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: Commission File No.:
December 31, 1997 0-6421
SYNERGISTICS, INC.
Massachusetts 04-2283157
(State of Incorporation) (IRS Employer I.D.
Number)
9 Tech Circle, Natick, MA 01760
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number,
including area code (508) 655-1340
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $0.01 Par Value
(Title of Class)
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
(or such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X___ No ______
To the Company's knowledge, only a limited public market for its
securities existed as of December 31, 1996 and there was no
aggregate market value of registrant's securities as of that
date.
State issuer's revenues for its most recent fiscal year
$2,379,967
Indicate the number of shares outstanding of each of the
registrant's classes of Common Stock, as of the last practical
date.
Common Stock, $0.01 Par Value 9,557,561
(Title of Class) (Shares Outstanding at March 1, 1998)
Exhibit Index is located on pages 11 and 38 of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Form 10-QSB filed with the Commission by the Company for period
ending September 30, 1997
PART I-FINANCIAL INFORMATION
ITEM 1. DESCRIPTION OF BUSINESS
(a) General Development of Business
Synergistics, Inc. a Massachusetts corporation (the "Company")
organized on May 13, 1960 is located at 9 Tech Circle, Natick,
Massachusetts 01760, telephone (508) 655-1340. The Company's
principal activity consists of manufacturing and marketing access
control systems, which it sells to banks, and other commercial
customers.
Current Products:
MSLR1 - ATM Vestibule Access Control: The MSLR1 product line
continues to be the largest revenue producer for the Company. It
is an access control system utilizing a single reader and
controller to regulate access to one door or area. The principal
market for this product has been to control access to automatic
teller machines (ATM's). The Company currently sells to over
20,000 bank installations worldwide.
ATM-III - ATM Vestibule Access Control: This product controls
access to ATM vestibule installations similar to the MSLR1
product. It offers high security to the installations and is
sold mainly overseas to countries where small banking groups are
popular.
ATM Access - ATM Vestibule Access Control: ATM Access is a
distributed processing access control system developed in 1994 to
meet the requirements for New York Cities Local Law 70, a law
passed to increase security in ATM installations. The ATM Access
system meets the requirements of the law by using a database
supplied to the banks by NYCE which allows only bank cards to
gain entrance to ATM vestibule installations. Today, with over
1,500 installations in and around New York City, the product is
expanding beyond New York City into Long Island, New Jersey, Ohio
and New York State.
PC-PAC - Central Processing Access Control System: The PC-PAC
system provides alarm security and monitoring capability for
complete facility management. It has the capability of
controlling 256 access controlled areas, supporting over 35,000
authorized persons, while providing monitoring capability for
1,600 alarm points in the system. PC-PAC utilizes a desk top PC
as a central processing unit. It is available in a single
computer version or with a redundant computer running in hot
standby. PC-PAC is packaged as a system. The computer makes all
access decisions, processes reports, and is used for editing and
logging functions in an on-line environment.
WA-PAC - Distributed Processing Building Management System:
WA-PAC is an access control system which supports a network of
buildings or sites from a desk top PC host computer over dial-up
or direct voice grade telephone lines or fiber optics
communications. WA-PAC operates as a distributed intelligent
network of card access readers and controllers which control
access to buildings or sites in the network as well as monitoring
perimeter security. Each building or site can have up to 64 card
access readers and over 4,000 alarm input and output points. It
will support databases of over 50,000 users. Additional security
can be added to each site in the form of input/output controllers
which are programmed to control elevators, appliances or report
breaches of perimeter security or fire/flood alarms, etc. at each
secured site.
WA-PAC TRACKER - An enhancement to WA-PAC. This system protects
against asset theft from buildings secured with WA-PAC access control
security. Assets are defined as any object or erson that can be tagged
for identification with Tracker's long range proximity security tags.
Assets may be laptop computer, babies r even elderly persons. Assets are
associated with authorized personnel by the system and recorded as they
pass monitoring points. If the asset is unauthorized, an alarm is
reported. If it is authorized, a record is made of its passing.
BUILDING WATCH - Distributed Processing Access Control System:
Building Watch is a distributed processing access control product
designed for securing commercial or industrial facilities at low
cost. This system shares a personal computer with other
programs, thereby making it a very cost effective security system
that is easy to implement and expand. Building Watch offers
direct local access control and remote access management over
dial-up phone lines. It also supports input point monitoring and
reporting capabilities. Building Watch supports all popular card
technologies.
BUILDING WATCH FOR WINDOWS - This access control system is a Windows 3.1
based clone of the DOS Building Watch system above. It supports
access control in a unlimited number of buildings and operates under
Windows 3.1, 95 and NT platforms.
DOOR WATCH - 2 Door, Full Featured Access Control System: Door
Watch is a stand alone, 2 door access control system. This
product is sold mainly to small, industrial and commercial users
who require only one or two doors of access control, but wish to
control doors with time zones and keep a printed record of system
activity. Door Watch supports all popular card reader
technologies.
SENTRY - Single door, stand-alone access control system, expandable to
2 doors. Sentry was introduced in 1997 as a low end to our access
control product line. It is marketed to locksmiths due to its simplicity
and ease of installation. Sentry is still undergoing some growing pains
and should become a significant selling product in 1998.
The Company designs all of its products. The Company's computer
based products use personal computers and standard peripherals to
provide access control and building management to secured sites.
These products are acquired from a variety of third party
sources. Components are procured from electronics distributors.
Board and assembly houses manufacture and assemble circuit
boards. Final assembly, test and shipping functions are
performed by Company personnel. The Company solicits bids for
components, sub-assemblies and outside assembly. The Company has
not experienced difficulty obtaining components for its products.
(b) Financial Information About Industry Segments
The Company has been in a single business segment for the past
year: The manufacturing and marketing of access control and
facility management systems. All of the Company's revenue,
operating profit or loss and identifiable assets are attributable
to one industry segment.
(c) Narrative Description of Business
Description of Products
The Company has been marketing bank ATM access control products
since 1977. These products consisted of MSLR1, ATM III, and ATM
Access. Bank ATM access control revenue represented approximately
30% of all Company revenue in 1997, 35% in 1996 and 49% in 1995.
The Company has sold ATM access control products to over 20,000
bank installations and believes that there are over 100,000 ATM
installations worldwide.
PC-PAC was introduced in 1984. PC-PAC provides hard copy for
permanent records, provides instantaneous check of personnel in a
given area and retains a record of those cards which have been
used to attempt access to an area where the cardholder was not
authorized. Product options include zoned anti-passback; alarm,
elevator and relay control; as well as disk logging. PC-PAC
revenue approximated 1% of all company revenue in 1997, 3% in
1996 and 4% in 1995. The Company believes that a PC-PAC system
is appealing to wide variety of business, government and
institutional users. For example, in a defense plant, where
access to facilities is restricted and record retention required,
a multi-functional PC-PAC can be used to control access to both
general and particular areas by various categories of personnel
according to specific government security clearances. A hospital
can use PC-PAC to monitor, record and restrict access to various
employee service and supply areas by appropriate coding of access
cards. Large commercial and institutional users can use PC-PAC
to regulate access to research areas, computer facilities or
elevators. The Government has found PC-PAC very effective in
many areas. PC-PAC sales are on a declining curve due to the
WA-PAC and Building Watch products which are taking its place in
many installations.
The Company introduced WA-PAC in 1988 as a network access control
system which controls multiple sites/buildings through the use of
a single host computer. Network communications could be direct
connect or dial-up telephone lines. The sites could be a building
complex such as an office park/university or remote
decentralized facilities controlled from a single central site.
Product shipments began in the third quarter of 1988. WA-PAC
revenue approximated 16% of total company revenue in 1997, 10% in
1996 and 17% in 1995.
The Company developed and announced Building Watch in 1990.
Initial product shipments began in December 1990. Building Watch
revenues approximated 14% of total company revenue in 1997, 14% in
1996, and 21% in 1995. The Company expects a this product to be
replaced by Building Watch for Windows in 1998 and beyond.
The Company developed and announced Building Watch for Windows in 1997.
Initial shipments began that year and approximated 11% of all Company
revenues for 1997. The Company expects this product to be enhanced
in 1998 to become a significant contributor to total Company revenue.
The Company announced Door Watch in December of 1992 and began
shipping the product December of that year. Door Watch revenues
approximated 1% of total company revenue in 1997, 2% in 1996 and
2% in 1995.
The Company introduced and began selling Sentry in 1997. Sentry has
not been a significant contributor to revenue in 1997.
MARKETS
The primary market for the ATM access control product line is
banks with automatic teller machine (ATM) vestibules. The
Company believes that its access control and building management
product lines are applicable to a wide variety of commercial,
government and institutional markets; i.e., military bases,
hospitals, colleges and universities, research and computer
facilities, office buildings, and office or manufacturing
complexes.
RAW MATERIAL
The Company purchases components for its products from
electronics distributors. The Company designed printed circuit
boards are purchased from board manufacturers and outside
assembly houses manufacture the completed printed circuit boards.
Third parties are also used to assemble card readers and other
assemblies. Final assembly, test and shipping as well as any
customization is performed by the Company. The Company is not
dependent upon any one firm for components or assembly work and
duel sourcing is a company policy. The Company solicits bids for
its work and awards business based upon quality of workmanship,
price and lead time. The Company has not experienced difficulty
obtaining parts or outside assemblers for its products.
MARKETING AND CUSTOMERS
The company sells its products through the efforts of district
sales managers who market the product through independent
security dealers and locksmiths world wide. The Company markets
its products primarily through trade shows, advertising in
selected industry and bank journals and magazines, government
supply contracts, selected direct mailings, the Internet and
supporting dealer bids and proposals.
The Company continues to expand its base of distribution by
increasing the number of dealers authorized to sell the Company's
products. The Company sells direct to certain large banks and
government agencies.
The Company's business is not seasonal in any material respect.
The Company has no dependence upon a single customer or a few
customers.
PATENTS AND TRADEMARKS
The Company holds no patents on any of its current products.
WORKING CAPITAL ITEMS
Manufacturing cycle time approximates 2 weeks. The Company feels
that this is not unusual for a company that uses outside
contractors for manufacturing and assembly.
The Company provides a one year warranty after a product is
shipped. Normal payment terms are 30 days.
BACKLOG
The ending backlog was $78,187 in 1997, $34,864 in 1996 and $51,825 in 1995.
RESEARCH AND DEVELOPMENT
The Company expends monies on technical support, research and development
of new products, and the enhancement of existing products. Such
expenditures are consistent with the Company's overall product development,
maintenance and enhancement strategies. In 1997, a significant
engineering effort was entered into where development of new Windows based
products occupied most of our engineering effort.
GOVERNMENT CONTRACTS
The Company does not actively pursue government contracts, but
does have a GSA contract and sells to the government whenever it
is advantageous. Government revenue approximated 3% of total
revenue in 1997, 1% in 1996 and 4% in 1995.
None of the Company's sales under government contracts are
subject to re-negotiation of profits or termination of contracts
or subcontracts, to the best of the Company's knowledge.
COMPETITORS
Over 150 companies compete in the card based access control
marketplace. The principle Company competitors include Cardkey
Systems, Sensormatic, Westinghouse, CASI-RUSCO, Corby Industries,
and Northern Computers. The Company believes its sales volume is
a small fraction of the combined sales of the Company's major
competitors.
A competitor that chooses to devote substantial economic
resources toward acquiring a dominant position in the access
control devices market might seriously injure the Company's
market position and jeopardize its viability, but the product
line has proven to be reliable and competitive over the years and
should survive this type of competition. The Company believes
that competition in our marketplace is based upon reliability,
price, service, and product capability. The Company believes
that it can compete on such terms.
ENVIRONMENTAL MATTERS
The nature of the Company's manufacturing operation is such that
no materials are discharged into the environment. Under the
terms of the Company's lease for its operating facility, it is
obligated for the normal maintenance and repair of building
systems. No additional capital expenditures are anticipated by
the Company.
PERSONNEL
At December 31, 1997, the Company had twenty six (26) full time
employees.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT REVENUE
The Company operates exclusively from a headquarters facility
located in Natick, Massachusetts.
Export revenue approximated 21% of total revenue in 1997, 19% in
1996 and 22% in 1995. The Company sells to American brokers
doing business abroad and directly to end users and foreign
dealers. The currency used for all sales to foreign firms is the
U.S. Dollar. Below is a percentage summary of total revenues by
foreign sector for the years 1997, 1996 and 1995:
Unaudited Percentage of Exports By Sector 1997 1996 1995
Middle East including Turkey 18% 28% 30%
Canada 17% 12% 15%
South/Central America and Mexico 43% 14% 36%
South Pacific and Far East 15% 7% 6%
Other export sales 7% 39% 13%
Grand Total Export Sales 100% 100% 100%
ITEM 2. PROPERTIES
The Company currently leases approximately 7,160 square feet of
office and manufacturing space in a one story brick and masonry
building located at 9 Tech Circle, Natick, Massachusetts under
the terms of a five year lease which expires June 1, 1999. The
current monthly base rate is $3,667. Additionally the Company is
required to pay utility charges and insurance costs as well as
the Company's portion of taxes and common space charges.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings are pending to which the Company is
a party or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the security holders during
the Fourth Quarter of 1997.
ITEM 5. MARKET OF THE COMPANY'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
As of December 31, 1997, to the Company's knowledge, only a
limited public market for its Common Stock existed. The Common
Stock is not presently registered on any stock exchange. The
Company is not aware of any over-the-counter trading in its stock
the past two years.
Prior to December 31, 1993, the Company had 656 stockholders of
record of Common Stock and 13 stockholders of Preferred Stock.
Due to the Company's inability to pay the required semi-annual
dividends, this Preferred Stock and the accumulated unpaid
dividends were converted to 1,367,040 shares of Common Stock.
Immediately after this conversion, additional shares of common
stock were issued to a principal shareholder and director in
payment of certain demand notes and accrued interest.
PART 11
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
1997 Compared to 1996
Revenues for 1997 were $2,379,967, an increase of $91,692 compared
with 1996.
Cost of Sales as a percentage of revenue increased to 70.17% from 63.07%
and selling expenses for 1997 increased by $82,476 when compared to 1996.
The increase in Cost of Sales was due to aggressive engineering and
development spending to bring Windows into the product line. Increases
in Sales and Marketing expenses relate to the Company's development of new
promotional materials, and aggressive advertising campaign and the hiring of
sales managers in various sections of the U.S..
At December 31, 1997, current assets exceeded current liabilities by $446,373
including cash in commercial checking and money market accounts of $36,686.
1996 Compared to 1995
Revenues for 1996 were $2,288,275, an increase of $14,628 compared
with 1995.
Cost of Sales as a percentage of revenue increased to 63.07% from
54.26% and selling expenses for 1996 increased by $87,774 when
compared to 1995. The increase in Cost of Sales was due to necessary
product enhancement expenditures. Increases in Sales & Marketing
expenses relate to the Company's development of new promotional materials
and an aggressive advertising campaign.
At December 31, 1996, current assets exceeded current liablilities
by $427,802 including cash in commerical checking and money market
accounts of $101,550.
1995 Compared to 1994
Revenues for 1995 were $2,273,647 or declining when compared to
1994. This net decline of $505,146 was mainly due to the
expected decline of the ATMA product line sales when the New York
City installations were completed. System sales increased as
expected by $212,000 for 1995 due to enhanced advertising and
sales personnel while stand alone systems declined by $64,000.
Cost of Sales as a percentage of revenue decreased to 54.26% from
55.50% when compared to 1994. In 1995, certain manufacturing
operations previously done by outside assemblers were converted to
an in house operation. This increase in labor is offset by the
reduction in subcontractor expense. Selling expenses for 1995
decreased by $82,970 due to the reduction of salaries and expenses
necessary to support the video imaging product line. General and
administrative expense declined approximately $10,000 due to
reduced occupancy costs.
At December 31, 1995, current assets exceeded current
liabilities by $475,969 including cash in commercial checking
and money market accounts of $332,151.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, the Company sold an additional 260,000 shares of common
stock at $1.00 per share to certain holders of common stock. Proceeds
of this sale were used to fund development of the Windows product lines.
No other capital requirements were necessary.
During 1996, the Company operated on it own cash flow without any
additional outside capital requirements.
During 1995, the Company operated on its own cash flow without any
additional outside capital requirements.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements years ended Page
Number
December 31, 1997 and 1996
Independent Auditors' Report - March 14, 1998 F1
Balance Sheets as of December 31, 1997 and F2
December 31, 1996
Statements of Operations for years ended F3
December 31, 1997 and 1996
Statements of Stockholders' Equity F4
for years ended December 31, 1997 and 1996
Statements of Cash Flows for years ended F5
December 31, 1997 and 1996
Notes to Financial Statements F6-F12
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No Form 8-KSB has been filed within 24 months prior to the date of
the most recent financial statements reporting a change of
accountants and/or reporting disagreement on any matter of
accounting principle or financial statement disclosure.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTOR OTHER POSITION
NAME AGE SINCE WITH COMPANY
David S. Longworth 63 1981 President and Chief Operations
Officer
Robert Pogorelc 63 1997 Vice President
William M. Tetrick 82 1967 CEO and Chairman of the
Board
J. Thomas Gehman 51 1981 None
Lawrence A. Bishop 53 1984 None
David S. Longworth, a Director, is President and Chief Operating
Officer since August, 1994. Prior to that he has served as
Executive Vice President and has provided various engineering and
consulting services to the company since 1973 until joining the
Company on a full time basis in 1984. Mr. Longworth was
responsible for Compliance Engineering at Applicon, Inc. of
Burlington, Massachusetts, a Computer Aided Design Systems
manufacturer since January 1983. From 1973 to 1983, he was
employed by Nixdorf Computer Corp. of Burlington, Massachusetts, a
computer manufacturer, where he was employed as an engineer.
William M. Tetrick, a Director, retired as President in August,
1994 but remains Chief Executive Officer and Chairman of the Board
of Directors of the Company since December 1967.
Robert Pogorelc was elected Vice President in 1994. He joined the
Company as Sales Manager in 1986 and currently is manager of Sales
and Marketing. Mr. Pogorelc was a sales manager for a
Synergistics dealer from 1982-1985.
J. Thomas Gehman, a Director, is currently president of On Demand
Imaging of Waltham, MA. Mr Gehman was Director of Engineering for
Amnet, Inc. a Watertown, Massachusetts computer network control
systems manufacturer. Prior to that, he was a design engineer
with Applicon , Inc. from 1981 to 1983 and an engineering manager
at Nixdorf Computer from 1976-1981.
Lawrence A. Bishop, a Director, is executive Vice President of
Gray, Seifert & Co., Inc., an investment and financial advisory
firm, as well as a Director of several privately held firms.
During the past five years, none of the Company's Directors has
been (1) involved in any petition under the Bankruptcy Act or
Bankruptcy Code or state insolvency proceeding or any criminal
proceeding, (2) the subject of any order, judgment or decree
enjoining him from engaging in or limiting his involvement in any
type of business practice, including securities related
activities, or (3) found by any court or the Securities and
Exchange Commission to have violated any securities law.
ITEM 10. MANAGEMENT REMUNERATION AND TRANSACTIONS
The following is a table of compensation paid to all executive
officers and the sales manager as a group:
CASH COMPENSATION TABLE (1997)
(A) Name of Individual (B) Capacities in which (C) Cash
Or Number in Group Served Compensation
All executive officers (1) President and COO
and sales manager as a (2) Treasurer and Clerk
group (3 persons). (3) Vice President and $219,527
Sales Manager
CERTAIN TRANSACTIONS
As of December 31, 1997, the Company owed Mr. Tetrick
approximately $86,297 for unpaid expenses over the past nineteen years.
The total amount of money owed will be paid over a period of time at a
rate of $55,000 per year, in weekly installments of $1057.69 until
the debt is cleared.
History: Wm. M. Tetrick
The Company and Mr. Tetrick entered into an agreement on December
31, 1981, regarding payment of accrued compensation, which was
amended on September 30, 1983 (the "Agreement"). The Agreement
provided for repayment of $100,000 of accrued salary to Mr.
Tetrick prior to April 15, 1984, (2) an increase in Mr. Tetrick's
salary from $25,000 to $50,000 a year as of the date of the
amendment, and (3) repayment of remaining accrued compensation to
Mr. Tetrick at the rate of $50,000 per year. Pursuant to the
Agreement, Mr. Tetrick converted $116,000 of accrued salary owed
him by the Company into 202,000 shares of Common Stock. On
December 1, 1984, Mr. Tetrick received payment of $88,529 of
accrued salary. Mr. Tetrick accrued his 1984 salary of $50,000.
Beginning January 1, 1985, Mr. Tetrick began drawing his annual
salary on a weekly basis.
As of December 31, 1995, the Company had a note receivable from
its former Treasurer in the amount of $148,541.72 to reimburse the
Company for certain expenses incurred and to formalize various
cash advances. The note is receivable over ten (10) years with
annual interest of 7.5% and weekly payments of $150. The balance
is due at the end of ten years and the loan is secured by a second
mortgage on the borrower's personal residence. As collection of
amounts outstanding on this note is questionable, a reserve has
been established for the full amount of the outstanding loan.
The Company has established a 401(k) plan for its employees.
As of December 31, 1997, the Company had not contributed to the plan
for the current year.
OTHER COMPENSATION
The Company has no other plan or arrangement whereby any person
will receive remuneration upon the termination of his status as an
employee, officer or director of the Company. The Company had
paid, as of March 1, 1998, no forms of contingent compensation.
Other than the transactions described herein, there were no
material transactions during 1997 to which any of the following
persons has a direct or indirect interest: (1) any director or
officer of the Company, (2) any nominee for election as a
director, (3) any person who, to the Company's knowledge, owns 5%
or more of the Company's stock, or (4) any relative or spouse (or
relative of such spouse) of the foregoing persons.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the holdings of Common Stock by
each person who, as of December 31, 1997 held of record or was
known by the Company to own beneficially more that 5% of the
outstanding Common Stock, by each director and by all directors
and officers as a group.
AMOUNT AND NATURE PERCENTAGE OF
OF BENEFICIAL COMMON STOCK
NAME AND ADDRESS OWNERSHIP (1) (9) OUTSTANDING
William M. Tetrick
2 Ridgeway Drive 423,577 (2) (3) (4) 4.43%
Wellesley Hills, MA 02181
David S. Longworth
65 School Street Ext. 89,346 (5) 0.93%
Natick, MA 01760
Robert L. Pogorelc
1540 Main Street 15,460 (6) 0.16%
West Barnstable, MA 02668
J. Thomas Gehman
141 Marked Tree Road 12,000 (7) 0.13%
Needham, MA 02192
Lawrence Bishop
c/o Gray, Seifert & Co. Inc.
380 Madison Avenue 10,000 (8) (10) 0.13%
New York, NY 10017
Legg Mason, Inc.
c/o Gray Seifert & Co., Inc.
380 Madison Ave.
New York, NY 10017 6,278,846 (11) 65.70%
All Directors and Officers
as a Group (5 persons) 550,383 5.76%
(1) Unless otherwise indicated in the following footnotes,
ownership is both beneficial and of record.
(2) Excludes 13,350 shares owned of record by Mr. Tetrick's wife
and 4,840 shares owned by his son, Paul Tetrick, who resides with
him, as to which he disclaims beneficial ownership.
(3) Excludes 131,883 shares owned of record by Gary Cramer, Mr.
Tetrick's son-in-law; 3,200 shares owned by Gary and/or
Margaret Cramer, Mr. Tetrick's daughter, and 3,300 shares owned by the
children of Mr. and Mrs. Cramer as to which Mr. Tetrick
disclaims beneficial ownership.
(4) Excludes 18,876 shares owned of record by other children and
grand children of Mr. Tetrick not already disclosed in points (2) and (3)
above as to which Mr. Tetrick disclaims beneficial ownership.
(5) Includes 85,771 shares of Common Stock acquirable on exercise
of stock options.
(6) Includes 15,460 shares of Common Stock acquirable on exercise
of stock options.
(7) Includes 10,000 shares of Common Stock acquirable on exercise
of stock options under the 1987 Director Stock Option Plan.
(8) Includes 10,000 shares of Common Stock acquirable on exercise
of stock options under the 1987 Director Stock Option Plan.
(9) All options are considered non-dilutive since exercise price
exceeds last known market price.
(10) Excludes 6,278,846 shares of Common Stock owned by customers
of Legg Masson, Inc., the parent company of Gray Seifert & Co., Inc.
Through agreements with such customers, Gray Seifert has discretionary
power to vote these shares.
(11) Consists of shares of Common Stock owned by customers of Gray
Siefert & Co., Inc., an affilliate of Legg Mason, Inc.;
however, through agreements with these customers, Gray Seifert has the
discretionary power to vote and dispose of all such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company advanced $25,000 to a director. The note is payable on
demand without interest.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND
REPORTS ON FORM 8-K
(a)(1) The following financial statements of Synergistics, Inc.
are included in Part II Item 8:
Index to Financial Statements years ended Page
Number
December 31, 1997 and 1996
Independent Auditors' Report - March 14, 1998 12
Balance Sheets as of December 31, 1997 and 13
December 31, 1996
Statements of Operations for years ended 14
December 31, 1997 and 1996
Statements of Stockholders' Equity (Deficit) for 15
years ended December 31, 1997 and 1996
Statements of Cash Flows for years ended 16
December 31, 1997 and 1996
Notes to Financial Statements 17-25
(b) Exhibits Page
Number
3.1 Articles of Organization and amendments thereto, as amended
through December 31, 1985 are incorporated by reference from
Form 10-K for the year ended December 31, 1982
3.2 Amendment to Articles of Organization is incorporated by reference
from Form 10-K for the year ended December 31, 1987
3.3 By-Laws, as amended, are incorporated by reference from
Form 10-K for the year ended December 31, 1982
3.4 Amendment to Articles of Organization is incorporated by reference
from Form 10-K for the year ended December 31, 1988
3.5 Amendment to Articles of Organization is incorporated by reference
from Form 10-K for the year ended December 31, 1990
3.6 Amendment to Articles of Organization is incorporated by reference
from Form 10-K for the year ended December 31, 1991
10.1 Sale of Imaging Assets is incorporated by reference from Form 10-KSB
for the year ended December 31, 1995.
10.2 Agreement with William M. Tetrick, dated December 30, 1981, is
incorporated by reference from Form 10-K for the year ended
December 31, 1983
10.3 Forms of Incentive Stock Option Plan of 1982 and Incentive Stock
Option Agreement are incorporated by reference from Form 10-Q for
the period ended March 31, 1983
10.4 Forms of Incentive Stock Option Plan of 1983 and Incentive Stock
Option Agreement are incorporated by reference from Form 10-Q for
the period ended March 31, 1984
10.5 Forms of Directors Stock Option Plan of 1987 and Directors Stock
Option Agreement are incorporated by reference from Form 10-K for
the period ended March 31, 1987
27 Financial Data Schedule
Supplemental Information
The Company plans to furnish proxy materials and an Annual Report
to Stockholders to its stockholders subsequent to the date of this
Form 10K, at which time copies shall be furnished to the Commission.
SYNERGISTICS, INC.
By /s/DAVID S. LONGWORTH______________________________
David S. Longworth
President and Chief Operations Officer
Date__March 30, 1998___________________________
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Synergistics, Inc. has caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.
By_/S/DAVID S. LONGWORTH________
David S. Longworth
President, COO and Director
In accordance with the Securities Exchange Act of 1934, this report has
been signed by the following persons on behalf of the registrant and in
the capacities indicated.
By_/S/DAVID S. LONGWORTH________ ____________________________
David S. Longworth William M. Tetrick
President, COO and Director Director
Date_3/30/98___________________ _____________________________
By/S/LAWRENCE BISHOP____________ _/S/J. THOMAS GEHMAN________
Lawrence Bishop J. Thomas Gehman
Director Director
Date_3/30/98___________________ _3/30/98_____________________
By_/S/ROBERT L. POGORELC___________
Robert L. Pogorelc
Director
Date_3/30/98____________________
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Synergistics, Inc.
Natick, Massachusetts
We have audited the accompanying balance sheets of Synergistics, Inc. as of
December 31, 1997 and 1996, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Synergistics, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
Wellesley, Massachusetts
March 10, 1998
- F1 -
<PAGE>
SYNERGISTICS, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
CURRENT ASSETS
Cash and equivalents $ 36,686 $ 101,550
Trade accounts receivable, net of reserves of
$20,000 in 1997 and 1996, respectively 484,682 467,559
Related party receivable 25,000 25,000
Inventories 335,088 239,818
Prepaid expenses 15,026 20,710
TOTAL CURRENT ASSETS 896,482 854,637
EQUIPMENT 142,188 122,652
Less depreciation and amortization 79,267 60,363
62,921 62,289
DEFERRED TAXES 817,776 817,776
$1,777,179 $1,734,702
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 307,033 $ 220,275
Accrued expenses and other current liabilities 56,779 65,263
Amounts due stockholder 86,297 141,297
TOTAL CURRENT LIABILITIES 450,109 426,835
COMMITMENTS AND CONTINGENT LIABILITIES - -
STOCKHOLDERS' EQUITY
Common Stock (authorized 12,000,000 shares;
issued 9,557,561 and 9,297,561 shares in 1997
and 1996, respectively, including 16,445 shares
held in Treasury) 95,576 92,976
Additional paid-in capital 6,799,637 6,542,237
Retained earnings (deficit) (5,561,008) (5,320,211)
1,334,205 1,315,002
Cost of Common Stock held in Treasury (7,135) (7,135)
1,327,070 1,307,867
$1,777,179 $1,734,702
========== ==========
See accompanying notes to the financial statements.
- F2 -
<PAGE>
SYNERGISTICS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
Revenues:
Sales $2,379,967 $2,288,275
Interest income 1,221 584
2,381,188 2,288,859
Costs and expenses:
Costs of sales 1,670,022 1,443,412
General and administrative expenses 394,483 421,561
Selling expenses 541,095 458,619
Bad debt expense 16,385 3,940
2,621,985 2,327,532
(LOSS) BEFORE INCOME TAXES (240,797) (38,673)
Income taxes - deferred - -
NET (LOSS) $ (240,797) $ (38,673)
========== ==========
(LOSS) PER COMMON SHARE $(0.026) $(0.004)
======= ========
See accompanying notes to the financial statements.
- F3 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SYNERGISTICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
ADDITIONAL RETAINED
COMMON STOCK PAID-IN EARNINGS TREASURY STOCK
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996 9,297,561 $92,976 $6,542,237 $(5,281,538) 16,445 $ 7,135 $ 1,346,540
Net income - - - (38,673) - - (38,673)
Balances at December 31, 1996 9,297,561 92,976 6,542,237 (5,320,211) 16,445 7,135 1,307,867
Net loss - - - (240,797) - - (240,797)
Proceeds from issuance of
Common Stock 260,000 2,600 257,400 - - - 260,000
BALANCES AT DECEMBER 31, 1997 9,557,561 $95,576 $6,799,637 $(5,561,008) 16,445 $ 7,135 $ 1,327,070
========= ======== ========= =========================== =========
</TABLE>
See accompanying notes to the financial statements.
- F4 -
<PAGE>
SYNERGISTICS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
Cash flows from operating activities:
Net (loss) $(240,797) $ (38,673)
Adjustments to reconcile net (loss) to net
cash (used) by operating activities:
Deferred taxes - -
Depreciation and amortization 18,904 14,663
Reserve for bad debts - (15,000)
(Increase) decrease in assets:
Trade accounts receivable (17,123) (105,764)
Inventories (95,270) (38,272)
Prepaid expenses and other current assets 5,684 2,470
Increase (decrease) liabilities:
Trade accounts payable 86,758 56,501
Accrued expenses and other current
liabilities (8,484) (2,370)
Amounts due stockholder (55,000) (54,999)
TOTAL ADJUSTMENTS (64,531) (142,771)
NET CASH (USED) BY OPERATING ACTIVITIES (305,328) (181,444)
Cash flows from investing activities:
Note payable-director - (25,000)
Capital expenditures (19,536) (24,157)
NET CASH (USED) BY INVESTING ACTIVITIES (19,536) (49,157)
Cash flows from financing activities:
Proceeds of stock issuance 260,000 -
NET CASH PROVIDED BY FINANCING ACTIVITIES 260,000 -
NET CHANGE IN CASH (64,864) (230,601)
Cash and equivalents at beginning of year 101,550 332,151
CASH AND EQUIVALENTS AT END OF YEAR $ 36,686 $ 101,550
========= =========
See accompanying notes to the financial statements.
- F5 -
<PAGE>
SYNERGISTICS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 and 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied by management
ofthe Company in the preparation of the accompanying financial statements
follows.
Nature of Operations
Synergistics, Inc. is engaged in the manufacturing and marketing of
card access systems, which are sold to banks and other commercial customers.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Equivalents
Cash and equivalents consist of cash on hand, demand deposits with
commercial banks, and money market securities with initial maturities of less
than 90 days.
Inventories
Inventories are stated at the lower of first-in, first-out cost or
aggregate market.
Equipment
Equipment is stated at cost. Normal maintenance and repair costs are
expensed as incurred. Gains and losses on sales or retirements are included in
operations. Depreciation and amortization are provided using straight-line and
accelerated methods over the estimated useful lives of the assets (5-12 years).
Common Stock Held in Treasury
When Common Stock held in Treasury is issued, Common Stock held in
Treasury is credited for the average cost of the issued securities.
Revenue
The company recognizes revenue from sales at the time products are
shipped to customers.
- F6 -
<PAGE>
SYNERGISTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 and 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
Advertising Costs
The Company expenses advertising costs as incurred.
Sales Commissions
The Company pays sales commissions to various agents only upon the
collection of the accounts receivable generated by the sales. The Company
accounts for these sales commissions at the time products are shipped to
customers.
Income Taxes
The Company accounts for income taxes using Statement of Financial
Accounting Standards (SFAS) 109, "Accounting for Income Taxes", which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based upon the difference between the financial statement and tax
basis of assets. Tax benefits arising from the utilization of carryforward net
operating losses, investment and research and development tax credits are
valued based upon the expected future benefit to be recognized.
(Refer to Note H)
Income Per Share of Common Stock
The weighted average number of shares of Common Stock outstanding used
in computing income per share does not include the effect of the conversion of
the stock options as the exercise price exceeds the current market value of the
security. (Refer to Note E)
Stock Options
The Company accounts for its incentive stock option plans in accordance
with APB No. 25 and does not recognize an expense when options are issued with
an exercise price in excess of market. Currently there is no public market for
this stock and estimates of future value as required by FASB 123 cannot
reasonably be determined.
NOTE B - INVENTORIES
Inventories consist of the following at December 31, 1997 and 1996:
1997 1996
Finished goods and work-in-process
at aggregate market $298,472 $177,648
Raw materials 36,616 62,170
$335,088 $239,818
======== ========
- F7 -
<PAGE>
SYNERGISTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 and 1996
NOTE C - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following
at December 31, 1997 and 1996:
1997 1996
Accrued compensation and benefits $29,653 $ 41,026
Accrued commissions 8,475 6,402
Accrued audit fees 17,500 17,500
Other 1,151 335
$56,779 $ 65,263
======= ========
NOTE D - AMOUNTS DUE STOCKHOLDER
Amounts due stockholder consist of the following at December 31, 1997
and 1996:
1997 1996
Amount due stockholder for wages
in arrears; payable, without interest,
on demand $ - $ 52,596
Amount due stockholder for costs
and expenses incurred by majority
stockholder on Company's behalf; payable,
without interest on demand 86,297 88,701
$ 86,297 $141,297
======== ========
NOTE E - STOCKHOLDERS' EQUITY
Common Stock
At December 31, 1997, the Company is authorized to issue 12,000,000
shares of $.01 par value Common Stock. At December 31, 1997, 9,557,561 shares
of such stock had been issued, including 16,445 shares held in the form of
Treasury Stock. At December 31, 1997, 850,000 shares were reserved for
issuance in connection with the stock option plans discussed below.
- F8 -
<PAGE>
SYNERGISTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 and 1996
NOTE E - STOCKHOLDERS' EQUITY (Continued)
Stock Option Plans
At December 31, 1997, the Company has three qualified incentive stock
option plans (the "1983 Plan", the "1987 Plan" and the "1988 Plan"), which have
been approved by the Company's stockholders. The 1983 and 1987 Plans provide
that options can be granted for the purchase of 275,000 shares of Common Stock
each through June 1993 and June 1998, respectively, with the options expiring
ten years from the date they are granted, except for options issued to holders
of more than ten percent of the Company's Common Stock, which expire five years
from the date they are granted. Options previously granted under a 1982 Plan
expired and were reissued under the 1983 Plan. The 1988 Plan provides that
options can be granted for the purchase of 350,000 shares of Common Stock
through 1998 under terms similar to the 1983 Plan.
All plans provide that options can be exercised for a value
(per share), as stated by the Company's Board of Directors, as of the date the
option was granted, except for options granted to holders of more than ten
percent of the Company's Common Stock which are exercisable at 110 percent of
such stated value.
Transactions regarding the options during the years ended December 31,
1997 and 1996 are shown as follows;
1983 Plan 1987 Plan 1988 Plan
Outstanding at January 1, 1996 182,401 66,000 182,698
Grants expired during 1996 (21,769) - (43,861)
Grants forfeited during 1996 (15,000) - (8,086)
Outstanding at December 31, 1996 145,632 66,000 130,751
Grants expired during 1997 (111,293) (46,000) (1,479)
Grants forfeited during 1997 - - (736)
Outstanding at December 31, 1997 34,339 20,000 128,536
======= ====== =======
Available for grant at
December 31, 1997 240,661 255,000 146,464
======= ======= =======
All outstanding options are exercisable at $2.50 per share.
Income Per Share of Common Stock
Income per share of Common Stock is computed based on the weighted
average number of shares of Common Stock outstanding (9,441,944 and 9,297,561
shares for the years ended December 31, 1997 and 1996, respectively).
- F9 -
<PAGE>
SYNERGISTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 and 1996
NOTE F - CONCENTRATION OF RISK
From time to time, the Company maintains deposits with major financial
institutions in excess of insurable limits.
NOTE G - RENT AND OPERATING LEASE COMMITMENT
The Company's rent expense during the years ended December 31, 1997 and
1996 approximated $59,400 and $57,600, respectively, principally under the terms
of a lease for its operating facility.
During April 1994, the Company leased new premises for a period of five
years. The lease provides that the Company is responsible for fifty percent of
the real estate taxes and operating costs of the premises. Future rental
payments required under the lease, exclusive of real estate taxes and operating
costs, are as follows:
Year Ending December 31,
1998 $ 45,791
1999 19,390
$ 65,181
========
NOTE H - INCOME TAXES
At December 31, 1997, operating loss carryforwards aggregating
approximately $4,884,756 are available to reduce future federal taxable income,
if any. If not utilized, these carryforwards will expire at various dates
between 1999 and 2008. The carryforwards are subject to examination by the
Internal Revenue Service.
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 are reflected in deferred income taxes.
As of December 31, 1997 and 1996, the Company's deferred tax asset
consists of:
1997 1996
Net operating loss carryforwards $1,978,811 $1,760,868
Other 66,000 66,000
Valuation allowance (1,227,035) (1,009,092)
$ 817,776 $ 817,776
========== ==========
- F10 -
<PAGE>
SYNERGISTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE I - BUSINESS SEGMENT INFORMATION
The Company's business, which consists principally of a single segment,
is the designing, manufacturing and selling of single and multifunctional
electronic systems which control access to secure areas. The Company sells to
domestic and foreign customers from its domestic location.
Sales by Major Customer Category 1997 1996
Government sales $ 62,808 $ 21,272
Other domestic sales 1,834,233 1,827,156
Export sales 482,926 439,847
$2,379,967 $2,288,275
========== ==========
Export sales are made directly and through United States brokers to
users in Canada, South and Central America to include Mexico, the Middle East
including Turkey, and the South Pacific and Far East. No single foreign area
accounts for more than ten percent of total sales in 1997.
NOTE J - CONTINGENT SALE OF ASSETS
The Company is currently negotiating a settlement of the contingent
sale of assets related to the imaging product.
NOTE K - NOTE RECEIVABLE - DIRECTOR
The Company advanced $25,000 to a director. The note is payable on
demand without interest.
NOTE L - ADVERTISING COSTS
Advertising expense was $60,773 and $46,404, respectively, for the
years ended December 31, 1997 and 1996.
NOTE M -
The Company has a deferred compensation plan under Section 401(k)
covering substantially all employees. The Company provided no match
during 1997 and matched $7,000 during 1996.
- F11 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 36,686
<SECURITIES> 0
<RECEIVABLES> 529,682
<ALLOWANCES> 20,000
<INVENTORY> 335,088
<CURRENT-ASSETS> 896,482
<PP&E> 142,188
<DEPRECIATION> 79,267
<TOTAL-ASSETS> 1,777,179
<CURRENT-LIABILITIES> 450,109
<BONDS> 0
0
0
<COMMON> 95,576
<OTHER-SE> 1,231,494
<TOTAL-LIABILITY-AND-EQUITY> 1,777,179
<SALES> 2,379,967
<TOTAL-REVENUES> 2,379,967
<CGS> 1,670,022
<TOTAL-COSTS> 1,670,022
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 16,385
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (240,797)
<INCOME-TAX> 0
<INCOME-CONTINUING> (240,797)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (240,797)
<EPS-PRIMARY> (0.026)
<EPS-DILUTED> (0.026)
</TABLE>
