E-Net Inc. Blazes a New Trail

E-Net Inc. Blazes a New Trail

A recent boost in Wall Street's Internet telephone market has kindled interest in e-Net Inc. of Germantown, Md.

Until recently, e-Net was best known as a start-up company with two aggressive yet failed financial deals. Last year, the company attempted an initial public offering through a boiler-room underwriter. When Nasdaq turned the offering down, e-Net tried to sell what was then a development-stage company for $60 million. That deal also fell through.

But the company appears to have gotten past its image problems and is joining the ranks of companies that have fared well in the market to provide telephone voice capabilities over computer data networks.

Two of e-Net's largest competitors are VocalTec Communications Ltd. of Herzliya, Israel, and Natural Microsystems Corp. of Framingham, Mass. The latter company's stock price has risen 150 percent over the past five months.

e-Net photo Robert Veschi, president and CEO of e-Net

In their search for players in the industry that are undervalued, investors are discovering e-Net, which went public on the Nasdaq SmallCap Market in April. On Oct. 15, e-Net's stock price jumped 30 percent to close at $7.53.

"We have gone on an educational campaign to tell investors what we are doing," said Robert Veschi, president and chief executive officer of e-Net. "People are beginning to recognize the potential for this market."

That recognition has run e-Net's market capitalization to $45 million even though the company's revenue is under $1 million.

In addition to the public offering, e-Net has raised interest in other ways. The company has increased its staff to 30 employees and is quickly ramping up its sales and marketing efforts. Manufacturing, warehousing and shipping are still outsourced and probably will remain so, Veschi said.

Since July, the company has shipped more than 60 kits, or demos, of its telecommunications product. Those kits are being used by different companies that are considering installing e-Net's product on a companywide basis. If Fortune 500 companies or government agencies start buying the product in bulk, sales will quickly multiply.

In August, e-Net signed a distribution agreement with Government Technology Services Inc. in Chantilly, Va. GTSI, one of the largest resellers of computer equipment to the federal government, has put e-Net's product on the GSA schedule and several other contract vehicles. Veschi said that another similar distribution agreement with a commercial reseller is currently being drafted and should go into effect in the next month. He declined to name the reseller.

Although the idea of consolidating voice and data communications and running the combined system through a personal computer has long been on technology industry radar screens, it is just now gaining attention as a wave of the future. But e-Net has not just waited for its industry to come into favor. It has had to erase an image.

The company was started in 1995. After just one year in business, e-Net filed to go public with a $42 million IPO underwritten by Stratton Oakmont, a Lake Success, N.Y.-based investment bank. But several problems led Nasdaq not to grant its approval. The company had less than $500,000 in revenue but was going to use half of the proceeds from the offering as compensation for its then four employees. The company owed $7 million in interest on a six-month, $1 million loan from four individual investors. That interest was to be paid for with shares from the IPO.

But perhaps the biggest drawback of the failed offering was the Stratton Oakmont link. At the time, the investment bank had a permanent injunction granted by a U.S. District Court for a number of fraudulent securities violations and had lost its license to do business in a number of states.

E-NET INC. AT A GLANCE
	Quarter ended June 30, 1997	Quarter ended March 31, 1997
Total current assets	$5.5 million	$507,422
Total current liabilities	$364,252	$440,361
Total stockholders' equity	$6.1 million	$875,432
	Quarter ended June 30, 1997	Quarter ended June 30, 1996
Sales	$88,004	$179,939
Net loss	($587,317)	($5.9 million)
Loss per share	($.11)	($1.51)

That expulsion also put a stop to e-Net's second failed financial deal.

MVSI Inc., a McLean, Va., company that does everything from systems integration to robotic vision, was to buy e-Net for $60 million in stock late last year. But Stratton Oakmont was a key market maker in MVSI's stock. When Stratton Oakmont was expelled, MVSI's stock lost more than 50 percent of its value. Since that made the e-Net acquisition worth a lot less, the deal was called off in January.

Finally, e-Net had a successful IPO six months ago that was underwritten by Barron Chase Securities Inc., an investment bank in Fort Lauderdale, Fla.

"We're not out of the woods yet," Veschi said. "We still have a lot to prove."

"The first thing I tell analysts is that the company went public too soon with the wrong underwriter," said Doug Poretz, an independent investor relations professional who works with e-Net. "But I'm still getting a positive response."

Regardless, the newfound Wall Street interest should prove beneficial to the company.

"What I have seen is impressive," said Robert Martin, an analyst with Friedman, Billings, Ramsey & Co., an Arlington, Va., investment bank. "Their deal with Barron Chase was not very robust. But people are starting to catch on. I think they could move up to [the Nasdaq] National Market with a secondary offering." The National Market is considered a bigger and richer market than Nasdaq's SmallCap Market.

Veschi said that the company went public on the SmallCap Market because that was the best opportunity at the time. "We tried the venture capital approach, but venture capitalists want all the board seats and controlling interest in the company." Veschi remains the company's largest shareholder and owns just under 25 percent of the stock.

He also admits that e-Net will need another cash infusion soon to carry the company further toward profitability. He would not specify other than to say that it could involve either another public offering with a bigger-name underwriter or a strategic partnership, similar to VocalTec's agreement with Deutsche Telekom. He said he is already talking to both investment bankers and large telecommunications companies.