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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITITES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-23315
ENHERENT CORP.
(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware No. 13-3914972
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
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80 Lamberton Road
Windsor, Connecticut 06095
(860) 687-2200
(Registrant's telephone number, including area code)
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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 X NO
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Indicate the number of share outstanding of each of the issuer's classes of
common stock: Common Stock, par value $.001 per share, outstanding as of July
16, 2000 are 18,355,538 shares.
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ENHERENT CORP. AND SUBSIDIARIES
INDEX
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements: PAGE
----
Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999 1
Consolidated Statements of Operations for the three months
ended June 30, 2000 and 1999 and for the six months ended
June 30, 2000 and 1999 2
Consolidated Statements of Cash Flows
for the six months ended June 30, 2000 and 1999 3
Notes to Consolidated Financial Statements 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-6
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 7
ITEM 2. Change in Securities 7
ITEM 3. Defaults upon senior securities Not Applicable
ITEM 4. Submission of matters to a vote of security holders Not Applicable
ITEM 5. Other Information Not Applicable
ITEM 6. Exhibits and reports on Form 8-K 9
Signatures 10
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enherent Corp. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except number of shares)
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DECEMBER 31 JUNE 30
1999 2000
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(UNAUDITED)
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ASSETS
Current assets:
Cash and equivalents $ 5,052 $ 8,943
Marketable securities 1,810 -
Accounts receivable, net of allowance of $529 in 1999 and $268 in 2000 8,712 7,724
Prepaid expenses and other current assets 1,203 890
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Total current assets 16,777 17,557
Fixed assets, net 6,507 3,941
Goodwill, net 16,863 16,391
Other assets 388 478
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Total assets $ 40,535 $ 38,367
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation $ 2,350 $ 1,861
Accounts payable and other accrued expenses 4,534 3,738
Current portion of capital lease obligations 227 88
Deferred revenue 632 267
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Total current liabilities 7,743 5,954
Note payable 1,000 -
Capital lease obligations, net of current portion 135 41
Deferred rent 386 345
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Total liabilities 9,264 6,340
Commitments - -
Series A redeemable convertible preferred stock, $0.01 par value;
authorized -10,000,000 shares; none issued in 1999 and 8,000,000
in 2000 - 4,985
Stockholders' equity:
Common stock, $.001 par value; authorized--50,000,000 shares; issued
and outstanding--18,283,642 in 1999 and 18,351,311 in 2000 18 18
Additional paid-in capital 86,361 94,190
Accumulated deficit (55,108) (67,166)
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Total stockholders' equity 31,271 27,042
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Total liabilities and stockholders' equity $ 40,535 $ 38,367
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See accompanying notes.
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enherent Corp. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
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<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
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1999 2000 1999 2000
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Revenues $ 18,468 $ 11,739 $ 37,009 $ 23,796
Cost of revenues 14,072 8,439 28,974 17,152
---------------- ------------------ ---------------- ----------------
Gross profit 4,396 3,300 8,035 6,644
Selling, general and administrative expenses 8,601 7,090 19,114 13,546
Restructuring charges 7,483 - 7,483 -
---------------- ------------------ ---------------- ----------------
(11,688) (3,790) (18,562) (6,902)
Other income (expense):
Interest expense (59) (145) (77) (187)
Interest income 153 162 196 274
---------------- ------------------ ---------------- ----------------
Net loss (11,594) (3,773) (18,443) (6,815)
Preferred stock dividends and
accretion - (5,243) - (5,243)
---------------- ------------------ ---------------- ----------------
Net loss applicable to common stockholders $ (11,594) $ (9,016) $ (18,443) $ (12,058)
================ ================== ================ ================
Net loss per share applicable to common
stockholders $ (.63) $ (.49) $ (1.01) $ (.66)
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See accompanying notes.
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enherent Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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<CAPTION>
SIX MONTHS ENDED JUNE 30
1999 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(18,443) $(6,815)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,491 2,085
Provision for doubtful accounts 12 (261)
Loss on disposal of fixed assets 1,627 1,280
Write-off of goodwill 2,597 -
Deferred rent 75 (41)
Changes in operating assets and liabilities:
Accounts receivable 965 1,249
Prepaid expenses and other current assets 28 313
Other assets 77 (90)
Accrued compensation 330 (489)
Accounts payable and other accrued expenses 2,033 (796)
Deferred revenue 153 (365)
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Net cash used in operating activities (8,055) (3,930)
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CASH FLOWS FROM INVESTING ACTIVITIES
Sale of marketable securities 548 1,810
Purchases of fixed assets (1,598) (340)
Proceeds from sale of fixed assets - 13
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Net cash (used in) provided by investing activities (1,050) 1,483
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CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes payable - (1,000)
Exercise of stock options 99 208
Principal payments under capital lease obligations (343) (233)
Issuance of preferred shares and common stock warrants
net of issuance costs - 7,363
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Net cash (used in) provided by financing activities (244) 6,338
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Net decrease (increase) in cash and equivalents (9,349) 3,891
Cash and equivalents at beginning of period 14,772 5,052
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Cash and equivalents at end of period $ 5,423 $ 8,943
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 59 $ 173
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Income taxes paid $ 81 $ -
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See accompanying notes.
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ENHERENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 accruals) 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, 2000 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2000. The statements should be
read in conjunction with the audited consolidated financial statements and
notes thereto included in the enherent Corp. (the "Company" or "enherent")
Annual Report on form 10-K for the year ended December 31, 1999.
2. Name Change
On July 2, 2000, PRT Group received shareholder approval to change its name
from PRT Group Inc. to enherent Corp. and received approval from NASDAQ to
trade its listed shares under the ticker symbol ENHT from PRTG. The Company
amended its charter to reflect the name change on July 13, 2000.
3. 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.
4. Series A Redeemable Convertible Preferred Stock
On April 13, 2000, the Company issued 8,000,000 shares of its Series A
Senior Participating Redeemable Convertible Preferred Stock ("Preferred
Stock") for $8,000,000. The Company also issued a warrant to the Preferred
Stock investors to purchase 4,000,000 shares of the Company's common stock
at an initial exercise price of $1.00 per share subject to adjustment, as
defined. The Preferred Stock is
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convertible, subject to adjustment, as defined, into common stock on a one
for one basis at any time and is redeemable, after April 14, 2005, at the
option of the holder at its liquidation value plus accrued and unpaid
dividends. Each warrant entitles the holder to purchase one share of common
stock prior to April 14, 2005. The Preferred Stock and related warrants
were sold below the then market price of the Company's common stock.
Accordingly, the guaranteed discount on the conversion of the Preferred
Stock and the value of the warrants, aggregating approximately $5,167,000,
was deemed to be a dividend for purpose of calculating earnings (loss) per
share.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue. Revenues decreased to $11.7 million during the quarter ended June 30,
2000 compared to $18.5 million during the quarter ended June 30, 1999. For the
first six months of 2000, revenues were $23.8 million compared to $37.0 million
in the first six months of 1999. The decrease in revenue was the result of
reduced billable consultants, a slow down in the industry and the completion of
assignments. In addition, during the second half of 1999, enherent Corp. exited
non-profitable businesses including The Institute of Software Process
Improvements which reduced revenues in the current year.
Cost of Revenues. Cost of revenues was 71.9% and 72.1% in the second quarter and
the first six months of 2000, respectively, compared to 76.2% and 78.3% of
revenue, respectively, for the same periods in fiscal 1999. The decrease in cost
of revenues was due to a higher utilization and billable rates for e-business
assignments offset partially from lower margins in the outsourcing solution
business.
Gross Profit. Gross profit was 28.1% and 27.9% in the second quarter and first
six months of 2000, respectively, compared to 23.8% and 21.7% for the first
quarter and first six months of 1999, respectively. The increase in gross profit
is proportionate to the higher utilization and higher billable rates for
e-commerce and IT professional staffing business.
Selling, General & Administrative Expenses. SG&A expenses for the second quarter
of 2000 decreased $1.5 million to $7.1 million as compared to $8.6 million in
the second quarter of 1999. Selling, general and administrative expenses as a
percentage of revenue were 60.4% and 56.9% for the three and six month periods
ended June 30, 2000 respectively, compared to 46.6% and 51.7% for the three and
six months periods ended June 30, 1999, respectively. During the second quarter
of 2000, enherent incurred $1.8 million in charges related to the relocation of
its Hawthorne, New York office to Dallas, Texas. This included relocation costs
($300,000) and severance and related expenses ($800,000) arising from the
relocation. In addition, the Company recorded charges associated with the
reduction of it's delivery capabilities in it's software centers ($700,000). The
Company continues to review costs associated with facilities and
infrastructure.
Restructuring: The Company incurred $7.5 million in restructuring charges in
1999 comprised of $2 million in severance costs, $3 million in office closures
and $2.5 million for the write-off of goodwill related to the ISPI acquisition.
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Loss from Operations: For the reasons set forth above, loss from operations was
32.3% and 29.0% of revenues in the second quarter and first six months of 2000,
respectively, compared to 63.3% and 50.2% for the comparable 1999 periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased to approximately $11.6 million at June
30, 2000 from $9.0 million at December 31, 1999. Cash and equivalents and
marketable debt securities were $8.9 million at June 30, 2000 compared to $6.9
million at December 31, 1999. The improvement in cash is mainly a result of the
equity infusion related to our sale of the Series A Redeemable Convertible
Preferred Stock. The primary uses of cash during the six months ended June 30,
2000 were to fund normal operating expenses and the repayment of a note
($1,000,000) related to the acquisition of Computer Management Resources. The
Company's accounts receivable were $7.7 million at June 30, 2000 down from $8.7
million at December 31, 1999. Days sales outstanding were 60 days at June 30,
2000 and 63 days at December 31, 1999.
Investing activities provided cash of approximately $1.5 million resulting from
the sale of marketable securities offset by the purchases of property and
equipment.
The Company expects that its operating cash flow and credit facility will be
sufficient to fund the Company's working capital requirements. However, the
Company's ability to achieve this result is affected by the extent of cash
generated from operations and pace at which the Company utilizes its available
resources. Accordingly, the Company may in the future be required to seek
additional sources of financing, including borrowing and/or sale of equity
securities. If additional funds are raised by issuing equity securities, further
dilution to shareholders may result. No assurance can be given that any such
additional sources of financing will be available on acceptable terms or at all.
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PART II. OTHER INFORMATION
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ITEM 1. Legal Proceedings.
The Company, certain of its officers and directors and certain allegedly
controlling shareholders of the Company have been named as defendants in a
purported securities class action lawsuit filed on September 16, 1998 in the
United States District Court for the Southern District of New York (the
"Court"). The complaint purports to be brought on behalf of all shareholders who
purchased the Company's common stock from November 21, 1997 through March 5,
1998. The complaint asserts that defendants violated certain sections of the
Securities Act of 1933 by purportedly misrepresenting and/or omitting material
information concerning enherent's business and operations in the registration
statement and prospectus issued in connection with enherent's initial public
offering on or about November 21, 1997. The lawsuit seeks unquantified
compensatory damages, pre-and post-judgment interest, attorneys' fees, expert
witness fees and other costs, rescission, equitable relief and such other and
further relief as the Court may find proper. On April 14, 1999 enherent filed a
motion to dismiss the case. On March 28, 2000, the Company's motion to dismiss
the class action lawsuit was granted by the Court. The plaintiffs' request for
leave to amend the amended complaint was also denied.
ITEM 2. Change in Securities.
On April 13, 2000, the Company issued 8,000,000 shares of its Series A Senior
Participating Redeemable Convertible Preferred Stock ("Preferred Stock") for
$8,000,000. The Company also issued a warrant to the Preferred Stock investors
to purchase 4,000,000 shares of the Company's common stock at an initial
exercise price of $1.00 per share subject to adjustment, as defined. The
Preferred Stock is convertible, subject to adjustment, as defined, into common
stock on a one for one basis at any time and is redeemable after April 14, 2005
at the option of the holder at its liquidation value plus accrued and unpaid
dividends. Each warrant entitles the holder to purchase one share of common
stock prior to April 14, 2005. The Preferred Stock and related warrants were
sold below the then market price of the Company's common stock. Accordingly, the
guaranteed discount on the conversion of the Preferred Stock and the value of
the warrants, aggregating approximately $5,167,000, were deemed to be a dividend
for purpose of calculating earnings (loss) per share.
ITEM 3. Defaults Upon Senior Securities.
None.
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PART II. OTHER INFORMATION
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ITEM 4. Submission of Matters to a Vote of Security Holders.
None.
ITEM 5. Other Information.
None.
9
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PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Form S - 3 filed May 5, 2000
(b) Form 8-K filed May 31, 2000
(c) Form DEFS14A filed June 19, 2000
(d) Form 8-K filed July 14, 2000
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
enherent Corp.
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DATE August 14, 2000 BY /s/ Dan S. Woodward
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Dan S. Woodward
President and Chief Executive Officer
DATE August 14, 2000 BY /s/ Rocco Mitarotonda
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Rocco Mitarotonda
Chief Financial Officer
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