** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

Washington, D.C.  20549

 

**FORM 10-Q**

 

**[MarkOne]**

 

ý            **QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**

**EXCHANGE ACT OF 1934**

** **

**For thequarterly period ended September 30, 2001**

** **

**OR**

** **

**o           ****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**

**EXCHANGE ACT OF 1934**

** **

**For thetransition period from _________ to _________**

** **

**CommissionFile Number 0-23315**

** **

** **

**enherent Corp.**

 

 

| **Delaware**                                    |   | **No.  13-3914972**                      |
|-------------------------------------------------|--------|------------------------------------------|
| (State or other  jurisdiction of incorporation) |   | (I.R.S. Employer  Identification Number) |

 

** **

**12300Ford Road, Suite 450**

**Dallas,Texas 75234**

(Address of principalexecutive offices)

 

**(972)243-8345**

(Telephone number,including area code)

 

----

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

YES  ý   NO  o

Indicate the number of share outstanding of each of the issuer’sclasses of common stock:

 
| **Class**                      | **Shares outstanding as of  October 30, 2001** |
|--------------------------------|-----------------------------------------------------|
| Common stock,  par value $.001 | 17,502,188                                          |

 

**enherent Corp. and Subsidiaries**

 

## **INDEX**

 

 

**PARTI.   FINANCIAL INFORMATION**

 
| **Item 1.  Financial Statements.**                                                                         |   |   |
|-----------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                            |   |   |
| Consolidated Balance Sheets  as of December 31, 2000 and September 30,  2001                                    |   |   |
|                                                                                                            |   |   |
| Consolidated  Statements of Operations for the three- and nine-months ended September 30,  2000 and 2001        |   |   |
|                                                                                                            |   |   |
| Consolidated  Statements of Cash Flows for the nine-months ended September 30, 2000 and  2001                   |   |   |
|                                                                                                            |   |   |
| Notes to  Consolidated Financial Statements                                                                     |   |   |
|                                                                                                            |   |   |
| **Item  2.  Management’s  Discussion and Analysis of FinancialCondition  and Results of Operations.** |   |   |
|                                                                                                            |   |   |
| **Item  3. Quantitative and Qualitative Disclosures About Market Risk.**                                        |   |   |
|                                                                                                            |   |   |
| **PART II.  OTHER INFORMATION**                                                                            |   |   |
|                                                                                                            |   |   |
| **Item 6.  Exhibits  and reports on Form 8-K**                                                             |   |   |
|                                                                                                            |   |   |
| **Signatures**                                                                                                  |   |   |
|                                                                                                            |   |   |
| **Exhibit Index**                                                                                               |   |   |

##### ** **

#####  

##### **Item 1. Financial Statements**

 

 

enherent Corp. and Subsidiaries

Consolidated Balance Sheets

*(In thousands, except number of shares)*

* *
|                                                                                                                                                                                            |   | **December 31** |       | **September 30** |       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|------------|------------------|------------|
|                                                                                                                                                                                            |   | **2000**        |       | **2001**         |       |
|                                                                                                                                                                                            |   |            | ** ** | **(unaudited)**  | ** ** |
| **Assets**                                                                                                                                                                                      |   |            | ** ** |             | ** ** |
| Current assets:                                                                                                                                                                                 |   |            | ** ** |             | ** ** |
| Cash and  equivalents                                                                                                                                                                           |   | $               | 5,628      |             | $          | 4,607 |   |
| Marketable  securities                                                                                                                                                                          |   | 728             |       | -                |       |
| Accounts  receivable, net of allowance of $700 at December 31, 2000 and $111 at September  30, 2001                                                                                             |   | 7,397           |       | 4,881            |       |
| Prepaid expenses  and other current assets                                                                                                                                                      |   | 576             |       | 461              |       |
| Total current  assets                                                                                                                                                                           |   | 14,329          |       | 9,949            |       |
|                                                                                                                                                                                            |   |            |       |             |       |
| Fixed assets,  net                                                                                                                                                                              |   | 3,214           |       | 1,619            |       |
| Goodwill, net                                                                                                                                                                                   |   | 15,886          |       | 15,210           |       |
| Other assets                                                                                                                                                                                    |   | 101             |       | 105              |       |
| Total assets                                                                                                                                                                                    |   | $               | 33,530     |             | $          | 26,883 |   |
|                                                                                                                                                                                            |   |            |       |             |       |
| **Liabilities and stockholders’  equity**                                                                                                                                                  |   |            |       |             |       |
| Current  liabilities:                                                                                                                                                                           |   |            |       |             |       |
| Accrued  compensation                                                                                                                                                                           |   | $               | 740        |             | $          | 1,064 |   |
| Accounts payable  and other accrued expenses                                                                                                                                                    |   | 2,251           |       | 1,509            |       |
| Capital lease  obligations - current                                                                                                                                                            |   | 16              |       | 20               |       |
| Total current  liabilities                                                                                                                                                                      |   | 3,007           |       | 2,593            |       |
|                                                                                                                                                                                            |   |            |       |             |       |
| Capital lease  obligations, net of current portion                                                                                                                                              |   | 28              |       | 26               |       |
| Deferred rent                                                                                                                                                                                   |   | 121             |       | 98               |       |
| Total  liabilities                                                                                                                                                                              |   | 3,156           |       | 2,717            |       |
|                                                                                                                                                                                            |   |            |       |             |       |
| Series A  redeemable convertible preferred stock, $0.001 par value; authorized -  10,000,000 shares; 8,000,000 shares   issued and outstanding at December 31, 2000 and September 30, 2001 |   | 5,258           |       | 5,635            |       |
|                                                                                                                                                                                            |   |            |       |             |       |
| Common  stockholders’ equity:                                                                                                                                                              |   |            |       |             |       |
| Common stock,  $0.001 par value; authorized—50,000,000 shares; issued—18,351,311 shares at  December 31, 2000 and September 30, 2001                                                  |   | 18              |       | 18               |       |
| Additional  paid-in capital                                                                                                                                                                     |   | 94,212          |       | 94,212           |       |
| Treasury stock,  at cost – 849,123 shares                                                                                                                                                  |   | -               |       | (166             | )          |
| Accumulated  deficit                                                                                                                                                                            |   | (69,114         | )          | (75,533          | )          |
| Total common  stockholders’ equity                                                                                                                                                         |   | 25,116          |       | 18,531           |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                |   | $               | 33,530     |             | $          | 26,883 |   |

 

*Seeaccompanying notes.*

enherent Corp. andSubsidiaries

Consolidated Statementsof Operations

*(In thousands, except per share data)*

(Unaudited)

 

 
|                                                                     |   | **Three Months Ended September 30** |   | **Nine Months Ended September 30** |   |
|--------------------------------------------------------------------------|--------|-------------------------------------|--------|------------------------------------|--------|
|                                                                     |   | **2000**                            |   | **2001**                           |   | **2000** |   | **2001** |   |
|                                                                     |   |                                |   |                               |   |   |   |   |   |
| Revenues                                                                 |   | $                                   | 10,587 |                               | $      | 7,262 |   | $ | 34,383 |   | $ | 22,828 |   |
| Cost of revenues                                                         |   | 7,268                               |   | 5,431                              |   | 24,420 |   | 16,683 |   |
| Gross profit                                                             |   | 3,319                               |   | 1,831                              |   | 9,963 |   | 6,145 |   |
|                                                                     |   |                                |   |                               |   |   |   |   |   |
| Selling, general  and administrative expenses                            |   | 4,113                               |   | 3,026                              |   | 17,658 |   | 12,179 |   |
| Loss from  operations                                                    |   | (794                                | )      | (1,195                             | )      | (7,695 | ) | (6,034 | ) |
|                                                                     |   |                                |   |                               |   |   |   |   |   |
| Other income  (expense):                                                 |   |                                |   |                               |   |   |   |   |   |
| Miscellaneous  income (expense)                                          |   | 7                                   |   | 24                                 |   | 79 |   | (169 | ) |
| Interest expense                                                         |   | (21                                 | )      | (2                                 | )      | (208 | ) | (21 | ) |
| Interest income                                                          |   | 126                                 |   | 33                                 |   | 328 |   | 182 |   |
| Net loss                                                                 |   | (682                                | )      | (1,140                             | )      | (7,496 | ) | (6,042 | ) |
| Preferred stock  dividends and accretion                                 |   | (113                                | )      | (130                               | )      | (5,356 | ) | (377 | ) |
| Net loss  applicable to common stockholders                              |   | $                                   | (795   | )                                  | $      | (1,270 | ) | $ | (12,852 | ) | $ | (6,419 | ) |
|                                                                     |   |                                |   |                               |   |   |   |   |   |
| Basic and  diluted net loss per share applicable to common stockholders  |   | $                                   | (.04   | )                                  | $      | (.07 | ) | $ | (.70 | ) | $ | (.36 | ) |
| Number of shares  used in computing basic and diluted net loss per share |   | 18,351                              |   | 17,502                             |   | 18,350 |   | 17,777 |   |

 

*Seeaccompanying notes.*

 

enherent Corp. andSubsidiaries

Consolidated Statements of Cash Flows

*(In thousands)*

(Unaudited)

 
|                                                                          |   | **Nine Months Ended September 30** |       |
|-------------------------------------------------------------------------------|--------|------------------------------------|------------|
|                                                                          |   | **2000**                           |       | **2001** | ** ** |
|                                                                          |   |                               | ** ** |   | ** ** |
| **Cash flows from operating  activities**                                     |   |                               |       |   |   |
| Net loss                                                                      |   | $                                  | (7,496     | ) | $ | (6,042 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities:  |   |                               |       |   |   |
| Depreciation and  amortization                                                |   | 2,935                              |       | 1,883 |   |
| Provision for  doubtful accounts                                              |   | (261                               | )          | 1,207 |   |
| Loss on disposal  of fixed assets                                             |   | 1,280                              |       | 386 |   |
| Deferred rent                                                                 |   | (62                                | )          | (23 | ) |
| Changes in  operating assets and liabilities:                                 |   |                               |       |   |   |
| Accounts  receivable                                                          |   | 455                                |       | 1,309 |   |
| Prepaid expenses  and other current assets                                    |   | 537                                |       | 267 |   |
| Other assets                                                                  |   | 224                                |       | (112 | ) |
| Accrued  compensation                                                         |   | (802                               | )          | 301 |   |
| Accounts payable  and other accrued expenses                                  |   | (2,026                             | )          | (638 | ) |
| Net cash used in  operating activities                                        |   | (5,216                             | )          | (1,462 | ) |
|                                                                          |   |                               |       |   |   |
| **Cash flows from investing  activities**                                     |   |                               |       |   |   |
| Sale of  marketable securities                                                |   | 1,810                              |       | 728 |   |
| Purchases of  fixed assets                                                    |   | (607                               | )          | (103 | ) |
| Proceeds from  sale of fixed assets                                           |   | 13                                 |       | 12 |   |
| Net cash  provided by investing activities                                    |   | 1,216                              |       | 637 |   |
|                                                                          |   |                               |       |   |   |
| **Cash flows from financing  activities**                                     |   |                               |       |   |   |
| Repayment of  note                                                            |   | (1,000                             | )          | - |   |
| Exercise of  stock options                                                    |   | 208                                |       | - |   |
| Purchase of  treasury stock                                                   |   | -                                  |       | (166 | ) |
| Issuance of  preferred shares and common stock warrants net of issuance costs |   | 7,427                              |       | - |   |
| Principal  payments under capital lease obligations                           |   | (302                               | )          | (30 | ) |
| Net cash  provided by (used in) financing activities                          |   | 6,333                              |       | (196 | ) |
|                                                                          |   |                               |       |   |   |
| Net increase  (decrease) in cash and equivalents                              |   | 2,333                              |       | (1,021 | ) |
| Cash and  equivalents at beginning of period                                  |   | 5,052                              |       | 5,628 |   |
| Cash and  equivalents at end of period                                        |   | $                                  | 7,385      |   | $ | 4,607 |   |
|                                                                          |   |                               |       |   |   |   |   |
| **Supplemental disclosure  of cash flow information**                         |   |                               | ** ** |   | ** ** |
| Interest paid                                                                 |   | $                                  | 208        |   | $ | 21 |   |
|                                                                          |   |                               |       |   |   |   |   |
| **Noncash financing activities**                                              |   |                               |       |   |   |
| Acquisition of  fixed assets through capital lease obligations                |   | $                                  | -          |   | $ | 33 |   |
|                                                                               |        |                                    |            |  |  |  |  |  |  |

* *

*Seeaccompanying notes.*

**enherent Corp.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

1.     Basis of Presentation

 

The unaudited consolidated financial statementspresented herein have been prepared in accordance with generally acceptedaccounting principles for interim financial information and with theinstructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements. In the opinion of management, theaccompanying consolidated financial statements include all adjustments(consisting only of normal recurring entries, except as disclosed) considerednecessary for a fair presentation of the financial condition and results ofoperations for the periods presented. The results of operations for the ninemonth period ended September 30, 2001 are not necessarily indicative of theresults that may be expected for the year ending December 31, 2001. 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, 2000.

 

2.     Principles of Consolidation

 

The accompanying financial statements include theaccounts of the Company and its wholly-owned subsidiaries.  All significant intercompany balances andtransactions have been eliminated in consolidation.

 

3.     Delisted from Nasdaq National Market

 

On May 30, 2001 the Nasdaq delisted enherent Corp.common stock, traded under the symbol “ENHT”, from trading on the NasdaqNational Market for failure to comply with Nasdaq’s minimum bid price of $1.00over the previous 30 consecutive trading days as required. The Company’s commonstock currently trades on the Over-the- Counter Bulletin Board “OTCBB” underthe symbol “ENHT”.

 

4.     Change in Allowance for Doubtful Accounts

 

The company recorded an additional provision fordoubtful accounts of approximately $100,000 and $1.2 million for the three- andnine-months ended September 30, 2001, respectively. For the nine-months endedSeptember 30, 2001, the Company wrote-off accounts receivable of approximately$1.8 million due in part to clients’ financial condition and resolution ofcertain contract disputes.

 

 

5.     Office Closures

 

The Company vacated its office space at 342 MadisonAve. in New York, upon expiration of its lease on April 30, 2001, and exerciseda termination clause for a portion of leased space at 80 Lamberton Road inWindsor, Connecticut.  The terminationclause for the Connecticut space required a nine-month notification periodprior to the termination of the lease.  Thefinancial statements for the nine months ended September 30, 2001 included acharge of $120,000 included in selling, general and administrative expenses,equal to the amount due under the termination clause. At September 30, 2001,approximately $40,000 remains accrued related to future amounts due. Inconjunction with vacating these offices, the Company recorded a charge in thequarter ended March 31, 2001 of approximately $335,000 for losses incurred uponthe disposal of office furniture and abandonment of leasehold improvements.

 

6.     Loss per share

 

The following sets forth thecomputation of basic and diluted loss-per share:

(in thousands, except per sharedata)

 
|                                        |   | **Three months ended** | **Nine months ended** |
|---------------------------------------------|--------|------------------------|-----------------------|
|                                        |   | **September 30,**      |                  | **September 30,** |   | **September 30,** |   | **September  30,** |   |
|                                        |   | **2000**               |                  | **2001** |   | **2000** |   | **2001** |   |
| Numerator:                                  |   |                   |                  |   |   |   |   |   |   |
| Net  loss applicable to Common shareholders |   | $                      | (795                  | ) | $ | (1,270 | ) | $ | (12,852 | ) | $ | (6,419 | ) |
| Denominator:                                |   |                   |                  |   |   |   |   |   |   |
| Weighted  average of shares outstanding     |   | 18,351                 |                  | 17,502 |   | 18,350 |   | 17,777 |   |
| Basic  and diluted loss per share           |   | $                      | (.04                  | ) | $ | (.07 | ) | $ | (.70 | ) | $ | (.36 | ) |

 

The Company has excludedthe impact of the redeemable convertible preferred stock and related warrants,and stock options outstanding under the Company’s Stock Option Plan as theeffect of including such shares would be anti-dilutive.  

 

7.     Contingencies  

 

Aformer chief financial officer of the Company filed a Demand for Arbitration onor about October 27, 2000, claiming that at the time of his termination he wasentitled to stock options valued at $3,000,000 or the equivalent value in cash.On January 12, 2001 the Company filed a Motion for Summary Judgement. Thearbitrator heard oral argument on the Company’s motion on June 7, 2001. Thearbitrator has not ruled on the motion as of October 31, 2001.

 

On September 10, 2001 theCompany filed a lawsuit in Federal Court in the Eastern District of Virginiafor breach of contract against Interior Systems, Inc. (“ISI”) for servicesprovided by the Company in the amount of approximately $785,000 in moneydamages, excluding attorneys’ fees, and court costs.  On October 12, 2001, ISI filed an answer and a counterclaimagainst the Company for breach of contract alleging $1,153,415.20 in moneydamages, plus costs and attorneys’ fees. At this time, discovery has justbegun, and the matter has been scheduled for trial in March 2002. The Companybelieves that it has adequate legal defenses to the claim, and that theultimate outcome of these matters will not have a material adverse effect onthe Company’s consolidated financial position.

 

8.     New Accounting Pronouncements 

 

InJuly 2001, the Financial Accounting Standards Board (“FASB”) issued Statementof Financial Accounting Standard (“SFAS”) No. 141, Business Combinations, andSFAS No. 142, Goodwill and other Intangible Assets.  SFAS No. 141 requires that the purchase method of accounting beused for all business combinations initiated after June 30, 2001.  SFAS No. 142 changes the accounting forgoodwill from an amortization method to an impairment-only approach.  Thus, amortization of goodwill recorded inpast business combinations will cease upon adoption of SFAS No. 142, which iseffective for the Company on January 1, 2002. Under Statement 142, the impairment only approach requires the reportingunit to determine the fair value of the reporting unit. The fair value of thereporting unit is compared to the carrying value, including goodwill. If thecarrying value exceeds the fair value, the goodwill of the reporting unit ispotentially impaired and the reporting unit would then have to determine theimplied fair value of goodwill. The implied fair value of goodwill iscalculated by deducting the fair value of all net tangible and intangibleassets (including unrecognized intangible assets) of the reporting unit fromthe fair value of the reporting unit. The implied fair value of goodwill isthen compared to the carrying value of the goodwill. If the implied value ofgoodwill is less, an impairment loss equal to the difference is recognized.While the Company has not completed its assessment under the new standard, itis likely that an impairment charge will be recorded.  

 

**Item 2.    Management’s Discussion and Analysis ofFinancial Condition and Results  ofOperations.  **

 

**Results for Operations**

** **

*Revenue.* Revenues decreased $3.3 million during the three-month period endedSeptember 30, 2001 to $7.3 million compared to $10.6 million for thethree-month period ended September 30, 2000. Revenues decreased $11.6 millionfor the nine-month period ended September 30, 2001 to $22.8 million compared to$34.4 million for the nine-month period ended September 30, 2000.  The decrease in revenue was a result of thecompletion of client projects, non-renewal of certain client assignments andthe general slowdown in spending for information technology services,exacerbated by the events of September 11, 2001.  

 

*Cost of Revenues.* Cost of revenues decreased $1.8 million for the three month period endedSeptember 30, 2001 to $5.4 million compared to $7.2 million for the three-monthperiod ended September 30, 2000.  Costof revenues decreased $7.7 for the nine month period ended September 30, 2001to $16.7 million compared to $24.4 million for the nine month period endedSeptember 30, 2000. Cost of revenues as a percentage of revenues increased 6.1%for the three month period ended September 30, 2001 to 74.8% when compared to68.7% for the three-month period ended September 30, 2000. Cost of revenues asa percentage of revenues increased 2.1% for the nine month period endedSeptember 30, 2001 when compared to the nine-month period ended September 30,2000. The increase in cost of revenues as a percentage of revenues was due tolower utilization of resources attributable to our clients affected by theevents of September 11, 2001 and immigration costs associated with billableconsultants.  

 

*Gross Profit.* Gross profit decreased to 25.2% as apercentage of revenues in the three- month period ended September 30, 2001 from31.3% in the comparable period in 2000. Gross profit decreased to 26.9% as apercentage of revenues in the nine-month period ended September 30, 2001 from29% for the comparable period in 2000. Again, the decrease in gross profit as apercentage of revenues was due to lower utilization of resources attributable toour clients affected by the events of September 11, 2001 and immigration costsassociated with billable consultants.  

 

*Selling, General &Administrative Expenses.* SG&A expenses decreased approximately 26% to $3.0 million in thethree-month period ended September 30, 2001 from $4.1 million for thecomparable period in 2000. The decrease in SG&A expenses resulted from theeffect of cost cutting measures. SG&A as a percentage of revenue increasedto 41.7% for the three month period ended September 30, 2001 from 38.8% for thecomparable period in 2000, due to decreased revenues for the reasons outlinedabove. For the nine-month period ended September 30, 2001, SG&A expensesdecreased 31% or $5.5 million from the comparable period in 2000. The decreasein SG&A expenses resulted from the effect of cost cutting measures and from$1.8 million in charges related to the relocation of corporate headquarters,severance and a reduction in facilities that occurred in 2000. This decreasewas offset by expenses of $455,000 associated with the closing of the New YorkCity office and the reduction of space in the Windsor, Connecticut facility andan additional reserve for bad debt of approximately $1.0 million associatedwith collection issues regarding certain accounts receivable. SG&A as apercentage of revenue increased to 53.4% for the nine month period endedSeptember 30, 2001 from 51.4% for the comparable period in 2000. This increasewas due to lower revenues in the nine-month period ended September 30, 2001 ascompared to revenues in the comparable period in 2000, partially offset by thedecrease in absolute dollars of SG&A expense.  

 

*Loss from Operations:* Loss from operations for the three monthperiod ended September 30, 2001 increased to $1.2 million as compared to a lossfrom operations of $0.8 million in the comparable period in 2000. As apercentage of revenues, the loss from operations for the three-month periodended September 30, 2001, increased to 16.5% compared to approximately 7.5% inthe comparable period in 2000.  For thenine month period ended September 30, 2001 loss from operations decreased to $6million from $7.7 million and loss from operations as a percentage of revenuesincreased to 26.4% from 22.3% in the comparable period in 2000. The decrease inloss from operations primarily resulted from the effect of cost cuttingmeasures and from $1.8 million in charges related to the relocation ofcorporate headquarters, severance and a reduction in facilities that occurredin 2000. This decrease was offset by expenses of $455,000 associated with theclosing of the New York City office and the reduction of space in the Windsor,Connecticut facility and an additional reserve for bad debt of approximately$1.0 million associated with collection issues regarding certain accountsreceivable. 

 

**Liquidityand Capital Resources**** **

 

*Working Capital:* The Company’s working capital decreasedto approximately $7.4 million at September 30, 2001 from $11.3 million atDecember 31, 2000.  Cash and equivalentsand marketable debt securities were $4.6 million at September 30, 2001 comparedto $6.4 million at December 31, 2000. The primary use of cash during the ninemonths ended September 30, 2001 was to fund the net loss of $6 million,partially offset by non-cash charges of $1.9 million related to depreciationand amortization and $1.2 million additional reserves for doubtful accounts.The Company’s accounts receivable were $4.9 million at September 30, 2001 and$7.4 million at December 31, 2000. Billed days-sales outstanding, net of allowance for doubtful accountwere 63 days at September 30, 2001 and 73 days at December 31, 2000.  In order to fund operating cash flowrequirements, the Company liquidated certain marketable securities generatingproceeds of approximately $728,000 in the nine-month period ended September,2001 and approximately $1.8 million in the nine-month period ended September30, 2000. 

 

The Company repurchased849,123 shares of its outstanding common stock in both open market transactionsand a block purchase for approximately $166,000 in the nine-month period endedSeptember 30, 2001.  The Board ofDirectors had previously approved the repurchase of up to 2,000,000 shares ofthe outstanding common stock, and to date the Company has repurchased a totalof 849,123 shares.  

 

In August 1999 theCompany entered into a loan and security agreement with Bank of America, theproceeds of which were to be used for general working capital. As of December31, 2000 the Company had exceeded the net loss restrictions imposed under theagreement.  On April 4, 2001 Bank ofAmerica terminated this credit facility. The Company had no borrowingsoutstanding under this credit facility at that time.

 

The Company anticipatesthat its primary uses of working capital in the near term will be to fund theCompany’s operations. Management believes that its cash equivalents andmarketable securities are sufficient to fund operations for the next twelvemonths.  If cash generated fromoperations is insufficient to satisfy the Company’s liquidity requirements, theCompany may in the future be required to seek additional sources of financing,including borrowing from a bank or other lender or selling debt or equitysecurities, which may result in further dilution to shareholders. However, theability to sell debt or equity securities in the public marketplace may be moredifficult in that the company’s stock is currently trade over-the-counter asopposed to the Nasdaq. The company has no bank credit currently in place. Noassurance can be given that any such additional sources of financing will beavailable on acceptable terms.

 

**New Accounting Pronouncements**

 

See note 8 toConsolidated Financial Statements regarding the discussion of FinancialAccounting Standards Board (“FASB”) issued Statement of Financial AccountingStandard (“SFAS”) No. 141, Business Combinations, and SFAS No. 142, Goodwilland other Intangible Assets.

 

**Item 3.  Quantitativeand Qualitative Disclosures About Market Risk**

 

Forthe period ended September 30, 2001, the Company did not experience anymaterial changes in market risk exposures that materially change or affect thequantitative and qualitative disclosures presented in the Company’s 2000 AnnualReport on Form 10-K.

 

 

 

**PART II.  OTHER INFORMATION**

 

ITEM 6. Exhibits andReports on Form 8-K

 

(a)   Exhibits

 

        The following is a list of exhibits filed as part of thisQuarterly report on Form 10-Q:

 
| **ExhibitNo.**              |   |                                                                                                                                                                                                                      |
|-----------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Description of exhibits** |
| 3.1                         |   | Amended and Restated Certificate of Incorporation of  enherent Corp. (Incorporated by reference to Exhibit 3.1 of the Company’s  Form 10-K for the year ended December 31, 2000.)                                    |
| 3.2                         |   | 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 S-1/a filed October 29, 1997.)                                                                                       |
| 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.)                                                                                             |

 

(b)   Reports onForm 8-K

 

The Company filed a Form8-K current report with the Securities and Exchange Commission on October 9,2001, reporting that the Company’s institutional investors continued to hold theirpositions in enherent common stock, despite reports to the contrary, whichresulted from institutional investors not being required to report theirholdings in enherent stock when the Company's common stock was delisted fromtrading on the National Association of Securities Dealers' National MarketSystem on May 30, 2001.

 

**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

**enherent Corp.**

 
|                   |   |   |                                            |
|------------------------|--------|--------|-------------------------------------------------|
| DATE: November 8, 2001 |   | BY     | /s/ Dan S. Woodward                             |
|                   |   |   | Dan S. Woodward                                 |
|                   |   |   | Chairman, President and Chief Executive Officer |
|                   |   |   |                                            |
| DATE: November 8, 2001 |   | BY     | /s/ Jack D. Mullinax                            |
|                   |   |   | Jack D. Mullinax                                |
|                   |   |   | Chief Financial Officer                         |

Exhibit Index: 

 

 
| **ExhibitNo.**              |   |                                                                                                                                                                                                                      |
|-----------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Description of exhibits** |
| 3.1                         |   | Amended and Restated Certificate of Incorporation of  enherent Corp. (Incorporated by reference to Exhibit 3.1 of the Company’s  Form 10-K for the year ended December 31, 2000.)                                    |
| 3.2                         |   | 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 S-1/a filed October 29, 1997.)                                                                                       |
| 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.)                                                                                             |