enherent (ENHT) 10-Q 2007 Q1 Quarterly report

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 quarterly period ended March 31, 2007

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission File Number 0-23315

enherent Corp.

(Exact name of Registrant as Specified in Its Charter)

Delaware	No. 13-3914972
(State or Other Jurisdiction of Incorporation)	(I.R.S. Employer Identification No.)

101 Eisenhower Parkway, Suite 300

Roseland, NJ 07068

(Address of Principal Executive Offices)

(973) 795-1290

(Registrant’s Telephone Number, Including Area Code)

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  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  ¨    Accelerated Filer  ¨    Non-Accelerated Filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

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

Class	Shares outstanding as of May 2, 2007
Common stock, par value $.001	50,661,451

enherent Corp. and Subsidiaries

INDEX

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
	1
Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006
Condensed Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006	2
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006	3
Notes to Condensed Consolidated Financial Statements	4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	6
Item 3. Quantitative and Qualitative Disclosures about Market Risk.	12
Item 4. Controls and Procedures.	12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.	13
Item 1A. Risk Factors	13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	13
Item 6. Exhibits.	13
Signatures	S-1
Exhibit Index	E-1

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ENHERENT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2007 (Unaudited)			December 31, 2006 (Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	627,788		$	631,656
Accounts receivable, net		4,572,763			4,320,334
Prepaid expenses and other current assets		88,419			134,854
Total current assets		5,288,970			5,086,844
Furniture, equipment and improvements, net		147,082			174,506
Goodwill		4,334,278			4,334,278
Other intangibles, net		300,000			325,000
Deferred financing costs, net		76,278			85,812
Other assets		32,691			31,376
T O T A L	$	10,179,299		$	10,037,816
LIABILITIES
Current liabilities:
Revolving credit facility	$	3,528,554		$	2,852,628
Current portion of long-term debt		937,512			758,335
Accounts payable and accrued expenses		2,357,271			3,186,815
Deferred revenue		215,627			171,275
Accrued compensation and benefits		1,045,850			853,979
Total current liabilities		8,084,814			7,823,032
Long-term liabilities:
Long-term debt, net of current portion above		3,014,980			3,234,184
Total liabilities		11,099,794			11,057,216
CAPITAL DEFICIENCY
Preferred stock, $.001 par value; authorized—10,000,000 shares, issued—none		—			—
Common stock, $.001 par value, authorized—101,000,000 shares, issued and outstanding – 50,661,451 shares in 2007 and 50,361,451 shares in 2006		50,661			50,361
Additional paid-in capital		27,312,588			27,256,889
Unearned compensation on restricted stock		(7,000	)		—
Accumulated deficit		(28,276,744	)		(28,326,650	)
Total capital deficiency		(920,495	)		(1,019,400	)
T O T A L	$	10,179,299		$	10,037,816

The accompanying notes are part of these consolidated financial statements.

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ENHERENT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended March 31,
	2007			2006
Revenues:
Service revenue	$	7,149,806		$	6,615,724
Equipment and software revenue		397,707			435,401
Total revenues		7,547,513			7,051,125
Cost of revenues:
Cost of services		5,593,578			5,188,217
Cost of equipment and software		246,332			315,813
Cost of revenues		5,839,910			5,504,030
Gross profit		1,707,603			1,547,095
Operating expenses:
Selling, general and administrative		1,426,110			1,791,665
Depreciation and amortization expense		63,690			81,233
Total operating expenses		1,489,800			1,872,898
Operating income (loss)		217,803			(325,803	)
Interest expense		(164,897	)		(188,310	)
Income (loss) before income taxes		52,906			(514,113	)
Provision for income taxes		(3,000	)		(3,150	)
NET INCOME (LOSS)	$	49,906		$	(517,263	)
Basic net income (loss) per share	$	0.00		$	(0.01	)
Number of shares used in computing basic net income (loss) per share		50,661,451			50,360,340
Diluted net income (loss) per share	$	0.00		$	(0.01	)
Number of shares used in computing diluted net income (loss) per share		51,150,417			50,360,340

The accompanying notes are part of these consolidated financial statements.

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ENHERENT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2007			2006
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net income (loss)	$	49,906		$	(517,263	)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Depreciation and amortization		63,690			81,233
Stock based compensation		49,000			96,884
Bad debt expense		5,000			30,000
Deferred rent		—			(5,703	)
Deferred revenue		44,352			13,167
Changes in assets and liabilities:
Accounts receivable		(257,429	)		595,705
Prepaid expenses and other current assets		46,435			177,342
Prepaid and refundable taxes		—			1,484
Other assets		(1,315	)		—
Accounts payable, accrued expense and accrued compensation and benefits		(637,673	)		(661,079	)
Net cash used for operating activities		(638,034	)		(188,230	)
Cash flows from investing activities:
Purchase of furniture, fixtures, equipment and improvements		(1,732	)		(23,025	)
Net cash used for investing activities		(1,732	)		(23,025	)
Cash flows from financing activities:
Proceeds received from exercised stock options		—			500
Net proceeds under revolving loan		675,926			228,767
Principal payments on capital lease obligations		(10,511	)		(16,561	)
Repayment of other notes payable		(29,517	)		(26,913	)
Net cash provided by financing activities		635,898			185,793
NET DECREASE IN CASH AND CASH EQUIVALENTS		(3,868	)		(25,462	)
Cash and cash equivalents – January 1,		631,656			320,574
CASH AND CASH EQUIVALENTS – March 31,	$	627,788		$	295,112
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	123,348		$	152,278
Income taxes	$	3,213		$	1,666

The accompanying notes are part of these consolidated financial statements.

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ENHERENT CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation:

The unaudited condensed consolidated financial statements of enherent Corp. (the “Company”) 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 unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring entries) 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 period ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated December 31, 2006 financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K.

2. Income (Loss) Per Share:

The following table sets forth the computation of basic and diluted income (loss) per share:

	Three months ended March 31,
	2007		2006
Numerator:
Net income (loss)	$	49,906	$	(517,263	)
Denominator:
Weighted average of shares outstanding
Basic		50,661,451		50,360,340
Diluted		51,150,417		50,360,340
Basic income (loss) per share	$	0.00	$	(0.01	)
Diluted income (loss) per share	$	0.00	$	(0.01	)

Dilution is caused by issued and outstanding options. For the 2006 period in which the Company incurred a net loss, the computation for net loss per share excludes the effect of stock options as they were antidilutive.

3. Stock-Based Compensation:

Prior to January 1, 2006, the Company accounted for stock options issued pursuant to its stock option plans (the “Plans”) under the recognition and measurement provisions of APB Opinion No. 25, as permitted by SFAS No. 123. Consequently, no stock-based compensation cost relating to stock options was recognized in the consolidated statement of income for any period prior to 2006, as all options granted under the Plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value provisions for share-based awards pursuant to SFAS No. 123(R), using the modified-prospective-transition method. Under that transition method, compensation cost recognized in 2006 includes (a) compensation cost for all share-based awards granted prior to, but not yet vested as of January 1, 2006, based on the attribution method and grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all share-based awards granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R) and recognized on a straight line basis over the shorter of the vesting or requisite service periods.

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In determining the estimated fair value of its stock options as of the date of grant, the Company used the Black-Scholes option pricing model with the following assumptions:

	March 31,
	2007		2006
Risk-free interest rate	4.75	%	5.25	%
Dividend yield	0	%	0	%
Volatility factors of the expected market price for our common stock	67.00	%	49.00	%
Weighted average expected life of options	10 years		10 years

The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in the Company’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s employee stock options.

4. 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.

5. Income Taxes:

At December 31, 2006, the Company had federal net operating loss carry forwards of approximately $52.5 million and state net operating loss carry forwards of approximately $55.8 million that begin to expire in 2018. However, as a result of the Company’s merger with Dynax Solutions, Inc. (“Dynax”) on April 1, 2005 (the “Merger”), the amount of net operating loss carry forwards available to be utilized in reduction of future taxable income was reduced to approximately $660,000 annually pursuant to the change in control provisions of Section 382 of the Internal Revenue Code, plus any losses incurred after the Merger. Due to the uncertainty of its ability to utilize the deferred tax assets relating to the loss carry forwards and other temporary differences between tax and financial reporting purposes, the Company has recorded a valuation allowance equal to the related deferred tax assets. If the Company generates U.S. taxable income in future periods, reversal of this valuation allowance could have a significant positive impact on net income. As a result of the existence of the valuation allowance, no tax provision was required for the three months ended March 31, 2007, except for certain state and local taxes which are not based on current earnings.

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, treatment of interest and penalties, and disclosure of such positions. FIN 48 is being applied prospectively and will be effective for fiscal years beginning after December 31, 2006. Effective January 1, 2007, the Company adopted the provisions of FIN 48, as required. As a result of implementing FIN 48, there has been no adjustment to the Company’s financial statements and the adoption of FIN 48 is not anticipated to have a material effect on the Company’s consolidated financial statements for the year ending December 31, 2007.

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

The following discussion provides information that management believes is relevant to an assessment and an understanding of the operations and financial condition of enherent Corp. (the “Company”). This discussion should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

Overview

General

enherent is an information technology services firm with a primary focus of providing clients with: (a) consultative resources including technology staffing; and (b) teams of technical consultants trained in the delivery of solutions related to systems integration, network and security, and application services. Our consultative resource services allow clients to use enherent consultants to address strategic technology resource demands. Our solutions services offerings combine project management, technical and industry expertise, and as required, software product licenses and computer equipment to deliver business value. enherent’s core competencies are project management, business requirements definition, technical application, data architecture, system design, application code development, test strategy, planning, execution and deployment.

enherent is an IBM premier business partner. enherent leverages the IBM partnership to train and certify sales personnel in the IBM solutions selling process and the functions, features and benefits of IBM products. enherent leverages IBM’s technical training to train and certify its consultants in the IBM products that we use to support our application and system integration solutions. enherent purchases equipment products for resale from Agilysys, an IBM value added distributor. IBM offers several incentive programs to its partners including purchase discounts, vendor incentive programs and sales rebates. Incentive programs are at the discretion of IBM and usually require achievement of a specific sales volume or growth rate within a specified time period to qualify for all, or some, of the incentive programs.

enherent’s principal offices are located at 101 Eisenhower Parkway, Suite 300, Roseland, New Jersey and its client base is concentrated in Connecticut, New York and New Jersey.

Critical Accounting Policies

Use of Estimates

As described in Note 1 thereto, 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 Item 10-01 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.

In preparing the Company’s condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States, the Company uses certain estimates and assumptions that affect the reported amounts and related disclosures. The Company considers the following accounting policies as those most important to the portrayal of its financial condition and those that require the most subjective judgment. Although the Company believes that its estimates and assumptions are reasonable, actual results may differ, and such differences could be significant to its financial results.

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Revenue Recognition

The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement, the product has been shipped or the services have been provided to the customer, the sales price is fixed or determinable and collectibility is reasonably assured. In addition to the aforementioned general policy, the following are the specific revenue recognition policies for each major category of revenue:

Consulting Services:The terms of service contracts generally are for periods of less than one year. Revenue from time and material service contracts is recognized as the services are provided. Revenue from services requiring the delivery of unique products and/or services is recognized based on the completion of milestones. Provisions for losses are recognized during the period in which the loss first becomes apparent. Revenue from service maintenance is recognized over the contractual period or as the service is performed. In some of the Company’s services contracts, the Company bills the customer prior to performing the service. This situation gives rise to deferred income. In other services contracts, the Company performs services prior to billing the customer. This situation gives rise to unbilled accounts receivable, which are included in accounts receivable in the consolidated balance sheet. In these circumstances, billing usually occurs shortly after the Company performs the services.

Software: Revenue from the sale of one-time charge licensed software is recognized at the inception of the license term.

Equipment:Revenue from the sale of equipment is recognized when the product is shipped to the customer and there are no unfulfilled Company obligations that affect the customer’s final acceptance of the equipment.

Accounts Receivable — Allowance for Doubtful Accounts

The Company’s accounts receivable balance is reported net of allowances for amounts not expected to be collected from clients. The Company regularly evaluates the collectibility of amounts owed to it based on the ability of the debtor to make payment. In the event the Company’s evaluation indicates that a customer may be unable to satisfy its obligation, the Company will record a reserve to reflect this anticipated loss. The Company periodically reviews the requirements, and adequacy of the reserve, for doubtful accounts.

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. 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.

Goodwill and Other Intangible Assets

In June 2001, Statement of Financial Accounting Standards No. 142 (“SFAS 142”) “Goodwill and Other Intangible Assets” was issued. Under SFAS 142, goodwill is no longer amortized after December 31, 2001. It must, however, be evaluated for impairment at least annually and any losses due to impairment are recognized in earnings. SFAS 142 became effective for the Company on January 1, 2002. The Company’s goodwill and other intangibles were evaluated for impairment as of March 31, 2007. The Company determined that these assets had not been impaired and no losses should be recognized based on this evaluation.

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In August 2001, Statement of Financial Accounting Standards No. 144 (“SFAS 144”) “Accounting for the Impairment or Disposal of Long-Lived Assets” was issued. Under SFAS 144, the Company is required to test long-lived assets other than goodwill for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable.

Results of Operations:

Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006

Service Revenues:

Service revenues increased 8.1% to $7.1 million for the three months ended March 31, 2007 from $6.6 million for the three months ended March 31, 2006. The increase was attributable primarily to the increase in the number of billable consultants deployed at certain key customers as a result of new project initiatives at these customers.

Gross profit from service revenues increased 9.0% to $1.6 million for the three months ended March 31, 2007 from $1.4 million for the three months ended March 31, 2006. The increase in gross profit was attributable primarily to the additional revenue generated from the increase in billable consultants deployed at certain key customers.

Gross profit as a percentage of service revenues increased to 21.8% for the three months ended March 31, 2007 from 21.6% for the three months ended March 31, 2006. The increase in gross profit percentage was attributable primarily to higher gross profit margins and higher bill rates on certain time and material based client engagements.

Equipment and Software Revenues:

Equipment and software revenues decreased 8.7% to $398,000 for the three months ended March 31, 2007 from $435,000 for the three months ended March 31, 2006. The decrease in equipment and software revenues was attributable primarily to the focus of Company’s sales personnel on closing fewer equipment and software sales transactions but at higher margins.

Gross profit from equipment and software revenues increased 26.6% to $151,000 for the three-month period ended March 31, 2007 from $120,000 for the three-month period ended March 31, 2006. The increase in gross profit was attributable primarily to the stronger gross profit from the sale of hardware products during the three-month period ended March 31, 2007.

Gross profit as a percentage of revenue depends on various factors outside of the Company’s control. These factors may include vendor rebates, incentive programs and the number of clients utilizing third-party leasing arrangements to finance their purchase. When a client purchases equipment directly from enherent, the Company recognizes the gross revenue from the sale and its associated cost. If a client utilizes a third party leasing arrangement to finance its purchase, the Company recognizes only the net commission revenue versus the gross revenue.

Gross profit as a percentage of equipment and software revenues increased to 38.1% for the three months ended March 31, 2007 from 27.5% for the three months ended March 31, 2006, as a result of the focus of Company’s sales personnel on closing fewer equipment and software sales transactions but at higher margins.

Operating Expenses:

Operating expenses decreased 20.5% to $1.5 million for the three months ended March 31, 2007 from $1.9 million for the three months ended March 31, 2006. The decrease was due primarily to cost reductions made by the Company that resulted in a relative decrease in selling and recruiting payroll costs, general and administrative payroll costs and other operating expenses during the three months ended March 31, 2007.

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Interest Expense:

Interest expense decreased 12.4% to $165,000 for the three months ended March 31, 2007 from $188,000 for the three months ended March 31, 2006. The decrease was due primarily to improved operating income, which resulted in a decreased average balance on the revolving line of credit.

Provision for Income Taxes:

Provision for income taxes relates primarily to revenue-based and minimum state taxes and was positively impacted from the availability of net operating loss carry forwards, not previously recognized for financial accounting purposes.

Net Income (Loss):

Net income increased to $50,000 for the three months ended March 31, 2007 from a net loss of $517,000 for the three months ended March 31, 2006. The change in net income was due primarily to the increase in gross profit from service, equipment and software revenues along with a reduction in operating expenses during the three months ended March 31, 2007.

Net Income (Loss) Per Share:

The net income per share data for the three-month periods ended March 31, 2007 is based on the Company’s average outstanding shares for the quarter (basic) plus its dilutive outstanding stock options for that period (fully-diluted). Loss per share information has been computed based on the weighted average number of Company shares outstanding for the three-month period ended March 31, 2006. Outstanding stock options were anti-dilutive and not considered in the calculation of loss per share for that period.

Liquidity and Capital Resources:

On April 1, 2005, following the consummation of the Merger, we entered into an Amended and Restated Credit Agreement, dated April 1, 2005, among us and Ableco Finance LLC (“Ableco”) as lender and agent (the “Amended Credit Agreement”). The Amended Credit Agreement with Ableco provided us with a three-year extension of the revolving credit facility previously maintained by Dynax, and assumed by enherent in the Merger, and an increase in the revolving credit facility from $4.0 million to $6.0 million. The Amended Credit Agreement also amended the terms of the Term Loan B, which was previously maintained by Dynax and was assumed by enherent in the merger. The credit facility is secured by a first lien on all of our tangible and intangible assets. The Term Loan B is secured by a subordinated lien on all of our tangible and intangible assets.

Borrowings under the revolving credit facility bear interest at 3% above the greater of: (a) the prime rate; or (b) 7.75% per annum, payable monthly and are limited, in general, to 85% of eligible accounts receivable and 80% of the net amount of unbilled accounts receivable. As of March 31, 2007, the balance outstanding under the revolving credit facility was $3.5 million. The Term Loan B is payable in semi-annual installments of principal of $212,500 commencing October 1, 2007, with such installments increasing to $425,000 on October 1, 2009, together with annual interest at a rate of 3%, to April 1, 2010. As of March 31, 2007, the outstanding principal balance of the Term Loan B was $1,700,000.

The holders of the enherent Preferred Stock (the “Preferred Stockholders”) had a redemption right, exercisable at their option, after January 16, 2006, at a value of $1.00 per share. With the consummation of the Merger, on April 1, 2005, all of the shares of outstanding Preferred Stock have been converted in a non-cash exchange for an aggregate of 8,500,000 shares of enherent common stock and four subordinated secured notes in the aggregate principal amount of $1,600,000. According to the terms of three of the promissory notes (having an aggregate principal amount of $1,412,000), 6% interest on the amount outstanding shall be payable in arrears. These

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three notes have terms of five years and no principal payments shall be owed in the first twenty-nine months ending September 1, 2007. Thereafter, semi-annual principal payments of $177,000 shall be due for the following two years and for the last year semi-annual principal payments of $353,000 shall be due. According to the terms of the fourth note in the principal amount of $188,000, no interest is charged. This note has a term of two years and quarterly principal payments in the amount of $23,000. The Company made one installment payment under the terms of this note in 2005. All past due principal bears interest at 12% until paid. The 12% past-due interest rate will increase by an additional 2% every six months that a past-due amount remains outstanding, such that it will increase to 14% if a past-due amount remains outstanding for six months, 16% if a past-due amount remains outstanding for twelve months, and 18% if a past-due amount remains outstanding for 18 months. The past-due interest rate will never exceed 18%. The Company has accrued interest on all past-due amounts in accordance with the terms of the note. As of March 31, 2007, $164,066 was past due bearing a blended interest rate of approximately 14%.

The Company entered into an Intercreditor and Subordination Agreement dated April 1, 2005 among the Company, certain subsidiaries listed therein, Ableco and the Preferred Stockholders to define the rights of and evidence the priorities among those creditors. The credit facility is secured by a first lien on all tangible and intangible assets of the Company. The Term Loan B and the notes issued to the Preferred Stockholders are secured on a pari passu basis by liens on all tangible and intangible assets of the Company, which liens are subordinated to the lien securing the credit facility.

The Company has three subordinated notes relating to prior Dynax acquisitions bearing interest rates of between prime and prime plus 1%. As of March 31, 2007, the aggregate balance outstanding was $725,000, representing $457,000 of principal and $268,000 of accrued interest. The acquisition notes are subordinated to Ableco. Any payments of principal or interest on the indebtedness will be subordinated in accordance with the terms and conditions of the senior secured lender. No payments were made subsequent to March 31, 2004.

The Company has a three-year $150,000 note payable relating to the repurchase of enherent’s Preferred Stock in 2004 bearing interest of 4%. Annual principal payments of $50,000 are due commencing April 15, 2005. As of March 31, 2007, the principal balance outstanding was $50,000.

The Company has compensation payable to a former board chairman of Dynax pursuant to the terms of a separation agreement. Amounts owed under the separation agreement are payable in quarterly installments of $31,000 bearing imputed interest of 8.6% through March 2008. As of March 31, 2007, the balance outstanding was $121,000.

As of March 31,2007, the Company’s long-term obligations with maturities of less than one year totaling $4.4 million consist of the Ableco revolving asset based credit facility of $3.5 million, capital leases of $37,000, compensation payable to the former chairman of $121,000, and subordinated notes in the aggregate amount of $780,000.

Cash and cash equivalents were $628,000 at March 31, 2007 compared to $632,000 at December 31, 2006.

Cash flow used for operations was $638,000 during the three months ended March 31, 2007. The primary uses of cash during the three months ended March 31, 2007 were to reduce the Company’s trade accounts payable and to fund an increase in accounts receivable. The Company generated negative cash flow from operations of $188,000 during the three months ended March 31, 2006. The primary use of cash during the three months ended March 31, 2006 was to fund operating losses and interest expenses.

Cash used in investing activities for the three-month period ended March 31, 2007 was $2,000 related to the purchase of computers and office equipment. Cash used in investing activities for the three-month period ended March 31, 2006 was $23,000 relating to computers, software upgrades and office equipment.

Cash provided by financing activities for the three months ended March 31, 2007 was $636,000, consisting of net proceeds from the revolving credit facility of $676,000, offset by principal repayments of long-term debt and capital leases of $40,000. Cash provided by financing activities for the three months ended March 31, 2006 was $186,000, consisting of net proceeds from the revolving credit facility of $229,000, offset by principal repayments of long term debt and capital leases of $43,000.

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The Company’s accounts receivable were $4.6 million at March 31, 2007 and $4.3 million at December 31, 2006, respectively. Billed days sales outstanding (DSO), net of allowance for doubtful accounts, were 55 days as of March 31, 2007 and 49 days as of December 31, 2006. The increase in DSO was primarily the result of slower collections during the three-month period ended March 31, 2007 from certain customers.

Inflation did not have a material impact on enherent’s revenue or loss from operations.

The Company’s working capital deficiency was $2.8 million and $2.7 million as of March 31, 2007 and December 31, 2006, respectively. The working capital deficiency arose primarily because the outstanding balance ($3.5 million at March 31, 2007 and $2.9 million at December 31, 2006) due under the revolving credit agreement with Ableco, which expires in March 2008.

Off-Balance Sheet Arrangement:

The Company has not created, and is not a party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating parts of its business that are not consolidated into our financial statements. The Company does not have any other arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations and Commercial Commitments:

The following table of contractual obligations sets forth the contractual obligations of enherent as of March 31, 2007:

	Payments due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Long-Term Debt Obligations	$	7,432,563	$	4,428,865	$	2,816,875	$	186,823	$	—
Capital Lease Obligations		48,483		37,201		11,282		—		—
Operating Lease Obligations		967,621		397,570		570,051		—		—
Total	$	8, 448,667	$	4,863,636	$	3,398,208	$	186,823	$	—

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Forward-looking and Cautionary Statements:

This report contains forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. These forward-looking statements include information about possible or assumed future results of enherent’s operations. Statements made in this SEC filing that are qualified with words such as“anticipates,” “would”, “believes,” “expects,” “estimate,” “predict,” “plan,”, “project,” “will,” “should,” “intend” and similar expressions as they relate to enherent or its management are intended to identify such forward-looking statements.Many possible events or factors could affect enherent’s future financial results and performance, causing enherent’s results or performance to differ materially from those expressed in enherent’s forward-looking statements.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; (iv) the Company’s ability to recruit and retain IT professionals; and (v) 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 March 31, 2007, 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, 2006.

Item 4. Controls and Procedures.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 Chief 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 Chief 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 March 31, 2007. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2007.

There was no change in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the fiscal quarter ended March 31, 2007 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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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 1A. Risk Factors

The Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2006 includes a detailed discussion of the Company’s risk factors. There have been no material changes to the risk factors that were included in the Form 10-K during the first three months of fiscal 2007.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On January 1, 2007, the Company entered into an agreement with Network 1 Financial Services, Inc., which provides certain consulting services to the Company (the “Consultant”), pursuant to which the Company agreed to issue to the Consultant, or its designee, a minimum of 300,000 shares and a maximum of 500,000 shares of the Company’s common stock. The consideration for the issuance was the provision of consulting services by the Consultant to the Company. The issuance was made by the Company in a private placement in reliance on Section 4(2) of the Securities Act of 1933, as amended.

Item 6. Exhibits.

See Exhibit Index.

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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.
DATE	May 10, 2007	BY:	/s/ Pamela A. Fredette
			Pamela A. Fredette
			Chairman, Chief Executive Officer and President
DATE	May 10, 2007	BY:	/s/ Karl Brenza
			Karl Brenza
			Chief Financial Officer

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EXHIBIT INDEX

Exhibit Number	Description of Exhibit
2.1	Agreement and Plan of Merger dated as of October 12, 2004, by and between the Company and Dynax Solutions, Inc. (Incorporated by reference to Exhibit 2.1 of the Company’s Quarterly Report on Form 10-Q filed November 15, 2004).
2.2	First Amendment to Agreement and Plan of Merger dated as of November 4, 2004, by and between the Company and Dynax Solutions, Inc. (Incorporated by reference to Exhibit 2.2 of the Company’s Quarterly Report on Form 10-Q filed November 15, 2004).
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 the Company (Incorporated by reference to Exhibit 3.1 of the Company’s Annual Report on Form 10-K filed April 4, 2001).
3.3	Certificate of Amendment of Restated Certificate of Incorporation of the Company as filed with the Secretary of State of Delaware on April 1, 2005 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2005).
3.4	Certificate of Merger merging Dynax Solutions, Inc. into the Company as filed with the Secretary of State of Delaware on April 1, 2005 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2005).
3.5	Amended and Restated Bylaws, as amended through April 22, 2005 (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed April 27, 2005).
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 as of April 13, 2000, by and among the Company and the Investors named therein (Incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed April 14, 2000).
4.3	Preferred Stock Agreement dated as of October 28, 2004, by and among the Company and the Preferred Stockholders named therein (Incorporated by reference to Exhibit 4.5 of the Company’s Quarterly Report on Form 10-Q filed November 15, 2004).
10.1	Employment Agreement effective April 1, 2006 between Lori Stanley and the Company (Incorporated by reference to Exhibit 10-1 of the Company’s Quarterly Report on Form 10-Q filed August 14, 2006).
10.2	Employment Agreement dated April 1, 2005 between Roger DiPiano and the Company (Incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K filed on April 6, 2005).
10.3	Amended and Restated 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 of the Company’s Form S-8 filed January 22, 1998).
10.4	Stock Purchase Agreement dated as of April 1, 2004, by and between the Company and Primesoft, LLC (Incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed May 7, 2004).

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10.5	Promissory Note dated April 1, 2004, by and between the Company and Primesoft, LLC (Incorporated by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q filed May 7, 2004).
10.6	Non-Qualified Stock Option Agreement dated September 14, 2004, by and between the Company and Douglas Mellinger (Incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed November 15, 2004).
10.7	Agreement dated September 14, 2004, by and between the Company and Douglas Mellinger (Incorporated by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q filed November 15, 2004).
10.8	Restricted Stock Agreement dated October 5, 2004, by and between the Company and Douglas Catalano (Incorporated by reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q filed November 15, 2004).
10.9	Amended and Restated Credit Agreement among the Company, certain subsidiaries listed therein, Ableco Finance LLC and certain lenders party thereto dated as of April 1, 2005 (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on April 6, 2005).
10.10	Intercreditor and Subordination Agreement among the Company, certain subsidiaries listed therein, Ableco Finance LLC and certain lenders party thereto dated as of April 1, 2005 (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on April 6, 2005).
10.11	Consulting Agreement dated April 1, 2005 between Douglas Catalano and the Company (Incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed on April 6, 2005).
10.12	Forms of Grant Agreements pursuant to 2005 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on June 7, 2005).
10.13	Employment Agreement executed on June 8, 2005, but effective April 1, 2005 between Pamela Fredette and the Company (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on June 10, 2005).
10.14	2005 Management Incentive Compensation Plan, adopted May 10, 2005 (Incorporated by reference to Exhibit 10.15 of the Company’s Quarterly Report on Form 10-Q filed August 12, 2005).
10.15	Director Compensation Plan, adopted May 10, 2005 (Incorporated by reference to Exhibit 10.16 of the Company’s Quarterly Report on Form 10-Q filed on August 12, 2005).
10.16	Employment Agreement between the Company and Karl Brenza executed on August 15, 2005 (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on August 19, 2005).
10.17	Restricted Stock Agreement between the Company and Karl Brenza executed on August 15, 2005 (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on August 19, 2005).
10.18	Stock Option Award Agreement between the Company and Karl Brenza executed on August 15, 2005 (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on August 19, 2005).

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10.19	Form of Indemnification Agreement between the Company and each of its directors entered into as of September 20, 2005 (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on September 22, 2005).
10.20	Amendment to Agreement by and between the Company and Douglas K. Mellinger dated as of December 31, 2005 (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on January 6, 2006).
10.21	Agreement by and between the Company and Thomas Minerva dated as of January 9, 2006 (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on January 13, 2006).
10.22	Non-Qualified Stock Option Award Agreement by and between the Company and Thomas Minerva dated as of January 9, 2006 (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on January 13, 2006).
10.23	First Amendment to Amended and Restated Financing Agreement, dated as of March 6, 2006, by and among the Company, certain subsidiaries listed therein, Ableco Finance LLC and certain lenders party thereto (Incorporated by reference to Exhibit 10.24 of the Company’s Quarterly Report on Form 10-Q filed on May 15, 2006).
10.24	2005 Stock Incentive Plan, as amended and restated as of May 23, 2006 (Incorporated by reference to Annex C of the Company’s Definitive Proxy Statement filed April 26, 2006).
10.25	Master Consulting Agreement by and between The Wedgewood Group, LLC and the Company, dated as of October 6, 2006 (Incorporated by reference to Exhibit 10-1 of the Company’s Quarterly Report on Form 10-Q filed November 13, 2006).
31.1	Certification of the 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 Principal 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 Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2	Certification of the Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

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