UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10QSB
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended November 30, 2001
( ) Transition report pursuant of Section 13 or 15(d) of the Securities
Exchange Act of 1939 for the transition period ____ to______
Commission File Number: 0-19499
e-Synergies, inc.
(Exact name of small business issuer as specified in its charter)
California 91-2021595
(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
3 Corporate Plaza, Suite 250
Newport Beach, California 92660
(Address of principal executive offices)
(800) 715-9999
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 o
Number of Registrant's shares outstanding as of January 11, 2002: 24,965,122
shares of common stock, $.00001 par value
Transitional Small Business Disclosure Format: Yes No x
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- -Consolidated Balance Sheet as of November 30, 2001
- -Consolidated Statements of Operations For the Three and Nine Months Ended -
November 30, 2001 and 2000
- -Consolidated Statements of Cash Flows for the Three Months Ended November 30,
2001 and November 30, 2000
- -Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
E-SYNERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
November 30, August 30,
2001 2001
------------ ------------
(Unaudited)
Assets
Current Assets
Cash $ 94,420.10 $ 312,538.31
Accounts receivable, net of
275,402.40 Allowance for Doubtful Accounts $ 4,010,862.66 $ 4,403,333.41
Due from affiliates $ 21,656.22
Miscellaneous receivables $ 475.00
Unbilled accounts receivable $ 747,558.50 $ 1,228,188.00
Prepaid expenses $ 127,334.00 $ 109.44
Other current assets $ 3,789.12
Total Current Assets $ 5,006,095.60 $5,318,873.66
Property and Equipment
Computer equipment $ 1,975,698.49 $ 449,104.79
Office furniture and equipment $ 669,143.27 $ 640,729.07
Total Cost $ 2,644,841.76
Less: Accumulated depreciation $ 252,413.77 $ 42,318.00
Net Property and Equipment $ 2,392,427.99 $ 1,391,881.00
Other Assets
Intangible Assets - Goodwill $ 1,719,783.74 $ 1,440,043.00
Software Costs, net of
75,440.83 Amortization $ 64,071.99
Deposits $ 684,101.00 $ 672,750.00
Intercompany Loans $ 290,340.02 $ 132,960.00
Investments $ 9,188,444.14 $ 4,855,379.00
Total Other Assets $11,946,740.89 $ 7,101,132.00
Total Assets $19,345,264.48 $13,811,886.66
Liabilities and Stockholders' Equity
Current Liabilities
Bank overdraft $62,033.52 $ 324,909.00
Accounts payable and accrued expenses $3,572,223.76 $ 1,270,605.71
Notes Payable $5,632,664.99 $ 4,764,195.00
Accrued Liabilities $2,117,687.00
Intercompany Loans payable $292,058.88
Taxes withheld from wages $125,687.39
Other current liabilities $111,449.98 $ 328,507.00
Total Current Liabilities $11,913,805.52 $ 6,688,216.71
Long Term Liabilities
Long Term Debt $ 2,433,575.13
Equipment Leases $34,989.86 $ 64,725.00
Total Long Term Liabilities $ 2,468,564.99
Total Liabilities $14,382,370.51 $6,752,941.71
Stockholders' Equity
Common stock, $.00001 par value:
Authorized - 1 billion shares
Issued and outstanding
- 24,965,122 shares which include
6,400,000 for e2 acquisition $ 249.65 $ 164.14
Additional paid-in capital $15,698,275.62 $ 4,466,166.00
Total Paid-in Capital $15,698,525.27 $ 4,466,330.14
Accumulated deficit $28,632,471.44 $ 5,055,809.44
Accumulated other comprehensive
income relating to foreign currency
translation and unrealized gain on
marketable securities - $ 45,258.00
Total Stockholders' Equity $ 1,403,166.34 $ 6,163,462.41
Total Liabilities and Stockholders' Equity $15,785,536.85 $12,916,404.12
E-SYNERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
November 30,and November 30
2001 2000
------- -------
(Unaudited)
Revenues $ 4,008,825.11 $14,945,035.00
Costs and Expenses
Cost of products sold $ 668,541.63 $11,246,768.50
Direct expenses $ 9,898.25 $ 409,948.00
Sales and marketing expenses $ 873,662.47 $ 2,253,520.00
General and administrative expenses $ 3,280,000.62 $13,717,324.50
Research and Development $ 337,756.09 $ 704,656.00
Depreciation and Amortization $ 290,056.58 $ 4,587,349.00
Other Expenses $556,910.53 $32,629,000.00
Total Costs and Expenses $ 6,016,826.17 $65,548,566.00
Operating Loss $ 2,008,001.06 $50,603,531.00
Other Income (Expense)
Miscellaneous income $ 37,769.19 $ 56,853.50
Interest expense $ 163,554.95 $ 27,223.00
Total Other Income (Expense) $ 125,785.76 $ 29,630.50
Loss from Continuing Operations $ 2,113,786.82 $50,573,900.50
Net Income (Loss) $ 2,113,786.82 $50,573,900.50
Earnings (Loss) per Share
Net Income (Loss) $ 0.08 $ 2.03
Weighted Average Shares Outstanding 24,965,122 24,965,122
E-SYNERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2001 AND 2000
NOVEMBER 30 NOVEMBER 30
2001 2000
----------- -----------
(Unaudited)
Cash Flows from Operating Activities
Net loss $2,156,040.62 $47,263,768.66
Adjustments to reconcile net loss
to net cash used in
operating activities:
Depreciation and amortization $ 256,417.00 $ 4,631,282.00
Gain on sale of subsidiary $ 3,016,000.00
Loss on Sale of Fixed Assets $ 11,127.00 0
Loss on Disposal of Investments $ 0.00 $ 83,438.00
Provision for doubtful accounts $ 15,734.03 $ 692,081.33
Adjustment to Suspense Account $ 4,663.00 $ 0.00
Changes in operating assets
and liabilities:
Accounts receivable $ 794,028.29 $ 1,320,270.00
Accounts payable and accrued expenses $ 566,588.64 $ 1,290,559.66
Taxes withheld from wages $ 20,613.60
Taxes Payable $ 40,370.30
Accrued Payroll $ 279,791.00
Accrued Interest $ 197,068.10
Accrued Vacation $ 10,000.82
Employee Advances $ 15,285.00
Prepaid Expenses $ 17,916.00
Deferred revenues $ 74,459.00 $ 392,392.00
Loans, net $ 205,750.00
Foreign Currency Adjustment $ 2,159.00 $ 80,334.00
Exchange - General $ 249,323.88
Other $ 338,103.00 $ 304,845.00
Net Cash Provided (Used)
in Operating Activities $ 747,926.83 $ 8,666,567.33
Cash Flows from Investing Activities
Sale of property and equipment $ 43,360.00 $ 27,075.00
Acquisition of Property and Equipment $ 0.00 $ 2,474,582.33
Accumulated Depreciation $ 18,060.38
Loans - net $ 236,313.50
Investment in e2 Communications $ 4,860,116.10
Investment in eSynergies Asia $ 20,000.00
Accumulated Amortization - Software Costs $ 11,288.63
Net Cash Used in Investing Activities $ 4,571,093.59 $ 2,441,143.66
Cash Flows from Financing Activities
Issuance of Common Stock $176,200.00 $ 379,881.66
Common Stock -$9,177.19
Issuance of Preferred Stcok $ 0.00 $ 3,417,684.00
Return of Capital Stock $ 65,996.00 $ 3,416.00
Paid in Capital $5,241,712.29 $ 827,571.00
Return of Paid in Capital $105,276.00
Net increase in notes payable $454,140.00 $ 60,517.00
Repayment of Borrowings $992,037.00 $ 849,890.00
Leases -$5,359.53
Retained Earnings 4 prior period $366,860.18
Net Cash Provided by
Financing Activities $4,327,346.39 $ 4,083,132.66
Net Increase (Decrease) in Cash $383,979.63 $ 6,912,618.66
Cash at Beginning of Period $289,464.59 $10,460,381.33
Cash at End of Period $94,515.04 $ 3,436,256.00
Supplemental Disclosure of
Cash Flow Information:
Interest paid $20,924.00 $ 9,593.00
Income taxes paid (refunded) $ 0 $ 0.00
E-SYNERGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2001
Note 1: Organization and Summary of Significant Accounting Policies
The accounting and reporting policies of e-Synergies, inc.(Company) and its
subsidiaries conform to accounting principles generally accepted in the United
States of America. Following is a description of the most significant of those
policies:
Description of the Business : e-Synergies, inc. (formerly Russian-Caviar.com)
was incorporated under the laws of the state of California on February 1, 2000.
The purpose for which the corporation was organized was to engage in sales of
caviar on the Internet. On April 11, 2001, the Company entered into a stock
exchange agreement with Salesmation.com, Inc.(Salesmation), pursuant to which
it acquired 100% of the outstanding capital stock of Salesmation in exchange
for 11,187,501 shares of its common stock. This transaction resulted in a
change in control of the Company. Concurrent with the Stock Exchange Agreement,
the Company amended its Certificate of Incorporation changing its name from
Salesmation.com, Inc. to Salesmation, Inc.
Salesmation is an application service provider (ASP) which supplies
technology-based e-marketing services that enable businesses to deliver
customized online marketing messages. Salesmation was organized as a Delaware
corporation on August 19, 1999. On November 1, 2001 Salesmation ceased its
operations.
On July 19, 2001, the United States Bankruptcy Court for the Northern District
of Illinois (the "Court") approved the purchase by e-Synergies, inc.
("e-Synergies") of substantially all the operating assets (the "Acquired
Assets") and the assumption of certain liabilities (the "Assumed Liabilities")
of Worldwide Xceed Group, Inc. ("Worldwide Xceed"), a debtor-in-possession in
case number 01-15553 filed under Chapter 11 of Title 11 of the United States
Code. The parties effected the purchase pursuant to that certain Asset Purchase
Agreement (the "Purchase Agreement" a copy of which is attached as Exhibit 1),
dated July 3, 2001.
Immediately upon the Court's approval of the purchase and pursuant to that
certain Assignment and Assumption Agreement between e-Synergies and eSynergies
Xceed, Inc. ("New Xceed"), a wholly-owned subsidiary of e-Synergies, dated July
19, 2001, e-Synergies assigned all of its right title and interest in the
Acquired Assets to New Xceed and New Xceed assumed and agreed to pay the
Assumed Liabilities of e-Synergies.
The common stock of Worldwide Xceed previously traded on the Nasdaq under the
"XCED" symbol, was halted on or about May 1, 2001 and de-listed from The Nasdaq
National Market on or about May 4, 2001. Worldwide Xceed previously operated as
a management and computer software consulting provider, helping companies to
develop e-commerce and e-business solutions, and improve business performance
through more effective and efficient communication tools, techniques and
technologies.
The Acquired Assets include: (1) certain intellectual property, including but
not limited to domain names, trademarks (both pending and allowed) and
copyrights; (2) certain personal property, including but not limited to client,
customer and advertiser lists, office equipment, furnishings and computer
equipment; (3) certain outstanding accounts receivable with an aggregate stated
value of approximately $2,866,000; (4) certain rights to receive payment for
services rendered to customers but not yet billed with an aggregate stated
value of approximately $1,047,000; (4) certain assigned contracts, including
contracts for the continuation of services for ten customers; (5) certain
employee covenants, including but not limited to non-disclosure,
confidentiality and non-solicitation agreements; and (6) all books and records
pertaining to the assets acquired by e-Synergies.
Several customers whose contracts were assigned, as described in (4) above, are
CBS Entertainment, a division of CBS Broadcasting, Inc., Hilton Hotels
Corporation, Herman Miller RED, and Castrol North America, Inc. A complete list
of the assigned contracts is included as an exhibit to the Purchase Agreement.
The Assumed Liabilities include: (1) certain specifically identified trade
accounts payable, accrued expenses and other liabilities, which collectively
equal approximately $123,000; (2) certain accrued salaries and wages relating
to employee services for a portion of the July 15 payroll period and in an
amount equal to $97,925; (3) certain accrued vacation benefits of employees
transferred to e-Synergies in an amount approximately equal to $322,000; (4)
certain obligations, including cure amounts, related to above mentioned
assigned contracts, including most prominently the leases for office space in
Chicago, Dallas and Los Angeles; and (5) a restructured financing facility with
Spherion Corporation with a face amount equal to $4,000,000. The accrued
salaries and wages assumed by e-Synergies was increased to an aggregate of
approximately $310,000 as a result of e-Synergies agreeing to fund forty
percent (40%) of Worldwide Xceed's July 15 payroll, since the closing of the
acquisition did not occur until July 19.
The consideration paid by e-Synergies to Worldwide Xceed at the closing of the
acquisition (the "Closing"), in addition to the assumption of the
above-described Assumed Liabilities, was equal to $1,750,000 in cash, and
$559,620.24 in the form of a promissory note issued by e-Synergies in favor of
Worldwide Xceed. The promissory note is due on or before August 15, 2001, bears
interest at the rate of eighteen percent (18%) per annum, and is secured by a
security interest in all of the Acquired Assets. The amount of consideration
paid by e-Synergies resulted from arms length negotiations between executive
management of e-Synergies and executive management of Worldwide Xceed, as well
as approval by the secured creditors of Worldwide Xceed and the Court.
To obtain Spherion Corporation's approval of the purchase, e-Synergies also
agreed to make an advance payment at Closing of $1,000,000 in cash to Spherion
Corporation, causing the face amount of the restructured financing facility
with Spherion Corporation to be reduced to $3,000,000 immediately following
such payment. The portion of the financing facility that remains outstanding is
secured by the accounts receivable related to services already rendered to
customers, whether billed or unbilled, and acquired by e-Synergies pursuant to
this transaction. Any receivables relating to services rendered after the
acquisition are not subject to the terms of the financing facility.
e-Synergies, through New Xceed, intends to maintain and operate the acquired
assets, with the transferred employees and the assigned client contracts, as a
separate sustainable business that compliments the services and products
offered by e-Synergies' other subsidiaries. The costs associated with the
Acquired Assets, Assumed Liabilities and transferred employees will be closely
examined with a purpose toward eliminating duplicative roles and expenses and
reducing non-duplicative expenses, while maintaining the company's client
service and revenue generation capabilities.
On November 15, 2001, e-Synergies, inc. ("e-Synergies") consummated the
acquisition of e2 Communications, Inc., a Texas corporation ("e2"), provided
for in the Plan and Agreement of Merger dated October 12, 2001, as amended (the
"Merger Agreement"), by and among e-Synergies, e2 Acquisition Corp., a Texas
corporation and wholly owned subsidiary of e-Synergies ("e2 Acquisition"), and
e2. Pursuant to the Merger Agreement, e2 Acquisition merged with and into e2
and e2 became a wholly owned subsidiary of e-Synergies. In connection with the
transaction, e-Synergies issued 6,381,006 shares of its Common Stock, $.00001
par value ("Common Stock"), to all holders of more than 3,000 shares of common
stock of e2 in exchange for such common stock and an aggregate of $18,920 in
cash to all holders of 3,000 or less shares of common stock of e2 in exchange
for such shares. Certain of the foregoing shares of e-Synergies Common Stock
are being held in escrow to secure e2's indemnification obligations under the
Merger Agreement.
The consideration set forth above was determined by arms length negotiations
between the executive management of e-Synergies and the executive management of
e2.
The description of the Merger Agreement set forth herein is qualified in its
entirety by reference to the copy of the Merger Agreement which is filed as an
exhibit to this Report and which is incorporated herein by reference.
e2, founded in 1997, is a leading provider of email marketing infrastructure.
Its leading edge technology and sales channels are creating a new class of
Internet infrastructure in both technology and services. Its solution resolves
both the problems of costly email technology development and market scalability
by providing a turnkey and private-labeled solution both for businesses
directly and for resellers who are already helping customers solve their
communication challenges.
e2's flagship product, e2Mail", is a collection of specialized architectures,
programs, systems and procedures that provide the hosted infrastructure that
supports a diverse client base. Based on Microsoft Windows 2000 and SQL Server
foundations, these components are designed to operate as a massively parallel
effort that does not require a large central processing server typical of many
Unix environments. Supported by operations and development staff, e2Mail
offers a hosted and turnkey solution that continues to evolve to address new
opportunities. e2's specialized servers and specialized interfaces make e2Mail
a versatile solution to a variety of needs.
Other subsidiaries of e-Synergies include:
CommerceSWITCH (Pty.) Ltd., a forty percent (40%) owned minority investment of
e-Synergies based in South Africa, is a technology based company that employs
proprietary technology to provide product management and cataloging services
for businesses engaging in electronic commerce on the Internet. The scope of
services provided to customers include, but is not limited to, catalog and
content management, corporate purchasing automation, and Internet based
financial and information services.
Basis of Presentation : The accompanying unaudited consolidated financial
statements of e-Synergies, inc. and subsidiaries have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for a complete
financial statement presentation. In the opinion of management, such unaudited
interim financial information reflects all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the Company's
financial position and results of operations for the periods presented. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for a full fiscal year. It is suggested that these
consolidated financial statements be read in conjunction with e-Synergies,
inc.'s audited financial statements included in their annual report on Form
10-KSB for the year ended August 31, 2001, as well as the unaudited
consolidated financial statements of eSynergies, Inc. and its subsidiaries for
the period ending, May 31, 2001 filed on form 8-K/A on October 3, 2001. On
June 21, 2001, the Board of Directors elected to change the fiscal year-end of
the Company from December 31 st to August 31 st. This change was reported on
Form 8-K/A, which was filed on June 25, 2001.
Principles of Consolidation and Accounting for Investments : The consolidated
financial statements include the accounts of the Company and its subsidiaries.
All significant intercompany accounts and transactions have been eliminated.
The Company classifies its investment in marketable equity securities as
available-for-sale in accordance with the provisions of Statement of Financial
Accounting Standards No. 115 Accounting for Certain Investments in Debt and
Equity Securities. The securities are carried at fair market value, with
unrealized gains and losses reported in stockholders' equity as a component of
other comprehensive income (loss). The fair market value of the shares of
HealthStar Corp. has been discounted due to the restrictions on the stock.
Business Combinations: Business combinations accounted for under the purchase
method of accounting include the results of operations of the acquired business
from the date of acquisition. Under the purchase method, net assets of the
companies acquired are recorded at their estimated fair value at the date of
acquisition. In the case of business combinations accounted for under the
pooling-of-interests method of accounting, the assets, liabilities, and
stockholders' equity of the acquired entity are combined with the Company's
respective accounts at recorded values and prior period financial statements
are restated to give effect to the merger.
Minority Interest in Subsidiary : The minority interest included in the
consolidated statements of operations represents the minority shareholders'
share of the income or loss of the consolidated subsidiary. The minority
interest included in the consolidated balance sheets reflects the original
investment by the minority shareholders in the consolidated subsidiary, along
with their proportionate share of the earnings and losses of the subsidiary.
Use of Estimates : The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect certain
reported amounts and disclosures. Actual results could differ from those
estimates.
Accounts Receivable : Provision is made for doubtful accounts based on
anticipated collection losses. Estimated losses are determined from historical
collection experience and a review of outstanding receivables. Collateral or
other security is not required to support accounts receivable.
Revenue Recognition : Revenues are recognized when the services are rendered.
Services provided prior to the actual billings for such services are recorded
as "unbilled services." Billings made in advance of services rendered are
recorded as "deferred revenues."
Property and Equipment : Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed under the straight-line
method over the estimated useful lives of the assets. Expenditures for
maintenance and routine repairs are charged to expense as incurred;
expenditures for improvements and major repairs that materially extend the
useful lives of assets are capitalized.
Computer Software : The cost of purchased software is capitalized and amortized
under the straight-line method based on the estimated useful life of the
software. Statement of Position (SOP) 98-1 of the American Institute of
Certified Public Accountants requires that, under certain circumstances, the
costs associated with computer software obtained or developed for internal use
be expensed. SOP 98-1 also requires that, once certain criteria relative to
the software's stage of development have been met, various internal costs
incurred in connection with the development of the software be capitalized.
Goodwill : The excess of the acquisition cost over the net assets of a
subsidiary acquired in a transaction accounted for as a purchase was recorded
as goodwill and is being amortized on a straight-line basis over fifteen years.
The Company periodically reviews goodwill to evaluate whether events or changes
have occurred that would suggest an impairment of carrying value.
Foreign Currency Translation : Assets and liabilities of the Company's foreign
subsidiaries are translated into U.S. dollars at year-end exchange rates;
revenues and expenses are translated at average rates prevailing during the
year. Translation adjustments are included as a component of stockholders"
equity.
Earnings (Loss) Per Share : In accordance with Statement of Financial
Accounting Standards No. 128, "Earnings per Share," basic earnings (loss) per
share is computed by dividing net income (loss) by the weighted average number
of shares of common stock outstanding. The Company has no issuable shares
qualified as dilutive to be included in the earnings per share calculation.
Note 2: Due to Affiliates
As of November 30, 2001 the Company was indebted to Suprafin, Inc., a
stockholder, in the amount of $2,254,575.13 as a result of advances made to the
Company. Additionally, the Company is indebted to a stockholder, and officer of
e-Synergies, for advances to the Company in the amount of approximately
$250,000. The advances from the stockholders are unsecured, non-interest
bearing, and have no specific terms for repayment.
Item 2. Management's Discussion and Analysis or Plan of Operation
eSynergies is an Internet Holding Company actively engaged in business to
business e-commerce through its community of associated companies., consisting
of 3 business-to-business e-commerce companies at November 30, 2001. eSynergies
promotes synergies among these companies to provide cross-selling and marketing
opportunities and support business growth and the sharing of information and
business expertise. The Company finances and assists in the development,
management and operations of its associated companies. The Company had not
generated any revenue since its inception of February, 2000. On April 11, 2001,
as described previously, the Company entered into a stock exchange agreement
with Salesmation.com, Inc., pursuant to which it acquired 100% of its
outstanding stock. The transaction was accounted for as a pooling of interests.
On July 19, 2001, e-Synergies acquired substantially all of the assets of
Worldwide Xceed Group in a bankruptcy proceeding. On November 15, 2001,
eSynergies acquired 100% of the outstanding stock of e2 Communications for 6.4
million shares of e-Synergies common stock. The pro-forma consolidated
financial statements of the Company as of May 31, 2001 as filed on form 8-K/A
on October 3, 2001 primarily reflect the assets and liabilities of eSynergies,
Salesmation and Xceed., and the stockholders' equity reflects the capital
structure of e-Synergies, inc. adjusted for the issuance of additional shares
of common stock as a result of the stock exchange agreement.
The combination of eSynergies' subsidiaries, eSynergies Xceed, e2
Communications, Salesmation and its 40% minority owned investment in
CommerceSWITCH provides customers with IT consulting, e-marketing, eCRM, B2B
Exchange and Web Services. With principal offices in Los Angeles, Dallas, Plano
and New York, eSynergies also maintains operations in Great Britain, Hong Kong
and South Africa.
Associated companies in which we own, directly or indirectly, more than 50% of
the outstanding voting power are accounted for under the consolidation method
of accounting. Under this method, an associated company's results of operations
are reflected within our consolidated statement of operations. Earnings or
losses attributable to other stockholders of a consolidated associated company
are identified as "minority interest" in our consolidated statement of
operations. Minority interest adjusts our consolidated net results of
operations to reflect only our share of the earnings or losses of a
consolidated associated company.
Results of Operations
The discussion below regarding our results of operations includes comparisons
between the three-month periods ended November 30, 2001 and the comparable
period from 2000. However, as of November 30, 2000, our operations were in the
very early stage and we did not own any equity interests in associated
companies, which currently account for the majority of our operations. The
early stage of our operations and relatively low level of activity through
November 30, 2000 affects the comparability of our operations for the
three-month period ended November 30, 2001 and the comparable periods from
2000.
Three Months Ended November 30, 2001 vs. Three Months Ended November 30, 2000
General
During the three months ended November 30, 2001, we acquired 100% of the
outstanding shares of e2 Communications for total consideration of 6,400,000
ahres of the common stock of eSynergies. We account for this associated company
under the consolidation method of accounting. In July 2001, we made an
additional acquisition of substantially all of the assets of Worldwide Xceed
Group, for total consideration of $3,000,000 in cash. Both e2 Communications
and eSynergies Xceed have been consolidated into the three month period ending
November 30, 2001.
Revenues
We generated revenues totaling $4,008,825.11 for the three months ended
November 30, 2001, which is a decrease of $10,936,209.89 compared to revenues
of $14,945,035.00 for the three months ended November 30, 2000. Approximately
50% of the revenues for the period ending November 30, 2001 were generated from
IT consulting services and 50% were generated from email marketing products and
services. The decrease in revenues is due to the disposition, restructuring and
closure of several business units and offices of Worldwide Xceed Group,
CommerceSWITCH, M2 Limited, and Salesmation.
Cost of Revenues
For the three months ended November 30, 2001, our cost of revenues were
approximately $668,541.63, which is a decrease of $10,578,226.87 compared to
the cost of revenues of $11,246,768.50 for the three months ended November 30,
2000. The decrease in cost of revenues is primarily due to the disposition of
certain assets of Worldwide Xceed Group and the acquisition of e2
Communications, which historically has provided increased gross margins.
Selling, General, and Administrative Expenses
For the three months ended November 30, 2001, we incurred selling, general, and
administrative expenses of approximately $4,153,663.09. This represents a
decrease of $11,817,181.41 compared to the $15,970,844.50 of selling, general,
and administrative expenses for the three months ended November 30, 2000. The
decrease in SGA expenses is primarily due to the disposition, restructuring and
closure of several business units and offices of Worldwide Xceed Group, e2
Communications, CommerceSWITCH, M2 Limited, and Salesmation.
Liquidity and Capital Resources
As of November 30, 2001, we had $94,420.10 cash on hand, total current
liabilities of $11,913,805, and a working capital deficit of $6,907,771, as
opposed to a working capital deficit of $1,369,343. The increase in working
capital decifit is attributable to our acquisitions during the last fiscal
year.
Forward-Looking Statements
This Form 10-QSB contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
and Exchange Act of 1934, as amended, which are intended to be covered by the
safe harbors created thereby. These statements include the plans and objectives
of the Company for future operations. The forward-looking statements included
herein are based on current expectations that involve numerous risks and
uncertainties. The Company's plans and objectives are based on the assumption
that the Company's entry into the computer industry will be successful, that
competitive conditions within the computer industry will not change materially
or adversely, and that there will be no material adverse change in the
Company's operations or business. Assumptions relating to the foregoing involve
judgments with respect to, among other things, future economic, competitive and
market conditions, as well as future business decisions, all of which are
difficult or impossible to predict accurately and many of which are beyond the
control of the Company. Although the Company believes that the assumptions
underlying the forward-looking statements included herein are reasonable, the
inclusion of such information should not be regarded as a representation by the
Company, or any other person, that the objectives and plans of the Company will
be achieved.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to various legal actions that have arisen in the normal
course of business. The following is a listing of cases in which e-Synergies,
Inc. is a defendant, which are required to be disclosed under generally
accepted accounting principles: On March 8, 2001, Optimum Networking filed suit
against the Company alleging that it sold the Company computer equipment for
which the Company did not pay the entire purchase price. Optimum Networking
sought $41,651.99 plus interest, or repossession of the equipment, punitive
damages, and attorneys' fees. On April 12, 2001, the Company answered the
complaint by general denial. The Company negotiated a settlement and entered
into a stipulation for entry of judgment that required the Company to pay to
Optimum Networking the full amount sought over a period of eight months. On
February 26, 2001, Kforce.com filed suit against the Company alleging that at
the Company's request it procured talent that was hired by the Company.
Kforce.com alleged that the Company failed to pay its "finder's fee" of
$10,400. Kforce.com sought $10,400 plus interest, and attorneys' fees. On April
12, 2001, the Company answered the complaint be general denial. The Company
negotiated a settlement and entered into a stipulation for entry of judgment
that required the Company to pay Kforce.com the full amount sought in equally
monthly payments over a period of six months. On July 9, 2001, Lucas
Associates, Inc. filed suit against the Company alleging that at the Company's
request it procured talent that was hired by the Company. Lucas Associates,
Inc. alleges that the Company failed to pay its "finders fee" of $16,500. Lucas
associates seeks $16,500 plus interest, and attorneys' fees. On August 8, 2001,
the Company answered the complaint by general denial. The Company has
meritorious defenses and intends to contest this matter vigorously. On August
27, 2001, Technology Ventures, LLC and Matthew Schilowitz filed suit against
the Company alleging that the "Consulting Agreement" between Technology
Ventures and the Company was breached and that Technology Ventures has been
damaged in the amount of $45,000 plus interest and attorney's fees. In
November, the Company answered in the complaint by general denial. The Company
has meritorious defenses and intends to contest this matter vigorously.
Spherion Corporation filed suit against the Company alleging breach of an
agreement by the Company in connection with the acquisition of the assets of
Worldwide Xceed, Inc. Spherion Corporation seeks the recovery of $769,403.72
arising out of the alleged breach of agreement. The Company is the subject of a
Preliminary Injunction to the effect that the Company is prohibited from
transferring or disposing of receivables in which Spherion Corporation holds a
security interest. The Company is contesting that matter and the litigation is
in the early stages. There is also a dispute with Liquidating Worldwide Xceed,
Inc., asserting a claim against the Company for $559,620.24. No other action
has been taken by WXG in furtherance of this claim.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
The Company is in default on each of the aforementioned notes. Note
payable-Dated July 17, 2001, WYZ Liquidating Corp, for the amount of
$559,620.24, interest of 18%, maturity date of September 2001; security
interests to WXG in all assets of e-Synergies; loan in default as of 8-15-01.
Note payable-Dated July 17, 2001, Steven & Linda Eichberg, for the amount of
$300,000, interest of 10.75%, maturity date of September 17, 2001; periodic
payment required is $2,687.50; additional 5% fee if not paid within 5 days of
due date; collateral of 150,000 shares of common stock, UCC-1 on all assets;
loan in default as of August 14, 2001. Note payable-Dated July 9, 2001,
Hitechcafe.com, for the amount of $1,000,000, interest of 10.75%, maturity date
of September 7, 2001, periodic payment of $8,958.33; additional 5% fee if not
paid within 5 days of due date; loan Fee of $400,000 due and payable on
September 8, 2001; collateral of 500,000 shares of common stock; loan in
default as of August 14, 2001. Note Payable-Dated July 31, 2001, Sutter Capital
Management, for the amount of $400,000, interest of 10%, payable in full 6
months after the date of the note; periodic payment required is $3,333.33;
maturity date of January 31, 2002; collateral of 400,000 shares of common
stock; loan in default as of September 21, 2001.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
On September 1, 2001 David Wheeler resigned as the Executive Vice President of
e-Synergies. On September 16, 2001 Patrick Davis resigned as the Chief
Executive Officer of e-Synergies Xceed and Paul Schmidman was named the Chief
Executive Officer of e-Synergies Xceed. In October 2001 e-Synergies entered
into a Loan and Pledge Agreement with Pacific Century Holdings. The principal
amount of the loan was $115,000 bearing no interest and payable at the end of 6
months. The loan is secured by 1,000,000 shares of the common stock of
e-Synergies and a UCC1 filing on all the assets of e-Synergies. On November 1,
2001 the Salesmation subsidiary ceased operations. The Newport Beach office was
closed. Brendon Kensel, Salesmation's Chief Executive Officer and James
Connolly, Salesmation's Chief Technology Officer both resigned as of November
1, 2001. On November 1, 2001 Theodore Marr resigned as e-Synergies' Chief
Executive Officer. On November 15, 2001 e-Synergies completed its acquisition
of e2 Communications in a stock for stock transaction. E-Synergies agreed to
exchange 6,400,000 shares of e-Synergies common stock for 100% of the
outstanding shares of e2 Communications. On December 14, 2001 e-Synergies Xceed
signed a Warranty Note and Assignment of Due Payment with Xtivia Technology to
fund Xceed payroll for up to 60 days.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) The following reports were filed on Form 8K:
(1) A current report on Form 8K was filed on October 3, 2001, to
disclose a change in the company's independent accountants.
(2) A current report on Form 8KA was filed on October 3, 2001, to
disclose the pro forma financial statements giving effect to the acquisition of
Xceed.
(3) A current report on Form 8K was filed on October 26, 2001, to
disclose a change in the company's independent accountants.
(4) A current report on Form 8K was filed on November 30, 2001, to
disclose the acquisition of e2 Communications.
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.
e-Synergies, inc.
By: Thomas Ronk
--------------------------
Thomas Ronk President
Dated: January 23, 2001