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                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-K

                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.  [ ]

     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

     Certain information in the registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission relating to the registrant's
1997 Annual Meeting of Stockholders is incorporated by reference into Part III.

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                                     PART I



ITEM 1.   BUSINESS.


                                  INTRODUCTION


     Synetic, Inc. ("Synetic") is a Delaware corporation and was incorporated in
1989.  Its principal offices are located at 669 River Drive, Elmwood Park, New
Jersey 07407, and its telephone number is (201) 703-3400.  As used herein, the
"Company" means Synetic and its subsidiaries, except where the context otherwise
requires.


     Synetic is engaged in two principal business activities, plastics
technologies and healthcare communications.  Porex Technologies Corp. (together
with its subsidiaries, "Porex"), a wholly owned subsidiary of the Company,
designs, manufactures and distributes porous and solid plastic components and
products used in health care, industrial and consumer applications.  Porex's
principal products, which incorporate porous plastics, are used to filter, wick,
drain, vent or control the flow of fluids or gases.  Through its wholly owned
subsidiary, Avicenna Systems Corporation ("Avicenna"), the Company has directed
its efforts in a new area of business relating to the use of Internet technology
to expand the channels of communication in the healthcare industry.  The
creation of these new channels is intended to benefit providers and payors of
healthcare services by improving the quality of patient care, securing
appropriate utilization of healthcare services, reducing administrative costs
and enforcing benefit plan guidelines.


     Prior to June 28, 1989, the date of the initial public offering of the
Company, the Company was an indirect wholly owned subsidiary of Medco
Containment Services, Inc. ("Medco").  Thereafter, the Company became a publicly
held, partially owned subsidiary of Medco.  Medco provided health care cost
containment services, principally managed prescription drug programs, to benefit
plan sponsors.  On November 18, 1993, Medco was acquired by Merck & Co., Inc.
("Merck") in a merger transaction (the "Merck/Medco Merger"), and as a result,
the Company became an indirect, partially owned subsidiary of Merck.  Merck is a
pharmaceutical manufacturer.  Until December 14, 1994, the Company's operations
consisted of Porex and a group of subsidiaries that provided institutional
pharmacy services (the "Institutional Pharmacies Business").


     On December 14, 1994, the Company consummated certain transactions pursuant
to which:  (1) the Company sold the Institutional Pharmacies Business to
Pharmacy Corporation of America, an indirect wholly owned subsidiary of Beverly
Enterprises, Inc. (such sale is referred to herein as the "Divestiture"), for
approximately $107,300,000; (2) the Company purchased 5,268,463 shares of its
Common Stock from Merck for an aggregate purchase price of $37,764,019, pursuant
to the Purchase and Sale Agreement, dated as of May 24, 1994, between the
Company and Merck; and (3) SN Investors, L.P. ("SN Investors"), a limited
partnership the general partner of which is SYNC, Inc. (the "General Partner"),
whose sole stockholder is Martin J. Wygod, purchased 5,061,857 shares of Common
Stock (the "Wygod Shares") from Merck for an aggregate purchase price of
$36,283,079, pursuant to an assignment by the Company of the right to purchase
such shares from Merck contained in an Investment Agreement between Mr. Wygod
and the Company, dated as of September 13, 1994 (the "Investment Agreement").
The purchases of shares of Common Stock from Merck by the Company and SN
Investors are hereinafter referred to as the "Purchase."  As a result of the
consummation of the Purchase, Mr. Wygod and SN Investors own an aggregate of
approximately 29.3% of the outstanding Common Stock as of September 15, 1997 and
Merck no longer owns an equity interest in the Company.  The shares of Common
Stock purchased by the Company are being held as treasury shares and are no
longer outstanding or entitled to vote.


     The Company maintains an acquisition program and intends to concentrate its
acquisition efforts in businesses which are complementary to the Company's
healthcare communications strategy.  This emphasis, however, is not intended to
limit in any manner the Company's ability to pursue acquisition opportunities in
other healthcare-related businesses or in other industries.  The Company's
acquisition program could result in a substantial

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change in the businesses, operations and financial condition of the Company.  No
assurance can be given that the Company will succeed in consummating any
acquisitions or that the Company will be able to successfully manage or
integrate any business that it acquires.  The future growth of the Company will
depend primarily on its ability to consummate one or more such acquisitions and
to operate such businesses successfully.  See "--Acquisition Program".


FORWARD-LOOKING INFORMATION


     This report contains certain forward-looking statements and information
relating to 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's 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.  These risks may include product demand and market acceptance
risks, the feasibility of developing commercially profitable Internet healthcare
services, the effect of economic conditions, user acceptance, the impact of
competitive products, services and pricing and product development,
commercialization and technological difficulties and other risks described in
"Plastic Technologies Business--Regulation", "--Competition", "--Potential
Liability Risk and Availability of Insurance", "Healthcare Communications
Business--Certain Considerations" and  "Management's Discussion and Analysis of
Financial Condition and Results of Operations".  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.


                         PLASTICS TECHNOLOGIES BUSINESS


GENERAL


     Porex Technologies Corp., a wholly owned subsidiary of the Company,
designs, manufactures and distributes porous and solid plastic components and
products used in health care, industrial and consumer applications.  Porex's
principal products are porous plastics that are used to filter, wick, drain,
diffuse, vent or control the flow of fluids or gases.  A large percentage of
Porex's products are sold to other manufacturers for incorporation into their
products.


     Porex's health care products include proprietary products manufactured and
sold under Porex's trade names.  These products are sold for clinical and
medical/surgical use in hospitals, clinics, physicians' offices and
laboratories.  Porex also manufactures and sells a line of plastic vials and
produces components made to the specifications of original equipment
manufacturers ("OEMs") for incorporation into their health care products.
Porex's industrial and consumer products consist primarily of custom-
manufactured components made for manufacturers of industrial and consumer
products.


     Porous plastics are permeable plastic structures having omni-directional
(i.e., porous in all directions to the flow of fluids or gases) interconnecting
pores.  Porous plastics are manufactured by Porex with pore sizes between
approximately 5 and 500 micrometers (one micrometer is equal to one-millionth of
a meter; an object of 40 micrometers in size is about as small as can be
discerned by the naked eye).  Porous plastic materials can be molded from
several thermoplastic raw materials and are produced by Porex at its own
manufacturing facilities as fabricated devices, custom-molded shapes, sheets,
tubes or rods depending on application or manufacturer specifications.  Porex
also purchases for resale through its distribution channels certain products
which are complementary to its manufactured product lines.

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HEALTH CARE PRODUCTS


     Porex's proprietary products for life sciences, clinical and surgical
applications include blood serum filters, blood tube closure devices, pipette
tips and a line of medical/surgical products designed primarily for use in
plastic and reconstructive surgery and maxillofacial surgery.  Porex also
manufactures and sells a line of plastic vials and produces components for
incorporation into health care products made by OEMs.


     LIFE SCIENCES AND CLINICAL PRODUCTS.  Porex's blood serum filters are used
to separate microscopic particles and fibrous matter (fibrin) from centrifuged
blood serum to prevent clogging of automated laboratory chemical analysis
equipment.  Porex also manufactures a line of closure devices that are used with
blood serum filters and tubes.  In response to health concerns regarding the
handling of human blood, new blood testing equipment has been developed which
does not require filtered blood serum for analysis, or which eliminates the need
for handling of blood serum by medical personnel.  The use of such new equipment
has reduced the demand for Porex's current line of blood serum filters.


     Porex produces a line of filtered and non-filtered pipette tips which are
used for dispensing fluids, primarily in industrial research laboratories.


     SURGICAL PRODUCTS.  Porex's surgical products are marketed primarily to
surgeons who specialize in plastic and reconstructive surgery and maxillofacial
surgery.  The product line includes MEDPOR(R) Surgical Implant material, which
is polymeric biomaterial used for craniofacial reconstruction and augmentation,
and TLS(R) Surgical Drainage Systems for small wound sites.  Porex also markets
TLS(TM) Surgical Marker pens to mark the areas of proposed surgical incision.
Porex manufactures MEDPOR(R) Surgical Implant material and distributes, and in
some cases assembles, the other items in its surgical product line.


     OEM MEDICAL PRODUCTS.  Porex manufactures various porous plastic components
that it sells to other health care product manufacturers for incorporation into
their finished products.  These porous plastics are used to vent or diffuse
gases or fluids and are used as membrane supports in other manufacturers'
products.  The components include (i) disks used to support membranes, modules
and other filtration devices, (ii) a venting system for catheters which allows
air to vent from a catheter as it is inserted into a vein, while at the same
time preventing blood spillage and possible contamination of hospital personnel,
(iii) a porous disk used in pipette tips to prevent the fluid to be pipetted
from passing into the pipette instrument, and (iv) an oxygen diffuser, which is
typically used in oxygen therapy equipment to humidify oxygen.


     VIAL AND SOLID PLASTIC COMPONENTS.  Porex manufactures and sells a full
line of plastic vials for pharmaceuticals.  Porex also produces close tolerance
solid plastic components which use most thermoplastic resins, but primarily
polystyrene, polypropylene and thermoplastic rubber for medical and industrial
applications.  These products are custom designed and produced to satisfy
individual customer specifications.


INDUSTRIAL PRODUCTS


     Porex manufactures a variety of custom porous plastic components for
industrial applications.  These components are produced as molded shapes, and in
sheets, tubes and rods, individually designed to customer specifications as to
size, rigidity, porosity and other needs.


     Porex's industrial applications include (i) automotive products, primarily
porous plastic vents used in automobile batteries as a flame arrester, (ii)
wastewater treatment filter support media, (iii) filters to remove particulate
matter, oil and water residues from compressed air lines, (iv) silencers and
mufflers to reduce sound levels produced by compressed air exhaust, and (v)
products for facilitating the movement of powdered materials.  Porex also
manufactures a large variety of highly specialized plastic components to meet
specific applications for manufacturers.

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CONSUMER PRODUCTS


     Porex manufactures a line of porous plastic components used in a variety of
home and office products and appliances.  Porex's consumer products include a
variety of writing pen tips or "nibs" which Porex supplies to manufacturers of
marking and highlighting pens.  The porous nib conducts the ink stored in the
pen barrel to the writing surface by capillary action.  Porex produces a variety
of porous plastic filters used in home water filters and conditioners.  The
filters are used for particle and sediment removal through devices attached to a
sink or faucet.  The Company also manufactures filters incorporating activated
carbon used to reduce chlorine levels in drinking water thereby improving its
taste and odor.  Porex's porous plastic components are used in health and beauty
aid products (such as deodorant and fragrance applicators).


MARKETING AND DISTRIBUTION


     As of June 30, 1997, Porex had over 300 customers for its porous and solid
plastic products.  Porex distributes its proprietary blood serum filters,
pipette tips and related products through independent distributors.  Porex's
surgical products are sold primarily through independent dealers and agents.  In
the United States, sales of OEM health care products, industrial products and
consumer products are made directly by Porex's marketing staff.
Internationally, such products are sold by Porex's marketing staff in certain
countries and through independent distributors and agents in other countries who
work in conjunction with Porex's marketing staff.  Export sales, which are made
principally to Europe and Asia, consist primarily of Porex's OEM medical
product, industrial product and consumer product lines.  For the fiscal year
ended June 30, 1997, Porex's foreign and export product sales were approximately
$14,067,000, or 27% of sales, as compared to approximately $12,270,000, or 27%
of sales, for the fiscal year ended June 30, 1996 and approximately $10,403,000
or 27% of sales, for the fiscal year ended June 30, 1995.  See Note 6 to the
Consolidated Financial Statements.  No customer accounted for more than 10% of
Porex's total net sales for the fiscal years ended June 30, 1996 and 1997.


     Porex has a marketing staff of 16 professional employees, nine of whom work
with manufacturers on matters which include development of component products to
help solve such manufacturers' problems.


SEASONALITY AND BACKLOG


     Sales of certain of Porex's product lines are somewhat seasonal but the
overall businesses are not seasonal to any significant extent.  At June 30,
1997, Porex's backlog was approximately $9,715,000, as compared to approximately
$8,162,000 at June 30, 1996.  The backlog consists primarily of blanket orders
with release dates of up to 12 months, the full amounts of which are expected to
be filled over a 12-month period.


PRODUCT AND PROCESS DEVELOPMENT


     Porex maintains a continuing development program devoted primarily to
porous materials and their applications and proprietary products for the life
sciences and clinical laboratories.  Development activities include designing
new and improved products, either proprietary or for customers' specific
requirements, and new manufacturing processes.


     Porex's development expenditures were approximately $1,791,000, $2,014,000
and $1,490,000 for the fiscal years ended June 30, 1997, 1996 and 1995,
respectively.  Recently, new product development activities have focused on
porous components for use in health care and other applications and proprietary
products for the life sciences market.


RAW MATERIALS


     The principal raw materials used by Porex in its plastic products business
are a variety of plastic resins which are generally available from a number of
suppliers in the United States in adequate quantities to meet Porex's

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needs.  Porex has been able to obtain adequate supplies of raw materials and
believes that sufficient supplies will be available in the foreseeable future.
Porex has no long-term supply contracts for the purchase of raw materials.
Because the primary resource used in plastic resins is petroleum, the cost and
availability of plastic resins for use in Porex's products varies to a great
extent with the price of petroleum.  Porex's inability to acquire sufficient
plastic resins at a reasonable price would affect Porex's ability to maintain
its margins in the short term.


     Porex requires high-grade plastic resins with specific properties as raw
materials for certain of its porous plastic products.  Accordingly, shipments of
raw materials from suppliers are closely monitored for compliance with Porex's
standards.  Porex has routinely rejected pre-shipment samples of product from
raw material suppliers.  Although there are various suppliers of high-grade
plastic resins with specific properties and Porex has not experienced any
material difficulty in obtaining adequate supplies of high-grade materials, the
inability to obtain such high-grade plastic resins, or any raw materials, could
have a material adverse effect on Porex.  To ensure the availability of high-
grade plastic resins with specific properties, Porex occasionally purchases more
than it would otherwise currently require.  Porex maintains an inventory of raw
materials sufficient to satisfy its production needs for an extended period of
time.


     For its solid plastic products, Porex utilizes commercial grade
thermoplastic resins, including polyethylene, polypropylene and polystyrene.
Such materials are readily available from a number of sources and Porex is not
dependent on any single source of supply.  Because of the ready availability of
such materials, Porex does not maintain a significant inventory of such raw
materials.


PATENTS AND TRADEMARKS


     Porex owns a number of patents and trademarks in the United States and
foreign countries.  The majority of Porex's patents and patent applications
relate to porous plastics and medical devices.  Porex is the exclusive licensee
of a patented valve device used in one model of its blood serum filters, and of
a patent on a surgical drain device.  Porex does not consider either license to
be material to its business operations.  Porex owns one patent on blood serum
filters.  Although Porex deems its patents to be important to its business and
intends to continue to seek patent protection when deemed appropriate, no
significant portion of the business of Porex is believed by management to be
materially dependent on any particular patent.  Porex believes that its non-
patented manufacturing processes are protected under contractual and other legal
principles which, however, do not afford the statutory exclusivity possible for
patented processes.


REGULATION


     The developing, testing, marketing and manufacturing of medical devices
such as plastic and reconstructive surgical implants and tissue expanders are
regulated under the Medical Device Amendments of 1976 to the Federal Food, Drug
and Cosmetic Act (the "1976 Amendments") and additional regulations promulgated
by the Food and Drug Administration (the "FDA").  In general, these statutes and
regulations require that manufacturers adhere to certain standards designed to
ensure the safety and effectiveness of medical devices.  Compliance with such
requirements and the process of obtaining approvals can be costly, complicated
and time-consuming and there can be no assurance that such approvals will be
granted on a timely basis.  When Porex merely distributes devices manufactured
by others, the actual manufacturer must bear the cost of achieving compliance
with these requirements.


     Under the 1976 Amendments, each medical device manufacturer must be a
registered device manufacturer and must comply with regulations applicable
generally to manufacturing practices and clinical investigations involving
humans.  The FDA is authorized to obtain and inspect devices, their labeling and
advertising, and to inspect the facilities in which they are manufactured in
order to ensure that a device is not improperly manufactured or labeled.  Porex
is registered with the FDA.

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     In addition, the sale and marketing of specific medical devices are
regulated by the FDA under the 1976 Amendments, which classify medical devices
based upon the degree of regulation deemed appropriate and necessary.  A device
is classified as a Class I, II or III device based on recommendations of
advisory panels appointed by the FDA.  Class I devices are subject only to
general controls.  Class II devices, in addition to general controls, are
subject to performance standards.  Class III devices, including most devices
used or implanted in the body, require FDA pre-market approval before they may
be distributed other than in clinical trials.


     Porex's MEDPOR(R) Surgical Implants are regulated as Class II medical
devices.  Products which Porex may introduce in the future, if any, may also be
classified as Class I, Class II or Class III medical devices.  The procedure for
obtaining classification of a new device as a Class I or Class II device
involves the submission of a petition to the FDA.  If the FDA determines that
the device is substantially equivalent to a pre-enactment device or a device
subsequently classified in Class I or Class II, then within 210 days of the
filing of the petition it will grant approval to market the device commercially.
If the FDA determines the device is not substantially equivalent to a pre-
enactment device or a device subsequently classified in Class I or Class II, it
is automatically placed into Class III and will either require reclassification
or the submission of valid scientific evidence to prove the device is safe and
effective for human use.  Devices to be implanted will be categorized as Class
III unless such classification is not necessary to ensure their safety and
effectiveness.  For new Class III devices, Porex may submit to the FDA an
application for an Investigational Device Exemption ("IDE").  An approved IDE
exempts Porex from certain otherwise applicable FDA regulations and grants
approval for a clinical investigation, or human study, to generate data to prove
safety and effectiveness.  In addition, the possibility exists that certain pre-
enactment, or substantially equivalent, devices may be placed into Class III by
the FDA.


     When a manufacturer believes that sufficient clinical data have been
generated to prove the safety and effectiveness of the device, it may submit a
pre-market approval application ("PMA") to the FDA.  The FDA reviews the PMA and
determines whether it is in submittable form and all key elements have been
included.  Following acceptance of the PMA, the FDA continues its review process
which includes submission of the PMA to a panel of experts appointed by the FDA
to review the PMA and to recommend appropriate action.  The panel then
recommends that the PMA be approved, not approved or approved subject to
conditions.  The FDA may act according to the panel's recommendations, or it may
overrule the panel.  In approving a PMA, the FDA may require some form of post-
market surveillance or other restrictions.


     Vials that are used to contain and transport pharmaceuticals are not
directly regulated by the Food and Drug Administration.  The US Pharmacopeia
specifies tests and properties that are necessary to maintain the potency and
pharmacological properties of the medicine the vial is to be used for.  The U.S.
Consumer Product Safety Commission specifies in 16 CFR Part 1700 the tests that
a vial must pass to be considered child resistant and senior adult user
friendly.  Porex's vials have been designed to meet such standards.


     Certain environmental regulations also apply to Porex's business, and the
Company believes that Porex is in substantial compliance with all of such
regulations.  However, Porex is subject to random and scheduled checks by
environmental authorities.  The Company does not anticipate that any material
capital expenditures will be required to comply with environmental regulations.


COMPETITION


     Competition in Porex's plastic products business is characterized by
technological change, product obsolescence and the introduction of competitive
products at lower prices.  The Company believes Porex's principal competitive
strengths are its manufacturing processes, quality control, relationship with
its customers and distribution of its proprietary healthcare products.


     In the porous plastics area, Porex's competitors include other producers of
porous plastic materials as well as companies that manufacture and sell products
made from materials other than porous plastics which can be used for the same
purposes as Porex's products.  In this field, Porex has several direct
competitors in the United States

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and two significant direct competitors in Europe.  Porex competes with several
manufacturers of blood serum filters whose products perform the same function as
Porex's original blood serum filter and its other blood serum filters and which
utilize technologies both similar to and different from Porex's products.
Porex's porous plastic pen nibs compete with felt and fiber tips manufactured by
a variety of suppliers in the United States and other countries.  Other of
Porex's industrial products made of porous plastic compete, depending on the
industrial application, with porous metals, metal screens, fiberglass tubes,
pleated paper, resin-impregnated felt, ceramics and other substances and
devices.


     The market for Porex's injection molded solid plastic components and
products is highly competitive and highly fragmented.  The MEDPOR(R) Biomaterial
products compete for surgical use against autogeneous and allograph materials
and alloplastic biomaterials.  Autogenous grafts are bone, tissue or cartilage
taken from the patient and allographs are donor bone, tissue or cartilage.
Competitive alloplastic materials include: solid silicone implant shapes, porous
hydroxyapitite shapes and granules, and PTFE sheet material.  The Company's
surgical drains and markers compete against a variety of products from several
manufacturers.


POTENTIAL LIABILITY RISK AND AVAILABILITY OF INSURANCE


     The products sold by Porex expose it to potential risk for product
liability claims, particularly with respect to Porex's Life Sciences, Clinical
and Surgical products.  The Company believes that Porex carries adequate
insurance coverage against product liability claims and other risks.  There can
be no assurance, however, that claims in excess of Porex's insurance coverage
will not arise.  In addition, Porex's insurance policies must be renewed
annually.  In 1994, Porex was notified that its insurance carrier would not
renew its then-existing insurance coverage after December 31, 1994 with respect
to actions and claims arising out of Porex's distribution of silicone mammary
implants.  However, Porex has exercised its right to purchase extended reporting
period coverage with respect to such actions and claims.  Such coverage provides
insurance, subject to existing policy limits but for an unlimited time period,
with respect to actions and claims made after December 31, 1994 that are based
on events that occurred during the policy period.  Although Porex has been able
to obtain adequate insurance coverage at an acceptable cost in the past and
seeks indemnification for products manufactured by others and distributed by it,
there can be no assurance that in the future it will be able to obtain such
insurance at an acceptable cost or be adequately protected by such
indemnification.  See "--Health Care Products" and "Item 3. Legal Proceedings--
Mammary Implant Litigation".


                       HEALTHCARE COMMUNICATIONS BUSINESS


BUSINESS STRATEGY


     The Company's objective is to use Internet technology to create an
influential interactive health services channel linking physicians with the
payors, suppliers and consumers of healthcare in order to control healthcare
costs and improve patient outcomes.  The Company expects to provide a content-
neutral, application rich utility thereby creating a channel which serves as a
conduit for the private content that any healthcare organization wishes to
communicate to physicians and other healthcare providers.  There can be no
assurances given as to a specific time frame for the Company's first commercial
introduction of its products and services.  The Company anticipates that it will
incur significant expenses in connection with the development of these products
and services.  The provision of products and services using Internet technology
in the healthcare communications industry is a developing business.


     Key elements of the Company's strategy are to:


     .    Develop and deploy a low-cost service that provides physicians access
          to a suite of communication, information and transaction functions.
          This secure, online network will offer physicians one solution to
          their needs for (i) messaging services such as electronic mail,
          discussion

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          groups and forums; (ii) information or content relevant to their
          practices such as reference materials, medical databases and payor-
          specific policies and procedures; and (iii) transaction applications
          covering high volume, routine administrative, financial and clinical
          transactions.  This service is intended to enable physicians to seek
          information and conduct transactions in a uniform manner for all
          patients, the results of which should be to help physicians practice
          medicine more efficiently in today's managed care environment.


     .    Differentiate this suite of client server applications by its ability
          to allow physicians and their staffs to conduct not only
          administrative and financial but also clinical transactions.  These
          transactions would include but not be limited to prescription writing,
          drug utilization and formulary review, eligibility verification,
          referrals, treatment authorizations, claims and encounter submissions,
          as well as laboratory test submission and reporting, and pharmacy
          routing.  The ability to integrate payor-specific content such as
          benefit rules and care guidelines with patient-specific information at
          the time of treatment will significantly enhance the delivery of high
          quality, cost-effective care.


     .    Contract with managed care organizations, integrated health delivery
          systems, pharmacy benefit managers and clinical laboratories so that
          they might provide physicians with access to their proprietary benefit
          plan information and treatment guidelines as well as their
          administrative and managed care processes.  The Company's management
          believes that this new channel of communications will allow each of
          the parties to (i) leverage their existing healthcare information
          systems infrastructure, (ii) integrate their proprietary rules and
          guidelines with transactions, and (iii) realize administrative and
          medical resource savings while improving provider relationships and
          streamlining managed care processes.  The Company anticipates it will
          be compensated by such parties as a result of the value created.


     The Company is not aware of any business which currently provides the scope
and breadth of the services described above.  However, various companies
including, but not limited to, certain physician office management information
systems companies, EDI/data networking companies, online medical information
service companies, and systems integration companies, some of which may have
greater resources than the Company, have announced that they are developing a
combination of one or more of these products and services.  There can be no
assurance that such companies will not develop and successfully market the
healthcare communications products and services described herein in a manner
which would have a material adverse effect on the Company.


ACQUISITIONS


     The Company has completed two acquisitions which form the foundation of its
healthcare communications business.  On December 24, 1996, the Company acquired
all of the outstanding equity and indebtedness (including stock options) of
Avicenna, a privately held development stage company located in Cambridge,
Massachusetts, for shares of Synetic Common Stock with a market value of $30.5
million at the time of the acquisition.  As additional consideration, the
Company issued to certain of the sellers nontransferable warrants covering
250,000 shares of Synetic Common Stock, exercisable after December 23, 1998 at a
price of $54.50 per share.  On January 23, 1997, the Company acquired privately
held CareAgents, Inc. ("CareAgents") for shares of Synetic Common Stock with a
market value of $5 million at the time of the acquisition.  As of June 30, 1997,
Avicenna and CareAgents have, collectively, 68 employees.


     During the fiscal year ended June 30, 1997, the Company recorded a non-
recurring charge of $37.4 million primarily relating to purchased research and
development costs in conjunction with its acquisitions of Avicenna and
CareAgents.  Under generally accepted accounting principles, the amount of
purchase price allocable to purchased research and development costs is required
to be expensed immediately after the acquisition.


     As a result of the acquisitions of Avicenna and CareAgents, the Company
expects to incur significant ongoing research and development expenditures in
connection with this new area of business.  For the six months

                                       9
<PAGE>
 
ended June 30, 1997, such expenditures were approximately $5.0 million.  There
can be no assurances that the products or services developed by the Company will
be successfully marketed.


     The Company is pursuing the development of its healthcare communications
business through the use of its internal resources as well as pursuing the
acquisition of complementary businesses.  The Company anticipates that it may
enter into acquisitions, joint ventures, strategic alliances or other business
combinations.  These transactions may materially change the nature and scope of
this business.  There can be no assurance that the Company will succeed in
consummating such transactions or that such transactions will ultimately provide
the Company with the ability to offer the products and services described.


HEALTHCARE COMMUNICATIONS BUSINESS--CERTAIN CONSIDERATIONS


     NEW BUSINESS AREA--HEALTHCARE COMMUNICATIONS


     INITIAL DEVELOPMENT PHASE.  The Company is in the initial development phase
of offering products and services to provide inter-enterprise connectivity to
payors and providers in the healthcare industry.  The provision of products and
services using Internet technology in the healthcare communications industry is
a developing  business.  There can be no assurances given as to a specific time
frame for the Company's first commercial introduction of its products and
services.  The Company anticipates that it will incur significant expenses in
connection with the development of these products and services.  There can be no
assurance that these products and services will be successfully  developed by
the Company.  Avicenna, the Company's first acquisition in this area, has
operated at a loss since its inception two years ago.  CareAgents, the Company's
second acquisition in this area, founded in 1996, is a start-up company with a
very limited operating history.  The Company is pursuing the development of its
healthcare communications business through the use of its internal resources as
well as pursuing the acquisition of complementary businesses.  The Company
anticipates that it may enter into acquisitions, joint ventures, strategic
alliances or other business combinations.  These transactions may materially
change the nature and scope of this business.  There can be no assurance that
the Company will succeed in consummating such transactions or that such
transactions will  ultimately provide the Company with the ability to offer the
products and services described.


     UNCERTAINTY OF MARKET ACCEPTANCE.  As is typical in a developing business,
demand and market acceptance  for new and unproven products and services are
subject to a high level of uncertainty.  Achieving market acceptance for the
Company's products and services will require substantial marketing efforts and
expenditure of significant funds to create awareness and demand by participants
in the healthcare industry.  No assurances can be given that the Company's
effort in establishing such products and services will be successful, that the
Company will be able to succeed in positioning its services as a preferred
method for healthcare communications, that there will be significant market
acceptance for its products and services or that any pricing strategy developed
by the Company will be economically viable or acceptable to the market.


     RESEARCH AND DEVELOPMENT EXPENSES; PROFITABILITY.  Synetic expects to
continue to incur significant research and development expenses in connection
with its healthcare communications business until the products and services
developed by the Company are successfully marketed.  There can be no assurance
(i) that the products or services will be successfully marketed or (ii) as to
when, and to what extent, if any, the healthcare communications business of the
Company will become profitable.


     GOVERNMENT REGULATION OF HEALTHCARE


     Participants in the heatlthcare industry are subject to extensive and
frequently changing regulation under numerous laws administered by governmental
entities at the federal, state and local levels.  Many current laws and
regulations, when enacted, did not anticipate the methods of healthcare
communication under development by the Company.  The Company believes, however,
that those laws and regulations will nonetheless be applied to the

                                       10
<PAGE>
 
Company's healthcare communications business.  Accordingly, the Company's
healthcare communications business may be affected by current regulations as
well as future regulations specifically targeted to this new segment of the
healthcare industry.


     Current laws and regulations which may affect the healthcare communications
business include (i) the regulation of confidential patient medical record
information, (ii) laws relating to the electronic transmission of prescriptions
from physicians' offices to pharmacies, (iii) regulations governing the use of
software applications in the diagnosis, cure, treatment, mitigation or
prevention of disease and (iv) laws or regulations relating to the
relationships between or among healthcare providers.  In addition, physicians,
insurance companies, pharmacies and other participants in the healthcare
industry are subject to their own laws and regulations which may affect the
Company's healthcare communications business.  The Company expects to conduct
its healthcare communications business in substantial compliance with all
material federal, state and local laws and regulations governing its operations.
However, the impact of regulatory developments in the healthcare industry is
complex and difficult to predict, and there can be no assurance that the Company
will not be materially adversely affected by existing or new regulatory
requirements or interpretations.


     RELIANCE ON RAPIDLY CHANGING TECHNOLOGY


     All businesses which rely on Internet technology, including the healthcare
communications business described herein, are subject to rapid technological
change, changing customer needs, frequent new product introductions and evolving
industry standards.  In addition, as the communications, computer and software
industries continue to experience rapid technological change, the Company must
be able to quickly and successfully adapt its products and services so that they
adapt to such changes.  There can be no assurance that the Company will not
experience difficulties that could delay or prevent the successful development
and introduction of its healthcare communications products and services.  The
Company's inability to respond to technological changes in a timely and cost-
effective manner could have a material adverse effect on the Company's business,
financial condition and results of operations.  Moreover, there can be no
assurance that technologically superior products and services will not be
developed by competitors, or that any such products and services will not have
an adverse effect upon the Company's operating results.


     COMPETITION IN HEALTHCARE COMMUNICATIONS


     The Company is not aware of any business which currently provides the scope
and breadth of the healthcare communications products and services currently
being developed by the Company.  However, various companies  including, but not
limited to, certain physician office management information systems companies,
EDI/data  networking companies, online medical information service companies and
system integration companies, some of which may have greater resources than the
Company, have announced that they are developing a combination of one or more of
these products and services.  There can be no assurance that such companies will
not develop and successfully market the healthcare communications products and
services described herein in a manner which would have a material adverse effect
on the Company.


     RISKS OF PRODUCT DEVELOPMENT; PROPRIETARY RIGHTS


     The Company's future success and ability to compete in the healthcare
communications business may be  dependent in part upon its proprietary rights to
products and services which it develops.  The Company may rely on a combination
of copyrights, trademarks and trade secrets and contractual restrictions to
protect its content and technology and on similar proprietary rights of its
content and technology providers.  There can be no assurance that the steps
taken by the Company or such providers would be adequate to prevent
misappropriation of their respective proprietary rights or that the Company's
competitors will not independently develop content or technology that are
substantially equivalent or superior.  In addition, there can be no assurance
that licenses for any intellectual  property of third parties that might be
required for the Company's products or services would be available on
commercially reasonable terms or at all.  Although the Company intends to take
steps to ensure that it is not

                                       11
<PAGE>
 
infringing the proprietary rights of any third parties, there can be no
assurance that patent infringement or other claims will not be asserted against
the Company or one of its content or technology providers or that such claims
will not be successful.  The Company could incur substantial costs and diversion
of management resources with respect to the defense of any such claims.
Furthermore, parties making such claims against the Company or a content or
technology provider could secure a judgment awarding substantial damages, as
well as injunctive or other equitable relief which could effectively block the
Company's ability to provide products or services in certain of its markets.
Such a judgment could have a material adverse effect on the Company's business,
financial condition and results of operations.


                              ACQUISITION PROGRAM


     The Company maintains an acquisition program and intends to concentrate its
acquisition efforts on businesses which are complementary to the Company's
healthcare communications strategy, but such emphasis is not intended to limit
in any manner the Company's ability to pursue acquisition opportunities in other
healthcare-related businesses or in other industries.  The Company anticipates
that it may enter into acquisitions, joint ventures, strategic alliances or
other business combinations.  These transactions may materially change the
nature and scope of the business.  Any transactions will be limited, as required
by agreements to which the Company is a party, to areas of business which would
not be competitive with certain businesses of Merck & Co., Inc. and its
subsidiaries or with the Institutional Pharmacies Business.  Although management
of the Company will endeavor to evaluate the risks inherent in any particular
transaction, there can be no assurance that the Company will properly ascertain
all such risks.  In addition, no assurances can be given that the Company will
succeed in consummating any such transactions, that such transactions will
ultimately provide the Company with the ability to offer the products and
services described or that the Company will be able to successfully manage or
integrate any resulting business.


     The success of the Company's acquisition program will depend on, among
other things, the availability of suitable candidates, the availability of funds
to finance transactions, and the availability of management resources to oversee
the operation of resulting businesses.  Financing for such transactions may come
from several sources, including, without limitation, (a) cash and cash
equivalents on hand and marketable securities and (b) proceeds from the
incurrence of indebtedness or the issuance of additional Common Stock, preferred
stock, convertible debt or other securities.  The issuance of additional
securities, including Common Stock, could (i) result in substantial dilution of
the percentage ownership of the stockholders of the Company at the time of any
such issuance, (ii) result in substantial dilution of the Company's earnings per
share and (iii) adversely affect the prevailing market price for the Common
Stock.  The proceeds from any financing may be used for costs associated with
identifying and evaluating prospective candidates, and for structuring,
negotiating, financing and consummating any such transactions and for other
general corporate purposes.  The Company does not intend to seek stockholder
approval for any such transaction or security issuance unless required by
applicable law or regulation.  Although Mr. Martin J. Wygod, Chairman of the
Board of the Company, has indicated his intention to assist the Company in its
acquisition program by bringing opportunities for potential transactions to the
Company and to assist the Company in negotiating such transactions and in
seeking financing in the event any such transaction were to be financed by the
Company, he is not an officer or an employee of the Company nor is he required
pursuant to any contractual obligation to provide such support or assistance.


                                   EMPLOYEES


     As of June 30, 1997, the Company had 711 employees.



ITEM 2.   PROPERTIES.


     The Company leases approximately 10,000 square feet of corporate office
space in Elmwood Park, New Jersey.  Porex owns a total of 71 acres of land at
three locations in Georgia with four buildings with an approximate

                                       12
<PAGE>
 
area of 242,000 square feet, used for manufacturing, research, office space and
warehouse purposes.  Porex also owns a manufacturing and warehouse facility in
Bautzen, Germany with approximately 54,000 square feet in three buildings and
leases a 55,000 square feet manufacturing and warehouse facility in College
Point, New York and a 4,600 square feet manufacturing and warehouse facility in
Kings Lynn, England.  Avicenna leases 46,000 square feet of space in Cambridge,
Massachusetts used for the operation of the Company's healthcare communications
business.

     The Company believes its facilities and equipment are well maintained, in
good operating condition and, in general, suitable for the Company's purposes
and adequate for its present operation.



ITEM 3.   LEGAL PROCEEDINGS.


     The description below of the mammary implant litigation and certain other
litigation contain forward-looking statements with respect to possible events,
outcomes or results that are, and are expected to continue to be, subject to
risks, uncertainties and contingencies, including but not limited to the
respective risks, uncertainties and contingencies identified in such
descriptions.  See "Introduction--Forward-Looking Information".


     MAMMARY IMPLANT LITIGATION.  During the year ended June 30, 1988, Synetic's
subsidiary, Porex began distributing silicone mammary implants ("implants") in
the United States pursuant to a distribution arrangement (the "Distribution
Agreement") with a Japanese manufacturer (the "Manufacturer").  Because of costs
associated with increased government regulation and examination, Porex's
supplier determined to withdraw its implants from the United States market.  On
July 9, 1991, the FDA mandated a recall of all implants manufactured by
companies that elected not to comply with certain FDA regulations regarding data
collection.  Accordingly, Porex notified all of its customers not to use any
implants sold by Porex and to return such implants to Porex for a full refund.
Porex had ceased offering implants for sale prior to the recall date.  Porex
believes that after accounting for implants returned to it, the aggregate number
of recipients of implants distributed by Porex under the Distribution Agreement
in the United States totals approximately 2,500.


     Since March 1991, Porex has been named as one of many co-defendants in a
number of actions brought by recipients of implants.  One of the pending
actions, Donna L. Turner v. Porex Technologies Corporation, et al., is styled as
a purported class action.  Certain of the actions against Porex have been
dismissed where it was determined that the implant in question was not
distributed by Porex.  In addition, as of September 10, 1997, 61 claims have
been settled on a favorable basis by the Manufacturer, or by the insurance
carriers of Porex, without material cost to Porex.  As of September 10, 1997,
225 actions and 31 out-of-court claims were pending against Porex.  Of the 225
actions, 108 involve implants identified as distributed by Porex and 84 cases
involve implants identified as not having been distributed by Porex.  In the
remaining 33 actions, the implants have not been identified.  The number of
claims made by individuals during the fiscal year ended June 30, 1997 was
similar to the number of claims made during the fiscal year ended June 30, 1996,
both of which were significantly lower than the number of claims made during the
fiscal year ended June 30, 1995.


     The typical case or claim alleges that the individual's mammary implants
caused one or more of a wide range of ailments.  These implant cases and claims
generally raise difficult and complex factual and legal issues and are subject
to many uncertainties and complexities, including, but not limited to, the facts
and circumstances of each particular case or claim, the jurisdiction in which
each suit is brought, and differences in applicable law.  The Company does not
have sufficient information to evaluate each case and claim.


     In 1994, Porex was notified that its insurance carrier would not renew its
then-existing insurance coverage after December 31, 1994 with respect to actions
and claims arising out of Porex's distribution of implants.  However, Porex has
exercised its right, under such policy, to purchase extended reporting period
coverage with respect to such actions and claims.  Such coverage provides
insurance, subject to existing policy limits but for an unlimited time period,
with respect to actions and claims made after December 31, 1994 that are based
on events

                                       13
<PAGE>
 
that occurred during the policy period.  In addition, Porex has other excess
insurance where it has similarly purchased extended reporting period coverage
which by its terms would expire December 31, 1997.  However, Porex expects to
purchase further extended reporting period coverage from the excess insurers to
the extent such coverage is reasonably available.  The Company believes that its
present coverage, together with Porex's insurance policies in effect on or
before December 31, 1994, should provide adequate coverage against liabilities
that could result from actions or claims arising out of Porex's distribution of
implants.  To the extent that certain of such actions and claims seek punitive
and compensatory damages arising out of alleged intentional torts, if awarded
such damages may or may not be covered, in whole or in part, by Porex's
insurance policies.  In addition, Porex's recovery from its insurance carriers
is subject to policy limits and certain other conditions.  Porex has been
expensing the retention amount under its policies as incurred.


     The Company believes that Porex has a valid claim for indemnification under
the Distribution Agreement with respect to any liabilities that could result
from pending actions or claims by recipients of implants or any similar actions
or claims that may be commenced in the future.  However, Porex's right to
indemnification is subject to a disagreement with the Manufacturer.  Pending the
resolution of such disagreement, the Manufacturer has been paying a portion of
the costs of the settled claims.


     Based on the foregoing, the Company believes that the possibility is remote
that pending actions and claims by recipients of mammary implant devices or any
similar actions and claims that may be commenced or made in the future could
pose a material risk to the financial position of the Company or its results of
operations.


     STOCKHOLDER LITIGATION.  On August 18, 1994, an action entitled Fuss v.
Wygod, et al. was filed against Synetic, its directors and Merck in the Court of
Chancery of the State of Delaware in and for New Castle County (the "Delaware
Court").  The action purportedly arose out of the events leading to the
Divestiture and the Purchase and was purportedly brought both derivatively on
behalf of Synetic and as a class action on behalf of Synetic's stockholders
other than the defendants.  On March 22, 1996, the parties executed a
Stipulation and Agreement of Compromise, Settlement and Release (the
"Settlement") and submitted the Settlement for approval by the Delaware Court.
After directing notice to the proposed class (the "Class"), on June 4, 1996, the
Delaware Court held a hearing and issued a Final Order and Judgment which, inter
alia, approved the Settlement as fair, reasonable, adequate and in the best
interests of the Class, dismissed the action with prejudice and released
defendants from any liability in connection with the Purchase and Divestiture.
Pursuant to a supplemental hearing to confirm the Settlement, held on October
22, 1996, the Delaware Court reaffirmed its Final Order and Judgment of June 4,
1996.  The Delaware Court's Final Order and Judgment also awarded attorneys'
fees and expenses to plaintiff in the amount of $275,000, which was paid by
Synetic on November 21, 1996.  Pursuant to the Purchase and Sale Agreement,
Merck reimbursed Synetic for 58.65% of such amount.

 

     ENFORCEMENT DIVISION INVESTIGATION.  On July 6, 1994, the Division of
Enforcement of the Securities and Exchange Commission (the "Enforcement
Division") began an investigation regarding the trading in securities of
Synetic.  The Company has cooperated fully with the Enforcement Division's
requests for information and, although it cannot predict the ultimate result of
the inquiry, the Company believes that such investigation is not directed at the
Company and, accordingly, will not have a material adverse effect on its
financial position or results of operations.


     The Company is not a party of any other legal proceedings which, in its
belief, could have a material adverse effect on the Company.

                                       14
<PAGE>
 
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.


     None.

                                       15
<PAGE>
 
                               EXECUTIVE OFFICERS


     Pursuant to General Instruction G(3) to the Annual Report on Form 10-K, the
information regarding executive officers of the Company required by Item 401 of
Regulation S-K is hereby included in Part I of this report.  The executive
officers of the Company are as follows:

<TABLE>
<CAPTION>
 
        Name                Age                   Position
        ----                ---                   --------
<S>                         <C>  <C>
 
James V. Manning             50  President and Chief Executive Officer
 
Inder-Jeet Gujral            39  Executive Vice President--President of Avicenna
 
David M. Margulies, M.D.     46  Executive Vice President--Chief Scientist
 
Ray E. Hannah                61  Vice President--Porex Technologies Group
 
Anthony Vuolo                39  Vice President and Chief Financial Officer
 
Charles A. Mele              41  Vice President--General Counsel
 
</TABLE>

     Mr. Manning has been Chief Executive Officer of the Company since January
1995 and President of the Company since July 1996 and has been an executive
officer of the Company for more than the last six years and was, until December
1994, an executive officer of Medco for more than five years.  He is also
Chairman of the Board of COMNET Corporation ("Comnet"), a computer software
company.


     Mr. Gujral has been Executive Vice President--President of Avicenna of the
Company since January 1997.  Mr. Gujral was a founder of Avicenna.  He was a
founder and principal of Lancet Technologies, Inc., a worldwide provider of data
management systems for hospital and healthcare-related agencies since 1988.


     Dr. Margulies has been Executive Vice President--Chief Scientist of the
Company since January 1997.  He was founder and president of CareAgents.  From
1990 to mid 1996, Dr. Margulies was Executive Vice President and Chief Scientist
of the Cerner Corporation, a leading supplier of enterprise-level clinical
applications.  Prior to such time, he was Vice President and Chief Information
Officer at Boston Children's Hospital and on the medical faculties of the
Harvard Medical School and Columbia College of Physicians and Surgeons.


     Mr. Hannah has been President of Porex since September 1987 and its Chief
Executive Officer since November 1992 and an executive officer of the Company
since June 1989.  Mr. Hannah was the Chief Operating Officer of Porex from
November 1984 to November 1992.


     Mr. Vuolo has been Vice President and Chief Financial Officer of the
Company since May 1997 and has been an officer of the Company for more than the
last six years and was, until December 1994, an officer of Medco for more than
five years.


     Mr. Mele has been Vice President--General Counsel of the Company since July
1995 and was an executive officer of the Company from May 1989 until December
1994 and was an executive officer of Medco for more than five years, until March
1995.  Mr. Mele is also a director of Comnet and Group 1 Software, Inc.,
computer software companies.

                                       16
<PAGE>
 
                                    PART II



ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.


     The Company's Common Stock is traded in the over-the-counter market and
included in the NASDAQ National Market System under the symbol "SNTC."  The
following table sets forth, for the periods indicated, the high and low sale
prices for the Company's Common Stock as reported by NASDAQ.

<TABLE>
<CAPTION>
 
                     High      Low
                    -------  -------
<S>                 <C>      <C>
 
Fiscal Year 1996
------------------
First Quarter.....  $26 1/4  $22 1/4
Second Quarter....  $29 5/8  $22 1/2
Third Quarter.....  $39 1/2  $27 1/2
Fourth Quarter....  $38 3/4  $32 1/2
 
Fiscal Year 1997
------------------
First Quarter.....  $37 1/4  $30 3/4
Second Quarter....  $55 7/8  $31 1/2
Third Quarter.....  $52 3/4  $45
Fourth Quarter....  $47 3/4  $34 1/2
 
</TABLE>

     The Company's Common Stock was held by 164 stockholders of record as of
September 15, 1997.  The Company believes that its Common Stock is beneficially
held by at least 400 stockholders.


     The Company did not pay any dividends to the holders of its Common Stock
during the two fiscal years ended June 30, 1997.  The Company intends to
continue to retain earnings to finance its business and its acquisition program
and, accordingly, does not currently anticipate paying cash dividends to holders
of its Common Stock.

                                       17
<PAGE>
 
ITEM 6.   SELECTED FINANCIAL DATA.


     The following table sets forth selected consolidated financial data for
each of the five years in the period ended June 30, 1997.  The selected
financial data for the three years in the period ended June 30, 1995 have been
restated to reflect the Divestiture.

<TABLE>
<CAPTION>
 
                                                YEAR ENDED JUNE 30,
                                 --------------------------------------------------
                                   1993      1994      1995      1996       1997
                                 --------  --------  --------  --------  ----------
                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                              <C>       <C>       <C>       <C>       <C>
 
INCOME STATEMENT DATA
Net sales......................  $ 30,645  $ 33,093  $ 39,179  $ 45,128   $ 52,885
Income (loss) from continuing
  operations before
  provisions for income
  taxes........................     5,430     1,080     1,078    13,202    (24,626)
Provision for income taxes.....     2,046       411       443     4,617      2,834
                                 --------  --------  --------  --------  ---------
Income (loss) from continuing
  operations...................     3,384       669       635     8,585    (27,460)
Income from discontinued
  operations...................     2,734     1,823    15,459        --         --
                                 --------  --------  --------  --------  ---------
 
Net income (loss)..............  $  6,118  $  2,492  $ 16,094  $  8,585  $ (27,460)
                                 ========  ========  ========  ========  =========
Net income (loss) per share:
  Continuing operations........  $   0.19  $   0.04  $   0.04  $   0.48  $   (1.60)
  Discontinued operations......      0.16      0.10      0.89        --         --
                                 --------  --------  --------  --------  ---------
Net income (loss) per share....  $   0.35  $   0.14  $   0.93  $   0.48  $   (1.60)
                                 ========  ========  ========  ========  =========
 
 
                                                   AT JUNE 30,
                                 -------------------------------------------------
                                   1993      1994      1995      1996       1997
                                 --------  --------  --------  --------  ---------
 
BALANCE SHEET DATA
Working capital................  $ 65,673  $ 64,625  $105,279  $166,328   $ 93,309
Net assets of discontinued
  operations...................    52,548    55,882        --        --         --
Total assets...................   189,494   194,009   188,174   199,592    382,103
Long term debt, less                                                          
  current portion..............    81,058    80,716        --        --    165,000
Stockholders' equity...........   102,378   105,130   166,832   181,089    188,736
</TABLE>

                                       18
<PAGE>
 
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS.


     As described in "Item 1. Business--Introduction", the Company completed the
Divestiture of its Institutional Pharmacies Business on December 14, 1994.  The
Company's consolidated financial statements for the fiscal year ended June 30,
1995 report separately the results of operations and net assets of the
Institutional Pharmacies Business as discontinued operations.


     The following table sets forth for the periods indicated the percentage
which certain items in the financial statements of the Company bear to net
sales.

<TABLE>
<CAPTION>

                                                    PERCENTAGES OF NET SALES
                                                   FISCAL YEARS ENDED JUNE 30,
                                                   -------------------------- 
 
                                                      1997    1996    1995
                                                     -----   -----   -----
<S>                                                <C>       <C>     <C> 
Net sales........................................      100%    100%    100%
 
Costs and expenses
 Cost of sales...................................     54.9    55.6    58.7
 Selling, general and administrative.............     39.4    33.1    31.0
 Investment income...............................    (24.3)  (18.0)  (18.7)
 Interest expense................................      5.9      --     9.2
 Purchased research and development and other....     70.7      --    17.0
                                                     -----   -----   -----
                                                     146.6    70.7    97.2
                                                     -----   -----   -----
Income (loss) before provision for income taxes..    (46.6)   29.3     2.8
 
Provision for income taxes.......................      5.3    10.2     1.1
                                                     -----   -----   -----
 
Income (loss) from continuing operations.........    (51.9)%  19.1%    1.7%
                                                     =====   =====   =====
 
</TABLE>

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


Fiscal Years Ended June 30, 1997 and 1996

Consolidated Results of Operations


     Net sales for the year ended June 30, 1997 increased by $7,757,000, or
17.2%, over the comparable prior year period.  The sales increase was due
primarily to increased unit sales in surgical products in the healthcare segment
and increased unit sales of writing components, pipette filters and pipette tips
in the consumer segment.


     Cost of sales for the year ended June 30, 1997 increased by $3,927,000, or
15.6%, over the comparable prior year period due to the increased sales volume
noted above and product development costs.  As a percent of net sales, cost of
sales for the year ended June 30, 1997 decreased to 54.9% from 55.6% in the
comparable prior year period principally due to increased leverage of certain
fixed costs which do not increase proportionally with sales and improvements in
material and labor usage.

                                       19
<PAGE>
 
     Selling, general and administrative expenses for the year ended June 30,
1997 increased by $5,911,000, or 39.6%, over the comparable prior year period
due primarily to the inclusion of expenses of $4,628,000 associated with the
Company's healthcare communications business which primarily related to research
and development activities.  Excluding these costs, as a percent of net sales,
selling, general and administrative expenses for the year ended June 30, 1997
decreased to 30.7% from 33.1% due principally to increased sales which were not
proportionately offset by such expenses, since a portion of these costs is fixed
in nature and does not vary directly with sales.


     Investment income, which is comprised of interest and other income and
dividend income, for the year ended June 30, 1997 increased by $4,782,000, or
58.9%, over the comparable prior year period primarily as a result of the income
earned on the proceeds of the Company's $165,000,000 5% Convertible Subordinated
Debentures due 2007 (the "Convertible Debentures") issued in February 1997.


     Interest expense for the year ended June 30, 1997 increased by $3,116,000
from the prior year period as a result of the interest expense associated with
the Company's Convertible Debentures.


     During the year ended June 30, 1997, the Company recorded non-recurring
charges to income of $37,413,000 related to purchased research and development
costs from the acquisitions of Avicenna and CareAgents and the acquisition of
rights to certain intellectual property and software technologies to be utilized
in the development of the Company's healthcare communications business.


     Excluding the portion of the research and development charge relating to
the acquisitions of Avicenna and CareAgents for which no tax benefits were
recognized, the effective tax rate for the year ended June 30, 1997 increased to
37.5% from 35% in the prior year period primarily as a result of the change in
composition of the Company's marketable securities resulting in the decrease in
investment income subject to the dividend received deduction.


Fiscal Years Ended June 30, 1996 and 1995

Consolidated Results of Operations


     Net sales for the year ended June 30, 1996 increased by $5,949,000, or
15.2%, over the comparable prior year period.  The sales increase was due
primarily to increased unit sales in medical products and plastic vials in the
healthcare segment and, to a lesser extent, to increased unit sales of writing
components, personal care items and home water filters in the consumer segment.


     Cost of sales for the year ended June 30, 1996 increased by $2,102,000, or
9.1%, over the comparable prior year period due to the increased sales volume
noted above and additional depreciation and product development costs.  As a
percent of net sales, cost of sales for the year ended June 30, 1996 decreased
to 55.6% from 58.7% in the comparable prior year period principally due to
certain fixed costs which do not increase proportionally with sales and
improvements in material and labor usage.


     Selling, general and administrative expenses for the year ended June 30,
1996 increased by $2,805,000, or 23.1%, over the comparable prior year period
due primarily to an increase in expenses associated with the increase in sales
volume noted above and an increase in corporate overhead expense.  As a percent
of net sales, selling, general and administrative expenses for the year ended
June 30, 1996 increased to 33.1% from 31.0% in the prior year primarily due to
the increased corporate overhead noted above.


     Interest and other income and dividend income for the year ended June 30,
1996 increased by $800,000, or 10.9%, over the comparable prior year period
primarily as a result of the income earned on a full year of investment of the
net proceeds received from the sale of the Institutional Pharmacies Business.

                                       20
<PAGE>
 
     Interest expense for the year ended June 30, 1996 decreased by $3,619,000
from the prior year period as a result of the conversion and redemption of the
Company's Convertible Subordinated Debentures due December 1, 2001 (the "1991
Debentures") into common stock of the Company in February 1995.


     Other expenses for the year ended June 30, 1996 decreased by $6,663,000
over the comparable prior year period as a result of the one-time charge in
December 1994 related to the issuance of stock options to certain officers as
compensation for services in conjunction with the consummation of the Purchase
and Sale Agreement and costs associated with the conversion and redemption in
February 1995 of the 1991 Debentures.


     The effective tax rate for the year ended June 30, 1996 decreased to 35%
from 41% in the prior year period primarily due to the nondeductibility of
certain conversion and redemption costs in the prior year.


Capital Resources and Liquidity


     Cash, cash equivalents and marketable securities increased by $153,350,000
to $315,828,000 during the year ended June 30, 1997 principally due to the
proceeds from the issuance in February 1997 of the Convertible Debentures.


     As a result of the continuing efforts in developing its healthcare
communications business, the Company expects to incur significant research and
development expenditures in connection with this new area of business until the
products and services are successfully developed and marketed.  During the
second half of the fiscal year ended June 30, 1997, the Company incurred
expenditures of approximately $4,976,000 related to the development of its
healthcare communications business.  The Company expects to increase the rate of
such expenditures during fiscal 1998.  The Company believes that its cash flow
from operations and the income earned on its investments are sufficient to meet
the anticipated working capital requirements of its business, including the
research and development expenditures noted above.


     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 sources, including, without limitation,
(a) the Company's 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.  There can
be no assurance that the Company's acquisition program will be successful.  See
"Item 1. Business--Acquisition Program".



ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


     Financial statements and supplementary financial information are contained
on pages F-l through F-21 and S-1 of this Report.



ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE.


     None.

                                       21
<PAGE>
 
                                    PART III



ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.


     The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A, except that the information
regarding the Company's executive officers required by Item 401 of Regulation 
S-K has been included in Part I of this Report.



ITEM 11.  EXECUTIVE COMPENSATION.


     The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.


     The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.


     The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.

                                       22
<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.

                                       23
<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:  September 24, 1997        By:   /s/  James V. Manning
                                     -----------------------------
                                    James V. Manning, Chief Executive Officer


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on September 24, 1997.


(1)   Principal Executive Officer:    (3)  A Majority of the Board of Directors:


 

By:   /s/  James V. Manning          James V. Manning
    ----------------------------     Mervyn L. Goldstein               
    James V. Manning                 Ray E. Hannah      
    Chief Executive Officer          Roger H. Licht     
                                     Charles A. Mele    
                                     Herman Sarkowsky   
                                     Martin J. Wygod     
                                     

(2)  Principal Financial and
     Accounting Officer:             By:    /s/  James V. Manning
                                         ------------------------
                                         James V. Manning
                                         Individually and as Attorney-in-Fact

By:   /s/  Anthony Vuolo
    ---------------------------
    Anthony Vuolo
    Vice President and
    Chief Financial Officer

                                       24
<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:
     Sales 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. The U.S. Treasury Notes and Federal Agency Notes maturing January
2002 through March 2002 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 shares of
the Company's stock.  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 appraised 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 based on an independent appraisal using established valuation
techniques.  Remaining amounts have been allocated to intangible assets and
goodwill.

     CareAgents--

     On January 23, 1997, the Company acquired CareAgents for shares of the
Company's common stock.  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 based on an independent appraisal 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 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, are comprised of the
   following (in thousands):

<TABLE> 
  <S>                                                                <C>    
  Tax over book depreciation and amortization.........               $    (767)
  Intangible assets amortization......................                      64
  Accrued expenses....................................                  (2,417)
  Deferred compensation - stock options...............                  (1,693)
  Inventory...........................................                    (347)
  Prepaids and other..................................                     (62)
                                                                     --------- 
                                                                     $  (5,222)
                                                                     ========= 
</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.

                                      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                       
--------------------------  ------------  ----------  -----------------  --------------------------                      
                                                                                        EXCLUDING        
                                                                                      NON-RECURRING      
                                                                             ACTUAL       ITEMS          
                                                                             ------       -----          
<S>                         <C>           <C>         <C>                <C>         <C>                 
1996                                                                                                     
----                                                                                                     
September 30, 1995........    $11,036       $ 3,127             $1,924        $.11        $.11
December 31, 1995.........     10,283         3,124              2,073         .12         .12
March 31, 1996............     11,311         3,184              2,101         .12         .12
June 30, 1996.............     12,498         3,767              2,487         .14         .14
 
Year ended June 30, 1996..    $45,128       $13,202             $8,585        $.48        $.48
<CAPTION>                                                                                               
                                                                                                        
                                           INCOME                                                       
                                           (LOSS)                                   NET                          
                                           BEFORE                                  INCOME                        
                                          PROVISION                                (LOSS)                        
      QUARTER ENDED          NET SALES    FOR TAXES   NET INCOME (LOSS)           PER SHARE                      
--------------------------  ------------  ----------  -----------------  --------------------------
                                                                                        EXCLUDING       
                                                                                      NON-RECURRING     
                                                                           ACTUAL(a)    ITEMS(b)      
                                                                           ---------    --------        
<S>                         <C>           <C>         <C>                <C>         <C>                
1997
----
September 30, 1996........    $11,185       $ 3,527             $2,389        $.13        $.13
December 31, 1996.........     11,899       (24,545)           (25,934)      (1.54)        .14
March 31, 1997............     14,243        (1,516)            (2,420)       (.14)        .06
June 30, 1997.............     15,558        (2,092)            (1,495)       (.09)        .10
                                                                                 
Year Ended June 30, 1997..    $52,885      $(24,626)          $(27,460)     $(1.60)       $.43
</TABLE>

(a) The per share amounts shown differ from those previously reported to reflect
    the anti-dilutive impact of common stock equivalents resulting from the net
    loss caused by the non-recurring charges discussed in Note 2.

(b) The per share amounts shown include expenses of $.09 and $.08 per share in
    the quarters ended March 31, 1997 and June 30, 1997, respectively, which
    primarily relate to research and development costs associated with the
    Company's healthcare communications business activities.

                                      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 Emens, Kegler, Brown, Hill & Ritter Co., L.P.A.

24.1**    Powers of Attorney of the Company.

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

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 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.

**   Filed herewith.

                                      E-3