabilities and shareholders' deficit $ 2,600,214 $ 2,874,417
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
(Unaudited)
<PAGE> - 4 -
<TABLE>
<CAPTION>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
- ---------------------------------------------------------------------------------
Three Months Ended
September 30,
1996 1995
----------- -----------
<S> <C> <C>
Revenues $ 3,774,456 $ 5,758,971
----------- -----------
Operating costs and expenses:
Costs of revenue 3,320,471 5,000,822
Selling, general and administrative 407,645 625,535
----------- -----------
Total operating costs and expenses 3,728,116 5,626,357
----------- -----------
Operating income 46,340 132,614
----------- -----------
Other expense:
Interest expense (net) (10,211) (58,062)
Other expense (13,802) (25,972)
----------- -----------
Total other expense (24,013) (84,034)
----------- -----------
Income before income taxes 22,327 48,580
Provision for income taxes 8,000 18,078
----------- -----------
Net income $ 14,327 $ 30,502
=========== ===========
Per share data:
Net Income $ 0.01 $ 0.02
=========== ===========
Weighed average number of common
shares outstanding during the period 1,503,685 1,503,685
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
(Unaudited)
<PAGE> - 5 -
<TABLE>
<CAPTION>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
- ---------------------------------------------------------------------------------------
Three Months Ended
September 30,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 14,327 $ 30,502
------- -----------
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 22,954 37,225
Other --- 16,250
Changes in operating assets and liabilities:
Accounts receivable 339,342 503,812
Prepaid expenses and other (48,799) (23,477)
Other assets --- (1,186)
Restricted cash 10,000 30,000
Accounts payable (187,956) (441,288)
Other current liabilities (76,594) (297,606)
Other long-term liabilities 1,020 1,020
------- ------------
Total adjustments 59,967 (175,250)
------- ------------
Net cash provided (used) by operating activities 74,294 (144,748)
------- ------------
Cash flows from investing activities:
Property additions (28,307) (29,265)
------- -------------
Net cash used by investing activities (28,307) (29,265)
------- -------------
Cash flows from financing activities:
Proceeds of borrowings on bank and other loans -- 50,000
Payments on bank and other loans (25,000) (181,961)
------- -------------
Net cash used by financing activities (25,000) (131,961)
------- -------------
Net increase (decrease) in cash and cash equivalent 20,987 (305,974)
Cash and cash equivalents at beginning of period 33,865 640,553
------- -------------
Cash and cash equivalents at end of period $ 54,852 $ 334,579
========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
(Unaudited)
<PAGE> - 6 -
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. The balance sheet at June 30, 1996 has been derived from
the audited financial statements at that date but does not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. These condensed, 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, 1996 ("1996 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.
2. Legal Proceedings
United Press International, Inc. ("UPI") and the Company are
involved in a legal dispute more fully described in the
"Management's Discussion Analysis" section. 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. Note Payable - Related Party
The $250,000 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 Dr. 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 an irrevocable letter of
credit which was required to effect the Company's October 1993
settlement with its then Landlord, Equitable Variable Life
Insurance Company. The entire principal balance of the Note was
originally due and payable on October 21, 1996. In September
1996, the due date for the remaining principal balance of
$250,000 was extended to October 21, 1997.
-7-<PAGE>
4. Concentration of Business
The Company provides a broad range of information technology
management services and products to businesses and federal
government agencies. Revenues from services performed under
direct and indirect long-term contracts and subcontracts with
government defense and intelligence agencies comprise the
majority of the Company's business. The majority of the
Company's technical and professional service business with
governmental departments and agencies is obtained through
competitive procurement and through "follow-up" services related
to existing contracts. The Company maintains a primary
commitment to its direct and indirect government clients, but is
also simultaneously intensifying its program of business
development targeted toward commercial operations.
-8-<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1996
TO THE THREE MONTHS ENDED SEPTEMBER 30, 1995
During the three months ended September 30, 1996, the
Company's revenues were approximately $3,774,000 or approximately
$1,985,000 less than revenues for the three months ended
September 30, 1995, a decrease of 34%. This decrease resulted
primarily from the sale, effective December 1, 1995, by the
Company's subsidiary, ART Holdings Corporation ("ART"), of
substantially all of its assets and the assumption by the
purchaser of contracts related to the ongoing performance of
ART's litigation support operations for the U.S. Department of
Justice.
Revenues excluding ART for the three months ended September
30, 1996 were approximately $3,771,000, or approximately $386,000
more than revenues for the three months which ended September 30,
1995, an increase of 11%. This increase is principally
attributable to increased revenues from existing contracts with
major government customers of Engineering and Information
Services, Inc. ("EISI").
Costs of revenue for the quarter ended September 30, 1996
were approximately $3,320,000, as compared with costs of revenue
of approximately $5,001,000 for the quarter ended September 30,
1995, a decrease of 34%. This decrease is primarily attributable
to the cessation of operations by ART. Costs of revenue, as a
percentage of revenue, for the three months ended September 30,
1996 increased from 87% to 88%. This increase is primarily
attributable to SyCom's investing product development resources
in its newly created division, Performance Engineering and
Networks ("PEN").
Costs of revenue excluding ART were approximately $3,317,000
for the three months ended September 30, 1996, or approximately
$399,000 more than the costs of revenues for the three months
which ended September 30, 1995, an increase of 14%. This
increase is mostly attributable to an increase in the direct
costs associated with EISI increased revenues.
Selling, general and administrative expenses totaled
approximately $408,000 for the three months ended Sor the three
months ended September 30, 1995, a decrease of 35%. This
decrease is attributable to the Company's continued cost
reduction efforts as well as the elimination of expenses
resulting from the sale of ART.
-9-<PAGE>
The Company generated $46,000 of operating income during the
three months ended September 30, 1996 compared to operating
income of $133,000 for the three months ended September 30, 1995,
a decrease of 65%. This decrease in operating income is
primarily due to increased product development expenses
associated with SyCom's PEN Division. The PEN Division spent in
excess of $190,000 during the quarter ended September 30, 1996 on
a national advertising and marketing campaign for its new
HeaTreaT software product and on costs associated with developing
and enhancing the next version of the HeaTreaT product.
For the quarter ended September 30, 1996, net interest
expense decreased by approximately $48,000 compared to the
quarter ended September 30, 1995 due to substantial decreases in
the Company's debt. This decrease primarily resulted from the
sale of ART and the Company s improved profitability which
allowed the Company to pay off its note with Commerce Funding
Corporation. During the quarter ,operations and product
development were financed solely with internally generated funds.
The Company recorded net income of approximately $14,000 in
the three months ended September 30, 1996 as compared with net
income of approximately $31,000 for the three months ended
September 30, 1995. This decrease in net income is primarily
attributable to SyCom's investment in its PEN division.
CAPITAL RESOURCES AND LIQUIDITY
During the three months ended September 30, 1996, the
Company's operating activity generated cash of approximately
$74,000 (See Consolidated Statements of Cash Flows). The
generation of approximately $74,000 of cash is primarily the
result of a decrease in accounts receivable of approximately
$339,000 partially offset by a decrearease in other current
liabilities of $77,000. The cash generated by operations was
utilized by PEN in its product development efforts and also to
reduce long-term debt by $25,000.
Currently, the Company's operations generate cash flow
sufficient to cover its monthly expenses, and management believes
that cash from operations will provide the Company with adequate
cash resources to meet its obligations on a short-term basis.
The Company's ability to meet its liquidity needs on a longer-
term basis is dependent on its ability to generate sufficient
billings to cover its current obligations and to also continue to
paydown its accounts payable balances. While the Company's
contracts with its major customers and with other agencies and
departments of the U.S. Government are generally of more than one
year in duration, the Company, along with all other government
contractors and information management companies, faces severe
competition in its marketplaces and no assurance may be given
that the Company will be able to maintain the billing base or the
size of profitable operations that may be necessary to meet its
liquidity needs.
-10-<PAGE>
To effect the October 1993 settlement with its then
landlord, Equitable Variable Life Insurance Company, C.W.
Gilluly, the Company s Chairman and Chief Executive Officer made
a $300,000 personal loan to the Company (the "Gilluly Loan") to
collateralize a letter of credit required by the settlement. The
Gilluly Loan is evidenced by a three-year convertible promissory
note ("Note") in the original principal amount of $300,000, dated
October 21, 1993 and originally due and payable October 21, 1996,
executed by EISI and SyCom and payable to Dr. Gilluly. A
principal payment of $25,000 was made in fiscal year 1996, and a
$25,000 payment was made in the quarter ended September 30, 1996.
In September 1996, the due date for the remaining principal
balance of $250,000 was extended to October 21, 1997. Interest
at the rate of three percent per annum over the prime rate per
annum accrues and is payable quarterly.
At the option of Dr. Gilluly, the Note may be converted into
1,000,000 restricted shares ("Hadron Shares") of the Company's
common stock at any time prior to the maturity of the Note. The
Conversion Price for Hadron Shares under the terms of the Note is
$.25 per share and the option to convert expires on October 21,
1997. The Note is prepayable at any time. In the event the Note
is prepaid in full or in part, Dr. Gilluly is entitled to receive
a warrant, expiring on October 21, 1999, entitling Dr. Gilluly to
purchase Hadron Shares equal to the principal amount of the Note
together with all interest thereon which is prepaid divided by
the Conversion Price of $.25 per share. As a result of the
$50,000 prepayments of principal, Dr. Gilluly has been issued
warrants to acquire 200,000 shares of the Company's common stock.
As previously reported, in August 1991, United Press
International, Inc. ("UPI") filed for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. 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
facmpany 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.
A recent court hearing was adjourned and a new hearing
date will be set in the near future, to adjudicate UPI's
challenge of the Company's proof of claim and UPI's demand for
$500,000 plus interest based upon an alleged debt or note payable
from the Company to UPI. 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.
-11-<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 6. Exhibits and Reports.
(a) Exhibits
Exhibit No.
10.1 Form of Stock Purchase Warrant issuable in connection
with repayment of Amended and Restated Convertible
Promissory Note.
10.2 $250,000 Amended and Restated Convertible Promissory
Note in favor of C.W. Gilluly, dated September 27,
1996.
10.3 Stock Purchase Warrant granted to C.W. Gilluly and
dated November 12, 1996.
10.4 Employment Agreement with J. Anthony Vidal dated
October 1, 1996.
10.5 Employment Agreement with George E. Fowler dated
October 1, 1996.
10.6 Employment Agreement with Donald E. Jewell dated
October 1, 1996.
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
-12-<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 there unto duly authorized.
Date: November 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)
-13-<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND MAY
NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT OR A VALID EXEMPTION FROM
REGISTRATION UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
HADRON, INC.
FORM OF STOCK PURCHASE WARRANT
1. Grant.
Hadron, Inc., a New York corporation (hereinafter
"Company"), for value received hereby grants to C.W. Gilluly or
his assigns (hereinafter "Holder") under the terms herein the
right to purchase _________________ fully paid and
non-assessable shares of the Company's $.02 par value common
stock which number was determined in accordance with paragraph 4
of the Amended and Restated Convertible Promissory Note dated
September 27, 1996 and issued in favor of Holder by Engineering
and Information Services, Inc. and SyCom Services, Inc. as co-
makers (the "Makers") in the original principal amount of
$250,000.00 (the "Amended Note").
2. Expiration.
The right to exercise this Warrant shall expire October 21,
1999.
3. Exercise Price.
The per share exercise price of this Warrant shall be $0.25
which price was determined in accordance with paragraph 4 of the
Amended Note.
4. Exercise of Shares for Exercise Price.
The Holder at his option may remit the total exercise price
(the "Total Exercise Price") under this Warrant (number of shares
received on exercise times the per share exercise price) by
reducing the number of shares for which the Warrant is otherwise
exercisable by the number of shares having fair market value
equal to the Total Exercise Price. <PAGE>
5. Promissory Note.
This Warrant is subject to the terms of the Amended Note, a
copy of which is on file and may be examined at the Company's
offices in Alexandria, Virginia during regular business hours.
6. Exercise Procedure.
This Warrant may be exercised by presenting it and tendering
the exercise price in legal tender or by bank cashier's or
certified check at the principal office of the Company along with
a written subscription substantially in the form of Exhibit A
hereof. The date on which this Warrant is thus surrendered,
accompanied by tender or payment as hereinbefore or hereinafter
provided, is referred to herein as the Exercise Date. The
Company shall forthwith at its expense (including the payment of
issue taxes) issue and deliver the proper number of shares, and
such shares shall be deemed issued for all purposes as of the
opening of business on the Exercise Date notwithstanding any
delay in the actual issuance thereof.
7. Sale or Exchange of Company or Assets.
If prior to issuance of stock under this Warrant the Company
sells or exchanges all or substantially all of its assets, or the
shares of common stock of the Company are sold or exchanged to
any party other than the Holder, then the Holder at his option
may receive, in lieu of the stock otherwise issuable hereunder,
such money or property he would have been entitled to receive if
this Warrant had been exercised prior to such sale or exchange.
8. Sale of Warrant or Shares.
Neither this Warrant nor the shares of common stock issuable
upon exercise of this Warrant have been registered under the
Securities Act of 1933, as amended, or under the securities laws
of any state. Neither this Warrant nor the shares of common
stock issued upon exercise of this Warrant may be sold,
transferred, pledged or hypothecated in the absence of (i) an
effective registration statement for this Warrant or the shares,
as the case may be, under the Securities Act of 1933, as amended,
and such registration or qualification as may be necessary under
the securities laws of any state, or (ii) an opinion of counsel
reasonably satisfactory to the Company that such registration or
qualification is not required. The Company shall cause a
certificate or certificates evidencing all or any of the shares
of common stock issued upon exercise of this Warrant prior to
said registration and qualification of such shares to bear the
following legend: "The shares evidenced by this certificate have
not been registered under the Securities Act of 1933, as amended,
or under the securities laws of any state. The shares may not be
sold, transferred, pledged or hypothecated in the absence of an
2<PAGE>
effective registration statement under the Securities Act of
1933, as amended, and such registration or qualification as may
be necessary under the securities laws of any state, or an
opinion of counsel satisfactory to the Company that such
registration or qualification is not required."
9. Transfer.
This Warrant shall be registered on the books of the Company
which shall be kept at its principal office for that purpose, and
shall be transferable in whole or in part but only on such books
by the Holder in person or by duly authorized attorney with
written notice substantially in the form of Exhibit B hereof, and
only in compliance with the preceding paragraph. The Company may
issue appropriate stop orders to its transfer agent to prevent a
transfer in violation of the preceding paragraph.
10. Replacement of Warrant.
At the request of Holder and on production of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and (in the case of
loss, theft, or destruction) if required by the Company, upon
delivery of an indemnity agreement with surety in such reasonable
amount as the Company may determine thereof, the Company at its
expense will issue in lieu thereof a new Warrant of like tenor.
11. Investment Covenant.
The Holder by his acceptance hereof covenants that this
Warrant is and any common stock issued hereunder will be acquired
for investment purposes, and that the Holder will not distribute
the same in violation of any state or federal law or regulation.
3<PAGE>
12. Laws Governing.
This Warrant shall be construed according to the laws of the
Commonwealth of Virginia, without regard to its laws or
regulations relating to conflicts of laws.
IN WITNESS WHEREOF, Hadron, Inc. has caused this Warrant to
be signed on its behalf, in its corporate name, by its President,
and its corporate seal to be hereunto affixed and the said seal
to be attested by its Secretary, as of this ________ day of
____________ 19___ .
HADRON, INC.
Attest:
_____________________ ___________________________
By: By:
Secretary President
4<PAGE>
THE SHARES OF COMMON STOCK, PAR VALUE $0.02 PER SHARE, OF HADRON,
INC. INTO WHICH THIS NOTE IS CONVERTIBLE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND
MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR A VALID
EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS
AMENDED AND RESTATED
CONVERTIBLE PROMISSORY NOTE
$250,000.00 WASHINGTON, D.C. September 27, 1996
FOR VALUE RECEIVED, ENGINEERING AND INFORMATION SERVICES,
INC., a Virginia corporation, and SYCOM SERVICES, INC., a
Delaware corporation (collectively, "Makers"), hereby promise
to pay to the order of C.W. GILLULY ("Payee"), at his
domicile at 415 First Street, S.E., in the City of
Washington, District of Columbia, or at such other place as
may be designated by Payee, the principal sum of TWO HUNDRED
FIFTY THOUSAND AND NO/lOO DOLLARS ($250,000.00), together
with interest from the date hereof until maturity at the rate
of three percent (3%) per annum over the Prime Rate
(hereinafter defined) from time to time in effect. Said
interest rate shall be adjusted as and when any change in the
Prime Rate shall occur. For purposes hereof, the term "Prime
Rate" shall mean the highest prime rate per annum published
from time to time in the money rates column or section of The
Wall Street Journal as the interest rate in effect for
corporate loans at large U.S. money center commercial banks
(whether or not such rate has actually been charged by any
such bank). In the event The Wall Street Journal ceases
publication of such prime rate, the term "Prime Rate" shall
mean the prime rate per annum announced from time to time by
any U.S. money center commercial bank selected by Payee.
This Amended and Restated Promissory Note represents an
amendment of the Convertible Promissory Note dated October
21, 1993 and issued by Makers in favor of Payee in the
original principal amount of $300,000.00. <PAGE>
1. Interest on the unpaid principal balance of this note
shall be due and payable quarterly as it accrues, the first
such payment of accrued interest being due and payable on or
before December 15, 1996, and successive payments of accrued
interest being due and payable on or before the 15th day of
each succeeding March, June and September thereafter until
October 21, 1997, when, if not sooner paid, the entire
principal balance of this note, together with all accrued but
unpaid interest thereon, shall be paid in full. The
principal balance of this note, together with all accrued but
unpaid interest thereon, shall be due and payable on October
21, 1997.
2. (a) At any time prior to the maturity of this note,
the outstanding principal amount of this note together with
all accrued but unpaid interest thereon may, at the option of
Payee, be converted into fully paid and non-assessable,
restricted shares ("Hadron Shares") of the common stock, par
value $0.02 per share, of Hadron, Inc. ("Hadron Common
Stock") at the Conversion Price (as hereinafter defined) in
accordance with this Section 2.
(b) In the event Payee elects to convert this note to
Hadron Shares, Payee shall deliver to Makers and Hadron, Inc.
("Hadron") written notice of his election to convert this
note into Hadron Shares in accordance with the terms hereof;
and upon the delivery of such notice, and the surrender of
this note to either of the Makers, Makers shall cause Hadron
to issue and deliver to Payee a certificate or certificates
for the number of full Hadron Shares issuable upon the
conversion of this note and cash as hereinafter provided in
respect of any fraction of a Hadron Share issuable upon such
conversion. Such conversion shall be deemed to have been
effected as of the date Payee delivers notice of his election
to convert ("Conversion Date"); provided, however, that Payee
shall not deliver notice of his election to convert this note
within ten (10) trading days prior to a date on which Hadron
is required to make any filing with the United States
Securities and Exchange Commission. As of the Conversion
Date, the rights of Payee as holder of this note shall cease
with respect to this note and the person in whose name any
certificate for Hadron Shares is issued shall be deemed to
have become the holder of record of the Hadron Shares
represented thereby. Any and all notices to be given by
Payee hereunder shall be in writing and delivered by hand or
mailed, postage prepaid, by certified or registered U.S.
mail, return receipt requested, to Makers and Hadron at 4900
Seminary Road, Suite 800, Alexandria, Virginia 22311, and
shall be deemed given upon receipt.
2<PAGE>
(c) Hadron shall not be required to issue fractions of
Hadron Shares upon conversion of this note. If any
fractional interest in a Hadron Share shall be deliverable
upon the conversion of this note, Makers shall cause Hadron
to make a cash payment therefor on the basis of the
Conversion Price.
(d) The price at which the outstanding principal amount
of this note together with all accrued but unpaid interest
thereon may be converted into Hadron Shares on a per share
basis (the "Conversion Price") shall be equal to $.25 per
share.
3. Makers may at any time prepay this note, in full or
in part, and all payments hereunder, whether designated as
payments of principal or interest, shall be applied first to
the payment of accrued interest and the balance to principal.
Interest shall immediately cease on any principal amount so
prepaid.
4. In the event Makers shall prepay this note as hereinabove
provided, Payee shall be entitled to receive, and Makers shall
cause Hadron to execute, issue and deliver to Payee, simultaneously
with any and all such payments, a warrant ("Warrant") which shall
be in proper form for issuance and transfer, registered in the name
of Payee, and issued in respect to the number of Hadron Shares
determined as hereinafter provided. Each Warrant (a) shall expire
on October 21, 1999; (b) shall entitle Payee to purchase, in
accordance with the terms thereof, the number of Hadron Shares
equal to the quotient obtained by dividing (i) the principal amount
of this note together with all interest thereon prepaid by Makers,
by (ii) the Conversion Price that-would result if Payee had elected
to convert and the Conversion Date had been the date of the
prepayment by Makers which entitles Payee to receive such Warrant;
(c) may be exercised in full or in part during its term at the
price per Hadron Share equal to the Conversion Price that would
result if Payee had elected to convert and the Conversion Date had
been the date of the prepayment by Makers which entitles Payee to
receive such Warrant; and (d) shall otherwise be in form and
substance satisfactory to Hadron and Payee.
5. Payee agrees and acknowledges that the Hadron Shares
issuable upon conversion of this note, the Warrants and the Hadron
Shares issuable upon exercise of the Warrants are and shall be
restricted securities. Except for transfers, sales or other
dispositions pursuant to an effective registration statement under
the Securities Act of 1933 and any applicable state securities laws
(the "Acts"), such securities may not be transferred, sold or
otherwise disposed of by Payee or any other holder hereof or
thereof unless prior to transferring, selling or otherwise
disposing of any of such securities, Payee or such holder delivers
to Hadron prior to the disposition an opinion of counsel,
3<PAGE>
reasonably acceptable to Hadron, to the effect that registration is
not required under the Acts. If, in the opinion of such counsel,
such transfer, sale or other disposition may be effected without
such registration, the securities may thereafter be transferred,
sold or otherwise disposed of, and Makers shall cause Hadron to do
all things necessary to facilitate such transfer, sale or other
disposition, including the prompt transfer of such securities on
the books of Hadron and the issuance of certificates representing
such securities, free of any restrictive legends or stop transfer
instructions unless otherwise required by such opinion, all in
accordance with such notice and opinion.
6. It is expressly agreed that time is of the essence of this
note, and if default shall be made in the payment of principal or
interest hereunder, as the same shall become due and payable; or
should either Maker institute proceedings to be adjudicated a
bankrupt or insolvent, or consent to the institution of any such
proceedings against it or fail to cause the dismissal or stay of
any such proceedings within thirty (30) days after commencement, or
consent to any filing of any petition or the appointment of a
receiver of such Maker's property; or should Payee conclude that
the prospect of payment of this note is impaired for any reason;
then in any such event, Payee may, at his option, declare the
entire principal of this note together with all accrued but unpaid
interest thereon immediately due and payable whereupon this note
shall become due and payable in full, both as to principal and
interest, and failure to exercise said option shall not constitute
a waiver on the part of Payee hereof of the right to exercise said
option at any other time.
7. All past due principal and interest on this note shall bear
interest from the due date thereof until paid at the lesser of (a)
fifteen percent (15%) per annum or (b) the highest rate permitted
by law.
8. If this note is not paid at maturity, however such maturity
is brought about, and the same is placed in the hands of an
attorney for collection, or suit is brought on same, or the same is
collected through probate, bankruptcy or other judicial
proceedings, then Makers agree and promise to pay all expenses
incurred by Payee, including, without limitation, court costs and
attorneys' fees.
9. Makers, and any and all co-makers, guarantors, sureties and
endorsers of this note, expressly and severally waive all notices,
demands for payment, presentation for payment, protests and notices
of intention to accelerate with regard to each, every and all
installments or other payments hereof and hereunder.
10. Notwithstanding anything to the contrary contained herein,
Makers shall be jointly and severally liable for the payment and
performance of and compliance with any and all obligations,
4<PAGE>
covenants, provisions, terms and conditions contained in this note
to be paid, performed or complied with by Makers.
11. The payment and performance of this note are secured by
that certain Assignment and Security Agreement dated October 21,
1993 by and between Makers, as debtor, and Payee, as secured party,
covering the collateral more particularly described therein.
12. Hadron joins in the execution of this note for the sole
purposes of (a) acknowledging and agreeing to the provisions hereof
regarding conversion of this note to Hadron Shares and the issuance
of Warrants for Hadron Shares, (b) agreeing at all times to reserve
and keep available from its authorized Hadron Common Stock, solely
for issuance and delivery upon conversion of this note or exercise
of the Warrants, a sufficient number of Hadron Shares to permit the
full-conversion of this note and the full exercise of Warrants, and
(c) agreeing to take such corporate action and obtain all
authorizations and approvals as may be necessary in order that
Hadron may validly and legally issue to Payee upon conversion of
this note, and upon the exercise of any and all Warrants, fully
paid and non-assumable Hadron Shares at the prices determined in
accordance with this note.
EXECUTED this 27th day of September 1996.
ENGINEERING AND INFORMATION SERVICES, INC.,
a Virginia corporation
By: /S/ DONALD JEWELL
President
SYCOM SERVICES, INC., a Delaware corporation
By: /S/ J. ANTHONY VIDAL
President
ACKNOWLEDGED AND AGREED TO
this 27th day of September, 1996:
HADRON, INC., a New York
corporation
By: /S/ C.W. GILLULY
C.W. Gilluly
Chief Executive Officer
and Acting President
5<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND MAY
NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT OR A VALID EXEMPTION FROM
REGISTRATION UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
HADRON, INC.
STOCK PURCHASE WARRANT
1. Grant.
Hadron, Inc., a New York corporation (hereinafter
"Company"), for value received hereby grants to C.W. Gilluly or
his assigns (hereinafter "Holder") under the terms herein the
right to purchase 200,000 fully paid and non-assessable shares of
the Company's $.02 par value common stock.
2. Expiration.
The right to exercise this Warrant shall expire October 21,
1999.
3. Exercise Price.
The per share exercise price of this Warrant shall be $0.25.
4. Exercise of Shares for Exercise Price.
The Holder at his option may remit the total exercise price
(the "Total Exercise Price") under this Warrant (number of shares
received on exercise times the per share exercise price) by
reducing the number of shares for which the Warrant is otherwise
exercisable by the number of shares having fair market value
equal to the Total Exercise Price.
5. Promissory Note.
This Warrant is subject to the terms of the Original Note, a
copy of which is on file and may be examined at the Company's
offices in Alexandria, Virginia during regular business hours. <PAGE>
6. Exercise Procedure.
This Warrant may be exercised by presenting it and tendering
the exercise price in legal tender or by bank cashier's or
certified check at the principal office of the Company along with
a written subscription substantially in the form of Exhibit A
hereof. The date on which this Warrant is thus surrendered,
accompanied by tender or payment as hereinbefore or hereinafter
provided, is referred to herein as the Exercise Date. The
Company shall forthwith at its expense (including the payment of
issue taxes) issue and deliver the proper number of shares, and
such shares shall be deemed issued for all purposes as of the
opening of business on the Exercise Date notwithstanding any
delay in the actual issuance thereof.
7. Sale or Exchange of Company or Assets.
If prior to issuance of stock under this Warrant the Company
sells or exchanges all or substantially all of its assets, or the
shares of common stock of the Company are sold or exchanged to
any party other than the Holder, then the Holder at his option
may receive, in lieu of the stock otherwise issuable hereunder,
such money or property he would have been entitled to receive if
this Warrant had been exercised prior to such sale or exchange.
8. Sale of Warrant or Shares.
Neither this Warrant nor the shares of common stock issuable
upon exercise of this Warrant have been registered under the
Securities Act of 1933, as amended, or under the securities laws
of any state. Neither this Warrant nor the shares of common
stock issued upon exercise of this Warrant may be sold,
transferred, pledged or hypothecated in the absence of (i) an
effective registration statement for this Warrant or the shares,
as the case may be, under the Securities Act of 1933, as amended,
and such registration or qualification as may be necessary under
the securities laws of any state, or (ii) an opinion of counsel
reasonably satisfactory to the Company that such registration or
qualification is not required. The Company shall cause a
certificate or certificates evidencing all or any of the shares
of common stock issued upon exercise of this Warrant prior to
said registration and qualification of such shares to bear the
following legend: "The shares evidenced by this certificate have
not been registered under the Securities Act of 1933, as amended,
or under the securities laws of any state. The shares may not be
sold, transferred, pledged or hypothecated in the absence of an
effective registration statement under the Securities Act of
1933, as amended, and such registration or qualification as may
be necessary under the securities laws of any state, or an
opinion of counsel satisfactory to the Company that such
registration or qualification is not required."
2<PAGE>
9. Transfer.
This Warrant shall be registered on the books of the Company
which shall be kept at its principal office for that purpose, and
shall be transferable in whole or in part but only on such books
by the Holder in person or by duly authorized attorney with
written notice substantially in the form of Exhibit B hereof, and
only in compliance with the preceding paragraph. The Company may
issue appropriate stop orders to its transfer agent to prevent a
transfer in violation of the preceding paragraph.
10. Replacement of Warrant.
At the request of Holder and on production of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and (in the case of
loss, theft, or destruction) if required by the Company, upon
delivery of an indemnity agreement with surety in such reasonable
amount as the Company may determine thereof, the Company at its
expense will issue in lieu thereof a new Warrant of like tenor.
11. Investment Covenant.
The Holder by his acceptance hereof covenants that this
Warrant is and any common stock issued hereunder will be acquired
for investment purposes, and that the Holder will not distribute
the same in violation of any state or federal law or regulation.
12. Laws Governing.
This Warrant shall be construed according to the laws of the
Commonwealth of Virginia, without regard to its laws or
regulations relating to conflicts of laws.
IN WITNESS WHEREOF, Hadron, Inc. has caused this Warrant to
be signed on its behalf, in its corporate name, by its President,
and its corporate seal to be hereunto affixed and the said seal
to be attested by its Secretary, as of this 12 day of November,
1996.
HADRON, INC.
Attest:
By: /S/ S. AMBER GORDON By: /S/ GEORGE FOWLER
Secretary President
3<PAGE>
October 1, 1996
Mr. Anthony Vidal
1220 Canterbury
Sykesville, MD 21784
Dear Anthony:
On behalf of HADRON I am pleased to renew the offer to you for
the position of Vice President of HADRON. The annual salary for
this position is currently $5,000.00, paid bi-weekly. In
addition, I am pleased to renew the offer for you to continue as
the President of HADRON's subsidiary, SyCom Services, Inc.,
reporting to George Fowler, President of HADRON. The annual
salary accompanying this position is $80,000 per annum paid bi-
weekly.
The term of your employment is for one year, subject to renewal
annually, at the Company's discretion, for two additional one-
year terms; provided, however, that the Company shall have the
right to terminate your employment with no further obligation on
the part of the Company if you are convicted of a felony or a
crime of moral turpitude or if the Company determines that you
have not satisfactorily performed your duties. In the event that
the Company terminates your employment without cause, or if the
Company decides not to renew this agreement for any reason other
than those specified above, you shall receive six months'
severance pay in full and complete satisfaction of any claim you
may have by virtue of such termination of or election not to
renew your agreement with the Company.
In the event your employment agreement is renewed by October 1,
1997, you shall be entitled to an increase in annual salary which
is commensurate with the annual increase awarded to other
executive officers of the Company, as determined by the Board of
Directors.
During the term of your employment, you shall be entitled to
participate, on the same terms and conditions as other executive
employees of the Company, in such major medical, dental, life
insurance, 401(k), and other employee benefits which the Company
now provides or in the future may provide to its executive
employees. You shall be entitled to three weeks of paid vacation
leave and two weeks of sick leave per year.<PAGE>
Mr. Anthony Vidal
October 1, 1996
Page 2
In addition, and as part of your compensation package, you shall
continue to receive a car allowance in the amount of $350 per
month. Furthermore, the Company will reimburse you for all
reasonable expenses incurred in the performance of your duties in
accordance with the Company's standard policy.
As previously discussed for FY 96, you will be able to earn up to
50% of your base salary as additional cash compensation based
upon revenue growth and profitability of SyCom. The Target
Performance Goals are based upon the growth of revenue and profit
relative to the past year (currently FY 96) for SyCom weighted
1/2 for revenet income. If SyCom achieves more than a 10% growth
in revenue relative to the previous year, you will be entitled to
a bonus of 25% of your base annual salary. If SyCom achieves
more than a 15% growth in net profit relative to the previous
year, you will be entitled to a bonus of 25% of your base annual
salary. In addition, you will be able to earn 10% of the net
profit earned over the 15% growth point. An example follows:
SyCom 1996 Actual 1997 Example 1997 Bonus
Revenue $7,676,167 $8,443,783 25% of base
salary
$21,250
Net Profit $259,363 $298,267 25% of base
salary
$21,500
Excess net N/A $25,000 10% of excess
Profit profit
$2,500
Total bonus N/A N/A $45,000
In addition to the above, you will be eligible to receive
incentive stock options as stipulated in the HADRON, Inc. 1994
Stock Option Plan and approved by the Board of Directors.<PAGE>
Mr. Anthony Vidal
October 1, 1996
Page 3
After review of the terms and conditions expressed above, sign
the agreement in the space provided and return a copy to me.
George Fowler and I look forward to the opportunity to continue
to work with you here at HADRON and SyCom. I believe you will
continue to find the position challenging and worthy of your
talents.
Very truly yours,
/S/ C.W. GILLULY
C. W. Gilluly
Chairman of the Board and
Chief Executive Officer
Accepted:
/S/ J. ANTHONY VIDAL 10/1/96
Anthony Vidal Date<PAGE>
October 1, 1996
Mr. George Fowler
5808 Beech Avenue
Bethesda, MD 20817
Dear George:
On behalf of HADRON I am pleased to renew the offer for you to
continue as the President and Chief Operating Officer of HADRON,
Inc., reporting to me. The annual salary for this position is
currently $123,500.00, paid bi-weekly.
The term of your employment is for one year, subject to renewal
annually, at the Company's discretion, for two additional one-
year terms; provided, however, that the Company shall have the
right to terminate your employment with no further obligation on
the part of the Company if you are convicted of a felony or a
crime of moral turpitude or if the Company determines that you
have not satisfactorily performed your duties. In the event that
the Company terminates your employment without cause, or if the
Company decides not to renew this agreement for any reason other
than those specified above, you shall receive six months'
severance pay in full and complete satisfaction of any claim you
may have by virtue of such termination of or election not to
renew your agreement with the Company.
In the event your employment agreement is renewed by October 1,
1997, you shall be entitled to an increase in annual salary which
is commensurate with the annual increase awarded to other
executive officers of the Company, as determined by the Board of
Directors.
During the term of your employment, you shall be entitled to
participate, on the same terms and conditions as other executive
employees of the Company, in such major medical, dental, life
insurance, 401(k), and other employee benefits which the Company
now provides or in the future may provide to its executive
employees. You shall be entitled to three weeks of paid vacation
leave and two weeks of sick leave per year.
In addition, and as part of your compensation package, you shall
continue to receive a car allowance in the amount of $350 per
month. Furthermore, the Company will reimburse you for all
reasonable expenses incurred in the performance of your duties in
accordance with the Company's standard policy.<PAGE>
Mr. George Fowler
October 1, 1996
Page 2
As previously discussed for FY 96, you will be able to earn up to
50% of your base salary as additional cash compensation based
upon the revenue growth and profitability of HADRON. The Target
Performance Goals are based upon the growth of revenue and profit
relative to the past year (currently FY 96) for HADRON weighted
1/2 fo2 for net income. Once HADRON achieves its budgeted
revenue goal of $16,348,662 you will be eligible for a bonus of
25% of your base salary since this is in excess of 10% growth
over FY 96 - adjusted for the loss of Acumenics. Once HADRON
achieves its budgeted net income level of $397,094.00 you will be
eligible for a bonus of 25% of your base salary when a net profit
level in excess of 1.5% is achieved.
In addition to the above, you will be eligible to receive
incentive stock options as stipulated in the HADRON, Inc. 1994
Stock Option Plan and approved by the Board of Directors.
After review of the terms and conditions expressed above, sign
the agreement in the space provided and return a copy to me. I
look forward to the opportunity to continue to work with you here
at HADRON. I believe you will continue to find the position
challenging and worthy of your talents.
Very truly yours,
/S/ C.W. GILLULY
C. W. Gilluly
Chairman of the Board and
Chief Executive Officer
Accepted:
/S/ GEORGE FOWLER 10/1/96
George Fowler Date<PAGE>
October 1, 1996
Mr. Donald Jewell
9368 Duff Court
Ellicott City, MD 21043
Dear Don:
On behalf of HADRON I am pleased to offer you the position of
Vice President of HADRON, as approved by the Compensation
committee of the HADRON Board of Directors. The annual salary
for this position is currently $5,000.00, paid bi-weekly. In
addition, I am pleased to renew the offer for you to continue as
the President of HADRON's subsidiary, Engineering & Information
Services, Inc., (EISI) reporting to George Fowler, President of
HADRON. The annual salary accompanying this position is $80,000
per annum paid bi-weekly.
The term of your employment is for one year, subject to renewal
annually, at the Company's discretion, for two additional one-
year terms; provided, however, that the Company shall have the
right to terminate your employment with no further obligation on
the part of the Company if you are convicted of a felony or a
crime of moral turpitude or if the Company determines that you
have not satisfactorily performed your duties. In the event that
the Company terminates your employment without cause, or if the
Company decides not to renew this agreement for any reason other
than those specified above, you shall receive six months'
severance pay in full and complete satisfaction of any claim you
may have by virtue of such termination of or election not to
renew your agreement with the Company.
In the event your employment agreement is renewed by October 1,
1997, you shall be entitled to an increase in annual salary which
is commensurate with the annual increase awarded to other
executive officers of the Company, as determined by the Board of
Directors.
During the term of your employment, you shall be entitled to
participate, on the same terms and conditions as other executive
employees of the Company, in such major medical, dental, life
insurance, 401(k), and other employee benefits which the Company
now provides or in the future may provide to its executive
employees. You shall be entitled to four weeks of paid vacation
leave and two weeks of sick leave per year.<PAGE>
Mr. Donald Jewell
October 1, 1996
Page 2
In addition, and as part of your compensation package, you shall
continue to receive a car allowance in the amount of $350 per
month. Furthermore, the Company will reimburse you for all
reasonable expenses incurred in the performance of your duties in
accordance with the Company's standard policy.
As previously discussed, you will be able to earn up to 50% of
your base salary as additional cash compensation based upon
revenue growth and profitability of EISI. The Target Performance
Goals are based upon the growth of revenue and profit relative to
the past year (currently FY 96) for EISI weighted 1/2 for revenue
and 1/2 fof EISI achieves more than a 10% growth in revenue
relative to the previous year, you will be entitled to a bonus of
25% of your base annual salary. If EISI achieves more than a 15%
growth in net profit relative to the previous year, you will be
entitled to a bonus of 25% of your base annual salary. In
addition, you will be able to earn 10% of the net profit earned
over the 15% growth point. An example follows:
EISI 1996 Actual 1997 Example 1997 Bonus
Revenue $6,640,169 $7,304,185 25% of base
salary
$21,250
Net Profit $399,385 $459,292 25% of base
salary
$21,250
Excess net N/A $25,000 10% of excess
Profit profit
$2,500
Total bonus N/A N/A $45,000
In addition to the above, you will be eligible to receive
incentive stock options as stipulated in the HADRON, Inc. 1994
Stock Option Plan and approved by the Board of Directors.<PAGE>
Mr. Donald Jewell
October 1, 1996
Page 3
After review of the terms and conditions expressed above, sign
the agreement in the space provided and return a copy to me.
George Fowler and I look forward to the opportunity to continue
to work with you here at HADRON and EISI. I believe you will
continue to find the position challenging and worthy of your
talents.
Very truly yours,
/S/ C.W. GILLULY
C. W. Gilluly
Chairman of the Board and
Chief Executive Officer
Accepted:
/S/ DONALD JEWELL 10/1/96
Donald Jewell Date<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 55
<SECURITIES> 0
<RECEIVABLES> 3,030
<ALLOWANCES> 689
<INVENTORY> 0
<CURRENT-ASSETS> 2,490
<PP&E> 835
<DEPRECIATION> 729
<TOTAL-ASSETS> 2,600
<CURRENT-LIABILITIES> 3,159
<BONDS> 0
<COMMON> 30
0
0
<OTHER-SE> (362)
<TOTAL-LIABILITY-AND-EQUITY> 2,600
<SALES> 3,774
<TOTAL-REVENUES> 3,774
<CGS> 3,320
<TOTAL-COSTS> 3,728
<OTHER-EXPENSES> 14
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 22
<INCOME-TAX> 8
<INCOME-CONTINUING> 14
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
