Zanett Inc. Reports Operating Results (10-Q)
Zanett Inc. has a market cap of $18 million; its shares were traded at around $2.06 with and P/S ratio of 0.44. ZANE is in the portfolios of Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:Our selling and marketing expense was $1,365,643 for the quarter ended March 31, 2010, as compared with $1,618,774 during the quarter ended March 31, 2009. This decrease resulted from bad debt expense for the quarter ended March 31, 2010 of $0 compared to $336,668 for the same period in 2009, primarily relating to accounts receivable for two customers that filed for protection under Chapter 11 of the United States Bankruptcy Code. In addition to the decrease in bad debt expense we continue to invest in our marketing activities; this investment rose slightly in the first quarter of 2010 compared to the first quarter of 2009.
General and administrative expenses for the first quarter of 2010 were $1,485,317 as compared to $1,886,528 in the first quarter of 2009, representing a decrease of $401,211, or 21%. In the first quarter of 2010 there was no expense for stock based compensation for employees and contractors as compared to over $155,000 for the comparable period in 2009. In addition, reduced expenses in several other office related areas such as rent and IT infrastructure also contributed to the overall reduction in general and administrative expenses during the first quarter of 2010.
As a result of the above, for the quarter ended March 31, 2010, we reported net loss of $380,992 compared to net income of $332,291 for the quarter ended March 31, 2009. We recorded a $887,500 gain on the sale of PDI in the quarter ended March 31, 2009, which resulted in positive net income for that period.
Cash used in investing activities was $154,923 for the quarter ended March 31, 2010 compared to cash provided by investing activities of $540,834 for the corresponding period in 2009. The 2009 inflow primarily reflected proceeds of $720,833 from the PDI disposition. In 2010 we had additions to property and equipment of $107,423 as well as $47,500 of contingent consideration payments in the first quarter of 2010, as compared to $128,070 and $72,644, respectively, paid in the first quarter of 2009.
In March 2008 the Company sold all of the issued and 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 to the Company 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.
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 increased the maximum revolving loan limit to $6 million from $5 million and modified 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 waived the EBITDA covenant for the November 2008 calendar month and terminates the EBITDA covenant as of the date of the amendment. Further, the amendment raised the face amount of the borrowers eligible accounts receivable from 60% to 80%. At March 31, 2010, the outstanding loan balance was $3,550,982 with available borrowings of $954,986 . The credit facility matures on June 21, 2010.
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