-----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, C5IMbijCdKerEbAJnnhW0lnyW5g2XXZWUrSP3m9ZakxsW+CBmnNT4kXbVE1lCDhO mtyiA7J5u0sfaCQKpa72YQ== 0000947871-99-000242.txt : 19990607 0000947871-99-000242.hdr.sgml : 19990607 ACCESSION NUMBER: 0000947871-99-000242 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990604 ITEM INFORMATION: FILED AS OF DATE: 19990604 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: 99640625 BUSINESS ADDRESS: STREET 1: 669 RIVER DRIVE STREET 2: RIVER DRIVE CENTER II CITY: ELMWOOD PARK STATE: NJ ZIP: 07407-1361 BUSINESS PHONE: 2017033400 MAIL ADDRESS: STREET 1: 669 RIVER DRIVE STREET 2: RIVER DRIVE CENTER II CITY: ELMWOOD PARK STATE: NJ ZIP: 07407-1361 8-K 1 8K 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: June 4, 1999 Synetic, Inc. (Exact name of Registrant as specified in its charter) Delaware 0-17822 22-2975182 (State or other (Commission File Number) (I.R.S. Employer jurisdiction of Identification No.) incorporation) River Drive Center II, 669 River Drive, Elmwood, New Jersey 07407 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (201) 703-3400 2 Item 7. Financial Statements and Exhibits. (a) Financial statements of businesses acquired. Page Audited financial statements of The KippGroup for the period ended December 31, 1998 and 1997 together with auditors' report. F-1 (c) Exhibits. 23.1 Consent of Arthur Andersen LLP. 3 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: June 4, 1999 By: /s/ Charles A. Mele ------------------------------------------- Name: Charles A. Mele Title: Executive Vice President and General Counsel 4 EXHIBIT INDEX Exhibit No. Description - ------- ----------- 23.1 Consent of Arthur Andersen LLP. F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of The KippGroup: We have audited the accompanying balance sheets of THE KIPPGROUP (a California corporation) as of December 31, 1998 and 1997, and the related statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The KippGroup as of December 31, 1998 and 1997, and the results of their income and their cash flows for the years then ended in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Orange County, California March 19, 1999 F-2 THE KIPPGROUP BALANCE SHEETS ASSETS
December 31, December 31, 1998 1997 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ 2,608,449 $ 1,607,147 Marketable investments - 742,801 Accounts receivable, net of allowance for doubtful accounts of $61,000 and $250,000 at December 31, 1998 and 1997, respectively 2,710,868 3,322,283 Related party receivable - 263,789 Inventories 1,871,500 2,272,697 Prepaid expenses 149,830 72,448 ----------- ----------- Total current assets 7,340,647 8,281,165 PROPERTY, PLANT AND EQUIPMENT, net 8,522,603 8,234,261 OTHER ASSETS 28,685 14,383 ----------- ----------- Total assets $15,891,935 $16,529,809 =========== ===========
The accompanying notes are an integral part of these balance sheets. F-3 THE KIPPGROUP BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, December 31, 1998 1997 ------------ ------------ CURRENT LIABILITIES: Accounts payable $ 597,780 $ 1,203,988 Accrued bonus 82,001 321,830 Accrued vacation 154,190 164,057 Other accrued expenses 265,213 326,341 Notes payable - lines of credit 454,466 1,213,873 Customer deposits 473,554 815,535 Current portion of long-term debt 526,809 628,819 Current portion of capital lease obligations 377,201 236,141 ----------- ----------- Total current liabilities 2,931,214 4,910,584 ----------- ----------- LONG TERM DEBT, net of current portion 2,335,418 2,218,882 ----------- ----------- CAPITAL LEASE OBLIGATIONS, net of current portion 669,116 626,773 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, no par value; 75,000 shares authorized, 2,000 shares issued and outstanding at December 31, 1998 and 1997 3,181,328 3,181,328 Retained earnings 6,774,859 5,517,708 Accumulated other comprehensive income (marketable investments valuation adjustment) - 74,534 ----------- ----------- Total stockholders' equity 9,956,187 8,773,570 ----------- ----------- Total liabilities and stockholders' equity $15,891,935 $16,529,809 =========== ===========
The accompanying notes are an integral part of these balance sheets. F-4 THE KIPPGROUP STATEMENTS OF INCOME
Year Ended Year Ended December 31, December 31, 1998 1997 ------------ ------------ REVENUES $24,180,590 $22,186,556 COST OF SALES 14,964,842 14,009,957 ----------- ----------- Gross profit 9,215,748 8,176,599 ----------- ----------- OPERATING EXPENSES: Selling 1,245,667 1,243,724 General and administrat 2,797,063 2,740,650 Research and development 246,640 226,630 ----------- ----------- Total operating expenses 4,289,370 4,211,004 ----------- ----------- Income before other income (expense) 4,926,378 3,965,595 ----------- ----------- OTHER INCOME (EXPENSE): Interest expense, net of interest income of $112,915 and $54,692 for the years ended December 31, 1998 and 1997, respectively (306,290) (194,789) Dividends received 4,421 63,517 Gain on sale of marketable securities 244,461 7,632 Other income 15,502 105,004 ----------- ----------- Total other income (expense) (41,906) (18,636) ----------- ----------- Income before provision for income taxes 4,884,472 3,946,959 PROVISION FOR INCOME TAXES 36,660 800 ----------- ----------- NET INCOME $ 4,847,812 $ 3,946,159 =========== =========== OTHER COMPREHENSIVE INCOME: Net income 4,847,812 3,946,159 Unrealized gain on marketable investments - Unrealized holding gains, net 244,461 15,841 Less gains included in net income (244,461) (7,632) ----------- ----------- Total comprehensive income - 8,209 ----------- ----------- COMPREHENSIVE INCOME $ 4,847,812 $ 3,954,368 =========== ===========
The accompanying notes are an integral part of these statements. F-5 THE KIPPGROUP STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated Other Comprehensive Income (Marketable Investments Common Retained Valuation Stock Earnings Adjustment) Total ------ -------- ----------- ----- BALANCE, December 31, 1996 $3,181,328 $3,546,087 $66,325 $6,793,740 Distributions -- (1,974,538) -- (1,974,538) Marketable investments valuation adjustment -- -- 8,209 8,209 Net income -- 3,946,159 -- 3,946,159 BALANCE, December 31, 1997 3,181,328 5,517,708 74,534 8,773,570 Distributions -- (3,590,661) -- (3,590,661) Marketable investments valuation adjustment -- -- (74,534) (74,534) Net income 4,847,812 4,847,812 ---------- ---------- ------- ---------- BALANCE, December 31, 1998 $3,181,328 $6,774,859 -- $9,956,187 ========== ========== ==========
The accompanying notes are an integral part of these statements. F-6 THE KIPPGROUP STATEMENTS OF CASH FLOWS
Year Ended Year Ended December 31, December 31, 1998 1997 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,847,812 $ 3,946,159 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 1,593,911 1,242,932 Gain on sale of marketable securities (244,461) (7,632) Gain on sale of fixed assets - (66,221) Changes in assets and liabilities: Accounts receivable 611,415 (1,812,934) Related party receivable 263,789 14,615 Inventories (401,197) (736,828) Prepaid expenses (77,382) (14,535) Other assets (14,302) 42,624 Accounts payable (606,208) 763,719 Accrued bonus (239,829) (10,354) Accrued vacation (9,867) (24,232) Other accrued expenses (61,128) 25,696 Customer deposits (341,981) 217,621 ----------- ----------- Net cash provided by operating activities 6,122,966 3,580,630 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (1,380,317) (4,081,766) Proceeds from sale of equipment 18,691 68,000 Purchase of marketable securities (3,079) (413,482) Proceeds from sale of marketable securities 915,808 348,167 ----------- ----------- Net cash used in investing activities (448,897) (4,079,081) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease (increase) in notes payable - lines of credit, net (66,159) 3,238,180 Principal payments on long-term debt (678,722) (713,368) Principal payments on capital lease obligations (337,225) (132,737) Net stockholders' distributions (3,590,661) (1,974,538) ----------- ----------- Net cash (used in) provided by financing activities (4,672,767) 417,537 ----------- -----------
F-7
Year Ended Year Ended December 31, December 31, 1998 1997 ------------ ------------ NET INCREASE (DECREASE) IN CASH $ 1,001,302 $ (80,914) CASH AND CASH EQUIVALENTS, beginning of year 1,607,147 1,688,061 ----------- ----------- CASH AND CASH EQUIVALENTS, end of year $ 2,608,449 $ 1,607,147 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Income taxes $ 800 $ 800 =========== =========== Interest $ 407,532 $ 250,058 =========== =========== SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES: Equipment acquired under capital lease arrangements $ 520,628 $ 712,365 =========== =========== Conversion of borrowings on lines of credit to long-term debt $ 693,248 $ 2,158,160 =========== ===========
The accompanying notes are an integral part of these statements. F-8 THE KIPPGROUP NOTES TO FINANCIAL STATEMENTS 1. Business Activity The KippGroup (the Company) engineers and manufactures plastic injection molds and injection molded medical devices, and manufactures and sells medical components and devices. 2. Summary of Significant Accounting Policies Revenue Recognition The Company generally records revenue when products are shipped. However, from time to time, the Company retains manufactured plastic injection molds sold to customers. The Company records revenue on these molds when the manufacturing of the mold is complete and the customer has been invoiced. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid temporary cash investments with original maturities of three months or less at the time of purchase to be cash equivalents. Investments Statement of Financial Accounting Standards No. 115, "Accounting For Certain Debt and Equity Securities" (SFAS No. 115) requires that all applicable investments be classified as trading securities, available-for-sale securities or held-to-maturity securities. At December 31, 1997, all investments were classified as available for sale. During the year ended December 31, 1998, the Company sold all of its investments. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Cost includes material, labor and manufacturing overhead. Property, Plant and Equipment Property, plant and equipment are stated at cost. Costs for molds manufactured by the Company include material, labor, overhead and validation costs. Validation costs are incurred to provide additional assurance that such molds produce the product according to the appropriate specifications. F-9 The Company depreciates assets using the straight-line method over the estimated useful lives of the various classes of assets, as follows: Molds 5 to 10 years Building improvements 8 to 31-1/2 years Machinery 5 to 7 years Office furniture and equipment 3 to 5 years Expenditures for major renewals and betterments that extend the useful lives of property, plant and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Fair Value of Financial Instruments The carrying value of cash and cash equivalents, receivables, accounts payable and accrued expenses approximates fair value. In addition, the carrying value of all borrowings approximates fair value based on interest rates currently available to the Company. Accounting 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; 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. Reporting Comprehensive Income The Company has adopted SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and displaying comprehensive income and its components in a full set of general purpose financial statements Concentration of Risk The Company maintains its cash balances in a financial institution located in Southern California. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000. As of December 31, 1998 and 1997, the combined uninsured portion of those balances held at the bank aggregated to $1,904,591 and $1,861,479, respectively. As of December 31, 1998, the Company also maintains $931,457 of investments classified as cash equivalents with an investment company. These investments are not insured. Reclassifications Certain prior year balances have been reclassified to conform with the current year presentation. F-10 3. Marketable Investments The following is a summary of marketable investments (classified as available-for-sale) as of December 31, 1997: Gross Gross Estimated Amortized Unrealized Unrealized Fair Market Cost Gains Losses Value --------- ---------- ---------- ----------- Mutual Funds $668,267 $112,453 $(37,919) $742,801 Proceeds from the sale of securities available-for-sale during the year ended December 31, 1998 and 1997 amounted to $915,808 and $348,167, respectively. The related realized gain recognized from the sale of these securities amounted to $244,461 and 7,632, respectively. During the year ended December 31, 1998, the Company sold all of its available-for-sale securities. Proceeds from the sale of these securities were reinvested in money market funds and are classified as cash equivalents. 4. Inventory Inventory consists of the following: December 31, December 31, 1998 1997 ------------ ------------ Raw materials $ 440,101 $ 468,497 Work in process 639,032 1,160,421 Finished goods 792,367 643,779 ---------- ---------- $1,871,500 $2,272,697 ========== ========== 5. Property, Plant and Equipment Property, plant and equipment consist of the following: December 31, December 31, 1998 1997 ------------ ------------ Molds $ 5,311,881 $ 4,922,766 Building improvements 2,641,551 2,617,506 Machinery 7,673,871 7,073,593 Office furniture and equipment 1,213,805 1,133,252 Construction in progress 893,957 125,816 ----------- ----------- 17,735,065 15,872,933 Less - Accumulated depreciation and amortization 9,212,462 7,638,672 ----------- ----------- $ 8,522,603 $ 8,234,261 =========== =========== F-11 Total property, plant and equipment includes fixed assets acquired under capital leases. As of December 31, 1998 and 1997, accumulated fixed assets acquired under capital leases were $1,512,672 and $992,043, respectively. Related accumulated depreciation for those assets totaled approximately $259,000 and $98,000 at December 31, 1998 and 1997, respectively. 6. Notes Payable - Lines of Credit The following is a summary of the Company's lines of credit: December 31, December 31, 1998 1997 ------------ ------------ $500,000 line of credit, interest charged at the bank's reference rate (7.75 percent at December 31, 1998) and expires May 2000. $ - $ - $3,100,000 line of credit, interest charged at the bank's reference rate (7.75 percent at December 31, 1998) plus 0.125 percent and expires May 2000. 454,466 - $2,000,000 (increased to $2,513,000 at August, 1998) line of credit, interest charged at the applicable treasury rate (4.53 percent at December 31, 1998) plus 2.6 percent and expires May 1, 1999. - 520,628 $2,000,000 line of credit, interest charged at prime (8.50 percent at December 31, 1997) and expired December 1997. Balance converted to long-term notes subsequent to December 31, 1997. - 693,245 ---------- ---------- $ 454,466 $1,213,873 ========== ========== Pursuant to the $3,100,000 line of credit above, the Company may convert outstanding balances to term notes. However, the balance outstanding under this line of credit plus the balance outstanding of the converted balances to notes may not exceed the $3,100,000 limit. As of December 31, 1998 and 1997, the remaining credit under this line of credit was $1,418,812 and $1,391,478, respectively. Similar to the $3,100,000 line of credit, the Company had the option of converting outstanding balances under the $2,000,000 line of credit (8.50 percent at December 31, 1997) to term notes. However, the balance outstanding under this line of credit plus the amount converted to term notes was not allowed to exceed the $2,000,000 limit. Substantially all of the Company's equipment and leasehold improvements are pledged as collateral under these lines of credit, as is specific new equipment as purchased. F-12 The Company and Kippartners, a related party (collectively referred to as the "co-borrowers"), are co-borrowers under the Company's loan agreements. The loans require that together, the co-borrowers maintain certain financial and nonfinancial covenants. Among other covenants, the co-borrowers are required to maintain a fixed charge coverage ratio and comply with capital expenditure and change in ownership limitations. As of December 31, 1998, the co-borrowers were in compliance with all covenants. 7. Income Taxes Effective April 1, 1988, the Company elected "S Corporation" status for income tax purposes. Under "S Corp" status, the stockholders separately account for the Company's items of income, deductions, losses and credits. However, the "S Corp" is liable for state income tax at 1.5 percent. The Company qualifies for the California Manufacturers' Investment Credit which reduces its state income tax obligation. The credit is equal to 6 percent of the cost associated with acquiring or constructing qualified manufacturing property and equipment. The following is a summary of the provision for income taxes: December 31, December 31, 1998 1997 ------------ ------------ Gross income tax $ 73,267 $ 62,098 Less: California Manufacturers' Investment Credit used (36,607) (61,298) -------- -------- Net provision for income taxes $ 36,660 $ 800 ======== ======== For the year ended December 31, 1998 and 1997, the Company's effective tax rate has been substantially reduced due to usage of the California Manufacturers' Investment Credit. 8. Retirement Plan The Company maintains a 401(k) plan covering substantially all employees. The Company matches employee contributions to the 401(k) plan within prescribed monthly limitations. During the years ended December 31, 1998 and 1997, Company matching contributions were $155,845 and $142,624, respectively. 9. Customer Deposits The Company requires a deposit from customers for mold building. This deposit is based on a percentage of the sales price. Customer deposits are generally non-refundable. 10. Significant Customers Sales to two customers amounted to approximately 18 percent and 14 percent of total revenues for the year ended December 31, 1998 and 18 percent and 16 percent of total revenues for the year ended December 31, 1997. F-13 11. Long-Term Debt Long-term debt consists of the following: December 31, December 31, 1998 1997 ------------ ------------ 7.87 percent variable (Prime plus 1/8 percent) - secured by equipment. Payments of $12,665 plus accrued interest due monthly. Debt matures December 2003. $ 772,540 $ 911,850 9.37 percent fixed - secured by equipment. Payments of $8,007 including interest due monthly. Debt matures May 2007. 557,973 599,627 9.0 percent fixed - secured by equipment. Payments of $6,250 including interest due monthly. Debt matures September 2007. 453,072 485,685 Various notes secured by equipment, with interest rates ranging from 7.87 percent to 10 percent. As of December 31, 1998 and 1997, payments are approximately $29,000 and $61,000 per month, respectively, plus accrued interest and mature at various dates from April 1998 through January 2008 1,078,642 850,539 ---------- ---------- 2,862,227 2,847,701 Less - Current portion 526,809 628,819 ---------- ---------- $2,335,418 $2,218,882 ========== ========== As of December 31, 1998, scheduled maturities of long-term debt are as follows: Year ending December 31, 1999 $ 526,809 2000 485,912 2001 362,962 2002 371,250 2003 361,355 Thereafter 753,939 ---------- $2,862,227 ========== F-14 12. Capital Lease Obligations Capital lease obligations consist of the following: December 31, December 31, 1998 1997 ------------ ------------ Various lease obligations on injection molds expiring from 2000 through 2002. As of December 31, 1998 and 1997, obligations were payable monthly at $37,280 and $24,501, respectively, including interest. $1,038,801 $ 852,240 Other 7,516 10,674 ---------- ---------- 1,046,317 862,914 Less - Current portion 377,201 236,141 ---------- ---------- $ 669,116 $ 626,773 ========== ========== The following is a schedule of future minimum lease payments under capital leases, together with the present value of the net minimum lease payments: Year ending December 31, 1999 $ 451,587 2000 437,828 2001 270,765 2002 12,778 2003 - Thereafter - ---------- Total minimum payments 1,172,958 Less - Amount representing interest 126,641 ---------- Present value of net minimum lease payments $1,046,317 ========== 13. Commitments and Contingencies Commitments As of December 31, 1998, scheduled future minimum rental payments required under operating leases are as follows: Year ending December 31, 1999 $ 472,128 2000 300,000 2001 300,000 2002 300,000 2003 300,000 Thereafter 25,000 ---------- $1,697,128 ========== F-15 Contingencies Pursuant to certain sales contracts, the Company is obligated to indemnify and hold the purchaser harmless against any liability, damage, or expense resulting from third party actions claiming personal injury or property damage arising out of defects attributable to the Company or breach of warranty under the contract. Additionally, the Company guarantees that all products supplied to its customers are free from defects in materials in the applicable FDA registration. If the Company's products fail to conform, the purchaser may return the product for credit, refund or replacement. 14. Related Party Transactions Related Party Receivable An affiliated entity owed the Company $263,789 at December 31, 1997. The balance was paid during the fiscal year ended 1998. Related Party Lease The Company leased a building from an affiliated entity under a month to month lease agreement. Lease payments were approximately $300,000 and $205,000 for the years ended December 31, 1998 and 1997, respectively. Stockholders' Compensation Total stockholders' compensation for the years ended December 31, 1998 and 1997 was $1,325,000 and $1,200,000, respectively, and is included in general and administrative expenses on the accompanying statements of income. 15. Subsequent Event On January 13, 1999, the Company signed an agreement to be purchased. The purchase closed on January 22, 1999. EX-23.1 2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the inclusion of our report for The KippGroup included in this Form 8-K, dated March 19, 1999, into the previously filed Registration Statements of Synetic, Inc. and Subsidiaries on Form S-8 (including File Nos. 33 34925, 33 34926, 33 38446, 33 46639, 33 46640, 333-19043, 333-21555 and 333-36041) /s/Arthur Andersen LLP Orange County, California June 1, 1999 -----END PRIVACY-ENHANCED MESSAGE-----