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, 1996
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 York11-2120726
(State or other jurisdiction of(I.R.S. Employer Identification
incorporation or organization) Number)
4900 Seminary Road, Suite 800
Alexandria, VA 22311
(Address of principal executive offices)
Registrant's telephone number including area code
(703) 824-0400
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 ___<PAGE>
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 20, 1996, 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 $897,860.
As of September 20, 1996, 1,503,685 shares of the common stock of
the registrant were outstanding.
2<PAGE>
PART I
Item 1. Business
Introduction
Hadron, Inc. ("Hadron" or the "Company") provides a broad
range of information technology management services and products
to businesses and federal government agencies. Specializing in
the fields of computer systems integration, software development,
engineering/computer science and integrated logistics support,
Hadron supplies its clients with expert technical services,
systems and product development.
During the last few years, the Company has implemented a
turnaround program, including cost reductions and aggressive new
business development, intended to return the Company to
profitability. This past year, as an integral component of the
Company's turnaround program, the Company's management conducted
a thorough evaluation of the profitability of its various lines
of business. Moreover, Company management sharpened its
strategic focus by shifting resources to higher profit margin
lines of business and to specific areas of information technology
management and systems engineering. As a result, in December
1995, the Company's Acumenics Research & Technology, Inc.
subsidiary (now named "ART Holdings Corporation" or "ART") sold
substantially all its assets and certain liabilities related to
the ongoing performance of its litigation support operations and
effected (in April 1996) a novation of its contract with the U.S.
Department of Justice to the buyer.
Although ART's litigation support services had historically
been profitable for the Company, in recent years, ART experienced
increasing losses that negatively affected the Company's
financial results. The Company's management believes that the
sale of this line of business, coupled with the increased focus
on higher profit margin areas of information technology
management, provide a strong base for profitable operations.
The Company maintains a primary commitment to its direct and
indirect government clients, but is also simultaneously
intensifying its program of business development targeted toward
commercial operations. The Company is continuing to diversify
its offerings and its client base.
Direct and indirect contracts with government defense and
intelligence agencies comprise the majority of the Company's
business base, and increased competition for government-funded
projects continues to exert pressure on profit margins. However,
the Company's management continues its program of cost
3<PAGE>
containment, primarily in the areas of indirect labor costs,
overhead and general and administrative expenses, and therefore
believes the Company is well positioned and competitive in its
marketplace.
4<PAGE>
Operations
The Company's operations are formally structured along the
business lines of its two main subsidiaries, although there is
considerable cooperation and interaction of management teams
between these subsidiaries. Descriptions of the operations of
the subsidiaries follow.
Engineering & Information Services, Inc. ("EISI")
EISI, incorporated in Virginia as a wholly owned subsidiary
of Hadron, provides the 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 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 also provides a variety of cost-effective computer-
based training, curriculum development and engineering services.
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's
business with APL constitute more than 10% of the revenues of the
Company. EISI staff are instrumental in the design and
development of multi-platform analysis, simulation,
communications, and decision support systems for APL. Systems
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.
SyCom Services, Inc. ("SyCom")
Hadron's wholly owned subsidiary, SyCom, a Delaware
corporation, is an information management and systems development
firm. SyCom specializes in computer-based technologies related
to complex information, communications and electronic systems.
Headquartered near Baltimore, MD, SyCom performs a full range of
information and network support services for commercial and
defense related clients working on military and civilian
electronic systems.
SyCom has particular expertise in the development of real-
time and embedded software engineering for systems such as
5<PAGE>
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 Northrop Grumman constitutes more than 10% of the
revenues of the Company.
SyCom's recently created division, Performance Engineering
and Networks, specializes in two main areas: (1) computer network
design, configuration, simulation and management; and (2) design
and development of computer software to increase workflow
productivity.
In the productivity management software area, during the
past year SyCom officially launched HeaTreaT(TM), a process
management system for the heat treating industry that tracks
every factory order from start to finish. (The heat treating
industry encompasses all furnace-based processing of metal
parts.) HeaTreaT(TM) provides real-time status reports on any
aspect of the heat treat process with the touch of a screen on
any PC in the factory's network.
HeaTreaT(TM) is a proprietary, complete process and document
management system that includes both front-end and back-end
documentation in one comprehensive management program. From
quotations and order entry, through scheduling and furnace
operations, to invoice & shipping and reporting, HeaTreaT
provides all the information needed to make furnace operations
more efficient, customer-responsive, cost-effective, and
profitable.
In the network area, SyCom performs modeling, simulation and
performance analysis on existing and proposed local and wide area
computer networks. This service, called Safety.Net(TM), uses
multiple network analysis tools to simulate computer networks,
architectures, communications, distributed processing, and client
server systems. Safety.Net(TM) evaluates the capabilities and
limitations of networks using integrated statistical and
graphical models that accurately represent and simulate network
components and applications. Safety.Net(TM) provides
comprehensive network design verification and validation -- two
critical prerequisites to sound network systems acquisition,
installation or upgrade decisions.
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.
6<PAGE>
As of June 30, 1996, the Company (including its
subsidiaries) employed approximately 176 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 1996, 1995 and 1994, ART's revenues
respectively accounted for 20%, 39% and 50% of the Company's
total consolidated revenues. The revenues of EISI accounted for
36%, 27% and 25% of the Company's total consolidated revenues for
the fiscal years 1996, 1995 and 1994, respectively. During the
same fiscal years, SyCom's revenues respectively accounted for
43%, 30% and 16% of consolidated revenues.
The Company's backlog of orders believed to be firm as of
June 30, 1996 approximates $11 million, all of which the Company
expects will be filled during fiscal 1997. As of June 30, 1995,
the Company had approximately $16 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.
The Company operates predominantly in one industry segment,
providing engineering, computer support services and other
professional 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 within the
information technology and government contracting arenas 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 Company's business is not seasonal.
Government Procurement
The Company is heavily dependent on DoD, as well as other
U.S. governmental agencies, for contract work. Contracts and
subcontracts with DoD produced approximately 29%, of the
Company's total revenue during fiscal year 1996. ART's revenues
from its contracts with DOJ produced approximately 20% of the
Company's total revenue during fiscal year 1996. As discussed
elsewhere herein, ART's assets were sold as of December 1, 1995.
7<PAGE>
The Company's other U.S. government contracts and subcontracts
produced approximately 7% of the Company's total revenue during
fiscal year 1996. 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. 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 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 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, 1996 the
Company leased or sub-leased a total of 6,053 square feet of
office space, with approximately 700 square feet at its corporate
headquarters location in Alexandria, Virginia. These leases
expire between December, 1996 and April, 1997. (See Note 9 of the
Notes to Consolidated Financial Statements.)
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 13.5% 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
8<PAGE>
the objection to the Claim. A pre-trial conference regarding the
UPI lawsuit is scheduled for October 18, 1996. The Company does
not believe it will ultimately incur any material liability as a
result of the UPI lawsuit and has made no provision in its
financial statements for this matter.
9<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
None.
10<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, for each
quarterly period during the fiscal years ended June 30, 1996 and
June 30, 1995 is shown below:
Fiscal Year Ended June 30, 1996 High Low
First Quarter
(7/1 to 9/30/95) 7/16 1/8
Second Quarter
(10/1 to 12/31/95) 11/16 7/16
Third Quarter
(1/1 to 3/31/96) 9/16 9/16
Fourth Quarter
(4/1 to 6/30/96) 13/16 9/16
Fiscal Year Ended June 30, 1995 High Low
First Quarter
(7/1 to 9/30/94) .15 1/8
Second Quarter
(10/1 to 12/31/94) 1/4 1/8
Third Quarter
(1/1 to 3/31/95) 5/16 1/8
Fourth Quarter
(4/1 to 6/30/95) 3/8 1/8
As of September 20, 1996, there were approximately 3,983
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
1997.
11<PAGE>
<TABLE>
Item 6. Selected Financial Data
<CAPTION>
Fiscal Year Ended
June 30
1996 1995 1994 1993 1992
----- ------ ----- ----- ------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Total Revenue $18,306 $20,534 $18,536 $21,337 $29,075
Operating Income (Loss) 59 (161) (3,799) (1,206) 320
Interest Expense, net of
interest income 132 217 287 299 456
Income (Loss)
before income taxes &
extraordinary item 194 (436) (4,104) (1,401) 532
Income (Loss)
before extraordinary
item 162 (460) (4,109) (1,401) 173
Extraordinary item -
tax benefit arising
from net operating
loss carryforward - - - - 238
Extraordinary item -
gain on retirement
of debt - 2,718 - - -
Net Income (Loss) 162 2,258 (4,109) (1,401) 411
Income (Loss) per share
of Common Stock:
Per share data:
Income (Loss)
before extraordinary item .11 (.31) (2.75) (.94) .12
Extraordinary item-
tax benefit arising
from net operating
loss carryforward - - - - .16
Extraordinary item -
gain on retirement
of debt - 1.82 - - -
Net Income (Loss) .11 1.51 (2.75) (.94) .28
At Period End:
12<PAGE>
Total Assets 2,874 4,373 5,088 7,734 12,964
Long-term Liabilities 320 341 440 4 4,098
Working Capital (deficit) (654) (978) (3,541) (298) 4,918
Shareholders' Equity
(deficit) (869) (1,047) (3,306) 803 2,179
</TABLE>
13<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company
Hadron, Inc. (the "Company") provides a broad range of
information technology management services and products to
businesses and federal government agencies. Specializing in the
fields of computer systems integration, software development,
engineering/computer science and integrated logistics support,
the Company supplies its clients with expert technical services,
systems and product development.
Results of Operations
Comparison Of Fiscal Year 1996 To Fiscal Year 1995
During the fiscal year ended June 30, 1996, the Company's
consolidated revenues were approximately $18,306,000 compared
with consolidated revenues of approximately $20,534,000 for the
fiscal year ended June 30, 1995, a net decrease of approximately
$2,228,000 (11%). This net decrease was primarily due to the
sale effective December 1, 1995, by the Company's subsidiary, ART
Holdings Corporation ("ART"), of substantially all of its assets
and the assumption by the purchaser of contracts related to the
ongoing performance of ART's litigation support operations for
the U. S. Department of Justice.
Consolidated revenues, excluding revenues attributable to
ART for the fiscal year ended June 30, 1996, were approximately
$14,811,000 compared with $12,486,000 for the fiscal year ended
June 30, 1995, an increase of approximately $2,325,000 (19%).
The increase in revenues excluding ART is principally
attributable to increased revenues from existing contracts with
major government and commercial customers of EISI and SyCom as
well as from software development and installation on behalf of
new commercial customers of SyCom.
Consolidated costs of revenue were approximately $15,937,000
for the fiscal year ended June 30, 1996 compared with
approximately $17,842,000 for the fiscal year ended June 30,
1995, a decrease of approximately $1,905,000 (11%). This
decrease is primarily attributable to the cessation of operations
by ART at December 1, 1995 pursuant to the sale of its assets, as
described above. Consolidated costs of revenue excluding costs
of revenue attributable to ART for the fiscal year ended June 30,
1996 were approximately $12,767,000, or 86% of revenues, compared
with $10,841,000, or 87% of revenues for the fiscal year ended
June 30, 1995, an increase of approximately $1,926,000 (18%).
The relative improvement in costs of revenue as a percentage of
revenues reflects net changes in the mix of the Company's
contract revenues and the related margins on those contracts.
14<PAGE>
Consolidated selling, general and administrative expenses
were approximately $2,309,000 for the fiscal year ended June 30,
1996 compared with approximately $2,854,000 for the fiscal year
ended June 30, 1995, a decrease of approximately $545,000 (19%).
During fiscal year 1996, the Company's management has continued
the cost reduction program that it adopted in the face of
increasing losses in past years. During fiscal year 1996, this
program resulted in lower selling, general and administrative
expenses through reductions in labor costs and the associated
fringe benefits as a result of reductions in administrative and
overhead personnel headcounts and reductions in facilities costs
through consolidation and more intensive use of leased
facilities. ART's sale of substantially all its assets during
fiscal year 1996 also enabled the Company to further reduce its
overall selling, general and administrative expenses. The
Company was also able to reduce facilities costs by
decentralizing its corporate offices by approximately $15,000 a
month.
The Company generated $59,000 of operating income during the
fiscal year ended June 30, 1996 compared to an operating loss of
approximately $162,000 for the fiscal year ended June 30, 1995,
for an increase of approximately $221,000. The increase resulted
primarily from reduced selling, general and administrative
expenses, as described above.
For the fiscal year ended June 30, 1996, net interest
expense decreased by approximately $85,000 compared to fiscal
year 1995 due to decreases in the Company's average debt
outstanding during the year.
In the twelve months ended June 30, 1996, the Company
recognized a gain on the sale of assets of approximately $255,000
related to the sale of substantially all of ART's assets for
$365,750. This gain was composed of the $365,750 transaction
proceeds less the net book value of the assets and liabilities
transferred and less $16,061 in related costs incurred.
Net income was approximately $162,000 for the fiscal year
ended June 30, 1996, compared to approximately $2,258,000 for the
fiscal year ended June 30, 1995, a decrease of approximately
$2,096,000. The decrease in net income is attributable to the
inclusion of the approximately $2,718,000 extraordinary gain in
the twelve months ended June 30, 1995 partially offset by the
approximately $255,000 gain on the sale of assets during the
twelve months ended June 30, 1996. Excluding the extraordinary
gain and the gain on the sale of assets, the Company's net income
improved by approximately $367,000 from a net loss of
approximately $460,000 in the twelve months ended June 30, 1995
to a net loss of approximately $93,000 in the twelve months ended
June 30, 1996. The improvement is attributable to increased
15<PAGE>
revenues and reduced expenses, improved margins and reduced
selling, general and administrative expenses, as described above.
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,
16<PAGE>
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,
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.
17<PAGE>
Capital Resources and Liquidity
As shown in the accompanying financial statements, the
Company reported operating income of approximately $59,000 for
the fiscal year ended June 30, 1996 and a net shareholders'
deficit of $869,485 at June 30, 1996. The Company's current
liabilities also exceeded current assets by approximately
$654,000 at June 30, 1996.
During fiscal year 1996, the Company's management continued
the cost reduction program that it adopted in the face of
increasing losses in past years. The results of these efforts
are reflected in the Company's recovery from a loss from
operations of approximately $162,000 in fiscal year 1995 to
operating income of approximately $59,000 in fiscal year 1996.
The Company's improved profitability has allowed the Company
to finance operations with internally generated funds while at
the same time reducing the Company's significant liabilities such
as accounts payable arising during past loss years. In addition,
the Company, during fiscal year 1996, paid off its note with
Commerce Funding Corporation ("CFC"), (absorbing more than $1
million in cash) which note arose from the need to finance the
September 1994 settlement with the Federal Deposit Insurance
Corporation.
At June 30, 1996, the Company's accounts payable included
approximately $846,000 of balances due that arose from past loss
operations. Management has established payment plans with many,
but not all, of the related vendors to provide for orderly
paydown of such balances on a priority basis as cash is generated
from operations. The Company's borrowing agreement with CFC
expired in September 1996 and the Company currently has no
borrowing arrangements with any third-party financing source.
During fiscal year 1997, the Company plans to maintain its
aggressive control over costs and to aggressively market its
products and personnel in both the government and commercial
marketplaces. The Company is also seeking to increase its
government contracts revenue base through strategic teaming with
other government contractors. Furthermore, 1997 interest costs
are expected to fall significantly from the 1996 total of
$143,000 since outstanding debt has been substantially reduced.
A significant contact under which EISI has performed
services for DoD since 1992 will conclude in April, 1997.
Revenue from this contract comprised 14%, 11% and 5% of the
Company's total revenues for fiscal years 1996, 1995 and 1994,
respectively. EISI expects the government to recompete this
contract during fiscal year 1997. EISI intends to participate in
the expected upcoming recompetition. No assurance can be given
18<PAGE>
that EISI will be successful in the expected upcoming
recompetition.
Currently, the Company's operations generate cash flow
sufficient to cover its monthly expenses and management believes
that cash from operations will provide the Company with adequate
cash resources to meet its obligations on a short-term basis. The
Company's ability to meet its liquidity needs on a longer-term
basis is dependent on its ability to generate sufficient billings
to cover its current obligations and to also continue to paydown
its accounts payable balances. While the Company's contracts with
its major customers and with other agencies and departments of
the U.S. Government are generally of more than one year in
duration, the Company, along with all other government
contractors and information management companies, faces severe
competition in its marketplaces and no assurance may be given
that the Company will be able to maintain the billing base or the
size of profitable operations that may be necessary to meet its
liquidity needs.
Except for the historical information contained herein, the
matters discussed in this 10-K include forward-looking statements
that involve a number of risks and uncertainties. There are
certain important factors and risks that could cause results to
differ materially from those anticipated by the statements
contained herein. Such factors and risks include business
conditions and growth in the information services, engineering
services, software development and government contracting arenas
and in the economy in general; competitive factors, such as the
pressures toward consolidation of small government contracts into
larger contracts awarded to major, multi-national corporations;
continued success in the Company's program of paying down its
older accounts payable balances while simultaneously generating
sufficient billings to cover its current obligations; the
anticipation of growth and successful market acceptance of the
Company's new productivity management software products, which
could be subject to various delays, including software release
delays; the Company's ability to continue to recruit and retain
highly skilled technical, managerial and sales/marketing
personnel; and the other risks detailed from time to time in the
Company's SEC reports, including quarterly reports on Form 10-Q.
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.
19<PAGE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Information relating to the resignation of the Company's
former accountants, Coopers & Lybrand L.L.P., was previously
reported in the Company's Form 8-K filed on July 24, 1996.
20<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 General
Instruction G(3) to Form 10-K 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.
21<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, 1996 and 1995 F-3
Consolidated Statements of Operations for the fiscal
years ended June 30, 1996, 1995, and 1994 F-5
Consolidated Statements of Shareholders' Equity (Deficit) for
the fiscal years ended June 30, 1996, 1995, and 1994 F-7
Consolidated Statements of Cash Flows for the
fiscal years ended June 30, 1996, 1995, and 1994 F-8
Notes to Consolidated Financial Statements F-9
(a) (2) Financial Statement Schedules
Report of Independent Accountants F-26
Schedule II: Valuation and qualifying accounts and
reserves F-27
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.
22<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 Sublease, dated June 12, 1996, between the Company and
COMTEX SCIENTIFIC CORPORATION, for the property
occupied by the Company in Alexandria, Virginia.
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).
10.6 Indemnity Agreement dated October 21, 1993 between
Hadron, Inc. and C.W. Gilluly (incorporated by
23<PAGE>
reference to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1994).
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 (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30,
1995).
10.18 Employment Agreement with J. Anthony Vidal dated
October 1, 1995 (incorporated by reference to the
Company's Form 10-Q for the quarter ended September 30,
1995).
10.19 Employment Agreement with George E. Fowler dated
October 1, 1995 (incorporated by reference to the
Company's Form 10-Q for the quarter ended September 30,
1995).
10.25 Financial commitment by Commerce Funding Corporation
for the benefit of the Company dated September 6, 1995
(incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30,
1995).
10.26 Employment Agreement with Donald Jewell dated October
1, 1995.
10.27 Employment Agreement with David Haedicke dated August
1, 1996.
21 Subsidiaries of the Company.
24<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 30, 1996 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/ William J. Howard Director September 30, 1996
William J. Howard
/S/ Robert J. Lynch, Jr. Director September 30, 1996
Robert J. Lynch, Jr.
21<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Hadron, Inc.
We have audited the accompanying consolidated balance sheet of
Hadron, Inc. and subsidiaries as of June 30, 1996 and the related
statements of operations, shareholders' equity (deficit), and
cash flows for the year then ended. Our audit also included the
financial statement schedule for the year ended June 30, 1996
listed in the Index at Part IV Item 14(a) of this Form 10-K.
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 financial statements referred to above
present fairly, in all material respects, the financial position
of Hadron, Inc. and subsidiaries at June 30, 1996, and the
results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule for the year ended June 30, 1996, 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 financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully
described in Note 3, the Company has incurred recurring operating
losses and has a working capital deficiency. 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 3. The financial statements
do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from
the outcome of this uncertainty.
/s/Ernst & Young LLP
Vienna, Virginia
September 27, 1996 F-1
22<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
Hadron, Inc.
We have audited the accompanying consolidated balance sheet of
Hadron, Inc. and subsidiaries as of June 30, 1995, and the
related consolidated statements of operations, shareholders'
equity (deficit), and cash flows for the years ended June 30,
1995 and June 30, 1994. 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 the consolidated results of their operations and
their cash flows for the years ended June 30, 1995 and June 30,
1994 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 3 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 3. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
/S/ COOPERS & LYBRAND L.L.P.
Washington, D.C.
September 28, 1995
F-2
23<PAGE>
<TABLE>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
-------------------------------------------------------------
<CAPTION>
ASSETS 1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 33,865 $ 640,553
Restricted cash 10,000 120,000
Accounts receivable, net
(Notes 4 and 6) 2,680,437 3,308,394
Prepaid expenses and other 45,224 31,230
----------- -----------
Total current assets 2,769,526 4,100,177
----------- -----------
Fixed assets, net (Note 5) 96,828 180,969
----------- -----------
24<PAGE>
Other assets:
Goodwill, net of amortization 4,108 28,756
Restricted cash --- 10,000
Other 3,955 52,699
----------- -----------
Total other assets 8,063 91,455
----------- -----------
$ 2,874,417 $ 4,372,601
=========== ===========
See Notes to Consolidated Financial Statements
F-3
</TABLE>
25<PAGE>
<TABLE>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
-------------------------------------------------------------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT 1996 1995
----------- -----------
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,821,480 $ 2,115,895
Other current liabilities (Note 7) 1,602,162 1,914,652
Current maturities of long-term debt (Note - 1,048,358
----------- -----------
Total current liabilities 3,423,642 5,078,905
----------- -----------
Notes payable - related party (Notes 6 and 275,000 300,000
14)
Other 45,260 41,180
----------- -----------
Total long-term liabilities 320,260 341,180
Commitments and contingencies (Note 9)
Shareholders' deficit:
26<PAGE>
Common stock $.02 par; authorized 20,000,000
shares; issued - June 30, 1996, 1,516,185 shares, and
June 30, 1995, 1,505,125 shares
(shares outstanding - June 30, 1996, 1,503,685 shares, and
June 30, 1995, 1,492,625 shares) 30,324 30,103
Additional Capital 9,783,892 9,767,863
Accumulated deficit (10,160,263) (10,322,012)
----------- -----------
Total (346,047) (524,046)
Less 12,500 shares of treasury stock at cost (523,438) (523,438)
----------- -----------
Total shareholders' deficit (869,485) (1,047,484)
----------- -----------
Total liabilities and shareholders' deficit $ 2,874,417 $ 4,372,601
=========== ============
See Notes to Consolidated Financial
Statements
F-4
</TABLE>
27<PAGE>
<TABLE>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED JUNE 30, 1996, 1995 AND 1994
-------------------------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 18,305,627 $ 20,534,328 $ 18,536,155
----------- ----------- -----------
Operating costs and expenses:
Costs of revenue 15,937,203 17,841,970 17,096,614
Direct Labor -
Wage Determination Provision -- -- 190,000
Valuation Provision -- -- 1,476,992
Selling, general
and administrative 2,309,228 2,854,066 3,571,485
----------- ----------- ----------
Total operating costs
and expenses 18,246,431 20,696,036 22,335,091
----------- ----------- ----------
Operating income (loss) 59,196 (161,708) (3,798,936)
----------- ----------- ----------
Other income (expense):
Interest income 11,049 20,623 19,030
Interest expense (142,985) (237,541) (306,120)
Gain on sale of assets (Note 10) 255,466 -- --
Other income (expense) 10,862 (57,695) (18,047)
----------- ----------- ----------
Total other income (expense) 134,392 (274,613) (305,137)
----------- ----------- -----------
28<PAGE>
Income (Loss) before income taxes
and extraordinary item 193,588 (436,321) (4,104,073)
Provision for income taxes
(Note 8) 31,839 23,699 5,223
----------- ----------- -----------
Income (Loss) before
extraordinary item 161,749 (460,020) (4,109,296)
Extraordinary item -
gain on the retirement
of FDIC debt, net (Note 11) -- 2,718,418 --
----------- ----------- -----------
Net income (loss) $ 161,749 $ 2,258,398 $ (4,109,296)
=========== =========== ===========
See Notes to Consolidated Financial Statements
F-5
</TABLE>
29<PAGE>
<TABLE>
HADRON, INC. AND SUBSIDIARIES
PER SHARE DATA
FOR THE FISCAL YEARS ENDED JUNE 30, 1996, 1995 AND 1994
-----------------------------------------------------------------
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Per share data:
Income (loss)
before extraordinary item $ 0.11 $ (0.31) $ (2.75)
Extraordinary item -
gain on the retirement
of FDIC debt, net
(Note 11) -- 1.82 --
---------- ---------- ----------
Net Income (Loss) $ 0.11 $ 1.51 $ (2.75)
========== ========== ==========
Weighted average
number of common
shares outstanding
during the period 1,501,841 1,492,625 1,492,625
========== ========== ==========
See Notes to Consolidated Financial Statements
F-6
30<PAGE>
</TABLE>
31<PAGE>
<TABLE>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE FISCAL YEARS ENDED JUNE 30, 1996, 1995 AND 1994
------------------------------------------------------------------
<CAPTION>
Common Stock Capital in
Excess
-----------------------
Shares Amount of Par
------------- ------------ ------------
<S> <C> <C> <C>
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
Shares issued to officers,
directors,
and consultants 11,060 221 16,029
Net income
------------ ------------ ------------
Balance - June 30, 1996 1,516,185 $ 30,324 $ 9,783,892
========== ========== ==========
<CAPTION>
Treasury Stock
Accumulated ----------------------
Deficit Shares Amount Total
------------ ------- --------- ---------
<S> <C> <C> <C> <C>
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 Income 2,258,398 2,258,398
------------ ------- --------- ---------
Balance - June 30, 1995 (10,322,012) 12,500 (523,438) (1,047,484)
32<PAGE>
Shares issued to
officers,
directors, and
consultants 16,250
Net Income 161,749 161,749
------------ ------- --------- -----------
Balance - June 30, 1996 $(10,160,263) 12,500 $(523,438) $ (869,485)
========== ======= ========= ===========
See Notes to Consolidated Financial Statements
F-7
</TABLE>
33<PAGE>
<TABLE>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JUNE 30, 1996, 1995 AND 1994
----------------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss) $ 161,749 $ 2,258,398 $ (4,109,296)
---------- ---------- -----------
Adjustments to reconcile
net income (loss) to net
cash provided (used) by
operating activities:
Depreciation
and amortization 119,275 239,374 448,441
Provision for doubtful
accounts receivale 209,757 115,000 1,291,719
Gain on retirement
of FDIC debt -- (2,718,418) --
Gain on sale of assets (255,466) -- --
Loss on disposal of
leasehold improvement -- -- 185,273
Provision for DOL
Wage Determination -- -- 190,000
Other 16,250 -- --
Changes in operating assets and
liabilities:
Accounts receivable 418,199 289,641 580,408
Prepaid expenses and other (13,994) 29,264 55,284
Other assets 48,744 67,716 46,128
Restricted cash 120,000 120,000 --
Accounts payable (294,415) (52,703) 570,199
Deferred income -- (32,494) (34,739)
34<PAGE>
Other current liabilities (312,490) 94,075 431,401
Change in assets and
liabilities attributable
to asset sale (17,252) -- --
Other long-term liabilities 4,080 (102,963) 102,963
---------- ----------- -----------
Total adjustments 42,688 (1,951,508) 3,867,077
----------- ----------- -----------
Net cash provided (used)
by operating activities 204,437 306,890 (242,219)
----------- ----------- -----------
Cash flows from investing
activities:
Proceeds from
sale of assets 365,750 -- --
Property additions (103,518) (23,968) (119,919)
Proceeds from
(investment in)
certificates of deposit -- 75,981 (325,981)
----------- ----------- -----------
Net cash provided (used)
by investing activities 262,232 52,013 (445,900)
----------- ----------- -----------
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 (1,073,357) (1,125,000) (160,000)
Principal payments
under capital lease
obligations -- -- (10,329)
---------- ----------- -----------
Net cash (used) provided
by financing activities (1,073,357) (160,920) 203,499
---------- ----------- -----------
35<PAGE>
Net (decrease) increase
in cash and cash equivalents (606,688) 197,983 (484,620)
Cash and cash equivalents
at beginning of year 640,553 442,570 927,190
---------- --------- -----------
Cash and cash equivalents
at end of year $ 33,865 $ 640,553 $ 442,570
=========== =========== ===========
See Notes to Consolidated Financial
Statements
F-8
</TABLE>
36<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company:
Hadron, Inc. (the "Company") provides a broad range of
information technology management services and products to
businesses and federal government agencies. Specializing in
the fields of computer systems integration, software
development, engineering/computer science and integrated
logistics support, the Company supplies its clients with
expert technical services, systems and product development.
Revenues from services performed under direct and indirect
long-term contracts and subcontracts with government defense,
justice and intelligence agencies comprise the majority of
the Company's business. The majority of the Company's
technical and professional service business with governmental
departments and agencies is obtained through competitive
procurement and through "follow-up" services related to
existing contracts. In certain instances, however, the
Company acquires such service contracts because of special
professional competency or proprietary knowledge in specific
subject areas.
In fiscal years 1996, 1995 and 1994, litigation support
activities for commercial clients and for the U. S.
Department of Justice ("DOJ") undertaken through the
Company's Acumenics Research & Technology, Inc. subsidiary
(now named "ART Holdings Corporation" or "ART") accounted for
20%, 39% and 50%, respectively, of the consolidated revenues
of the Company. Based on management's analysis of the
relative profitability of its various lines of business and
on management's decision to shift resources to specific areas
of information technology management and systems engineering,
ART sold substantially all its assets related to the ongoing
performance of its litigation support operations as of
December 1, 1995 and novated its contract with DOJ to the
buyer in April 1996. See Note 10.
The Company maintains a primary commitment to its direct and
indirect government clients, but is also simultaneously
intensifying its program of business development targeted
toward commercial operations. While ART remains as a wholly-
owned subsidiary of the Company, the Company's current
operations are formally structured along the business lines
of its two wholly-owned operating subsidiaries, Engineering &
(Continued)
F-9 9<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information Services, Inc. ("EISI") and SyCom Services, Inc.
("SyCom").
Infotechnology, Inc. ("Infotech") a publicly held business
development corporation currently in reorganization under
Chapter 11 of the U.S. Bankruptcy Code, beneficially owns
202,739 shares, or 13.5%, of the Company's outstanding common
stock. Dr. C.W. Gilluly is Chairman of the Board and Chief
Executive Officer of the Company and of Infotech. Dr.
Gilluly has the right to acquire beneficial ownership of
1,200,000 shares of Common Stock pursuant to a convertible
promissory note which gives rise to such acquisition rights.
(See Note 6). Dr. Gilluly also owns options to acquire
45,000 shares of the Company's common stock. Exercise of Dr.
Gilluly's conversion rights and options at a subsequent date
may result in a change in control of the Company. Mr. Robert
Lynch, an independent outside director of the Company, is
also a director of Infotech. Dr. Gilluly is also Chairman of
the Board of Directors and Chief Executive Officer of
Telecommunications Industries, Inc. ("TII") and Comtex
Scientific Corporation ("Comtex"). Infotech holds a majority
interest in TII and Comtex.
2. Summary of significant accounting policies:
A. Principles of consolidation:
The consolidated financial statements include the accounts
of Hadron, Inc. and its three subsidiaries (the "Company"),
all of which are wholly owned. All significant intercompany
transactions have been eliminated.
B. Risks and uncertainties:
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.
(Continued)
F-10 10<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's accounts receivable consist principally of
accounts receivable from prime contractors to 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.
The Company has historically been, and continues to be,
heavily dependent upon direct and indirect contracts from
various U.S. government agencies. Contracts and
subcontracts with the U.S. Government are subject to audit
by audit agencies of the government. Such audits determine,
among other things, whether an adjustment of invoices
rendered to the government is appropriate under the
underlying terms of the contracts. All U.S. government
contracts contain clauses which allow for the termination of
contracts at the convenience of the government.
A significant contract under which EISI has performed
service for the U.S. Department of Defense will conclude in
April, 1997. Revenues from this contract comprised 14%, 11%
and 5% of the Company's total revenues for fiscal years
1996, 1995 and 1994, respectively, EISI expects the
government to recompete this contract during fiscal year
1997. EISI intends to participate in such recompetition but
there can be no assurance that it will be successful in this
effect.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets, liabilities and contingent liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
C. Cash equivalents:
Cash equivalents represent amounts invested in highly liquid
short-term investments with original maturities of three
months or less.
D. Restricted cash:
(Continued)
F-11 11<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company 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.
E. 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.
F. Goodwill:
Goodwill represents the excess of purchase price over net
tangible assets of companies acquired under the purchase
method of accounting. The Company generally amortizes
goodwill on a straight-line method over a five-to-ten year
period.
G. Accounting for contracts:
(Continued)
F-12 12<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
is not expected to be realized within one year.
H. 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 recognition of
deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the
financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to
reverse.
I. 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.
J. Stock Compensation:
The Financial Accounting Standards Board recently issued
Statement No. 123 "Accounting for Stock-Based Compensation."
This Statement provides a alternative for accounting for
stock compensation arrangements to APB 25 "Accounting for
(Continued)
F-13 13<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Issued to Employees" but permits continued accounting
under APB 25. The Company accounts for its stock
compensation arrangements under the provisions of APB 25 and
intends to continue to do so.
3. Management plans for operating uncertainties:
As shown in the accompanying financial statements, the
Company reported operating income of approximately $59,000
for the fiscal year ended June 30, 1996 and a net
shareholders' deficit of approximately $869,000 at June 30,
1996. The Company's current liabilities also exceeded
current assets by approximately $654,000 at June 30, 1996.
The Company's negative working capital, history of operating
losses and net shareholders' deficit raise doubts about its
ability to continue as a going concern.
During fiscal year 1996, the Company's management continued
its cost reduction program and achieved reductions in labor
costs and the associated cost of fringe benefits through
reduction of administrative and overhead personnel
headcounts, and consolidation and more intensive use of
leased facilities. Management's cost reduction program also
includes an ongoing expense review process to determine the
necessity of all expenditures. ART sold substantially all
its assets during fiscal year 1996, thus enabling the
Company to further reduce its indirect expenses and the net
costs and expenses arising from the continuing losses of
ART. The Company was also able to decentralize its
corporate offices at a facility cost savings of
approximately $15,000 a month. The results of these efforts
are reflected in the Company's recovery from a loss from
operations of approximately $162,000 in fiscal year 1995 to
operating income of approximately $59,000 in fiscal year
1996.
The Company's improved profitability has been reflected in
steady improvements in the amount of cash provided from
operations. The Company, however, has continued to apply
its cash to reducing accounts payable and accrued expenses
arising during past loss years, especially from the
operations of ART and resolution of its dispute with UPI
(see Note 9), as well as those arising from current
operations. In addition, the Company, during fiscal year
1996, paid off its note with Commerce Funding Corporation
(Continued)
F-14 14<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
("CFC") (see Note 6) which absorbed more than $1 million in
cash. The CFC note payable, in turn, arose from the need to
finance payments to the Federal Deposit Insurance
Corporation ("FDIC") in fiscal year 1995 as part of a
settlement agreement (see Note 11).
At June 30, 1996, Accounts Payable in the accompanying
consolidated balance sheet included approximately $846,000
of balances due that arose from past loss operations.
Management has established payment plans with many, but not
all, of the related vendors that ensure the orderly paydown
of such balances on a priority basis as cash is generated
from operations. The Company's borrowing agreement with CFC
expired in September 1996 and the Company currently has no
borrowing arrangements with third-party financing sources.
A significant contract under which EISI has performed
services for the U.S. Department of Defense since 1992 will
conclude in April, 1997. Revenues from this contract
comprised 14%, 11% and 5% of the Company's consolidated
revenues for fiscal years 1996, 1995 and 1994, respectively.
EISI expects the government to recompete this contract
during fiscal year 1997, and intends to participate in the
expected upcoming recompetition. No assurance can be given
that EISI will be successful in the expected upcoming
competition.
Currently, the Company's operations generate cash flow
sufficient to cover its monthly expenses and management
believes that cash from operations will provide the Company
with adequate cash resources to meet its obligations on a
short-term basis. During fiscal year 1997, the Company
plans to maintain its aggressive control over costs and to
aggressively market its products and personnel. The Company
is also seeking to increase its government contracts revenue
base through strategic teaming with other government
contractors. Furthermore, interest costs of $85,000 in
fiscal year 1996 related to its note payable to CFC will not
recur in fiscal year 1997.
The Company's ability to meet its liquidity needs on a long-
term basis is dependent on its ability to generate
sufficient billings to cover its current obligations and to
also continue to pay down its older accounts payable
balances. While the Company's contracts with its major
customers (see Note 16) and with other agencies and
(Continued)
F-15 15<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
departments of the U.S. Government are generally of more
than one year in duration, no assurance may be given that
the Company will be able to maintain the billing base or the
size of profitable operations that may be necessary to
achieve its liquidity needs. If the Company is not
successful in its efforts, it may undertake other actions as
may be appropriate to preserve asset values. The
accompanying consolidated financial statements do not
include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
<TABLE>
4. Accounts receivable:
The components of accounts receivable are as follows:
<CAPTION>
June 30,
1996 1995
------------ ------------
<S> <C> <C>
Trade accounts receivable:
U.S. Government:
Amounts billed $1,194,909 $ 968,973
Recoverable costs and
profits - not billed 857,044 1,558,831
------------ ------------
Total 2,051,953 2,527,804
------------ ------------
Commercial, state and local
governments:
Amounts billed 1,126,338 859,571
Recoverable costs and
profits - not billed 150,952 428,979
------------ ------------
Total 1,277,290 1,288,550
------------ ------------
Total accounts receivable 3,329,243 3,816,354
Less allowance for doubtful
accounts (648,806) (507,960)
------------ ------------
(Continued)
F-16 16<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total accounts receivable, net $2,680,437 $3,308,394
============ ============
</TABLE>
The amount of customer retentions included in U.S.
Government accounts receivable-not billed is $254,880 and
$314,412 at June 30, 1996 and 1995, 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.
<TABLE>
5. Fixed assets:
The components of fixed assets are as follows:
<CAPTION>
June 30,
1996 1995
------------ ------------
<S> <C> <C>
Production, electronic and
laboratory equipment $ 259,205 $ 412,942
Office equipment 229,467 266,049
Leasehold improvements 14,660 78,945
Computer software costs:
Purchased 73,150 147,897
Internally developed 220,712 498,581
Property under capital leases:
Production, electronic and
laboratory equipment 1,133 1,133
Office equipment 9,127 9,127
----------- ------------
Total fixed assets 807,454 1,414,674
Less accumulated depreciation
and amortization ( 710,626) (1,233,705)
------------ -----------
Total fixed assets, net $ 96,828 $ 180,969
============ ===========
(Continued)
F-17 17<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
During fiscal years 1996 and 1995, the Company removed from
service fixed assets with a cost basis of approximately
$711,000 and $2,050,000, respectively. The assets removed
from service in fiscal year 1995 were fully depreciated or
amortized at the time of disposal. The assets removed from
service in fiscal year 1996 included those sold as part of
the sale by ART (see Note 10). These assets had a cost
basis net of accumulated depreciation of approximately
$93,000 at the time of sale.
<TABLE>
6. Debt
The components of long-term debt are as follows:
<CAPTION>
June 30,
1996 1995
------------ ------------
<S> <C> <C>
Notes Payable - CFC $ - $ 1,048,358
Notes Payable - Related Party 275,000 300,000
------------ ------------
275,000 1,348,358
Current portion of long-term debt
and notes payable - (1,048,358)
------------ ------------
Total long-term debt $ 275,000 $ 300,000
============ ============
</TABLE>
The Note Payable - CFC consisted of amounts borrowed under a
one-year renewable agreement with Commerce Funding
Corporation ("CFC") the borrowings under which were
collateralized by billed account receivable. The initial
funding was completed on September 14, 1994.
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 years 1996 and
(Continued)
F-18 18<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1995, $16,667 and $83,333, respectively, was included in
other expenses in the Consolidated Statements of Operations.
Effective September 6, 1995, the Company entered into a new
agreement with CFC, the borrowings under which continued to
be collateralized by billed account receivable. The Company
incurred no annual commitment fee on this credit facility.
All balances due CFC were paid by February 20, 1996. The
Company chose not to renew its agreement with CFC in
September 1996, and the CFC borrowing facility therefore
expired at September 5, 1996.
The Note Payable - Related Party represents a Convertible
Promissory Note ("Note") dated October 21, 1993 in the
original principal amount of $300,000, executed by EISI and
SyCom, and payable to Dr. 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 was originally due and payable on
October 21, 1996. During fiscal year 1996, a principal
prepayment of $25,000 was made and a further $25,000 in
principal prepayments was made through September 20, 1996.
In fiscal year 1996, the average interest rate on the Note
was 11.50% and resulted in interest expense of $36,000, all
of which was paid during the year. In September 1996, the
due date for the remaining principal balance of $250,000 was
extended to October 21, 1997. The proceeds of the Note were
utilized to obtain the collateral required for issuance of
an irrevocable letter of credit.
At the option of Dr. Gilluly, the Note may be converted into
restricted shares ("Hadron Shares") of the Company's common
stock at any time prior to maturity of the Note. The
Conversion Price for Hadron Shares under the terms of the
Note is $.25 per share and the option to convert expires on
October 21, 1998.
The Note is prepayable at any time. In the event the Note
is prepaid in full or in part, Dr. Gilluly is entitled to
receive a warrant. Each warrant so issued expires on
October 21, 1999, entitles Dr. Gilluly to purchase Hadron
Shares equal to the principal amount of the Note together
with all interest thereon which is prepaid divided by the
Conversion Price of $.25 per share. As a result of the
$25,000 prepayment of principal during fiscal year 1996,
(Continued)
F-19 19<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dr. Gilluly will be issued a warrant to acquire 100,000
shares of the Company's common stock. Similarly, an
additional warrant to acquire a further 100,000 shares of
the Company's common stock will be issued to Dr. Gilluly for
the additional $25,000 in principal prepayments through
September 20, 1996.
The Note is collateralized by an Assignment and Security
Agreement 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. The Note
also includes an Indemnity Agreement under which 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.
<TABLE>
7. Other current liabilities:
Other current liabilities include the following major
classifications:
<CAPTION>
June 30,
1996 1995
------------ ------------
<S> <C> <C>
Payroll and related taxes $ 492,667 $ 728,965
Compensated absences 333,029 412,407
Accrued bonuses 171,967 116,280
Self-insured medical expense 115,243 133,797
Due to subcontractors 111,484 125,226
Facility fee - 108,491
Other 377,772 289,486
------------ -----------
Total $ 1,602,162 $ 1,914,652
============ ===========
</TABLE>
<TABLE>
8. Income taxes:
The provision for income taxes for the years ended June 30,
1996, 1995 and 1994 is for state income taxes currently due.
(Continued)
F-20 20<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax provision differs from the amounts computed using
the statutory federal income tax rate as follows:
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Tax expense (benefit) at
statutory rate - federal 35% (35%) (35%)
State tax expense (benefit)
net of federal taxes 5% 5% (4%)
Goodwill amortization 1% 1% .23%
Operating losses with no
current tax benefit
(current tax benefit) (36%) 34% 38.89%
---------- --------- ----------
Tax expense at
actual rate 5% 5% .12%
========== ========== ===========
</TABLE>
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets
and liabilities for financial reporting and income tax
purposes. Deferred tax assets at June 30, 1996 and 1995
consist primarily of temporary differences from net
operating loss carryforwards of approximately $2,767,000 and
$2,500,000, respectively, and are fully reserved.
The Company has net operating loss (NOL) carryforwards for
federal and state purposes available to offset future
taxable income of approximately $7,907,000 as of June 30,
1996. These NOL carryforwards expire at various dates
through June 30, 2009.
9. 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 fiscal year 1997. Certain
of the leases contain renewal options and require payment of
(Continued)
F-21 21<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
property taxes, insurance and maintenance costs. The
Company's future minimum operating lease commitments
inclusive of property taxes, insurance and maintenance costs
at June 30, 1996 amount to $54,566, and all occur within the
fiscal year ending June 30, 1997.
Included in the lease commitments of $54,566 is a sublease
commitment for $11,000 with Comtex, a related party, to
occupy 660 square feet at its principal location in
Alexandria, Virginia through April 30, 1997.
Rent expense, net of sublease income, included in the
consolidated statements of operations is as follows:
Rent
Period Expense
--------------- -----------
Fiscal Year 1996 $ 534,236
Fiscal Year 1995 $1,101,862
Fiscal Year 1994 $1,427,916
U.S. government contract audits:
The Company's revenues and costs related to contracts with
the agencies and departments of the U.S. Government are
subject to audit by the Defense Contract Audit Agency, which
has completed the majority of its audits for the Company's
fiscal years through fiscal year 1994. It is the opinion of
management that the results of such audits will not have a
material effect on the financial condition or results of
operations of the Company.
Legal proceedings:
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 Infotech.
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
(Continued)
F-22 22<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 was 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 hearing is
scheduled for October 18, 1996 to adjudicate UPI's challenge
of the Company's proof of claim and UPI's demand for
$500,000 plus interest based upon an alleged debt or note
payable from the Company to UPI. The Company does not
believe that it will ultimately incur any liability as a
result of the UPI lawsuit and has made no provision in its
financial statements for this matter.
10. Sale of Assets - ART:
Effective December 1, 1995, ART sold substantially all of
its assets (excluding accounts receivable as of the date of
sale) for $365,000 and the assumption by the buyer of
certain leases, agreements and contracts related to the
ongoing performance of ART's litigation support operations
for the U.S. Department of Justice. Both ART and the
Company also agreed that for a period of 10 years, neither
of them or any entity controlled by them would own, manage,
operate or control, or participate in the ownership,
management, operation or control of any entity providing
litigation support services, including legal document
coding. As a result of this transaction, the Company
recorded a gain of $255,466 in the consolidated statements
of operations.
11. Extraordinary item:
On September 14, 1994, the Company entered into a Settlement
Agreement with the Federal Deposit Insurance Corporation
("FDIC") under which the Company paid the FDIC $1,100,000 as
consideration for a complete release from all indebtedness
to the FDIC. At the time of settlement, the Company 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. In addition to the settlement
itself, the Company incurred legal and other professional
(Continued)
F-23 23<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
fees of $86,675 to consummate the settlement. Prior to this
settlement the Company had been in default on its obligation
to the FDIC.
The settlement with the FDIC resulted in an extraordinary
gain of $2,718,418 in the consolidated statements of
operations for the fiscal year ended June 30, 1995.
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 $18,967,
$17,630 and $16,729 for fiscal years 1996, 1995 and 1994,
respectively.
<TABLE>
13. 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 Plan
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.
In fiscal year 1996, an amendment to the 1994 Stock Option
Plan was adopted to increase the number of shares reserved
for issuance thereunder from 220,000 to 290,000.
Information with respect to incentive and non-qualified
stock options issued under the 1994 Amended Plan are as
follows:
<CAPTION>
(Continued)
F-24 24<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Incentive Non-qualified
stock options stock options
--------------- ---------------
<S> <C> <C>
Outstanding at beginning of year 170,500 12,500
Granted during year 89,500 12,500
Cancelled during year 49,500 15,000
-------- ---------
Outstanding at end of year 210,500 10,000
======== =========
Exercisable at end of year 116,166 4,998
====== =========
Exercise price $0.25 - $0.50 $0.25 - $0.50
</TABLE>
14. Related party transactions:
The Company routinely provides, or is provided with,
corporate relations and other administrative services and
headquarters space to or by, Infotech, TII and Comtex. Such
services are not significant to the Company's operating
activities or balance sheet.
During the fiscal year ended June 30, 1996, SyCom provided
TII's sole operating division, Micro Research Industries,
("MRI") with software consulting and other miscellaneous
services at a cost of approximately $320,000. Management
does not expect to recover this amount from MRI and no
receivable has been recorded in respect thereof.
As described in Note 6, the Company also had an outstanding
note payable to Dr. Gilluly at June 30, 1996 in the amount
of $275,000.
The Company paid Joseph S. Bracewell, a member of the Board
of Directors through March 5, 1996, $13,500 and $18,000 for
financial consulting services for the fiscal years ended
June 30, 1996 and 1995, respectively.
15. Statement of cash flows - supplemental disclosures:
During fiscal years 1996, 1995 and 1994, the Company paid
income taxes of $18,006, $4,227 and $5,660, respectively.
(Continued)
F-25 25<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company also paid interest of $141,998, $221,489 and
$136,900 during those same periods.
<TABLE>
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 $10,066,048, $13,732,302,
and $13,885,991, respectively, in fiscal years 1996, 1995
and 1994.
Revenues from one commercial customer totaled $7,111,786,
$5,924,381 and $3,052,373 in the fiscal years 1996, 1995 and
1994, respectively.
Revenues earned on sales to the Company's major customers
are as follows:
<CAPTION>
United States
Department of Commercial
Defense Justice Customer
---------- ----------- ----------
<S> <C> <C> <C>
Fiscal Year 1996 $ 5,364,102 $ 3,425,879 $ 7,111,786
Fiscal Year 1995 5,442,741 7,370,135 5,924,381
Fiscal Year 1994 3,944,428 7,982,133 3,052,373
During the fiscal year ended June 30,1996 ART novated its
contract with the U.S. Department of Justice (DOJ) to the
purchaser of substantially all of its assets (see Note 10).
Revenues shown above related to DOJ arose from ART's
litigation support operations.
</TABLE>
F-26 26<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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-2 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 schedule 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.
/S/ COOPERS & LYBRAND L.L.P.
Washington, D.C.
September 28, 1995
F-26
F-27 27<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
HADRON, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES
<CAPTION>
Additions
----------------------
Balance at Charged Charged to Balance
(Credited)
Beginning to costs and other accounts Deductions at end
Description of Period expenses (describe) (describe) of Period
Year ended June 30, 1996
<S> <C> <C> <C> <C>
Accounts receivable $ 507,960 $ 209,757 $ 10,268 <F1> $ 79,179 <F2> $ 648,806
============= ============ ============= ============= ===========
Year ended June 30, 1995
Accounts receivable $ 453,308 $ 115,000 $ 149,463 <F3> $ 209,811 <F4> $ 507,960
============= ============ ============= ============ ===========
Year ended June 30, 1994
Accounts receivable $ 819,668 $ 603,024 $ 76,286 <F5> $ 1,045,669 <F6> $ 453,308
============= ============ ============= ============ ===========
<F1> Represents charges of $10,268 to unbilled receivables to correct unbilled accounts receivable balances.
F-28 28<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<F2> Represents, primarily, the writeoff of uncollectible, fully reserved unbilled accounts receivable balances.
<F3> Represents a charge of $122,051 to unbilled receivables to correct unbilled accounts receivable balances, a charge
of $3,660 to miscellaneous expense and the collection of receivables previously written off in the amount of
$23,750.
<F4> Represents, primarily, the writeoff of uncollectible unbilled receivables, rate variances and fee retentions.
<F5> Represents a charge to the contract closeout account of $19,983, and a charge to revenue of $56,301 to reconcile
unbilled accounts receivable.
<F6> Represents, primarily, the writeoff of uncollectible unbilled receivables, rate variances and fee retentions.
F-27
</TABLE>
F-29 29<PAGE>
F-30 30<PAGE>
OFFICE SUBLEASE AGREEMENT
THIS AGREEMENT OF LEASE, made this 12th day of June, 1996,
by and between Comtex Scientific Corporation hereinafter referred
to as "Sub-Lessor", and Hadron, Inc. hereinafter referred to as
"Sub-Lessee".
W I T N E S S E T H
PREMISES 1.01 -- In consideration of the rent hereinafter
reserved and of the covenants hereinafter continued, Sub-Lessor
does hereby sublease to the Sub-Lessee, and Sub-Lessee hereby
leases from Sub-Lessor part of the building known as Suite 800 on
the eighth floor of 4900 Seminary Road, Alexandria, Virginia
22311, which space is hereinafter referred to as the premises and
is outlined in red on "Exhibit A to Sublease" attached hereto and
made a part hereof (sometimes referred to herein as the "sublease
premises"), reserving; however, to Landlord space for all
necessary pipes and wires leading to and from the portions of the
Building not hereby leased, which will not unreasonably interfere
with Sub-Lessee's use of the premises. The mutually agreed-upon
floor area of the sublease premises is conclusively deemed to
have an area of 660 square feet.
TERM 2.01 -- (a) The term of the Sublease shall commence
on the 1st day of May, 1996, and shall terminate on 30 April,
1997.
(b) If the Sub-Lessee wants to extend the
sublease for another 12 month period, a written request must be
submitted to Sub-Lessor no later than 60 days prior to the end of
the current lease period and the Sub-Lessor must respond to this
request within 5 business days.
(c) Both parties have the option to terminate
this sublease, without penalty, by giving 60 days written notice
to the other party.
RENT 3.01 -- Sub-Lessee hereby covenants and agrees to pay
during the term hereof annual rent of thirteen thousand, two
hundred dollars ($13,200), payable without deduction, set-off, or
demand in equal monthly installments of one thousand, one hundred
dollars ($1,100), in advance, on the first day of each calendar
month during the term of this Sublease. On May 1, 1997, said
annual rent shall escalate as follows: Three percent (3%)
annually.
3.02 -- All payment of rent shall be made by check payable
1
<PAGE>
to Comtex Scientific Corporation, and delivered to 4900 Seminary
Road, Suite 800, Alexandria, Virginia 22311 or to such other
person and place as may be designated in writing from Sub-Lessor
to Sub-Lessee from time to time.
3.03 -- Notwithstanding any of the other rights of Sub-
Lessor set forth in the lease, during the term of this Sublease,
should the rent or other charges reserved herein remain unpaid on
the fifth day after the date when the same ought to be paid, the
Sub-Lessor may at its option, make a service charge for the
purpose of defraying the expenses incidental to handling
delinquent payments. Such charges shall be in an amount of five
percent (5%) of the delinquent rent and charges or a minimum
charge of fifty dollars ($50.00) per month, whichever of the two
shall be greater.
3.04 -- No payment by Sub-Lessee or receipt by Sub-Lessor
of a lesser amount than the monthly installments of rent herein
stipulated shall be deemed to be other than on account of the
earliest stipulated rent and/or additional rent; nor shall any
endorsement or statement on any check or any letter accompanying
any check or payment of rent be deemed an accord and satisfaction
and Sub-Lessor may accept such check for payment without
prejudice to Sub-Lessor's right to recover the balance of such
rent and/or additional rent or pursue any other remedy provided
in this Sublease and/or under applicable law.
ADDITIONAL RENT 4.01 -- (a) Together with the payment of
each installment of monthly base rent, Sub-Lessee shall also pay
to Sub-Lessor, as additional rent, hereunder, Sub-Lessee's
Proportionate Share (as hereinafter defined) of all Additional
Rent (as such term is defined in the Prime Lease) payable by Sub-
Lessor under the Prime Lease (as hereinafter defined), including
reimbursements of Real Estate Taxes, Tenant Electricity Expenses,
Utility Expenses and Increases in Operating Charges as therein
set forth. Said Additional Rent payable by Sub-Lessee hereunder
may be increased from time to time upon notice from Sub-Lessor
that Additional Rent payable under the Prime Lease has increased.
As used herein, "Sub-Lessee's Proportionate Share" means the
proportion which the total number of square feet to space in the
sublease premises bears to the total number of square feet of
space of the Prime Lease premises. Sub-Lessor and Sub-Lessee
stipulate the "Sub-Lessee's Proportionate Share" shall be nine
point nine percent (9.9%).
(b) Sub-Lessor shall credit or pay to Sub-Lessee Sub-
Lessee's Proportionate Share of any refunds received by Sub-
Lessor from Landlord under the Prime Lease on account of any
2
<PAGE>
overpayment of Additional Rent for which Sub-Lessee has paid its
Proportionate Share under this Sublease; provided, however, that
Sub-Lessor shall be entitled to deduct from the aggregate of the
amount of such refund any and all costs and expenses, including
reasonable attorneys fees, consultants' fees and disbursements,
incurred by Sub-Lessor in connection with the obtaining of any
such refunds.
SECURITY DEPOSIT 5.01 -- The Sub-Lessor herewith
acknowledges the receipt from Sub-Lessee of zero dollars ($0),
which amount shall be retained by the Sub-Lessor as security for
the faithful performance of all the covenants, conditions and
agreements; the Sub-Lessor's right to the possession of the
sublease premises for non-payment of rent or for any other reason
shall not in any event be affected by reason of the fact that the
Sub-Lessor holds this security. The said sum, if not applied
toward the payment of rent in arrears or toward the payment of
damages suffered by the Sub-Lessor by reason of the Sub-Lessee's
breach of the covenants, conditions and agreements of this
Sublease, is to be returned to the Sub-Lessee when this Sublease
is terminated, according to these terms, and in no event is the
said security to be returned until the Sub-Lessee has vacated the
sublease premises and delivered possession to the Sub-Lessor. In
the event that the Sub-Lessor repossesses said sublease premises
because of the Sub-Lessee's default or because of the Sub-
Lessee's failure to carry out the covenants, conditions and
agreements of this Sublease, the Sub-Lessor may apply the said
security to all damages suffered to the date of said repossession
and may retain the said security to apply to such damages as may
be suffered or which accrue thereafter by reason of the Sub-
Lessee's default or breach.
USE OF PREMISES 6.01 -- (a) Sub-Lessee covenants to use
the premises only for the sole and exclusive purpose of offices
for the sole and exclusive business of Hadron, Inc.
(b) Without limiting any other provision of this
Sublease or the Prime Lease, Sub-Lessee shall take good care of
the sublease premises, suffer no waste or injury thereto and
shall comply with all laws, orders and regulations which are
imposed on Sub-Lessor, as tenant under the Prime Lease and are
applicable to the sublease premises, the building and Sub-
Lessee's use thereof.
(c) Upon the expiration or termination of this
Sublease, Sub-Lessee shall quit and surrender the premises to
Sub-Lessor in the condition such premises were in as of the date
hereof, broom clean, in good order and condition, ordinary wear
and tear and damage by fire and other insured casualty excepted.
3
<PAGE>
Sub-Lessee agrees to indemnify and save Sub-Lessor harmless from
and against any and all loss, cost expense or liability resulting
from the failure of, or the delay by, Sub-Lessee in so
surrendering the premises on ore before the expiration date,
including, without limitation, any claims made by Landlord or any
succeeding Sub-Lessee founded on such failure or delay.
INCLUSION OF PRIME LEASE 7.01 -- Sub-Lessee hereby agrees
to abide by the terms and conditions of the prime lease between
Plaza IA Associates Limited Partnership, a Virginia limited
partnership and Comtex Scientific Corporation, a New York
Corporation, as executed on April 6, 1996, (the "Prime Lease")
and incorporates by reference the lease agreement attached hereto
as Exhibit B of Sublease, in all of its provisions with no
deletions or modifications insofar as each and any of those
provisions refer and relate to the occupancy and use of the
sublease premises. This Sublease is in all respects subordinate
to the Prime Lease.
LANDLORD'S CONSENT 8.01 -- Landlord joins herein solely
and exclusively for the purpose of consenting to this Sublease.
Landlord hereby consents to this sublease on the following terms
and conditions:
(a) This consent is expressly conditioned upon the full and
complete observance by Sub-Lessee of all Sub-Lessor's covenants
under the above-referenced Prime Lease with regard to the
sublease premises. Said consent shall not; however, in any way
release or discharge Sub-Lessor from any or all of its covenants
made under the terms and conditions of the Prime Lease, nor
constitute a novation of the Prime Lease. Nor shall this consent
be deemed to alter, modify or amend any existing lease agreement
which exists directly between Landlord and the Sub-Lessee with
regard to other premises in the building.
(b) This consent by Landlord shall not constitute a waiver
of the consent requirement for any future subletting or
assignment. It is further understood that all obligations
required to be performed, and all services required to be
provided, by Landlord under the Prime Lease, shall run to the
benefit of Sub-Lessor only and as such, can be enforced or called
upon only by Sub-Lessor. Landlord shall have no responsibility
or liability to the Sub-Lessee by virtue of this consent or
otherwise, including without limitation, any responsibility to
perform any such obligations or provide any such services
whatsoever.
(c) Sub-Lessor hereby acknowledges that it is relying on
its own analysis of Sub-Lessee and Landlord makes no
4
<PAGE>
representations of any nature with regard thereto. Sub-Lessee
hereby acknowledges that it is relying on its own analysis of
Sub-Lessor and the sublease premises and Landlord makes no
representations of any nature with regard thereto. Landlord has
provided its form sublease as an accommodation only, and no
interference, liability or claim is to be asserted as a result
thereof. All parties are advised to have this form reviewed by
their respective counsel and modified to reflect their
understandings.
(d) The Sub-Lessee's address is as follows:
Hadron, Inc.
4900 Seminary Road, Suite 800
Alexandria, VA 22311
Attention: Ms. Amber Gordon
(e) Landlord has procured financing, but Landlord may be
required to obtain the approval of this instrument by Landlord's
lender. If such approval is required, the Landlord shall submit
this instrument after execution by the parties for such approval,
and in the event such lender shall not unconditionally approve
this instrument then the Landlord shall have the right to cancel
this instrument by giving written notice to Sub-Lessor, in which
event all parties hereto shall automatically be released from any
and all liability in connection with this instrument to the full
extent as though it neither been negotiated not executed.
(f) Nothing contained herein shall be deemed to create a
contractual relationship or otherwise between Landlord and Sub-
Lessee.
(g) Sub-Lessor hereby accepts full and complete
responsibility for the acts and omissions of the Sub-Lessee, its
employees, guests, contractors and invitees in the sublease
premises herein described to the same extent as if such act or
omission had be undertaken by Sub-Lessor.
5
<PAGE>
IN WITNESS WHEREOF, the Sub-Lessor has hereunto set his hand
and Sub-Lessee has set his hand, or caused its corporate name to
be hereunto subscribed, all on the day and year first above
written.
SUB-LESSOR:
COMTEX SCIENTIFIC CORPORATION
By: /S/ Charles W. Terry
___________________________
Charles W. Terry, President
SUB-LESSEE:
HADRON, INC.
By: /S/ George E. Fowler
___________________________
George E. Fowler, President
LANDLORD:
Plaza IA Associates Limited
Partnership, a Virginia
limited partnership, hereby
consents to the act of
subletting by Sub-Lessor to
Sub-Lessee, subject to the
terms and conditions herein
set forth, without approving
any of the terms or provisions
set forth in this agreement
between Sub-Lessor and Sub-
Lessee.
By: PLAZA I-A INC.
Its: General Partner
By: _______________________
Randal B. Kell
Trust Manger
6
<PAGE>
RECOMMENDED FOR LANDLORD'S CONSENT
THE MARK WINKLER COMPANY
By:
Michael D. Lynch, President
7
<PAGE>
October 1, 1995
Mr. Donald Jewell
9368 Duff Court
Ellicott City, MD 21043
Dear Don:
On behalf of HADRON I am pleased to renew the offer for you to
continue as the President of HADRON's subsidiary, Engineering &
Information Services, Inc., (EISI) reporting to George Fowler,
President of HADRON. The annual salary accompanying this
position is $75,000 per annum paid bi-weekly. This offer is
effective as of October 1, 1995 and supersedes the previous offer
dated March 15, 1995.
The term of your employment is for one year, subject to renewal
annually, at the Company's discretion, for two additional one-
year terms; provided, however, that the Company shall have the
right to terminate your employment with no further obligation on
the part of the Company if you are convicted of a felony or a
crime of moral turpitude or if the Company determines that you
have not satisfactorily performed your duties. In the event that
the Company terminates your employment without cause, or if the
Company decides not to renew this agreement for any reason other
than those specified above, you shall receive six months'
severance pay in full and complete satisfaction of any claim you
may have by virtue of such termination of or election not to
renew your agreement with the Company.
In the event your employment agreement is renewed by October 1,
1996, you shall be entitled to an increase in annual salary which
is commensurate with the annual increase awarded to other
executive officers of the Company, as determined by the Board of
Directors.
During the term of your employment, you shall be entitled to
participate, on the same terms and conditions as other executive
employees of the Company, in such major medical, dental, life
insurance, 401(k), and other employee benefits which the Company
now provides or in the future may provide to its executive
employees. You shall be entitled to three weeks of paid vacation
leave and two weeks of sick leave per year.<PAGE>
Mr. Donald Jewell
October 1, 1995
Page 2
In addition, and as part of your compensation package, you shall
continue to receive a car allowance in the amount of $350 per
month. Furthermore, the Company will reimburse you for all
reasonable expenses incurred in the performance of your duties in
accordance with the Company's standard policy.
As previously discussed, you will be able to earn up to 50% of
your base salary as additional cash compensation based upon
revenue growth and profitability of EISI. The Target Performance
Goals are based upon the growth of revenue and profit relative to
the past year (currently FY 95) for EISI weighted 1/2 for revenue
and 1/2 for net income. If EISI achieves more than a 10% growth
in revenue relative to the previous year, you will be entitled to
a bonus of 25% of your base annual salary. If EISI achieves more
than a 15% growth in net profit relative to the previous year,
you will be entitled to a bonus of 25% of your base annual
salary. In addition, you will be able to earn 10% of the net
profit earned over the 15% growth point. An example follows:
EISI 1995 Actual 1996 Example 1996 Bonus
Revenue $6,380,631 * $7,018,694 25% of base
salary
$18,750
Net Profit $122,317 ** $140,664 25% of base
salary
$18,750
Excess net N/A $25,000 10% of excess
Profit profit
$2,500
Total bonus N/A N/A $40,000
* Includes FY 1995 ASI revenue of $753,712.
** Does not include the ASI FY 1995 loss of $242,872.
In addition to the above, you will be eligible to receive
incentive stock options as stipulated in the HADRON, Inc. 1994
Stock Option Plan and approved by the Board of Directors.<PAGE>
Mr. Donald Jewell
October 1, 1995
Page 3
After review of the terms and conditions expressed above, sign
the agreement in the space provided and return a copy to me.
George Fowler and I look forward to the opportunity to continue
to work with you here at HADRON and EISI. I believe you will
continue to find the position challenging and worthy of your
talents.
Very truly yours,
/S/ C.W. Gilluly
C. W. Gilluly
Chairman of the Board and
Chief Executive Officer
Accepted:
/S/ Donald Jewell
________________________
Donald Jewell
<PAGE>
July 30, 1996
Mr. David Haedicke
7600 Hackamore Drive
Potomac, Maryland 20854
Dear David:
On behalf of Hadron, Inc. (the "Company"), I am pleased to offer
you the position of Senior Vice President and Chief Financial
Officer of the Company working for George Fowler and me. We
would like you to begin on August 1, 1996.
The annual salary accompanying this position is $80,000 per
annum paid bi-weekly. The term of your employment is for one
year, subject to renewal annually, at the Company's discretion,
for two additional one-year terms; provided, however, the Company
shall have the right to terminate your employment with no further
obligation on the part of the Company if you are convicted of a
felony or a crime of moral turpitude or if you are guilty of
gross negligence or wilful misconduct. In the event that the
Company terminates your employment or decides not to renew your
employment agreement for any reason other than those specified
above, you shall receive four months' severance pay, paid out
over four months in full and complete satisfaction of any claim
you may have by virtue of such termination of or election not to
renew your agreement with the Company.
In the event your employment agreement is renewed, you shall be
entitled to an increase in annual salary which is commensurate
with the annual increase awarded to other executive officers of
the Company as determined by the Board of Directors.
During the term of your employment, you shall be entitled to
participate, on the same terms and conditions as other executive
employees of the Company, in such major medical, dental, life
insurance, 401(k), and other employee benefits which the Company
now provides or in the future may provide to its executive
employees generally. You shall be entitled to four weeks of paid
vacation per year.
As part of the Company's Stock Option Plan, you will be provided
with options to purchase an amount of shares of Hadron stock, on
a par with the Chief Executive Officer and/or the President, and
in accordance with the Plan. These options vest over three
years, and the option price is determined as set forth in the
Plan. In addition, you shall receive a car allowance in the
amount of $210 per month. Furthermore, the Company will
reimburse you for all reasonable expenses incurred in the
performance of your duties in accordance with the Company's
standard policy.<PAGE>
Mr. David Haedicke
July 30, 1996
Page 2
George Fowler and I look forward to the opportunity to work with
you here at Hadron. We believe you will find the position
challenging and worthy of your talents.
Very truly yours,
/S/ C.W. Gilluly
___________________
C.W. Gilluly, Ed.D. Accepted: /S/ David Haedicke
Chairman and David Haedicke
Chief Executive Officer
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Name State of Incorporation
ART Holdings Corporation
f/k/a Acumenics Research & Technology, Inc. Maryland
Aerospace Sciences, Inc. Virginia
Engineering and Information Services, Inc. Virginia
Performance Engineering Network, Inc. Virginia
SyCom Services, Inc. Delaware
Hadron - CPD, Inc. (inactive) Virginia
P.E.N. Acquisition Corporation (inactive) Virginia
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>
This schedule contains summary financial information extracted from the Annual
Report on Form 10-K and is qualified in its entirety by reference to such 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 34
<SECURITIES> 0
<RECEIVABLES> 3,329
<ALLOWANCES> 649
<INVENTORY> 0
<CURRENT-ASSETS> 2,770
<PP&E> 807
<DEPRECIATION> 710
<TOTAL-ASSETS> 2,874
<CURRENT-LIABILITIES> 3,424
<BONDS> 0
<COMMON> 30
0
0
<OTHER-SE> (376)
<TOTAL-LIABILITY-AND-EQUITY> 2,874
<SALES> 18,306
<TOTAL-REVENUES> 18,306
<CGS> 15,937
<TOTAL-COSTS> 18,246
<OTHER-EXPENSES> (266)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132
<INCOME-PRETAX> 194
<INCOME-TAX> 32
<INCOME-CONTINUING> 162
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 162
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
