Edgar Filing: ESYNCH CORP/CA

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB/A
(AMENDMENT NO. 3)

(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, 2001

[ ] 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)

State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: at September 7, 2001:
26,906,246

Transitional Small Business Disclosure Format (Check one): Yes [ ] No
[X]

TABLE OF CONTENTS

PART I Financial Information. . . . . . . . . . . . . . . . . . . . 3

Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . 3

Condensed Consolidated Balance Sheet as of June 30, 2001
and December 31, 2000 (Unaudited) . . . . . . . . . . . . . . . 3

Condensed Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 2001 and 2000 (Unaudited) . . . . 4

Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2001 and 2000 (Unaudited) . . . . . . . . 5

Notes to Condensed Consolidated Financial Statements (Unaudited) 6

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . 13

PART II Other Information. . . . . . . . . . . . . . . . . . . . . . 15

Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 15

Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . 15

Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 16

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 16

Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . 17

ESYNCH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)

June 30, December 31,
2001 2000
----------- -----------

ASSETS
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . $ - $ -
Accounts receivable, net of $27,534 and $80,504
allowance for bad debt respectively . . . . . 5,105 8,414
Notes receivable, net of $31,000 and $350,929
allowance for bad debt respectively . . . . . . 500,139 6,172
Note receivable from affiliate, net bad debt
of $300,000 . . . . . . . . . . . . . . . . . . - 200,000
Prepaid expenses and other current assets. . . . 48,141 22,154
----------- -----------
Total Current Assets. . . . . . . . . . . . 553,385 236,740

Property and equipment, net of accumulated
depreciation . . . . . . . . . . . . . . . . . . . 600,474 724,435
Goodwill, net of accumulated amortization . . . . . 1,629,750 2,467,434
Other assets, net of accumulated amortization . . . 400,087 206,169
----------- -----------
Total Assets . . . . . . . . . . . . . . . . .$ 3,183,696 $ 3,634,778
=========== ===========

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Checks issued in excess of cash in bank . . . .$ 5,284 $ 150,797
Accounts payable. . . . . . . . . . . . . . . . 1,145,392 701,680
Accrued liabilities . . . . . . . . . . . . . . 2,212,832 1,961,044
Accrued preacquisition liability. . . . . . . . 320,491 606,147
Notes payable - current portion . . . . . . . . 123,400 83,400
Notes payable - related party . . . . . . . . . 450,000 450,000
Capital lease obligation, current portion . . . 77,336 63,244
Preferred dividends payable . . . . . . . . . . 420,722 374,754
----------- -----------
Total Current Liabilities . . . . . . . . . 4,755,457 4,391,066
----------- -----------
Capital lease obligation. . . . . . . . . . . . . . 127,935 115,570
Convertible debentures. . . . . . . . . . . . . . . - 500,000
----------- -----------

Stockholders' Deficit
Preferred Stock - $0.001 par value; 400,000
shares authorized
Redeemable Preferred Stock - Series J, $0.001
par value; 275 shares authorized; 73.5 and
139.5 shares issued and outstanding;
liquidation preference $735,000 and
$1,395,000 . . . . . . . . . . . . . . . . . 610,000 1,270,000
Redeemable Preferred Stock - Series K, $0.001
par value; 250 shares authorized; 42.5
and 81.5 shares issued and outstanding;
liquidation preference $425,000 and
$815,000 . . . . . . . . . . . . . . . . . . 300,000 690,000
Redeemable Preferred Stock - Series L,
$0.001 par value; 210 shares authorized;
no shares outstanding. . . . . . . . . . . . - -
Redeemable Preferred Stock - Series M,
$0.001 par value; 220 shares authorized;
196.9 and 172.8 shares issued and
outstanding; liquidation preference
$1,969,000 and $1,728,000. . . . . . . . . . 2,639,862 2,414,862
Common stock - $0.001 par value; 50,000,000
shares authorized; 25,263,856 and 13,234,757
shares issued and outstanding. . . . . . . . . 25,264 13,235
Additional paid-in capital. . . . . . . . . . . 42,752,777 38,628,990
Deferred compensation . . . . . . . . . . . . . (45,844) (393,080)
Accumulated deficit . . . . . . . . . . . . . . (47,981,755) (43,995,865)
----------- -----------
Total Stockholders' Deficit . . . . . . . . (1,699,696) (1,371,858)
----------- -----------
Total Liabilities and Stockholders' Deficit . . $ 3,183,696 $ 3,634,778
=========== ===========

See the accompanying notes to the condensed consolidated
financial statements.

ESYNCH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------

Revenues
Revenue . . . . . . . . . . $ 74,977 $ 336,546 $ 203,007 $ 533,094
Cost of products sold . . . 41,650 41,568 65,615 52,811
----------- ----------- ----------- -----------
Gross Profit. . . . . . 33,327 294,978 137,392 480,283
----------- ----------- ----------- -----------

Operating and Other Expenses
General and administrative. 1,034,665 1,037,136 1,724,635 2,090,887
Research and development. . 82,720 169,940 199,025 240,839
Stock issued for services . 156,200 59,396 290,890 143,050
Stock based compensation. . 106,359 231,000 480,258 264,000
Amortization of goodwill. . 414,346 418,767 837,535 837,535
Interest expense, net . . . 114,155 5,766 161,328 10,404
----------- ----------- ----------- -----------
Total Operating and Other
Expenses. . . . . . . . 1,908,445 1,922,005 3,693,671 3,586,715
----------- ----------- ----------- -----------
Net Loss. . . . . . . . . . . . (1,875,118) (1,627,027) (3,556,279) (3,106,432)

Preferred Dividend. . . . . . . 48,286 605,598 429,612 2,368,373
----------- ----------- ----------- -----------
Loss Applicable to Common Shares $(1,923,404) $(2,232,625) $(3,985,891) $(5,474,805)
=========== =========== =========== ===========

Basic and Diluted Loss per
Common Share . . . . . . . $ (0.10) $ (0.19) $ (0.25) $ (0.49)
=========== =========== =========== ===========
Weighted average number of
common shares used in per
share calculations . . . . . . 19,430,726 11,605,787 15,882,593 11,145,934
=========== =========== =========== ===========

See the accompanying notes to the condensed consolidated
financial statements.

ESYNCH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

For the Six Months
Ended June 30,
-------------------------
2001 2000
----------- ----------

Cash Flows from Operating Activities
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,556,279) $(3,106,432)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . 251,144 136,332
Amortization of goodwill . . . . . . . . . . . . . . . . . 837,535 837,535
Reversal of allowance for bad debt . . . . . . . . . . . . (306,929) -
Write-off of acquired liabilities. . . . . . . . . . . . . (285,656) -
Stock Issued for services . . . . . . . . . . . . . . . . 290,890 264,000
Stock issued for settlement of lawsuit . . . . . . . . . . - 97,000
Stock issued for interest. . . . . . . . . . . . . . . . . 59,191 -
Additional compensation for modification of warrants . . . 20,344 -
Stock based compensation . . . . . . . . . . . . . . . . . 480,258 143,050
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . 3,309 (105,341)
Inventory . . . . . . . . . . . . . . . . . . . . . . . . - 5,943
Other receivables . . . . . . . . . . . . . . . . . . . . 12,962 (20,000)
Prepaid expenses and other current assets. . . . . . . . . (25,987) 21,814
Accounts payable . . . . . . . . . . . . . . . . . . . . . 298,074 263,076
Accrued liabilities . . . . . . . . . . . . . . . . . . . 251,791 (365,774)
----------- -----------
Net Cash Used in Operating Assets . . . . . . . . . . (1,669,353) (1,828,797)

Cash Flows From Investing Activities
Acquisition of property and equipment . . . . . . . . . . . . (6,776) (204,619)
Note receivable . . . . . . . . . . . . . . . . . . . . . . . - (250,000)
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . - (17,535)
----------- -----------
Net Cash Used in Investing Activities . . . . . . . . (6,776) (472,154)

Cash Flows From Financing Activities
Stock issued for cash . . . . . . . . . . . . . . . . . . . . 1,385,000 63,500
Proceeds from issuance of Preferred shares, net of costs . . . 113,644 400,000
Proceeds from the exercise of options and warrants . . . . . . 86,400 -
Proceeds from warrants issued in connection with
Series M Preferred. . . . . . . . . . . . . . . . . . . . . 63,356 -
Proceeds from borrowing . . . . . . . . . . . . . . . . . . . 40,000 572,042
Payments on capital lease. . . . . . . . . . . . . . . . . . . (12,271) -
----------- ----------
Net Cash Provided by Financing Activities . . . . . . 1,676,129 1,035,542

Net Increase (Decrease) in Cash . . . . . . . . . . . . . . . . - (1,265,409)

Cash at Beginning of Period . . . . . . . . . . . . . . . . . . - 1,319,971
----------- ----------
Cash at End of Period . . . . . . . . . . . . . . . . . . . . . $ - $ 54,562
=========== ==========

See the accompanying notes to the condensed consolidated
financial statements.

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 -

The primary activities of eSynch Corporation ("eSynch" or the
"Company") have consisted of developing and marketing media
rights management solutions, video-on-demand services and video
streaming through the Internet, software sales through the
Internet, video encoding, compression and authoring, raising
capital, and acquiring businesses.

In November 1998, as a result of shareholder action the Company
was renamed eSynch Corporation from Innovus Corporation. A
predecessor company, Intermark Corporation ("Intermark") was
reorganized into Innovus Corporation in August 1998. 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").

eSynch designs, develops, markets and supports intelligent
digital media solutions and services, including media rights
management, audio and video encryption, delivery, tracking and
measurement tools, and streaming media services. The Company has
developed a suite of software and related components designed for
the delivery of live and on-demand audio and video through cable,
satellite and the Internet. The Company provides turnkey
solutions, offering services necessary to provide secure
streaming media including software development and implementation
of e-commerce applications, production, encoding, decoding and
encryption, client-side metrics, reporting, content management,
pay-per-view streaming, hosting and archiving. The Company's
software helps businesses deliver high-quality video content to
their customers. The Company also develops PC utility products,
primarily for the Internet user.

PRINCIPLES OF CONSOLIDATION - The accompanying consolidated
financial statements include the accounts of eSynch for all
periods presented and the accounting of its subsidiaries from the
dates of their acquisition. 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 2001.

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, 2000.

BUSINESS CONDITION - The financial statements have been prepared
on the basis of the Company continuing as a going concern. The
Company has a $4,202,072 working capital deficit at June 30,
2001, has incurred losses from operations and negative cash flows
from operating activities and has accumulated a deficit at June
30, 2001 in the amount of $47,981,755. Management's plan to
mitigate the impact of these conditions is to obtain additional
equity 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 2001 and 2000 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. There were 21,859,056 and 3,760,839 potentially issuable
common shares outstanding at June 30, 2001 and 2000,
respectively, which were excluded from the calculation of diluted
loss per share as they would have decreased the loss per share.

REVENUE RECOGNITION - The Company recognizes service revenue upon
performance of the service. For software products sold by the
Company, revenue is recognized when delivered except for products
sold through distributors for which revenue is recognized upon
receipt of payment.

NEW ACCOUNTING STANDARDS - On July 20, 2001, the Financial
Accounting Standards Board issued SFAS No. 141, "Business
Combinations" and SFAS No. 142 "Goodwill and Other Intangible
Assets". These pronouncements significantly change the accounting
for business combinations, goodwill, and intangible assets.

SFAS No. 141 eliminates the pooling-of-interests method of
accounting for business combinations and further clarifies the
criteria to recognize intangible assets separately from goodwill.

The requirements of SFAS No. 141 are effective for any business
combination accounted for by the purchase method that is
completed after June 30, 2001.

SFAS No. 142 states goodwill and indefinite lived intangible
assets are no longer amortized but are reviewed for impairment
annually (or more frequently if impairment indicators arise).
Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful
lives. The amortization provisions of SFAS No. 142 apply to
goodwill and intangible assets acquired after June 30, 2001. With
respect to goodwill and intangible assets acquired prior to July
1, 2001, companies are required to adopt the pronouncement in
their fiscal year beginning after December 15, 2001.

The Company expects to adopt these standards during the year
ended December 31, 2001 and management does not estimate that
these statements will have a material impact on the Company's
results of operations, financial position or liquidity.

NOTE 2--NOTES RECEIVABLE

Notes receivable includes $250,085 loaned to Streamedia
Communications Inc. during the quarter ended March 31, 2001.
The amounts were loaned under an assumed merger. The loans bear
interest at 10% and were due on May 21, 2001. The loan is
collateralized by 913,687 shares of Streamedia Communications,
Inc. common stock. Management is reviewing the options available
with respect to collection of monies due.

Notes receivable includes an outstanding balance of $250,000 for
loans to eLiberation.com Corporation during the year ended
December 31, 2000. The loans were made in anticipation of a
planned merger which was never consummated and are collateralized
by a UCC-1 Financing Statement filed with the California
Secretary of State. Subsequent to June 30, 2001, the Company
received approximately $250,000, net legal expenses from
eLiberation.com on this receivable.

NOTE 3--ACCRUED LIABILITIES

The preacquisition liabilities are a reserve for potential
liabilities assumed at the time of the acquisition of Innovus and
Intermark. During the three months ended June 30, 2001 the
Company wrote off $285,656 of these preacquisition liabilities
due to the expiration of legal obligations which has been
included in general and administrative expenses.

NOTE 4--NOTES PAYABLE RELATED PARTY

Notes payable - related party includes $450,000 loaned to the
Company by a director during the quarter ended June 30, 2000. On
January 10, 2001, the terms for repayment were restated from due
on demand to due on twenty days written notice.

NOTE 5--COMMITMENTS

CONSULTING AGREEMENTS -

On May 29, 2001, the Company entered into an agreement with a
design and marketing consulting firm for which compensation of
1,000,000 shares of Common Stock was payable in two installments.
Upon signing of the agreement, the first installment of 500,000
shares was issued. The agreement was cancelled on July 5, 2001
prior to the second installment becoming due.

On June 26, 2001, the Company entered into an agreement with a
sales and marketing consulting firm for which compensation of
60,000 shares of common stock was issued.

CAPITAL LEASE -

During the three months ended June 30, 2001 the Company entered
into a lease for computer equipment. The lease is for 36 months
and requires a minimum monthly payment of approximately $1,171.
The lease has been treated as a capital lease.

NOTE 6--STOCKHOLDERS' EQUITY

During the three months ended June 30, 2001, the Company issued
Common Stock as follows: 560,000 shares for services in the
amount of $156,200 which was charged to stock issued for services
expense, the purchase of 3,652,273 shares for a total cash
consideration of $860,000. Additionally, the Company issued
57,821 shares valued at $18,190 in settlement of interest.

During the three months ended June 30, 2001, holders of Series J
Convertible Preferred Stock converted a total of 9 preferred
shares valued at $90,000 and received 382,287 common shares
including accrued dividends in the amount of $18,604. During the
period, holders of Series K Convertible Preferred Stock converted
a total of 9 preferred shares valued at $90,000 and received
448,041 common shares including accrued dividends in the amount
of $10,492. During the period, holders of Series M Convertible
Preferred Stock requested and were permitted to rescind a
conversion of 4 preferred shares valued at $40,000 for which
79,535 of unregistered common shares were returned to the
Company. During the period, holders of the Secured Convertible
Debenture converted a total of $250,000 and received 1,250,045
common shares including accrued interest, legal fees and
penalties in the aggregate amount of $6,926. No Secured
Convertible Debentures were outstanding at June 30, 2001.

NOTE 7--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.

During the three months ended June 30, 2001, options to purchase
20,000 shares of common stock were exercised for $4,500 and
holders of warrants issued in conjunction with the Secured
Convertible Debenture converted the warrants for 312,500 common
shares for a net cash consideration of $81,900. During the three
months ended June 30, 2001, the Company modified the exercise
price of the warrants for 312,500 resulting an additional charge
of $20,344 to operations. Options for 100,000 shares expired or
were cancelled during the period.

OPTIONS AND WARRANTS GRANTED TO NON-EMPLOYEES - During the three
months ended June 30, 2001, the Company issued warrants to
purchase 100,000 shares of common stock in connection with an
investment of $325,000 for which 1,300,000 shares of common stock
were also issued. The warrants were valued at $30,870 using the
black scholes method and expensed during the three months ended
June 30, 2001.

NOTE 8--SUPPLEMENTAL CASH FLOW INFORMATION

During the three months ended June 30, 2001, the Company
converted $90,000 of Series J Preferred stock, $90,000 of Series
K Preferred stock, $250,000 of Secured Convertible Debenture, and
agreed to rescind the conversion of $40,000 of Series M Preferred
stock for a net issuance of 2,000,838 shares of common stock,
including interest shares. The Company accrued $48,286 of
dividends on the preferred stock and converted $29,095 of that
dividend into shares of common stock. The Company accrued $15,391
of interest on the convertible debenture and converted $13,724 of
that interest into shares of common stock.

The Company acquired $38,727 of computer equipment under a
capital lease during the three months ended June 30, 2001.

NOTE 9 - CONTINGENCIES AND LITIGATION -

In September, 1999 a lawsuit was filed by C-Group, Inc. 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 of the claim to $81,326. In March 2001 a
judgment was entered against Intermark in the amount of $133,658
related to the claim against Intermark which included $52,332
related to a claim against Softkat. The Company was not properly
notified and the judgment will be appealed. As of December 31,
2000 the Company accrued $81,326. During the three months ended
June 30, 2001 the Company accrued the remaining $52,332.

In June 2000, the Company was named as a co-defendant along with
its landlord, Bixby Land Company, in a lawsuit filed by Terry
Murphy, a former employee, in California Superior Court, County
of Orange, claiming unspecified damages resulting from an
accident that occurred at the Company's leased offices.
Subsequently, Bixby filed a cross-complaint against the Company
related to the lawsuit seeking indemnity, equitable contribution
and declaratory relief. The Company's insurance carriers are
defending the claims against the Company and discovery
proceedings are currently underway.

On January 11, 2001, the Company was named as defendant in a
lawsuit filed by Post Modern Edit, LLC, in California Superior
Court, County of Los Angeles, seeking damages of not less than
$50,000 for breach of a confidentiality agreement, breach of
contract, and other claims related to a proposed but
unconsummated acquisition of Post Modern Edit by the Company. On
May 9, 2001, the parties reached a full settlement of the
litigation in which Post Modern Edit agreed to return 21,000
shares of the Company's common stock it owned in exchange for
$6,300 cash paid by the Company. This case is now closed.

On April 3, 2001, a lawsuit was filed by BFree Ltd. in Superior
Court, County of Orange, California, against the Company as
successor to Innovus Corporation, seeking $25,544 for goods and
services claimed to have been provided to Innovus during 1997.
The matter is scheduled for mandatory settlement conference and
trial in early 2002. The claim is included in preacquisition
liabilities on the accompanying balance sheets.

On July 18, 2001, David P. Noyes, the Company's former Chief
Financial Officer, filed a claim with the Labor
Commissioner, State of California, for wages due under an
employment contract seeking $96,572.98. Mr. Noyes was
terminated for cause by the Company in November 2000. The
Company believes that the claim is without merit and intends
to vigorously defend against the claim.

On July 26, 2001, Bixby Land Company, the Company's
landlord, filed an unlawful detainer action to recover
delinquent rent and penalties in the amount of approximately
$125,000. The Company and Bixby are negotiating a
settlement under which the Company would pay all delinquent
amounts and be relieved of its long-term lease obligations.

On July 27, 2001, the Company entered into a Release and
Settlement Agreement with Digital Leisure, Inc. Under the
Release and Settlement Agreement, the Company agreed to pay
Digital Leisure a total of $40,867, plus interest, in
regularly scheduled payments. As a result of the Company's
failure to comply with the payment schedule, Digital Leisure
has subsequently secured a judgment for the total amount
owed.

On August 9, 2001, an action was filed in California
Superior Court, County of Orange, against the Company,
certain officers and its current Directors by Donald C.
Watters, the Company's former president, chief operating
officer and director, claiming breaches of contract, good
faith and fair dealing, and fiduciary duty, and tortious
adverse employment action in violation of public policy.
Mr. Watters is seeking general damages of not less than
$2,780,000, punitive damages, interest, attorney's fees and
court costs. Mr. Watters was terminated by the Company for
cause. The Company believes that the claims are without
merit and intends to vigorously defend the action.

On August 10, 2001, a lawsuit was filed by Kforce.com
seeking to collect approximately $43,000 claimed to be owed
under a Consulting Services Agreement. Management has
referred the lawsuit to outside counsel for review and
appropriate response. The claim is fully accrued in the
Company's financial statements.

NOTE 10--SUBSEQUENT EVENTS

During the year ended December 31, 2000, the Company made loans
to eLiberation.com Corporation in conjunction with a contemplated
merger between the two companies. The loans are secured by a UCC-
1 Financing Statement filed on August 22, 2000 with the
California Secretary of State. On July 2, 2001, the maturity
date of the loans, the amount due the Company including accrued
interest was $273,577. On August 3, 2001, the Company took
available steps to collect all amounts due plus legal expenses.
On August 15, 2001 the Company received repayment of
approximately $250,000, net of legal expenses.

Preferred Stock will exchange their preferred stock for
promissory notes at 125% of the outstanding principal amount of
the preferred stock and accrued dividends plus warrants to
purchase 500,000 shares of common stock at $0.50 per share. The
notes will bear interest at 8% per annum payable on a quarterly
basis and are subject to four redemption payments totaling
approximately $1,689,000 over 10 months. The holders of all
shares of Series M Convertible Preferred Stock will exchange
their preferred stock for promissory notes at the outstanding
principal amount of the preferred stock, accrued dividends and
penalties plus warrants to purchase 1,000,000 shares of common
stock at $0.50 per share. The notes will bear interest at 8% per
annum payable on a quarterly basis. The notes will be redeemed
with an initial payment of $1,000,000 followed by monthly
payments over 2 years totaling approximately $1,137,000. In
addition, the Series M holders will receive on a pro-rata basis
one share of common stock for each $20 of additional capital
raised by the Company until the notes are fully redeemed. If
completed, this restructuring would result in an increase in
current notes payable of approximately $3,800,000 and interest
expense of approximately $1,200,000 at the date of restructuring.
On July 20, 2001, the Company entered into an agreement with a
financial consulting and marketing firm, Madison & Wall, for
which compensation of 400,000 shares of Common Stock and warrants
to purchase 200,000 shares of Common Stock is payable.

Subsequent to June 30, 2001, the Company entered into three agreements
with financial and marketing consultants for which compensation of
1,580,000 shares of Common Stock and warrants to purchase 200,000 shares
of Common Stock are issuable, one share of Series J Convertible
Preferred Stock was converted into 49,390 shares of common stock, and the
Company issued 40,000 shares of common stock as interest and penalties
on a loan to the Company.

12
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, 2000 found in the Company's Form 10-KSB dated April
2, 2001.

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, 2001 in the amount of $1,699,696.

Results of Operations

During the three and six months ended June 30, 2001, sales were
$74,977 and $203,007 compared to $336,546 and $533,094 for the
comparable periods of the prior year. The decrease in sales is
attributable to the continued refocusing of the Company's
business from software product sales to video streaming and
production services. The cost of products sold in the three and
six months ended June 30, 2001 were $41,650 and $65,615 compared
to $41,568 and $52,811 for the comparable periods of the prior
year.

Operating losses for the three and six months ended June 30, 2001
were $1,875,118 and $3,556,279 compared to an operating losses of
$1,627,027 and $3,106,432 for the comparable periods of the prior
year. The operating results for the reported periods reflect
management's continued efforts to maximize potential and contain
costs while it repositions the Company for revenue growth.

The Company incurred net interest expense of $114,155 and
$161,328 during the three and six months ended June 30, 2001
compared to $5,766 and $10,404 for the comparable periods of the
prior year. The majority of the increase was associated with the
Series M Convertible Preferred offering completed in January 2001
and interest paid on the Convertible Secured Debenture.

During the three and six months ended June 30, 2001, the Company
spent $82,720 and $199,025 on research and development related to
the various streaming media and other product initiatives
launched and under development in the periods reported. The
Company spent $169,940 and $240,839 in the comparable periods of
the prior year.

The Company incurred stock issued for services expense of
$156,200 and $290,890 during the three and six months ended June
30, 2001 compared to $59,396 and $143,050 for the comparable
periods of the prior year.

The Company incurred stock based compensation expense of $106,359
and $480,258 during the three and six months ended June 30, 2001
compared to $231,000 and $264,000 for the comparable periods of
the prior year.

Liquidity and Capital Resources

At June 30, 2001, the Company had issued checks in excess of cash
of $5,284 of cash and had a deficit in working capital (current
liabilities in excess of current assets) of $4,202,072.

The Company has been relying upon sale of common stock, the
issuance of the preferred stock, convertible debentures and short
term notes to fund continuing operations. During the 3 months
ended June 30, 2001, the Company issued 3,652,273 common shares
in exchange for an investment of $860,000, issued 332,500 common
shares upon the exercise of stock options and warrants with net
proceeds to the Company of $86,400, and issued 50,000 common
shares as partial interest on a short term note of $40,000.

The Company estimates that during the quarter it was using
approximately $225,000 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,
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

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. In March 2001, a
judgment was entered against Intermark in the amount of $133,658
related to the claim against Intermark plus $52,332 related to a
claim against Softkat. The Company was not properly notified and
the judgment will be appealed.

On January 11, 2001, the Company was named as defendant in a
lawsuit filed by Post Modern Edit, LLC, in California Superior
Court, County of Los Angeles, seeking damages of not less than
$50,000 for breach of a confidentiality agreement, breach of
contract, and other claims related to a proposed but
unconsummated acquisition by the Company of Post Modern Edit.
The parties reached a settlement of the litigation and Post
Modern Edit returned 21,000 shares of the Company's common stock
and received $6,300 cash. This case is now closed.

Item 2 - Changes in Securities and Use of Proceeds:

(a) The following securities were issued by the Company during
the three months ended June 30, 2001 without registration under
the Securities Act of 1933:

(i) 560,000 shares of Common Stock for services.
(ii) 3,652,273 shares of Common Stock for cash consideration.
(iii) 20,000 shares of Common Stock upon the exercise of stock options.
(iv) 50,000 shares of Common Stock as interest on a short term
note.

The cash proceeds from these issuances were used for general
corporate purposes.

The Company believes the transactions were exempt from
registration pursuant to Section 4(2) of the Securities Act of
1933.

(b) The following registration statement was filed by the Company
during the three months ended June 30, 2001.

(i) On June 11, 2001 the Company filed Post-Effective Amendment
1 to the Registration Statement on Form S-8 originally filed June
4, 2001 related to the registration of common stock of the
Company as required by terms of a Service Agreement dated May 29,
2001.

Item 5 - Other Information.

On July 12, 2001, the Company announced that it had successfully
negotiated the restructuring of all outstanding convertible
preferred stock to debt instruments subject to the signing of
definitive documents. Although definitive agreements have not
been signed, and the terms of the agreements may change, the
following are the current terms of the proposed agreements.
Simultaneously, all holders of convertible preferred stock agreed
to a ninety day no trade, lockup period with respect to their
trading in the Company's common stock. Under the restructuring,
the holders of shares of Series J and Series K Convertible
Preferred Stock will exchange their preferred stock for
promissory notes at 125% of the outstanding principal amount of
the preferred stock and accrued dividends plus warrants to
purchase 500,000 shares of common stock at $0.50 per share. The
notes will bear interest at 8% per annum payable on a quarterly
basis and are subject to four redemption payments totaling
approximately $1,689,000 over 10 months. The holders of all
shares of Series M Convertible Preferred Stock will exchange
their preferred stock for promissory notes at the outstanding
principal amount of the preferred stock, accrued dividends and
penalties plus warrants to purchase 1,000,000 shares of common
stock at $0.50 per share. The notes will bear interest at 8% per
annum payable on a quarterly basis. The notes will be redeemed
with an initial payment of $1,000,000 followed by monthly
payments over 2 years totaling approximately $1,137,000. In
addition, the Series M holders will receive on a pro-rata basis
one share of common stock for each $20 of additional capital
raised by the Company until the notes are fully redeemed. If
completed, this restructuring would result in an increase in
current notes payable of approximately $3,800,000 and interest
expense of approximately $1,200,000 at the date of restructuring.

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
---------- ----------------------
None

(b) Reports on Form 8-K

During the period covered by this report the Company filed the
following report on Form 8-K:

On April 9, 2001 the Company filed on Form 8-K reporting that on
March 30, 2001 the Company had issued a Press Release announcing
that following the completion of due diligence, the boards of
directors of both the Company and Streamedia Communications Inc.
have independently decided that the Planned Merger of the
companies announced on January 24, 2001 would not be completed.

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: September 14, 2001

eSynch Corporation

By: /S/ Thomas Hemingway
--------------------------------------
Thomas Hemingway, Chief Executive Officer
(Authorized Officer)

By: /S/ Mark Utzinger
--------------------------------------
Mark Utzinger, Vice President - Finance