<PAGE>
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, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _________________
Commission file number 0-5404
HADRON, INC.
(Exact name of registrant as specified in its charter)
New York 11-2120726
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
As of September 22, 1997, the aggregate market value of the common stock
of the registrant held by non-affiliates 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) was approximately $1,528,463.
As of September 22, 1997, 1,686,684 shares of the common stock of the
registrant were outstanding.
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PART I
Item 1. Business
Introduction
Hadron, Inc. ("Hadron" or the "Company") provides a broad
range of information technology management services 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.
During fiscal year 1997, the Company invested approximately
$847,000 in the development and marketing of its HeaTreatTM,
process management software products. Given the anticipated
continuing investment and management resources required, the
Company examined various alternatives for realizing value from
its HeaTreaT investment. Effective June 30, 1997, Hadron's
wholly-owned subsidiary, SyCom Services, Inc. ("SyCom") entered
into an agreement to sell the HeaTreat software products and
certain related assets to Performance Engineering International
Corp. ("PEI"), a newly formed company owned by former Hadron and
SyCom executives.
SyCom received a ten percent interest in PEI's capital stock
and two promissory notes, in the amounts of $2,000,000 and
$38,400, respectively. In addition, SyCom agreed to invest
$20,000 a month in PEI for a six month period beginning July 1,
1997. The divestiture of the HeaTreat software products
eliminated Hadron's continuing new product expenses.
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.
Operations
The Company's ongoing 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.
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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 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 constitutes approximately 44% 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. EISI
applications developed for APL help ensure the accuracy and
readiness of a number of U.S. Navy defense systems that are in
global operations today.
In April 1997, the Company was awarded four follow-on
contracts by APL to continue its support activities through
September 2001.
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, Maryland, 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
civilian and military radars, airspace management systems, signal
analysis and specialized database systems. SyCom also provides
software support, including software documentation, document
management and imaging. SyCom's business from Northrop Grumman
constitutes approximately 40% of the revenues of the Company.
General Information
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The Company was incorporated in New York in 1964 under the
name of Biorad, Inc., and commenced operations in August 1966.
In 1968, the Company changed its name to Hadron, Inc.
As of June 30, 1997, the Company (including its
subsidiaries) employed approximately 210 people. The Company's
employees are not members of any union, and employee relations
are believed by management to be generally good.
The revenues of EISI accounted for 55%, 36% and 27% of the
Company's total consolidated revenues for the fiscal years 1997,
1996 and 1995, respectively. During the same fiscal years,
SyCom's revenues respectively accounted for 44%, 43% and 30% of
consolidated revenues. During fiscal years 1996 and 1995, ART's
revenues accounted for 20% and 39% of the Company's total
consolidated revenues, respectively.
The Company's backlog of orders believed to be firm as of
June 30, 1997 approximates $14 million which the Company expects
will be filled during fiscal 1998. As of June 30, 1996, the
Company had approximately $11 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
technical 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.
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 efforts to
diversify its client base.
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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
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.
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 the DoD, as well as
other U.S. governmental agencies, for contract work. Contracts
and subcontracts with the DoD produced approximately 44% of the
Company's total revenues during fiscal year 1997. The Company's
other U.S. government contracts and subcontracts produced
approximately 9% of the Company's total revenues during fiscal
year 1997. 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 material 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 the 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, 1997, the
Company leased or sub-leased a total of 9,991 square feet of
office space, with approximately 700 square feet at its corporate
headquarters location in Alexandria, Virginia. These leases
expire between April 1998 and February 2002. (See Note 8 of the
Notes to Consolidated Financial Statements.)
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Item 3. Legal Proceedings
No material legal proceedings are currently pending.
Item 4. Submission of Matters to a Vote of Security Holders
None.
6
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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, 1997 and
June 30, 1996 is shown below:
<TABLE>
Fiscal Year Ended June 30, 1997 High Low
<CAPTION>
<S> <C> <C>
First Quarter
(7/1 to 9/30/96) 13/16 5/8
SecondQuarter
(10/1 to 12/31/96) 7/8 11/16
Third Quarter
(1/1 to 3/31/97) 1 1/16 11/16
Fourth Quarter
(4/1 to 6/30/97) 7/8 11/16
</TABLE>
<TABLE>
Fiscal Year Ended June 30, 1996 High Low
<CAPTION>
<S> <C> <C>
First Quarter
(7/1 to 9/30/95) 7/16 3/8
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
</TABLE>
As of September 22, 1997, there were approximately 3,914
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
1998.
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Item 6. Selected Financial Data
<TABLE>
Fiscal Year Ended
June 30
1997 1996 1995 1994 1993
(In Thousands, except per share amounts)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Total Revenues $16,988 $18,306 $20,534 $18,536 $21,337
Operating Income (Loss) 128 59 (161) (3,799) (1,206)
Interest Expense, net of
Interest income 84 132 217 287 299
Income (Loss)
before income taxes &
extraordinary item 57 194 (436) (4,104) (1,401)
Income (Loss)
before extraordinary item 13 162 (460) (4,109) (1,401)
Extraordinary item -
gain on retirement
of debt - - 2,718 - -
Net Income (Loss) 13 162 2,258 (4,109) (1,401)
Income (Loss) per share
of Common Stock:
Per share data:
Income (Loss)
before extraordinary item .01 .11 (.31) (2.75) (.94)
Extraordinary item -
gain on retirement
of debt - - 1.82 - -
Net Income (Loss) .01 .11 1.51 (2.75) (.94)
At Period End:
Total Assets: 2,712 2,874 4,373 5,088 7,734
Long-term Liabilities 169 320 341 440 4
Working Capital (deficit) (906) (654) (978) (3,541) (298)
Shareholders' Equity
(deficit) (811) (869) (1,047) (3,306) 803
</TABLE>
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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 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 1997 To Fiscal Year 1996
During the fiscal year ended June 30, 1997, the Company's
revenues were approximately $16,988,000 compared with
consolidated revenues of approximately $18,306,000 for the fiscal
year ended June 30, 1996, a net decrease of approximately
$1,318,000 (7%). Excluding revenues of ART Holdings Corporation
("ART") operations, which were sold in December 1995, fiscal 1997
revenues were approximately $16,980,000 compared with $14,811,000
for fiscal 1996, an increase of approximately $2,169,000 (15%).
This increase in revenues is principally attributable to
increased revenues from existing contracts with major government
and commercial customers of EISI and SyCom.
Costs of revenue were approximately $15,250,000 for the
fiscal year ended June 30, 1997 compared with approximately
$15,937,000 for the fiscal year ended June 30, 1996, a decrease
of approximately $687,000 (4%). Costs of revenue excluding costs
of revenue attributable to ART for the fiscal year ended June 30,
1997 were approximately $15,256,000, or 90% of revenues, compared
with $12,767,000, or 86% of revenues, for the fiscal year ended
June 30, 1996, an increase of approximately $2,489,000 (19%).
This increase is primarily due to the increased staffing levels
in performance of the existing EISI and SyCom contracts, coupled
with HeaTreaT product development costs of $599,000.
Selling, general and administrative expenses were
approximately $1,610,000 for the fiscal year ended June 30, 1997
compared with approximately $2,309,000 for the fiscal year ended
June 30, 1996, a decrease of approximately $699,000 (30%).
During fiscal year 1997, the Company's management continued the
cost reduction program that it adopted in the face of increasing
losses in past years. In addition to the cost reduction program,
the Company eliminated from ongoing operations support costs of
approximately $432,000 relating to the ART operations. These
decreases were partially offset by HeaTreaT marketing costs of
$248,000 in fiscal year 1997.
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The Company generated $128,000 of operating income during
the fiscal year ended June 30, 1997 compared to an operating loss
of approximately $59,000 for the fiscal year ended June 30, 1996,
for an increase of approximately $69,000. The improvement is
attributable to EISI and SyCom growth, cost containment efforts
and the absence of ART operating losses of $64,000. During
fiscal year 1997, the Company spent approximately $847,000 on the
continuing development and marketing of its HeaTreaT software
product.
For the fiscal year ended June 30, 1997, the Company
incurred other expenses of approximately $71,000 compared to the
prior year's other income of $134,000. Net interest expense
decreased by approximately $47,000 compared to fiscal year 1996
due to decreases in the Company's average debt outstanding during
the year. In fiscal year 1997, there was no gain on the sale of
assets as compared to the fiscal year 1996 gain of approximately
$255,000 resulting from the sale of ART assets.
Net income was approximately $13,000 for the fiscal year
ended June 30, 1997, compared to approximately $162,000 for the
fiscal year ended June 30, 1996, a decrease of approximately
$149,000. The decrease in net income is primarily attributable to
the inclusion of the approximately $255,000 gain on sale of
assets in the twelve months ended June 30, 1996. Excluding the
gain on the sale of assets, the Company's net income improved by
approximately $106,000 from the prior period. The improvement is
attributable to improved ongoing operations offset by the
investment in HeaTreaT.
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
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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 (12%). 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.
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 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
$365,000. This gain was composed of the $365,000 transaction
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proceeds less the net book value of the assets and liabilities
transferred and less $16,000 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
revenues, improved margins and reduced selling, general and
administrative expenses, as described above.
Capital Resources and Liquidity
The working capital deficit at June 30, 1997 increased by
approximately $252,000 from June 30, 1996. The deficit increased
due to refinancing of certain liabilities as more fully described
in Note 5. 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 an ongoing
basis.
During fiscal year 1997, the Company invested approximately
$847,000 in the development and marketing of its HeaTreaT process
management software products. Given the anticipated continuing
investment and management resources required, the Company
examined various alternatives for realizing value from its
HeaTreaT investment. Effective June 30, 1997, Hadron's wholly-
owned subsidiary, SyCom Services, Inc. ("SyCom") entered into an
agreement to sell the HeaTreaT software products and certain
related assets to Performance Engineering International Corp.
("PEI"), a newly formed company owned by former Hadron and SyCom
executives.
SyCom received a ten percent interest in PEI's capital
stock, and two promissory notes in the amounts of $2,000,000 and
$38,400, respectively. In addition, SyCom agreed to invest
$20,000 a month in PEI for a six month period beginning July 1,
1997. The divestiture of the HeaTreaT software products
eliminated Hadron's continuing new product expenses.
During fiscal year 1997, the Company prepaid $25,000 of a
Convertible Promissory Note due from the Company to Dr. C.W.
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Gilluly, (the "Note") and pursuant to its terms and conditions,
issued warrants to Dr. Gilluly to acquire 100,000 shares of the
Company's common stock at $.25 per share.
On April 21, 1997, Dr. Gilluly sold $25,000 of the Note to
five officers of the Company. Concurrently, the Company elected
to prepay the $25,000 of Notes held by the officers, and in
accordance with terms of the Notes, issued warrants to the
officers to acquire 100,000 shares of the Company's common stock.
The officers exercised the warrants and acquired the 100,000
shares at the Conversion Price of $.25 per share.
In June 1997, the Company entered into a Line of Credit
Agreement with Century National Bank pursuant to which Century
National Bank provided the Company with a $800,000 line of credit
facility through November 30, 1998, replacing a $300,000 facility
set to expire in December 1997. Borrowings under the facility
are personally guaranteed by Dr. Gilluly and his wife. Century
National Bank and the Company agreed that, in addition to
providing working capital, the line of credit would be used to
fund the Company's prepayment on June 2, 1997 of its $225,000
Note to Dr. Gilluly. Under the terms of the Note, the Company
issued warrants, which expire on October 21, 2003, to Dr. Gilluly
to acquire 900,000 shares of the Company's $.02 par value common
stock ("Common Stock") at $.25 per share.
The Company was indebted in the approximate amount of
$288,000 to a vendor under the terms of a November 1, 1996
promissory note secured by certain assets. In order to
facilitate the bank line of credit, the vendor agreed to accept
$250,000 in full satisfaction of the promissory note. Such
payment was made in June 1997.
Century National Bank and the Company determined that
payment of such amount to the vendor would reduce the Company's
available working capital to a level below that which each
contemplated the Company would have as a result of the line of
credit. As a consequence, certain members of the Company's
management or Board of Directors (the "Investors"), each agreed
to invest $24,000 in the Company in the form of five separate
two-year promissory notes, the principal of which is convertible
at $0.60 per share at each of his or her respective option, into
restricted shares of the Company's common stock. Such notes also
provide that upon prepayment by the Company of principal
outstanding under the notes, the Company shall issue to the note
holder a warrant to acquire Common Stock at $0.60 per share. The
number of shares each warrant shall entitle the holder thereof to
acquire shall equal the principal prepaid giving rise to the
warrant divided by $0.60. The Company and each of the Investors
entered into an Investment Agreement dated June 20, 1997 setting
forth the terms of his or her investment in the Company.
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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 such other risks detailed from time to time in the
Company's SEC reports, including quarterly reports on Form 10-Q.
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Item 8. Financial Statements and Supplementary Data
The information required by this item is set forth under
Item 14(a), which information is incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
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.
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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.
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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, 1997 and 1996 F-3
Consolidated Statements of Operations for the fiscal
years ended June 30, 1997, 1996, and 1995 F-5
Consolidated Statements of Shareholders' Deficit for
the fiscal years ended June 30, 1997, 1996, and 1995 F-6
Consolidated Statements of Cash Flows for the
fiscal years ended June 30, 1997, 1996, and 1995 F-7
Notes to Consolidated Financial Statements F-8
(a) (2) Financial Statement Schedules
Report of Independent Accountants F-22
Schedule II: Valuation and qualifying accounts and
reserves F-23
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.
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(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 Indemnity Agreement dated October 21, 1993 between
Hadron, Inc. and C.W. Gilluly (incorporated by
reference to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1994).
10.2 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).
10.3 Employment Agreement with George E. Fowler dated
October 1, 1996 (incorporated by reference to the
Company's Form 10-Q for the quarter ended September 30,
1996).
10.4 Employment Agreement with Donald Jewell dated October
1, 1996 (incorporated by reference to the Company's
Form 10-Q for the quarter ended September 30, 1996).
10.5 Employment Agreement with Donald E. Ziegler dated
December 30, 1996 (incorporated by reference to the
Company's Form 10-Q for the quarter ended December 31,
1996).
18
<PAGE>
10.6 Sublease, dated June 12, 1996, between the Company and
COMTEX SCIENTIFIC CORPORATION, for the property
occupied by the Company in Alexandria, Virginia
(incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30,
1996).
10.7 $148,606.60 Promissory Note with Tri-City Heat Treat
Company in favor of Hadron, Inc. dated December 16,
1996 (incorporated by reference to the Company's Form
10-Q for the quarter ended December 31, 1996).
10.8 $225,000 Third Amended and Restated Convertible
Promissory Note in favor of C.W. Gilluly, dated April
21, 1997 (incorporated by referenced to the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997).
10.9 Form of Stock Purchase Warrant issuable in connection
with repayment of the Third Amended and Restated
Convertible Promissory Note (incorporated by referenced
to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997).
10.10 Note Purchase Agreement among C.W. Gilluly, Hadron,
Inc., Engineering and Information Services, Inc. and
SyCom Services, Inc., George E. Fowler, S. Amber
Gordon, Donald Jewell, J.Anthony Vidal and Donald
Ziegler dated April 21, 1997 (incorporated by
referenced to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997).
10.11 Amended Stock Purchase Warrant granted to C.W. Gilluly
and dated December 31, 1996 (incorporated by referenced
to the Company's Current Report on Form 8-K filed July
23, 1997).
10.12 Stock Purchase Warrant granted to C.W. Gilluly and
dated June 2, 1997 (incorporated by referenced to the
Company's Current Report on Form 8-K filed July 23,
1997).
10.13 $800,000 Promissory Note in favor of Century National
Bank dated June 25, 1997 (incorporated by referenced to
the Company's Current Report on Form 8-K filed July 23,
1997).
10.14 $800,000 Business Loan Agreement in favor of Century
National Bank dated June 25, 1997 (incorporated by
referenced to the Company's Current Report on Form 8-K
filed July 23, 1997).
19
<PAGE>
10.15 Form of $24,000 Convertible Promissory Note issued in
favor of each of George E. Fowler, S. Amber Gordon,
Donald E. Jewell, Robert J. Lynch Jr. and Donald E.
Ziegler, dated June 20, 1997 (incorporated by
referenced to the Company's Current Report on Form 8-K
filed July 23, 1997).
10.16 Investment Agreement among Hadron, Inc. and George E.
Fowler, S. Amber Gordon, Donald E. Jewell, Robert J.
Lynch Jr. and Donald E. Ziegler, dated June 20, 1997
(incorporated by referenced to the Company's Current
Report on Form 8-K filed July 23, 1997).
10.17 Asset Purchase Agreement among the SyCom Services, Inc.
and Performance Engineering International Corp. dated
June 30, 1997 (incorporated by referenced to the
Company's Current Report on Form 8-K filed July 25,
1997).
10.18 Employment Agreement with S. Amber Gordon dated June
10, 1997.
21 Subsidiaries of the Company.
27 Financial Data Schedule
20
<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 29, 1997 HADRON, INC.
By:/S/ C.W. GILLULY By: /S/ DONALD E. ZIEGLER
C. W. Gilluly Donald E. Ziegler
Chief Executive Officer Chief Financial Officer
and Chairman (Principal Financial
(Principal Executive Officer) 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 29, 1997
William J. Howard
/S/ Robert J. Lynch, Jr. Director September 29, 1997
Robert J. Lynch, Jr.
/S/ John D. Sanders Director September 29, 1997
John D. Sanders
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
We have audited the accompanying consolidated balance sheets of
Hadron, Inc. and subsidiaries as of June 30, 1997 and 1996 and
the related statements of operations, shareholders' deficit, and
cash flows for the years then ended. Our audit also included the
financial statement schedule for the year ended June 30, 1997
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, 1997 and 1996, and
the results of their operations and their cash flow for the years
then ended, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule for the year ended June 30, 1997, when
considered in relation to the basis financial statements taken as
a whole, presents fairly in all material respects the information
set forth therein.
/S/ ERNST & YOUNG, L.L.P.
Vienna, Virginia
September 5, 1997
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Hadron, Inc.
We have audited the accompanying statements of operations,
shareholders' deficit, and cash flows of Hadron, Inc. and
subsidiaries for the fiscal year ended June 30, 1995. 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 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 consolidated
results of operations and cash flows of Hadron, Inc. and
subsidiaries for the fiscal year ended June 30, 1995 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in
Note 2 to the Company's 1995 financial statements, the Company
has a net capital deficiency and has suffered recurring losses
from operations that raise substantial doubt about it ability to
continue as a going concern. Management's plan in regard to
these matters are also described in Note 2 to the Company's 1995
financial statements. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
/S/ COOPERS AND LYBRAND L.L.P.
Washington, D.C.
September 28, 1995
F-2
<PAGE>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND JUNE 30, 1996
<TABLE>
JUNE 30, JUNE 30,
ASSETS 1997 1996
<CAPTION>
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24,700 $ 43,900
Accounts receivable, net 2,312,100 2,680,400
Note receivable 90,200
Prepaid expenses and other 20,600 45,200
---------- ----------
Total current assets 2,447,600 2,769,500
---------- ----------
Fixed assets 82,800 96,800
Note receivable 8,600
Investment in PEI and related notes receivable,
net of deferred income of $2,000,000 158,400
Other 14,500 8,100
---------- ----------
Total other assets 264,300 104,900
---------- ----------
Total assets $ 2,711,900 $ 2,874,400
=========== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND JUNE 30, 1996
<TABLE>
JUNE 30, JUNE 30,
LIABILITIES AND SHAREHOLDERS' DEFICIT 1997 1996
<CAPTION>
<S> <C> <C>
Current liabilities
Accounts payable $ 1,402,300 $ 1,821,500
Note payable - line of credit 17,300
Other current liabilities 1,933,800 1,602,100
---------- ----------
Total current liabilities 3,353,400 3,423,600
---------- ----------
Note payable - related party 120,000 275,000
Other 49,300 45,300
---------- ----------
Total long-term liabilities 169,300 320,300
---------- ----------
Commitments and contingencies
Total liabilities 3,522,700 3,743,900
---------- ----------
Shareholders' deficit:
Common stock $.02 par; authorized 20,000,000
share issued and outstanding -
June 30, 1997, 1,686,685 shares,
and June 30, 1996, 1,503,685 33,800 30,000
Additional capital 9,302,800 9,260,800
Accumulated deficit (10,147,400) (10,160,300)
---------- ----------
Total shareholders' deficit (810,800) (869,500)
---------- ----------
Total liabilities and shareholders' deficit $ 2,711,900 $ 2,874,400
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED JUNE 30, 1997, 1996 AND 1995
- -------------------------------------------------------
<TABLE>
1997 1996 1995
<CAPTION> ----------- ----------- -------------
<S> <C> <C> <C>
Revenues $16,987,700 $ 18,305,600 $ 20,534,300
----------- ----------- -------------
Operating costs and expenses:
Costs of revenue 14,650,600 15,937,200 17,842,000
Development costs of HeaTreaT 598,900
Selling, general and administrative 1,610,300 2,309,200 2,854,000
----------- ----------- -------------
Total operating costs and expenses 16,859,800 18,246,400 20,696,000
----------- ----------- -------------
Operating income (loss) 127,900 59,200 (161,700)
----------- ----------- -------------
Other income (expense):
Interest income 8,100 11,000 20,600
Interest expense (92,600) (143,000) (237,500)
Gain on sale of assets 255,500
Other income (expense) 13,500 10,900 (57,700)
----------- ----------- -------------
Total other income (expense) (71,000) 134,400 (274,600)
----------- ----------- -------------
Income (loss) before income taxes
and extraordinary item 56,900 193,600 (436,300)
Provision for income taxes 44,000 31,900 23,700
----------- ----------- ------------
Income (loss) before extraordinary item 12,900 161,700 (460,000)
Extraordinary item - gain on the retirement
of FDIC debt, net 2,718,400
----------- ----------- ------------
Net income $ 12,900 $ 161,700 $ 2,258,400
=========== ============= ============
Per share data:
Net income (loss) before extraordinary
item $ 0.01 $ 0.11 $ (0.31)
Extraordinary item - gain on the retirement
of FDIC debt, net 1.82
----------- ----------- ------------
Net income $ 0.01 $ 0.11 $ 1.51
=========== =========== ============
Weighted average number of common
shares outstanding during the period 1,529,519 1,501,841 1,492,625
=========== =========== ============
See Notes to Consolidated Financial Statements
F-5
<PAGE>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE FISCAL YEARS ENDED JUNE 30, 1997, 1996 AND 1995
- -------------------------------------------------------
</TABLE>
<TABLE>
Common Stock
----------- Additional Accumulated
Shares Amount Capital Deficit Total
---------- --------- ------------ ------------- -------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balance - June 30, 1994 1,492,625 $29,800 $9,244,800 ($12,580,400) ($3,305,800)
Net income 2,258,400 2,258,400
---------- --------- ----------- ------------- -------------
Balance - June 30, 1995 1,492,625 29,800 9,244,800 (10,322,000) (1,047,400)
Shares issued to officers,
directors, and consultants 11,060 200 16,000 16,200
Net income 161,700 161,700
---------- --------- ----------- ------------- -------------
Balance - June 30, 1996 1,503,685 30,000 9,260,800 (10,160,300) (869,500)
Shares issued to officers who
exercised warrants 183,000 3,800 42,000 45,800
Net income 12,900 12,900
---------- ---------- ----------- ------------- -------------
Balance - June 30, 1997 1,686,685 $33,800 $9,302,800 ($10,147,400) ($810,800)
========== ========== =========== ============= =============
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JUNE 30, 1997, 1996 AND 1995
- -------------------------------------------------------
<TABLE>
1997 1996 1995
------------ ----------- -----------
<CAPTION>
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 12,900 $ 161,700 $ 2,258,400
------------ ----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 73,800 119,300 239,400
Provision for doubtful accounts receivable (114,600) 209,800 115,000
Gain on retirement of FDIC debt (2,718,400)
Gain on sale of assets (255,500)
Other 16,300
Changes in operating assets and liabilities:
Accounts and notes receivable 384,200 418,200 289,600
Prepaid expenses and other 24,600 (14,000) 29,300
Other assets (10,600) 48,700 67,700
Restricted cash 130,000 120,000
Accounts payable (419,200) (294,400) (52,700)
Deferred income (32,500)
Other current liabilities 211,700 (312,500) 94,100
Change in assets and liabilities
attributable to asset sale (17,300)
Other long-term liabilities 4,000 4,100 (103,000)
------------ ----------- -----------
Total adjustments 153,900 52,700 (1,951,500)
------------ ----------- -----------
Net cash provided by operating activities 166,800 214,400 306,900
Cash flows from investing activities:
Proceeds from sale of assets 365,700
Property additions (94,100) (103,500) (24,000)
Proceeds from (investment in)
certificates of deposit 76,000
------------ ----------- -----------
Net cash (used) provided by investing activities (94,100) 262,200 52,000
------------ ----------- -----------
Cash flows from financing activities:
Proceeds of borrowings on bank and other loans 711,900 964,100
Proceeds of stock warrants exercised 45,800
Proceeds of convertible promissory notes 120,000
Payments on bank and other loans (969,600) (1,073,300) (1,125,000)
------------ ----------- -----------
Net cash used by financing activities (91,900) (1,073,300) (160,900)
------------ ----------- -----------
Net (decrease) increase in cash and cash equivalent (19,200) (596,700) 198,000
Cash and cash equivalents at beginning of year 43,900 640,600 442,600
------------ ----------- -----------
Cash and cash equivalents at end of year $ 24,700 $ 43,900 $ 640,600
============ =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<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 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.
2. Summary of significant accounting policies:
A. Principles of consolidation:
The consolidated financial statements include the
accounts of Hadron, Inc. and its two wholly-owned
subsidiaries, Engineering & Information Services, Inc.
("EISI") and SyCom Services, Inc. ("SyCom") (the "Company").
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, 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
F-8
<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
United States Government agencies. To date, the Company has
not incurred losses related to cash and cash equivalents.
The Company's accounts receivable consist principally
of accounts receivable from prime contractors to agencies
and departments of the United States Government. The
Company extends credit in the normal course of operations
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.
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. Fixed assets:
Furniture and 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.
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
F-9
<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
related accumulated depreciation are removed from the
accounts and the gain or loss is included in operations.
Purchased software is capitalized at cost. Such costs
are amortized using the straight-line method for a period of
up to five years. Internally developed software costs are
expensed until technological feasibility is achieved.
E. Accounting for contracts:
Revenues on time and material contracts are recorded at
the contracted rates as the labor hours and out-of-pocket
expenses are incurred. Revenues from fixed-price and cost-
plus-fixed-fee contracts are generally recorded on the
percentage-of-completion method, determined by the
percentage that incurred costs bear to estimated total costs
or on engineering estimates. As soon as it is determined
that it is probable a contract will result in a loss and the
loss can be reasonably estimated, the entire estimated loss
is charged to operations.
In accordance with industry practice, accounts
receivable relating to long-term contracts are classified as
current assets although an indeterminable portion of these
amounts is not expected to be realized within one year.
F. Income taxes:
The Company follows the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). 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.
G. Income (loss) per share:
Income (loss) per share is based on the weighted
average number of common shares outstanding and common stock
equivalents, if dilutive, during each year.
F-10
<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
H. Stock-Based Compensation:
In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No.
123 ( SFAS No. 123 ), Accounting for Stock-Based
Compensation, which is effective for the Company s June 30,
1997 financial statements. SFAS No. 123 allows companies to
either account for stock-based compensation under the
provisions of SFAS No. 123 or under the provisions of
Accounting Principles Board No. 25 ( APB No. 25 ), but
requires pro forma disclosures in the footnotes to the
financial statements as if the measurement provisions of
SFAS No. 123 had been adopted. The Company accounts for its
stock-based compensation in accordance with the provisions
of APB No. 25. As such, the adoption of SFAS No. 123 does
not impact the financial condition or the results of
operations of the Company.
I. Recent Pronouncements:
In February 1997, the Financial Accounting Standards
Board issued Statement No. 128, Earnings per Share, which is
required to be adopted on December 31, 1997. At that time,
the Company will be required to change the method currently
used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options
will be excluded. The impact of Statement No. 128 on the
calculation of primary earnings per share and fully diluted
earnings per share for the periods presented is not expected
to be material.
In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No.
131 ("SFAS No. 131"), "Disclosures about Segments of an
Enterprise and Related Information", which is required to be
adopted for the fiscal years beginning after December 31,
1997. SFAS No. 131 changes the way public companies report
segment information in annual financial statements and also
requires those companies to report selected segment
information in interim financial reports to shareholders.
SFAS No. 131 supersedes Financial Accounting Standards No.
14, "Financial Reporting for Segments of a Business
Enterprise". The impact of SFAS No. 131 has not yet been
determined.
F-11
<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
J. Reclassifications:
Certain fiscal year 1996 and 1995 amounts have been
reclassified to conform to the fiscal year 1997
presentation.
3. Accounts receivable:
The components of accounts receivable are as follows:
<TABLE>
June 30,
---------------------------
1997 1996
------------ ------------
<CAPTION>
<S> <C> <C>
Trade accounts receivable:
U.S. Government:
Amounts billed $ 538,300 $1,194,900
Recoverable costs and
profits - not billed 857,600 857,000
------------ ------------
Total 1,395,900 2,051,900
------------ ------------
Commercial, state and local
governments:
Amounts billed 806,200 1,126,300
Recoverable costs and
profits - not billed 268,800 151,000
------------ ------------
Total 1,075,000 1,277,300
------------ ------------
Total accounts receivable 2,470,900 3,329,200
Less allowance for doubtful
accounts (158,800) (648,800)
------------ ------------
Total accounts receivable, net
$2,312,100 $2,680,400
============= =============
</TABLE>
The amount of customer retentions included in U.S.
Government accounts receivable-not billed is $23,400 and
$254,900 at June 30, 1997 and 1996, 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.
F-12
<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Fixed assets:
<TABLE>
The components of fixed assets are as follows:
June 30,
---------------------------
1997 1996
------------ ------------
<CAPTION>
<S> <C> <C>
Computer, hardware and
software $ 337,600 $ 554,200
Office equipment 131,600 253,200
------------ ------------
Total fixed assets 469,200 807,400
Less accumulated depreciation
and amortization ( 386,400) ( 710,600)
------------ ------------
Total fixed assets, net $ 82,800 $ 96,800
============ ===========
</TABLE>
During fiscal years 1997 and 1996, the Company removed
from service fixed assets with a cost basis of approximately
$432,000 and $711,000, respectively. The assets removed from
service in fiscal year 1997 included those sold to
Performance Engineering International Corp. These assets
had a cost basis, net of accumulated depreciation, of
approximately $38,000 at the time of sale. The assets
removed from service in fiscal year 1996 included those sold
as part of the sale by ART. These assets had a cost basis,
net of accumulated depreciation, of approximately $93,000 at
the time of sale.
5. Debt:
During fiscal year 1997, the Company prepaid $25,000 of
a Convertible Promissory Note due from the Company to Dr.
C.W. Gilluly, and pursuant to its terms and conditions,
issued warrants to Dr. Gilluly to acquire 100,000 shares of
the Company's common stock.
On April 21, 1997, Dr. Gilluly sold $25,000 of the
Convertible Promissory Note to five officers of the Company.
Concurrently, the Company elected to prepay the $25,000 of
Notes held by the officers, and in accordance with terms of
the Notes, issued warrants to the officers to acquire
100,000 shares of the Company's common stock. The officers
exercised the warrants and acquired the 100,000 shares at
the Conversion Price of $.25 per share.
F-13
<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 1997, the Company entered into a Line of Credit
Agreement with Century National Bank pursuant to which
Century National Bank provided the Company with a $800,000
line of credit facility through November 30, 1998, replacing
a $300,000 facility set to expire in December 1997.
Borrowings under the facility are personally guaranteed by
Dr. Gilluly and his wife. Century National Bank and the
Company agreed that, in addition to providing working
capital, the line of credit would be used to fund the
Company's prepayment on June 2, 1997 of its $225,000
Promissory Note to Dr. Gilluly. Under the terms of the
original Promissory Note dated October 21, 1993, which had
been extended and amended as of April 21, 1997, the Company
issued 900,000 warrants, which expire on October 21, 2003,
to Dr. Gilluly to acquire the Company's $.02 par value
common stock ("Common Stock") at $.25 per share.
The Company was indebted in the approximate amount of
$288,000 to a vendor under the terms of a November 1, 1996
promissory note secured by certain assets. In order to
facilitate the bank line of credit, the vendor agreed to
accept $250,000 in full satisfaction of the promissory note.
Such payment was made in June 1997.
Century National Bank and the Company determined that
payment of such amount to the vendor would reduce the
Company's available working capital to a level below that
which each contemplated the Company would have as a result
of the line of credit. As a consequence, certain members of
the Company's management or Board of Directors (the
"Investors"), each agreed to invest $24,000 in the Company
in the form of five separate two-year promissory notes, the
principal of which is convertible at $0.60 per share at each
of his or her respective option, into restricted shares of
the Company's common stock. Such notes also provide that
upon prepayment by the Company of principal outstanding
under the notes, the Company shall issue to the note holder
a warrant to acquire Common Stock at $0.60 per share. The
number of shares each warrant shall entitle the holder
thereof to acquire shall equal the principal prepaid giving
rise to the warrant divided by $0.60. The Company and each
of the Investors entered into an Investment Agreement dated
June 20, 1997 setting forth the terms of his or her
investment in the Company.
F-14
<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Other current liabilities:
<TABLE>
Other current liabilities include the following major
classifications:
June 30,
---------------------------
1997 1996
------------ ------------
<CAPTION>
<S> <C> <C>
Payroll and related taxes $ 635,000 $ 492,700
Compensated absences 398,000 333,000
Accrued bonuses 94,600 171,900
Self-insured medical expense 223,000 115,200
Due to subcontractors 122,400 111,500
Other 460,800 377,800
------------ ------------
Total $ 1,933,800 $ 1,602,100
============ ============
</TABLE>
7. Income taxes:
The provision for income taxes for the years ended June
30, 1997, 1996 and 1995 is for state income taxes currently
due.
The tax provision differs from the amounts computed
using the statutory federal income tax rate as follows:
<TABLE>
1997 1996 1995
------- -------- --------
<CAPTION>
<S> <C> <C> <C>
Tax expense (benefit) at
statutory rate - federal 35% 35% (35%)
State tax expense (benefit)
net of federal taxes 77 16 5
Goodwill amortization - 1 1
Operating losses with no
current tax benefit
(current tax benefit) (35) (36) 34
------- -------- -------
Tax expense at
actual rate 77% 16% 5%
======= ======== =======
</TABLE>
<PAGE>
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, 1997 and 1996
consist primarily of temporary differences from net
operating loss carryforwards of approximately $2,351,000 and
$2,767,000, respectively, and are fully reserved.
F-15
<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has net operating loss (NOL) carryforwards
for federal and state purposes available to offset future
taxable income of approximately $6,186,000 as of June 30,
1997. These NOL carryforwards expire at various dates
through June 30, 2009.
8. Commitments and contingencies:
Operating leases:
The Company leases real property and personal property
under various long-term operating leases and sublease
agreements expiring at various dates through fiscal year
2002. Certain of the leases contain renewal options and
require payment of property taxes, insurance and maintenance
costs. The Company's future minimum operating lease
commitments inclusive of property taxes, insurance and
maintenance costs at June 30, 1997 are summarized below:
Fiscal Year Ending Lease
June 30, Commitments
------------------ -----------
1998 $ 146,000
1999 139,300
2000 144,000
2001 148,600
2002 88,300
-----------
Total minimum payments required $ 666,200
===========
Included in the lease commitments is a sublease
commitment for $11,300 with Comtex, a related party, to
occupy 660 square feet at its principal location in
Alexandria, Virginia through April 30, 1998.
Rent expense, net of sublease income, included in the
consolidated statements of operations is as follows:
Rent
Period Expense
---------------- ----------
Fiscal Year 1997 $ 114,600
Fiscal Year 1996 $ 534,200
Fiscal Year 1995 $1,101,900
F-16
<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
9. 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 $255,000 in the consolidated statement of
operations in fiscal year 1996.
10. Sale of Assets - PEI:
Effective June 30, 1997, Hadron's wholly-owned
subsidiary, SyCom Services, Inc. ("SyCom") entered into an
agreement to sell the HeaTreat software products and certain
related assets to Performance Engineering International
Corp. ("PEI"), a newly formed company owned by former Hadron
and SyCom executives.
SyCom received a ten percent interest in PEI's capital
stock and two promissory notes, in the amounts of $2,000,000
and $38,400, respectively. In addition, SyCom agreed to
invest $20,000 a month in PEI for a six month period
beginning July 1, 1997.
Gain on the sale will be recognized for financial
reporting purposes when cash flows of PEI are sufficient to
fund its debt service or when the Company's investment in
PEI can be readily converted to cash.
F-17
<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $3,905,100, consisting of a note
payable of $3,706,000, net of cash collateral reserve of
$25,000, and accrued interest of $224,100. In addition to
the settlement itself, the Company incurred legal and other
professional fees of $86,700 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 $2,718,400 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 $18,000,
$19,000 and $18,000 for fiscal years 1997, 1996 and 1995,
respectively.
13. Stock Option Plan:
Under the Company's 1994 Stock Option Plan ("1994
Plan"), up to 345,000 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 options vest in three equal annual
installments beginning with the date of grant. 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.
F-18
<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In fiscal year 1997, an amendment to the 1994 Stock
Option Plan was adopted to increase the number of shares
reserved for issuance thereunder from 290,000 to 345,000.
Information with respect to incentive and non-qualified
stock options issued under the 1994 Amended Plan are as
follows:
<TABLE>
Incentive Non-
Stock Qualified
Option Stock Option
----------- ------------
<CAPTION>
<S> <C> <C>
Outstanding at June 30, 1994 - -
Granted 183,500 12,500
Expired (13,000)
----------- ------------
Outstanding at June 30, 1995 170,500 12,500
Granted 89,500 12,500
Expired (49,500) (15,000)
----------- ------------
Outstanding at June 30, 1996 210,500 10,000
Granted 112,500 5,000
Exercised (3,000)
Expired (19,500)
----------- ------------
Outstanding at June 30, 1997 300,500 15,000
=========== ============
Exercisable at end of year 203,831 9,998
=========== ============
Exercise price at June 30,1997 $.25 - $.90 $.25 - $.69
Exercise price of shares
exercised during fiscal year 1997 $.25
</TABLE>
The weighted average exercise price of options
outstanding at June 30, 1997 was $.49. The weighted average
remaining contractual life of options outstanding at June
30, 1997 was 8.24 years. The weighted average fair value of
options granted during 1997 and 1996 was $.44 and $.62,
respectively.
During fiscal year 1997, the Company adopted the
disclosure-only provisions of SFAS No. 123. Had
compensation cost for the Company s stock option plan been
determined based upon the fair value at the grant date for
F-19
<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
awards under the plan consistent with the methodology
prescribed under SFAS No. 123, the Company s net
income/(loss) in fiscal years 1997 and 1996 would have been
approximately $(19,100) and $154,900, or $(.01) and $.10 per
share, respectively. The effect of applying SFAS No. 123 on
1997 and 1996 pro forma net income/loss as stated above is
not necessarily representative of the effects on reported
net income or loss for future years due to, among other
things, (1) the vesting period of the stock options and (2)
the fair value of additional stock options in future years.
The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing fair
value model. The following weighted-average assumptions were
used for grants: dividend yield of 0%; expected volatility
of 1.11; expected life of the option term of 7 to 9 years
and risk-free interest rate of 6.9% for the years 1997 and
1996.
Because SFAS No. 123 is applicable only to options
subsequent to December 31, 1994, its pro forma effect will
not be fully reflected until later years.
14. Related party transactions:
AMASYS Corporation ("AMASYS"), a publicly held company
as successor to Infotechnology, Inc., beneficially owns
202,739 shares, or 12%, 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 AMASYS. Dr. Gilluly
has warrants to acquire beneficial ownership of 1,020,000
shares of common stock. Dr. Gilluly also owns options to
acquire 60,000 shares of the Company's common stock.
Exercise of Dr. Gilluly's warrants and options at a
subsequent date may result in a change of control in the
Company. Mr. Robert Lynch, an independent outside director
of the Company, is also a director of AMASYS. Dr. Gilluly
is also Chairman of the Board of Directors of Comtex
Scientific Corporation ("Comtex"). AMASYS holds a majority
interest in Comtex.
The Company routinely provides, or is provided with,
corporate relations and other administrative services and
headquarters space to or by, AMASYS and Comtex. Such
services are not significant to the Company's operating
activities or balance sheet.
F-20
<PAGE>
HADRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Statement of cash flows - supplemental disclosures:
During fiscal years 1997, 1996 and 1995, the Company
paid income taxes of $40,000, $18,000 and $4,000,
respectively. The Company also paid interest of $54,000,
$142,000 and $221,000 during those same periods.
16. Business Segment and Major Customers:
Business Segment:
The Company operates predominantly in one industry
segment, providing engineering, computer support services
and other professional technical services.
Major Customers:
Gross revenue from contracts and subcontracts with U.S.
government agencies amounted to $9,101,000, $10,066,000 and
$13,732,000, respectively, in fiscal years 1997, 1996 and
1995.
Revenues from one commercial customer totaled
$7,424,000, $7,112,000 and $5,924,000 in the fiscal years
1997, 1996 and 1995, respectively.
Revenues earned on sales to the Company's major
customers are as follows:
United States
Department of Commercial
Defense Justice Customer
----------- --------- -----------
Fiscal Year 1997 $ 7,508,000 $ 8,000 $ 7,424,000
Fiscal Year 1996 5,364,000 3,426,000 7,112,000
Fiscal Year 1995 5,443,000 7,370,000 5,924,000
F-21
<PAGE>
HADRON, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
Additions
-----------------
Balance at Charged (Credited) Charged to Balance
Beginning to costs and other accounts Deductions at end
Description of Period expenses (describe) describe) of Period
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1997
Accounts receivable $ 648,806 $ (114,637) $ --- 375,345 <F1> 158,824
========== ========== =========== ======== =======
Year ended June 30, 1996
Accounts receivable $ 507,960 $ 209,757 $ 10,268 <F2> 79,179 <F3> 648,806
========== ========== =========== ======== =======
Year ended June 30, 1995
Accounts receivable $ 453,308 $ 115,000 $ 149,463 <F4> 209,811 <F5> 507,960
========== ========== ========== ========= =======
<FN>
<F1> Represents, primarily, the writeoff of uncollectible billed and
unbilled receivables, rate variances and fee retentions.
<F2> Represents charges of $10,268 to unbilled receivables to correct
unbilled accounts receivable balances.
<F3> Represents, primarily, the writeoff of uncollectible, fully reserved
unbilled accounts receivable balances.
<F4> 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.
<F5> Represents, primarily, the writeoff of uncollectible unbilled
receivables, rate variances and fee retentions.
</TABLE>
F-22
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is entered into this 10th day of June, 1997, by and
between Hadron, Inc. (the "Company") and S. Amber Gordon
("Employee").
WHEREAS, the Company and Employee have agreed to terms upon
which Employee will be employed by the Company and wish to set
forth such terms and conditions in writing;
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Employment. The Company hereby agrees to employ Employee as
its EXECUTIVE VICE PRESIDENT for the term as hereinafter set
forth. Employee shall perform such duties and exercise such
supervision and powers over and with regard to the business of
the Company as are consistent with her position. Employee
shall report to the Chairman and/or Chief Executive Officer of
the Company.
2. Term. The initial term of this Agreement shall be two (2)
years, effective July 1, 1997.
3. Base Salary and Time Allotment. During the term of the
Agreement, Employee shall be available to the Employer four
(4) days per week. For this, the Employee's base salary for
this year shall be $90,000. It is understood and agreed to by
the Company that during the work week the Employee renders
consulting services to, and receives remuneration from, other
non-competitive entities. The Employee's base salary for the
second year shall reflect an increase in base salary, as
determined by the Chairman of the Board of Directors and the
Compensation Committee, in their sole discretion; however,
such increase shall, at the minimum, be proportionate to that
given to other executive officers of the Company. The base
salary shall be payable on a bi-weekly basis or such other
basis as the Company uses to pay its executive officers.
4. Stock Options. The Company shall grant to Employee options in
its Incentive Stock Option Plan in such amount as determined
by the Board of Directors. Such amount shall be commensurate
with the duties and responsibilities of the Employee.
<PAGE>
5. Annual Bonus. In addition to the Employee's Base Salary, the
Employee shall be eligible to earn an annual bonus, in
accordance with the Company's Bonus Plan, if one is in effect,
or at the recommendation of the Chairman and of the
Compensation Committee.
6. Car Allowance. The Employee shall receive an automobile
allowance in the amount of $350 per month for the first year
of the Agreement, to increase in proportion to other executive
officers of the Company for the second year of the Agreement.
7. Other Benefits. Employee shall be fully reimbursed by the
Company for all expenses reasonably incurred in connection
with the performance of Employee's duties, upon presentation
of expense statements and such other supporting information as
the Company may reasonably require. The Company shall provide
to Employee the insurance and medictive officers, on the
same terms and conditions. Additionally, Employee shall be
entitled to four weeks of paid vacation for each year of
employment.
8. Termination and/or Renewal. The Company shall have the right
to terminate this employment Agreement for cause on the
grounds that Employee acted dishonestly in any activity
related to this job; Employee has exhibited signs of alcohol
or drug dependency; Employee has been convicted of a felony or
crime of moral turpitude; or for gross neglect of her duties.
If Employee is terminated for cause, as defined herein, or
leaves the employ of the Company voluntarily, then no
remuneration will be due past the date of termination. Any
renewal of this Agreement, or any subsequent employment
Agreement, shall be completed prior to June 30, 1999. In the
event that her contract is not renewed by June 30, 1999, the
Employee will receive a severance payment equal to six months
at the then current Base Salary.
9. Indemnification. The Company shall indemnify and hold
Employee harmless from and against any and all causes of
action, claims, costs, liabilities, expenses, attorneys' fees
or damages arising from Employee's performance of her duties
as described herein, except however where such claims, etc.
are a result of Employee's gross negligence or willful
misconduct.
10. Full Authority. Each party represents to the other that: it
has full power and authority to execute, deliver and perform
this Agreement; all necessary corporate action on its part for
the execution, delivery and performance of this Agreement by
it has been duly taken; this Agreement has been duly
authorized and executed by it; it is a legal, valid and
binding Agreement, enforceable against such party in
accordance with its terms.
<PAGE>
11. Entire Agreement/Assignment/Governing Law. This Agreement
shall be binding upon and inure to the benefit of the Company
and its successors and assigns. This Agreement shall not be
assignable by either party hereto without the written consent
of the other party. This Agreement constitutes the entire
Agreement between the parties and shall supersede all previous
communications, representations, understandings, and
Agreements, either oral or written, between the parties or any
officials or representatives thereof. This Agreement shall be
governed by and interpreted in accordance with the laws of the
Commonwealth of Virginia.
12. Waivers. A waiver by any party of a breach of any provision
of this Agreement shall not operate as or be construed to be
a waiver of any other breach of such provision or of any
breach of any other provision of this Agreement. The failure
of a party to insist upon strict adherence to any term of this
Agreement on one or more occasions shall not be considered a
waiver or deprive that party of the right thereafter to insist
upon strict adherence to that term or any other term of this
Agreement. Any waiver or modification of this Agreement must
be in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement
this 10th day of June, 1997.
HADRON, INC. ACCEPTED & AGREED TO:
BY: /S/ C.W. GILLULY /S/ S. AMBER GORDON
C.W. Gilluly S. Amber Gordon
Chairman and
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE YEAR END
FORM 10-K FOR 1997 AND IS QUALFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 25
<SECURITIES> 0
<RECEIVABLES> 2,471
<ALLOWANCES> 159
<INVENTORY> 0
<CURRENT-ASSETS> 2,448
<PP&E> 469
<DEPRECIATION> 386
<TOTAL-ASSETS> 2,712
<CURRENT-LIABILITIES> 3,353
<BONDS> 0
0
0
<COMMON> 34
<OTHER-SE> (845)
<TOTAL-LIABILITY-AND-EQUITY> 2,712
<SALES> 16,988
<TOTAL-REVENUES> 16,988
<CGS> 14,651
<TOTAL-COSTS> 16,860
<OTHER-EXPENSES> (14)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> 57
<INCOME-TAX> 44
<INCOME-CONTINUING> 13
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
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
