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, 1998
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 23, 1998, 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 $2,780,094.
As of September 23, 1998, 1,736,584 shares of the common stock of the
registrant were outstanding.
<PAGE>
PART I
Item 1. Business
Introduction
Hadron, Inc. ("Hadron" or the "Company") provides a broad
range of information, management and technical services to
businesses and federal government agencies. The Company
specializes in the areas of trusted/secure computer systems,
computer systems support and intelligent weapons systems. The
Company was incorporated in New York in 1964.
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 between the
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 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 48% 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
deployed 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.
<PAGE>
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 43% of the revenues of the Company.
General Information
The Company operates predominantly in one industry segment,
providing engineering, computer support services and other
professional technical 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.
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.
The revenues of EISI accounted for 57%, 55% and 36% of the
Company's total consolidated revenues for the fiscal years 1998,
1997 and 1996, respectively. During the same fiscal years,
SyCom's revenues respectively accounted for 43%, 44% and 43% of
<PAGE>
consolidated revenues. During fiscal year 1996, revenues from a
former operation accounted for 20% of the Company's total
consolidated revenues.
The Company's backlog of orders believed to be firm as of
June 30, 1998 approximates $15 million, which the Company expects
will be filled during fiscal 1999. As of June 30, 1997, the
Company had approximately $14 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.
As of June 30, 1998, the Company (including its
subsidiaries) employed approximately 240 people. The Company's
employees are not members of any union, and employee relations
are believed by management to be generally good.
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 48% of the
Company's total revenues during fiscal year 1998. The Company's
other U.S. government contracts and subcontracts produced
approximately 7% of the Company's total revenues during fiscal
year 1998. 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 have 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
<PAGE>
because of special professional competency or proprietary
knowledge in specific subject areas.
Recent Developments
Effective June 30, 1997, 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 1998, PEI ceased operations. In
accordance with the terms of the agreement, the HeaTreaT assets
reverted to SyCom. The Company has retained a third party to
pursue the sale of these assets, which have a carrying value of
$135,900 at June 30, 1998.
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.
Item 2. Properties
The Company owns no real estate. As of June 30, 1998, the
Company leased or sub-leased a total of 9,991 square feet of
office space, plus approximately 660 square feet at its corporate
headquarters location in Alexandria, Virginia. These leases
expire between April 1999 and February 2002. (See Note 9 of the
Notes to Consolidated Financial Statements.)
Item 3. Legal Proceedings
No material legal proceedings are currently pending.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<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, 1998 and
June 30, 1997 is shown below:
<TABLE>
Fiscal Year Ended June 30, 1998 High Low
<CAPTION> ------- --------
<S> <C> <C>
First Quarter
(7/1 to 9/30/97) 1 5/32 7/8
Second Quarter
(10/1 to 12/31/97) 2 11/16 1 5/32
Third Quarter
(1/1 to 3/31/98) 2 1/8 1 11/16
Fourth Quarter
(4/1 to 6/30/98) 2 5/16 1 3/4
</TABLE>
<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
Second Quarter
(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>
As of September 23, 1998, there were approximately 3,842
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
1999.
<PAGE>
Item 6. Selected Financial Data
<TABLE>
Fiscal Year Ended
June 30
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In Thousands,except per share amounts)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Total Revenues $21,134 $16,988 $18,306 $20,534 $18,536
Operating Income (Loss) 888 128 59 (161) (3,799)
Interest Expense, net of
Interest income 56 84 132 217 287
Income (Loss)
before income taxes &
extraordinary item 819 57 194 (436) (4,104)
Income (Loss)
before extraordinary item 761 13 162 (460) (4,109)
Extraordinary item -
gain on retirement
of debt 2,718
Net Income (Loss) 761 13 162 2,258 (4,109)
Income (Loss) per share
of Common Stock:
Per share data:
Income (Loss) before
extraordinary item
Basic .45 .01 .11 (.31) (2.75)
Diluted .26 .01 .11 (.31) (2.75)
Extraordinary item - gain on
retirement of debt 1.82
Net Income (Loss)
Basic .45 .01 .11 1.51 (2.75)
Diluted .26 .01 .11 1.51 (2.75)
At Period End:
Total Assets 3,507 2,712 2,874 4,373 5,088
Long-term Liabilities 53 169 320 341 440
Working Capital (Deficit) (186) (906) (654) (978) (3,541)
Shareholders' Equity
(Deficit) 22 (811) (869) (1,047) (3,306)
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Comparison Of Fiscal Year 1998 To Fiscal Year 1997
Revenues for the fiscal year ended June 30, 1998 were
approximately $21,134,000, a 24% increase from the prior fiscal
year. The increase was primarily attributable to growth on
existing contracts with major government and commercial customers
of both EISI and SyCom.
Costs of revenue for the fiscal year ended June 30, 1998
were approximately $18,118,000, an increase of approximately 19%
from the prior fiscal year. The increase is due to the growth in
EISI and SyCom contracts noted above, partially offset by the
elimination of the HeaTreaT product development expenses of
$599,000. Costs of revenue as a percentage of revenues were
approximately 86% and 90% for the fiscal years ended June 30,
1998 and 1997, respectively. This 4% decrease is due primarily
to the elimination of the HeaTreaT expenditures.
Selling, general and administrative expenses totaled
approximately $2,128,000 for the fiscal year ended June 30, 1998,
compared with approximately $1,610,000 for the prior fiscal year.
The increase is primarily due to the Company's addition of key
administrative personnel, coupled with the implementation of a
profit-based employee incentive program, partially offset by the
absence of HeaTreaT marketing costs of $248,000.
The Company had an operating profit of $888,000 in the
current fiscal year, compared to an operating profit of $128,000
in the prior fiscal year. This substantial increase is primarily
attributable to the growth in EISI and SyCom, coupled with the
elimination of HeaTreaT expenses of $847,000, partially offset by
the increased general and administrative expenses noted above.
For the twelve months ended June 30, 1998, net interest
expense decreased approximately $28,000 from the prior year
period due to decreases in the Company's average debt outstanding
during the year.
Net income was approximately $761,000, compared to net
income of approximately $13,000 in the prior year. The increase
resulted primarily from the improved profitability of current
operations, coupled with the elimination of HeaTreaT product
costs.
<PAGE>
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.
The Company generated approximately $128,000 of operating
income during the fiscal year ended June 30, 1997 compared to
operating income of approximately $59,000 for the fiscal year
ended June 30, 1996, 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.
<PAGE>
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.
Capital Resources and Liquidity
The working capital deficit at June 30, 1998 decreased by
approximately $720,000 from June 30, 1997. Substantial growth in
existing contracts with EISI and SyCom, coupled with the
elimination of the HeaTreaT expenditures, enabled the Company to
generate the retained profits to fund working capital
requirements.
The Company has a Line of Credit Agreement with Century
National Bank which provides the Company with an $800,000 line of
credit facility through November 30, 1998. The line of credit
provides additional working capital availability to fund the
Company's growth. The Company is currently investigating
increasing and extending the line of credit facility and expects
to execute a new agreement with a bank prior to November.
For the twelve months ended June 30, 1998, the Company
earned net income of approximately $761,000. The Company's
ongoing operations are expected to generate profits and cashflow
which will be utilized to improve the working capital and grow
shareholders' equity. The Company does not anticipate
substantial capital expenditures in fiscal year 1999.
Year 2000 Issue
The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the
applicable year, resulting in possible system failure or
miscalculations causing disruptions of operations.
<PAGE>
The Company has completed an internal review and assessment
of the impact of the Year 2000 issue upon its operating,
financial and accounting systems. At this time, the Company
believes that, with respect to its internal systems, the Year
2000 issue will not pose any significant operational problems or
costs. The Company has commenced a program to access the impact
of the Year 2000 issue with respect to the Company's major
vendors and customers. Letters will be sent requesting detailed,
written information concerning existing or anticipated Year 2000
compliance by their systems, insofar as the operating systems
relate to the Company's business activities with such parties.
The Company expects to receive replies by December 31, 1998, and
will update its assessment of any impact at that time.
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;
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.
Item 8. Financial Statements and Supplementary Data
The information required by this item is set forth under
Item 14(a), which information is incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
<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.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) (1) Financial Statements Page
Report of Independent Accountants F-1
Consolidated Balance Sheets as of June 30, 1998 and 1997 F-2
Consolidated Statements of Operations for the fiscal
years ended June 30, 1998, 1997, and 1996 F-4
Consolidated Statements of Shareholders' Equity (Deficit)
for the fiscal years ended June 30, 1998, 1997, and 1996 F-5
Consolidated Statements of Cash Flows for the
fiscal years ended June 30, 1998, 1997, and 1996 F-6
Notes to Consolidated Financial Statements F-7
(a) (2) Financial Statement Schedules
Schedule II: Valuation and qualifying accounts and
reserves F-22
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.
<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 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).
3.3 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).
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 Hadron, Inc. 1994 Employee Stock Option Plan, As
Amended (incorporated by reference to the Company's
Proxy Statement dated October 28, 1994).
10.4 Hadron, Inc. 1997 Employee Stock Purchase Plan
(incorporated by reference to the Company's Proxy
Statement dated October 28,1997).
10.5 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).
<PAGE>
10.6 $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).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 $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).
10.12 $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).
10.13 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).
<PAGE>
10.15 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).
10.16 Asset Purchase Agreement among 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).
10.17 Employment Agreement with S. Amber Gordon dated June
10, 1997 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1997).
10.18 Employment Agreement with George E. Fowler dated July
1, 1998.
10.19 Employment Agreement with Donald Jewell dated July 1,
1998.
10.20 Employment Agreement with Donald E. Ziegler dated July
1, 1998.
10.21 Employment Agreement with C.W. Gilluly dated July 1,
1998.
21 Subsidiaries of the Company.
24.1 Consent of Independent Auditors.
27 Financial Data Schedule.
<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 25, 1998 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/ C.W. Gilluly Chairman September 25, 1998
C.W. Gilluly
/S/ William J. Howard Director September 25, 1998
William J. Howard
/S/ Robert J. Lynch, Jr. Director September 25, 1998
Robert J. Lynch, Jr.
/S/ John D. Sanders Director September 25, 1998
John D. Sanders
<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, 1998 and 1997 and
the related consolidated statements of operations, shareholders'
equity (deficit), and cash flows for each of the three years in
the period ended June 30, 1998. Our audits also included the
financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audit.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Hadron, Inc. and subsidiaries at June 30,
1998 and 1997, and the consolidated results of their operations
and their cash flows for each of the three years in the period
ended June 30, 1998, in conformity with generally accepted
accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/S/ ERNST & YOUNG, L.L.P.
Vienna, Virginia
August 28, 1998
F-1
<PAGE>
<TABLE>
HADRON, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND JUNE 30, 1997
<CAPTION>
JUNE 30, JUNE 30,
ASSETS 1998 1997
------ ---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 60,500 $ 24,700
Accounts receivable, net 3,143,900 2,312,100
Note receivable 8,600 90,200
Prepaid expenses and other 32,500 20,600
---------- ----------
Total current assets 3,245,500 2,447,600
---------- ----------
Fixed assets 116,300 82,800
Note receivable 8,600
Investment in PEI 158,400
Assets held for resale 135,900
Other 9,300 14,500
---------- ----------
Total other assets 261,500 264,300
---------- ----------
Total assets $3,507,000 $2,711,900
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-2
<PAGE>
<TABLE>
HADRON, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND JUNE 30, 1997
<CAPTION>
JUNE 30, JUNE 30,
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) 1998 1997
---------------------------------------------- ---------- ----------
<S> <C> <C>
Current liabilities
Accounts payable $ 948,900 $ 1,402,300
Note payable - line of credit 80,000 17,300
Notes payable - related party 120,000
Other current liabilities 2,282,700 1,933,800
---------- -----------
Total current liabilities 3,431,600 3,353,400
---------- -----------
Notes payable - related party 120,000
Other 53,400 49,300
---------- -----------
Total long-term liabilities 53,400 169,300
---------- -----------
Total liabilities 3,485,000 3,522,700
---------- -----------
Shareholders' equity (deficit):
Common stock $.02 par; authorized 20,000,000 shares;
issued and outstanding - June 30, 1998, 1,731,956
shares, and June 30, 1997, 1,686,685 34,700 33,800
Additional capital 9,374,100 9,302,800
Accumulated deficit (9,386,800) (10,147,400)
---------- -----------
Total shareholders' equity (deficit) 22,000 (810,800)
---------- -----------
Total liabilities and shareholders' equity (deficit) $3,507,000 $ 2,711,900
=========== ============
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
<TABLE>
HADRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $21,133,900 $16,987,700 $18,305,600
----------- ----------- -----------
Operating costs and expenses:
Costs of revenue 18,118,100 14,650,600 15,937,200
Development costs of HeaTreaT 598,900
Selling, general and administrative 2,127,500 1,610,300 2,309,200
----------- ----------- -----------
Total operating costs and expenses 20,245,600 16,859,800 18,246,400
----------- ----------- -----------
Operating income 888,300 127,900 59,200
----------- ----------- -----------
Other income (expense):
Interest income 5,500 8,100 11,000
Interest expense (61,700) (92,600) (143,000)
Gain on sale of assets 255,500
Other income (expense) (13,000) 13,500 10,900
----------- ----------- -----------
Total other income (expense) (69,200) (71,000) 134,400
----------- ----------- -----------
Income before income taxes 819,100 56,900 193,600
Provision for income taxes 58,500 44,000 31,900
----------- ----------- -----------
Net income $ 760,600 $ 12,900 $ 161,700
============ ============ ===========
Per share data:
Net income per share
Basic $ .45 $ .01 $ .11
============ ============ ===========
Diluted $ .26 $ .01 $ .11
============ ============ ===========
Weighted average number of shares
Basic 1,686,808 1,529,519 1,501,841
============ ============ ===========
Diluted 2,990,897 1,535,074 1,501,841
============ ============ ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
<TABLE>
HADRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE FISCAL YEARS ENDED JUNE 30, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------------
<CAPTION>
Common Stock
----------- Additional Accumulated
Shares Amount Capital Deficit Total
--------- ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
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)
Shares purchased pursuant
to the Employee Stock Purchase Plan 45,271 900 71,300 72,200
Net income 760,600 760,600
--------- --------- ---------- ------------- ------------
Balance - June 30, 1998 1,731,956 $34,700 $9,374,100 ($9,386,800) $22,000
========= ========= ========== ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
<TABLE>
HADRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JUNE 30, 1998, 1997 AND 1996
- ---------------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 760,600 $ 12,900 $ 161,700
-------- ------- -------
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 34,500 73,800 119,300
Provision for doubtful accounts receivable (114,600) 209,800
Gain on sale of assets (255,500)
Other 16,300
Changes in operating assets and liabilities:
Accounts and notes receivable (741,600) 384,200 418,200
Prepaid expenses and other (11,900) 24,600 (14,000)
Other assets 5,200 (10,600) 48,700
Accounts payable (453,400) (419,200) (294,400)
Other current liabilities 348,900 211,700 (312,500)
Change in assets and liabilities attributable to asset sale (17,300)
Other long-term liabilities 4,100 4,000 4,100
-------- ------- -------
Total adjustments (814,200) 153,900 (77,300)
-------- ------- -------
Net cash provided (used) by operating activities (53,600) 166,800 84,400
-------- ------- -------
Cash flows from investing activities:
Proceeds from sale of assets 365,700
Property additions (29,600) (94,100) (103,500)
Investment in PEI (15,900)
-------- ------- -------
Net cash provided (used) by investing activities (45,500) (94,100) 262,200
-------- ------- -------
Cash flows from financing activities:
Proceeds of borrowings on bank and other loans 796,700 711,900
Proceeds of stock warrants exercised 45,800
Proceeds of employee stock purchases 72,200
Proceeds of convertible promissory notes 120,000
Payments on bank and other loans (734,000) (969,600) (1,073,300)
-------- ------- -------
Net cash provided (used) by financing activities 134,900 (91,900) (1,073,300)
-------- ------- -------
Net increase (decrease) in cash and cash equivalent 35,800 (19,200) (726,700)
Cash and cash equivalents at beginning of year 24,700 43,900 770,600
-------- ------- -------
Cash and cash equivalents at end of year $ 60,500 $ 24,700 $ 43,900
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
1. The Company:
Hadron, Inc. ("Hadron" or the "Company") provides a
broad range of information, management and technical services
to businesses and federal government agencies. The Company
specializes in the areas of trusted/secure computer systems,
computer systems support and intelligent weapons systems.
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, 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.
<PAGE> 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
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.
<PAGE>
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:
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. Stock-based compensation:
The Company grants stock options for a fixed number of
shares to employees with an exercise price equal to the
fair value of the shares at the date of the grant. The
Company accounts for stock option grants in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and accordingly recognizes no compensation
expense for the stock option grants.
<PAGE>
H. Recent pronouncements:
In February 1997, the Financial Accounting Standards
Board issued Statement No. 128, "Earnings per Share", which
has been adopted as of December 31, 1997. The Company was
required to change the method currently used to compute
earnings per share and to restate all prior periods. Under
the new requirements for calculating basic earnings per
share, the dilutive effect of stock options has been
excluded. In calculating diluted earnings per share, the
dilutive effect of options, warrants and convertible debt
is considered.
In June 1997, the Financial Accounting Standards Board
issued Statement No. 130, "Comprehensive Income", and
Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which are required to
be adopted for fiscal years beginning after December 15,
1997. Upon the effective date of each of the new
statements, the Company will make the necessary changes to
comply with the provisions of each statement. The Company
des not expect the adoption of these statements to have a
material impact on the Company's financial condition or
results of operations.
I. Reclassifications:
Certain fiscal year 1997 and 1996 amounts have been
reclassified to conform to the fiscal year 1998
presentation.
<PAGE>
3. Accounts receivable:
The components of accounts receivable are as follows:
<TABLE>
June 30,
--------------------------
1998 1997
--------------- -----------
<S> <C> <C>
Trade accounts receivable:
U.S. Government:
Amounts billed $ 1,170,600 $ 538,300
Recoverable costs and
profits - not billed 793,300 857,600
--------------- -----------
Total 1,963,900 1,395,900
--------------- -----------
Commercial, state and local
governments:
Amounts billed 1,015,700 806,200
Recoverable costs and
profits - not billed 374,100 268,800
--------------- -----------
Total 1,389,800 1,075,000
--------------- -----------
Total accounts receivable 3,353,700 2,470,900
Less allowance for doubtful
accounts (209,800) (158,800)
--------------- ------------
Total accounts receivable, net $3,143,900 $2,312,100
============== =============
</TABLE>
The amount of customer retentions included in U.S.
Government accounts receivable-not billed is $17,500 and
$23,400 at June 30, 1998 and 1997, 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.
<PAGE>
4. Fixed assets:
The components of fixed assets are as follows:
<TABLE>
June 30,
--------------------------
1998 1997
------------ -------------
<S> <C> <C>
Computer hardware and
software $ 400,500 $ 337,600
Office equipment 136,700 131,600
------------ -------------
Total fixed assets 537,200 469,200
Less accumulated depreciation
and amortization ( 420,900) ( 386,400)
------------ -------------
Total fixed assets, net $ 116,300 $ 82,800
============ =============
</TABLE>
During fiscal year 1997, the Company removed from
service fixed assets with a cost basis of approximately
$432,000.
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.
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 bear interest at the prime
rate plus two percent and 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 common stock ("Common Stock") at
$.25 per share.
<PAGE>
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 $.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 $.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 $.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.
<PAGE>
6. Other current liabilities:
Other current liabilities include the following major
classifications:
<TABLE> June 30,
------------------------
1998 1997
----------- ------------
<S> <C> <C>
Payroll and related taxes $ 850,800 $ 635,000
Accrued vacation 498,900 398,000
Accrued bonuses 159,200 94,600
Self-insured medical expense 275,700 223,000
Due to subcontractors 134,900 122,400
Other 363,200 460,800
----------- ------------
Total $ 2,282,700 $ 1,933,800
=========== ============
</TABLE>
7. Net income per share:
The following table sets forth the computation of
basic and diluted earnings per share:
<TABLE>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net Income $ 760,600 $ 12,900 $ 161,700
Effect of dilutive securities:
Convertible debt 12,000 300
---------- ----------- -----------
Numerator for diluted earnings
per share - income available
to common shareholders after
assumed conversion $ 772,600 $ 13,200 $ 161,700
========== =========== ===========
Denominator:
Denominator for basic
earnings per share:
weighted average shares
outstanding 1,686,808 1,529,519 1,501,841
Effect of dilutive securities:
Warrants 855,064
Employee stock options 249,025
Convertible debt 200,000 5,555
---------- ----------- -----------
Denominator for diluted
earnings per share 2,990,897 1,535,074 1,501,841
========== =========== ===========
Basic earnings per share $ .45 $ .01 $ .11
========== =========== ===========
Diluted earnings per share $ .26 $ .01 $ .11
========== =========== ===========
</TABLE>
<PAGE>
Shares issuable upon the exercise of stock options or
warrants have been excluded from the computation for 1997 and
1996 because the effect of their inclusion would be anti-
dilutive.
8. Income taxes:
The provision for income taxes for the years ended June
30, 1998, 1997 and 1996 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>
1998 1997 1996
------ ------- -------
<S> <C> <C> <C>
Tax expense at
statutory rate - federal 35% 35% 35%
State tax expense
net of federal taxes 7 77 16
Goodwill amortization 1
Operating losses with no
current tax benefit
(current tax benefit) (35) (35) (36)
------ ------- -------
Tax expense at
actual rate 7% 77% 16%
====== ======= =======
</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, 1998 and 1997
consist primarily of temporary differences from net
operating loss carryforwards of approximately $1,920,000 and
$2,351,000, 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 $4,800,000 as of June 30,
1998. 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
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, 1998 are summarized below:
<PAGE>
<TABLE>
Fiscal Year Ending Lease
June 30, Commitments
------------------ ------------
<S> <C>
1999 $ 151,000
2000 144,000
2001 148,600
2002 88,300
-----------
Total minimum payments required $ 531,900
===========
</TABLE>
Included in the lease commitments is a sublease
commitment for $11,700 with Comtex, a related party, to
occupy 660 square feet at its principal location in
Alexandria, Virginia through April 30, 1999.
Rent expense, net of sublease income, included in the
consolidated statements of operations is as follows:
<TABLE>
Rent
Period Expense
---------------- ----------
<S> <C>
Fiscal Year 1998 $ 141,800
Fiscal Year 1997 $ 114,600
Fiscal Year 1996 $ 534,200
</TABLE>
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.
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 $255,500 in the consolidated statement of
operations in fiscal year 1996.
<PAGE>
11. 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. The divestiture of the HeatTreaT
software products eliminated Hadron's continuing new product
expenses.
During fiscal year 1998, PEI ceased operations. In
accordance with the terms of the agreement, the HeaTreaT
assets reverted to SyCom. The Company has retained a third
party to pursue the sale of these assets, which have a
carrying value of $135,900 at June 30, 1998.
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. During 1998, the
matching contribution ceiling per employee was increased
from $125 to $1,000. The Company's discretionary
contributions to the Plan were $101,500, $18,000 and $19,000
for fiscal years 1998, 1997 and 1996, respectively.
13. Stock option plan:
Under the Company's 1994 Stock Option Plan, as amended,
(the "Plan"), shares of its common stock may be issued to
key employees, consultants and directors. In fiscal year
1998, an amendment to the 1994 Stock Option Plan was adopted
to increase the number of shares reserved for issuance
thereunder from 345,000 to 645,000. The 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.
<PAGE>
Information with respect to incentive and non-qualified
stock options issued under the Plan is as follows:
<TABLE>
1998 1997 1996
------------------------ -------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 315,500 $ .49 220,500 $ .36 183,000 $ .25
Granted 87,100 .98 117,500 .73 102,000 .50
Exercised (3,000) .25
Expired (4,532) .88 (19,500) .35 (64,500) .39
------------------------ -------------------- -------------------
Outstanding at
end of year 398,068 $ .59 315,500 $ .49 220,500 $ .36
======================== ==================== ===================
Options exercisable
at year-end 305,374 $ .50 213,829 $ .39 121,164 $ .30
Weighted average
fair value of
options granted
during the year $ .94 $ .44 $ .62
</TABLE>
The weighted average remaining contractual life of
options outstanding at June 30, 1998 was 7.7 years. The
range of exercise prices of options outstanding at June 30,
1998 was $.25 to $1.92.
During fiscal year 1997, the Company adopted the
disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock
Compensation" (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 awards under the plan
consistent with the methodology prescribed under SFAS No.
123, the Company's net income/(loss) in fiscal years 1998,
1997 and 1996 would have been approximately $700,200,
$(19,100) and $154,900, or $.25, $(.01) and $.10 per share
on a diluted basis, respectively. The effect of applying
SFAS No. 123 on 1998, 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.
<PAGE>
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 to 1.22; expected life of the option term of 7 to 10
years and risk-free interest rate of 5.5% to 6.9% for the
years 1998, 1997 and 1996.
14. Employee stock purchase plan
In December 1997, shareholders approved the Hadron,
Inc. 1997 Employee Stock Purchase Plan (the "Plan"). The
purpose of the Plan is to secure for the Company and its
shareholders the benefits of the incentive inherent in the
ownership of Common Stock by present and future employees of
the Company. The Plan is intended to comply with the terms
of Section 423 of the Internal Revenue Code of 1986, as
amended, and Rule 16b-3 of the Securities Exchange Act of
1934. The Plan is non-compensatory as defined by APB 25.
Under the terms of the Plan, individual employees may pay up
to $10,000 for the purchase of the Company's common shares
at 85% of the determined market price. During fiscal year
1998, employees paid approximately $72,000 for the purchase
of common stock under the Plan.
15. 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 72,000 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.
<PAGE>
16. Statement of cash flows - supplemental disclosures:
During fiscal years 1998, 1997 and 1996, the Company
paid income taxes of $76,000, $40,000 and $18,000,
respectively. The Company paid interest of $55,000, $54,000
and $142,000 during those same periods.
17. 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 $11,628,000, $9,101,000 and
$10,066,000, respectively, in fiscal years 1998, 1997 and
1996.
Revenues from one commercial customer totaled
$9,067,000, $7,424,000 and $7,112,000 in the fiscal years
1998, 1997 and 1996, respectively.
Revenues earned on sales to the Company's major
customers are as follows:
<TABLE> United States
Department of
------------------------ Commercial
Defense Justice Customer
------------ ---------- ------------
<S> <C> <C> <C>
Fiscal Year 1998 $10,242,000 $ $ 9,067,000
Fiscal Year 1997 7,508,000 8,000 7,424,000
Fiscal Year 1996 5,364,000 3,426,000 7,112,000
</TABLE>
<PAGE>
HADRON, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
Additions
------------
<CAPTION>
Charged
Balance at (Credited) Charged to Balance at
Beginning of to costs and Other accounts Deductions end of
DESCRIPTION Period expenses (describe) (describe) Period
- ------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1998
Accounts receivable $ 158,824 $ -- $ 50,942 <F1> $ -- $ 209,766
============ ============ ============ ============ ============
Year ended June 30, 1997
Accounts receivable $ 648,806 $ (114,637) $ -- $ 375,345 <F2> $ 158,824
============ ============ ============ ============ ============
Year ended June 30, 1996
Accounts receivable $ 507,960 $ 209,757 $ 10,268 <F3> $ 79,179 <F4> $ 648,806
============ ============ ============ ============ ============
<FN>
<F1> Represents, primarily, the billing and subsequent collection of accounts receivable in excess of
their book value.
<F2> Represents, primarily, the writeoff of uncollectible billed and unbilled receivables, rate
variances and fee retentions.
<F3> Represents charges to unbilled receivables to correct unbilled account receivable balances.
<F4> Represents, primarily, charges to unbilled receivables to reserve unbilled accounts receivable
balance.
</TABLE>
<PAGE> F-22
July 1, 1998
Mr. George Fowler
5808 Beech Avenue
Bethesda, MD 20817
Dear George:
On behalf of Hadron I am pleased to renew the offer for you to
continue as the President and Chief Operating Officer of Hadron,
Inc., reporting to me. The annual salary for this position is
currently $145,000.00, paid bi-weekly.
The term of your employment is for one year, subject to renewal
annually, at the Company's discretion, for two additional one-year
terms; provided, however, that the Company shall have the right to
terminate your employment with no further obligation on the part of
the Company if you are convicted of a felony or a crime of moral
turpitude or if the Company determines that you have not
satisfactorily performed your duties. In the event that the
Company terminates your employment without cause, or if the Company
decides not to renew this agreement for any reason other than those
specified above, you shall receive six months' severance pay paid
out over six 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 on July 1, 1999,
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. As of October 4, 1998, the fifth anniversary of your
hire date, you shall be entitled to four weeks of paid vacation
leave and two weeks of sick leave per year.
In addition, and as part of your compensation package, you shall
continue to receive a car allowance in the amount of $350 per
month. Furthermore, the Company will reimburse you for all
reasonable expenses incurred in the performance of your duties in
accordance with the Company's standard policy.
<PAGE>
Mr. George Fowler
July 1, 1998
Page 2
You will also be a member of the Hadron Bonus Plan for Fiscal Year
1999.
In addition to the above, you will be eligible to receive incentive
stock options as stipulated in the Hadron, Inc. 1994 Stock Option
Plan and approved by the Board of Directors.
After review of the terms and conditions expressed above, sign the
agreement in the space provided and return a copy to me. I look
forward to the opportunity to continue to work with you here at
Hadron. I believe you will continue to find the position
challenging and worthy of your talents.
Very truly yours,
/S/ C.W. GILLULY
C. W. Gilluly
Chairman of the Board and
Chief Executive Officer
Accepted:
/S/ GEORGE FOWLER July 1, 1998
- ------------------------ -------------------
George Fowler Date
<PAGE>
July 1, 1998
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 in the position of Vice President of Hadron, as approved
by the Compensation committee of the Hadron Board of Directors.
The annual salary for this position is currently $5,000.00, paid
bi-weekly. In addition, I am pleased to renew the offer for you to
continue as the President of Hadron's subsidiary, Engineering &
Information Services, Inc., (EISI) reporting to George Fowler,
President of Hadron. The annual salary accompanying this position
is $105,000 per annum paid bi-weekly.
The term of your employment is for one year, subject to renewal
annually, at the Company's discretion, for two additional one-year
terms; provided, however, that the Company shall have the right to
terminate your employment with no further obligation on the part of
the Company if you are convicted of a felony or a crime of moral
turpitude or if the Company determines that you have not
satisfactorily performed your duties. In the event that the
Company terminates your employment without cause, or if the Company
decides not to renew this agreement for any reason other than those
specified above, you shall receive six months' severance pay paid
out over six 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 on July 1, 1999,
you shall be entitled to an increase in annual salary which is
commensurate with the annual increase awarded to other executive
officers of the Company, as determined by the Board of Directors.
During the term of your employment, you shall be entitled to
participate, on the same terms and conditions as other executive
employees of the Company, in such major medical, dental, life
insurance, 401(k), and other employee benefits which the Company
now provides or in the future may provide to its executive
employees. You shall be entitled to four weeks of paid vacation
leave and two weeks of sick leave per year.
<PAGE>
Mr. Donald Jewell
July 1, 1998
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.
You will also be a member of the Hadron Bonus Plan for Fiscal Year
1999.
In addition to the above, you will be eligible to receive incentive
stock options as stipulated in the Hadron, Inc. 1994 Stock Option
Plan, As Amended and approved by the Board of Directors.
After review of the terms and conditions expressed above, sign the
agreement in the space provided and return a copy to me. 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 July 1, 1998
- --------------------- -------------
Donald Jewell Date
<PAGE>
July 1, 1998
Mr. Donald E. Ziegler
11005 Forest Oak Lane
Great Falls, Virginia 22066
Dear Don:
On behalf of Hadron, Inc. (the "Company"), I am pleased to renew
the offer for you to continue as the Senior Vice President and
Chief Financial Officer of the Company working for George Fowler
and me. The annual salary accompanying this position is
$85,000 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
six months' severance pay, paid out over six 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 on July 1,
1999, 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, As Amended and approved by the Board
of Directors. In addition, you shall continue to 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>
You will also be a member of the Hadron Bonus Plan for Fiscal
Year 1999.
After review of the terms and conditions expressed above, sign
the agreement in the space furnished and return a copy to me.
George Fowler and I look forward to the opportunity to continue
to work with you here at Hadron. I believe you will continue to
find the positions challenging and worthy of your talents.
Very truly yours,
/S/ C.W. GILLULY
C.W. Gilluly, Ed.D.
Chairman and
Chief Executive Officer
Accepted:
/S/ DONALD E. ZIEGLER July 1, 1998
- --------------------- -------------
Donald E. Ziegler Date
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is entered into as of this 1st day of July,
1998, by and between HADRON, INC. (the "Company") and C. W.
Gilluly ("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 CHIEF EXECUTIVE OFFICER 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 his position. Employee shall report to
the Board of Directors (the "Board") of the Company.
During the term of this Agreement, Employee shall
devote such time to the business of the Company as
Employee and the Board deem appropriate, and the
Company hereby expressly acknowledges that Employee is
employed by other companies and agrees that Employee
may continue that employment, so long as no conflict
exists between the Company and such other entities. If
Employee determines that a conflict has or may arise
between his other employment and his duties and
responsibilities to the Company, Employee shall notify
the Board and shall assist the Board to establish and
implement appropriate procedures to resolve the
<PAGE>
conflict. Employee shall inform the Board of the
extent and nature of his activities on behalf of the
Company on a periodic basis.
2. Term. The Company hereby agrees to continue Employee
in its employ, and Employee hereby agrees to remain in
the employ of the Company, in accordance with the terms
and provisions of this Agreement, for the period
commencing on the date of this Agreement (the
"Effective Date") and ending on the second anniversary
of such date (the "Employment Period"). Subject to the
provisions of Section 8 hereof, the Employment Period
shall be a constant rolling period of two (2) years,
commencing on the Effective Date, with the result that,
for each day after the Effective Date, Employee's term
of employment shall be extended for an additional day
so that at all times the remaining period of Employee's
term of employment shall be two (2) years; provided
that the Employment Period shall end at the first day
of the month following Employee's sixty-fifth (65th)
birthday.
3. Base Salary. Employee's initial base salary shall be $
140,000. Employee's base salary for the future years
shall be determined by the Compensation Committee of
the Board in its sole discretion. 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. Such amount shall
be commensurate with the duties and responsibilities of
Employee.
5. Annual Bonus. In addition to Employee's Base Salary,
Employee shall be eligible to earn an annual bonus, in
accordance with the Company's Bonus Plan, if one is in
effect, or by action of the Board at the recommendation
of the Compensation Committee.
6. Fringe Benefits. Employee shall receive fringe
benefits, including an automobile allowance in the
initial amount of $250 per month, consistent with the
Company's policies for executive officers and as
approved by the Board.
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. Unless waived by Employee, the Company shall
provide to Employee the insurance and medical coverage
provided to the Company's executive officers, on the
same terms and conditions. Unless otherwise agreed to
by the Board and Employee, Employee shall be entitled
to four weeks of paid vacation during 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 been
convicted of a felony or crime of moral turpitude; or
for Employee's gross neglect of his 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.
<PAGE>
If, during the Employment Period, the Company shall
terminate Employee's employment other than for Cause,
the Company shall pay to Employee in a lump sum in cash
within 30 days after the date of termination the sum of
(1) Employee's base salary and bonus through the date
of termination to the extent not therefore paid; (2)
any compensation previously deferred by Employee
(together with any accrued interest or earnings
thereon) to the extent not therefore paid; (3) any
accrued vacation pay, to the extent not therefore paid;
and (4) the base salary that would have been payable to
Employee from the Date of Termination to the end of the
Employment Period.
9. Indemnification. The Company shall indemnify and hold
Employee harmless from and against any and all causes
of action, claims, costs, liabilities, expenses,
attorney's fees or damages arising from Employee's
performance of his 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.
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.
<PAGE>
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
effective as of the day first written above.
HADRON, INC. ACCEPTED & AGREED TO:
By: /S/ ROBERT J. LYNCH, JR. /S/ C.W. GILLULY
--------------------------------- -------------------
Robert J. Lynch, Jr. C. W. Gilluly
Chairman, Compensation Committee
Board of Directors
<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>
Exhibit 24.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration
Statements (Form S-8 No.333-37059 and No.333-42035) pertaining to
the Hadron, Inc. 1994 Stock Option Plan, As Amended and the
Hadron, Inc. 1997 Employee Stock Purchase Plan of our report
dated August 28, 1998, with respect to the consolidated financial
statements and schedule of Hadron, Inc. included in the Annual
Report (Form 10-K) for the year ended June 30, 1998.
Ernst & Young LLP
Vienna, Virginia
September 23, 1998
<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 IT
ENTIRETY BY REFERENCE TO SUCH 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 61
<SECURITIES> 0
<RECEIVABLES> 3,354
<ALLOWANCES> (210)
<INVENTORY> 0
<CURRENT-ASSETS> 3,246
<PP&E> 537
<DEPRECIATION> (421)
<TOTAL-ASSETS> 3,507
<CURRENT-LIABILITIES> 3,432
<BONDS> 0
0
0
<COMMON> 35
<OTHER-SE> (13)
<TOTAL-LIABILITY-AND-EQUITY> 3,507
<SALES> 21,134
<TOTAL-REVENUES> 21,134
<CGS> 18,118
<TOTAL-COSTS> 20,246
<OTHER-EXPENSES> 13
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56
<INCOME-PRETAX> 819
<INCOME-TAX> 58
<INCOME-CONTINUING> 761
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 761
<EPS-PRIMARY> .45
<EPS-DILUTED> .26
</TABLE>
