UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission file number 0-26790
eSynch Corporation
--------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 87-0461856
------------------------------ -------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
4600 Campus Drive
Newport Beach, CA 92660
----------------------------------------
(Address of principal executive offices)
(949) 833-1220
------------------------------------------------
(Issuer's telephone number, including area code)
INNOVUS CORPORATION
-------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
The number of common shares outstanding at November 24, 1998: 6,554,829.
(after the effect of the 10-for-1 reverse stock split on November 9, 1998)
TABLE OF CONTENTS
PART 1. Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet (Unaudited) -
September 30, 1998 . . . . . . . . . . . . . . . . . . . . 1
Condensed Consolidated Statements of Operations
(Unaudited) - for the Three and Nine Months Ended
September 30, 1998 and 1997 . . . . . . . . . . . . . . . .2
Condensed Consolidated Statements of Cash Flows
(Unaudited) - for the Nine Months Ended September
30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . 3
Notes to Consolidated Financial Statements (Unaudited) . . .4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation . . . . . . . . . . . . .6
PART II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 9
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . 9
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . .10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . .12
PART 1 FINANCIAL INFORMATION
Item I - Financial Statements
ESYNCH CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 11,065
Deferred tax asset. . . . . . . . . . . . . . . . . . . . . . . 2,600
----------
Total Current Assets. . . . . . . . . . . . . . . . . . . . . 13,665
Property and Equipment, net. . . . . . . . . . . . . . . . . . . 69,670
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,094
---------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 84,429
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . $ 748,939
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . 16,221
Accrued income taxes. . . . . . . . . . . . . . . . . . . . . . 39,550
Notes payable - accrued salaries and wages. . . . . . . . . . . 156,030
Employee loans payable. . . . . . . . . . . . . . . . . . . . . 162,039
Capital lease obligations . . . . . . . . . . . . . . . . . . . 768
Preferred dividends payable . . . . . . . . . . . . . . . . . . 32,682
----------
Total Current Liabilities . . . . . . . . . . . . . . . . . . 1,156,229
----------
Stockholders' Deficit
Preferred stock - $0.001 par value; 1,000,000 shares
authorized; no shares outstanding . . . . . . . . . . . . . . -
Common stock - $0.001 par value; 20,000,000 shares
authorized; 5,834,829 shares issued and outstanding . . . . 5,835
Additional paid-in capital. . . . . . . . . . . . . . . . . . . (42,003)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . (1,035,632)
---------
Total Stockholders' Deficit . . . . . . . . . . . . . . . . . (1,071,800)
---------
Total Liabilities and Stockholders' Deficit. . . . . . . . . . . $ 84,429
=========
See the accompanying notes to the condensed financial statements.
-1-
<PAGE>
ESYNCH CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales . . . . . . . . . . . . $ - $ 67,613 $ 15,293 $ 423,874
--------- --------- -------- ---------
Costs and Operating Expenses
Costs of products and services sold - 58,362 9,940 102,823
Selling and marketing 6,573 19,973 14,570 52,956
General and administrative. . . . . 460,587 211,855 835,606 381,146
--------- --------- -------- ---------
Total Costs and Operating Expenses 467,160 290,190 860,116 536,925
--------- --------- -------- ---------
Operating Loss . . . . . . . . . . . (467,160) (222,577) (844,823) (113,051)
--------- --------- -------- ---------
Other Income (Expense)
Interest income . . . . . . . . . . 6,805 4,623 13,458 413
Interest expense . . . . . . . . . (3,627) 2,013 (5,571) (4,442)
--------- --------- --------- ---------
Other Income (Expense), Net . . 3,178 6,636 7,887 (4,029)
--------- --------- -------- ---------
Net Loss . . . . . . . . . . . . . . $(463,982) $(215,941) $(836,936) $(117,080)
========= ========= ========= =========
Basic and Diluted Loss Per
Common Share. . . . . . . . . . . . $ (0.09) $ (0.05) $ (0.18) $ (0.03)
========= ========= ========= =========
Weighted average number of common
shares used in per share
calculation 5,075,328 3,997,570 4,548,202 3,997,570
========= ========= ========= =========
<FN>
See the accompanying notes to the condensed financial statements.
</FN>
</TABLE>
-2-
<PAGE>
ESYNCH CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months
Ended September 30,
---------------------
1998 1997
--------- ---------
Cash Flows from Operating Activities
Net income (loss) . . . . . . . . . . . . . . . . . . $(836,936) $ (117,080)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization. . . . . . . . . . . 29,834 6,581
Changes in assets and liabilities net of effects
from purchase of Innovus:
Accounts receivable . . . . . . . . . . . . . . . 54,767 10,238
Inventories. . . . . . . . . . . . . . . . . . . - 46,008
Accounts payable and accrued expenses. . . . . . 223,221 20,791
Stock issued for services. . . . . . . . . . . . 112,108 -
Other. . . . . . . . . . . . . . . . . . . . . . - 28,979
--------- ---------
Net Cash Provided by (Used in) Operating
Activities (417,006) (4,483)
--------- ---------
Cash Flows From Investing Activities
Acquisition of property and equipment . . . . . . . . - (18,631)
--------- ---------
Net Cash Used in Investing Activities. . . . . . . - (18,631)
--------- ---------
Cash Flows From Financing Activities
Proceeds from borrowing . . . . . . . . . . . . . . . 428,071 29,924
--------- ---------
Net Cash Provided by Financing Activities . . . . 428,071 29,924
--------- ---------
Net Increase in Cash and Cash Equivalents. . . . . . . 11,065 6,810
Cash and Cash Equivalents at Beginning of Period . . . - 680
--------- ---------
Cash and Cash Equivalents at End of Period . . . . . . $ 11,065 $ 7,490
========= =========
Noncash Investing and Financing Activities
On May 1, 1998, convertible notes payable in the amount of $465,932 were
converted into stock of Intermark, which was subsequently exchanged for
and converted into 604,069 shares of common stock of the Company. On
August 5, 1998, the Company and Intermark Corporation consummated a
business combination which is accounted for as the reorganization of
Intermark. The Company was deemed for accounting purposes to have issued
1,215,375 shares of common stock to the Innovus Corporation shareholders
in exchange for net liabilities in the amount of $617,268, comprised of
$46,669 of equipment and the assumption of $663,937 of liabilities. On
November 9, 1998, the outstanding common stock was reverse split on a
1-for-10 basis, and on or before the reverse stock split, 80,286 shares
of Series H preferred stock were converted, purusant to their terms, into
approximately 4,516,087 shares of common stock. The financial statements
have been adjusted for the effects of the reverse stock split and
conversion of the preferred stock into common stock for all periods
00presented.
See the accompanying notes to the condensed financial statements.
-3-
<PAGE>
ESYNCH CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of Intermark Corporation ("Intermark") for
all periods presented and the accounts of eSynch Corporation (formerly
Innovus Corporation) from the date of its acquisition on August 5, 1998.
These entities are collectively referred to as "the Company." All
significant intercompany transactions and balances have been eliminated in
consolidation.
Nature of Operations - Intermark was incorporated under the laws of the
State of California in October 1995. Intermark's operations consist of
retail and turnkey sales of software and related marketing services.
Intermark has developed an Electronic Software distribution system through
the Internet; consequently, the Company's ability to collect amounts due
from customers is affected by economic fluctuations in the computer
industry.
Reorganization - Innovus Corporation (now eSynch Corporation) ("Innovus"),
a publicly held Delaware corporation, had discontinued its prior operations
by May 1998 when it entered into an Agreement and Plan of Share Exchange
(the "Agreement") with Intermark. Innovus had 1,215,375 common shares
outstanding on August 5, 1998 when the Agreement was consummated. Under the
terms of the Agreement, the shareholders of Intermark exchanged all of
their common stock of Intermark for 103,367 shares of common stock and
78,706 shares of Series H preferred stock of Innovus and Intermark was
reorganized into a newly-formed subsidiary of Innovus. The Company
subsequently issued 1,580 shares of Series H preferred stock to third-
party service providers. All of the outstanding Series H preferred stock
was automatically converted into 4,516,087 common shares on November 9,
1998 upon the 1-for-10 reverse stock split. As a result, the Intermark
shareholders became the majority shareholders of the Company in a
transaction intended to qualify as a tax-free reorganization. The business
combination has been accounted for as the reorganization of Intermark
and the issuance of common stock for the net liabilities of Innovus in
the amount of $617,268.
Summary unaudited pro forma results of continuing operations for the nine
months ended September 30, 1998 and 1997, assuming the reorganization
occurred on January 1, 1998 and 1997, are as follows:
1998 1997
--------- ----------
Net Sales $ 15,293 $ 423,874
Loss from Continuing Operations $(996,661) $ (992,018)
Basic and Diluted Loss Per Common Share $ (0.17) $ (0.17)
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumption that affect the reported amounts in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
-4-
<PAGE>
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
1998.
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 Intermark's September 30, 1997 annual financial statements
included in the Company's Form 8-K dated August 5, 1998.
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. An allowance for sales returns
is recognized for the amount of future returns at the date the sale is
recognized. Cost of products sold is recognized at the date the sale is
recognized less an estimate for sales returns. Until the sale is
recognized, consigned products from publishers are not reflected in the
financial statements.
Business Condition - The financial statements have been prepared on the
basis of the Company continuing as a going concern. The Company has
incurred losses from operations and negative cash flows from operating
activities and has accumulated a deficit at September 30, 1998 in the
amount of $1,035,632. These conditions raise substantial doubt regarding the
Company's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
New Accounting Standards - The Financial Accounting Standard Board issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
in June 1998. This statement is effective for the year beginning January 1,
2000 and will not require retroactive restatement of prior period financial
statements. The Company does not believe the new statement will have any
impact on the financial statements but it has not completed its evaluation
of SFAS 133.
NOTE 2 - SUBSEQUENT EVENTS
Reverse Stock Split -- In connection with the reorganization agreement with
Innovus, the Board of Directors approved a 1-for-10 reverse stock split of
the Company's common stock which was approved by shareholders on October
27, 1998. Upon completion of the reverse stock split, all of the Series H
Preferred Stock was converted into common stock. The amounts herein have
been restated for the effects of the stock split and the conversion of the
Series H Preferred Stock for all periods presented.
SoftKat - On November 17, 1998, the Company signed and consummated an agreement
to acquire an entity known as SoftKat, Inc. in exchange for the issuance of
720,000 common shares, and 600,000 redeemable, convertible preferred
shares. Up to an additional 720,000 common shares are contingently issuable
based upon the difference between the market price of the common stock one
year from the date acquisition was consummated and a target market price of
$3.00 per share. The Company will be required to redeem 200,000 shares of
the preferred stock at $1.00 per share upon obtaining $1,500,000 of funding
from any source and must further redeem an additional 200,000 shares of
preferred stock upon obtaining an additional $3,000,000 of funding. The
preferred stock issued has voting rights equivalent to the number of common
shares into which they could be converted and have additional voting rights
in respect to approval of any issuance of a senior series of preferred shares
and have a liquidation preference of $1.00 per share and will be convertible
beginning on the first anniversary of the acquisition at the lesser of $3.00
per share or the closing bid price of the common stock on that date.
The purchase price, based upon the fair value of the common and preferred
stock issued, has been preliminarily estimated to be $2,463,000.
-5-
<PAGE>
Name Change - On October 27, 1998, the Company's shareholders approved and on
November 9, 1998, the Company effected, a name change to eSynch Corporation.
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, 1997 found in the Company's Form
10-KSB/A.
The financial statements have been prepared on the basis of the Company
continuing as a going concern. The Company has incurred losses from
operations and negative cash flows from operating activities and has
accumulated a deficit at September 30, 1998 in the amount of $1,035,632.
These conditions raise substantial doubt regarding the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
The Company had been engaged in the sale of multimedia authoring and
presentation software, with related application templates and media
packages. Due to lagging sales and lack of resources, the Company ceased its
development and marketing activities in late 1997. In May, 1998, the
Company signed an Agreement and Plan of Share Exchange with Intermark
Corporation ("Intermark"). Pursuant to the terms of the Intermark Agreement,
as amended, current Intermark shareholders would obtain securities
representing 77.5% of the Company's voting power. The Intermark Agreement
was consummated on August 5, 1998. The nine-month and the third-quarter
results, respectively, include the results of Intermark for the entire
period.
Results of Operations
During the nine months ended September 30, 1998, net sales were $15,293,
compared to $423,874 for the comparable period of the prior year.
The costs of products and services sold in the nine months ended September
30, 1998 and 1997 were $9,940 and $102,823, respectively.
-6-
<PAGE>
Operating loss for the nine months ended September 30, 1998 was $844,823
compared to an operating loss of $113,051 for the nine months ended
September 30, 1997. Comparison of the current period when the Company was
doing little other than attempting to determine a new business plan to the
first nine months of 1997 when the Company was actively attempting to market
its software is not necessarily meaningful.
Operating loss for the first nine months of 1998 reflects the full
amortization of software development costs at December 31, 1997.
Accordingly, amortization for the period consists only of $450 in
depreciation, compared to $424 amortization of software development costs in
the first nine months of 1997.
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. An allowance for sales returns is recognized for
the amount of future returns at the date the sale is recognized. Cost of
products sold is recognized at the date the sale is recognized less an
estimate for sales returns. Until the sale is recognized, consigned products
from publishers are not reflected in the financial statements.
The Company incurred $5,571 and $4,442 in net interest expense during the
nine months ended September 30, 1998 and 1997, respectively.
The Company sustained net loss applicable to common shares of $836,936 for
the nine months ended September 30, 1998 compared to a net loss of $117,080
for the nine months ended September 30, 1997.
Liquidity and Capital Resources
At September 30, 1998 the Company had $11,065 of cash and cash equivalents
and a deficit in working capital (current liabilities in excess of current
assets) of $1,142,564.
On August 5, 1998, the Intermark transaction was consummated.
The Company has ceased the operations of Innovus Multimedia. It is
contemplated that Innovus Multimedia will be dissolved and its software
sold, with the proceeds used to defray existing indebtedness of the
subsidiary.
The Company had been relying upon short-term borrowings from affiliates and
others, as well as increases in accounts payable owed to vendors.
Management's efforts to obtain additional equity financing were successful
to some degree. The Company borrowed $210,000 from six accredited investors
during the third quarter in exchange for convertible promissory notes that
on November 9, 1998 were automatically converted into an aggregate of
284,667 shares of common stock.
The Company estimates that during the third quarter it was using
approximately $98,500 more cash each month than was generated by operations.
-7-
<PAGE>
At September 30, 1998, the Company had no long term liabilities. This
reflects a previous sale of the Company's building, relieving the Company
from the first and second mortgages, as well as the sale of telephone
equipment subject to a lease obligation, although the Company remains
contingently responsible for such lease in the event of a default by the
transferee. The remaining liabilities which might be considered long term
have been classified as current liabilities due to the Company's financial
condition.
The Company has determined that Innovus Multimedia cannot continue
operations, and has determined to liquidate Innovus Multimedia. The result
of the liquidation will be that the assets of Innovus Multimedia will be
sold to pay a portion of the amounts due creditors of Innovus Multimedia,
and no assurance is possible that such assets could be sold at all.
The Company has settled and resolved a portion of the indebtedness of
Innovus Multimedia, and intends to continue to do so in connection with the
dissolution of Innovus Multimedia. Funding to settle indebtedness was made
available by Intermark in connection with the Intermark transaction.
Management's plans also include private equity financing for purposes of
development and marketing of the products acquired in the Intermark
transaction, and for potential acquisitions of other complementary products
and businesses. No assurance can be made that such financing shall be
forthcoming in sufficient amounts, and the Company may be required to delay
or change its plans absent sufficient financing.
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 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.
-8-
<PAGE>
PART II
Item 1 - Legal Proceedings
During the quarter, the Company obtained a release of a judgment
that arose from a lawsuit filed on November 26, 1997 by Programmer's
Paradise against Innovus Multimedia in the Third Judicial District Court
of Salt Lake County, Utah. The complaint alleged that Innovus owed
Programmer's Paradise $15,887.80 plus interest and costs. On January 21,
1998, a judgment was entered against Innovus in the amount of $16,500.43.
The plaintiff and judgment creditor agreed to accept approximately $3,200
in full satisfaction of the judgment.
During the quarter, the Company settled a lawsuit filed on February
3, 1998 by Blenheim Group USA, Inc. , which filed a Complaint against
Innovus Multimedia in the Municipal Court of the San Francisco Judicial
District, State of California. The complaint alleged that Innovus
Multimedia owed $19,800 for exhibit space booked but not used in the
1997 PC Expo exhibition. The Company paid $6,000 in return for the
dismissal of the lawsuit with prejudice.
Item 2 - Changes in Securities
(a) In September 1998, 8,906 shares of Series H Preferred Stock were
voluntarily converted into 500,962 shares of common stock, as reclassified
by the November 9, 1998 1-for-10 reverse stock split ("Reverse Split").
(c) The following securities were issued by the Company during the quarter
ended September 30, 1998 without registration under the Securities Act of 1933:
(i) The Company issued 21,500 shares, as adjusted by the Reverse Split,
of its common stock upon conversion of or in exchange for shares of its
Series G Preferred Stock. The conversions and exchanges were made by a
limited number of accredited investors solely in exchange for outstanding
securities of the Company. No commissions or similar fees were paid. The
Company believes the transactions were exempt from registration pursuant to
Sections 4(2) and 3(a)(9) of the Securities Act of 1933.
(ii) During the quarter, the Company issued $210,000 of its convertible
notes to six accredited investors. The Company believes the transactions
were exempt from registration pursuant to Section 4(2) of the Securities Act
of 1933. Subsequently, in connection with the Reverse Split, the notes were
automatically converted into 180,000 shares of common stock, as reclassified
by the Reverse Split.
(iii) During the quarter, the Company issued 1,580 shares of Series H
Preferred Stock to service providers. The Company believes the transactions
were exempt from registration pursuant to Section 4(2) of the Securities Act
of 1933. Subsequently, in connection with the Reverse Split, the notes were
automatically converted into 88,875 shares of common stock, as reclassified
by the Reverse Split.
(iv) At September 30, 1998, the only Preferred Stock outstanding was
71,380 shares of Series H Preferred Stock, which were subsequently, on
November 9, 1998, as a result of the Reverse Split, automatically converted
into 4,015,125 shares of common stock, as reclassified by the Reverse Split.
-9-
<PAGE>
Item 5 - Other Information
On November 17, 1998, the Company, IN-US Softkat Acquisition Corporation, a
wholly-owned subsidiary of the Company, and SoftKat, Inc., a California
corporation, executed, delivered, and consummated a merger agreement to
acquire SoftKat Corporation. Under the agreement, 720,000 shares of common
stock of the Company were issued to the shareholders of SoftKat and 600,000
shares of Series I Preferred Stock of the Company were issued to
subordinated note holders of SoftKat. In addition, the former shareholders
of SoftKat have a contingent right to receive up to 720,000 additional
shares of the Company's common stock, depending upon the trading price of
the common stock during the 30-trading-day period ending November 16, 1999.
The Company's Series I Preferred Stock is redeemable at a price of $1.00 per
share at the option of the Company at any time, subject to legal
restrictions on redemption or restrictions in loan or other agreements, and
is required to be redeemed in certain amounts in certain events related to
receipt of funding by Innovus. The Series I Preferred Shares become
convertible into common stock of the Company as of November 17, 1999, or
earlier if the Company receives a specified amount of funding prior to such
time. The exercise price will be based on a formula, equal to the lesser of
$3.00 per share of common stock, or the average closing bid price for the
common stock over the 10-trading-day period ending November 16, 1999.
Name Change - On October 27, 1998, the Company's shareholders approved a
name change to eSynch Corporation, effective upon the effectiveness of the
filing of an amendment to the Company's Certificate of Incorporation with
the State of Delaware. The name change became effective November 9, 1998
concurrent with the 1 for 10 reverse stock split.
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
----------- ----------------------
2.1(1) Agreement and Plan of Share Exchange dated as of
May 8, 1998 among the Company; Intermark
Corporation, a California corporation; and the
Exchanging Securityholders of Intermark
Corporation. Omitted from this Form 8-K filing
are the following schedules or attachments to
the agreement identified immediately above:
(A) Form of Certificate of Designation of
Series H Convertible Preferred Stock;
(B) Intermark Corporation Financial Statements
(Unaudited) for its 1997 Fiscal Year;
(C) Confidentiality Agreement dated March 1998
between the Company and Intermark Corporation;
-10-
<PAGE>
(D) Disclosure Schedule of Intermark
Corporation;
(E) Disclosure Schedule of the Company.
2.2(2) First Amendment, dated as of June 17, 1998, of
Agreement and Plan of Share Exchange dated as of
May 8, 1998 among the Company; Intermark
Corporation, a California corporation; and the
Exchanging Securityholders of Intermark
Corporation
2.3(2) Second Amendment, dated as of July 30, 1998, of
Agreement and Plan of Share Exchange dated as of
May 8, 1998 among the Company; Intermark
Corporation, a California corporation; and the
Exchanging Securityholders of Intermark
Corporation
3(i).1(3) Restated Certificate of Incorporation of the Company
4.10(2) Certificate of Designation - Series H Preferred Stock
4.11(4) Certificate of Designation - Series I Preferred Stock
4.12(4) Certificate of Elimination - Series A Preferred Stock
4.13(4) Certificate of Elimination - Series C Preferred Stock
4.14(4) Certificate of Elimination - Series D Preferred Stock
4.15(4) Certificate of Elimination - Series E Preferred Stock
4.16(4) Certificate of Elimination - Series F Preferred Stock
4.17(4) Certificate of Elimination - Series G Preferred Stock
4.18(4) Certificate of Elimination - Series H Preferred Stock
10.4(4) Registration Rights Agreement dated August 4, 1998
among the Company and those holders of the Company's
stock listed in Exhibit A thereto
10.5(4) Form of Stock Option Agreement dated April 24, 1998
between Intermark Corporation and each of Thomas
Hemingway, T. Richard Hutt and James Budd
10.6(4) Instrument of Option Assumption dated August 4,
1998 between the Company and each of the optionees
named in Exhibit 10.5, among others, resulting in
the Company's assumption of options as follows:
Thomas Hemingway 331,541 shares of common stock at $.83 each
T. Richard Hutt 132,616 shares of common stock at $.83 each
James Budd 132,616 shares of common stock at $.83 each
27 Financial Data Schedule
(1) Incorporated by reference to the same-numbered exhibit to the Form 8-K
filed May 12, 1998 by the Company with the Securities and Exchange Commission.
(2) Incorporated by reference to the same-numbered exhibit to the Form 8-K
filed August 20, 1998 by the Company with the Securities and Exchange
Commission.
(3) Incorporated by reference to Exhibit A to the definitive proxy statement
on Schedule 14A filed October 7, 1998 by the Company with the Securities and
Exchange Commission.
(4) Incorporated by reference to the same-numbered exhibit to the original
Form 10-QSB filed November 24, 1998 by the Company with the Securities and
Exchange Commission.
(b) Reports on Form 8-K
-11-
<PAGE>
During the period covered by this report the Company filed a Form 8-K on
August 20, 1998 reporting under Items 1, 2 and 5 the consummation of the
acquisition transaction between the Company and Intermark Corporation, a
California corporation, pursuant to the Agreement and Plan of Share
Exchange. No financial statements were filed with such report, but they
were filed by amendment under Item 7 on Form 8-K/A on October 19, 1998.
SIGNATURE
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: November 20, 1998
eSynch Corporation
By: /S/ Tom Hemingway
------------------------------------
Tom Hemingway, Chief Executive Officer
(Authorized Officer)
By: /S/ Kirit Gordia
------------------------------------
Kirit Gordia, Controller
-12-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet as of September 30, 1998, and the statement of operations for the nine
months ended September 30, 1998, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 11,065
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,065
<PP&E> 179,778
<DEPRECIATION> (110,108)
<TOTAL-ASSETS> 84,429
<CURRENT-LIABILITIES> 1,156,229
<BONDS> 0
0
0
<COMMON> 5,835
<OTHER-SE> (1,077,635)
<TOTAL-LIABILITY-AND-EQUITY> 84,429
<SALES> 15,293
<TOTAL-REVENUES> 15,293
<CGS> 9,940
<TOTAL-COSTS> 9,940
<OTHER-EXPENSES> 850,176
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,571
<INCOME-PRETAX> (836,936)
<INCOME-TAX> 0
<INCOME-CONTINUING> (836,936)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (836,936)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
