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, 1999
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)
7611 Little River Turnpike, Suite 404 West
Annandale, Virginia 22003
(Address of principal executive offices)
Registrant's telephone number including area code
(703) 642-9404
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, 1999, the aggregate market value of the common stock of
the registrant held by non-affiliates of the registrant (based upon the
average bid and asked prices of the common stock as reported by the
National Association of Securities Dealers Inc. through its Electronic OTC
Bulletin Board) was approximately $1,379,573.
As of September 23, 1999, 2,707,217 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 developing innovative technical solutions for the
intelligence community, analyzing and supporting defense systems
(including intelligent weapons systems and biological warfare
defense), and supporting computer systems. The Company was
incorporated in New York in 1964, and can be found on the
Internet at www.hadron.com.
Operations
The Company's ongoing operations are formally structured
along the business lines of its four operating subsidiaries,
although there is considerable cooperation and interaction among
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 45% of the 1999
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 40% of the 1999 revenues of the
Company.
Vail Research and Technology Corporation ("Vail")
Effective December 18, 1998, the Company acquired Vail
Research and Technology Corporation ("Vail"), a privately-held
information technology firm based in Annandale, VA, for
approximately $1,580,000. Vail operates as a wholly-owned
subsidiary of Hadron. Vail provides a comprehensive range of
superior-quality professional and technical services to clients -
including the U.S. Navy, Defense Advanced Research Projects
Agency (DARPA), U.S. Army, U.S. Air Force, U.S. Special
Operations Command, NASA, Department of Transportation,
Department of Commerce, Department of Energy as well as numerous
private-sector firms.
Avenue Technologies, Inc. ("ATI")
Effective May 12, 1999, the Company acquired Avenue
Technologies, Inc. ("ATI"), a privately-held information
technology firm based in Alexandria, VA, for approximately
$2,500,000. ATI operates as a wholly-owned subsidiary of Hadron.
Within the broad field of information technology, ATI specializes
in the areas of intelligence, special operations and systems
integration support. ATI core competencies include systems
integration, specialized software development, technical
evaluation services, intelligence systems architectures,
specialized training services, and information operations
support. Key ATI clients include the National Reconnaissance
Office, the Defense Intelligence Agency, the National Security
Agency, the Naval Research Laboratory, the U.S. Navy, and the
Defense Advanced Research Projects Agency (DARPA).
<PAGE>
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 54%, 57% and 55% of the
Company's total consolidated revenues for the fiscal years 1999,
1998 and 1997, respectively. During the same fiscal years,
SyCom's revenues respectively accounted for 40%, 43% and 44% of
consolidated revenues. The combined revenues of Vail and ATI
accounted for 6% of the Company's total consolidated revenues for
fiscal year 1999.
The Company's backlog of orders believed to be firm as of
June 30, 1999 approximates $16 million, which the Company expects
will be filled during fiscal 2000. As of June 30, 1998, the
Company had approximately $15 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.
<PAGE>
As of June 30, 1999 the Company (including its subsidiaries)
employed approximately 250 people, including 10 and 45 employees
for Vail and ATI, respectively. 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 1999. The Company's
other U.S. government contracts and subcontracts produced
approximately 12% of the Company's total revenues during fiscal
year 1999. 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 that allow for the
termination of contracts at the convenience of the U.S.
government.
The preponderance of the Company's technical and
professional service business with the DoD and other governmental
agencies is obtained through competitive procurement and through
"follow-up" services related to existing business. In certain
instances, however, the Company acquires such service contracts
because of special professional competency or proprietary
knowledge in specific subject areas.
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.
During fiscal year 1998, PEI ceased operations. In accordance
with the terms of the agreement, the HeaTreaT assets reverted to
SyCom. The Company retained a third party to pursue the sale of
these assets, which had a carrying value of $135,900 at June 30,
1998. These efforts proved unsuccessful and the Company wrote
off the investment in the fourth quarter of fiscal year 1999.
<PAGE>
In January 1999, the Company announced establishment of an
acquisition program to further growth and diversification of its
client base. In connection with the program, the Company
retained Boles, Knop and Company, L.L.C. to provide investment
banking services.
In April 1999, the Company hired a chief scientist and
business development executive with extensive experience in the
areas of biological weapons defense and counter terrorism, in
order to establish and develop initiatives in these fields.
Item 2. Properties
The Company owns no real estate. As of June 30, 1999, the
Company leased a total of 29,800 square feet of office space.
These leases expire between February and December 2002. (See Note
10 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, 1999 and
June 30, 1998 is shown below:
Fiscal Year Ended June 30, 1999 High Low
- ------------------------------- ------- ------
First Quarter
(7/1 to 9/30/98) 2 1/16 1 5/8
Second Quarter
(10/1 to 12/31/98) 2 1 5/8
Third Quarter
(1/1 to 3/31/99) 1 5/8 1 9/32
Fourth Quarter
(4/1 to 6/30/99) 1 5/16 1 9/32
Fiscal Year Ended June 30, 1998 High Low
- ------------------------------- ------- -------
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
As of September 23, 1999, there were approximately 2,164
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
2000.
<PAGE>
<TABLE>
Item 6. Selected Financial Data
Fiscal Year Ended
June 30
<CAPTION>
1999 1998 1997 1996 1995
------- ------- ------ ------- -------
(In Thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Total Revenues $20,333 $21,134 $16,988 $18,306 $20,534
Operating Income (Loss) 63 888 128 59 (161)
Interest Expense, net of
Interest income 78 56 84 132 217
Income (Loss)
before income taxes &
extraordinary item 48 819 57 194 (436)
Income (Loss)
before extraordinary item 34 761 13 162 (460)
Extraordinary item -
gain on retirement
of debt 2,718
Net Income 34 761 13 162 2,258
Income (Loss) per share
of Common Stock:
Per share data:
Income (Loss) before
extraordinary item
Basic .02 .45 .01 .11 (.31)
Diluted .01 .26 .01 .11 (.31)
Extraordinary item - gain on
retirement of debt 1.82
Net Income
Basic .02 .45 .01 .11 1.51
Diluted .01 .26 .01 .11 1.51
At Period End:
Total Assets 6,690 3,507 2,712 2,874 4,373
Long-term Liabilities 2,160 53 169 320 341
Working Capital (Deficit) (67) (186) (906) (654) (978)
Shareholders' Equity
(Deficit) 456 22 (811) (869) (1,047)
</TABLE>
<PAGE>
Item 7 and 7A. Management's Discussion and Analysis of Financial
Condition and Results of Operations and Quantitative
and Qualitative Disclosure about Market Risk
Results of Operations
Comparison Of Fiscal Year 1999 To Fiscal Year 1998
Revenues for the fiscal year ended June 30, 1999 were
approximately $20,333,000, a 4% decrease from the prior fiscal
year. This decrease reflects fewer contract requirements at
major government and commercial customers of both EISI and SyCom,
primarily due to certain government budgetary constraints,
partially offset by revenues from newly acquired companies Vail
and ATI.
Costs of revenue for the fiscal year ended June 30, 1999
were approximately $17,735,000, a decrease of approximately 2%
from the prior fiscal year. The decrease is due primarily to a
decrease in billable positions with major government and
commercial customers of both EISI and SyCom. Costs of revenue as
a percentage of revenues were approximately 87% and 86% for the
fiscal years ended June 30, 1999 and 1998, respectively. This 1%
increase is due primarily to retaining technical professionals
awaiting new tasking by customers.
Selling, general and administrative expenses totaled
approximately $2,535,000 for the fiscal year ended June 30, 1999,
compared with approximately $2,128,000 for the prior fiscal year.
The increase is primarily due to the Company's addition of key
administrative personnel heading up the Company's business
development efforts.
The Company had an operating profit of $63,000 in the
current fiscal year, compared to an operating profit of $888,000
in the prior fiscal year. This decrease is primarily
attributable to the loss of billable employees due to customer
cutbacks, coupled with the retaining of technical personnel on
overhead while awaiting new customer tasking and funding, along
with the increase in corporate personnel hired to develop the
Company's initiatives in the areas of biological weapons defense
and counter terrorism.
For the twelve months ended June 30, 1999, other income
(expense) decreased by $55,000, primarily reflecting the write-
off of assets held for resale and certain miscellaneous
liabilities.
Net income was approximately $34,000, compared to net income
of approximately $761,000 in the prior year. The decrease
resulted from the loss of billable positions and hiring freezes
by the Company's major customers, coupled with the costs of
retaining key technical professional personnel and diversifying
business development efforts.
<PAGE>
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.
Capital Resources and Liquidity
The working capital deficit at June 30, 1999 decreased by
approximately $120,000 from June 30, 1998. The Company's
profitability, coupled with its acquisitions of Vail and ATI,
contributed to funding working capital requirements.
Effective June 29, 1999, the Company entered into a Line of
Credit Agreement with United Bank, which provides the Company
with a $1,500,000 line of credit facility. The line of credit
provides additional working capital availability to fund the
Company's growth. Borrowings outstanding under the line of
credit totaled $639,000 at June 30, 1999.
<PAGE>
The Company is exposed to market risks related to
fluctuations in interest rates on its debt. Increases in
prevailing interest rates could increase the Company's interest
payment obligations relating to variable rate debt. For example,
a 100 basis points increase in interest rates would increase
annual interest expense by $21,000.
For the twelve months ended June 30, 1999, the Company
generated cash flows from operations of approximately $469,000.
In addition, the Company received new capital of approximately
$325,000 resulting from the exercise of warrants, conversion of
debt and purchases under the Employee Stock Purchase Plan during
fiscal year 1999.
The Company is pursuing a previously announced acquisition
program as part of its growth strategy. No assurances can be
made as to the success of the program. Previous acquisitions
have been funded through internal and external sources.
Continuing profitability and availability of external financing
are necessary for successful implementation of the growth
strategy. The Company may require infusion of equity capital in
pursuit of its strategy.
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.
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 (external agents). Letters have been 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 has received and reviewed the
replies and its assessment is that the Company's major vendors
and customers appear to be Year 2000 ready.
Management of the Company believes it has an effective
program in place to assess the Year 2000 issue. As noted above,
the Company is still completing all necessary phases of the Year
2000 program. Failure on the part of the external agents to
comply and disruptions in the economy generally resulting from
Year 2000 issues could materially affect the Company. The amount
of potential liability and lost revenues cannot be reasonably
estimated at this time.
The Company currently has no contingency plans in place in
the event its external agents do not complete all phases of the
Year 2000 resolution process. The Company is presently
evaluating the status of completion and is determining whether
such a plan is necessary.
<PAGE>
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 include 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
the Company's ability to successfully identify, complete and
integrate acquisitions. Other risks may be detailed from time
to time in the Company's SEC reports.
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, 1999 and 1998 F-2
Consolidated Statements of Operations for the fiscal
years ended June 30, 1999, 1998, and 1997 F-4
Consolidated Statements of Shareholders' Equity (Deficit)
for the fiscal years ended June 30, 1999, 1998, and 1997 F-5
Consolidated Statements of Cash Flows for the
fiscal years ended June 30, 1999, 1998, and 1997 F-6
Notes to Consolidated Financial Statements F-7
(a) (2) Financial Statement Schedules
All 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
On May 27, 1999, the Company filed a report on Form 8-K
disclosing that on May 12, 1999, the Company acquired all the
oustanding capital stock of the Avenue Technologies, Inc.
("ATI").
On July 14, 1999, the Company filed a report on Form 8-K
disclosing that on June 29, 1999, the Company entered into a Loan
and Security Agreement (the "Loan Agreement") among the Company,
United Bank and each of the Company's wholly owned subsidiaries,
ATI, Vail, SyCom, and EISI. The Loan Agreement provides the
Company with a one-year $1.5 million line of credit facility (the
"Credit Facility") and a three-year $1.5 million term loan (the
"Term Loan").
On July 26, 1999, the Company filed a report on Form 8-K/A
amending its Current Report on Form 8-K dated May 27, 1999 by the
addition of required financial statements.
<PAGE>
(c) Exhibits
Exhibit No.
2.1 Stock Purchase Agreement dated as of December 18, 1998
among Jeannine Mantz, Hadron, Inc., and Vail Research
And Technology Corporation (incorporated by reference
to the Company's Current Report on Form 8-K filed
January 4, 1999).
2.2 Stock Purchase Agreement dated as of May 12, 1999 among
Hadron, Inc., Avenue Technologies, Inc. and Six
Nations, Inc. (incorporated by reference to the
Company's Current Report on Form 8-K filed May 27,
1999).
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 Hadron, Inc. 1994 Employee Stock Option Plan, As
Amended (incorporated by reference to the Company's
Proxy Statement dated October 28, 1994).
10.2 Hadron, Inc. 1997 Employee Stock Purchase Plan
(incorporated by reference to the Company's Proxy
Statement dated October 28,1997).
10.3 Employment Agreement entered into the 18th day of
December, 1998, by and between Hadron, Inc. and
Jeannine Mantz (incorporated by reference to the
Company's Current Report on Form 8-K filed January 4,
1999).
<PAGE>
10.4 Investment Banking Agreement dated January 7, 1999
between Hadron, Inc. and Boles Knop & Company, L.L.C.
(incorporated by reference to the Company's Current
Report on Form 8-K filed January 28, 1999).
10.5 Employment Agreement entered into the 12th day of May, 1999,
by and between Hadron, Inc. and Howard C. Whetzel (incorporated
by reference to the Company's Current Report on Form 8-K filed
May 27, 1999).
10.6 Loan and Security Agreement between United Bank and
Hadron, Inc., Avenue Technologies, Inc., Vail Research
and Technology Corporation, SyCom Services, Inc., and
Engineering & Information Services, Inc. dated June 29,
1999 (incorporated by reference to the Company's
Current Report on Form 8-K filed July 14, 1999).
10.7 Guaranty of Payment between United Bank and Hadron,
Inc., Avenue Technologies, Inc., Vail Research and
Technology Corporation, SyCom Services, Inc., and
Engineering & Information Services, Inc. dated June 29,
1999 (incorporated by reference to the Company's
Current Report on Form 8-K filed July 14, 1999).
10.8 $1,500,000 Commercial Note in favor of United Bank
dated June 29, 1999 (incorporated by reference to the
Company's Current Report on Form 8-K filed July 14,
1999).
10.9 $1,500,000 Revolving Commercial Note in favor of United
Bank dated June 29, 1999 (incorporated by reference to
the Company's Current Report on Form 8-K filed July 14,
1999).
10.10 Employment Agreement with C.W. Gilluly dated July 1,
1998 (incorporated by reference to the Company's Annual
Report on Form 10-K dated June 30, 1998).
10.11 Amended Stock Purchase Warrant granted to C.W. Gilluly
and dated June 2, 1997.
10.12 Employment Agreement with S. Amber Gordon dated June
24, 1999.
10.13 Employment Agreement with George E. Fowler dated July
1, 1999.
10.14 Employment Agreement with Donald Jewell dated July 1,
1999.
<PAGE>
10.15 Employment Agreement with Donald E. Ziegler dated July
1, 1998 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1998.
10.16 Employment Agreement with Shawn K. McCoy dated July 1,
1999.
22 Subsidiaries of the Company.
23 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 28, 1999 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 28, 1999
C.W. Gilluly
/S/ William J. Howard Director September 28, 1999
William J. Howard
/S/ Robert J. Lynch, Jr. Director September 28, 1999
Robert J. Lynch, Jr.
/S/ John D. Sanders Director September 28, 1999
John D. Sanders
/S/ Howard C. Whetzel
Howard C. Whetzel Director September 28, 1999
<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, 1999 and 1998 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, 1999. 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Hadron, Inc. and subsidiaries at June 30,
1999 and 1998, and the consolidated results of their operations
and their cash flows for each of the three years in the period
ended June 30, 1999, in conformity with generally accepted
accounting principles.
/S/ ERNST & YOUNG, LLP
Vienna, Virginia
September 3, 1999
F-1
<PAGE>
<TABLE>
HADRON, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND JUNE 30, 1998
<CAPTION>
JUNE 30, JUNE 30,
ASSETS 1999 1998
- ------- ----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 256,000 $ 60,500
Accounts receivable, net 3,495,700 3,143,900
Prepaid expenses and other 255,400 41,100
---------- ----------
Total current assets 4,007,100 3,245,500
---------- ----------
Fixed assets, net 290,900 116,300
Goodwill 2,246,600
Other 145,100 145,200
---------- ----------
Total other assets 2,682,600 261,500
---------- ----------
Total assets $6,689,700 $3,507,000
=========== ===========
</TABLE
See Notes to Consolidated Financial Statements
F-2
<PAGE>
</TABLE>
<TABLE>
HADRON, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND JUNE 30, 1998
<CAPTION>
JUNE 30, JUNE 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
- ------------------------------------- ---------- ----------
<S> <C> <C>
Current liabilities
Accounts payable $ 917,100 $ 948,900
Note payable - line of credit 638,800 80,000
Note payable - current maturity of long-term debt 500,000
Note payable - related party 150,000 120,000
Other current liabilities 1,867,800 2,282,700
---------- ----------
Total current liabilities 4,073,700 3,431,600
---------- ----------
Notes payable 1,292,700
Notes payable - related parties 805,100
Other 62,600 53,400
---------- ----------
Total long-term liabilities 2,160,400 53,400
---------- ----------
Commitments and contingencies
Total liabilities 6,234,100 3,485,000
---------- ----------
Shareholders' equity:
Common stock $.02 par; authorized 20,000,000 shares;
issued and outstanding- June 30,1999, 2,487,518 shares,
and June 30, 1998, 1,731,956 shares 49,700 34,700
Additional capital 9,758,300 9,374,100
Accumulated deficit (9,352,400) (9,386,800)
---------- ----------
Total shareholders' equity 455,600 22,000
Total liabilities and shareholders' equity $6,689,700 $3,507,000
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
<TABLE> HADRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $20,333,200 $21,133,900 $16,987,700
----------- ----------- -----------
Operating costs and expenses:
Costs of revenue 17,734,800 18,118,100 14,650,600
Development costs of HeaTreaT 598,900
Selling, general and administrative 2,535,400 2,127,500 1,610,300
----------- ----------- -----------
Total operating costs and expenses 20,270,200 20,245,600 16,859,800
----------- ----------- -----------
Operating income 63,000 888,300 127,900
----------- ----------- -----------
Other income (expense):
Interest income 2,600 5,500 8,100
Interest expense (80,800) (61,700) (92,600)
Other income (expense) 63,500 (13,000) 13,500
----------- ----------- -----------
Total other income (expense) (14,700) (69,200) (71,000)
----------- ----------- -----------
Income before income taxes 48,300 819,100 56,900
Provision for income taxes 13,900 58,500 44,000
----------- ----------- -----------
Net income $ 34,400 $ 760,600 $ 12,900
============ ============ ===========
Per share data:
Net income per share
Basic $ .02 $ .45 $ .01
============ ============ ===========
Diluted $ .01 $ .26 $ .01
============ ============ ===========
Weighted average number of shares
Basic 1,794,775 1,686,808 1,529,519
============ ============ ===========
Diluted 2,579,439 2,990,897 1,535,074
============ ============ ===========
</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, 1999, 1998 AND 1997
--------------------------------------------------------------------------------------------------
<CAPTION>
Common Stock
--------------- Additional Accumulated
Shares Amount Capital Deficit Total
----------- ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance - June 30, 1996 1,503,685 $30,000 $9,260,800 ($10,160,300) ($869,500)
Exercise of 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
Shares issued to investment
banking firm 75,000 1,500 73,500 75,000
Shares purchased pursuant
to the Employee Stock Purchase Plan 75,896 1,400 99,200 100,600
Exercise of warrants 400,000 8,000 92,000 100,000
Shares issued upon conversion of debt 200,000 4,000 116,000 120,000
Exercise of options 4,666 100 3,500 3,600
Net income 34,400 34,400
----------- ----------- --------- ---------- -----------
Balance - June 30, 1999 2,487,518 $49,700 $9,758,300 ($9,352,400) $455,600
=========== =========== ========= =========== ===========
</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, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <S> <S> <S>
Cash flows from operating activities:
Net income $ 34,400 $ 760,600 $ 12,900
----------- ----------- -----------
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 97,200 34,500 73,800
Provision for doubtful accounts receivable (50,000) (114,600)
Changes in operating assets and liabilities:
Accounts and notes receivable 1,818,600 (741,600) 384,200
Prepaid expenses and other (127,400) (11,900) 24,600
Other assets (67,100) 5,200 (10,600)
Accounts payable (254,400) (453,400) (419,200)
Other current liabilities (968,400) 348,900 211,700
Other long-term liabilities (13,300) 4,100 4,000
----------- ----------- -----------
Total adjustments 435,200 (814,200) 153,900
----------- ----------- -----------
Net cash provided (used) by operating activities 469,600 (53,600) 166,800
----------- ----------- -----------
Cash flows from investing activities:
Property additions (121,800) (29,600) (94,100)
Investment in PEI (15,900)
Purchase of Vail and ATI, net of cash acquired (378,700)
----------- ----------- -----------
Net cash used by investing activities (500,500) (45,500) (94,100)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds of borrowings on bank and other loans 850,000 796,700 711,900
Proceeds of stock options and warrants exercised 103,600 45,800
Proceeds of employee stock purchase 100,600 72,200
Proceeds of convertible promissory notes 120,000
Payments on bank and other loans (827,800) (734,000) (969,600)
----------- ----------- -----------
Net cash provided (used) by financing activities 226,400 134,900 (91,900)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 195,500 35,800 (19,200)
Cash and cash equivalents at beginning of year 60,500 24,700 43,900
----------- ----------- -----------
Cash and cash equivalents at end of year $ 256,000 $ 60,500 $ 24,700
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
HADRON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 developing innovative technical solutions for the
intelligence community, analyzing and supporting defense systems
(including intelligent weapons systems and biological warfare
defense), and supporting computer 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 four wholly-owned subsidiaries,
Engineering & Information Services, Inc. ("EISI"), SyCom
Services, Inc. ("SyCom"), Vail Research and Technology, Inc.
("Vail"), and Avenue Technologies, Inc. ("ATI")(the
"Company"). All significant intercompany transactions have
been eliminated.
B. Risks and uncertainties:
Financial instruments that 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 four
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 receivables 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 that 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 betterments 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.
<PAGE>
Purchased software is capitalized at cost. Such costs are
amortized using the straight-line method for a period of up
to five years.
E. Goodwill:
Goodwill is amortized using the straight-line method for a
period of seven years.
F. 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.
G. 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.
H. 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>
I. Reclassifications:
Certain fiscal year 1998 and 1997 amounts have been
reclassified to conform to the fiscal year 1999
presentation.
J. Recent accounting pronouncements:
Effective January 1, 1998, the Company adopted the
Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information"
(Statement 131). Statement 131 superseded FASB Statement No.
14, "Financial Reporting for Segments of a Business
Enterprise." Statement 131 establishes standards for the
way that public business enterprises report information
about operating segments in annual financial statements and
requires that those enterprises report selected information
about operating segments in interim financial reports.
Statement 131 also establishes standards for related
disclosures about products and services, geographic areas,
and major customers. The adoption of Statement 131 did not
affect results of operations or financial position, but did
affect the disclosure of segment information.
<PAGE>
<TABLE>
3. Accounts receivable:
The components of accounts receivable are as follows:
<CAPTION>
June 30,
----------------------------
1999 1998
------------ -----------
<S> <C> <C>
Trade accounts receivable:
U.S. Government:
Amounts billed $ 1,640,800 $ 1,170,600
Recoverable costs and
profits - not billed 1,247,400 793,300
------------ -----------
Total 2,888,200 1,963,900
------------ -----------
Commercial, state and local
governments:
Amounts billed 555,200 1,015,700
Recoverable costs and
profits - not billed 306,000 374,100
------------ -----------
Total 861,200 1,389,800
Total accounts receivable 3,749,400 3,353,700
Less allowance for doubtful
accounts (253,700) (209,800)
------------ ------------
Total accounts receivable, net $ 3,495,700 $ 3,143,900
============ ============
</TABLE>
<PAGE>
<TABLE>
The following table summarizes activity in the allowance
for doubtful accounts:
<CAPTION>
Fiscal Year ended June 30,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Beginning Balance $209,800 $158,800 $648,800
Additions 93,900 51,000
Deletions (50,000) (490,000)
--------- -------- ---------
Balance at end of year $253,700 $209,800 $158,800
========= ======== =========
</TABLE>
The amount of customer retentions included in U.S.
Government accounts receivable-not billed is $18,400 and $17,500
at June 30, 1999 and 1998, 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.
In December 1997, ATI 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.
However, this claim has been recorded at its expected realizable
amount. The Company believes that a resolution of the claim
will not have a material adverse financial impact.
<PAGE>
4. Fixed assets:
<TABLE>
The components of fixed assets are as follows:
<CAPTION>
June 30,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Computer hardware and
software $ 579,800 $ 400,500
Office equipment 188,400 136,700
------------ ------------
Total fixed assets 768,200 537,200
Less accumulated depreciation
and amortization ( 477,300) ( 420,900)
------------ ------------
Total fixed assets, net $ 290,900 $ 116,300
============= ============
</TABLE>
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 prepaid 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. In
June 1999, Dr. Gilluly exercised warrants to acquire 400,000
shares of the Company's common stock at a purchase price of $.25
per share.
<PAGE>
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. In June 1999, the Investors elected to
convert their notes into restricted shares.
As part of the purchase of Vail, the Company issued two non-
interest bearing promissory notes of $300,000 and $100,000,
respectively. The $300,000 non-interest bearing note, which is
based upon the collection of Vail's accounts receivable, shall
be payable each month in the amount of $25,000 for twelve
months. As of June 30, 1999, $136,000 has been paid and $14,000
offset due to post-closing adjustments, leaving an outstanding
note balance of $150,000. The $100,000 non-interest promissory
note is due and payable on the two-year anniversary of the
closing date, less permitted deductions taken for contingent
liabilities and uncollected accounts receivable.
The Company entered into a Loan and Security Agreement
dated June 29, 1999 (the "Loan Agreement") among the Company,
United Bank and each of the Company's wholly owned subsidiaries,
ATI, Vail, SyCom, and EISI. The Loan Agreement provides the
Company with a one-year $1.5 million line of credit facility
(the "Credit Facility") and a three-year $1.5 million term loan
(the "Term Loan"). Interest on each of the facilities is at the
prime rate plus 150 basic points. Dr. Gilluly and his wife have
personally guaranteed the Term Loan.
The Company is subject to certain financial covenants
pursuant to the Loan Agreement, including debt to net worth
ratio, debt to EBITDA ratio, and working capital and net worth
requirements.
The Credit Facility replaces the Company's previous line of
credit with Century National Bank. Proceeds from the Term Loan
were used to repay the Company's $1.5 million in short-term
notes that were issued in connection with the Company's May 1999
acquisition of ATI. The Term Loan provides for monthly
principal payments of $42,000, plus interest.
<PAGE>
The Term Loan and the Credit Facility are secured by the
accounts receivable and other assets of the Company. In
addition, the 3-year $998,000 convertible notes, interest
payable at 6%, issued by the Company to the former shareholders
of ATI in connection with the Company's acquisition of ATI were
subordinated to the Company's obligations under the Term Note
and the Credit Facility. The notes are convertible into 444,000
shares of the Company's Common Stock at $2.25 per share.
<TABLE>
The Company's future debt maturites at June 30, 1999 are
summarized below:
<CAPTION>
Debt
Fiscal Year Maturities
----------- -----------
<S> <C>
2000 $1,288,800
2001 500,000
2002 1,597,800
-----------
Total minimum debt payments 3,386,600
Less: current maturities (1,288,800)
-----------
Total long-term debt $2,097,800
===========
</TABLE>
6. Other current liabilities:
<TABLE>
Other current liabilities include the following major
classifications:
<CAPTION>
June 30,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Payroll and related taxes $ 855,900 $ 850,800
Accrued vacation 543,800 498,900
Accrued bonuses 159,200
Self-insured medical expense 165,300 275,700
Due to subcontractors 143,900 134,900
Other 158,900 363,200
----------- -----------
Total $ 1,867,800 $ 2,282,700
=========== ===========
</TABLE>
<PAGE>
7. Acquisitions:
Effective December 18, 1998, the Company acquired Vail
Research and Technology Corporation ("Vail"), a privately-held
information technology firm based in Annandale, VA, for
approximately $1,580,000. Vail operates as a wholly-owned
subsidiary of Hadron. The purchase price was satisfied with a
net payment of $1,180,000 and the issuance of two non-interest
bearing promissory notes in the amounts of $300,000 and
$100,000 payable to Jeannine Mantz. Ms. Mantz, the sole
stockholder of Vail, is President of Vail, in addition to
holding a corporate vice-president position at Hadron.
The fair value of the assets and liabilities acquired
approximated their book value of $1,833,000 and $121,000,
respectively. The Company incurred financial, legal and
accounting costs associated with the Vail purchase of
approximately $55,000. Included in these fees was a $25,000
payment made to a Hadron director, John D. Sanders, for
advisory services in connection with the purchase.
On May 12, 1999, the Company acquired all of the
outstanding capital stock of Avenue Technologies, Inc. ("ATI"),
a privately held information technology firm based in
Alexandria, VA, for $2,503,000, consisting of $27,000 in cash,
$1,478,000 in short term promissory notes and $998,000 in
convertible notes. The acquisition was effected pursuant to
the terms of a Stock Purchase Agreement dated May 12, 1999
among the Company, ATI and Six Nations, Inc., the majority
stockholder of ATI.
The fair value of the assets and liabilities acquired
approximated their book value of $1,459,000 and $1,161,000,
respectively. 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. Resulting from the acquisition of ATI, the Company
recorded goodwill of approximately $2,287,000, which will be
amortized over a 7-year period. Goodwill amortization of
$41,000 was recorded in fiscal year 1999.
In conjunction with the acquisition, Dr. Howard C.
Whetzel, Chairman of ATI, joined the Company's Board of
Directors.
<PAGE>
The following table sets forth proforma results of
operations of the Company for the fiscal years ended June 30,
1999 and 1998, as if Vail and ATI had been acquired on July 1,
1997.
<TABLE>
Fiscal year ended Fiscal year ended
June 30, 1999 June 30, 1998
----------------- -----------------
<S> <C> <C>
Net revenues $27,780,200 $36,211,600
Net income (loss) (716,300) 391,300
Net income
(loss) per share:
Basic (.40) .23
Diluted (.40) .13
</TABLE>
8. Net income per share:
<TABLE>
The following table sets forth the computation of basic and
diluted earnings per share:
<CAPTION>
1999 1998 1997
--------- ----------- ---------
<S> <C> <C> <C>
Numerator:
Net income $ 34,400 $ 760,600 $ 12,900
Effect of dilutive securities:
Convertible debt 12,000 300
--------- ----------- ---------
Numerator for diluted earnings
per share - income available
to common shareholders after
assumed conversion $ 34,400 $ 772,600 $ 13,200
========= =========== =========
Denominator:
Denominator for basic
earnings per share:
weighted average shares
outstanding 1,794,775 1,686,808 1,529,519
Effect of dilutive securities:
Warrants 527,738 855,064
Employee stock options 256,926 249,025
Convertible debt 200,000 5,555
--------- ----------- ---------
<PAGE>
Denominator for diluted
earnings per share 2,579,439 2,990,897 1,535,074
========= =========== =========
Basic earnings per share $ .02 $ .45 $ .01
========= =========== =========
Diluted earnings per share $ .01 $ .26 $ .01
========= =========== =========
</TABLE>
Shares issuable upon the exercise of stock options or
warrants or upon conversion of debt have been excluded from the
computation to the extent that their inclusion would be anti-
dilutive.
9. Income taxes:
The provision for income taxes for the years ended June 30,
1999, 1998 and 1997 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>
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Tax expense at
statutory rate - federal 35% 35% 35%
State tax expense
net of federal taxes 29 7 77
Permanent differences 38
Utilization of net
Operating loss
carryforwards (73) (35) (35)
------- -------- ---------
Tax expense at
actual rate 29% 7% 77%
======= ======== =========
</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, 1999 and 1998 consist primarily
of temporary differences from net operating loss carryforwards
of approximately $2,100,000 and $1,920,000, 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 $ 4,500,000 as of June 30, 1999. These
NOL carryforwards expire at various dates through June 30,2009.
<PAGE>
10. 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 2003. 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, 1999 are
summarized below:
<TABLE>
Fiscal Year Ending Lease
June 30, Commitments
------------------ ------------
<S> <C>
2000 $ 538,800
2001 555,400
2002 491,900
2003 182,300
------------
Total minimum payments required $1,768,400
============
</TABLE>
Rent expense, net of sublease income, included in the
consolidated statements of operations is as follows:
<TABLE>
Rent
Period Expense
---------------- ----------
<S> <C>
Fiscal Year 1999 $ 235,700
Fiscal Year 1998 $ 141,800
Fiscal Year 1997 $ 114,600
</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.
11. Employee savings plan:
The Company sponsors a defined contribution savings plan
under section 401(k) of the Internal Revenue Code. The
Company's contributions to the 401(k) plan are based upon a
percentage of employee contributions. The Company's
discretionary contributions to the Plan were $147,000, $101,500
and $18,000 for fiscal years 1999, 1998 and 1997, respectively.
<PAGE>
12. 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.
Information with respect to incentive and non-qualified
stock options issued under the Plan is as follows:
<TABLE>
1999 1998 1997
---------------- ------------------ ----------------
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Exercise Excercise Exercise
Shares Price Shares Price Shares Price
----------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
Beginning of year 398,068 $ .59 315,500 $ .49 220,500 $ .36
Granted 135,400 1.98 87,100 .98 117,500 .73
Exercised (4,666) .76 (3,000) .25
Expired (14,402) 1.69 (4,532) .88 (19,500) .35
----------------------------------------------------------
Outstanding at
End of year 514,400 $ .90 398,068 $ .59 315,500 $ .49
==========================================================
Options exercisable
At year-End 404,740 $ .69 305,374 $ .50 213,829 $ .39
Weighted average
Fair value of
Options granted
During the year $1.25 $ .94 $ .44
</TABLE>
The weighted average remaining contractual life of options
outstanding at June 30, 1999 was 7.3 years. The range of
exercise prices of options outstanding at June 30, 1999 was $.25
to $1.99.
<PAGE>
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
1999, 1998 and 1997 would have been approximately $(69,200),
$700,200 and $(19,100), or $(.04), $.25 and $(.01) per share on a
diluted basis, respectively. The effect of applying SFAS No. 123
on 1999, 1998 and 1997 pro forma net income/loss as stated above
is not necessarily representative of the effects on reported net
income or loss for future years due to, among other things, (1)
the vesting period of the stock options and (2) the fair value of
additional stock options in future years.
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing fair value model.
The following weighted-average assumptions were used for grants:
dividend yield of 0%; expected volatility of .43 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 1999, 1998 and 1997.
13. 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 1999 and 1998,
employees paid approximately $100,600 and $72,200,
respectively, for the purchase of common stock under the Plan.
14. Employee deferred compensation plan:
In December 1998, shareholders approved the Hadron, Inc.
Deferred Compensation Plan (the "Plan"). The Plan is intended
to provide employees an option to defer a portion of their
salary in order to provide for supplemental retirement
benefits. As a requirement of this non-qualified plan,
participant deferrals remain as unsecured liabilities of
Hadron. Under the terms of the Plan, eligible employees can
elect to irrevocably defer salary of up to $50,000 for the
calendar year. If an employee elects to defer at least one and
one-half percent of his/her gross salary, the Company
contributes one-half percent of the participant's gross salary
to the participant's supplemental account. Salary deferrals
<PAGE>
and Company contributions earn interest at the higher of six
percent or the rate quoted for ninety-day Treasury Bills.
During fiscal year 1999, employees deferred approximately
$75,000 of which the Company matched $4,000.
15. Related party transactions:
AMASYS Corporation ("AMASYS"), a publicly held company
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
620,000 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.
16. Fair value of financial instruments:
Accounts receivable, accounts payable, accrued expenses
and other current assets and liabilities are carried at amounts
which reasonably approximate their fair value. The estimated
fair value of the Company's variable rate debt approximates its
carrying value of $2,138,800. It is not practicable to
estimate the fair value of the Company's notes payable to
related parties and convertible notes payable due to their
unique nature.
17. Statement of cash flows - supplemental disclosures:
During fiscal years 1999, 1998 and 1997, the Company paid
income taxes of $57,000, $76,000 and $40,000, respectively.
The Company paid interest of $51,000, $55,000 and $54,000
during those same periods.
<PAGE>
18. Business segments and major customers:
Business segments:
The Company has four reportable segments, comprising its
individual operating subsidiaries - EISI, SyCom, Vail and ATI.
Each of the operating subsidiaries performs within the
Company's one industry segment, providing engineering, computer
support services and other professional technical services.
The reportable segments are distinguished by their individual
clients, prior experience and technical skills within the
industry segment.
Each of the reportable segments has a president who is
responsible for the operating results. Operating results are
measured at the net income level for each segment. The
accounting policies of the reportable segments are the same as
those described in the summary of significant accounting
policies. Interest on debt incurred in connection with an
acquisition and applicable associated goodwill amortization is
charged to the reportable segment. The Company's corporate
amounts consist primarily of certain activities and assets not
attributable to the reportable segments.
<TABLE>
Hadron, Inc.
Reportable Segments - FASB Statement 131
For the Fiscal Years Ended June 30, 1999, 1998 and 1997
-------------------------------------------------------
<CAPTION>
DESCRIPTON: 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Trade revenues:
EISI $ 10,989,600 $ 12,023,100 $ 9,418,900
SyCom 8,112,800 9,066,800 7,514,800
Vail 551,800
ATI 643,300
Corporate 35,700 44,000 54,000
------------- ------------- -------------
Total trade revenues $ 20,333,200 $ 21,133,900 $ 16,987,700
============= ============= =============
Interest income:
SyCom $ $ 5,500 $ 6,200
Vail 2,400
ATI 200
Corporate 1,900
-------------- -------------- -------------
Total interest income $ 2,600 $ 5,500 $ 8,100
============== ============== =============
<PAGE>
Interest expense:
EISI $ $ (10,100) $
SyCom 4,100 4,100 4,100
ATI 25,600
Corporate 51,100 67,700 88,500
-------------- ------------- -------------
Total interest expense $ 80,800 $ 61,700 $ 92,600
============== ============= =============
Depreciation and
amortization expense:
EISI $ 3,100 $ 8,400 $ 17,000
SyCom 4,500 9,600 45,100
ATI 40,800
Corporate 48,800 16,500 11,700
-------------- ------------- -------------
Total depreciation and
amortization expense $ 97,200 $ 34,500 $ 73,800
============== ============= =============
Income tax expense:
EISI $ 23,700 $ 56,700 $ 44,000
ATI (10,700)
Corporate 900 1,800
-------------- ------------- -------------
Total income tax
expense $ 13,900 $ 58,500 $ 44,000
============== ============= =============
Net income/(loss):
EISI $ 332,200 $ 734,900 $ 636,900
SyCom (136,600) 112,000 (575,800)
Vail (37,000)
ATI (55,600)
Corporate (68,600) (86,300) (48,200)
-------------- -------------- -------------
Total net income $ 34,400 $ 760,600 $ 12,900
============== ============== =============
Assets:
EISI $ 1,135,700 $ 1,751,400 $ 1,075,400
SyCom 612,100 1,163,700 1,042,500
Vail 868,500
ATI 3,594,400
Corporate 479,000 591,900 594,000
-------------- ------------- --------------
Total assets $ 6,689,700 $ 3,507,000 $ 2,711,900
============== ============= ==============
<PAGE>
Fixed assets, net:
EISI $ 8,500 $ 11,600 $ 13,900
SyCom 300 4,900 19,300
Vail 4,000
ATI 102,000
Corporate 176,100 99,800 49,600
-------------- ------------- -------------
Total fixed assets $ 290,900 $ 116,300 $ 82,800
============== ============= =============
</TABLE>
Major Customers:
Gross revenue from contracts and subcontracts with U.S.
government agencies amounted to $12,300,000, $11,628,000 and
$9,101,000, respectively, in fiscal years 1999, 1998 and 1997.
Revenues from one commercial customer totaled $8,103,000,
$9,067,000 and $7,424,000 in the fiscal years 1999, 1998 and
1997, respectively.
Revenues earned on sales to the Company's major customers
are as follows:
<TABLE>
Department Commercial
of Defense Customer
----------- -----------
<S> <C> <C>
Fiscal Year 1999 $ 9,723,000 $8,103,000
Fiscal Year 1998 10,242,000 9,067,000
Fiscal Year 1997 7,508,000 7,424,000
</TABLE>
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED,
SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR A VALID EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS
HADRON, INC.
AMENDED STOCK PURCHASE WARRANT
1. Grant.
Hadron, Inc., a New York corporation (hereinafter "Company"), for value
received hereby grants to C.W. Gilluly or his assigns (hereinafter "Holder")
under the terms herein the right to purchase 620,000 fully paid and non-
assessable shares of the Company's $.02 par value common stock which number
was determined in accordance with paragraph 4 of the Third Amended and
Restated Convertible Promissory Note dated as of April 21, 1997 and issued in
favor of Holder by Engineering and Information Services, Inc. and SyCom
Services, Inc. as co-makers (the "Makers") in the original principal amount of
$225,000.00 (the "Third Amended Note").
2. Expiration.
The right to exercise this warrant shall expire on October 21, 2003.
3. Exercise Price.
The per share exercise price of this Warrant shall be $0.25.
4. Exercise of Shares for Exercise Price.
The Holder at his or her option may remit the total exercise price (the
"Total Exercise Price") under this Warrant (number of shares received on
exercise times the per share exercise price) by reducing the number of shares
for which the Warrant is otherwise exercisable by the number of shares having
fair market value equal to the Total Exercise Price.
5. Promissory Note.
This Warrant is subject to the terms of the Third Amended Note, a copy
of which is on file and may be examined at the Company's offices in
Alexandria, Virginia during regular business hours.
6. Exercise Procedure.
This Warrant may be exercised by presenting it and tendering the
exercise price in legal tender or by bank cashier's or certified check at the
principal office of the Company along with a written subscription
substantially in the form of Exhibit A hereof. The date on which this Warrant
is thus surrendered, accompanied by tender or payment as hereinbefore or
hereinafter provided, is referred to herein as the Exercise Date. The Company
shall forthwith at its expense (including the payment of issue taxes) issue
and deliver the proper number of shares, and such shares shall be deemed
issued for all purposes as of the opening of business on the Exercise Date
notwithstanding any delay in the actual issuance thereof.
<PAGE>
7. Sale or Exchange of Company or Assets.
If prior to issuance of stock under this Warrant, the Company sells or
exchanges all or substantially all of its assets, or the shares of common
stock of the Company are sold or exchanged to any party other than the Holder,
then the Holder at his or her option may receive, in lieu of the stock
otherwise issuable hereunder, such money or property he would have been
entitled to receive if this Warrant had been exercised prior to such sale or
exchange.
8. Sale of Warrant or Shares.
Neither this Warrant nor the shares of common stock issuable upon
exercise of this Warrant have been registered under the Securities Act of
1933, as amended, or under the securities laws of any state. Neither this
Warrant nor the shares of common stock issued upon exercise of this Warrant
may be sold, transferred, pledged or hypothecated in the absence of (i) an
effective registration statement for this Warrant or the shares, as the case
may be, under the Securities Act of 1933, as amended, and such registration or
qualification as may be necessary under the securities laws of any state, or
(ii) an opinion of counsel reasonably satisfactory to the Company that such
registration or qualification is not required. The Company shall cause a
certificate or certificates evidencing all or any of the shares of common
stock issued upon exercise of this Warrant prior to said registration and
qualification of such shares to bear the following legend: "The shares
evidenced by this certificate have not been registered under the Securities
Act of 1933, as amended, or under the securities laws of any state. The shares
may not be sold, transferred, pledged or hypothecated in the absence of an
effective registration statement under the Securities Act of 1933, as amended,
and such registration or qualification as may be necessary under the
securities laws of any state, or an opinion of counsel satisfactory to the
Company that such registration or qualification is not required."
9. Transfer.
This Warrant shall be registered on the books of the Company which shall
be kept at its principal office for that purpose, and shall be transferable in
whole or in part but only on such books by the Holder in person or by duly
authorized attorney with written notice substantially in the form of Exhibit B
hereof, and only in compliance with the preceding paragraph. The Company may
issue appropriate stop orders to its transfer agent to prevent a transfer in
violation of the preceding paragraph.
10. Replacement of Warrant.
At the request of Holder and on production of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft, or destruction) if required by
the Company, upon delivery of an indemnity agreement with surety in such
reasonable amount as the Company may determine thereof, the Company at its
expense will issue in lieu thereof a new Warrant of like tenor.
<PAGE>
11. Investment Covenant.
The Holder by his or her acceptance hereof covenants that this Warrant
is and any common stock issued hereunder will be acquired for investment
purposes, and that the Holder will not distribute the same in violation of any
state or federal law or regulation.
12. Laws Governing.
This Warrant shall be construed according to the laws of the
Commonwealth of Virginia, without regard to its laws or regulations relating
to conflicts of laws.
IN WITNESS WHEREOF, Hadron, Inc. has caused this Warrant to be signed on
its behalf, in its corporate name, by its President, and its corporate seal to
be hereunto affixed and the said seal to be attested by its Secretary, as of
this 2nd day of June 1997.
HADRON, INC.
Attest:
/S/ S. AMBER GORDON /S/ GEORGE E. FOWLER
_____________________ ___________________________
By: S. Amber Gordon By: George E. Fowler
Secretary President
<PAGE>
EXHIBIT A
IRREVOCABLE SUBSCRIPTION
To: Hadron, Inc.
Ladies and Gentlemen:
The undersigned hereby elects to exercise its right under the attached
Warrant by purchasing ______________ shares of the $.02 par value common stock
Hadron, Inc., and hereby irrevocably subscribes to such issue. The
certificates for such shares shall be issued in the name of
_________________________________________________________________ (Name)
_________________________________________________________________ (Address)
_________________________________________________________________ (Taxpayer
Number)
and delivered to
________________________________________________________________
(Name)
_________________________________________________________________ (Address)
The exercise price of $_____________ is enclosed.
Date:________________________________________
Signed:______________________________________
<PAGE>
EXHIBIT B
ASSIGNMENT
FOR VALUE
RECEIVED,_____________________________________________________
_________________________________________________________________ (Name)
_________________________________________________________________ (Address)
hereby sells, assigns and transfers the attached Warrant together with all
right, title and interest therein, and does hereby irrevocably appoint
________________________________ attorney to transfer said Warrant on the
books of Hadron Corporation, with full power of substitution in the premises.
Done this ____ day of ___________, 19___.
Signed:______________________________________
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is entered into this 24 day of June, 1999, by and
between Hadron, Inc. (the "Company") and S. Amber Gordon
("Employee").
WHEREAS, the Company and Employee have agreed to terms upon
which Employee will be employed by the Company and wish to set
forth such terms and conditions in writing;
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ Employee as
its EXECUTIVE VICE PRESIDENT for the term as hereinafter set
forth. Employee shall perform such duties and exercise such
supervision and powers over and with regard to the business of
the Company as are consistent with her position. Employee
shall report to the Chairman and/or Chief Executive Officer of
the Company.
2. TERM. The initial term of this Agreement shall be two (2)
years, effective July 1, 1999.
3. BASE SALARY AND TIME ALLOTMENT. During the term of the
Agreement, Employee shall be available to the Employer four
(4) days per week. For this, the Employee's base salary for
this year shall be $104,000. It is understood and agreed to
by the Company that during the work week the Employee renders
consulting services to, and receives remuneration from, other
non-competitive entities. The Employee's base salary for the
second year shall reflect an increase in base salary, as
determined by the Chairman of the Board of Directors and the
Compensation Committee, in their sole discretion; however,
such increase shall, at the minimum, be proportionate to that
given to other executive officers of the Company. The base
salary shall be payable on a bi-weekly basis or such other
basis as the Company uses to pay its executive officers.
4. STOCK OPTIONS. The Company shall grant to Employee options in
its Incentive Stock Option Plan in such amount as determined
by the Board of Directors. Such amount shall be commensurate
with the duties and responsibilities of the Employee.
5. ANNUAL BONUS. In addition to the Employee's Base Salary, the
Employee shall be eligible to earn an annual bonus, in
accordance with the Company's Bonus Plan, if one is in effect,
or at the recommendation of the Chairman and of the
Compensation Committee.
6. CAR ALLOWANCE. The Employee shall receive an automobile
allowance in the amount of $350 per month for the first year
of the Agreement, to increase in proportion to other executive
officers of the Company for the second year of the Agreement.
7. OTHER BENEFITS. Employee shall be fully reimbursed by the
Company for all expenses reasonably incurred in connection
with the performance of Employee's duties, upon presentation
of expense statements and such other supporting information as
<PAGE>
1999 GORDON/HADRON AGREEMENT PAGE TWO
the Company may reasonably require. The Company shall provide
to Employee the insurance and medical
coverage provided to the Company's executive officers, on the
same terms and conditions. Additionally, Employee shall be
entitled to four weeks of paid vacation for each year of
employment.
8. TERMINATION AND/OR RENEWAL. The Company shall have the right
to terminate this employment Agreement for cause on the
grounds that Employee acted dishonestly in any activity
related to this job; Employee has exhibited signs of alcohol
or drug dependency; Employee has been convicted of a felony or
crime of moral turpitude; or for gross neglect of her duties.
If Employee is terminated for cause, as defined herein, or
leaves the employ of the Company voluntarily, then no
remuneration will be due past the date of termination. Any
renewal of this Agreement, or any subsequent employment
Agreement, shall be completed prior to June 30, 2001. In the
event that her contract is not renewed by June 30, 2001, the
Employee will receive a severance payment equal to six months
at the then current Base Salary.
9. INDEMNIFICATION. The Company shall indemnify and hold
Employee harmless from and against any and all causes of
action, claims, costs, liabilities, expenses, attorneys' fees
or damages arising from Employee's performance of her duties
as described herein, except however where such claims, etc.
are a result of Employee's gross negligence or willful
misconduct.
10. FULL AUTHORITY. Each party represents to the other that: it
has full power and authority to execute, deliver and perform
this Agreement; all necessary corporate action on its part for
the execution, delivery and performance of this Agreement by
it has been duly taken; this Agreement has been duly
authorized and executed by it; it is a legal, valid and
binding Agreement, enforceable against such party in
accordance with its terms.
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>
1999 GORDON/HADRON AGREEMENT PAGE THREE
12. WAIVERS. A waiver by any party of a breach of any provision
of this Agreement shall not operate as or be construed to be
a waiver of any other breach of such provision or of any
breach of any other provision of this Agreement. The failure
of a party to insist upon strict adherence to any term of this
Agreement on one or more occasions shall not be considered a
waiver or deprive that party of the right thereafter to insist
upon strict adherence to that term or any other term of this
Agreement. Any waiver or modification of this Agreement must
be in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement
this 24 day of June, 1999.
HADRON, INC. ACCEPTED & AGREED TO:
/S/ C.W. GILLULY /S/ S. AMBER GORDON
BY: _____________________ _________________________
C.W. Gilluly S. Amber Gordon
Chairman and
Chief Executive Officer
<PAGE>
July 1, 1999
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, 2000,
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.
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, 1999
Page 2
You will also be a member of the Hadron Bonus Plan for Fiscal Year
2000, if one is established.
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 7/1/99
________________________ __________
George Fowler Date
<PAGE>
July 1, 1999
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, 2000,
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, 1999
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
2000, if one is established.
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 7/1/99
________________________ __________
Donald Jewell Date
<PAGE>
July 1, 1999
Mr. Shawn K. McCoy
1309 N. Hudson Street
Arlington, VA 22201
Dear Shawn:
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, SyCom Services,
Inc., (SyCom) reporting to George Fowler, President of Hadron. The
annual salary accompanying this position is $115,000 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, 2000,
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. Shawn McCoy
July 1, 1999
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
2000, if one is established.
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/ SHAWN K. McCOY 7/1/99
________________________ __________
Shawn K. McCoy Date
<PAGE>
EXHIBIT 22
SUBSIDIARIES OF THE COMPANY
Name State of Incorporation
ART Holdings Corporation
f/k/a Acumenics Research & Technology, Inc. Maryland
Aerospace Sciences, Inc. Virginia
Avenue Technologies, Inc. Virginia
Engineering and Information Services, Inc. Virginia
Performance Engineering Network, Inc. Virginia
SyCom Services, Inc. Delaware
Vail Research and Technology Corporation Maryland
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 23
Consent of Independent Auditors
We consent to the incorporation by reference in the
Registration Statements (Forms 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 September 3, 1999,
with respect to the consolidated financial statements
of Hadron, Inc. included in the Annual Report (Form 10-K)
for the year ended June 30, 1999.
/s/ Ernst & Young LLP
Vienna, Virginia
September 22, 1999
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN IT
ENTIRELY BY REFERENCE TO SUCH 10-K.
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<FISCAL-YEAR-END> JUN-30-1999
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