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 March 31, 2003
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.)
One Technology Drive
Building H
Irvine, CA 92618
----------------
(Address of principal executive offices)
(949)753-0593
-------------
(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 August 19, 2003:
189,604,891
Transitional Small Business Disclosure Format (Check one): Yes No X
ESYNCH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
------------- --------------
ASSETS
CURRENT ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 985
------------- --------------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . - 985
------------- --------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 985
============= ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,610,756 2,559,906
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 2,443,557 2,415,175
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 683,400 683,400
Preferred dividends payable . . . . . . . . . . . . . . . . . . . . . . 223,014 179,663
------------- --------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 5,960,727 5,838,144
------------- --------------
STOCKHOLDERS' DEFICIT
Series J convertible preferred stock - $10,000 stated value per share;
275 shares authorized; 58.2 shares outstanding,
liquidation preference of $582,000;. . . . . . . . . . . . . . . . . 457,000 457,000
Series K convertible preferred stock - $10,000 stated value per share;
250 shares authorized; 18.3 shares outstanding,
liquidation preference of $183,000 . . . . . . . . . . . . . . . . . 58,000 58,000
Series M convertible preferred stock - $10,000 stated value per share;
220 shares authorized; 196.9 shares outstanding;
liquidation preference of ($1,969,000) . . . . . . . . . . . . . . . 2,616,862 2,616,862
Undesignated preferred stock - $0.001 par value, 399,055 shares
authorized; no shares outstanding. . . . . . . . . . . . . . . . . . - -
Common Stock - $0.001 par value; 250,000,000 shares authorized;
142,986,902 and 101,186,902 shares issued and outstanding . . . . . . 142,986 101,187
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . 47,752,088 46,505,388
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (56,987,663) (55,575,596)
------------- --------------
TOTAL STOCKHOLDERS' DEFICIT . . . . . . . . . . . . . . . . . . . . . (5,960,727) (5,837,159)
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT . . . . . . . . . . . . . . . $ $ 985
============= ==============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
ESYNCH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------
2003 2002
------------ ------------
REVENUE. . . . . . . . . . . . . . . . . . . . . . . . $ - $ 100,637
COST OF PRODUCTS SOLD . . . . . . . . . . . . . . . . . - 65,889
------------ ------------
GROSS PROFIT. . . . . . . . . . . . . . . . . . . . - 34,798
------------ ------------
OPERATING AND OTHER EXPENSES
General and administrative. . . . . . . . . . . . . . 66,835 424,201
Research and development. . . . . . . . . . . . . . . 15,111
Shares issued for services. . . . . . . . . . . . . . 677,500 85,600
Stock-based compensation to employees . . . . . . . . 611,000 45,900
Interest expense. . . . . . . . . . . . . . . . . . . 13,381 14,536
------------ ------------
TOTAL OPERATING AND OTHER EXPENSES. . . . . . . . . (1,368,716) (585,348)
------------ ------------
OTHER INCOME. . . . . . . . . . . . . . . . . . . . . . - 14,245
------------ ------------
NET LOSS. . . . . . . . . . . . . . . . . . . . . . . . (1,368,716) (536,305)
PREFERRED STOCK DIVIDENDS . . . . . . . . . . . . . . . (43,351) (66,036)
------------ ------------
LOSS APPLICABLE TO COMMON SHAREHOLDERS. . . . . . . . . $(1,412,067) $ (602,341)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE . . . . . . . . $ (0.01) $ (0.01)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES. . . . . . . .
USED IN PER SHARE CALCULATION. . . . . . . . . . . . 120,237,402 46,891,253
============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
ESYNCH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------
2003 2002
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,368,716) $ (536,305)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . - 109,443
Forgiveness of accrued liability. . . . . . . . . . . . . . . . . . . - (8,349)
Stock issued for services and debt forgiveness. . . . . . . . . . . . 677,500 85,600
Stock based compensation. . . . . . . . . . . . . . . . . . . . . . . 611,000 45,900
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . - 21,909
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . 50,850 1,200
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . 28,381 105,871
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . (985) (174,731)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in checks issued in excess of cash in bank. . . . . - 12,531
Related party accounts payable. . . . . . . . . . . . . . . . . . . . . - 22,471
Proceeds from borrowings. . . . . . . . . . . . . . . . . . . . . . . . - 125,000
Proceeds from shareholder receivable. . . . . . . . . . . . . . . . . . - 10,000
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . - 170,002
----------- -----------
NET INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . . . . . . . (985) (4,783)
CASH - BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . . . . . . . . 985 4,783
----------- -----------
CASH - END OF PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ -
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION AND NON-CASH INVESTING AND FINANCING
ACTIVITIES - NOTE
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
ESYNCH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The primary activities of eSynch Corporation (eSynch or the Company) have
consisted of raising capital, acquiring businesses, developing and marketing
video-on-demand services and video streaming through the Internet, software
sales through the Internet, and DVD video encoding, compression and authoring.
The Company has curtailed all of these activities due to lack of financial
resources.
Principles Of Consolidation - The accompanying consolidated financial statements
include the accounts of eSynch and of its wholly owned subsidiaries. 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 2002.
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 for the year ended
December 31, 2002 as filed with the Securities and Exchange Commission on
August 22, 2003.
Business Condition - The accompanying consolidated financial statements have
been prepared on the basis of the Company continuing as a going concern. The
Company has incurred losses from operations, negative cash flows from operating
activities and has accumulated a deficit at March 31, 2003 in the amount of
$55,987,663, and has a working capital deficiency and a capital deficiency of
$5,960,727 at March 31, 2003. The Company has numerous judgments against it and
is unable to pay its current liabilities. Management's plan's are to seek a
merger for the Company and to request compromise of existing liabilities.
Management does not anticipate that the Company can obtain additional debt or
equity financing. 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 a concentration of market risk. Sales to any customer in 2002 and
2001 did not exceed 10% of total sales.
Fair Values Of Financial Instruments - The amounts reported as accounts payable,
accrued liabilities, and capital lease obligations are considered to be
reasonable approximations of their fair values. The fair value estimates were
estimated by management and were not based on comparable debt as the Company is
unable to obtain outside financing..
Stock-Based Compensation - Stock-based compensation to employees is measured by
the intrinsic value method. This method recognizes compensation expense related
to stock options granted to employees based on the difference between the fair
value of the underlying common stock and the exercise price of the stock option
on the date granted. Compensation expense related to stock options granted to
non-employees is determined based upon the fair value of the stock options on
the date granted.
Loss Per Share - Basic loss per common share is computed by dividing loss before
extraordinary gain and net loss, both adjusted by preferred dividends, 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
convertible preferred stock and convertible notes payable except during loss
periods when those potentially issuable common shares would decrease the loss
per share.
Revenue Recognition - The Company sells software products at fixed prices for
which the right to return is granted to the buyer. Accordingly, revenue is
recognized when the buyer has paid for the products and the amount of future
returns can be reasonably estimated. Cost of products sold is recognized at the
date the sale is recognized less an estimate for sales returns. Until the sale
is recognized, products purchased from publishers are accounted for as consigned
product from publishers and the related cost is not reflected in the financial
statements with the exception of software inventory owned by the Company.
Revenue from DVD video encoding, compression and authoring and video-on-demand
services is recognized when the product or services are completed, the products
are transmitted or shipped to the customer and accepted by the customer.
New Accounting Standards - The Company adopted FASB Statement of Financial
Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections on January 1,
2003. Among other provisions, this statement modified the criteria for
classification of gains or losses on debt extinguishment such that they are not
required to be classified as extraordinary items if they are not unusual and
infrequent. The adoption of this standard did not have a material effect on the
Company's financial position or results of operations.
In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equities. Statement No.
150 will require financial instruments that are mandatory redeemable or that
contain an obligation to repurchase the financial instrument to be classified as
liabilities. Statement No. 150 must be applied by the Company beginning July 1,
2003. The adoption of Statement No. 150 is not expected to have a material
effect on the financial position of the Company.
NOTE 2-GOODWILL AND LONG-LIVED ASSETS
Kiss Software - On February 1, 2003, the product rights of Kiss Software
Corporation were disposed of to James Budd for balance of all moneys due Mr.
Budd. These rights were of minimal value.
NOTE 3-ACCRUED LIABILITIES
Included in accrued liabilities at March 31, 2003 is $ 1,615,000 in obligations
to state and federal governments for payroll taxes from the current years and
from previous years and estimated interest and penalties owing on such tax
obligations. At March 31, 2003 the Company has accrued salaries of $ 239,923.
..Some of these employees have obtained judgments against the Company for
payments of these salaries and these amounts have been reclassified to accounts
payable. Additionally, during 2001 the Company withheld 401K contributions from
employees' wages however these employee contributions were not contributed to
the plan. At March 31, 2003 amounts due to the plan were $43,467.
NOTE 4-NOTES PAYABLE
During the three months ended March 31, 2003, there were no payments on or
changes to notes payable.
NOTE 5-COMMITMENTS AND CONTINGENCIES
Litigation - The Company was 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.
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 which included $53,332 related to a claim against
Softkat. As of December 31, 2000 the Company accrued $81,326. During the year
Entered December 31, 2001 the Company accrued the remaining $52,332.
A collection action was filed on May 9, 2002 wherein Garfinkle Limited
Partnership II ("GLP") alleged breach of a $450,000 promissory note. On August
21, 2002 the court granted GLP's application for right to attach order against
the company for the approximate sum of $528,696. Additionally, GLP filed a
motion for summary judgment against the Company which was granted in August
2003.
During the years 2001 and 2002 several lawsuits were filed against the Company
generally for non-payment of amounts due. These lawsuits resulted in Judgments
against the Company totaling $1,138,000. All amounts have been recorded in the
Company's financial statements as accounts payable. The Company is currently
attempting to negotiate settlements with all creditors.
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 tortuous 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 and thus nothing has
been accrued as of December 31, 2002.
On May 16, 2003, the court granted multiple motions for summary judgment and /or
summary adjudication on a certain cause in favor of some of the Company's
directors and former directors including Tom Hemingway, T. Richard Hutt, James
Budd, Robert Orbach, David Lyons and Norton Garfinkle. Watters has filed an
appeal of that ruling which currently remains pending. The parties have
stipulated to stay the balance of the case pending resolution of the appeal.
On July 27, 2001, the Company filed a complaint against eLiberation Corporation,
which was subsequently amended January 3, 2002. The Company seeks compensatory
damages in the amount of $39,671. On September 28, 2001, eLiberation Corporation
filed a cross-complaint against the Company and an officer claiming that the
Company and the officer deliberately misrepresented and made false
representations to eLiberation Corporation. eLiberation Corporations seeks
general and special damages in the amount of not less than $2,500,000. The
Company agreed in August 2002 to a payment from eLiberation Corporation in full
settlement of the lawsuit.
eSynch Corporation, signed, but had not consummated, an agreement to acquire all
of the outstanding capital stock of Nacio Systems, Inc. ("NSI"), a California
corporation. The acquisition was to be pursuant to an exchange of stock between
holders of NSI stock and the Registrant conducted in accordance with the
original Plan of Reorganization of NSI under Chapter 11 of the U.S. Bankruptcy
Code. NSI amended the Plan on April 25, 2003 which was approved by the
Bankruptcy Court's on May 22, 2003 which ordered that the eSynch undo the
previous acquisition of NSI capital stock and undo the stock issuance previously
consummated by the Company and the common and preferred shareholders of NSI.
NOTE 6-STOCKHOLDERS' DEFICIT
During the three months ended March 31, 2003, the Company issued Common Stock as
follows: 20,000,000 shares for compensation valued at $600,000; 17,000,000
shares to consultants for services valued at $550,000; 4,250,000 shares to
Preferred Stock holders for dividends and liquidated damages of $127,500 and
550,000 shares under the exercise of stock options valued at $11,000.
On July 26, 2002 eSynch acquired irrevocable voting rights of Nacio Systems,
Inc. ("Nacio"). eSynch entered into an irrevocable escrow agreement to acquire
all of the outstanding common and preferred shares of Nacio, subject to a
successful completion of the plan of reorganization. Nacio is involved in
managed hosting, managed services, connectivity and collocation services.
The acquisition was to be pursuant to an exchange of stock in accordance with
the original Plan of Reorganization of Nacio Systems, Inc. under Chapter 11 of
the U.S. Bankruptcy Code. In February 2003, the Company issued 40,006,021 shares
of common stock to the shareholders of Nacio. Nacio amended the Plan of
Reorganization on April 25, 2003, which was approved by the Bankruptcy Court on
May 22, 2003, and which ordered that the eSynch undo the acquisition. eSynch
has subsequently received back 13,599,316 shares of its common stock and has
cancelled those shares. The Company is endeavoring to recover the remaining
26,406,705 common shares but has not yet been successful and they remain
outstanding.
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. On September 6, 2002, the 1999 Stock Incentive Plan was
amended to allow the granting of options for up to 12,750,000 shares of common
stock.
During the three months ended March 31, 2003 the Company granted no stock
options or warrants. Stock options for 550,000 shares were exercised during the
quarter ended March 31, 2003.
NOTE 8-SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended March 31, 2003, the Company issued Common Stock as
follows: 20,000,000 shares for compensation valued at $600,000; 17,000,000
shares to consultants for services valued at $550,000; 4,250,000 shares to
Preferred Stock holders for dividends and liquidated damages of $127,500 and
550,000 shares under the exercise of stock options valued at $11,000.
NOTE 9 - SUBSEQUENT EVENT
Subsequent to the three months ended March 31, 2003, the Company issued Common
Stock as follows: 8,000,000 shares for compensation valued at $40,000 and
8,420,000 shares to consultants for services valued at $63,800.
An action was taken by written consent dated July 15, 2003, by over 50% of the
stockholders of the Company to provide for a stock combination (reverse split)
of the common stock in an exchange ratio to be approved by the Board of
Directors, ranging from one newly issued share for each two outstanding shares
of common stock to one newly issued share for each forty outstanding shares of
common stock and the approval of a name change for the Company from eSynch
Corporation to Mergence Corporation.
In July 2003, the holders of all of the Company's outstanding Series J, K and M
Preferred Stock agreed to exchange their preferred stock for 23,000,000 shares
of the Company's common stock and agreed that the closing will take place
simultaneously with the reverse spilt of the Company's common stock at a rate of
40 for 1.
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, 2002 found in the Company's Form
10-KSB dated August 22, 2003.
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
During the three months ended March 31, 2003, net sales were $ -0- compared
to $100,687 for the comparable period of the prior year. The decrease in
sales was attributable to the continued refocusing on new business and
discontinuing non-profitable operations.
Operating losses for the three months ended March 31, 2003 were $1,368,716
compared to an operating loss of $ 536,305 for the comparable period of the
prior year. The operating losses included $1,288,500 for stock issuances.
Interest expense was $13,381 during the three months ended March 31, 2003,
compared to interest expense of $14,536 for the comparable period of the
prior year.
The Company incurred stock based compensation expense of $611,000 during
the three months ended March 31, 2003, compared to
$ 45,900 for the comparable period of the prior year. Stock issued for
services was $677,500 for the three months ended March 31, 2003 versus
$85,600 for the same period in the previous year.
Liquidity and Capital Resources
At March 31, 2003, the Company had negative working capital of $5,960,727.
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
The Company was 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.
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 which included
$53,332 related to a claim against Softkat. As of December 31, 2000 the
Company accrued $81,326. During the year Entered December 31, 2001 the
Company accrued the remaining $52,332.
A collection action was filed on May 9, 2002 wherein Garfinkle Limited
Partnership II ("GLP") alleged breach of a $450,000 promissory note. On
August 21, 2002 the court granted GLP's application for right to attach
order against the company for the approximate sum of $528,696.
Additionally, GLP filed a motion for summary judgment against the Company
which was granted in August 2003.
During the years 2001 and 2002 several lawsuits were filed against the
Company generally for non-payment of amounts due. These lawsuits resulted
in Judgments against the Company totaling $1,138,000. All amounts have
been recorded in the Company's financial statements as accounts payable.
The Company is currently attempting to negotiate settlements with all
creditors.
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 tortuous 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 and thus nothing has been accrued as of December 31, 2002.
On May 16, 2003, the court granted multiple motions for summary judgment
and /or summary adjudication on a certain cause in favor of some of the
Company's directors and former directors including Tom Hemingway, T.
Richard Hutt, James Budd, Robert Orbach, David Lyons and Norton Garfinkle.
Watters has filed an appeal of that ruling which currently remains pending.
The parties have stipulated to stay the balance of the case pending
resolution of the appeal.
..
On July 27, 2001, the Company filed a complaint against eLiberation
Corporation, which was subsequently amended January 3, 2002. The Company
seeks compensatory damages in the amount of $39,671. On September 28, 2001,
eLiberation Corporation filed a cross-complaint against the Company and an
officer claiming that the Company and the officer deliberately
misrepresented and made false representations to eLiberation Corporation.
eLiberation Corporations seeks general and special damages in the amount of
not less than $2,500,000. The Company agreed in August 2002 to a payment
from eLiberation Corporation in full settlement of the lawsuit.
eSynch Corporation, signed, but had not consummated, an agreement to
acquire all of the outstanding capital stock of Nacio Systems, Inc.
("NSI"), a California corporation. The acquisition was to be pursuant to an
exchange of stock between holders of NSI stock and the Registrant conducted
in accordance with the original Plan of Reorganization of NSI under Chapter
11 of the U.S. Bankruptcy Code. NSI amended the Plan on April 25, 2003
which was approved by the Bankruptcy Court's on May 22, 2003 which ordered
that the eSynch undo the previous acquisition of NSI capital stock and undo
the stock issuance previously consummated by the Company and the common and
preferred shareholders of NSI.
Item 2 - Changes in Securities:
(a) The following securities were issued by the Company during the three
months ended March 31, 2003 without registration under the Securities Act
of 1933:
17,000,000 shares issued for services; 20,000,000 for stock compensation;
4,250,000 shares for payment of liquidated damages and 550,000 shares for
exercise of stock options.
a) Exhibits
Exhibit No. Description
2.5(1) Agreement and Plan of Merger dated as of
February 26, 1999 among the Company; Kiss
Software Corporation, a California corporation
("Kissco"); certain stakeholders,
Of Kissco; and ESYN Kissco Acquisition
Corporation, a wholly-owned subsidiary of the
Registrant.
2.6(2) Agreement and Plan of Reorganization dated as of
September 30, 1999 among the Registrant, OMC
Acquisition Corp., a Delaware corporation, Oxford
Media Corp., a Delaware corporation ("OMC") and
Norton Garfinkle, individually and as trustee of
each of The Gillian Garfinkle S Corporation Trust
and The Nicholas Garfinkle S Corporation Trust.
2.7(2) Non-Exclusive License Agreement between Oxford
Management Corporation, a Nevada corporation,
and Oxford Media Corporation.
2.8(3) Registration Rights Agreement dated September 30, 1999 between
the Company and Norton Garfinkle, individually and as
trustee of each of The Gillian Garfinkle S Corporation Trust
and The Nicholas Garfinkle S Corporation Trust
2.9(4) Agreement of Purchase and Sale of Stock dated as of
May 25, 1999 between the Registrant and Kilburn
Consultants, Inc., an Isle of Man corporation.
3.1(3) Restated Certificate of Incorporation of the Company
3.3.1(5) Bylaws (Effective November 15, 1999 as Amended November 3,
2000).
4.1(6) Form of Stock Certificate
4.2(6) Stock Option Agreement between the Company and Thomas Hemingway**
4.3(6) Stock Option Agreement between the Company and James H. Budd**
4.4(6) Stock Option Agreement between the Company and T. Richard Hutt**
4.5(6) Stock Option Agreement between the Company and David Lyons
4.6(6) Stock Option Agreement between the Company and Robert Way**
4.7(6) Warrant Agreement between the Company and Donald C. Watters,
Jr.**
4.8(6) Warrant Agreement between the Company and David P. Noyes**
4.9(6) Consulting Agreement between the Company and Lee Puglisi
4.10(6) Consulting Agreement between the Company and Ryan Spencer
4.11(7) January 1999 Stock Plan**
4.12(8) Corporate Resolutions relating to January, 1999 Stock Plan**
4.19.1(3) Certificate of Designation - Series J Preferred Stock
4.19.2(3) First Amendment of Certificate of Designation - Series J
Preferred Stock
4.19.3(3) Second Amendment of Certificate of Designation - Series J
Preferred Stock
4.20(9) Certificate of Designation of Relative Rights
and Preferences of Series K Preferred Stock
4.21(5) Amended Certificate of Designation of Relative Rights and
Preferences of Series L Preferred Stock.
4.22(10) Form of Secured Convertible Debenture issued by the Registrant.
4.23(11) Certificate of Designation of Relative Rights and Preferences
of Series M Preferred Stock.
10.7.1(12) Employment Agreement dated as of March 1, 1999 between the
Company and Thomas Hemingway.**
10.7.2(2) Employment Agreement dated as of April 1, 1999 between the
Company and James H. Budd;
Employment Agreement dated as of April 1, 1999 between the
Company and T. Richard Hutt;
Employment Agreement dated as of April 1, 1999 between the
Company and Robert Way; and
10.8(13) 1999 Stock Incentive Plan.**
10.9(13) Form of Indemnification Agreement entered into with certain
officers and directors of the Company.**
10.11.1(13) Series J Convertible Preferred Stock Purchase Agreement dated
as of July 22, 1999 among the Company and the Purchasers named
therein.
10.11.2(13) Amendment dated as of October 29, 1999 to the Series J
Convertible Stock Purchase Agreement among the Company and the
Purchasers named therein.
10.12(13) Registration Rights Agreement dated as of July 22, 1999 between
the Company and initial Purchasers of Series J Convertible
Stock.
10.13(13) Form of Warrant issued in the placement of Series J
Preferred Stock.
10.14(9) Series K Convertible Preferred Stock Purchase Agreement dated
as of December 30, 1999 among the Registrant and the Purchasers
named therein.
10.15(9) Registration Rights Agreement dated as of December 30, 1999
among the Registrant and the Purchasers named therein
10.16(9) Form of Warrant issued in the placement of Series K Preferred Stock.
10.17(5) Series L Convertible Preferred Stock Purchase Agreement dated
as of September 26, 2000 among the Registrant and the
Purchasers named therein.
10.18(5) Registration Rights Agreement dated as of September 26, 2000
among the Registrant and the Purchasers named therein.
10.19(5) Form of Warrant to Purchase Shares of Common Stock of the
Registrant related to the sale of Series L Convertible
Preferred Stock.
10.20(10) Securities Purchase Agreement dated as of December 7, 2000
among the Registrant and the Buyers named therein.
10.21(10) Registration Rights Agreement dated as of December 7, 2000
among the Registrant and the Buyers named therein.
10.22(10) Form of Warrant to Purchase Shares of common stock of the
Registrant issued by the Registrant in related to the issuance
of Secured Convertible Debentures.
10.23(10) Warrant to Purchase 150,000 Shares of common stock of the
Registrant dated as of November 30, 2000 with an expiration
date of November 30, 2005 issued by the Registrant to Trautman
Wasserman & Company Incorporated.
10.24(11) Series M Convertible Preferred Stock Purchase Agreement dated
as of January 18, 2001 among the Registrant and the Purchasers
named therein.
10.25(11) Registration Rights Agreement dated as of January 18, 2001
among the Registrant and the Purchasers named therein.
10.26(11) Form of Warrant to Purchase Shares of Common Stock of the
Registrant related to the sale of Series M Convertible
Preferred Stock.
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer of Periodic Financial
Reports pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350.
32.2 Certification of Chief Financial Officer of Periodic Financial
Reports pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350.
99.1(99.1) Press Release on sale of SoftKat, Inc.
99.2(99.2) Press Release on proposed merger with Streamedia
Communications, Inc.
99.3(99.3) Press Release on date of record for merger with Streamedia
Communications, Inc.
99.4(99.4) Press Release on the termination of the merger with Streamedia
Communications, Inc.
** Indicates management compensation arrangements.
(1) Incorporated by reference to the like-numbered exhibit to the Company's Form 8-K filed April 19, 1999.
(2) Incorporated by reference to the like-numbered exhibit to the Company's Form 8-K filed October 15, 1999.
(3) Incorporated by reference to the like-numbered exhibit to the Company's Form SB-2 filed November 29, 1999.
(4) Incorporated by reference to the like-numbered exhibit to the Company's Form 8-K filed February 8, 2000.
(5) Incorporated by reference to the like-numbered exhibit to the Company's Form 8-K filed December 18, 2000.
(6) Incorporated by reference to the 4.2 exhibit to the Company's Form S-8 filed March 27, 2000.
(7) Incorporated by reference to the 4.1 exhibit to the Company's Form S-8 filed February 1, 1999.
(8) Incorporated by reference to the 4.2 exhibit to the Company's Form S-8 filed February 1, 1999.
(9) Incorporated by reference to the like-numbered exhibit to the Company's Form 8-K filed February 15, 2000.
(10) Incorporated by reference to the like-numbered exhibit to the Registrant's Form S-3 filed December 15, 2000.
(11) Incorporated by reference to the like-numbered exhibit to the Company's Form 8-K filed January 26, 2001.
(12) Incorporated by reference to the like-numbered exhibit to the Company's Form 10-QSB filed August 19, 1999.
(13) Incorporated by reference to the like-numbered exhibit to the Company's Form SB-2/A filed January 18, 2000.
(14) Incorporated by reference to the like-numbered exhibit to the Company's Form S-3/A filed February 9, 2001.
(15) Incorporated by reference to the like-numbered exhibit to the Company's Form S-3 filed February 13, 2001.
(16) Incorporated by reference to the like-numbered exhibit to the Company's Form SC-13D filed February 14, 2001.
(17) Incorporated by reference to the like-numbered exhibit to the Company's Form S-3/A filed March 9, 2001.
(18) Incorporated by reference to the like-numbered exhibit to the Company's Form 8-K filed March 9, 2001.
(19) Incorporated by reference to the like-numbered exhibit to the Company's Form S-3/A filed March 20, 2001.
(20) Incorporated by reference to the like-numbered exhibit to the Company's Form 8-K/A filed March 29, 2001.
(21) Incorporated by reference to the like-numbered exhibit to the Company's Form S-3/A filed March 30, 2001.
(22) Incorporated by reference to the like-numbered exhibit to the Company's Form SC-13G/A filed April 4, 2001.
(23) Incorporated by reference to the like-numbered exhibit to the Company's Form 424B3 filed May 3, 2001.
(24) Incorporated by reference to the like-numbered exhibit to the Company's Form SC-13D filed May 4, 2001.
(25) Incorporated by reference to the like-numbered exhibit to the Company's Form S-8POS filed June 11, 2001.
(26) Incorporated by reference to the like-numbered exhibit to the Company's Form S-8 filed September 14, 2001.
(27) Incorporated by reference to the like-numbered exhibit to the Company's Form S-8 filed November 19, 2001.
(28) Incorporated by reference to the like-numbered exhibit to the Company's Form S-8 filed December 13, 2001.
(29) Incorporated by reference to the like-numbered exhibit to the Company's Form 14-C filed February 25, 2002.
(30) Incorporated by reference to the like-numbered exhibit to the Company's Form S-8 filed March 29, 2002.
(31) Incorporated by reference to the like-numbered exhibit to the Company's Form 10-QSB filed May 22,2002
(32 Incorporated by reference to the like-numbered exhibit to the Company's Form S-8 filed May 24, 2002
(33) Incorporated by reference to the like-numbered exhibit to the Company's Form 8K filed July 31, 2002
(34) Incorporated by reference to the like-numbered exhibit to the Company's Form 10-QSB filed August 19,2002
(35) Incorporated by reference to the like-numbered exhibit to the Company's Form 10-QSB/A filed August 26,2002
(36) Incorporated by reference to the like-numbered exhibit to the Company's Form 8-K/A filed September 27,2002
(37) Incorporated by reference to the like-numbered exhibit to the Company's Form S-8 filed September 27, 2002
(38) Incorporated by reference to the like-numbered exhibit to the Company's Form PRE-14C filed November 8, 2002
(39) Incorporated by reference to the like-numbered exhibit to the Company's Form DEF-14C filed November 18, 2002
(40) Incorporated by reference to the like-numbered exhibit to the Company's Form 10-QSB filed November 19, 2002
(41) Incorporated by reference to the like-numbered exhibit to the Company's Form PRE-14C filed March 27,2003
(42) Incorporated by reference to the like-numbered exhibit to the Company's Form DEF-14C filed April 8, 2003
(43) Incorporated by reference to the like-numbered exhibit to the Company's Form 8-K filed July 30, 2003
(44) Incorporated by reference to the like-numbered exhibit to the Company's Form PRE-14C dated August 1, 2003
(99.1) Incorporated by reference to exhibit 99 to the Company's Form 10-KSB filed June 25, 1999.
(99.2) Incorporated by reference to exhibit 99 to the Company's Form 10-KSB filed January 26, 2001.
(99.3) Incorporated by reference to exhibit 99 to the Company's Form 10-KSB filed March 1, 2001.
(99.4) Incorporated by reference to exhibit 99 to the Company's Form 8-K filed April 9, 2001.
(99.5) Incorporated by reference to exhibit 99 to the Company's Form 10-K filed April 16, 2002.
99.5) Incorporated by reference to exhibit 99 to the Company's Form 10-K filed August 22, 2003..
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESYNCH CORPORATION
Date: August 25, 2003 By: /s/ T. Richard Hutt
---------------------------------
T. Richard Hutt
Secretary and Chief Financial
Officer (Duly Authorized Officer and Principal
Financial and Accounting Officer)