-----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, HTctnSOaZ1Dycj0K3a1Iu1SglDaV8JZna21xefImXzFi/7wubDBpMKtD9qq1kjfB ChEBSMG/4kM8At199Ayq5A== 0000950130-97-000415.txt : 19970225 0000950130-97-000415.hdr.sgml : 19970225 ACCESSION NUMBER: 0000950130-97-000415 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970204 SROS: NONE 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17822 FILM NUMBER: 97517283 BUSINESS ADDRESS: STREET 1: 669 RIVER DRIVE CITY: ELMWOOD PARK STATE: NJ ZIP: 07407 BUSINESS PHONE: 2017033400 MAIL ADDRESS: STREET 1: 669 RIVER DRIVE CITY: ELMWOOD PARK STATE: NJ ZIP: 07407 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q MARK ONE [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ______ Commission File Number 0-17822 SYNETIC, INC. (Exact name of registrant as specified in its charter) Delaware 22-2975182 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) River Drive Center 2 669 River Drive Elmwood Park, New Jersey 07407 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (201) 703-3400 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at January 31, 1997 - --------------------- ------------------------------- Common Stock 17,526,247 shares par value $.01 per share SYNETIC, INC. AND SUBSIDIARIES Index ----- Page ---- Part I. FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Balance Sheets -- December 31, 1996 and June 30, 1996 3 Consolidated Statements of Income -- Six Months Ended December 31, 1996 and 1995 5 Consolidated Statements of Cash Flows -- Six Months Ended December 31, 1996 and 1995 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 10 Part II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 12 Item 6. Exhibits and Reports on Form 8-K 13 ---------------------------------------- This report contains certain forward-looking statements and information relating to Synetic, Inc. (the "Company") that are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company management. When used in this report, the words "anticipate", "believe", "estimate", "expect" and similar expressions, as they relate to the Company or the Company's management, are intended to identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. The Company does not intend to update these forward-looking statements. SYNETIC INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) ASSETS December 31, June 30, 1996 1996 ------------ -------- (unaudited) CURRENT ASSETS: Cash and cash equivalents............ $ 20,538 $ 22,210 Marketable securities................ 151,013 140,268 Accounts receivable, net of allowances for doubtful accounts and sales returns of $643 and $671 at December 31, 1996 and June 30, 1996, respectively.................. 6,889 7,299 Inventories.......................... 5,871 5,253 Other current assets................. 3,817 4,821 -------- -------- Total current assets................ 188,128 179,851 -------- -------- PROPERTY, PLANT AND EQUIPMENT: Land and improvements................ 823 823 Building and improvements............ 9,292 8,992 Machinery and equipment.............. 20,965 19,295 Furniture and fixtures............... 2,966 2,856 Construction in progress............. 2,029 1,306 -------- -------- 36,075 33,272 Less: Accumulated depreciation...... (17,255) (16,014) -------- -------- Property, plant and equipment, net.. 18,820 17,258 -------- -------- OTHER ASSETS: Other................................ 3,765 2,483 -------- -------- Total other assets 3,765 2,483 -------- -------- $210,713 $199,592 ======== ======== The accompanying notes are an integral part of these consolidated balance sheets. -3- SYNETIC INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) LIABILITIES AND STOCKHOLDERS' EQUITY December 31, June 30, 1996 1996 ------------ -------- (unaudited) CURRENT LIABILITIES: Accounts payable........................... $ 1,538 $ 1,303 Accrued liabilities........................ 12,932 7,014 Income taxes payable....................... 4,014 5,206 -------- -------- Total current liabilities................. 18,484 13,523 -------- -------- DEFERRED TAXES AND OTHER LIABILITIES........ 8,728 4,980 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 10,000,000 shares authorized; none issued.................................... - - Common stock $.01 par value; 50,000,000 shares authorized; 17,323,958 and 16,738,827 shares issued at December 31, 1996 and June 30, 1996, respectively.............................. 226 220 Paid-in capital............................ 185,890 158,227 Treasury stock, at cost; 5,268,463 shares at December 31, 1996...................... (38,287) (36,575) Retained earnings.......................... 35,672 59,217 -------- -------- Total stockholders' equity................ 183,501 181,089 -------- -------- $210,713 $199,592 ======== ======== The accompanying notes are an integral part of these consolidated balance sheets. -4- SYNETIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Quarters and Six Months Ended December 31, 1996 and 1995 (in thousands, except per share data) (unaudited)
Quarters Ended Six Months Ended December 31, December 31, 1996 1995 1996 1995 -------- -------- -------- -------- Net Sales................................. $ 11,899 $10,283 $ 23,084 $21,319 Cost of sales........................... 6,348 5,820 12,474 12,160 Selling, general and administrative..... 3,839 3,337 7,590 6,949 Interest and other income............... (2,343) (1,998) (4,562) (4,041) Other expense........................... 28,600 - 28,600 - -------- ------- -------- ------- Income before provision for income taxes.. (24,545) 3,124 (21,018) 6,251 Provision for income taxes................ 1,389 1,051 2,527 2,254 -------- ------- -------- ------- Net income (loss)......................... $(25,934) $ 2,073 $(23,545) $ 3,997 ======== ======= ======== ======= Net income (loss) per share............... $(1.39) $.12 $(1.28) $.22 ======== ======= ======== ======= Weighted average shares outstanding....... 18,653 17,885 18,455 17,858 ======== ======= ======== =======
The accompanying notes are an integral part of these consolidated statements. -5- SYNETIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended December 31, 1996 and 1995 (in thousands) (unaudited)
1996 1995 ---------- ---------- Cash flows from operating activities: Net income (loss)............................. $ (23,545) $ 3,997 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Write-off of purchased research and development costs....................... 28,600 - Depreciation and amortization............. 1,163 1,294 Changes in operating assets and liabilities: Accounts receivable, net.................. 410 341 Inventories............................... (618) 522 Other assets.............................. 1,277 182 Accounts payable.......................... 235 108 Accrued liabilities....................... 96 (4,110) Income taxes payable...................... 3,351 (378) --------- --------- Net cash provided by (used for) operating activities................. $ 10,969 1,956 --------- --------- Cash flows from investing activities: Sales of marketable securities................ 218,457 338,443 Purchase of marketable securities............. (229,202) (334,800) Capital expenditures.......................... (2,668) (1,234) Acquisition of businesses, net of cash acquired.................................... 596 - --------- --------- Net cash provided by (used for) investing activities................. (12,817) 2,409 --------- --------- Cash flows from financing activities: Payments for treasury stock................... (1,712) - Proceeds from exercise of stock options and 401(k) purchases............................ 1,888 808 Payments of long-term debt.................... - (216) --------- --------- Net cash provided by (used for) financing activities................. 176 592 --------- --------- Net increase (decrease) in cash and cash equivalents................................... (1,672) 4,957 Cash and cash equivalents, beginning of period..... 22,210 7,499 --------- --------- Cash and cash equivalents, end of period........... $ 20,538 $ 12,456 ========= =========
The accompanying notes are an integral part of these consolidated statements. -6- SYNETIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Financial statement presentation: In the opinion of management, the accompanying consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the financial position of Synetic, Inc. and subsidiaries (the "Company") as of December 31, 1996 (unaudited) and June 30, 1996 (audited), and the results of their operations and their cash flows for the six months ended December 31, 1996 and 1995 (unaudited). Principles of Consolidation-- The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned operating subsidiaries, Porex Technologies Corp. ("Porex") and Avicenna Systems Corp., after elimination of all material intercompany accounts and transactions. The accounting policies followed by the Company are set forth in the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 (the "1996 10-K"), which notes are incorporated herein by reference. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full fiscal year. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. (2) Inventories: Inventories consisted of the following (in thousands): December 31, June 30, 1996 1996 ------------ -------- (unaudited) Raw materials and supplies.. $2,621 $2,468 Work-in-process............. 517 548 Finished goods.............. 2,733 2,237 ------ ------ $5,871 $5,253 ====== ====== (3) Marketable securities: At December 31, 1996, marketable securities consisted primarily of U.S. Treasury Notes, U.S. Agency Notes and Money Market Preferred Stock. (4) Computation of net income per share: Net income per share is determined by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during the applicable period. Common stock equivalents consist of common stock which may be issuable upon exercise of outstanding stock options as calculated using the treasury stock method. -7- (5) Supplemental cash flow information (in thousands): For the six months ended December 31, 1996 and 1995, the Company recognized tax benefits related to the exercise of stock options as increases to additional paid-in capital and decreases to income taxes payable of $4,542,000 and $248,000, respectively. December 31, Cash paid during the periods for: 1996 1995 ------ ------ Interest...................... $ - $ 6 Income taxes.................. 1,239 2,414 (6) Acquisitions: Avicenna -- On December 24, 1996, the Company acquired the outstanding equity and indebtedness (including employee stock options) of Avicenna Systems Corp. ("Avicenna"), a privately-held, development stage company located in Cambridge, Massachusetts, for shares of the Company's stock with a market value of $30.5 million. As additional consideration, the Company agreed to issue to certain sellers, nontransferable warrants covering 250,000 shares of Synetic, Inc., exercisable after December 23, 1998 at a price of $54.50 per share. Avicenna's business plan has been to market and build Intranets for managed care organizations, hospitals and physician groups. The acquisition was accounted for using the purchase method with the purchase price being allocated to assets acquired and liabilities assumed based on their appraised fair values. Avicenna's results of operations have been included in the Company's financial statements as of December 24, 1996. A summary of the purchase price allocation is as follows (in thousands): Cash $ 42 Short-term investments 240 Other assets 216 Property, plant and equipment 759 Purchased research and development 28,600 Intangible assets 1,502 Goodwill 116 ------- $31,475 ======= The amount allocated to purchased research and development of $28.6 million was determined based on an appraisal using known valuation techniques and was immediately expensed, with no correspending tax benefit, in the period of acquisition because such research and development was in process and had no alternative commercial use. Remaining amounts have been allocated to intangible assets and goodwill. -8- The following summary, prepared on a pro forma basis, combines the results of operations of the Company and Avicenna assuming the acquisition was consummated the beginning of the period presented (in thousands, except per share amount): Six months ended December 31, 1996 ----------------- (unaudited) Sales $ 23,084 Net loss (25,466) Net loss per share $(1.35) The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been in effect for the entire period presented. In addition, they are not intended to be a projection of future results. The pro forma impact of the acquisition for the six months ended December 31, 1995 was not material. CareAgents, Inc.-- On January 23, 1996, the Company acquired CareAgents, Inc. ("CareAgents") to add management resources with expertise in large-scale commercial clinical applications, medicine and information technology. Care Agents was an early development stage company focussed on developing Internet-based clinical commerce applications. The Company acquired CareAgents for shares of the Company's common stock with a market value of $5.0 million. Such acquisition will be recorded in the quarter ended March 31, 1997. The Company expects to record a non-recurring charge to expense in the quarter ended March 31, 1997 relating to purchased research and development costs in conjunction with its acquisitions of CareAgents in January 1997. While the exact amount of the charge is not yet determinable, the Company does not expect this charge to exceed $3 million. -9- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. Consolidated Results of Operations: - ---------------------------------- Net sales for the quarter and six months ended December 31, 1996 increased by $1,616,000, or 15.7% and $1,765,000, or 8.3%, respectively, over the comparable prior year periods as a result of sales improvements across several product lines. The increase in sales was due principally to an increase in sales of medical OEM porous and surgical products in the Healthcare sector and writing instrument components in the Consumer sector. Cost of sales for the quarter and six months ended December 31, 1996 increased by $528,000, or 9.1%, and $314,000, or 2.6%, respectively, over the comparable prior year periods due to the increase in sales volume noted above. As a percent of net sales, cost of sales for the quarter and six months ended December 31, 1996 decreased to 53.3% and 54.0% from 56.6% and 57.0%, respectively, in the comparable prior year periods due principally to an improvement in labor utilization and the leverage of fixed manufacturing costs. Selling, general and administrative expenses for the quarter and six months ended December 31, 1996 increased by $502,000 or 15% and $641,000 or 9.2%, respectively, over the comparable prior year periods due primarily to an increase in expenses associated with the increase in sales volume noted above and an increase in corporate overhead expenses. As a percent of net sales, selling, general and administrative expenses for the quarter and six months ended December 31, 1996 did not vary materially from the comparable prior year periods. Interest and other income for the quarter and six months ended December 31, 1996 increased by $345,000 or 17.3% and $521,000 or 12.9%, respectively, over the comparable prior year periods principally as a result of an increase in funds available for investment generated by cash flow from operations. During the quarter ended December 31, 1996, the Company recorded a charge to income of $28,600,000 for purchased research and development ("R&D") costs relating to the acquisition of Avicenna. Excluding the R&D charge discussed above, for which no tax benefit is recognized, the effective tax rate for the quarter ended December 31, 1996 remained relatively constant at 34% as compared to the prior year period. For the six months ended December 31, 1996, the effective tax rate decreased to 34% from 36% primarily due to an increase in income in the current year eligible for dividends received deductions. Capital Resources and Liquidity: - ------------------------------- Cash, cash equivalents and marketable securities increased by $9,073,000 to $171,551,000 during the six months ended December 31, 1996 principally due to the income earned from operations. Of the $171,551,000 in cash and marketable securities, $157,238,000 is attributable to Synetic and not its subsidiaries and $14,313,000 is attributable to Porex. The Company believes that its cash flow from operations, cash and marketable securities and the income earned on its investments are sufficient to meet the anticipated working capital requirements of its business. -10- As a result of the acquisition of Avicenna and CareAgents, the Company expects to incur significant research and development expenses and incur additional operating losses in connection with this new area of business until the products and services are successfully developed or marketed. There can be no assurances that the products or services will be successfully developed or marketed. The rate of aggregate expenditures at Avicenna and CareAgents immediately prior to their acquisition was approximately $1,600,000 per quarter. Research and development expenses may be materially greater in the future than current amounts until the Company successfully develops its products and services. The Company, however, anticipates that such research and development expenses will not exceed $2,500,000 per fiscal quarter for the third and fourth quarters of the fiscal year ending June 30, 1997 and will not result in net losses for the current fiscal year (excluding the non-recurring charges for purchased research and development costs relating to the acquisition of Avicenna and CareAgents) or for either of the fiscal quarters ending March 31, 1997 or June 30, 1997. The Company continues to pursue an acquisition program pursuant to which it seeks to effect one or more acquisitions or other similar business combinations with businesses it believes have significant growth potential. Financing for such acquisitions may come from several other sources, including, without limitation, (a) its cash, cash equivalents and marketable securities and (b) proceeds from the incurrence of additional indebtedness or the issuance of common stock, preferred stock, convertible debt or other securities. For a further description of the Company's Acquisition Program, see "Item 1. Business - Acquisition Program" in the 1996 10-K. -11- SYNETIC INC. AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The following matters were voted upon at an Annual Meeting of Stockholders held on November 20, 1996 and received the votes set forth below: 1) Each of the following persons nominated was elected to serve as a director for a three-year term and received the number of votes set opposite his name: FOR WITHHELD ---------- -------- Thomas R. Ferguson 15,282,767 188,189 Mervyn L. Goldstein 15,273,575 197,381 Paul C. Suthern 15,282,967 187,989 Martin J. Wygod 15,282,967 187,989 2) The approval and adoption of an amendment to the Company's 1989 Class A Stock Option Plan to increase the number of shares of the Company's Common Stock authorized to be issued thereunder: FOR AGAINST ABSTAIN NON-VOTE --- ------- ------- -------- 14,419,351 873,432 9,470 168,703 3) The approval and adoption of an amendment to the Company's 1989 Class B Stock Option Plan to increase the number of shares of the Company's Common Stock authorized to be issued thereunder: FOR AGAINST ABSTAIN NON-VOTE --- ------- ------- -------- 14,384,818 897,265 20,170 168,703 4) The approval and adoption of an amendment to the Company's 1991 Director Stock Option Plan to increase the number of shares of the Company's Common Stock authorized to be issued thereunder: FOR AGAINST ABSTAIN NON-VOTE --- ------- ------- -------- 14,462,929 818,454 20,870 168,703 5) Ratification of the appointment of Arthur Andersen LLP as the independent public auditors of the Company for the fiscal year ending June 30, 1997: FOR AGAINST ABSTAIN NON-VOTE --- ------- ------- -------- 15,450,061 11,605 9,290 - -12- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits Exhibit No. Description ----------- ----------- 27 Financial Data Schedule (b) On December 31, 1996, the Company filed a report on Form 8-K disclosing its purchase of Avicenna Systems Corp. which occurred on December 24, 1996. -13- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SYNETIC, INC. /s/ Victor L. Marrero -------------------------------- Victor L. Marrero Vice President - Finance and Chief Financial Officer Dated: February 4, 1996 -14- EXHIBIT INDEX Number Description ------ ----------- 27 Financial Data Schedule 1 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYNETIC INC.'S 12/31/96 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 6-MOS JUN-30-1997 JUL-01-1996 DEC-31-1996 20,538 151,013 7,532 643 5,871 188,128 36,075 17,255 210,713 18,484 0 0 0 226 183,275 210,713 23,084 23,084 12,474 12,474 28,600 0 0 (21,018) 2,527 (23,545) 0 0 0 (23,545) (1.28) 0
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