UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1995
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition 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 Identification
incorporation or organization) Number)
9990 Lee Highway
Fairfax, VA 22030
(Address of principal executive offices)
Registrant's telephone number including area code
(703) 359-6100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.02 per share
(Title of Class)
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 ___
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
Reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of September 22, 1995, the aggregate market value of the
common stock of the registrant (based upon the average bid and
asked prices of the common stock as reported by the National
Association of Securities Dealers Inc. through its Electronic OTC
Bulletin Board) held by non-affiliates of the registrant was
approximately $641,206.
As of September 22, 1995, 1,503,685 shares of the common stock of
the registrant were outstanding.
- - -1-<PAGE>
PART I
Item 1. Business
Introduction
Hadron, Inc. ("Hadron" or the "Company") provides a broad
range of information technology and management services to
businesses and federal and state governments. Specializing in
the fields of legal support service management, systems
integration, computer software development, engineering and
computer science, and integrated logistics support, Hadron
provides its clients with expert services, systems and product
development.
During the last two years, the Company's management
implemented a team-based operations review system, in which
members of operations management for each subsidiary have worked
together toward the common goal of returning Hadron to
profitability. These efforts have resulted in the Company
recording a profit for the fourth quarter of fiscal 1995.
Management believes that the Company is positioned to maximize
its corporate resources and to provide a base for future
profitable operations. While retaining a strong commitment to
its government clients, the Company has launched several new
programs targeted toward commercial operations. The Company
intends to diversify its offerings and its client base.
However, the Company's revenues were, and continue to be,
adversely impacted by government contracting slowdowns. Civilian
and defense government agencies continue to comprise the majority
of the Company's clients and increased competition for government
funded projects continues to erode profit margins. Furthermore,
the Company has continued its program of cost reductions,
primarily in the areas of indirect labor costs, overhead and
general and administrative expenses.
Operations
The Company's operations are formally structured along the
business lines of its subsidiaries, although, as described above,
there is now considerable cooperation and interaction of
management teams among these subsidiaries. Descriptions of the
operations of the subsidiaries follow.
Acumenics Research and Technology, Inc. ("Acumenics")
The Company's wholly owned subsidiary, Acumenics Research
and Technology, Inc., provides a full range of legal support
services to the U.S. government, law firms and corporations.
Acumenics, a Maryland corporation, was founded in 1978 and
acquired by the Company in 1983.
Among the legal services offered, Acumenics is well known
for its automated litigation support, which provides clients with
a database of the key information on all documents produced
- - -3-<PAGE>
during the discovery process in major litigation to assist in
case development.
Other aspects of legal service support include management of
paralegals, research and technology. Paralegals are provided by
Acumenics for legal brief development, discovery and trial
support.
Acumenics supports its clients' information retrieval needs
with specialized applications of BRS/Search, INQUIRE , Advanced
Revelation, and other mainframe and PC-based database management
systems, report generation and statistical software. Acumenics
has developed its own proprietary software, AcuCODER , for
automated direct data entry. Acumenics markets a laser optical
imaging document storage and management system called AcuVIEW
II. Additionally, Acumenics markets software-only configurations
adapted for clients' existing hardware configurations and local
area networks.
In April 1993, DoJ awarded Acumenics and two other
contractors a major contract with a value estimated by DoJ to be
in excess of $220 million over a term of five years (one period
through September 30, 1993, four option years and a period
through April 20, 1998). Under this Indefinite Delivery,
Indefinite Quantity contract, the Company provides a broad range
of legal and litigation support services to the attorneys and
support staff of DoJ's Environmental and Natural Resources
Division on a national basis.
Acumenics is headquartered in Fairfax, Virginia, and has
regional offices in Los Angeles, California; Washington, D.C.;
Chantilly, Virginia and Denver, Colorado.
Engineering & Information Services, Inc. ("EISI")
EISI, incorporated in Virginia as a wholly owned subsidiary
of Hadron, provides Department of Defense ("DoD") and related
clients with software and hardware engineering expertise that
include: systems integration; software development; local and
wide-area computer networking installation and support;
relational database development on client-server architecture;
and hardware board-level design and development.
EISI has been a long term provider of software and hardware
expertise to The Johns Hopkins University Applied Physics
Laboratory ("APL"), located near Baltimore, Maryland. EISI staff
are instrumental in design and development of multi-platform
analysis, simulation, communications, and decision support
systems for APL. Systems that EISI has developed for APL ensure
the accuracy and readiness of a number of U.S. Navy defense
systems that are in global operations today.
- - -4-<PAGE>
EISI supports the DoD environment with UNIX systems
installation and administration; and development of large-scale
integrated database applications on distributed workstations in a
client-server architecture.
EISI's management team also oversees the operations of
Aerospace Sciences, Inc. ("ASI"), a Virginia corporation wholly
owned by the Company. ASI provides a variety of cost-effective
computer-based training, curriculum development and engineering
services.
SyCom Services, Inc. ("SyCom")
Hadron's wholly owned subsidiary, SyCom, a Delaware
corporation, is an information management and systems development
firm. SyCom develops and integrates technology to increase
productivity for customers who build large electronics systems
and for customers who need information management and process
automation solutions.
SyCom specializes in the development of real-time and
embedded software engineering for systems such as civilian and
military radars, airspace management systems, signal analysis and
specialized database systems. SyCom also provides software
support, including financial software development, software
documentation, document management and imaging. SyCom's business
from Westinghouse Electric Corporation constitutes more than 10%
of the revenues of the Company.
During the past year, SyCom has created a new division,
chartered to develop and market performance productivity and
systems integration products to assist corporations with their
information technology management needs. The management of SyCom
believes that the field of business process re-engineering will
provide many opportunities for diversification. Examples of such
products are workflow process automation systems (which tie
together otherwise unrelated manufacturing, accounting and
business management software); and network simulation, modeling
and support services (which can be used by corporations to test
and validate the efficiency of a wide area network before its
purchase and/or installation).
- - -5-<PAGE>
General Information
The Company was incorporated in New York in 1964 under the
name of Biorad, Inc., and commenced operations in August 1966.
In 1968 the Company changed its name to Hadron, Inc.
As of June 30, 1995 the Company (including its subsidiaries)
employed approximately 383 people. The Company's employees are
not members of any union, and employee relations are believed by
management to be generally good.
During fiscal years 1995, 1994 and 1993, Acumenics' revenues
respectively accounted for 39%, 50% and 56% of the Company's
total consolidated revenues. The revenues of EISI accounted for
27%, 25% and 19% of the Company's total consolidated revenues for
the fiscal years 1995, 1994 and 1993, respectively. During the
same fiscal years, SyCom's revenues respectively accounted for
30%, 16% and 9% of consolidated revenues.
The Company's backlog of orders believed to be firm as of
June 30, 1995 approximates $16 million, all of which the Company
expects will be filled during fiscal 1996. As of June 30, 1994,
the Company had approximately $17 million in firm backlog orders.
Included in the firm backlog approximation are estimates of
amounts the Company anticipates receiving under government
contracts, some of which are Indefinite Delivery, Indefinite
Quantity Contracts, under which services are provided as ordered
by the government. Not included in the backlog approximation
are amounts from future years of government contracts under which
the government has the right to exercise an option for the
Company to perform services.
In general, the industry segment in which the Company
operates includes a large number of competitors of varying sizes,
many of which, like the Company, are principally located in the
Washington, D.C. area. Competition for government contracts is
extremely intense; selection is based primarily on a combination
of the price of services and evaluation of technical capability,
as well as reputation, quality of service and responsiveness to
client requirements.
Raw materials, patents, licenses, trademarks, franchises and
concessions are not materially important to the conduct of the
Company's business, and the business is not seasonal.
- - -6-<PAGE>
Government Procurement
The Company is heavily dependent on DoD and the U. S.
Department of Justice ("DoJ"), as well as other U.S. governmental
agencies, for contract work. Contracts and subcontracts with DoD
produced approximately 26% and contracts with DoJ produced
approximately 36% of the Company's total revenue during fiscal
year 1995. The Company's other U.S. government contracts and
subcontracts produced approximately 4% of the Company's total
revenue during fiscal year 1995. Contracts with the U.S.
Government are subject to audit by the Defense Contract Audit
Agency.
The Company has been a contractor or subcontractor with the
DoD continuously since 1973 with periodic renewals. Acumenics
has been a contractor with DoJ since 1981. During this time
neither the Company nor its subsidiaries has experienced any
adjustment of profits under these contracts; however, no
assurance can be given that the DoD or DoJ will not seek and
obtain an adjustment of profits in the future. All U.S.
government contracts contain clauses which allow for the
termination of contracts at the convenience of the U.S.
government.
The preponderance of the Company's technical and
professional service business with DoJ, DoD and other
governmental agencies is obtained through competitive procurement
and through "follow-up" services related to existing business.
In certain instances, however, the Company acquires such service
contracts because of special professional competency or
proprietary knowledge in specific subject areas.
Item 2. Properties
The Company owns no real estate. As of June 30, 1995 the
Company leased a total of 67,977 square feet of office space,
with 11,408 square feet located at its principal location in
Fairfax, Virginia. These various leases expire between December,
1995 and September 1998. (See Note 8 of the Notes to
Consolidated Financial Statements.)
-7- <PAGE>
Item 3. 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 (the "UPI
Bankruptcy"). UPI was owned substantially by New UPI, Inc.
("NUPI"). NUPI is owned substantially by Infotechnology, Inc.
("Infotech"), and Infotech beneficially owns 13.6% of the common
stock of the Company.
The Company filed an amended unsecured claim in the UPI
Bankruptcy in the sum of $512,477 (the "Claim"). UPI filed an
objection to the claim and also asserted counterclaims against
the Company for approximately $500,000 in a lawsuit commenced in
the UPI Bankruptcy.
In May 1994, the UPI Bankruptcy was converted to a
liquidation under chapter 7 of the U.S. Bankruptcy Code and a
trustee appointed to administer UPI's estate. The UPI trustee is
re-evaluating the merits of the lawsuit against the Company and
the objection to the Claim. A pre-trial conference regarding the
UPI lawsuit is scheduled for October 20, 1995. The Company does
not believe that it will ultimately incur any liability as a
result of UPI lawsuit and has made no provision in its financial
statements for this matter.
On or about July 14, 1994, the Federal Deposit Insurance
Corporation ("FDIC") filed two lawsuits in the U.S. District
Court for the Eastern District of Virginia, naming as defendants
the Company and two of its subsidiaries, Telcom International,
Inc. and Acumenics Research and Technology, Inc. ("Borrowers").
Both suits were premised on allegations of failure to pay money
due to the FDIC under the terms and conditions of the Amended and
Restated Loan and Security Agreement dated June 30, 1992,
evidencing the FDIC credit facility extended to the Borrowers.
In both cases the FDIC alleged breach of contract and
payment due. In one case the FDIC sought a recovery of
$563,031.69 in principal, accrued interest, late charges and
attorneys' fees. In the other case, the FDIC sought recovery of
$3,288,073.21 in principal, accrued interest, late charges and
attorneys' fees. The second proceeding also sought a court order
turning over to the FDIC control of all of the Borrowers'
accounts receivable pursuant to the terms of the Amended and
Restated Loan and Security Agreement.
On September 14, 1994, the FDIC and the Borrowers entered
into a Settlement Agreement pursuant to which the Company caused
$1.1 million to be paid to the FDIC. In exchange for said
payment, the FDIC returned to the Company all debt instruments,
dismissed the lawsuits, without prejudice, and executed all
documents necessary for the release of the FDIC's security
interests in the collateral securing the Borrowers' indebtedness.
- - -8- <PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
None.
- - -9-<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters
The Company's common stock, par value $.02 per share
("Common Stock"), is traded on the National Association of
Securities Dealers' ("NASD") Electronic OTC Bulletin Board, under
the symbol HDRN.
The range of high and low bid quotations for the Common
Stock, as reported by the National Quotation Bureau, and as
adjusted for a one for ten reverse stock split which took place
on August 12, 1993, for each quarterly period during the fiscal
years ended June 30, 1995 and June 30, 1994 is shown below:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1995 High Low
<S> <C> <C>
First Quarter
(7/1 to 9/30) .15 1/8
Second Quarter
(10/1 to 12/30) 1/4 1/8
Third Quarter
(1/1 to 3/31) 5/16 1/8
Fourth Quarter
(4/1 to 6/30) 3/8 1/8
<CAPTION>
Fiscal Year Ended June 30, 1994 High Low
<S> <C> <C>
First Quarter
(7/1 to 9/30) 1 7/8 1
Second Quarter
(10/1 to 12/31) 1 1/8 3/8
Third Quarter
(1/1 to 3/31) 9/32 1/8
Fourth Quarter
(4/1 to 6/30) 9/32 1/8
</TABLE>
As of September 22, 1995, there were approximately 4,075
shareholders of record of the Company's Common Stock.
No cash dividends were paid during the past two fiscal
years, and none are expected to be declared during fiscal year
1996.
- - -10-<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Fiscal Year Ended
June 30
1995 1994 1993 1992 1991
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Total Revenue $20,534 $18,536 $21,337 $29,075 $31,647
Operating Income (Loss) (161) (3,799) (1,206) 320 611
Interest Expense, net of
interest income 207 287 299 456 416
Income (Loss) from
continuing operations
before income taxes &
extraordinary item (436) (4,104) (1,401) 532 (1,785)
Income (Loss) from
continuing operations
before extraordinary
item (460) (4,109) (1,401) 173 (1,877)
Extraordinary item -
tax benefit arising
from net operating
loss carryforward 2,718 - - 238 -
Net Income (Loss) 2,258 (4,109) (1,401) 411 (1,877)
Income (Loss) per share
of Common Stock:
Per share data:
Income (Loss) from
continuing operations
before extraordinary item (.29) (2.75) (.94) .12 (1.30)
Extraordinary item-
tax benefit arising
from net operating
loss carryforward 1.82 - - .16 -
Net Income (Loss) 1.51 (2.75) (.94) .28 (1.30)
At Period End:
Total Assets 4,373 5,088 7,734 12,964 13,664
Long-term Liabilities 341 440 4 4,098 4,210
Working Capital (deficit) (968) (3,541) (298) 4,918 3,722
Shareholders' Equity
(deficit) (1,047) (3,306) 803 2,179 1,693
</TABLE>
- - -11-<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Comparison Of Fiscal Year 1995 To Fiscal Year 1994
During the fiscal year ended June 30, 1995, the Company's
revenues were approximately $20,534,000, or approximately
$1,998,000 more than revenues for the fiscal year ended June 30,
1994. This represents an 11% increase in revenue in the fiscal
year ended June 30, 1995, as compared with the fiscal year ended
June 30, 1994.
The increase in revenue was primarily due to increased
revenues in EISI and SyCom offset by revenue declines in
Acumenics and ASI. The revenue increases in EISI and SyCom
reflect increased staffing on existing contracts and the
acquisition of new contracts. The decline in Acumenics is
predominately due to significantly reduced spending levels at the
U.S. Department of Justice ("DoJ"), Acumenics' main customer,
pursuant to government budgetary constraints and a reduced case
load, offset by revenues garnered from a new customer utilizing
the DoJ contract vehicle. The ASI revenue decline is attributable
to contracts completed during fiscal year 1994 which were not
supplemented by new contracts.
Operating costs and expenses for the fiscal year ended June
30, 1995, were approximately $20,696,000, as compared with
approximately $22,335,000 for the fiscal year ended June 30,
1994. This represents an 7% decrease in operational expenses for
the fiscal year June 30, 1995, as compared with the corresponding
period ended June 30, 1994. This reduction in expenses reflects
a slight increase in costs of revenue corresponding to increased
revenues, offset by decreased selling, general and administrative
expenses and the presence of a $190,000 direct labor wage
determination provision and an approximately $1,477,000 asset
valuation provision in the fiscal year ended June 30, 1994.
Costs of revenue for the fiscal year ended June 30, 1995,
were 87% of revenues as compared with the corresponding fiscal
year ended June 30, 1994 where costs of revenue were 92% of
revenue. This reflects a revenue mix in the fiscal year ended
June 30, 1995, which is weighted more highly towards labor, as
opposed to other direct costs, when compared with the revenue
composition for the fiscal year ended June 30, 1994 and changes
in the distribution of Hadron's revenue among its subsidiaries.
Selling, general and administrative expenses decreased by
approximately $717,000 for the fiscal year ended June 30, 1995,
as compared with the fiscal year ended June 30, 1994. This
decrease primarily results from aggressive cost cutting,
including reductions in indirect labor and related fringe
benefits of approximately $268,000 and outside services,
predominately legal fees, of approximately $757,000. Excluding
two one-time events which aggregated $122,000 in rental expense
for the fiscal year ended June 30, 1994, facility expense
decreased by approximately $145,000 in the twelve months ended
June 30, 1995 as compared with the twelve months ended June 30,
- - -12-<PAGE>
1994. The expense decreases noted above were offset by aggregate
expense increases in other categories, including severance,
totalling approximately $223,000.
The Company's operating loss for the fiscal year ended June
30, 1995 was approximately $162,000, as compared to an operating
loss of approximately $3,799,000 for the fiscal year ended June
30, 1994. The Company's operating loss decreased by
approximately $3,637,000 due to increased revenues along with
lower cost of revenue, reduced selling, general and
administrative expenses and the inclusion of the asset valuation
provision and direct labor wage determination provision in the
fiscal year ended June 30, 1994, offset by a $115,000 asset
valuation provision in the fiscal year ended June 30, 1995.
In the twelve months ended June 30, 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.
For the fiscal year ended June 30, 1995, net interest
expense decreased by approximately $70,000 compared to the prior
fiscal year due to a significant decrease in the Company's debt
partially offset by interest rate increases.
The Company earned net income of approximately $2,258,000 in
the twelve months ended June 30, 1995, as compared with a net
loss of approximately $4,109,000 for the twelve months ended June
30, 1994. This improvement from a net loss of approximately
$4,109,000 to net income of approximately $2,258,000 is primarily
attributable to an extraordinary gain of approximately $2,718,000
from the FDIC Settlement Agreement, a decrease in the Company's
operating loss of approximately $3,732,000, including a decrease
in the asset valuation provision of approximately $1,477,000, and
a decrease in the direct labor wage determination provision of
$190,000, as discussed above.
The Company has historically been, and continues to be,
heavily dependent upon contracts from various U.S. government
agencies. As reported in various forums, in the area of U.S.
government procurement for goods and services, government
contractors, including the Company, have experienced and will
continue 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.
- - -13-<PAGE>
Results of Operations
Comparison Of Fiscal Year 1994 To Fiscal Year 1993
During the fiscal year ended June 30, 1994, the Company's
revenues were approximately $18,536,000, or approximately
$2,800,000 less than revenues for the fiscal year ended June 30,
1993. This represents a 13% decrease in revenue in the fiscal
year ended June 30, 1994, as compared with the fiscal year ended
June 30, 1993.
This decrease in revenue was primarily due to a decrease in
revenues of the Company's Acumenics subsidiary, of approximately
$2,790,000 for the same period. A portion of the Acumenics'
revenue decline relates to the winding down of two commercial
litigation support contracts during the fiscal year ended June
30, 1993, and the resulting absence of those revenues in the
corresponding period of 1994. The Acumenics' revenue decline is
also attributable to reduced activity levels of several
commercial customers. The decrease in revenues from the
government portion of Acumenics' business is due to a reduction
in rates and the sharing of Acumenics' main contract with two
other vendors for the fiscal year ended June 30, 1994. For the
first nine months of the fiscal year ended June 30, 1993,
Acumenics had utilized higher billing rates and had shared the
contract with only one vendor.
Revenues from the Company's ASI subsidiary declined by
approximately $1,520,000 in the fiscal year ended June 30, 1994,
as compared with the fiscal year ended June 30, 1993. This
decline is attributable to decreased government contract activity
from the completion of several contracts during fiscal year 1993
and early fiscal year 1994, which were not supplemented by new
contracts.
Revenues from the EISI and SyCom subsidiaries increased by
approximately $640,000 and $1,070,000, respectively, in the
fiscal year ended June 30, 1994, as compared to the fiscal year
ended June 30, 1993. This increase is based upon increased
staffing on existing contracts and the acquisition of new
contracts.
Operational expenses for the fiscal year ended June 30, 1994
were approximately $22,335,000, as compared with operational
expenses of approximately $22,542,000 for the fiscal year ended
June 30, 1993. For the fiscal year ended June 30, 1994,
exclusive of the asset valuation provision and direct labor wage
determination provision, operational expenses were approximately
$20,668,000 or 8% less than operational expenses for the
corresponding fiscal year ended June 30, 1993. This reduction in
expenses reflects aggressive cost cutting by management,
including the restructuring the Company's headquarters facility
lease which reduced annual rental expense by approximately
$720,000, and a reduced revenue base.
The Company's operating loss for the fiscal year ended June
30, 1994 was approximately $3,799,000, as compared with
approximately $1,206,000 for the fiscal year ended June 30, 1993.
This difference of approximately $2,593,000 is related to the
Company's inability to reduce overhead expenses quickly enough to
fully compensate for reduced revenues, large legal expenses which
totaled approximately $716,000, incurred largely in connection
with the Company's legal proceedings (See Item 3, Legal
- - -14-<PAGE>
Proceedings), the Lease Amendment, the asset valuation provision
and the direct labor wage determination provision.
The asset valuation provision reflects (i) a charge of
approximately $185,000 to record the writedown of certain
leasehold improvements which were written down based upon
consolidation of Hadron's facility; and (ii) a charge of
approximately $1,295,000 due to writeoffs related to government
and commercial accounts receivable which were deemed by
management to be potentially uncollectible. The direct labor
wage determination provision, net of approximately $190,000,
reflects amounts determined by the Department of Labor and
requested by the Department of Justice ("DoJ") to comply with the
Service Contract Act as it relates to Acumenics' labor costs from
1989 through 1993 under its contract with DoJ. Additionally, the
Company recorded a one-time expense related to the Lease
Amendment in fiscal year 1994 of approximately $280,000, less the
recovery of approximately $140,000 of accrued rental expense.
Costs of revenue for the fiscal year ended June 30, 1994,
increased from 88% of revenues to 92% of revenues, as compared
with the fiscal year ended June 30, 1993. This increase as a
percentage of sales results primarily from an increase in direct
labor and overhead expenses, as a percentage of sales, in
Acumenics' government sector.
For the fiscal year ended June 30, 1994, net interest
expense decreased by approximately $15,000 compared to fiscal
year 1993 due to both reduced interest rates and a reduced
principal balance of debt outstanding. Total other
income/(expense) decreased by approximately $110,000 and became a
net expense since other income for the fiscal year ended June 30,
1993 included the proceeds from the sale of one of the Company's
investments, a non-recurring transaction.
The Company's net loss for the fiscal year ended June 30,
1994 was approximately $4,109,000, as compared with a net loss of
approximately $1,401,000 for the fiscal year ended June 30, 1993.
This change is predominantly attributable to decreased revenues,
the asset valuation provision and the direct labor wage
determination provision as described above.
Capital Resources and Liquidity
During the fiscal year ended June 30, 1995, the Company's
operating activities generated cash of approximately $307,000, as
compared to absorbing approximately $242,000 of cash during the
fiscal year ended June 30, 1994 (See Consolidated Statements of
Cash Flows).
The generation of approximately $307,000 of cash is
predominately the result of a loss before income taxes and
extraordinary item of approximately $436,000 offset by
depreciation and amortization expense of approximately $239,000
and a net change in operating assets and liabilities of
approximately $413,000. The main components of changes in other
assets and liabilities was a decrease in accounts receivable of
approximately $290,000 and the removal of cash restrictions of
- - -15-<PAGE>
$120,000 offset by a decrease in long-term liabilities of
approximately $104,000. The absorption of approximately $242,000
of cash during the fiscal year ended June 30, 1994 was the result
of operating losses, net of the asset valuation provision and
direct labor wage determination provision, which were partially
offset by the collection of accounts receivable.
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 would 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 $1,048,000 from CFC at June 30, 1995 and had no
amounts outstanding from Dr. Gilluly.
Currently, the Company's operations do not generate cash
flow sufficient to cover its monthly interest to CFC. The
Company's ability to meet its liquidity needs on a long-term
basis is dependent on the Company generating sufficient billings
to utilize as a borrowing base for accounts receivable financing
with CFC 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.
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
- - -16-<PAGE>
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 (See Note 15 of Notes to Consolidated Financial
Statements).
As reported in the Company's Form 10-K for the year ended
June 30, 1992, the Company had applied amounts owed by UPI to the
Company for unpaid office rental and administrative services
expenses against a previously reported $500,000 claimed
obligation to UPI. The $500,000 claimed obligation to UPI had
been previously reported, beginning in the Company's annual
report on Form 10-K for the year ended June 30, 1990, as a "note
payable" to UPI (See Note 11 of Notes to Consolidated Financial
Statements).
In the course of examining its records in connection with
the UPI bankruptcy and the adversary proceeding, the Company
concluded that the remaining claim against the Company by UPI for
$500,000, which had been accounted for in fiscal year 1990 by
Hadron as an indebtedness due to UPI evidenced by a note payable,
in fact had not been borrowed from UPI nor had any note been
given to UPI. The Company believes that in no event would the
$500,000 be owed to UPI. Accordingly, on or about March 11,
1994, Hadron filed an amended proof of claim in UPI's bankruptcy
case to reflect that no monies are owed by the Company to UPI and
to assert a claim against UPI in the aggregate amount of
$512,477.87 (See Item 3, Legal Proceedings).
During 1992, the Company and two of its subsidiaries,
Acumenics and Telcom International, Inc. ("Borrowers"), and the
Federal Deposit Insurance Corporation ("FDIC") (which had assumed
control of the Company's primary lender) agreed to restructure
the amounts previously due under a $4,000,000 credit facility and
a $1 million demand note. The restructuring required monthly
principal payments of $50,000 through June 30, 1994 and a balloon
payment of the remaining principal balance of $3,266,000 on July
1, 1994. This credit facility was collateralized by
substantially all of the Borrowers' assets. The Company
received, from the FDIC, a permanent and continuing waiver
through July 1, 1994 of financial covenants under the credit
facility. At June 30, 1994, the Company was in default in the
payment of amounts due under its credit facility.
On September 14, 1994, the Company reached a final
settlement with the FDIC. Principally through accounts
receivable funding through CFC, the Company paid the FDIC
$1,100,000 as a complete settlement of its indebtedness to the
FDIC including principal of approximately $3,700,000 and accrued
interest of approximately $160,000. (See Note 9 of Notes to the
Consolidated Financial Statements).
- - -17-<PAGE>
Item 8. Financial Statements and Supplementary Data
The information required by this item is set forth under
Item 14(a), which information is incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
- - -18-<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
The information required by Items 10, 11, 12 and 13 of Part
III of Form 10-K have been omitted in reliance on Federal
Instruction G(3) and are incorporated herein by reference to the
Company's definitive proxy statement to be filed with the SEC
pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended.
- - -19-<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) (1) Financial Statements Page
Reports of Independent Accountants F-1
Consolidated Balance Sheets as of June 30, 1995 and 1994 F-3
Consolidated Statements of Operations for the fiscal
years ended June 30, 1995, 1994, and 1993 F-5
Consolidated Statements of Shareholders' Equity (Deficit) for
the fiscal years ended June 30, 1995, 1994, and 1993 F-7
Consolidated Statements of Cash Flows for the
fiscal years ended June 30, 1995, 1994, and 1993 F-8
Notes to Consolidated Financial Statements F-9
(a) (2) Financial Statement Schedules
Report of Independent Accountants F-29
Schedule VIII: Valuation and qualifying accounts and
reserves F-30
All other schedules are omitted since the required information is
not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required
is included in the consolidated financial statements and notes
thereto.
(b) Reports on Form 8-K
None.
- - -20-<PAGE>
(c) Exhibits
Exhibit No.
3.1 Articles of Incorporation (incorporated by reference to
the Company's Registration Statement on Form S-1,
Registration No. T-77699, filed May 21, 1982).
3.2 Amended and Restated Bylaws (incorporated by reference
to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1991).
3.3 Certificate of Amendment of Certificate of
Incorporation of Hadron, Inc. dated August 12, 1993
(incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30,
1993).
4.0 The Company's warrant to purchase 250,000 shares of
Common Stock issued to Translator Associates, L.P.
(incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30,
1991).
10.1 Lease, dated July 1, 1991, between the Company and
EQUITABLE VARIABLE LIFE INSURANCE COMPANY, for the
property occupied by the Company in Fairfax, Virginia
(incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30,
1993).
10.2 Amendment to Lease, dated October 21, 1993, between the
Company and EQUITABLE VARIABLE LIFE INSURANCE COMPANY,
for the property occupied by the Company in Fairfax,
Virginia (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1994).
10.3 Convertible Promissory Note dated October 21, 1993,
among the Company, Engineering and Information
Services, Inc., and SyCom Services, Inc. and C.W.
Gilluly (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1994).
10.4 Letter of Credit dated October 21, 1993 in the amount
of $320,000 issued by Century National Bank for the
benefit of EQUITABLE VARIABLE LIFE INSURANCE COMPANY
(incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30,
1994).
10.5 Assignment and Security Agreement dated October 21,
1993, by and among Engineering and Information
Services, Inc., SyCom Services, Inc. and C.W. Gilluly
(incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30,
1994).
- - -21-<PAGE>
10.6 Indemnity Agreement dated October 21, 1993 between
Hadron, Inc. and C.W. Gilluly (incorporated by
reference to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1994).
10.7 Loan and Security Agreement dated November 4, 1987,
among the Company, all of its subsidiaries and The
Washington Bank (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1988).
10.8 Promissory Note dated March 9, 1988, among the Company,
all of its subsidiaries and The Washington Bank
(incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31,
1988).
10.9 Amendment No. 1 to Loan and Security Agreement dated
November 4, 1987 among the Company, all of its
subsidiaries and The Washington Bank (incorporated by
reference to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1989).
10.10 Line of Credit Note dated October 1988 among the
Company, all of its subsidiaries and The Washington
Bank (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31,
1989).
10.11 Promissory Note dated March 15, 1989 between the
Company, all of its subsidiaries and The Washington
Bank (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31,
1989).
10.12 Security Agreement dated March 15, 1989 between the
Company, all of its subsidiaries and The Washington
Bank (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31,
1989).
10.13 Hadron, Inc. Employee Savings Plan (incorporated by
reference to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1990).
10.16 Form of Indemnification Agreement (incorporated by
reference to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1991).
10.17 Employment Agreement with S. Amber Gordon dated July 1,
1995.
10.19 Employment Agreement with George E. Fowler
(incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30,
1994).
- - -22-<PAGE>
10.20 Amended and Restated Loan and Security Agreement dated
June 30, 1993 by and among Federal Deposit Insurance
Corporation in its capacity as receiver for the
Washington Bank, Hadron, Inc., Telcom International,
Inc. and Acumenics Research and Technology, Inc.
(incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30,
1993).
10.21 Modification to Master Promissory Note dated June 30,
1993 by and among Federal Deposit Insurance
Corporation, in its capacity as receiver for the
Washington Bank, Hadron, Inc., Telcom International,
Inc. and Acumenics Research and Technology, Inc.
(incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30,
1993).
10.22 Modification to Line of Credit Note dated June 30, 1993
by and among Federal Deposit Insurance Corporation, in
its capacity as receiver for the Washington Bank,
Hadron, Inc., Telcom International, Inc. and Acumenics
Research and Technology, Inc. (incorporated by
reference to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1993).
10.23 Waiver letter dated October 7, 1993 from the FDIC as
receiver for the Washington Bank (incorporated by
reference to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1993).
10.24 Settlement Agreement dated September 14, 1994 between
the Company and the Federal Deposit Insurance
Corporation (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1994).
10.25 Financial commitment by Commerce Funding Corporation
for the benefit of the Company dated September 6, 1995.
22 Subsidiaries of the Company.
23<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: September 28, 1995 HADRON, INC.
By:/S/ C.W. Gilluly By:/S/ C.W. Gilluly
C. W. Gilluly C. W. Gilluly
Chief Executive Officer Acting Chief Financial
Chairman Officer
(Principal Executive Officer) (Principal Financial
Officer and Principal
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Company and in the capacities and on the
dates indicated.
Signature Title Date
/S/ Joseph S. Bracewell Director September 28, 1995
- - -----------------------
Joseph S. Bracewell
/S/ Dwight M. Geduldig Director September 28, 1995
- - ----------------------
Dwight M. Geduldig
/S/ William J. Howard Director September 28, 1995
- - ---------------------
William J. Howard
/S/ Robert J. Lynch, Jr. Director September 28, 1995
- - ------------------------
Robert J. Lynch, Jr.
/S/ William Mayer, M.D. Director September 28, 1995
- - ------------------------
William Mayer, M.D.
24<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
Hadron, Inc.
We have audited the accompanying consolidated balance sheets of
Hadron, Inc. and subsidiaries as of June 30, 1995 and 1994, and
the related consolidated statements of operations, shareholders'
equity (deficit), and cash flows for the years then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform our audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Hadron, Inc. and subsidiaries as of June
30, 1995 and 1994, and the consolidated results of their
operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 2 to the financial statements, the Company has suffered
recurring losses from operations and has a net capital deficiency
that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
September 28, 1995
25<PAGE>
REPORT OF INDEPENDENT AUDITORS
To The Board of Directors and Shareholders
Hadron, Inc.
We have audited the accompanying consolidated statements of
operations, shareholder's equity, and cash flows of Hadron, Inc.
and subsidiaries for the year ended June 30, 1993. Our audit
also included the financial statement schedule for the period
referenced to above as listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
results of operations and cash flows of Hadron, Inc. and
subsidiaries for the year ended June 30, 1993, in conformity with
generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
The accompanying consolidated financial statements have been
prepared assuming that Hadron, Inc. and subsidiaries will
continue as a going concern. As more fully described in Notes 2
and 11, the Company incurred a significant operating loss in the
year ended June 30, 1993, had an unresolved dispute with its
principal landlord and anticipated a need to refinance its debt,
substantially all of which was due by July 1, 1994. These
conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to
these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that may
result from the outcome of this uncertainty.
ERNST & YOUNG
Washington, D.C.
October 11, 1993
26<PAGE>
<TABLE>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
- - -------------------------------------------------------------
<CAPTION>
ASSETS 1995 1994
----------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 640,553 $ 442,570
Certificates of deposit (Note 1) -- 75,981
Restricted cash (Note 1) 120,000 120,000
Accounts receivable, net
(Notes 3, 5, and 11) 3,308,394 3,713,035
Prepaid expenses and other 31,230 60,494
----------- -----------
Total current assets 4,100,177 4,412,080
----------- -----------
Fixed assets, net (Notes 1 and 4) 180,969 371,726
----------- ----------
Other assets:
Contractual rights acquired, net of amortization of
$94,485 at June 30, 1995 and
$69,836 at June 30, 1994 28,756 53,405
Restricted cash (Note 1) 10,000 130,000
Other 52,699 120,415
----------- -----------
Total other assets 91,455 303,820
Total assets $ 4,372,601 $ 5,087,626
=========== ===========
See Notes to Consolidated Financial Statements
</TABLE>
28<PAGE>
<TABLE>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
- - -------------------------------------------------------------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
----------- -----------
<S> <C> <C>
Current liabilities
Notes payable-bank (Note 5) $ -- $ 3,705,969
Current maturities of long-
term debt (Note 5) 1,185,710 137,352
Accounts payable 2,115,895 2,168,598
Other current liabilities (Note 6) 1,777,300 1,909,032
Deferred income -- 32,494
----------- -----------
Total current liabilities 5,078,905 7,953,445
----------- ----------
Notes payable - related party
(Notes 5 and 15) 300,000 300,000
Long-term debt (Note 5) 41,180 37,100
Other long-term liabilities -- 102,963
----------- -----------
Commitments and contingencies (Notes 8 and 11)
Shareholders' equity (Note 10)
Common stock $.02 par; authorized 20,000,000
shares; issued - June 30, 1995, 1,505,125 shares,
and June 30, 1994, 1,505,132 shares
(shares outstanding -
June 30, 1995, 1,492,625 shares,
and June 30, 1994, 1,492,632 shares) 30,103 30,103
Capital in excess of par 9,767,863 9,767,863
Accumulated deficit (10,322,012) (12,580,410)
----------- -----------
Total (524,046) (2,782,444)
Less 12,500 shares of treasury stock at cost (523,438) (523,438)
----------- -----------
Total shareholders' equity (deficit) (1,047,484) (3,305,882
----------- -----------
Total liabilities and shareholders'
equity (deficit) $ 4,372,601 $ 5,087,626
=========== ============
See Notes to Consolidated Financial Statements
F-4
</TABLE>
30<PAGE>
<TABLE>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
- - --------------------------------------------------------------------------------
<CAPTION>
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Revenues $ 20,534,328 $ 18,536,155 $ 21,336,751
----------- ----------- ----------
Operating costs
and expenses:
Costs of revenue 17,841,970 17,096,614 18,807,003
Direct Labor - Wage
Determination Provision -- 190,000 --
Valuation Provision -- 1,476,992 --
Selling, general
and administrative 2,854,066 3,571,485 3,735,488
----------- ----------- -----------
Total operating
costs and expenses 20,696,036 22,335,091 22,542,491
---------- ----------- -----------
Operating loss (161,708) (3,798,936) (1,205,740)
----------- ----------- -----------
Other income (expense):
Interest income 20,623 19,030 21,855
Interest expense (237,541) (306,120) (321,334)
Gain on investments
(Note 12) -- -- 85,750
Other income (expense) (57,695) (18,047) 18,560
----------- ----------- -----------
Total other expense (274,613) (305,137) (195,169)
----------- ----------- -----------
Loss before income taxes
and extraordinary item (436,321) (4,104,073) (1,400,909)
Provision for income taxes
(Note 7) 23,699 5,223 --
----------- ----------- -----------
Loss before extraordinary
item (460,020) (4,109,296) (1,400,909)
Extraordinary item -
gain on the retirement
of FDIC debt,
net (Notes 9 and 15) 2,718,418 -- --
----------- ----------- -----------
Net income (loss) $ 2,258,398 $ (4,109,296) $ (1,400,909
=========== =========== ===========
See Notes to Consolidated Financial Statements
F-5
</TABLE>
32<PAGE>
<TABLE>
HADRON, INC. AND SUBSIDIARIES
PER SHARE DATA
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
- - -------------------------------------------------------------------------------
<CAPTION>
1995 1994 1993
---------- ---------- ----------
Per share data (Note 1)
<S> <C> <C> <C>
Income (loss) before
extraordinary item $ (0.31) $ (2.75) $ (0.94)
Extraordinary item -
gain on the retirement
of FDIC debt,
net (Notes 9 and 15) 1.82 -- --
---------- ---------- ---------
Net Income (Loss) $ 1.51 $ (2.75) $ (0.94)
========== ========== =========
Weighted average number of common
shares outstanding
during the period 1,492,625 1,492,625 1,483,030
========== ========== ==========
See Notes to Consolidated Financial Statements
F-6
</TABLE>
33<PAGE>
<TABLE>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
- - --------------------------------------------------------------------------------
<CAPTION>
Common Stock Capital in
---------------------- Excess
Shares Amount of Par
<S> <C> <C> <C>
Balance - June 30, 1992 1,479,925 $29,600 $9,743,166
Shares issued to officers,
directors and employees 25,200 503 24,697
Net loss
----------- ----------- -----------
Balance - June 30, 1993 1,505,125 $30,103 $9,767,863
Net loss
----------- ---------- -----------
Balance - June 30, 1994 1,505,125 $30,103 $9,767,863
Net income
----------- ----------- -----------
Balance - June 30, 1995 1,505,125 $30,103 $9,767,863
<CAPTION>
Treasury Stock
Accumulated -------------
Deficit Shares Amount Total
<S> <C> <C> <C> <C>
Balance - June 30, 1992 ($7,070,205) 12,500 ($523,438) $2,179,123
Shares issued to officers,
directors and employees 25,200
Net Loss (1,400,909) (1,400,909)
Balance - June 30, 1993 ($8,471,114) 12,500 ($523,438) $803,414
Net Loss (4,109,296) (4,109,296)
Balance - June 30, 1994 ($12,580,410) 12,500 ($523,438) ($3,305,882)
Net Loss 2,258,398 2,258,398
Balance - June 30, 1995 ($10,322,012) 12,500 ($523,438) ($1,047,484)
</TABLE>
34<PAGE>
<TABLE>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
- - ---------------------------------------------------------------------------
<CAPTION>
1995 1994 1993
----------- ----------- -------
<S> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss) $ 2,258,398 $(4,109,296) $(1,400,909)
----------- ----------- ---------
Adjustments to reconcile
net income (loss) to net
cash provided (used)
by operating activities:
Depreciation and amortization 239,374 448,441 402,831
Provision for doubtful
accounts receivable 115,000 1,291,719 215,132
Gain on retirement of FDIC debt (2,718,418) -- --
Loss on disposal of
leasehold improvements -- 185,273 --
Provision for DOL
Wage Determination -- 190,000 --
(Gain) loss on investments -- -- (85,750)
Other -- -- 387
Changes in operating
assets and liabilities:
Accounts receivable 289,641 580,408 4,705,189
Prepaid expenses and other 29,264 55,284 31,909
Other assets 67,716 46,128 371,137
Restricted cash 120,000 -- --
Accounts payable (52,703) 570,199 (99,455)
Deferred income (32,494) (34,739) (32,411)
Other current liabilities 94,075 431,401 (3,103,593)
Other long-term liabilities (102,963) 102,963 --
----------- ----------- ------
Total adjustments (1,951,508) 3,867,077 2,405,376
----------- ----------- -------
Net cash provided (used)
by operating activities 306,890 (242,219) 1,004,467
----------- ----------- -------
Cash flows from
investing activities:
Property additions (23,968) (119,919) (316,946)
Proceeds from sale
of investment -- -- 112,000
Proceeds from (investment in)
certificates of
deposit 75,981 (325,981) --
----------- ----------- ------
Net cash used by
investing activities 52,013 (445,900) (204,946)
----------- ----------- --------
Cash flows from
financing activities:
Proceeds of borrowings
on bank and other loans 964,080 73,828 --
Proceeds of borrowings
from officer -- 300,000 --
Payments on bank
and other loans (1,125,000) (160,000) (558,252)
Principal payments under
capital lease obligations -- (10,329) (61,311)
----------- ----------- -----
Net cash provided (used)
by financing activities (160,920) 203,499 (619,563)
----------- ----------- -------
Net increase (decrease)
in cash and cash equivalents 197,983 (484,620) 179,958
Cash and cash equivalents
at beginning of year 442,570 927,190 747,232
----------- ----------- ------
Cash and cash equivalents at end
of year $ 640,553 $ 442,570 $ 927,190
=========== =========== =========
See Notes to Consolidated Financial Statements
F-8
</TABLE>
35<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
1. Summary of significant accounting policies:
Principles of consolidation:
The consolidated financial statements include the accounts
of Hadron, Inc. and its subsidiaries (the "Company"), all of
which are wholly owned. All significant intercompany
transactions have been eliminated.
Fixed assets:
Furniture, equipment and leasehold improvements:
Furniture, equipment and leasehold improvements are stated
at cost. The Company uses the straight-line method of
depreciation and amortization over the estimated useful
lives of the furniture and equipment (principally three to
ten years) and over the lease term for leasehold
improvements, if shorter. Amortization of assets under
capital leases is included in depreciation expense.
Maintenance and repairs are charged to expense as incurred,
and the cost of additions and betterment are capitalized.
When assets are retired or sold, the cost and related
accumulated depreciation and amortization are removed from
the accounts and the gain or loss is included in operations.
Computer software costs:
Purchased and internally developed software are capitalized
at cost. Such costs are amortized using the straight line
method for a period of up to five years.
Accounting for contracts:
Revenues on time and material contracts are recorded at the
contracted rates as the labor hours and out-of-pocket
expenses are incurred. Revenues from fixed-price and cost-
plus-fixed-fee contracts are generally recorded on the
percentage-of-completion method, determined by the
percentage that incurred costs bear to estimated total costs
or on engineering estimates. As soon as it is determined
that it is probable a contract will result in a loss and the
loss can be reasonably estimated, the entire estimated loss
is charged to operations.
In accordance with industry practice, accounts receivable
relating to long-term contracts are classified as current
assets although an indeterminable portion of these amounts
(Continued)
F-9
<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
is not expected to be realized within one year. Billings in
excess of costs and fees earned on the percentage of
completion method are included in deferred income.
Income (loss) per share:
Income (loss) per share is based on the weighted average
number of common shares outstanding during each year and
common stock equivalents, if dilutive. For the year ended
June 30, 1995, common stock equivalents were not included in
the income (loss) per share calculation due to the
antidilutive effect on loss per share before the
extraordinary item. Per share amounts have been presented
for all periods after giving effect to the one-for-ten
reverse stock split approved by shareholders during August
1993.
Restricted cash:
The Company has invested $130,000 in one-year 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. As rental payments
are made to Equitable, the restrictions related to the uses
of the cash lapse and portions of the cash are therefore no
longer classified as restricted cash on the Consolidated
Balance Sheet.
Income taxes:
Effective July 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). SFAS 109 requires a change from
the deferred method to the liability method of accounting
for income taxes. Under the liability method, deferred tax
assets and liabilities are recognized for the estimated
future tax consequences of temporary differences and income
tax credits. Deferred tax assets and liabilities are
measured by applying enacted statutory rates, that are
applicable to the future years in which deferred tax assets
or liabilities are expected to be settled or realized, to
the differences between the financial statement carrying
amounts and the tax bases of existing assets and
liabilities. The adoption of SFAS 109 did not have a
material effect on the Company's financial condition or
results of operations. See Note 7.
Statement of cash flows - supplemental disclosures:
(Continued)
F-10
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Cash equivalents represent amounts invested in highly liquid
short-term investments with original maturities of three
months or less.
During fiscal years 1995, 1994 and 1993, the Company paid
income taxes of $4,227, $5,660 and $56,710, respectively.
The Company also paid interest of $221,489, $136,900 and
$339,240 during those same periods.
Concentrations of credit risk:
Financial instruments which potentially subject the Company
to concentrations of credit risk consist principally of cash
and cash equivalents, certificates of deposit, restricted
cash and accounts receivable. The Company maintains its
cash and cash equivalents principally in two United States
commercial banks. Cash in excess of daily requirements is
invested by the banks in one-day repurchase agreements of
securities of United States Government agencies. To date,
the Company has not incurred losses related to cash and cash
equivalents.
The Company's accounts receivable consist principally of
accounts from agencies and departments of the United States
Government. The Company extends credit in the normal course
of operation and does not require collateral from its
customers.
Reclassifications:
Certain amounts have been reclassified in the prior years'
consolidated financial statements to conform with the
current year's reporting format. Included in
reclassifications is $389,740 of credit balance accounts
receivable at June 30, 1994 which have been reclassified
from accounts receivable to accounts payable to conform with
the reporting for fiscal year 1995. This reclassification
increased both accounts receivable and accounts payable and
correspondingly effected total assets and total liabilities
at June 30, 1994.
(Continued)
F-11 11<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
2. Management plans for operating uncertainties:
As shown in the accompanying financial statements, the
Company has incurred a loss from operations for each of the
fiscal years ended June 30, 1995 and 1994 and the Company
has a net shareholders' deficit of $1,047,484 at June 30,
1995. The Company's current liabilities also exceed current
assets at June 30, 1995.
During fiscal year 1995, Hadron's management has continued
its cost reduction program which includes: labor reductions
and the associated cost of fringe benefits, space planning
efficiencies and an expense review process to determine the
necessity of all expenditures. Additionally, the Company
has accelerated an aggressive marketing campaign which
includes a program to effectively utilize its personnel in
the contract procurement process and the integration and
cross pollination of the resources of Hadron's subsidiaries.
The results of these efforts, coupled with the presence of a
$190,000 direct labor wage determination provision and an
approximately $1,477,000 asset valuation provision in the
fiscal year ended June 30, 1994 with no corresponding one-
time adjustments in the fiscal year ended June 30, 1995, are
reflected in Hadron reducing its loss from operations from
approximately $3,800,000 in fiscal year 1994 to
approximately $162,000 in fiscal year 1995. During fiscal
year 1995 the Company's operations generated approximately
$197,000 in cash. Additionally, during fiscal year 1995,
the Company was able to pay the Federal Deposit Insurance
Corporation ("FDIC") $1,100,000 for a complete release of
its defaulted debt obligations in the amount of
approximately $3,900,000.
The Company's ability to meet its liquidity needs on a long-
term basis is dependent on the Company generating sufficient
billings to utilize as a borrowing base for accounts
receivable financing 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.
During fiscal year 1996, the Company plans to continue its
cost reduction program and continue to aggressively market
its products and personnel. The Company is also seeking to
increase its contract base through strategic teaming with
other contractors. Management believes this course of
action will contribute towards achieving profitability.
Under current circumstances, the Company's ability to
continue as a going concern depends upon returning the
Company to profitability. If the Company is unsuccessful in
(Continued)
F-12 12<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
its efforts, it may undertake other actions as may be
appropriate to preserve asset values. The financial
statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going
concern.
3. Accounts receivable:
The components of accounts receivable are as follows:
<TABLE>
<CAPTION>
June 30,
1995 1994
<S> <C> <C>
Trade accounts receivable:
U.S. Government:
Amounts billed $ 968,973 $ 1,403,482
Recoverable costs and
profits - not billed 1,558,835 1,262,288
Total 2,139,292 3,055,510
Commercial, state and local
governments:
Amounts billed 859,571 863,431
Recoverable costs and
profits - not billed 428,979 247,402
Total 1,288,550 1,110,833
Less allowance for doubtful
accounts (507,960) (453,308)
Total accounts receivable, net $ 3,308,394 $ 3,713,035
============ ============
</TABLE>
The amount of customer retentions included in accounts
receivable is $314,412 and $443,516 at June 30, 1995 and 1994,
respectively.
Unbilled accounts receivable can be invoiced upon completion
of contractual billing cycles, attaining certain milestones
under fixed-price contracts, attaining a stipulated level of
effort on cost-type contracts for government agencies, upon
completion of federal government overhead audits and upon
final approval of design plans for engineering services.
(Continued)
F-13 13<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
4. Fixed assets:
The components of fixed assets are as follows:
<TABLE>
<CAPTION>
June 30,
1995 1994
<S> <C> <C>
Production, electronic and
laboratory equipment $ 412,942 $ 1,064,135
Office equipment 266,049 1,193,932
Leasehold improvements 78,945 78,945
Computer software costs:
Purchased 147,897 434,074
Internally developed 498,581 498,581
Property under capital leases:
Production, electronic and
laboratory equipment 1,133 160,128
Office equipment 9,127 10,850
Total fixed assets 1,414,674 3,440,645
Less accumulated depreciation
and amortization (1,233,705) (3,068,919)
Total fixed assets, net $ 180,969 $ 371,726
============ ============
</TABLE>
During fiscal years 1995 and 1994, the Company removed from
service fixed assets with a cost basis of approximately
$2,050,000 and $1,581,000, respectively. The assets removed
from service during fiscal year 1994 had a book value of
approximately $185,000 at the time of disposal, while the
assets removed from service in fiscal year 1995 had no book
value at the time of disposal.
(Continued)
F-14 14<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
5. Debt
The components of long-term debt are as follows:
<TABLE>
<CAPTION>
June 30,
1995 1994
<S> <C> <C>
Notes Payable - FDIC $ - $ 3,705,969
Notes Payable - CFC 1,048,357 -
Notes Payable - Other 175,696 171,616
Notes Payable - Related Party 300,000 300,000
Other 2,837 2,836
1,526,890 4,180,421
Current portion of long-term debt
and notes payable (1,185,710) (3,843,321)
Total $ 341,180 $ 337,100
============ ============
</TABLE>
Notes payable - FDIC consisted of amounts due under a term
loan agreement resulting from a 1992 restructuring of amounts
previously due under a $4,000,000 credit facility and a
$1,000,000 demand note. Under the 1992 restructuring
agreement, the Company made principal payments of $185,000 and
$460,000 during fiscal years 1994 and 1993, respectively. The
agreement required monthly payments of $50,000 through June
1994 with the remaining principal balance of $3,266,000 due on
July 1, 1994. The Company ceased principal payments in
October 1993 and defaulted on payments due on this facility.
Interest was payable monthly at 1% above the publicly reported
prime rate. Hadron had an accrued interest payable of
$160,733 and $0 at June 30, 1994 and 1993, respectively.
The FDIC note was collateralized by substantially all of the
Company's assets, including an assignment of the Company's
interests in government contracts and did not permit the
Company to pay dividends.
On September 14, 1994, the Company entered into a Settlement
Agreement pursuant to which the Company paid the FDIC
$1,100,000 for a complete release of all indebtedness to the
FDIC. See Note 9.
The Note Payable - CFC consists of amounts borrowed under a
one-year renewable agreement with Commerce Funding Corporation
(Continued)
F-15 15<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
("CFC") to fund the Company. These advances are
collateralized by a substantial portion of the Company's
receivable base. The initial funding was completed on
September 14, 1994. Advances are based upon analysis and
adequate documentation of CFC's collateral position on
contract/purchase orders underlying all invoices presented for
funding. CFC holds a first lien on all accounts receivable of
Hadron, Inc. and two of its wholly-owned subsidiaries:
Acumenics Research and Technology, Inc. and Aerospace
Sciences, Inc..
The basis for funding was 80% of all credit worthy government
and commercial billed accounts receivable, with additional
funds available to reach 98% of billed accounts receivable or
40% of all work-in-process. Hadron incurred an annual
commitment fee of $100,000 payable in equal monthly
installments and various other processing fees related to the
receivable collection rates. The portion of this fee
attributable to fiscal year 1995 was reflected in other
expenses in the Consolidated Statements of Operations.
Additionally, CFC extended its commitment to financing for all
future contracts awarded to Hadron and its subsidiaries.
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 which began September 6, 1995. The
credit facility covers a one-year period and is cancelable by
Hadron at any time. Additionally, CFC extends its commitment
to financing for all future contracts awarded to Hadron and
its subsidiaries.
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
Hadron and payable to C.W. Gilluly, Chief Executive Officer of
the Company. 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 accrues and is payable quarterly; the
entire principal balance of the Note is due and payable on
October 21, 1996. In fiscal year 1995, the average interest
rate on the Note was 11.91%. The proceeds of the Note were
utilized to obtain the collateral required for the issuance of
the irrevocable letter of credit. See Notes 11 and 15.
(Continued)
F-16 16<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
6. Other current liabilities:
Other current liabilities include the following major
classifications:
<TABLE>
<CAPTION>
June 30,
1995 1994
<S> <C> <C>
Payroll and related taxes $ 728,965 $ 772,167
Compensated absences 412,407 316,599
Self-insured medical expense 133,797 65,287
Facility fee 108,491 113,745
Accrued interest - FDIC - 160,733
Other 393,640 480,501
Total $1,777,300 $ 1,909,032
============ ===========
</TABLE>
Included in payroll and related taxes is an accrued
liability for $15,400 at June 30, 1995 and $190,000 at June
30, 1994 related to a Direct Labor Wage Determination
Provision. This liability reflects amounts requested by the
Department of Justice (DoJ) to comply with the Service
Contract Act as it relates to the Company's labor cost from
1989 through 1993 under its contract with the DoJ.
7. Income taxes:
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
Current 1995 1994 1993
<S> <C> <C> <C>
State $ 23,699 $ 5,223 $ -
Total Tax Provision 23,699 5,223 -
</TABLE>
(Continued)
F-17 17<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
The tax provision for continuing operations differs from the
amounts computed using the statutory federal income tax rate
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Tax expense (benefit) at
statutory rate - federal (35%) (35%) (34%)
State tax expense (benefit)
net of federal taxes 5% (4%) -
Goodwill amortization 1% .23% -
Operating losses with no
current tax benefit 34% 38.89% 34%
Tax expense at
actual rate 5% .12% -
</TABLE>
(Continued)
F-18 18<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Deferred income taxes and benefits are provided for
significant income and expense items recognized in different
years for tax and financial reporting purposes. Temporary
differences which give rise to significant deferred tax
assets (liabilities) follow:
<TABLE>
<CAPTION>
Deferred tax assets: June 30, 1995 June 30, 1994
<S> <C> <C>
Self insurance reserve $ 52,300 $ 25,500
Deferred rent liability - 6,000
Provision for wages 6,000 18,400
Rent restructuring fee liability 42,500 84,600
Depreciation 146,800 117,700
Accounts receivable, principally
due to allowance for
doubtful accounts 198,600 176,800
Accrued vacation and bonuses 30,500 -
Capital loss carryforwards - 68,300
Tax credit carryforwards - 140,000
Net operating loss carryforwards 2,500,200 2,927,800
Total deferred tax assets 2,976,900 3,565,100
Valuation allowance (2,964,900) (3,559,500)
Net deferred tax assets 12,000 5,600
Deferred tax liability:
Unbilled receivables (12,000) (5,600)
Net deferred tax liability (12,000) (5,600)
Net deferred tax assets
(liabilities) $ - $ -
</TABLE>
The Company has net operating loss (NOL) carryforwards for
federal and state purposes available to offset future
taxable income of approximately $6,394,334 as of June 30,
1995. These NOL carryforwards expire at various dates
through June 30, 2009. The NOL, tax credit carryforwards
and capital loss carryforwards were reduced by the
cancellation of debt income the Company realized in
connection with the gain on the retirement of the FDIC debt
(See Note 9).
(Continued)
F-19 19<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
8. Commitments and contingencies:
Operating leases:
The Company leases real property and personal property under
various long-term operating leases and sublease agreements
expiring at various dates through 1999. Certain of the
leases contain renewal options and require payment of
property taxes, insurance and maintenance costs. The
Company's future minimum operating lease commitments
inclusive of property taxes, insurance and maintenance costs
as of June 30, 1995 are summarized below:
Fiscal
Year Ending Lease
June 30, Commitments
1996 $ 1,123,893
1997 563,525
1998 442,096
1999 103,793
Total minimum payments required $ 2,233,307
==============
Rent expense net of sublease income included in the
consolidated statements of operations are as follows:
Rent
Period Expense
Fiscal Year 1995 $1,101,862
Fiscal Year 1994 $1,427,916
Fiscal Year 1993 $2,828,369
Rental expense for vacant space was $0, $60,196 and $356,764
in fiscal years 1995, 1994 and 1993, respectively. The
Company had no vacant space at June 30, 1995 and June 30,
1994.
U.S. government contract audits:
A portion of the Company's revenues and costs are subject to
audit by the Defense Contract Audit Agency, which has
completed most of the subsidiaries' audits through 1991. It
is the opinion of the Company that existing accruals for
potential audit adjustments are adequate and that the results
of such audits will not have a materially adverse effect on
the financial condition or results of operations of the
Company.
(Continued)
F-20 20<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
9. FDIC Settlement Agreement
On September 14, 1994, the Company entered into a Settlement
Agreement with the Federal Deposit Insurance Corporation
("FDIC"). Principally through accounts receivable funding
with CFC, the Company paid the FDIC $1,100,000 as
consideration for a complete release from all indebtedness to
the FDIC. Hadron owed the FDIC $3,905,093 consisting of a
note payable of $3,705,969, net of cash collateral reserve of
$25,000, and accrued interest of $224,124. Prior to this
settlement the Company had been in default of its obligation
to the FDIC.
The settlement with the FDIC resulted in an extraordinary gain
of $2,718,418 being recorded in the consolidated financial
statements. In addition to the $1.1 million settlement, the
Company incurred legal and other professional fees of $86,675
to consummate the settlement.
10. Common stock:
Reverse stock split:
During August 1993, shareholders approved a one-for-ten
reverse stock split. The number of shares for transactions
and balances for all periods presented in the Consolidated
Financial Statements have been adjusted to reflect the reverse
stock split. Certain share amounts may include the effects of
rounding due to implementation of the reverse stock split.
11. 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 (the "UPI
Bankruptcy"). UPI was owned substantially by New UPI, Inc.
("NUPI"). NUPI is owned substantially by Infotechnology, Inc.
("Infotech"), and Infotech beneficially owns 13.6% of the
common stock of the Company.
The Company filed an amended unsecured claim in the UPI
Bankruptcy in the sum of $512,477 (the "Claim"). UPI filed an
objection to the claim and also asserted counterclaims against
the Company for approximately $500,000 in a lawsuit commenced
in the UPI Bankruptcy.
In May 1994, the UPI Bankruptcy was converted to a liquidation
under chapter 7 of the U.S. Bankruptcy Code and a trustee
appointed to administer UPI's estate. The UPI trustee is re-
(Continued)
F-21 21<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
evaluating the merits of the lawsuit against the Company and
the objection to the Claim. A pre-trial conference regarding
the UPI lawsuit is scheduled for October 20, 1995. The
Company does not believe that it will ultimately incur any
liability as a result of UPI lawsuit and has made no provision
in its financial statements for this matter.
On August 23, 1993, Equitable Variable Life Insurance Company
("Equitable") filed an unlawful detainer action against the
Company in the District Court of Fairfax County, Virginia, for
possession of the Company's principal premises at 9990 Lee
Highway, Fairfax, Virginia, and past due rent in the amount of
$356,984.52. Equitable, as landlord, asserted that the
Company, as tenant, failed to pay rent due under a lease
dated. On October 14, 1993, the Company and Equitable signed
a letter of understanding outlining an agreement to
restructure the lease covering the Company's principal
premises. On October 21, 1993, the Company entered into a
lease amendment ("Lease Amendment") with Equitable which
represents the settlement by Hadron and Equitable of the
dispute regarding past due rent and future rental obligations
under the lease. The Lease Amendment generally provides for a
consolidation of space and a reduction in monthly rent.
Equitable's unlawful detainer action against the Company was
dismissed with prejudice on October 22, 1993.
On or about July 14, 1994, the Federal Deposit Insurance
Corporation ("FDIC") filed two lawsuits in the U.S. District
Court for the Eastern District of Virginia, naming as
defendants the Company and two of its subsidiaries, Telcom
International, Inc. and Acumenics Research and Technology,
Inc. ("Borrowers"). Both suits were premised on allegations
of failure to pay money due to the FDIC under the terms and
conditions of the Amended and Restated Loan and Security
Agreement dated June 30, 1992, evidencing the FDIC credit
facility extended to the Borrowers.
On September 14, 1994, the FDIC and the Borrowers entered into
a Settlement Agreement pursuant to which the Company caused
$1.1 million to be paid to the FDIC. In exchange for said
payment, the FDIC returned to the Company all debt
instruments, dismissed the lawsuits, without prejudice, and
executed all documents necessary for the release of the FDIC's
security interests in the collateral securing the Borrowers'
indebtedness. See Note 9.
(Continued)
F-22 22<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
12. Employee Savings Plan:
The Company sponsors a defined contribution savings plan under
section 401(k) of the Internal Revenue Code. The Company's
contributions to the 401(k) plan are based upon a percentage
of employee contributions. The Company's discretionary
contributions to the Plan were $17,630, $16,729 and $15,269
for fiscal years 1995, 1994 and 1993, respectively.
13. Investments:
During fiscal year 1993, the Company had various investments
in marketable equity securities of affiliated and unaffiliated
companies. As of June 30, 1992, the Company had only one
remaining investment with a carrying value of $26,250. During
fiscal year 1993, the Company recorded a gain of $86,000 on
the sale of this investment. As of June 30, 1994, the Company
had no carrying value on its investments.
14. Stock Option Plan:
Under the Company's 1994 Stock Option Plan ("1994 Plan"), up
to 220,000 shares of its common stock may be issued to key
employees, consultants and directors. The 1994 SOP provides
for both incentive stock options within the meaning of Section
422 of the Internal Revenue Code and non-qualified stock
options. The exercise price of the incentive stock options is
required to be at least equal to 100% of the fair market value
of the Company's common stock on the date of grant (110% of
the fair market value in the case of options granted to
employees who are 10% shareholders). The exercise price of
the non-qualified stock options is required to be not less
than the par value of a share of the Company's common stock on
the date of grant.
Information with respect to incentive stock options issued
under the 1994 Plan are as follows:
<TABLE>
<CAPTION>
June 30, 1995
<S> <C>
Outstanding at beginning of year -
Granted during year 183,500
Canceled during year 13,000
Outstanding at end of year 170,500
Exercisable at end of year 56,834
Option price $0.25
</TABLE>
(Continued)
F-23 23<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Information with respect to non-qualified stock options issued
under the 1994 Plan are as follows:
<TABLE>
<CAPTION>
June 30, 1995
<S> <C>
Outstanding at beginning of year -
Granted during year 12,500
Canceled during year -
Outstanding at end of year 12,500
Exercisable at end of year 12,500
Option Price $0.25
</TABLE>
15. Related party transactions:
Infotechnology, Inc. ("Infotech"), a publicly held business
development corporation, beneficially owns 202,739 shares of
the Company's outstanding common stock. Dr. C.W. Gilluly is
Chairman of the Board of the Company and of Infotech, and
acting Chief Financial Officer of Infotech. Dr. Gilluly
serves as acting President of the Company. Messrs. Lynch and
Mayer, directors of the Company, are also directors of
Infotech. Dr. Gilluly is also Chief Executive Officer and a
director of Telecommunications Industries, Inc. ("TII") and
Comtex Scientific Corporation ("Comtex"). Infotech holds a
majority interest in TII and Comtex.
During the years ended June 30, 1995, 1994 and 1993, the
following related-party revenue was earned:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Infotech - Corporate Relations/ $12,000 $21,000 $1,000
Administrative Services
ACS - Financial Consulting - - 4,000
TII - Software Consulting 24,000 8,000 -
Comtex - Corporate Relations 6,000 - -
</TABLE>
(Continued)
F-24 24<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
During the years ended June 30, 1995, 1994 and 1993, the
following related-party expenses were incurred:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Infotech - Misc. Admin./Legal $8,000 $1,000 $6,000
TII - Purchases of Computer 24,000 45,000 -
Equip. and Computer
Consulting
</TABLE>
At June 30, 1995 and 1994, the Company had a net payable
balance with Infotech of $53,000 and 57,000, respectively.
The Company's net related-party balances with all other
individual related parties were less than $4,000 at June 30,
1995 and 1994.
On October 21, 1993, the Company entered into a Lease
Amendment with Equitable, the landlord of the Company's
principal premises at 9990 Lee Highway, Fairfax, Virginia.
The Lease Amendment represents the settlement by Hadron and
Equitable of a dispute regarding past due rent and future
rental obligations under a lease agreement dated July 1, 1991.
Equitable's unlawful detainer action against the Company,
filed on August 23, 1993 in the District Court of Fairfax
County, Virginia, was dismissed with prejudice on October 22,
1993.
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
fully satisfy this condition using internally generated or
bank-borrowed funds. Dr. Gilluly personally agreed to make a
loan (See Note 5) in the principal amount of $300,000
("Gilluly Loan") to collateralize the Letter of Credit.
The Gilluly Loan is evidenced by a Convertible Promissory Note
("Note") dated October 21, 1993, executed by Engineering and
Information Services, Inc. ("EISI") and SyCom Services, Inc.
("SyCom"), two wholly owned subsidiaries of Hadron, and
payable to the order of C.W. Gilluly. 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 accrues
and is payable quarterly; the entire principal balance of the
Note is due and payable on October 21, 1996.
(Continued)
F-25 25<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
At the option of Dr. Gilluly, the Note may be converted into
restricted shares ("Hadron Shares") of Hadron's Common Stock.
Dr. Gilluly may convert the Note into Hadron Shares at any
time prior to maturity of the Note, except that Dr. Gilluly is
not permitted to convert the Note within ten trading days
prior to a date on which Hadron is required to make any filing
with the Securities and Exchange Commission.
The price at which the Note was initially convertible into
Hadron Shares on a per share basis (the "Conversion Price")
was equal to seventy percent (70%) of the average bid price
for a share of Common Stock traded on the NASDAQ Stock Market
(or, if the Common Stock was not traded on the NASDAQ Stock
Market, on such other established public trading market in
which the Common Stock was traded as of the date Dr. Gilluly
elected to convert) for the ten trading days immediately
preceding the date Dr. Gilluly elected to convert. In the
event the Common Stock was not traded on the NASDAQ Stock
Market and there existed no other established public trading
market for the Common Stock during such ten-day trading
period, conversion of the Note would be effected at a
Conversion Price determined by a qualified independent
appraiser engaged by EISI and SyCom and acceptable to Dr.
Gilluly. In making such determination, the appraiser would
use a thirty percent (30%) discount factor to account for the
fact that the Hadron Shares would be issued as restricted
shares. However, if the Conversion Price, as determined in
accordance with the foregoing procedure, was greater than
$0.96 per Hadron Share, the Conversion Price was deemed to be
$0.96 per Hadron Share; and if the Conversion Price, as
determined in accordance with the foregoing procedure, was
less than $0.40 per Hadron Share, the Conversion Price was
deemed to be $0.40 per Hadron Share.
On September 13, 1994, in conjunction with the FDIC settlement
(see Note 9), Dr. Gilluly was required to subordinate all
rights in the Assignment and Security Agreement, described
below, until such time as Commerce Funding Corporation ("CFC")
received either a minimum of $140,000 from a specific
Acumenics' customer account receivable, which was
collateralized in CFC's credit facility, or the Company
provided alternative or substitute receivables in an
equivalent amount and satisfactory to CFC. On September 13,
1994, the Conversion Price was amended to the market value of
$.25 per share (as represented by the midpoint of the
Company's common stock bid and ask price on the ten days prior
to September 13, 1994) and the option to convert was extended
for a period of two years from October 21, 1996. The Company
reserved the right to re-adjust upward, but not to exceed the
high-end price of $.96 per share, the fair market valuation
(Continued)
F-26 26<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
and Conversion Price for a period of thirty calendar days
following public release of (a) all information regarding the
Company's settlement with the FDIC and (b) financial results
for the fiscal year ended June 30, 1994. On September 23,
1994, CFC received funds in excess of $140,000 from the
specific Acumenics' customer and released CFC's security
interests in EISI and SyCom.
The Note is prepayable at any time, in full or in part. In
the event the Note is prepaid, Dr. Gilluly is entitled to
receive a warrant ("Warrant") issued in respect to the number
of Hadron Shares determined as hereinafter provided, as
amended September 13, 1994. Each Warrant (a) will expire on
October 21, 1998; (b) will entitle Dr. Gilluly 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 the Note together with all interest thereon which is
prepaid by (ii) the Conversion Price that would result if Dr.
Gilluly had elected to convert and the date of his election to
convert had been the date of the prepayment which entitles Dr.
Gilluly to receive such Warrant; and (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 Dr. Gilluly
had elected to convert and the date of his election to convert
had been the date of the prepayment which entitles him to
receive such Warrant.
The Note is collateralized by an Assignment and Security
Agreement dated October 21, 1993 assigning and granting a
security interest in the accounts receivable, contract rights
and certain other assets of EISI and SyCom in favor of Dr.
Gilluly. Pursuant to an Indemnity Agreement of even date
therewith, the Company agreed to indemnify Dr. Gilluly with
respect to all claims, demands, losses, damages, liabilities,
costs and expenses that he may sustain or incur by reason of
the Gilluly Loan. With the proceeds of the Gilluly Loan, and
an additional $20,000 provided by the Company, EISI and SyCom
collateralized the Letter of Credit on behalf of the Company
in favor of Equitable.
To make the loan evidenced by the Note, Dr. Gilluly borrowed
$300,000 from Century National Bank. To collateralize his
loan from Century National Bank, Dr. Gilluly pledged personal
collateral and granted a security interest in the Note in
favor of Century pursuant to a pledge agreement that contains
standard default and similar provisions.
The Company paid to Joseph S. Bracewell, a member of the Board
of Directors, $18,000 and $13,500 for financial consulting
(Continued)
F-27 27<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
services for the fiscal years ended June 30, 1995 and 1994,
respectively.
16. Business Segment and Major Customers:
Business Segment:
The Company operates predominantly in one industry segment,
providing engineering, computer support services and other
professional services.
Major Customers:
Gross revenue from contracts and subcontracts with U.S.
government agencies amounted to $13,732,302, $13,885,991 and
$16,571,204, respectively in fiscal years 1995, 1994 and 1993.
Revenues from one commercial customer totaled $5,924,381,
$3,052,373 and $1,985,820 in the fiscal years 1995, 1994 and
1993, respectively.
Revenues earned on sales to the Company's material customers
are as follows:
<TABLE>
<CAPTION>
United States
Department of Commercial
Defense Justice Customer
<S> <C> <C> <C>
Fiscal Year 1995 $ 5,442,741 $ 7,370,135 $ 5,924,381
Fiscal Year 1994 3,944,428 7,982,133 3,052,373
Fiscal Year 1993 3,655,890 9,259,562 1,985,820
</TABLE>
(Continued)
F-29 29<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Report of Independent Accountants
To the Board of Directors and Shareholders
Hadron, Inc.
Our report on the consolidated financial statements of Hadron, Inc. and
subsidiaries is included on page F-1 of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule for the years ended June 30, 1995 and 1994 listed in the
index at Part IV, Item 14 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND, L.L.P.
Washington, D.C.
September 28, 1995
(Continued)
F-30 30<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
HADRON, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Additions
<CAPTION> ---------------------
Balance at Charged (Credited)
Beginning to costs and
Description of Period expenses
<S> <C> <C>
Year ended June 30, 1995
Accounts receivable $ 453,308 $ 115,000
Net unrealized loss on non-current
marketable security 0
Notes Receivable - Affiliate 0 0
============= ===========
Year ended June 30, 1994
Accounts receivable $ 819,668 $ 603,024
Net unrealized loss on non-current
marketable security 0 0
Notes Receivable - Affiliate 0 0
============= =============
Year ended June 30, 1993
Accounts receivable $ 780,511 $ 215,132
Net unrealized loss on non-current
marketable security 0 0
Notes Receivable - Affiliate 0 0
============= =============
<CAPTION>
Charged to Balance
other accounts Deductions at end
(describe) (describe) of Period
<S> <C> <C> <C>
Year ended June 30, 1995
Accounts receivable $149,463<F1> 209,811<F2> 507,960
Net unrealized loss on
non-current
marketable security 0 0 0
Notes Receivable - Affiliate 0 0 0
Year ended June 30, 1994
Accounts receivable $ 76,286<F3> 1,045,669<F4> 453,308
Net unrealized loss on
non-current
marketable security 0 0 0
Notes Receivable - Affiliate 0 0 0
Year ended June 30, 1993
Accounts receivable $ 0 $ 175,975<F5> 819,668
Net unrealized loss on
non-current
marketable security 0 0 0
Notes Receivable - Affiliate 0 0 0
<F1> Represents a charge of $122,051.51 to unbilled receivables to correct
unbilled accounts receivable balances, a charge of $3,660.41 to
miscellaneous expense and a collection of receivables previously written
off in the amount of $23,750.70.
<F2> Represents, primarily, the write off of uncollectible unbilled
receivables, rate variances and fee retentions.
<F3> Represents a charge to the contract closeout account of $19,983.91,
and a charge to revenue of $56,301.77 to reconcile unbilled accounts
receivable.
<F4> Represents, primarily, the writeoff of uncollectible unbilled
receivables, rate variances and fee retentions.
<F5> Represents, primarily, the write off of the note receivable from
Wynmark Development Corp. in the amount of $118,333 which included
interest receivable.
F-30
</TABLE>
(Continued)
F-32 32<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is entered into this 21st day of June, 1995, by
and between Hadron, Inc. (the "Employer" or the "Company") and S.
Amber Gordon ("Employee").
WHEREAS, the Company and Employee have agreed to terms upon
which Employee will continue to be employed by Employer and wish
to set forth such terms and conditions in writing;
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Employment. The Company hereby agrees to employ Employee as
its EXECUTIVE VICE PRESIDENT for the term as hereinafter set
forth. Employee shall perform such duties and exercise such
supervision and powers over and with regard to the business
of the Company as are consistent with her position.
Employee shall report to the Chairman and/or Chief Executive
Officer of the Company.
2. Term. The initial term of this Agreement shall be two (2)
years, effective July 1, 1995.
3. Base Salary and Time Allotment. During the term of the
Agreement, Employee shall be available to the Employer four
(4) days per week. For this, the Employee's base salary for
this year shall be $85,000. It is understood and agreed to
by the Company that during the work week the Employee
renders consulting services to, and receives remuneration
from, other non-competitive entities. The Employee's base
salary for the second year shall reflect an increase in base
salary, as determined by the Board of Directors, in its sole
discretion; however, such increase shall, at the minimum, be
proportionate to that given to other executive officers of
the Company. The base salary shall be payable on a bi-
weekly basis or such other basis as the Company uses to pay
its executive officers.
4. Stock Options. The Company shall grant to Employee options
in its Incentive Stock Option Plan in such amount as
determined by the Board of Directors. Such amount shall be
commensurate with the duties and responsibilities of the
Employee.
5. Annual Bonus. In addition to the Employee's Base Salary,
the Employee shall be eligible to earn an annual bonus at
the recommendation of the Chairman and the Compensation
Committee, and with the approval of the Board of Directors.
The amount of the bonus shall take into consideration the
overall contribution of the Employee to strategic and day-
to-day operating improvements within the Company and the
improvement of Corporate Relations programs (including, but
not limited to, employee communications programs, employee
savings programs, health benefits programs, insurance
arrangements, corporate administration, public relations,
and financial/investor relations programs).
6. Car Allowance. The Employee shall receive an automobile
allowance in the amount of $350 per month for the first year
of the Agreement, to increase in proportion to other
executive officers of the Company for the second year of the
Agreement.
7. Other Benefits. Employee shall be fully reimbursed by the
Company for all expenses reasonably incurred in connection
with the performance of Employee's duties, upon presentation
of expense statements and such other supporting information
as the Company may reasonably require. The Company shall
provide to Employee the insurance and medical coverage
provided to the Company's executive officers, on the same
terms and conditions. Additionally, Employee shall be
entitled to four weeks of paid vacation for each year of
employment.
8. Termination and/or Renewal. The Company shall have the
right to terminate this employment Agreement for cause on
the grounds that Employee acted dishonestly in any activity
related to this job; Employee has exhibited signs of
alcohol or drug dependency; Employee has been convicted of a
felony or crime of moral turpitude; or for gross neglect of
her duties. If Employee is terminated for cause, as defined
herein, or leaves the employ of Hadron voluntarily, then no
remuneration will be due past the date of termination. Any
renewal of this Agreement, or any subsequent employment
Agreement, shall be completed prior to June 30, 1997. In
the event that a contract is not renewed by June 30, 1997,
the Employee will receive a severance payment equal to six
months at the then current Base Salary, paid out over a
period of six months.
9. Indemnification. The Company shall indemnify and hold
Employee harmless from and against any and all causes of
action, claims, costs, liabilities, expenses, attorneys'
fees or damages arising from Employee's performance of her
duties as described herein, except however where such<PAGE>
claims, etc. are a result of Employee's gross negligence or
willful misconduct.
10. Full Authority. Each party represents to the other that: it
has full power and authority to execute, deliver and perform
this Agreement; all necessary corporate action on its part
for the execution, delivery and performance of this
Agreement by it has been duly taken; this Agreement has been
duly authorized and executed by it; it is a legal, valid and
binding Agreement, enforceable against such party in
accordance with its terms.
11. Entire Agreement/Assignment/Governing Law. This Agreement
shall be binding upon and inure to the benefit of Hadron and
its successors and assigns. This Agreement shall not be
assignable by either party hereto without the written
consent of the other party. This Agreement constitutes the
entire Agreement between the parties and shall supersede all
previous communications, representations, understandings,
and Agreements, either oral or written between the parties
or any officials or representatives thereof. This Agreement
shall be governed by and interpreted in accordance with the
laws of the Commonwealth of Virginia.
12. Waivers. A waiver by any party of a breach of any provision
of this Agreement shall not operate as or be construed to be
a waiver of any other breach of such provision or of any
breach of any other provision of this Agreement. The
failure of a party to insist upon strict adherence to any
term of this Agreement on one or more occasions shall not be
considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or
any other term of this Agreement. Any waiver or
modification of this Agreement must be in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement
this 21st day of June, 1995.
HADRON, INC.
BY: /S/ C.W. Gilluly /S/ S. Amber Gordon
_____________________ _________________________
C.W. Gilluly S. Amber Gordon
Chairman and
Chief Executive Officer<PAGE>
FEE AGREEMENT
To whom it may concern:
For and in consideration of the covenants contained herein the
undersigned agree to the terms stated below. HADRON, INC. * (see
Attachment) ("Assignor") and COMMERCE FUNDING CORPORATION ("CFC")
("Assignee") agree that for a period of one year commencing
SEPTEMBER 6, 1995 to September 6, 1996, Assignor shall deal
exclusively and solely with Assignee in the factoring of its
accounts receivable. This Fee Agreement will renew for
successive twelve month terms unless cancelled thirty days prior
to the last day of each term. During such period Assignee shall
make available to Assignor the following terms subject to
increases in the prime rate (the amount of any increase in the
prime rate above 9.00% will increase the daily rate an equivalent
amount) and subject to the terms and conditions of the
"Assignment and Transfer of Receivables Agreement", as of the
date of this agreement.
o 80% advance; 20% holdback;
o .05205% daily rate based upon the outstanding principal
balance (net) for advances from Assignee to Assignor. Assignee
may, at Assignee's discretion, charge a minimum fee per each
invoice funded based upon a 10 day outstanding period (.5205%).
o An additional credit facility in an amount equal to 18.0% of
the total (gross) funded invoices is available for draws. The
above rates apply.
o There is no Annual Commitment Fee. Also, there is no fee
for early termination of this agreement.
o Neither this Agreement nor any other Agreement pursuant to
this contract financing arrangement shall be deemed accepted or
constitute an offer or be binding upon CFC until accepted and
executed by CFC's authorized officer at its principal office in
Vienna, Virginia.
Assignor: HADRON, INC. Sworn to and subscribed before
me this 23rd day
By: /S/ C.W. Gilluly of August, 1995.
____________________
NAME: C.W. Gilluly Caridad C. Miller
NOTARY PUBLIC
TITLE: CEO My commission expires:
12/31/98
DATE: August 23, 1995
ASSIGNEE:
COMMERCE FUNDING CORPORATION<PAGE>
Sworn to and subscribed before
me this 28th day
By: /S/ Larry Ortiz of August, 1995
____________________
NAME: Larry Ortiz Gina A. Warring
NOTARY PUBLIC
TITLE: Sr. Vice President My commission expires:
6/30/98
ATTACHMENT
Hadron, Inc. includes:
Acumenics Research & Technology, Inc.
A Maryland Corporation
a wholly-owned subsidiary of Hadron, Inc.
Aerospace Sciences, Inc.
A Virginia Corporation
a wholly-owned subsidiary of Hadron, Inc.
P.E.N. Acquisition, Inc.
A Virginia Corporation
a wholly-owned subsidiary of Aerospace Sciences, Inc.
Performance Engineering Network Incorporated
A Delaware Corporation
acquired by P.E.N. Acquisition, Inc.
By acknowledgment below, being an authorized representative of
Hadron, Inc., I represent the above as being true and correct.
HADRON, INC. Sworn to and subscribed before
me this 23rd day
By: /S/ C.W. Gilluly of August, 1995.
____________________
NAME: C.W. Gilluly Caridad C. Miller
NOTARY PUBLIC
TITLE: CEO My commission expires:
12/31/98
DATE: August 23, 1995<PAGE>
EXHIBIT 22
SUBSIDIARIES OF THE COMPANY
Name State of Incorporation
Acumenics Research & Technology, Inc. Maryland
Aerospace Sciences, Inc. Virginia
Engineering and Information Services, Inc. Virginia
Hadron - CPD, Inc. Virginia
P.E.N. Acquisition Corporation Virginia
Performance Engineering Network, Inc. Virginia
SyCom Services, Inc. Delaware
Telcom International, Inc. (inactive) Delaware
Applied Graphics Corporation (inactive) Maryland
Compulaser, Inc. (inactive) Delaware
Digitcom, Inc. (inactive) Ohio
G. E. Boggs and Associates, Inc. (inactive) Maryland<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FISCAL YEAR 1995
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 640553
<SECURITIES> 0
<RECEIVABLES> 3308394
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4100177
<PP&E> 180969
<DEPRECIATION> 0
<TOTAL-ASSETS> 4372601
<CURRENT-LIABILITIES> 5078905
<BONDS> 0
<COMMON> 30103
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4372601
<SALES> 20534328
<TOTAL-REVENUES> 20534328
<CGS> 17841970
<TOTAL-COSTS> 20696036
<OTHER-EXPENSES> 57695
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237541
<INCOME-PRETAX> (436321)
<INCOME-TAX> 23699
<INCOME-CONTINUING> (460020)
<DISCONTINUED> 0
<EXTRAORDINARY> 2718418
<CHANGES> 0
<NET-INCOME> 2258398
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.51
</TABLE>
