U.S. Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-QSB

(Mark one)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2001

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
THE EXCHANGE ACT

For the transition period from to
------------------- --------------------

Commission file number 0-2401
-----------------------------------------------------

E-SYNC NETWORKS, INC
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)

Delaware 06-0625999
- ------------------------------- -----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

35 Nutmeg Drive, Trumbull, CT 06611
- --------------------------------------------------------------------------------
(Address of principal executive offices)

(203) 601-3000
- --------------------------------------------------------------------------------
(Issuer's telephone number)

- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)

State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date:

Class Outstanding at August 1, 2001
- ------------------------------------- -----------------------------
Common Stock Par Value $.01 7,421,755 shares
Series A Preferred Stock No Par Value 1,000,000 shares
Series B Preferred Stock No Par Value 1,670,909 shares

Transitional Small Business Disclosure Format (Check one): Yes___ No _X_

E-Sync Networks, Inc.

Index

Page No.
--------

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (unaudited):

Consolidated Balance Sheet at June 30, 2001 3

Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2001 and 2000 4

Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2001 and 2000 5

Notes to Condensed Consolidated Financial Statements 6

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 16

Item 5. Other Matters 16

Item 6. Exhibits and Reports on Form 8-K 16

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

E-SYNC NETWORKS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share data)

June 30,
2001
----------------------
(unaudited)
ASSETS

Current Assets:
Cash and cash equivalents.................................................... $ 418
Accounts receivable, less allowance for doubtful accounts of $112............ 1,339
Other current assets......................................................... 32
----------------------

Total current assets.................................................... 1,789

Equipment, net.................................................................... 3,272
Other assets...................................................................... 229
----------------------

Total assets............................................................ $ 5,290
======================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Notes payable................................................................ $ 2,275
Obligations under capital leases, current portion............................ 42
Accounts payable............................................................. 1,656
Accrued expenses............................................................. 1,239
Medical benefits obligation, current portion................................. 35
Deferred revenue............................................................. 83
----------------------
Total current liabilities............................................... 5,330

Obligations under capital leases, less current portion............................ 6
Medical benefits obligation, less current portion................................. 209
----------------------
Total liabilities................................................................. 5,545

E-Sync Networks, (UK) LTD -Preference Shares 3,000

Stockholders' Equity:
Convertible preferred stock, par value $.01 per share, 10,000,000 shares
authorized
Series A - 1,000,000 shares issued and outstanding .......................... 10
Series B - 1,670,909 shares issued and outstanding .......................... 23
Common stock, stated value $.01 per share, 50,000,000 shares authorized,
8,414,320 shares issued and outstanding ...................................... 84
Additional paid in capital........................................................ 25,984
Accumulated deficit............................................................... (28,140)
Less treasury stock at cost, 992,565 shares....................................... (1,216)
----------------------
Total stockholders' deficit............................................. (3,255)
----------------------

Commitments and Contingencies

Total liabilities and stockholders' equity.............................. $ 5,290
======================

See accompanying notes to unaudited condensed
consolidated financial statements.

E-Sync Networks, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)

Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
----------- ----------- ----------- -----------
(unaudited) (unaudited)

REVENUES:
Managed services $ 1,058 $ 837 $ 2,345 $ 2,028
Professional services 1,144 2,066 2,172 3,415
----------- ----------- ----------- -----------
Total revenues 2,202 2,903 4,517 5,443

COST OF SALES:
Managed services 1,122 987 2,211 1,916
Professional services 1,057 1,480 2,096 2,748
----------- ----------- ----------- -----------
Total cost of sales 2,179 2,467 4,307 4,664

GROSS MARGIN:
Managed services (64) (150) 134 112
Professional services 87 586 76 667
----------- ----------- ----------- -----------
Total gross margin 23 436 210 779

OPERATING EXPENSES:
Sales and marketing 318 614 718 1,282
General and administrative 971 1,512 1,705 2,503
Product development 85 288 179 673
Non-cash compensation 18 459 323 561
----------- ----------- ----------- -----------
Total operating expenses 1,392 2,873 2,925 5,019

Loss from operations (1,369) (2,437) (2,715) (4,240)

OTHER INCOME (EXPENSE):
Other expense, net 1 (3) 2 (7)
Interest expense (101) (45) (284) (52)
Interest income 2 64 12 169
----------- ----------- ----------- -----------
Total other income (expense) (98) 16 (270) 110
----------- ----------- ----------- -----------

Net loss $ (1,467) $ (2,421) $ (2,985) $ (4,130)
=========== =========== =========== ===========

Basic and diluted net loss per share $ (0.20) $ (0.36) $ (0.40) $ (0.61)
=========== =========== =========== ===========

Weighted average number of shares 7,414,215 6,756,832 7,394,915 6,723,407
=========== =========== =========== ===========

See accompanying notes to unaudited condensed
consolidated financial statements.

E-SYNC NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share and per share data)

Six Months Ended
June 30, 2001 June 30, 2000
------------- -------------
(unaudited)

Cash flows from operating activities:
Net loss ................................................................ $ (2,985) $ (4,130)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation ....................................................... 476 414
Amortization of goodwill and other intangible assets ............... -- 455
Amortization of loan discount ...................................... 169 --
Non-cash compensation .............................................. 323 561
Changes in operating assets and liabilities:
Accounts receivable ............................................ 44 (1,746)
Other current assets ........................................... 73 (141)
Accounts payable and accrued expenses .......................... 269 (401)
Other assets ................................................... -- --
---------- ----------
Net cash used in operating activities .............................. (1,631) (4,988)

Cash flows from investing activities:
Capital expenditures ............................................... (108) (907)
---------- ----------
Net cash used in investing activities ....................................... (108) (907)
---------- ----------

Cash flows from financing activities:
Proceeds from notes payable ........................................ 400 (16)
Payments on bank loan .............................................. (10) 174
Proceeds from exercise of stock options and warrants ............... 11 --
Payments under capital lease obligations, net ...................... (10) (46)
---------- ----------
Net cash provided by financing activities ................................... 391 112
---------- ----------

Net (decrease) increase in cash and cash equivalents ........................ (1,348) (5,783)

Cash and cash equivalents at beginning of period ............................ 1,767 7,182
---------- ----------

Cash and cash equivalents at end of period .................................. $ 419 $ 1,399
========== ==========

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ......................................................... $ 4 $ 14
========== ==========
Non cash investing activities:
Capital Lease obligations incurred for fixed asset additions: .... $ -- $ 74
========== ==========

See accompanying notes to unaudited condensed
consolidated financial statements.

E-Sync Networks, Inc.
Notes To Condensed Consolidated Financial Statements
For the Three and Six Months ended June 30, 2000 and 1999

1. Organization and Basis of Accounting

The condensed consolidated balance sheet as of June 30, 2001, and the related
condensed consolidated statements of operations for the three and six months
ended June 30, 2001and 2000 and the condensed consolidated statements of cash
flows for the six months ended June 30, 2001 and 2000 are unaudited. In the
opinion of management, all adjustments necessary for a fair presentation of such
financial statements have been included. Such adjustments consisted only of
normal recurring items. Interim results are not necessarily indicative of
results for a full year.

The financial statements as of June 30, 2001, and for the three and six months
then ended, should be read in conjunction with the financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2000. The accounting policies followed by the Company
with respect to the unaudited interim financial statements are consistent with
those stated in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2000.

The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. The Company
continues to incur substantial net losses and negative operating cash flow and
revenues have been insufficient to cover costs of operations for the three and
six months ended June 30, 2001. The Company has a working capital deficit of
$3.5 million and an accumulated deficit of $28.1 million. Management believes
the Company's ability to continue as a going concern is dependent upon its
ability, among other things, to obtain additional financing and to achieve
increased revenue to generate sufficient cash flow to meet its obligations on a
timely basis. Our Annual Report on Form 10-KSB for the year ended December 31,
2000 included a report from our independent auditors containing an explanatory
paragraph stating that we have recurring losses from operations, have a working
capital deficiency and an accumulated deficit that raise substantial doubt about
our ability to continue as a going concern.

On August 6, 2001, the Company entered into a definitive agreement (the
"Agreement") with CRC, Inc., ("CRC"). Pursuant to the Agreement, upon the
satisfaction or waiver of all of the conditions to closing set forth therein,
the Company will contribute substantially all of its assets and business (the
"ESNI Contributed Assets") to a newly formed joint venture entity (the "JV") and
CRC will contribute assets and business (the "CRC Contributed Assets")
substantially equal in revenues to the ESNI Contributed Assets to the JV (the
"Proposed Transaction"). In connection with the consummation of the Proposed
Transaction, the Company will initially be given a 51% equity interest in the
JV. CRC will receive a 49% equity interest in the JV in exchange for the
contribution of the CRC Contributed Assets.

In addition to the consideration set forth above, CRC will make available to the
Company a $2 million revolving loan commitment, of which $250,000 was received
on June 14, 2001 and $250,000 was received on August 7, 2001. The company and
CRC entered into a Pledge and Security Agreement (the "Security Agreement"),
pursuant to which the Loans, along with all other liabilities of the Company to
CRC, are secured by all of the assets of the Company.

In addition, the Company will grant CRC a warrant to acquire up to 10% of
Company's capital stock on a fully diluted basis determined as of the close of
business on the closing date of the Proposed Transaction. The exercise price for
such warrants will be at a discount to market. The Company will grant
registration rights to CRC at the closing in connection with the issuance of the
warrant.

CRC will have an option to purchase up to an additional 17% interest in the
joint venture subsidiary. CRC may not exercise this option for 18 months, unless
the Company has defaulted under the terms of the loan, or has undergone a change
of control or bankruptcy. This option will be exercisable for five years from
the closing of the transaction, or if later, until two years after the loan is
repaid in full.

Closing is subject to financing, approval by the Company's stockholders and
other conditions, and is expected to occur in the fourth quarter of 2001.
Certain holders of Company's capital stock, who collectively hold a majority of
the Company's securities that will be entitled to vote on the matter, have
entered into voting agreements with CRC to vote in favor of the transaction and
reject any competing transaction, and have granted CRC their irrevocable proxy
to vote all of their shares consistent with those agreements.

Subject to certain exceptions, in the event that the Proposed Transaction does
not close by December 31, 2001, the Company would owe a break-up fee to CRC of
$500,000.

2. Stockholders equity

In the fourth quarter of 1999, in conjunction with the issuance of Series B
Preferred Stock, the Company's U.K. subsidiary issued 3,000,000 preference
shares. These preference shares were exchanged by the holder thereof for 681,818
additional shares of the Company's Series B Preferred Stock on July 17, 2001.
The preference shares issued by E-Sync U.K. (i) had no voting rights (other than
with respect to the winding up of E-Sync U.K. and altering the rights of such
shares), (ii) had a priority in payment on a winding up of E-Sync U.K., (iii)
were not entitled to dividends, (iv) were non-transferable, and (v) were
redeemable on November 5, 2009 subject to certain conditions. For financial
statement presentation purposes at December 31, 1999 through March 31, 2001,
these securities had been reported in the Company's stockholders' equity
section of the Balance Sheet as if the 681,818 shares of Series B Preferred
Stock underlying the preference shares were sold in lieu of the preference
shares. In June 2001 it was determined that, because these preference shares
contained a redemption provision, these securities should not have been
classified as equity in the Company's Balance Sheet. The impact of this
misclassification overstated the Company's stockholders equity by $3 million at
December 31, 1999 through March 31, 2001. However, on July 17, 2001 the holder
of the preference shares exchanged these shares into Series B Preferred Stock.
Although the preference shares were subsequently exchanged, the amounts have
been reclassified in the accompanying Balance Sheet as of June 30, 2001 in
accordance with the accounting literature. The following proforma schedule
reflects the effect on stockholders equity had the exchange taken place prior to
June 30, 2001.

Proforma Adjustment
Preference Shares
As Reported exchanged into Proforma
June 30 ,2001 Series B Preferred June 30, 2001
------------- ------------------ -------------

E-Sync Networks, (UK) LTD Preference Shares $ 3,000 $ (3,000) $ --
-------- -------- --------

Stockholders' Equity:
Convertible preferred stock,
Series A 10 10
Series B 23 23
Common stock 84 84
Additional paid in capital 25,984 3,000 28,984
Accumulated deficit (28,140) (28,140)
Less treasury stock at cost, 992,565 shares (1,216) -- (1,216)
-------- -------- --------
Total stockholders' deficit $ (3,255) $ -- $ (255)
======== ======== ========

3. Cash and Cash Equivalents

For purposes of the statement 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.

4. Earnings Per Share

For the periods presented in the condensed consolidated statement of operations,
the calculations of basic EPS and EPS assuming dilution vary in that the
weighted average shares outstanding assuming dilution include the incremental
effect of stock options.

Options to purchase 3,419,000 shares and 2,230,298 shares of common stock at
prices ranging from $0.01 to $15.00 were outstanding at June 30, 2001 and 2000,
respectively. At June 30, 2001 and 2000, 3,352,727 convertible preferred shares
were outstanding. All the stock options and convertible preferred shares were
excluded from the calculation of diluted EPS for the three and six month periods
ended June 30, 2001 and 2000, because the Company experienced a loss for those
periods and inclusion of such securities would have had an anti-dilutive effect.

5. Stock Options

During 2000, the Company issued to various consultants fully vested options to
purchase 20,000 shares of common stock, at exercise prices from $1.19 to $1.81
per share, in exchange for their professional services. These options are
exercisable for a period of ten years. The Company valued these options using
the Black-Scholes pricing model and this cost will be amortized over the
applicable service periods. The Company amortized approximately $6,000 during
the six months ended June 30,2001. In addition, during 2001 the Company issued
to various consultants fully vested options to purchase 7,500 shares of common
stock, at an exercise price of $1.06 per share, in exchange for providing
services. The Company amortized approximately $7,000 during the

six months ended June 30, 2001 related to these options. Such amounts are
included in non-cash compensation in the statements of operations.

During 2001, the Company granted employees options to purchase 304,264 shares of
common stock at an exercise price of $0.27 per share. These options vest
immediately and are exercisable for ten years. Compensation expense was recorded
for the difference between the exercise price and fair value at the grant date,
totaling approximately $239,000. Such amounts are included in non-cash
compensation in the statements of operations.

During 2001, the Company granted options at the then fair value, to purchase
approximately 270,000 shares, of common stock to employees at prices ranging
from $1.06 to $1.09. These options are exercisable for a ten-year period and
vest over three years.

Options to purchase 32,000 and 58,000 shares of common stock were exercised
during the three and six months ended June 30, 2001, respectively. The Company
received proceeds of approximately $7,000 and $4,000, respectively, upon the
exercise of such options.

6. Commitments and Contingencies

During August 2000, the Company received $1,000,000 from affiliates in
connection with the issuance of subordinated term notes payable due on August
15, 2001. The notes bear an interest rate of 12% per annum. The principal
balance is payable at maturity. However, in the event the Company receives
proceeds in excess of $3,000,000 from the sale of securities, the holders may
demand prepayment of all or any part of the then outstanding balance. At June
30, 2001 the outstanding balance net of discount was $973,000. The Company is in
discussion with the holders of these notes, who are affiliates, to convert all
or part thereof and accrued interest into equity of the Company. The terms of an
exchange, if any, have not yet been determined.

In connection with the issuance of these notes, the Company issued warrants to
purchase 30,000 shares of the Company's common stock at exercise prices ranging
from $3.85 to $5.50 per share. The warrants are transferable and expire on
August 15, 2005. A value of approximately $167,000 was ascribed to these
warrants using the Black-Scholes pricing model. The value of the warrants was
recorded as a reduction to the notes payable with a corresponding increase to
additional paid-in capital. This value is being amortized as interest expense
over the one-year term of the notes. For the three and six months ended June 30,
2001, the Company amortized approximately $41,000 and $82,000, respectively,
which is included in interest expense in the consolidated statement of
operations.

During December 2000, the Company received $ 850,000 and an additional $150,000
during the six months ended June 30, 2001 from an affiliate in connection with
the issuance of subordinated term notes payable. The notes bear an interest rate
of 10% per annum. The principal balance and interest was payable at the maturity
date, May 31, 2001. The note and accrued interest will automatically convert in
the event the Company receives proceeds in excess of $3,500,000 from the sale of
securities under the same terms as such sale. In the event the note is not
automatically converted and the note is not repaid prior to May 31, 2001 the
holder may convert a portion of the note into common stock at $0.25 per share,
not to exceed 600,000 shares. At June 30, 2001, the outstanding balance
$1,000,000. The Company is in discussion with the holders of these notes, who
are affiliates, to convert all or part thereof and accrued interest into equity
of the Company. The terms of an exchange, if any, have not yet been determined

In connection with the issuance of these notes, the Company issued warrants to
purchase 108,000 shares of the Company's common stock at an exercise price of
$1.25 per share. The warrants are transferable and expire on December 22, 2005.
A value of approximately $88,000 was ascribed to these warrants using the
Black-Scholes pricing model. The value of the warrants was recorded as a
reduction to the notes payable with a corresponding increase to additional
paid-in capital. This value is being amortized as interest expense over the term
of the notes. For the six months ended June 30, 2001, the Company amortized
approximately $88,000, which is included in interest expense in the consolidated
statement of operations

The Company's inactive subsidiary, Braincraft Learning Technologies Inc.
("Braincraft") also has an outstanding line of credit with a commercial bank of
$100,000 bearing interest at 2% above the bank's prime rate, of which the
Company is a guarantor. The amount outstanding under the line of credit at June
30, 2001 was approximately $52,000.

7. Restructuring Reserve

During the fourth quarter of 2000, the company committed to a plan to
discontinue the operations of its web design consulting business, which was the
principal activity of Braincraft. As a result, the Company recorded a charge
totaling $225,000 for minimum lease payments and other costs to shut down these
operations. During the three and six months ended June 30, 2001,

approximately $150,000 and 160,000, respectively, for employee severance, fixed
asset disposals and lease termination costs was charged to this reserve. The
shut down to was substantially completed during the second quarter of 2001.

8. Recently Issued Accounting Standards

In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities," (SFAS 133), which establishes accounting
and reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133, as amended by SFAS 137 (Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the effective date of SFAS No. 133 - an Amendment of
SFAS No. 133), is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. In June 2000, SFAS No.138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities", was issued to provide
additional implementation guidance related to SFAS 133. Adoption of these
statements did not have a material effect on the Company's financial position or
results of operations for the three months ended June 30, 2001.

In July 2001, the FASB issued Statement of Financial Accounting Standards No.
141, "Business Combinations" ("SFAS No. 141"). SFAS No. 141 requires the
purchase method of accounting for business combinations initiated after June 30,
2001 and eliminates the pooling-of-interests method. The adoption of SFAS No.
142 did not have a significant impact on our results of operations.

In July 2001, the FASB issued Statement of Financial Accounting Standard No.
142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") which is effective
January 1, 2002. SFAS No. 142 eliminates the current requirement to amortize
goodwill and indefinite-lived intangible assets and replaces the amortization
with an impairment test which must be performed at least annually. For
intangible assets with definite useful lives, SFAS No 142 requires amortization
over their respective useful lives to their estimated residual values and review
for impairment in accordance with Statement of Finical Accounting Standards No.
121 "Accounting for Impairment of Long Lived Assets and for Long Lived Assets to
be disposed of." Additionally, SFAS No.142 requires that a transitional goodwill
impairment test be completed six months from the date of adoption. SFAS No. 142
is not expected to have a significant impact on our results of operations.

9. Business Segment Information

The FASB issued Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information (SFAS No. 131) in June
1997. SFAS 131 supersedes FASB Statement No. 14, Financial Reporting for
Segments of a Business Enterprise, but retains the requirement to report
information about major customers. SFAS 131 replaces the "industry segment'
concept of Statement 14 with a "management approach" concept as the basis for
identifying reportable segments. The management approach is based on the way
that management organizes the segments within the enterprise for making
operating decisions and assessing performance. Consequently, the segments are
evident from the structure of the enterprise's internal organization. It focuses
on financial information that an enterprise's decision makers use to make
decisions about the enterprise's operating matters.

The Company is an e-commerce enabler, providing global messaging solutions for
Fortune 1000 companies. The Company offers a suite of enterprise communication
infrastructure capabilities that facilitate secure and reliable information
exchange. These services include secure online messaging, outsourced e-mail
services, directory and fax services, hosted communications, network design and
integration, messaging integration and message platform migration. The
operations of the Company are conducted through two business segments primarily
within the continental United States and the United Kingdom. Descriptions of the
business segments' services and operations are as follows:

Managed Services

The Managed Services business delivers its services through four products,
MailFAX, TotalMail, Directory and Messaging Services, and Hosting Services.
MailFAX facilitates conversion, encryption and delivery of faxes to e-mail or
e-mail to faxes without any additional hardware or software. This service
includes (i) Application to Fax which simultaneously delivers computer-generated
files from mainframe or PC-based applications to one or many facsimile devices
worldwide, (ii) Outbound Fax, which sends faxes and attachments via e-mail, and
(iii) Inbound Fax, which allows receipt of inbound faxes at the desktop via
e-mail. TotalMail is a full featured email solution supporting a range of
available options. The service is outsourced and web-based, and includes the
integration of e-mail with directory services, content filtering, and virus
scanning. Directory and Messaging Services enable customers' multiple-messaging
systems to have all user address information presented in a complete, native
format to all participating systems. This service feature also allows external
trading partner systems to participate in the directory synchronization process.
As an enhancement, messaging integration, which connects users of disparate
messaging applications (Exchange, Lotus Notes, cc:Mail, Profs, etc.) within an
organization can be implemented over intranets, extranets, and virtual private
networks (VPNs). Hosting Services, whereby the Company will maintain customers'
applications remotely at one of its sites using the latest technologies,
provides security, redundancy, and data backup for the client's applications.

Professional Services

Professional Services provides consulting services in the areas of messaging
design, architecture and implementation, as well as a broad range of additional
services including network design and integration, systems management, security
planning and training. Network Design and Integration provides expert resources
for all network design and integration needs. E-Sync assesses information,
messaging, and connectivity needs, evaluates existing infrastructure
architecture for adaptability to change, defines and tests migration processes,
executes and documents phased migration procedures for disparate messaging
platforms, and prepares enterprise-wide implementation plans. E-Sync also offers
numerous services in application development and support and in workflow
automation. E-Sync can install a Virtual Private Network (VPN) to ensure that
only authorized users can access a client's network and that data cannot be
intercepted. The Security Solutions area provides the ability to exchange
sensitive documents and private information securely with confidence and
reliability. E-Sync uses public key infrastructure (PKI) technology to deliver
digital certificates, encryption keys, and SmartCards for optimum secure
messaging. With large-scale anti-virus protection capabilities and e-mail
anti-virus filtering, E-Sync can provide full protection for applications, data,
messaging, and user systems across entire networks. E-Sync's Security Solutions
evaluates the costs and benefits of ID/password pairs, challenge/response
tokens, smart cards, biometrics, or other devices that provide unique profiles.
BackOffice(R) Consulting provides architecture, design, and implementation
services. The Company's Microsoft Certified Professionals, Systems Engineers,
and Trainers offer a complete BackOffice(R) solution, including assessing system
requirements, installing, configuring, and training.

Identifiable assets by segment are those assets that are used in the operations
of each segment as well as the accounts receivable generated by each segment.
Corporate assets consist primarily of cash and cash equivalents, short term
investments, prepaid expenses and corporate furniture, fixtures, and equipment.
Capital expenditures are comprised primarily of additions to data processing
equipment, furniture and fixtures, and leasehold improvements.

The following table presents the Company's business segment financial
information, in thousands:

Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------------------------------------------------
2001 2000 2001 2000
-------------------------------------------------------------------------------

Revenue:
Managed services $ 1,058 $ 837 $ 2,345 $ 2,028
Professional services 1,144 2,066 2,172 3,415
-------------------------------------------------------------------------------
Total revenues $ 2,202 $ 2,903 $ 4,517 $ 5,443
===============================================================================

Operating loss:
Managed services $ (682) $ (978) $ (1,383) $ (1,757)
Professional services (687) (1,459) (1,332) (2,483)
-------------------------------------------------------------------------------
Operating loss from segments (1,369) (2,437) (2,715) (4,240)
Other income (expenses), net 1 (3) 2 (7)
Interest (expense) income, net (99) 19 (270) 117
-------------------------------------------------------------------------------
Net loss $ (1,467) $ (2,421) $ (2,985) $ (4,130)
===============================================================================

Depreciation and amortization:
Managed services $ 113 $ 92 $ 224 $ 162
Professional services 20 19 40 42
Corporate 106 338 212 665
-------------------------------------------------------------------------------
Total depreciation and amortization 239 $ 449 $ 476 $ 869
===============================================================================

Capital expenditures:
Managed services 36 $ 106 $ 65 $ 246
Professional services 33 4 43 5
Corporate 34 656
-------------------------------------------------------------------------------
Total capital expenditures 69 $ 144 $ 108 $ 907
===============================================================================

Identifiable assets at: June 30, 2001
----------------------

Managed services $ 2,795
Professional services 606
----------------------
Total assets for reportable
segments 3,401
Corporate 1,889
----------------------
Total assets $ 5,290
======================

Item 2.

Management's Discussion and Analysis of
Financial Condition and Results of Operations

OVERVIEW

The Company is an e-commerce enabler, providing global messaging solutions for
Fortune 1000 companies. The Company offers a suite of enterprise communication
infrastructure capabilities that facilitate secure and reliable information
exchange. The company's managed services include secure online messaging,
outsourced e-mail services, directory and fax services and hosted
communications. In addition, the Company has a highly qualified professional
services organization, which directs its efforts towards providing network
design and integration, messaging integration and message platform migration
services.

The Company's strategy, which was adopted during the fourth quarter of 2000, is
to leverage its relationships with key channel partners to extend its core
messaging solutions into vertical solution frameworks initially for the
insurance and healthcare markets. Previously, the company had focused much of
its efforts towards the development of supply chain management software, which
efforts were discontinued during 2000 through a reprioritization of capital
resources towards core messaging activities that comprise the majority of the
company's business and revenue.

The Company continues to incur substantial net losses and negative operating
cash flow and revenues have been insufficient to cover costs of operations for
the three and six months ended June 30, 2001. Management believes that the
Company's ability to continue as a going concern is dependent upon its ability,
among other things, to obtain additional financing and to achieve increased
revenue to generate sufficient cash flow to meet its obligations on a timely
basis.

On August 6, 2001 the Company entered into definitive agreements to create a new
joint venture entity with CRC Inc. ("CRC"). The definitive agreements call for
the Company to contribute its business and substantially all of its assets to
the newly formed joint venture entity at the closing, and for CRC to
simultaneously contribute business and assets substantially equal in revenues to
the newly formed entity. The new entity would initially be 51% owned by Company.
Closing is subject to financing, approval by the Company's stockholders and
other conditions, and is expected to occur in the fourth quarter of 2001.
Certain holders of the Company's capital stock, who collectively hold a majority
of Company's securities that will be entitled to vote on the matter, have
entered into voting agreements with CRC to vote in favor of the transaction and
reject any competing transaction, and have granted CRC their irrevocable proxy
to vote all of their shares consistent with those agreements.

It is expected the new entity will be able to provide new and expanded products
and services to the Company's and CRC's customers while reducing the Company's
dependence on a small number of current customers. It is also expected that the
new entity will operate at an overall combined lower cost. This transaction is
not expected to occur until the fourth quarter and the benefits are not
anticipated to be realized until the year 2002. It is expected that the Company
will incur additional costs through the end of the year 2001 to complete this
transaction which will impact the Company's current operations.

In connection with this proposed transaction, CRC will make available to the
Company a $2 million revolving loan commitment of which $250,000 was received on
June 14, 2001 and $250,000 was received on August 7, 2001. The Company and CRC
entered into a Pledge and Security Agreement (the "Security Agreement"),
pursuant to which the Loans, along with all other liabilities of the Company to
CRC, are secured by all of the assets of the Company

THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2000

The Company's revenues consist of fees for Professional Services provided to its
customers in the form of messaging infrastructure and other consulting services,
and Managed Services in the form of hosting and messaging services. Professional
Services are normally billed on a time and material basis with contracts
typically ranging from 1 to 12 months. Managed Services consist of both fixed
charges, billed in advance, and usage based charges billed at the end of the
month. Contracts for Managed Services are typically for a one-year period. The
Company recognizes revenue in the period the services are performed.

Managed Services revenues increased by 26.4% and Professional Services revenues
decreased by 44.6% in the three months ended June 30, 2001 compared to the same
period in 2000. Managed Services revenue increased primarily due to new
customers and an increase in customer volume. The decrease in Professional
Services revenue is primarily due to the web design services which were
discontinued in the first quarter 2001. Net of the effect of the web design
services, Professional Services revenue decreased 5.4% from the prior period,
principally due to lower volume.

Gross margin decreased to 1.0% in the three months ended June 30, 2001, compared
to 15.0% for the three months ended June 30, 2000. Managed Services recognized a
negative gross margin of (6.0%) or ($64,000) for three months ended June 30,
2001 compared to a negative gross margin of (17.9%) or ($150,000) for the three
months ended June 30, 2000. The gross margin for Professional Services was 7.6%
or $87,000 for three months ended June 30, 2001 compared to 28.4% or $586,000
for the three months ended June 30, 2000. The increase in Managed Services gross
margin is mainly due to increased volume. The decrease in Professional services
is mainly due to costs incurred from the web design operations which were shut
down during the second quarter of 2001. Excluding the web design operations, the
gross margin was 26.7% during the three months ended June 30, 2001 compared to
12.7% for the same period in 2000. The increase in margin was mainly due to
lower costs, principally personnel related expenses.

Sales and marketing expenses decreased $296,000, or 48.2%, in the current
quarter, and as a percent of total revenues decreased from 21.2% in the three
months ended June 30, 2000, to 14.4% for the three months ended June 30, 2001.
The decrease is a result of the Company's efforts to reduce operating expenses.
The lower expenses are principally attributable to reduced sales promotion
activity and reduced use of outside consultants. Management expects the level of
such expenses to remain consistent in 2001 through the closing of the proposed
joint venture transaction.

The Company's general and administrative expenses decreased $541,000 or 35.8%
for the three months ended June 30, 2001 compared to the three months ended June
30, 2000. The decrease is primarily due to reduced goodwill amortization. During
the fourth quarter of 2000, the Company recorded an impairment charge related to
the remaining goodwill balance at December 31, 2000. In addition, compensation
and consultant expenses were lower as result of the Company's efforts to reduce
costs. Due to the proposed joint venture transaction Management expects general
and administrative expenses to increase through the remainder of 2001.

Research and development expenditures were $85,000 and $288,000 for the three
months ended June 30, 2001 and 2000, respectively. The decreased expense for the
current quarter was mainly due to a reduction in research and development
personnel and use of outside consultants. To date, all development costs have
been expensed in the period incurred.

Interest expense, was $101,000 for the three months ended June 30, 2001 as
compared to $45,000 in the same period in 2000. The increase is due to the
increase in borrowings during 2001.

Interest income was $2,000 for the three months ended June 30, 2001, as compared
to $63,000 in the same period in 2000. The decrease was mainly due to higher
available funds invested during 2000.

SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000

Managed Services revenues increased by 15.6% and Professional Services revenues
decreased by 36.4% for the six months ended June 30, 2001. Managed Services
revenues increased primarily due to new customers and increased volume. The
decrease in Professional Services revenue is primarily due to the shut down of
web design services which were discontinued in the first quarter 2001.

Gross margin decreased to 4.6% for the six months ended June 30, 2001, compared
to 14.3% for the six months ended June 30, 2000. Gross margin for Managed
Services was 5.7% or $134,000 for the six months ended June 30, 2001, compared
to 5.5% or $112,000 for the six months ended June 30, 2000. Gross margin for
Professional Services was 3.5% or $76,000 for the six months ended June 30, 2001
compared to 19.5% or $667,000 for the six months ended June 30, 2000. The
decrease in Professional Services' margin is mainly due to costs incurred from
the web design operations which were shut down during the second quarter of
2001. Excluding the web design operations, the gross margin was 33.2% during the
six months ended June 30, 2001 compared to 19.7% for the same period in 2000.
The increase in margin was mainly due to lower costs, principally personnel
related expenses.

Sales and marketing expenses decreased $564,000, or 44.0%, for the six months
ended June 30, 2001, and as a percent of total revenues decreased from 23.5% in
the six months ended June 30, 2000, to 15.8% for the six months ended June 30,
2001. The lower expenses are principally in the areas of reduced sales promotion
activity and reduced use of outside consultants. Management expects the level of
such expenses to remain consistent in 2001 through the closing of the proposed
joint venture transaction.

The Company's general and administrative expenses were $1,705,000 or 31.9% lower
for the six months ended June 30, 2001, then for the six months ended June 30,
2000. As a percentage of total revenues, general & administrative expenses
decreased from 45.9% to 37.7% over the periods. The decrease is primarily due to
reduced goodwill amortization. During the fourth quarter of 2000, the Company
record an impairment charge related to the remaining goodwill balance at
December 31, 2000. In addition, compensation and consultant expenses were lower
as result of the Company's efforts to reduce costs. Due to the proposed joint
venture transaction Management expects general and administrative expenses to
increase through the remainder of 2001.

Research and development expenditures were $179,000 and $673,000 for the six
months ended June 30, 2001, and 2000, respectively. The decreased expense for
the current quarter was mainly due to a reduction in research and development
personnel and the use of outside consultants. To date, all development costs
have been expensed in the period incurred.

Interest expense was $284,000 for the six months ended June 30, 2001 as compared
to $52,000 in the same period in 2000. The increase is due to the increase in
borrowings during 2001.

Interest income was $12,000 for the six months ended June 30, 2001, as compared
to $169,000 in the same period in 2000. The decrease was mainly due to higher
available funds invested during 2000.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents decreased by $1.3 million during the six months ended
June 30, 2001 from $1.7 million at December 31, 2000. At June 30, 2001, the
Company had a working capital deficit (current assets minus current liabilities)
of approximately $3.5 million. Net cash used in operating activities was $1.6
million for the six months ended June 30, 2001. Net cash flows used in operating
activities in the period reflect net losses of $3.0 million, offset by non-cash
expenses of approximately $1.0 million and changes in working capital of
approximately $0.4 million.

As of June 30, 2001, the Company had $418,000 of cash and cash equivalents. The
Company has an accumulated deficit of $29.0 million as of June 30, 2001. The
Company continues to incur substantial net losses and negative operating cash
flow. The Company will need additional financing to meet current operating cash
requirements. If the Company is unable to raise additional financing or generate
sufficient cash flow, it may be unable to continue as a going concern. Even if
the Company is successful in obtaining funding to meet current operating
expenses, the Company will need to substantially increase its revenues or its
losses will continue indefinitely. Even if the Company's efforts to increase
revenue are successful, there will be a delay in making this revenue available
to fund operating expenses. The Company will need to raise additional funds to
maintain current operating expenses and those expenses needed to support efforts
to increase revenue. If the Company is not successful in securing additional
funding the Company's business will be seriously harmed. Our principal
commitments consist of subordinated convertible notes, notes payable,
obligations under capital and operating leases and accounts payable. Our annual
report on Form 10-KSB for the year ended December 31, 2000 included a report
from our independent auditors containing an explanatory paragraph stating that
we have recurring losses from operations, have a working capital deficiency and
an accumulated deficit that raise substantial doubt about our ability to
continue as a going concern.

Our consolidated financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. Management believes that the Company's
ability to continue as a going concern is dependent upon its ability to obtain
additional financing to generate sufficient cash flow to meet its obligations on
a timely basis as may be required and ultimately to achieve profitable
operations. Management is implementing internal actions to improve operations
and liquidity including a reduction of the Company's workforce and closure of
some of our businesses operating with negative cash flows. The internal actions
to date to reduce operating expenses will not be sufficient to reach positive
cash flow. In addition to these internal actions, Management is considering
external financing options, such as strategic alliances, debt, or equity
offerings. There can be no guarantee that these efforts will be successful. Such
offerings can have a dilutive effect on the Company's shareholders.

In addition to the consideration set forth above, CRC will make available to the
Company a $2 million revolving loan commitment of which $250,000 was received on
June 14, 2001 and $250,000 was received on August 7, 2001. The Company and CRC
entered into a Pledge and Security Agreement (the "Security Agreement"),
pursuant to which the Loans, along with all other liabilities of the Company to
CRC, are secured by all of the assets of the Company.

In addition, the Company will grant CRC a warrant to acquire up to 10% of
Company's capital stock on a fully diluted basis determined as of the close of
business on the closing date of the Proposed Transaction. The exercise price for
such warrants will be at a discount to market. E-Sync will grant registration
rights to CRC at the closing in connection with the issuance of the warrant.

Closing is subject to financing, approval by Company's stockholders and other
conditions, and is expected to occur in the fourth quarter of 2001. Certain
holders of the Company's capital stock, who collectively hold a majority of
Company's securities that will be entitled to vote on the matter, have entered
into voting agreements with CRC to vote in favor of the transaction and reject
any competing transaction, and have granted CRC their irrevocable proxy to vote
all of their shares consistent with those agreements.

Subject to certain exceptions, in the event that the Proposed Transaction does
not close by December 31, 2001, the Company would owe a break-up fee to CRC of
$500,000.

The Company's Common Stock is traded over the counter and quoted on the NASDAQ
Small Cap Market System under the symbol "ESNI". The Company has received
notification from NASDAQ that the Company fails to comply with the minimum bid
price requirement for continued listing set forth in Marketplace Rule
4310(c)(4), and the net tangible assets requirement as set forth in Marketplace
Rule 4310(c)(02)(B). The Company has requested and has been granted a hearing to
consider the Company's plans to comply with NASDAQ' listing requirements. The
panel will consider the Company's ability to become in compliance with the
tangible net worth and minimum bid price along with maintaining compliance with
all listing requirements and other matters including the Proposed Transaction
with CRC. There can be no assurance that the Panel will grant the Company's
request for continued listing the NASDAQ Small Cap Market System.

The Company had previously entered into a non-binding letter of intent with
Howard Systems Inc ("HSI) to sell its professional services business to HSI. The
Company terminated this letter of intent when it entered in a letter of intent
with CRC. HSI has filed a lawsuit which alleges claims for breach of contract,
fraud and violation of the Connecticut Unfair Trade Practices Act arising out of
the Company entry into a letter of intent with CRC and termination of its letter
of intent with HSI. The complaint seeks a temporary injunction and compensatory
and punitive damages. Management believes the assertions made by HSI in these
legal actions are without merit and intends to defend them vigorously.

PART II. OTHER INFORMATION

FORWARD-LOOKING STATEMENTS

The statements in this quarterly report on Form 10-QSB that are not historical
fact constitute "forward-looking statements." Said forward-looking statements
involve risks and uncertainties that may cause the actual results, performance
or achievements of the Company and its subsidiaries to be materially different
from any future results, performance or achievements, express or implied by such
forward-looking statements. These forward-looking statements are identified by
their use of forms of such terms and phrases as "expects", "intends", "goals",
"estimates", "projects", "plans", "anticipates", "should", "future", "believes",
and, "scheduled".

The variables which may cause differences include, but are not limited to, the
following general economic and business conditions: competition; success of
operating initiatives; operating costs; advertising and promotional efforts; the
existence or absence of adverse publicity; changes in business strategy or
development plans; the ability to retain management; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs;
availability and cost of raw materials and supplies; and changes in, or failure
to comply with, government regulations. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this filing will
prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and exceptions of the Company will be achieved.

In addition, there can be no assurance that the Company will be successful in
developing any new products, that the Company will not experience difficulties
that could delay or prevent successful development, introduction and sales of
these products, or that its new products and enhancements will adequately meet
the requirements of the marketplace and achieve market acceptance. Management
cannot be sure that existing and future development efforts will be completed
within the anticipated schedules or that, if completed, they will have the
features or quality necessary to make them successful in the marketplace.
Further, despite testing by the Company and by current and potential customers,
errors could be found in the Company's products. E-Sync may not be able to
successfully correct these errors in a timely and cost effective manner. If the
Company is not able to develop new products or enhancements to existing products
or corrections on a timely and cost-effective basis, or if these new products or
enhancements do not have the features or quality necessary to make them
successful in the marketplace, the Company's business will be seriously harmed.

Management expects that most of the Company's enhancements to existing and
future products will be developed internally. However, the Company currently
licenses certain externally developed technologies and will continue to evaluate
externally developed technologies to integrate with its solutions. These
externally developed technologies, if suffering from defects, quality issues or
the lack of product functionality required to make the Company's solutions
successful in the marketplace, may seriously impact and harm the Company's
business. In addition, the Company must attract and retain highly qualified
employees to further its research and development efforts. The Company's
business could be seriously harmed if it is not able to hire and retain a
sufficient number of these individuals.

Item 1. Legal Proceedings

Item 5. Other Matters

In the fourth quarter of 1999, in conjunction with the issuance of Series B
Convertible Preferred Stock, the Company's U.K. subsidiary issued 3,000,000
preference shares. These preference shares were exchanged by the holder thereof
for 681,818 additional shares of the Company's Series B Preferred Stock on July
17, 2001. For financial statement presentation purposes at December 31, 1999
through March 31, 2001, these securities had been reported in the Company's
stockholders' equity section of the Balance Sheet as if the 681,818 shares of
Series B Preferred Stock underlying the preference shares were sold in lieu of
the preference shares. In June 2001 it was determined that, because these
preference shares contain a redemption provision these securities should not
have been classified as equity in the Company's Balance Sheet. The impact of
this misclassification overstated the Company's stockholders equity by $3
million at December 31, 1999 through March 31, 2001. However, on July 17, 2001
the holder of the preference shares exchanged these shares into Series B
Preferred Stock. Although the preference shares were subsequently exchanged the
amounts have been reclassified in the accompanying Balance Sheet at June 30,
2001, and the Company is also preparing to file an amendment to the Annual
Report on Form 10-KSB as of December 31, 2000 and Quarterly Report on Form
10-QSB as of March 31, 2001 to reclassify these amounts in accordance with the
accounting literature.

Item 6. Exhibits and reports on Form 8-K

(a) Exhibits - none

(b) Reports on Form 8-K

May 8, 2001 E-Sync Networks, Inc entered into a
non-binding Letter of Intent (the "LOI") with
SpaceLogix, Inc ("Spacelogix"). In the LOI, E-Sync
and SpaceLogix set forth the proposed basic terms and
conditions upon which the two parties would negotiate
and seek to execute and deliver to each other a
definitive agreement pursuant to which SpaceLogix
would merge (the "Merger") with and into a
wholly-owned subsidiary of E-Sync.

June 18, 2001 E-Sync Networks, Inc., entered into a non-binding
Letter of Intent (the "LOI") with CRC, Inc. ("CRC").
E-Sync and CRC set forth the proposed basic terms and
conditions upon which the two parties would negotiate
and seek to execute and deliver to each other a
definitive agreement pursuant to which CRC would form
a new entity into which E-Sync would contribute its
ongoing businesses and CRC would contribute assets of
CRC having substantially equal value (the "Proposed
Transaction"). In connection with the Proposed
Transaction, E-Sync would initially be given a 51%
equity interest in the newly formed joint venture
entity and CRC would make available to E-Sync a $2
million revolving loan commitment, of which $250,000
was borrowed by E-Sync on June 14, 2001.

SIGNATURE

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.

Date: August 14, 2001 E-SYNC NETWORKS, INC.

/s/ Michael A. Clark
----------------------------------
Michael A. Clark.
President and COO

/s/ Thomas Wikander
----------------------------------
Thomas Wikander.
Controller (Chief Accounting Officer)