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


                       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, 1998

                         Commission file number 0-17822

                                 SYNETIC, INC.
             (Exact name of registrant as specified in its charter)

                  DELAWARE                               22-2975182
    (State or other jurisdiction of                   (I.R.S. Employer
    incorporation or organization)                   Identification No.)

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

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

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

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

                          COMMON STOCK, $.01 PAR VALUE

                5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2007

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.  YES  [X]  NO  [_]

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

     The aggregate market value of the registrant's voting stock (based on the
last sale price of registrant's voting stock on the NASDAQ National Market
System on September 21, 1998 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
$499,088,763.

     The number of shares of registrant's Common Stock, $.01 par value,
outstanding at September 21, 1998 was 18,669,434.

                      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
1998 Annual Meeting of Stockholder is incorporated by reference into Part III.


================================================================================
<PAGE>
 
                                     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 07407-1361, 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 and
filtration technologies and healthcare communications.  The Company, through its
wholly owned subsidiary Porex Technologies Corp., designs, manufactures and
distributes porous and solid plastic components and products used in life
sciences, healthcare, industrial, and consumer applications.  Porex
Technologies Corp., together with  its subsidiaries, will be referred to in this
report collectively as "Porex", except where the context otherwise requires.
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. See "Business--
Healthcare Communications Business--Certain Considerations".

     The Company maintains an acquisition program and intends to concentrate its
acquisition efforts in businesses which are complementary to the Company's
plastics and filtration technologies business and its 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 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 
"Business--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
elsewhere herein including those set forth in "Business--Plastics and Filtration
Technologies Business--Regulation", "--Competition", "--Potential Liability Risk
and Availability of Insurance", "--Healthcare Communications Business--Certain
Considerations", "--Acquisition Program" 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.

                                       2
<PAGE>
 
                 PLASTICS AND FILTRATION TECHNOLOGIES BUSINESS


GENERAL

     The Company's plastics and filtration technologies business, conducted
through Porex, consists of three primary product groups: Porous Media Group,
Scientific Products Group and Surgical Products Group.  The products of these
groups are used in life sciences, health care, industrial and consumer
applications.


POROUS MEDIA GROUP

     Porex is a leading developer, manufacturer and distributor of porous
plastic products, with a 35-year operating history.   Porous plastics are
permeable plastic structures having omni-directional (i.e., porous in all
directions to the flow of fluids and gases) interconnecting pores.  These pores
allow the plastic to control the flow of liquids and gases by filtering,
wicking, venting,  diffusing or dispensing them.   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 designs porous plastic components to the specifications of
original equipment manufacturers ("OEMs") for incorporation into their products
in order to control the flow of fluids or gases.  Porex also produces finished
products in several market areas including life sciences, pneumatics, and
clinical laboratory markets.  These products are used for health care, consumer
and industrial applications.

          Health Care Products.  For the health care market, Porex manufactures
a variety of components that it sells to various health care OEMs for
incorporation into their finished products. These porous plastics are used to
vent or diffuse gases or fluids and are used as membrane supports. The
components include: (i) catheter vents which allow air to vent from a catheter
as it is inserted into a vein while preventing blood spillage and possible
contamination of hospital personnel; (ii) self-sealing valves in surgical vacuum
canisters to minimize exposure to blood and other bodily fluids; (iii) burn-bed
diffusers, which enable recovering burn victims to "float" above their beds,
thereby increasing their comfort and facilitating their recovery; and (iv)
oxygen diffusers, which are typically used in oxygen therapy equipment to
humidify oxygen. Porex's ability to mold unique configurations and the fact that
porous plastic is inert, stronger and more easily handled in automated
manufacturing operations have allowed Porex to compete successfully with
alternative media. In addition to the components it makes for biomedical
products, Porex makes components for diagnostic devices that are used in
hospitals and are sold over the counter for home use. Porex also makes porous
plastic components that are used as barrier materials for several laboratory
products, including pipette tip filters, and filters for polymerase chain
reaction ("PCR") and chromatography procedures. Porex's own line of scientific
products is discussed below in "Business--Plastics and Filtration Technologies
Business--Scientific Products Group".

          Consumer Products.   Porous plastic components manufactured by Porex
are used in a variety of home and office products and appliances.  These
products include writing instrument tips or "nibs" which Porex supplies to
manufacturers of  highlighting pens and children's coloring markers.   The
porous nib conducts the ink stored in the pen barrel to the writing surface by
capillary action.   In the home, Porex's components can be found in products
such as air fresheners, power tool dust canisters,  and deodorant and fragrance
applicators.  Porex also produces a variety of porous plastic water filters used
to improve the taste and safety of drinking water.

          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
manufactures a porous plastic material used for large filter support media for
wastewater treatment facilities which permits recycling and re-use of
wastewater. Porex also produces other custom porous plastic industrial
components including (i) industrial filters to remove particulate matter, oil
and water residues from compressed air lines, (ii) silencers to reduce sound
levels produced by compressed air exhaust, (iii) miscellaneous water

                                       3
<PAGE>
 
filters for industrial use, including use in vending machines, and  (iv)
material handling products, including fluidizing tables to fluidize powdered
paint and vacuum hold-down tables used in the garment industry to facilitate the
garment cutting process. Porex believes that it is currently the largest
producer of porous plastic vents used in domestic automobile batteries.  Porex
also manufactures a large variety of highly specialized plastic components to
meet specific applications for manufacturers.

     The Porous Media Group contributed 80.2%, 76.6% and 76.1% of the total
revenue of the Company for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively.


SCIENTIFIC PRODUCTS GROUP

          Laboratory Products.  Porex's scientific plastics products include a
full line of filtered and unfiltered disposable pipette tips and pipette tip
racks used by life sciences research and clinical laboratories worldwide.  A
pipette is a device for transferring precise amounts of liquid.  Because of the
time and expensive materials involved in many experiments conducted in life
sciences research and clinical laboratories, most use pipette tips with filters
to prevent contamination of the pipette which could lead to contamination of
subsequent test samples. In order to serve this market, Porex produces pipette
tips with patented filters, which are developed and produced by its Porous Media
Group.

          Recent Development-Acquisition of Point Plastics, Inc.  In July 1998,
after the close of its fiscal year, the Company acquired all of the capital
stock of Point Plastics, Inc.("Point Plastics").  Point Plastics designs,
manufactures and distributes a full line of  plastic disposable laboratory
products for liquid handling in clinical and diagnostic research.  Its products
include pipette tips, microcentrifuge tubes and PCR tubes.  Point Plastics'
products are sold worldwide to distributors and directly to end users in the
biotechnology industry.  The biotechnology industry includes molecular biology,
immunology, cell culture and protein chemistry.  End users of Point Plastics'
products include research institutes, biotech firms, forensic and hospital
laboratories, university laboratories, blood banks and pharmaceutical companies.
Point Plastics is based in Petaluma, California, where it owns and leases
approximately 126,000 square feet of manufacturing and warehousing space.  It
has approximately 120 employees.

          Clinical Products.    Porex manufactures blood serum filters that 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.

          Vials and Solid Plastic Components.  Porex manufactures and sells a
full line of plastic vials for pharmaceuticals.  Porex also produces close
tolerance solid plastic components comprised of thermoplastic resins, including
polystyrene, polypropylene and thermoplastic rubber, for medical and industrial
applications.  These products are custom designed and produced to satisfy
individual customer specifications.

      The Scientific Products Group contributed 13.1%, 16.5% and 17.5% of the
total revenue of the Company for the fiscal years ended June 30, 1998, 1997 and
1996, respectively.

                                       4
<PAGE>
 
SURGICAL PRODUCTS GROUP

          Porex's surgical products are marketed primarily to surgeons who
specialize in plastic and reconstructive surgery, oculoplastic surgery  and oral
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 surgical
incisions. Porex also markets Squeeze-Mark (TM) and 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.

         The Surgical Products Group contributed 6.7%, 6.9% and 6.4% of the
total revenue of the Company for the fiscal years ended June 30, 1998, 1997 and
1996, respectively.


MARKETING AND DISTRIBUTION

     As of June 30, 1998, Porex had over 600 customers.    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. Porex distributes its scientific products and clinical products
principally through independent distributors.  Porex's surgical products are
sold by its sales personnel, as well as through independent dealers and agents.
Export sales, which are made principally to Europe and Asia, consist primarily
of Porex's porous plastic OEM biomedical products, industrial products and
consumer products. For the fiscal year ended June 30, 1998, Porex's foreign and
export product sales were approximately $18,948,000, or 29% of sales, as
compared to approximately $14,067,000, or 27% of sales, for the fiscal year
ended June 30, 1997 and approximately $12,270,000, or 27% of sales, for the
fiscal year ended June 30, 1996.  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, 1998 and 1997, respectively.


SEASONALITY AND BACKLOG

     Sales of certain Porex product lines are somewhat seasonal, but Porex's
overall businesses are not seasonal to any significant extent.  At June 30,
1998, Porex's backlog was approximately $11,852,000, as compared to
approximately $9,715,000 at June 30, 1997.  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
the development of porous components for  the life sciences market and consumer
applications.   Development activities also include work done to address the
specific needs of OEM customers as well as enhancements to Porex's proprietary
manufacturing processes.

     Porex's development expenditures were approximately $1,966,000, $1,791,000
and $2,014,000 for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively.


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 adequate quantities to meet Porex's 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. 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

                                       5
<PAGE>
 
standards.  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 it
believes is 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.


INTELLECTUAL PROPERTY

     Porex uses proprietary technology for manufacturing its porous plastic
materials and injection molding technology for manufacturing its solid plastic
products.  Porex believes that its non-patented proprietary manufacturing
processes are protected under trade secret, contractual and other intellectual
property rights.  However, such protections do not afford the statutory
exclusivity possible for patented processes.  To protect its proprietary
technology and maintain high manufacturing quality and efficiency, Porex designs
and manufactures its porous molding equipment and most of its molds in-house.
In certain instances, however, Porex has sought and intends to continue to seek
patents for specific products and manufacturing processes.

     Porex owns a number of patents and trademarks in the United States and
foreign countries which it deems to be important to its business.  The majority
of Porex's patents and patent applications relate to porous plastics and medical
devices.


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 manufacturing site must be
registered 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 has two manufacturing
sites registered with the FDA.

     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 

                                       6
<PAGE>
 
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 the
introduction of competitive products at lower prices.  The Company believes that
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, Europe and Asia.  Porex's porous plastic pen
nibs compete with felt and fiber tips manufactured by a variety of suppliers
worldwide. Other Porex 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.  Porex's surgical
drains and markers compete against a variety of products from several
manufacturers.  Porex's pipette tips and racks also compete with similar
products manufactured by domestic and foreign manufacturers.

                                       7
<PAGE>
 
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.  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 "Business--Plastics and
Filtration Technologies Business--Porous Media Group" and "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 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.

                                       8
<PAGE>
 
     The Company is not aware of any business which provides commercially
available products or services with 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.

     The Company has completed two acquisitions, which form the foundation of
its healthcare communications business.  In December 1996, the Company acquired
Avicenna, a privately held development stage company located in Cambridge,
Massachusetts, and in January 1997, the Company acquired privately held
CareAgents, Inc. ("CareAgents").  See Note 2 to the Company's Consolidated
Financial Statements contained in Part IV.

     The Company expects to incur significant ongoing research and development
expenditures in connection with its healthcare communications business.  For the
year ended June 30, 1998, such expenditures were approximately $13,565,000.  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.


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 and CareAgents are start up companies with limited
operating histories and have operated at a loss since inception.  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.

     MARKET ACCEPTANCE.  As is typical in a developing business, demand and
market acceptance  for new and innovative 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.

                                       9
<PAGE>
 
     GOVERNMENT REGULATION OF HEALTHCARE

     Participants in the healthcare 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
communications under development by the Company.  The Company believes, however,
that those laws and regulations will nonetheless be applied to the 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, (iv) laws or regulations relating to the  relationships
between or among healthcare providers and (v) laws or regulations governing the
electronic exchange of healthcare information among payors and 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 provides commercially
available products or services with 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

                                       10
<PAGE>
 
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 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
plastics and filtration technologies business and its 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 (which expire in May 1999), to areas of business
which would not be competitive with certain businesses of Merck & Co., Inc.
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, 1998, the Company had approximately 745 employees. 

                                       11
<PAGE>
 
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 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 contains 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 "Business-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 August 14, 1998, 67 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 August, 1998, 215 actions and
36 out-of-court claims were pending against Porex.  Of the 215 actions, 98
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.  During the fiscal year ended
June 30, 1998, there were 16 implant-related claims made against Porex by
individuals as compared with 24 claims made during the fiscal year ended June
30, 1997 and 28 claims made during the fiscal year ended June 30, 1996.

     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

                                       12
<PAGE>
 
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 that occurred during the policy period.  In addition, Porex has other
excess insurance where it has similarly purchased extended reporting period
coverage.   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.

     ENFORCEMENT DIVISION PROCEEDING.  In July 1994, the Division of Enforcement
of the Securities and Exchange Commission (the "SEC") began an investigation
regarding certain trading in securities of the Company.  On March 11, 1998, the
SEC filed a civil action against Roger Licht, an outside director of the
Company.  The complaint alleges that Mr. Licht provided non-public information
to friends in connection with transactions involving the Company and its former
parent, Medco Containment Services, Inc. ("Medco"), and traded on the basis of
non-public information in connection with an unrelated company.  The SEC's
complaint relates to the acquisition of Medco by Merck & Co. Inc. in July 1993
and Medco's subsequent sale of its majority interest in the Company in May 1994.
The SEC's action seeks disgorgement of the alleged trading profits and an
injunction against Mr. Licht.  The SEC's action does not involve or seek any
recovery from the Company or allege any wrongdoing by the Company.  Accordingly,
the Company does not believe that such action will have a material adverse
effect on its financial position or results of operations.

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


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     None.

                                       13
<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>
                         
Paul C. Suthern           46  President and Chief Executive Officer
                         
Roger C. Holstein         45  Executive Vice President--Sales and Marketing
                         
David M. Margulies, M.D.  47  Executive Vice President--Chief Scientist
                         
Anthony Vuolo             40  Executive Vice President--Finance and Administration
                              and Chief Financial Officer
                         
Charles A. Mele           42  Executive Vice President--General Counsel
 
Kim A. Davis              47  Senior Vice President--Chief Executive Officer &
                              President of Porex Technologies
</TABLE>

--------------
     Mr. Suthern has been President and Chief Executive Officer of the Company
since March 1998 and was an executive officer of the Company from February 1993
to July 1996, Vice Chairman from July 1996 to March 1998 and also Chief
Executive Officer from October 1993 to January 1995, and was, until December
1994, an executive officer of Medco for more than five years.

     Mr. Holstein has been Executive Vice President--Sales and Marketing of the
Company since November 1997 and, prior to such date, performed various services
for the Company from October 1996.  Mr. Holstein was a part-time employee of
Medco from November 1997 to February 1998 and, prior to such time, was an
executive officer of Medco since 1991.

     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 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. Vuolo has been Executive Vice President--Finance and Administration and
Chief Financial Officer of the Company since March 1998, an executive officer of
the Company since May 1997 and an officer for more than five years and was,
until December 1994, an officer of Medco for more than five years.

     Mr. Mele has been Executive Vice President--General Counsel of the Company
since March 1998 and was Vice President--General Counsel from July 1995 to March
1998.  Mr. Mele 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 Corporation and Group 1
Software, Inc., computer software companies.

     Mr. Davis has been Senior Vice President of the Company and, Chief
Executive Officer and President of Porex Technologies Corp. since January 1998.
Mr. Davis was Chief Operating Officer and President of Gelman Sciences, Inc.
("Gelman"), a provider of products and services for high technology filtration
and separation systems and components, from May 1993 until January 1998.  In
February 1997, Gelman was acquired by Pall Corporation ("Pall") and Mr. Davis
also became a Senior Vice President of Pall.

                                       14
<PAGE>
 
                                    PART II

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

     The Company's Common Stock is traded 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.

 
                                                     High           Low
                                                     ----           ---  
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
                                                            
Fiscal Year 1998                                            
----------------
First Quarter....................................   $45 7/8       $36 1/2
Second Quarter...................................   $42 1/4       $35 1/4
Third Quarter....................................   $55           $36
Fourth Quarter...................................   $65 1/4       $51

     The Company's Common Stock was held by 159 stockholders of record as of
September 21, 1998.  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, 1998.  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.

                                       15
<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, 1998.  The selected
financial data for the two years in the period ended June 30, 1995 have been
restated to reflect the divestiture of the Company's institutional pharmacies
business in December 1994.

<TABLE>
<CAPTION>
 
                                                               YEAR ENDED JUNE 30,
                                           -----------------------------------------------------
                                             1994       1995        1996       1997       1998
                                             ----       ----        ----       ----       ----   
                                                   (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                        <C>       <C>          <C>       <C>         <C>
 
INCOME STATEMENT DATA
Net sales................................  $ 33,093     $ 39,179  $ 45,128  $  52,885   $ 64,945
Income (loss) from continuing
  operations before
  provision for income
  taxes..................................     1,080        1,078    13,202    (24,626)    14,832
Provision for income taxes...............       411          443     4,617      2,834      5,788
                                           --------     --------  --------  ---------   --------
Income (loss) from continuing
  operations.............................       669          635     8,585    (27,460)     9,044
Income from discontinued
  operations.............................     1,823       15,459         -          -          -
                                           --------     --------  --------  ---------   --------
 
Net income (loss)........................  $  2,492     $ 16,094  $  8,585    (27,460)  $  9,044
                                           ========     ========  ========  =========   ========
Net income (loss) per share -- basic:
  Continuing operations..................  $   0.04     $   0.04  $   0.52  $   (1.60)  $    .51
  Discontinued operations................      0.10         0.94         -          -          -
                                           --------     --------  --------  ---------   --------
Net income (loss) per share -- basic.....  $   0.14     $   0.98  $   0.52  $   (1.60)  $    .51
                                           ========     ========  ========  =========   ========
 
Net income (loss) per share -- diluted:
  Continuing operations..................  $   0.04     $   0.04  $   0.48  $   (1.60)  $   0.46
  Discontinued operations................      0.10          .89         -          -          -
                                           --------     --------  --------  ---------   --------
Net income (loss) per share -- diluted...  $   0.14     $   0.93  $   0.48  $   (1.60)  $   0.46
                                           ========     ========  ========  =========   ========
 
<CAPTION>  
                                                                 AT JUNE 30,
                                            ----------------------------------------------------
                                              1994         1995      1996       1997       1998
                                              ----         ----      ----       ----       ---- 
                                                               (IN THOUSANDS)
<S>                                        <C>          <C>       <C>       <C>         <C>  
BALANCE SHEET DATA
Working capital..........................  $ 64,625     $105,279  $166,328   $ 91,073   $108,069
Net assets of discontinued
  operations.............................    55,882            -         -          -          -
Total assets.............................   194,009      188,174   199,592    384,339    396,926
Long term debt, less
  current portion........................    80,716            -         -    165,000    159,500
Stockholders' equity.....................   105,130      166,832   181,089    188,736    206,226
</TABLE>

                                       16
<PAGE>
 
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS.

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

<TABLE>
<CAPTION>
                                                      PERCENTAGE OF NET SALES
                                                    FISCAL YEARS ENDED JUNE 30,
                                                    ---------------------------  
                                                     1998       1997       1996
                                                     ----       ----       ----  
<S>                                                 <C>        <C>        <C>
Net sales                                               100%       100%      100%
 
Costs and expenses
   Cost of sales.................................      53.1       54.9      55.6
   Selling, general and administrative...........      42.4       39.4      33.1
   Investment income.............................     (31.6)     (24.3)    (18.0)
   Interest expense..............................      13.3        5.9        --
   Purchased research and development and other..        --       70.7        --
                                                      -----     ------     -----
                                                       77.2      146.6      70.7
                                                      -----     ------     -----
Income (loss) before provision for income taxes..      22.8      (46.6)     29.3
 
Provision for income taxes.......................       8.9        5.3      10.2
                                                      -----     ------     -----
 
Income (loss) from continuing operations.........      13.9%    (51.9)%     19.1%
                                                      =====     ======     =====
</TABLE>

     The historical operations of the Company are primarily related to its
plastics and filtration technologies business.  All revenues and a majority of
operating expenses were derived from these operations.


Fiscal Years Ended June 30, 1998 and 1997
Consolidated Results of Operations

     Net sales for the year ended June 30, 1998 increased $12,060,000 or 22.8%
over the comparable prior year period.  The Company's net sales for the year
ended June 30, 1998 include a full year of sales by Interflo Technologies, Inc.
("Interflo"), acquired in February 1997.  Inclusion of a full year of Interflo's
net sales accounted for 7.4% of the Company's overall increase in net sales.
The remaining 15.4% of the Company's increase in net sales was due principally
to increased unit sales of writing components in the consumer segment, increased
unit sales of diagnostic products and various filtration devices, and increased
unit sales of laboratory disposable products such as pipette tips and test tubes
in the healthcare segment.

     Cost of sales for the year ended June 30, 1998 increased $5,473,000 or
18.8% over the comparable prior year period.  This increase was attributable to
the operations of Interflo which was included for the full year and the
increased sales volume noted above.  As a percent of net sales, cost of sales
for the year ended June 30, 1998, decreased to 53.1% from 54.9% in the
comparable prior year period principally due to increased leverage of certain
fixed costs which do not increase proportionately with sales, labor efficiencies
and increased sales of higher margin products.

     Selling, general and administrative expenses for the year ended June 30,
1998 increased by $6,717,000 or 32.2% over the comparable prior year period
primarily due to the inclusion of a full year of expenses associated with the
Company's healthcare communications business which primarily relate to research
and development activities.  Excluding these costs, as a percentage of net
sales, selling, general and administrative expenses for the year ended June 30,
1998 decreased to 27.7% from 30.7% due principally to increased sales which were
not proportionately offset by such expenses since these costs do not vary
directly with sales.

                                       17
<PAGE>
 
     Investment income, which is comprised of interest and other income and
dividend income, for the year ended June 30, 1998 increased by $7,673,000 or
59.5% over the comparable prior year period primarily as a result of a full year
of income earned on the proceeds of the Company's $165,000,000 principal amount
of its 5% Convertible Subordinated Debentures due 2007 (the "Convertible
Debentures") issued in February 1997.

     Interest expense for the year ended June 30, 1998 increased by $5,498,000
from the prior year period as a result of a full year's interest expense
associated with the Convertible Debentures.

     The effective tax rate for the year ended June 30, 1998 increased to 39.0%
from 37.5%, excluding, in the prior year,  the portion of the research and
development charge relating to the acquisitions of Avicenna and CareAgents for
which no tax benefits were recognized.  The increase was primarily 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, 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 of writing components in the consumer segment
and increased unit sales of pipette filters, pipette tips and surgical products
in the healthcare 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.

     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 Convertible Debentures.

     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 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 35.0% 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.

                                       18
<PAGE>
 
Capital Resources and Liquidity

     As of June 30, 1998, the Company had $90,645,000 of cash and cash
equivalents and $227,062,000 of marketable securities.  At June 30, 1998, the
Company's marketable securities consisted primarily of U.S. Treasury Notes and
Federal Agency Notes.

     For the fiscal year ended June 30, 1998, cash and cash equivalents
increased $13,342,000 primarily as a result of operating activities.  Net cash
provided by operations was $14,370,000, an increase of $5,353,000 from the
fiscal year ended June 30, 1997.  This increase was primarily related to
increased cash flow from operations and a full year of investment income
partially offset by higher expenditures related to the development of the
healthcare communications business.  The significant funds generated from
operating activities are reinvested in existing businesses and are used to fund
capital expenditures.

     Net cash used for financing activities was $1,791,000 for the fiscal year
ended June 30, 1998, primarily resulting from the Company's repurchase of
$5,500,000 face amount of Convertible Debentures partially offset by proceeds
from the issuance of stock options and 401(k) purchases.

     Net cash provided by investing activities was $763,000 for the fiscal year
ended June 30, 1998, reflecting maturities and redemptions of marketable
securities, net of purchases of marketable securities.

     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 year
ended June 30, 1998, the Company incurred expenditures of approximately
$13,565,000 related to the development of its healthcare communications
business.  The Company expects to increase the rate of such expenditures during
fiscal 1999.  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.

     In July 1998, the Company completed the acquisition of Point Plastics,
Inc., a manufacturing company located in Petaluma, California.  Point Plastics
designs, manufactures and distributes injection-molded, disposable laboratory
plastics used for liquid handling in the life sciences marketplace.  Point
Plastics had net sales of approximately $25,000,000 for the twelve months ended
December 31, 1997.  The purchase price for the outstanding capital stock of
Point Plastics was $86,000,000, paid 60% in shares of Synetic Common Stock  and
40% in cash.  The tax free merger will be accounted for using the purchase
method of accounting.

     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
"Business--Acquisition Program".

                                       19
<PAGE>
 
Disclosures About Market Risk

     The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment in marketable securities.  The Company
does not use derivative financial instruments in its investments.  The Company's
investments consist primarily of U.S. Treasury Notes and Federal Agency Notes.
The table below presents principal amounts and related weighted average interest
rates by expected maturity date for the Company's investment portfolio and debt
obligations.

<TABLE>
<CAPTION>
                                                   Fiscal Years
                                                  (in thousands)
                                 1999     2000     2001     2002       2003    Thereafter
                                 ----     ----     ----     ----       ----    ----------
<S>                             <C>       <C>      <C>      <C>        <C>     <C> 
Assets                                                             
------                                                             
Cash equivalents:                                                  
 Fixed rate..................  74,744        -       -         -          -         -
 Average interest rate.......    5.52%       -       -         -          -         -
Short term investments:                                      
 Fixed rate..................  10,000        -       -         -          -         -
 Average interest rate.......   6.31%        -       -         -          -         -
Long term investments:                                             
 Fixed rate..................       -        -       -   144,800     73,635         -
 Average interest rate.......       -        -       -     6.46%      6.12%         -
Total investment securities..  84,744        -       -   144,800     73,635         -
 Average interest rate.......   5.61%        -       -     6.46%      6.12%         -
Long term debt:                                                    
 Fixed rate..................       -        -       -         -          -   159,500
 Average interest rate.......       -        -       -         -          -     5.00%
</TABLE>


Year 2000

     The Year 2000 issue is the result of computer programs using two digits
rather than four digits to define the applicable year.  Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000.  This could result in a
disruption of normal business activities.  Many of the Company's suppliers,
vendors and customers also face this issue.

     The Company has completed an assessment of its Year 2000 readiness and is
undergoing a conversion of its internal systems which are not currently Year
2000 compliant.  As of September 15, 1998, the Company completed the conversion
of all significant non-manufacturing systems.  The Company expects conversion of
the remaining information technology ("IT") related systems to be completed and
fully tested by June 30, 1999.  For non-IT systems, all significant
microprocessor-embedded production equipment has been upgraded and the Company
believes it is Year 2000 compliant.

     The Company is in the process of communicating with its suppliers, vendors
and customers concerning the state of their readiness for the Year 2000.  The
information gathered to date does not permit the Company to complete its
assessment of risk related to the Year 2000 that these third parties may present
to the Company. If third parties upon which the Company relies are unable to
address this issue in a timely manner, such occurrence could result in a
material financial risk to the Company.

     The Company expects that the cost of Year 2000 compliance will not be
material.  If the Company does not complete the conversion of its manufacturing
systems by the end of 1999, the Company has Year 2000 compliant upgrades it
believes can readily be installed for its existing systems.  The Company
believes that, should it be necessary, the cost of installing such upgrades
would not be material.

                                       20
<PAGE>
 
     The Company intends to have in inventory a reserve of raw materials, which
it believes is sufficient to avoid a disruption in its manufacturing process, to
minimize the risk associated with third-party suppliers experiencing Year 2000
problems on January 1, 2000.

     The Company's statements regarding its Year 2000 project constitute forward
looking statements.  As the Year 2000 issue has many elements and potential
consequences, some of which are not reasonably foreseeable, the ultimate impact
of the Year 2000 on the operations of the Company could differ materially from
the Company's expectations.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     Financial statements and supplementary financial information are contained
on pages F-l through F-19 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 1998 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 1998 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 1998 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 1998 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:

            On April 9, 1998, the Company filed a report on Form 8-K disclosing
            that it had filed an Amended and Restated Certificate of
            Incorporation and had adopted Amended and Restated By-Laws of the
            Company.

                                       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 25, 1998        By:    /s/ Paul C. Suthern
                                      ----------------------------
                                      Paul C. Suthern, President and 
                                      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 25, 1998.


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


By:   /s/ Paul C. Suthern           
    -----------------------------   Thomas R. Ferguson                   
    Paul C. Suthern                 Mervyn L. Goldstein
    President and Chief             Ray E. Hannah
    Executive Officer               Roger H. Licht
                                    Bernard A. Marden
                                    James V. Manning
                                    Charles A. Mele
                                    Herman Sarkowsky
                                    Paul C. Suthern
                                    Albert M. Weis
                                    Martin J. Wygod

(2) Principal Financial and
    Accounting Officer:             By:     /s/ Paul C. Suthern
                                        -------------------------
                                        Paul C. Suthern
                                        Individually and as Attorney-in-Fact

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

                                       24
<PAGE>
 
                         SYNETIC, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                             AND SUPPLEMENTAL DATA



     The following financial statements of the Company 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, 1998 and 1997...     F-3
 
     Consolidated Statements of Operations for the
       Years Ended June 30, 1998, 1997 and 1996..............     F-5
 
     Consolidated Statements of Changes in
       Stockholders' Equity for the Years Ended
       June 30, 1998, 1997 and 1996..........................     F-6
 
     Consolidated Statements of Cash Flows for the
       Years Ended June 30, 1998, 1997 and 1996..............     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, 1998 and 1997, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended June 30,
1998.  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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1998 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
August 14, 1998

                                      F-2
<PAGE>
 
                         SYNETIC, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                JUNE 30,
                                                          --------------------
                                                            1998       1997
                                                          ---------  ---------
<S>                                                       <C>        <C>
CURRENT ASSETS:
     Cash and cash equivalents..........................  $ 90,645   $ 77,303
     Marketable securities..............................     9,995     11,765
     Accounts receivable, net of allowances for
       doubtful accounts and sales returns of $786 and
       $739 at June 30, 1998 and 1997, respectively.....    11,071      9,094
     Inventories........................................     5,813      5,505
     Other current assets...............................    11,572      9,233
                                                          --------   --------
       Total current assets.............................   129,096    112,900
                                                          --------   --------
 
PROPERTY, PLANT AND EQUIPMENT:
     Land and improvements..............................     1,605      1,613
     Buildings and improvements.........................    11,261      9,911
     Machinery and equipment............................    28,428     23,444
     Furniture and fixtures.............................     3,924      3,283
     Construction in progress...........................     6,249      2,516
                                                          --------   --------
                                                            51,467     40,767
     Less:  Accumulated depreciation....................   (22,086)   (18,681)
                                                          --------   --------
 
       Property, plant and equipment, net...............    29,381     22,086
                                                          --------   --------
 
OTHER ASSETS:
     Marketable securities..............................   217,067    226,760
     Other..............................................    21,382     22,593
                                                          --------   --------
       Total other assets...............................   238,449    249,353
                                                          --------   --------
                                                          $396,926   $384,339
                                                          ========   ========
</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,
                                                                  --------------------
                                                                    1998       1997
                                                                  ---------  ---------
<S>                                                               <C>        <C>
 
CURRENT LIABILITIES:
     Accounts payable...........................................  $  2,644   $  2,344
     Accrued liabilities........................................    13,002     14,203
     Income taxes payable.......................................     5,381      5,280
                                                                  --------   --------
       Total current liabilities................................    21,027     21,827
                                                                  --------   --------
 
LONG-TERM DEBT..................................................   159,500    165,000
 
OTHER LIABILITIES...............................................    10,173      8,776
 
COMMITMENTS AND CONTINGENCIES (NOTE 9)
 
STOCKHOLDERS' EQUITY:
     Preferred stock, $.01 par value; 10,000,000 shares
          authorized; none issued...............................         -          -
     Common stock, $.01 par value; 50,000,000 shares
       authorized; 23,017,594 and 22,865,149 shares issued;
       17,749,131 and 17,564,980 shares issued and outstanding
       at June 30, 1998 and 1997, respectively..................       230        229
     Paid-in capital............................................   203,482    196,212
     Treasury stock, at cost; 5,268,463 and 5,300,169 shares
       at June 30, 1998 and 1997, respectively..................   (38,287)   (39,462)
     Retained earnings..........................................    40,801     31,757
                                                                  --------   --------
       Total stockholders' equity...............................   206,226    188,736
                                                                  --------   --------
                                                                  $396,926   $384,339
                                                                  ========   ========
 
</TABLE>

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

                                      F-4
<PAGE>
 
                         SYNETIC, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                    YEARS ENDED JUNE 30,
                                                              ------------------------------
                                                                1998       1997       1996
                                                                ----       ----       ----
<S>                                                         <C>        <C>        <C>
 
Net sales........................................              $ 64,945   $ 52,885   $45,128
                                                               --------   --------   -------
 
Costs and expenses:
  Cost of sales..................................                34,508     29,035    25,108
  Selling, general and administrative............                27,558     20,841    14,930
  Interest and other income......................               (20,567)   (11,065)   (3,952)
  Dividend income................................                    -      (1,829)   (4,160)
  Interest expense...............................                 8,614      3,116        -
  Purchased research and development and other...                    -      37,413        -
                                                               --------   --------   -------
                                                                 50,113     77,511    31,926
                                                               --------   --------   -------
 
Income (loss) before provision for income taxes..                14,832    (24,626)   13,202
 
Provision for income taxes.......................                 5,788      2,834     4,617
                                                               --------   --------   -------
 
Net income (loss)................................              $  9,044   $(27,460)  $ 8,585
                                                               ========   ========   =======
 
Income per share - basic:
  Net income (loss) per share....................                  $.51     $(1.60)  $   .52
                                                               ========   ========   =======
  Weighed average shares outstanding.............                17,671     17,133    16,667
                                                               ========   ========   =======
 
Income per share - diluted:
  Net income (loss) per share....................                  $.46     $(1.60)  $   .48
                                                               ========   ========   =======
  Weighted average shares outstanding............                19,834     17,133    18,026
                                                               ========   ========   =======
 
</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, 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 50 shares of common stock                                                               
    for Treasury, net of 18 shares reissued..       -         -           -           -       (1,175)        (1,175)
                                               ------      ----    --------    --------     --------       --------
                                                                                                      
Balance, June 30, 1997.......................  22,865      $229    $196,212    $ 31,757     $(39,462)      $188,736
                                               ------      ----    --------    --------     --------       --------
                                                                                                      
Net income...................................       -         -           -       9,044            -          9,044
                                                                                                      
Issuance of common stock for exercise of                                                              
  stock options and 401(k) Plan..............     153         1       7,270           -        1,391          8,662
                                                                                                      
Purchase of 6 shares of common stock                                                                  
  for Treasury...............................       -         -           -           -         (216)          (216)
 
Balance, June 30, 1998                         23,018      $230    $203,482     $40,801     $(38,287)      $206,226 
                                               ======      ====    ========     =======     ========       ========
</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,
                                                              ---------------------------------
                                                                1998        1997        1996
                                                              ---------  ----------  ----------
<S>                                                           <C>        <C>         <C>
Cash flows from operating activities:
  Net income (loss).........................................  $  9,044   $ (27,460)  $   8,585
  Adjustments to reconcile net income (loss) to net
     cash provided by operating activities:
     Write-off of purchased research and development costs..        -       37,413          -
     Depreciation and amortization and other................     3,999       3,294       2,619
     Deferred income taxes..................................     2,312      (4,336)       (254)
 
  Changes in operating assets and liabilities,
     net of the effects of acquisitions:
       Accounts receivable, net.............................    (1,977)       (795)       (634)
       Inventories..........................................      (308)        147         193
       Other assets.........................................    (4,790)     (7,184)       (173)
       Accounts payable.....................................       300         776         655
       Accrued liabilities..................................      (661)      1,690      (2,323)
       Other liabilities....................................       926          48          -
       Income taxes payable.................................     5,525       5,424       2,625
                                                              --------   ---------   ---------
          Net cash provided by
            operating activities............................    14,370       9,017      11,293
                                                              --------   ---------   ---------
 
  Cash flows from investing activities:
     Maturities and redemptions of marketable securities....   102,756     396,638     708,685
     Purchases of marketable securities.....................   (91,293)   (494,895)   (704,099)
     Capital expenditures...................................   (10,700)     (6,063)     (2,790)
     Net cash paid for acquired businesses..................        -      (10,612)         -
                                                              --------   ---------   ---------
 
          Net cash provided by (used for)
            investing activities............................       763    (114,932)      1,796
                                                              --------   ---------   ---------
 
  Cash flows from financing activities:
     Purchases of Treasury stock............................      (216)     (3,570)         -
     Proceeds from issuance of stock options and
       401(k) purchases.....................................     3,267       3,688       1,838
     Proceeds from issuance of Convertible Debentures,
       net of underwriting discount.........................               160,890          -
     Repurchase of Convertible Debentures...................    (4,842)         -           -
     Payments on long-term debt.............................        -           -         (216)
                                                              --------   ---------   ---------
          Net cash provided by (used for)
            financing activities............................    (1,791)    161,008       1,622
                                                              --------   ---------   ---------
 
  Net increase in cash and cash equivalents.................    13,342      55,093      14,711
  Cash and cash equivalents, beginning of
     period.................................................    77,303      22,210       7,499
                                                              --------   ---------   ---------
  Cash and cash equivalents, end of period..................  $ 90,645   $  77,303   $  22,210
                                                              ========   =========   =========
</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)  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     The Company is engaged in two principal business activities, plastics and
filtration technologies and healthcare communications.  The Company's plastics
and filtration technologies business is conducted through Porex Technologies
Corp. and its affiliated companies ("Porex"). Over the past 35 years Porex has
established a leading reputation in the porous plastics industry as a developer,
manufacturer and distributor of porous plastic products. Porex's porous and
solid plastic components and products are used by other manufacturers in a wide
range of healthcare, consumer, life sciences and industrial applications
primarily to filter, wick, diffuse, drain, vent or control the flow of fluids or
gases. Porex has a diverse customer base of over 600 customers, including major
Fortune 500 companies.

     The objective of the Company's healthcare communications business is to use
Internet technology to create an influential interactive health services channel
linking physicians with the payers, suppliers and consumers of healthcare in
order to control healthcare costs and improve patient outcomes.  There are
significant risks and uncertainties associated with this business such as
development risks, uncertainty of market acceptance and competition.  There can
be no assurances given as to the specific time frame for the Company's first
commercial introduction of its healthcare communications products and services.
The Company anticipates that it will incur significant expenses in connection
with the development of such products and services.  The provision of products
and services using Internet technology in the healthcare communications industry
is a developing business.

     Principles of Consolidation--

     The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned operating subsidiaries, including Porex and
Avicenna, after elimination of all material intercompany accounts and
transactions.

     For the years ended June 30, 1998 and 1997, the operations of the Company
were primarily related to its plastics and filtration technologies business.
All revenues and a majority of operating expenses were derived from these
operations.

     Cash and Cash Equivalents--

     The Company considers all 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--

     At June 30, 1998, the Company's investments consisted principally of U.S.
Treasury Notes and Federal Agency Notes and are classified as held-to-maturity
and are carried at cost, net of unamortized premium or discount. These
investments had an aggregate market value of $229,683,000 and $238,151,000 at
June 30, 1998 and 1997, respectively.  At June 30, 1998, gross unrealized gains
pertaining to marketable securities and other investments were $2,621,000.
Gains and losses on the sale of marketable securities and other investments are
calculated using the specific identification method.

     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):

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


(1)  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
     (CONTINUED)

 
                                      JUNE 30,
                                   --------------
                                    1998    1997
                                   ------  ------

     Raw materials and supplies..  $3,219  $2,672
     Work-in-process.............     677     347
     Finished goods..............   1,917   2,486
                                   ------  ------
                                   $5,813  $5,505
                                   ======  ======

     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 for use 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.  As of June 30, 1998 and 1997,
capitalized costs were $4,368,000 and $348,000, respectively.  No costs were
capitalized in the year ended June 30, 1996.  Total development expenses were
$11,511,000, $6,419,000, and $2,014,000 for the years ended June 30, 1998, 1997
and 1996, respectively, of which $9,545,000 and $4,628,000 were related to the
healthcare communications business for the years ended June 30, 1998 and June
30, 1997, respectively.

     Accrued Liabilities--

     Accrued liabilities consisted of the following (in thousands):


                                              JUNE 30,
                                          ----------------
                                           1998     1997
                                          -------  -------

     Accrued payroll and benefit costs..  $ 5,585  $ 4,633
     Accrued acquisition costs..........      539    3,236
     Accrued interest...................    2,961    2,957
     Accrued legal costs................    1,230    1,575
     Other..............................    2,687    1,802
                                          -------  -------
         Total..........................  $13,002  $14,203
                                          =======  =======

     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. (See Note 5)

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


(1)  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
     (CONTINUED)

     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.

     Revenue Recognition--

     Revenue is recognized upon product shipment, net of sales returns and
allowances.

     Net Income (Loss) Per Share--

     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, basic
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.
The Convertible Debentures (See Note 4), if converted, would not have had a
dilutive effect on net income per share for the periods presented.

     The Company has adopted the new standard during fiscal 1998, beginning with
the December 31, 1997 interim consolidated financial statements.  In accordance
with SFAS 128, all prior periods presented have been restated.  The Company has
historically reported its EPS on a fully diluted basis, which reflects the
dilution resulting from employee stock options, warrants and convertible
securities, if dilutive, and is comparable to the new diluted EPS reported.

     A reconciliation of weighted average shares outstanding (basic) to weighted
average shares outstanding assuming dilution (diluted) follows:

                                                     Years Ended June 30,
                                                    -----------------------
                                                     1998   1997(2)   1996
                                                    ------  -------  ------
 
     Weighted average shares outstanding (basic)..  17,671  17,133   16,667
     Common stock equivalents(1)..................   2,163       -    1,359
                                                    ------  ------   ------
     Weighted average shares outstanding
      assuming dilution (diluted).................  19,834  17,133   18,026
                                                    ======  ======   ======

     (1) Issuable primarily under stock option plans.
     (2) Common stock equivalents not reflected above as they were not dilutive.
 
     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

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


(1)  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
     (CONTINUED)

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 and non-
employee directors.  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 8)

     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.

     Recently Issued Accounting Standards--

     In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" , was issued and is effective for periods beginning after
June 15, 1999.  Management believes that the adoption of SFAS No. 133 will not
have a material adverse effect on the Company's consolidated financial
statements.

(2)  ACQUISITIONS:

     Avicenna--

     On December 24, 1996, the Company acquired the outstanding equity and
indebtedness (including employee stock options) of Avicenna, a privately-held,
developmental-stage company located in Cambridge, Massachusetts, for 428,643
shares of the Company's common stock and 161,015 shares of the Company's common
stock to be issued in connection with the exercise of employee stock options.
The shares issued are subject to certain limitations restricting the liquidity
and transferability of such shares.  The fair value of the shares, as determined
by management, was approximately $47.37 per share.  As additional consideration,
the Company agreed to issue to certain sellers, nontransferable warrants
covering 250,000 shares of the Company's common stock, exercisable after
December 23, 1998 at a price of $54.50 per share.  Avicenna's business plan has
been to market and build Intranets for managed care organizations, hospitals and
physician groups.  The acquisition was accounted for using the purchase method
with the purchase price being allocated to assets acquired and liabilities
assumed based on their fair values.  Avicenna's results of operations have been
included in the Company's financial statements since December 24, 1996.

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

          Cash                                  $    42
          Short-term investments                    240
          Other assets                              216  
          Property, plant and equipment             759
          Purchased research and development     28,600
          Intangible assets                       1,502
          Goodwill                                  116
                                                -------
                                                $31,475
                                                =======

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

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


(2)  ACQUISITIONS: (CONTINUED)

     CareAgents--

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

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

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

     The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisitions had been in effect for the entire period
presented.  In addition, they are not intended to be a projection of future
results. The pro forma impact of the Avicenna and CareAgents acquisitions for
the year ended June 30, 1996 was not material.

     Purchased Research and Development and Other--

     The 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 $15,000,000 in the aggregate.
For the years ended June 30, 1998 and June 30, 1997, the Company repurchased
6,000 and 49,506 shares at a cost of approximately $216,000 and $1,858,000,
respectively.  The Company has reissued all of these shares for employee stock
option exercises.

     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.

                                      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 $5,100,000
which are included in other assets in the consolidated financial statements.
Such costs are being amortized to interest expense using the effective interest
method over the life of the Convertible Debentures. In conjunction with the
repurchase program discussed in Note 3, the Company repurchased $5,500,000 face
amount of Convertible Debentures during the fiscal year ended June 30, 1998.
 
(5)    INCOME TAXES:

       The income tax provisions are summarized as follows (in thousands):

 
                                                       YEARS ENDED JUNE 30,
                                                      ----------------------
                                                      1998     1997     1996
                                                      ----     ----     ----
Current:
  Federal............................                $2,851  $ 6,663   $4,060 
  State..............................                   625      507      811
                                                     ------  -------   ------
       Total current.................                 3,476    7,170    4,871
                                                     ------  -------   ------
Deferred:
  Federal............................                 2,285   (4,293)    (194)
  State..............................                    27      (43)     (60)
                                                     ------  -------   ------
       Total deferred................                 2,312   (4,336)    (254)
                                                     ------  -------   ------
         Total income tax provision..                $5,788  $ 2,834   $4,617
                                                     ======  =======   ======

       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:

                                                       YEARS ENDED JUNE 30,
                                                     ------------------------
                                                       1998     1997     1996
                                                       ----     ----     ----
Federal statutory rate...............................  35.0%   (35.0)%   35.0%
State tax, net of federal benefit....................   2.9       2.1     3.7
Dividend exclusion...................................     -      (2.0)   (7.7)
Non-deductible research and development..............     -      45.1       -
Other, net...........................................   1.1       1.4     4.0
                                                     ------    ------   -----
                                                       39.0%     11.6%   35.0%
                                                     ======    ======   =====
                                                                        
                                                      
       Temporary differences resulted in the following deferred tax expense
(benefit) (in thousands):
 
                                                         YEARS ENDED JUNE 30,   
                                                        --------------------- 
                                                        1998    1997     1996 
                                                        ----    ----     ---- 
                                                                              
Book/tax differences in accounting method                                     
 for assets acquired...............................  $ 1,607 $   (10)  $  (69)
Accrued expenses...................................      609    (716)    (140)
Deferred compensation - stock options..............      101       -        - 
Difference between tax and book depreciation and                              
 amortization......................................    1,224  (1,414)     (45)
Net operating loss carryforwards...................   (1,401) (2,236)       - 
Other, net.........................................      172      40        - 
                                                     ------- -------   ------ 
                                                     $ 2,312 $(4,336)  $ (254)
                                                     ======= =======   ====== 

                                      F-13
<PAGE>
 
                         SYNETIC, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(5)  INCOME TAXES: (CONTINUED)

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.  Significant components
of the Company's deferred tax assets and liabilities as of June 30, 1998 and
1997 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                               JUNE 30,
                                                --------------------------------------
                                                       1998                1997
                                                ------------------  ------------------
Deferred Tax Assets:                            CURRENT  LONG-TERM  CURRENT  LONG-TERM
                                                -------  ---------  -------  ---------
<S>                                             <C>      <C>        <C>      <C>
 Accrued expenses.............................   $1,664     $    -   $2,431     $    -
 Net operating loss carryforwards.............        -      3,637        -      2,236
 Bad debts....................................      173          -       98          -
 Inventory....................................      340          -      347          -
 Prepaid and other............................      307          -       12        167
 Deferred compensation (stock options)........        -      1,739        -      1,693
 Depreciation and amortization................        -          -        -        474
                                                 ------     ------   ------     ------
   Total current deferred tax assets..........   $2,484     $5,376   $2,888     $4,570
                                                 ======     ======   ======     ======
 
Deferred Tax Liabilities:
 Depreciation and amortization................   $    -     $1,063   $    -     $    -
 Capitalized research and development costs...        -      1,143        -          -
 Accrued expenses.............................        -        122        -          -
 Other........................................        -        386        -          -
                                                 ------     ------   ------     ------
   Total noncurrent deferred tax liabilities..   $    -     $2,714  $    -   $    -
                                                 ======     ======  =======  =========
 
 Net deferred tax asset (liability)...........   $2,484     $2,662   $2,888     $4,570
                                                 ======     ======   ======     ======
</TABLE>

     As of June 30, 1998, the Company has available net operating loss
carryforwards totaling $10,393,000 which expire in years 2012 and 2013.  The
Company has assessed its past earnings history and trends and expiration dates
of net operating loss carryforwards and has determined that it is more likely
than not that the net operating loss carryforwards will be realized.

(6)  MAJOR CUSTOMERS AND FOREIGN AND EXPORT PRODUCT SALES:

     For the years ended June 30, 1998, 1997 and 1996, 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 $8,930,000 and
$1,352,000; $7,854,000 and $1,247,000; and $6,665,000 and $975,000 for the
fiscal years ended June 30, 1998, 1997 and 1996, respectively.  Identifiable
assets of these facilities were not material for the years presented.  Export
product sales of Porex, which are made principally to Europe and Asia, were
$10,018,000, $6,213,000 and $5,605,000 for the fiscal years ended June 30, 1998,
1997 and 1996, respectively.

(7)  PENSION AND PROFIT SHARING PLANS:

     The Company has defined benefit pension plans covering a majority of its
employees.  Net pension cost for the years ended June 30, 1998, 1997 and 1996
included the following components (in thousands):

<TABLE>
<CAPTION>
 
                                  1998      1997     1996
                                --------  --------  ------
<S>                             <C>       <C>       <C>
Service cost..................  $   248   $   277   $ 269
Interest cost.................      360       338     310
Actual return on plan assets..   (2,132)   (1,377)   (789)
Net amortization..............    1,469       923     447
                                -------   -------   -----
  Net pension cost............  $   (55)  $   161   $ 237
                                -------   =======   =====
</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,
                                                       ------------------
                                                         1998      1997
                                                       --------  --------
<S>                                                    <C>       <C>
     Actuarial present value of benefit obligation:
       Vested benefit obligation.....................  $(5,302)  $(3,311)
       Nonvested benefit obligation..................     (125)      (67)
                                                       -------   -------
       Accumulated benefit obligation................   (5,427)   (3,378)
       Effect of future salary increases.............        -    (1,600)
                                                       -------   -------
 
     Projected benefit obligation....................   (5,427)   (4,978)
     Plan assets at fair value.......................    8,900     6,703
                                                       -------   -------
 
     Funded status...................................    3,473     1,725
     Unrecognized net gain...........................   (3,207)   (1,848)
     Unrecognized net asset..........................     (173)     (194)
     Unrecognized prior service cost.................        -        56
                                                       -------   -------
          Consolidated balance sheets                  $    93   $  (261)
                                                       =======   =======
</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, 1998 and 1997 were:

<TABLE>
<CAPTION>
                                                           1998   1997
                                                           -----  -----
<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.

     On May 1, 1998 the Company ceased all benefit accruals under the plan.
This event resulted in an immaterial curtailment gain.

     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 year ending June 30, 1996 the Company matched 25% of the first 4% of
participants earnings which were contributed to the plan.  For the years ended
June 30, 1998, 1997 and 1996, the Company issued 4,102, 3,341 and 2,897 shares
of common stock to the plan and recorded expense of $187,200, $132,500 and
$81,000, respectively.

(8)  STOCK OPTIONS:

     The Company has various stock option plans ("Plans") for directors,
officers and key employees which provide for non-qualified and incentive stock
options. Generally, options granted become exercisable at a rate of 20% on each
annual anniversary of the grant. No options may be granted under any of the
Plans after March 25, 2008, and all options expire within ten to fifteen years
from the date of the grant. Generally,


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


(8)  STOCK OPTIONS: (CONTINUED)

options granted under the Plans have an exercise price equal to 100% of the fair
market value of the Company's common stock on the date of grant.  There are
11,674,468 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, 1998,
there were 703,000 options granted to these individuals.  The terms of these
grants are similar to the Company's non-qualified stock option plans.

     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
(loss) would have been $(2,230), $(30,746) and $8,190 and diluted earnings per
share would have been $(.13), $(1.79) and $0.45 for the years ended June 30,
1998, 1997 and 1996, respectively.

     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:

<TABLE>
<CAPTION>
 
                                          1998        1997         1996
                                          ----        ----         ----
<S>                                  <C>         <C>          <C>
      Expected dividend yield                 0%           0%           0%
      Expected volatility                  .2986        .2722        .2722
      Risk-free interest rates              6.3%         6.5%         6.5%
      Expected option lives (years)     .50-2.00    .083-1.74    .083-1.74
 
Weighted average fair
  value of options granted
  during the year                      $   13.10   $    10.11   $     5.08

</TABLE> 
 
     A summary of the status of the Company's stock option plans for the three-
year period ended June 30, 1998 is presented below:

 
<TABLE> 
                                              Years Ended June 30,
                     ---------------------------------------------------------------------------
                                1998                     1997                     1996
                     ---------------------------  ---------------------    ---------------------
                                      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..      7,136,579      $26.58    3,746,750      $12.52    3,591,900      $11.50          
Granted............      2,485,450      $38.35    4,047,264      $39.22      366,000      $24.54          
Exercised..........       (195,577)     $16.11     (343,990)     $ 9.94     (137,350)     $12.81          
Canceled...........       (728,188)     $39.83     (313,445)     $39.90      (73,800)     $16.13          
                         ---------                ---------                ---------                      
                                                                                                          
End of year........      8,698,264      $29.07    7,136,579      $26.58    3,746,750      $12.63          
                         =========                =========                =========                       
                                                                                                       
Exercisable at                                                                                         
  end of year......      2,949,509                2,379,281              2,160,050                     
                         =========                =========              =========                      
</TABLE>                                         

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


(8)  STOCK OPTIONS: (CONTINUED)

     The following table summarizes information with respect to options
outstanding and options exercisable at June 30, 1998:

<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                  613,030          1.64                  $ 4.87      562,889          $ 5.19
 $6.63-$10.00                  937,000          5.90                  $ 9.62      602,600          $ 9.41
$11.50-$32.25                2,595,720          8.91                  $21.55    1,590,820          $17.28
$32.75-$46.69                3,963,696         10.66                  $37.84      163,200          $35.27
$46.88-$63.63                  588,818         10.94                  $49.55       30,000          $46.88
</TABLE>

(9)  COMMITMENTS AND CONTINGENCIES:

     Leases--

     The Company leases office and warehouse space, equipment and automobiles
under various noncancellable operating leases.  Rental expense was $2,142,000,
$803,000 and $318,000 for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively.  The minimum aggregate rental commitments under noncancellable
leases, excluding renewal options, are as follows (in thousands):

 
     YEARS ENDING JUNE 30,
     ---------------------
 
     1999.................................      $2,067
     2000.................................       1,937
     2001.................................       1,800
     2002.................................       1,366
     2003.................................         447
     Thereafter...........................       2,840

     Legal proceedings--

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

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

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



(10) QUARTERLY FINANCIAL DATA (UNAUDITED):

     The following table summarizes the quarterly financial data for the fiscal
years ended June 30, 1998 and 1997 (in thousands, except per share data).  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>                                                                       NET INCOME (LOSS) 
                                          INCOME (LOSS)                             PER SHARE      
                                        BEFORE PROVISION                        -----------------  
QUARTER ENDED                NET SALES      FOR TAXES      NET INCOME (LOSS)     BASIC    DILUTED 
-------------                ---------      ---------      -----------------    -------   ------- 
<S>                          <C>        <C>              <C>                    <C>      <C>      
1997                                                                                              
----                                                                                              
September 30, 1996.........    $11,185          $  3,527           $  2,389      $  .14    $  .13 
December 31, 1996..........     11,899           (24,545)           (25,934)      (1.54)    (1.54)
March 31, 1997.............     14,243            (1,516)            (2,420)       (.14)     (.14)
June 30, 1997..............     15,558            (2,092)            (1,495)       (.09)     (.09)
                                                                                                  
Year Ended June 30, 1997...    $52,885          $(24,626)          $(27,460)     $(1.60)   $(1.60) 

<CAPTION>  
                                                                                   NET INCOME     
                                                 INCOME                             PER SHARE       
                                            BEFORE PROVISION                     ------------------ 
QUARTER ENDED                NET SALES         FOR TAXES          NET INCOME     BASIC     DILUTED 
-------------                ---------         ---------         -----------     ------   --------- 
<S>                          <C>            <C>                  <C>             <C>     <C>       
1998                                                                                               
----                                                                                               
September 30, 1997.........    $14,833          $  2,650           $  1,492      $  .08    $  .08  
December 31, 1997..........     15,440             3,726              2,293         .13       .12  
March 31, 1998.............     16,437             3,849              2,376         .13       .12  
June 30, 1998..............     18,235             4,607              2,883         .16       .14  
                                                                                                   
Year Ending June 30, 1998..    $64,945          $ 14,832           $  9,044      $  .51    $  .46   
</TABLE>

(11) 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, 1998
                                  --------------------
                                  CARRYING  ESTIMATED
                                   AMOUNT   FAIR VALUE
                                  --------  ----------
                                     (in thousands)
Assets:
     Cash and cash equivalents..  $ 90,645    $ 90,645
     Marketable securities......   227,062     229,683
 
Liabilities:
     Long-term debt.............   159,500     167,874

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


(11) FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)

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.

     The fair value estimates presented herein are based on information
available to the Company as of June 30, 1998.  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.

(12) SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):

<TABLE>
<CAPTION>
                                     YEARS ENDED JUNE 30,
                                 ----------------------------
                                  1998        1997        1996
                                  ----      ------      ------
<S>                          <C>         <C>         <C>
     Interest Paid......        $8,233      $    -      $    6
     Income Taxes Paid..         1,603       1,788       3,212
</TABLE>

     The following non-cash transactions were excluded from the consolidated
statements of cash flows for the years ended June 30, 1998, 1997 and 1996:

     In fiscal years 1998, 1997 and 1996, 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 $5,424,000, $7,450,000 and
$3,833,000, respectively.

     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 issued                 (24,488)
                                                ------- 
          Liabilities assumed                   $12,437
                                                =======

(13) SUBSEQUENT EVENTS:

          In July 1998, the Company completed the acquisition of Point Plastics,
Inc., a manufacturing company located in Petaluma, California.  Point Plastics
designs, manufactures and distributes injection-molded, disposable laboratory
plastics used for liquid handling in the life sciences marketplace.  Point
Plastics had net sales of approximately $25,000,000 for the twelve months ended
December 31, 1997 .  The purchase price for the outstanding capital stock of
Point Plastics was $86,000,000, paid 60% in shares of Synetic Common Stock  and
40% in cash.  The tax free merger will be accounted for using the purchase
method of accounting.

                                      F-19
<PAGE>
 
                         SYNETIC, INC. AND SUBSIDIARIES
                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                    Years Ended June 30, 1998, 1997 and 1996


<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, 1998                                 $739,000     127,000          4,000       (84,000)(1)        $786,000    
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     
</TABLE>

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

                                      S-1
<PAGE>
 
                               INDEX TO EXHIBITS

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

 3.1    Amended & Restated Certificate of Incorporation of the Company.
        Incorporated by reference to Exhibit 3.1 to the Company's Current Report
        on Form 8-K dated April 9, 1998 ("April 9, 1998 Form 8-K").

 3.2    By-Laws of the Company, as amended. Incorporated by reference to Exhibit
        3.2 to the April 9, 1998 Form 8-K.

 4.1    Specimen Common Stock Certificate of the Company, Incorporated by
        reference to Exhibit 4.1 to the Company's Registration Statement on Form
        S-1 (No. 33-28654) (the "Registration Statement").

 4.2    Form of Indenture between the Company and United States Trust Company of
        New York, including form of Convertible Subordinated Debenture due 2007.
        Incorporated by reference to Exhibit 4.2 to the Company's Registration
        Statement on Form S-3 (No. 333-21041).

10.1    1989 Class A Non-Qualified Stock Option Plan of the Company.
        Incorporated by reference to Exhibit 4.1 to the Company's Registration
        Statement on Form S-8 (No. 333-21555).*

10.2    1989 Class B Non-Qualified Stock Option Plan of the Company.
        Incorporated by reference to Exhibit 4.2 to the Company's Registration
        Statement on Form S-8 (No. 333-21555).*

10.3    1991 Director Stock Option Plan of the Company. Incorporated by
        reference to Exhibit 4.3 to the Company's Registration Statement on Form
        S-8 (No. 333-21555).*

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 4.1 to the Company's
        Registration Statement on Form S-8 (No. 33-38446).*

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

10.6    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.

10.7    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
------                       -----

10.8    Stock Option Agreement, dated as of July 24, 1991, between the
        Company and Roger C. Holstein. Incorporated by reference to Exhibit 4.3
        to the Company's Registration Statement on Form S-8 (No. 33-46640).*

10.9    Agreement and Plan of Merger, dated as of March 6, 1998, among the
        Company, Plastics Acquisition Corp., a wholly owned subsidiary of the
        Company, Point Plastics, Inc., the Point Plastics, Inc. Employee Stock
        Ownership Plan and Trust and certain other individuals. Incorporated by
        reference to Annex IA to Amendment No.3 to the Joint Proxy
        Statement/Prospectus included as part of the Company's Registration
        Statement on Form S-4 (File No. 333-50801) filed on July 8, 1998.

10.10   Amendment No. 1 to Agreement and Plan of Merger, dated as of March 6,
        1998, among the Company, Plastics Acquisition Corp., a wholly owned
        subsidiary of the Company, Point Plastics, Inc., the Point Plastics,
        Inc. Employee Stock Ownership Plan and Trust and certain other
        individuals. Incorporated by reference to Annex IB to Amendment No.3 to
        the Joint Proxy Statement/Propectus included as part of the Company's
        Registration Statement on Form S-4 (File No. 333-50801) filed on July 8,
        1998.

10.11** Employment Agreement dated as of January 23, 1997, between the Company
        and David M. Margulies, M.D.*

10.12** Stock Option Agreement, dated as of January 7, 1998, between the Company
        and David M. Margulies, M.D.*

10.13** Employment Agreement, dated as of November 6, 1997, between the Company
        and Roger C. Holstein ("Holstein") together with Stock Option Agreement
        made as of June 23, 1997 between the Company and Holstein attached as
        Exhibit A-1 thereto and Stock Option Agreement made as of October 2,
        1996 between the Company and Holstein attached as Exhibit A-2 thereof.*

10.14** Employment Agreement, dated as of December 12, 1997, between the Company
        and Kim A. Davis ("Davis"), together with Stock Option Agreement made as
        of November 18, 1997 between the Company and Davis attached as Exhibit
        A thereto and Stock Option Agreement made as of November 18, 1997
        between the Company and Davis attached as Exhibit B thereto.*

10.15** Employment Agreement, dated as of December 12, 1997, between Porex
        Corporation and Kim A. Davis.*

10.16   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.

10.17   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) and Anthony Vuolo (for 125,000 shares).
        Incorporated by reference to Exhibit 4.5 to the Company's Registration
        Statement on Form S-8 (No. 333-21555).*

10.18   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).

10.19   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).*

10.20   1991 Special Non-Qualified Stock Option Plan of the Company.
        Incorporated by reference to Exhibit 4.3 to the Company's Registration
        Statement on Form S-8 (No. 333-36041).*

21.1**  Subsidiaries of the Company.

23.1**  Consent of Arthur Andersen LLP.

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

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

24.1**  Powers of Attorney of the Company.

27**    Financial Data Schedule.

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