<PAGE>
 
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                 FORM 10-K/A2

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

                    For the fiscal year ended June 30, 1997

                         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.)

           669 RIVER DRIVE
       ELMWOOD PARK, NEW JERSEY                 07407-1361
(Address of principal executive offices)        (Zip Code)


Registrant's telephone number, including area code:  (201) 703-3400


Securities registered pursuant to Section 12(b) of the Act:  None
 

Securities registered pursuant to Section 12(g) of the Act:

                              TITLE OF EACH CLASS
                              -------------------

                          COMMON STOCK, $.01 PAR VALUE

                5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2007

          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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [X]

          The aggregate market value of the registrant's voting stock (based on
the last sale price of registrant's voting stock on the NASDAQ National Market
System on September 15, 1997 and, for the purpose of this computation only, the
assumption that all of the registrant's directors and executive officers are
affiliates) held by non-affiliates of the registrant was approximately
$484,876,600.

          The number of shares of registrant's Common Stock, $.01 par value, 
outstanding at September 15, 1997 was 17,650,965.

                      DOCUMENTS INCORPORATED BY REFERENCE

          None.

================================================================================
<PAGE>
 
                                    PART IV



  ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
            ON FORM 8-K.


       (a)(1)-(2) Financial Statements and Schedules:

                  The financial statements and schedules listed in the
                  accompanying Index to Consolidated Financial Statements and
                  Supplemental Data at page F-l are filed as part of this
                  Report.


       (a)(3)     Index to Exhibits:

                  See Index to Exhibits on page E-1.


       (b)        Reports on Form 8-K:

                  None.

                                       2
<PAGE>
 
                                   SIGNATURES



       Pursuant to the requirements of Section 13 or 15(d) of the Securities
  Exchange Act of 1934, the Registrant has duly caused this report to be signed
  on its behalf by the undersigned thereunto duly authorized.



                                    SYNETIC, INC.



  Date:  July 7, 1998               By:      /s/ Charles A. Mele
                                         ------------------------------------
                                         Name:  Charles A. Mele
                                         Title:  Vice President-General Counsel

                                       3
<PAGE>
 
                         SYNETIC, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                             AND SUPPLEMENTAL DATA



     The following financial statements of the Registrant and its subsidiaries
required to be included in Item 14.(a) (1) of Form 10-K are listed below:
 
                                                              PAGE
                                                              ----

     Report of Independent Public Accountants...............  F-2
 
     Consolidated Balance Sheets at June 30, 1997 and 1996..  F-3
 
     Consolidated Statements of Income for the
       Years Ended June 30, 1997, 1996 and 1995.............  F-5
 
     Consolidated Statements of Changes in
       Stockholders' Equity for the Years Ended
       June 30, 1997, 1996 and 1995.........................  F-6
 
     Consolidated Statements of Cash Flows for the
       Years Ended June 30, 1997, 1996 and 1995.............  F-7
 
     Notes to Consolidated Financial Statements.............  F-8

     The following financial statement supplementary data of the Registrant and
its subsidiaries required to be included in Item 14.(a) (2) of Form 10-K are
listed below:

                                                              PAGE
                                                              ----
     Schedule II - Valuation and Qualifying
       Accounts.............................................  S-1

     All other schedules not listed above have been omitted as not applicable or
because the required information is included in the Consolidated Financial
Statements or in the notes thereto.  Columns omitted from schedules filed have
been omitted because the information is not applicable.

     These financial statements have been prepared from the Company's books and
records after making all necessary adjustments thereto, and they represent the
final statements for the period under audit.

                                      F-1
<PAGE>
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



TO SYNETIC, INC.:

     We have audited the accompanying consolidated balance sheets of Synetic,
Inc. (a Delaware corporation) and subsidiaries as of June 30, 1997 and 1996, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the three years in the period ended June 30, 1997.
These consolidated financial statements and the schedule referred to below are
the responsibility of the Company's management.  Our responsibility is to
express an opinion on these consolidated financial statements and schedule 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 Synetic, Inc. and
subsidiaries as of June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997 in conformity with generally accepted accounting principles.

     Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole.  The schedule listed in the index to
consolidated financial statements and supplemental data is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements.  This schedule has been subjected to
the auditing procedures applied in our audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.



                                       ARTHUR ANDERSEN LLP


New York, New York
September 24, 1997

                                      F-2
<PAGE>
 
                         SYNETIC, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
                                        
                                     ASSETS

<TABLE>
<CAPTION>
 
 
                                                                JUNE 30,
                                                          -------------------
                                                            1997       1996
                                                          -------------------
<S>                                                       <C>        <C>     
CURRENT ASSETS:
     Cash and cash equivalents..........................  $ 77,303   $ 22,210
     Marketable securities..............................    11,765    140,268
     Accounts receivable, net of allowances for
       doubtful accounts and sales returns of $739 and
       $671 at June 30, 1997 and 1996, respectively.....     9,094      7,299   
     Inventories........................................     5,505      5,253
     Other current assets...............................     9,233      4,821
                                                          --------   --------
       Total current assets.............................   112,900    179,851
                                                          --------   --------
 
PROPERTY, PLANT AND EQUIPMENT:
     Land and improvements..............................     1,613        823
     Buildings and improvements.........................     9,911      8,992
     Machinery and equipment............................    23,444     19,295   
     Furniture and fixtures.............................     3,283      2,856
     Construction in progress...........................     2,516      1,306
                                                          --------   --------
                                                            40,767     33,272
     Less:  Accumulated depreciation....................   (18,681)   (16,014)
                                                          --------   --------
 
       Property, plant and equipment, net...............    22,086     17,258
                                                          --------   --------
 
OTHER ASSETS:
     Marketable securities..............................   226,760          -
     Other..............................................    20,357      2,483
                                                          --------   --------
        Total other assets..............................   247,117      2,483
                                                          --------   --------
                                                          $382,103   $199,592
                                                          ========   ========
 
</TABLE>

   The accompanying notes are an integral part of these consolidated balance
                                    sheets.

                                      F-3
<PAGE>
 
                         SYNETIC, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                       (in thousands, except share data)
                                        
                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
 
 
                                                                          JUNE 30,
                                                                  -------------------------
                                                                       1997         1996
                                                                  -------------------------
<S>                                                               <C>           <C>
 
CURRENT LIABILITIES:
     Accounts payable...........................................     $  2,344     $  1,303
     Accrued liabilities........................................       14,203        7,014
     Income taxes payable.......................................        3,044        5,206
                                                                     --------     --------
       Total current liabilities................................       19,591       13,523
                                                                     --------     --------
 
LONG TERM DEBT, LESS CURRENT PORTION............................      165,000            -
 
OTHER LIABILITIES...............................................        8,776        4,980
 
COMMITMENTS AND CONTINGENCIES (NOTE 10)
 
STOCKHOLDERS' EQUITY:
     Preferred stock, $.01 par value; 10,000,000 shares
       authorized; none issued..................................            -            -
     Common stock, $.01 par value; 50,000,000 shares
       authorized; 22,865,149 and 22,007,290 shares issued;
       17,564,980 and 16,738,827 shares issued and outstanding
       at June 30, 1997 and 1996, respectively..................          229          220
     Paid-in capital............................................      196,212      158,227
     Treasury stock, at cost; 5,300,169 and 5,268,463
       at June 30, 1997 and 1996, respectively..................      (39,462)     (36,575)
     Retained earnings..........................................       31,757       59,217
                                                                     --------     --------
       Total stockholders' equity...............................      188,736      181,089
                                                                     --------     --------
                                                                     $382,103     $199,592
                                                                     ========     ========
 
</TABLE>

   The accompanying notes are an integral part of these consolidated balance
                                    sheets.

                                      F-4
<PAGE>
 
                         SYNETIC, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME
                     (in thousands, except per share data)
<TABLE>
<CAPTION>
 
 
                                                      YEARS ENDED JUNE 30,
                                                  -----------------------------
                                                    1997       1996      1995
                                                  ---------  --------  --------
<S>                                               <C>        <C>       <C>
 
Net sales.......................................  $ 52,885   $45,128   $39,179
                                                  --------   -------   -------
 
Costs and expenses:
  Cost of sales.................................    29,035    25,108    23,006
  Selling, general and administrative...........    20,841    14,930    12,125
  Interest and other income.....................   (11,065)   (3,952)   (4,757)
  Dividend income...............................    (1,829)   (4,160)   (2,555)
  Interest expense..............................     3,116         -     3,619
  Purchased research and development and other..    37,413         -         -
  Purchase and Sale Agreement related expenses
     and other..................................         -         -     6,663
                                                  --------   -------   -------
                                                    77,511    31,926    38,101
                                                  --------   -------   -------
 
Income (loss) from continuing operations
  before provision for income taxes.............   (24,626)   13,202     1,078
 
Provision for income taxes......................     2,834     4,617       443
                                                  --------   -------   -------
Income (loss) from continuing operations........  $(27,460)  $ 8,585   $   635
                                                  --------   -------   -------
 
Discontinued operations:
  Income from discontinued operations,
  net of provision for income taxes
  of $842.......................................         -         -       963
 
Gain on sale of Institutional Pharmacy
  operations, net of taxes of $23,037...........         -         -    14,496
                                                  --------   -------   -------
 
Net income (loss)...............................  $(27,460)  $ 8,585   $16,094
                                                  ========   =======   =======
 
Net income (loss) per share:
  Continuing operations.........................    $(1.60)     $.48   $   .04
  Discontinued operations.......................         -         -       .89
                                                  --------   -------   -------
 
Net income (loss) per share.....................    $(1.60)     $.48   $   .93
                                                  --------   =======   =======
 
Weighted average shares outstanding.............    17,133    18,026    17,379
                                                  ========   =======   =======
 
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                      F-5
<PAGE>
 
                       SYNETIC, INC. AND SUBSIDIARIES   
          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (in thousands)
<TABLE>
<CAPTION>
                                                       Common Stock
                                                   --------------------
                                                      Number                                                 TOTAL
                                                        of               PAID-IN   RETAINED   TREASURY   STOCKHOLDERS'
                                                      Shares     AMOUNT  CAPITAL   EARNINGS     STOCK        EQUITY
                                                   ------------  ------  --------  ---------  ---------  --------------
<S>                                                <C>           <C>     <C>       <C>        <C>        <C>
 
Balance, June 30, 1994...........................        17,621    $176  $ 70,416  $ 34,538          -        $105,130
                                                         ------    ----  --------  --------   --------        --------
 
  Net income.....................................             -       -         -    16,094          -          16,094
 
  Issuance of common stock for exercise of
    stock options and 401(k) plan................           368       4     5,200         -          -           5,204
 
  Issuance of common stock for
    conversion of debentures.....................         3,877      39    76,940         -          -          76,979
 
  Purchase of 5,268,463 shares
    of common stock for Treasury.................             -       -         -         -    (36,575)        (36,575)
                                                         ------    ----  --------  --------   --------        --------
 
Balance, June 30, 1995...........................        21,866    $219  $152,556  $ 50,632   $(36,575)       $166,832
                                                         ------    ----  --------  --------   --------        --------
 
  Net income.....................................             -       -         -     8,585          -           8,585
 
  Issuance of common stock for exercise of
    stock options and 401(k) plan................           141       1     5,671         -          -           5,672
                                                         ------    ----  --------  --------   --------        --------
 
Balance, June 30, 1996...........................        22,007    $220  $158,227  $ 59,217   $(36,575)       $181,089
                                                         ------    ----  --------  --------   --------        --------
 
  Net (loss).....................................             -       -         -   (27,460)         -         (27,460)
 
  Issuance of common stock for exercise of
    stock options and 401(k) plan................           323       3    13,503         -          -          13,506
 
  Issuance of common stock and warrants for 
    acquisitions of Avicenna and CareAgents......           535       6    24,482         -          -          24,488
                              
 
  Adjustment to purchase price of Treasury
    stock........................................             -       -         -         -     (1,712)         (1,712)
 
  Purchase of 49,506 shares of common stock
    for Treasury, net of 17,800 shares reissued..             -       -         -         -     (1,175)         (1,175)
                                                         ------    ----  --------  --------   --------        --------
 
Balance, June 30, 1997...........................        22,865    $229  $196,212  $ 31,757   $(39,462)       $188,736
                                                         ======    ====  ========  ========   ========        ========
</TABLE>
 The accompanying notes are an integral part of these consolidated statements.

                                      F-6
<PAGE>
 
                         SYNETIC, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>
 
                                                                     YEARS ENDED JUNE 30,
                                                              ----------------------------------
                                                                 1997        1996        1995
                                                              ----------  ----------  ----------
<S>                                                           <C>         <C>         <C>
Cash flows from operating activities:
  Net income (loss).........................................  $ (27,460)  $   8,585   $  16,094
  Adjustments to reconcile net income (loss) to net
     cash provided by operating activities:
     Write-off of purchased research and development costs..     37,413           -           -
     Income from discontinued operations....................          -           -        (963)
     Gain on sale of Institutional Pharmacy
     business...............................................          -           -     (14,496)
     Other expense..........................................          -           -       1,056
     Depreciation and amortization..........................      3,294       2,619       1,545
     Deferred income taxes..................................     (2,100)       (254)       (301)
 
  Changes in operating assets and liabilities,
     net of the effects of acquisitions:
       Accounts receivable, net.............................       (795)       (634)     (1,056)
       Inventories..........................................        147         193         804
       Other assets.........................................     (7,184)       (173)     (3,365)
       Accounts payable.....................................        776         655        (423)
       Accrued liabilities..................................      1,690      (2,323)      1,206
       Other liabilities....................................         48           -       4,980
       Income taxes payable.................................      3,188       2,625         946
                                                              ---------   ---------   ---------
          Net cash provided by
            operating activities............................      9,017      11,293       6,027
                                                              ---------   ---------   ---------
 
  Cash flows from investing activities:
     Maturities and redemptions of marketable securities....    396,638     708,685     383,064
     Purchases of marketable securities.....................   (494,895)   (704,099)   (430,916)
     Capital expenditures...................................     (6,063)     (2,790)     (3,398)
     Net proceeds from sale of Institutional
       Pharmacy business....................................          -           -      82,911
     Net cash paid for acquired businesses..................    (10,612)          -           -
                                                              ---------   ---------   ---------
 
          Net cash provided by (used for)
            investing activities............................   (114,932)      1,796      31,661
                                                              ---------   ---------   ---------
 
  Cash flows from financing activities:
     Purchases of Treasury stock............................     (3,570)          -     (36,575)
     Proceeds from issuance of stock options and
       401(k) purchases.....................................      3,688       1,838       4,369
     Proceeds from issuance of Convertible Debentures,
       net of underwriting discount.........................    160,890           -           -
     Payments on long-term debt.............................          -        (216)     (3,532)
                                                              ---------   ---------   ---------
          Net cash provided by (used for)
            financing activities............................    161,008       1,622     (35,738)
                                                              ---------   ---------   ---------
 
  Net increase in cash and cash equivalents.................     55,093      14,711       1,950
  Cash and cash equivalents, beginning of
     period.................................................     22,210       7,499       5,549
                                                              ---------   ---------   ---------
  Cash and cash equivalents, end of period..................  $  77,303   $  22,210   $   7,499
                                                              =========   =========   =========
</TABLE>
 The accompanying notes are an integral part of these consolidated statements.

                                      F-7
<PAGE>
 
                        SYNETIC, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

  On November 18, 1993, Medco Containment Services, Inc. ("Medco") became a
wholly-owned subsidiary of Merck & Co., Inc. ("Merck").  As a result of this
transaction, Merck acquired voting control of Synetic, Inc. (the "Company").

  On May 24, 1994, Merck and the Company entered into a Purchase and Sale
Agreement (the "Agreement") by which the Company and its Chairman, Martin J.
Wygod, would purchase the Company's common stock owned by Merck.  As part of
this Agreement, the Company agreed to divest its Institutional Pharmacy
business.  On December 14, 1994, the Company consummated the transactions
described above pursuant to which (1) the Company sold its Institutional
Pharmacy business to Pharmacy Corporation of America ("PCA") for $107.3 million,
subject to certain closing adjustments, and (2) the Company and a limited
partnership, whose general partner is controlled by the Company's Chairman,
purchased from Merck the 10,330,320 shares of the Company's common stock held by
Merck.

  The Company has granted stock options with an exercise price below fair market
value on the date of award to certain officers in recognition of their
contribution in completing these transactions.  Accordingly, included in
Purchase and Sale Agreement related expenses and other in the accompanying
financial statements for the fiscal year ended June 30, 1995, the Company
recorded a non-recurring charge of approximately $5 million relating to such
stock options in conjunction with the consummation of these transactions.

  Principles of Consolidation--

  The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned operating subsidiaries, Porex Technologies Corp.
and subsidiaries ("Porex"), Avicenna and CareAgents, after elimination of all
material intercompany accounts and transactions.  On December 14, 1994, the
Company sold its Institutional Pharmacy business to Pharmacy Corporation of
America, a wholly-owned subsidiary of Beverly Enterprises, Inc., for
approximately $107.3 million in cash, subject to certain closing adjustments.
As a result of this transaction, the Company recorded an after-tax gain of
$14,496,000.  The consolidated financial statements for the fiscal year ended
June 30, 1995 report separately as discontinued operations the net assets and
operating results of the Institutional Pharmacy business.

  For the year ended June 30, 1997, the operations of the Company were primarily
related to its plastics technology business.  All revenues and a significant
majority of operating expenses were derived from these operations.  The
consolidated financial statements for the fiscal year ended June 30, 1997
include certain costs associated with the Company's efforts in developing its
healthcare communications business.

         Cash and Cash Equivalents--

     The Company considers all liquid investment instruments with an original
maturity of three months or less to be the equivalent of cash for purposes of
balance sheet presentation and for the consolidated statements of cash flows.
These short-term investments are stated at cost, which approximates market.

     Marketable Securities--

     Marketable securities consisted primarily of U.S. Treasury Notes and
Federal Agency Notes at June 30, 1997 and U.S. Treasury Notes, Federal Agency
Notes and Money Market Preferred Stock investments at June 30, 1996.  These
investments, which are carried at a cost of $238,525,000 and $140,268,000, net
of unamortized premium, at June 30, 1997 and June 30, 1996, respectively, had an
aggregate market value of $238,151,000 and $140,537,000 at June 30, 1997 and
1996, respectively.  At June 30, 1997, gross unrealized losses pertaining to
marketable securities and other investments were $374,000.  Gains and losses on
the sale of marketable securities and other investments are calculated using the
specific identification method.

                                      F-8
<PAGE>
 
                        SYNETIC, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

     Investments in Debt and Equity Securities--

     Effective July 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 June 30, 1997, the
Company's investments consisted principally of U.S. Treasury Notes and Federal
Agency Notes and are classified as held-to-maturity and are carried at cost, net
of unamortized premium.

     Inventories--

     Inventories are stated at the lower of (first-in, first-out) cost or
market.  Cost includes raw materials, direct labor, and manufacturing overhead.
Market is based on current replacement cost for raw materials and supplies and
on net realizable value for work-in-process and finished goods.  Inventories
consisted of the following (in thousands):
<TABLE>
<CAPTION>
 
                                 JUNE 30,
                              --------------
                               1997    1996
                              ------  ------
<S>                           <C>     <C>
Raw materials and supplies..  $2,672  $2,468
Work-in-process.............     347     548
Finished goods..............   2.486   2,237
                              ------  ------
                              $5,505  $5,253
                              ======  ======
</TABLE>

     Property, Plant and Equipment--

     Property, plant and equipment are stated at cost.  For financial reporting
purposes, depreciation is provided principally on the straight-line method over
the estimated useful lives of the assets.  Annual depreciation rates range from
2% to 5% for buildings and improvements and from 9% to 33% for machinery and
equipment and furniture and fixtures.  For income tax purposes, certain assets
are depreciated using accelerated methods.  Expenditures for maintenance, repair
and renewals of minor items are charged to operations as incurred.  Major
betterments are capitalized.

     Development Costs--

     The Company capitalizes costs incurred for the production of computer
software used in the sale of its services.  Costs capitalized include direct
labor and related overhead for software produced by the Company and the costs of
software purchased from third parties.  All costs in the software development
process which are classified as research and development are expensed as
incurred until technological feasibility has been established.  Once
technological feasibility has been established, such costs are capitalized until
the software is commercially available.  Such costs are recorded at the lower of
unamortized cost or net realizable value.  For the year ended June 30, 1997,
capitalized costs were not material and no costs were capitalized in previous
years.

     Company-sponsored development costs related to both present and future
products are expensed currently.  Total development expenses were $6,419,000,
$2,014,000, and $1,490,000 for the years ended June 30, 1997, 1996 and 1995,
respectively, of which $4,628,000 in 1997 related to the healthcare
communications business.

                                      F-9
<PAGE>
 
                        SYNETIC, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

     Accrued Liabilities--

     Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
                                             JUNE 30,
                                          ---------------
                                           1997     1996
                                          -------  ------
<S>                                       <C>      <C>
     Accrued payroll and benefit costs..  $ 4,633  $3,568
     Accrued interest...................    2,957       -
     Accrued acquisition costs..........    3,236       -
     Accrued legal costs................    1,575   1,890
     Other..............................    1,802   1,556
                                          -------  ------
         Total..........................  $14,203  $7,014
                                          =======  ======
</TABLE>
     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.

     Foreign Currency Translation--

     The financial statements and transactions of Porex's foreign manufacturing
facilities are maintained in their functional currency (Deutsche mark and Pound
sterling) and translated into U.S. dollars.  The adjustments which result from
the process of translating these financial statements are not material and,
therefore, are not separately disclosed in the accompanying consolidated
financial statements.

     Revenue Recognition--

     The Company designs, manufactures and distributes porous and solid plastic
components and products used in healthcare, industrial and consumer
applications.  Revenue is recognized upon product shipment, net of sales returns
and allowances.

     Net Income (Loss) Per Share--

     Net income (loss) per share is determined by dividing net income (loss) by
the weighted average number of shares of common stock outstanding during the
fiscal year and, if dilutive, common stock equivalents.  Common stock
equivalents consist of common stock which may be issuable upon exercise of
outstanding stock options as calculated using the treasury stock method.  The
Debentures, if converted, would not have had a dilutive effect on net income per
share for the periods presented.

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128").  The new standard simplifies the computation of net income per share and
increases comparability to international standards.  Under SFAS No. 128, primary
net income per share is computed by dividing net income by the weighted-average
number of common 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.

                                      F-10
<PAGE>
 
                        SYNETIC, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

     The Company is required to adopt the new standard during fiscal 1998,
beginning with the December 31, 1997 interim consolidated financial statements.
All prior periods presented are required to be restated at that time.  The
pronouncement is not expected to have a material impact on the Company's
reported earnings per share.

     Reclassifications--

     Certain reclassifications have been made to prior year amounts to conform
to the current year presentation.

     Accounting for Stock-Based Compensation--

     Effective July 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
9)

     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 amount 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.

(2)  ACQUISITIONS:

     Avicenna --

     On December 24, 1996, the Company acquired the outstanding equity and
indebtedness (including employee stock options) of Avicenna, a privately-held,
developmental-stage company located in Cambridge, Massachusetts, for 428,643
shares of the Company's common stock and 161,015 shares of the Company's common
stock to be issued in connection with the exercise of employee stock options.
The shares issued are subject to certain limitations restricting the liquidity
and transferability of such shares. The fair value of the shares, as determined
by management, was approximately $47.37 per share. As additional consideration,
the Company agreed to issue to certain sellers, nontransferable warrants
covering 250,000 shares of the Company's common stock, 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 fair values. Avicenna's results of operations have been
included in the Company's financial statements since December 24, 1996.

     A summary of the purchase price allocation is as follows (in thousands):

<TABLE>
<CAPTION>
 
<S>                                             <C>      
          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
                                                =======
</TABLE>

                                      F-11
<PAGE>
 
                        SYNETIC, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(2)  ACQUISITIONS: (CONTINUED)

     The amount allocated to purchased research and development of $28,600,000
was determined using established valuation techniques. Remaining amounts have
been allocated to intangible assets and goodwill.

     CareAgents--

     On January 23, 1997, the Company acquired CareAgents for 106,029 shares of
the Company's common stock. The shares issued are subject to certain limitations
restricting the liquidity and transferability of such shares. The fair value of 
the shares, as determined by management, was approximately $30.65 per share.
CareAgents was an early development stage company focused on Internet-based
clinical commerce applications. The acquisition was accounted for using the
purchase method with the purchase price being allocated entirely to purchased
research and development. CareAgents' results of operations have been included
in the Company's financial statements since January 23, 1997. The amount
allocated to purchased research and development of $3,585,000 was determined
using established valuation techniques.

     The following summary, prepared on a pro forma basis, combines the results
of operations of the Company, Avicenna and CareAgents assuming the acquisitions
were consummated at the beginning of the period presented (in thousands, except
per share amount):

                                    Year ended
                                    June 30, 1997
                                    -------------
                                    (unaudited)
          Sales                     $ 52,885
          Net loss                  $(29,381)
          Net loss per share        $  (1.69)

     The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisitions 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 Avicenna and CareAgents acquisitions for
the year ended June 30, 1996 was not material.

     Purchased Research and Development and Other--

     The appraisal amounts allocated to purchased research and development of
approximately $28,600,000 and $3,585,000 related to Avicenna and CareAgents,
respectively, were expensed in the periods of acquisition, with no corresponding
tax benefits, as such research and development was in process at the time of the
acquisitions and had no alternative commercial use. In addition, in June 1997,
the Company charged to expense research and development costs of $5,228,000
associated with the acquisition of rights to certain intellectual property and
software technologies to be utilized in the development of the Company's
healthcare communications business.

(3)  Stockholders' Equity:

     In April 1997, the Company announced that its Board of Directors authorized
a repurchase program involving the purchase of the Company's common stock and
outstanding convertible debentures not to exceed $15 million in the aggregate.
For the year ended June 30, 1997, the Company repurchased 49,506 shares at a
cost of approximately $1,858,000 and the Company reissued 17,800 of these shares
for employee stock option exercises.  As of June 30, 1997, 31,706 of the shares
repurchased were included in Treasury stock.

     In January 1997, the Company issued 106,029 shares for the acquisition of
CareAgents and, in December 1996, the Company issued 428,643 shares for the
acquisition of Avicenna.

     In February 1995, the Company issued 3,877,607 shares of its common stock
resulting from the conversion of $79,104,000 aggregate principle amount of its
7% Convertible Subordinated Debentures due December 1, 2001 (the "1991
Debentures").  (See Note 4.)

                                      F-12
<PAGE>
 
                        SYNETIC, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(4)  LONG-TERM DEBT:

     In February 1997, the Company issued to the public $165,000,000 aggregate
principal amount of its 5% Convertible Subordinated Debentures due 2007 (the
"Convertible Debentures").  The Convertible Debentures are convertible at any
time prior to maturity, unless previously redeemed into shares of the Company's
common stock, at a conversion price of $60.00 per share, subject to adjustment
under certain circumstances. In connection with the issuance of the Convertible
Debentures, the Company recorded debt issuance costs of approximately $5.1
million which are included in other assets in the consolidated financial
statements. Such costs are being amortized to interest expense using the
effective interest method over the life of the Convertible Debentures.

     In December 1991, the Company issued to the public $80,500,000 aggregate
principal amount of its 1991 Debentures. The 1991 Debentures were convertible at
any time prior to maturity, unless previously redeemed, into shares of the
Company's common stock at a conversion price of $20.40 per share, subject to
adjustment under certain circumstances. On January 27, 1995, the Company called
for redemption on February 13, 1995 the 1991 Debentures. Holders of $79,104,000
aggregate principal amount of the 1991 Debentures surrendered them for
conversion into an aggregate of 3,877,607 shares of common stock. The remaining
$1,396,000 of the outstanding 1991 Debentures were redeemed at the redemption
price of 104% plus accrued interest. Included in Purchase and Sale Agreement
related expenses and other in the accompanying financial statements for the year
ended June 30, 1995 are approximately $1.1 million of costs associated with the
call for redemption.

(5)    INCOME TAXES:

     The income tax provisions are summarized as follows (in thousands):
<TABLE>
<CAPTION>
 
                                                      YEARS ENDED JUNE 30,
                                                  ---------------------------
                                                    1997     1996      1995
                                                  --------  -------  --------
<S>                                               <C>       <C>      <C>
Current:
  Federal..........................               $ 4,427   $4,060   $ 2,594
  State............................                   507      811       491
                                                  -------   ------   -------
     Total current.................                 4,934    4,871     3,085
                                                  -------   ------   -------
Deferred:
  Federal..........................                (2,057)    (194)   (2,070)
  State............................                   (43)     (60)     (572)
                                                  -------   ------   -------
     Total deferred................                (2,100)    (254)   (2,642)
                                                  -------   ------   -------
       Total income tax provision..               $ 2,834   $4,617   $   443
                                                  =======   ======   =======
</TABLE>
     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:
<TABLE>
<CAPTION>
 
                                                                                             YEARS ENDED JUNE 30,
                                                                                        ----------------------------- 
                                                                                           1997      1996      1995
                                                                                        ---------- --------- -------- 
<S>                                                                                     <C>        <C>       <C> 
Federal statutory rate..............................................................      (35.0)%    35.0%     35.0%
State tax, net of federal benefit...................................................        2.1      3.7      (4.8)
Dividend exclusion..................................................................       (2.0)    (7.7)    (52.3)
Non-deductible research and development.............................................       45.1        -         -
Non-deductible conversion costs.....................................................          -        -      67.6
Other, net..........................................................................        1.4      4.0      (4.4)
                                                                                         --------- --------- -------- 
                                                                                           11.6%    35.0%     41.1%
                                                                                          ========= ========= ======== 
</TABLE> 

                                      F-13
<PAGE>
 
                        SYNETIC, INC. AND SUBSIDIARIES       
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
 
(5)   Income Taxes: (continued)
 
      Temporary differences resulted in the following deferred tax expense
      (benefit) (in thousands):

<TABLE> 
<CAPTION> 

                                                                           YEARS ENDED JUNE 30,
                                                                       ---------------------------
                                                                         1997     1996      1995
                                                                       -------- --------  --------
<S>                                                                    <C>      <C>       <C> 
Book/tax differences in accounting method            
 for assets acquired.................................                  $   (10)   $ (69)  $    15
Accrued expenses.....................................                     (716)    (140)     (643)
Deferred compensation - stock options................                        -        -    (2,038)
Difference between tax and book depreciation and     
 amortization........................................                   (1,414)     (45)       38
Other, net...........................................                       40        -       (14)
                                                                       -------    -----   -------
                                                                       $(2,100)   $(254)  $(2,642)
                                                                       =======    =====   =======
</TABLE> 

  Deferred tax liabilities (assets) at June 30, 1997 and 1996, are 
   comprised of the following (in thousands):

<TABLE> 
<CAPTION> 
                                                                              JUNE 30,
                                                                     -------------------------
                                                                         1997          1996
                                                                     ----------     ----------
  <S>                                                                <C>            <C>
  Tax over book depreciation and amortization.........               $    (767)     $     868 
  Intangible assets amortization......................                      64             85
  Accrued expenses....................................                  (2,417)        (1,525)
  Deferred compensation - stock options...............                  (1,693)        (2,038)
  Inventory...........................................                    (347)          (456)
  Prepaids and other..................................                     (62)           (56)
                                                                     ---------      --------- 
                                                                     $  (5,222)     $  (3,122)
                                                                     =========      ========= 
</TABLE> 

     In accordance with the disclosure provisions of SFAS No. 109, the Company
has included approximately $2,888,000 and $2,334,000 of deferred tax assets in
other current assets and other assets, respectively, representing the effects of
temporary differences between carrying amounts of assets and liabilities for
financial reporting purposes and the carrying amounts for income tax purposes.

(6)  Major Customers and Foreign and Export Product Sales:

     For the years ended June 30, 1997, 1996 and 1995, no customer accounted for
more than 10% of the Company's net sales.

     Foreign product sales and net income of Porex's foreign manufacturing
facilities, which are made principally in Europe, amounted to $7,854,000 and
$1,247,000; $6,665,000 and $975,000; and $5,381,000 and $397,000 for the fiscal
years ended June 30, 1997, 1996 and 1995, respectively.  Identifiable assets of
this facility were not material for the years presented.  Export product sales
of Porex, which are made principally to Europe and Asia, were $6,213,000,
$5,605,000 and $5,022,000 for the fiscal years ended June 30, 1997, 1996 and
1995, respectively.

(7)  Pension and Profit Sharing Plans:

     The Company has defined benefit pension plans covering substantially all of
its employees.  Net pension cost for the years ended June 30, 1997, 1996 and
1995 included the following components (in thousands):
<TABLE>
<CAPTION>
 
                                  1997     1996    1995
                                --------  ------  ------
<S>                             <C>       <C>     <C>
Service cost..................  $   277   $ 269   $ 240
Interest cost.................      338     310     273
Actual return on plan assets..   (1,377)   (789)   (427)
Net amortization..............      923     447     127
                                -------   -----   -----
  Net pension cost............  $   161   $ 237   $ 213
                                =======   =====   =====
</TABLE>

                                      F-14
<PAGE>
 
                        SYNETIC, INC. AND SUBSIDIARIES       
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  

(7)  PENSION AND PROFIT SHARING PLANS: (CONTINUED)

          The following table sets forth the funded status of the plans and
amounts recognized in the Company's consolidated balance sheets (in thousands):
<TABLE>
<CAPTION>
                                                            JUNE 30,
                                                       ------------------
                                                         1997      1996
                                                       --------  --------
<S>                                                    <C>       <C>
     Actuarial present value of benefit obligation:
       Vested benefit obligation.....................  $(3,311)  $(2,944)
       Nonvested benefit obligation..................      (67)      (55)
                                                       -------   -------
       Accumulated benefit obligation................   (3,378)   (2,999)
       Effect of future salary increases.............   (1,600)   (1,548)
                                                       -------   -------
 
     Projected benefit obligation....................   (4,978)   (4,547)
     Plan assets at fair value.......................    6,703     5,105
                                                       -------   -------
 
     Funded status...................................    1,725       558
     Unrecognized net gain...........................   (1,848)     (792)
     Unrecognized net asset..........................     (194)     (216)
     Unrecognized prior service cost.................       56        61
                                                       -------   -------
       Consolidated balance sheets...................  $  (261)  $  (389)
                                                       =======   =======
</TABLE>

  The Company funds the plans through annual contributions representing no less
than the minimum amounts required as computed by actuaries to be consistent with
the plans' objectives and government regulations.  The net pension liability is
included in accrued liabilities.

  Assumptions used in the accounting for the Company's defined benefit plans as
of June 30, 1997 and 1996 were:
<TABLE>
<CAPTION>
 
                                                           1997   1996
                                                           -----  -----
<S>                                                        <C>    <C>
            Discount rate................................   7.5%   7.5%
            Rate of increase in compensation levels......  0%-5%  0%-5%
            Expected long-term rate of return on assets..   8.0%   8.0%
</TABLE> 

            Plan assets consist primarily of debt and equity investments.

     In addition to the defined benefit pension plans discussed above, the
Company maintains a defined contribution profit sharing plan covering
substantially all of its employees.  Participants must be at least 21 years of
age and have completed one year of service and may contribute up to $9,500 of
their earnings annually.  Effective February 1, 1997 the Company matches 50% of
the first 2% and 25% of the second 4% of participants earnings which are
contributed to the plan.  From July 1, 1996 through January 31, 1997 and for the
fiscal years ending June 30, 1996 and June 30, 1995 the Company matched 25% of
the first 4% of participants earnings which were contributed to the plan.  For
the year ended June 30, 1997, the Company issued 3,341 shares of common stock to
the plan.  For the years ended June 30, 1997, 1996 and 1995, Company
contributions were approximately $132,500, $81,000 and $59,100, respectively.

(8)  Related Party Transactions:

     Tax-sharing agreement--

     The Company and Medco had a tax-sharing agreement which provided, among
other things, for the allocation of federal income taxes on a separate company
basis prior to July 6, 1989 and other related matters with respect to income
taxes of the Company.

                                      F-15
<PAGE>
 
                        SYNETIC, INC. AND SUBSIDIARIES       
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  

(8)  RELATED PARTY TRANSACTIONS: (CONTINUED)

     Services agreement--

     Through December 14, 1994, the Company and Medco had a services agreement
pursuant to which Medco provided the Company with various services of its
management.  The Company paid the actual costs of providing these services.
Where actual costs were not available, the Company paid amounts based on
mutually agreed upon allocation methods.  Costs for such services were
approximately $337,000 for the year ended June 30, 1995.  No costs were incurred
under this agreement for the years ended June 30, 1997 and June 30, 1996.

(9)  STOCK OPTIONS:

     In May 1989, the Company adopted two stock option plans, the 1989 Class A
Stock Option Plan (the "Class A Plan") and the 1989 Class B Stock Option Plan
(the "Class B Plan"). In September 1991, the Company adopted the 1991 Special
Non-qualified Stock Option Plan (the "1991 Special Plan") and in December 1991,
the Company adopted the 1991 Director Stock Option Plan (the "Director Plan").
In fiscal 1997, the Company adopted two stock option plans, the 1996 Class C
Stock Option Plan (the "Class C Plan") and the 1997 Class D Stock Option Plan
(the "Class D Plan"), and upon its acquisition of Avicenna, amended and assumed
the Avicenna Systems Corp. 1995 Stock Plan (the "Avicenna Plan"), and converted
options to purchase Avicenna shares into options to purchase the Company's
shares. Non-Qualified stock options are granted under the Class A Plan, Class C
Plan, Class D Plan, the 1991 Special Plan and the Director Plan. Options granted
under the Class B Plan may be either incentive stock options or non-qualified
stock options. Eligibility for the grant of options under the Class A Plan and
the Director Plan are limited to certain of the Company's directors. Eligibility
for the grant of options under the Class B Plan, the Class C Plan, the Class D
Plan and the 1991 Special Plan are limited to the Company's officers, certain
directors, employees, consultants, agents and key contractors. No additional
options may be granted under the Avicenna Plan subsequent to the December 24,
1996 acquisition closing date.

     Except for the Avicenna Plan, no options under the plans may be exercised
during the first year after the date of grant, and options granted under the
Plans become exercisable at a rate of either 20% in each successive year after
the date of grant, or 40% after the second anniversary of the grant and 20% in
each successive year. The Avicenna Plan options vested 50% on December 24, 1996
(the closing date of the Avicenna acquisition) with the remaining 50% vesting on
December 24, 1998 (the second anniversary of the closing date). No options may
be granted under any of the Plans after January 23, 2007, and all options expire
within ten to fifteen years from the date of the grant. Under the Class B, the
Class C, the Class D Plans, the 1991 Special Plan and the Director Plan, the
exercise price may not be less than 100% of the fair market value of the
Company's common stock on the date of grant. Under the Class A Plan, the
exercise price may not be less than 85% of the fair market value of the
Company's common stock on the date of grant. All options granted under the Class
A Plan had an exercise price equal to 100% of the fair market value on the date
of grant. The options granted under the Avicenna Plan were assumed and converted
to the Company's stock options at an exercise price of $1.25 per share and were
included in the acquisition cost of Avicenna. There are 7,920,045 shares
reserved for issuance under the Company's plans.

     In addition to the Company's stock option plans, the Company has granted
options to certain directors, consultants and key employees.  At June 30, 1997,
there were 438,000 options granted to these individuals.  The terms of these
grants are similar to the Company's non-qualified stock option plans.

                                      F-16
<PAGE>
 
                        SYNETIC, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(9)  STOCK OPTIONS: (CONTINUED)

     The Company has elected to follow APB No. 25 in accounting for its employee
stock options.  Accordingly, no compensation cost has been recognized for the
Company's option plans.  Had the determination of compensation costs for these
plans been based on the fair value at the grant dates for awards under these
plans, consistent with the method of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:

 
                                1997     1996
                                ----     ----
      Net income (loss):
        As reported          $(27,460)  $8,585
        Pro forma            $(30,746)  $8,190
 
      Earnings per share:
        As reported          $  (1.60)  $ 0.48
        Pro forma            $  (1.79)  $ 0.45

     The pro forma results indicated above are not intended to be indicative of
or a projection of future results.

     The fair value of each option grant is estimated on the date of grant by
using the Black-Scholes option-pricing model.  The following weighted average
assumptions were used for grants in 1997 and 1996:
 
                                            1997         1996
                                            ----         ----
      Expected dividend yield                   0%           0%
      Expected volatility                   .2722        .2722
      Risk-free interest rates                6.5%         6.5%
      Expected option lives (years)      .083-1.74    .083-1.74
 
Weighted average fair
  value of options granted
  during the year                      $     10.11   $     5.08

     A summary of the status of the Company's stock option plans for the three
year period ended June 30, 1997 is presented below:

<TABLE>
<CAPTION>
                                                          Years Ended June, 30
                                      -----------------------------------------------------------
                                              1997               1996                1995
                                      -------------------  ------------------  ------------------
                                                 Weighted            Weighted            Weighted
                                                 Average             Average             Average
                                                 Exercise            Exercise            Exercise
                                       Shares      Price    Shares     Price    Shares     Price
                                       ------    --------   ------   --------   ------  ---------
<S>                              <C>              <C>      <C>         <C>     <C>         <C>
Beginning of year..............       3,746,750    $12.52  3,591,900   $11.50  3,239,830   $12.16
Granted........................       4,047,264    $39.22    366,000   $24.54  1,228,000   $11.37
Exercised......................        (343,990)   $ 9.94   (137,350)  $12.81   (364,570)  $11.82
Canceled.......................        (313,445)   $39.90    (73,800)  $16.13   (511,360)  $15.17
                                      ---------            ---------           ---------
 
End of year....................       7,136,579    $26.58  3,746,750   $12.63  3,591,900   $11.50
                                      =========            =========           =========
 
Exercisable at
  end of year..................       2,379,281            2,160,050           1,846,300
                                      =========            =========           =========
</TABLE> 

                                      F-17
<PAGE>
 
                        SYNETIC, INC. AND SUBSIDIARIES      
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(9)  STOCK OPTIONS: (CONTINUED)

The following table summarizes information with respect to options outstanding
and options exercisable at June 30, 1997:

<TABLE>
<CAPTION>
                                            Options Outstanding                   Options Exercisable
                           ---------------------------------------------------  ---------------------------      
                                            Weighted Average       Weighted                     Weighted   
Range of  Exercise           Options            Remaining          Average        Options       Average                
Prices (in dollars)        Outstanding      Contractual Life    Exercise Price  Exercisable  Exercise Price 
------------------         -----------      ----------------    --------------  -----------  -------------- 
<S>                        <C>              <C>                 <C>             <C>          <C> 
$1.25-$5.25                   647,547             3.60              $ 4.75          581,081      $ 5.15     
$6.63-$10.00                  977,000             7.51              $ 9.57          474,200      $ 9.11     
$11.50-$25.00               1,859,600             9.91              $16.32        1,322,400      $15.43     
$31.25-$37.00               2,179,250            12.30              $34.26            1,600      $32.94     
$46.88-$52.56               1,473,182            10.14              $49.07               --          --      
</TABLE>
(10) COMMITMENTS AND CONTINGENCIES:

     Leases--

     The Company leases office and warehouse space, equipment and automobiles
under various noncancellable operating leases.  Rental expense was $803,000,
$318,000 and $197,000 for the fiscal years ended June 30, 1997, 1996 and 1995,
respectively.  The minimum aggregate rental commitments under noncancellable
leases, excluding renewal options, are as follows (in thousands):
 
     YEARS ENDING JUNE 30,
     ---------------------
     1998........                 $2,043
     1999........                  2,046
     2000........                  2,023
     2001........                  1,966
     2002........                  1,360
     Thereafter..                  3,625

     Legal proceedings--

     In the normal course of business, the Company is involved in various claims
and legal proceedings.  While the ultimate resolution of these matters has yet
to be determined, the Company does not believe that their outcome will have a
material adverse effect on its financial position.

     Porex has been named as one of many co-defendants in a number of actions 
brought by recipients of silicone mammary implants. One of the pending claims is
styled as a purported class action. Certain of the actions against Porex have 
been dismissed or settled by the manufacturer or insurance carriers of Porex 
without material cost to Porex. The Company believes its insurance coverage 
provides adequate coverage against liabilities that could arise from actions or 
claims arising out of Porex's distribution of implants.

                                      F-18
<PAGE>
 
                        SYNETIC, INC. AND SUBSIDIARIES      
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(11) QUARTERLY FINANCIAL DATA (UNAUDITED):

     The following table summarizes the quarterly financial data for the fiscal
years ended June 30, 1997 and 1996 (in thousands, except per share data).  Net
income per share, excluding the non-recurring charges discussed in Note (2), are
also presented below.  Net income (loss) per share calculations for each of the
quarters are based on the weighted average number of shares outstanding for each
period; therefore, the sum of the quarters may not necessarily be equal to the
full fiscal year per share amount.
<TABLE> 
<CAPTION>
                                                                                                         
                                           INCOME                                                        
                                           (LOSS)                           NET                           
                                           BEFORE                         INCOME                         
                                          PROVISION                       (LOSS)                         
      QUARTER ENDED          NET SALES    FOR TAXES   NET INCOME (LOSS)  PER SHARE                       
--------------------------  ------------  ----------  -----------------  ---------
<S>                         <C>           <C>         <C>                <C>            
1996                                                                                    
----                                                                                    
September 30, 1995........    $11,036       $ 3,127             $1,924        $.11   
December 31, 1995.........     10,283         3,124              2,073         .12   
March 31, 1996............     11,311         3,184              2,101         .12   
June 30, 1996.............     12,498         3,767              2,487         .14   
                                                                                     
Year ended June 30, 1996..    $45,128       $13,202             $8,585        $.48   
<CAPTION>                                                                                               
                                                                                                        
                                           INCOME                                                       
                                           (LOSS)                          NET                          
                                           BEFORE                         INCOME                        
                                          PROVISION                       (LOSS)                        
      QUARTER ENDED          NET SALES    FOR TAXES   NET INCOME (LOSS)  PER SHARE                      
--------------------------  ------------  ----------  -----------------  ---------
<S>                         <C>           <C>         <C>                <C>                  
1997                                                                                 
----                                                                                 
September 30, 1996........    $11,185       $ 3,527             $2,389        $.13   
December 31, 1996.........     11,899       (24,545)           (25,934)      (1.54)  
March 31, 1997............     14,243        (1,516)            (2,420)       (.14)  
June 30, 1997.............     15,558        (2,092)            (1,495)       (.09)  
                                                                                     
Year Ended June 30, 1997..    $52,885      $(24,626)          $(27,460)     $(1.60)  
</TABLE>


                                      F-19
<PAGE>
 
                        SYNETIC, INC. AND SUBSIDIARIES      
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(12) FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments."  The estimated fair value amounts have been determined
by the Company using available market information.   However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value.  Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange.  The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
 
                                    AT JUNE 30, 1997
                                  --------------------
                                  CARRYING  ESTIMATED
                                   AMOUNT   FAIR VALUE
                                  --------  ----------
                                     (in thousands)
Assets:
     Cash and cash equivalents..  $ 77,303    $ 77,303
     Marketable securities......   238,525     238,151
 
Liabilities:
     Long term debt.............   165,000     146,025

Cash and cash equivalents--

     The carrying amounts of these items are a reasonable estimate of their fair
value.

Marketable securities--

     Marketable securities, consisting of publicly-traded U.S. Treasury Notes
and Federal Agency Notes, are valued based on quoted market prices or dealer
quotes.

Long term debt--

     The Convertible Debentures are publicly traded and are valued based on
quoted market prices.  (See Note (4).)

     The fair value estimates presented herein are based on information
available to the Company as of June 30, 1997.  Although the Company is not aware
of any factors that would significantly affect the estimated fair value amounts,
such amounts have not been revalued since that date, and current estimates of
fair value may differ significantly from the amounts presented herein.

                                      F-20
<PAGE>
 
                        SYNETIC, INC. AND SUBSIDIARIES      
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(13) SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
 
                           YEARS ENDED JUNE 30,
                          -----------------------
                           1997    1996    1995
                          ------  ------  -------
     Interest Paid......  $    -  $    6  $ 2,870
     Income Taxes Paid..   1,788   3,212   27,435

     The following non-cash transactions were excluded from the consolidated
statements of cash flows for the years ended June 30, 1997, 1996 and 1995:

     In fiscal years 1997, 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 $7,450,000, $3,833,000 and
$835,000, respectively.

     In February 1995, in connection with the call for redemption of the
Company's 1991 Debentures, holders of $79,104,000 aggregate principal amount of
the 1991 Debentures surrendered them for conversion into an aggregate of
3,877,607 shares of common stock. The remaining $1,396,000 of the outstanding
1991 Debentures were redeemed at the redemption price of 104% plus accrued
interest. (See Note (4).)

     Additional information with respect to the acquisitions referred to in Note
(2) above is as follows (in thousands):

                                       Year Ended
                                     June 30, 1997
                                     -------------
     Fair value of assets acquired       $47,537
     Net cash paid                      (10,612)
     Value of stock paid                (24,488)
                                        -------  
     Liabilities assumed                $12,437
                                        =======

                                      F-21
<PAGE>
 
                         SYNETIC, INC. AND SUBSIDIARIES
                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                    Years Ended June 30, 1997, 1996 and 1995



<TABLE>
<CAPTION>
                 Col. A                     Col. B            Col. C               Col. D         Col. E
----------------------------------------  ----------  -----------------------  ---------------  ----------
                                                             Additions
                                                      -----------------------
                                          Balance at  Charges to  Charges to                    Balance at
                                          Beginning   Costs and      Other                        End of
              Description                 of Period    Expenses    Accounts     (Deductions)      Period
----------------------------------------  ----------  ----------  -----------  ---------------  ----------
<S>                                       <C>         <C>         <C>          <C>              <C>
 
Deducted in the Balance Sheet
   from the asset to which it applies:
 
Allowance for doubtful accounts
   and sales returns
June 30, 1997...........................    $671,000     205,000      14,000      (151,000)(1)    $739,000
June 30, 1996...........................    $636,000     126,000      (7,000)      (84,000)(1)    $671,000
June 30, 1995...........................    $393,000     307,000       7,000       (71,000)(1)    $636,000
</TABLE>


------------------------------------

(1)  Write-off of uncollectible accounts and other reductions, net of
recoveries.

                                      S-1
<PAGE>
 
                               INDEX TO EXHIBITS


  Number                              Title
  ------                              -----

  3.1**     Certificate of Incorporation of the Company, as amended.
            Incorporated by reference to Exhibit 3.1 to the Company's
            Registration Statement on Form S-1 (No. 33-28654) (the "Registration
            Statement").


  3.2**     By-Laws of the Company, as amended. Incorporated by reference to
            Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
            fiscal year ended June 30, 1994 (the "1994 10-K").

  10.1**    1989 Class A Non-Qualified Stock Option Plan of the Company.
            Incorporated by reference to Exhibit 10.1 to the Registration
            Statement.*

  10.2**    1989 Class B Non-Qualified Stock Option Plan of the Company.
            Incorporated by reference to Exhibit 10.2 to the Registration
            Statement.*

  10.3**    1991 Director Stock Option Plan of the Company.  Incorporated by
            reference to Exhibit 4.2 to the Company's Registration Statement on
            Form S-8 (No. 33-46640).*

  10.4**    Form of Stock Option Agreement dated as of May 17, 1989 between the
            Company and the members of the Stock Option Committee of the Board
            of Directors.  Incorporated by reference to Exhibit 10.3 to the
            Registration Statement.*

  10.5**    Retirement Plan for Salaried Employees of Porex Technologies Corp.
            of Georgia. Incorporated by reference to Exhibit 10.4 to the
            Registration Statement.*

  10.7**    Form of Indemnification Agreement between the Company and the
            directors and officers of the Company. Incorporated by reference to
            Exhibit 10.6 to the Registration Statement.

  10.8**    Form of Services Agreement between the Company and Medco.
            Incorporated by reference to Exhibit 10.7 to the Registration
            Statement.

  10.9**    Form of Tax Sharing Agreement between the Company and Medco.
            Incorporated by reference to Exhibit 10.8 to the Registration
            Statement.

  10.10**   Form of Indemnification Agreement between the Company and Medco.
            Incorporated by reference to Exhibit 10.9 to the Registration
            Statement.

  10.11**   Purchase and Sale Agreement, dated as of May 24, 1994, between
            Merck & Co., Inc. and the Company (the "Purchase and Sale
            Agreement"). Incorporated by reference to Exhibit 99.1 to the
            Company's Current Report on Form 8-K dated June 6, 1994.

                                      E-1
<PAGE>
 
  Number                              Title
  ------                              -----

  10.12**   Purchase Agreement, dated as of May 24, 1994, between Medco
            Containment Services, Inc. and Porex Technologies Corp. Incorporated
            by reference to Exhibit 10.23 to the 1994 10-K.

  10.13**   Stock Purchase Agreement, dated as of August 9, 1994, between the
            Company and Pharmacy Corporation of America.  Incorporated by
            reference to Exhibit 10.24 to the 1994 10-K.

  10.14**   Amended and Restated Investment Agreement, dated as of September 13,
            1994, between Martin J. Wygod and the Company.  Incorporated by
            reference to Exhibit 10.1 to the Company's Current Report on Form 8-
            K dated September 16, 1994.

  10.15**   Form of Stock Option Agreement, made as of December 7, 1994, between
            the Company and each of James V. Manning (for 150,000 shares), Paul
            C. Suthern (for 180,000 shares), Victor L. Marrero (for 125,000
            shares), David J. Schlanger (for 125,000 shares), Pamela B. Spira
            (for 125,000 shares) and Anthony Vuolo (for 125,000 shares).
            Incorporated by reference to Annex A to the Company's Proxy
            Statement for its Annual Meeting of Stockholders held on May 17,
            1995.*

  10.16**   Merger Agreement, dated December 23, 1996, among the Company,
            Synternet Acquisition Corp., a wholly owned subsidiary of the
            Company, Avicenna and the certain other individuals and entities.
            Incorporated by reference to Exhibit 10.2 to the Company's
            Registration Statement on Form S-3 (No. 333-18771).

  10.17**   1996 Class C Stock Option Plan of the Company.  Incorporated by
            reference to Exhibit 4.1 to the Company's Registration Statement on
            Form S-8 (No. 333-36041).*

  10.18**   1997 Class D Stock Option Plan of the Company.  Incorporated by
            reference to Exhibit 4.2 to the Company's Registration Statement on
            Form S-8 (No. 333-36041).*

  10.19**   1991 Special Non-Qualified Stock Option Plan of the Company.
            Incorporated by reference to Exhibit 4.3 to the Company's
            Registration Statement on Form S-8 (No. 333-36041).*

  21.1**    Subsidiaries of the Company.

  23.1      Consent of Arthur Andersen LLP.

  23.2**    Consent of Kegler, Brown, Hill & Ritter Co., L.P.A.

  24.1**    Powers of Attorney of the Company.

  27**      Financial Data Schedule.

  99.1**    Excerpt from the Consulting Agreement between Merck & Co., Inc. and
            Martin J. Wygod relating to provisions incorporated in the Purchase
            and Sale

                                      E-2
<PAGE>
 
Number                                 Title
------                                 -----

            Agreement.  Incorporated by reference to Exhibit 99.1 to the
            Company's Current Report on Form 8-K dated June 6, 1994.


  ___________________________
  *  Management contract or compensation plan or arrangement.


  ** Previously filed with the Company's Annual Report on Form 10-K for the
  Fiscal Year Ended June 30, 1997.

                                      E-3