-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C95LhfTgpG4r9/zRlm8z5+gnyn7Wy0rkrYzc8mrgrT8BUOMSYWAV2O2t9Su9/5v7 j4YOVVy80dI1fg0+lk2y9g== /in/edgar/work/20000814/0000912057-00-036830/0000912057-00-036830.txt : 20000921 0000912057-00-036830.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-036830 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESYNCH CORP/CA CENTRAL INDEX KEY: 0000859915 STANDARD INDUSTRIAL CLASSIFICATION: [5961 ] IRS NUMBER: 870461856 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-26790 FILM NUMBER: 695829 BUSINESS ADDRESS: STREET 1: 15502 MOSHER AVE CITY: TUSTIN STATE: CA ZIP: 92710 BUSINESS PHONE: 9498331220 MAIL ADDRESS: STREET 1: 15502 MOSHER AVE CITY: TUSTIN STATE: CA ZIP: 92710 FORMER COMPANY: FORMER CONFORMED NAME: INNOVUS CORP DATE OF NAME CHANGE: 19941004 FORMER COMPANY: FORMER CONFORMED NAME: TRI NEM INC DATE OF NAME CHANGE: 19930328 10QSB 1 a10qsb.txt 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from _________ to ________ Commission file number 0-26790 eSynch Corporation -------------------------------------- (Exact name of small business issuer as specified in its charter) DELAWARE 87-0461856 ------------------------------ ------------------- State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 15502 Mosher Tustin, CA 92780 ---------------------------------------- (Address of principal executive offices) (714) 258-1900 ------------------------------------------------ (Issuer's telephone number, including area code) ------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for 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 The number of common shares outstanding at August 11, 2000: 13,l78,498 Transitional Small Business Format: Yes ( ) No (x) TABLE OF CONTENTS PART I Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheet as of June 30, 2000 and December 31, 1999 (Unaudited) Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2000 and 1999 (Unaudited) Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999 (Unaudited) Notes to Condensed Consolidated Financial Statements (Unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II Other Information Item 1. Legal Proceedings Item 2. Changes in Securities Item 6. Exhibits and Reports on Form 8-K Signatures 2 ESYNCH CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
June 30, December 31, 2000 1999 ----------- ----------- ASSETS Current Assets Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,562 $ 1,319,971 Accounts receivable . . . . . . . . . . . . . . . . . . . . . 124,494 19,153 Notes receivable . . . . . . . . . . . . . . . . . . . . . . . 250,000 - Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 15,943 Other receivable . . . . . . . . . . . . . . . . . . . . . . . 44,296 24,296 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . 165,000 21,814 ----------- ----------- Total Current Assets . . . . . . . . . . . . . . . . . . . 648,352 1,401,177 Property and equipment, net of accumulated depreciation . . . . . 706,590 621,638 Goodwill, net of accumulated amortization . . . . . . . . . . . . 3,305,166 4,142,901 Other assets, net of accumulated amortization . . . . . . . . . . 158,215 156,948 ----------- ----------- Total Assets . . . . . . . . . . . . . . . . . . . . . . . . $ 4,818,323 $ 6,322,664 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 706,237 $ 443,164 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . 465,393 831,167 Accrued preacquisition liability . . . . . . . . . . . . . . . 1,293,594 1,293,594 Notes payable - current portion . . . . . . . . . . . . . . . 603,292 31,250 Preferred dividends payable . . . . . . . . . . . . . . . . . 159,691 62,324 ----------- ----------- Total Current Liabilities . . . . . . . . . . . . . . . . 3,228,207 2,661,499 Notes payable - long term . . . . . . . . . . . . . . . . . . . . 77,150 77,150 ----------- ----------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . 3,305,357 2,738,649 Stockholders' Equity Preferred Stock - $0.001 par value; 400,000 shares authorized Redeemable Preferred Stock - Series J, $0.001 par value; 275 shares authorized; 175.5 and 275 shares issued and outstanding; liquidation preference $1,755,000 and $2,750,000 . . . . . . . . . . . . 1,630,000 2,418,612 Redeemable Preferred Stock - Series K, $0.001 par value; 250 shares authorized; 87.5 and 157.5 shares issued and outstanding; liquidation preference $875,000 and $1,575,000 . . . . . . . 750,000 - Common stock - $0.001 par value; 50,000,000 shares authorized; 12,493,168 and 10,505,464 shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . 12,493 10,506 Additional paid-in capital . . . . . . . . . . . . . . . . . . 20,397,201 17,044,450 Deferred compensation . . . . . . . . . . . . . . . . . . . . (295,111) (382,741) Retained earnings . . . . . . . . . . . . . . . . . . . . . . (20,981,617) (15,506,812) ----------- ----------- Total Shareholders' Equity . . . . . . . . . . . . . . . . 1,512,966 3,584,015 ----------- ----------- Total Liabilities and Stockholders' Equity . . . . . . . . . . $ 4,818,323 $ 6,322,664 =========== ===========
See the accompanying notes to the condensed consolidated financial statements. 3 ESYNCH CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------------ ------------------------ 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Revenues Revenue . . . . . . . . . . . . . . . . $ 336,546 $ 252,882 $ 533,094 $ 661,732 Cost of products sold . . . . . . . . . 41,568 88,726 52,811 368,423 ----------- ----------- ----------- ----------- Gross Profit . . . . . . . . . . . 294,978 164,156 480,283 293,309 ----------- ----------- ----------- ----------- Operating and Other Expenses General and administrative . . . . . . 1,037,136 946,049 2,090,887 1,217,331 Research and development . . . . . . . 169,940 240,839 Stock issued for services . . . . . . . 59,396 866,210 143,050 1,313,926 Stock based compensation . . . . . . . 231,000 1,817,347 264,000 1,817,347 Amortization of goodwill . . . . . . . 418,767 406,878 837,535 406,878 Interest expense . . . . . . . . . . . 5,766 15,012 10,404 45,629 ----------- ----------- ----------- ----------- Total Operating and Other Expenses 1,922,005 4,051,496 3,586,715 4,801,111 ----------- ----------- ----------- ----------- Net Loss. . . . . . . . . . . . . . . . . . (1,627,027) (3,887,340) (3,106,432) (4,507,802) Preferred Dividend . . . . . . . . . . . . 605,598 - 2,368,373 - ----------- ----------- ----------- ----------- Loss Applicable to Common Shares . . . . . $(2,232,625) $(3,887,340) $(5,474,805) $(4,507,802) =========== =========== =========== =========== Basic and Diluted Operating Loss per Common Share . . . . . . . . . . . . . $ (0.14) $ (0.46) $ (0.28) $ (0.57) Basic and Diluted Loss per Common Share . . . . . . . . . . . . . $ (0.19) $ (0.46) $ (0.49) $ (0.57) Weighted average number of common shares used in per share calculations . 11,605,787 8,540,099 11,145,934 7,950,691
See the accompanying notes to the condensed consolidated financial statements. 4 ESYNCH CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended June 30, ------------------------- 2000 1999 ----------- ----------- Cash Flows from Operating Activities Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,106,432) $(4,507,802) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization . . . . . . . . . . . . . . . 136,332 18,448 Amortization of goodwill . . . . . . . . . . . . . . . . . . 837,535 Stock Issued for services . . . . . . . . . . . . . . . . . 264,000 1,507,106 Stock issued for settlement of lawsuit . . . . . . . . . . . 97,000 Stock based compensation . . . . . . . . . . . . . . . . . . 143,050 1,850,997 Changes in operating assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . . . . . . (105,341) Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 5,943 Other receivables . . . . . . . . . . . . . . . . . . . . . (20,000) Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . 21,814 (119,791) Accounts payable . . . . . . . . . . . . . . . . . . . . . . 263,076 654,299 Accrued liabilities . . . . . . . . . . . . . . . . . . . . (365,774) 478,719 ----------- ----------- Net Cash Used in Operating Assets . . . . . . . . . . . (1,828,797) (118,024) Cash Flows From Investing Activities Acquisition of property and equipment . . . . . . . . . . . . . (204,619) (36,045) Note receivable . . . . . . . . . . . . . . . . . . . . . . . . (250,000) (13,625) Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . (17,535) (70,807) ----------- ----------- Net Cash Used in Investing Activities . . . . . . . . . (472,154) (120,477) Cash Flows From Financing Activities Stock issued for cash . . . . . . . . . . . . . . . . . . . . . 63,500 Proceeds from issuance of Preferred shares . . . . . . . . . . . 400,000 Cash received from notes receivable . . . . . . . . . . . . . . 221,433 Proceeds from borrowing . . . . . . . . . . . . . . . . . . . . 572,042 359,500 Payments on notes payable . . . . . . . . . . . . . . . . . . . (309,298) ----------- ----------- Net Cash Provided by Financing Activities . . . . . . . 1,035,542 271,635 ----------- ----------- Net Increase (Decrease) in Cash . . . . . . . . . . . . . . . . . (1,265,409) 33,134 Cash at Beginning of Period . . . . . . . . . . . . . . . . . . . 1,319,971 1,413 ----------- ----------- Cash at End of Period . . . . . . . . . . . . . . . . . . . . . . $ 54,562 $ 34,547 =========== ===========
See the accompanying notes to the condensed consolidated financial statements. 5 eSYNCH CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND NATURE OF OPERATIONS - eSynch Corporation ("eSynch") resulted from a shareholder action that renamed Innovus Corporation to eSynch on November 9, 1998. A predecessor company, Intermark Corporation ("Intermark") was incorporated under the laws of the State of California in October 1995. On August 5, 1998, Intermark was reorganized into Innovus Corporation, a publicly-held shell corporation, incorporated in 1994. In November 1998, eSynch acquired SoftKat Inc. ("SoftKat"). In May 1999, SoftKat was sold to a third-party. On April 1, 1999, eSynch acquired Kiss Software Corporation ("Kissco") and on September 20, 1999, eSynch acquired Oxford Media Corporation ("Oxford"). The primary activities of eSynch, the consolidated company, have consisted of raising capital, acquiring Innovus Corporation, SoftKat Inc., Kissco and Oxford, developing and marketing video-on-demand services and video streaming through the internet, and software sales through the internet. PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of eSynch for all periods presented, the accounts of Kissco and Oxford from the dates of their acquisitions on April 1, 1999 and September 30, 1999, respectively. These entities are collectively referred to as "eSynch" or the "Company". All inter-company transactions and balances have been eliminated in consolidation. 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 amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. INTERIM UNAUDITED FINANCIAL INFORMATION - The accompanying condensed financial statements have been prepared by the Company and are not audited. In the opinion of management, all adjustments necessary for a fair presentation have been included and consist only of normal recurring adjustments except as disclosed herein. The financial position and results of operations presented in the accompanying financial statements are not necessarily indicative of the results to be generated for the remainder of 2000. These financial statements have been condensed pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements have been condensed or omitted. These financial statements should be read in connection with annual financial statements included in the Company's Form 10-KSB dated December 31, 1999. BUSINESS CONDITION - The financial statements have been prepared on the basis of the Company continuing as a going concern. The Company has incurred losses from operations and negative cash flows from operating activities and has accumulated a deficit at December 31, 1999 in the amount of $15,506,812 and at the June 30, 2000 in the amount of $20,981,617. Management's plan to mitigate the impact of these conditions is to obtain additional equity 6 financing through the issuance of the Company's common stock, convertible preferred stock or warrants. However, realization of the proceeds from these potential transactions is not assured. These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. CONCENTRATION OF RISK AND MAJOR CUSTOMERS - The Company operates exclusively in the software industry, accordingly, segment information relating to operations in different industries is not presented in these financial statements. The concentration of business in the highly competitive software industry subjects the Company to concentrated market risk. Sales to any major customer in 2000 and 1999 were not significant. FAIR VALUES OF FINANCIAL INSTRUMENTS - The amounts reported as cash, accounts payable, notes payable, and liabilities relating to assets to be sold are considered to be reasonable approximations of their fair values. The fair value estimates were based on market information available to management at the time of the preparation of the financial statements. LOSS PER SHARE - The Company computes basic and diluted loss per share in accordance with Statement of Financial Accounting Standards No. 128, ("SFAS 128"), Earnings Per Share. Basic loss per common share is computed by dividing net loss available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted loss per share is calculated to give effect to stock warrants, options and convertible notes payable except during loss periods when those potentially issuable common shares would decrease the loss per share. 3,760,839 and 3,791,120 potentially issuable common shares outstanding at June 30, 2000 and 1999 were excluded from the calculation of diluted loss per share for the three and six months ended June 30, 2000 and 1999, as they would have decreased the loss per share, respectively. REVENUE RECOGNITION - The Company recognizes service revenue upon performance of the service. For software products sold by the Company, revenue is recognized when shipped except for hard goods sold through distributors which is recognized upon receipt of payment. NOTE 2--ACCRUED LIABILITIES The preacquisition liabilities are a reserve for potential liabilities assumed at the time of the acquisition of Innovus and Intermark. No claims have been made against for these items during the six months ended June 30, 2000. NOTE 3--NOTES PAYABLE Notes payable - current portion includes $570,000 loaned to the Company by an officer-director and a director during the quarter ended June 30, 2000. NOTE 4--COMMITMENTS AND CONTINGENCIES PENDING ACQUISITION - On June 14, 2000, the Company signed a Letter of Intent to acquire eLiberation.com Corporation. In June, 2000, the Company advanced $250,000 to eLiberation.com under a short-term, secured note due August 31, 2000. 7 MAJOR AGREEMENTS - On June 22, 2000, the Company entered into two agreements with NBC Quokka Ventures, LLC., related to NBCOlympics.com web site. The agreements cover the licensing of a custom version of the Company's ChoiceCaster product, branding and recognition commitments on and sponsorship of the web site, and certain other services to be provided by the Company. CONSULTING AGREEMENTS - On August 27, 1999, the Company signed a consulting agreement with a shareholder. Under the agreement, the consultant is to receive 20,000 shares of the common stock of the Company per quarter and $2,500 per month. The term of the agreement is for one year. LITIGATION - eSynch and Subsidiaries We are involved in several lawsuits in the normal course of business and all amounts for exposure to these lawsuits have been recorded in our financial statements except as noted below. SoftKat We acquired SoftKat, Inc. ("SoftKat") in November 1998 and sold SoftKat in May 1999. Although we sold SoftKat, various claims were asserted against us for alleged liabilities or obligations of SoftKat based upon the theory of successor liability or alter ego. The Company prevailed in eight suits which have been settled or dismissed. Other claims may be asserted against us by creditors of SoftKat, Inc., but we are unaware of any pending claims at this time. The following represents the only remaining lawsuit regarding SoftKat to which the Company is a party: On May 18, 1999, Frank Grange filed a complaint against us in the Sonoma County Superior Court, State of California. The complaint alleges that we owe $84,801.40 for damages resulting from a lease between that plaintiff and SoftKat, Inc., and a judgment obtained against SoftKat for unpaid rent, based on a theory of successor liability. We have filed an answer denying that we are obligated to pay any of these claims, and we intend to vigorously oppose any attempt to impose successor liability. A trial date has been set for October, 2000. Intermark Intermark Corporation became our subsidiary on August 5, 1998. In September, 1999, U.S. Print Corporation filed a complaint in Orange County Superior Court, State of California. The complaint seeks to recover from the Company $92,414.69 for services allegedly purchased but not paid for by Intermark. A reserve to cover the Company's potential liability has been accrued in the financial statements. In September, 1999, a lawsuit was filed by C-Group in United States District Court, District of Maryland, against Intermark seeking $99,110 for goods that were claimed to be purchased by Intermark. In October, 1999, the plaintiff amended the complaint and reduced the amount it is seeking to $81,326. The Company has filed a motion to dismiss for lack of personal jurisdiction. The Federal District Court has remanded the case to a state court in Maryland to 8 rule on the motion to dismiss. The state court denied the motion and we have filed an answer with the court. eSynch Corporation The Company was named as a defendant in a lawsuit filed by a third-party claiming damages for a breach of an oral agreement and for unpaid principal on a promissory note. During the three months ended June 30, 2000, the original complaint and our cross-complaint were dismissed without cost to the Company. NOTE 5--STOCKHOLDERS' EQUITY On March 27, 2000, certain executive Officers and Directors exercised stock options and warrants for 805,700 shares of the Company's common stock in a "cashless exercise" transaction resulting in the issuance of a total of 757,530 shares of stock. During the three months ended June 30, 2000, holders of Series J Convertible Preferred Stock converted a total of 99.5 preferred shares valued at $995,000 and received 292,972 common shares including accrued dividends in the amount of $30,419. During the period, holders of Series K Convertible Preferred Stock converted a total of 125 preferred shares valued at $1,250,000 and received 366,919 common shares including accrued dividends in the amount of $34,230. In June, 2000, a director exercised warrants for 450,000 shares of the Company's common stock in a "cashless exercise" transaction resulting in the issuance of a total of 417,857 shares of stock. During the quarter ended June 30, 2000, the Company also issued Common Stock as follows: 86,000 shares for services in the amount of $404,000 of which $231,000 was charged to stock issued for services expense with the balance of $165,000 to be expensed in the period of performance of the services; and 19,427 shares upon exercise of options for $41,000 which was applied to an accounts payable balance of equal amount. In July, 2000, an officer and director of the Company exercised stock options for 340,200 shares of the Company's common stock in a "cashless exercise" transaction resulting in the issuance of 300,000 shares of stock. In July 2000, the Company issued 60,000 shares of common stock under a consulting agreement. In August, 2000, the company issued 325,330 shares of Common Stock for the exercise of warrants and issuance of new Common Stock in the amount of $664,910. NOTE 6--STOCK OPTIONS AND WARRANTS The Company has issued stock options to employees and consultants under a stock-based compensation plan and under individual contracts. Under the 1999 Stock Incentive Plan, which was approved by the shareholders in November 1999, the Company may grant options to its employees and consultants for up to 3,000,000 shares of common stock. In limited cases, the exercise price of options granted under the plan and some individual contracts may be below the market price of the Company's stock on the date of grant. Options generally vest from immediately to over three years and are exercisable for up to five to ten years. No options were granted in the three months ended June 30, 2000. In July, 2000, 2,160,000 options at $3.63 per share were issued under the plan to officers, directors and employees of the Company. 9 OPTIONS AND WARRANTS GRANTED TO NON-EMPLOYEES - During the three months ended June 30, 2000, the Company issued options under a consulting agreement for 150,000 shares of common stock at $7.50 per share, vesting quarterly over a year. In July, 2000, the Company issued warrants for 200,000 shares at prices from $6.50 per share to $9.50 per share. NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION During the six months ended June 30, 1999, the Company issued 235,377 shares for a note receivable in the amount of $565,440. During the period, the Company evaluated the value of the note receivable and wrote down the value of the receivable $79,884. Two of the note holders of the Company converted $82,000 of notes payable into 36,312 shares of common stock. During the six months ended June 30, 2000, the Company amortized the discounts of the Series J and Series K Preferred stock. The amount of the amortization was $2,206,388. The Company converted $995,000 of Series J Preferred stock and $1,250,000 of Series K Preferred stock into common stock. The Company accrued $162,185 of dividends on the preferred stock and converted $64,648 of that dividend into shares of common stock. In addition, the Company issued $165,000 shares of common stock for services that have yet to be performed. The amount has been classified as a prepaid expense. NOTE 8--SUBSEQUENT EVENTS In July, 2000, the Company entered into an equipment lease in the amount of $200,000. In July, 2000, the Company entered into an agreement with a financial relations and direct marketing advertising firm to assist the Company with its investor relations for which compensation will be common stock and stock options. On July 26, 2000, the Company filed on SEC Form 8-K reporting that on November 15, 1999, following the annual meeting of stockholders, the Company's Board of Directors adopted Bylaws, which amend and restate the prior Bylaws of the Registrant in their entirety. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations General The following discussion should be read in conjunction with the financial statements and notes thereto found elsewhere herein. The discussion assumes that the reader is familiar with or has access to the Company's financial statements for the year ended December 31, 1999 found in the Company's Form 10-KSB dated March 24, 2000. The financial statements have been prepared on the basis of the Company continuing as a going concern. The Company has incurred losses from operations and negative cash flows from operating activities and has accumulated a negative tangible net worth at June 30, 2000 in the amount of $1,867,201. 10 Results of Operations During the quarters and six months ended June 30, 2000, net sales were $336,546 and $533,094, compared to $252,882 and $661,732 for the comparable periods of the prior year. The sales amounts for 1999 included sales for SoftKat in the amount of $104,000 and $477,011. These sales did not continue as SoftKat was sold May 25, 1999. The costs of products sold in the quarter and six months ended June 30, 2000 were $41,568 and $52,811, compared to $88,726 and $368,423 for the comparable periods of the prior year. The decrease is attributable to the discontinuance of SoftKat sales and the refocusing of the Kissco business from hard goods to electronic distribution. Operating losses for the quarter and six months ended June 30, 2000 were $1,627,027 and $3,106,432 compared to an operating losses of $3,887,340 and $4,507,802 for the comparable periods of the prior year. The improvement in operating results reflects the continuing expansion of eSynch into the video-on-demand business and the integration of Kissco and Oxford acquired during 1999. The Company incurred net interest expense of $5,766 and $10,404 during the quarter and six months ended June 30, 2000, compared to $15,012 and $45,629 for the comparable periods of the prior year Liquidity and Capital Resources At June 30, 2000, the Company had $54,562 of cash and a deficit in working capital (current liabilities in excess of current assets) of $2,579,855. The Company has been relying upon the issuance of preferred stock and short term notes to fund continuing operations. During the quarter ended June 30, 2000, officers and directors loaned the company $570,000 and a third-party exercised an option for 19,427 common shares totaling $41,000 which was applied against an outstanding accounts payable balance of the same amount. During the last 12 months, the Company issued 487.5 shares of Convertible Preferred Stock plus warrants to purchase shares of Common Stock in exchange for an investment of $4,625,000. Subsequent to June 30, 2000, shareholders exercised warrants and purchased common shares in the aggregate amount of 325,330 shares for which the Company received $644,910. The Company estimates that during the quarter it was using approximately $300,000 more cash each month than was generated by operations. Risk Factors Statements regarding the Company's plans, expectations, beliefs, intentions as to future sales of software, future capital resources and other forward-looking statements presented in this Form 10-QSB constitute forward looking information within the meaning of the Private Securities Litigation Reform Act of 1995. There can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to ascribe undue weight to such statements. In addition to matters affecting the Company's industry generally, factors which could cause actual results to differ from expectations include, but are not limited to (i) sales of the Company's software which may not rise to the level of profitability; (ii) due to the rapidly changing and intensely competitive nature of the industry, 11 competitors may introduce new products with significant competitive advantages over the Company's products; (iii) the Company may not have sufficient resources, including any future financing it is able to obtain, to sustain marketing and other operations; (iv) the Company may be unable to attract and retain sufficient management and technical expertise, or may lose key employees; (v) the Company's contractual or legal efforts to protect its confidential information or intellectual property may be inadequate or ineffective to provide protection, and the Company may be unable financially to pursue legal remedies that may be available; (vi) the Company's selection, due diligence, execution, and integration of acquisitions may not prove effective or reasonable; (vii) the Company may suffer in material respects from the direct or indirect effects of the "Year 2000" problem on public utilities, telecommunications networks, customers, vendors, service providers, and the economy or financial markets generally; (viii) the Company may suffer from other technical or communications problems, such as power outages, system failures, system crashes, or hacking; and (ix) the Company may be subjected to unknown risks and uncertainties, or be unable to assess risks and uncertainties as may exist. PART II OTHER INFORMATION Item 1 - Legal Proceedings Although Softkat was sold in May 1999, there may be asserted and unasserted claims against Softkat or the Company. The Company is aware of several other creditors of Softkat, Inc., which have claims against Softkat for amounts owed based on good and/or services provided to Softkat. In most cases, we do not know the identity of these creditors, the amounts that they claim are due and owing or the circumstances of their claims. Some of the claims against Softkat have been asserted either in pending litigation or threatened litigation. The Company is a defendant in a lawsuit filed by a third party claiming damages for a breach of an investment banking agreement. As damages, the third party is seeking 250,000 warrants to purchase shares of common stock of the Company. The Company intends to vigorously defend the claim and believes that the third party has never performed according to the terms of the agreement. Item 2 - Changes in Securities: (a) The following securities were issued by the Company during the quarter ended June 30, 2000 without registration under the Securities Act of 1933: (i) The Company issued 86,000 shares of Common Stock for services. (ii) The Company issued 417,857 shares of Common Stock upon the conversion of warrants. The Company believes the transactions were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. (b) The following registration statements were filed by the Company during the quarter ended June 30, 2000. (i) On January 18, 2000, February 15, 2000 and April 3, 2000, the Company filed Amendments 1, 2 and 3, respectively, to the Form SB-2 Registration Statement originally filed on November 29, 1999, related to the registration of common stock of the Company 12 as required by terms of the Series J Convertible Preferred Stock Purchase Agreement dated July 22, 1999. The registration became effective on April 7,2000. (ii) On April 28, 2000, the Company filed Amendment 1 to the Form SB-2 Registration Statement originally filed on February 29, 2000, related to the registration of common stock of the Company as required by terms of the Series K Convertible Preferred Stock Purchase Agreement dated December 30, 1999. The registration became effective on May 10, 2000. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits. Those exhibits previously filed with the Securities and Exchange Commission as required by Item 601 of Regulation S-K, are incorporated herein by reference in accordance with the provisions of Rule 12b-32.
EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ---------------------- 3.3(1) Bylaws 27 Financial Data Schedule
(1) Incorporated by reference to the same number Exhibit to the Form 8-K filed July 26, 2000 by the Company with the Securities and Exchange Commission (b) Reports on Form 8-K During the period covered by this report the Company filed the following reports on Form 8-K: none SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: August 11, 2000 eSynch Corporation By: /s/ Thomas Hemingway -------------------------------------- Thomas Hemingway, Chief Executive Officer (Authorized Officer) By: /s/ David P. Noyes ------------------------------------- David P. Noyes, Chief Financial Officer 13 EX-27 2 ex-27.txt EXHIBIT 27
5 3-MOS 6-MOS DEC-31-2000 DEC-31-2000 APR-01-2000 JAN-01-2000 JUN-30-2000 JUN-30-2000 54,562 54,562 0 0 124,494 124,494 0 0 10,000 10,000 648,352 648,352 884,057 884,057 177,467 177,467 4,818,323 4,818,323 3,228,207 3,228,207 0 0 0 0 2,380,000 2,380,000 12,493 12,493 (879,527) (879,527) 4,818,323 4,818,323 336,546 533,094 336,546 533,094 41,568 52,811 1,916,239 3,576,311 0 0 0 0 5,766 10,404 (1,627,027) (3,106,432) 0 0 (1,627,027) (3,106,432) 0 0 0 0 0 0 (1,627,027) (3,106,432) (0.14) (0.28) (0.19) (0.49)
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