SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934


Date of Report (Date of earliest event reported) January 31, 2003


ZANETT, INC.
(Exact name of registrant as specified in charter)


        Delaware                    0-27068                56-4389547
(State or other jurisdiction  (Commission File Number)    IRS Employer
   of incorporation					      Identification No.)


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


Registrant's telephone number, including area code	   (212)-980-4600




(Former name or former address, if changed since last report).


Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant, Zanett, Inc., a Delaware corporation ("the
Company"), hereby files this Current Report on Form 8-K describing its
acquisition of Paragon Dynamics, Inc., a Colorado corporation ("PDI").
This Current Report on Form 8-K contains forward looking statements that
involve risks and uncertainties relating to this acquisition and actual
results and developments may differ materially from those described in
this Current Report. For more information about the Company and risks
relating to investing in the Company, refer to the Company's most recent
quarterly report on Form 10-QSB and annual report on Form 10-KSB.


Item 2.     Acquisition or Disposition of Assets

Zanett, Inc. (the "Company") is building an IT Commonwealth (TM) - a
business model that seeks to combine private, independent technology
companies into a public enterprise, with the goal of making them
collectively stronger, more competitive and more profitable. The IT
Commonwealth (TM) model seeks to preserve the management, culture,
identity and operating style of its members while achieving advantages of
scale. It also attempts to bring already successful entrepreneurs and
companies together into a collaborative network, where each member
continues to do what they do best, while contributing to the financial
and operating performance of the IT Commonwealth (TM) as a whole.

Effective January 31, 2003 (the "Closing"), the Company acquired its
third IT Commonwealth (TM) member. Pursuant to the terms of the Agreement
and Plan of Merger (the "Merger Agreement") dated as of January 31, 2003,
among the Company, Zanett Merger Sub PDI, Inc., a wholly owned subsidiary
of the Company ("Merger Sub"), Paragon Dynamics, Inc. ("PDI"), and
Douglas L. Hartmann, Roger D. Stapleton, Jeffrey J. Byrnes and Theodore
A. Batch, (the "PDI Shareholders"), the Company acquired PDI through a
merger (the "Merger") of PDI with and into Merger Sub. Upon consummation
of the Merger, the separate corporate existence of PDI ceased and the
name of Merger Sub was changed to Paragon Dynamics, Inc. ("New PDI"),
which is a Delaware corporation.

PDI specializes in providing advanced software and satellite engineering
services with domain area expertise on government and aerospace satellite
and IT infrastructure contracts.  PDI is currently engaged in two multi-
million dollar classified satellite communications contracts through two
leading defense contractors for the U.S. Department of Defense. PDI is
also involved in several multi-million dollar contracts to develop
command, control, communications and computer (C4) software with other
defense contractors.

The total consideration to be paid 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 Company's common stock ("Common Stock")
was paid at Closing.

The initial consideration will be increased or decreased for any
difference between the amount of net working capital at Closing and
$760,000, which was the benchmark level of working capital to be provided
by PDI.

The PDI Shareholders are eligible to receive contingent consideration in
each of the three successive annual periods commencing February 1, 2003
based upon New 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 a number of shares of
Common Stock determined by dividing $400,000 by the weighted 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 weighted average
closing price of the Common Stock for the three trading days before and
after the end of each period.

The annual contingent consideration will be paid to the PDI Shareholders
only if New PDI's earnings before interest, taxes, depreciation and
amortization ("EBITDA") and cash remittances, as defined in the Merger
Agreement, equal or exceed certain thresholds specified in the Merger
Agreement.  However, if the PDI Shareholders meet the EBITDA requirements
in each of the annual performance periods but fail to qualify for the
contingent consideration for any annual performance period based on the
cash remittance performance requirement, they will be entitled to receive
such amounts of annual contingent consideration not previously paid after
the end of the third performance period if New PDI generates cumulative
cash remittances for the three performance periods taken as a whole in
excess of the threshold specified in the Merger Agreement.

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 New 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 weighted 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 this period will be determined
based on the weighted average closing price of the Common Stock for the
three trading days before and after the end of each period.

Assuming no purchase price adjustment to the initial consideration, the
maximum aggregate consideration will be approximately $5.6 million, of
which approximately $2.4 million was paid at Closing as the initial
consideration and approximately $3.2 million will be paid as contingent
consideration. The Company estimates that transaction costs associated
with the acquisition of PDI will total approximately $300,000.

The Common Stock issued or issuable to the PDI Shareholders pursuant to
the Merger Agreement (the "Shares") is subject to certain transfer
restrictions until January 31, 2008 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 funded the cash portion of the purchase price paid at Closing
by issuing a promissory note (the "Note") to an offshore private
investment fund. The Note has a maturity date of January 2, 2007 and
requires quarterly cash payments for interest beginning March 31, 2003 at
the rate of fifteen (15%) per annum.  Principal is repayable in cash at
maturity.  The Note may be pre-paid without penalty.

In connection with the Merger, New PDI entered into employment agreements
with [the President and the Executive Vice-President of New PDI].
Pursuant to the employment agreements, each will be employed by New 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, they will be entitled, under certain conditions, to
receive specified severance benefits. New PDI also entered into a Non-
Competition Agreement with Jeffrey J. Byrnes, a PDI Shareholder who will
continue as an employee of New PDI after the Merger.

Copies of the Merger Agreement, the Employment Agreements, the Non-
Competition Agreement, the Lockup Agreements and the Note are attached as
Exhibits 2.1, 10.1, 10.2 10.3, 10.4, 10.5, 10.6, 10.7 and 10.8.  The
foregoing description is qualified in its entirety by reference to the
agreements filed herewith as Exhibits.

Item 7. 	Financial Statements, Pro Forma Financial Information and
Exhibits.

(a)	Financial Statements of Businesses Acquired.

In accordance with Item 7(a)(4) for Form 8-K, the Registrant intends to
file such financial information as an amendment to this Form 8-K within
60 days of the date this 8-K is required to be filed.

(b)	Pro Forma Financial Information

In accordance with Item 7(b)(2) for Form 8-K, the Registrant intends to
file such financial information as an amendment to this Form 8-K within
60 days of the date this 8-K is required to be filed.

(c)	Exhibits

2.1*		Agreement and Plan of Merger
10.1		Employment Agreement with Douglas L. Hartmann
10.2		Employment Agreement with Roger D. Stapleton
10.3		Non-Competition Agreement with Jeffrey J. Byrnes
10.4		Lock-up Agreement with Douglas L. Hartmann
10.5		Lock-up Agreement with Roger D. Stapleton
10.6		Lock-up Agreement with Jeffrey J. Byrnes
10.7		Lock-up Agreement with Theodore A. Batch
10.8		Promissory Note issued to Emral Holdings
99.1	      Press release, dated February 3, 2003, announcing the
            acquisition of Paragon Dynamics, Inc.

*  Exhibits and schedules omitted.  The Registrant will furnish a
supplementary copy of any omitted exhibit or schedule to the Commission
upon request.




SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.


							ZANETT, INC.


Date:	February 15, 2003			by:   /s/ Jack M. Rapport
		Name:  Jack M. Rapport
		Title: Chief Financial Officer



Index to Exhibits

2.1*		Agreement and Plan of Merger
10.1		Employment Agreement with Douglas L. Hartmann
10.2		Employment Agreement with Roger D. Stapleton
10.3		Non-Competition Agreement with Jeffrey J. Byrnes
10.4		Lock-up Agreement with Douglas L. Hartmann
10.5		Lock-up Agreement with Roger D. Stapleton
10.6		Lock-up Agreement with Jeffrey J. Byrnes
10.7		Lock-up Agreement with Theodore A. Batch
10.8		Promissory Note issued to [Bruno Guazzoni]
99.1		Press release, dated February 3, 2003, announcing the
            acquisition of Paragon Dynamics, Inc.

*  Exhibits and schedules omitted.  The Registrant will furnish a
supplementary copy of any omitted exhibit or schedule to the Commission
upon request.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) January 31, 2003

ZANETT, INC.
(Exact name of registrant as specified in charter)

        Delaware                    0-27068                56-4389547
(State or other jurisdiction  (Commission File Number)    IRS Employer
   of incorporation					      Identification No.)

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

Registrant's telephone number, including area code	   (212)-980-4600

(Former name or former address, if changed since last report).

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant, Zanett, Inc., a Delaware corporation ("the
Company"), hereby files this Current Report on Form 8-K describing its
acquisition of Paragon Dynamics, Inc., a Colorado corporation ("PDI").
This Current Report on Form 8-K contains forward looking statements that
involve risks and uncertainties relating to this acquisition and actual
results and developments may differ materially from those described in
this Current Report. For more information about the Company and risks
relating to investing in the Company, refer to the Company's most recent
quarterly report on Form 10-QSB and annual report on Form 10-KSB.

Item 2.     Acquisition or Disposition of Assets

Zanett, Inc. (the "Company") is building an IT Commonwealth (TM) - a
business model that seeks to combine private, independent technology
companies into a public enterprise, with the goal of making them
collectively stronger, more competitive and more profitable. The IT
Commonwealth (TM) model seeks to preserve the management, culture,
identity and operating style of its members while achieving advantages of
scale. It also attempts to bring already successful entrepreneurs and
companies together into a collaborative network, where each member
continues to do what they do best, while contributing to the financial
and operating performance of the IT Commonwealth (TM) as a whole.

Effective January 31, 2003 (the "Closing"), the Company acquired its
third IT Commonwealth (TM) member. Pursuant to the terms of the Agreement
and Plan of Merger (the "Merger Agreement") dated as of January 31, 2003,
among the Company, Zanett Merger Sub PDI, Inc., a wholly owned subsidiary
of the Company ("Merger Sub"), Paragon Dynamics, Inc. ("PDI"), and
Douglas L. Hartmann, Roger D. Stapleton, Jeffrey J. Byrnes and Theodore
A. Batch, (the "PDI Shareholders"), the Company acquired PDI through a
merger (the "Merger") of PDI with and into Merger Sub. Upon consummation
of the Merger, the separate corporate existence of PDI ceased and the
name of Merger Sub was changed to Paragon Dynamics, Inc. ("New PDI"),
which is a Delaware corporation.

PDI specializes in providing advanced software and satellite engineering
services with domain area expertise on government and aerospace satellite
and IT infrastructure contracts.  PDI is currently engaged in two multi-
million dollar classified satellite communications contracts through two
leading defense contractors for the U.S. Department of Defense. PDI is
also involved in several multi-million dollar contracts to develop
command, control, communications and computer (C4) software with other
defense contractors.

The total consideration to be paid 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 Company's common stock ("Common Stock")
was paid at Closing.

The initial consideration will be increased or decreased for any
difference between the amount of net working capital at Closing and
$760,000, which was the benchmark level of working capital to be provided
by PDI.

The PDI Shareholders are eligible to receive contingent consideration in
each of the three successive annual periods commencing February 1, 2003
based upon New 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 a number of shares of
Common Stock determined by dividing $400,000 by the weighted 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 weighted average
closing price of the Common Stock for the three trading days before and
after the end of each period.

The annual contingent consideration will be paid to the PDI Shareholders
only if New PDI's earnings before interest, taxes, depreciation and
amortization ("EBITDA") and cash remittances, as defined in the Merger
Agreement, equal or exceed certain thresholds specified in the Merger
Agreement.  However, if the PDI Shareholders meet the EBITDA requirements
in each of the annual performance periods but fail to qualify for the
contingent consideration for any annual performance period based on the
cash remittance performance requirement, they will be entitled to receive
such amounts of annual contingent consideration not previously paid after
the end of the third performance period if New PDI generates cumulative
cash remittances for the three performance periods taken as a whole in
excess of the threshold specified in the Merger Agreement.

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 New 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 weighted 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 this period will be determined
based on the weighted average closing price of the Common Stock for the
three trading days before and after the end of each period.

Assuming no purchase price adjustment to the initial consideration, the
maximum aggregate consideration will be approximately $5.6 million, of
which approximately $2.4 million was paid at Closing as the initial
consideration and approximately $3.2 million will be paid as contingent
consideration. The Company estimates that transaction costs associated
with the acquisition of PDI will total approximately $300,000.

The Common Stock issued or issuable to the PDI Shareholders pursuant to
the Merger Agreement (the "Shares") is subject to certain transfer
restrictions until January 31, 2008 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 funded the cash portion of the purchase price paid at Closing
by issuing a promissory note (the "Note") to an offshore private
investment fund. The Note has a maturity date of January 2, 2007 and
requires quarterly cash payments for interest beginning March 31, 2003 at
the rate of fifteen (15%) per annum.  Principal is repayable in cash at
maturity.  The Note may be pre-paid without penalty.

In connection with the Merger, New PDI entered into employment agreements
with [the President and the Executive Vice-President of New PDI].
Pursuant to the employment agreements, each will be employed by New 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, they will be entitled, under certain conditions, to
receive specified severance benefits. New PDI also entered into a Non-
Competition Agreement with Jeffrey J. Byrnes, a PDI Shareholder who will
continue as an employee of New PDI after the Merger.

Copies of the Merger Agreement, the Employment Agreements, the Non-
Competition Agreement, the Lockup Agreements and the Note are attached as
Exhibits 2.1, 10.1, 10.2 10.3, 10.4, 10.5, 10.6, 10.7 and 10.8.  The
foregoing description is qualified in its entirety by reference to the
agreements filed herewith as Exhibits.

Item 7. 	Financial Statements, Pro Forma Financial Information and
Exhibits.

(a)	Financial Statements of Businesses Acquired.

In accordance with Item 7(a)(4) for Form 8-K, the Registrant intends to
file such financial information as an amendment to this Form 8-K within
60 days of the date this 8-K is required to be filed.

(b)	Pro Forma Financial Information

In accordance with Item 7(b)(2) for Form 8-K, the Registrant intends to
file such financial information as an amendment to this Form 8-K within
60 days of the date this 8-K is required to be filed.

(c)	Exhibits

2.1*		Agreement and Plan of Merger
10.1		Employment Agreement with Douglas L. Hartmann
10.2		Employment Agreement with Roger D. Stapleton
10.3		Non-Competition Agreement with Jeffrey J. Byrnes
10.4		Lock-up Agreement with Douglas L. Hartmann
10.5		Lock-up Agreement with Roger D. Stapleton
10.6		Lock-up Agreement with Jeffrey J. Byrnes
10.7		Lock-up Agreement with Theodore A. Batch
10.8		Promissory Note issued to Emral Holdings
99.1	      Press release, dated February 3, 2003, announcing the
            acquisition of Paragon Dynamics, Inc.

*  Exhibits and schedules omitted.  The Registrant will furnish a
supplementary copy of any omitted exhibit or schedule to the Commission
upon request.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.

							ZANETT, INC.

Date:	February 15, 2003			by:   /s/ Jack M. Rapport
		Name:  Jack M. Rapport
		Title: Chief Financial Officer

Index to Exhibits

2.1*		Agreement and Plan of Merger
10.1		Employment Agreement with Douglas L. Hartmann
10.2		Employment Agreement with Roger D. Stapleton
10.3		Non-Competition Agreement with Jeffrey J. Byrnes
10.4		Lock-up Agreement with Douglas L. Hartmann
10.5		Lock-up Agreement with Roger D. Stapleton
10.6		Lock-up Agreement with Jeffrey J. Byrnes
10.7		Lock-up Agreement with Theodore A. Batch
10.8		Promissory Note issued to [Bruno Guazzoni]
99.1		Press release, dated February 3, 2003, announcing the
            acquisition of Paragon Dynamics, Inc.

*  Exhibits and schedules omitted.  The Registrant will furnish a
supplementary copy of any omitted exhibit or schedule to the Commission
upon request.