**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

 

**Washington,D.C.  20549**

** **

----

 

**FORM 10-Q**

 

**[MarkOne]**

 
| **ý** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |   |
|------------|----------------------------------------------------------------------------------------------|--------|

 

**Forthe quarterly period ended March 31, 2004**

** **

**OR**

 
| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |   |
|-------|-----------------------------------------------------------------------------------------------|--------|

 

**Forthe transition period from                  to                  **

 

**CommissionFile Number 0-23315**

 

**enherentCorp.**

(Exact name ofRegistrant as Specified in Its Charter)

 

| **Delaware**                                    |   | **No.  13-3914972**                   |
|-------------------------------------------------|--------|---------------------------------------|
| (State or Other  Jurisdiction of Incorporation) |   | (I.R.S. Employer  Identification No.) |

 

**80Lamberton RoadWindsor, CT 06095**

(Address ofPrincipal Executive Offices)

 

**(860)687-2200**

(Registrant’sTelephone Number, Including Area Code)

 

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Indicate by check markwhether the registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

 

YES  ý     NO  o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).  YES  o     NO  ý

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock as of thelatest practicable date:

 
| **Class**                     |   | **Shares  outstanding as of May 3, 2004** |
|-------------------------------|--------|-------------------------------------------|
| Common stock, par value $.001 |   | 17,718,854                                |

 

 

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**enherent Corp. and Subsidiaries**

 

## **INDEX**

 
| **PART I.  FINANCIAL  INFORMATION**                                                                        |   |
|-----------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                            |   |
| **Item 1.  Financial Statements.**                                                                         |   |
|                                                                                                            |   |
| **Condensed  Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003**                           |   |
|                                                                                                            |   |
| **Condensed  Consolidated Statements of Operations for the three months ended March 31,  2004 and 2003**        |   |
|                                                                                                            |   |
| **Condensed  Consolidated Statements of Cash Flows for the three months ended March 31,  2004 and 2003**        |   |
|                                                                                                            |   |
| **Notes  to Condensed Consolidated Financial Statements**                                                       |   |
|                                                                                                            |   |
| **Item  2.  Management’s Discussion and  Analysis of Financial Condition and Results of Operations.** |   |
|                                                                                                            |   |
| **Item  3.  Quantitative and Qualitative  Disclosures about Market Risk.**                                 |   |
|                                                                                                            |   |
| **Item 4.  Controls and Procedures.**                                                                      |   |
|                                                                                                            |   |
| **PART II.  OTHER INFORMATION**                                                                            |   |
|                                                                                                            |   |
| **Item 1.  Legal Proceedings**                                                                             |   |
|                                                                                                            |   |
| **Item 5.  Other Information**                                                                             |   |
|                                                                                                            |   |
| **Item 6.  Exhibits and Reports on Form 8-K**                                                              |   |
|                                                                                                            |   |
| **Signatures**                                                                                                  |   |
|                                                                                                            |   |
| **Exhibit  Index**                                                                                              |   |

 

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##### **Item1. Financial Statements**

 

enherent Corp. andSubsidiaries

Condensed ConsolidatedBalance Sheets

*(In thousands, except number ofshares)*

* *
|                                                                                                                                                                                                                       |   | **March 31,  2004** |   | **December  31,  2003** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|-------------------------|--------|
|                                                                                                                                                                                                                       |   | **(unaudited)**     |   | **(Note 1)**            |   |
| **Assets**                                                                                                                                                                                                                 |   |                |   |                    |   |
| Current assets:                                                                                                                                                                                                            |   |                |   |                    |   |
| Cash and  equivalents                                                                                                                                                                                                      |   | $                   | 2,146  |                    | $      | 2,669 |   |
| Accounts  receivable, net of allowance of $16 at March 31, 2004 and December 31, 2003                                                                                                                                      |   | 1,725               |   | 1,263                   |   |
| Prepaid expenses  and other current assets                                                                                                                                                                                 |   | 232                 |   | 141                     |   |
| Total current  assets                                                                                                                                                                                                      |   | 4,103               |   | 4,073                   |   |
|                                                                                                                                                                                                                       |   |                |   |                    |   |
| Fixed assets,  net                                                                                                                                                                                                         |   | 119                 |   | 159                     |   |
| Other assets                                                                                                                                                                                                               |   | 50                  |   | 50                      |   |
| Total assets                                                                                                                                                                                                               |   | $                   | 4,272  |                    | $      | 4,282 |   |
|                                                                                                                                                                                                                       |   |                |   |                    |   |
| **Liabilities  and stockholders’ equity**                                                                                                                                                                             |   |                |   |                    |   |
| Current  liabilities:                                                                                                                                                                                                      |   |                |   |                    |   |
| Accounts payable                                                                                                                                                                                                           |   | $                   | 498    |                    | $      | 327 |   |
| Accrued  compensation                                                                                                                                                                                                      |   | 391                 |   | 302                     |   |
| Accrued expenses                                                                                                                                                                                                           |   | 301                 |   | 362                     |   |
| Current portion  of capital lease obligations                                                                                                                                                                              |   | 4                   |   | 5                       |   |
| Deferred revenue                                                                                                                                                                                                           |   | 47                  |   | 57                      |   |
| Total current  liabilities                                                                                                                                                                                                 |   | 1,241               |   | 1,053                   |   |
|                                                                                                                                                                                                                       |   |                |   |                    |   |
| Deferred rent                                                                                                                                                                                                              |   | 19                  |   | 27                      |   |
| Total  liabilities                                                                                                                                                                                                         |   | 1,260               |   | 1,080                   |   |
|                                                                                                                                                                                                                       |   |                |   |                    |   |
| Commitments and  contingencies                                                                                                                                                                                             |   |                |   |                    |   |
| Series A senior  participating redeemable convertible preferred stock,  $0.001 par value; authorized - 10,000,000 shares; issued and outstanding -  7,000,000 shares at March 31, 2004 and December 31, 2003               |   | 6,278               |   | 6,124                   |   |
|                                                                                                                                                                                                                       |   |                |   |                    |   |
| Common  stockholders’ equity (deficit):                                                                                                                                                                               |   |                |   |                    |   |
| Common stock,  $0.001 par value; authorized - 50,000,000 shares; issued - 19,567,977 shares;  outstanding - 17,718,854 shares at March 31, 2004; issued 19,401,311 shares ,  outstanding - 17,552,188 at December 31, 2003 |   | 19                  |   | 19                      |   |
| Additional  paid-in capital                                                                                                                                                                                                |   | 94,427              |   | 94,423                  |   |
| Treasury stock,  at cost - 1,849,123 shares at March 31, 2004 and December 31, 2003                                                                                                                                        |   | (366                | )      | (366                    | )      |
| Accumulated  deficit                                                                                                                                                                                                       |   | (97,346             | )      | (96,998                 | )      |
| Total common  stockholders’ deficit                                                                                                                                                                                   |   | (3,266              | )      | (2,922                  | )      |
|                                                                                                                                                                                                                       |   |                |   |                    |   |
| Total  liabilities and stockholders’ deficit                                                                                                                                                                          |   | $                   | 4,272  |                    | $      | 4,282 |   |

 

*See accompanying notes to condensed consolidated financialstatements.*

 

1

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enherent Corp. andSubsidiaries

Condensed ConsolidatedStatements of Operations

*(In thousands, except per sharedata)*

(Unaudited)

 
|                                                                     |   | **Three  Months Ended March 31** |   |
|--------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                     |   | **2004**                         |   | **2003** |   |
|                                                                     |   |                             |   |   |   |
| Revenues                                                                 |   | $                                | 2,912  |   | $ | 3,653 |   |
| Cost of revenues                                                         |   | 2,181                            |   | 2,915 |   |
| Gross profit                                                             |   | 731                              |   | 738 |   |
|                                                                     |   |                             |   |   |   |
| Selling, general  and administrative expenses                            |   | 925                              |   | 1,248 |   |
| Loss from  operations                                                    |   | (194                             | )      | (510 | ) |
|                                                                     |   |                             |   |   |   |
| Other income  (expense):                                                 |   |                             |   |   |   |
| Miscellaneous  income                                                    |   | —                           |   | 3 |   |
| Interest expense                                                         |   | —                           |   | (2 | ) |
| Interest income                                                          |   | —                           |   | 3 |   |
| Net loss                                                                 |   | (194                             | )      | (506 | ) |
| Preferred stock  accretion                                               |   | (154                             | )      | (136 | ) |
| Net loss  available to common stockholders                               |   | $                                | (348   | ) | $ | (642 | ) |
|                                                                     |   |                             |   |   |   |
| Basic and  diluted net loss per share applicable to common stockholders  |   | $                                | (.02   | ) | $ | (.04 | ) |
| Number of shares  used in computing basic and diluted net loss per share |   | 17,699                           |   | 17,502 |   |

* *

*See accompanying notes to condensed consolidated financialstatements.*

 

2

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enherent Corp. andSubsidiaries

Condensed ConsolidatedStatements of Cash Flows

*(Inthousands)*

(Unaudited)

 
|                                                                         |   | **Three  Months Ended March 31** |   |
|------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                         |   | **2004**                         |   | **2003** |   |
| **Cash  flows from operating activities**                                    |   |                             |   |   |   |
| Net loss                                                                     |   | $                                | (194   | ) | $ | (506 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |   |                             |   |   |   |
| Depreciation and  amortization                                               |   | 40                               |   | 102 |   |
| Provision  (credit) for doubtful accounts                                    |   | 3                                |   | (9 | ) |
| Loss on disposal  of fixed assets                                            |   | —                           |   | 12 |   |
| Deferred rent                                                                |   | (8                               | )      | (8 | ) |
| Changes in  operating assets and liabilities:                                |   |                             |   |   |   |
| Accounts  receivable                                                         |   | (465                             | )      | (5 | ) |
| Prepaid expenses  and other current assets                                   |   | (91                              | )      | 39 |   |
| Other assets                                                                 |   | —                           |   | 6 |   |
| Accrued  compensation                                                        |   | 89                               |   | 57 |   |
| Accounts payable                                                             |   | 171                              |   | (48 | ) |
| Accrued expenses                                                             |   | (61                              | )      | (101 | ) |
| Deferred revenue                                                             |   | (10                              | )      | (139 | ) |
| Net cash used in  operating activities                                       |   | (526                             | )      | (600 | ) |
|                                                                         |   |                             |   |   |   |
| **Cash  flows from investing activities**                                    |   |                             |   |   |   |
| Proceeds from  sale of fixed assets                                          |   | —                           |   | 5 |   |
| Net cash  provided by investing activities                                   |   | —                           |   | 5 |   |
|                                                                         |   |                             |   |   |   |
| **Cash  flows from financing activities**                                    |   |                             |   |   |   |
| Proceeds from  exercise of stock options                                     |   | 4                                |   | — |   |
| Principal  payments under capital lease obligations                          |   | (1                               | )      | (5 | ) |
| Net cash  provided by (used in) financing activities                         |   | 3                                |   | (5 | ) |
|                                                                         |   |                             |   |   |   |
| Net decrease in  cash and equivalents                                        |   | (523                             | )      | (600 | ) |
| Cash and  equivalents at beginning of period                                 |   | 2,669                            |   | 3,067 |   |
| Cash and  equivalents at end of period                                       |   | $                                | 2,146  |   | $ | 2,467 |   |
|                                                                         |   |                             |   |   |   |
| **Supplemental  disclosure of cash flow information**                        |   |                             |   |   |   |
| Interest paid                                                                |   | $                                | — |   | $ | 2 |   |

 

*See accompanying notes to condensed consolidated financialstatements.*

 

3

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**enherent Corp.**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

**(Unaudited)**

 

1.               Basis ofPresentation

 

The unaudited condensedconsolidated financial statements presented herein have been prepared inaccordance with generally accepted accounting principles for interim financialinformation and the instructions to Form 10-Q and Item 10-01 of RegulationS-X.  Accordingly, they do not includeall of the information and footnotes required by generally accepted accountingprinciples for complete financial statements. In the opinion of management, the accompanying condensed consolidatedfinancial statements include all adjustments (consisting only of normalrecurring entries, except as disclosed) considered necessary for a fairpresentation of the financial condition and results of operations for theperiods presented.  The results ofoperations for the three-month period ended March 31, 2004 are not necessarilyindicative of the results that may be expected for the year ending December 31,2004. The condensed consolidated balance sheet as of December 31, 2003 wasderived from the audited consolidated balance sheet as of that date. Thestatements should be read in conjunction with the audited consolidatedfinancial statements and notes thereto included in the enherent Corp. (the“Company”) Annual Report on Form 10-K for the year ended December 31, 2003.

 

The Company anticipatesthat its primary uses of working capital in the near term will be to fund theCompany’s operations.  Managementbelieves that the cash and cash equivalents are sufficient to fund operationsfor the next 12 months.  If cashgenerated from operations is insufficient to satisfy the Company’s liquidityrequirements, the Company may in the future be required to seek additionalsources of financing. If the Company is unsuccessful in obtaining additionalsources of financing, the Company could experience difficulty meeting itscurrent obligations as they become due.

 

2.               Principles ofConsolidation

 

The accompanyingcondensed consolidated financial statements include the accounts of the Companyand its wholly owned subsidiaries.  Allsignificant intercompany balances and transactions have been eliminated inconsolidation.

 

3.               Stock-BasedCompensation

 

The Company accounts forstock options using the intrinsic value method set forth in AccountingPrinciples Board (“APB”) Opinion No. 25, “Accounting for Stock Issued toEmployees” and accordingly, recognizes compensation expense only if the fairvalue of the underlying Common Stock exceeds the exercise price of the stockoption on the date of grant. As permitted by Statement of Financial AccountingStandards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), theCompany continues to account for stock-based compensation in accordance withAPB Opinion No. 25 and has elected the pro forma disclosure alternative of SFASNo. 123.

 

The following tableillustrates the effect on net loss and loss per share if the Company hadapplied the fair value recognition provisions of SFAS 123 instead of APBOpinion No. 25’s

 

4

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intrinsic value method toaccount for stock-based employee compensation (in thousands, except per shareamounts):

 
|                                                                |   | **Three  months ended March 31** |   |
|---------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                |   | **2004**                         |   | **2003** |   |
|                                                                |   |                             |   |   |   |
| Net loss  available to common stockholders as reported              |   | $                                | (348   | ) | $ | (642 | ) |
| Total stock  option expense determined under fair value base method |   | (25                              | )      | (87 | ) |
| Pro forma net  loss                                                 |   | $                                | (373   | ) | $ | (729 | ) |
| Net loss per  common share as reported: basic and diluted           |   | $                                | (.02   | ) | $ | (.04 | ) |
| Net loss per  common share pro forma: basic and diluted             |   | $                                | (.02   | ) | $ | (.04 | ) |

 

Pro forma informationregarding net loss and loss per share is required by SFAS No. 123 and has beendetermined as if the Company had accounted for its employees’ stock optionsunder the fair value method provided by that Statement. The fair value of theoptions was estimated at the date of grant using the Black-Scholes optionpricing model with the following assumptions for vested and non-vested options:

** **
|                                                                               |   | **March 31** |   |
|------------------------------------------------------------------------------------|--------|--------------|--------|
| **Assumption**                                                                     |   | **2004**     |   | **2003** |   |
|                                                                               |   |         |   |   |   |
| Risk-free interest  rate                                                           |   | 2.00         | %      | 2.00 | % |
| Dividend yield                                                                     |   | 0            | %      | 0 | % |
| Volatility  factor of the expected market price of the Company’s Common Stock |   | 1.34         |   | 1.29 |   |
| Average life  years                                                                |   | 5            |   | 5 |   |

 

4.               SeriesA Senior Participating Redeemable Convertible Preferred Stock

 

On April 1, 2004, withthe approval of its Board of Directors, enherent entered into a Stock PurchaseAgreement with Primesoft LLC (“Primesoft”), pursuant to which enherentpurchased 2,750,000 shares of its Series A Senior Participating RedeemableConvertible Preferred Stock and a warrant to obtain 1,875,000 shares ofenherent’s Common Stock, from Primesoft. Consideration paid by enherent consisted of a cash payment of $250,000and a three year, $150,000 promissory note (bearing interest at the rate of 4%per annum) payable in annual installments of $50,000 beginning on April 15,2005.

 

The Series A SeniorParticipating Redeemable Convertible Preferred Stock was carried atapproximately $2.5 million at the date of the transaction. Because thePreferred Stock was purchased below its carrying value, a benefit to commonshareholders of approximately $2.1 million will be realized in April 2004.

 

5

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The remaining PreferredStock is being accreted to its liquidation value at April 12, 2005 of$4,250,000. Accretion of approximately $154,000 and $136,000 was recognized inthe three-month periods ending March 31, 2004 and 2003, respectively.

 

5.               LossPer Share

 

The following table setsforth the computation of basic and diluted loss per share (in thousands, exceptper share data):

 
|                                                      |   | **Three  months ended March 31** |   |
|-----------------------------------------------------------|--------|----------------------------------|--------|
|                                                      |   | **2004**                         |   | **2003** |   |
| Numerator:                                                |   |                             |   |   |   |
| Net loss  available to common stockholders                |   | $                                | (348   | ) | $ | (642 | ) |
| Denominator:                                              |   |                             |   |   |   |
| Weighted average  shares outstanding (000’s omitted) |   | 17,699                           |   | 17,502 |   |
|                                                      |   |                             |   |   |   |
| Basic and  diluted loss per share                         |   | $                                | (.02   | ) | $ | (.04 | ) |

 

The Company hasexcluded the impact of the redeemable convertible preferred stock and relatedwarrants and stock options outstanding under the Company’s stock option plan becausethe effect would be anti-dilutive.

 

6.               Contingencies

 

In the normal course ofbusiness, various claims are made against the Company.  At this time, in the opinion of management,there are no pending claims the outcome of which are expected to result in amaterial adverse effect on the consolidated financial position or results ofoperations of the Company.

 

# **Item2.        Management’s Discussion andAnalysis of Financial Condition and Results of Operations.**

 

**CriticalAccounting Policies**

 

Use of Estimates

 

As described in Note 1,the condensed consolidated financial statements presented elsewhere in thisdocument, have been prepared in conformity with generally accepted accountingprinciples for interim financial information and with instructions to Form 10-Qand Rule 10 of Regulation S-X. The preparation of these financial statementsrequires management to make estimates and assumptions that affect the reportedamounts in the financial statements and accompanying notes. Actual resultscould differ from those estimates.

 

6

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Revenue Recognition

 

Revenues are primarilyderived from consultants on engagements with clients for a period of time. Therevenues from these time and materials contracts are recognized during theperiod in which the related services are provided. Revenue may also includefees earned on recruiting individuals for positions in client companies as fulltime employees (permanent placements). Revenues from permanent placements arerecognized when the candidate has satisfied any guarantee period.  Such guarantee periods range from 30 to 90days. For the three-month periods ending March 31, 2004 and 2003, no revenuefrom permanent placements was recognized.

 

Accounts Receivable andAllowance for Doubtful Accounts

 

The Company’s accountsreceivable balance is reported net of estimated allowances for balances notexpected to be collectible.  The Companyregularly evaluates the collectability of amounts owed to it based on the abilityof the debtor to make payments. When the Company’s evaluation indicates that acustomer will be unable to satisfy its obligation, the Company will record areserve to reflect this anticipated loss. The Company periodically reviews the requirements for, and adequacy ofthe reserve for doubtful accounts.

 

Fixed Assets

 

Fixed assets are statedat cost and depreciation on furniture and equipment, computer equipment andsoftware is calculated on the straight-line method over the estimated usefullives of the assets ranging from three to seven years. Equipment held undercapital leases and leasehold improvements are amortized using the straight-linemethod over the shorter of the lease term or estimated useful life of theasset.  The Company evaluates long-livedassets for impairment and records charges in operating results when events andcircumstances indicate that assets may be impaired. The impairment charge isdetermined based upon the amount by which the net book value of the assetexceeds its estimated fair market value or undiscounted cash flow. Noimpairment charges have been recognized in any of the periods presented herein.

 

**Results of Operations**

 

*Revenues.* Revenues decreased $0.8 million during the three-month period endedMarch 31, 2004 to $2.9 million compared to $3.7 million for the three-monthperiod ended March 31, 2003. The decrease in revenue was a result of thecompletion of client projects and non-renewal of certain client assignmentspartially offset by new client assignments.

 

*Cost of Revenues.*  Cost of revenues decreased $0.7 million forthe three-month period ended March 31, 2004 to $2.2 million compared to $2.9million for the three-month period ended March 31, 2003. The decrease in costof revenues was attributable to the overall decrease in revenues. Cost ofrevenues as a percentage of revenues decreased from 79.8% for the three-monthperiod ended March 31, 2003 to 74.9% for the three-month period ended March 31,2004.

 

*Gross Profit.*  Gross profit as a percentage of revenues for the three-monthperiod ended March 31, 2004 was 25.1% versus 20.2% in the comparable prior yearperiod.

 

The increase in grossprofit as a percentage of revenues for the three-month period ended March 31,2004 versus the comparable period of 2003 reflects higher margins on new assignments,completion of lower margin and unprofitable contracts, and continuedimprovements in billable

 

7

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workforcemanagement.  Also, where engagementrenewals have resulted in lower billing rates for consultants, the Company hasin turn reduced the consultant’s rate of compensation.

 

*Selling, General & Administrative (SG&A)**Expenses. *SG&A expenses decreasedapproximately 25.9% to $0.9 million in the three-month period ended March 31,2004 from $1.2 million for the comparable period in 2003.  SG&A expenses as a percentage of revenuewas 31.8% for the three-month period ended March 31, 2004 from 34.2% for thecomparable period in 2003.

 

For the three-monthperiod ended March 31, 2004 versus the comparable period of the prior year, thelower level of SG&A expenses reflects reductions in administrative, salesand marketing staffing levels, elimination of costs related to the BarbadosSolutions Center and Dallas offices as well as the absence of closure and restructuringcosts.

 

*Loss from Operations.* Loss from operationsfor the three-month period ended March 31, 2004 decreased to $0.2 million ascompared to a loss from operations of $0.5 million in the comparable period in2003.  As a percentage of revenues, the lossfrom operations for the three-month period ended March 31, 2004 decreased toapproximately 6.7% as compared to approximately 13.9% in the comparable periodin 2003.

 

*Preferred Stock Accretion*. Accretion onthe preferred stock of approximately $154,000 and $136,000 was recognized inthe three-month periods ended March 31, 2004 and 2003, respectively.

 

# **Liquidityand Capital Resources**

 

*Working Capital:* The Company’s workingcapital decreased to approximately $2.9 million at March 31, 2004 from $3.0million at December 31, 2003.  Cash andcash equivalents were $2.1 million at March 31, 2004 compared to $2.7 millionat December 31, 2003.  The primaryuse of cash during the three-month period ended March 31, 2004 was to fundoperating activities of approximately $0.5 million. The Company’s accountsreceivables were $1.7 million at March 31, 2004 and $1.3 million at December31, 2003. Billed days sales outstanding, net of allowance for doubtfulaccounts, were 48 days at March 31, 2004 and 44 days at December 31, 2003.

 

The Company anticipatesthat its primary uses of cash in the near term will be to fund the Company’soperations.  Management believes thatthe cash equivalents at March 31, 2004 are sufficient to fund operations forthe next 12 months and satisfy all obligations under capital and non-cancelableoperating leases. As of March 31, 2004 the Company’s obligations under capitalleases, all due within the next year, totaled $4,000.  Obligations under non-cancelable operating leases total$110,000.  In addition, as a result ofthe acquisition of the preferred stock described in Note 4 to the CondensedConsolidated Financial Statements, the Company expended $250,000 in April 2004and is obligated for principal and interest payments on a three year $150,000 promissorynote.  Annual principal paymentscommencing in April 2005 will be $50,000. If cash generated from operations isinsufficient to satisfy the Company’s liquidity requirements, the Company maybe required to seek additional sources of financing in the future. If theCompany is unsuccessful in obtaining additional sources of financing, it couldexperience difficulty meeting its current obligations as they become due.

 

8

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# **Forward-lookingand Cautionary Statements**

 

Forward-lookingstatements in this report, including without limitation, statements related tothe Company’s plans, strategies, objectives, expectations, intentions andadequacy of resources, are made pursuant to the safe harbor provisions of thePrivate Securities Litigation Reform Act of 1995.  Investors are cautioned that such forward-looking statementsinvolve risks and uncertainties including without limitation the following:  (i) the Company’s plans, strategies,objectives, expectations and intentions are subject to change at any time atthe discretion of the Company; (ii) the Company’s plans and results ofoperations will be affected by the Company’s ability to manage its growth andresources; (iii) competition in the industry and the impact of competition onpricing, revenues and margins; (iv) the Company’s ability to recruit and retainIT professionals; and (v) other risks and uncertainties indicated from time totime in the Company’s filings with the Securities and Exchange Commission.

 

**Item3. Quantitative and Qualitative Disclosures About Market Risk**

 

For the period endedMarch 31, 2004, the Company did not experience any material changes in marketrisk exposures that affect the quantitative and qualitative disclosurespresented in the Company’s Annual Report on Form 10-K for the fiscal year endedDecember 31, 2003.

 

**Item4. Controls and Procedures.**

 

**Evaluation of Disclosure Controls and Procedures**

 

The Company maintainsdisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed in its Exchange Act reports is recorded, processed,summarized and reported within the time periods specified in the SEC’s rulesand forms, and that such information is accumulated and communicated to theCompany’s management, including the Company’s Chief Executive Officer andSenior Financial Officer, as appropriate, to allow timely decisions regardingrequired disclosure.  Such controls andprocedures, by their nature, can provide only reasonable assurance regarding management’scontrol objectives.

 

The Company carried outan evaluation, under the supervision and with the participation of itsmanagement, including its Chief Executive Officer and Senior Financial Officer,on the effectiveness of the design and operation of its disclosure controls andprocedures pursuant to Exchange Act Rules 13a-15 and 15d-15 as of March 31,2004.  Based upon that evaluation, theCompany’s Chief Executive Officer and Senior Financial Officer concluded thatthe Company’s disclosure controls and procedures are effective in timelyalerting them to material information relating to the Company (including itsconsolidated subsidiaries) required to be included in the Company’s ExchangeAct reports.

 

While the Companybelieves that its existing disclosure controls and procedures have beeneffective to accomplish their objectives, the Company intends to continue toexamine, refine and formulize its disclosure controls and procedures and tomonitor ongoing developments in this area.

 

9

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**PART II.  OTHERINFORMATION**

 

**Item1.  Legal Proceedings.**

 

In the normal course ofbusiness, various claims are made against the Company. At this time, in theopinion of management, there are no pending claims the outcome of which areexpected to result in a material adverse effect on the consolidated financialposition or results of operations of the Company.

 

**Item.5.  Other Information.**

 

On February 10, 2004, theCompany, with the approval of its Board of Directors, named Douglas K.Mellinger as Vice Chairman.  Mr.Mellinger will receive $5,000 monthly for consulting services he will provideto the Company.  Mr. Mellinger is thefounder of enherent and former Chairman of the Board of Directors and formerChief Executive Officer of enherent.

 

On February 16, 2004, theCompany entered into an employment agreement with Douglas A. Catalano to serveas Chairman, Chief Executive Officer and President for a three-year termcommencing February 16, 2004.

 

On April 1, 2004 the Companypurchased 2,750,000 shares of Series A Senior Participating RedeemableConvertible Preferred Stock, and a warrant to obtain 1,875,000 shares ofenherent’s Common Stock, from Primesoft, LLC. The shares, as well as the warrant, were retired.  Consideration paid by the Company consistedof a cash payment of $250,000 and a three year, $150,000 promissory note(bearing interest at the rate of 4% per annum) payable in annual installmentsof $50,000 beginning on April 15, 2005.

 

On April 1, 2004 theCompensation Committee recommended and the Board of Directors approvedcanceling the October 27, 2003 award to Douglas A. Catalano of options topurchase 400,000 shares, with a strike price of $0.08 per share.  These stock options were non-qualified stockoptions.  The Board further approved agrant of options to purchase 400,000 shares to Mr. Catalano, with a strikeprice of $0.09 per share effective April 1, 2004.  These stock options are incentive stock options.  Options to purchase 100,000 shares vested onApril 1, 2004 with the remainder to vest 100,000 each year on April 1 for thenext three years.

 

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**Item6. Exhibits and Reports on Form 8-K**

 

(a)           Exhibits

 

The following is alist of exhibits filed as part of this quarterly report on Form 10-Q:

 
| **Exhibit  No.** |   | **Description of Exhibits**                                                                                                                                                                                                                  |
|------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1              |   | Restated Certificate of  Incorporation (Incorporated by reference to Exhibit 4.1 of the Company’s Form  S-8 filed January 22, 1998).                                                                                                    |
| 3.2              |   | Certificate of  Amendment of Restated Certificate of Incorporation of enherent Corp.  (Incorporated by reference to Exhibit 3.1 of the Company’s Annual Report on  Form 10-K filed April 4, 2001).                                      |
| 3.3              |   | Amended and Restated  Bylaws (Incorporated by reference to Exhibit 4.2 of the Company’s Form S-8 filed  January 22, 1998).                                                                                                              |
| 4.1              |   | Form of Certificate of  Common Stock (Incorporated by reference to Exhibit 4.1 of the Company’s  Annual Report on Form 10-K filed March 22, 2002).                                                                                      |
| 4.2              |   | Securities Purchase  Agreement dated April 13, 2000, by and among PRT Group Inc. and the Investors  named therein (Incorporated by reference to Exhibit 99.1 of the Company’s  Form 8-K filed April 14, 2000).                          |
| 4.3              |   | Form of Certificate of  Designations (Incorporated by reference to Exhibit 99.2 of the Company’s Form  8-K filed April 14, 2000).                                                                                                       |
| 4.4              |   | Form of Warrant  (Incorporated by reference to Exhibit 99.3 of the Company’s form 8-K filed  April 14, 2000).                                                                                                                           |
| 10.1             |   | Employment Agreement  between James C. Minerly and the Company dated December 1, 2003 (Incorporated  by reference to Exhibit 10.1 of the Company’s Annual Report on Form 10-K  filed March 30, 2004).                                   |
| 10.2             |   | Employment Agreement  between Douglas A. Catalano and the Company dated February 16, 2004, with  Exhibit A and Amendment (Incorporated by reference to Exhibit 10.2 of the  Company’s Annual Report on Form 10-K filed March 30, 2004). |
| 10.3             |   | Amended and Restated  1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 of the  Company’s Form S-8 filed January 22, 1998).                                                                                          |
| 10.4             |   | Stock Purchase  Agreement dated April 1, 2004 between enherent and Primesoft LLC (Filed  herewith).                                                                                                                                          |
| 10.5             |   | Promissory Note dated  April 1, 2004 between enherent and Primesoft LLC (Filed herewith).                                                                                                                                                    |
| 31.1             |   | Certification of the  Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).                                                                    |
| 31.2             |   | Certification of the  Senior Financial Officer pursuant to 15 U.S.C. Section 7241, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).                                                                   |
| 32.1             |   | Certification of the  Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith).                                                                    |
| 32.2             |   | Certification of the  Senior Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith).                                                                   |

 

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(b)          Reportson Form 8-K

 

None.

 

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

**enherentCorp.**

 

 
| DATE   | May 7, 2004 |   | BY     | /s/ DOUGLAS A. CATALANO                          |   |
|--------|-------------|--------|--------|--------------------------------------------------|--------|
|   |        |   |   | Douglas  A. Catalano                             |
|   |        |   |   | Chairman, Chief  Executive Officer and President |
|   |        |   |   |                                             |
|   |        |   |   |                                             |
| DATE   | May 7, 2004 |   | BY     | /s/ JAMES C. MINERLY                             |   |
|   |        |   |   | James C. Minerly                                 |
|   |        |   |   | Senior Financial  Officer                        |

 

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Exhibit Index:

 
| **Exhibit  No.** |   | **Description of Exhibits**                                                                                                                                                                                                                  |
|------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1              |   | Restated Certificate of  Incorporation (Incorporated by reference to Exhibit 4.1 of the Company’s Form  S-8 filed January 22, 1998).                                                                                                    |
| 3.2              |   | Certificate of  Amendment of Restated Certificate of Incorporation of enherent Corp.  (Incorporated by reference to Exhibit 3.1 of the Company’s Annual Report on  Form 10-K filed April 4, 2001).                                      |
| 3.3              |   | Amended and Restated  Bylaws (Incorporated by reference to Exhibit 4.2 of the Company’s Form S-8  filed January 22, 1998).                                                                                                              |
| 4.1              |   | Form of Certificate of  Common Stock (Incorporated by reference to Exhibit 4.1 of the Company’s Annual  Report on Form 10-K filed March 22, 2002).                                                                                 |
| 4.2              |   | Securities Purchase  Agreement dated April 13, 2000, by and among PRT Group Inc. and the Investors  named therein (Incorporated by reference to Exhibit 99.1 of the Company’s  Form 8-K filed April 14, 2000).                          |
| 4.3              |   | Form of Certificate of  Designations (Incorporated by reference to Exhibit 99.2 of the Company’s Form  8-K filed April 14, 2000).                                                                                                       |
| 4.4              |   | Form of Warrant  (Incorporated by reference to Exhibit 99.3 of the Company’s form 8-K filed  April 14, 2000).                                                                                                                           |
| 10.1             |   | Employment Agreement  between James C. Minerly and the Company dated December 1, 2003 (Incorporated  by reference to Exhibit 10.1 of the Company’s Annual Report on Form 10-K  filed March 30, 2004).                                   |
| 10.2             |   | Employment Agreement  between Douglas A. Catalano and the Company dated February 16, 2004, with  Exhibit A and Amendment (Incorporated by reference to Exhibit 10.2 of the  Company’s Annual Report on Form 10-K filed March 30, 2004). |
| 10.3             |   | Amended and Restated  1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 of the  Company’s Form S-8 filed January 22, 1998).                                                                                          |
| 10.4             |   | Stock Purchase  Agreement dated April 1, 2004 between enherent and Primesoft LLC (Filed  herewith).                                                                                                                                          |
| 10.5             |   | Promissory Note dated  April 1, 2004 between enherent and Primesoft LLC (Filed herewith).                                                                                                                                                    |
| 31.1             |   | Certification of the  Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).                                                                    |
| 31.2             |   | Certification of the  Senior Financial Officer pursuant to 15 U.S.C. Section 7241, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).                                                                   |
| 32.1             |   | Certification of the  Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith).                                                                    |
| 32.2             |   | Certification of the  Senior Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith).                                                                   |

 

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