SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 27, 1999
HADRON, INC.
(Exact name of the registrant as specified in its charter)
New York 0-5404 11-2120726
(State of Incorporation) (Commission (I.R.S. Employer
File Number) Identification No.)
7611 Little River Turnpike, Suite 404 West, Annandale, Virginia 22003
(Address of principal executive offices) (Zip Code)
(703) 642-9404
Registrant's telephone number, including area code
<PAGE>
The undersigned Registrant hereby amends its Current Report on Form 8-K
dated May 27, 1999 by the addition of financial statements as set forth in
Item 7 below.
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired:
AVENUE TECHNOLOGIES, INC.
FINANCIAL STATEMENTS FOR THE YEARS
ENDED DECEMBER 31, 1998 AND 1997
Report of Independent Auditors
Balance Sheets
Statements of Operations
Statements of Changes in Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
AVENUE TECHNOLOGIES, INC.
FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
Balance Sheet as of March 31, 1999
Statements of Operations
Statements of Cash Flows
Notes to Financial Statements
(b) Pro Forma financial information:
HADRON, INC. PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Combined Balance Sheets as of March 31, 1999
Pro Forma Combined Statements of
Operations for the Nine Months Ended March 31, 1999
Pro Forma Combined Statements of
Operations for the Fiscal Year Ended June 30, 1998
Notes to Unaudited Pro Forma Combined
Financial Statements
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Item 7(a) Financial Statements of Business Acquired
AVENUE TECHNOLOGIES, INC.
FINANCIAL STATEMENTS FOR THE YEARS
ENDED DECEMBER 31, 1998 AND 1997 PAGE NO.
--------
Report of Independent Auditors 1
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Stockholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6
AVENUE TECHNOLOGIES, INC.
FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
Balance Sheet as of March 31, 1999 12
Statements of Operations 13
Statements of Cash Flows 14
Notes to Financial Statements 15
Item 7(b) Pro Forma Financial Information 16
HADRON, INC. PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Combined Balance Sheets as of March 31, 1999 17
Pro Forma Combined Statements of
Operations for the Nine Months Ended March 31, 1999 19
Pro Forma Combined Statements of
Operations for the Fiscal Year Ended June 30, 1998 20
Notes to Unaudited Pro Forma Combined
Financial Statements 21
<PAGE>
Item 7(a) Financial Statements of Businesses Acquired
Avenue Technologies, Inc.
Financial Statements
Years ended December 31, 1998 and 1997
with Report of Independent Auditors
<PAGE>
Avenue Technologies, Inc.
Financial Statements
Years ended December 31, 1998 and 1997
Contents
Report of Independent Auditors 1
Financial Statements
Balance Sheets 2
Statements of Operations.. 3
Statements of Changes in Stockholders' Equity. 4
Statements of Cash Flows 5
Notes to Financial Statements 6-11
<PAGE>
Report of Independent Auditors
Board of Directors
Avenue Technologies, Inc.
We have audited the accompanying balance sheets of Avenue
Technologies, Inc. as of December 31, 1998 and 1997, and the
related statements of operations, changes in stockholders'
equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform 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 financial statements referred to above
present fairly, in all material respects, the financial
position of Avenue Technologies, Inc. at December 31, 1998
and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally
accepted accounting principles.
/S/ Ernst & Young LLP
July 9, 1999
Washington, D.C.
<PAGE>
<TABLE>
Avenue Technologies, Inc.
Balance Sheets
<CAPTION>
December 31
1998 1997
------------- -----------
<S> <C> <C>
Assets
Cash and cash equivalents $ 8,750 $ 3,020
Accounts receivable, including
unbilled of $437,006 and $105,550 1,693,147 2,511,279
------------- -----------
Total current assets 1,701,897 2,514,299
Property and equipment, net 134,463 174,149
Other assets 80,159 94,656
------------- -----------
Total assets $ 1,916,519 $2,783,104
============= ===========
Liabilities and stockholders'
equity
Current liabilities:
Line of credit $ 760,000 $
Accounts payable 253,308 1,636,618
Accrued payroll and benefits 237,896 178,326
Demand note payable to stockholder 209,749 70,638
Deferred revenue 30,672 69,131
Current portion of long-term debt 16,086 22,244
Deferred taxes 66,367 199,065
------------- -----------
Total current liabilities 1,574,078 2,176,022
Long-term debt, less current maturities 28,387 66,024
------------- -----------
Stockholders' equity:
Common stock:
Class A, $.001 par value,
authorized 800,000 shares, issued
and outstanding 750,336 shares in
1998 and 496,673 shares in 1997 750 497
Class B, $.001 par value,
authorized, issued and outstanding
500,000 shares in 1998 and 1997 500 500
Additional capital 17,512 17,635
Retained earnings 295,292 522,426
------------- -----------
314,054 541,058
------------- -----------
Total liabilities and stockholders' equity $ 1,916,519 $2,783,104
============= ==========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
Avenue Technologies, Inc.
Statements of Operations
<CAPTION>
Year ended December 31
1998 1997
----------- ------------
<S> <C> <C>
Revenue $ 8,057,699 $ 9,545,662
Direct expenses 5,546,385 7,625,927
----------- ------------
Gross profit 2,511,314 1,919,735
Indirect expenses 2,914,021 1,518,590
----------- ------------
Operating income (loss) (402,707) 401,145
Other income (expense):
Other income 60,621 8,864
Interest income 11,242 770
Interest expense (29,088) (7,721)
----------- ------------
42,775 1,913
----------- ------------
Income (loss) before income taxes (359,932) 403,058
Benefit from (provision for) income
taxes 132,798 (167,676)
----------- ------------
Net income (loss) $ (227,134) $ 235,382
=========== ============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
Avenue Technologies, Inc.
Statements of Changes in Stockholders' Equity
<CAPTION>
Common Total
Stock Common Additional Retained Stockholders'
Shares Stock Capital Earnings Equity
------- ------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 754,629 $ 755 $ $ 287,044 $ 287,799
Net income 235,382 235,382
Issuance of
common stock 242,044 242 17,635 17,877
------- ------- ---------- --------- ------------
Balance at
December 31, 1997 996,673 997 17,635 522,426 541,058
Net loss (227,134) (227,134)
Issuance of
common stock 253,663 253 (123) 130
------- ------- ---------- --------- ------------
Balance at
December 31, 1998 1,250,336 $ 1,250 $ 17,512 $ 295,292 $ 314,054
========= ======= ========== ========= ============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
Avenue Technologies, Inc.
Statements of Cash Flows
<CAPTION>
Year ended December 31
1998 1997
---------- ----------
<S> <C> <C>
Operating activities
Net income (loss) $ (227,134) $ 235,382
Adjustments to reconcile net income
(loss) to net cash (used in) provided by
operating activities:
Depreciation and amortization 37,354 22,324
Deferred taxes (132,798) 167,676
(Increase) decrease in:
Accounts receivable 818,132 (1,815,655)
Other assets 14,497 (83,347)
Increase (decrease) in:
Accounts payable (1,383,310) 1,383,578
Accrued payroll and related taxes 59,570 65,646
Deferred revenue (38,459) 69,131
---------- ----------
Net cash (used in) provided by operating
activities (852,148) 44,735
Investing activities
Purchases of property and equipment (25,526) (140,798)
---------- ----------
Net cash (used in) investing activities (25,526) (140,798)
---------- ----------
Financing activities
Payments on line of credit (40,000) (530,000)
Proceeds from line of credit 800,000 480,000
Principal payments on long-term debt (15,837) (11,663)
Proceeds from long-term debt 67,354
Net proceeds (payments) on demand note
to stockholder 139,111 (24,615)
Proceeds from stock issuance 130
---------- ----------
Net cash provided by (used in) financing
activities 883,404 (18,924)
---------- ----------
Net increase (decrease) in cash and cash
equivalents 5,730 (114,987)
---------- ----------
Cash and cash equivalents, beginning of
year 3,020 118,007
---------- ----------
Cash and cash equivalents, end of year $ 8,750 $ 3,020
========== ==========
Supplemental disclosure of cash flow
information
Cash payments for interest $ 29,088 $ 7,721
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
Avenue Technologies, Inc.
Notes to Financial Statements
December 31, 1998 and 1997
1. Nature of Business and Significant Accounting Policies
Nature of Business
Avenue Technologies, Inc. (the Company) provides system
engineering, digital communications and computer consulting
services to government and private sector clientele in
the Washington metropolitan area.
A summary of the Company's significant accounting policies
follows:
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.
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.
<PAGE>
Cash Equivalents
Cash equivalents represent amounts invested in highly liquid
short-term instruments with a maturity of three months or
less.
Revenue and Cost Recognition
Revenue from "cost-plus-fixed-fee" contracts is recognized
on the basis of reimbursable contract costs incurred during
the period plus the fee earned. Revenue from "time and
material" contracts is recognized on the basis of man-hours
provided plus other reimbursable contract costs incurred
during the period. Revenue from "firm fixed price"
contracts is recognized on the percentage of completion
method. Under this method, individual contract revenue
earned is increased by the percentage relationship that
contract costs incurred bear to management's estimate of
total contract costs. The Company provides currently for
all known or anticipated losses on contracts.
Accounts Receivable
Accounts receivable is comprised of amounts billed to the
U.S. government and unbilled amounts that are for rate
variances between provisional and actual rates, fee
withholdings, and retentions. In accordance with industry
practice, accounts receivable relating to long-term
contracts are classified as current, even though a portion
of these, including the rate variances, may not be realized
within one year. Similarly, payables relating to long-term
contracts are classified as current.
Property and Equipment
Property and equipment are stated at cost and depreciated or
amortized over the estimated useful lives of the assets
(generally three to five years) using the straight-line
method.
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.
<PAGE>
2. Property and Equipment
<TABLE>
1998 1997
------------ -----------
<S> <C> <C>
Furniture and equipment $ 52,342 $ 46,786
Computer equipment 95,682 79,553
Vehicle 30,604 60,479
Leasehold improvements 25,529 21,279
------------ -----------
204,157 208,097
Less accumulated depreciation and amortization 69,694 33,948
------------ -----------
$ 134,463 $ 174,149
============ ===========
</TABLE>
Depreciation and amortization expenses on property and
equipment in the amount of $37,354 and $22,324 were charged
to operations for the years ended December 31, 1998 and
1997, respectively.
3. Long-Term Debt
Long-term debt at December 31, 1998 and 1997 consisted of
the following:
<TABLE>
1998 1997
---------- -----------
<S> <C> <C>
Note payable with the original
principal of $19,818, dated May 28,
1998, payable in 60 monthly
installments of $413 including
interest at 8.99%, secured by vehicle,
due May 2003. $17,946 $
Note payable (term loan), with the
original principal sum of $38,000,
dated December 18, 1997, payable in 36
monthly installments of $1,220,
including interest at 9.5%, secured by
furniture, guaranteed by stockholder,
due December 2000. 26,527 38,000
Note payable with the original
principal sum of $30,000, dated May 8,
1996, payable in 60 monthly
installments of $636 including
interest at 9.75%, secured by vehicle,
due May 2001. 22,119
Note payable with the original
principal sum of $29,354, dated
September 12, 1997, payable in 60
monthly installments of $597 including
interest at 7.99%, secured by vehicle,
due September 2002. 28,149
---------- -----------
44,473 88,268
Less current maturities 16,086 22,244
---------- -----------
$28,387 $66,024
========== ===========
</TABLE>
<PAGE>
Maturities of long-term obligations at December 31, 1998 are
due in future years as follows:
Years ending December 31,
<TABLE>
<S> <C>
1999 $ 16,086
2000 17,682
2001 4,146
2002 4,554
2003 2,005
----------
$ 44,473
==========
</TABLE>
The Company had available an $800,000 line of credit
facility, which accrued interest at 1.5% above the prime
rate. The facility expired in May 1999. Borrowings were
subject to borrowing base requirements based on eligible
accounts receivable, were secured by accounts receivable and
property and equipment and were guaranteed by the
stockholder.
4. Employee Profit-Sharing Plan
The Company has a 401(k) salary deferral plan that covers
full-time employees who meet minimum age requirements. The
plan provides for discretionary Company contributions for
eligible employees out of current or accumulated net
profits. Profit-sharing expense of $88,964 and $46,106 was
charged to operations for the years ended December 31, 1998
and 1997, respectively.
5. Income Taxes
The components of the income tax (provision) benefit for the
years ended December 31, 1998 and 1997, are as follows:
<TABLE>
1998 1997
--------- ----------
<S> <C> <C>
Current:
Federal $ $
State
--------- ----------
--------- ----------
Deferred:
Federal 119,107 (150,474)
State 13,691 (17,202)
--------- ----------
132,798 (167,676)
--------- ----------
$ 132,798 $(167,676)
========= ==========
</TABLE>
<PAGE>
Taxable temporary differences giving rise to deferred tax
assets and liabilities are related to net operating loss
carryforwards, depreciable basis of property and equipment
and the use of the cash basis of accounting for income tax
purposes and the accrual basis of accounting for financial
statement purposes. The net operating losses are available
through the year 2011 to offset future taxable income. As
of December 31, 1998, the net operating loss totaled $1
million.
6. Transactions With Related Parties
McLean Research Corporation ("MRC"), a company owned in part
by Howard C. Whetzel, Chairman of the Company, subleases
office space at the Company's headquarters. The month-to-
month sublease provides for a pro-rata share of the lease
rent. MRC moved to new offices in July 1999.
In December 1998, MRC paid the Company $48,265 for its
assistance in the transfer of certain Company employees to
MRC.
7. Commitments and Contingencies
The Company rents office space under a noncancelable
operating lease, which expires December 31, 2002. Minimum
monthly rent in 1999 is $26,989 with a 3% increase each
year. In addition, the Company is required to pay its pro
rata share of real estate taxes and operating expenses.
As of December 31, 1998, the Company has a letter of credit
agreement for $52,411. In the event of default on its lease
agreement for office space, the landlord is the beneficiary
of the letter of credit. The letter is secured by the
assets of the Company.
The Company entered into a sublease arrangement for office
space in Arlington, Virginia, commencing June 1, 1998, and
ending May 31, 2000. In addition to basic monthly rent of
$1,308, the Company is responsible for a pro rata share of
real estate taxes and operating expenses.
Total future minimum lease payments as of December 31, 1998
are as follows:
Years ending December 31,
<TABLE>
<S> <C>
1999 $ 339,557
2000 340,086
2001 343,554
2002 353,861
----------
$1,377,058
==========
</TABLE>
<PAGE>
Rental expense was $290,568 and $110,767 for the years ended
December 31, 1998 and 1997, respectively.
The Company's revenues and costs related to contracts with
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 1997. 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.
In December 1997, the Company received a Stop Work Order
from a Department of Defense agency. The contract was
terminated for convenience. The Company has submitted a
termination claim for approximately $419,000, representing
the costs incurred by the Company and its subcontractors.
The U.S. government has questioned certain of the costs
submitted. Discussions are ongoing for the resolution of
the final claim amounts. It is reasonably possible that a
lesser amount could be received. The Company believes that
resolution of the claim will not have a material adverse
financial impact.
8. Subsequent Event
On May 12, 1999, Hadron, Inc. purchased all the outstanding
common stock of the Company for approximately $2.5 million.
The Company will operate as a wholly-owned subsidiary of
Hadron, Inc.
9. Year 2000 (unaudited)
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.
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 assess 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 during 1999 and will update its assessment
of any impact at that time.
<PAGE>
Avenue Technologies, Inc.
Financial Statements (Unaudited)
Three months ended March 31, 1999 and 1998
<PAGE>
<TABLE>
Avenue Technologies, Inc.
Balance Sheet (Unaudited)
<CAPTION>
March 31
1999
--------------
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 76,452
Accounts receivable, including
unbilled of $67,907 1,301,509
--------------
Total current assets 1,377,961
Property and equipment, net 126,485
Other assets 50,063
--------------
Total assets $ 1,554,509
==============
Liabilities and stockholders' equity
Current liabilities:
Line of credit $ 800,000
Accounts payable 206,435
Accrued payroll and benefits 218,192
Deferred revenue 30,672
Deferred taxes 12,011
--------------
Total current liabilities 1,267,310
Long-term debt, less current maturities 65,363
--------------
Stockholders' equity:
Common stock:
Class A, $.001 par value,
authorized 800,000 shares, issued
and outstanding 750,736 shares 750
Class B, $.001 par value,
authorized, issued and outstanding
500,000 shares 500
Additional capital 17,672
Retained earnings 202,914
--------------
221,836
--------------
Total liabilities and stockholders' equity $ 1,554,509
==============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
Avenue Technologies, Inc.
Statements of Operations (Unaudited)
<CAPTION>
Three Months
ended March 31
1999 1998
------------ -----------
<S> <C> <C>
Revenue $ 1,132,214 $ 2,670,228
Direct expenses 656,456 1,977,547
------------ -----------
Gross profit 475,758 692,681
Indirect expenses 611,828 823,519
------------ -----------
Operating loss (136,070) (130,838)
Other income (expense):
Interest income 112 475
Interest expense (10,673) (2,071)
------------ -----------
(10,561) (1,596)
------------ -----------
Loss before income taxes (146,631) (132,434)
Benefit from income taxes 54,253 49,000
------------ -----------
Net loss $ (92,378) $ (83,434)
============ ===========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
Avenue Technologies, Inc.
Statements of Cash Flows (Unaudited)
Three Months ended
March 31
1999 1998
----------- ------------
<S> <C> <C>
Operating activities
Net loss $ (92,378) $ (83,434)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization 7,609 1,964
Deferred taxes (54,356) (196,024)
(Increase) decrease in:
Accounts receivable 391,638 762,096
Other assets 30,096 9,389
Increase (decrease) in:
Accounts payable (46,873) (1,031,108)
Accrued payroll and related taxes (19,704) 123,519
Deferred revenue 63,000
----------- ------------
Net cash provided by (used in) operating
activities 216,032 (350,598)
Investing activities
Purchases of property and equipment 369 (11,765)
----------- ------------
Net cash provided by (used in) investing
activities 369 (11,765)
----------- ------------
Financing activities
Payments on line of credit (760,000)
Proceeds from line of credit 800,000 222,327
Principal payments on long-term debt (3,858) (6,152)
Net payments on demand note to
stockholder (185,001) (9,000)
Proceeds from stock issuance 160
----------- ------------
Net cash provided by (used in) financing
activities (148,699) 207,175
----------- ------------
Net increase (decrease) in cash and cash
equivalents 67,702 (155,188)
Cash and cash equivalents, beginning of
period 8,750 3,020
----------- ------------
Cash and cash equivalents, end of period $ 76,452 $ (152,168)
=========== ============
</TABLE>
See accompanying notes.
<PAGE>
Avenue Technologies, Inc.
Notes to Financial Statements (Unaudited)
March 31, 1999 and 1998
1. Basis of Presentation
The interim financial statements for Avenue Technologies,
Inc. (the Company) are unaudited, but in the opinion of
management reflect all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation
of results for such periods. The results of operations for
any interim period are not necessarily indicative of results
for the full year. These financial statements should be
read in conjunction with the financial statements and notes
thereto included in the financial statements for the year
ended December 31, 1998.
<PAGE>
Item 7(b) Pro Forma Financial Information
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma combined financial
statements are based upon the historical consolidated financial
statements of Hadron, Inc. (the "Company") adjusted to give
effect to the acquisition of Avenue Technologies, Inc. ("ATI") by
the Company under the purchase method of accounting in accordance
with Accounting Principles Board Opinion No. 16. The acquisition
of ATI was consummated in May 1999.
The unaudited pro forma combined balance sheets at
March 31, 1999 are presented as if the above transactions were
consummated on March 31, 1999. The unaudited pro forma condensed
combined statements of operations for the nine months ended March
31, 1999 and the fiscal year ended June 30, 1998 are presented as
if the above transactions were consummated on July 1, 1997.
This information should be read in conjunction with the
notes and the consolidated financial statements of the Company
incorporated by reference herein and the financial statements of
ATI included herein. The unaudited pro forma combined
financial data do not purport to represent what the Company's
results of operations actually would have been had such
transactions and events occurred on the dates specified, or to
project the Company's results of operations for any future period
or date. In the opinion of management of the Company, all
adjustments and reclassifications have been made that are
necessary to present the pro forma combined data.
A preliminary allocation of the purchase price has been made
to the assets and liabilities based on available information.
The actual allocation of purchase price and the resulting effect
on income from operations may differ significantly from the pro
forma amounts included herein. These pro forma adjustments
represent the Company's preliminary determination of purchase
accounting adjustments and are based upon available information
and certain assumptions that the Company believes to be
reasonable. Consequently, the amounts reflected in the pro forma
financial statements are subject to change, and the final amounts
may differ substantially.
<PAGE>
<TABLE>
HADRON, INC.
PRO FORMA COMBINED BALANCE SHEETS (UNAUDITED)
AS OF MARCH 31, 1999
<CAPTION>
Historical Historical Pro Forma
ASSETS HADRON ATI Adjustments Combined
- ------ ---------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 67,400 $ 76,452 $ (95,624)<F1> $ 48,228
Accounts receivable, net 2,783,500 1,301,509 4,085,009
Prepaid expenses and other 184,100 184,100
---------- ---------- ----------- ----------
Total current assets 3,035,000 1,377,961 (95,624) 4,317,337
---------- ---------- ----------- ----------
Fixed assets 169,700 126,485 296,185
Assets held for resale 135,900 135,900
Goodwill 2,407,296 <F2> 2,407,296
Other 33,900 50,063 83,963
---------- ---------- ----------- ----------
Total other assets 339,500 176,548 2,407,296 2,923,344
---------- ---------- ----------- ----------
Total assets $3,374,500 $1,554,509 $2,311,672 $7,240,681
========== ========== =========== ==========
<FN>
<F1> Represents cash payments of approximately $96,000 related to the
acquisition, including payments to ATI shareholders' and financial
advisors.
<F2> To record goodwill of approximately $2,407,000 associated with the
purchase.
</FN>
</TABLE>
See Notes to Pro Forma Combined Financial Statements
(Unaudited)
-17-
<PAGE>
<TABLE>
HADRON, INC.
PRO FORMA COMBINED BALANCE SHEETS (UNAUDITED)
AS OF MARCH 31, 1999
<CAPTION>
Historical Historical Pro Forma
LIABILITIES AND SHAREHOLDERS' EQUITY HADRON ATI Adjustments Combined
------------------------------------ ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable $ 369,000 $ 206,435 $ $ 575,435
Note payable - line of credit 800,000 800,000
Notes payable - related parties 330,900 1,475,672 <F3> 1,806,572
Other current liabilities 2,174,900 218,192 60,000 <F4> 2,453,092
Deferred taxes 12,011 12,011
Deferred revenue 30,672 30,672
---------- ---------- ---------- -----------
Total current liabilities 2,874,800 1,267,310 1,535,672 5,677,782
---------- ---------- ---------- -----------
Note payable - related party 100,000 997,836 <F3> 1,097,836
Long-term debt 65,363 65,363
Other 56,500 56,500
---------- ---------- ---------- -----------
Total long-term liabilities 156,500 65,363 997,836 1,219,699
---------- ---------- ---------- -----------
Total liabilities 3,031,300 1,332,673 2,533,508 6,897,481
---------- ---------- ---------- -----------
Shareholders' equity:
Common stock 37,000 1,250 (1,250)<F5> 37,000
Additional capital 9,502,600 17,672 (17,672)<F5> 9,502,600
Accumulated deficit (9,196,400) 202,914 (202,914)<F5> (9,196,400)
---------- ---------- ---------- -----------
Total shareholders' equity 343,200 221,836 (221,836) 343,200
---------- ---------- ---------- -----------
Total liabilities and shareholders'
equity $3,374,500 $1,554,509 $2,311,672 $7,240,681
========== ========== =========== ===========
<FN>
<F3> To record issuance of notes payable, including 90-day notes for
approximately $1,476,000 and 3-year $997,000 notes.
<F4> To record legal and financial expenses of approximately $60,000
associated with the acquisition.
<F5> To eliminate ATI's shareholders' equity of approximately $222,000
at purchase date.
</FN>
</TABLE>
See Notes to Pro Forma Combined Financial Statements
(Unaudited)
-18-
<PAGE>
<TABLE>
HADRON, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 1999
<CAPTION>
Historical Results for
Nine Months Ended
March 31, 1999
Pro Forma
Hadron ATI Adjustments Combined
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $14,943,200 $ 4,311,861 $ $19,255,061
----------- ----------- ------------ ------------
Operating costs and expenses:
Costs of revenue 13,203,100 4,114,133 17,317,233
Selling, general and administrative 1,498,100 594,873 257,925 <F6> 2,350,898
----------- ----------- ------------ ------------
Total operating costs and expenses 14,701,200 4,709,006 257,925 19,668,131
Operating income (loss) 242,000 (397,145) (257,925) (413,070)
----------- ----------- ------------ ------------
Other income (expense) (26,700) 34,673 (130,676)<F7> (122,703)
----------- ----------- ------------ ------------
Income (loss) before income taxes 215,300 (362,472) (388,601) (535,773)
Benefit from (provision for) income taxes (24,900) 133,737 108,837
----------- ----------- ------------ ------------
Net income (loss) $ 190,400 $ (228,735) $ (388,601) $ (426,936)
=========== =========== ============ ============
Per share data:
Net income (loss) per share
Basic $ .11 $ (.24)<F8>
=========== ============
Diluted $ .06 $ (.24)<F8>
=========== ============
Weighted average number of shares
Basic 1,774,225 1,774,225<F8>
=========== ============
Diluted 3,109,660 1,774,225<F8>
=========== ============
<FN>
<F6> To record goodwill amortization of approximately $258,000.
<F7> To record interest expense related to the notes payable
discussed above of approximately $131,000.
<F8> To reflect the impact of the acquisition on the Company's
basic and diluted earnings per share computations.
</FN>
</TABLE>
See Notes to Pro Forma Combined Financial Statements
(Unaudited)
- 19 -
<PAGE>
<TABLE>
HADRON, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
<CAPTION>
Historical Results for
Fiscal Year ended
June 30, 1998
Pro Forma
Hadron ATI Adjustments Combined
----------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues $21,133,900 $10,953,237 $ $32,087,137
----------- ----------- -------------- ------------
Operating costs and expenses:
Costs of revenue 18,118,100 10,027,897 28,145,997
Selling, general and administrative 2,127,500 825,502 343,899 <F6> 3,296,901
----------- ----------- -------------- ------------
Total operating costs and expenses 20,245,600 10,853,399 343,899 31,442,898
----------- ----------- -------------- ------------
Operating income (loss) 888,300 99,838 (343,899) 644,239
----------- ----------- -------------- ------------
Other income (expense) (69,200) 12,537 (174,235)<F7> (230,898)
----------- ----------- -------------- ------------
Income (loss) before income taxes 819,100 112,375 (518,134) 413,341
Provision for income taxes (58,500) (53,381) (111,881)
----------- ----------- -------------- ------------
Net income (loss) $ 760,600 $ 58,994 $ (518,134) $ 301,460
=========== =========== ============== ============
Per share data:
Net income per share
Basic $ .45 $ .18 <F8>
=========== ============
Diluted $ .26 $ .11 <F8>
=========== ============
Weighted average number of shares
Basic 1,686,808 1,686,808 <F8>
=========== ============
Diluted 2,990,897 3,434,381 <F8>
=========== ============
<FN>
<F6> To record goodwill amortization of approximately $344,000.
<F7> To record interest expense related to the notes payable
discussed above of approximately $174,000.
<F8> To reflect the impact of the acquisition on the Company's
basic and diluted earnings per share computations.
</FN>
</TABLE>
See Notes to Pro Forma Combined Financial Statements
(Unaudited)
- 20 -
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999 AND JUNE 30, 1998
1. Acquisition of Avenue Technologies, Inc.
Effective May 12, 1999, the Company acquired Avenue
Technologies, Inc. ("ATI"), a privately-held defense analysis
firm based in Alexandria, VA, for approximately $2,500,000. ATI
will operate as a wholly-owned subsidiary. The purchase price
was satisfied with a payment of $27,000 and the issuance of 90-
day notes for approximately $1,476,000, interest payable at the
prime rate (7.75% at March 31, 1999), and 3-year $997,000
convertible notes, interest payable at 6%. The 3-year notes
are convertible into 444,000 shares of the Company's Common Stock
at $2.25 per share. The Company incurred financial, legal and
accounting costs associated with the ATI purchase of
approximately $129,000, of which $69,000 was paid in cash at closing.
Included in these fees was a $25,000 payment made to a
Hadron employee for advisory services in connection with the
purchase.
(A) Represents cash payments of approximately $96,000 related to
the acquisition, including payments to ATI shareholders' and
financial advisors.
(B) To record goodwill of approximately $2,407,000 associated
with the purchase, representing the total cost of acquisition
of $2,629,000 in excess of the fair value of assets acquired of
$1,555,000 and liabilities assumed of $1,333,000.
(C) To record issuance of notes payable, including 90-day notes
for approximately $1,476,000 and 3-year $997,000 notes.
(D) To record legal and financial costs payable of approximately
$60,000 associated with the acquisition.
(E) To eliminate ATI's shareholders' equity of approximately
$222,000.
(F) To record goodwill amortization of approximately $258,000 and
$344,000 for the nine and twelve months, respectively, based on
an amortization period of seven years.
(G) To record interest expense related to the notes payable
issued in connection with the acquisition of approximately
$131,000 and $174,000 for the nine and twelve months, respectively.
(H) To reflect the impact of the acquisition on the Company's
basic and diluted earnings per share computations, as
reflected below:
<PAGE>
2. Earnings per Share
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
Pro Forma Combined Pro Forma Combined
Nine Months ended Fiscal Year Ended
March 31, 1999 June 30, 1998
----------------- ------------------
<S> <C> <C>
Numerator: Net income (loss) $ (426,900) $ 301,500
Effect of dilutive securities:
Convertible debt 71,900
----------------- ------------------
Numerator for diluted earnings
per share - income available
to common shareholders after
assumed conversion $ (426,900) $ 373,400
================= ==================
Denominator:
Denominator for basic
earnings per share:
weighted average shares
outstanding 1,774,225 1,686,808
Effect of dilutive securities:
Warrants 855,064
Employee stock options 249,025
Convertible debt 643,484
----------------- ------------------
Denominator for diluted
earnings per share 1,774,225 3,434,381
================= ==================
Basic earnings per share $ (.24) $ .18
================= ==================
Diluted earnings per share $ (.24) $ .11
================= ==================
</TABLE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hadron, Inc.
Date: July 26, 1999 By: /S/ C.W. GILLULY
--------------------------------
C.W. Gilluly
Chairman and Chief Executive
Officer
<PAGE>
