UNITED STATES

                    SECURITIES AND EXCHANGE COMMISSION

                           Washington, D.C. 20549

                                -------------
                                 FORM 10-KSB
                                -------------

|X|  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                 ACT OF 1934

                For the Fiscal Year Ended: December 31, 2003

                                      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: 0-32315

                                 ZANETT, INC.

                (Name of Small Business Issuer in Its Charter)

                Delaware                                      56-4389547
    --------------------------------                    --------------------
    (State or Other Jurisdiction of                        (I.R.S. Employer
     Incorporation or Organization)                       Identification No.)

135 East 57th Street, 15th Floor, New York, NY                  10022
----------------------------------------------                ----------
(Address of principal executive offices)                      (Zip Code)

                                (212) 980-4600

                               ----------------

                 (Issuer's telephone number, including area code)

                               ----------------

       Securities registered pursuant to Section 12(g) of the Exchange Act:

                                 Common Stock
                               ----------------
                               (Title of Class)

     Indicate by check mark whether the issuer: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that 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 if disclosure of delinquent filers in response
to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB. | |

      Issuer's net revenues for the year ended December 31, 2003 were
$17,048,808.

      The aggregate market value of the voting and non-voting common equity
held by non-affiliates as of April 02, 2004 is $2,322,609 based on the
closing price of the Registrant's common stock on such date of $3.00 as
reported by the Nasdaq Small Cap Market.

      There were 28,116,377 shares of common stock outstanding as of April
02, 2004.

INCORPORATION BY REFERENCE

      Certain information contained in Part III of this Annual Report on Form
10-KSB is incorporated by reference from the definitive proxy statement for
the 2004 Annual Meeting of Shareholders.
<PAGE>

                                 ZANETT, INC.
                         ANNUAL REPORT ON FORM 10-KSB
                          FOR THE FISCAL YEAR ENDED
                              DECEMBER 31, 2003

                               TABLE OF CONTENTS
                                                                         PAGE

                                    PART I
     Item 1.  Description of Business                                       5
     Item 2.  Description of Property                                       8
     Item 3.  Legal Proceedings                                             8
     Item 4.  Submission of Matters to a Vote of Security                   9
              Holders

                                    PART II

     Item 5.  Market for Common Equity and Related
              Stockholder Matters                                          10
     Item 6.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations                          14
     Item 7.  Financial Statements                                         35
     Item 8.  Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure                          35
     Item 8.a Controls and Procedures                                      35

                                   PART III
     Item 9.  Directors and Executive Officers of the Registrant           36
     Item 10. Executive Compensation                                       39
     Item 11. Security Ownership of Certain Beneficial Owners
              and Management and Related Stockholder Matters               39
     Item 12. Certain Relationships and Related Transactions               41
     Item 13. Exhibits and Reports on Form 8-K                             42
     Item 14. Principal Accountant Fees and Services                       44

<PAGE>


                                    PART I

As used herein, "Zanett" and the "Company" refer to Zanett, Inc. and its
wholly-owned, consolidated operating subsidiaries: Back Bay Technologies,
Inc. ("BBT"), Brandywine Computer Group, Inc. ("BCG"), Paragon Dynamics, Inc.
("PDI") and Delta Communications Group, Inc. ("Delta").

This Annual Report on Form 10-KSB includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements are subject to known and unknown risks,
uncertainties and assumptions about Zanett, its subsidiaries and its
affiliate companies that may cause the Company's actual results, levels of
activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements. In some cases, forward-looking
statements can be identified by terminology such as "may," "will," "should,"
"could," "would," "expect," "plan," "anticipate," "believe," "estimate,"
"continue," or the negative of such terms or other similar expressions. All
forward-looking statements in this Report are based on information available
to the Company as of the date this Report is filed with the Securities and
Exchange Commission (the "SEC"), and the Company assumes no obligation to
update any such forward-looking statements. Factors that could cause actual
results to differ materially from those expressed or implied by such forward-
looking statements include, but are not limited to, those factors listed at
"Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Certain Factors That May Affect the Company's Future
Performance." The Company undertakes no obligation to release publicly the
results of any future revisions it may make to forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
<PAGE>

Item 1. Description of Business

Overview

Zanett is an information technology ("IT") holding company that provides
specialized IT solutions through its operating subsidiaries to Fortune 500
corporations, middle market companies and large government agencies.
Collectively, the Company and its operating subsidiaries are referred to as
the IT Commonwealth TM (the "IT Commonwealth" or "Commonwealth").

The Company seeks to grow both organically and by acquisition. Since the
Company was formed in 2000, four operating companies have been acquired.

On December 7, 2001, the Company acquired Back Bay Technologies, Inc.
("BBT"), based in Needham, MA. BBT is a technology consulting firm providing
strategic planning, analysis, business case development, vendor selection,
systems architecture, systems integration, full life cycle application
development and post-production support services.

On May 31, 2002, the Company acquired Brandywine Computer Group, Inc.
("BCG"), based in Mason, OH. BCG provides technology consulting services
associated with the implementation of enterprise resource planning ("ERP"),
supply chain management and customer relationship management ("CRM") systems.

On January 31, 2003, the Company acquired Paragon Dynamics, Inc. ("PDI"),
based in Denver, CO.  PDI specializes in providing advanced software and
satellite engineering services with domain area expertise on government and
aerospace satellite and IT infrastructure contracts.

On December 4, 2003, the Company acquired DeltaData, Inc. (dba Delta
Communications Group), based in Aliso Viejo, CA. which changed its name to
Delta Communications Group, Inc. ("Delta"). Delta is a voice and data
communications network integrator that sells IT hardware, peripheral
equipment and telecommunications lines for voice and data communications
networks and provides related IT security, design and implementation
solutions.

The IT Commonwealth model seeks to preserve the culture, management and
business practices that contributed to the success of the acquired entities
while leveraging cross-selling opportunities and achieving economies of
scale. Although each IT Commonwealth Member ("Commonwealth Member" or
"Member") continues to market its own products and services and individually
manage its own client relationships post acquisition, each Member also
becomes a source of leads to other IT Commonwealth Members.  The Company
encourages collaboration, knowledge-transfer, resource sharing and cross
marketing among Members, while seeking to preserve each Member's autonomy and
individual strengths.  To facilitate this collaborative process, regular
meetings are attended by the management of each Member and holding company
management.  The Commonwealth's overarching mission is to offer solutions
that meet or exceed client expectations, are delivered on time and within
budget, and achieve superior results.

Members can also avail themselves of centralized corporate services, such as:
legal support; financial and accounting assistance; human resource management
support; and data network management and maintenance.  By centralizing these
functions, IT Commonwealth Members can focus on their core skill sets and
seek to achieve the highest possible standards of service quality.

The Company has two reportable business segments, Commercial Solutions and
Government Solutions. For additional information regarding these segments,
refer to Note 5 to the Company's Consolidated Financial Statements.

The Company was incorporated in Delaware in 2000. At that time, its approach
to building shareholder value was to invest in and provide financial,
managerial and business plan consulting services to several concept-stage and
development-stage companies ("affiliate companies").  Each affiliate company
had developed or was developing technologies that leveraged the power of the
Internet to make business transactions, knowledge-management, data sharing or
communications more efficient and effective. During 2002, the Company's
investments in the affiliate companies were written off, with the exception
of its investment in Applied Discovery, Inc., which was sold in July 2003.


Name Change

On August 26, 2002, the Company changed its name from Planet Zanett, Inc. to
Zanett, Inc.


Customers

The Company's customer base consists primarily of large businesses and U.S.
government agencies with needs for IT solutions, including strategy and
systems architecture consulting, business application development, systems
implementation and integration, systems engineering and technical assistance
and IT hardware and peripheral equipment.

Currently, the Company is dependent on a limited number of customers for a
substantial portion of its revenues. During 2003, two customers accounted for
approximately 18% and 12% of net revenues. During 2002, three customers
accounted for approximately 20%, 17% and 12% of net revenues. Revenues
derived from BBT's and BCG's consulting contracts, and Delta's sales of data
and voice communication and related security hardware and service solutions
are generally non-recurring in nature. PDI's contracts, typically with
Fortune 500 aerospace and large consulting firms that serve as prime
contractors on large Defense Department projects, span from 6 months to 3
years. PDI thus has both recurring and non-recurring revenues.

To lessen its dependence on any one particular service line, customer or
group of customers, the Company intends to expand its customer base through
organic growth as well as through additional acquisitions.  See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Certain Factors Which May Affect the Company's Future Performance -
Dependence on Key Customers; Non-Recurring Revenue."


Competition

Each of the IT Commonwealth Members faces significant competition in its
individual markets. The Company believes competition will continue to grow
both from new entrants to the market as well as from existing participants,
such as software vendors expanding their sales into consulting, integration
and implementation services.

The Company believes that competition in the IT solutions market is based
upon the following factors:

      *  Speed of response to customer requests
      *  Flexibility and willingness to adapt to customer needs
      *  Responsiveness to customer demands
      *  Number and availability of qualified engineers and programmers
      *  Project management capability
      *  Technical expertise
      *  Size and reputation
      *  Brand recognition and geographic presence
      *  Price

IT Commonwealth Members compete with numerous large companies that have
substantially greater market presence and financial, technical, marketing and
other resources than the Company has, such as Accenture, IBM Global Services,
Keane, EDS and AT&T.  These competitors include (i) large information
technology consulting and service providers and application software firms;
(ii) international, national, regional and commercial Internet service
providers ("ISPs") who have consulting services divisions; (iii) established
on-line services companies; (iv) computer hardware, software and other
technology companies; (v) application service providers and (vi) major
accounting and consulting firms. Many of the Company's competitors have
expanded their service offerings over the past several years and increased
their focus on e-Business and the IT professional services markets, thus
increasing the number of organizations that are providing solutions similar
to those offered by the IT Commonwealth.

As a result of continued competition, the Company expects to encounter
pricing pressure, which in turn could result in reductions in the average
selling price of its solutions. There can be no assurance that the Company
will be able to offset the effects of any such price reductions through an
increase in the number of customer engagements, higher revenue from enhanced
services, cost reductions or otherwise. In addition, the Company believes
that continuing consolidation in the business and IT solutions market could
result in increased price pressure and other competition in the industry.

There is also a high degree of competition among companies seeking to acquire
interests in IT services companies such as those the Company targets for
acquisition.  A large number of established and well-financed entities,
including large IT consulting companies, systems integrators and venture
capital firms, are active in acquiring interests in companies that the
Company may also find to be desirable candidates to become IT Commonwealth
Members. Many of these entities have significantly greater financial
resources, technical expertise and managerial capabilities than the Company.
Consequently, the Company may be at a competitive disadvantage in negotiating
and executing possible acquisitions of these entities as many competitors
generally have greater access to capital than the Company. Although
entrepreneur-founders of privately held IT solutions companies may place
greater emphasis on the ease of access to capital than on obtaining the
management skills and networking services that Zanett can provide, management
believes that the IT Commonwealth offers unique and attractive benefits,
including the ability of the founders and management to preserve their
business culture and identity while leveraging the strengths of the IT
Commonwealth. Nonetheless, this kind of competition could limit the Company's
growth-by-acquisition strategy as the number of target Commonwealth Members
decreases.

See "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Certain Factors Which May Affect the Company's Future
Performance - Competition" for additional discussions of matters that could
affect its ability to compete in its markets.


Employees

As of December 31, 2003, the Company had 108 full-time employees, compared
with 61 full-time employees as of December 31, 2002. None of its employees
are currently covered by collective bargaining agreements and the Company
considers relations with its employees to be good.

Intellectual Property Rights

The Company relies upon a combination of trade secrets, nondisclosure and
other contractual arrangements, and copyright and trademark laws to protect
its proprietary rights. It enters into confidentiality agreements with its
employees, subcontractors, vendors, consultants and clients, and limits
access to and distribution of its proprietary information.
The Company's services involve the development of business and technology
solutions for specific client engagements. Ownership of these solutions is
the subject of negotiation and is frequently assigned to the client, although
the Company sometimes retains ownership of certain development tools and may
be granted a license to use the solutions for certain purposes. In certain
cases its clients have prohibited it from marketing the solutions developed
for them for specified periods of time or to specified third parties, and the
Company anticipates that certain of its clients will demand similar or other
restrictions in the future.

<PAGE>
Item 2. Description of Property

Zanett sublets approximately 1000 square feet of office space in New York,
New York, from The Zanett Securities Corporation ("Zanett Securities"), a
company owned by two of the principal shareholders of the Company. (See Item
12 - Certain Relationships and Related Transactions.) The Company's use of
this space and related facilities are subject to the terms of a management
services agreement between Zanett Securities and the Company. This agreement
expires in December 2005.

BBT leases approximately 2,468 square feet of office space in Needham,
Massachusetts, from a third party at a fixed monthly fee that expires in
September 2004 and may be renewed at BBT's option for a six month period.

BCG leases approximately 2,612 square feet of office space in Mason, Ohio,
and has additional offices in Louisville, Kentucky and Wilmington, Delaware.
These leases are with third parties at a fixed monthly fee and expire in July
2005, September 2004 and July 2004, respectively.

PDI leases approximately 3,064 square feet of office space in Aurora,
Colorado from a third party at a fixed monthly fee. This lease expires in
August 2008. PDI also leases a 200 square feet of office space in Colorado
Springs, CO on similar terms.

Delta leases approximately 1,007 square feet of office space in Aliso Viejo,
California from a third party at a fixed monthly fee. This lease expires in
August 2004.

The Company has no other properties and management believes that its office
space is currently adequate for its operating needs.


<PAGE>
Item 3. Legal Proceedings

In February 2000, the Company filed an action against Immunomedics, Inc. in
the U.S. District Court in Wilmington, Delaware, to recover fees and related
damages arising from Immunomedics' breach of an exclusive placement agency
agreement dated August 20, 1999. The Company is seeking damages in excess of
$500,000. Immunomedics asserted a counterclaim based on alleged delays in
obtaining financing. On April 17, 2002, this case and the ensuing
counterclaim were dismissed by the court with no settlement or award for
either party. The Company filed a motion for reconsideration of the court's
order, which was granted on June 12, 2002, and both parties filed motions for
summary judgment on August 9, 2002. On March 21, 2003, the court denied
Immunomedics' motion to dismiss the complaint and granted the Company's
motion dismissing the counterclaim. On January 26-27, 2004, a non jury trial
was held in U.S. District Court in Wilmington, DE. A decision by the court is
currently pending.

In March 2003, Gardner Resources Consulting LLC ("GRC") filed an action
against one of the Company's subsidiaries (the "Subsidiary") in the Superior
Court, Civil Action, Commonwealth of Massachusetts, to recover fees allegedly
owed by the Subsidiary pursuant to a Partnership Agreement dated July 5,
2001, under which the Subsidiary had agreed to pay GRC a percentage of gross
billings charged to a specific client of the Subsidiary. On April 3, 2003,
the Subsidiary filed an answer to GRC's claim and asserted a counterclaim
alleging GRC's breach of certain covenants under the Partnership Agreement.
On October 29, 2003, the Subsidiary received a demand letter from GRC's
counsel seeking approximately $146,000 in damages. By letter dated November
11, 2003, the Subsidiary responded to GRC's demand letter and made a
settlement proposal, which was subsequently rejected by GRC. The parties'
settlement negotiations are currently suspended. According to a notice of the
Superior Court dated February 13, 2004, the deadline for completion of
discovery is May 25, 2004 and the case is placed on the July 2004 pre-trial
conference list. The Company believes that its existing accrual in its
consolidated financial statements will be adequate to cover any potential
settlement with GRC.


<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders in the fourth
quarter of 2003.

<PAGE>

                                   PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

The following table sets forth the quarterly high and low sale prices for
Zanett's Common Stock, as reported in the NASDAQ Small Cap Market for the two
years ended December 31, 2003.  When Zanett was formed on October 30, 2000,
its Common Stock was traded under the symbol "INCU." Effective February 8,
2002, the ticker symbol was changed to and the stock began to trade under the
symbol "ZANE".

The following table shows quarterly low and high sales information for the
Common Stock for the two years ended December 31, 2003:
                                                         High       Low
                                                         -----      -----
Year Ended December 31, 2003                             $3.70      $2.00
      First Quarter                                      $2.25      $2.00
      Second Quarter                                     $2.99      $2.00
      Third Quarter                                      $3.70      $2.00
      Fourth Quarter                                     $3.60      $2.26

Year Ending December 31, 2002                            $2.98      $1.70
      First Quarter                                      $2.97      $2.01
      Second Quarter                                     $2.98      $2.01
      Third Quarter                                      $2.72      $2.00
      Fourth Quarter                                     $2.80      $1.70

Records of Zanett's stock transfer agent indicate that as of April 02, 2004,
there were 28,116,377 shares of Common Stock outstanding held by
approximately 216 holders on record and 1,358 holders whose shares are
legally held by a broker. The Company has not paid any cash dividends to date
and does not anticipate or contemplate paying cash dividends in the
foreseeable future. The Company plans to retain any earnings for use in the
operation of its business and to fund future growth, including acquisitions.



Recent Sales of Unregistered Securities

On January 27, 2002, the Company sold 480,000 unregistered shares of
restricted Common Stock to two of its executive officers at $2.00 per share
which was the price of the stock on the date of issuance. The shares were
fully vested upon issuance and the officers paid for the shares by issuing
full recourse promissory notes in the aggregate amount of $960,000.  The
shares are subject to a stock pledge agreement.  The notes mature on November
1, 2005 and bear interest, payable at maturity, at 5% per annum.  The sale of
these unregistered shares was made pursuant to the private placement
exemption under Section 4(2) of the Securities Act of 1933, as amended.

On January 31, 2002, the Company sold 50,000 unregistered shares of
restricted Common Stock in a private placement with two individuals.  The
shares were issued at $2.00 per share which was the price of the stock on the
date of issuance for total gross proceeds to the Company of $100,000.  These
proceeds were used to fund the operations and working capital requirements of
the Company and its subsidiaries.  The sale of these unregistered shares was
made pursuant to the private placement exemption under Section 4(2) of the
Securities Act of 1933, as amended.

On April 18, 2002, the Company entered into an agreement with a firm to
provide public relations services. As payment for these services, the Company
issued 28,666 shares of Common Stock valued at $61,632 based upon the closing
price of the stock of $2.15 on the date of the issuance. The issuance of
these unregistered shares was made pursuant to the private placement
exemption under Section 4(2) of the Securities Act of 1933, as amended.

On April 30, 2002, the Company sold 90,000 unregistered shares of restricted
Common Stock in a private placement to four individuals, one of whom is a
principal shareholder of the Company. The shares were issued at $2.00 per
share which was the price of the stock on the date of issuance for total
gross proceeds to the Company of $180,000. These funds were used to fund the
operations and working capital requirements of the Company and its
subsidiaries. The sale of these unregistered shares was made pursuant to the
private placement exemption under Section 4(2) of the Securities Act of 1933,
as amended.

Effective May 31, 2002, the Company issued 1,508,838 unregistered shares of
restricted Common Stock as part of the consideration for the acquisition of
BCG which were valued at $2.27 per share based on the average closing price
of the Common Stock for the three trading days immediately preceding the
closing based on the fact that the merger was executed and closed on the same
date. The issuance of these unregistered shares was made pursuant to the
private placement exemption under Section 4(2) of the Securities Act of 1933,
as amended.

On June 4, 2002, the Company sold 55,018 unregistered shares of restricted
Common Stock to one of its executive officers at the market price of $2.15
per share. The Company was issued a full recourse promissory note by the
officer as payment for these restricted shares of Common Stock in the
aggregate amount of $118,289. The note matures on November 1, 2005 and bears
interest, payable at maturity, at 5% per annum and is secured by the common
stock.  The issuance of these unregistered shares was made pursuant to the
private placement exemption under Section 4(2) of the Securities Act of 1933,
as amended.

In August 1, 2002, the Company issued 16,666 options to purchase the
Company's Common Stock to extend the services agreement with one of the
public relations firms discussed above for an additional three month period.
These options were issued with an exercise price of $2.00 per share, which
resulted in a stock compensation charge of $9,416 during the year ended
December 31, 2002, based on the fair value of the options calculated using
the Black-Scholes valuation model.

On August 5, 2002, the Company entered into an agreement with a firm to
provide public relations services for a two year period.  As part of the
compensation for these services, the Company issued 18,000 unregistered
shares of Common Stock. The shares were issued at $2.11 per share, which was
the closing price of the stock on the date of issuance. The issuance of these
unregistered shares was made pursuant to the private placement exemption
under Section 4(2) of the Securities Act of 1933, as amended.

On January 31, 2003, the Company issued 585,083 unregistered shares of
restricted Common Stock to the former PDI shareholders as the stock portion
of the initial purchase consideration to acquire PDI. The shares were valued
at $2.06 per share based on the average closing price of the Common Stock for
the three trading days immediately preceding the closing based on the fact
that the merger was executed and closed on the same date.  The issuance of
these unregistered shares was made pursuant to the private placement
exemption under Section 4(2) of the Securities Act of 1933, as amended.

 On April 2, 2003, the Company issued 190,000 unregistered shares of
restricted Common Stock to the BBT shareholders as the stock portion of the
contingent consideration paid based on BBT's operating performance for the 12
months ended December 31, 2002.  The shares were valued at $2.10 per share
based on the average closing price of the Common Stock for the three trading
days prior to December 31, 2002. The issuance of these unregistered shares
was made pursuant to the private placement exemption under Section 4(2) of
the Securities Act of 1933, as amended.

On May 5, 2003, the Company entered into an agreement with a firm to provide
public relations services for a two year period.  As part of the payment for
these services, the Company issued 10,000 shares of Common Stock. The shares
were valued at $2.00 per share which was the closing price of the stock on
the date of issuance. The issuance of these unregistered shares was made
pursuant to the private placement exemption under Section 4(2) of the
Securities Act of 1933, as amended.

On October 15, 2003, the Company entered into an agreement with a firm to
provide public relations services for a two year period.  As part of the
payment for these services, the Company issued 10,000 shares of Common Stock.
The shares were valued at $3.50 per share which was the closing price of the
Common Stock on the date of issuance. The issuance of these unregistered
shares was made pursuant to the private placement exemption under Section
4(2) of the Securities Act of 1933, as amended.

On October 27, 2003 the Company issued 369,146 unregistered shares of
restricted Common Stock to the BCG shareholders as the stock portion of the
contingent consideration paid based on BCG's operating performance for the
first annual performance period ended May 31, 2003. The shares were valued at
$2.04 per share which was the closing price of the Common Stock on the date
of issuance. The issuance of these unregistered shares was made pursuant to
the private placement exemption under Section 4(2) of the Securities Act of
1933, as amended.

On December 4, 2003 the Company issued 89,255 unregistered shares of
restricted Common Stock to the Delta shareholders as the stock portion of the
initial purchase consideration to acquire Delta. The shares were valued at
$2.85 per share based on the average closing price of the Common Stock for
the three trading days prior to the date of issuance. The issuance of these
unregistered shares was made pursuant to the private placement exemption
under Section 4(2) of the Securities Act of 1933, as amended.

All of the aforementioned unregistered shares are restricted under lock-up
agreements with the Company that prohibit the holder from reselling or
otherwise disposing of his or her shares prior to the fifth anniversary date
of the acceptance by the Company of such holder's subscription.  A percentage
of the holder's shares may be released from these lock-up restrictions when
the Common Stock reaches certain specified prices.

During 2003, four former employees of the Company exercised stock options
totaling in aggregate 11,833 shares of the Company's Common Stock. In payment
of their exercise prices, all such former employees surrendered some of their
options to effect a cashless transaction, and were issued in aggregate 5,922
unregistered shares of the Company's Common Stock.


Repurchase of Common Stock
----------------------------------------
Total number     Average
of shares        Price            Amount
-------------   -----------   ----------
  24,775           $2.14       $ 55,926

The above table indicates the number of shares repurchased in connection with
the Company's stock repurchase plan that was authorized by the Board of
Directors and made effective May 1, 2003. The plan allows the Company to
repurchase up to 150,000 shares of its common stock from time to time in open
market transactions.  These shares are reflected as Treasury stock on the
accompanying Consolidated Balance Sheets.

<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and
        Results of Operations


Overview

Zanett is an information technology ("IT") holding company that provides
specialized IT solutions through its operating subsidiaries to Fortune 500
corporations, middle market companies and large Government agencies.
Collectively, the Company and its operating subsidiaries are referred to as
the IT Commonwealth TM (the "IT Commonwealth" or "Commonwealth").

Prospective IT Commonwealth members ("IT Commonwealth Members" or "Members")
are selected for their profitability, market position, clients, management
team and professional staff. Acquisition terms are designed to limit
financial risk to Zanett shareholders in several ways, among them: 1) by
requiring the acquired entities to meet pre-determined performance milestones
in order for the sellers to receive full purchase consideration; 2) through
the use of Zanett common stock as purchase consideration, which helps align
former sellers' interests with Zanett shareholders and executive management,
and 3) by requiring former owner/managers, as well as key employees, to enter
into employment contracts.

The Company divides its operations into two business segments: Commercial
Solutions and Government Solutions. The Commercial Solutions segment consists
of its wholly-owned subsidiaries: Back Bay Technologies, Inc., ("BBT"), based
in Needham, Massachusetts, Brandywine Computer Group, Inc. ("BCG"), based in
Mason, Ohio, and Delta Communications Group, Inc. ("Delta"), based in Aliso
Viejo, California. The solutions provided by this segment include services to
initiate, develop and implement e-business systems, including full life cycle
application development, project management, business analysis, architecture
design, package customization, testing and quality assurance and
implementation management, implementation of enterprise resource planning
("ERP"), supply chain management and customer relationship management ("CRM")
systems, and voice and data communications network integration solutions that
include the provision of hardware, peripheral equipment and
telecommunications lines for voice and data communications networks as well
as related security and design services. The Company's Government Solutions
segment consists of its wholly-owned subsidiary Paragon Dynamics, Inc.
("PDI"), based in Denver, Colorado.  PDI specializes in providing advanced
software and satellite engineering services with domain area expertise on
government and aerospace satellite and IT infrastructure contracts.

The market for technology solutions declined significantly in 2001 and 2002,
but began to stabilize and modestly improve in the second half of 2003. The
Company benefited somewhat from this modest resurgence in demand but grew
primarily from its acquisition of two new Commonwealth members in 2003: PDI
in January 2003 and Delta in December 2003. For the year ended December 31,
2003, the Company recognized net revenues of $17,048,808 and operating income
of $589,821, compared with net revenues of $10,529,790 and an operating loss
of $(1,087,092) in 2002.

As shown in the following table, operating income generated in 2003 by the
Commercial Solutions segment, comprised of Commonwealth Members BBT and BCG
for the full year, and Delta since its acquisition on December 4, 2003 was
$1,609,679. In 2002, this segment, which then consisted of BBT for the full
year and BCG since its acquisition on May 31, 2002, had operating income of
$1,748,268. The decrease in operating income from year to year for the
Commercial Solutions segment was primarily attributable to a decline in the
demand for advanced technology solutions in the United States during 2003.
The operating income generated by the Government Solutions segment was
$1,066,750 in 2003. (For a more complete discussion of segment information
see Note 5 in the accompanying Consolidated Financial Statements).

                                               2003            2002
                                          ------------    ------------
Operating income - Commercial Solutions   $  1,609,679    $  1,748,268
Operating income - Government Solutions      1,066,750               -
Operating loss - Development Segment                 -        (592,115)
Operating expenses - Corporate              (2,086,608)     (2,243,245)
                                          ------------    ------------
Reported operating income/(loss)          $    589,821    $ (1,087,092)
                                          ============    ============

The Company's operating results are more fully discussed under "Results of
Operations" below.

Two cost containment actions taken by management in 2002 positively affected
the Company's overall operating results in 2003: the phase out of its
development segment and the restructuring of certain stock compensation
arrangements with business associates. These actions significantly reduced
impairment charges and non-cash stock compensation expenses in 2003 to $0 and
$102,146, respectively, as compared with $1,024,522 and $367,591,
respectively, in 2002. Together with the $1,356,937 gain on the sale of its
investment in Applied Discovery, Inc., the last of its affiliate company
investments, the Company achieved net income for the year ended December 31,
2003 of $1,211,025 compared to a net loss of $(1,267,616) for the year ended
December 31, 2002.

For 2004, although the Company is seeing signs of growth in its business, the
economic outlook is still uncertain. Management believes that technology
spending by large and medium sized companies improved in the second half of
2003; however, it cannot predict whether, and to what extent, the improvement
in the market for technology consulting solutions will continue. When the
market does improve significantly, the Company cannot predict whether, and to
what extent, the demand for its solutions will increase. Any decline in the
Company's service revenues will have a significant impact on its financial
results, particularly because a significant portion of its operating costs
(such as personnel, rent and depreciation) are fixed in advance of a
particular quarter. As a result, despite cost savings realized from its cost
containment initiatives, its costs for personnel, sales and marketing and
general and administrative activities could increase as a percentage of
revenues, thereby affecting operating results.

The Company's future segment and overall Company revenues and operating
results may fluctuate from quarter to quarter based on the number, size and
scope of projects and assignments in which it is engaged, the contractual
terms and degree of completion of such projects, any delays incurred in
connection with a project, employee utilization rates, the adequacy of
provisions for losses, the use of estimates of resources required to complete
ongoing projects, general economic conditions and other factors. In addition,
revenues from a large project or client may constitute a significant portion
of the Company's total revenues in a particular quarter.


Critical Accounting Policies and Significant Use of Estimates in the
Company's Financial Statements

In many cases, the accounting treatment of a particular transaction in
conformity with accounting principles generally accepted in the United States
of America ("generally accepted accounting principles", or "GAAP") is
specifically dictated, with little or no need for management's judgment in
their application. There are also areas in which management's judgment in
selecting any available alternative would not produce a materially different
result.

However, the preparation of GAAP financial statements sometimes requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.  Actual results could
differ from those estimates. Critical accounting policies are those that
require application of management's most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect
of matters that are inherently uncertain and may change in subsequent
periods.

The following discussion reviews the critical accounting policies and items
incorporated in the Company's financial statements that required the use of
significant management estimates. The following listing is not intended to be
a comprehensive list of all of Zanett's accounting policies.  The Company's
significant accounting policies are more fully described in Note 2 to the
Consolidated Financial Statements.

The Company has identified revenue recognition, stock based compensation,
purchase accounting, and the evaluation of the carrying value of goodwill and
other intangibles as critical accounting policies of the Company.


Revenue Recognition

The Company earns revenue primarily from IT professional services and the
sale of IT Hardware.

IT Professional Services

Revenues from professional services rendered pursuant to time and materials
contracts are recognized as services are performed. Revenues from fixed-fee
contracts for professional services are recognized using contract accounting
based on the estimated percentage of completion. The percentage of completion
for each contract is determined based on the ratio of costs incurred to a
current estimate of total project costs since management believes this
reflects the extent of contract completion. Changes in estimated costs during
the course of a fixed fee contract are reflected in the period in which such
facts become known.  If such changes indicate that a loss may be realized on
a contract, the entire loss is recorded at such time. The Company's revenues
generated from fixed fee contracts were not significant in the years ended
December 31, 2003 and December 31, 2002.

Out-of-pocket expenses incurred during the performance of professional
service contracts are included in costs of net revenues and any amounts re-
invoiced to customers are included in revenue during the period in which they
are incurred.

On occasion, certain contracts may have substantive customer acceptance
provisions. In such cases, revenue is recognized upon receipt of acceptance
from the customer.

Unbilled revenue represents revenue for which services have been performed
and costs incurred that have not yet been invoiced to the customer.


IT Hardware Sales

Revenues related to Hardware sales are recognized when title and risk of loss
is transferred to the customer, which is generally at the time of shipment.
The Company records an estimate of future product returns based on its
historical experience.  Freight-in and other out-of-pocket expenses related
directly to hardware sales are included in costs of sales.  Amounts invoiced
to customers for these expenses are included in net revenues during the
period in which they are incurred.

Amounts invoiced or received prior to the performance of services under
customer contracts or the shipment of Hardware are recognized as a liability
and revenue recognition is deferred until such time as all revenue
recognition criteria have been met.


Stock-Based Compensation

Stock based compensation arrangements with employees are accounted for using
the intrinsic value method in accordance with the provisions of Accounting
Policies Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25"). The Company applies Statement of Financial Accounting Standard No. 123,
Accounting for Stock Based Compensation and Related Interpretations ("SFAS
123") for stock based compensation arrangements with non-employees.  The
Company applies the additional disclosure requirements of SFAS 123, as
amended by SFAS No. 148 "Accounting for Stock-Based Compensation - Transition
and Disclosure," for employee stock arrangements.

The Company has entered into several transactions involving the issuance of
shares of restricted Common Stock and options to purchase shares of
restricted Common Stock to certain business associates and independent
contractors.  The issuance of these securities required management to
estimate their value using the Black-Scholes option-pricing model.  The
Black-Scholes option-pricing model requires management to make certain
estimates for values of variables used by the model. Management estimated the
values for stock price volatility, the expected life of the equity
instruments and the risk free rate based on information that was available to
management at the time the Black-Scholes option-pricing calculations were
performed.


Purchase Accounting

In connection with its acquisitions, the Company allocates the total
acquisition costs to all tangible and intangible assets acquired and all
liabilities assumed, with the excess purchase price recorded to goodwill. To
arrive at the allocation of the total purchase price, management makes
certain assumptions in estimating the fair market value of the acquired
companies' tangible assets, intangible assets (such as customer lists, and
long term contracts) and liabilities.


Evaluating the Carrying Value of Goodwill

Goodwill is evaluated for impairment at least annually and whenever events or
circumstances indicate impairment may have occurred.  The assessment requires
the comparison of the fair value based on discounted cash flow and market
value of each of the Company's reporting units to the carrying value of its
respective net assets, including allocated goodwill.  If the carrying value
of the reporting unit exceeds its fair value, the Company must perform a
second test to measure the amount of impairment.  The second step of the
goodwill impairment test compares the implied fair value of reporting unit
goodwill with the carrying amount of that goodwill. The Company allocates the
fair value of a reporting unit to all of the assets and liabilities of that
unit as if the reporting unit had been acquired in a business combination and
the fair value of the reporting unit was the price paid to acquire the
reporting unit. The excess of the fair value of a reporting unit over the
amounts assigned to its assets and liabilities is the implied fair value of
goodwill. If the carrying amount of reporting unit goodwill exceeds the
implied fair value of that goodwill, an impairment loss is recognized by the
Company in an amount equal to that excess.


Intangibles and Long-Lived Assets

Intangibles and long-lived assets are stated at cost, less accumulated
amortization, which is provided for by charges to income on a basis
consistent with the utilization of the assets over their useful lives. The
carrying value of intangible and long-lived assets are reviewed periodically
by the Company for the existence of facts or circumstances that may suggest
impairment. If such circumstances exist, the Company estimates the future,
undiscounted cash flows associated with the asset, and compares that to the
carrying value. If the carrying value exceeds the estimated cash flows, the
asset is written down to its estimated fair value.


Operating Segments

Prior to 2003, the Company reported two segments, IT Services and
Development. With the write-off of the majority of its Development segment
investments and the Company's intent to no longer make investments in the
Development segment, the Company ceased operations of this segment at the end
of 2002 and as of January 1, 2003, all remaining assets of the Development
segment, with a carrying value of $527,956, were reclassified as corporate
assets.

As of the beginning of 2003, the Company began recognizing its two current
business segments, Commercial Solutions and Government Solutions, as
described in the Overview above.

All of the Company's operations during 2003 and 2002 were in the United
States.

The Company measures operating performance based on Earnings Before Interest,
Taxes, Depreciation and Amortization ("EBITDA").  Unallocated corporate
expenses included in consolidated EBITDA consist primarily of executive
salaries and stock based compensation, professional fees, insurance and other
corporate administrative expenses.


Results of Operations

The Company had net revenues of $17,048,808 for the year ended December 31,
2003, compared with $10,529,790 in 2002. This increase of $6,519,018, or 62%,
related primarily to the growth of the IT Commonwealth from the acquisition
of additional subsidiaries.

Cost of net revenues consists primarily of salaries and related costs of
professional staff, fees paid to outside contractors engaged for specific
client projects, travel-related costs incurred to provide solutions at client
locations, referral fees paid under a preferred partner agreement and
inventory purchases. Cost of net revenues were $10,522,597 for the year ended
December 31, 2003, which included costs of PDI and Delta since February 1,
2003, and December 1, 2003, respectively. In 2002, cost of services were
$6,488,430, which included the costs of BBT for the entire year and the costs
of BCG from June 1, 2002.

Selling and marketing expenses consist primarily of salaries, sales
commissions, employee benefits, travel expenses of selling and marketing
personnel and promotional costs. Selling and marketing expenses increased 49%
in 2003 versus 2002 from $833,036 to $1,242,087, primarily due to the
acquisition of PDI, but also due to increased marketing efforts in the face
of reduced demand for its services.

General and administrative expenses consist primarily of professional fees,
administrative employee compensation, stock-based compensation for corporate
employees and consultants, travel and entertainment, depreciation and
amortization, insurance, office costs and other miscellaneous administrative
expenses.  For the year ended December 31, 2003, total general and
administrative expenses ("G&A") were $4,694,303 as compared to $3,927,825 in
2002. However, G&A in 2003 decreased as a percentage of net revenues to 27%
from 37% in 2002 due primarily to cost containment policies adopted in 2003
and the Company's higher revenue base. These cost containment actions allowed
the Company to generate increased leverage from its existing general and
administrative resources while its service revenues began to increase.

The Company incurred no impairment charges relating to certain intangible and
long-lived assets in 2003 compared to recorded charges of $367,591 during
2002. Of this amount, $286,432 represented an impairment of investments in
certain affiliate companies and the remaining $81,159 was to write-off the
remaining capitalized software of GlobeDrive, Inc., an affiliate company in
Zanett's development segment that ceased operations in 2002.

The effect of these increases and decreases in revenue and the components of
operating expenses resulted in operating income in 2003 of $589,821 compared
with a loss of $(1,087,092) in 2002.

Interest income decreased 31% to $129,186 in 2003 from $186,390 in 2002.
This decrease was primarily due to lower interest rates and a reduction in
the balance due on the BAB, Inc. note due to periodic principal payments, as
well as the forgiveness of $1,300,000 in notes receivable from business
associates when the underlying shares of the Company's common stock were
repurchased in August 2002. These decreases were partly offset by interest
income generated on overall higher balances of cash and cash equivalents
during the third quarter of 2003, primarily as a result of the cash proceeds
of the sale of the Company's investment in Applied Discovery in July 2003.

Interest expense increased $449,774, or 123%, to $816,409 in 2003 from
$366,635 in 2002. This increase related to the notes payable issued to one of
the Company's principal shareholders and other long-term debt that was
incurred to fund the cash portion of the purchase price paid to acquire the
four Commonwealth subsidiaries.  Total long-term debt increased to $6,075,000
at the end of 2003 from $4,575,000 at the end of 2002.

The Company had no equity in losses of affiliates in 2003 compared to a loss
of $4,836 from its Fanlink Networks, Inc., another affiliate company, which
ceased operations during 2002.

The Company recognized income tax expense of $41,529 for 2003 compared with
income tax expense of $206,270 in 2002. The income tax provision relates
primarily to state income tax for states in which its operating subsidiaries
operate or where they generate income. The Company's Federal income tax
expense for 2003 and 2002 was insignificant due to the utilization of tax
loss carryforwards. In 2004, the balance of these carryforwards will be
utilized and the Company expects to incur future Federal income tax expense.

In July 2003, the Company sold its investment in Applied Discovery. Under the
terms of the transaction, the Company received $1,806,937 in cash for the
shares it owned, resulting in a gain of $1,356,937 on its initial investment
of $450,000.

As a result of the above, for the year ended December 31, 2003, Zanett
reported net income of $1,211,025 compared to a net loss of $(1,267,616) for
the year ended December 31, 2002.


Liquidity and Capital Resources

The Company's principal capital requirements have been to fund acquisitions,
meet working capital needs and subsequent to December 31, 2003, to repay
short-term debt (see Note 18 in the accompanying Notes to the Consolidated
Financial Statements). The Company's liquidity needs over the last two years
have been met through funds provided by operating activities, short-term
borrowings and long-term borrowings.

The Company invests its excess cash predominantly in overnight deposits and
money market funds with the intent of keeping funds readily available for
operating and strategic investment purposes.

Cash and cash equivalents at December 31, 2003 totaled $2,121,291,
representing a 51% increase of $719,111 from the 2002 year-end balance of
$1,402,180. The change in the Company's cash position between years was
primarily the result of the Company's receipt of $1,806,937 in cash proceeds
from the sale of its investment in Applied Discovery in July 2003.

During 2003, net cash used in operations was $785,496 compared to $554,315 in
2002. The increase in net cash used was due primarily to the interest
payments on the notes payable related to the acquisitions. Total long-term
debt increased to $6,075,000 at December 31, 2003 from $4,575,000 at December
31, 2002.

In 2003, the Company generated net cash from investing activities in the
amount of $92,260 versus $2,181,338 in net cash used in investing activities
in 2002. The difference between years is primarily due to the Company's sale
of its investment in Applied Discovery in July 2003 with no similar
transaction occurring during 2002. During 2003, the Company used $1,921,105,
net of cash acquired, to fund acquisitions which were offset by $1,806,937 of
cash proceeds received from the sale of the Company's investment in Applied
Discovery, the collection of $300,000 of principal on the BAB, Inc. note
receivable and the collection of $50,000 of principal on an employee note
receivable.

The Company generated $1,412,347 of net cash from financing activities in
2003 compared to $3,337,575 in 2002. Because of the cash generated by the
sale of its investment in Applied Discovery, less new debt to fund growth was
required. However, new debt was still required, and the majority of the
$1,801,162 net cash from financing activities in 2003 represented proceeds
received from the issuance of long-term debt and short-term debt of
$1,500,000 and $431,667, respectively. The issuance of the $1,500,000 long-
term debt was to fund the acquisition of PDI. The debt has a maturity date of
January 7, 2007 and requires quarterly cash payments of interest beginning
March 31, 2003 at the rate of fifteen percent (15%) per annum.  Principal is
repayable in cash at maturity.  The note may be pre-paid without penalty.
The short-term debt consisted of $431,667 of net borrowings drawn under the
Company's line of credit with a financial institution to fund operations.
Subsequent to December 31, 2003, the Company repaid the then outstanding
balance under its line of credit and does not intend to re-use it (See
further discussion below and in Note 18 to the accompanying Notes to
Consolidated Financial Statements).

Management believes that the recent improvement in operating profitability,
current cash on hand and expected increases in the operating cash flows of
its operating subsidiaries will provide sufficient cash to satisfy existing
working capital requirements and other operating cash needs of the Company in
2004. However, for the Company to implement its acquisition strategy, it will
need to raise additional capital. The Company therefore plans to establish
one or more credit accommodations with financial institutions or through a
private placement of debt to provide both working capital and acquisition
funding. Its ability to secure such accommodations is not certain, and an
inability to obtain such credit could hamper its growth plans.

To further minimize cash outlays, the Company will continue to supplement
compensation for both existing and new employees with equity incentives where
possible, thereby reducing cash requirements that would otherwise be
necessary without the equity incentives.  The Company believes that this
strategy provides the ability to increase stockholder value as well as
utilize cash resources more effectively.  To support this strategy, the
stockholders of the Company, at its annual meeting in June 2003, approved an
amendment to the Zanett, Inc. Incentive Stock Plan ("Stock Plan") that
increased the number of equity securities that can be issued under the plan
from 5,000,000 shares to 7,000,000 shares.  While this increase allows
management greater flexibility in its use of stock based compensation, the
issuance of equity securities under the Stock Plan may result in dilution to
existing stockholders.

The Company's Board of Directors also authorized a stock repurchase plan
effective May 1, 2003 that allows the Company to repurchase up to 150,000
shares of its Common Stock from time to time in open market transactions.  As
of December 31, 2003, the Company had repurchased 24,775 shares of its Common
Stock at a cost of $55,926.  These shares are reflected as Treasury stock on
the accompanying Consolidated Balance Sheets.

During 2003, the Company experienced the following changes in its financial
commitments.

-  The Company issued a note payable to a third party in the amount of
   $1,500,000 to fund the cash portion of the initial purchase consideration
   for the PDI acquisition.

-  The Company extended the maturity date on a note payable to a related
   party in the amount of $1,500,000 from December 31,2004 to May 31,2005.

-  As part of the PDI acquisition, the Company has a commitment to pay
   aggregate contingent purchase consideration of $1,200,000 in cash and
   $2,000,000 in Common Stock in equal installments over the next three years
   subject to PDI's achievement of certain financial performance targets for
   each of the fiscal years ended January 31, 2004, 2005 and 2006.

-  As part of the Delta acquisition, the Company has a commitment to pay
   aggregate contingent purchase consideration of $435,000 in cash and
   $1,365,000 in Common Stock in equal installments over the next three years
   subject to Delta's achievement of certain financial performance targets
   for each of the fiscal years ended November 30, 2004, 2005 and 2006.

-  The Company paid the former shareholders of BBT contingent consideration
   of $253,332 in cash and 190,000 shares of Common Stock that was valued at
   $399,000, thus reducing the Company's potential financial commitment to
   the former BBT shareholders to $833,333 in cash and 416,666 shares of
   Common Stock.

-  As a result of the Delta acquisition, the Company acquired a pre-existing
   $250,000 line of credit with a finance company. The interest rate on the
   line of credit is Prime plus 2.5%. The line of credit is collaterized by
   certain of Delta's accounts receivable and the personal guarantee and
   personal assets of a former owner of Delta.  During December 2003, the
   Company repaid the outstanding balance of $100,446 on this line of credit
   and as of December 31, 2003 there were no borrowings outstanding against
   it. The Company intends to maintain this line of credit in 2004 to provide
   working capital for Delta.

-  As part of the BBT and PDI acquisitions, the Company had other credit
   accommodations during 2003 with an aggregate borrowing limit of $850,000.
   These credit arrangements, which were secured by various assets of the
   Company, either terminated or were not renewed during 2003.

-  The Company acquired a note payable to a bank in the amount of $336,128
   as a result of its acquisition of Delta in December 2003.  The 7.5% note
   payable was secured by a personal asset of a former owner of Delta.
   The Company repaid the note payable in full in December 2003.

-  The Company established a revolving credit facility with a financial
   institution in 2003. Subsequent to December 31, 2003, the Company repaid
   the then outstanding balance on this revolving credit facility
   and has not undertaken, nor does it intend to undertake, any additional
   borrowings against the facility.

-  In 2003, the Company had committed to pay the contingent consideration for
   the first annual performance period to the former BCG shareholders,
   representing $764,132 in cash and 369,146 shares of Common Stock that was
   valued at $753,058.  A liability was recorded in the third quarter of 2003
   for these amounts, thus reducing the potential financial commitment to the
   former BCG shareholders by these amounts for contingent consideration
   payable under the BCG merger agreement. However, in March 2004, the
   Company agreed to pay $120,000 in cash and issued put options that were
   valued at $33,000 in lieu of contingent consideration that was valued at
   $753,058 for the first annual performance period to the former BCG
   shareholders. This change results in a reduction of the purchase price for
   BCG in the amount of $458,306 which will be recorded in the first
   quarter of 2004.

The Company enters into many contractual and commercial undertakings during
the normal course of business.  Also, all of its acquisitions were structured
with additional contingent purchase price obligations that may be payable if
the subsidiaries achieve certain annual performance requirements.  The
following table summarizes information about certain of the Company's
obligations at December 31, 2003.  The table should be read together with the
notes to the Consolidated Financial Statements.

                                    Due in less     Due in one     Due after
  Obligation                       than one year   to five years   five years
  ----------                       -------------   -------------   ----------
Contingent consideration for
  acquisition of BBT (1)            $   833,333     $         -     $       -
Contingent consideration for
  acquisition of BCG (2)            $ 1,375,438     $   764,132     $       -
Contingent consideration for
  acquisition of PDI (3)            $   400,000     $   800,000     $       -
Contingent consideration for
  acquisition of Delta (4)          $   145,000     $   290,000     $       -
Notes payable to related party (5)  $         -     $ 4,575,000     $       -
Notes Payable to third party (6)    $         -     $ 1,500,000     $       -
Bank line of credit (7)             $   431,667     $         -     $       -
Non-cancelable office lease (8)     $    89,816     $   193,962     $       -
                                    -----------     -----------     ---------
                                    $ 3,275,254     $ 8,123,094     $       -
                                    ===========     ===========     =========

(1) Contingent consideration payable to the former BBT shareholders as part
of the Company's acquisition of BBT on December 7, 2001.  As a result of the
amendment to the BBT merger agreement in December 2003, the former BBT
shareholders are entitled to receive $833,333 in cash and 416,666 in Common
Stock (See Note 21 in the accompanying Consolidated Financial Statements).

(2) Contingent consideration payable to the BCG shareholders as part of the
Company's acquisition of BCG on May 31, 2002. The maximum aggregate
contingent consideration of $2,139,570 in cash and approximately $1,528,264
in Common Stock is payable in installments over the next two years subject to
BCG's achievement of certain financial performance targets for each of the
fiscal periods ended May 31, 2004 and 2005. Subsequent to December 31, 2003
the Company entered into an agreement with the former BCG shareholders that
terminated certain of their respective rights and obligations under the
merger agreement and the Company will now only pay $120,000 in 2004. (See
Note 3 to the accompanying Consolidated Financial Statements).

(3) Contingent consideration payable to the former PDI shareholders as part
of the Company's acquisition of PDI effective January 31, 2003.  The maximum
aggregate contingent consideration of $1,200,000 in cash and approximately
$2,000,000 in Common Stock is payable in equal installments over the next
three years subject to PDI's achievement of certain financial performance
targets for each of the fiscal years ended January 2004, 2005 and 2006. The
Company has recorded the first cash payment as a liability at December 31,
2003.

(4) Contingent consideration payable to the former Delta shareholders as part
of the Company's acquisition of Delta effective December 4, 2003. The maximum
aggregate contingent consideration of $435,000 in cash and approximately
$1,365,000 in Common Stock is payable in equal installments over the next
three years subject to Delta's achievement of certain financial performance
targets for each of the fiscal years ended November 2004, 2005, and  2006.

(5) Notes payable to a principal shareholder of the Company totaling
$4,575,000 that matures on May 31, 2005.

(6) Note payable to a third party in the amount of $1,500,000 that matures on
January 2, 2007.

(7) A revolving credit facility that was established in 2003 with an
outstanding balance of $431,667 at December 31, 2003.

(8) BCG and PDI lease their main offices under non-cancelable operating
leases that expire on July 31, 2005 and August 31, 2008, respectively. These
leases call for a monthly base rental plus a pro-rata share of building
expenses and real estate taxes. At December 31, 2003, the future minimum
lease payments under these leases were $283,778.

The Company's liquidity could also be impacted by its concentration of credit
risk associated with its bank accounts and accounts receivable, as follows.

-  The Company maintains its cash balances and money-market instruments with
   five separate institutions of high credit quality to minimize its
   exposure.

-  The Company believes that any credit risk associated with its receivables
   is minimal due to the size and credit worthiness of its customers, which
   are principally large domestic corporations. For the year ended December
   31, 2003, the Company had two customers that accounted for approximately
   18% and 12% of total net revenues.  For the year ended December 31, 2002,
   the Company had three customers that accounted for approximately 20%, 17%
   and 12% of net revenues.  At December 31, 2003, the Company had two
   customers that accounted for 16% and 14% of accounts receivable. At
   December 31, 2002, the Company had three customers that accounted for 22%,
   21% and 12% of accounts receivable.


Off-Balance Sheet Arrangements

The company has no off-balance sheet arrangements.


Inflation

Inflation has not had a significant impact on the Company's results of
operations.


Changes in Accounting Policies

On January 1, 2002, the Company adopted SFAS No. 144, which supercedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of," and replaces the accounting and reporting
provisions of APB Opinion No. 30,"Reporting Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions," as it relates to the
disposal of a segment of a business. SFRAS No. 144 requires the use of a
single accounting model for long-lived assets to be disposed of by sale,
including discontinued operations, by requiring those long-lived assets to be
measured at the lower of carrying amount or fair value less cost to sell. The
impairment recognition and measurement provisions of SFAS No. 121 were
retained for all long-lived assets to be held and used, with the exception of
goodwill and indefinite-lived intangible assets but including amortizable
intangible assets.

The Company evaluates the recoverability of its long-lived assets by
comparing the respective carrying values of the assets to the current and
expected future cash flows, on an undiscounted basis, to be generated from
such assets. Property and equipment is evaluated separately within each
business.

On January 1, 2003, the Company adopted the recognition and measurement
provisions of FASB Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This interpretation elaborates on the disclosures to
be made by a guarantor about its obligations under certain guarantees issued.
It also clarifies that a guarantor is required to recognize, at the inception
of a guarantee, a liability for the fair value of the obligation undertaken
in issuing the guarantee. The initial recognition and measurement provisions
of this interpretation apply to guarantees issued or modified after December
31, 2002.  The Company applied the required disclosure provisions of this
interpretation as of December 31, 2002. The adoption of the recognition and
measurement provisions of this interpretation did not have a material impact
on the Company's consolidated financial position or results of operations.

On January 1, 2003, the Company adopted SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." Such standard requires any gain or loss on the early
extinguishment of debt to be presented as a component of continuing
operations (unless specific criteria are met) whereas SFAS No. 4 required
that such gain or loss be classified as an extraordinary item in determining
net income. The adoption of this standard had no impact on the Company's
results of operations or financial position.

On January 1, 2003, the Company adopted SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." Such standard nullifies EITF
Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." Under SFAS No. 146, a liability related to an exit or
disposal activity (including restructurings) initiated after December 31,
2002 is not recognized until such liability has actually been incurred
whereas under EITF Issue No. 94-3 a liability was recognized at the date of
commitment to an exit or disposal plan. The adoption of this standard had no
impact on the Company's results of operations or financial position.

On January 17, 2003, the FASB issued FASB Interpretation No.46,
"Consolidation of Variable Interest Entities" (FIN 46"). Such Interpretation
addresses the consolidation of variable interest entities ("VIEs"), including
special purposes entities ("SPEs"), that are not controlled through voting
interests or in which the equity investors do not bear the residual economic
risks and rewards. The provisions of FIN 46 were effective immediately for
transactions entered into by the Company subsequent to January 31, 2003 and
became effective for all other transactions as of July 1, 2003. However, in
October 2003, the FASB permitted companies to defer the July 1, 2003
effective date to December 31, 2003, in whole or in part. On December 24,
2003, the FASB issued a complete replacement of FIN 46 ("FIN46R"), which
clarified certain complexities of FIN 46 and generally requires adoption no
later than December 31, 2003 for entities that were considered SPEs under
previous guidance, and no later than March 31, 2004 for all other entities.
The Company adopted FIN 46 in its entirety as of December 31, 2003, however
the Company has no VIEs, therefore there was no impact.

On July 1, 2003, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities." Such standard amends and clarifies the
accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The adoption of this standard had no impact on the Company's results of
operations or financial position.

On July 1, 2003, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 150, "Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity." This standard addresses
how certain financial instruments with characteristics of both liabilities
and equity should be classified and measured. The adoption of this standard
had no impact on the Company's results of operations or financial position.

OTHER FACTORS

Certain Factors That May Affect the Company's Future Performance

In addition to other information included in this report, the following
factors should be considered in evaluating the Company's business and future
prospects:


Limited Operating History

The Company began to implement its IT Commonwealth business strategy in 2002
and, therefore, has a limited operating history to evaluate. While it has
acquired four companies, there is no assurance that the Company will be able
to acquire sufficient companies to grow its business and achieve the
advantages of scale and other synergies that the strategy contemplates.


Prior Operating Losses; Lack of Profitability; Future Operating Results

The Company experienced significant losses in its operations in 2002 and the
first half of 2003. While the Company began to generate operating profits in
the second quarter of 2003, it may incur losses in the future. For the year
ended December 31, 2002, the loss from operations was $1,235,561. Although
operating results are improving, operating expenses may increase as the
Company seeks to grow its business through acquisition and as its existing
business expands. Even if the Company maintains its profitability, it may be
unable to generate sufficient cash flow from operations or be able to raise
capital in sufficient amounts to enable it to continue to operate its
business. An inability to sustain profitability may also result in an
impairment loss in the value of its long-lived assets, principally goodwill,
property and equipment, and other tangible and intangible assets. If Zanett
is unable to generate sufficient cash flow from operations or raise capital
in sufficient amounts, its business will be materially and adversely
affected.


Dependence on Key Customers; Non-Recurring Revenue

For the year ended December 31, 2003, the Company's two largest customers
accounted for approximately 30% of net revenues.  While an improvement from
2002 when the three largest customers accounted for approximately 49% of net
revenues, non-renewal or termination of contracts with these customers could
have a material adverse effect on the Company.  A large portion of the
Company's revenues were derived from professional services that are generally
non-recurring in nature. There can be no assurance that the Company will
obtain additional contracts for projects similar in scope to those previously
obtained from its principal customers or any other customer, that it will be
able to retain existing customers or attract new customers or that it will
not remain largely dependent on a limited customer base, which may continue
to account for a substantial portion of its revenues. In addition, the
Company may be subject to delays in customer funding; lengthy customer review
processes for awarding contracts; non-renewal; delay, termination, reduction
or modification of contracts in the event of changes in customer policies or
as a result of budgetary constraints; and increased or unexpected costs
resulting in losses under fixed-fee contracts.

Revenues are difficult to forecast. The Company may increase its corporate
overhead expenses as the number of acquisitions increases, while its
operating companies may increase their operating expenses for sales,
marketing and technical personnel to sell, provide and support their products
and services. Additionally, although most of the Company's customers are
large, creditworthy entities, at any given point in time the Company may have
significant accounts receivable balances, as it did as of December 31, 2003,
with customers that expose it to credit risks if such customers are unable to
pay such obligations. If the Company has an unexpected shortfall in revenues
in relation to its expenses, or significant bad debt experience, its business
could be materially and adversely affected.


Emerging and Evolving Markets

The markets for some of the Company's services are changing rapidly and
evolving and, therefore, the ultimate level of demand for its services is
subject to a high degree of uncertainty. Any significant decline in demand
for programming and applications development and IT consulting services could
materially adversely affect its business and prospects.

The Company's success in meeting growth targets is dependent on its ability
to maintain existing clients and to continually attract and retain new
customers to replace customers who have not renewed their contracts.
Achieving significant market acceptance will require substantial efforts and
expenditures on its part to create awareness of its services.


Competition

Competition for the Company's IT solutions is significant, and the Company
expects that competition will continue to intensify due to the low barriers
to entry. The Company may not have the financial resources, technical
expertise, sales and marketing or support capabilities to successfully meet
this competition. If the Company is unable to compete successfully against
its competitors, its business will be adversely affected. The Company
competes against numerous large companies that have substantially greater
market presence, longer operating histories, more significant customer bases,
and financial, technical, facilities, marketing, capital and other resources
than the Company has.

The Company's competitors include national, regional and local IT consulting
service providers, software development firms and major accounting and
consulting firms such as Accenture, Cap Gemini Ernst & Young, IBM Global
Services, Keane, Kforce and MPS Group.

In addition, the Company also encounters competition from numerous other
businesses that provide one or more similar goods or services, including
numerous resellers of Internet-related hardware and software and Web-site
development companies.

The Company's competitors may respond more quickly than the Company to new or
emerging technologies and changes in customer requirements. Its competitors
may also devote greater resources than the Company can to the development,
promotion and sale of their products and services. They may develop products
and services that are superior to or have greater market acceptance than the
Company's. Competitors may also engage in more extensive research and
development, undertake more extensive marketing campaigns, adopt more
aggressive pricing policies and make more attractive offers to the Company's
existing and potential employees and strategic partners. In addition, current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties.

New competitors, including large computer hardware, software, professional
services and other technology and telecommunications companies, may enter the
Company's markets and rapidly acquire significant market share. As a result
of increased competition and vertical and horizontal integration in the
industry, the Company could encounter significant pricing pressures. These
pricing pressures could result in significantly lower average selling prices
for its products and services. The Company may not be able to offset the
effects of any price reductions with an increase in the number of customers,
higher revenue from consulting services, cost reductions or otherwise. In
addition, professional services businesses are likely to encounter
consolidation in the near future, which could result in decreased pricing and
other competition.

In addition, there is a high degree of competition among companies seeking to
acquire interests in IT service companies such as those the Company has
targeted for acquisition. The Company is and will continue to be a minor
participant in the business of seeking business relationships with, and
acquisitions of interests in such companies. A large number of established
and well-financed entities, including venture capital firms, are active in
acquiring interests in companies that the Company may find desirable
candidates to become Members of the IT Commonwealth. Many of these
investment-oriented entities have significantly greater financial resources,
technical expertise and managerial capabilities than the Company does.
Consequently, the Company may be at a competitive disadvantage in negotiating
and executing possible investments in these entities as many competitors
generally have easier access to capital, on which entrepreneur-founders of
privately held IT service companies generally place greater emphasis than
obtaining the management skills and networking services that the Company can
provide. Even if the Company is able to successfully compete with these
venture capital entities, this competition may affect the terms and
conditions of potential acquisitions and, as a result, the Company may pay
more than expected for targeted IT Commonwealth Members. If the Company
cannot acquire interests in attractive companies on reasonable terms, its
strategy to build the IT Commonwealth may not succeed.


Rapid Technological Change

The market for IT solutions is rapidly evolving. Significant technological
changes could render the Company's existing products and services obsolete.
To be successful, the Company must adapt to this rapidly changing market by
continually improving the responsiveness, functionality and features of its
products and services to meet customers' needs. If the Company is unable to
respond to technological advances and conform to emerging industry standards
in a cost-effective and timely manner, its business could be materially and
adversely affected.


Systems Failure Risk

The Company's business depends on the efficient and uninterrupted operation
of its computer and communications hardware systems and infrastructure. The
Company currently maintains most of its computer systems in its facilities in
New York, NY and at subsidiary offices in Needham, MA; Mason, OH; Aurora, CO;
and Aliso Viejo, California.  While the Company has taken precautions against
systems failure, interruptions could result from natural disasters as well as
power loss, telecommunications failure and similar events. The Company also
leases telecommunications lines from local and regional carriers, whose
service may be interrupted. Any damage or failure that interrupts or delays
network operations could materially and adversely affect its business.


Security Issues

The Company has taken measures to protect the integrity of its infrastructure
and the privacy of confidential information. Nonetheless, its infrastructure
is potentially vulnerable to physical or electronic break-ins, viruses or
similar problems. If a person or entity circumvents its security measures,
they could jeopardize the security of confidential information stored on the
Company's systems, misappropriate proprietary information or cause
interruptions in its operations. The Company may be required to make
significant additional investments and efforts to protect against or remedy
security breaches. Security breaches that result in access to confidential
information could damage the Company's reputation and expose the Company to a
risk of loss or liability.


Identifying Suitable Acquisition Candidates and New Acquisition Integration

A key element of Zanett's expansion strategy is to grow through acquisitions.
If the Company identifies suitable candidates, it may not be able to make
investments or acquisitions on commercially acceptable terms. Acquisitions
may cause a disruption in the Company's ongoing business, distract
management, require other resources and make it difficult to maintain its
standards, controls and procedures. The Company may not be able to retain key
employees of the acquired companies or maintain good relations with their
customers or suppliers. The Company may be required to incur additional debt,
and the Company may be required to issue equity securities, which may be
dilutive to existing stockholders, to fund acquisitions.


Unsuccessful Acquisitions

There can be no assurance that any completed acquisition will enhance the
Company's business. Since the normal acquisition of Commonwealth companies
comprises both cash and Common Stock, if the Company proceeds with one or
more significant acquisitions, the potential impacts are (1) a substantial
portion of its available cash could be used to consummate the acquisitions
and/or the Company could incur or assume significant amounts of indebtedness,
and (2) the Company's stockholders could suffer significant dilution of their
interest in Zanett Common Stock.

Also, acquisitions are required to be accounted for under the purchase
method, which would likely result in the Company recording significant
amounts of goodwill. The inability of a subsidiary to sustain profitability
may result in an impairment loss in the value of long-lived assets,
principally goodwill, property and equipment, and other tangible and
intangible assets.


Retaining Key Personnel

There is intense competition for qualified personnel in the sectors in which
the Company operates. The loss of existing personnel or the failure to
recruit additional qualified managerial, technical, and sales personnel, as
well as expenses in connection with hiring and retaining personnel, could
adversely affect its business. The Company also depends on the performance of
its executive officers and key employees, some of whom have not entered into
employment agreements.

As of December 31, 2003, the Company had 108 full-time employees. The Company
will need to attract, train and retain more employees for management,
engineering, programming, sales and marketing, and customer service and
support positions. Competition for qualified employees, particularly
engineers, programmers and consultants continues to be high. Consequently,
the Company may not be successful in attracting, training and retaining the
people the Company needs to continue to offer solutions and services to
present and future customers in a cost effective manner or at all.


Need for Capital

The Company's future capital uses and requirements will depend on numerous
factors, including:

     *  The extent to which the Company's solutions and services gain market
        acceptance;
     *  The level of revenues from present and future solutions and services
     *  The expansion of operations;
     *  The costs and timing of product and service developments and sales
        and marketing activities;
     *  Costs related to acquisitions of technology or businesses; and
     *  Competitive developments.

In order to continue to increase sales and marketing efforts, continue to
expand and enhance the solutions and services the Company is able to offer to
current and future customers and fund potential acquisitions, the Company
will require additional capital that may not be available on terms acceptable
to it, or at all. As a consequence, the Company will be required to raise
additional capital through public or private equity or debt financings,
collaborative relationships, bank facilities or other arrangements. In
addition, if unforeseen difficulties arise in the course of these or other
aspects of its business, the Company may be required to spend greater-than-
anticipated funds. There can be no assurances that such additional capital
will be available on terms acceptable to it, or at all. Any additional equity
financing is expected to be dilutive to stockholders, and debt financing, if
available, may involve restrictive covenants and increased interest costs.
The Company has financed its operations to date primarily through private
sales of equity securities, and loans from related parties and business
associates.

There can be no assurance that additional funding will be available for the
Company to finance its acquisition strategy or ongoing operations when needed
or that adequate funds for its operations, whether from financial markets,
collaborative or other arrangements with corporate partners or from other
sources, will be available when needed, if at all, or on terms acceptable to
it. The Company's inability to obtain sufficient funds may require it to
delay, scale back or eliminate some or all of its expansion programs or to
limit the marketing of its services. This could have a material adverse
effect on its business.


Fluctuation in Quarterly Operating Results May Negatively Impact the Zanett
Stock Price

The Company's revenues and operating results may vary significantly from
quarter-to-quarter due to a number of factors, not all of which are within
its control. Quarter-to-quarter comparisons of the results of operations as
an indication of future performance should not be relied upon. It is possible
that in some future periods the Company's results of operations may be below
the expectations of public market analysts and investors. In that event, the
market price of the Common Stock may fall.


Factors that could cause quarterly results to fluctuate include:

     *  Change in customer demand for products and services;
     *  Timing of the expansion of operations;
     *  Seasonality in revenues, principally during the summer and year-end
        Holidays;
     *  Changes in pricing by Zanett or its competitors;
     *  Introduction of new products or services by competitors or Zanett;
     *  Costs related to acquisitions of technology or businesses;
     *  Recession or slow-down in the U.S. economy; or
     *  Termination of customer contracts.


Changes in Government Regulations

There are an increasing number of laws and regulations pertaining to the
Internet. These laws and regulations relate to liability for information
received from or transmitted over the Internet, online content regulation,
user privacy, taxation and quality of products and services. The government
may also seek to regulate some segments of the Company's activities as basic
telecommunications services. Moreover, the applicability to the Internet of
existing laws governing intellectual property ownership and infringement,
copyright, trademark, trade secret, obscenity, libel, employment, personal
privacy and other issues is uncertain and developing. The Company cannot
predict the impact, if any, that future regulation or regulatory changes may
have on its business.

The Company's subsidiary, PDI, generates most of its revenue from contracts
with the U.S. Department of Defense.  As a contractor with the U.S. federal
government, PDI must comply with various government regulations regarding how
it conducts its business and maintains its financial records.  The most
significant of these regulations are:

     *  the Federal Acquisition Regulations, which comprehensively regulate
        the formation, administration and performance of government
        contracts;
     *  the Truth in Negotiations Act, which requires certification and
        disclosure of all cost and pricing data in connection with contract
        negotiations; and
     *  laws, regulations and executive orders restricting the use and
        dissemination of information classified for national security
        purposes and the exportation of certain products and technical data.

In addition, PDI is subject to industrial security regulations of the
Department of Defense and other federal agencies that are designed to
safeguard against foreigners' access to classified information.  PDI's
failure to obtain and maintain necessary security clearances may limit its
ability to perform classified work for government clients, which could result
in lost business.


Potential Liability to Customers

The Company's services involve development, implementation and maintenance of
computer systems and computer software that are critical to the operations of
its customers' businesses. The Company's failure or inability to meet a
customer's expectations in the performance of its services could harm its
business reputation or result in a claim for substantial damages against it,
regardless of its responsibility for such failure or inability. In addition,
in the course of performing services, the Company's personnel often gain
access to technologies and content that includes confidential or proprietary
customer information. Although the Company has implemented policies to
prevent such customer information from being disclosed to unauthorized
parties or used inappropriately, any such unauthorized disclosure or use
could result in a claim for substantial damages. The Company attempts to
contractually limit its damages arising from negligent acts, errors, mistakes
or omissions in rendering services and, although the Company maintain general
liability insurance coverage, including coverage for errors and omissions,
there can be no assurance that such coverage will continue to be available on
reasonable terms or will be available in sufficient amounts to cover one or
more large claims. The successful assertion of one or more large claims
against Zanett that are uninsured, exceed available insurance coverage or
result in changes to its insurance policies, including premium increases or
the imposition of a large deductible or co-insurance requirements, could
adversely affect it.


Liability for Material Distributed Over the Internet

The law relating to the liability of online service providers, private
network operators and Internet service providers for information carried on
or disseminated through their networks is currently unsettled. The Company
may become subject to legal claims relating to the content in the web sites
the Company hosts or in email messages that the Company transmits. For
example, lawsuits may be brought against Zanett claiming that material
inappropriate for viewing by young children can be accessed from the web
sites the Company hosts. Claims could also involve matters such as
defamation, invasion of privacy and copyright infringement. Providers of
Internet products and services have been sued in the past, sometimes
successfully, based on the content of material. If the Company has to take
costly measures to reduce its exposure to these risks, or is required to
defend itself against such claims, its business may be materially adversely
affected.


Future Sales of Common Stock by Existing Stockholders

The market price of Zanett Common Stock could decline as a result of sales by
existing shareholders of a large number of shares of Common Stock in the
market or the perception that these sales may occur. These sales also might
make it more difficult for the Company to issue equity securities in the
future at a time and at a price that it deems appropriate.

As of December 31, 2003, the Company had granted options to purchase
5,612,543 shares under its 2001 Stock Option Plan, as listed below.  The
total number of options authorized under the 2001 Stock Option Plan, as
amended, is 7,000,000.

   *  300,000 nonqualified stock options to three outside directors on
      November 17, 2001;
   *  476,610 nonqualified stock options were issued to BBT employees who
      were prior option holders of BBT as part of the acquisition of BBT on
      December 7, 2001;
   *  250,500 nonqualified stock options were issued to the employees of BBT;
   *  420,036 nonqualified stock options were issued to the employees of BCG;
   *  400,000 nonqualified stock options were issued to the Zanett corporate
      Controller;
   *  1,300,000 nonqualified stock options were issued to business associates
      in exchange for the cancellation of their restricted shares of Common
      Stock and related notes payable;
   *  266,666 nonqualified stock options were issued to independent
      contractors as compensation for public relations services provided to
      the Company;
*  2,402,802 nonqualified stock options were issued to employees of the
   Company during 2003;
*  100,000 nonqualified stock options were issued to an outside director
   during 2003.

Of the above, 423,833 options held by BBT employees were forfeited during
2002 due to the termination of their employment.

Also, as a result of the October 2000 recapitalization and merger with BAB,
Inc., at December 31, 2003, there were options outstanding to purchase
152,486 shares of the Company's Common Stock.

If the holders of these options were to exercise their rights and sell the
shares issued to them, it could have an adverse effect on the market price of
the Common Stock.


Common Stock Volatility

The market price of Zanett's Common Stock has fluctuated in the past and is
likely to continue to be highly volatile and could be subject to wide
fluctuations.  In addition, the stock market has experienced extreme price
and volume fluctuations. The market prices of the securities of IT consulting
companies have been especially volatile.


Lack of Dividends

The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. Instead, the
Company intends to retain future earnings for reinvestment in its business
and/or to fund future acquisitions.


Ownership of the Company is concentrated

David McCarthy, the Company's Chief Executive Officer, and Claudio Guazzoni,
its President, each beneficially owned approximately 27% of the outstanding
Common Stock as of December 31, 2003. As a result, each of them possesses
significant influence over the Company's decision making on business matters,
including the election of directors.

The concentration of Zanett share ownership may:

   *  delay or prevent a change in the control of Zanett;
   *  impede a merger, consolidation, takeover, or other transaction
      involving the Company; or
   *  discourage a potential acquirer from making a tender offer or otherwise
      attempting to obtain control of the Company.



The Company's rapid growth has placed, and is expected to continue to place,
a significant strain on managerial and operational resources. Further, as the
number of Commonwealth Members grows, the Company will be required to manage
multiple relationships with various customers, strategic partners and other
third parties. Further growth or an increase in the number of strategic
relationships may increase this strain on existing managerial and operational
resources, inhibiting the Company's ability to achieve the rapid execution
necessary to successfully implement its IT Commonwealth strategy without
incurring additional corporate expenses.


Future growth is dependent on producing revenue sufficient to cover
increasing expenses

Expenses will increase as the Company builds an infrastructure to implement
the IT Commonwealth strategy. The Company expects to hire additional
employees and expand information technology systems. The Company also may
increase its operating expenses to:

   *  broaden its support capabilities for Commonwealth Members;
   *  explore acquisition opportunities and alliances with other companies;
      and
   *  facilitate business arrangements among Commonwealth Members.

If the higher expenses are not accompanied by increased revenue, the
Company's earnings will be lower than anticipated.

<PAGE>


Item 7.   Financial Statements.

The Company's Consolidated Financial Statements and accompanying Footnotes
are attached to this Annual Report on Form 10-KSB.

<PAGE>

Item 8.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure.

None

<PAGE>

Item 8a.  Controls and Procedures

The Company's Chief Executive Officer, David M. McCarthy, and the Company's
Chief Financial Officer, Jack M. Rapport, have evaluated the Company's
internal controls over financial reporting and disclosure controls and
procedures as of the end of the period covered by this report.  Based on this
evaluation, Messrs. McCarthy and Rapport have concluded that the Company's
disclosure controls and procedures are effective to ensure that material
information is recorded, processed, summarized and reported by management of
the Company on a timely basis in order to comply with the Company's
disclosure obligations under the Securities Exchange Act of 1934 and the SEC
rules thereunder.

Since the most recent review of the Company's internal controls over
financial reporting, there have been no changes in internal controls over
financial reporting that could have materially affected, or are reasonably
likely to materially affect, these controls.

<PAGE>
                                  PART III


Item 9.   Directors and Executive Officers of the Registrant

Our directors and executive officers, their ages and positions are set forth
below:
      Name                Age                  Title                   Since
      ----                ---                  -----                   -----
Claudio M. Guazzoni        41                President and              2000
                                             Director
David M. McCarthy          42                Chief Executive            2000
                                             Officer and Director
Jack M. Rapport            51                Chief Financial            2001
                                             Officer and Treasurer
Pierre-Georges Roy         38                Chief Legal                2001
                                             Officer and Secretary
Dr. Andrew Schiff          38                Director                   2000
Mohan Trikha               59                Director                   2001
L. Scott Perry             55                Director                   2001
Jay W. Kelley              62                Director                   2003

All terms of office are for one year.

Claudio M. Guazzoni - Mr. Guazzoni has served as President of Zanett, Inc.
since he co-founded the Company in 2000.  Prior to such time, he had co-
founded The Zanett Securities Corporation in 1993, of which he is still
President. At Zanett Securities Corporation, Mr. Guazzoni was instrumental in
the success and initial public offering of a number of young technology
companies, including YouthStream Media, Inc., Robotic Vision Systems, Inc.,
SmartServ Online, and FiberNet Telecom Group.  His previous work in mergers
and acquisitions for Salomon Brothers and past experience as a fund manager
responsible for managing portfolios aggregating in excess of $1.4 billion,
provides  Zanett with expertise in international finance and deal
structuring.

David M. McCarthy - Mr. McCarthy has served as Chief Executive Officer of
Zanett, Inc. since he co-founded the Company in 2000.  Prior to such time he
had co-founded The Zanett Securities Corporation in 1993, of which he is
still Vice President and Chairman.  At Zanett Securities Corporation, Mr.
McCarthy manages and supervises the executive and administrative staff, as
well as all investment and banking activities.

Jack M. Rapport - Mr. Rapport has served as the Chief Financial Officer of
Zanett, Inc. since April 2001. Prior to such time, Mr. Rapport served as the
interim Chief Financial Officer of Adept, Inc. and then the Vice President of
Corporate Development for Coriva, Inc., a wholly-owned subsidiary of Adept,
Inc., since early 2000.  From 1998 to early 2000, Mr. Rapport served as
President and Chief Executive Officer of Whitehall Capital Associates, Ltd.,
a financial services company, in 1998 and Wyndham Capital Management, Ltd., a
financial consulting firm, in 1999.  From 1995 to 1997, Mr. Rapport was the
Executive Vice President and Chief Financial Officer of The Pharmacy Fund,
Inc., a healthcare finance company. In total, Mr. Rapport has over thirty
years of financial and business experience in both public and private
corporate settings including: Bank of America, Manufacturers Hanover Trust
Co.(now JPMorganChase) and Blue Cross and Blue Shield of Maryland.

Pierre-Georges Roy - Mr. Roy has served as the Chief Legal Officer and
Secretary of Zanett, Inc. since 2001. Prior to such time, Mr. Roy served as
Vice President - Corporate Development and General Counsel for Openstream,
Inc., a software developer of wireless applications, from 2000 to 2001 and
was a practice leader in telecom corporate finance and mergers and
acquisitions with Clifford Chance, the world's largest law firm, from 1997 to
2000. At Clifford Chance, Mr. Roy managed transactions worth over $20 billion
in combined value.

Andrew Schiff, MD - Dr. Schiff joined Perseus, LLC, in September of 1999 and
currently serves as a Managing Director of the Perseus-Soros
Biopharmaceutical Fund. Over the last 10 years, Dr. Schiff has practiced
internal medicine at The New York Presbyterian Hospital where he maintains
his position as a Clinical Assistant Professor of Medicine. In addition, he
has also been a partner of a small family run investment fund, Kuhn, Loeb &
Co. He currently serves on the board of directors of Adams Laboratories,
Barrier Therapeutics and Myogen.  Dr. Schiff received his MD from Cornell
University Medical College and his MBA from Columbia University. His
bachelor's degree in neuroscience was awarded with honors by Brown
University.

Mohan Trikha - Mr. Trikha is a Principal at U Group, a team of entrepreneurs
and executives focused on turnarounds of IT businesses. Mr. Trikha was Vice
President and General Manager of Strategy and Planning for Xerox
Corporation's Internet and Software Solutions division from 1998 to 2000,
where he played an important role in building the company's new generation of
online services and solutions.  From 1996 to 1998 he was the Chief Executive
Officer of InXight Software, an independent company funded by Xerox
Corporation that he founded, and before that he held several senior-level
positions with divisions of Xerox and IBM. Mr. Trikha is also a member of the
board of directors for Qualance Software and SonaSoft and is a charter member
of T.I.E., a professional organization for entrepreneurs worldwide.

L. Scott Perry - Mr. Perry was with AT&T Corporation from January 1997 until
his retirement in January 2002.  During this period, he served as Vice
President - Advanced Platform Systems from January 1997 to May 1998, Vice
President - Strategy and Alliances from May 1998 to December 1999 and Vice
President of Strategy & Business Development from January 2000 until his
retirement.  In these roles, he was responsible for building and refining the
business strategy of AT&T and leading the development of growth plans which
included close and effective relationships with other computer and networking
product and service firms. Mr. Perry and his team led AT&T Corporation's 1998
acquisition of IBM's Global Network business.

Before joining AT&T, Mr. Perry was with IBM for almost sixteen years. During
that time he held a number of marketing and sales executive positions,
culminating in his last assignment as General Manager, Academic Computing
Information Systems, an independent business unit with responsibility for
strategy, development, marketing and support of information systems to the
higher education marketplace.

Mr. Perry currently serves as non-executive Chairman of INEA, a corporate
performance management software company, and Chairman of Smartserv Online, a
Nasdaq listed wireless application provider, as well as serving on several
boards of directors and advisory boards. He is also an advisor and Operating
Partner of Global Communications Partners, an early stage venture capital
fund based in Menlo Park, Ca.

In addition to his board and advisory responsibilities, Mr. Perry is the
founder and principal of Cobblers Hill Group, based in Weston, CT, through
which he advises a number of small and early stage companies as well as
engaging with other larger companies on strategic consulting engagements.


Jay W. Kelley - General Kelley completed a 37-year Air Force career in 1996
at the rank of Lieutenant General.  He served as a Base Commander and
Strategic Missile Wing Commander, Vice Commander of Air Force Space Command,
Director of Public Affairs in the Office of the Secretary of the Air Force,
Commander of Air University, and Director of Education at the Air Education
and Training Command.   Immediately following his retirement from the Air
Force, General Kelley worked with Toffler Associates where he developed and
orchestrated "futurist" business strategies with major corporations and
government organizations.  He was the first person appointed to the Advisory
Board when it was created, and continues to serve in that capacity.

From March 20, 2000 until March 2003, General Kelley was Vice President of
Military Programs for Lockheed Martin Technical Operations (LMTO). Prior to
joining LMTO, General Kelley was employed by System Technology Associates,
Inc., where he was Chief Operating Officer. There, he had responsibility for
directing and overseeing the activity of the corporate staff and field
operations.

General Kelley is currently a Senior Vice President in the National Security
Solutions Group of Mantech International Corporation where he has primary
responsibility for ManTech's business relating to Department of Defense and
intelligence community space programs and other Midwest operations.

General Kelley earned his Bachelor of Science degree from the United States
Air Force Academy in Colorado Springs in 1964, and a Master of Science degree
in Political Science from Auburn University in Montgomery, Alabama, in 1973.
He completed Squadron Officer School, Maxwell AFB, in 1967; Air Command and
Staff College in 1973; Research Associate Studies in 1980, International
Institute for Strategic Studies, London, England; National War College in
1981, Fort Lesley J. McNair; the Program for Senior Executives in National
and International Security in 1986, John F. Kennedy School of Government,
Harvard University; and the Program on Foreign Politics and National
Interest, Massachusetts Institute of Technology, in 1987.

The response to certain matters of this Item will be contained in the
Company's 2004 Proxy Statement and is incorporated herein by reference.

<PAGE>


Item 10. Executive Compensation

The response to this Item will be contained in the Company's 2004 Proxy
Statement under the caption "Executive Compensation" and is incorporated
herein by reference.

<PAGE>


Item 11. Security Ownership of Certain Beneficial Owners and Management and
         Related Stockholder Matters

The following table shows, as of February 29, 2004, the Common Stock owned
beneficially by (i) each Director of the Company, (ii) each Executive
Officer, (iii) all Directors and Executive Officers as a group, and (iv) each
person known by the Company to be the "beneficial owner" of more than five
percent (5%) of such Common Stock. Each of the shareholders listed has sole
voting and investment power with respect to the shares indicated as
beneficially owned, unless otherwise indicated.

                                    Beneficial Ownership of Common Stock
                                    --------------------------------------
Name and address of                 Number of Shares          Percentage
Beneficial Owner                    Beneficially Owned (1)    of Class (1)
------------------------            --------------------      ------------
Claudio Guazzoni                            7,454,111             26.5%
  President
David McCarthy                              7,660,779             27.3%
  Chief Executive Officer
Jack M. Rapport                               604,415              2.2%
  Chief Financial Officer
Pierre-Georges Roy                            500,000              1.8%
  Chief Legal Officer
Andrew Schiff                                 100,000 (2)          0.4%
  Director
Mohan Trikha                                   66,667 (3)          0.2%
  Director
L. Scott Perry                                 66,667 (4)          0.2%
  Director
Jay W. Kelley                                       - (5)          n/a
Bruno Guazzoni                              6,682,390             23.8%
Trust for Scott and Mary Seagrave           1,877,984              6.7%
All Directors and Executive Officers
  as a Group (8 persons)                   16,510,973             58.6%

(1)   Calculated in accordance with Rule 13d-3 of the Exchange Act. The
address for all persons listed in the above table is c/o Zanett, Inc., 135
East 57th Street, New York, NY 10022.

(2)   Represents options to purchase 100,000 shares of the Company's Common
Stock with an exercise price of $2.00 per share.  Any shares obtained through
the exercise of these options are subject to a lock-up agreement that
precludes the sale of the shares until November 16, 2006, except as otherwise
provided in such agreement.

(3)   On November 17, 2001, Mr. Trikha was issued options to purchase 100,000
shares of the Company's Common Stock with an exercise price of $2.00 per
share.  These options are exercisable immediately but the underlying shares
are initially unvested, with vesting to occur ratably on each of March 1,
2002, 2003 and 2004.  Therefore, at December 31, 2003, Mr. Trikha had the
right under these options to purchase 66,667 of vested shares, which
represents [0.1%] of the fully diluted outstanding shares, as presented in
the table above.  Any shares obtained through the exercise of these options
are subject to a repurchase feature until vested and thereafter are subject
to a lock-up agreement that precludes the sale of the shares until November
16, 2006, except as otherwise provided in such agreement.

(4)   On November 17, 2001, Mr. Perry was issued options to purchase 100,000
shares of the Company's Common Stock with an exercise price of $2.00 per
share.  These options are exercisable immediately but the underlying shares
are initially unvested, with vesting to occur ratably on each of August 1,
2002, 2003 and 2004.  Therefore, at December 31, 2003, Mr. Perry had the
right under these options to purchase 66,667 of vested shares, which
represents [0.1%] of the fully diluted outstanding shares, as presented in
the table above. Any shares obtained through the exercise of these options
are subject to a repurchase feature until vested and thereafter are subject
to a lock-up agreement that precludes the sale of the shares until November
16, 2006, except as otherwise provided in such agreement.

(5)   On June 25, 2003, General Kelley was issued options to purchase 100,000
shares of the Company's Common Stock with an exercise price of $2.00 per
share.  These options are exercisable immediately but the underlying shares
are initially unvested, with vesting to occur ratably on each of June 17
2004, 2005 and 2006.  Therefore, at December 31, 2003, none of shares had yet
vested. Any shares obtained through the exercise of these options are subject
to a repurchase feature until vested and thereafter are subject to a lock-up
agreement that precludes the sale of the shares until June 24, 2008, except
as otherwise provided in such agreement.

On August 4, 2003, the Company awarded 750,000 options to purchase restricted
Common Stock to each of two executives with an exercise price of $2.00 per
share, which was the market price on the grant date. All of the 1,500,000
options vest on August 4, 2008, subject to the executives maintaining
continuous service to the Company through the vesting date. As a result, the
Company recorded no stock compensation expense for the option grant.

On April 22, 2003, the Company's board of directors adopted an amended and
restated Stock Plan, which increased the number of shares of Common Stock
issuable under the plan from 5,000,000 shares to 7,000,000 shares.  The plan
was approved by the Company's shareholders at the annual meeting in June
2003.

The following table summarizes Zanett's securities issued or authorized for
issuance under the Company's equity compensation plans at December 31, 2003.


                                                                 Number of
                                                                securities
                           Number of           Weighted          remaining
                        securities to be        average        available for
                       issued on exercise    exercise price   future issuance
                         of outstanding      of outstanding     under equity
                       options, warrants    options, warrants   compensation
   Plan Category           and rights          and rights          plans
-------------------   --------------------   --------------   ---------------
Equity compensation
 plans approved by
 equity holders             5,612,543             2.19           1,387,457

Equity compensation
 plans not approved
 by equity holders                  -                -                   -

<PAGE>

Item 12. Certain Relationships and Related Transactions

During the past two years, the Company was a party to the following
transactions with related parties:

During 2003 and 2002, the Company recorded general and administrative
expenses in the amounts of $213,000 and $36,000 for office space, computer
equipment, telephone and other administrative support provided by a related
party.  The related party and the Company have common majority ownership.  If
the Company had to procure such administrative services from an unrelated
third party, it is likely that those services would cost more than the
amounts allocated by the related party in 2002.  In 2003, amounts charged for
similar services were at estimated fair market value.

During 2002, on a monthly basis, the Company charged the same related party
25% of one officer's compensation for services rendered by the officer to the
related party.  Because of the common ownership, the Company's management
decided to forgive the balance owed and considered the value of the services
as a return of capital in 2002.  At December 31, 2002, Additional paid-in
capital was reduced by $33,396 for such services.  During 2003, the officer
did not render significant services to the related party.

<PAGE>

Item 13. Exhibits List and Reports on Form 8-K

The following documents are filed as part of this Report:
Exhibits List and Reports on Form 8-K

(a)     Exhibits
Exhibit
Number      Document
-------     --------
2.1(2)    Agreement and Plan of Merger dated as of December 7, 2001 by and
          between Back Bay Technologies, Inc., Planet Zanett, Inc.,
          Planet Zanett Merger Sub BBT, Inc. and the Shareholders of Back Bay
          Technologies, Inc.
2.2(6)    Agreement and Plan of Merger dated as of May 31, 2002 by
          and between Brandywine Computer Group, Inc., Planet Zanett, Inc.,
          Planet Zanett Merger Sub BCG, Inc. and the Shareholders of
          Brandywine Computer Group, Inc.
2.3(7)    Agreement and Plan of Merger dated as of January 31, 2003 by
          and between Paragon Dynamics, Inc., Zanett, Inc., Zanett Merger Sub
          PDI, Inc. and the Shareholders of Paragon Dynamics, Inc.
2.4(8)    Agreement and Plan of Merger dated as of December 4, 2003 by
          and between DeltaData, Inc.(d/b/a Delta Communications 2.3(8)
          Group),Zanett, Inc., Zanett Merger Sub DCG, Inc. and the
          Shareholders of DeltaData, Inc.
3.1(5)    Certificate of Incorporation.
3.2(5)    Bylaws.
10.1(3)   Common Stock Purchase Agreement dated as of January 26, 2001 by
          and between GlobeDrive.com, Inc. and Planet Zanett Corporate
          Incubator, Inc.
10.2(3)   Investor Rights Agreement dated as of January 26, 2001 by and
          between GlobeDrive.com, Inc. and Planet Zanett Corporate Incubator,
          Inc.
10.3(3)   Stockholders' Agreement dated as of January 26, 2001 by and between
          GlobeDrive.com, Inc. and Planet Zanett Corporate Incubator, Inc.
10.4(5)   Stock Purchase Agreement dated as of August 31, 2001 by and between
          GlobeDrive.com, Inc., Planet Zanett Corporate Incubator, Inc., NOLA
          I, LLC, Yossi Krasnjanski and Oleg Rabaev
10.5(5)   Amendment to Investor Rights Agreement dated as of August 31, 2001
          by and between GlobeDrive.com, Inc., Planet Zanett Corporate
          Incubator, Inc., NOLA I, LLC, Yossi Krasnjanski and Oleg Rabaev
10.6(5)   Amendment to Stockholders' Agreement dated as of August 31, 2001 by
          and between GlobeDrive.com, Inc., Planet Zanett Corporate
          Incubator,
          Inc., NOLA I, LLC, Yossi Krasnjanski and Oleg Rabaev
10.7(5)   Letter agreement dated as of August 13, 2001 by and between Fanlink
          Networks, Inc. and Planet Zanett Corporate Incubator, Inc.
10.8(5)   Zanett Stock Plan adopted by the Company's Board of Directors on
          November 15, 2001
10.9(5)   Convertible Promissory Note in the amount of $60,000 dated November
          30, 2001 issued by InfoDream Corporation to Planet Zanett Corporate
          Incubator, Inc.
10.10(2)  Promissory Note in the amount of $1,500,000 dated December 7, 2001
          issued by Planet Zanett, Inc. to Mr. Bruno Guazzoni
10.11(2)  Employment Agreement dated as of December 7, 2001 by and between
          Back Bay Technologies, Inc. and Marc Maselli
10.12(2)  Employment Agreement dated as of December 7, 2001 by and between
          Back Bay Technologies, Inc. and Curtis D. Stevenson
10.13(5)  Convertible Promissory Note in the amount of $50,000 dated February
          15, 2002 issued by InfoDream Corporation to Planet Zanett Corporate
          Incubator, Inc.
10.14(6)  Promissory Note in the amount of $324,124 dated May 31, 2002 issued
          by Planet Zanett, Inc. to Mr. Bruno Guazzoni
10.15(6)  Promissory Note in the amount of $2,750,876 dated May 31, 2002
          issued by Planet Zanett, Inc. to Mr. Bruno Guazzoni
10.16(6)  Employment Agreement dated as of May 31, 2002 by and between
          Brandywine Computer Group, Inc., and Scott Seagrave
10.17(6)  Employment Agreement dated as of December 7, 2001 by and between
          Brandywine Computer Group, Inc., and Mary Seagrave
10.18(7)  Employment Agreement dated as of January 31, 2003 by and between
          Paragon Dynamics, Inc., and Douglas L. Hartmann
10.19(7)  Employment Agreement dated as of January 31, 2003 by and between
          Paragon Dynamics, Inc., and Roger D. Stapleton
10.20(8)  Employment Agreement dated as of December 4, 2003 by and between
          Delta Communications Group, Inc., and Howard Norton
10.21(8)  Employment Agreement dated as of December 4, 2003 by and between
          Delta Communications Group, Inc., and Robert Anderson
10.22(9)  Zanett Inc. Incentive Stock Plan
10.23(10) Zanett Inc. Amended and Restated Incentive Stock Plan
14.1(11)  Code of Conduct and Ethics
16.1(1)   Letter from McEnerney, Brady & Company LLC dated March 8, 2001.
16.2(4)   Letter from BDO Seidman, LLP dated August 6, 2001
21.1(11)  Subsidiaries of Zanett, Inc.
31.1(11)  Certification by the Chief Executive Officer pursuant to
          Rule 13a-14(a)/15d-14(a)
31.2(11)  Certification by the Chief Financial Officer pursuant to
          Rule 13a-14(a)/15d-14(a)
32.1(11)  Certification by the Chief Executive Officer pursuant to Section
          1350
32.2(11)  Certification by the Chief Financial Officer pursuant to Section
          1350


(1)   Incorporated by reference to Company's Current Report on Form 8-K dated
      March 8, 2001.
(2)   Incorporated by reference to Company's Current Report on Form 8-K dated
      December 21, 2001.
(3)   Incorporated by reference to Company's Current Report on Form 8-K dated
      February 9, 2001.
(4)   Incorporated by reference to Company's Current Report on Form 8-K dated
      August 7, 2001.
(5)   Incorporated by reference to Company's Annual Report on Form 10-KSB for
      the year ended December 31, 2001.
(6)   Incorporated by reference to Company's Current Report on Form 8-K dated
      May 31, 2002.
(7)   Incorporated by reference to the Company's Current Report on Form 8-K
      dated January 31, 2003.
(8)   Incorporated by reference to the Company's Current Report on Form 8-K
      dated December 4, 2003.
(9)   Incorporated by reference to Company's Proxy Statement on Schedule 14A
      for the 2001.
      Annual Meeting of Stockholders.
(10)  Incorporated by reference to Company's Proxy Statement on Schedule 14A
      for the 2002.
      Annual Meeting of Stockholders.
(11)  Filed herewith.

(b)   Reports on Form 8-K

The Company filed a Form 8-K dated January 31, 2003, disclosing information
regarding its acquisition of Paragon Dynamics, Inc., as of that date.  As
audited financial statements for PDI were not available as of the date of
that filing, the Company filed an amendment on April 16, 2003 on Form 8-K/A
presenting the audited financial statements of PDI for the years ended
December 31, 2002 and 2001 and pro forma condensed combined financial
information for the Company and PDI.

The Company filed a Form 8-K dated November 20, 2003, disclosing the issuance
of a press release announcing the Company's results of operations for the
three months and nine months ended September 30, 2003.

The Company filed a Form 8-K dated December 8, 2003, disclosing the issuance
of a press release announcing the Company's acquisition of DeltaData, Inc.
(dba Delta Communications Group) on December 4, 2003.

The Company filed a Form 8-K dated December 19, 2003, disclosing information
regarding its acquisition of DeltaData, Inc. (dba Delta Communications
Group), as of December 4, 2003.  As audited financial statements for Delta
were not available as of the date of that filing, the Company filed an
amendment on February 17, 2004 on Form 8-K/A to present the audited financial
statements of DeltaDdata, Inc. for the eleven months ended November 30, 2003
and the year ended December 31, 2002 and pro forma condensed combined
financial information for the Company and DeltaData, Inc.


Item 14 - Principal Accountant Fees and Services.

The response to this Item will be contained in the Company's 2004 Proxy
Statement under the caption "Principal Accountant Fees and Services" and is
incorporated herein by reference.


SIGNATURES

In accordance with Section 13 or 15(d) or the Securities Exchange Act of
1934, as amended, the registrant caused this Annual Report on Form 10-KSB to
be signed on its behalf by the undersigned, thereunto duly authorized on
April 13,2004.

                                           ZANETT, INC.

                                           BY: /s/ David M. McCarthy
                                           -----------------------------
                                           David M. McCarthy
                                           Chief Executive Officer
                                           (Principal Executive Officer)


In accordance with the Securities Exchange Act of 1934, this Annual Report
has been signed below by the following persons on behalf of the registrant
and in the capacities indicated on April 13, 2004.

SIGNATURE                                   TITLE
/s/ Claudio Guazzoni                        President and Director
----------------------------------
Claudio Guazzoni

/s/ David M. McCarthy                       Chief Executive Officer
----------------------------------          and Director
David M. McCarthy

/s/ Jack M. Rapport                         Chief Financial Officer
----------------------------------           (Principal Financial and
Jack M. Rapport                               Accounting Officer)

/s/ L. Scott Perry                          Director
----------------------------------
L. Scott Perry

/s/ Dr. Andrew Schiff                       Director
----------------------------------
Dr. Andrew Schiff

/s/ Mohan Trikha                            Director
----------------------------------
Mohan Trikha

/s/ Jay W. Kelley                           Director
----------------------------------
Jay W. Kelley

<PAGE>


                              ZANETT, INC.
                INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                        Page
                                                                        ----
Independent Auditors' Report

Consolidated Balance Sheets as of December 31, 2003 and 2002

Consolidated Statements of Operations for the years ended
  December 31, 2003 and 2002

Consolidated Statements of Changes in Stockholders' Equity
  for the years ended December 31, 2003 and 2002

Consolidated Statements of Cash Flows for the years ended
  December 31, 2003 and 2002

Notes to Consolidated Financial Statements

<PAGE>


Independent Auditors' Report

To the Board of Directors and Stockholders of Zanett, Inc.

We have audited the accompanying consolidated balance sheets of Zanett, Inc.
and subsidiaries (the "Company") as of December 31, 2003 and 2002, and the
related consolidated statements of income, stockholders' equity, and cash
flows for the years then ended.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America.  Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
2003 and 2002, and the results of their operations and their cash flows for
the years then ended, in conformity with accounting principles generally
accepted in the United States of America.


/s/ Deloitte & Touche LLP
New York, New York
April 12, 2004


<PAGE>



                                  ZANETT, INC.
                         CONSOLIDATED BALANCE SHEETS

                                                          December 31,
                                                  ---------------------------
                                                      2003            2002
                                                  -----------     -----------
Assets
Current assets:
  Cash and cash equivalents                       $ 2,121,291     $ 1,402,180
  Accounts receivable                               3,782,664       1,736,711
  Unbilled revenue                                      6,600         188,835
  Prepaid expenses and other current assets           438,703         132,143
                                                  -----------     -----------
          Total current assets                      6,349,258       3,459,869
Property and equipment, net                           311,078         194,018
Loans receivable                                      394,614         744,614
Investment in Applied Discovery                             -         450,000
Goodwill                                           16,354,020      10,530,690
Intangibles and long-lived assets, net                406,500               -
Other assets                                           37,383          81,411
                                                  -----------     -----------
          Total assets                            $23,852,853     $15,460,602
                                                  ===========     ===========

Liabilities and stockholders' equity
Current liabilities:
     Accounts payable                             $ 1,367,446     $   231,770
     Accrued expenses                               1,563,327       1,065,012
     Short-term debt                                  431,667               -
     Other current liabilities                      1,682,116         779,000
     Income taxes payable                                   -         141,156
     Deferred revenue                                  98,145               -
     Capital lease obligation                               -          15,170
                                                  -----------     -----------
          Total current liabilities                 5,142,701       2,232,108
                                                  -----------     -----------
Notes payable                                       6,075,000       4,575,000
Deferred income taxes                                 253,093          72,777
                                                  -----------     -----------
         Total liabilities                         11,470,794       6,879,885
                                                  -----------     -----------


Commitments and contingencies
Stockholders' equity
     Preferred stock, $0.001 par value;
        10,000,000 shares authorized;
        none issued and outstanding                         -               -
     Common stock, $0.001 par value;
        50,000,000 shares authorized;
        28,116,377 and 26,856,971 shares
        issued and outstanding, respectively           28,116          26,857
     Additional paid-in capital                    20,843,146      18,045,074
     Treasury stock, at cost - 24,775 shares          (55,926)              -
     Notes receivable for stock subscriptions
        and accrued interest                       (1,801,541)
(1,735,744)
     Deferred compensation                           (192,943)
(105,652)
     Accumulated deficit                           (6,438,793)
(7,649,818)
                                                  -----------     -----------
           Total stockholders' equity              12,382,059       8,580,717
                                                  -----------     -----------
           Total liabilities and
             stockholders' equity                 $23,852,853     $15,460,602
                                                  ===========     ===========


The accompanying notes are an integral part of these consolidated financial
statements.


<PAGE>




                                 ZANETT, INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS

                                                   Year Ended December 31,
                                                 ---------------------------
                                                     2003           2002
                                                 -----------     -----------
Net Revenues                                     $17,048,808     $10,529,790
                                                 -----------     -----------

Operating expenses:
   Cost of net revenues                           10,522,597       6,488,430
   Selling and marketing                           1,242,087         833,036
   General and administrative (including non-
     cash compensation and consulting expense
     of $102,146 and $1,024,522, respectively)     4,694,303       3,927,825
   Impairment charges                                      -         367,591
                                                 -----------     -----------
        Total operating expenses                  16,458,987      11,616,882
                                                 -----------     -----------
        Operating income/(loss)                      589,821      (1,087,092)
                                                 -----------     -----------
Other income/(expense):
    Gain on the sale of investment in
      Applied Discovery                            1,356,937               -
    Interest income                                  129,186         186,390
    Interest expense                                (816,409)       (366,635)
    Other, net                                        (6,981)          2,033
                                                 -----------     -----------
    Total other income/(expense)                     662,733        (178,212)

Equity in losses of affiliates                             -          (4,836)
Minority interest                                          -         208,794
                                                 -----------     -----------
Income/(loss) before income taxes                  1,252,554      (1,061,346)

Income tax provision                                  41,529         206,270
                                                 -----------     -----------
Net income/(loss)                                $ 1,211,025    $ (1,267,616)
                                                 ===========     ===========

Income/(loss) per share - basic                         0.04           (0.05)
                                                 ===========     ===========
Income/(loss) per share - diluted                       0.04           (0.05)
                                                 ===========     ===========
Weighted average shares outstanding - basic       27,926,944      26,443,743
                                                 ===========     ===========
Weighted average shares outstanding - diluted     28,637,971      26,443,743
                                                 ===========     ===========


The accompanying notes are an integral part of these consolidated financial
statements.

<TABLE>

ZANETT, INC.
                                                           CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>

Notes
                                                            Additional
Receivable
                             Common Stock         Paid-in     Treasury     for
Stock        Deferred      Accumulated
                           Shares     Amount      Capital      Stock
Subscriptions    Compensation      Deficit        Total
                         ----------   -------    ----------  ---------   -------
------   -------------    -----------  -----------
<S>                      <C>          <C>       <C>          <C>         <C>
<C>             <C>           <C>
Balance,
January 1, 2002          26,076,449   $26,076   $14,234,149  $       -
$(2,019,397)    $  (613,729)    $(6,382,202)  $ 5,244,897

Issuance of common stock
 In connection with
   acquisitions           1,508,838     1,509     3,418,524          -
-                -              -     3,420,033
Compensatory restricted
   common stock sold to
   employees                535,018       535     1,125,754          -
1,078,289)               -              -        48,000
Sale and issuance of
   restricted common
   stock                    140,000       140       279,860          -
-                -              -       280,000
Compensatory restricted
   common stock and
   options issued to
   non-employees             46,666        47       280,684          -
-          (79,873)             -       200,858
Repurchase of restricted
   common stock and
   issuance of
   replacement options
   to business
   associates            (1,450,000)   (1,450)   (1,548,550)         -
1,450,000          359,370              -       259,370
Adjustments to deferred
   compensation                   -         -        98,049          -
-          228,580              -       326,629
Contributed services              -         -       190,000          -
-                -              -       190,000
Services contributed to
   a related party                -         -       (33,396)         -
-                -              -       (33,396)
Interest on notes
   receivable for
   stock subscriptions            -         -             -          -
(88,058)               -              -       (88,058)
Net loss                          -         -             -          -
-                -     (1,267,616)   (1,267,616)
                        -----------   -------   -----------    -----------------
----    -------------    -----------     ---------
Balance,
December 31, 2002        26,856,971   $26,857   $18,045,074  $       -  $
(1,735,744)   $    (105,652)   $(7,649,818)   $8,580,717


Issuance of common
   stock in
   connection with
   acquisitions           1,233,484     1,233     2,610,472          -
-                -              -     2,611,705
Compensatory restricted
   Common stock and
   options issued to
   non-employees             20,000        20       198,846          -
-         (189,437)             -         9,429
Issuance of common
   Stock for stock
   options exercised          5,922         6            (6)         -
-                -              -             -
Repurchase of common
   Stock                          -         -             -    (55,926)
-                -              -       (55,926)
Adjustments to deferred
   compensation                   -         -       (11,240)         -
-          102,146              -        90,906
Interest on notes receivable
   For stock subscriptions        -         -             -          -
(65,797)               -              -       (65,797)
Net income                        -         -             -          -
-                -      1,211,025     1,211,025
                         -----------   -------   -----------  ---------  -------
-----    -------------    -----------  -----------
Balance,
December 31, 2003         28,116,377   $28,116   $20,843,146  $ (55,926)
$(1,801,541)   $    (192,943)   $(6,438,793)  $12,382,059
                         ===========   =======   ===========  =========
============    =============    ===========  ===========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>







                                    ZANETT, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                   Year Ended December 31,
                                                ---------------------------
                                                    2003            2002
                                                -----------     -----------
Cash flows from operating activities:
Net income/(loss)                               $ 1,211,025     $(1,267,616)
Adjustments to reconcile net income/(loss) to
   net cash used in operating activities:
      Gain on sale of Applied Discovery          (1,356,937)              -
      Depreciation and amortization                 202,668         113,689
      Stock based compensation and services         100,335       1,024,522
      Loan fees and related expenses                 87,620               -
      Interest income on notes receivable
        for stock subscriptions                     (65,797)        (88,058)
      Deferred income taxes                         (39,284)        (27,362)
      Other                                          25,959         (13,206)
      Services contributed to related party               -         (33,396)
      Impairment charges                                  -         367,591
      Equity in losses of affiliate                       -           4,836
      Minority interest                                   -        (208,794)
Provision for doubtful notes from employee                -          59,362
      Contributed services from management                -         190,000
      Changes in assets and liabilities net of
          effects of acquisitions:
        Accounts receivable                      (1,206,024)         69,750
        Unbilled revenue                            590,730               -
        Interest receivable                               -         (16,471)
        Prepaid expenses and other current assets   230,167          21,051
        Other assets                                 51,359         (59,176)
        Accrued expenses                           (430,641)       (513,319)
        Accounts payable                            (60,080)       (303,737)
        Income taxes payable                       (169,713)        141,156
        Deferred revenue                             43,117         (15,138)
                                                -----------     -----------
        Net cash used in operating activities      (785,496)       (554,315)
                                                -----------     -----------
Cash flows from investing activities:
       Cash paid for acquisitions,
         net of cash acquired                    (1,921,105)     (2,540,518)
       Proceeds from sale of investment
         in Applied Discovery                     1,806,937               -
       Collection of loans receivable               350,000         481,534
       Additions to property and equipment         (143,572)        (72,354)
       Investment in affiliate company                    -         (50,000)
                                                -----------     -----------
       Net cash provided by/ (used in)
         investing activities                        92,260      (2,181,338)
                                                -----------     -----------
Cash flows from financing activities:
       Proceeds from issuance of debt             1,931,667       3,075,000
       Repayment of debt acquired in acquisition   (448,224)              -
       Repurchase of common stock                   (55,926)              -
       Capital lease payments                       (15,170)        (17,425)
       Proceeds from issuance of notes payable            -               -
       Proceeds from sale and issuance of
         restricted common stock                          -         280,000
                                                -----------     -----------
       Net cash provided by financing activities  1,412,347       3,337,575
                                                -----------     -----------
Net increase in cash and cash equivalents           719,111         601,922
Cash and cash equivalents, beginning of year      1,402,180         800,258
                                                -----------     -----------
Cash and cash equivalents, end of year          $ 2,121,291     $ 1,402,180
                                                ===========     ===========

Interest paid                                   $   728,789     $   349,129
                                                ===========     ===========
Income taxes paid                               $   103,504     $    94,631
                                                ===========     ===========


The accompanying notes are an integral part of these consolidated financial
statements.


<PAGE>


                                     ZANETT, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1.       Summary of Business and Organization

Zanett, Inc. and its wholly-owned subsidiaries (the "Company") is an
information technology ("IT") company that developed and is operating a
business model called the IT Commonwealth TM ("IT Commonwealth" or
"Commonwealth").  As of December 31, 2003, the IT Commonwealth consisted of
four IT solutions companies: Back Bay Technologies, Inc. ("BBT"), Brandywine
Computer Group, Inc. ("BCG"), Delta Communications Group, Inc. ("Delta") and
Paragon Dynamics, Inc. ("PDI").

IT Commonwealth TM members ("IT Commonwealth Members" or "Members") are
organized into non-integrated, autonomous business operating units.  Each IT
Commonwealth Member provides core business services that help clients use
technology to make business transactions more efficient, manage knowledge and
information, facilitate enterprise communications and provide security over
voice and data communications.  Below is more information about each of the
four IT Commonwealth Members:

BBT is a technology consulting firm providing strategic planning, analysis,
business case development, vendor selection, systems architecture, systems
integration, full life cycle application development and post-production
support services.

BCG provides technology consulting services associated with the
implementation of enterprise resource planning ("ERP"), supply chain
management and customer relationship management ("CRM") systems.  BCG's
clients range from Fortune 500 companies to medium sized or "middle market"
companies, with no specific industry or geographic concentration.  BCG's ERP
and supply chain implementations have historically been focused on the J. D.
Edwards platform, but the ERP services have been expanded to include
Microsoft Great Plains software as well.  CRM implementations have typically
used software from Siebel Systems.

Delta is a voice and data communications network integrator that sells IT
hardware, peripheral equipment and telecommunications lines for voice and
data communications networks as well as providing related IT security, design
and implementation solutions.

PDI provides software and satellite engineering services with domain area
expertise on government and aerospace satellite and IT infrastructure
contracts.  PDI is currently engaged in contracts with the U.S. Department of
Defense to develop classified satellite communications and related command,
control, communications and computer (C4) software.

The Company was formed on October 30, 2000, pursuant to the recapitalization
of and merger with BAB Holdings, Inc., a publicly traded Illinois corporation
("BAB"). Upon completion of the merger, BAB changed its name to Planet
Zanett, Inc. Effective August 26, 2002, the Company changed its name to
Zanett, Inc.


Note 2.       Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its wholly and majority owned subsidiaries.  All significant
inter-company transactions and balances have been eliminated in
consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period.  Actual results could
differ from those estimates.  Significant accounting estimates used in the
preparation of the Company's consolidated financial statements include the
carrying value of investments in affiliate companies, depreciation and
amortization, the fair value of equity securities underlying stock based
compensation, the fair value of acquired assets, purchase price allocations
and the realizability of deferred tax assets and liabilities.

Fair Value of Financial Instruments

The Company's short-term financial instruments consist of cash equivalents,
accounts receivable, interest receivable, accounts payable, accrued expenses
and short-term debt.  The carrying amounts of all short-term financial
instruments at December 31, 2003 and 2002 approximate their fair values due
to their short maturities.

The Company's $394,614 loan receivable from BAB, Inc., is at a variable
interest rate, therefore, the carrying value of this note approximates its
current fair value.

Notes receivable from certain officers of the Company are at fixed interest
rates that management believes reflect current market rates for secured notes
of this type.  As a result, the Company believes that the carrying value of
these notes approximate their fair value.

Based on interest rates currently available to the Company for borrowings
with similar terms and maturities, the carrying value of the Company's notes
payable approximates their current fair value.

Goodwill

In connection with its acquisitions, the Company allocates the total
acquisition costs to all tangible and intangible assets acquired and all
liabilities assumed, with the excess purchase price recorded to goodwill. To
arrive at the allocation of the total purchase price, management makes
certain assumptions in estimating the fair market value of the acquired
company's tangible assets, intangible assets (such as trademarks, brand,
intellectual property rights to developed technology, customer lists,
customer relationships and long-term contracts) and liabilities.

Goodwill consists of the excess of the purchase price over the fair value of
identifiable net assets of businesses acquired.  Goodwill is evaluated for
impairment at least annually and whenever events or circumstances indicate
impairment may have occurred.  The assessment requires the comparison of the
fair value of each of the Company's reporting units to the carrying value of
its respective net assets, including allocated goodwill.  If the carrying
value of the reporting unit exceeds its fair value, the Company must perform
a second test to measure the amount of impairment.  The second step of the
goodwill impairment test compares the implied fair value of reporting unit
goodwill with the carrying amount of that goodwill.  The Company allocates
the fair value of a reporting unit to all of the assets and liabilities of
that unit as if the reporting unit had been acquired in a business
combination and the fair value of the reporting unit was the price paid to
acquire the reporting unit.  The excess of the fair value of a reporting unit
over the amounts assigned to its assets and liabilities is the implied fair
value of goodwill.  If the carrying amount of reporting unit goodwill exceeds
the implied fair value of that goodwill, an impairment loss shall be
recognized by the Company in an amount equal to that excess.

Intangibles and Long-Lived Assets

Intangibles and long-lived assets are stated at cost, less accumulated
amortization, which is provided for by charges to income on a basis
consistent with utilization of the assets over their useful lives. The
carrying value of other intangible assets are reviewed periodically by the
Company for the existence of facts or circumstances that may suggest
impairment. If such circumstances exist, the Company estimates the future
undiscounted cash flows associated with the asset and compares that to the
carrying value. If the carrying value exceeds the estimated cash flows, the
recorded value of the asset is reduced  to its estimated fair value.

Valuation of Investments

Non-publicly traded investments are valued at the lower of cost or fair
value, as determined by management.  The fair value of private securities is
adjusted to reflect: (1) meaningful third party transactions in the private
market, or, (2) significant progress or lack thereof in the development of
the portfolio company's business such that cost is no longer reflective of
fair value.  It is possible that the estimated fair value may differ
significantly from the amount that might ultimately be realized in the near
term and the difference could be material.

As a result of the Company's sale of its remaining affiliate company
investment in Applied Discovery during 2003 (See Note 8) the Company had no
affiliate company investments recorded at December 31, 2003.

Revenue Recognition

The Company earns revenue primarily from IT professional services and the
sale of IT hardware.

IT Professional Services

Revenues from professional services rendered pursuant to time and materials
contracts are recognized as services are performed.  Revenues from fixed-fee
contracts for professional services are recognized using contract accounting
based on the estimated percentage of completion.  The percentage of
completion for each contract is determined based on the ratio of costs
incurred to a current estimate of total project costs since management
believes this reflects the extent of contract completion. Changes in
estimated costs during the course of a fixed fee contract are reflected in
the period in which such facts become known.  If such changes indicate that a
loss may be realized on a contract, the entire loss is recorded at such time.
The Company's net revenues generated from fixed fee contracts were not
significant in the years ended December 31, 2003 and 2002.

Out-of-pocket expenses incurred during the performance of professional
services are included in cost of net revenues and any amounts re-invoiced to
customers are included in net revenues during the period in which they are
incurred.

On occasion, certain contracts may have substantive customer acceptance
provisions.  In such cases, revenue is recognized upon receipt of acceptance
from the customer.

Unbilled revenue represents revenue for which services have been performed
and costs incurred that have not yet been invoiced to the customer.


IT Hardware Sales

Revenues related to hardware sales are recognized when title and risk of loss
is transferred to the customer which is generally at the time of shipment.
The Company records an estimate of future product returns based on its
historical experience.  Freight-in and other out-of-pocket expenses related
directly to hardware sales are included in cost of net revenues.  Amounts
invoiced to customers for these expenses are included in net revenues during
the period in which they are incurred.

Deferred Revenue

Amounts invoiced or received prior to the performance of services under
customer contracts or the shipment of hardware are recognized as a liability
and revenue recognition is deferred until such time that all revenue
recognition criteria have been met.


Cost of Net Revenues

Cost of net revenues includes salaries and related costs of consulting and
technical staff and outside contractors, as well as travel and related costs
related to the provision of services at customer locations.  Additionally,
the Company pays a referral fee on certain contracts that is included in cost
of net revenues.  This fee is calculated as a percentage of service revenue
billed to customers under the applicable contracts.

Cost of net revenues includes the cost of hardware purchased from suppliers
and sold to customers.

Stock-Based Compensation

Stock based compensation arrangements with employees are accounted for using
the intrinsic value method in accordance with the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). The Company applies SFAS No. 123, "Accounting for Stock-Based
Compensation and Related Interpretations" ("SFAS 123") for stock based
compensation arrangements with non-employees.  The Company applies the
additional disclosure requirements of SFAS 123, as amended by SFAS No. 148
"Accounting for Stock-Based Compensation - Transition and Disclosure," for
employee stock arrangements.

Had compensation cost for the Company's stock option grants to employees been
determined based on the fair value at the grant dates for the awards
consistent with the fair value method of SFAS 123, the Company's net
income/(loss) and basic and diluted income/(loss) per common share for the
years ended December 31, 2003 and 2002 would have been changed to the pro
forma amounts shown below:


                                                 Year ended December 31,
                                                --------------------------
                                                    2003           2002
                                                -----------    -----------
Net income/(loss), as reported:                 $ 1,211,025     (1,267,616)
   Add back: Stock based compensation
     expense for employees included
     in reported net income/(loss)                   14,400        109,613
   Deduct: Stock based compensation
     Expense determined under the
     fair value based method
     for all awards to employees                   (933,599)      (454,692)
                                                -----------    -----------
Pro forma net income/(loss) after giving
     effect to SFAS 123                             291,826     (1,612,695)
                                                ===========    ===========
Income/(loss) per common share:
  As reported - basic                           $      0.04    $     (0.05)
              - diluted                         $      0.04    $     (0.05)

  Pro forma   - basic                           $      0.01    $     (0.06)
              - diluted                         $      0.01    $     (0.06)


Income/(Loss) Per Share Information

Basic earnings per share is calculated based on the weighted average number
of common shares outstanding during the period.  Diluted earnings per share
gives effect to all dilutive potentially issuable common shares outstanding
during the period. The computation of diluted earnings per share does not
assume conversion, exercise or contingent exercise of securities that would
have an anti-dilutive effect on earnings.

The following is a reconciliation of the average number of common shares
outstanding for basic earnings per share to the average number of common
shares outstanding for diluted earnings per share for the years ended
December 31, 2003 and 2002.

                                                                Year ended
December 31,
                                                   --------------------------
                                                        2003           2002
                                                   -----------    -----------
Average outstanding shares - basic                  27,926,944     26,443,743
Potential shares issuable under stock option plans     711,027              -
                                                            -----------    --
---------
Adjusted average outstanding shares - diluted       28,637,971     26,443,743
                                                   ===========    ===========

At December 31, 2002, the Company excluded stock options to purchase
3,049,289 shares of Common Stock from the computation of diluted loss per
share as they would be anti-dilutive.

Adoption of New Accounting Policies

On January 1, 2002, the Company adopted SFAS No. 144, which supercedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of," and replaces the accounting and reporting
provisions of APB Opinion No. 30,"Reporting Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions," as it relates to the
disposal of a segment of a business. SFRAS No. 144 requires the use of a
single accounting model for long-lived assets to be disposed of by sale,
including discontinued operations, by requiring those long-lived assets to be
measured at the lower of carrying amount or fair value less cost to sell. The
impairment recognition and measurement provisions of SFAS No. 121 were
retained for all long-lived assets to be held and used, with the exception of
goodwill and indefinite-lived intangible assets but including amortizable
intangible assets.

The Company evaluates the recoverability of its long-lived assets by
comparing the respective carrying values of the assets to the current and
expected future cash flows, on an undiscounted basis, to be generated from
such assets. Property and equipment is evaluated separately within each
business.

On January 1, 2003, the Company adopted the recognition and measurement
provisions of FASB Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others."  Such interpretation elaborates on the disclosures
to be made by a guarantor about its obligations under certain guarantees
issued.  The Company adopted the disclosure provisions of FIN 45 effective
December 31, 2002.  It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee.  The initial recognition
and measurement provisions of this interpretation apply to guarantees issued
or modified after December 31, 2002.  The adoption of the recognition and
measurement provisions of this interpretation did not have a material impact
on the Company's consolidated financial position or results of operations.

On January 1, 2003, the Company adopted SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." Such standard requires any gain or loss on the early
extinguishment of debt to be presented as a component of continuing
operations (unless specific criteria are met) whereas SFAS No. 4 required
that such gain or loss be classified as an extraordinary item in determining
net income. The adoption of this standard had no impact on the Company's
results of operations or financial position.

On January 1, 2003, the Company adopted SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." Such standard nullifies EITF
Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." Under SFAS No. 146, a liability related to an exit or
disposal activity (including restructurings) initiated after December 31,
2002 is not recognized until such liability has actually been incurred
whereas under EITF Issue No. 94-3 a liability was recognized at the date of
commitment to an exit or disposal plan. The adoption of this standard had no
impact on the Company's results of operations or financial position.

On January 17, 2003, the FASB issued FASB Interpretation No.46,
"Consolidation of Variable Interest Entities" (FIN 46"). Such Interpretation
addresses the consolidation of variable interest entities ("VIEs"), including
special purposes entities ("SPEs"), that are not controlled through voting
interests or in which the equity investors do not bear the residual economic
risks and rewards. The provisions of FIN 46 were effective immediately for
transactions entered into by the Company subsequent to January 31, 2003 and
became effective for all other transactions as of July 1, 2003. However, in
October 2003, the FASB permitted companies to defer the July 1, 2003
effective date to December 31, 2003, in whole or in part. On December 24,
2003, the FASB issued a complete replacement of FIN 46 ("FIN46R"), which
clarified certain complexities of FIN 46 and generally requires adoption no
later than December 31, 2003 for entities that were considered SPEs under
previous guidance, and no later than March 31, 2004 for all other entities.
The Company adopted FIN 46 in its entirety as of December 31, 2003, however
the Company has no VIEs, therefore there was no impact.

On July 1, 2003, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities." Such standard amends and clarifies the
accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The adoption of this standard had no impact on the Company's results of
operations or financial position.

On July 1, 2003, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 150, "Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity." This standard addresses
how certain financial instruments with characteristics of both liabilities
and equity should be classified and measured. The adoption of this standard
had no impact on the Company's results of operations or financial position.


Note 3.       Acquisitions

As part of the Company's ongoing expansion of the IT Commonwealth, the
Company acquired all of the outstanding capital stock of DeltaData, Inc. and
Paragon Dynamics, Inc. on December 4, 2003 and January 31, 2003,
respectively.  On May 21, 2002, the Company acquired all of the capital stock
of Brandywine Computer Group, Inc.  Following is more information about the
Company's acquisitions of each of these companies:

2003

DeltaData, Inc. (dba Delta Communications Group)

On December 4, 2003, the Company acquired all of the outstanding capital
stock of Delta.  Delta is a voice and data communications network integrator
that sells IT hardware and telecommunications lines for voice and data
communications networks as well as providing related IT security, design and
implementation solutions.  Delta's customers include businesses (including
certain Fortune 500 companies), governmental agencies and other
organizations.  It maintains strategic alliances with key manufacturers and
communications vendors to offer its customers a comprehensive range of
analysis, architecture, project management, remote monitoring, network audit,
componentry and wide area networking hardware and other solutions.

The total consideration payable by the Company to all Delta shareholders will
be comprised of the initial cash consideration of $328,370, an initial stock
issuance of 89,255 shares of the Company's common stock ("Common Stock"), and
future contingent consideration.  The Common Stock issued at closing was
valued at $254,377 based on the average closing price of the Common Stock for
the three trading days immediately preceding the closing based on the fact
that the merger was announced and closed on the same date.

The Delta shareholders are eligible to receive contingent consideration in
each of the three successive annual periods commencing December 1, 2003 based
upon Delta attaining specified earnings targets in each period.  The
contingent consideration in each period consists of a payment of $145,000 in
cash and the issuance of a number of shares of Common Stock determined by
dividing $321,666 by the average closing price of the Common Stock for the
ten trading days immediately preceding the issuance of Common Stock for each
period.  For accounting purposes, the value of the Common Stock issued for
each annual performance period will be determined based on the closing price
of the Common Stock upon the resolution of the contingencies.

If Delta fails to meet the earnings requirements in any of the annual
performance periods, the Delta Shareholders will be entitled to receive such
amounts of annual contingent consideration not previously paid after the end
of the third performance period if Delta generates for the three performance
periods taken as a whole a combined specified earnings equal to or higher
than the threshold specified in the merger agreement.

The Delta shareholders are also eligible to receive additional contingent
consideration at the end of the period commencing December 1, 2003 and ending
on November 30, 2006, based upon Delta attaining a specified earnings target
for such period.  This additional contingent consideration consists of the
issuance of a number of shares of Common Stock determined by dividing
$400,000 by the average closing price of the Common Stock for the ten trading
days immediately preceding the issuance of Common Stock for such period.  For
accounting purposes, the value of the Common Stock issued for additional
contingent consideration will be determined based on the closing price of the
Common Stock for the trading day immediately preceding the resolution of the
contingencies.

The maximum aggregate consideration is approximately $2.4 million, of which
approximately $0.6 million was paid at closing as the initial consideration
and approximately $1.8 million could be paid as contingent consideration. The
Company estimates that transaction costs associated with the acquisition of
Delta will total approximately $269,000.

The Common Stock issued or issuable to the Delta shareholders pursuant to the
merger agreement is subject to certain transfer restrictions until November
30, 2008 pursuant to lock-up agreements executed by each Delta shareholder.
A portion of the shares will be released from such restrictions when the
closing bid price per share of the Common Stock equals or exceeds certain
price targets.

The Company entered into employment agreements with the Chief Executive
Officer and the Vice-President, Sales of Delta.  Pursuant to the employment
agreements, each will be employed by Delta for a four-year period unless
earlier terminated.  Should the employment of the Chief Executive Officer be
terminated, he will be entitled, under certain conditions, to receive
specified severance benefits. Delta also entered into a consulting agreement
with two outside contractors of Delta who will continue as contractors of
Delta after the acquisition until December 5, 2008.

The Company funded the cash portion of the purchase price paid at closing
from existing cash on hand.

The results of operations of Delta have been consolidated with the results of
operations of the Company subsequent to the acquisition date of December 4,
2003.

The components of purchase price included herein do not reflect any
contingent consideration that may be paid in the future. The actual amount of
future consideration, if any, will be recognized as an adjustment to goodwill
in the period in which the contingency is resolved.  The preliminary
allocation of the initial purchase price to the assets acquired and
liabilities assumed at closing was based upon management's estimates of the
fair market value of the acquired assets and assumed liabilities.  These
estimates of fair market value may change based upon completion of the
Company's final valuation of the assets and liabilities of Delta.

The following table sets forth the components of the purchase price at
December 31, 2003:

         Cash paid                                      $ 328,370
         Common Stock issued                              254,377
         Estimated transaction costs                      269,360
                                                       ----------
         Total purchase price                          $  852,107
                                                       ==========

The following table provides the preliminary estimated fair value of the
acquired assets and liabilities assumed:

          Cash and cash equivalents                    $  124,830
          Accounts receivable                             427,515
          Prepaid expenses and other current assets       485,755
          Other intangibles                                20,000
          Office equipment and software, net                8,342
          Other assets                                      9,128
          Current liabilities                          (1,190,159)
          Accounts payable                               (435,850)
          Long-term debt                                 (448,224)
	    Deferred tax effect on purchase accounting       (8,000)
                                                       ----------
          Fair value of net liabilities assumed        (1,006,663)
                                                       ----------
          Estimated goodwill                           $1,858,770
                                                       ==========

None of the goodwill associated with the acquisition of Delta is expected
to be deductible for tax purposes.


Paragon Dynamics, Inc. ("PDI")

On January 31, 2003, the Company acquired all of the outstanding capital
stock of PDI.  PDI specializes in providing software and satellite
engineering services with domain area expertise on government and aerospace
satellite and IT infrastructure contracts.  PDI is currently engaged in
contracts with the U.S. Department of Defense to develop classified satellite
communications and related command, control, communications and computer (C4)
software.

The total consideration payable by the Company to the PDI shareholders will
be comprised of the initial consideration, a purchase price adjustment based
on the level of PDI working capital at closing and future contingent
consideration.  The initial consideration of $1,200,000 in cash
and 585,083 shares of the Common Stock was paid at closing.  The Common Stock
issued was valued at $1,205,271 based on the average closing price of the
Common Stock for the three trading days immediately preceding the closing
based on the fact that the merger was announced and closed on the same date.
The initial consideration was reduced by $26,500, which was the amount that
the net working capital at closing was less than the benchmark level of
working capital to have been provided by PDI as of January 31, 2003.

The PDI shareholders are also eligible to receive contingent consideration in
each of the three successive annual periods commencing February 1, 2003 based
upon PDI attaining specified earnings and cash flow targets in each period.
The contingent consideration in each period consists of a payment of $400,000
in cash and the issuance of the number of shares of Common Stock determined
by dividing $400,000 by the average closing price of the Common Stock for the
ten trading days immediately preceding the issuance of Common Stock for each
period.  The PDI shareholders are also eligible to receive additional
contingent consideration at the end of the period commencing February 1, 2003
and ending on January 31, 2006, based upon PDI attaining specified earnings
targets for such period.  This additional contingent consideration consists
of the issuance of a number of shares of Common Stock determined by dividing
$800,000 by the average closing price of the Common Stock for the ten trading
days immediately preceding the issuance of Common Stock for such period.  For
accounting purposes, the value of the Common Stock issued as contingent
consideration for the performance periods will be determined based on the
closing price of the Common Stock upon the resolution of the contingencies.

On to December 31, 2003, the Company determined that PDI had attained the
specified earnings and cash flow targets discussed above for its first annual
contingent consideration period ended January 31, 2004.

The maximum aggregate consideration is approximately $5.6 million, of which
approximately $2.4 million was paid at closing as the initial consideration
and approximately $3.2 million may be paid as contingent consideration. The
Company estimates that transaction costs associated with the acquisition of
PDI will total approximately $236,000.

The Common Stock issued or issuable to the PDI shareholders pursuant to the
merger agreement is subject to certain transfer restrictions until June 1,
2006 pursuant to lock-up agreements executed by each PDI shareholder.  A
portion of the shares will be released from such restrictions when the
closing bid price per share of the Common Stock equals or exceeds certain
price targets.

The Company entered into employment agreements with the President and the
Executive Vice-President of PDI.  Pursuant to the employment agreements, each
will be employed by PDI for a four-year period unless earlier terminated.
The employment agreements provide for a market rate base annual salary and
each may earn an annual performance bonus.  Should the employment of either
executive be terminated, he will be entitled, under certain conditions, to
receive specified severance benefits.

The Company funded the cash portion of the purchase price paid at closing by
issuing a promissory note to a third party (See Note 18).  The note has a
maturity date of January 2, 2007 and requires quarterly cash payments for
interest at the rate of fifteen percent (15%) per annum.  Principal is
repayable in cash at maturity.  The note may be pre-paid without penalty.

The results of operations of PDI have been consolidated with the results of
operations of the Company subsequent to the acquisition date of January 31,
2003.

The components of purchase price included herein do not reflect any
contingent consideration that may be paid in the future.  The actual amount
of future consideration, if any, will be recognized as an adjustment to
goodwill in the period in which the contingency is resolved.

The preliminary allocation of the initial purchase price to the assets
acquired and liabilities assumed at closing was based upon management's
estimates of the fair market value of the acquired assets and assumed
liabilities.  These estimates of fair market value may change based upon
completion of the Company's final valuation of the assets and liabilities of
PDI.

The following table sets forth the components of the purchase price
as of December 31, 2003:

                 Cash paid                                    $1,200,000
                 Common Stock issued                           1,205,271
                 Purchase price adjustment                       (26,500)
                 Estimated transaction costs                     236,367
                 Contingent consideration payable                800,000
                                                              ----------
                 Total purchase price                         $3,415,138
                                                              ==========

The following table provides the preliminary estimated fair value of the
acquired assets and liabilities assumed:

                 Cash and cash equivalents                    $  163,566
                 Accounts receivable                             412,414
                 Unbilled revenue                                408,495
                 Prepaid expenses and other current assets        22,415
                 Property and equipment                           83,179
                 Other intangibles                               449,000
                 Other assets                                      5,038
                 Accounts payable                                 (5,597)
                 Accrued expenses                               (288,774)
                 Deferred revenue                                (55,028)
                 Deferred tax effect on purchase accounting     (211,600)
                                                              ----------
                 Fair value of net assets acquired               983,108
                                                              ----------
                 Estimated goodwill                           $2,432,030
                                                              ==========

None of the goodwill associated with the acquisition of PDI is expected
to be deductible for tax purposes.


2002

Brandywine Computer Group, Inc.

On May 31, 2002, the Company acquired Brandywine Computer Group, Inc.,
("BCG").  BCG provides technology consulting services associated with the
implementation of enterprise resource planning ("ERP"), supply chain
management and customer relationship management ("CRM") systems.  BCG's
clients range from Fortune 500 companies to medium sized or "middle market"
companies, with no specific industry or geographic concentration.  The BCG
ERP and supply chain implementations have historically been focused on the
J.D. Edwards platform, but in 2003 the ERP services were expanded to include
Microsoft Great Plains and other Microsoft Business Solutions software as
well.

The total consideration payable by the Company to the BCG shareholders was to
be comprised of the initial consideration, a purchase price adjustment based
on the level of BCG working capital at closing and future contingent
consideration.  Initial consideration of $2,750,876 in cash and 1,508,838
shares of the Company's Common Stock was paid at closing. The shares issued
were valued at $3,420,033 based on the average closing price of the Common
Stock for the three trading days immediately preceding the closing based on
the fact that the merger was announced and closed on the same date.
Subsequent to closing, the initial consideration was decreased by $133,712,
which is the amount that net working capital at closing was less than the
benchmark level of working capital to have been provided by BCG at May 31,
2002 of $1,247,643.


The BCG shareholders were also eligible to receive contingent consideration
in each of the three successive annual periods commencing June 1, 2002 based
upon BCG attaining specified earnings and cash flow targets in each period.
The contingent consideration for each period consisted of a payment of
$764,132 in cash and the issuance of the number of shares of Common Stock
determined by dividing $764,132 by the average closing price of the Common
Stock for the ten trading days immediately preceding the issuance of Common
Stock for each period.  For accounting purposes, the value of the Common
Stock issued for each annual performance period was to be determined based on
the closing price of the Common Stock upon the resolution of the
contingencies.

The annual contingent consideration was to be paid to the BCG shareholders
only if BCG's EBITDA, as defined in the merger agreement, and cash
remittances equaled or exceeded certain specified thresholds.  If the BCG
shareholders met the cash remittance requirements in each of the annual
performance periods but failed to qualify for the contingent consideration
for any annual performance period based on the EBITDA performance
requirement, they would be entitled to receive such amounts of annual
contingent consideration not previously paid after the end of the third
performance period if BCG generates cumulative EBITDA for the three
performance periods taken as a whole in excess of the threshold specified in
the merger agreement.  In the event that any contingent consideration is paid
to the BCG shareholders, the value of such consideration will be added to the
goodwill previously recorded at closing.

The maximum aggregate consideration at the time of closing was approximately
$10.7 million, of which approximately $6.1 million was paid at Closing as the
initial consideration and approximately $4.6 million could have been paid as
contingent consideration.  Transaction costs associated with the acquisition
of BCG were approximately $315,000.

It was determined during the third quarter of 2003 that BCG had met its
specified targets for the first annual performance period and, therefore, the
BCG shareholders qualified to receive the contingent consideration for the
period.  The contingent consideration comprised of $764,132 in cash and
369,146 shares of the Company's Common Stock, which was valued at $753,058 as
of the date the contingencies were resolved.  The Common Stock was issued to
the BCG shareholders in October 2003. The cash was payable to the BCG
shareholders only when sufficient cash was generated by BCG.  As of December
31, 2003, the Company had paid the BCG shareholders $152,826 of the $764,132
additional cash consideration earned and $611,306 was to be payable to the
BCG shareholders when sufficient cash was generated by BCG to make such
payment.

In March 2004, the Company and the BCG shareholders entered into an agreement
that terminated certain of their respective rights and obligations under the
merger agreement. In exchange for its obligation to pay the $611,306 of
remaining cash and all other future contingent consideration, the Company
agreed to pay $120,000 in cash and issued put options that allow the BCG
shareholders the right to sell 100,000 shares of Common Stock to the Company
every year for three years in the months of April 2005, 2006 and 2007 at
$1.20 per share. The fair value of these options was estimated at the date of
grant using the Black-Scholes option-pricing model to be $33,000 utilizing
the following assumptions: 3.27% risk-free interest rate, 3 year expected
life, 61% expected volatility and 0% expected dividend yield. This results in
a reduction of the total purchase price for BCG of $458,306 and will be
recorded in the first quarter of 2004.

The Common Stock issued to the BCG shareholders pursuant to the merger
agreement is subject to certain transfer restrictions pursuant to lock-up
agreements executed by each BCG shareholder.  As part of their agreement to
terminate certain of their rights and obligations under the merger and
employment agreements, the BCG shareholders agreed to extend the term of
their respective lock-up agreement by 18 months to November 30, 2007.  A
portion of the shares will be released from such restrictions when the
closing bid price per share of the Common Stock equals or exceeds certain
price targets.

The Company funded the cash portion of the purchase price paid at closing by
issuing a promissory note to a principal shareholder of the Company in
exchange for cash (See Note 18).  The note has a maturity date of May 31,
2005 and requires quarterly cash payments for interest at the rate of eleven
percent (11%) per annum.  Principal is repayable in cash at maturity.  The
note may be pre-paid without penalty.

The results of operations of BCG are consolidated with the results of
operations of the Company for the periods subsequent to the acquisition date
of May 31, 2002.

The allocation of the purchase price to the assets acquired and liabilities
assumed at closing was based upon management's estimates of the fair market
value of the acquired assets and assumed liabilities.

The following table sets forth the BCG purchase price through December 31,
2003:

               Cash paid                                     $2,769,990
               Common Stock issued                            4,173,091
               Contingent cash consideration payable            611,306
               Transaction costs                                314,998
                                                             ----------
               Total purchase price                          $7,869,385
                                                             ==========

The following table provides the fair value of the acquired assets and
liabilities assumed:

               Cash and cash equivalents                     $  526,814
               Accounts receivable                            1,497,930
               Unbilled revenue                                  58,000
               Prepaid expenses and other current assets         47,928
               Property and equipment                           103,774
               Other assets                                       3,400
               Accounts payable                                (291,875)
               Accrued Liabilities                             (736,548)
               Deferred tax effect on purchase accounting       (72,223)
                                                             ----------
               Fair value of net assets acquired              1,137,200
                                                             ----------
               Recorded goodwill                             $6,732,185
                                                             ==========

None of the goodwill associated with the acquisition of BCG is expected to be
deductible for tax purposes.

Note 4.       Pro Forma Disclosures Related to Recent Acquisitions


The following unaudited pro forma summary financial information presents the
consolidated results of operations of the Company as if the acquisitions of
BCG, Delta and PDI had occurred on January 1 of each year presented. The pro
forma results are shown for illustrative purposes only and do not purport to
be indicative of the results of the Company that would have been reported had
the acquisitions actually occurred on January 1 or indicative of results that
may occur in the future.

                                           Year ended December 31,
                                       ------------------------------
                                          2003                2002
                                       -----------        -----------
Proforma results:
Net revenues                           $23,563,176        $28,554,886
Net income/(loss)                      $ 1,366,792        $  (851,701)
Income/(loss) per common share
   - basic                             $      0.05        $     (0.03)
   - diluted                           $      0.05        $     (0.03)


Note 5.       Segments

During 2003, the Company had two segments, Commercial Solutions  and
Government Solutions. During 2002, the Company also had two segments, IT
Services and Development.  The Government Solutions Segment was formed as a
result of the Company's acquisition of PDI on January 31, 2003.  The
Development segment reported in 2002 was no longer applicable in 2003 as a
result of the write-off of the majority of the Company's Development segment
investments and its intent to no longer make investments in the Development
segment.  The Company ceased operations of this segment at the end of 2002
and as of January 1, 2003, all remaining assets of the Development segment,
with a carrying value of $527,956, were reclassified as corporate assets.

Commercial Solutions - Through its IT Commonwealth Members, BBT, BCG and
Delta the Company provides technology consulting services, hardware and
communications lines to large domestic companies that include the
implementation of enterprise resource planning systems and the planning,
development and implementation of e-business systems.

Government Solutions - Through its IT Commonwealth Member, PDI, the Company
provides technology engineering and project management services to the U.S.
Federal government either as a direct contractor or as a subcontractor to
large U.S. defense contractors.  PDI specializes in providing software and
satellite engineering services with domain area expertise on government and
aerospace satellite and IT infrastructure contracts.  PDI generates most of
its revenues as a subcontractor under U.S. Department of Defense contracts
and is subject to significant federal government procurement regulations that
do not apply to the other IT Commonwealth Members.  As a result, PDI is
subject to a different regulatory environment and economic characteristics
than the Company's Commercial Solutions segment.  Accordingly, in accordance
with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," the Company reports PDI as a separate segment.

Development - The Company's Development segment made investments in concept
and development stage IT hardware and software companies during 2001 and
early 2002, providing financial, managerial and business plan consulting
services.  With the implementation of the IT Commonwealth strategy in 2001,
the Company curtailed new primary investments.  This segment ceased
operations at the end of 2002.

All of the Company's operations during the years ended December 31, 2003 and
2002 were in the United States.

The Company measures operating performance based on Earnings Before Interest,
Taxes, Depreciation and Amortization ("EBITDA").  Unallocated corporate
expenses included in consolidated EBITDA consist primarily of executive
salaries and stock based compensation, professional fees, insurance and other
corporate administrative expenses.

The table below presents information about the reported segments for the
years ended December 31, 2003 and 2002 with a reconciliation of total segment
EBITDA to consolidated pre-tax income.

                                Net Revenues                  EBITDA
                         -------------------------   -------------------------
                            2003          2002           2003         2002
                         -----------   -----------   -----------   -----------
Commercial Solutions    $11,281,012   $10,527,790    $ 1,725,886   $ 1,827,067
Government Solutions      5,767,796             -      1,147,611             -
Development                       -         2,000              -      (350,569)
                         -----------  -----------    -----------   -----------
Total segments          $17,048,808   $10,529,790      2,873,497     1,476,498
                        ===========   ===========

Gain on sale of investment in Applied Discovery        1,356,937             -
Unallocated corporate expenses                        (2,087,989)   (2,243,910)
                                                     -----------   -----------
Consolidated EBITDA                                    2,142,445      (767,412)
Interest expense, net                                   (687,223)     (180,245)
Depreciation and amortization                           (202,668)     (113,689)
                                                     -----------   -----------
Consolidated pre-tax income/(loss) as reported       $ 1,252,554   $(1,061,346)
                                                     ===========   ===========

The following table presents total assets by segment at December 31, 2003 and
December 31, 2002 with a reconciliation of aggregate segment assets to
consolidated total assets.

                                     December 31,   December 31,
                                         2003            2002
                                     ------------    ------------
Commercial Solutions                  $18,042,566    $ 13,958,423
Government Solutions                    3,425,006               -
Development                                     -         528,739
                                     ------------    ------------
Total segments                         21,467,572      14,487,162
Unallocated amounts:
   Prepaid expenses                       124,468          75,000
   Notes receivable                       394,614         694,614
   Fixed assets                            93,193               -
   Other assets                            15,987          55,269
   Cash                                   957,019         148,557
                                     ------------    ------------
Total assets as reported             $ 23,052,853    $ 15,460,602
                                     ============    ============

Note 6.       Intangibles and Long-Lived Assets

Intangibles and long-lived assets consisted of the following at
December 31, 2003 and 2002:

                            2003                           2002
               -------------------------------  --------------------------
               Gross    Accumulated  Net       Gross    Accumulated  Net
               Carrying Amortization Carrying  Carrying Amortization Carrying
               Value    Amount       Value     Value    Amount       Value
               -------- ------------ --------  -------- ------------ --------
Long-term
 Contracts (a) $390,000  $ (22,500)  $367,500   $     -   $      -   $     -
Customer
 Relationships
  (b)            59,000    (20,000)    39,000         -          -         -
Order backlog
  (c)            20,000    (20,000)         -         -          -         -
               --------   ---------  --------   -------   --------   -------
               $469,000  $ (62,500)  $406,500   $     -   $      -   $     -
               ========   =========   ========   =======   ========  ========

(a)  Amortized over a five year period.
(b)  Amortized over a nine month period.
(c)  Amortized over a one month period.


Note 7.       Goodwill

The changes in the carrying amount of goodwill by reporting segment for the
year ended December 31, 2003 was as follows:

                                 Commercial      Government
                                 Solutions       Solutions         Total
                               -------------   -------------    -----------
Balance at January 1, 2003     $  10,530,690    $          -    $10,530,690
Goodwill acquired - PDI                    -       1,632,030      1,632,030
Contingent consideration - BCG     1,532,530                      1,532,530
Goodwill acquired - Delta          1,858,770                      1,858,770
Contingent consideration - PDI             -         800,000        800,000
                               -------------     -----------    -----------
Balance at December 31, 2003   $  13,921,990     $ 2,432,030   $ 16,354,020
                               =============     ===========   ============


In accordance with the provisions of SFAS No. 142, goodwill from the
acquisitions of BBT, BCG, PDI and Delta has not been amortized.  The Company
performed its annual test for impairment as of October 1, 2003 upon
completing its annual budgeting process and concluded that there was no
goodwill impairment as of this date for BBT, BCG and PDI.  Since Delta was
acquired on December 4, 2003, after the annual review process, it was not
included in the review.  It will be included in next year's review along with
all other IT Commonwealth Members.  The Company's reporting units utilized
for evaluating the recoverability of goodwill are its IT Commonwealth Members
which are wholly-owned subsidiaries.


Note 8.   Sale of Investment in Applied Discovery

In July 2003, the Company sold its investment in Applied Discovery as part of
the acquisition of Applied Discovery by LexisNexis, a division of Reed
Elsevier Inc.  Under the terms of the transaction, Zanett received $1,806,937
in cash for the shares it owned, resulting in a gain of $1,356,937 on its
initial investment of $450,000.  The Company is entitled to receive up to
$95,102 of additional proceeds that are being held in an escrow account
through July 2004 to cover potential liabilities for which the Company
remains responsible.  The Company has deferred the recognition of additional
income, if any, related to these additional proceeds until the related
contingencies are resolved.


Note 9.   Impairment of Investments

During 2002, the Company recorded impairment charges in the amount of
$286,432 related to the balance of its investments in Fanlink Networks, Inc.
and InfoDream Corporation, as they effectively ceased operations during the
year.  Details of these impairment charges are presented below:

       Affiliate                                    2003            2002
       ---------                                 ----------     ----------
       Fanlink Networks, Inc.                    $        -     $   74,582
       InfoDream Corporation                              -        211,850
                                                 ----------     ----------
       Total                                     $        -     $  286,432
                                                 ==========     ==========

The Company also recorded an impairment charge of $81,159 in 2002 related to
software development costs.


Note 10.   Property and Equipment

Property and equipment consisted of the following at December 31, 2003 and
2002:

                                         Estimated         December 31,
                                           Useful      ---------------------
                                           Lives         2003         2002
                                         ---------     ---------   ---------
           Computer equipment            3 years       $ 386,239   $ 220,108
           Furniture and fixtures        5 years         104,141      59,959
           Leasehold improvements        Lesser of
                                         lease term
                                         or life of
                                         asset            23,280           -
                                                       ---------   ---------
                                                         513,660     280,067
           Less accumulated depreciation
              and amortization                          (202,582)    (86,049)
                                                       ---------   ---------
           Property and equipment, net                 $ 311,078   $ 194,018
                                                       =========   =========

Depreciation and amortization expense related to all property and equipment
was $140,168 and $113,689 for the years ended December 31, 2003 and 2002,
respectively.

At December 31, 2003 and 2002, equipment acquired under capital leases
consisted of computer equipment with a capitalized cost of $28,747.
Depreciation and amortization expense includes the amortization of these
capital leases.  As of December 31, 2003, there were no minimum lease
payments remaining under these capital leases.

Note 11.   Restricted Common Stock

All of the shares of Common Stock issued by the Company in its acquisitions
of operating units as well as shares issued to executives, are subject to
certain transfer restrictions for five years pursuant to lock-up agreements
executed by each shareholder.  A portion of the shares, however, may be
released from such restrictions when the closing price per share equals or
exceeds certain price targets.  As of December 31, 2003, no shares pursuant
to the lock-up agreements have been released from the restrictions.


Note 12.   Restricted Stock Issuances and Non-cash Compensation

In October 2000, the Company issued 1,450,000 shares of restricted Common
Stock at $1.00 per share to business associates in contemplation of their
efforts in assisting the Company to develop its business.  The Company was
issued non-recourse notes as payment for this restricted Common Stock in the
aggregate amount of $1,450,000.  The notes accrued interest at 6.09% per
annum and had a maturity date of October 31, 2005. The stock served as
collateral for the notes.

Of the 1,450,000 shares discussed above, 250,000 shares vested immediately
and 1,200,000 were subject to a repurchase feature that lapsed over five
years.  The repurchase feature allowed the Company under certain
circumstances to repurchase any of the shares, at their issue price of $1.00
per share, for which the repurchase feature had not expired.  Of these
1,200,000 shares, the Company's repurchase option expired on 90,000 shares in
2001 and on an additional 75,000 shares in 2002.

On March 31, 2002, the Company entered into a separation agreement with one
of the business associates under which it waived its right to repurchase
120,000 shares still subject to the repurchase feature and exercised its
right to repurchase 150,000 shares of stock previously issued to the
individual. Under SFAS 123, the modification of the right to repurchase
120,000 shares resulted in the recognition of a non-cash stock compensation
charge of $59,732 that had previously been deferred, while the repurchase of
the 150,000 shares resulted in a reduction in non-cash stock compensation of
$(84,335).

On August 30, 2002, the Company entered into agreements with each of the
business associates to repurchase the remaining 1,300,000 outstanding shares
of restricted Common Stock by forgiving the underlying non-recourse notes in
the aggregate amount of $1,300,000 and $147,176 of unpaid accrued interest on
these notes and issued options to purchase 1,300,000 shares of the Company's
Common Stock.  All options granted were fully vested upon issuance and are
not subject to any repurchase or cancellation provisions.  Any Common Stock
issued from the exercise of these options is subject to the terms and
conditions of the existing lock-up agreements with these business associates.

Of the 1,300,000 options granted, 1,150,000 have an exercise price of $2.00
per share and 150,000 have an exercise price of $1.37 per share.  As a result
of this transaction, the Company recorded a non-cash stock compensation
charge of $431,149, in the year ended December 31, 2002 which included the
write-off of the $147,176 balance of accrued interest on the non-recourse
notes.

Prior to being retired on August 30, 2002, the restricted Common Stock was
issued subject to non-recourse notes and, therefore, was accounted for in a
manner similar to stock options. Compensation expense was determined in
accordance with SFAS 123 as the fair value of the equity instruments issued,
and according to the guidelines set forth in EITF 96-18, "Accounting for
Equity Instruments that are Issued to Other than Employees for Acquiring,or
in Conjunction with Selling, Goods or Services".  Expense with regard to the
restricted stock was charged to operations over the five-year period over
which the Company's repurchase option expires.

As discussed above, these restricted shares and non-recourse notes were
canceled in 2002 and there was no deferred compensation recorded at December
31, 2002 related to it.  During the year ended December 31, 2002 the Company
recognized non-cash compensation expense of $206,183 related to these
restricted stock issuances.

In April 2002, the Company issued 28,666 shares of Common Stock for public
relations services. The shares were subject to a restriction that prohibits
their sale for twelve months. The Company recorded a non-cash charge of
$61,632 related to this stock grant during the year ended December 31, 2002
based on the price of the stock on the date of issuance. Additionally, a
stockholder of the Company transferred 57,000 shares of the Company's Common
Stock owned by such stockholder to the same public relations firms for no
consideration.  As a result of such transfer the Company recorded a non-cash
charge of $122,550 related to this stock transfer during the year ended
December 31, 2002 based on the price of the stock on the date of transfer.

In August 2002, the Company issued 16,666 options to purchase the Company's
Common Stock to extend the services agreement with one of the public
relations firms discussed above for an additional three month period.  These
options were issued with an exercise price of $2.00 per share, which resulted
in a stock compensation charge of $9,416 during the year ended December 31,
2002, based on the fair value of the options calculated using a Black-Scholes
valuation model.

In August 2002, the Company entered into an agreement with a firm to provide
public relations services for a two year period.  In exchange for these
services, the Company issued the firm 18,000 shares of restricted Common
Stock and granted options to purchase 100,000 shares of Common Stock at an
exercise price of $2.50 per share and options to purchase 50,000 shares of
Common Stock at an exercise price of $3.50 per share. The total amount to be
recognized as an expense over the period of the agreement was calculated
based on the price of the stock on the date of the agreement and a Black-
Scholes model. The Company recorded stock compensation expense of $43,568 and
$18,153 in 2003 and 2002, respectively. At December 31, 2003, the unamortized
deferred compensation balance associated with the issuance of the restricted
stock and options was $25,414.

In May 2003, the Company issued 10,000 shares of Common Stock in exchange for
investor relations services.  The stock was subject to a restriction that
prohibits its sale for twelve months.  Additionally, the Company granted the
firm options to purchase 50,000 shares of the Company's Common Stock.  These
options have a one-year life and an exercise price of $2.50 per share.  The
agreement with the investor relations firm requires the provision of services
for a one-year period commencing May 15, 2003.  Accordingly, the fair value
of the stock at the date of the agreement and the fair value of the options
at the grant date calculated using a Black-Scholes model will be recognized
as general and administrative expense on a straight-line basis over the one-
year term of the agreement.  The Company recorded a non-cash charge of
$22,812 related to this arrangement during the year ended December 31, 2003.
At December 31, 2003, the deferred compensation balance associated with this
arrangement was $13,688.

In October 2003, the Company issued 10,000 shares of Common Stock in exchange
for investor relations services.  The stock was subject to a restriction that
prohibits its sale for twelve months.  Additionally, the Company granted the
firm options to purchase 50,000 shares of the Company's Common Stock.  These
options have a one-year life and an exercise price of $3.50 per share.  The
agreement with the investor relations firm requires the provision of services
for a one-year period commencing October 15, 2003.  Accordingly, the market
value of the stock at the date of the agreement and the fair value of the
options at the grant date calculated using a Black-Scholes model will be
recognized as general and administrative expense on a straight-line basis
over the one-year term of the agreement.  The Company recorded a non-cash
charge of $9,688 related to this arrangement during the year ended December
31, 2003.  At December 31, 2003, the deferred compensation balance associated
with this arrangement was $67,812.



Note 13.   Stock Issued For Investment and Future Services

During 2000, the Company issued 265,000 shares of restricted Common Stock in
exchange for an investment in World Wide Web Institute, Inc. ("WWWI") and
future services from certain WWWI employee shareholders. 125,000 shares
vested immediately and 140,000 shares are subject to a repurchase feature
that lapses over five years.  Of these 140,000 shares, 10,500 vested in 2001
and an additional 10,500 shares vested in the first six months of 2002.
During the second quarter of 2002 the Company waived its repurchase option on
the remaining 119,000 shares that would have expired over the next three
years and no longer requires any future services from the individuals.

The holders of this restricted Common Stock are subject to an agreement that
requires them to hold these shares through October 31, 2005.

Compensation for the future services was determined in accordance with SFAS
No. 123, as the fair value of the equity instruments issued, and according to
the guidelines set forth in EITF 96-18.  Consulting services expense was
charged to operations from the issuance of these shares.  However, with the
Company's waiver of future services and the repurchase feature on the
remaining shares, no future charges were incurred after the second quarter of
2002. During the year ended December 31, 2002, the Company recognized non-
cash compensation expense of $26,510.  At December 31, 2003 and 2002, there
was no unamortized deferred compensation attributable to these restricted
stock issuances.


Note 14.   Employee Loans

Pursuant to a former employee's employment arrangement, the individual was
allowed to co-invest in certain investments made by the Company. The Company
was required to loan this employee the funds necessary to make any investment
under this arrangement. The investment amount could not exceed 10% of the
Company's aggregate investments in 2001, 20% in 2002, 30% in 2003, and 40% in
2004. The loans bear interest at a rate of 6-1/4% per annum. Upon the
liquidation of the investment, the loan is repayable with interest to the
Company. The remaining investment gain attributable to the employee's
ownership interests is to be distributed to the employee. Interest on the
loan will cease to accrue if it is established that there will be no gain on
the investment. At that point, the loan together with any outstanding
interest would be forgiven in an amount equal to the excess of such principal
and interest over the value, if any, of the investment, and charged to
operations as compensation expense.

At December 31, 2002, the Company had loaned the former employee an aggregate
of $289,699, excluding interest, to make such investments.  As a result of a
revaluation of certain of the Company's investments underlying these loans,
the Company recorded a provision for the doubtful collectibility of the
related loans and accrued interest in the aggregate amount of $239,699.
Therefore the aggregate net carrying value of these loans at December 31,
2002, was $50,000. In August 2003, the former employee repaid the Company
$50,000.

On September 7, 2001 the Company issued 569,397 shares of restricted Common
Stock to two of its executive officers at $1.00 per share.  The shares were
fully vested upon issuance.  The Company was issued full recourse promissory
notes for $569,397 by the officers as payment for this restricted stock. The
company recorded non cash compensation in the amount of $569,397 based on the
difference between the issue price and the market price for Common Stock on
the date of grant. The notes mature November 1, 2005, and bear interest,
payable at maturity, at 5% per annum. The notes are secured by the Common
Stock pursuant to stock pledge agreements.

On January 27, 2002, the Company issued 480,000 shares of restricted Common
Stock to two of its executive officers, at the market price of $2.00 per
share. The shares were fully vested upon issuance. The Company was issued
full recourse promissory notes for $960,000 by the officers as payment for
this restricted Common Stock. The notes mature on November 1, 2005 and bear
interest, payable at maturity, at 5% per annum and are secured by the Common
Stock. The Company recorded non-cash compensation expense in 2002 in the
amount of $48,000 for these restricted stock issuances.

On June 4, 2002, the Company issued 55,018 shares of restricted Common Stock
to one of its executive officers at the market price of $2.15 per share. The
shares were fully vested upon issuance. The Company was issued a full
recourse promissory note in the amount of $118,289 by the officer as payment
for this restricted Common Stock. The note matures on November 1, 2005 and
bears interest, payable at maturity, at 5% per annum and is secured by the
Common Stock. Since the Common Stock was issued at the then market price, the
Company did not record any stock compensation expense related to this
issuance.

Notes issued by the two executives for the purchase of the Company's Common
Stock, as detailed above, as well as accrued interest receivable of $153,855
and $88,058 at December 31, 2003 and 2002, respectively, are included in
Notes receivable from stock subscriptions and accrued interest in the
stockholders' equity section of the accompanying consolidated balance sheets.


Note 15.      Stock Based Compensation

In November 2001, the Company implemented the Zanett, Inc. Incentive Stock
Plan (the "Stock Plan") to encourage participation in the ownership of the
Company by employees, directors and consultants who render services to the
Company.  The plan provides for the grant of incentive stock options, stock
awards, stock appreciation rights and direct purchases of Common Stock
(collectively "Stock Rights").  The Board of Directors and management of the
Company believe that the grant of Stock Rights will be a significant factor
in the Company's growth and its ability to attract, retain and motivate
qualified employees, directors and consultants.  The Stock Plan gives broad
powers to the Board of Directors to administer or to appoint a committee to
administer, interpret and implement the Stock Plan, including authority to
determine the terms and conditions for all grants of Stock Rights.

On April 22, 2003, the Company's board of directors adopted an amended and
restated Stock Plan, which increased the number of shares of the Common Stock
issuable under the plan from 5,000,000 shares to 7,000,000 shares.  The plan
was approved by the Company's shareholders at the annual meeting in June
2003.

On August 4, 2003, the Company awarded 750,000 options to purchase restricted
Common Stock to each of two executives with an exercise price of $2.00 per
share which was the market price of the Common Stock on the date of the
grant.  All of the 1,500,000 options vest on August 4, 2008, subject to the
executives maintaining continuous service to the Company through the vesting
date and may be accelerated at the discretion of the board of directors.

During 2003 and 2002, the Company issued options in total to purchase
2,602,802 and 2,537,202 shares of its Common Stock, respectively, under the
Stock Plan.  At December 31, 2003, 1,387,457 common shares were available for
future issuance under the Stock Plan.  Options to purchase the Company's
Common Stock issued to BAB, Inc. option holders as part of the merger and re-
capitalization in October 2000 are covered by the Stock Plan.  During 2003,
options to purchase 33,626 shares of Common Stock were forfeited or expired
unexercised.

The following tables present option activity and options outstanding and
exercisable:


---------------------------------------------------------------
                                                      Weighted
                                                      average
                                                      exercise
                                           Shares       price
---------------------------------------------------------------
Outstanding, January 1, 2002               937,622     $  2.20
Granted to employees                     1,070,536     $  2.08
Granted to business associates           1,300,000     $  1.93
Granted to vendors                         166,666     $  2.75
Exercised                                        -     $     -
Forfeited/expired                         (425,535)    $  0.69
---------------------------------------------------------------
Outstanding, December 31, 2002           3,049,289     $  2.24
Granted to employees                     2,402,802     $  2.13
Granted to directors                       100,000     $  2.00
Granted to vendors                         100,000     $  2.50
Exercised                                   (5,922)    $     -
Forfeited/expired                          (33,626)    $  1.00
---------------------------------------------------------------
Outstanding, December 31, 2003           5,612,543     $  2.19
==============================================================

<TABLE>

                                               Options Outstanding
                                ------------------------------------------------
<CAPTION>
                                    Weighted
Options Exercisable
                                     Average                             -------
------------------
                                   remaining            Weighted
Weighted
Range of                        contractual life    average exercise
average exercise
exercise price         Shares        (years)             price
Shares          price
--------------------------------------------------------------------------------
------------------
<S>                <C>                 <C>             <C>             <C>
<C>
$0.48 to $.096          7,631           3.11            $  0.81
3,475          $ 0.80
$1.25                  20,909           1.25               1.25
20,909            1.25
$1.38 to $1.91        216,922           7.08               1.53
174,616            1.44
$2.00               4,072,682           8.38               2.00
1,860,360            2.00
$2.02 to $2.24        568,036           8.41               2.14
191,336            2.19
$2.50 to $4.17        605,532           6.12               2.67
351,850            2.65
$6.37 to $7.50         83,331           2.00               7.00
83,331            7.14
$9.00                  37,500           2.08               9.00
37,500            9.00
--------------------------------------------------------------------------------
------------------
                    5,612,543           7.91            $  2.19
2,723,377          $ 2.31
================================================================================
==================
</TABLE>

The Company applies the intrinsic value method of APB 25 and related
interpretations in accounting for stock based compensation arrangements with
employees.  Accordingly, no compensation cost has been recognized for its
stock options issued to employees where the exercise price per share was
equal to or exceeded the fair market value of the Company's Common Stock at
the date of grant.

The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model using the following weighted average
assumptions:
                                         2003           2002
                                     ------------    ------------
Risk-free interest rate               3.3% - 3.5%        3.5%
Expected lives                       2 to 4 years    2 to 4 years
%Expected volatility                   60% - 61%         60%
Expected dividend yield                   0%              0%


Note 16.      Stock Repurchase Plan

The board of directors of the Company authorized a Stock Repurchase Plan
effective May 1, 2003 and extending through April 30, 2006, under which the
Company may acquire up to 150,000 shares of its outstanding Common Stock.
Under the Stock Repurchase Plan, the Company may conduct purchases through
open market transactions in accordance with applicable securities laws.  The
number of shares purchased and the timing of any purchases will be based on a
number of factors, including the market price of the Common Stock and market
conditions, as evaluated by the Company's management. Repurchased shares will
be used for general corporate purposes.  As of December 31, 2003, the Company
had repurchased 24,775 shares at a cost of $55,926.  These shares are
included in Treasury stock on the accompanying consolidated balance sheets.


Note 17.      Contributed Services and Related Party Transactions

During 2002, the Company recorded non-cash compensation expense of $190,000
for the contributed services of two executive officers, who are also
principal shareholders.  The officers, pursuant to their respective
employment arrangements, are each entitled to an annual salary of $95,000 but
chose to contribute their services to the Company.  Since the officers did
not expect payment of such compensation, the value of such has been reflected
as an increase to additional paid-in capital.  In 2003, the two officers
began receiving cash compensation and no longer contribute their services.

During 2003 and 2002, the Company recorded general and administrative
expenses in the amounts of $213,000 and $36,000 for office space, computer
equipment, telephone and other administrative support provided by a related
party.  The related party and the Company have common majority ownership.  If
the Company had to procure such administrative services from an unrelated
third party, it is likely that those services would cost more than the
amounts allocated by the related party in 2002.  In 2003, amounts charged for
similar services were at estimated fair market value.

During 2002, on a monthly basis, the Company charged the same related party
25% of one officer's compensation for services rendered by the officer to the
related party.  Because of the common ownership, the Company's management
decided to forgive the balance owed and considered the value of the services
as a return of capital in 2002.  At December 31, 2002, Additional paid-in
capital was reduced by $33,396 for such services.  During 2003, the officer
did not render significant services to the related party.


Note 18.      Notes Payable and Line of Credit Arrangements

Notes payable and line of credit arrangements comprising all of the Company's
outstanding debt at December 31, 2003 and 2002 and are as follows:

                                               2003           2002
                                            ----------     ----------
Notes payable to principal shareholder,
  11% interest, quarterly interest
  payments, mature January 1, 2006          $4,575,000     $4,575,000
Note payable to financial institution,
  15% interest, quarterly interest
  payments, matures January 2, 2007          1,500,000              -
Revolving credit facility with a
  financial institution, Prime plus 3%,
  borrowing base is defined eligible
  receivables, secured by substantially
  all of the Company's assets                  431,667              -
                                            ----------     ----------
Total debt                                  $6,506,667     $4,575,000
Less: Current portion                          431,667              -
                                            ----------     ----------
Long-term debt                              $6,075,000     $4,575,000
                                            ==========     ==========

At December 31, 2003 one of the notes payable to a principal shareholder
had a maturity date of December 31, 2004. Subsequent to December 31, 2004
the Company re-negotiated the maturity of all notes payable to the
shareholder to January 1, 2006.

As a result of the Delta acquisition, the Company acquired a pre-existing
$250,000 line of credit with a finance company. The interest rate on the line
of credit is Prime plus 2.5%. The line of credit is collaterized by certain
of Delta's accounts receivable and the personal guarantee and personal assets
of a former owner of Delta.  During December 2003, the Company repaid the
outstanding balance of $100,446 on this line of credit and as of December 31,
2003 there were no borrowings outstanding against it. The Company intends to
maintain this line of credit in 2004 to provide working capital for Delta.

Through the Company's acquisitions of IT Commonwealth Members during 2003 and
2001, the Company had other line of credit arrangements outstanding during
2003 and 2002 with an aggregate maximum amount available of $850,000.  These
other line of credit arrangements, which were secured by various assets of
the Company, were not renewed or otherwise terminated during 2003.

The Company acquired a note payable to a bank in the amount of $348,091 as a
result of its acquisition of an IT Commonwealth Member during 2003.  The 7.5%
note payable was secured by a personal asset of a shareholder of the Company.
The Company repaid the note in full in December 2003.

Subsequent to December 31, 2003, the Company repaid the then outstanding
balance on its revolving credit facility and has not made any additional
borrowings against the facility.  The Company does not intend to make any
additional borrowings against this facility and is actively seeking
alternative financing of a revolving credit line nature.


Note 19.      Accrued Expenses

Accrued expenses are comprised of the following at December 31, 2003 and
2002:


                                               2003           2002
                                            ----------     ---------
Employee compensation
  and commissions                           $  599,265    $  362,548
Transaction costs related to
  acquisitions                                 459,656       239,853
Professional fees                              229,692       215,925
Sales taxes                                    112,187             -
Accrued referral fees                           35,615       157,613
Interest payable                                28,187        28,187
Other                                           98,725        60,886
                                            ----------     ---------
Total accrued expenses                      $1,563,327    $1,065,012
                                            ==========     =========


Note 20.      Employee Benefit Plans

Each of the IT Commonwealth Members have defined contribution savings plans
that qualify under section 401(k) of the Internal Revenue Code of 1986, as
amended (the "Plans") and cover all employees of the respective subsidiaries
meeting certain service and age requirements.  In general, participants may
contribute amounts, in any given year, up to a limitation set by the Internal
Revenue Service regulations except for participants under certain of the
Plans who are also limited to the lesser of 8% of their gross wages, in any
given year, and a limitation set by the Internal Revenue Service Regulations.
Certain of the Plans provide for mandatory or voluntary matching
contributions to be made by the Members.  The maximum matching contributions
range from 50% of the first 4% to 10% of an employee's annual wages.  The
amount contributed to the Plans by the Members subsequent to each's
acquisition by the Company was approximately $243,664 and $116,000 for the
years ended December 31, 2003 and 2002, respectively.


Note 21.      Commitments and Contingencies

In February 2000, the Company filed an action against Immunomedics, Inc. in
the U.S. District Court in Wilmington, Delaware, to recover fees and related
damages arising from Immunomedics' breach of an exclusive placement agency
agreement dated August 20, 1999. The Company is seeking damages in excess of
$500,000. Immunomedics asserted a counterclaim based on alleged delays in
obtaining financing. On April 17, 2002, this case and the ensuing
counterclaim were dismissed by the court with no settlement or award for
either party. The Company filed a motion for reconsideration of the court's
order, which was granted on June 12, 2002, and both parties filed motions for
summary judgment on August 9, 2002. On March 21, 2003, the court denied
Immunomedics' motion to dismiss the complaint and granted the Company's
motion dismissing the counterclaim. On January 26-27, 2004 Zanett's complaint
against Immunomedics was heard in a non jury trial in U.S. District Court in
Wilmington. Final briefs from both sides were submitted on or before March
16th, 2004. A decision by the court is currently pending.


In March 2003, Gardner Resources Consulting LLC ("GRC") filed an action
against one of the Company's subsidiaries (the " Subsidiary") in the Superior
Court, Civil Action, Commonwealth of Massachusetts, to recover fees allegedly
owed by the Subsidiary pursuant to a Partnership Agreement dated July 5,
2001, under which the Subsidiary had agreed to pay GRC a percentage of gross
billings charged to a specific client of the Subsidiary. On April 3, 2003,
the Subsidiary filed an answer to GRC's claim and asserted a counterclaim
alleging GRC's breach of certain covenants under the Partnership Agreement.
On October 29, 2003, the Subsidiary received a demand letter from GRC's
counsel seeking approximately $146,000 in damages. By letter dated November
11, 2003, the Subsidiary responded to GRC's demand letter and made a
settlement proposal, which was subsequently rejected by GRC. The parties'
settlement negotiations are currently suspended. According to a notice of the
Superior Court dated February 13, 2004, the deadline for completion of
discovery is May 25, 2004 and the case is placed on the July 2004 pre-trial
conference list. The Company believes that its existing accrual will be
adequate to cover any potential settlement with GRC.

On December 22, 2003 the Company entered into an agreement with the former
shareholders of BBT that modified the original BBT merger agreement and the
basis on which future contingent consideration could be earned. Effective
January 1, 2003, whenever BBT recognizes between $700,000 and $1,000,000 of
EBITDA, the former BBT shareholders may demand contingent cash payments and
contingent stock payments up to a maximum of $416,667 and 208,333 shares of
the Company's Common Stock using the same formula for pro-rating such
contingent consideration as defined in the original BBT merger agreement, but
may make such demand no more than twice during the period January 1, 2003 and
ending April 30, 2006. Payment of the cash and stock is subject to
confirmation by the Company of BBT having produced sufficient free cash flow
to make the cash payments.

The Company leases certain of its offices under non-cancelable operating
leases that expire on various dates through January 31, 2008.  Certain of
these leases call for a monthly base rental plus a pro-rata share of building
expenses and real estate taxes.

At December 31, 2003 future minimum lease payments under these non-cancelable
operating leases are as follows:

                                          Year ending
                                          December 31,               Amount
                                     ----------------           -----------
                                            2004                   $ 89,816
                                            2005                     71,970
                                            2006                     45,747
                                            2007                     45,747
                                            2008                     30,498
                                                                   --------
                                           Total                   $283,778
                                                                   ========

Total rent expense under all operating leases was $172,456 and $110,040 for
the years ended December 31, 2003 and 2002, respectively.

The company enters into agreements that contain indemnification provisions in
the normal course of business for which the risks are considered nominal and
impracticable to estimate.  Historically, the Company has not incurred any
significant costs related to performance under these indemnities.


Note 22.      Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations
of credit risk primarily consist of cash and accounts receivable.  The
Company places its excess cash in money-market instruments with institutions
of high credit quality.  All of the Company's accounts receivable are
unsecured. The Company believes that any credit risk associated with its
receivables is minimal due to the size and credit worthiness of its
customers, which are principally large domestic corporations.  Receivables
are stated at estimated net realizable value, which approximates fair value.

For the year ended December 31, 2003, the Company had two customers that
accounted for approximately 18% and 12% of total net revenues.  For the year
ended December 31, 2002, the Company had three customers that accounted for
approximately 20%, 17% and 12% of net revenues.

At December 31, 2003, the Company had two customers that accounted for 16%
and 14% of accounts receivable.  At December 31, 2002, the Company had three
customers that accounted for 22%, 21% and 12% of accounts receivable.

A significant majority of PDI's net revenues and receivables are related to
the U.S. Department of Defense contracts on either a direct or subcontractor
basis.  Most contracts, although long term in nature, are subject to
obtaining the required funding approvals from the U.S. Department of Defense.


Note 23.      Income Taxes

The components of the provision for (benefit from) income taxes are as
follows:

                                              Year Ended December 31,
                                              -----------------------
                                                 2003         2002
                                              ----------     ---------
Federal:
       Current                                $    9,701     $       -
       Deferred                                        -             -
                                              ----------     ---------
                                                   9,701             -
                                              ----------     ---------

State and local:
       Current                                    88,729       232,632
       Deferred                                  (56,901)      (27,362)
                                              ----------     ---------
                                                  31,828       206,270
                                              ----------     ---------
Provision for/(benefit from) income taxes         41,529     $ 206,270
                                              ==========     =========

The reconciliation of the income tax provision (benefit) computed at the
Federal statutory rate to the reported income tax provision for (benefit
from) is as follows:

                                               Year Ended December 31,
                                              ------------------------
                                                 2003          2002
                                              ----------     ---------
Tax expense (benefit) at U.S.
    statutory rate                            $  425,868     $(360,858)

State income taxes, net of
    federal benefit                              138,092       169,952

Change in valuation allowance                   (512,013)      395,381

Permanent items, net                             (10,418)        1,795
                                              ----------     ---------
                                              $   41,529     $ 206,270
                                              ==========     =========

Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) operating loss and tax credit carryforwards.  The tax effects of
significant items comprising the Company's net deferred tax asset as of
December 31, 2003 and 2002 were as follows:

                                                          December 31,
                                                    -----------------------
                                                        2003         2002
                                                    -----------  ---------
Net operating loss carryforwards                    $  436,200   $ 746,043
Capital losses in excess of capital gains              752,629     656,684
Reserves and other accruals                             41,767     490,766
Goodwill and equity in losses of affiliates                  -     190,079
Stock based compensation                               594,233     900,506
Tax/book basis difference in assets                   (189,277)    (27,883)
Change in method, due to acquisition                  (402,190)   (323,472)
                                                    -----------   ---------
Total deferred tax assets                            1,233,362   2,632,723
Less:  Valuation allowance                          (1,486,455) (2,705,500)
                                                    -----------  ---------
Net deferred tax liability                          $ (253,093)  $ (72,777)
                                                    ===========  ==========

As of December 31, 2003 and 2002, the Company has net operating loss ("NOL")
carryforwards of approximately $1,100,000 and $1,900,000, respectively, for
tax purposes.  These loss carryforwards are available to offset future
taxable income and will expire beginning in various years through 2021. The
Company recorded a deferred tax liability related to the BBT, BCG and PDI
acquisitions, which represents a required change in the method of accounting
for these subsidiaries from the cash method to the accrual method.  For
federal tax purposes, the NOL carryforwards could be used to offset the
change in method of accounting.  For state tax purposes, because the Company
files separate state returns for BBT, BCG and PDI NOL's are not available to
offset the change in accounting method.

As the Company has sustained significant cumulative losses and it is
uncertain as to when the Company will realize taxable income to utilize these
losses in the future, management believes it was appropriate to establish a
full valuation allowance to offset the gross deferred tax assets at December
31, 2003 and 2002.

The decrease in the valuation allowance from $2,705,500 at December 31, 2002
to $1,486,455 at December 31, 2003 differs from the component of the
provision for income taxes of $512,013 related to the valuation allowance.
This difference of $707,032 is primarily due to the recognition of tax
benefits by the Company through business combinations, recorded goodwill and
adjustments to the deferred tax asset resulting from the finalization of
prior year tax returns.


Note 24.      Supplemental Non-Cash Disclosures to the Statements of Cash
       	  Flows

The Company had the following non-cash investing and financing activities
during the years ended December 31, 2003 and 2002:

                                                        2003          2002
                                                   ----------    ----------
Issuance of Common Stock in connection
   with acquisitions                               $2,611,705    $3,420,033


Note 25.      Subsequent Events

On March 31, 2004, the Company awarded 150,000 options to purchase restricted
Common Stock to certain employees with an exercise price of $3.03 per share
which was the market price of the Common Stock on the date of the grant.  All
of the 150,000 options vest on March 31, 2008, subject to the employees
maintaining continuous service to the Company through the vesting date.


Note 26.      Quarterly Information (Unaudited)

The following unaudited quarterly financial information includes, in
management's opinion, all normal and recurring adjustments necessary to
fairly state the Company's consolidated results of operations and related
information for the periods presented.

















                          First         Second         Third         Fourth
                         Quarter        Quarter       Quarter        Quarter
                        ----------    ----------    -----------    -----------
2003
Net Revenues           $ 3,394,636   $ 4,254,920   $ 4,343,768    $ 5,055,484
Operating income/(loss)$  (126,434)  $   323,839   $   361,064    $    31,352
Net income/(loss)      $  (303,648)  $   117,496   $ 1,505,907    $  (108,730)
Earnings/(loss)
  per share
   Basic               $     (0.01)  $      0.00   $      0.05    $     (0.00)
   Diluted             $     (0.01)  $      0.00   $      0.05    $     (0.00)

2002
Net Revenues           $ 1,373,325   $ 2,465,406   $ 3,827,784    $ 2,863,275
Operating loss         $  (894,653)  $    20,804   $  (110,799)   $  (196,724)
Net loss               $  (745,091)  $    (2,922)  $  (158,001)   $  (361,601)
Earnings/(loss)
  per share
   Basic               $     (0.03)  $      0.00   $     (0.01)   $     (0.01)
   Diluted             $     (0.03)  $      0.00   $     (0.01)   $     (0.01)