Information Technology
and Biotechnology
OTC:  HDRN

Hadron, Inc.

5904 Richmond Highway Suite 300
Alexandria, VA  22303
Phone:  703-329-9400
Fax:  709-329-9409

Sterling Phillips, Jr.
President and
Chief Executive Officer

Interview conducted by:
Diane Reynolds, Co-Publisher

CEOCFOinterviews.com
June 2001

Bio of CEO

Mr. Sterling E. Phillips, Jr. is President, Chief Executive Officer and Director of Hadron, Inc. His Professional management career has focused on building companies in the information technology, engineering and scientific services arenas. Most recently, Mr. Phillips held senior management positions with Federal Data Corporation, in both the Science and Engineering, and Corporate Marketing Groups. Previously, he was the Chief Operating Officer of TRI-COR Industries, Inc. and served as President of Business Development for Computer Sciences Corporation. He has led management teams responsible for acquisitions in several of his former positions. Mr. Phillips also held senior national and international marketing positions with IBM for nearly twenty years. Mr. Phillips holds a B.A. from the University of North Carolina.

CEOCFOinterviews – Please tell us about Hadron, Inc.?

Mr. Phillips – We are in two businesses. Our biggest business is consulting services provided principally to the U.S. defense department and intelligence agencies.  Our consulting is generally in the area of engineering services or information technologies services.  Our people are principally involved in assisting customers in the intelligence community with application development and development of specialized equipment for their mission.   The second business area we’re in is a biotech business, which is a bit of a spin off from our work with the intelligence community.  We have a subsidiary called Advanced Biosystems that is developing medical defenses for and treatment against biological warfare agents.  We are fortunate to have as the president of that subsidiary an individual who used to be the head of the Soviet Unions biological warfare program before defecting to the U.S. in 1992.  So he probably has more hands-on experience with biological warfare weapons and research in that area than almost anybody around.  He is a medical doctor and he prefers being on the treatment side than on the offensive side so we’re working on the defensive method with some medications that could protect against biological warfare agents and others that might treat patients after an attack.

CEOCFOinterviews – On one hand your company deals with the technical solutions and than on the other hand you deal with the pharmaceutical end of it.

Mr. Phillips – The pharmaceutical is an outgrowth of work of countering terrorism.  When you look today at real threats to the U.S. either in warfare or in terrorism, we believe that biological and chemical agents are a much bigger threat than nuclear weapons and mass destruction.  As a spin off of our work with government agencies involved and trying to analyze and prepare defenses we evolved into this particular field. Again, we have a scientist on our staff who has a deep understanding of the medical side of some of these things and believes there are medications that can be developed that can be very effective. 

CEOCFOinterviews – Is the government your only customer or does this expand beyond the government?

Mr. Phillips – The U.S. government is almost exclusively our customer.  Most of our work is classified and as such we’re not able to take it overseas or into commercial applications.  

CEOCFOinterviews- With the government cutbacks do you feel that this is an area that has been affected?

Mr. Phillips - The funding for this sort of defense and intelligence work has not been cut back.  We see this as a growth area and the new administration has a more positive and proactive position on the defense budget and the intelligence budgets than the prior administrations.   We have not seen cutbacks and we believe that this is an area that will continue to grow. 

CEOCFOinterviews – What are your comments as far as National security issues overall?

Mr. Phillips – That is an area for potential growth for us outside of government, to the extent we are working on commercial computer equipment. Some of the same skills our people are using with the intelligence agencies can be used with large companies.  These are skills that are fairly scarce, in short supply and we are pretty much sold out right now to the federal government.  We will grow into the commercial area over time.  We would initially do it through the use of internal resources as an internal growth but we would be open to acquisition in that area. 

CEOCFOinterviews- Explain the engineering services.

Mr. Phillips – We provide engineering services to the government customers who are in the business of designing particular systems.  We provide ongoing assistance to them.   We are strictly in the consulting service business as it relates to the hardware and software for the intelligence agencies. 

CEOCFOinterviews – Besides Advanced Biosystems what are the other business units in that area?

Mr. Phillips – We have four subsidiaries, Advanced Biosystems being one.  Avenue Technologies are principally in the consulting services business for intelligence agencies.   Our Sycom subsidiary is providing engineering services for major aerospace firms assisting in the development of electronic warfare systems.  Our EISI, Engineering and Information Services, subsidiary provides similar kinds of engineering and consulting services to NSA and the Applied Physics Lab at John Hopkins University.   

CEOCFOinterviews – How much of your income goes towards R and D in the Advanced Biosystems area?

Mr. Phillips – The R and D in that area is being funded by the government.  We have a series of contracts with the Defense Advanced Research Projects Agency  ( --- Darpa) and with the U.S. Army (U.S. Army Medical Research and Materiel Command) that is the principal part of DOD focused on biological warfare. 

CEOCFOinterviews – Where is your revenue coming from right now?

Mr. Phillips – At this point we get about 75% of our revenue from the consulting services business with the U.S. Intelligence community and about 25% of our revenue is in the form of funded research in the Advanced Biosystems area. 

CEOCFOinterviews – In building the company, do you see yourself going outside the U.S.?

Mr. Phillips – Our goal for the next three years or so is really to be very focused where we are now.  Hadron has had some ups and downs in the recent years.  Over the last year we’ve really turned the company around.  We’re back on a profitable basis and we see a number of growth opportunities in what we view as the national security market segment.  So our principal plan is to generate growth internally and through acquisition over the next three years and really try to concentrate and focus and minimize ventures into areas that we don’t understand as well.  We believe there is plenty of growth opportunity within the market segments where we have the most experience. 

CEOCFOinterviews – You are basically relying on one source for the majority of revenues, if there were cutbacks as far as the government agencies go, are you prepared to go into a different area so you don’t feel the cutbacks?

Mr. Phillips – Yes, we are.  I think it is a mistake to think we are relying on one source.   Yes, the U.S. Government is one source.  We actually serve a number of different agencies within the U.S. Government.  So, the budget battles are spread out a little bit across different agencies.  We do not believe we are vulnerable to any single agency having their budget reduced.  We do have roughly half of our consulting services work force in information technology related fields with skills that are broadly applicable outside of government as well.  Some of the engineering services we are doing are very focused on mission specific systems and would have less applicability outside of the defense and intelligence community.  We don’t see the vulnerability because of the number of agencies that are our customers and we do have a very substantial portion of our work force with skills that are applicable to the civilian areas of government as well as commercial customers. 

CEOCFOinterviews – You became the CEO and President on January 16, 2001. What was the biggest hurdle you were faced with upon coming aboard with the company?

Mr. Phillips – I think the biggest challenge is continuing to focus on running a very lean and profitable company while funding our growth.   As indicated earlier and as you can see from our financial statements, the company lost money in fiscal 2000.  On revenues of about $19.5 million we lost about $750 thousand.  So, the focus number one is retaining our discipline and our lean operational style.  Focus number two is growing the top line.  We’ve become a very lean company now so every dollar added at the top line has a disproportionately beneficial impact on the bottom line.   The biggest challenge has been simultaneously retaining the spending disciplines that have been put into place the last year and starting to invest more in marketing and new business. 

CEOCFOinterviews – What motivated you go into a company that had challenges to be faced?

Mr. Phillips – I have known some of the new investors that bought into the company a year ago for maybe ten years. So there were people with whom I had a business relationship, people who have founded, grown and sold their own small federal services businesses so I felt like they were a group of investors who really understand the small federal contractor arena, what’s required and brings the resources in that we would need to succeed.  Secondly, one of my career ambitions is to be a CEO and what you find is the companies who are doing great don’t need you.  For an opportunity to become a CEO, at least the ones I’ve seen in my career, generally there is a challenge associated with them.  Frankly, it’s the kind of challenge that an aspiring CEO wants to get their teeth into.

CEOCFOinterviews – Are you able to get the qualified personnel to fill the positions that you have at your company?

Mr. Phillips – Well, that is one of our constraints to growth.  There are some areas, especially positions that require clearances for classified work that are difficult to source.  Across the company today, we probably have 50 open positions.  Other areas especially in the information technology related skills the reduction in the .coms in the Washington, D.C. area has actually eased that market a bit from a hiring point of view.  So we’ve seen some improvements in the availability of skills in the computer related areas.   Where we need classified specialized clearances that continues to be a challenge and something that we really focus on, as a critical core of competency and that is recruiting people with those skills. 

CEOCFOinterviews – Do you see any new products or services that you will be announcing shortly?

Mr. Phillips – Because of the nature of our work, we generally don’t announce the services that we are involved in.  Almost all of our contracts are classified so we’re not able to disclose them. So we won’t be making any announcements in the near future with the possible exception of the Advanced Biosystems area.  We are working on additional contracts there.  We would hope that over the coming quarter to have some additional funding announcements to be made there.   

CEOCFOinterviews – Do you see the financial difficulties that the company was having as behind you now and moving forward and that your company is adequately financed?

Mr. Phillips – We are.  We’ve been profitable every quarter for the last year.  We’re getting good cash generation from our operations and the actions that were taken last summer to make the company lean and competitive have paid off.  Today, while we are a small company with the challenges that any small company has we are solidly profitable, we have sufficient cash, sufficient credit and our financial position has very much improved over the last year.  We feel very good as to where we are and the resources available to us. 

CEOCFOinterviews - The sector you’re in is technology and that has been hit hard lately, stocks have been jumping up and down and unfortunately, it affects companies like yourself.   How are you dealing with that?

Mr. Phillips – While we are in the technology sector, because we are in the consulting services business and not a product manufacturer our business has been a lot more stable than most.  Last year our profitability steadily improved quarter by quarter. While we do get painted with the broad brush of technology, our company is not traded as actively as many others.  So the investors that tend to inspect us and analyze our financials, find a very stable and solid kind of performance over the last year in contrast with the .coms and other high tech companies whose share prices were very much inflated a year ago.   

CEOCFOinterviews – What would you tell a potential investor about your company?

Mr. Phillips – A year ago a new group of investors bought controlling interest in the company and have brought some additional financial resources to invest in growth that was not here previously.  We’ve installed a new management team and really created a very lean, efficient company.  Over the last year there has been a very substantial turn around and what I would consider to be the foundation of Hadron.  We do have additional investors and backers to help fund our growth.  We’re in the national security market segment where budgets are sound and growing with the new administration.  So, I view Hadron as a company poised for growth. I would tell investors that having turned it around and brought some new financial resources to the table, we think there are a lot of opportunities through internal growth and through acquisitions to become a bigger and more profitable company.  We do see acquisition as an important part of our growth strategy.  Your ability to generate internal growth, at your most successful, you’re growing very incrementally.  To get major elements of growth in a short period of time, we think acquisition is a very important strategic element.  We believe we have the financial backing to be able to do some targeted acquisitions in our market sector. 

CEOCFOinterviews – You’re still faced with that security issue.  Even if you had an acquisition wouldn’t it be like running all new security on that personnel?

Mr. Phillips - Probably not.  If we were to do an acquisition it would be a company who is already in this market place.  Who already had cleared people with the proper security clearances.  It really is the fastest way to expand your cleared work force.  When you go to apply for a security clearance, it can sometimes take a year for the government to complete all the investigations.  Part of staying focused in a market segment that we think is very attractive, is going to be for whatever acquisitions we examine we will be looking for a strategic fit with our focus on the national security market.  That would include bringing the types of contracts, customer relationships and cleared personnel that would fit in nicely and provide a nice, smooth growth curve. 

CEOCFOinteviews – How long are your contracts with the government?

Mr. Phillips – They vary widely.  Some of our work is funded on a task order basis that may be for one fiscal year.  Then there are other contracts that may go five or ten years.  In the intelligence community there has been a long tradition of funding work on a very short basis.  It will get funded for one year, it keeps getting renewed, next thing you know you’ve been there ten years on a one-year contract.  It’s one of the buying patterns in the intelligence community.  Frankly, it’s similar to the commercial consulting services.       

CEOCFOinterviews – Is there anything about Hadron that you want readers remember?

Mr. Phillips – Again, because our principal customer is the intelligence community and most of our contracts are classified, we are very constrained in terms of being able to promote ourselves.  We can display financials, etc. but it’s limited in terms of what we can say about what we do for our customers.  We’re involved in some of the most sophisticated in leading edge communications and information technology projects going on in government today.  This has enabled us to attract and retain a cadre of very strong talent and as we get bigger I think this talent pool becomes something we can leverage for growth.  You mentioned the information security arena, this is an area where we have credentials today and those credentials are getting stronger.  That’s an area we think we’ll be able to grow in.  We just need to get a little bit bigger, have some more people and more resources to branch out.