Washington, D.C.  20549

 

 

FORM 10-Q

 

 

enherent Corp.

(Exact name of Registrant as Specified in Its Charter)

 

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

YES  ý        NO  o

 

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

 

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

 

 

 

enherent Corp. and Subsidiaries

 

INDEX

 

PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements.
Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2003 and 2002
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002
Notes to Condensed Consolidated Financial Statements
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 3.  Quantitative and Qualitative Disclosures about Market Risk.
Item 4.  Controls and Procedures.
PART II.  OTHER INFORMATION
Item 1.  Legal Proceedings
Item 5.  Other Information
Item 6.  Exhibits and Reports on Form 8-K
Signatures
Exhibit Index

 

 

Item 1. Financial Statements

 

enherent Corp. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except number of shares)

 

		September 30, 2003			December 31, 2002
		(unaudited)			(Note 1)
Assets
Current assets:
Cash and equivalents		$	2,755		$	3,067
Accounts receivable, net of allowance of $6 at September 30, 2003 and $57 at December 31, 2002		1,349			1,926
Prepaid expenses and other current assets		131			259
Total current assets		4,235			5,252
Fixed assets, net		205			477
Other assets		58			69
Total assets		$	4,498		$	5,798
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	302		$	470
Accrued compensation		338			283
Accrued expenses		371			294
Current portion of capital lease obligations		5			14
Deferred revenue		43			171
Total current liabilities		1,059			1,232
Capital lease obligations, net of current portion		1			5
Deferred rent		35			58
Total liabilities		1,095			1,295
Commitments and contingencies
Series A senior participating redeemable convertible preferred stock, $0.001 par value; authorized - 10,000,000 shares; issued and outstanding - 7,000,000 shares at September 30, 2003 and December 31, 2002		5,974			5,553
Common stockholders’ equity (deficit):
Common stock, $0.001 par value; authorized - 50,000,000 shares; issued - 19,351,311 shares; outstanding - 17,502,188 shares at September 30, 2003 and December 31, 2002		19			19
Additional paid-in capital		94,422			94,411
Treasury stock, at cost - 1,849,123 shares at September 30, 2003 and December 31, 2002		(366		)	(366		)
Accumulated deficit		(96,646		)	(95,114		)
Total common stockholders’ deficit		(2,571		)	(1,050		)
Total liabilities and stockholders’ deficit		$	4,498		$	5,798

 

See accompanying notes to condensed consolidated financial statements.

 

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enherent Corp. and Subsidiaries

Condensed Consolidated Statements of Operations

 

(In thousands, except per share data)

(Unaudited)

 

		Three Months Ended September 30						Nine Months Ended September 30
		2003			2002			2003			2002
Revenues		$	2,708		$	4,944		$	9,527		$	16,411
Cost of revenues		2,086			3,908			7,370			12,965
Gross profit		622			1,036			2,157			3,446
Selling, general and administrative expenses		792			1,940			3,276			7,182
Loss from operations		(170		)	(904		)	(1,119		)	(3,736		)
Other income (expense):
Miscellaneous income		(1		)	2			4			5
Interest expense		—			(2		)	(3		)	(8		)
Interest income		2			5			7			30
Net loss		(169		)	(899		)	(1,111		)	(3,709		)
Preferred stock accretion and income applicable to common stockholders		(144		)	(128		)	(421		)	147
Net loss applicable to common stockholders		$	(313	)	$	(1,027	)	$	(1,532	)	$	(3,562	)
Basic and diluted net loss per share applicable to common stockholders		$	(.02	)	$	(.06	)	$	(.09	)	$	(.20	)
Number of shares used in computing basic and diluted  net loss per share (000’s omitted)		17,502			17,502			17,502			17,502

 

See accompanying notes to condensed consolidated financial statements.

 

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enherent Corp. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

		Nine Months Ended September 30
		2003			2002
Cash flows from operating activities
Net loss		$	(1,111	)	$	(3,709	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		255			707
Provision (credit) for doubtful accounts		28			(180		)
Loss on disposal of fixed assets		10			1
Deferred rent		(23		)	(25		)
Stock option activity		11			—
Changes in operating assets and liabilities:
Accounts receivable		549			844
Prepaid expenses and other current assets		128			93
Other assets		11			15
Accrued compensation		55			(253		)
Accounts payable and other accrued expenses		(91		)	(11		)
Deferred revenue		(128		)	(64		)
Net cash used in operating activities		(306		)	(2,582		)
Cash flows from investing activities
Purchases of fixed assets		—			(110		)
Proceeds from sale of fixed assets		7			206
Net cash provided by  investing activities		7			96
Cash flows from financing activities
Purchase of treasury stock		—			(200		)
Principal payments under capital lease obligations		(13		)	(16		)
Net cash used in financing activities		(13		)	(216		)
Net decrease in cash and equivalents		(312		)	(2,702		)
Cash and equivalents at beginning of period		3,067			5,269
Cash and equivalents at end of period		$	2,755		$	2,567
Supplemental disclosure of cash flow information
Interest paid		$	3		$	8

 

See accompanying notes to condensed consolidated financial statements.

 

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enherent Corp.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.               Basis of Presentation

 

The unaudited condensed consolidated financial statements presented herein have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Item 10-01 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 condensed 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 three-month and nine-month periods ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. The condensed consolidated balance sheet as of December 31, 2002 was derived from the audited consolidated balance sheet as of that date. 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, 2002.

 

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

 

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.

 

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3.               Stock-Based Compensation

 

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

 

The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS 123 instead of APB Opinion No. 25’s intrinsic value method to account for stock-based employee compensation (in thousands, except per share amounts):

 

		Three months ended September 30						Nine months ended September 30
		2003			2002			2003			2002
Net loss available to common stockholders as reported		$	(313	)	$	(1,027	)	$	(1,532	)	$	(3,562	)
Total stock option expense determined under fair value base method		(28		)	(167		)	(164		)	(776		)
Pro forma net loss		$	(341	)	$	(1,194	)	$	(1,696	)	$	(4,338	)
Net loss per common share as reported: basic and diluted		$	(.02	)	$	(.06	)	$	(.09	)	$	(.20	)
Net loss per common share pro forma: basic and diluted		$	(.02	)	$	(.07	)	$	(.10	)	$	(.25	)

 

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

 

		September 30,
Assumption		2003		2002
Risk-free interest rate		2.00	%	2.99	%
Dividend yield		0	%	0	%
Volatility factor of the expected market price of the Company’s Common Stock		1.50		1.40
Average life years		5		5

 

On September 23, 2003 the Board of Directors of the Company approved the partial vesting of Incentive Stock Options (ISOs) previously granted to Robert Merkl,

 

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Chairman, President and Chief Executive Officer, who resigned to pursue other opportunities. As these options would not have vested normally before October 28, 2003, the early vesting was deemed a new award. In connection with this award the Company recognized compensation  expense of approximately $11,000. Mr. Merkl, who is remaining with the Company as a director, did not participate in the Board’s deliberations or voting on this matter.

 

4.               Series A Senior Participating Redeemable Convertible Preferred Stock

 

On January 30, 2002, with the approval of its Board of Directors, enherent entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with The Travelers Indemnity Company (“The Travelers”), pursuant to which The Travelers converted 1,000,000 shares of its Series A Senior Participating Redeemable Convertible Preferred Stock into 1,000,000 shares of enherent Common Stock. Under the terms of the Stock Purchase Agreement, The Travelers then sold the 1,000,000 shares of Common Stock to enherent for $200,000, with such shares considered treasury shares.  The Preferred Stock was carried at approximately $720,000 at the date of the transaction.  Because the Common Stock was purchased below the carrying value of the Preferred Stock, a benefit to common shareholders of approximately $527,000 was recorded.

 

The remaining Preferred Stock is being accreted to its liquidation value at April 12, 2005 of $7,000,000. Accretion of approximately $144,000 and $128,000 was recognized in the three-month periods ending September 30, 2003 and 2002, respectively. In the nine- month periods ending September 30, 2003 and 2002, accretion of approximately $421,000 and $380,000, respectively, was recognized.

 

In May 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" (“SFAS 150”). This statement establishes standards for classifying and measuring, as liabilities, certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS 150 generally requires liability classification for financial instruments, including mandatorily redeemable equity instruments and other non-equity instruments requiring, from inception, the repurchase by the issuer of its equity shares. This statement is applicable to the Company as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The adoption of this Statement did not have a significant effect on the Company’s financial position as of September 30, 2003 or on the results of operations for the three-month or nine-month periods ending September 30, 2003.

 

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5.               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 September 30						Nine months ended September 30
		2003			2002			2003			2002
Numerator:
Net loss available to common stockholders		$	(313	)	$	(1,027	)	$	(1,532	)	$	(3,562	)
Denominator:
Weighted average shares outstanding (000’s omitted)		17,502			17,502			17,502			17,502
Basic and diluted loss per share		$	(.02	)	$	(.06	)	$	(.09	)	$	(.20	)

 

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

 

6.               Office Closure

 

To reduce costs and increase efficiency, the Company has closed its Dallas, Texas office and centralized that office’s administrative and financial functions at the Company’s Windsor, Connecticut corporate office. The closure and relocation was effectively completed in the second quarter of 2003.

 

In accordance with Statement of Financial Accounting Standards No. 146 (“SFAS 146”), “Accounting for Costs Associated with Exit or Disposal Activities,” costs associated with training personnel, travel, moving expenses and duplicate facility costs are expensed as incurred and are expected to total approximately $101,000.  Benefits costs, for which employees are required to render services until they are terminated consisting of severance and stay bonuses for six administrative personnel, are recognized over the service period. The total benefit costs associated with the closure will be approximately $103,000. The total costs of the closure will be approximately $204,000. In the nine months ended September 30, 2003, the Company has incurred approximately $184,000 in costs, including $12,000 incurred in the quarter ended September 30, 2003. These costs, which have all been paid, are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. Remaining benefit costs, of approximately  $20,000 are expected to be incurred, and will be expensed in the fourth quarter of 2003.

 

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7.               Contingencies

 

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

 

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

 

Critical Accounting Policies

 

Use of Estimates

 

As described in Note 1, the condensed consolidated financial statements presented elsewhere in this document, have been prepared in conformity with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Rule 10 of Regulation S-X. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.

 

Revenue Recognition

 

Revenues are primarily derived from consultants on engagements with clients for a period of time. The revenues from these time and materials contracts are recognized during the period in which the related services are provided. Revenues in 2003 also include fees earned on recruiting individuals for positions in client companies as full time employees (permanent placements). Revenues from permanent placement have been recognized when the candidate has satisfied any guarantee period.  Such guarantee periods range from 30 to 90 days.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

The Company’s accounts receivable balance is reported net of estimated allowances for balances not expected to be collectible.  The Company regularly evaluates the collectabilty of amounts owed to it based on the ability of the debtor to make payments. When the Company’s evaluation indicates that a customer will be unable to satisfy its obligation, the Company will record a reserve to reflect this anticipated loss.  The Company periodically reviews the requirements for, and adequacy of the reserve for doubtful accounts.

 

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Fixed Assets

 

Fixed assets are stated at cost and depreciation on furniture and equipment, computer equipment and software is calculated on the straight-line method over the estimated useful lives of the assets ranging from three to seven years. Equipment held under capital leases and leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset.  The Company evaluates long-lived assets for impairment and records charges in operating results when events and circumstances indicate that assets may be impaired. The impairment charge is determined based upon the amount by which the net book value of the asset exceeds its estimated fair market value or undiscounted cash flow. No impairment charges have been recognized in any of the periods presented herein.

 

Results of Operations

 

Revenues.  Revenues decreased $2.2 million during the three-month period ended September 30, 2003 to $2.7 million compared to  $4.9 million for the three-month period ended September 30, 2002. Revenues decreased  $6.9 million during the nine-month period ended September 30, 2003 to $9.5 million compared to $16.4 million for the nine-month period ended September 30, 2002. The decrease in revenue was a result of the completion of client projects, non-renewal of certain client assignments and billing rate reductions. Revenue in the three-month period ending September 30, 2003 included $30,000 in permanent placement fees.  There were no such revenues earned in the comparable prior year period.

 

Cost of Revenues.  Cost of revenues decreased $1.8 million for the three-month period ended September 30, 2003 to $2.1 million compared to $3.9 million for the three-month period ended September 30, 2002. Cost of revenues decreased $5.6 million for the nine-month period ended September 30, 2003 to $7.4 million compared to $13.0 million for the nine-month period ended September 30, 2002. The decrease in cost of revenues was attributable to the overall decrease in revenues. Cost of revenues as a percentage of revenues decreased from 79.0% for the three-month period ended September 30, 2002 to 77.0% for the three-month period ended September 30, 2003. Cost of revenues as a percentage of revenues decreased from 79.0% for the nine-month period ended September 30, 2002 to 77.4% for the nine-month period ended September 30, 2003.

 

Gross Profit.  Gross profit as a percentage of revenues for the three-month period ended September 30, 2003 was 23.0% versus 21.0% in the comparable prior year period. In the nine-month period ended September 30, 2003 the gross profit as a percentage of revenues was 22.6% compared to the 21.0% gross profit as a percentage of revenues for the nine-month period ended September 30, 2002.  The increase in gross profit as a percentage of revenues for the three and nine month periods ended September 30, 2003 versus the comparable periods of 2002 is primarily due to three contributing factors.  First, the Company has completed low margin and unprofitable contracts.  Second, the Company has managed its billable workforce to attempt to minimize the expense of non-billed time.

 

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Third, where engagement renewals result in lower billing rates for consultants, the Company has in turn reduced the consultant’s rate of compensation. Gross profit in the periods ending September 2003 include fees earned from permanent placements. No such fees were earned in the comparable 2002 periods.

 

Selling, General & Administrative (SG&A) Expenses.  SG&A expenses decreased approximately 59.7% to $0.8 million in the three-month period ended September 30, 2003 from $1.9 million for the comparable period in 2002.  In the nine-month period ended September 30, 2003, SG&A expenses of $3.3 million was $3.9 million or 54.5% lower than the $7.2 million for the comparable period in the prior year. SG&A expenses as a percentage of revenue was 28.8% and 34.3% for the three month and nine month periods ended September 30, 2003, respectively. These amounts are favorable to the 39.2% and 43.8% rates for comparable periods of 2002.

 

The lower level of SG&A expenses for the three-month period ending September 30, 2003 versus the comparable period of the prior year include the absence in the current year of management bonus - $0.3 million, elimination of $0.4 million of costs associated with the closed Barbados Solutions Center and other on-going cost reduction programs.

 

The decrease in SG&A expenses for the nine-month period ended September 30, 2003 compared to the nine-month period ended September 30, 2002 is primarily the result of eliminating expenses associated with the closure of the Barbados Solution Center accounting for approximately $1.3 million, overall staffing and personnel related cost reductions, including non-billing staffing reductions of $1.1 million, the settlement of a lawsuit in May, 2002, which resulted in the payment of approximately $0.3 million, and other cost-cutting measures  which account for approximately $1.2 million.

 

Loss from Operations. Loss from operations for the three-month period ended September 30, 2003 decreased to $170,000 as compared to a loss from operations of $904,000 in the comparable period in 2002.  As a percentage of revenues, the loss from operations for the three-month period ended September 30, 2003 decreased to 6% as compared to approximately 18.3% in the comparable period in 2002.

 

Loss from operations for the nine-month period ended September 30, 2003 decreased to $1,119,000 as compared to a loss from operations of $3,736,000 in the comparable period in 2002.  As a percentage of revenues, the loss from operations for the nine-month period ended September 30, 2003 decreased to 11.6% as compared to approximately 22.8% in the comparable period in 2002.

 

Preferred Stock Dividends and Accretion Net of Benefit to Common Stockholders. Accretion on the preferred stock of approximately $144,000 and $128,000 was recognized in the three-month period ended September 30, 2003 and 2002, respectively. In the nine-month period ended September 30, 2003 and 2002, accretion of approximately $421,000 and $380,000, respectively, was recognized.  In the quarter ended March 31, 2002, the Company recorded a benefit to common stockholders of

 

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approximately $527,000 related to the stock purchase agreement with the Travelers (see Note 4 to the accompanying financial statements).

 

Liquidity and Capital Resources

 

Working Capital:  The Company’s working capital decreased to approximately $3.2 million at September 30, 2003 from $4.0 million at December 31, 2002.  Cash and cash equivalents were $2.8 million at September 30, 2003 compared to $3.1 million at December 31, 2002.  The primary use of cash during the nine-month period ended September 30, 2003 was to fund operating activities of approximately $0.3 million. The Company’s accounts receivables were $1.3 million at September 30, 2003 and $1.9 million at December 31, 2002. Billed days sales outstanding, net of allowance for doubtful accounts, were 46 days at September 30, 2003 and 40 days at December 31, 2002.

 

The Company anticipates that its primary uses of cash in the near term will be to fund the Company’s operations.  Management believes that the cash equivalents at September 30, 2003 are sufficient to fund operations for the next 12 months and satisfy all obligations under capital and non-cancelable operating leases. As of September 30, 2003 the Company’s obligations under capital leases total $6,000, all of which is due in the next year, and obligations under non-cancelable operating leases total $210,000, including $18,000 due after September 30, 2004.  If cash generated from operations is insufficient to satisfy the Company’s liquidity requirements, the Company may be required to seek additional sources of financing in the future. If the Company is unsuccessful in obtaining additional sources of financing, it could experience difficulty meeting its current obligations as they become due.

 

Significant Accounting Policies

 

In May 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). This statement establishes standards for classifying and measuring, as liabilities, certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS 150 generally requires liability classification for financial instruments, including mandatorily redeemable equity instruments and other non-equity instruments requiring, from inception, the repurchase by the issuer of its equity shares. This statement is applicable to the Company as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The adoption of this Statement did not have a significant effect on the Company’s financial position as of September 30, 2003 or on the results of operations for the three-month or nine-month periods ending September 30, 2003.

 

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Forward-looking and Cautionary Statements

 

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

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

For the period ended September 30, 2003, the Company did not experience any material changes in market risk exposures that affect the quantitative and qualitative disclosures presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

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

 

The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Senior Financial Officer, on the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15 as of September 30, 2003.  Based upon that evaluation, the Company’s Chief Executive Officer and Senior Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s Exchange Act reports.

 

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While the Company believes that its existing disclosure controls and procedures have been effective to accomplish their objectives, the Company intends to continue to examine, refine and formulize its disclosure controls and procedures and to monitor ongoing developments in this area.

 

PART II.  OTHER INFORMATION

 

Item 1.  Legal Proceedings.

 

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

 

Item. 5.  Other Information.

 

Effective August 7, 2003, Isaac Shapiro resigned from the Board of Directors of the Company for personal reasons.

 

Effective August 7, 2003, the Board of Directors of the Company elected Douglas A. Catalano as a Director of the Company to fill the vacancy created by the resignation of Isaac Shapiro.  Douglas A. Catalano was also elected as a member of the Audit Committee.

 

Effective October 15, 2003, Robert D. Merkl resigned as Chairman, President and CEO of the Company.  Mr. Merkl left the Company to pursue other interests.  Mr. Merkl will remain on the Company’s Board of Directors.

 

Effective October 15, 2003, Douglas A. Catalano was named interim CEO of the Company.  Mr. Catalano and the Company are not parties to an Employment Agreement.  Pursuant to the terms of Mr. Catalano’s interim appointment, he earns $1,250 per day with a target bonus opportunity of $25,000 per quarter beginning with the first quarter of 2004.  Mr. Catalano is eligible to participate in the Company’s Stock Option Plan.  Mr. Catalano received a stock option grant of 400,000 shares, with a strike price of $0.08 per share.  100,000 shares vested on October 27, 2003, with the remainder to vest 100,000 each year on October 27 for the next three years provided Mr. Catalano remains an officer of the Company.  The Board of Directors will review the terms of this interim arrangement after March 31, 2004.  Due to his appointment as interim CEO, Mr. Catalano resigned from the Audit Committee.

 

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Item 6. Exhibits and Reports 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		Restated Certificate of Incorporation (Incorporated by reference to Exhibit 4.1 of the Company’s Form S-8 filed January 22, 1998).
	3.2		Certificate of Amendment of Restated Certificate of Incorporation of enherent Corp. (Incorporated by reference to Exhibit 3.1 of the Company’s Annual Report on Form 10-K filed April 4, 2001).
	3.3		Amended and Restated Bylaws (Incorporated by reference to Exhibit 4.2 of the Company’s Form S-8 filed January 22, 1998).
	4.1		Form of Certificate of Common Stock (Incorporated by reference to Exhibit 4.1 of the Company’s Annual Report on Form 10-K filed March 22, 2002).
	4.2		Securities Purchase Agreement dated April 13, 2000, by and among PRT Group Inc. and the Investors named therein (Incorporated by reference to Exhibit 99.1 of the Company’s  Form 8-K filed April 14, 2000).
	4.3		Form of Certificate of Designations (Incorporated by reference to Exhibit 99.2 of the Company’s Form 8-K filed April 14, 2000).
	4.4		Form of Warrant  (Incorporated by reference to Exhibit 99.3 of the Company’s  form 8-K filed April 14, 2000).
	10.1		Employment Agreement between Robert D. Merkl and the Company dated November 1, 2002 (Filed herewith, including Exhibit 2).
	31.1		Certification of the Interim Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).
	31.2		Certification of the Senior Financial Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).
	32.1		Certification of the Interim Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith).
	32.2		Certification of the Senior Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith).

 

(b)          Reports on Form 8-K

 

On August 13, 2003, the Company filed a Current Report on Form 8-K with the Securities and Exchange Commission that included disclosure under Items 7 and 12 related to Financial Statement and Regulation FD Disclosures regarding a press release disclosing the Company’s

 

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preliminary results for the quarter ended September 30, 2003.  This Current Report on Form 8-K included financial statements consisting of a balance sheet and statement of operations for the nine-month period ended September 30, 2003 in exhibit 99.1.

 

 

SIGNATURES

 

 

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

 

			enherent Corp.
DATE	November 13, 2003		BY	/S/ DOUGLAS A. CATALANO
				Douglas A. Catalano
				Interim Chief Executive Officer
DATE	November 13, 2003		BY	/S/ JAMES C. MINERLY
				James C. Minerly
				Senior Financial Officer

 

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Exhibit Index:

 

Exhibit No.		Description of Exhibits
3.1		Restated Certificate of Incorporation (Incorporated by reference to Exhibit 4.1 of the Company’s Form S-8 filed January 22, 1998).
3.2		Certificate of Amendment of Restated Certificate of Incorporation of enherent Corp. (Incorporated by reference to Exhibit 3.1 of the Company’s Annual Report on Form 10-K filed April 4, 2001).
3.3		Amended and Restated Bylaws (Incorporated by reference to Exhibit 4.2 of the Company’s Form S-8 filed January 22, 1998).
4.1		Form of Certificate of Common Stock (Incorporated by reference to Exhibit 4.1 of the Company’s Annual Report on Form 10-K filed March 22, 2002).
4.2		Securities Purchase Agreement dated April 13, 2000, by and among PRT Group Inc. and the Investors named therein (Incorporated by reference to Exhibit 99.1 of the Company’s  Form 8-K filed April 14, 2000).
4.3		Form of Certificate of Designations (Incorporated by reference to Exhibit 99.2 of the Company’s Form 8-K filed April 14, 2000).
4.4		Form of Warrant  (Incorporated by reference to Exhibit 99.3 of the Company’s  form 8-K filed April 14, 2000).
10.1		Employment Agreement between Robert D. Merkl and the Company dated November 1, 2002 (Filed herewith, including Exhibit 2).
31.1		Certification of the Interim Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).
31.2		Certification of the Senior Financial Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).
32.1		Certification of the Interim Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith).
32.2		Certification of the Senior Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith).

 

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