-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fi8cQ8K7yXQRnGs47eoa9G0IvfO3vYOFdG19PZUEB3pDTexCaY7BCqTgjv0mSusB bl5xHHy51VYew0fVi/ZAGQ== 0000947871-98-000255.txt : 19980803 0000947871-98-000255.hdr.sgml : 19980803 ACCESSION NUMBER: 0000947871-98-000255 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980721 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980729 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNETIC INC CENTRAL INDEX KEY: 0000850436 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 222975182 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-17822 FILM NUMBER: 98673399 BUSINESS ADDRESS: STREET 1: 669 RIVER DRIVE CITY: ELMWOOD PARK STATE: NJ ZIP: 07407-1361 BUSINESS PHONE: 2017033400 MAIL ADDRESS: STREET 1: 669 RIVER DRIVE CITY: ELMWOOD PARK STATE: NJ ZIP: 07407-1361 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: July 21, 1998 SYNETIC, INC. (Exact name of Registrant as specified in its charter) Delaware 0-17822 22-2975182 (State or other (Commission (I.R.S. Employer jurisdiction of File Number) Identification No.) incorporation) 669 River Drive, River Drive Center II, Elmwood Park, NJ 07407 (Address of principal executive offices) (Zip Code) Registrants telephone number, including area code: (201) 703-3400 2 Item 2. Acquisition or Disposition of Assets. On July 21, 1998, pursuant to an Agreement and Plan of Merger, dated as of March 6, 1998, as amended on May 22, 1998 (the "Merger Agreement"), among Synetic, Inc., a Delaware corporation (the "Registrant"), Point Plastics, Inc. ("Point Plastics"), a California Corporation, Plastics Acquisition Corp., a Delaware corporation and wholly owned subsidiary of the Registrant, the trustees of the Point Plastics, Inc. Employee Stock Ownership Plan and Trust (the "ESOP") and certain individual holders of capital stock of Point Plastics, Point Plastics was acquired by the Registrant by way of a merger with Plastics Acquisition Crop. (the "Merger"). In the Merger, each outstanding share of common stock of Point Plastics was converted into the right to receive $59.299 in cash; or 0.956 shares of common stock, par value $0.01 per share, of the Registrant (the "Registrant Common Stock"); or some combination of Registrant Common Stock and cash. The source of funds used in connection with the acquisition were from the cash reserves of the Registrant. The Registrant intends to operate Point Plastics as a wholly owned subsidiary. The Merger is expected to be accounted for as a purchase. A copy of the press release dated July 21, 1998 issued by the Registrant relating to the consummation of the Merger is attached as an exhibit hereto and is incorporated by reference herein. 3 Item 7. Financial Statements and Exhibits. (a) Financial statements of businesses acquired. The following historical financial statements and notes thereto are of Point Plastics prior to the consummation of the Merger and are attached hereto at pages F-1 to F-27. o Independent Auditor's Report o Consolidated balance sheets as of December 31, 1996 and December 31, 1997. o Consolidated statements of income as of December 31, 1996 and December 31, 1997. o Consolidated statements of changes in stockholders' deficit as of December 31, 1995, December 31, 1996 and December 31, 1997. o Consolidated statements of cash flows as of December 31, 1995, December 31, 1996 and December 31, 1997. o Notes to the consolidated financial statements. o Consolidated balance sheets (unaudited) as of March 31, 1998. o Consolidated statements of income (unaudited) as of March 31, 1997 and March 31, 1998. o Consolidated statements of cash flows (unaudited) as of March 31, 1997 and March 31, 1998. o Notes to the consolidated financial statements (unaudited). (b) Pro forma financial information. The following pro forma financial statements and notes thereto are attached hereto at pages PF-1 to PF-6: o Pro Forma Combined Condensed Consolidated Statement of Income (unaudited) for the year ended June 30, 1997. o Pro Forma Combined Condensed Consolidated Statement of Income (unaudited) for the nine months ended March 31, 1998. o Pro Forma Combined Condensed Balance Sheet (unaudited) as of March 31, 1998. o Notes to Pro Forma Combined Condensed Consolidated Financial Statements (unaudited). 4 (c) Exhibits. Exhibit No. Description --- ----------- 2.1 Agreement and Plan of Merger, dated as of March 6, 1998 among Synetic, Inc., Point Plastics, Inc., Plastics Acquisition Corp., the trustees of the Point Plastics, Inc. Employee Stock Ownership Plan and Trust and certain individual holders of capital stock of Point Plastics (incorporated by reference to Annex IA to Amendment No. 3 to the Joint Proxy Statement/Prospectus included as part of the Registrant's Registration Statement on Form S-4 (File No. 333-50801) filed on July 8, 1998). 2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of May 22, 1998 among Synetic, Inc., Point Plastics, Inc., Plastics Acquisition Corp., the trustees of the Point Plastics, Inc. Employee Stock Ownership Plan and Trust and certain individual holders of capital stock of Point Plastics (incorporated by reference to Annex IB to Amendment No. 3 to the Joint Proxy Statement/Prospectus included as part of the Registrant's Registration Statement on Form S-4 (File No. 333-50801) filed on July 8, 1998). 23.1 Consent of Linkenheimer LLP. 99.1 Press Release, dated July 21, 1998. 5 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SYNETIC, INC. Date: July 29, 1998 By: /s/ Charles A. Mele ----------------------------------- Name: Charles A. Mele Title: Vice President and General Counsel POINT PLASTICS, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS TABLE OF C O N T E N T S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997: Page ---- Independent Auditor's Report F-2 Consolidated balance sheets F-3 to F-4 Consolidated statements of income F-5 Consolidated statements of changes in stockholders' deficit F-6 Consolidated statements of cash flows F-7 to F-8 Notes to the consolidated financial statements F-9 to F-20 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998: Unaudited consolidated balance sheets F-22 to F-23 Unaudited consolidated statements of income F-24 Unaudited consolidated statements of cash flows F-25 Notes to the consolidated financial statements F-26 to F-27 F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors Point Plastics, Inc. Petaluma, California We have audited the accompanying consolidated balance sheets of Point Plastics, Inc. and Subsidiary as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for the years ended December 31, 1997, 1996 and 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on those 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 financial position of Point Plastics, Inc. and Subsidiary as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the years ended December 31, 1997, 1996 and 1995 in conformity with generally accepted accounting principles. /s/ Linkinheimer LLP Santa Rosa, California April 2, 1998 F-2 POINT PLASTICS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996
ASSETS 1997 1996 ---- ---- CURRENT ASSETS Cash and cash equivalents (Notes 15 and 18) $ 2,987,664 $ 3,231,202 Accounts receivable, net of allowance for doubtful accounts of $40,000 in each year (Notes 9 and 15) 3,078,567 2,988,231 Other receivables 99,964 194,119 Inventories (Notes 2 and 9) 3,303,511 3,335,135 Prepaid expenses and deposits 41,349 42,497 Prepaid income taxes 268,408 141,411 Prepaid retirement plan expense - 11,997 Short-term annuity investment (Notes 4 and 18) 7,397 6,984 Short-term investment in securities (Notes 3 and 18) 4,982,938 2,975,488 Deferred tax benefit (Note 14) 459,705 338,416 ---------------- --------------- Total current assets 15,229,503 13,265,480 ---------------- --------------- LONG-TERM INVESTMENTS AND RECEIVABLES Investment in securities (Notes 3, 9 and 18) 3,170,821 4,197,311 Annuity investment (Notes 4 and 18) 44,092 51,489 Investment in partnership (Notes 5 and 18) 128,874 128,874 ---------------- --------------- 3,343,787 4,377,674 ---------------- --------------- LAND, BUILDINGS AND EQUIPMENT, net (Notes 6 and 9) 10,915,968 9,663,740 ---------------- --------------- INTANGIBLES, net (Note 7) 53,354 95,802 ---------------- --------------- OTHER ASSETS (Note 12) 30,620 14,224 ---------------- --------------- $ 29,573,232 $ 27,416,920 ================ ===============
See Notes to Consolidated Financial Statements. F-3 POINT PLASTICS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Continued) December 31, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' DEFICIT 1997 1996 ---- ---- CURRENT LIABILITIES Accounts payable $ 428,462 $ 481,679 Accrued salaries and vacation 651,952 465,051 Other accrued expenses 32,574 24,950 Interest payable (Note 9) 104,056 104,202 Short-term pension benefit obligation (Note 4) 7,397 6,984 Current portion of long-term debt (Notes 9 and 18) 407,437 31,311 -------------- -------------- Total current liabilities 1,631,878 1,114,177 -------------- -------------- LONG-TERM LIABILITIES Long-term debt, net of current portion (Notes 9 and 18) 6,704,114 7,111,550 Long-term pension benefit obligation (Note 4) 44,092 51,489 Deferred taxes (Note 14) 1,115,552 1,050,745 -------------- -------------- 7,863,758 8,213,784 -------------- -------------- COMMITMENTS AND CONTINGENCIES (Notes 8, 10 and 11) MINORITY INTEREST (Note 11) 132,324 129,479 -------------- -------------- REDEEMABLE COMMON STOCK Redeemable common stock, no par value, 10,000,000 shares authorized; 1,401,288 and 1,424,475 shares issued and outstanding at December 31, 1997 and 1996, respectively (Note 11) 36,853,874 34,187,400 ESOP NOTE RECEIVABLE (Note 13) (2,657,272) - -------------- -------------- STOCKHOLDERS' DEFICIT Deferred compensation (Note 12) (343,500) (425,000) Retained deficit (13,907,830) (15,802,920) (14,251,330) (16,227,920) $ 29,573,232 $ 27,416,920 ============== ==============
See Notes to Consolidated Financial Statements. F-4 POINT PLASTICS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995 ------------ ------------ ------------ NET SALES (Note 15) $ 24,828,484 $ 21,472,829 $ 20,013,624 Cost of sales 12,948,179 11,446,396 10,887,707 ------------ ------------ ------------ GROSS PROFIT 11,880,305 10,026,433 9,125,917 Selling, general and administrative expenses 3,161,856 2,691,388 2,343,430 ESOP Contribution (Note 13) 558,681 562,773 571,895 ------------ ------------ ------------ Operating expenses 3,720,537 3,254,161 2,915,325 ------------ ------------ ------------ OPERATING INCOME 8,159,768 6,772,272 6,210,592 ------------ ------------ ------------ Other income (expense): Interest income 678,338 491,617 429,375 Interest expense (459,800) (470,681) (527,600) Write-down of investment and other (555) (40,395) (20,868) ------------ ------------ ------------ 217,983 (19,459) (119,093) ------------ ------------ ------------ INCOME BEFORE MINORITY INTEREST AND INCOME TAXES 8,377,751 6,752,813 6,091,499 Less minority interest 2,845 2,476 3,382 ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 8,374,906 6,750,337 6,088,117 Federal and state income taxes (Note 14) 3,203,521 2,661,228 2,280,130 ------------ ------------ ------------ NET INCOME $ 5,171,385 $ 4,089,109 $ 3,807,987 ============ ============ ============ EARNINGS PER SHARE Basic $ 3.67 $ 2.86 $ 2.66 ============ ============ ============ Diluted $ 3.62 $ 2.82 $ 2.63 ============ ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING Basic 1,408,672 1,428,811 1,430,472 ============ ============ ============ Diluted 1,426,893 1,445,961 1,445,871 ============ ============ ============
See Notes to Consolidated Financial Statements. F-5 POINT PLASTICS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT Years Ended December 31, 1997, 1996 and 1995 Deferred Retained Compensation Deficit ------------ ------------ BALANCE, DECEMBER 31, 1994 $ -- $(12,179,233) Stock options (Note 12) (495,000) -- Accretion due to redeemable common stock -- (7,221,336) Net income -- 3,807,987 ------------ ------------ BALANCE, DECEMBER 31, 1995 (495,000) (15,592,582) Stock redemptions (Note 11) -- -- Stock options (Note 12) 70,000 -- Accretion due to redeemable common stock -- (4,299,447) Net income -- 4,089,109 ------------ ------------ BALANCE, DECEMBER 31, 1996 (425,000) (15,802,920) Stock options (Note 12) 81,500 -- Accretion due to redeemable common stock -- (3,276,295) Net income -- 5,171,385 ------------ ------------ BALANCE, DECEMBER 31, 1997 $ (343,500) $(13,907,830) ============ ============ See Notes to Consolidated Financial Statements. F-6 POINT PLASTICS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 5,171,385 $ 4,089,109 $ 3,807,987 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,164,110 1,086,120 969,525 Amortization 56,821 56,665 50,373 Bond (premium) discount amortization (49,139) 15,030 23,435 Compensation expense on stock options granted 81,500 70,000 55,000 Write off of intangible asset -- 9,395 -- Minority interest in net income of consolidated subsidiary 2,845 2,476 3,382 Increase (decrease) in deferred taxes (56,482) 79,927 167,627 Loss on sale of assets 584 4,269 20,868 Annuity interest income (3,016) (3,546) (4,473) Unrealized loss on investment -- 36,216 -- Principal payments on ESOP bank loan -- -- 80,000 Net change in operating assets and liabilities (Note 17) 49,373 (270,216) (684,361) ----------- ----------- ----------- Net cash provided by operating activities 6,417,981 5,175,445 4,489,363 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of land, building and equipment (2,420,422) (2,425,086) (1,361,105) Purchase of intangible assets (14,373) (3,791) (46,197) Purchase of marketable securities (3,931,821) (2,957,704) (3,176,250) Redemptions of marketable securities 3,000,000 1,500,000 -- Disbursements on notes receivable (2,657,272) -- (12,000) Purchase of partnership interest -- (9,000) (20,000) Payments received on notes receivable -- 7,995 26,288 Proceeds from equipment sale 3,500 5,000 -- ----------- ----------- ----------- Net cash used in investing activities (6,020,388) (3,882,586) (4,589,264) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt (31,310) (657,500) (26,618) Redemption of Company stock (609,821) (208,134) (103,988) Principal payments on ESOP bank loans -- -- (80,000) Proceeds from issuance of common stock -- -- 10,010 ----------- ----------- ----------- Net cash used in financing activities (641,131) (865,634) (200,596) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (243,538) 427,225 (300,497) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,231,202 2,803,977 3,104,474 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,987,664 $ 3,231,202 $ 2,803,977 =========== =========== ===========
See Notes to Consolidated Financial Statements. F-7 POINT PLASTICS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995 ---------- ---------- ---------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the years for: Interest $ 459,946 $ 473,421 $ 529,336 ========== ========== ========== Income taxes $3,387,000 $2,457,000 $2,234,300 ========== ========== ========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Distribution to former employee and current board member from annuity investment (Note 4) $ 10,000 $ 20,000 $ 20,000 ========== ========== ==========
See Notes to Consolidated Financial Statements. F-8 POINT PLASTICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 NOTE 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Description of business: Point Plastics, Inc. (the "Company") manufactures high usage disposable plastic items used by testing laboratories, medical laboratories and hospitals. These items consist of pipette tips, tubes, vials, caps and associated items which are used in testing of fluids. The Company sells its product to direct users and to distributors throughout the U.S. and several foreign countries. Marketing is conducted through a division, Quality Scientific Plastics, and a subsidiary, Out Patient Services, Inc. A summary of the Company's significant accounting policies follows: Principles of consolidation: The consolidated financial statements include the accounts of the parent and 93.4% owned subsidiary, Out Patient Services, Inc. All significant inter-company transactions and accounts are eliminated in consolidation. Cash and cash equivalents: For purposes of reporting the statements of cash flow, the Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. At December 31, 1997, $1,747,177 of corporate debt securities are considered cash equivalents. Inventories: Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out basis. Cost includes raw materials, direct labor and manufacturing overhead. Investments: Investments consist of debt securities and an annuity contract which are reported at amortized cost and a 3.3% limited partnership interest which is stated at the lower of cost or market. Realized gains and losses on dispositions are based upon net proceeds and the adjusted book value of the securities sold using the specific identification method. Depreciation methods: Buildings and equipment are shown at cost and are depreciated using straight-line and declining balance methods over their estimated useful lives ranging from 8 to 10 years for equipment and 30 years for buildings. Leasehold improvements are depreciated over the life of the lease with renewal options. Revenue recognition: Revenue is recognized upon product shipment to direct users and distributors, net of sales returns and allowances. The terms of such sales generally provide for payment within 30 days. Income taxes: The Company accounts for income taxes pursuant to Statement of Financial Accounting Standard No. 109, " Accounting for Income Taxes" ("SFAS No. 109"), which uses the liability method to calculate deferred income taxes. The realization of deferred tax assets is based on historical tax positions and expectations about future taxable income. F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (cont'd) Accounting for stock based compensation: Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). As permitted by the standard, the Company has elected to continue following the guidance of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), for measurement and recognition of stock-based transactions with employees. The Company discloses on a pro-forma basis both net income and earnings per share as if the fair value based accounting method were used and the difference between compensation cost recognized by APB No. 25 and the fair value method of SFAS No. 123. (See Note 12). Computation of net income per share: Net income per share has been determined using Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). Under SFAS No. 128, basic net income per share is computed by dividing net income by the weighted average number of shares outstanding for the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Dilutive securities consist of common stock which may be issuable upon exercise of outstanding stock options as calculated using the treasury stock method. Investments in debt and equity securities: Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). This Statement addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. At December 31, 1997, the Company's investments consisted principally of federal and California government obligations. Securities are reported at amortized cost based on the Company's positive intent and ability to hold such securities to maturity. Use of estimates: 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 and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2. INVENTORIES At December 31, 1997 and 1996, the following items made up the inventories on hand: 1997 1996 ---------------- ------------------ Raw materials $ 643,752 $ 695,831 Finished goods 2,659,759 2,639,304 ---------------- ------------------ $ 3,303,511 $ 3,335,135 ================ ================== F-10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3. INVESTMENTS IN SECURITIES Investments consist of federal and California government obligations adjusted for amortization of premiums and accretions of discounts. The Company plans to hold these investments to maturity. The estimated fair value amounts have been determined by the Company using available market prices or dealer quotes. The amortized cost, unrealized gains and losses, and fair values of investment securities held to maturity at December 31, 1997 were:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---------- ---------- ---------- ---------- Due in one year or less $4,982,938 $ 3,092 $ -- $4,986,030 Due after one year but less than five years 2,164,408 97,172 -- 2,261,580 Due after five years but less than ten years 1,006,413 41,447 -- 1,047,860 ---------- ---------- ---------- ---------- $8,153,759 $ 141,711 $ -- $8,295,470 ========== ========== ========== ==========
The amortized cost, unrealized gains and losses, and fair values of investment securities held to maturity at December 31, 1996 were:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---------- ---------- ---------- ---------- Due in one year or less $2,975,488 $ 5,397 $ -- $2,980,885 Due after one year but less than five years 998,630 -- 9,570 989,060 Due after five years but less than ten years 3,198,681 99,379 -- 3,298,060 ---------- ---------- ---------- ---------- $7,172,799 $ 104,776 $ 9,570 $7,268,005 ========== ========== ========== ==========
NOTE 4. ANNUITY INVESTMENT In 1994, the Company purchased two annuities with an insurance company to provide a retired company officer who is also a current member of the Board of Directors with a supplemental pension. The annuities will distribute directly to the former officer $20,000 per year for two years beginning April 1995 and then $10,000 per year for 7 years. A summary of the activity is as follows: 1997 1996 -------- -------- Annuity balance at beginning of year $ 58,473 $ 74,927 Annuity interest 3,016 3,546 Distribution (10,000) (20,000) -------- -------- Annuity balance at end of year 51,489 58,473 Current portion 7,397 6,984 -------- -------- Long-term portion $ 44,092 $ 51,489 ======== ======== A corresponding liability has been set up to reflect the Company's obligation. NOTE 5. INVESTMENT IN PARTNERSHIP The Company is a limited partner in a partnership. The investment is stated at lower of cost or market. The cost of the partnership investment is $165,000. A summary of the investment activity is as follows: 1997 1996 --------- --------- Partnership balance at beginning of year $ 128,874 $ 165,000 Unrealized loss -- (36,126) --------- --------- Partnership balance at end of year $ 128,874 $ 128,874 ========= ========= F-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6. LAND, BUILDINGS AND EQUIPMENT A summary of the Company's land, buildings and equipment at December 31, 1997 and 1996 is as follows:
1997 1996 ------------ ------------ Land $ 1,264,705 $ 1,264,705 Buildings 5,113,218 4,516,942 Machinery and equipment 6,817,995 5,882,479 Tooling-molds 4,459,484 3,889,933 Furniture and fixtures 204,169 182,693 Leasehold improvements 336,971 277,526 Vehicles 39,977 30,212 Equipment and construction in progress 554,602 353,720 ------------ ------------ 18,791,121 16,398,210 Accumulated depreciation (7,875,153) (6,734,470) ------------ ------------ $ 10,915,968 $ 9,663,740 ============ ============
Depreciation expense for the years ended December 31, 1997, 1996 and 1995 was $1,164,110, $1,086,120 and $969,525, respectively. NOTE 7. INTANGIBLES Intangibles are stated at cost. In 1997 and 1996, intangibles consist of a patent, two licensing agreements to manufacture a plastic tip and a tube pack, and patent pending costs. The perfected intangibles are being amortized on a straight-line basis over their estimated useful lives of 5 years. NOTE 8. LEASES The Company is leasing two buildings at its current location under a 10 year operating lease. The lease expires June 1999 and has a five year renewal option. The lease agreement requires the Company to pay the property taxes and insurance on the building. The Company leased another building during 1993 under a six year operating lease. The lease expires March 1999 and has a five year renewal option. The lease agreement requires the Company to pay the property taxes and insurance on the building in excess of the base year rates. In 1994, the Company began leasing an access way under a five-year lease. The access way lease expires May 1999 and has a five year renewal option. Rent expense, including taxes and insurance, for the years ended December 31, 1997, 1996 and 1995 was $286,824, $293,620 and $355,968, respectively. Future minimum rental payments are as follows: 1998 $ 281,760 1999 104,920 ---------- $ 386,680 ========== The Company also leases certain equipment under two and three year operating leases. The rental expense for the years ended December 31, 1997, 1996 and 1995 was $21,750, $20,971 and $21,561, respectively. Following are the future minimum rental payments for these equipment leases: 1998 $ 23,724 1999 14,194 ---------- $ 37,918 ========== F-12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9. NOTES PAYABLE AND LONG-TERM DEBT Balances included in long-term debt at December 31, 1997 and 1996 are as follows:
1997 1996 ---------- ---------- Note payable to the U.S. Small Business Administration at 12.94%, secured by a deed of trust on land and building. Principal, interest and fee payable at $2,628 per month Matures July 2009. $ 180,282 $ 186,634 Note payable to individuals, secured by deed of trust on land and building. Principal and interest payments of $4,494 per month, with interest at 7%. Matures July 1998. 400,212 425,170 Note payable to former stockholder for redemption of Company stock. Secured by inventory, accounts receivable, and U.S. treasury note. Quarterly interest only payments bear interest at 6.23% per annum Matures March 2003 or is callable by the seller upon the sale of substantially all of the stock or assets of the Company. 6,531,057 6,531,057 ---------- ---------- 7,111,551 7,142,861 Less: Current portion 407,437 31,311 ---------- ---------- $6,704,114 $7,111,550 ========== ==========
Aggregate maturities required on long-term debt at December 31, 1997 are as follows: 1998 $ 407,437 1999 8,218 2000 9,347 2001 10,631 2002 12,092 Subsequent 6,663,826 ---------- $7,111,551 ========== In 1993, the Company repurchased shares of common stock from a major stockholder. Interest in the amount of $406,885 was paid to this former stockholder in 1997, 1996 and 1995, respectively. In addition, $101,721 in interest is due to the former stockholder and is included in interest payable at December 31, 1997 and December 31, 1996, respectively. NOTE 10. CONTINGENCIES In 1997, the Internal Revenue Service issued a notice of tax deficiency against the Company for income taxes totaling $4,791,422 for the tax years 1993, 1994 and 1995. The Company has filed a petition to the U.S. Tax Court challenging the basis of any deficiency claimed. The Company and outside counsel believes its position on this tax matter is strong and that any likely settlement on the entire case will be less than $100,000. No provision has been made in the accompanying financial statement for the proposed tax deficiencies. F-13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11. REDEEMABLE COMMON STOCK Common stock which is mandatorily redeemable or is subject to redemption outside of the Company's control is reported at its fair value at the date of issuance. Increases in the carrying amount are charged to retained earnings so that the carrying amount of the redeemable common stock will equal the redemption amount. During 1995, the Company redeemed 4,952 shares at $21 per share for an amount totaling $103,988. The shares redeemed were ESOP shares that had been distributed to a member of the Board of Directors. Also in 1995, a credit of $560,010 was made to redeemable common stock to reflect the stock option grant of 50,000 shares to a member of the Board of Directors. This individual exercised a portion of the stock options in 1995 and purchased 1,001 shares of common stock from the Company. (See Note 12). At December 31, 1995, the parent company had 10,000,000 shares of authorized, no par common stock, with 1,433,147 issued and outstanding. During 1996, the Company redeemed 8,672 shares at $24 per share for an amount totaling $208,134. The shares redeemed were ESOP shares that had been distributed to two current members of the Board of Directors. During 1997, the Company redeemed 23,187 shares at $26.30 per share for an amount totaling $609,820. The shares redeemed were ESOP shares of which 4,431 were redeemed from a former stockholder and 3,873 were redeemed from a current member of the Board of Directors. In the event of death or disability of the individual stockholders, the Company agrees to purchase their Company common stock at the appraised price per share as of the last corporate year end prior to the event. At December 31, 1997, 1996 and 1995, these stockholders hold 675,034 shares of common stock. The appraised market value of the Company stock at January 1, 1997, 1996 and 1995 was $26.30, $24 and $21 per share, respectively. Under the terms of the Company's Employee Stock Ownership Plan (Note 13), a participant shall have the right to "put" his or her shares of common stock to the Company. The Company must then purchase such shares at their fair market value as defined in the ESOP. The fair market value during 1997, 1996 and 1995 was $26.30, $24 and $21, respectively, as determined by an independent appraisal. The ESOP held 726,254, 749,441 and 758,113 shares of Company common stock at December 31, 1997, 1996 and 1995, respectively. Redemptions of common stock are paid out of current assets. There are no projected redemptions over the next five years. NOTE 12. STOCK OPTION PLAN The Company approved a stock option plan effective January 1, 1995. The plan was put into place to enable selected officers and key employees to acquire Company stock. On January 1, 1995, the Company granted, to an employee who is also a Board member, options to purchase 50,000 shares of Company stock at $10 per share. The options vest 10% per year for ten years and expire December 31, 2004. The company applies APB Opinion 25, Accounting for Stock Issues to Employees, in accounting for its stock option plan which records compensation expense for the difference between the exercise price and the estimated fair value of its stock. Compensation cost charged to operations was $81,500, $70,000 and $55,000 in 1997, 1996 and 1995, respectively (See Note 16). F-14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12. STOCK OPTION PLAN (continued) Had compensation cost been determined on the basis of fair value pursuant to FASB Statement No. 123, Accounting for Stock Based Compensation, net income would have been as follows: Net Income: 1997 1996 1995 ---------- ---------- ---------- As reported under APB 25 $5,171,385 $4,089,109 $3,807,987 ========== ========== ========== Under FASB 123 $5,177,485 $4,083,709 $3,787,587 ========== ========== ========== FASB 123 computations are based upon the current value of the stock at the grant date reduced by expected dividends and the present value of the exercise price over the life of the option. A risk free interest rate of 5.25% was assumed. The following is a summary of the stock option plan:
Number of Shares 1997 1996 1995 ------ ------ -------- Options outstanding and unexercised at beginning of year 48,999 48,999 -- Options granted -- -- 50,000 Options vested and exercised -- -- (1,001) ------ ------ -------- Options outstanding and unexercised at end of year 48,999 48,999 48,999 ====== ====== ======== Options exercisable at the end of the year 13,999 8,999 3,999 ====== ====== ======== Fair value of options granted, per share: 1997 1996 1995 ------ ------ -------- Under APB 25 $ -- $ -- $ 11 ====== ====== ======== Under FASB 123 $ -- $ -- $ 15 ====== ====== ========
NOTE 13. EMPLOYEE STOCK OWNERSHIP PLAN On January 1, 1986, the Company established an Employee Stock Ownership Plan (Plan) to provide additional retirement benefits for all full-time employees with one or more years of service who have attained the age of 21 and who are not part of a retirement program covered by a collective bargaining agreement. The Company's contributions to the Plan are determined by its Board of Directors. However, the Company is obligated to make a contribution to the Plan which equals the ESOP's debt service less dividends received by the ESOP. All dividends received by the ESOP are used to pay debt service. Contributions under the Plan amounted to $558,681, $562,773 and $571,895 in 1997, 1996 and 1995, respectively. The Company accounts for its ESOP in accordance with Statement of Position 93-6. Accordingly, the shares pledged as collateral are considered unearned ESOP shares and are reduced from stockholders' equity. As shares are released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings per share calculations. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings; dividends on unallocated shares are recorded as a reduction of debt and accrued interest. During December 1997, the Trust purchased 101,037 shares from separated participants of the Plan. The purchase was made with the proceeds of a $2,657,272 loan from the Company, which is payable in annual installments over a ten year period. The balance on the note at December 31, 1997 was $2,657,272. For financial statement purposes, the note receivable at December 31, 1997 related to these unearned ESOP shares reduces stockholders' equity. As the Plan makes each payment of principal, an appropriate percentage of stock will be allocated to eligible employees' accounts in the proportion that each such participant's covered compensation bears to the total covered compensation of all such participants for that year in accordance with applicable regulations under the Internal Revenue Code. Forfeitures and stock re-purchases from separated participants are allocated in the same manner as employer contributions. All the purchased stock is held in the Trust established under the Plan. F-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13. EMPLOYEE STOCK OWNERSHIP PLAN (continued) Shares vest according to the following vesting schedule upon allocation: Years of Service Percentage vested ---------------- ----------------- Less than 2 0% 2 years 20% 3 years 30% 4 years 40% 5 years 60% 6 years 80% 7 years 100% At December 31, 1997, 726,254 of the Company's common shares are held by the Employee Stock Ownership Trust (Trust), which was established to fund the Plan. At December 31, 1997, the Trust's common shares consist of 101,067 of unallocated shares and 625,187 allocated shares. There were no unallocated shares committed to be released during 1997. The fair value of the unallocated shares at December 31, 1997 was $2,657,272. All shares of the Trust were fully allocated at December 31, 1996 and 1995. Any participant's Plan benefit which is retained in the Trust after the anniversary date coinciding with or immediately following the date on which he terminates employment will be credited to a separate account in the name of the participant, and such account shall be credited with interest on the unpaid principal balance at the rate paid on one-year certificates of deposit (as of the beginning of each Plan year) as quoted in the Wall Street Journal. Such separate account shall not require segregation of the Trust assets. Participants that terminate due to retirement, death or disability will begin receiving their distributions in the year following the Plan year in which the termination occurred. Distributions are generally made in equal installments over a period of five years. Distributions may be made in cash or, if a participant elects, in the form of Company common shares. Each participant is entitled to exercise voting rights attributable to the shares allocated to his or her account that were acquired with a Securities Acquisition Loan completed after June 6, 1989 to which Section 133 of the Internal Revenue Code applied. Each participant is to be notified by the Plan Trustees prior to the time that such rights are to be exercised. The Trustees are not permitted to vote any of these shares for which instructions have not been given by a participant. Allocated shares acquired prior to June 6, 1989 and shares acquired through a loan where Section 133 did not apply, shall be voted by the Trustees in accordance with instructions from the Plan's Committee, except with respect to any vote required for the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all assets of a trade or business, or other similar transaction prescribed by regulations, in which case the participant will vote the shares (See Note 17). Any unallocated shares held by the Trust shall be voted by the Trustees in accordance with instructions from the Committee. Subsequent to December 31, 1997, the Company signed a merger agreement with Synetic, Inc. The merger agreement stipulates that prior to the merger's effective date, the ESOP shall be amended to provide that: (I) the Trustees shall vote allocated and unallocated shares of the Company common stock for which no voting instructions are received, in proportion to the voting instructions received on allocated shares; (ii) ESOP participants may make the elections described in Section 1.09 and 1.11 of the Plan by instructing the Trustees with respect to their allocated shares; (iii) all ESOP Participants shall become 100% vested in their ESOP accounts at the effective date of the merger; and (iv) the ESOP will be terminated (no earlier than December 31, 1998). Vested participants in the Plan hold shares with an approximate total market value of $17,857,319 at December 31, 1996, using the latest appraised market value of $26.30 per share. F-16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14. INCOME TAXES Deferred tax assets as of December 31 consisted of the following: 1997 1996 -------- -------- Current: Federal $413,930 $307,598 State 45,775 30,818 -------- -------- Total $459,705 $338,416 ======== ======== Deferred tax liabilities as of December 31 consisted of the following: 1997 1996 -------- -------- Noncurrent: Federal $ 977,905 $ 919,596 State 137,647 131,149 ---------- ---------- Total $1,115,552 1,050,745 ========== ========== Deferred tax liabilities (assets) at December 31, are comprised of the following:
1997 1996 ----------- ----------- Tax over book depreciation and amortization $ 1,193,826 $ 1,094,371 Intangible assets amortization (21,631) (10,815) Accrued expenses (209,204) (119,085) Inventory (76,944) (58,833) State taxes (239,157) (190,809) Other, net 8,957 (2,500) ----------- ----------- $ 655,847 $ 712,329 =========== ===========
Income tax expense for the years ended December 31 consisted of the following:
1997 1996 1995 ----------- ----------- ----------- Current: Federal $ 2,595,687 $ 2,020,804 $ 1,727,307 State 664,316 561,202 385,196 ----------- ----------- ----------- Total Current 3,260,003 2,582,006 2,112,503 ----------- ----------- ----------- Deferred: Federal (48,023) 65,277 146,473 State (8,459) 13,945 21,154 ----------- ----------- ----------- Total Noncurrent (56,482) 79,222 167,627 ----------- ----------- ----------- Total $ 3,203,521 $ 2,661,228 $ 2,280,130 =========== =========== ===========
Temporary differences resulted in the following deferred tax expense (benefit):
1997 1996 1995 --------- --------- --------- Difference between tax and book depreciation and amortization $ 88,064 $ 90,035 $ 139,598 Accrued expenses (89,162) (18,665) (12,447) Franchise tax (48,348) (11,868) 6,594 Other, net (7,036) 19,720 33,882 --------- --------- --------- $ (56,482) $ 79,222 $ 167,627 ========= ========= =========
F-17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14. INCOME TAXES (Continued) A reconciliation of the income tax provision, computed by applying the federal statutory rate to income before taxes, and the actual provision for income taxes is as follows: 1997 1996 1995 ---- ---- ---- Federal statutory rate 34.0% 34.0% 34.0% State tax, net of federal benefit 6.0 6.5 6.5 Other, net (1.7) (1.1) (3.0) ---- ---- ---- 38.3% 39.4% 37.5% ==== ==== ==== NOTE 15. CONCENTRATION OF CREDIT RISK/MAJOR CUSTOMER/EXPORT SALES For the year ended December 31, 1997, one customer, who is a distributor, comprised 28% of total sales and 30% of accounts receivable. For the year ended December 31, 1996, one customer, who is a distributor, comprised 22% of total sales and 23% of accounts receivable. For the year ended December 31, 1995, one customer, who is a distributor, comprised 20% of total sales. The Company grants credit generally on an unsecured basis. The risk of loss on any accounts receivable is the balance due at the time of default. Their customers are located in various geographical areas of the U.S. and overseas. The Company has $1,329,043 of cash on deposit with a single financial institution, excluding outstanding checks at December 31, 1997. One of the cash accounts is a sweep account which is not federally insured. This account routinely sweeps the cash from all the other accounts except for $50,000. Therefore, only $50,000 is insured at any given time. Export product sales, which are made principally to Europe and Asia, were $8,786,112, $7,669,794 and $6,792,515 for the years ended December 31, 1997, 1996 and 1995, respectively. NOTE 16. SUBSEQUENT EVENTS Sale of Company On March 6, 1998, the Company agreed to be acquired by Synetic, Inc. in a merger for $86,000,000. In order to ensure that the merger qualifies as a tax-free reorganization for federal income taxes, the aggregate purchase price shall be payable 40% in cash and 60% in shares of Synetic common stock. The merger agreement stipulates that one year following the merger's effective date, the ESOP will be terminated. In the event the merger transaction is consummated, acceleration of the options granted under the Company's Stock Option Plan to a current member of the Board of Directors shall occur. The Company will grant the Board member a bonus for the exercise price of $10 per share for the 48,999 shares that remain unexercised at December 31, 1997. (See Note 12). As a result of the merger, the note payable to a former stockholder becomes callable (See Note 9). Building Construction The Company is planning on constructing a building on land already owned. A cost estimate of construction was prepared by architects and is expected to exceed $2,000,000. Completion of the building is anticipated in late 1998. F-18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17. NET CHANGE IN OPERATING ASSETS AND LIABILITIES
1997 1996 1995 --------- --------- --------- (Increase) decrease in operating assets: Accounts receivable $ (90,336) $ 104,272 $(392,029) Other receivables - current 94,155 (41,991) 91,856 Inventory 31,624 (248,610) (120,985) Prepaid expenses 1,148 89 18,818 Prepaid ESOP 11,997 (11,997) -- Prepaid income taxes (126,997) 124,211 (121,797) Other receivables -- -- 50,000 Deposits (16,396) 12,411 1,112 Increase (decrease) in operating liabilities: Accounts payable (53,217) 157,415 (217,645) Accrued salaries and vacation 186,901 (343,335) 10,469 Accrued expenses 7,624 (23,487) (8,445) Interest payable (146) (2,740) (188) Pension obligation 3,016 3,546 4,473 --------- --------- --------- $ 49,373 $(270,216) $(684,361) ========= ========= =========
NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate fair value; Cash and cash equivalents The carrying amount approximates fair value due to the short maturity of these instruments. Annuity investment The carrying amount of the annuity investment, based upon rates currently available, approximates fair value. Investment in securities The fair value of investment in securities is based upon current market rates. These quotes are obtained from an independent source and are approximations. Investment in partnership The investment in the partnership is carried at lower of cost or fair market value. The partnership's fair market value has been determined using current negotiated sales prices of properties held by the partnership, less liabilities and selling costs. (See Note 5) Long-term debt The fair value of some of the Company's long-term debt is based upon estimated borrowing rates currently available to the Company. The estimated fair values of the Company's financial instruments are as follows:
1997 1996 -------------------------- ------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ----------- ----------- ----------- ----------- Cash and cash equivalents $ 2,987,664 $ 2,987,664 $ 3,231,202 $ 3,231,202 Annuity investment $ 51,489 $ 51,489 $ 58,473 $ 58,473 Investment in securities $ 8,153,759 $ 8,295,470 $ 7,172,799 $ 7,268,005 Investment in partnership $ 128,874 $ 128,874 $ 128,874 $ 128,874 Long-term debt $(7,111,551) $(6,351,500) $(7,142,861) $(6,361,715)
F-19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19. EARNINGS PER SHARE Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if dilutive potential common stock had been converted to common stock. The following reconciles amounts reported in the financial statements:
For the year ended December 31, 1997 ------------------------------------ Weighted Net Average Income shares Per-share Amount ------ -------- ---------------- Income available to common stockholders -basic earnings per share $5,171,385 1,408,672 $3.671 ====== Effect of dilutive securities - stock options -- 18,221 ---------- --------- Income available to common stockholders - diluted earnings per share $5,171,385 1,426,893 $3.624 ========== ========= ======
For the year ended December 31, 1997 ------------------------------------ Weighted Net Average Income shares Per-share Amount ------ -------- ---------------- Income available to common stockholders -basic earnings per share $4,089,109 1,428,811 $2.862 ====== Effect of dilutive securities - stock options -- 17,150 ---------- --------- Income available to common stockholders - diluted earnings per share $4,089,109 1,445,961 $2.828 ========== ========= ======
For the year ended December 31, 1997 ------------------------------------ Weighted Net Average Income shares Per-share Amount ------ -------- ---------------- Income available to common stockholders -basic earnings per share $3,807,987 1,430,472 $2.662 ====== Effect of dilutive securities - stock options -- 15,400 ---------- --------- Income available to common stockholders - diluted earnings per share $3,807,987 1,445,872 $2.634 ========== ========= ======
F-20 POINT PLASTICS, INC. AND SUBSIDIARY INTERIM CONSOLIDATED FINANCIAL REPORT (Unaudited) MARCH 31, 1998 F-21 POINT PLASTICS, INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED BALANCE SHEETS March 31, 1998 ASSETS 1998 ----------- CURRENT ASSETS Cash and cash equivalents (Note 2) $ 5,911,624 Accounts receivable, net 3,341,215 Inventories (Note 3) 3,679,757 Short-term investment in securities (Note 4) 3,003,893 Prepaid retirement plan expense 340,269 Prepaid expense and other current assets 585,805 ----------- Total current assets 16,862,563 ----------- LONG-TERM INVESTMENTS AND RECEIVABLES Investment in securities (Note 4) 3,163,855 ----------- Other investments 173,590 3,337,445 ----------- LAND, BUILDINGS AND EQUIPMENT, net (Note 5) 11,213,819 ----------- INTANGIBLES, net 198,886 ----------- OTHER ASSETS 19,211 ----------- $31,631,924 =========== See Notes to Consolidated Financial Statements. F-22 POINT PLASTICS, INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED BALANCE SHEETS (Continued) March 31, 1998 LIABILITIES AND STOCKHOLDERS' DEFICIT 1998 ------------ CURRENT LIABILITIES Accounts payable and accrued liabilities $ 2,033,337 Current portion of long-term debt 401,737 ------------ Total current liabilities 2,435,074 ------------ LONG-TERM LIABILITIES Long-term debt, net of current portion (Note 6) 6,702,157 Deferred taxes and other non-current liabilities 1,124,639 ------------ 7,826,796 ------------ MINORITY INTEREST 132,324 ------------ REDEEMABLE COMMON STOCK 39,656,450 ------------ ESOP NOTE RECEIVABLE (Note 7) (2,590,840) ------------ STOCKHOLDERS' DEFICIT Deferred compensation (329,750) Retained deficit (15,498,130) ------------ (15,827,880) ------------ $ 31,631,924 ============ See Notes to Consolidated Financial Statements. F-23 POINT PLASTICS, INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF INCOME For the three months ended March 31, -------------------------- 1998 1997 ---------- ---------- NET SALES (Note 8) $5,866,710 $5,815,356 Cost of sales 2,988,381 2,973,703 ---------- ---------- GROSS PROFIT 2,878,329 2,841,653 Selling, general and administrative 782,560 759,479 ESOP contribution (Note 7) 252,336 147,000 ---------- ---------- Operating expenses 1,034,896 906,479 ---------- ---------- OPERATING INCOME 1,843,433 1,935,174 ---------- ---------- Other income: Interest income, net 41,074 29,051 ---------- ---------- INCOME BEFORE MINORITY INTEREST AND INCOME TAXES 1,884,507 1,964,225 Less minority interest -- -- ---------- ---------- INCOME BEFORE INCOME TAXES 1,884,507 1,964,225 Federal and state income taxes 733,635 763,254 ---------- ---------- NET INCOME $1,150,872 $1,200,971 ========== ========== EARNINGS PER SHARE Basic $ .884 $ .843 ========== ========== Diluted $ .872 $ .832 ========== ========== WEIGHTED AVERAGE SHARES OUTSTANDING Basic 1,301,514 1,424,475 ========== ========== Diluted 1,320,525 1,442,696 ========== ========== See Notes to Consolidated Financial Statements. F-24 POINT PLASTICS, INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, -------------------------- 1998 1997 ----------- ----------- NET CASH PROVIDED FROM OPERATING ACTIVITIES 1,702,663 1,912,364 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of land, building and equipment (623,798) (335,384) Purchase of intangible assets (147,248) (3,245) Redemptions of marketable securities 2,000,000 -- ----------- ----------- Net cash provided by (used in) investing activities 1,228,954 (338,629) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt (7,657) (3,951) ----------- ----------- Net cash used in financing activities (7,657) (3,951) ----------- ----------- Net increase in cash and cash equivalents 2,923,960 1,569,784 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,987,664 3,231,202 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,911,624 $ 4,800,986 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the quarters for: Interest $ 112,570 $ 115,149 =========== =========== Income taxes $ -- $ -- =========== ===========
See Notes to Consolidated Financial Statements. F-25 POINT PLASTICS, INC. AND SUBSIDIARY NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. BASIS OF PRESENTATION The unaudited consolidated financial statements for the three month period ended March 31, 1998 and 1997 have been prepared in conformity with generally accepted accounting principles for interim financial statements. For further information, reference is made to the audited financial statements and the notes thereto included in the Company's 1997 Consolidated Financial Report in the S-4 Registration Statement filed on April 23, 1998. Below are notes to the unaudited financial statements where they are significantly different from those presented in the audited financial statements for the year ended December 31, 1997. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES The Company has made no significant changes in accounting policies since December 31, 1997. Refer to pages F-9 to F-10 of the 1997 Consolidated Financial Report. At March 31, 1998, $3,473,297 of corporate debt securities are considered cash equivalents. NOTE 3. INVENTORIES At March 31, 1998, the following items made up the inventories on hand: Raw materials $ 693,001 Finished goods 2,986,756 ---------------- $ 3,679,757 ================ NOTE 4. INVESTMENTS IN SECURITIES Investments consist of federal and California government obligations adjusted for amortization of premiums and accretions of discounts. The Company plans to hold these investments to maturity. The estimated fair value amounts have been determined by the Company using available market prices or dealer quotes. The amortized cost, unrealized gains and losses, and fair values of investment securities held to maturity at March 31, 1998 were:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---------- -------- ---------- ---------- Due in one year or less $3,003,893 $ -- $ 2,643 $3,001,250 Due after one year but less than five years 2,157,748 94,752 -- 2,252,500 Due after five years but less than ten years 1,006,107 40,143 -- 1,046,250 ---------- -------- ---------- ---------- $6,167,748 $134,895 $ 2,643 $6,300,000 ========== ======== ========== ==========
F-26 POINT PLASTICS, INC. AND SUBSIDIARY NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 5. LAND, BUILDINGS AND EQUIPMENT A summary of the Company's land, buildings and equipment at March 31, 1998 is as follows: Land, buildings and equipment 19,414,919 Accumulated depreciation (8,201,100) ----------- $11,213,819 =========== Depreciation expense for the three months ended March 31, 1998 and 1997 was $325,947 and $264,433, respectively. NOTE 6. TRANSACTIONS WITH RELATED PARTIES Long-term debt: Interest in the amount of $101,721 was paid to a former stockholder during the three months ended March 31, 1998 and 1997, respectively. In addition, $101,721 in interest is due to the former stockholder and is included in accrued liabilities at March 31, 1998. Stock options: The Company granted 50,000 stock options on January 1, 1995, to an employee who is also a Board member. The stock options granted vest at 5,000 shares per year, for ten years, beginning on January 1, 1995 and allow this individual to purchase Company stock at $10 per share. The company applies APB Opinion 25, Accounting for Stock Issues to Employees, in accounting for its stock option plan which records compensation expense for the difference between the exercise price and the estimated fair value of its stock. Compensation cost charged to operations was $13,750 and $20,375 for the three months ended March 31, 1998 and 1997, respectively. NOTE 7. EMPLOYEE STOCK OWNERSHIP PLAN Contributions under the Plan amounted to $252,336 and $147,000 for the three months ended March 31, 1998 and 1997. The balance on the ESOP note receivable at March 31, 1998 was $2,590,840. For financial statement purposes, stockholders' equity has been reduced by the balance of the note receivable from the Plan. NOTE 8. SUBSEQUENT EVENTS Notification by Major Customer On May 4, 1998, the Company was notified by the customer referred to in Note 15 of its 1997 Consolidated Financial Statements that it would no longer be purchasing a substantial portion of its products from the Company. All sales to this customer were final and no material product returns are anticipated. F-27 UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS In the table below, we attempt to illustrate the financial results that might have occurred if the merger of Point Plastics into Plastics Acquisition Corp, a wholly owned subsidiary of the Registrant (the "Merger") had been completed previously. Presented is the Unaudited Pro Forma Combined Condensed Consolidated Statements of Income for the fiscal year ended June 30, 1997 and the nine months ended March 31, 1998 as if the Merger had been consummated at the beginning of the earliest period presented. Also presented is the Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet as of March 31, 1998 as if the Merger had been completed on March 31, 1998. These unaudited pro forma combined condensed consolidated financial statements should be read in conjunction with the historical consolidated financial statements of the Registrant and Point Plastics and related notes and "Management's Discussion and Analysis of Results of Operations and Financial Condition" contained, with respect to the Registrant, in the Registrant's Annual Report on Form 10-K, as amended, for the year ended June 30, 1997 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and, with respect to Point Plastics, in the accompanying audited financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Proxy Statement/Prospectus included as part of the Registrant's Registration Statement on Form S-4 (File No. 333-50801) filed on July 7, 1998, for a more detailed explanation. It is important to remember that this information is hypothetical, and does not necessarily reflect the financial performance that would have actually resulted if the Merger had been completed on that date. It is also important to remember that this information does not necessarily reflect future financial performance if the Merger actually occurs. PF-1
Pro Forma Combined Condensed Consolidated Statement of Income For the Year Ended June 30, 1997 (unaudited) (in thousands, except per share data) Point Synetic Plastics Pro Forma Pro Forma Historical Historical Adjustments Combined Net Sales...................................... $ 52,885 $ 23,654 (463) (1) $ 76,076 --------- -------- ---------- --------- Cost of Sales.................................. 29,035 12,529 (463) (1) 41,101 Selling, General and Administrative Expenses... 20,841 3,441 2,085 (2) 26,367 Other (Income) Expense, Net.................... 27,635 (98) 2,306 (3) 29,843 --------- --------- ---------- --------- 77,511 15,872 3,928 97,311 --------- --------- ---------- --------- Income (Loss) Before Taxes..................... (24,626) 7,782 (4,391) (21,235) Provision for Income Taxes..................... 2,834 3,080 (922) (4) 4,992 --------- ---------- ---------- --------- Net Income (Loss).............................. $ (27,460) $ 4,702 $ (3,469) $ (26,227) --------- -------- ---------- --------- Net Income (Loss) per Share-- Basic/Diluted.... $ (1.60) $ (1.46) ======== ========= Weighted Average Number of Common Shares Outstanding........................ 17,133 832 (5) 17,965 ========= ========== =========
Note: The accompanying notes are an integral part of these pro forma combined condensed consolidated financial statements. PF-2
Pro Forma Combined Condensed Consolidated Statement of Income For the Nine Months Ended March 31, 1998 (unaudited) (in thousands, except per share data) Point Synetic Plastic Pro Forma Pro Forma Historical Historical Adjustments Combined Net Sales....................................... $46,710 $ 18,439 (586) (1) $ 64,563 --------- -------- -------- -------- Cost of Sales................................... 24,986 9,476 (586) (1) 33,876 Selling, General and Administrative Expenses.... 20,735 2,991 1,564 (2) 25,290 Other (Income) Expense, Net..................... (9,236) (165) 1,730 (3) (7,671) --------- -------- -------- -------- 36,485 12,302 2,708 51,495 --------- -------- -------- -------- Income (Loss) Before Taxes...................... 10,225 6,137 (3,294) 13,068 Provision (Benefit) for Income Taxes............ 4,064 2,312 (692) (4) 5,684 --------- -------- -------- -------- Net Income (Loss)............................... $ 6,161 $ 3,825 $ (2,602) $ 7,384 ========= ======== ======== ======== Net Income (Loss) per Share -- Basic..................................... $ .35 $ .40 ========= ======== Diluted................................... $ .32 $ .36 ========= ======== Weighted Average Number of Common Shares Outstanding -- Basic..................................... 17,652 832 (5) 18,484 ========== ======== ======== Diluted................................... 19,558 832 (5) 20,390 ========== ======== ========
Note: The accompanying notes are an integral part of these pro forma combined condensed consolidated financial statements. PF-3
Pro Forma Combined Condensed Consolidated Balance Sheet as of March 31, 1998 (unaudited) (in thousands) Point Synetic Plastics Pro Forma Pro Forma Historical Historical Adjustments Combined ASSETS Current Assets: Cash and Cash Equivalents................ $ 82,921 $ 5,912 (34,400) (6) $ 54,433 Marketable Securities.................... 3,206 3,004 6,210 Accounts Receivable, Net................. 10,534 3,341 13,875 Inventories.............................. 5,915 3,680 9,595 Other Current Assets..................... 11,263 926 _______ 12,189 --------- --------- --------- Total Current Assets..................... 113,839 16,863 (34,400) 96,302 Property and Equipment, Net.................... 26,018 11,214 37,232 Other Assets, Net.............................. 247,320 3,555 67,263 (7) 318,138 --------- --------- -------- --------- Total Assets................................ $387,177 $ 31,632 32,863 $ 451,672 ======== ========= ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities............................ $ 20,231 $ 2,435 2,500 (8) $ 31,868 6,702 (9) Long-Term Debt................................. 159,500 6,702 (6,702) (9) 159,500 Deferred Taxes and Other Liabilities........... 5,692 1,258 -- 6,950 --------- --------- -------- --------- Total Long-Term Liabilities................. 165,192 7,960 (6,702) 166,450 --------- --------- -------- --------- Redeemable Common Equity 39,656 (39,656) (11) Stockholders' Equity........................... 201,754 (18,419) 51,600 (10) 253,354 --------- --------- --------- 18,419 (11) ------- Total Liabilities and Stockholders' Equity..... $387,177 $ 31,632 32,863 $ 451,672 ======== ========= ======== =========
Note: The accompanying notes are an integral part of these pro forma combined condensed consolidated financial statements. PF-4 Notes to Pro Forma Combined Condensed Consolidated Financial Statements (unaudited) The Unaudited Pro Forma Combined Condensed Consolidated Statements of Income have been prepared to reflect the Merger as if the Merger occurred at the beginning of the period presented. The Merger has been accounted for under the purchase method of accounting. The excess of the purchase price over the fair value of the net assets acquired is being amortized over periods of up to 40 years. The following is a summary of the adjustments reflected in the Unaudited Pro Forma Combined Condensed Consolidated Statements of Income: 1. Represents the eliminations of product sales from Synetic to Point Plastics. The elimination amounts represent the sales value charged by Synetic for products sold to Point Plastics. The profits in ending inventory attributable to inter-company sales has not been eliminated as such amounts are immaterial. 2. Represents the amortization of the excess of the purchase price over the net assets of Point Plastics acquired. 3. Represents the decrease in interest income to reflect (a) the payment of the cash portion of the purchase price and (b) the expenses associated with the Merger. 4. Represents the tax effect of the adjustments to the Unaudited Pro Forma Combined Condensed Consolidated Statements of Income, excluding the amortization of goodwill, based on the combined federal and state effective tax rate for the periods presented. 5. Represents the increase in the number of outstanding shares of Synetic Common Stock to reflect the payment of the stock portion of the purchase price. The Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet was prepared to reflect the Merger as of March 31, 1998. The following is a summary of the adjustments reflected in the Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet: 6. Represents the decrease in Cash and Cash Equivalents to reflect the payment of the cash portion of the purchase price. 7. Represents the preliminary estimate of the excess purchase price over the net assets acquired as follows: Purchase price (including $2,500 of transaction expenses) $ 88,500 Net book value of acquired assets 21,237 ------ Excess of purchase price over net assets acquired $ 67,263 ======== Allocated to: Intangible assets (including patents and non-compete) $ 2,750 Goodwill 64,513 ------ $ 67,263 ======== PF-5 The final determination of the allocation of the Point Plastics purchase price is dependent on the receipt of a third party appraisal of Point Plastics. The company believes that the final allocation will not vary materially from the preliminary estimate. The identifiable assets are being amortized over their estimated useful lives. Goodwill is being amortized over periods of up to 40 years. The amortization period for goodwill is based upon the underlying manufacturing process utilized by Point Plastics, Point Plastics' long history of profitability and the stability of the industry in which Point Plastics operates. Subsequent to the acquisition, the Company will review the carrying values assigned to goodwill to determine whether later events or circumstances have occurred that indicate that the balance of goodwill may be impaired. The Company's principal consideration in determining the impairment of goodwill include the strategic benefit to the Company of the particular business as measured by undiscounted current and expected future operating income and expected undiscounted future cash flows. 8. Represents the amount of estimated costs for legal and accounting services and other expenses associated with the Merger. 9. Represents the reclassification of a long term note that upon consummation of the merger can be called for payment at the option of the holder. 10. Represents the issuance of Synetic common stock to reflect the payment of the stock portion of the purchase price. 11. Represents the elimination of Point Plastics' historical equity. PF-6 EXHIBIT INDEX Exhibit No. Description --- ----------- 2.1 Agreement and Plan of Merger, dated as of March 6, 1998 among Synetic, Inc., Point Plastics, Inc., Plastics Acquisition Corp., the trustees of the Point Plastics, Inc. Employee Stock Ownership Plan and Trust and certain individual holders of capital stock of Point Plastics (incorporated by reference to Annex IA to the Joint Proxy Statement/Prospectus included as part of Amendment No. 3 to the Registrant's Registration Statement on Form S-4 (File No. 333-50801) filed on July 8, 1998). 2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of May 22, 1998 among Synetic, Inc., Point Plastics, Inc., Plastics Acquisition Corp., the trustees of the Point Plastics, Inc. Employee Stock Ownership Plan and Trust and certain individual holders of capital stock of Point Plastics (incorporated by reference to Annex IB to the Joint Proxy Statement/Prospectus included as part of Amendment No. 3 to the Registrant's Registration Statement on Form S-4 (File No. 333-50801) filed on July 8, 1998). 23.1 Consent of Linkenheimer LLP. 99.1 Press Release, dated July 21, 1998. EX-23.1 2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated April 2, 1998 on our audit of the consolidated financial statements of POINT PLASTICS, INC. AND SUBSIDIARY included in this Form 8-K, into the previously filed Registration Statement of Synetic, Inc. and Subsidiaries on Form S-8 (Files Nos. 33-34925, 33-34926, 33-38446, 33-46639, 33-46640, 333-19043, 333-21555 and 333-36041) and Form S-3 (File No. 333-18771). /s/ LINKENHEIMER LLP Santa Rosa, California July 29, 1998 EX-99.1 3 EXHIBIT 99.1--PRESS RELEASE EXHIBIT 99.1 Tuesday July 21, 5:13 pm Eastern Time Company Press Release Synetic Completes The Acquisition Of Point Plastics, Inc. ELMWOOD PARK, N.J.--(BUSINESS WIRE)--July 21, 1998--Synetic, Inc. (NASDAQ: SNTC - news) announced today that it has completed the acquisition of Point Plastics, Inc., a manufacturing company located in Petaluma, Calif. Point Plastics designs, manufactures and distributes injection-molded, disposable laboratory plastics used for liquid handling in the life sciences marketplace. Such products include pipette tips, micro centrifuge tubes and PCR tubes. Point Plastics had net sales of approximately $25 million for calender year 1997. The purchase price for all of the outstanding capital stock of Point Plastics is $86 million, payable 60 percent in shares of Synetic stock and 40 percent in cash. The shareholders of Point Plastics have agreed not to sell Synetic stock received in the merger until July 21, 1999. The tax free merger will be accounted for using the purchase method of accounting and is expected to be accretive to Synetic's earnings. Synetic operates two principal lines of business, plastic filtration technologies and healthcare communications. The statements contained in this release, other than the terms of the acquisition of Point Plastics, are forward looking statements that involve risks and uncertainties including, but not limited to, product demand and market risks, the effect of economic conditions, the impact of competitive products and pricing, and other risks detailed in Synetic's Securities and Exchange Commission filings. Contact: Synetic Inc., Elmwood Park Anthony Vuolo 201/703-3400 -----END PRIVACY-ENHANCED MESSAGE-----