<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 March 31, 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 May 10, 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
March 31, 1996 and June 30, 1995
Consolidated Statements 5
of Operations for the Three and Nine
Months Ended March 31, 1996 and 1995
Consolidated Statements of 6
Cash Flows for the Nine Months Ended
March 31, 1996 and 1995
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 5. Other Information 16
SIGNATURES<PAGE>
<TABLE>
<CAPTION>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND JUNE 30, 1995
--------------------------------------
MAR. 31, JUNE 30,
ASSETS 1996 1995
______ ----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $99,570 $640,553
Restricted cash 40,000 120,000
Accounts receivable, net 2,387,679 3,308,394
Prepaid expenses and other 33,222 31,230
----------- -----------
Total current assets 2,560,471 4,100,177
----------- -----------
Fixed assets, net 114,019 180,969
Other Assets:
Contractual rights acquired 10,270 28,756
Restricted cash-long-term - 10,000
Other 3,955 52,699
----------- -----------
Total other assets 14,225 91,455
----------- -----------
Total assets $2,688,715 $4,372,601
========== ==========
See Notes to Consolidated Financial Statements
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<TABLE>
<CAPTION>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND JUNE 30, 1995
-------------------------------------
MAR. 31, JUNE 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
(DEFICIT)
-------------------------------------------- ----------- -----------
(Unaudited)
<S> <C> <C>
Current liabilities
Current maturities of long-term debt $137,353 $1,185,710
Accounts payable 1,723,262 2,115,895
Other current liabilities 1,428,533 1,777,300
----------- -----------
Total current liabilities 3,289,148 5,078,905
----------- -----------
Note Payable - Related party 275,000 300,000
Long-term debt 44,240 41,180
----------- -----------
Commitments and contingencies
Total Liabilities 3,608,388 5,420,085
----------- -----------
Shareholders' equity (deficit)
Common stock $.02 par; authorized 20,000,000 shares;
Issued : March 31, 1996 - 1,516,185 shares
June 30, 1995 - 1,505,125 shares
Outstanding : March 31, 1996 - 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 (10,210,451) (10,322,012)
------------ ------------
Total (396,235) (524,046)
Less 12,500 shares of treasury stock at cost (523,438) (523,438)
------------ ------------
Total shareholders' equity (deficit) (919,673) (1,047,484)
------------ ------------
Total liabilities and shareholders' equity $2,688,715 $4,372,601
(deficit)
======== ========
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 NINE MONTHS ENDED MARCH 31, 1996 AND 1995
-----------------------------------------------------
Nine Months Ended Three Months Ended
March 31, March 31,
------------- -------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $14,488,767 $14,754,762 $4,028,393 $5,916,917
------------ ------------ ------------ ------------
Operating costs and expenses:
Costs of revenue 12,620,089 12,933,056 3,266,791 5,179,383
Selling, general and administrative 1,859,860 2,089,082 670,531 727,763
------------ ------------ ------------ ------------
Total operating costs and expenses 14,479,949 15,022,138 3,937,322 5,907,146
------------ ------------ ------------ ------------
Operating income (loss) 8,818 (267,376) 91,071 9,771
------------ ------------ ------------ ------------
Other income (expense):
Interest expense, net (123,351) (169,069) (13,032) (62,914)
Gain on sale of assets 255,466 - - -
Other expense (4,694) (40,324) (21,571) (53,666)
------------ ------------ ------------ ------------
Total other income (expense) 127,421 (209,393) (34,603) (116,580)
------------ ------------ ------------ ------------
Income (loss) before income taxes and
extraordinary gain 136,239 (476,769) 56,468 (106,809)
Provision for income taxes 24,678 3,699 6,600 813
------------ ------------ ------------ ------------
Income (loss) before extraordinary gain 111,561 (480,468) 49,868 (107,622)
Extraordinary gain on extinguishment of debt - 2,718,418 - -
------------ ------------ ------------ ------------
Net income (loss) $111,561 $2,237,950 $49,868 $(107,622)
======== ======== ======== ========
Per share data:
Earnings per common share and common equivalent share:
Income (loss) before extraordinary item $0.07 ($0.32) $0.03 ($0.07)
Extraordinary item - $1.82 - -
------------ ------------ ------------ ------------
Net Income (loss) $0.07 $1.50 $0.03 ($0.07)
======== ======== ======== ========
<PAGE>
Earnings per common share and common equivalent share-
assuming full dilution:
Income before extraordinary item $0.04 $0.02
======== ========
Weighted average number of common shares outstanding:
Primary 1,604,312 1,492,626 1,604,741 1,492,628
Assuming full dilution 2,810,675 2,804,879
See Notes to Consolidated Financial Statements
(Unaudited)
-5-
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<PAGE>
<TABLE>
<CAPTION>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
------------------------------------------------------
Nine Months Ended
March 31,
--------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $111,561 $2,237,950
----------- -----------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 87,393 182,937
Extraordinary gain on extinguishment of debt - (2,718,418)
Gain on sale of assets (255,466) -
Provision for doubtful accounts, net 203,823 -
Other 16,250 -
Changes in net assets and liabilities:
Accounts receivable 716,892 (300,560)
Prepaid expenses (1,992) (17,923)
Other assets 48,744 37,776
Restricted cash 90,000 90,000
Accounts payable (392,633) 291,925
Deferred income - (17,098)
Other current liabilities (348,767) 18,293
Net change in assets and liabilities
attributable to asset sale (17,252) -
Other long-term liabilities 3,060 (72,518)
----------- -----------
Total adjustments 150,052 (2,505,586)
----------- -----------
Net cash provided by (used in) operating
activities 261,613 (267,636)
----------- -----------
Cash flows used for investing activities:
Proceeds from sale of assets 365,750 -
Property additions (94,989) (22,483)
----------- -----------
Net cash used by investing activities 270,761 (22,483)
----------- -----------
Cash flows from financing activities:
Borrowings on bank and other loans - 960,000
<PAGE>
Payments on bank and other loans (1,073,357) (1,000,397)
----------- -----------
Net cash used in financing activities (1,073,357) (40,397)
----------- -----------
Net decrease in cash and cash equivalents (540,983) (330,516)
Cash and cash equivalents at beginning of period 640,553 518,551
----------- -----------
Cash and cash equivalents at end of period $99,570 $188,035
======== =======
See Notes to Consolidated Financial Statements
(Unaudited)
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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 nine months ended March
31, 1996 common stock equivalents were included in the income per share
calculation. For both the three and nine months ended March 31, 1995
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 nine months
ended March 31, 1995, 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.
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. A trial is
-7-<PAGE>
scheduled for May 23, 1996 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.
3. Restricted Cash/Note Payable - Related Party
The Company's $40,000 in Restricted Cash at March 31, 1996
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 $275,000 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 Company's the 1995 Annual Report on
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, ART Holdings Corporation (formerly known as
Acumenics Research and Technology, Inc.) ("ART"), 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 ART,
including certain leases, agreements and contracts related to the ongoing
performance of ART's litigation support operations.
In addition, ART 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 ART's effort to effect a
novation of the DOJ Contract. The escrow conditions were satisfied and
-8-<PAGE>
the escrow funds released in February 1996. In April 1996 the DOJ
Contract was novated. ART 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 direct and indirect 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 MARCH 31, 1996
TO THE THREE MONTHS ENDED MARCH 31, 1995
During the three months ended March 31, 1996, the Company's revenues
were approximately $4,028,000, or approximately $1,889,000 less than
revenues for the three months which ended March 31, 1995. This
represents a 32% decrease in revenue in the quarter ended March 31, 1996,
as compared with the quarter ended March 31, 1995.
In December 1995,ART Holdings Corporation (formerly known as
Acumenics Research and Technology, Inc.) ("ART"), 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 ART for the three months ended March 31, 1996, were
approximately $3,978,000, or approximately $571,000 more than revenues
for the three months which ended March 31, 1995. This represents a 17%
increase in revenue in the quarter ended March 31, 1996, as compared with
the quarter ended March 31, 1995.
The overall decrease in revenue between the three months ended March
31, 1996 and the three months ended March 31, 1995, was due to decreases
in revenues of ART based upon the sale of the majority of ART's 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 ART is principally attributable to
increased revenues in the Company's wholly-owned subsidiaries, SyCom
Services, Inc. ("SyCom") and Engineering and Information Services, Inc.
("EISI"). Both the SyCom and EISI revenue increases reflect increased
revenues on existing contracts and revenues from new contracts and new
customers.
Operational expenses for the quarter ended March 31, 1996, were
approximately $3,937,000, as compared with operational expenses of
approximately $5,907,000 for the quarter ended March 31, 1995. This
decrease in operational expenses represents decreases in corporate
expenses, decreases in costs of revenue, and lowered selling, general and
administrative expenses corresponding to the cessation of the ART
business.
Costs of revenue for the three months ended March 31, 1996, declined
from 87% of revenues to 81% of revenues as compared with the
corresponding three months ended March 31, 1995. This improvement in the
Company's margins is attributable to increased profitability in SyCom and
EISI and to the cessation of ART's operations.
The Company earned operating income for the quarter ended March 31,
1996 of approximately $91,000, as compared to operating income of
approximately $10,000 for the corresponding quarter of the prior year.
This increase in operating income is attributable to improved margins on
-10-<PAGE>
costs of revenue offset by an increase in selling, general and
administrative expenses as a percentage of revenue. The increase in
selling, general and administrative expenses as a percentage of revenue
is attributable to an approximately $204,000 allowance for doubtful
accounts related primarily to one former SyCom customer.
For the quarter ended March 31, 1996, net interest expense of
approximately $13,000 decreased by approximately $50,000 compared to the
corresponding period of the prior year. This decrease is due to the
decrease in the Company's average debt outstanding during the quarter to
Commerce Funding Corporation ("CFC").
The Company recorded net income of approximately $50,000 in the
three months ended March 31, 1996, as compared with a net loss of
approximately $108,000 for the three months ended March 31, 1995. The
improvement from a net loss to net income is attributable to the improved
margins generated by SyCom and EISI and the exclusion of ART in the
quarter ended March 31, 1996.
COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 1996
TO THE NINE MONTHS ENDED MARCH 31, 1995
During the nine months ended March 31, 1996, the Company's revenues
were approximately $14,489,000, or approximately $266,000 less than
revenues for the nine months ended March 31, 1995. This represents a 2%
decrease in revenue in the nine months ended March 31, 1996, as compared
with the nine months ended March 31, 1995.
The overall decrease in revenue between the nine months ended March
31, 1996 and the nine months ended March 31, 1995, was due to decreases
in revenues of ART based upon the sale of the majority of ART's assets
and the corresponding loss of revenues attributable to not providing
legal support services after November 30, 1995.
Revenues excluding ART for the nine months ended March 31, 1996,
were approximately $10,830,000, as compared with approximately $9,154,000
of revenues for the nine months which ended March 31, 1995 excluding ART
revenues. With ART revenues excluded from both periods, this represents
a 18% increase in revenue in the nine months ended March 31, 1996, as
compared with the nine months ended March 31, 1995.
The increase in revenues excluding ART is principally attributable to
increased revenues SyCom and EISI. Both the SyCom and EISI revenue
increases reflect increased revenues on existing contracts and revenues
from new contracts and new customers.
Operational expenses for the nine months ended March 31, 1996, were
approximately $14,480,000, as compared with operational expenses of
approximately $15,022,000 for the nine months ended March 31, 1995. This
represents a 4% decrease in operational expenses for the nine months
ended March 31, 1996, as compared with the corresponding period ended
March 31, 1995. This decrease in expenses reflects an incremental
improvement in gross margins and a decrease in selling, general and
administrative expenses as a percentage of revenue in the nine months
-11-<PAGE>
ended March 31, 1996 as compared with the corresponding nine month period
in the prior fiscal year.
Costs of revenue for the nine months ended March 31, 1996, decreased
from 88% of revenues to 87% of revenues as compared with the
corresponding nine months ended March 31, 1995. This reflects a change in
the revenue mix as distributed among Hadron's subsidiaries in the nine
months ended March 31, 1996, when compared with the revenue composition
for the nine months ended March 31, 1995.
The Company generated operating income for the nine months ended
March 31, 1996 of approximately $9,000, as compared to an operating loss
of approximately $267,000 for the corresponding period of the prior year.
The Company's improvement was predominately due to improved margins
derived from reducing costs.
For the nine months ended March 31, 1996, net interest expense of
approximately $123,000 decreased by approximately $46,000 compared to the
corresponding nine month period of the prior year. This decrease is due
to the decrease in the Company's average debt outstanding during the
period to CFC.
In the nine months ended March 31, 1996, the Company recognized a
gain on the sale of assets of approximately $255,000 related to the sale
of substantially all of ART's 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 nine months ended March 31, 1995, 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 net income of approximately $112,000 in the
nine months ended March 31, 1996, as compared with net income of
approximately $2,238,000 for the nine months ended March 31, 1995. The
decrease in net income is attributable to the inclusion of the
approximately $2,718,000 extraordinary gain in the nine months ended
March 31, 1995, partially offset by the approximately $255,000 gain on
the sale of assets during the nine months ended March 31, 1996.
Excluding the extraordinary gain and the gain on the sale of assets, the
Company's net income improved by approximately $336,000, from a net loss
of approximately $480,000 in the nine months ended March 31, 1995 to a
net loss of approximately $144,000 in the nine months ended March 31,
1996. The improvement is attributable to increased revenues and reduced
expenses.
CAPITAL RESOURCES AND LIQUIDITY
During the nine months ended March 31, 1996, the Company's operating
activities generated cash from operations of approximately $262,000 (See
Consolidated Statements of Cash Flows).
-12-<PAGE>
The generation of approximately $262,000 of cash is predominately
the result of a decrease in accounts receivable of approximately $717,000
partially offset by a decrease in accounts payable of approximately
$393,000 and a decrease in other current liabilities of approximately
$349,000. The cash generated by operations was utilized principally to
reduce the Company's current maturities on long-term debt which decreased
by approximately $1,073,000, thus reducing the Company's cash and cash
equivalents by approximately $541,000 during the nine months ended March
31, 1996.
The absorption of approximately $268,000 of cash during the nine
months ended March 31, 1995 was primarily due to operating losses of
approximately $267,000, offset by depreciation and amortization expense
of approximately $183,000, an increase in accounts receivable of
approximately $301,000 and an increase in accounts payable and other
current liabilities of approximately $300,000 and aggregate increases in
other accounts of approximately $30,000.
Management believes the cash from operations and the existing cash
balances will provide the Company with adequate cash resources to meet
its obligations on a short-term basis, provided the Company is able to
negotiate extended payment terms on certain current liabilities. In
September 1995, the Company renewed its financing agreement with CFC. In
February 1996, the Company repaid all advances from CFC and at March 31,
1996 the Company had no borrowings from CFC. Since the CFC agreement was
collateralized principally by ART's accounts receivable, the Company
would be required to negotiate a new agreement with CFC to implement new
borrowings.
Currently, the Company's operations do not generate cash flow
sufficient to cover its monthly operating expenses and make 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. The Company's ability to meet its
liquidity needs on a long-term basis is dependent on collecting its
accounts receivable, 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 continue to build profitable operations.
Pursuant to the ART asset sale, Labat-Anderson, Incorporated (the
"Buyer") agreed to assume certain liabilities, including certain leases,
agreements and contracts. At March 31, 1996, a portion of these
assignments had not been perfected and the Company remained contingently
liable for certain lease obligations.
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
-13-<PAGE>
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. At March
31, 1996, the principal outstanding on the Note to Dr. Gilluly was
$275,000.
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.
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. A trial is
scheduled for May 23, 1996 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.
-14-<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 5. Other Information
Effective March 5, 1996, Joseph S. Bracewell resigned from the
Hadron, Inc. Board of Directors.
-15-<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: May 15, 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
Nine Months Ended Three Months Ended
March 31, March 31,
------------------ --------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income (loss) before extraordinary gain $111,561 ($480,468) $49,868 ($107,622)
Extraordinary gain on extinguishment of debt - 2,718,418 - -
------------ ------------ ------------ ------------
Net Income $111,561 $2,237,950 $49,868 ($107,622)
======== ======== ======== ========
Weighted average shares of common stock outstanding 1,501,553 1,492,626 1,503,685 1,492,628
Weighted average affect of common stock equivalents 102,759 - 101,056 -
------------ ------------ ------------ ------------
Weighted average shares outstanding 1,604,312 1,492,625 1,604,741 1,492,625
======== ======== ======== ========
Income (loss) before extraordinary gain $0.07 ($0.32) $0.03 ($0.07)
Extraordinary gain on extinguishment of debt - $1.82 - -
------------ ------------ ------------ ------------
Net income $0.07 $1.50 $0.03 ($0.07)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
HADRON, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE ASSUMING FULL DILUTION
Nine Months Ended Three Months Ended
March 31, March 31,
-------------- --------------------
1996 1996
------------ ------------
<S> <C> <C>
Net Income $111,561 $49,868
======== ========
Interest expense related to note assumed converted 27,712 $8,511
------------ ------------
Net Income with interest on note assumed converted $139,273 $58,379
======== ========
Weighted average shares of common stock outstanding 1,501,553 1,503,685
Weighted average affect of common stock equivalents 109,122 101,194
Assumed conversion of note payable-related party
into common stock 1,200,000 1,200,000
------------ ------------
Weighted average shares outstanding 2,810,675 2,804,879
------------ ------------
Net income per common share and common share
equivalent - assuming full dilution $0.04 $0.02
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THIRD
QUARTER 10-Q AND IS QUALFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 139,570
<SECURITIES> 0
<RECEIVABLES> 2,913,944
<ALLOWANCES> 526,265
<INVENTORY> 0
<CURRENT-ASSETS> 2,560,471
<PP&E> 804,981
<DEPRECIATION> 690,962
<TOTAL-ASSETS> 2,688,715
<CURRENT-LIABILITIES> 3,289,148
<BONDS> 0
<COMMON> 30,324
0
0
<OTHER-SE> (426,559)
<TOTAL-LIABILITY-AND-EQUITY> 2,688,715
<SALES> 14,488,767
<TOTAL-REVENUES> 14,488,767
<CGS> 12,620,089
<TOTAL-COSTS> 14,479,949
<OTHER-EXPENSES> (250,772)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (123,351)
<INCOME-PRETAX> 136,239
<INCOME-TAX> 24,678
<INCOME-CONTINUING> 111,561
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,561
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.04
</TABLE>
