Zanett Inc. (ZANE): Their Revenue/Press Release Games & Their CEO Who Likes To Party - Timothy Sykes

Zanett Inc. (ZANE): Their Revenue/Press Release Games & Their CEO Who Likes To Party

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As of the time I am writing this blog post, I have re-shorted 7,000 shares of ZANE at $3.05 after making a few hundred dollars on it today, and TIMalert subscribers, PennyStocking Silver subscribers and I made $20,000+ shorting this thing the other day with individual TIMalert subscribers enjoying solid profits (shorted in the high 2s, covered in the low 2s) and saying stuff like:

‘Crushed it’ on ZANE for $2,193 —–> Thanks for the alert Tim!!!!
-whizzler

+820 on ZANE, out at 2.26. Nice call, Tim!
-Darthtrader

+1680 unrealized shorting ZANE from 2.79. Thanks Tim\Reaper and those in chat for a great trading day. +1000 going long on GLRP from .76 to 1.26…That brings my daily total to +2780
-Scott W.

Those of you have my instructional DVD packages, especially PennyStocking Part Deux and TIMfundamentals Part Deux, know ZANE’s chart to be a Supernova pattern and this kind of a chart in a penny stock company that has never had ANY business success, especially when they just received a NASDAQ delisting notice one day prior, is usually an ideal time to go short/sell:

zanerise

But what makes that scary for short sellers is that the runup is due to last Thursday’s March 4th press release announcing $12 million in “new business” where “Dennis Harkins, President of Zanett, said, “All I can say is… Business is booming…!”….he continued “Last quarter (Q4 2009) was a record quarter at Zanett as far as contracts closed, with over $13.7 million signed. Zanett management believes that, at this rate, this quarter (Q1 2010) will easily overtake last quarter and be a new in-house quarterly record.”

No matter that the press release came out pre-market and the stock barely budged until noon (a sign that the news isn’t all that wonderful, it’s more momentum traders piling in), that’s very positive news for a company’s whose past 4 quarters financials aren’t exactly inspiring…especially when the company only has $88,000 in cash (read the long SEC filing, go fish):

zanefinances

So the question becomes is this $12 million in “new business” totally brand new meaning that if they do their typical $10 million-ish/quarter in sales, they will do $20+ million this quarter (at which point you gotta figure they’ll turn a profit)? If so, then today’s current market of $25 million, up from $4 million just three trading days ago, could be justified.

Unfortunately for ZANE, their past press releases give them away, as they reported in a similar January 13th press release which caused the stock to spike from 33 cents/share to 41 cents/share (before returning to the 30 cent/share range which it held onto all the way until this latest PR), ZANE “announced it has signed 99 new contracts during the fourth quarter worth approximately $13.7 million.” and “As a tell-tale sign, we believe that the Q4 contract activity is an indication of the investments we made during 2009. We further believe that these investments, particularly in the healthcare practice, will dramatically impact our operations in 2010. Therefore, we are providing revenue guidance in Q1 of 2010 to be an increase of 10%-12% over the revenue of Q4 of 2009.”

Do you catch my drift or are you a typical penny stock jackal? I’ll make it easy: in January, they announced Q1 would beat Q4 by 10-12%, now in March they say “this quarter (Q1 2010) will easily overtake last quarter and be a new in-house quarterly record.” meaning maybe, just maybe Q1 2010 is now going to be up a bit more than the 10-12% they were previously expecting, but a $20+ million quarter isn’t likely.

Especially considering that in the March 3rd NASDAQ delisting press release, Dennis Harkins, Zanett’s President stated “At $43 million in revenues….” which is actually down from $47.7M in 2008, up slightly from $40.9M in 2007 and down slightly from $45.2M in 2006…oh burnnnnnnnn, don’t you just hate it when Yahoo! Finance has a nice page that shows how absolutely dismal this company’s growth over the past few years has been?

More likely, ZANE’s “$12 million in “new business” press release obscures the definition of “new business”–and I’m just guessing, but maybe some multi-month or multi-year contract ended in December 2009 and they re-signed that contract in January or February so technically it’s legal to claim it as “new business”….I don’t know I’m not a lawyer.

What I do know is that none of these press releases mention ANYTHING about profitability so any large jump in revenues seems out of the question….especially when you consider that same extraordinarily detailed profile on Answers.com shows how ZANE’s co-founders David M. McCarthy and Claudio Guazzoni “founded Zanett Securities” which “focused on privately placed equity investments in public companies”

That’s right the two co-founders are PIPE masters (McCarthy actually sold his stake to Claudio and now runs his own PIPE/fundraising/IR shop BirkHill Group) and TIMalert subscribers know from countless Supernovas of days, weeks, months and years past, this kind of a multi-day spike with a penny stock with a horrific track record and cash and debt problems is likely to end with a PIPE financing deal done at discount prices that will crush the stock from current prices…and that’s what I’m betting on.

Never mentioned in any press release, ZANE’s SEC filings show the CEO’s uncle is basically funding the company and reaping some hefty interest, a cool $700,000+ in 2008 and throwing in an astounding $4.6 million last year (hmmmm why loan the company that $ when you could’ve bought the entire company for that much…Bruno, Bruno, Bruno, what did your nephew CEO Claudio say to convince you to put up all that money?)

On March 18, 2008, the Company repaid all amounts outstanding on three promissory notes in an aggregate principal amount of $1,500,000 issued to Bruno Guazzoni, the uncle of Zanett’s Chief Executive Officer, Claudio Guazzoni, and the owner of approximately 27% of Zanett’s outstanding common stock. In 2008, the Company paid $790,125 in interest on promissory notes issued to Bruno Guazzoni

On March 15, 2009, ZCS replaced two promissory notes, one for $1,500,000 and the other for $3,075,000, both entered into on December 30, 2005 with Bruno Guazzoni, with a combined promissory note for $4,575,000 having a maturity date of March 15, 2010.

CEO Claudio doesn’t seem to care that his company has bigtime financing problems as he’s a regular on the New York Social scene, check him out below partying in Venice:

claudio

…and again at Fashion Week 2010:

claudio2

Hey, Claudio, I don’t hold it against you, if I had a wealthy uncle funding my consistently-money-losing business, I’d go out and party a lot too…after all, your uncle wouldn’t refuse to help you and leave the company helpless especially since he owns a big stake in, right?

Long story short I don’t think there’s ANY growth here, it looks to be all smoke and mirrors. ZANE’s co-founder McCarthy was even pitching the whole “poised for rapid growth” to his college alumni magazine back in January 2008 which stated “When he left the company last year, it was poised for rapid growth, both organically and through acquisitions. “Although I no longer am CEO, I am a dedicated stockholder and am thrilled by the recent huge growth in the commercial segment of Zanett,” McCarthy says.”

Yeah right, 2008 was the year ZANE did $47.7 million in revenues…now as of March 3rd, 2010 they say they’re on track for $43 million.

Don’t believe me? Go read that long Answers.com profile of ZANE from 2007 which talks about how the company was once named “My Favorite Muffin” which inevitably ends with this sentence “In operation for just five years, Zanett appeared to be poised to enjoy strong growth in the years to come.”….it’s been three years since and revenues have grown from $41 million to $43 million, the company now has $88,000 in cash, lots of debts, is mainly financed by the party-loving CEO’s uncle and retained earnings of ($23+ million)….meaning $23 million in losses since founding.

Damn glad to be short here after the stock has runup 1,000% in three days on a sketchy press release and only TIMalert subscribers will know how I will trade this stock tomorrow as they will be alerted real-time.

Posted in Fess Up Time, Financing Deals, Short Selling

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7 comments

Timothy Sykes

Hey Everyone,

As many of you already know I grew up in a middle class family and didn't have many luxuries. But through trading I was able to change my circumstances --not just for me -- but for my parents as well. I now want to help you and thousands of other people from all around the world achieve similar results!

Which is why I've launched my millionaire challenge. I’m extremely determined to create a millionaire trader out of one my students and hopefully it will be you.

So when you get a chance make sure you check it out.

PS: Don't forget to check out my free Penny Stock Guide, it will teach you everything you need to know about trading. :)

  1. Becourbin

    Congrats Tim.
    Awesome research and very entertaining. This whole thing sounds like a soap opera script! Does the Uncle date the nephews ugly girlfriend for all the money he's loaned in the next episode?

  2. archeologist

    I don't know, I guess I'm still learning. The volume faded on IFLG and its still around $7, I was sure that was going to fall quicker.

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