SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) April 29, 2002
ESNI, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-2401 06-0625999
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
35 Nutmeg Drive, Trumbull, Connecticut 06611
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(Address of principal executive offices) (Zip Code)
(203) 601-3000
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Registrant's telephone number, including area code
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(Former name or former address, if changed since last report)
ITEM 2. DISPOSITION OF ASSETS.
On February 13, 2002, E-Sync Networks, Inc., a Delaware corporation (the
"Company"), closed the transactions contemplated by that certain Contribution
Agreement (the "Agreement"), dated as of August 6, 2001, by and among the
Company, CRC, Inc., a New York corporation ("CRC"), and E-Sync Networks, LLC, a
Delaware limited liability company (the "JV"), as further described in the
Company's Proxy Statement, dated September 21, 2001. The Company's stockholders
approved the transaction at its annual meeting held on October 15, 2001.
Pursuant to the Agreement, upon the closing the Company contributed
substantially all of its assets and business (the "ESNI Contributed Assets") to
the JV and CRC contributed the economic benefits of certain business
substantially equal in revenues to the ESNI Contributed Assets to the JV. In
addition to the consideration set forth above, CRC made a loan commitment to the
Company of $2 million in the aggregate. As additional consideration for closing
the transactions described above, the Company granted a warrant to acquire up to
2,526,942 shares of its common stock, par value $0.01 per share (the "Common
Stock"), the exercise price for which is equal to $0.122 per share (75% of the
average closing price of the Company's common stock during the 60 consecutive
trading days ending on the second trading day preceding the closing date). The
Company granted CRC registration rights in connection with the issuance of the
warrant.
As a result of the consummation of the transaction, the Company owns a
51% equity interest in the JV and CRC holds a 49% equity interest in the JV. In
accordance with the terms of the Agreement, the Company changed its name on
February 14, 2002 to ESNI, Inc.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(b) Pro Forma Financial Information
The following pro forma balance sheet reflects the effect of the transaction
described in Item 2 above as if it had occurred on December 31, 2001 and the
following pro forma income statement reflects the effect of the transaction as
if it occurred at the beginning of 2001. These unaudited pro forma financial
statements should be read in conjunction with the Company's historical financial
statements (and notes thereto), and accompanying Management's Discussion and
Analysis for the year ended December 31, 2001 contained in the Company's Annual
Report on Form 10KSB filed with the Securities and Exchange Commission on April
16, 2002.
The Company contributed substantially all of its assets and business to the JV
in exchange for what initially was a 51% membership interest in the JV. The
Company's and CRC's respective interests in the JV are held, and the JV's
operations are managed, pursuant to the terms of an Operating Agreement. An
affiliate of CRC is the general manager of the JV and has substantial control
rights over the financial and operating decisions of the JV. Subject to limited
rights of the Company to veto certain transactions or remove the general manager
under very narrowly defined circumstances, the Company does not have control
over the direction that the JV takes, or any right to remove the general
manager. Removal of the CRC affiliate as the general manager requires the
unanimous approval of all members of the JV and will require the immediate
repayment of any debt owing by the Company to CRC (including borrowings
outstanding under the $2 million credit facility). Accordingly, the Company
believes that the substantive rights of the minority investor, CRC, are
sufficient to preclude the consolidation of the JV by the Company for accounting
purposes. The Company will account for the investment in the JV using the equity
method of accounting.
The pro forma balance sheet adjustments reflect (i) the removal of the net
assets contributed to the JV from the Company's balance sheet, replaced with an
investment in the JV and (ii) the issuance of notes payable and common stock
warrant to CRC.
PRO FORMA ADJUSTMENTS
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AS REPORTED NOTES PAYABLE/ PRO FORMA
DECEMBER 31, JV CONTRIBUTION WARRANT PROCEEDS DECEMBER 31,
2001 (1) (2) 2001
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(in thousands)
ASSETS
CURRENT ASSETS
Cash $ 604 $ (125) $ 650 $ 1,129
Accounts Receivable, net 1,140 1,140
Other Current 38 (8) 30
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TOTAL CURRENT ASSETS 1,782 (133) 650 2,299
Equipment, Net 2,767 (2,767) --
Investment in Unconsolidated Joint Venture * 2,498 2,498
Other Assets 223 223
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TOTAL ASSETS $ 4,772 $ (402) $ 650 $ 5,020
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LIABILITIES AND
SHAREHOLDERS' EQUITY
Notes Payable $ 2,686 $ -- $ 46 $ 2,732
Current Obligation Under Capital Leases
37 37
Accounts Payable and Accrued Expenses 3,811 (32) 3,445
(334)
Medical benefits obligation, current portion 38 38
Deferred Income
68 (68) --
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TOTAL CURRENT LIABILITIES 6,640 (402) 14 6,252
LONG TERM LIABILITIES
Notes Payable - long term 298 298
Medical benefits obligation less current portion 199 199
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TOTAL LIABILITIES
6,839 (402) 312 6,749
Common Stock 87 87
Preferred Stock - Series A
10 10
Preferred Stock - Series B
21 21
Paid in Capital 29,070 338 29,408
Accumulated Deficit (30,039) (30,039)
Less Treasury Stock (1,216) (1,216)
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TOTAL SHAREHOLDERS' (DEFICIT) EQUITY (2,067) -- 338 (1,729)
-------- --------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,772 $ (402) $ 650 $ 5,020
======== ========= ======== ========
1. These pro forma adjustments reflect historical net assets and related
liabilities used by the Company's professional services and managed
services division. The assets transferred include primarily equipment and
related lease obligation, the Company's lease of its facility and related
security deposit and certain deferred items. The historical value of the
assets to be removed is an offset by the investment in the JV.
2. These pro forma adjustments reflect the total proceeds received by the
Company from CRC. The proceeds are allocated between notes payable and
shareholders equity. The value assigned to the warrant was calculated using
the Black-Scholes pricing model. The value of the warrant is recorded as a
reduction in notes payable, with a corresponding increase in additional
paid in capital. The reduction in notes payable will be amortized to
interest expense over the term of the note.
The pro forma income statement adjustments reflect the removal of the operating
results related to the net assets contributed to the JV, replaced with the
Company's share of the JV's operating results as a loss from unconsolidated
subsidiary.
AS REPORTED FOR THE PROFORMA ADJUSTMENTS
YEAR ENDED DECEMBER YEAR ENDED DECEMBER PROFORMA FOR THE
31, 2001 (3) 31, 2001
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($000)
REVENUES:
Managed services 4,227 (4,227) --
Professional services 4,307 (4,307) --
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Total revenues 8,534 (8,534) --
COST OF SALES:
Managed services 4,343 (4,343) --
Professional services 3,542 (3,542) --
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Total cost of sales 7,885 (7,885) --
GROSS MARGIN:
Managed services (116) 116 --
Professional services 765 (765) --
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Total gross margin 649 (649) --
Income (Loss) from
unconsolidated subsidiary (1,125) (1,125)
OPERATING EXPENSES:
Sales and marketing 1,212 (1,212) --
General and administrative 3,126 (2,716) 410
Product development 353 (353) --
Non-cash compensation 418 (418) --
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Total operating expenses 3,126 (2,716) 410
Loss from operations (2,477) 942 (1,535)
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OTHER INCOME (EXPENSE):
Other expense, net (31) (31)
Interest expense (464) (122) (586)
Interest income 19 19
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Total other income (expense) (476) (598)
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Net loss (2,953) 942 (2,133)
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3. These adjustments reflect the removal of the results of
operations achieved from the assets that were transferred to the
JV. The pro forma results of operations of the Company reflect
the Company's share (51%) of the pro forma loss of the JV as if
the JV was in effect as of the beginning of 2001, interest
expense from the notes payable issued to CRC and operating
expenses of the Company for part time management, insurance,
annual professional fees and other costs to fulfill the
requirements as a public company.
(c) Exhibits.
2.1 Contribution Agreement dated as of August 6, 2001 by and between
E-Sync Networks, Inc. and CRC, Inc. (incorporated by reference to
Exhibit 2.1 to E-Sync Networks, Inc.'s Form 8-K dated August 10, 2001).
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 hereunto duly authorized.
ESNI, INC.
Date: April 29, 2002 By: /s/ Michael A. Clark
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Michael A. Clark
President & COO