Zanett Inc. (ZANE) filed Quarterly Report for the period ended 2009-03-31.
Zanett Inc. is an information technology holding company that delivers IT solutions to corporate and government clients throughout the United States through its operating subsidiaries collectively called the IT Commonwealth. The IT Commonwealth consists of four IT solutions companies:Back Bay Technologies Inc. Brandywine Computer Group Inc. Delta Communications Group Inc. and Paragon Dynamics Inc. Zanett Inc. has a market cap of $4.5 million; its shares were traded at around $0.6 with and P/S ratio of 0.1.
Highlight of Business Operations:At March 31, 2009 we had cash and cash equivalents of $52,971, representing a decrease of $397,333 from the December 31, 2008 year-end balance of $450,304.
Cash used in operating activities was $933,323 for the three months ended March 31, 2009 compared to cash used in operating activities of $800,311 for the same period last year. The cash used in operating activity of $933,323 for the three months ended March 31, 2009 was primarily due to an increase in accounts receivable, which was partially offset by a increase in accounts payable and accrued expenses.
Cash provided by investing activities was $540,834 for the quarter ended March 31, 2009 compared to cash provided of $7,558,379 for the corresponding period in 2008. The 2008 inflow primarily reflected proceeds of $8,092,758 for the PDI acquisition. In 2009 we received net cash from the sale of PDI of $720,833 and had additions to property and equipment of $128,070 as well as $72,644 of contingent consideration paid in 2009.
Cash used in financing activities for the three months ended March 31, 2009 was $4,844 versus $7,922,427 for the same period in 2008. This difference results from the March 2008 repayment of approximately $8,000,000 of loans with the proceeds from the PDI disposition.
In March 2008 the Company sold the outstanding common stock of PDI for cash to KOR Electronics. This transaction resulted in a cash payment of $8.7 million with a holdback amount of $875,000 that was paid on March 17, 2009. With the proceeds from this transaction, the Company repaid in full promissory notes in an aggregate principal amount of $3,000,000 owing to Bruno Guazzoni (described below) and approximately $5,000,000 of short term debt. The Company believes that the existing working capital is more than sufficient to cover its day to day needs.
On January 22, 2009, the Company and ZCS entered into a Fifth Amendment and Modification to Loan and Security Agreement and Other Loan Documents with Bank of America, N.A., as successor-by-merger to LaSalle. The amendment increases the maximum revolving loan limit to $6 million from $5 million and modifies the fixed charge coverage ratio test required by the loan agreement. As amended, the loan agreement requires the borrowers to maintain a fixed charge coverage ratio of not less than 1.25 to 1.0 for the twelve month period ended on December 31, 2008 and each twelve month period ending on the last day of each fiscal quarter thereafter. In addition, the loan agreement also waives the EBITDA covenant for the November 2008 calendar month and terminates the EBITDA covenant as of the date of the amendment. Further, the amendment raises the face amount of the borrowers eligible accounts receivable from 60% to 80%. At March 24, 2009, the outstanding loan balance was $4,618,780 with available borrowings of $1.7 million. The loan has an expiration date of December 21, 2009.
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