<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
November 8, 1999
E-SYNC NETWORKS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
<TABLE>
<S> <C>
0-2401 06-0625999
(Commission File Number) (IRS Employer Identification No.)
35 Nutmeg Drive, Trumbull, Connecticut 06611
(Address of principal executive office) (Zip Code)
</TABLE>
Registrant's telephone number, including area code
(203) 601-3000
<PAGE> 2
The Registrant's Current Report on Form 8-K, initially filed on November 23,
1999, is hereby amended by this Form 8-K/A-1 as follows:
Items 7(a) and 7(b) of the Registrant's Current Report on Form 8-K initially
filed on November 23, 1999, are hereby amended and restated to provide as
follows:
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
(a) Financial Statements of Business Acquired:
INDEX TO FINANCIAL STATEMENTS
FOR
BRAINCRAFT LEARNING TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report ......................................................................... F-1
Balance Sheets as of December 31, 1997 and 1998 and September 30, 1999 (unaudited) ................... F-2
Statements of Operations for the years ended December 31, 1997 and 1998, and for the nine months ended
September 30, 1998 and 1999 (unaudited) .............................................................. F-3
Statements of Stockholders' Deficit for the years ended December 31, 1997 and 1998, and for the nine
months ended September 30, 1999 (unaudited) .......................................................... F-4
Statements of Cash Flows for the years ended December 31, 1997 and 1998, and for the nine months ended
September 30, 1998 and 1999 (unaudited) .............................................................. F-5
Notes to Financial Statements ........................................................................ F-6
</TABLE>
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
The Board of Directors
E-Sync Networks, Inc.:
We have audited the accompanying balance sheets of Braincraft Learning
Technologies, Inc. as of December 31, 1997 and 1998, and the related statements
of operations, stockholders' deficit and cash flows for each of the years in the
two-year period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Braincraft Learning
Technologies, Inc. as of December 31, 1997 and 1998, and the results of its
operations and its cash flows for each of the years in the two-year period ended
December 31, 1998 in conformity with generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
January 17, 2000
F-1
<PAGE> 4
BRAINCRAFT LEARNING TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-----------------------------
ASSETS 1997 1998 1999
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents .......................................... $ 16,294 $ 14,429 $ 16,626
Accounts receivable, net of allowance for doubtful
accounts of $0, $12,000 and $12,000, respectively .............. 79,255 128,640 92,881
Due from officer ................................................... -- -- 20,000
--------- --------- ---------
Total current assets ................................ 95,549 143,069 129,507
Property and equipment, net ............................................ 69,408 83,369 132,774
Other .................................................................. 5,847 10,258 10,258
--------- --------- ---------
Total assets ........................................ $ 170,804 $ 236,696 $ 272,539
========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable ................................................... $ 45,689 $ 68,854 $ 201,946
Accrued expenses ................................................... 41,020 132,539 323,618
Due to related party ............................................... 16,203 6,288 2,034
Line of credit ..................................................... 74,739 70,518 97,021
Current portion of capital lease obligations ....................... 14,331 14,068 17,056
Note payable to E-Sync Networks, Inc. .............................. -- -- 75,000
Deferred revenue ................................................... 11,513 14,333 34,000
--------- --------- ---------
Total current liabilities ........................... 203,495 306,600 750,675
Obligations under capital leases, less current portion ................. 18,117 3,882 20,937
--------- --------- ---------
Total liabilities ................................... 221,612 310,482 771,612
Commitments and contingencies
Stockholders' deficit:
Common stock, $0.01 par value,
2,000,000 shares authorized,
1,000,000 shares issued and outstanding ......................... 10 10 10
Additional paid-in capital ......................................... 10 10 10
Accumulated deficit ................................................ (50,828) (73,806) (499,093)
--------- --------- ---------
Total stockholders' deficit ......................... (50,808) (73,786) (499,073)
--------- --------- ---------
Total liabilities and stockholders' deficit ......... $ 170,804 $ 236,696 $ 272,539
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 5
BRAINCRAFT LEARNING TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- ---------------------------------
1997 1998 1998 1999
----------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $ 573,826 $ 918,282 $ 577,715 $ 761,600
Operating expenses:
Cost of revenues 449,519 791,960 420,437 915,901
General and administrative 201,328 118,790 86,521 255,445
Interest expense 15,426 12,928 9,601 15,541
----------- ----------- ----------- -----------
666,273 923,678 516,559 1,186,887
----------- ----------- ----------- -----------
Net (loss) income $ (92,447) $ (5,396) $ 61,156 $ (425,287)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 6
BRAINCRAFT LEARNING TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 ............. 1,000,000 $ 10 $ 10 $ 84,190 $ 84,210
Distributions to
stockholders .................. -- -- -- (42,571) (42,571)
Net loss .......................... -- -- -- (92,447) (92,447)
--------- --------- --------- --------- ---------
Balance at
December 31, 1997 ............. 1,000,000 10 10 (50,828) (50,808)
Distributions to
stockholders .................. -- -- -- (17,582) (17,582)
Net loss .......................... -- -- -- (5,396) (5,396)
--------- --------- --------- --------- ---------
Balance at
December 31, 1998 ............. 1,000,000 10 10 (73,806) (73,786)
Net loss (unaudited) .............. -- -- -- (425,287) (425,287)
--------- --------- --------- --------- ---------
Balance at September 30,
1999 (unaudited) .............. 1,000,000 $ 10 $ 10 $(499,093) $(499,073)
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 7
BRAINCRAFT LEARNING TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ---------------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income .......................................... $ (92,447) $ (5,396) $ 61,156 $(425,287)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................ 17,084 23,715 17,788 26,035
Provision for doubtful accounts ...................... -- 12,000 -- 11,083
Changes in operating assets and liabilities:
Accounts receivable ................................ 38,762 (61,385) 17,672 24,676
Other assets ....................................... (625) (4,411) -- --
Due from related party ............................. -- -- -- (20,000)
Accounts payable ................................... 4,433 23,165 10,355 158,092
Accrued expenses ................................... 41,020 91,519 39,479 166,080
Deferred revenue ................................... 11,513 2,820 14,369 19,667
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities ...................... 19,740 82,027 160,819 (39,654)
--------- --------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment ......................... (9,261) (37,676) (27,437) (38,162)
--------- --------- --------- ---------
Net cash used in investing activities ....... (9,261) (37,676) (27,437) (38,162)
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from line of credit and note payable .............. 74,739 -- -- 101,503
Repayments for line of credit and note payable ............. -- (4,221) (8,300) --
Due to related party ....................................... (44,554) (9,915) (9,915) (4,254)
Repayments of capital lease obligations .................... (10,111) (14,498) -- (17,236)
Distributions to stockholders .............................. (42,571) (17,582) (2,500) --
--------- --------- --------- ---------
Net cash (used in) provided by
financing activities ...................... (22,497) (46,216) (20,715) 80,013
--------- --------- --------- ---------
Net (decrease) increase in cash and
cash equivalents .......................... (12,018) (1,865) 112,667 2,197
Cash and cash equivalents:
Beginning of period ........................................ 28,312 16,294 16,294 14,429
--------- --------- --------- ---------
End of period .............................................. $ 16,294 $ 14,429 $ 128,961 $ 16,626
========= ========= ========= =========
</TABLE>
Supplemental disclosure of cash flow information:
During the years ended December 31, 1997 and 1998 and during the nine month
periods ended September 30, 1998 and 1999, the Company paid approximately
$15,000, $13,000, $10,000 and $16,000, respectively, for interest.
Non-cash financing activities:
The Company entered into various capital leases for computer equipment.
These capital lease obligations resulted in non-cash financing activities
aggregating $19,985, $-0-, $-0- and $37,279 for the years ended December
31, 1997 and 1998, and for the nine-month periods ended September 30,
1998 and 1999, respectively.
See accompanying notes to financial statements.
F-5
<PAGE> 8
BRAINCRAFT LEARNING TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND ACCOUNTING POLICIES
(a) SUMMARY OF OPERATIONS
Braincraft Learning Technologies, Inc. ("Braincraft" or the
"Company") provides the design and development of web sites to
various companies. The Company was incorporated in the State of
New York in 1995.
(b) UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial statements of the Company as of September
30, 1999, and the statements of operations, stockholders' deficit,
and cash flows for the nine months ended September 30, 1998 and
1999 are unaudited. Certain information and note disclosures
generally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for the
fair presentation of the financial position and results of
operations and cash flows, have been included in such unaudited
financial statements. The results of operations for the nine
months ended September 30, 1998 and 1999 are not necessarily
indicative of the results to be expected for the entire year.
(c) USE OF ESTIMATES
In preparing the Company's financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosures of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
(d) CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company
considers all highly liquid instruments including money market
funds and certificates of deposit with original maturities of
three months or less to be cash equivalents.
(e) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated
useful lives of the related assets, generally ranging from five to
seven years. Property and equipment under capital leases are
stated at the present value of
F-6
<PAGE> 9
BRAINCRAFT LEARNING TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
minimum lease payments and are amortized using the straight-line
method over the shorter of the lease term or the estimated useful
lives of the assets. Leasehold improvements are amortized using
the straight-line method over the estimated useful lives of the
assets or the term of the lease, whichever is shorter.
(f) IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of the assets to future net cash flows expected to
be generated by the assets. If the assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair
value of the assets. To date, no impairment has occurred.
(g) INCOME TAXES
The Company has elected under the Internal Revenue Code to be an S
corporation. As such, the Company is not subject to Federal or
state income taxes. The Company's stockholders include the taxable
income or loss of the Company in their personal income tax
returns. Accordingly, no provision for income taxes has been
reflected in the financial statements of the Company.
If the Company had operated as a C corporation since inception,
the Company would have recorded net deferred tax assets for the
years ended December 31, 1997 and 1998 of approximately $19,000
and $15,000, respectively. For the nine months ended September 30,
1999 the Company would have recorded a net deferred tax asset of
$175,000. However, due to operating losses incurred, there would
have been a corresponding valuation allowance of $-0- and
$175,000 in 1998 and 1999, respectively.
(h) REVENUE RECOGNITION
Revenues from the design and development of Internet web sites are
recognized using the percentage-of-completion method. Deferred
revenue represents amounts billed in excess of costs incurred, and
is recorded as a liability. To the extent costs incurred and
anticipated costs incurred and anticipated costs to complete
projects in progress exceed anticipated billings, a loss is
recognized in the period such determination is made for the
excess.
F-7
<PAGE> 10
BRAINCRAFT LEARNING TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(i) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist of cash and cash
equivalents, accounts receivable, line of credit and note payable.
At December 31, 1997 and 1998, the fair value of these instruments
approximated their financial statement carrying amount because of
the short-term maturity of these instruments.
During the year ended December 31, 1998, two customers accounted
for more than 10% of the Company's total revenues (56%). Three
customers' accounts receivable balances exceeded 10% of the
accounts receivable balance at December 31, 1998 (84%). During the
year ended December 31, 1997, four customers accounted for more
than 10% of the Company's total revenues (71%). Two customers'
accounts receivable balances exceeded 10% of the outstanding
accounts receivable balance (90%). For the period ended September
30, 1999, three customers accounted for more than 10% of the
Company's total revenue (65%). Two customers' accounts receivable
balances exceeded 10% of the accounts receivable balance at
September 30, 1999 (78%).
(j) STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation arrangements in
accordance with Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation,"
which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 allows entities to continue to
apply the provisions of Accounting Principles Board ("APB")
Opinion No. 25 and provide pro forma net earnings (loss)
disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS No. 123 had been applied.
The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of
SFAS No. 123.
(k) STOCK SPLIT
In February 1999, the Company authorized and implemented a
2,000-for-1 common stock split in the form of a common stock
dividend. Accordingly, all share and per share amounts in the
accompanying financial statements have been retroactively restated
to reflect the effect of the stock split.
F-8
<PAGE> 11
BRAINCRAFT LEARNING TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(l) NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 provides guidance for determining whether
computer software is internal use software and on accounting for
the proceeds of computer software originally developed or obtained
for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for
computer software developed or obtained for internal use. The
Company has determined that SOP 98-1 does not apply to them.
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income," in 1998. SFAS No. 130 requires the Company
to report in its financial statements, in addition to its net
income (loss), which includes all changes in equity during a
period from non-owner sources including, as applicable, foreign
currency items, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and
equity securities. There were no differences between the Company's
comprehensive loss and its net loss as reported.
In June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 131, "Disclosure About Segments of an Enterprise
and Related Information." SFAS No. 131 establishes standards for
the way that public enterprises report information about operating
segments. It also establishes standards for related disclosures
about products and services, geographic areas and major customers.
The Company has determined that it does not have any separately
reportable segments.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other
contracts, and for hedging activities. In June 1998, the FASB
issued SFAS No. 137, which delayed the effective change of SFAS
No. 133. SFAS No. 137 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company is in the
process of analyzing the effect of this statement.
F-9
<PAGE> 12
BRAINCRAFT LEARNING TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(2) BALANCE SHEET COMPONENTS
Property and equipment, including equipment under capital leases, are
stated at cost and are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
Computer equipment, including amounts
related to capital leases of $44,215,
$44,215 and $81,494, respectively $ 80,861 $115,165 $187,805
Office equipment 15,385 16,701 19,502
Furniture and fixtures 5,313 7,369 7,369
-------- -------- --------
101,559 139,235 214,676
Less accumulated depreciation and amortization,
including amounts related to capital leases of
$9,266, $18,109 and $27,538, respectively 32,151 55,866 81,902
-------- -------- --------
Total $ 69,408 $ 83,369 $132,774
======== ======== ========
</TABLE>
During 1997, the President of the Company made a $6,288
non-interest-bearing loan to the Company for the purchase of computer
equipment. This loan had remained unpaid by the Company at December 31,
1998 and 1997. The Company repaid $4,254 during the nine months ended
September 30, 1999.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
Accrued expenses consist of the following:
Accrued payroll and fringe benefits $ 16,324 $ 32,530 $ 93,839
Payroll taxes 24,696 55,009 159,779
Other -- 45,000 70,000
-------- -------- --------
$ 41,020 $132,539 $323,618
======== ======== ========
</TABLE>
F-10
<PAGE> 13
BRAINCRAFT LEARNING TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(3) LEASES
The Company has one operating lease having an initial or remaining
non-cancelable lease term in excess of one year and has various capital
leases for property and equipment. Rental expense for the years ended
December 31, 1997 and 1998 and for the nine months ended September 30,
1998 and 1999 was $42,087, $36,059 and $26,772 and $39,406, respectively.
The Company's capital lease obligations are collateralized by certain
assets. Future minimum lease payments under non-cancelable operating
leases (with initial or remaining lease terms in excess of one year) and
future minimum capital lease payments as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ ------ ------
<S> <C> <C>
1999 $15,857 $55,000
2000 3,969 60,000
2001 -- 50,000
2002 -- --
------ --------
19,826 $165,000
========
Less estimated amount representing interest (at a
weighted average interest rate of 14%) 1,876
------
Present value of minimum capital lease payments 17,950
------
Less current portion of capital lease obligations 14,068
------
Capital lease obligations, less current portion $3,882
======
</TABLE>
(4) NOTE PAYABLE
In September 1999, the Company issued a note to E-Sync Networks, Inc.
("E-Sync"). The note bears interest at the prime rate (8.0% as of
September 30, 1999), which is due at the earlier of November 27, 1999 or
at the date of the acquisition of the Company by E-Sync (see note 7).
F-11
<PAGE> 14
BRAINCRAFT LEARNING TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(5) LINE OF CREDIT
The Company has a revolving credit facility agreement with a bank that
enables it to borrow up to $100,000 at 2.0% above prime (8.75% at
December 31, 1998), subject to certain conditions and collateral
restrictions as defined in the agreement. Approximately $75,000, $71,000
and $97,000 was outstanding as of December 31, 1997 and 1998 and as of
September 30, 1999, respectively. The revolving credit facility is
secured by substantially all of the Company's assets, including accounts
receivable and property and equipment.
(6) CAPITAL STOCK
The Company has authorized 2,000,000 shares of common stock. As of
December 31, 1998, the Company has issued and outstanding 1,000,000
shares of common stock to the stockholders of the Company. The Company
makes periodic distributions to its stockholders. However, no
distributions are required to be made under the terms of the Company's
Stockholder Agreement.
(7) SUBSEQUENT EVENTS
ACQUISITION
On November 8, 1999, E-Sync acquired 100% of the outstanding stock of
Braincraft in exchange for $250,000 of cash and 671,676 shares of E-Sync
common stock (the "Acquisition"). The Acquisition will be accounted for
as a purchase business combination. Each outstanding share of Braincraft
common stock has been converted into cash equal to $0.25 per share and
0.671676 shares of E-Sync's common stock, par value $0.01 per share. Each
holder of options to purchase shares of Braincraft common stock that were
issued by Braincraft and were outstanding, whether vested or unvested
(the "Braincraft Options"), have been converted into options to purchase
the number of shares of the E-Sync common stock equal to 0.671676
multiplied by the number of shares of Braincraft common stock issuable
upon exercise of such Braincraft Options. In connection with the above
transaction, E-Sync elected to extend the terms of the note payable (see
note 4). A total of 194,750 Braincraft Options were converted into
options to purchase a maximum of 130,803 shares of the E-Sync common
stock at an exercise price of either $2.98 or $5.02 per share depending
on the exercise price of the original underlying Braincraft Option.
On May 24, 1999, the Braincraft advanced a non-interest-bearing loan to
its officer. The loan was subsequently repaid on November 8, 1999 upon
the consummation of the above Acquisition.
STOCK OPTION PLAN
During the nine months ended September 30, 1999, Braincraft adopted its
1999 Stock Option Plan. Pursuant to the Stock Option Plan, options to
issue 194,750 shares may be granted. As of
F-12
<PAGE> 15
BRAINCRAFT LEARNING TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
September 30, 1999, Braincraft issued 194,750 options at exercise prices
ranging from $2.00 to $3.37 per share, representing the fair value of
Braincraft's common stock at the date of issuance. The Braincraft stock
option plan was terminated upon the Acquisition.
F-13
<PAGE> 16
(b) Pro Forma Condensed Consolidated Financial Information
On November 8, 1999, E-SYNC Networks, Inc. ("E-SYNC" or the "Company") acquired
Braincraft Learning Technologies, Inc. ("Braincraft") for $3.8 million including
acquisition costs pursuant to the terms of an Agreement and Plan of Merger dated
November 8, 1999. Such acquisition is referred to as the "Acquisition". The
consideration payable by E-SYNC was determined as a result of negotiation
between E-SYNC and Braincraft. The number of shares of E-SYNC common stock that
was issued to Braincraft shareholders was determined based on the exchange rate
of 0.671676 of a share of E-SYNC common stock for each share of Braincraft
common stock. Funds payable in connection with the acquisition of Braincraft
were provided from E-SYNC's cash on hand.
The unaudited Pro Forma Condensed Consolidated Statement of Operations (the "Pro
Forma Statements of Operations") for the year ended October 31, 1998 and nine
months ended September 30, 1999 gives effect to the acquisition of Braincraft as
if it had occurred on November 1, 1997. The Company filed an unaudited
transition report in May 1999 to change its year-end from October 31 to December
31. The Pro Forma Statements of Operations are based on historical results of
operations of the Company for the twelve months ended October 31, 1998 and
Braincraft for the year ended December 31, 1998 and for both the Company and
Braincraft for the nine months ended September 30, 1999. The unaudited Pro Forma
Condensed Consolidated Balance Sheet (the "Pro Forma Balance Sheet") gives
effect to the acquisition of Braincraft as if the acquisition had occurred on
September 30, 1999.
The Pro Forma Financial Information is intended for informational purposes only
and is not necessarily indicative of the future financial position or future
results of operations of the consolidated Company after the acquisition of
Braincraft, or of the financial position or results of operations of the
consolidated Company that would have actually occurred had the acquisition of
Braincraft been affected on November 1, 1997. The Pro Forma Statements of
Operations and Pro Forma Balance Sheet and accompanying notes (the "Pro Forma
Financial Information") should be read in conjunction with and are qualified by
the historical financial statements of the Company and notes thereto.
<PAGE> 17
E-SYNC NETWORKS, INC.
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
BRAINCRAFT
E-SYNC LEARNING
NETWORKS, TECHNOLOGIES,
INC. INC. ADJUSTMENTS PRO FORMA
------------ ------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash & cash equivalents $ 2,339,500 $ 16,626 $-- $ 2,356,126
Accounts receivable, net 1,299,400 92,881 -- 1,392,281
Note receivable 75,000 -- -- 75,000
Other current assets 126,200 -- -- 126,200
Due from officer -- 20,000 -- 20,000
----------- ----------- ----------- -----------
Total Current Assets 3,840,100 129,507 -- 3,969,607
Property and equipment, net 3,350,000 132,774 -- 3,482,774
Other assets 250,000 10,258 -- 260,258
Goodwill and other intangible assets -- -- 4,307,555(a) 4,307,555
----------- ----------- ----------- -----------
Total Assets $ 7,440,100 $ 272,539 $ 4,307,555 $12,020,194
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Term loan payable, current portion $ 762,800 $ 75,000 $-- $ 837,800
Obligations under capital leases,
current portion 113,700 17,056 -- 130,756
Accounts payable and accrued expenses 4,661,100 525,564 -- 5,186,664
Medical benefits obligations, current portion 26,400 -- -- 26,400
Due to related party -- 2,034 -- 2,034
Line of credit -- 97,021 -- 97,021
Deferred revenue -- 34,000 -- 34,000
----------- ----------- ----------- -----------
Total Current Liabilities 5,564,000 750,675 -- 6,314,675
Term loan payable, less current portion 9,600 -- -- 9,600
Obligations under capital leases, less
current portion 50,700 20,937 -- 71,637
Medical benefits obligations, less current portion 217,600 -- -- 217,600
----------- ----------- ----------- -----------
Total liabilities 5,841,900 771,612 -- 6,613,512
3,808,482(a)
Stockholders' equity (deficit) 1,598,200 (499,073) 499,073 5,406,682
----------- ----------- ----------- -----------
Total liabilities & stockholders' equity $ 7,440,100 $ 272,539 $ 4,307,555 $12,020,194
=========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
information.
<PAGE> 18
E-SYNC NETWORKS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
BRAINCRAFT
E-SYNC LEARNING
NETWORKS, TECHNOLOGIES,
INC. INC. ADJUSTMENTS PRO FORMA
--------------- ------------------ ---------------- ---------------
<S> <C> <C> <C> <C>
Managed service revenue $ 4,480,100 $ -- $ -- $ 4,480,100
Professional service revenue 3,104,200 918,282 -- 4,022,482
----------- ----------- ----------- -----------
Total net revenues 7,584,300 918,282 -- 8,502,582
Operating expenses
Cost of managed services 2,428,700 -- -- 2,428,700
Cost of professional services 2,208,000 791,960 -- 2,999,960
Sales & marketing 1,031,200 -- -- 1,031,200
General & administrative 1,117,100 131,718 -- 1,248,818
Product development 491,900 -- -- 491,900
Amortization expense 0 -- 861,511(a) 861,511
----------- ----------- ----------- -----------
Total operating expenses 7,276,900 923,678 861,511 9,062,089
----------- ----------- ----------- -----------
Net Income (loss) $ 307,400 $ (5,396) $ (861,511) $ (559,507)
=========== =========== =========== ===========
Basic net income (loss) per common share $0.08 $ (0.12)(b)
=========== ===========
Diluted net loss per common share $ 0.07 $ (0.12)(b)
=========== ===========
Weighted-average basic shares outstanding 3,838,083 680,256(b) 4,518,339(b)
=========== =========== ===========
Weighted-average diluted shares outstanding 4,140,364 680,256(b) 4,518,339(b)
=========== =========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
information.
<PAGE> 19
E-SYNC NETWORKS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
BRAINCRAFT
E-SYNC LEARNING
NETWORKS, TECHNOLOGIES,
INC. INC. ADJUSTMENTS PRO FORMA
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Managed service revenue $ 2,527,600 $-- $-- $ 2,527,600
Professional service revenue 2,627,900 761,600 -- 3,389,500
------------ ------------ ------------ ------------
Total net revenues 5,155,500 761,600 -- 5,917,100
Operating expenses
Cost of managed services 2,457,100 -- -- 2,457,100
Cost of professional services 1,944,800 915,901 -- 2,860,701
Sales & marketing 1,753,500 -- -- 1,753,500
General & administrative 2,699,400 270,986 -- 2,970,386
Product development 792,900 -- -- 792,900
Amortization expense -- -- 646,133(a) 646,133
------------ ------------ ------------ ------------
Total operating expenses 9,647,700 1,186,887 646,133 11,480,720
------------ ------------ ------------ ------------
Net Loss $ (4,492,200) $ (425,287) $ (646,133) $ (5,563,620)
============ ============ ============ ============
Basic and diluted net loss per common share $ (1.05) $ (1.12)(b)
============ ============
Weighted-average basic and diluted shares
outstanding 4,278,196 680,256(b) 4,958,452(b)
============ ============ ============
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
information.
<PAGE> 20
PRO FORMA ADJUSTMENTS AND ASSUMPTIONS
(a) On November 8, 1999, E-SYNC Networks, Inc. ("E-SYNC" or the "Company")
acquired Braincraft Learning Technologies, Inc. ("Braincraft") for $3.8 million
including acquisition costs pursuant to the terms of an Agreement and Plan of
Merger dated November 8, 1999 (the "Merger Agreement"), among BLT Acquisition
Corp., a wholly-owned subsidiary of E-SYNC ("Acquisition Corp."), Braincraft
Learning Technologies, Inc. and the shareholders of Braincraft. Pursuant to the
terms of the Merger Agreement, Braincraft merged with and into Acquisition Corp.
and became a wholly-owned subsidiary of E-SYNC. The acquisition will be
accounted for as a purchase business combination. The consideration payable by
E-SYNC in connection with the acquisition of Braincraft consisted of the
following: $250,000 in cash and 680,256 shares of E-SYNC common stock, including
8,580 shares which were contingent at the time of the Acquisition, valued at
$2.9 million. E-SYNC also assumed Braincraft's obligations under options to
purchase shares of Braincraft common stock par value $.01 per share,
("Braincraft Common Stock"), which were exchanged for options to purchase
130,803 shares of E-SYNC common stock. The options were valued at approximately
$542,000. Such options have an aggregate exercise price of approximately
$415,000. The Company also incurred acquisition costs of approximately $125,000.
The following represents the allocation of the purchase price over the
historical net book values of the acquired assets and liabilities of Braincraft
at September 30, 1999, and is for illustrative pro forma purposes only. Actual
fair values will be based on financial information as of the acquisition date
(November 8, 1999). Assuming the transaction had occurred on September 30, 1999,
the allocation would have been as follows:
<TABLE>
<CAPTION>
BRAINCRAFT
<S> <C>
Assets acquired:
Cash $ 16,626
Accounts receivable 92,881
Other assets 30,258
Property and equipment 132,774
Goodwill and intangibles 4,307,555
-----------
4,580,094
Liabilities assumed (771,612)
-----------
Purchase price $ 3,808,482
===========
</TABLE>
This allocation is preliminary and may be subject to change upon evaluation of
the fair value of Braincraft's acquired assets and liabilities as of the
acquisition date as well as the potential identification of certain intangible
assets.
The Pro Forma adjustment reconciles the historical balance sheet of Braincraft
at September 30, 1999 to the allocated purchase price assuming the transaction
had occurred on September 30, 1999.
Goodwill and other intangible assets will be amortized over a period of 5 years,
the expected period of benefit. The Pro Forma adjustments to the statement of
operations reflect twelve months of amortization expense for the year ended
October 31, 1998 and nine months of amortization expense for the nine months
ended September 30, 1999, assuming the transaction occurred on November 1, 1997.
The value of the intangible assets as of November 1, 1997 would have been
approximately $4.3 million.
(b) In connection with the acquisition of Braincraft, the Company issued 680,256
shares of E-SYNC common stock, par value $.01 per share, to the Braincraft
shareholders. The pro forma basic and diluted
<PAGE> 21
net loss per common share is computed by dividing the net loss attributable to
calculation of the weighted average number of shares outstanding. The
calculation of the weighted average number of shares outstanding assumes that
shares issued in connection with the acquisition were outstanding for the entire
period. Diluted net loss per share equals basic net loss per share, as common
stock equivalents are anti-dilutive for all pro forma periods presented.
<PAGE> 22
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed by the
undersigned hereto duly authorized.
E-SYNC NETWORKS, INC.
Date: January 24, 2000 By: /s/ Frank J. Connolly Jr.
-------------------------
Frank J. Connolly Jr.
Chief Financial Officer
