----

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**UNITED STATESSECURITIES 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, 2001**

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

** **

**For thetransition period from _________ to _________**

** **

**CommissionFile Number 0-23315**

** **

**enherent Corp.**

 

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

 

| **12300  Ford Road, Suite 450**           |
|-------------------------------------------|
| **Dallas,  Texas 75234**                  |
| (Address of principal  executive offices) |
|                                      |
| **(972)  243-8345**                       |
| (Telephone number,  including area code)  |
|                                      |

----

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

YES ý       NO o

Indicatethe number of share outstanding of each of the issuer’s classes of commonstock:
| Class                          | Shares outstanding as  of August 2, 2001 |
|--------------------------------|------------------------------------------|
|                           |                                     |
| 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 December 31, 2000 and June 30, 2001                            |
|                                                                                              |
| Consolidated  Statements of Operations for the three and six months ended June 30, 2000 and  2001 |
|                                                                                              |
| Consolidated  Statements of Cash Flows for the six months ended June 30, 2000 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  4.**                                                                                      | Submission  of matters to a vote of security holders                                             |
|                                                                                              |                                                                                             |
| **Item 6.**                                                                                       | Exhibits and  reports on Form 8-K                                                                |
|                                                                                              |                                                                                             |
| **Signatures**                                                                                    |
|                                                                                              |
| **Exhibit Index**                                                                                 |

**Item 1.Financial Statements**

enherent Corp. andSubsidiariesConsolidated Balance Sheets*(Inthousands, except number of shares)*
|                                                                                                                                                                                       | **December  31**                                                                                                                                               |       | **June  30**    |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|
|                                                                                                                                                                                       | **2000**                                                                                                                                                       |       | **2001**        |       |
|                                                                                                                                                                                       | ****                                                                                                                                                           |       | ****            |       |
|                                                                                                                                                                                       |                                                                                                                                                           |       | **(unaudited)** |       |
| **Assets**                                                                                                                                                                                 |                                                                                                                                                           | ** ** |            | ** ** |
| Current assets:                                                                                                                                                                            |                                                                                                                                                           | ** ** |            | ** ** |
|                                                                                                                                                                                       | Cash and equivalents                                                                                                                                           | $          | 5,628           |       | $ | 4,571 |   |
|                                                                                                                                                                                       | Marketable securities                                                                                                                                          | 728        |            | -          |   |
|                                                                                                                                                                                       | Accounts receivable,  net of allowance of $700 at December 31, 2000 and $1,169 at June 30, 2001                                                                | 7,397      |            | 5,320      |   |
|                                                                                                                                                                                       | Prepaid expenses and  other current assets                                                                                                                     | 576        |            | 544        |   |
|                                                                                                                                                                                       |                                                                                                                                                                |       |                 |       |
|                                                                                                                                                                                       | Total current assets                                                                                                                                           | 14,329     |            | 10,435     |   |
|                                                                                                                                                                                       |                                                                                                                                                           |       |            |       |
| Fixed assets, net                                                                                                                                                                          | 3,214                                                                                                                                                          |       | 2,072           |       |
| Goodwill, net                                                                                                                                                                              | 15,886                                                                                                                                                         |       | 15,446          |       |
| Other assets                                                                                                                                                                               | 101                                                                                                                                                            |       | 109             |       |
|                                                                                                                                                                                       |                                                                                                                                                                |       |                 |       |
|                                                                                                                                                                                       | Total assets                                                                                                                                                   | $          | 33,530          |       | $ | 28,062 |   |
|                                                                                                                                                                                       |                                                                                                                                                                |       |                 |       |
|                                                                                                                                                                                       |                                                                                                                                                           |       |            |       |
| **Liabilities and stockholders’  equity**                                                                                                                                             |                                                                                                                                                           |       |            |       |
| Current liabilities:                                                                                                                                                                       |                                                                                                                                                           |       |            |       |
|                                                                                                                                                                                       | Accrued compensation                                                                                                                                           | $          | 740             |       | $ | 835 |   |
|                                                                                                                                                                                       | Accounts payable and  other accrued expenses                                                                                                                   | 2,251      |            | 1,749      |   |
|                                                                                                                                                                                       | Capital lease  obligations - current                                                                                                                           | 16         |            | 25         |   |
|                                                                                                                                                                                       |                                                                                                                                                                |       |                 |       |
|                                                                                                                                                                                       | Total current  liabilities                                                                                                                                     | 3,007      |            | 2,609      |   |
|                                                                                                                                                                                       |                                                                                                                                                           |       |            |       |
| Capital lease  obligations, net of current portion                                                                                                                                         | 28                                                                                                                                                             |       | 40              |       |
| Deferred rent                                                                                                                                                                              | 121                                                                                                                                                            |       | 107             |       |
|                                                                                                                                                                                       |                                                                                                                                                                |       |                 |       |
|                                                                                                                                                                                       | Total liabilities                                                                                                                                              | 3,156      |            | 2,756      |   |
|                                                                                                                                                                                       |                                                                                                                                                           |       |            |       |
| Series A redeemable  convertible preferred stock, $0.001 par value; authorized - 10,000,000  shares; 8,000,000 shares  issued and  outstanding at December 31, 2000 and June 30, 2001 | 5,258                                                                                                                                                          |       | 5,506           |       |
|                                                                                                                                                                                       |                                                                                                                                                           |       |            |       |
| Common stockholders’  equity:                                                                                                                                                         |                                                                                                                                                           |       |            |       |
|                                                                                                                                                                                       | Common stock, $0.001  par value; authorized—50,000,000 shares; issued—18,351,311 shares at December  31, 2000 and 18,351,311 shares at June 30, 2001 | 18         |            | 18         |   |
|                                                                                                                                                                                       | Additional paid-in  capital                                                                                                                                    | 94,212     |            | 94,212     |   |
|                                                                                                                                                                                       | Treasury stock, at  cost – 849,123 shares                                                                                                                 | -          |            | (166       | ) |
|                                                                                                                                                                                       | Accumulated deficit                                                                                                                                            | (69,114    | )               | (74,264    | ) |
|                                                                                                                                                                                       |                                                                                                                                                                |       |                 |       |
|                                                                                                                                                                                       | Total common  stockholders’ equity                                                                                                                        | 25,116     |            | 19,800     |   |
|                                                                                                                                                                                       |                                                                                                                                                                |       |                 |       |
|                                                                                                                                                                                       | Total liabilities and  stockholders’ equity                                                                                                               | $          | 33,530          |       | $ | 28,062 |   |
|                                                                                                                                                                                       |                                                                                                                                                                |       |                 |       |
|                                                                                                                                                                                            |                                                                                                                                                                |            |                 |            |  |  |  |  |

*Seeaccompanying notes.*

enherent Corp. andSubsidiariesConsolidated Statements ofOperations*(Inthousands, except per share data)*(Unaudited)

|                                                                     | **Three  Months Ended June 30** |   | **Six  Months Ended June 30** |   |
|--------------------------------------------------------------------------|---------------------------------|--------|-------------------------------|--------|
|                                                                     | ****                            |   | ****                          |   |
|                                                                     | **2000**                        |   | **2001**                      |   | **2000** |   | **2001** |   |
|                                                                     | ****                            |   | ****                          |   | **** |   | **** |   |
|                                                                     |                            |   |                          |   |   |   |   |   |
| Revenues                                                                 | $                               | 11,739 |                          | $      | 7,402 |   | $ | 23,796 |   | $ | 15,567 |   |
| Cost of revenues                                                         | 8,439                           |   | 5,273                         |   | 17,152 |   | 11,253 |   |
|                                                                     |                                 |   |                               |   |  |   |  |   |
| Gross profit                                                             | 3,300                           |   | 2,129                         |   | 6,644 |   | 4,314 |   |
|                                                                     |                            |   |                          |   |   |   |   |   |
| Selling, general and  administrative expenses                            | 7,090                           |   | 3,783                         |   | 13,546 |   | 9,487 |   |
|                                                                     |                                 |   |                               |   |  |   |  |   |
| Loss from operations                                                     | (3,790                          | )      | (1,654                        | )      | (6,902 | ) | (5,173 | ) |
|                                                                     |                            |   |                          |   |   |   |   |   |
| Other income  (expense):                                                 |                            |   |                          |   |   |   |   |   |
|                                                                     | Miscellaneous income            | -      |                          | 98     |   | - |   | 141 |   |
|                                                                     | Interest expense                | (145   | )                             | (1     | ) | (187 | ) | (19 | ) |
|                                                                     | Interest income                 | 162    |                          | 62     |   | 274 |   | 149 |   |
|                                                                     |                                 |   |                               |   |  |   |  |   |
| Net loss                                                                 | (3,773                          | )      | (1,495                        | )      | (6,815 | ) | (4,902 | ) |
| Preferred stock  dividends and accretion                                 | (5,243                          | )      | (126                          | )      | (5,243 | ) | (248 | ) |
|                                                                     |                                 |   |                               |   |  |   |  |   |
| Net loss applicable to  common stockholders                              | $                               | (9,016 | )                             | $      | (1,621 | ) | $ | (12,058 | ) | $ | (5,150 | ) |
|                                                                     |                                 |   |                               |   |  |   |  |   |
|                                                                     |                            |   |                          |   |   |   |   |   |
| Basic and diluted net  loss per share applicable to common stockholders  | $                               | (.49   | )                             | $      | (.09 | ) | $ | (.66 | ) | $ | (.29 | ) |
|                                                                     |                                 |   |                               |   |  |   |  |   |
| Number of shares used  in computing basic and diluted net loss per share | 18,351                          |   | 17,525                        |   | 18,343 |   | 17,917 |   |
|                                                                     |                                 |   |                               |   |  |   |  |   |

*Seeaccompanying notes.*

enherentCorp. and SubsidiariesConsolidated Statements of Cash Flows*(Inthousands)*(Unaudited)

|                                                                          | **Six  Months Ended June 30**                 |   |
|-------------------------------------------------------------------------------|-----------------------------------------------|--------|
|                                                                          | ****                                          |   |
|                                                                          | **2000**                                      |   | **2001** |   |
|                                                                          | ****                                          |   | **** |   |
| **Cash flows from operating  activities**                                     |                                          |   |   |   |
| Net loss                                                                      | $                                             | (6,815 | ) | $ | (4,902 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities:  |                                          |   |   |   |
|                                                                          | Depreciation and  amortization                | 2,085  |   | 1,305 |   |
|                                                                          | Provision for doubtful  accounts              | (261   | ) | 1,141 |   |
|                                                                          | Loss on disposal of  fixed assets             | 1,280  |   | 308 |   |
|                                                                          | Deferred rent                                 | (41    | ) | (14 | ) |
|                                                                          | Changes in operating  assets and liabilities: |   |   |   |   |
|                                                                          | Accounts receivable                           | 1,249  |   | 936 |   |
|                                                                          | Prepaid expenses and  other current assets    | 313    |   | 32 |   |
|                                                                          | Other assets                                  | (90    | ) | (8 | ) |
|                                                                          | Accrued compensation                          | (489   | ) | 95 |   |
|                                                                          | Accounts payable and  other accrued expenses  | (1,161 | ) | (502 | ) |
|                                                                          |                                               |   |  |   |
| Net cash used in  operating activities                                        | (3,930                                        | )      | (1,609 | ) |
|                                                                          |                                               |   |  |   |
|                                                                          |                                          |   |   |   |
| **Cash flows from investing  activities**                                     |                                          |   |   |   |
| Sale of marketable  securities                                                | 1,810                                         |   | 728 |   |
| Purchases of fixed  assets                                                    | (340                                          | )      | (10 | ) |
| Proceeds from sale of  fixed assets                                           | 13                                            |   | 12 |   |
|                                                                          |                                               |   |  |   |
| Net cash provided by  investing activities                                    | 1,483                                         |   | 730 |   |
|                                                                          |                                               |   |  |   |
|                                                                          |                                          |   |   |   |
| **Cash flows from financing  activities**                                     |                                          |   |   |   |
| Repayment of note                                                             | (1,000                                        | )      | - |   |
| Purchase of treasury  stock                                                   | -                                             |   | (166 | ) |
| Issuance of preferred  shares and common stock warrants net of issuance costs | 7,363                                         |   | - |   |
| Principal payments under  capital lease obligations                           | (233                                          | )      | (12 | ) |
|                                                                          |                                               |   |  |   |
| Net cash provided by  (used in) financing activities                          | 6,338                                         |   | (178 | ) |
|                                                                          |                                               |   |  |   |
|                                                                          |                                          |   |   |   |
| Net increase  (decrease) in cash and equivalents                              | 3,891                                         |   | (1,057 | ) |
| Cash and equivalents  at beginning of period                                  | 5,052                                         |   | 5,628 |   |
|                                                                          |                                               |   |  |   |
| Cash and equivalents  at end of period                                        | $                                             | 8,943  |   | $ | 4,571 |   |
|                                                                          |                                               |   |  |   |
|                                                                          |                                          |   |   |   |
| **Supplemental disclosure of  cash flow information**                         |                                          |   |   |   |
| Interest paid                                                                 | $                                             | 173    |   | $ | 19 |   |
|                                                                          |                                               |   |  |   |
| **Noncash financing activities**                                              |                                          |   |   |   |
| Acquisition of fixed  assets through capital lease obligations                | $                                             | -      |   | $ | 33 |   |
|                                                                          |                                               |   |  |   |
|                                                                               |                                               |        |  |  |  |  |  |  |

*Seeaccompanying notes.*

**enherent Corp.****NOTES TO CONSOLIDATED FINANCIALSTATEMENTS****(Unaudited)**

| 1.                                | Basis  of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|-----------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                              | The  unaudited consolidated financial statements presented herein have been prepared  in accordance with generally accepted accounting principles for interim  financial information and with the instructions to Form 10-Q and Article 10  of Regulation S-X.  Accordingly, they  do not include all of the information and footnotes required by generally  accepted accounting principles for complete financial statements. In the  opinion of management, the accompanying consolidated financial statements  include all adjustments (consisting only of normal recurring entries, except  as disclosed) considered necessary for a fair presentation of the financial  condition and results of operations for the periods presented. The results of  operations for the six month period ended June 30, 2001 are not necessarily  indicative of the results that may be expected for the year ending December  31, 2001. The statements should be read in conjunction with the audited  consolidated financial statements and notes thereto included in the enherent  Corp. (the “Company”) Annual Report on Form 10-K for the year ended December  31, 2000. |
|                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 2.                                | Principles  of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                              | The  accompanying financial statements include the accounts of the Company and its  wholly-owned subsidiaries.  All  significant intercompany balances and transactions have been eliminated in  consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 3.                                | Delisted  from Nasdaq National Market                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                              | On  May 30, 2001 the Nasdaq delisted enherent Corp. common stock, traded under  the symbol “ENHT”, from trading on the Nasdaq National Market for failure to  comply with Nasdaq’s minimum bid price of $1.00 over the previous 30  consecutive trading days as required. enherent Corp.’s common stock currently  trades on the Over the Counter Bulletin Board “OTCBB” under the symbol  “ENHT”.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.                                | Change  in Allowance for Doubtful Accounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                              | Based  on our current assessment of the status of the ongoing settlement  negotiations with three clients, the company recorded an additional provision  for doubtful accounts of approximately $100,000 and $1 million for the three  and six months ended June 30, 2001, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 5.                                | Office  Closures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                              | The  Company vacated its office space at 342 Madison Ave. in New York, upon  expiration of its lease on April 30, 2001, and exercised a termination clause  for a portion of leased space at 80 Lamberton Road in Windsor, Connecticut.  The termination clause for the Connecticut  space required a nine-month notification period prior to the termination of  the lease.  The financial statements  for the three months ended March 31, 2001 included an accrual of $120,000,  equal to the amount due under the termination clause. In conjunction with  vacating these offices, the Company has recorded a charge as of March 31,  2001 of approximately $335,000 for anticipated losses upon the disposal of  office furniture and abandonment of leasehold improvements.                                                                                                                                                                                                                                                                                                                                                                                          |
|                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 6.                                | Loss  per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                              | The  following sets forth the computation of basic and diluted loss  per share: (in thousands, except per share  data)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                              | Three  months ended                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Six  months ended |   |
|                              | June  30, 2000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | June  30, 2001 |   | June  30, 2000 |   | June  30, 2001 |   |
|                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |  |   |  |   |  |   |
| Numerator:                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |
|                              | Net loss applicable to  common shareholders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $ | (9,016 | ) | $ | (1,621 | ) | $ | (12,058 | ) | $ | (5,150 | ) |
| Denominator:                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |
|                              | Weighted average of  shares outstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 18,351 |   | 17,525 |   | 18,343 |   | 17,917 |   |
| Basic and diluted loss  per share | $                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | (.17 | ) | $ | (.09 | ) | $ | (.66 | ) | $ | (.29 | ) |
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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

 

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 7.     | Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | A  former chief financial officer of the Company filed a Demand for Arbitration  on or about October 27, 2000, claiming that at the time of his termination he  was entitled to stock options valued at $3,000,000 or the equivalent value in  cash. On January 12, 2001 the Company filed a Motion for Summary Judgement.  The arbitrator heard oral argument on enherent's motion on June 7, 2001. The  arbitrator has not ruled on the motion as of August 6, 2001.                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 8.     | New  Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | In  July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement  of Financial Accounting Standard (“SFAS”) No. 141, Business Combinations, and  SFAS No. 142, Goodwill and other Intangible Assets.  SFAS No. 141 requires that the purchase method of accounting be  used for all business combinations initiated after June 30, 2001.  SFAS No. 142 changes the accounting for  goodwill from an amortization method to an impairment-only approach.  Thus, amortization of goodwill recorded in  past business combinations, will cease upon adoption of SFAS No. 142, which  is effective for the Company on January 1, 2002.  The Company has not evaluated the effect, if any, that the  adoption of SFAS No. 142 will have on the Company’s consolidated financial  statements. |

 

| **Item  2.** | **Management’s Discussion and  Analysis of Financial Condition and Results of Operations.** |
|--------------|--------------------------------------------------------------------------------------------------|

**Resultsfor Operations**

*Revenue. *Revenues decreased $4.3 million during the threemonth period ended June 30, 2001 to $7.4 million compared to $11.7 million forthe three month period ended June 30, 2000. Revenues decreased $8.2 million forthe six month period ended June 30, 2001 to $15.6 million compared to $23.8million for the six month period ended June 30, 2000.  The decrease in revenue was a result of the completion of clientprojects, non-renewal of certain client assignments and the general slowdown inspending for information technology services.

*Costof Revenues. *Cost of revenues decreased $3.2 million for thethree month period ended June 30, 2001 to $5.2 million compared to $8.4 millionfor the three month period ended June 30, 2000.  Cost of revenues decreased $5.9 for the six month period endedJune 30, 2001 to $11.3 million compared to $17.2 million for the six monthperiod ended June 30, 2000 . The decrease in cost of revenues was attributableto the overall decrease in revenues. Cost of revenues as a percentage ofrevenues decreased 1% for the three month period ended June 30, 2001 to 71%when compared to 72% for the three month period ended June 30, 2000. Cost ofrevenues as a percentage of revenues remained at approximately 72% for the sixmonth period ended June 30, 2001 when compared to the six month period endedJune 30, 2000.

*GrossProfit.*Becausethe cost of revenue decreased a slightly higher rate than the revenuesdeclined, gross profit increased to 29% as a percentage of revenues in thethree month period ended June 30, 2001 from 28% in the comparable period in2000. For the reason set forth above, gross profit remained at approximately28% as a percentage of revenues in the six month period ended June 30, 2001 andfor the comparable period in 2000.

*Selling,General & Administrative Expenses.*SG&A expenses decreased approximately 46% to$3.8 million in the three-month period ended June 30, 2001 from $7.1 millionfor the comparable period in 2000. SG&A as a percentage of revenuedecreased to 51% for the three month period ended June 30, 2001 from 60% forthe comparable period in 2000. The decrease in SG&A expenses resulted fromthe effect of cost cutting measures and from $1.8 million in charges related tothe relocation of corporate headquarters, severance and a reduction infacilities that occurred in 2000. For the six month period ended June 30, 2001,SG&A expenses decreased 30% or $4.1 million from the comparable period in2000. The decrease in SG&A expenses resulted from the effect of costcutting measures and from $1.8 million in charges related to the relocation ofcorporate headquarters, severance and a reduction in facilities that occurredin 2000. This decrease was offset by expenses of $455,000 associated with theclosing of the New York City office and the reduction of space in the Windsor,Connecticut facility and an additional reserve for bad debt of approximately $1million associated with collection issues regarding certain accountsreceivable. SG&A as a percentage of revenue increased to 61% for the sixmonth period ended June 30, 2001 from 57% for the comparable period in 2000.This increase was due to lower revenues in the six month period ended June 30,2001 as compared to revenues in the comparable period in 2000, partially offsetby the decrease in absolute dollars of SG&A expense.

*Lossfrom Operations:*Lossfrom operations for the three month period ended June 30, 2001 decreased to$1.7 million as compared to a loss from operations of $3.8 million in thecomparable period in 2000. As a percentage of revenues, the loss fromoperations for the three month period ended June 30, 2001, decreased to 22%compared to approximately 32% in the comparable period in 2000.  For the six month period ended June 30, 2001loss from operations decreased to $5.2 million from $6.9 million and loss fromoperations as a percentage of revenues increased  to 33% from 29% in thecomparable period in 2000. The decrease in loss from operations primarilyresulted from the effect of cost cutting measures and from $1.8 million incharges related to the relocation of corporate headquarters, severance and areduction in facilities that occurred in 2000. This decrease was offset byexpenses of $455,000 associated with the closing of the New York City officeand the reduction of space in the Windsor, Connecticut facility and anadditional reserve for bad debt of approximately $1 million associated withcollection issues regarding certain accounts receivable.

**Liquidityand Capital Resources**

*WorkingCapital:*TheCompany’s working capital decreased to approximately $7.8 million at June 30,2001 from $11.3 million at December 31, 2000. Cash and equivalents and marketable debt securities were $4.6 million atJune 30, 2001 compared to $6.4 million at December 31, 2000. The primary use ofcash during the six months ended June 30, 2001 was to fund the net loss of $4.9million, partially offset by non-cash charges of $1.3 million related todepreciation and amortization and $1.1 million additional reserves for doubtfulaccounts. The Company’s accounts receivable were $5.3 million at June 30, 2001and $7.4 million at December 31, 2000. Billed days sales outstanding, net of allowance for doubtful accountwere 66 days at June 30, 2001 and 73 days at December 31, 2000.  In order to fund operating cash flowrequirements, the Company sold marketable securities generating proceeds ofapproximately $728,000 in the six month period ended June, 2001 andapproximately $1.8 million in the six month period ended June 30, 2000.

TheCompany repurchased 849,123 shares of its outstanding common stock forapproximately $166,000 in the six month period ended June 30, 2001.  The Board of Directors has approved therepurchase of up to 2,000,000 shares of the outstanding common stock.

InAugust 1999 the Company entered into a loan and security agreement with Bank ofAmerica, the proceeds of which were to be used for general working capital. Asof December 31, 2000 the Company had exceeded the $4.5 million net lossrestrictions imposed under the agreement. On April 4, 2001 Bank of America terminated this credit facility. TheCompany had no borrowings outstanding under this credit facility at that time.

TheCompany anticipates that its primary uses of working capital in the near termwill be to fund the Company’s operations. Management believes that the cashequivalents and marketable securities are sufficient to fund operations for thenext twelve months.  If cash generatedfrom operations is insufficient to satisfy the Company’s liquidityrequirements, the Company may in the future be required to seek additionalsources of financing, including borrowing and/or the sale of debt or equitysecurities, 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.

**Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk**

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

**PART II.  OTHER INFORMATION**

Item4.  Submission of Matters to a Vote ofSecurity Holders.

| (a)    | The  Company’s annual stockholders’ meeting was held on May 3, 2001. Proxies were  solicited for the election of directors pursuant to Regulation 14A under the  Securities Exchange Act of 1934 and director nominees were elected without  opposing proxy solicitation. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                |
|   | 1.                                                                                                                                                                                                                                                                                  | Directors  election results. |
|   |                                                                                                                                                                                                                                                                                |   |
|   | Class I Director                                                                                                                                                                                                                                                                    | Affirmative votes | Withheld votes |   |
|   | Douglas  K. Mellinger                                                                                                                                                                                                                                                               | 19,941,469 | 391,160 |   |
|   | Jack  L. Rivkin                                                                                                                                                                                                                                                                     | 19,960,069 | 372,560 |   |
|   | Isaac  Shapiro                                                                                                                                                                                                                                                                      | 19,959,769 | 372,860 |   |
|        |                                                                                                                                                                                                                                                                                     |  |  |  |  |  |

 

|   | The  following is a list of directors whose term of office continues and their  term expiration date. |
|--------|-------------------------------------------------------------------------------------------------------|
|   |                                                                                                  |
|   | Director                                                                                              | Class | Term |   |
|   | Robert  P. Florenza                                                                                   | II | Expires 2003 |   |
|   | Irwin  J. Sitkin                                                                                      | II | Expires 2003 |   |
|   | Dan  S. Woodward                                                                                      | II | Expires 2003 |   |
|   | Michael  Enthoven                                                                                     | III | Expires 2002 |   |
|   | Ronald  E. Weinberg                                                                                   | III | Expires 2002 |   |
|        |                                                                                                       |  |  |  |  |

 

|   | 2.                | The  appointment of Ernst and Young LLP as the Companys’s Independent Accountants  for the Year ending December 31, 2001 was approved. |
|--------|-------------------|---------------------------------------------------------------------------------------------------------------------------------------------|
|   |              |                                                                                                                                        |
|   | Affirmative votes | Negative votes                                                                                                                              | Abstentions |   |
|   | 20,288,768        | 41,591                                                                                                                                      | 2,270 |   |
|        |                   |                                                                                                                                             |  |  |  |  |

ITEM 6. Exhibits andReports on Form 8-K

| (a)    | Exhibits                                                                                   |
|--------|--------------------------------------------------------------------------------------------|
|   |                                                                                       |
|   | The  following is a list of exhibits filed as part of this Quarterly report on  Form 10-Q: |
|   |                                                                                       |
|   | Exhibit No.                                                                                | Description of  exhibits |   |
|   | 3.1                                                                                        | Amended  and Restated Certificate of Incorporation of enherent Corp. (Incorporated by  reference to Exhibit 3.1 of the Company’s Form 10-K for the year ended  December 31, 2000). |   |
|   | 3.2                                                                                        | Amended  and Restated Bylaws (Incorporated by reference to Exhibit 4.2 of the  Company’s Form S-8 filed January 22, 1998). |   |
|   | 4.1                                                                                        | Form  of Certificate of Common Stock (Incorporated by reference to Exhibit 4.1 of  the Company’s S-1/a filed October 29, 1997). |   |
|   | 4.2                                                                                        | Securities  Purchase Agreement dated April 13, 2000, by and among PRT Group Inc. and the  Investors named therein (Incorporated by reference to Exhibit 99.1 of the  Company’s  Form 8-K filed April 14,  2000). |   |
|   | 4.3                                                                                        | Form  of Certificate of Designations (Incorporated by reference to Exhibit 99.2 of  the Company’s Form 8-K filed April 14, 2000). |   |
|   | 4.4                                                                                        | Form  of Warrant  (Incorporated by reference  to Exhibit 99.3 of the Company’s Form 8-K filed April 14, 2000). |   |
|   | 10.1                                                                                       | Employment  Agreement between Bob Merkl and the Company dated November 1, 2000 (filed  herewith). |   |
|   | 10.2                                                                                       | Addendum  to Employment Agreement between Jack Mullinax and the Company dated July 23,  2001 (filed herewith). |   |

 

| (b)    | Reports  on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                    |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | The  Company filed a Form 8-K  current  report  with the Securities and  Exchange Commission  on June 1, 2001,  reporting that the Company’s securities had been delisted by Nasdaq effective  May 30, 2001, and the Company's common stock commenced trading  over-the-counter on the National Association of Securities Dealers'  Electronic Bulletin Board ("OTC BB"). |

**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   August 6, 2001 | BY                  | /s/  Dan S. Woodward |
|                                 |                |  |
|                            |                | Dan  S. Woodward |
|                            |                | Chairman,  President and Chief Executive Officer |
|                            |                |
|                            |                |
| DATE   August 6, 2001 | BY                  | /s/  Jack D. Mullinax |
|                                 |                |  |
|                            |                | Jack  D. Mullinax |
|                            |                | Chief  Financial Officer |

Exhibit Index:

| Exhibit No. | Description of  exhibits                                                                                                                                                                                                   |
|-------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1         | Amended  and Restated Certificate of Incorporation of enherent Corp. (Incorporated by  reference to Exhibit 3.1 of the Company’s Form 10-K for the year ended  December 31, 2000).                                    |
| 3.2         | Amended  and Restated Bylaws (Incorporated by reference to Exhibit 4.2 of the  Company’s Form S-8 filed January 22, 1998).                                                                                            |
| 4.1         | Form  of Certificate of Common Stock (Incorporated by reference to Exhibit 4.1 of  the Company’s S-1/a filed October 29, 1997).                                                                                       |
| 4.2         | Securities  Purchase Agreement dated April 13, 2000, by and among PRT Group Inc. and the  Investors named therein (Incorporated by reference to Exhibit 99.1 of the  Company’s  Form 8-K filed April 14,  2000). |
| 4.3         | Form  of Certificate of Designations (Incorporated by reference to Exhibit 99.2 of  the Company’s Form 8-K filed April 14, 2000).                                                                                     |
| 4.4         | Form  of Warrant  (Incorporated by reference  to Exhibit 99.3 of the Company’s Form 8-K filed April 14, 2000).                                                                                                   |
| 10.1        | Employment  Agreement between Bob Merkl and the Company dated November 1, 2000 (filed  herewith).                                                                                                                          |
| 10.2        | Addendum  to Employment Agreement between Jack Mullinax and the Company dated July 23,  2001 (filed herewith).                                                                                                             |