**UNITED STATES**

**SECURITIES 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 thequarterly period ended June 30, 2002**

 

**OR**

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

 

**For thetransition periodfrom              to              **

 

**CommissionFile Number 0-23315**

 

**enherent Corp.**

 

| **Delaware**                                    |   | **No.  13-3914972**                      |
|-------------------------------------------------|--------|------------------------------------------|
| (State or other  jurisdiction of incorporation) |   | (I.R.S. Employer  Identification Number) |
|                                            |   |                                     |
| **12300  Ford Road, Suite 450**                 |
| **Dallas,  Texas 75234**                        |
| (Address of principal  executive offices)       |
|                                            |   |                                     |
| **(972)  243-8345**                             |
| (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   NO o

 

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

 

| **Class**                      |   | **Shares outstanding as of August 12, 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 June 30, 2002 and December 31, 2001                                          |
|                                                                                                            |
| Consolidated  Statements of Operations for the three and six months ended June 30, 2002 and  2001               |
|                                                                                                            |
| Consolidated  Statements of Cash Flows for the three and six months ended June 30, 2002 and  2001               |
|                                                                                                            |
| 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.**                                 |
|                                                                                                            |
| **PART II.  OTHER INFORMATION**                                                                            |
|                                                                                                            |
| **Item 1.  Legal  Proceedings**                                                                            |
|                                                                                                            |
| **Item  4.  Submission  of Matters to a Vote of Security Holders**                                         |
|                                                                                                            |
| **Item 5.  Other  Information**                                                                            |
|                                                                                                            |
| **Item 6.  Exhibits  and Reports on Form 8-K**                                                             |
|                                                                                                            |
| **Signatures**                                                                                                  |
|                                                                                                            |
| **Exhibit Index**                                                                                               |

 

2

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**Item1. Financial Statements**

 

enherent Corp. andSubsidiaries

Consolidated Balance Sheets

*(In thousands, except number of shares)*

* *
|                                                                                                                                                                                                                                                             |   | **June 30  2002** |       | **December  31  2001** |       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|------------|------------------------|------------|
|                                                                                                                                                                                                                                                             |   | **(unaudited)**   |       |                   | ** ** |
| **Assets**                                                                                                                                                                                                                                                       |   |              | ** ** |                   | ** ** |
| Current assets:                                                                                                                                                                                                                                                  |   |              | ** ** |                   | ** ** |
| Cash and  equivalents                                                                                                                                                                                                                                            |   | $                 | 3,835      |                   | $          | 5,269 |   |
| Accounts  receivable, net of allowance of $130 at June 30, 2002 and $256 at December  31, 2001                                                                                                                                                                   |   | 2,559             |       | 3,208                  |       |
| Prepaid expenses  and other current assets                                                                                                                                                                                                                       |   | 450               |       | 460                    |       |
| Total current  assets                                                                                                                                                                                                                                            |   | 6,844             |       | 8,937                  |       |
|                                                                                                                                                                                                                                                             |   |              |       |                   |       |
| Fixed assets,  net                                                                                                                                                                                                                                               |   | 796               |       | 1,382                  |       |
| Other assets                                                                                                                                                                                                                                                     |   | 66                |       | 95                     |       |
| Total assets                                                                                                                                                                                                                                                     |   | $                 | 7,706      |                   | $          | 10,414 |   |
|                                                                                                                                                                                                                                                             |   |              |       |                   |       |
| **Liabilities and stockholders’  equity**                                                                                                                                                                                                                   |   |              |       |                   |       |
| Current  liabilities:                                                                                                                                                                                                                                            |   |              |       |                   |       |
| Accrued  compensation                                                                                                                                                                                                                                            |   | $                 | 710        |                   | $          | 680 |   |
| Accounts payable  and other accrued expenses                                                                                                                                                                                                                     |   | 1,313             |       | 988                    |       |
| Current portion  of capital lease obligations                                                                                                                                                                                                                    |   | 20                |       | 21                     |       |
| Deferred revenue                                                                                                                                                                                                                                                 |   | 120               |       | 144                    |       |
| Total current  liabilities                                                                                                                                                                                                                                       |   | 2,163             |       | 1,833                  |       |
|                                                                                                                                                                                                                                                             |   |              |       |                   |       |
| Capital lease  obligations, net of current portion                                                                                                                                                                                                               |   | 9                 |       | 20                     |       |
| Deferred rent                                                                                                                                                                                                                                                    |   | 74                |       | 91                     |       |
| Total  liabilities                                                                                                                                                                                                                                               |   | 2,246             |       | 1,944                  |       |
|                                                                                                                                                                                                                                                             |   |              |       |                   |       |
| Series A senior  participating redeemable convertible preferred stock, $0.001 par value;  authorized—10,000,000 shares, 7,000,000 shares issued and outstanding at June  30, 2002 and 8,000,000 shares issued and outstanding December 31, 2001             |   | 5,293             |       | 5,769                  |       |
|                                                                                                                                                                                                                                                             |   |              |       |                   |       |
| Common  stockholders’ equity:                                                                                                                                                                                                                               |   |              |       |                   |       |
| Common stock,  $0.001 par value; authorized—50,000,000 shares; issued—19,351,311 shares,  outstanding—17,502,188 shares at June 30, 2002 and issued—18,351,311  shares,  outstanding—17,502,188 shares  at  December 31, 2001 |   | 19                |       | 18                     |       |
| Additional  paid-in capital                                                                                                                                                                                                                                      |   | 94,412            |       | 94,212                 |       |
| Treasury stock,  at cost—1,849,123 shares                                                                                                                                                                                                                   |   | (366              | )          | (166                   | )          |
| Accumulated  deficit                                                                                                                                                                                                                                             |   | (93,898           | )          | (91,363                | )          |
| Total common  stockholders’ equity                                                                                                                                                                                                                          |   | 167               |       | 2,701                  |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                                                                                 |   | $                 | 7,706      |                   | $          | 10,414 |   |

 

*Seeaccompanying notes.*

 

3

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enherent Corp. andSubsidiaries

Consolidated Statementsof Operations

*(In thousands, except per share data)*

(Unaudited)

 
|                                                                                  |   | **Three  Months  Ended June 30** |   | **Six Months  Ended June 30** |   |
|---------------------------------------------------------------------------------------|--------|----------------------------------|--------|-------------------------------|--------|
|                                                                                  |   | **2002**                         |   | **2001**                      |   | **2002** |   | **2001** |   |
|                                                                                  |   |                             |   |                          |   |   |   |   |   |
| Revenues                                                                              |   | $                                | 5,551  |                          | $      | 7,402 |   | $ | 11,467 |   | $ | 15,567 |   |
| Cost of revenues                                                                      |   | 4,333                            |   | 5,273                         |   | 9,057 |   | 11,253 |   |
| Gross profit                                                                          |   | 1,218                            |   | 2,129                         |   | 2,410 |   | 4,314 |   |
|                                                                                  |   |                             |   |                          |   |   |   |   |   |
| Selling, general  and administrative expenses                                         |   | 2,254                            |   | 3,783                         |   | 5,242 |   | 9,487 |   |
| Loss from  operations                                                                 |   | (1,036                           | )      | (1,654                        | )      | (2,832 | ) | (5,173 | ) |
|                                                                                  |   |                             |   |                          |   |   |   |   |   |
| Other income  (expense):                                                              |   |                             |   |                          |   |   |   |   |   |
| Miscellaneous  income                                                                 |   | 3                                |   | 98                            |   | 3 |   | 141 |   |
| Interest expense                                                                      |   | (2                               | )      | (1                            | )      | (7 | ) | (19 | ) |
| Interest income                                                                       |   | 9                                |   | 62                            |   | 25 |   | 149 |   |
| Net loss                                                                              |   | (1,026                           | )      | (1,495                        | )      | (2,811 | ) | (4,902 | ) |
| Preferred stock  accretion and income applicable to common shareholders               |   | (124                             | )      | (126                          | )      | 276 |   | (248 | ) |
| Net loss  applicable to common stockholders                                           |   | $                                | (1,150 | )                             | $      | (1,621 | ) | $ | (2,535 | ) | $ | (5,150 | ) |
|                                                                                  |   |                             |   |                          |   |   |   |   |   |
| Basic and  diluted net loss per share applicable to common stockholders               |   | $                                | (.07   | )                             | $      | (.09 | ) | $ | (.14 | ) | $ | (.29 | ) |
| Number of shares  used in computing  basic and  diluted  net loss per share |   | 17,502                           |   | 17,525                        |   | 17,502 |   | 17,917 |   |

 

*Seeaccompanying notes.*

 

4

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enherent Corp. andSubsidiaries

Consolidated Statements of Cash Flows

*(In thousands)*

(Unaudited)

 
|                                                                         |   | **Six Months  Ended June 30** |   |
|------------------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                                         |   | **2002**                      |   | **2001** | ** ** |
| **Cash flows from operating  activities**                                    |   |                          |   |   |   |
| Net loss                                                                     |   | $                             | (2,811 | ) | $ | (4,902 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |   |                          |   |   |   |
| Depreciation and  amortization                                               |   | 605                           |   | 1,305 |   |
| Provision  (credit) for doubtful accounts                                    |   | (126                          | )      | 1,141 |   |
| Loss on disposal  of fixed assets                                            |   | 1                             |   | 308 |   |
| Deferred rent                                                                |   | (17                           | )      | (14 | ) |
| Changes in  operating assets and liabilities:                                |   |                          |   |   |   |
| Accounts  receivable                                                         |   | 775                           |   | 936 |   |
| Prepaid expenses  and other current assets                                   |   | 10                            |   | 32 |   |
| Other assets                                                                 |   | 29                            |   | (8 | ) |
| Accrued  compensation                                                        |   | 30                            |   | 95 |   |
| Accounts payable  and other accrued expenses                                 |   | 325                           |   | (502 | ) |
| Deferred revenue                                                             |   | (24                           | )      | — |   |
| Net cash used in  operating activities                                       |   | (1,203                        | )      | (1,609 | ) |
|                                                                         |   |                          |   |   |   |
| **Cash flows from investing activities**                                     |   |                          |   |   |   |
| Sale of  marketable securities                                               |   | —                        |   | 728 |   |
| Purchases of  fixed assets                                                   |   | (20                           | )      | (10 | ) |
| Proceeds from  sale of fixed assets                                          |   | —                        |   | 12 |   |
| Net cash  provided by (used in) investing activities                         |   | (20                           | )      | 730 |   |
|                                                                         |   |                          |   |   |   |
| **Cash flows from financing  activities**                                    |   |                          |   |   |   |
| Purchase of  treasury stock                                                  |   | (200                          | )      | (166 | ) |
| Principal  payments under capital lease obligations                          |   | (11                           | )      | (12 | ) |
| Net cash  provided by (used in) financing activities                         |   | (211                          | )      | (178 | ) |
|                                                                         |   |                          |   |   |   |
| Net decrease in  cash and equivalents                                        |   | (1,434                        | )      | (1,057 | ) |
| Cash and equivalents  at beginning of period                                 |   | 5,269                         |   | 5,628 |   |
| Cash and  equivalents at end of period                                       |   | $                             | 3,835  |   | $ | 4,571 |   |
|                                                                         |   |                          |   |   |   |
| **Supplemental disclosure of cash  flow information**                        |   |                          |   |   |   |
| Interest paid                                                                |   | $                             | 7      |   | $ | 19 |   |

 

*Seeaccompanying notes.*

 

5

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**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 Rule 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 thethree-month and six-month periods ended June 30, 2002 are not necessarilyindicative of the results that may be expected for the year ending December 31,2002. The statements should be read in conjunction with the auditedconsolidated financial statements and notes thereto included in the enherentCorp. (the “Company”) Annual Report on Form 10-K for the year ended December31, 2001.

 

In August 2001, the Financial Accounting StandardsBoard (FASB) issued Statement of Financial Accounting Standard No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets,” (SFAS No.144) which is effective for the Company beginning January 1, 2002, andsupersedes “Accounting for the Impairment or Disposal of Long-Lived Assets andfor Long-Lived Assets to Be Disposed of” (SFAS No. 121).  SFAS No. 144 provides a single method ofaccounting for long-lived assets to be disposed of and retains requirementsfound in SFAS No. 121 with regards to the impairments of long-livedassets.  The implementation of SFAS No.144 did not have a material effect on the Company’s results of operations, cashflows or financial position in the three-month and six-month periods ended June30, 2002.

 

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.               Revenue Recognition

 

On January 1, 2002, the Company adopted FASB StaffAnnouncement Topic No. D-103, “Income Statement Characterization ofReimbursements Received for “Out-of-Pocket” Expenses Incurred.”  As a result, the Company began recordingrevenue and a related cost of revenue in its statement of operations forreimbursements of out-of-

 

6

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pocket expenses such as airfare, hotel lodging, meals,auto rental and other charges related to providing services to the Company’sout-of-town customers.

 

For the three and six months ended June 30, 2002 theConsolidated Statement of Operations includes approximately $15,000 and $36,000of reimbursable expenses recorded as revenue and cost of revenue,respectively.  Reimbursable expenses forthe three and six months ended June 30, 2001 were not significant.

 

4.               Conversion ofPreferred Stock

 

On January 30, 2002, with the approval of its Board ofDirectors, enherent entered into a Stock Purchase Agreement with The TravelersIndemnity Company (“The Travelers”). The Travelers converted 1,000,000 sharesof its Series A Senior Participating Redeemable Convertible Preferred Stock to1,000,000 shares of enherent common stock. Under the terms of the StockPurchase Agreement, The Travelers then sold the 1,000,000 shares of commonstock to enherent for $200,000. enherent has retired the 1,000,000 shares of Series A SeniorParticipating Redeemable Convertible Preferred Stock. The preferred stock was carriedat approximately $720,000 at the date of the transaction.  Because the common stock was purchased belowthe carrying value of the preferred stock, a benefit to common shareholders ofapproximately $527,000 was recorded.

 

The remaining preferred stock is being accreted to itsliquidation value at April 12, 2005. Accretion of approximately $124,000 and$251,000 was recorded in the three and six month periods ended June 30, 2002,respectively.

 

5.               Loss Per Share

 

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

 
|                                       |   | **Three months ended   June 30** |   | **Six months ended   June 30** |   |
|--------------------------------------------|--------|----------------------------------|--------|--------------------------------|--------|
|                                       |   | **2002**                         |   | **2001**                       |   | **2002** |   | **2001** |   |
| Numerator:                                 |   |                             |   |                           |   |   |   |   |   |
| Net loss available to  common shareholders |   | $(1,150                          | )      | $ (1,621                       | )      | $ (2,535 | ) | $ (5,150 | ) |
| Denominator:                               |   |                             |   |                           |   |   |   |   |   |
| Weighted average of  shares outstanding    |   | 17,502                           |   | 17,525                         |   | 17,502 |   | 17,917 |   |
| Basic and diluted loss  per share          |   | $    (.07         | )      | $     (.09 | )      | $     (.14 | ) | $     (.29 | ) |

 

The Company has excludedthe impact of the redeemable convertible preferred stock and related warrantsand stock options outstanding under the Company’s stock option plan as theeffect would be anti-dilutive.

 

6.               Office Closure

 

The Company announced on June 3, 2002 its intentionsto close the Company’s Barbados Solution Center to reduce costs and 

improve operating efficiency. The 

 

7

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Company implemented a plan to close the BarbadosSolution Center and recorded a pretax charge of approximately $440,000 in theperiod ended June 30, 2002. The Company recorded a liability of approximately$200,000 for severance and other employee costs  for  28 support staff and$95,000 for facility-related costs. The pretax charge includes approximately$145,000 to write the fixed assets down to their market value. The liability isexpected to be paid and the office closed by October 31, 2002.

 

7.               Contingencies

 

A former Chief Financial Officer of the Company fileda Demand for Arbitration on or about October 27, 2000, claiming that at thetime of his termination he was entitled to stock options worth $3,000,000 orthe stock option value in cash.  TheCompany filed a Motion for Summary Judgment that was denied on November 13,2001.  The parties reached a settlementagreement on May 22, 2002, for amounts substantially less than the amountclaimed.  At March 31, 2002, an accrualwas recorded for the settlement amount and as of June 30, 2002 all amounts havebeen paid.

 

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

 

**Item 2.    Management’s Discussion and Analysis of Financial Condition andResults of Operations.**

 

**Resultsof Operations**

 

*Revenue.*  Revenues decreased $1.8 million during thethree-month period ended June 30, 2002 to $5.6 million compared to $7.4 millionfor the three-month period ended June 30, 2001. Revenues decreased $4.1 millionfor the six-month period ended June 30, 2002 to $11.5 million compared to $15.6for the six-month period ended June 30, 2001. The decrease in revenue was a result of the completion of clientprojects, non-renewal of certain client assignments and billing ratereductions.

 

*Cost ofRevenues.*  Cost ofrevenues decreased $1.0 million to $4.3 million for the three-month periodended June 30, 2002 from $5.3 million in the comparable period in 2001. Cost ofrevenues decreased $2.2 million for the six-month period ended June 30, 2002 to$9.1 million compared to $11.3 million for the six-month period ended June 30,2001. The decrease in cost of revenues was attributable to the overall decreasein revenues.  Cost of revenues as apercentage of revenues increased to approximately 78% for the three-monthperiod ended June 30, 2002 from 71% for the three-month period ended June 30,2001. Cost of  revenues as a percentageof revenues increased to approximately 79% for the six-month period ended June30, 2002 from approximately 72% for the six-month 

 

8

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period ended June 30, 2001.  Theincrease in the cost of revenues as a percentage of revenues is due to higherpersonnel costs and lower billing rates.

 

*GrossProfit.*  Gross profitdecreased as a percentage of revenues to approximately 22% in the three-monthperiod ended June 30, 2002 from 29% for the comparable period in 2001.  Gross profit decreased as a percentage ofrevenues to approximately 21% in the six-month period ended June 30, from 28%for the comparable period in 2001.  Thedecrease in gross profit was attributable to the overall decrease in revenues,higher personnel costs and lower billing rates.

 

*Selling,General & Administrative Expenses (SG&A).* SG&Aexpenses decreased approximately 40% to $2.3 million in the three-month periodended June 30, 2002 from $3.8 million for the comparable period in 2001.SG&A as a percentage of revenue decreased to 41% for the three-month periodended June 30, 2002 from 51% for the comparable period in 2001.  SG&A expenses decreased 44% to $5.2million in the six-month period ended June 30, 2002 from $9.5 million in thecomparable period in 2001. SG&A as a percentage of revenue decreased to 46%for the six-month period ended June 30, 2002 from 61% for the comparable periodin 2001.  The decrease in SG&Aexpenses resulted due to cost-cutting measures and a reduction in bad debtexpense, partially offset by the costs associated with the settlement of  litigation and the closure of the BarbadosSolution Center. The Company implemented a plan to close the Barbados SolutionCenter and recorded a pretax charge of approximately $440,000 in the periodended June 30, 2002. The Company recorded a liability of approximately $200,000for severance and other employee costs for  28 support staff and $95,000for facility-related costs. The pretax charge includes approximately $145,000to write the fixed assets down to their market value. The liability is expectedto be paid and  the office closed byOctober 31, 2002.

 

*Lossfrom Operations:*  Forthe reasons set forth above, loss from operations for the three-months endedJune 30, 2002 decreased to $1.0 million as compared to a loss from operationsof $1.7 million in the comparable period in 2001.  As a percentage of revenues, the loss from operations for thethree months ended June 30, 2002 decreased to 19% as compared to approximately22% in the comparable period in 2001. Loss from operations for the six months ended June 30, 2002 decreased to$2.8 million as compared to a loss from operations of $5.2 million in thecomparable period in 2001.  As apercentage of revenues, the loss from operations for the six months ended June30, 2002 decreased to 25% as compared to approximately 33% in the comparableperiod in 2001.

 

9

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**Liquidity and Capital Resources**

 

*WorkingCapital:* The Company’s working capital decreased toapproximately $4.7 million at June 30, 2002 from $7.1 million at December 31,2001.  Cash and equivalents andmarketable debt securities were $3.8 million at June 30, 2002 compared to $5.3million at December 31, 2001.  Theprimary use of cash during the six months ended June 30, 2002 was to fundthe net loss of $2.8 million and to purchase one million shares of theCompany’s common stock for $200,000. The Company’s accounts receivables were $2.6 million at June 30, 2002and $3.2 million at December 31, 2001. Billed days sales outstanding, net of allowance for doubtful accounts,was 42 days at June 30, 2002 and 39 days at December 31, 2001.

 

The Company anticipates that its primary uses of working capital in thenear term will be to fund the Company’s operations.  Management believes that the cash equivalents are sufficient tofund operations for the next 12 months. If cash generated from operations is insufficient to satisfy theCompany’s liquidity requirements, the Company may in the future be required toseek additional sources of financing, including borrowing and/or the sale ofequity securities which may result in further dilution to shareholders.  No assurance can be given that any suchadditional sources of financing will be available on acceptable terms.

 

**Significant Accounting Policies**

 

In August 2001, the Financial Accounting Standards Board (FASB) issuedStatement of Financial Accounting Standard No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets,” (SFAS No. 144) which is effectivefor the Company beginning January 1, 2002, and supersedes “Accounting for theImpairment or Disposal of Long-Lived Assets and for Long-Lived Assets to BeDisposed of” (SFAS No. 121).  SFASNo. 144 provides a single method of accounting for long-lived assets to bedisposed of and retains requirements found in SFAS No. 121 with regards to theimpairments of long-lived assets.  Theimplementation of SFAS No. 144 did not have a material effect on the Company’sresults of operations, cash flows or financial position in the three-month andsix-month periods ended June 30, 2002.

 

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

 

For the period ended June 30, 2002, the Company did not experience anymaterial changes in market risk exposures that affect the quantitative andqualitative disclosures presented in the Company’s 2001 Annual Report on Form10-K.

 

10

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**PART II.  OTHER INFORMATION**

 

**Item1.  Legal Proceedings.**

 

A former Chief Financial Officer of the Company filed a Demand forArbitration on or about October 27, 2000, claiming that at the time of histermination he was entitled to stock options worth $3,000,000 or the stockoption value in cash.  The Company fileda Motion for Summary Judgment that was denied on November 13, 2001.  The parties reached a settlement agreementon May 22, 2002, for amounts substantially less than the amount claimed.  At March 31, 2002, an accrual was recordedfor the settlement amount and as of June 30, 2002 all amounts have been paid.

 

In the normal course of business, various claims are made against theCompany. At this time, in the opinion of management, there are no pendingclaims the outcome of which are expected to result in a material adverse effecton the consolidated financial position or results of operations of the Company.

 

**Item. 4.  Submission of Matters to a Vote of Security Holders.**

 

The Company held its annual meeting of stockholders onMay 10, 2002.  Robert Merkl waselected  a Class III director at theannual meeting with term expiring in 2005.

 

Director ElectionResults.

 

| **Class III Director** |   | **Affirmative Votes** |   | **Withheld Votes** |   |
|------------------------|--------|-----------------------|--------|--------------------|--------|
| Robert D. Merkl        |   | 19,570,803            |   | 371,340            |   |

 

Other directors whoseterms continued after the annual meeting and their term expiration date.

 

| **Class III  Director** |   | **Class** |   | **Term**     |   |
|-------------------------|--------|-----------|--------|--------------|--------|
| Douglas K. Mellinger    |   | I         |   | Expires 2004 |   |
| Isaac Shapiro           |   | I         |   | Expires 2004 |   |
| Robert P.  Florenza     |   | II        |   | Expires 2003 |   |
| Irwin J. Sitkin         |   | II        |   | Expires 2003 |   |
| Dan S. Woodward         |   | II        |   | Expires 2003 |   |

 

The only other matter voted upon by the Company’sstockholders at the 2002 annual meeting was a proposal to ratify theappointment of Ernst & Young LLP as the Company’s auditors for 2002.  Holders of 19,573,631 shares voted for thisproposal, holders of 358,662 shares voted against or withheld authority to votewith respect to this proposal and holders of 9,850 shares abstained or did notvote with respect to this proposal.

 

11

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**Item.5.  Other Information.**

 

On April 23, 2002, Jack L. Rivkin resigned from the Board of Directorsof the Company effective immediately for personal reasons.

 

On April 30, 2002, Ronald E. Weinberg resigned from the Board ofDirectors of the Company effective immediately.  Mr. Weinberg indicated to the Company in his resignation letterthat his goals differed from those of other members of the Board  of Directors and that he believed that hecould no longer serve effectively.

 

On April 30, 2002, the Company entered into an employment agreementwith Dan S. Woodward for an initial one-year term (the “Woodward Agreement”)commencing on January 1, 2002.  TheWoodward Agreement provides for an automatic renewal on January 1, 2003 for anadditional 12-month period. The term of the Woodward Agreement includes therenewal period.

 

Under the Woodward Agreement, Mr. Woodward serves as Chief ExecutiveOfficer and Chairman of the Board, earning a base salary of $318,000, with atarget bonus opportunity of $100,000 and an over-achievement bonus opportunityof $50,000.  Mr. Woodward receiveda retention incentive bonus of $50,000 upon execution of the Woodward Agreementand will receive an additional $50,000 on January 1, 2003. The Company agreedto pay over the term of the Woodward Agreement up to a total of $50,000 peryear as reimbursement for all reasonable and documented costs associated withMr. Woodward’s traveling to and from his residence, local housing,automobile costs and other costs directly related to Mr. Woodward’s housing ortravel.  The annual base salary will bereviewed annually by the Board of Directors and increased (but not decreased)if the Board of Directors, in its discretion, determines such an increase to beappropriate.

 

If Mr. Woodward’s employment is terminated (i) by the Company WithoutCause (as defined in the Woodward Agreement), or (ii) by Mr. Woodward for GoodReason (as defined in the Woodward Agreement)) prior to the expiration of theterm of the Woodward Agreement, the Company shall pay Mr. Woodward (i) hiscurrent annual base salary for the shorter of (a) one (1) year, and (b) theremainder of the term of the Woodward Agreement; (ii) any earned performancebonus prorated as of the date of termination; and (iii) the retention bonusrequired to be paid January 1, 2003 if such termination occurs prior to thatdate.  Payment will be made inaccordance with the Company’s current payroll practices.  Additionally, if Mr. Woodward’s employmentis terminated by the Company Without Cause or by Mr. Woodward for Good Reason,any stock options granted to Mr. Woodward shall be exercisable as per theoriginal vesting schedule of the applicable option grant.

 

The Woodward Agreement provides that a Change in Control (as defined inthe Woodward Agreement) in the Company during the term of the WoodwardAgreement, resulting in a material adverse change in duties, responsibilitiesor role, or reporting 

 

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relationships of Mr. Woodward, shall be treated as a termination by theCompany Without Cause.  If suchtermination Without Cause occurs following Change in Control, Mr. Woodwardshall be entitled to elect to receive such termination  payments in a single lump sum and all stockoptions held by Mr. Woodward shall become immediately exercisable, except thatthe Company’s Board of Directors may elect to exchange such options for a cashpayment.

 

On May 8, 2002 Michael Enthoven resigned from the Board of Directors ofthe Company effective immediately for personal reasons.

 

On May 10, 2002 Robert Merkl was elected as a Director of the Companyto replace outgoing Director Michael Enthoven.

 

**Item 6. Exhibits and Reports on Form8-K**

 

(a)   Exhibits

 

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

 
| **Exhibit  No.** |   | **Description of Exhibits**                                                                                                                                                                                               |
|------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1              |   | Restated Certificate of Incorporation (Incorporated  by reference to Exhibit 4.1 of the Company’s Form S-8 filed January 22,  1998).                                                                                 |
| 3.2              |   | Certificate of Amendment of Restated Certificate of  Incorporation of enherent Corp. (Incorporated by reference to Exhibit 3.1 of  the Company’s Annual Report on Form 10-K filed April 4, 2001).                    |
| 3.3              |   | Amended and Restated Bylaws (Incorporated by  reference to Exhibit 4.2 of the Company’s Form S-8 filed January 22, 1998).                                                                                            |
| 4.1              |   | Form of Certificate of Common Stock (Incorporated by  reference to Exhibit 4.1 of the Company’s Annual Report on Form 10-K filed  March 22, 2002).                                                                   |
| 4.2              |   | Securities Purchase Agreement dated April 13, 2000,  by and among PRT Group Inc. and the Investors named therein (Incorporated by  reference to Exhibit 99.1 of the Company’s   Form 8-K filed April 14, 2000). |
| 4.3              |   | Form of Certificate of Designations (Incorporated by  reference to Exhibit 99.2 of the Company’s Form 8-K filed April 14, 2000).                                                                                     |
| 4.4              |   | Form of Warrant   (Incorporated by reference to Exhibit 99.3 of the Company’s  form 8-K filed April 14, 2000).                                                                                             |
| 10.1             |   | Employment Agreement between Dan Woodward and the  Company dated April 30, 2002 (Incorporated by reference to Exhibit 10.2 of  the Company’s Quarterly Report on Form 10 Q filed May 14, 2002).                      |
| 99.1             |   | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of CFO and  CEO (Filed herewith).                                                                 |
| 99.2             |   | Nominating Committee Charter approved by the Board  of Directors at their May 10, 2002 meeting (Filed herewith).                                                                                                          |
| 99.3             |   | Compensation Committee Charter approved by the Board  of Directors at their August 1, 2002 meeting (Filed herewith).                                                                                                      |

 

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(b)          Reports on Form 8-K

 

On May 2, 2002, the Company filed a Current Report on Form 8-K with theSecurities and Exchange Commission that included disclosure under Item 5related to the resignation of Ronald E. Weinberg from the Company’s Board ofDirectors.  The Company attachedMr. Weinberg’s letter of resignation to the Form 8-K as Exhibit 99.1.  This Current Report on Form 8-K did notinclude financial statements.

 

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**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 August 14, 2002 | BY                  | /s/ Dan S. Woodward     |   |
|                 |                | Dan S. Woodward         |
|                 |                | Chief Executive Officer |
|                 |                |
|                 |                |
|                 |                |
| DATE August 14, 2002 | BY                  | /s/ George Warman       |   |
|                 |                | George Warman           |
|                 |                | Chief Financial Officer |

 

 

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Exhibit Index:

 
| **Exhibit  No.** |   | **Description of Exhibits**                                                                                                                                                                                               |
|------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1              |   | Restated Certificate of Incorporation (Incorporated  by reference to Exhibit 4.1 of the Company’s Form S-8 filed January 22,  1998).                                                                                 |
| 3.2              |   | Certificate of Amendment of Restated Certificate of  Incorporation of enherent Corp. (Incorporated by reference to Exhibit 3.1 of  the Company’s Annual Report on Form 10-K filed April 4, 2001).                    |
| 3.3              |   | Amended and Restated Bylaws (Incorporated by  reference to Exhibit 4.2 of the Company’s Form S-8 filed January 22, 1998).                                                                                            |
| 4.1              |   | Form of Certificate of Common Stock (Incorporated by  reference to Exhibit 4.1 of the Company’s Annual Report on Form 10-K filed  March 22, 2002).                                                              |
| 4.2              |   | Securities Purchase Agreement dated April 13, 2000,  by and among PRT Group Inc. and the Investors named therein (Incorporated by  reference to Exhibit 99.1 of the Company’s   Form 8-K filed April 14, 2000). |
| 4.3              |   | Form of Certificate of Designations (Incorporated by  reference to Exhibit 99.2 of the Company’s Form 8-K filed April 14, 2000).                                                                                     |
| 4.4              |   | Form of Warrant   (Incorporated by reference to Exhibit 99.3 of the Company’s  form 8-K filed April 14, 2000).                                                                                             |
| 10.1             |   | Employment Agreement between Dan Woodward and the  Company dated April 30, 2002 (Incorporated by reference to Exhibit 10.2 of  the Company’s Quarterly Report on Form 10 Q filed May 14, 2002).                      |
| 99.1             |   | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of CFO and  CEO (Filed herewith).                                                                 |
| 99.2             |   | Nominating Committee Charter approved by the Board  of Directors at their May 10, 2002 meeting (Filed herewith).                                                                                                          |
| 99.3             |   | Compensation Committee Charter approved by the Board  of Directors at their August 1, 2002 meeting (Filed herewith).                                                                                                      |

 

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