**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

 

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

|                                                                                                                                                                      |   | **[Mark One]**                                                                                 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------|
|                                                                                                                                                                      |   |                                                                                           |
| **ý**                                                                                                                                                                |   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934**  |
|                                                                                                                                                                      |   |                                                                                           |
| **For the quarterly period ended  March 31, 2003**                                                                                                                        |
|                                                                                                                                                                      |
| **OR**                                                                                                                                                                    |
|                                                                                                                                                                      |
| **o**                                                                                                                                                                     |   | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |
|                                                                                                                                                                      |
| **For the transition period  from           to           ** |
|                                                                                                                                                                      |
| **Commission File Number 0-23315**                                                                                                                                        |

 

**enherent Corp.**

 

| **Delaware**                                   |   | **No. 13-3914972**                      |
|------------------------------------------------|--------|-----------------------------------------|
| (State or other jurisdiction of incorporation) |   | (I.R.S. Employer Identification Number) |
|                                           |
| **80 Lamberton Road  Windsor, CT 06095**       |
| (Address of principal  executive offices)      |
|                                           |
| **(860) 687-2200**                             |
| (Telephone number,  including area code)       |

 

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Indicate by check mark whether the registrant: (1) has filed allreports required to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 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                                NOo

 

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

 

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

 

| **Class**                      |   | **Shares outstanding as of May 9, 2002** |
|--------------------------------|--------|------------------------------------------|
| Common stock,  par value $.001 |   | 17,502,188                               |

 

 

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**enherent Corp. and Subsidiaries**

 

## **INDEX**

 
| **PART  I.  FINANCIAL INFORMATION**                                                                       |
|----------------------------------------------------------------------------------------------------------------|
|                                                                                                           |
| **Item 1.  Financial Statements.**                                                                        |
|                                                                                                           |
| Consolidated Balance Sheets  as of March 31, 2003 and December 31, 2002                                        |
|                                                                                                           |
| Consolidated  Statements of Operations for the three months ended March 31, 2003 and 2002                      |
|                                                                                                           |
| Consolidated  Statements of Cash Flows for the three months ended March 31, 2003 and 2002                      |
|                                                                                                           |
| Notes to 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**                                                                                                 |
|                                                                                                           |
| **CEO Certification**                                                                                          |
|                                                                                                           |
| **CFO Certification**                                                                                          |
|                                                                                                           |
| **Exhibit Index**                                                                                              |

 

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**Item 1. Financial Statements**

 

**enherentCorp. and Subsidiaries**

**Consolidated Balance Sheets**

*(In thousands, except number of shares)*

* *
|                                                                                                                                                                                                               |   | **March 31,  2003** |       | **December  31,  2002** |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|------------|-------------------------|------------|
|                                                                                                                                                                                                               |   | **(unaudited)**     |       |                    |       |
| **Assets**                                                                                                                                                                                                         |   |                | ** ** |                    | ** ** |
| Current assets:                                                                                                                                                                                                    |   |                | ** ** |                    | ** ** |
| Cash and  equivalents                                                                                                                                                                                              |   | $                   | 2,467      |                    | $          | 3,067 |   |
| Accounts  receivable, net of allowance of $48 at March 31, 2003 and $57 at December 31,  2002                                                                                                                      |   | 1,940               |       | 1,926                   |       |
| Prepaid expenses  and other current assets                                                                                                                                                                         |   | 220                 |       | 259                     |       |
| Total current  assets                                                                                                                                                                                              |   | 4,627               |       | 5,252                   |       |
|                                                                                                                                                                                                               |   |                |       |                    |       |
| Fixed assets,  net                                                                                                                                                                                                 |   | 358                 |       | 477                     |       |
| Other assets                                                                                                                                                                                                       |   | 63                  |       | 69                      |       |
| Total  assets                                                                                                                                                                                                      |   | $                   | 5,048      |                    | $          | 5,798 |   |
|                                                                                                                                                                                                               |   |                |       |                    |       |
| **Liabilities and stockholders’  equity**                                                                                                                                                                     |   |                |       |                    |       |
| Current  liabilities:                                                                                                                                                                                              |   |                |       |                    |       |
| Accrued compensation                                                                                                                                                                                               |   | $                   | 340        |                    | $          | 283 |   |
| Accounts payable                                                                                                                                                                                                   |   | 422                 |       | 470                     |       |
| Accrued expenses                                                                                                                                                                                                   |   | 193                 |       | 294                     |       |
| Current portion  of capital lease obligations                                                                                                                                                                      |   | 9                   |       | 14                      |       |
| Deferred revenue                                                                                                                                                                                                   |   | 32                  |       | 171                     |       |
| Total current  liabilities                                                                                                                                                                                         |   | 996                 |       | 1,232                   |       |
|                                                                                                                                                                                                               |   |                |       |                    |       |
| Capital lease  obligations, net of current portion                                                                                                                                                                 |   | 4                   |       | 5                       |       |
| Deferred rent                                                                                                                                                                                                      |   | 51                  |       | 58                      |       |
| Total  liabilities                                                                                                                                                                                                 |   | 1,051               |       | 1,295                   |       |
|                                                                                                                                                                                                               |   |                |       |                    |       |
| 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, 2003 and December 31, 2002 |   | 5,689               |       | 5,553                   |       |
|                                                                                                                                                                                                               |   |                |       |                    |       |
| Common  stockholders’ equity (deficit):                                                                                                                                                                       |   |                |       |                    |       |
| Common stock,  $0.001 par value; authorized-50,000,000 shares; issued-19,351,311 shares;  outstanding-17,502,188 shares at March 31, 2003 and December 31,  2002                                         |   | 19                  |       | 19                      |       |
| Additional  paid-in capital                                                                                                                                                                                        |   | 94,411              |       | 94,411                  |       |
| Treasury stock,  at cost-1,849,123 shares at March 31, 2003 and December 31, 2002                                                                                                                                  |   | (366                | )          | (366                    | )          |
| Accumulated  deficit                                                                                                                                                                                               |   | (95,756             | )          | (95,114                 | )          |
| Total common  stockholders’ equity (deficit)                                                                                                                                                                  |   | (1,692              | )          | (1,050                  | )          |
| Total  liabilities and stockholders’ equity                                                                                                                                                                   |   | $                   | 5,048      |                    | $          | 5,798 |   |

 

*Seeaccompanying notes.*

 

1

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**enherentCorp. and Subsidiaries**

**ConsolidatedStatements of Operations**

*(In thousands, except per share data)*

(Unaudited)

 
|                                                                                  |   | **Three  Months Ended March 31,** |   |
|---------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                  |   | **2003**                          |   | **2002** |   |
|                                                                                  |   |                              |   |   |   |
| Revenues                                                                              |   | $                                 | 3,653  |   | $ | 5,916 |   |
| Cost of revenues                                                                      |   | 2,915                             |   | 4,724 |   |
| Gross profit                                                                          |   | 738                               |   | 1,192 |   |
|                                                                                  |   |                              |   |   |   |
| Selling, general  and administrative expenses                                         |   | 1,248                             |   | 2,988 |   |
| Loss from  operations                                                                 |   | (510                              | )      | (1,796 | ) |
|                                                                                  |   |                              |   |   |   |
| Other income  (expense):                                                              |   |                              |   |   |   |
| Miscellaneous  income (expense)                                                       |   | 3                                 |   | — |   |
| Interest expense                                                                      |   | (2                                | )      | (5 | ) |
| Interest income                                                                       |   | 3                                 |   | 16 |   |
| Net loss                                                                              |   | (506                              | )      | (1,785 | ) |
| Preferred stock  accretion net of benefit to common shareholders                      |   | (136                              | )      | 400 |   |
| Net  loss available to common stockholders                                            |   | $                                 | (642   | ) | $ | (1,385 | ) |
|                                                                                  |   |                              |   |   |   |
| Basic  and diluted net loss per share applicable to common stockholders               |   | $                                 | (.04   | ) | $ | (.08 | ) |
| Number  of shares used in computing  basic and  diluted  net loss per share |   | 17,502                            |   | 17,502 |   |

 

*Seeaccompanying notes.*

 

2

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**enherentCorp. and Subsidiaries**

**ConsolidatedStatements of Cash Flows**

*(In thousands)*

(Unaudited)

 
|                                                                         |   | **Three  Months Ended March 31,** |   |
|------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                         |   | **2003**                          |   | **2002** |   |
| **Cash flows from operating  activities**                                    |   |                              |   |   |   |
| Net  loss                                                                    |   | $                                 | (506   | ) | $ | (1,785 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |   |                              |   |   |   |
| Depreciation and  amortization                                               |   | 102                               |   | 230 |   |
| Provision (credit)  for doubtful accounts                                    |   | (9                                | )      | 12 |   |
| Loss on disposal  of fixed assets                                            |   | 12                                |   | — |   |
| Deferred rent                                                                |   | (8                                | )      | (9 | ) |
| Changes in  operating assets and liabilities:                                |   |                              |   |   |   |
| Accounts  receivable                                                         |   | (5                                | )      | (183 | ) |
| Prepaid expenses  and other current assets                                   |   | 39                                |   | 41 |   |
| Other assets                                                                 |   | 6                                 |   | 11 |   |
| Accrued  compensation                                                        |   | 57                                |   | (86 | ) |
| Accounts payable                                                             |   | (48                               | )      | 177 |   |
| Accrued expenses                                                             |   | (101                              | )      | 342 |   |
| Deferred revenue                                                             |   | (139                              | )      | (42 | ) |
| Net cash used in  operating activities                                       |   | (600                              | )      | (1,292 | ) |
|                                                                         |   |                              |   |   |   |
| **Cash flows from investing  activities**                                    |   |                              |   |   |   |
| Purchases of  fixed assets                                                   |   | —                            |   | (14 | ) |
| Proceeds from  sale of fixed assets                                          |   | 5                                 |   | — |   |
| Net cash  provided by (used in) investing activities                         |   | 5                                 |   | (14 | ) |
|                                                                         |   |                              |   |   |   |
| **Cash flows from financing  activities**                                    |   |                              |   |   |   |
| Purchase of  treasury stock                                                  |   | —                            |   | (200 | ) |
| Principal  payments under capital lease obligations                          |   | (5                                | )      | (6 | ) |
| Net cash used in  financing activities                                       |   | (5                                | )      | (206 | ) |
|                                                                         |   |                              |   |   |   |
| Net decrease in  cash and equivalents                                        |   | (600                              | )      | (1512 | ) |
| Cash and  equivalents at beginning of period                                 |   | 3,067                             |   | 5,269 |   |
| Cash and  equivalents at end of period                                       |   | $                                 | 2,467  |   | $ | 3,757 |   |
|                                                                         |   |                              |   |   |   |
| **Supplemental disclosure of cash  flow information**                        |   |                              |   |   |   |
| Interest paid                                                                |   | $                                 | 2      |   | $ | 5 |   |

 

*Seeaccompanying notes.*

 

3

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**enherent Corp.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

1.               Basis ofPresentation

 

The unaudited consolidated financial statementspresented herein have been prepared in accordance with generally acceptedaccounting principles for interim financial information and the instructions toForm 10-Q and Item 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotesrequired by generally accepted accounting principles for complete financialstatements.  In the opinion ofmanagement, the accompanying consolidated financial statements include alladjustments (consisting only of normal recurring entries, except as disclosed)considered necessary for a fair presentation of the financial condition andresults of operations for the periods presented.  The results of operations for the three-month period ended March31, 2003 are not necessarily indicative of the results that may be expected forthe year ending December 31, 2003. The statements should be read inconjunction with the audited consolidated financial statements and notes theretoincluded in the enherent Corp. (the “Company”) Annual Report on Form 10-K forthe year ended December 31, 2002.

 

The Company anticipates that its primary uses ofworking capital in the near term will be to fund the Company’s operations.  Management believes that the cashequivalents are sufficient to fund operations for the next 12 months.  If cash generated from operations isinsufficient to satisfy the Company’s liquidity requirements, the Company mayin the future be required to seek additional sources of financing. If theCompany is unsuccessful in obtaining additional sources of financing, theCompany could experience difficulty meeting its current obligations as theybecome due.

 

2.               Principles ofConsolidation

 

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.               Series A SeniorParticipating Redeemable Convertible Preferred Stock

 

On January 30, 2002, with the approval of its Board ofDirectors, enherent entered into a Stock Purchase Agreement (the “StockPurchase Agreement”) with The Travelers Indemnity Company (“The Travelers”),pursuant to which The Travelers converted 1,000,000 shares of its Series ASenior Participating Redeemable Convertible Preferred Stock into 1,000,000shares of enherent Common Stock. Under 

 

4

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the terms of the Stock Purchase Agreement, TheTravelers then sold the 1,000,000 shares of Common Stock to enherent for$200,000.  enherent has retired the1,000,000 shares of Series A Senior Participating Redeemable ConvertiblePreferred Stock. The Preferred Stock was carried at approximately $720,000 atthe date of the transaction.  Becausethe Common Stock was purchased below the carrying value of the Preferred Stock,a benefit to common shareholders of approximately $527,000 was recorded. Theremaining Preferred Stock is being accreted to its liquidation value at April12, 2005. Accretion of approximately $136,000 and $127,000 was recorded in thethree-month periods ending March 31, 2003 and 2002, respectively.

 

4.               Loss Per Share

 

The following sets forth the computation of basic anddiluted loss per share (in thousands, except per share data):

 
|                                        |   | **Three months ended March 31,** |   |
|---------------------------------------------|--------|----------------------------------|--------|
|                                        |   | **2003**                         |   | **2002** |   |
| Numerator:                                  |   |                             |   |   |   |
| Net loss applicable to common  shareholders |   | $                                | (642   | ) | $ | (1,385 | ) |
| Denominator:                                |   |                             |   |   |   |
| Weighted average shares outstanding         |   | 17,502                           |   | 17,502 |   |
| Basic and diluted loss per share            |   | $                                | (.04   | ) | $ | (.08 | ) |

 

The Company has excluded theimpact of the redeemable convertible preferred stock and related warrants andstock options outstanding under the Company’s stock option plan as the effectwould be anti-dilutive.

 

5.               Stock-Based Compensation

 

The Companyaccounts for stock options using the intrinsic value method set forth inAccounting Principles Board (“APB”) Opinion No. 25, “Accounting for StockIssued to Employees” and accordingly, recognizes compensation expense only ifthe fair value of the underlying Common Stock exceeds the exercise price of thestock option on the date of grant. As permitted by Statement of FinancialAccounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS123”), the Company continues to account for stock-based compensation inaccordance with APB Opinion No. 25 and has elected the pro forma disclosurealternative of SFAS No. 123.

 

The followingtable illustrates the effect on net loss and loss per share if we applied thefair value recognition provisions of SFAS 123 instead of APB Opinion No. 25’sintrinsic value method to account for stock-based employee compensation (inthousands, except per share amounts):

 

5

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|                                                                |   | **Three months ended March 31,** |   |
|---------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                |   | **2003**                         |   | **2002** |   |
| Net loss available to  common stockholders as reported              |   | $                                | (642   | ) | $ | (1,385 | ) |
| Total stock option  expense determined under fair value base method |   | (87                              | )      | (343 | ) |
| Pro forma net  earnings                                             |   | $                                | (729   | ) | $ | (1,728 | ) |
| Net loss per  common share as reported: basic and diluted           |   | $                                | (.04   | ) | $ | (.08 | ) |
| Net loss per  common share pro forma: basic and diluted             |   | $                                | (.04   | ) | $ | (.10 | ) |

 

Pro formainformation regarding net income (loss) and earnings (loss) per share isrequired by SFAS No. 123 and has been determined as if the Company hadaccounted for its employees’ stock options under the fair value method providedby that Statement. The fair value of the options was estimated at the date ofgrant using the Black-Scholes option pricing model with the followingassumptions for vested and non-vested options:

** **
|                                                                               |   | **March 31,** |   |
|------------------------------------------------------------------------------------|--------|---------------|--------|
| **Assumption**                                                                     |   | **2003**      |   | **2002** |   |
|                                                                               |   |          |   |   |   |
| Risk-free interest rate                                                            |   | —        |   | 2.99 | % |
| Dividend yield                                                                     |   | 0             | %      | 0 | % |
| Volatility  factor of the expected market price of the Company’s Common Stock |   | 1.29          |   | 1.40 |   |
| Average life                                                                       |   | 5 years       |   | 5 years |   |

 

6.               Office Closures

 

The Company plans to close itsDallas office in the third quarter of 2003 to reduce costs and increaseefficiency. In accordance with Statement of Financial Accounting Standards No.146 (“SFAS 146”), “Accounting for Costs Associated with Exit or DisposalActivities,” costs associated with training personnel, travel, moving expensesand duplicate facility costs will be expensed when incurred and are expected tototal approximately $115,000.  The totalbenefits costs consisting of severance and stay bonuses for six administrativepersonnel of $113,000, for which employees are required to render service untilthey are terminated in order to receive the termination benefit, are beingrecognized ratably over the service period. The Company has recorded a chargein the three-month period ended March 31, 2003 of approximately $56,000 forseverance and stay bonuses. The Company estimates the total closure costs atapproximately $228,000.  These costswill be paid in the second and third quarters of 2003.

 

6

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7.               Contingencies

 

In the normal course of business,various claims are made against the Company. At this time, in the opinion of management, there are no pending claimsthe outcome of which are expected to result in a material adverse effect on theconsolidated financial position or results of operations of the Company.

 

# **Item 2**.              Management’s Discussion and Analysis of FinancialCondition and Results of Operations.

 

**Resultsof Operations**

 

*Revenue.*  Revenues decreased $2.2 million during thethree-month period ended March 31, 2003 to $3.7 million compared to $5.9million for the three-month period ended March 31, 2002. The decrease inrevenue was a result of the completion of client projects, non-renewal ofcertain client assignments and billing rate reductions.

 

*Cost of Revenues.*  Cost of revenues decreased $1.8 million to$2.9 million for the three-month period ended March 31, 2003 from $4.7 millionin the comparable period in 2002. The decrease in cost of revenues wasattributable to the overall decrease in revenues.  Cost of revenues as a percentage of revenues remainedapproximately 80% for the three-month period ended March 31, 2003 when comparedto the three-month period ended March 31, 2002.

 

*Gross Profit.*  Gross profit as a percentage of revenuesremained approximately 20% in the three-month period ended March 31, 2003 whencompared to the three-month period ended March 31, 2002.

 

*Selling, General &Administrative (SG&A)**Expenses. *SG&Aexpenses decreased approximately 58% to $1.2 million in the three-month periodended March 31, 2003 from $3.0 million for the comparable period in 2002.  SG&A as a percentage of revenuedecreased to 34% for the three-month period ended March 31, 2003 from 51% forthe comparable period in 2002.  Thedecrease in SG&A expenses was attributable to the impact of the closure ofthe Barbados Solution Center totaling approximately $475,000, the settlement ofa lawsuit of approximately $275,000 and cost-cutting measures, includingstaffing reductions, of approximately $1 million.

 

*Loss from Operations.*  For the reasons set forth above, loss fromoperations for the three months ended March 31, 2003 decreased to $.5 millionas compared to a loss from operations of $1.8 million in the comparable periodin 2002.  As a percentage of revenues,the loss from operations for the three months ended March 31, 2003 decreased to14% as compared to approximately 30% in the comparable period in 2002.

 

7

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*Preferred Stock Dividends andAccretion Net of Benefit to Common Shareholders*. Accretion on thepreferred stock was approximately $136,000 for the three-month period endedMarch 31, 2003 and approximately $127,000 in the comparable period in2002.  In the three-month period endedMarch 31, 2002, the Company recorded a benefit to common shareholders ofapproximately $527,000 related to the stock purchase agreement with theTravelers (see footnote 3).

 

# **Liquidityand Capital Resources**

 

*WorkingCapital:* The Company’s working capital decreased toapproximately $3.6 million at March 31, 2003 from $4.0 million atDecember 31, 2002.  Cash and cashequivalents were $2.5 million at March 31, 2003 compared to $3.1 million atDecember 31, 2002.  The primary useof cash during the three months ended March 31, 2003 was to fund operatingactivities of approximately $.5 million. The Company’s accounts receivableswere $1.9 million at March 31, 2003 and at December 31, 2002.  Billed days sales outstanding, net ofallowance for doubtful accounts, was 48 days at March 31, 2003 and 40 days atDecember 31, 2002.

 

The Companyanticipates that its primary uses of cash in the near term will be to fund theCompany’s operations.  Managementbelieves that the cash equivalents are sufficient to fund operations for thenext 12 months.  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. Ifthe Company is unsuccessful in obtaining additional sources of financing, theCompany could experience difficulty meeting its current obligations as theybecome due.

 

**Item3****. Quantitative and Qualitative Disclosures AboutMarket Risk**

 

For the period ended March 31, 2003, the Company did not experience anymaterial changes in market risk exposures that affect the quantitative andqualitative disclosures presented in the Company’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2002.

 

**Item 4****. Controls and Procedures.**

 

Evaluation of Disclosures Controls and Procedures

 

The Company’s Chief Executive Officer and ChiefFinancial Officer, after evaluating the Company’s “disclosure controls andprocedures” (as defined in Securities Exchange Act Rules 13a-14(c) and15d-14(c)) as of March 31, 2003 (the “Evaluation Date”), each has concludedthat as of the Evaluation Date, the Company’s disclosure controls andprocedures were adequate and designed to ensure that material informationrelating to the 

 

8

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Company and itsconsolidated subsidiaries would be made known to them by others within thoseentities.

 

Changes inInternal Controls

 

Subsequent to theEvaluation Date, there were no significant changes in the Company’s internalcontrols or, to the Company’s knowledge, in other factors that couldsignificantly affect the Company’s disclosure controls and procedures.

 

9

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**PART II.  OTHERINFORMATION**

 

**Item 1****.  Legal Proceedings.**

 

In the normal course of business, various claims are madeagainst the Company. At this time, in the opinion of management, there are nopending claims the outcome of which are expected to result in a materialadverse effect on the consolidated financial position or results of operationsof the Company.

 

**Item. 5****.  Other Information.**

 

Effective November 1, 2002, the Company entered into anemployment agreement with Robert D. Merkl for a fourteen (14) month term (the“Merkl Agreement”) commencing on November 1, 2002.

 

Under the Merkl Agreement, Mr. Merkl serves asChairman, Chief Executive Officer and President, earning a base salary of$192,000, with a target bonus opportunity of $96,000.  In April 2003, Mr. Merkl received a $24,000 performance bonusunder the terms of the Merkl Agreement based on the Company’s performanceduring the fourth quarter of 2002.  Theannual base salary will be reviewed annually by the Board of Directors andincreased (but not decreased) if the Board of Directors, in its discretion,determines such an increase to be appropriate.

 

If Mr. Merkl’s employment is terminated (i) by theCompany Without Cause (as defined in the Merkl Agreement), prior to theexpiration of the term of the Merkl Agreement, the Company shall pay Mr. Merkl(i) his current annual base salary for eight (8) months, and; (ii) any earnedperformance bonus prorated as of the date of termination.  Payment will be made in accordance with theCompany’s current payroll practices. Additionally, if Mr. Merkl’s employment is terminated by theCompany Without Cause, (i) any incentive stock options held by Mr. Merkl shallimmediately vest and remain exercisable in accordance with the terms of theCompany’s Amended and restated 1996 Stock Option Plan (the “Plan”) and theapplicable option grant and (ii) any non-qualified stock options granted to Mr.Merkl that are vested at the date of termination shall be exercisable as perthe Plan and the applicable option grant. Non-qualified options that are not vested at the date of terminationshall expire.

 

If Mr. Merkl’s employment is terminated by Mr. Merklfor Good Reason (as defined in the Merkl Agreement), the Company shall pay Mr.Merkl the same amounts as would have been paid had his employment beenterminated Without Cause (as defined in the Merkl Agreement).  “Good Reason” includes a material diminutionin Mr. Merkl’s 

 

10

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position, authorities, duties or responsibilities, amaterial breach by the Company of its obligations under the Merkl Agreement anda termination by the Company of Mr. Merkl’s employment following a Changein Control (as defined in the Merkl Agreement) prior to the expiration of theterm of the Merkl Agreement and within six (6) months of the Change inControl.  The Merkl Agreement providesthat in the event of a Change in Control of the Company, incentive options heldby Mr. Merkl shall immediately vest and remain exercisable in accordance withthe terms of the Plan.  All nonqualifiedoptions held by Mr. Merkl at the date of the Change in Control that are vestedat that date are to remain exercisable in accordance with the terms of thePlan, and all such non-qualified options that are not vested at the date of theChange in Control shall expire.  At itsoption, in the event of a Change in Control, the Company may elect to exchangeany such vested option for cash or a replacement award of equivalent value.

 

During his employment with the Company, Mr. Merkl hasbeen awarded options to purchase 640,000 shares of the Company’s Common Stock,the strike prices of which are 5,000 shares at $1.125, 5,000 shares at $0.6875,30,000 shares at $0.625, 100,000 shares at $0.10, and 500,000 shares at $0.025.

 

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

 

(a)           Exhibits

 

Thefollowing is a list of exhibits filed as part of this quarterly report on Form10-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 Robert D. Merkl and the Company dated November 1, 2002 (Filed  herewith).                                                                                                                         |
| 99.1              |   | Certification of 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).                                                      |
| 99.2              |   | Certification of Chief  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).                                                      |

 

(b)          Reports on Form 8-K

 

None.

 

12

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|   |         | **enherent  Corp.** |
|--------|--------------|---------------------|
|   |         |                |   |
|   |         |                |   |
| DATE   | May 14, 2003 |                | BY | /s/ Robert D. Merkl |
|   |         |                | Robert D. Merkl |
|   |         |                | Chief Executive Officer |
|   |         |                |   |
|   |         |                |   |
| DATE   | May 14, 2003 |                | BY | /s/ George Warman |
|   |         |                | George Warman |
|   |         |                | Chief Financial Officer |

 

13

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**CERTIFI****CATION**

** **

I, Robert D. Merkl, certify that:

 

1.               I have reviewedthis Quarterly Report on Form 10-Q of enherent Corp.,

 

2.               Based on myknowledge, this Quarterly Report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this Quarterly Report;

 

3.               Based on myknowledge, the financial statements, and other financial information includedin this Quarterly Report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this Quarterly Report;

 

4.               The registrant’sother certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a14 and 15d14) for the registrant and we have:

 

a.               designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisQuarterly Report is being prepared;

 

b.              evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this Quarterly Report (the“Evaluation Date”); and

 

c.               presented in thisQuarterly Report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.               The registrant’sother certifying officers and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a.               all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b.              any fraud, whetheror not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

14

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6.               The registrant’sother certifying officers and I have indicated in this Quarterly Report whetheror not there were significant changes in internal controls or in other factorsthat could significantly affect controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

 
| /S/ ROBERT D.  MERKL                                          |   |
|---------------------------------------------------------------|--------|
| Robert D. Merkl                                               |   |
| Chairman of the Board, President and  Chief Executive Officer |   |
| enherent Corp.                                                |   |
| May 14, 2003                                                  |   |

 

15

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**CERTIFICATION**

 

I, George Warman, certify that:

 

1.               I have reviewedthis Quarterly Report on Form 10-Q of enherent Corp.;

 

2.               Based on myknowledge, this Quarterly Report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this Quarterly Report;

 

3.               Based on myknowledge, the financial statements, and other financial information includedin this Quarterly Report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this Quarterly Report;

 

4.               The registrant’sother certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a14 and 15d14) for the registrant and we have:

 

a.               designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisQuarterly Report is being prepared;

 

b.              evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this Quarterly Report (the“Evaluation Date”); and

 

c.               presented in thisQuarterly Report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.               The registrant’sother certifying officers and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a.               all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b.              any fraud, whetheror not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

16

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6.               The registrant’sother certifying officers and I have indicated in this Quarterly Report whetheror not there were significant changes in internal controls or in other factorsthat could significantly affect controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

 
| /S/ GEORGE  WARMAN      |   |
|-------------------------|--------|
| George Warman           |
| Chief Financial Officer |
| enherent Corp.          |
| May 14, 2003            |

 

17

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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 Robert D. Merkl and the Company dated November 1, 2002 (Filed  herewith).                                                                                                                    |
| 99.1              |   | Certification of 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).                                                      |
| 99.2              |   | Certification of Chief  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).                                                      |

 

18

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