E NET INC
SB-2/A, 1998-08-25
COMPUTER PROGRAMMING SERVICES
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<PAGE>


     As filed with the Securities and Exchange Commission on August 25, 1998

                                                     Registration No. 333- 58109


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 Amendment No. 1
                                       To

                                    FORM SB-2
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933


                                   e-NET, INC.
             (Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S>                                    <C>                                 <C>
            Delaware                            7371                           52-1929282
(State or other jurisdiction of       (Primary Standard Industrial          (I.R.S. Employer
 incorporation or organization)        Classification Code Number)         Identification No.)

</TABLE>

                        12800 Middlebrook Road, Suite 200
                           Germantown, Maryland 20874
                                 (301) 601-8700
                   (Address, including zip code, and telephone number, 
                   including area code, of principal executive offices of
                                   Registrant)

                                Robert A. Veschi
                      President and Chief Executive Officer
                        12800 Middlebrook Road, Suite 200
                           Germantown, Maryland 20874
                                 (301) 601-8700
               (Name, address, including zip code, and telephone number, 
                       including area code, of agent for service)

                                   Copies to:
                               Charles A. Sweet, Esq.
                                Williams & Connolly
                              725 Twelfth Street, N.W.
                               Washington, D.C. 20005

     Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
     If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.  / /
     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  / /
     If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  / /
     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.  / /


                         CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>

                                                                              Proposed Maximum    Proposed Maximum      Amount of
                  Title of Each Class of                       Amount to       Offering Price        Aggregate        Registration
               Securities to be Registered                   be Registered      Per Security          Price(1)           Fee(2)
              -----------------------------                 ---------------   -----------------   -----------------   -------------
<S>                                                            <C>              <C>                 <C>                 <C>   
Private Placement Stock, $.01 Par Value................        750,000          $18.437 (1)         $13,827,750         $4,687
Placement Agent's Stock, $.01 Par Value................         75,000           18.437 (1)           1,382,775            469
Underwriter's Stock, $.01 Par Value....................        300,000           18.437 (1)           5,531,100          1,875
     Total.............................................      1,125,000          $18.437 (1)         $20,741,625         $7,031
</TABLE>

(1)  The registration fee was calculated in accordance with Rule 457 and
     estimated solely of the purpose of determining the amount of the
     registration fee and is based on the average of the high and low prices of
     the Registrant's Common Stock as reported on NASDAQ Small-Cap market on
     June 24, 1998.
(2) The Registration Fee was paid on June 29, 1998.


The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.


<PAGE>


                                Explanatory Note

     This registration statement relates to the offer and sale by the selling 
holders described herein of the following securities: (A) 825,000 shares of 
common stock, par value $.01 per share ("Common Stock"), of e-Net, Inc. (the 
"Private Placement Stock") comprised of (i) 750,000 shares of Common Stock 
issued in a private placement in April 1998 (the "Private Placement"); and 
(ii) 75,000 shares of Common Stock underlying a five-year warrant issued to 
Pennsylvania Merchant Group Ltd., the placement agent for the Private 
Placement, with an exercise price of $9.00 per share; and (B) 300,000 shares 
of Common Stock underlying: (i) five-year warrants issued at the direction of 
Barron Chase Securities, Inc., the underwriter (the "Underwriter") of the 
Company's initial public offering of securities in April 1997 to purchase 
150,000 shares of Common Stock, with an exercise price of $8.25 per share; 
and (ii) five-year warrants to purchase 150,000 shares of Common Stock, with 
an exercise price of $8.25 per share, which warrants (the "Underlying 
Warrants") underlie five-year warrants issued at the direction of the 
Underwriter to purchase the Underlying Warrants, with an exercise price of 
$0.20625 per Underlying Warrant.


<PAGE>


PROSPECTUS


                                   e-Net, Inc

                        1,125,000 Shares of Common Stock

     This Prospectus relates to the offer and sale (the "Offering") by the 
selling holders described herein (collectively, the "Selling Holders") of the 
following securities: (A) 825,000 shares of common stock, par value $.01 per 
share ("Common Stock"), of e-Net, Inc. ("e-Net" or the "Company," and such 
shares of Common Stock, the "Private Placement Stock") comprised of (i) 
750,000 shares of Common Stock issued in a private placement in April 1998 
(the "Private Placement," and such shares of Common Stock, the "Issued 
Private Placement Stock"); and (ii) 75,000 shares of Common Stock underlying 
a five-year warrant issued to Pennsylvania Merchant Group Ltd., the placement 
agent for the Private Placement (the "Placement Agent"), with an exercise 
price of $9.00 per share (such warrant, the "Placement Agent's Warrant" and 
such underlying shares, the "Placement Agent's Stock"); and (B) 300,000 
shares of Common Stock (the "Underwriter's Stock" and, together with the 
Private Placement Stock, the "Offered Stock") underlying: (i) five-year 
warrants issued at the direction of Barron Chase Securities, Inc., the 
underwriter (the "Underwriter") of the Company's initial public offering of 
securities in April 1997 (the "Initial Public Offering ") to purchase 150,000 
shares of Common Stock, with an exercise price of $8.25 per share (the 
"Common Stock Representative Warrants"); and (ii) five-year warrants to 
purchase 150,000 shares of Common Stock, with an exercise price of $8.25 per 
share, which warrants (the "Underlying Warrants") underlie five-year warrants 
issued at the direction of the Underwriter to purchase the Underlying 
Warrants, with an exercise price of $0.20625 per Underlying Warrant (the 
"Warrant Representative Warrants" and collectively with the Common Stock 
Representative Warrants and the Underlying Warrants, the "Underwriter's 
Warrants" and collectively with the Underwriter's Warrants and the Placement 
Agent's Warrant, the "Warrants"). See "Description of Securities."

     The Company's Common Stock is quoted on the Nasdaq SmallCap Market 
("Nasdaq") under the symbols "ETEL". On August 24, 1998, the closing price of 
the Common Stock as quoted on the Nasdaq SmallCap Market was $15 9/16. No 
offered stock may be sold by Selling Holders in the Offering without the 
availability of a current Prospectus.

AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE AND INVOLVES A 
HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY BY 
INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK 
FACTORS" ON PAGES 5-9 AND "DILUTION."

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND 
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE 
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISISON PASSED 
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE 
CONTRARY IS A CRIMINAL OFFENSE.

     The Selling Holders may sell the Offered Stock from time to time in 
transactions in the open market, in negotiated transactions, or by a 
combination of these methods, at fixed prices that may be changed, or market 
prices at the time of sale, at prices related to market prices or at 
negotiated prices. The Selling Holders may effect these transactions by 
selling the Offered Stock to or through broker-dealers, who may receive 
compensation in the form of discounts or commissions from the Selling Holders 
or from the purchasers of the Offered Stock for whom the broker-dealers may 
act as agent or to whom they may sell as principal, or both. See "Plan of 
Distribution." The Company will not receive any proceeds from the resale of 
the Offered Stock by the Selling Holders. The Company will receive net 
proceeds of approximately $3,050,000 if all the Warrants are exercised.

     The Company will bear all of the expenses in connection with the 
registration of the Offered Stock, which expenses are estimated to be 
$131,000. The Selling Holders will pay any brokerage compensation in 
connection with their sale of the Offered Stock.

                  The date of this Prospectus is August 25, 1998


<PAGE>


                    FORWARD-LOOKING AND CAUTIONARY STATEMENTS

     Certain statements made herein that are not historical are 
forward-looking within the meaning of the Private Securities Litigation 
Reform Act of 1995. The words "estimate," "project," "intend," "expect," 
"believe," and similar expressions are intended to identify forward-looking 
statements. These forward-looking statements involve known and unknown risks 
and uncertainties. Many factors could cause the actual results, performance 
or achievements of the Company to be materially different from those 
contemplated by any future statements, including, among others, those 
described below under "Risk Factors." For additional information regarding 
these and other risks and uncertainties associated with the Company's 
business, see "Risk Factors" below, as well as the Company's reports filed 
from time to time with the Commission.

                              AVAILABLE INFORMATION

     The Company has filed with the Securities and Exchange Commission (the 
"Commission") a Registration Statement on Form SB-2 (the "Registration 
Statement"), pursuant to the Securities Act of 1933, as amended (the "Act"), 
with respect to the offer, issuance and sale of the Offered Stock (the 
"Offering"). This Prospectus does not contain all of the information set 
forth in the Registration Statement and the exhibits thereto. The statements 
contained in this Prospectus as to the contents of any contract or other 
document identified as exhibits in this Prospectus are not necessarily 
complete, and in each instance, reference is made to a copy of such contract 
or document filed as an exhibit to the Registration Statement, each statement 
being qualified in any and all respects by such reference. For further 
information with respect to the Company and the securities offered hereby, 
reference is made to the Registration Statement and exhibits thereof which 
may be inspected without charge at the principal office of the Commission at 
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549.

     In April 1997, the Company became subject to the reporting requirements 
of the Securities Exchange Act of 1934, and in accordance therewith, files 
reports, proxy statements and other information with the Commission. Such 
reports, proxy statements and other information can be inspected and copied 
at the public reference facilities of the Commission at 450 Fifth Street, 
N.W., Washington, D.C. 20549; at its New York Regional Office, Room 1400, 7 
World Trade Center, New York, New York 10048; and at its Chicago Regional 
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 
copies of such material can be obtained from the Public Reference Section at 
prescribed rates. The Commission maintains a Web site that contains reports, 
proxy and information statements and other information regarding registrants 
that file electronically with the Commission at http://www.sec.gov. The 
Company intends to furnish its shareholders with annual reports containing 
audited financial statements and such other reports as the Company deems 
appropriate or as may be required by law.

     The Company will provide without charge to each person who receives a 
Prospectus, upon written or oral request of such person, a copy of any 
information that is incorporated by reference in the Prospectus (not 
including exhibits to the information that is incorporated by reference 
unless the exhibits are themselves specifically incorporated by reference). 
Such requests may be directed to Stockholder Relations, e-Net, Inc., 12800 
Middlebrook Road, Suite 200, Germantown, Maryland 20874, telephone (301) 
601-8700.


                                      ii
<PAGE>




                               PROSPECTUS SUMMARY

     The following summary is qualified in its entirety by, and must be read 
in conjunction with, the more detailed information and financial statements, 
including notes thereto, appearing elsewhere in this Prospectus. Each 
prospective investor is urged to read this Prospectus in its entirety.

                                   The Company

     The Company develops, produces, markets and supports open 
telecommunications software and related hardware that enable, enhance, and 
manage telephone communications over the Internet, private Internet Protocol 
("IP") networks and "intranets," and other types of digital data networks 
(collectively, "Digital Data Networks" or "DDNs"). The Company's Telecom 
2000-TM- products ("Telecom 2000 Products") provide a user-friendly method of 
high fidelity telephone communications through DDNs. Through the use of 
Telecom 2000 Products, organizations can reduce their telephone expenses by 
extending their telephone services to remote offices and mobile employees, in 
some cases bypassing long distance service charges, while using their 
existing internal DDNs.

     The Company believes that, due to demand for lower cost telephone 
service, the market for telephony through DDNs, while in its early stages, 
holds significant potential for growth. According to a recent report issued 
by the technology industry analysis firm Frost and Sullivan, the market for 
Internet telephony gateways is forecast to grow from $4.7 million in 1996 to 
$1.8 billion in 2001. Although the Company has not participated in any of the 
formal research contained in the Frost and Sullivan report and cannot endorse 
its methods or conclusions, the Company generally believes that this market 
will grow substantially and that its products are well positioned to capture 
a significant share of this new, emerging market.

     The Company owns U.S. Patent No. 5,526,353, "System and Method for
Communicating Audio Data over a Packet-Based Network" (the "353 Patent"). The
Company believes that the 353 Patent is the first patent that specifically
involves telephony through DDNs. The Company believes that the 353 Patent may
provide certain strategic and technological advantages in the emerging market
for telephony through DDNs. The Company can make no assurances, however, as to
the extent of the advantages or protection, if any, that may be granted to them
as a result of the 353 Patent. The Company's current and anticipated product
line is not wholly dependent on the validity or applicability of the 353 Patent,
and not all of the Company's products are covered by the 353 Patent.

     The Company's Telecom 2000 Products enable telephony through DDNs.
Telecom 2000 products generally provide high fidelity duplex voice and telefax
through DDNs, and also generally offer traditional telephony features like call
waiting, call holding, call transfer, conference calling, billing, voice-mail
and the like. The Company views its products as offering several competitive
advantages. First, Telecom 2000 Products facilitate low-cost DDN telephone
service with substantially the same operating features and the voice quality of
the traditional telephone service. Next, the use of Telecom 2000 Products can be
gradually implemented so that growth from small installations to large
installations can occur while the user maintains high levels of performance and
preserves a substantial amount of its prior technology investment. Finally, the
distributed architecture of Telecom 2000 Products is designed to avoid certain
problems associated with centralized systems, such as the risk of system-wide
telephony loss due to the malfunction of a single computer or PBX, limitations
on system growth and excessive hardware cost.

     There are three classes of Telecom 2000 Products, two of which include
products that are available for delivery. The first class comprises the smallest
system with the lowest number of ports, and includes the Telecom 2000 Desktop
System and the Telecom 2000 retail system called "NetConnect", both of which are
currently being sold. The second class, Telecom 2000 Customer Premises-based
Gateway Systems, now available for delivery, comprises medium-sized systems with
between 24 and 96 ports in a single chassis, serving as a "gateway" to DDNs,
consolidating customer site-originated telephone calling for DDN-based transport
efficiency and lower cost than traditional methods. The third class, Telecom
2000 Carrier-Class Gateways, now under development, comprises gateway products
with a large number of ports, which are expected to offer over 1,000
simultaneous call capacity in a single chassis, to meet interconnection and
compression standards and to be appropriate for sales to telephone carriers.


                                       1
<PAGE>


     e-Net began to sell Telecom 2000 Products in July 1997 with the
introduction of the Telecom 2000 Desktop System. The Company announced the
Telecom 2000 Customer Premise Equipment Gateway Systems, also known as the
Telecom 2000 T1/E1 Digital Trunk Interface, in October 1997 and became generally
available in February 1998. In December 1997, the Company announced its
development plan for the Telecom 2000 Carrier-Class Gateway in conjunction with
Summa Four, Inc. The Company expects this product to be available for sales in
September 1998. The Company announced the general availability of its Telecom
2000 retail system called "NetConnect" in May 1998. In regard to any future
products, no assurances can be given that these dates will be met.

     e-Net has established, and expects to continue to establish, a variety
of strategic relationships that are intended to result in the embedding of e-Net
telephony-enabling technology in various DDN devices. Examples of the Company's
existing strategic relationships follow:

<TABLE>
<CAPTION>

Strategic Relationship        Date Established                    Purpose
- ----------------------        ----------------                   ----------
<S>                             <C>                  <C>
Sprint Communications           March 1996           Main Carrier Internet Services and voice-over
Company, LP                                          data product planning and testing

Paradyne Corporation            June 1997            Cooperative development and marketing of
                                                     Digital Subscriber Line ("DSL") technology

Magellan Network Systems,      August 1997           Carrier-Class Gateway Product applications
 Inc.                                                 software

Summa Four, Inc.               December 1977         Carrier-Class Gateway Product hardware
                                                     resource/programmable switch backplane

Com21, Inc.                    January 1998          Cable television modem telephony

IDT Corporation                April 1998             Retail consumer product telephone software
                                                      bundling and network access
</TABLE>

     The Company develops, produces, markets and supports open 
telecommunications software and related hardware products that enable, 
enhance, and manage telephone communications over the Internet, private IP 
networks and "intranets," and other types of Digital Data Networks. The 
Company's Telecom 2000-TM- Products provide a user-friendly method of high 
fidelity telephone communications through DDNs. Through the use of Telecom 
2000, organizations can reduce their telephone expenses by extending their 
telephone services to remote offices and mobile employees, in some cases 
bypassing long distance service charges, using their existing internal DDNs.

     In April 1997, the Company completed the Initial Public Offering and 
gained the listing of its Common Stock on the NASDAQ SmallCap Market as 
"ETEL." e-Net was founded in January 1995. The Company maintains principal 
executive offices at 12500 Middlebrook Road, Germantown, Maryland, 20874, 
telephone number 301-601-8700.

     See "Risk Factors," "Management" and "Certain Transactions" for a 
discussion of certain factors that should be considered in evaluating the 
Company and its business.


                                       2
<PAGE>


                                  The Offering
<TABLE>
<CAPTION>

<S>                                         <C>                             
Securities Offered.......................   1,125,000 shares of Common Stock
                                            comprised of: (A) 825,000 shares of
                                            Common Stock issued in or in
                                            connection with the Private
                                            Placement, comprised of (i) 750,000
                                            shares of Issued Private Placement
                                            Stock; and (ii) 75,000 shares of
                                            Common Stock underlying the
                                            Placement Agent's Warrant and (B)
                                            300,000 shares of Common Stock
                                            issued in connection with the
                                            Initial Public Offering, underlying:
                                            (i) the Common Stock Representative
                                            Warrants; and (ii) the Underlying
                                            Warrants underlying the Warrant
                                            Representative Warrants.

Selling Holders..........................   The Offered Stock offered hereby may
                                            be offered and sold by certain
                                            Selling Holders, each of whom
                                            received his or her Offered Stock
                                            either (a) in, or in connection
                                            with, the Private Placement; or (b)
                                            in connection with the Initial
                                            Public Offering. See "Selling
                                            Holders." 

Common Stock outstanding as of June 30,
1998.....................................   8,220,924 shares(1)

Warrants outstanding as of June 30, 1998.   375,000

Warrants exercised as of June 30, 1998...   - 0-

Common Stock Outstanding if all Warrants
are exercised............................   8,595,924

Estimated Net Proceeds if all Warrants
are exercised............................   $3,050,000 (2) (3)

Use of Proceeds..........................   The Company will not receive any
                                            proceeds from the sale of the
                                            Offered Stock by the Selling
                                            Holders. See "Use of Proceeds."

NASDAQ Small Cap Market Symbol...........   Common Stock: ETEL

</TABLE>

- ---------
(1)   Excludes an aggregate of 1,500,000 shares of Common Stock reserved for
      issuance upon exercise of outstanding options granted pursuant to the
      Company's 1997 Plan (as defined) and the 1998 Plan (as defined). See
      "Dilution."
(2)   The Company will not receive any of the proceeds from the sale of the
      Offered Stock offered by the Selling Holders. See "Selling Holders."
(3)   Assumes exercise of all Warrants, the proceeds from the sale of which
      the Company will receive, at exercise prices of $8.25 and 9.00 before
      deducting expenses payable by the Company as estimated at $131,000.


                                       3
<PAGE>


                         Selected Financial Information

     The selected financial information set forth below is derived from, and 
should be read in conjunction with, the more detailed financial statements 
(including the notes thereto) appearing elsewhere in this Prospectus. See 
"Financial Statements."

                             Income Statement Items

<TABLE>
<CAPTION>

                                                                                   Three Months
                                                      Year Ended     Year Ended        Ended
                                                    March 31, 1997  March 31,1998  June 30, 1998
                                                    --------------  -------------  --------------
                                                               (Audited)             (Unaudited)
<S>                                                 <C>             <C>            <C>         
Sales...................................            $    549,000    $   723,000    $    433,000
Net Loss................................                 139,000        376,000       1,879,000
Gross Profit............................              (1,269,000)    (3,904,000)        200,000
Loss from Operations....................              (6,938,000)    (3,899,000)     (1,888,000)
Loss per Share..........................            $      (1.72)   $      (.68)   $       (.28)
Weighted Average Shares Outstanding.....               4,034,247      5,708,904       6,795,362
</TABLE>

                               Balance Sheet Items

<TABLE>
<CAPTION>

                                                                            Three Months       As adjusted
                                     Year Ended           Year Ended           Ended          for Exercise
                                     March 31, 1997     March 31, 1998     June 30, 1998      of Warrants(1)
                                     --------------    --------------      -------------      -----------
                                               (Audited)                             (Unaudited)
<S>                             <C>                    <C>             <C>             
Cash & Investments..........    $     379,000           $ 1,816,000       $ 13,604,000        $ 16,654,000
Total Assets................        2,203,636             3,722,000         15,988,000          19,038,000
Stockholders' Equity........    $     875,432           $ 2,847,000       $ 15,094,000        $ 18,144,000
</TABLE>

- --------------------------
(1)  Adjusted to reflect the exercise of all Warrants described in this 
     registration.


                                       4
<PAGE>


                                  RISK FACTORS

     An investment in the securities being offered is speculative in nature, 
involves a high degree of risk and should not be made by an investor who 
cannot afford to lose its entire investment. Each prospective investor should 
carefully consider the following risks and speculative factors, as well as 
the others described elsewhere herein, before making an investment.

     As described under "Forward-Looking and Cautionary Statements," certain 
statements made herein that are not historical are forward-looking within the 
meaning of the Private Securities Litigation Reform Act of 1995. These 
forward-looking statements involve known and unknown risks and uncertainties. 
Many factors could cause the actual results, performance or achievements of 
the Company to be materially different from those contemplated by any future 
statements, including, among others, those described below.

History of Operating Losses and Accumulated Deficit; Expected Losses;
Uncertainty of Future Profitability

     The Company has never recorded an operating profit and had an 
accumulated deficit of approximately $13,300,000 as of June 30, 1998. The 
ability of the Company to achieve profitability in the future largely depends 
on its ability to generate revenues from its products and services. Given the 
Company's focus on markets that are subject to rapid technological change 
(see "- Technological Change; Market Acceptance of Evolving Standards"), and 
the Company's resulting intention to continue to expend greater resources on 
research and development, revenues must increase commensurately for the 
Company to achieve profitability. In the quarter ended June 30, 1998, the 
Company expended approximately $550,000 on research and development and, 
although no assurance can be given, management currently expects this 
expenditure rate to increase in future quarters. In view of the Company's 
operating history, there can be no assurance that the Company will be able to 
generate revenue that is sufficient to achieve profitability, to maintain 
profitability on a quarterly or annual basis or to sustain or increase its 
revenue growth in future periods. The Company's limited capitalization may 
adversely affect the ability of the Company to raise additional capital in 
the future and could impair the Company's ability to invest in research and 
development, sales and marketing programs and other operations, any of which 
could have a material adverse effect on the Company's business, financial 
condition and results of operations.

Limited Operating History

     The Company was incorporated in Delaware on January 9, 1995 and, as 
such, faces the risks and problems associated with businesses in their early 
stages of development and has a limited operating history upon which to base 
an evaluation of its prospects. Such prospects should be considered in light 
of the risks, expenses and difficulties frequently encountered in the 
expansion of a business in an industry characterized by a substantial number 
of market entrants and intense competition. See "Business."

No Assurance of Future Profitability or Payment of Dividends

     The Company can make no assurances that the future operations of the 
Company will result in additional revenues or will be profitable. Should the 
operations of the Company be profitable, it is likely that the Company would 
retain much or all of its earnings in order to finance future growth and 
expansion. Therefore, the Company does not presently intend to pay dividends, 
and it is not likely that any dividends will be paid in the foreseeable 
future.

Immediate and Substantial Dilution

     An investor in the securities offered hereby will experience immediate 
and substantial dilution. As of June 30, 1998, the Company had a net tangible 
book value of approximately $15,094,000, or approximately $1.84 per share 
which reflects the effect of the Private Placement in April 1998 and the 
redemption and exercise of the Redeemable Common Stock Purchase Warrants in 
June 1998. After giving effect to the sale upon exercise of the Warrants and 
subsequent resale of offered stock: 300,000 shares at $8.25; and 75,000 
shares at $9.00 and after deducting estimated offering expenses, net tangible 
book value would have been $18,144,000 or $2.11 per share. The result will be 
an immediate dilution to new investors of $6.14 and $6.89, respectively.


                                       5
<PAGE>


Possible Need for Additional Financing

     The Company intends to fund its operations and other capital needs for 
the next 12 months substantially from the remaining proceeds of the Initial 
Public Offering, the Private Placement and the redemption and exercise of the 
Redeemable Common Stock Purchase Warrants, but there can be no assurance that 
such funds will be sufficient for these purposes. The Company may require 
substantial amounts of the proceeds of the Initial Public Offering, the 
Private Placement and the redemption and exercise of the Redeemable Common 
Stock Purchase Warrants for its future expansion, operating costs and working 
capital. The Company has access to a $1,000,000 line of credit, which it has 
not drawn upon; this line expires in May 1999, and while the Company believes 
it will be renewed, no assurance can be given in this regard. The Company has 
made no definitive arrangements to obtain future additional financing, if 
required, and there can be no assurance that such financing will be 
available, or that it will be available on acceptable terms. See "Summary - 
Use of Proceeds."

Dependence on Management

     The Company is principally dependent on its current management personnel 
for the operation of its business. In particular, Robert A. Veschi, the 
Company's president and chief executive officer, has played a substantial 
role in the development and management of the Company, although there is no 
assurance that additional managerial assistance will not be required. The 
analysis of new business opportunities will be undertaken by or under the 
supervision of the management of the Company. The Company has entered into an 
employment agreement with Mr. Veschi. This employment agreement is terminable 
at will by Mr. Veschi without penalty. Accordingly, if the employment by the 
Company of Mr. Veschi terminates, or he is unable to perform his duties, the 
Company may be materially and adversely affected. The Company has purchased 
key-man life insurance on Mr. Veschi in the amount of $2 million. The Company 
is the owner and beneficiary of this insurance policy. See "Business" and 
"Management."

Dependence on Highly Qualified Technical Personnel

     The Company believes that its future success will depend in large part 
upon its continued ability to recruit and retain highly qualified technical 
personnel. Competition for highly qualified technical personnel is 
significant, particularly in the geographic area in which the Company's 
operations are located. No assurances can be made that the Company's 
relationship with its employees will remain favorable to the Company. See 
"Business - Employees" and "Management."

Technological Change; Market Acceptance of Evolving Standards

     The markets the Company serves are subject to rapid technological 
change, changing customer requirements, frequent new product introductions 
and evolving industry standards that may render existing services and 
products obsolete. As a result, the Company's position in its existing 
markets or other markets that it may enter could be eroded rapidly by product 
advancements by competitors. The life cycles of the Company's services and 
products are difficult to estimate. Broad acceptance of the Company's 
products and services by customers is critical to the Company's future 
success, as is the Company's ability to design, develop, test and support new 
software products and enhancements on a timely basis that meet changing 
customer needs and respond to technological developments and emerging 
industry standards, particularly client/server and Internet communications 
and security protocols. There can be no assurance that the Company will not 
experience difficulties that could delay or prevent the successful 
development, introduction and marketing of services and products, or that new 
services and products and enhancements will meet the requirements of the 
marketplace and achieve market acceptance. Further, because the Company has 
only recently commenced sales of its Telecom 2000 Products, there can be no 
assurance that, despite testing by the Company and by current and potential 
customers, errors will not be found in the Company's products, or, if 
discovered, successfully corrected in a timely manner. If the Company is 
unable to develop and introduce services and products in a timely manner in 
response to changing market conditions or customer requirements, the 
Company's business, financial condition and results of operations would be 
materially and adversely affected.


                                       6
<PAGE>

Uncertain Protection of Patent, Trademark, Copyright and Proprietary Rights

     In March 1996, the Company acquired all right, title and interest in and 
to the 353 Patent. The Company believes that the 353 Patent is the first 
patent that specifically involves telephony through DDNs. The Company also 
believes that the 353 Patent may provide certain strategic and technological 
advantages in the emerging market for telephony through DDNs. The Company can 
make no assurances, however, as to the extent of the advantages or 
protection, if any, that may be granted to the Company as a result of the 353 
Patent.

     The Company currently has other patent and trademark applications 
pending; however, there can be no assurance that these applications will be 
granted, or, if granted, will result in substantial value to the Company. The 
Company may file additional patent, trademark and copyright applications 
relating to certain of the Company's products and technologies. If patents, 
trademarks or copyrights are granted, there can be no assurance as to the 
extent of the protection that will be granted to the Company as a result of 
having such patents, trademarks or copyrights or that the Company will be 
able to afford the expenses of any litigation which may be necessary to 
enforce its proprietary rights. Although the Company's products have never 
been the subject of infringement claims, there can be no assurance that third 
parties will not assert infringement claims against the Company in the future 
or that any such assertion will not require the Company to enter into royalty 
arrangements or result in costly litigation and liability. Failure of the 
Company's patents, trademark and copyright applications may have a material 
adverse effect on the Company's business. Except as may be required by the 
filing of patent, trademark and copyright applications, the Company will 
attempt to keep all other proprietary information secret and to take such 
actions as may be necessary to prevent the disclosure of the results of its 
development activities and protect its trade secrets under applicable law. 
Such steps are expected to include the execution of nondisclosure agreements 
by key Company personnel and may also include the imposition of restrictive 
agreements on purchasers of the Company's products and services. There is no 
assurance that the execution of such agreements will be effective to protect 
the Company, that the Company will be able to enforce the provisions of such 
nondisclosure agreements or that technology and other information acquired by 
the Company pursuant to its development activities will be deemed to 
constitute trade secrets by any court of competent jurisdiction.

Substantial Competition

     Businesses in the United States and abroad that are engaged in Internet 
technologies, products and services are substantial in number and highly 
competitive, particularly in the field of Internet and IP network telephony. 
Many of the companies with which the Company intends to compete are 
substantially larger and have substantially greater resources than the 
Company. It is also likely that other competitors will emerge in the future. 
The Company will compete with companies that have greater market recognition, 
greater resources and broader capabilities than the Company. As a 
consequence, there is no assurance that the Company will be able to 
successfully compete in the marketplace. See "Business - Competition."

Reliance on Major Customers and Large Contracts

     Historically, substantially all of the Company's revenue has been 
derived from sales to a relatively small number of customers. For the fiscal 
year ended March 31, 1998, revenue attributable to three customers 
represented approximately 82% of the Company's total revenues. Revenue 
attributable to four customers, as a percentage of the Company's total 
revenue in the three month period ended June 30, 1998, was 73%. Similar or 
greater concentration of its net sales among a limited number of customers 
may occur in the future. In such event, any material decrease in net sales to 
any one of the Company's largest customers that is not matched by 
corresponding increases in net sales to new or existing customers could have 
a material adverse effect on the Company's financial condition and results of 
operations. There can be no assurance that the Company will receive orders 
from any existing customers or from new customers.

Additional Authorized Shares and Shares Eligible for Future Sale May Adversely
Affect the Market

     The Company is authorized to issue 50,000,000 shares of its Common 
Stock, $.01 par value per share. If all of the Warrants are exercised there 
will be a total of approximately 8,600,000 shares of Common Stock issued and 
outstanding. The Company will have approximately 40,900,000 shares of 
authorized but unissued capital stock available for issuance without further 
shareholder approval. Any issuance of additional shares of Common Stock 


                                       7
<PAGE>

may cause current shareholders of the Company to suffer significant dilution, 
which may adversely affect the market for the Company's Common Stock.

     As of June 30, 1998, the Company has outstanding 271,000 options to 
purchase shares of Common Stock granted under its 1997 Non-Qualified Stock 
Option Plan (the "1997 Plan"), has committed to issue 26,587 options to 
certain consultants that have provided services to the Company, and has 
committed to grant 841,250 options under the 1998 Stock Compensation Plan 
(the "1998 Plan"), assuming stockholder approval. The Company has reserved 
500,000 shares of Common Stock for issuance upon exercise of options under 
the 1997 Plan and has reserved 1,000,000 shares of Common Stock for issuance 
upon exercise of options under the 1998 Plan. All of the options granted 
under the 1997 Plan or otherwise committed under the 1998 Plan or otherwise, 
have exercise prices which were at fair market value on the date of grant or 
commitment, as determined by a moving average to trading activity prior to 
the grant date. On July 22, 1998, the Company filed with the Securities and 
Exchange Commission a registration statement on Form S-8 covering up to a 
total of 500,000 option shares issuable under the 1997 Plan. To the extent 
that any options under are exercised or converted, dilution to the interests 
of the Company's stockholders may occur. Exercise or conversion of such 
options, or even the potential of their exercise or conversion, may have an 
adverse effect on the trading price and market for the Company's Common 
Stock. The holders of such options are likely to exercise or convert them at 
times when the market price of the shares of Common Stock exceeds their 
exercise price. Accordingly, the issuance of shares of Common Stock upon 
exercise of the options may result in dilution of the equity represented by 
the then outstanding shares of Common Stock held by other stockholders.

     Although the Company has no current plans to issue any additional shares 
of Common Stock other than pursuant to its 1997 Plan, its 1998 Plan, pursuant 
to other commitments to consultants or upon exercise of any of the 
outstanding Warrants, there can be no assurance that the Board of Directors 
will not decide to do so in the future. In addition, the Company must comply 
with the Nasdaq marketplace rules that require, among other things, 
shareholder approval prior to the issuance of common stock representing 20% 
or more of the common stock or 20% or more of the voting power prior to the 
issuance at a price less than the greater of book or market value of the 
stock.

     5,000,000 of the Company's 8,220,924 outstanding shares of Common Stock 
as of June 30, 1998 (including the Issued Private Placement Stock but 
excluding the effect of the redemption and exercise of the Redeemable Common 
Stock Purchase Warrants in June 1998) are, and all 75,000 shares of Placement 
Agent's Stock and all 300,000 shares of Underwriter's Stock will be upon 
issuance, "restricted securities" which may be resold to the public either 
upon registration or upon compliance with Rule 144 under the Act. Assuming 
that all of the Warrants are exercised but that there is no exercise of any 
other issued and outstanding options, a total of 5,375,000 of the Company's 
issued and outstanding shares of Common Stock will be restricted securities. 
The registration statement of which this Prospectus forms a part will enable 
all of the Offered Stock to be resold without compliance with Rule 144. 
However, with regard to the Company's remaining outstanding restricted 
securities, Rule 144 provides, in essence, that, if there is adequate current 
public information available concerning the Company, an affiliate, or a 
person holding "restricted securities" for a period of one year, may sell 
only an amount every three months equal to the greater of (a) one percent of 
the Company's issued and outstanding shares, or (b) the average weekly volume 
of sales during the four calendar weeks preceding the sale. Nonaffiliates, 
however, may sell "restricted securities" without such volume limitation if 
their shares are held for two years. Based on these assumptions, a holder of 
"restricted securities" who has held them for at least one year may sell 
under Rule 144 at least up to 65,000 shares during each three-month period. 
In connection with the Initial Public Offering and the Private Placement, the 
stockholders holding 4,000,000 of the Company's restricted shares have agreed 
not to sell, transfer, assign or dispose of any restricted shares of Common 
Stock prior to April 7, 1999. The sale of a significant number of these 
shares in the public market may adversely affect the market price of the 
Company's securities.

     Prospective investors should be aware that future sales may have a 
depressive effect on the price of the Company's Common Stock and, therefore, 
the ability of any investor to market his shares may directly depend upon the 
number of shares that are offered and sold.


                                       8
<PAGE>


Potential Volatility of Market Price for Common Stock

     The current market price for the Company's Common Stock does not appear 
to bear any relationship to any established valuation criteria such as 
assets, book value, or current earnings. The Company attributes the current 
market price of the Company's Common Stock to anticipated benefits to the 
Company upon execution of its business plan. Market prices for securities of 
small-cap emerging companies have historically been quite volatile. General 
economic, industry and market conditions, as well as future announcements 
concerning the Company or its competitors, including technological 
innovations or new products, developments concerning proprietary rights, 
litigation involving the Company, or other factors may have a significant 
impact on the market price of the Common Stock. See "Market Price of Common 
Stock."


                                       9
<PAGE>


                                 USE OF PROCEEDS

     The Company will receive no proceeds from the sale of the Offered Stock 
by the Selling Holders. The Company will receive net proceeds of 
approximately $3,050,000 if all the Warrants are exercised.

     The Company intends to use the net proceeds from the exercise of the 
Warrants to fund the sales and marketing of Telecom 2000 Products; for 
research and development of other telecommunications products; and for other 
working capital and general corporate purposes. The Company may also use a 
portion of the net proceeds for the acquisition of businesses, products and 
technologies that are complementary to those of the Company. While the 
Company from time to time has engaged, and expects to continue to engage, in 
preliminary discussions with other business entities with regard to the 
possibility of such acquisitions, as of the date hereof no such discussions 
have resulted in any definitive agreement. No assurance can be given that the 
Company will be able to reach agreement on or consummate any such 
acquisitions.

                                    DILUTION

     The difference between the per share exercise price of the Warrants per 
share of Common Stock and the pro forma net tangible book value per share of 
Common Stock after this Offering constitutes the dilution per share of Common 
Stock to investors in this Offering.

     As of June 30, 1998, the Company had net tangible book value of 
$15,094,000 or $1.84 per share, which reflects the Private Placement in April 
1998 and the redemption and exercise of the Redeemable Common Stock Purchase 
Warrants in June 1998. Net tangible book value per share means the tangible 
assets of the Company, less all liabilities, divided by the number of shares 
of Common Stock outstanding. After giving effect to the exercise of the 
Warrants and the sale by the Company of the Placement Agent's Stock and the 
Underwriter's Stock, at an assumed prices of $8.25 and $9.00 per share, as 
applicable, and estimated offering expenses, net tangible book value would 
have been $18,144,000 or $2.11 per share. The result will be an immediate 
increase in net tangible book value per share of $.27 (15%) to existing 
shareholders and an immediate dilution to new investors of $6.14 (74%), and 
$6.89 (77%) per share, respectively. As a result, public investors will bear 
most of the risk of loss since their shares are being purchased at a cost 
substantially above the price that existing shareholders acquired their 
shares. The following table illustrates this dilution:

<TABLE>
<CAPTION>

<S>                                                                                              <C>              <C>
Public offering prices of the Placement Agent's Stock and the
   Underwriter's Stock........................................................                   $ 8.25           $  9.00
   Pro forma net tangible book value per share, before the Offering...........
                                                                                       $ 1.84
   Increase per share attributable to the sale by the Company of the
   Offered Stock..............................................................            .27
                                                                                       ------
Pro forma net tangible book value per share, after the Offering...............
                                                                                                   2.11              2.11
                                                                                                 ------           -------
Dilution per share to new investors...........................................                   $ 6.14           $  6.89
                                                                                                 ------           -------
                                                                                                 ------           -------
</TABLE>

     The following table summarizes the investments of all existing 
stockholders and new investors after giving effect to the exercise of 
Warrants and issuance of the Placement Agent's Stock and the Underwriter's 
Stock.

<TABLE>
<CAPTION>

                                                                  Percent                        Percent         Average
                                                  Shares          of Total      Aggregate        of Total       Price Per
                                                 Purchased         Shares      Consideration     Invested        Share
                                                 ---------        --------    --------------     --------      ----------
<S>                                               <C>             <C>           <C>                <C>          <C> 
Existing Stockholders (Pro Forma)                 8,220,924          96%        $28,265,000        90%          $3.44
Investors in this Offering                          375,000           4%          3,046,000        10%          $8.12
                                                  ---------        ----        ------------       ---           -----
        Total                                     8,595,924         100%        $31,311,000       100%          $3.64
                                                  ---------        ----        ------------       ---           -----
                                                  ---------        ----        ------------       ---           -----
</TABLE>

     No assurance can be given as to the timing of the exercise of the
Warrants or whether any or all of the Warrants will be exercised. The foregoing
analysis assumes no exercise of any options or warrants other than the Warrants.
In the event any such options or warrants are exercised, the percentage
ownership of the investors in this Offering will be reduced and the dilution per
share of Common Stock to purchasers of Common Stock in this Offering will
increase.


                                      10
<PAGE>


                          MARKET PRICES OF COMMON STOCK

     The Company's Common Stock has traded on the Nasdaq SmallCap Market 
since April 8, 1997, under the symbol "ETEL." On June 24, 1998, the closing 
price of the Common Stock was $18 7/16 per share. There are approximately 84 
record holders of the Company's Common Stock. The following table sets forth 
the range of high and low bid prices for tile Common Stock, as quoted on 
Nasdaq, for the period from April 8, 1997, the date of the Company's initial 
public offering of securities, through March 31, 1998.

<TABLE>
<CAPTION>

Period                                                      High         Low
- ------                                                     -----        -----
<S>                                                       <C>          <C>  
April 8 - June 30, 1997                                   $ 5.8125     $ 3.8130
July 1 - September 30, 1997                               $ 5.3750     $ 3.7500
October 1 - December 31, 1997                             $ 9.1250     $ 4.8750
January 1 - March 31, 1998                                $ 7.5000     $ 5.0000
April 1, 1998 - June 30, 1998                             $18.5000     $ 8.0000
</TABLE>

                                 CAPITALIZATION

     The following table sets forth the capitalization of the Company, as of 
March 31, 1998 and as adjusted to reflect the sale of the Offered Stock. No 
assurance can be given to the timing of exercise of the Warrants or whether 
all or any of the Warrants will be executed. The table should be read in 
conjunction with the Financial Statements and the notes thereto.

<TABLE>
<CAPTION>

                                                                                      Historical
                                                                                     June 30, 1998      As Adjusted (1)
                                                                                    --------------     ----------------
<S>                                                                                  <C>                <C> 
Long-term debt                                                                       $           0      $          0
Stockholders Equity
    Common Stock, $.01 par value, 50,000,000 shares authorized, 
    8,220,924 shares outstanding; 8,595,924 shares outstanding, 
    as adjusted                                                                             82,000            86,000
Stock Subscriptions Receivable                                                                  --                --
    Additional paid-in capital                                                          28,265,000        31,311,000
    Retained deficit                                                                   (13,253,000)      (13,253,000)
                                                                                     -------------   ----------------
    Total stockholders' equity                                                       $  15,094,000   $    18,144,000
                                                                                     -------------   ----------------
Total capitalization                                                                 $  15,094,000    $   18,144,000
                                                                                     -------------   ----------------
                                                                                     -------------   ----------------
</TABLE>

- --------------------------
(1)  As adjusted to reflect the net proceeds to the Company of the exercise
     of the Warrants. Assumes no exercise of any options or warrants other
     than the Warrants.


                                 DIVIDEND POLICY
                       CONDITION AND RESULTS OF OPERATIONS

     Holders of the Company's Common Stock are entitled to dividends when,
as and if declared by the Board of Directors out of funds legally available
therefor. The Company does not anticipate the declaration or payment of any
dividends in the foreseeable future. The Company intends to retain earnings, if
any, to finance the development and expansion of its business. Future dividend
policy will be subject to the discretion of the Board of Directors and will be
contingent upon future earnings, if any, the Company's financial condition,
capital requirements, general business conditions and other factors. Therefore,
there can be no assurance that any dividends of any kind will ever be paid by
the Company.


                                      11
<PAGE>


            MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Results of Operations

Year Ended March 31, 1998 Compared to Year Ended March 31, 1997

     Sales for the year ended March 31, 1998 were approximately $722,800, an 
increase of 32% from the approximately $549,000 recorded for fiscal year 
1997. The revenue increase was due to the general availability of the 
Company's Telecom 2000 product line. Product sales for the Telecom 2000 
product line resulted in approximately $347,500 of sales for the fiscal year 
ended March 31, 1998, compared to approximately $24,000 of product sales for 
the corresponding fiscal year 1997. Services sales for the year ended March 
31, 1998, were primarily from one customer.

     Gross profits for the year ended March 31, 1998 were approximately 
$375,700 or 52% of sales, compared to the approximately $139,000 or 25% of 
sales for fiscal year 1997. The gross profit percentage increase was due to 
the increased emphasis on Telecom 2000 product sales, which have a higher 
gross profit contribution than software installation and support services 
sales.

     Selling, general & administrative expenses for the year ended March 31,
1998, were approximately $3,474,900, an increase of 197% over the approximately
$1,171,200 recorded for fiscal year 1997. The dollar increase in these expenses
over the prior year reflected additional spending for personnel and programs
consistent with the Company's emphasis on the Telecom 2000 product line. The
increased spending level in fiscal year 1998 also reflected higher spending for
programs and promotions needed to generate and support product roll-out of, as
well as substantial marketing expenditures made in connection with the general
availability of, the Company's Telecom 2000 product line.

     Research & development expenses for the year ended March 31, 1998, were 
approximately $804,800, a 240% increase over the approximately $236,800 
recorded for fiscal year 1997. The increased expenditures for research and 
development are due to the increase in number of employees and other 
expenditures devoted to the general development of the Company's technology 
products.

     Other income (expense) charges for the year ended March 31, 1998, were 
approximately $5,000, an increase from the approximately $(5,668,500) 
recorded for fiscal year 1997. In the year ended March 31, 1997, the 
Company's other income and expenses included several one-time charges 
associated with the issuance of bridge loans which were subsequently 
converted to equity of approximately $5,385,100, and the cost of an abandoned 
stock registration of approximately $284,600. The Company also had an 
increase in funds invested over the same period in 1997.

     To date, inflation and seasonality have not had a material impact on the 
Company's results of operations.

Year Ended March 31, 1997 Compared to Year Ended March 31, 1996

     Sales increased by 87% to approximately $549,000 in the year ended March 
31, 1997 from approximately $294,000 in the period ended March 31, 1996. The 
increase in sales dollars was attributable to the increased delivery of the 
Company's IntelliSeries Products and Help Desk Services. In the period ended 
March 31, 1997, revenue mix, as a percentage of sales, among products and 
services was 5% and 95%, respectively. Revenue mix among products and 
services for the corresponding period in 1996 was 15% and 85%, respectively. 
For the year ended March 31, 1997, the Company derived 78% and 21% of its 
sales from two customers, respectively and 32%, 29%, 16%, and 13% from four 
customers, respectively for the same period in 1996.

     Cost of product sales and service increased by 364% to approximately 
$410,000 in the year ended March 31, 1997 or 75% as a percentage of revenue 
as compared to approximately $88,000 or 30% as a percentage of revenue in the 
corresponding period in 1996. The dollar increase was largely attributable to 
the increased business volume and the associated labor, overhead, consultant 
and subcontract costs necessary to service the increased volume, as well as 
the foregoing compensation during the start-up phase (see pro forma 
adjustment on the Statement 


                                      12
<PAGE>


of Operations for the period from beginning of operations to March 31, 1996). 
The percentage increase was attributable to the proportional increase in 
service revenues compared to product revenues.

     General and administrative expense increased by 917% to approximately 
$1,171,000 in the year ended March 31, 1997 from approximately $115,000 in 
the corresponding period in 1996. The dollar and percentage increase were 
largely due to the hiring of administrative and selling staff. The number of 
employees of the Company engaged in general and administrative, selling, and 
research and development activities increased from one at March 31, 1996 to 
11 at March 31, 1997. The Company plans to make additional expenditures in 
the research and development and the general, administrative and selling 
organizations as necessary over the next twelve months.

     Research and development costs increased to approximately $237,000 in 
the year ended March 31, 1997 as compared to $-0- in the corresponding period 
in 1996. Research and development costs consist of hardware related 
development costs associated with its Telecom 2000 Products and the $50,000 
purchase price for certain prototype boards, proprietary software code and 
research and development in May 1996. The Company also incurred approximately 
$521,000 in capitalized software development costs related to development of 
software for its Telecom 2000 Products in the year ended March 31, 1997. The 
Company plans to continue research and development activities, however, 
future software development costs will be capitalized in accordance with 
generally accepted accounting principles, subject to judgements to be made as 
to technological feasibility of the software development efforts and 
recoverability. Upon release of software products, ongoing development, 
maintenance and support costs will be expensed as incurred.

     Interest and financing charges net total was approximately $5,669,000 
for the year ended March 31, 1997 as compared to approximately $627,000 in 
the corresponding period in 1996. The increase in interest and financing 
charges was mainly due to approximately $5,385,000 in interest expense 
associated with certain bridge loans and approximately $285,000 of costs 
associated with a planned initial public offering of securities in 1996 which 
was abandoned in September 1996. The anomalous interest expense associated 
with the bridge loans reflects the highly speculative nature of the loans at 
the time. The aggregate value of $6,000,000 of interest expense incurred in 
the fiscal years ended March 31, 1996 and 1997 attributed to issuance of the 
bridge loans was computed using the offering price of the units in the 
Company's proposed 1996 public offering less the amount of debt converted to 
paid-in capital. Traditional forms of short term asset based financing were 
not available to the Company. Management therefore believed the funds 
provided by the loans were critical to the Company to bring its products to 
market and justified the issuance of the bridge unit securities as additional 
consideration for such loans. The Company does not expect to encounter 
similar difficulty in obtaining short term financing in the future. 
Therefore, financing expense of the magnitude associated with the bridge 
financing is believed to be nonrecurring. The Company's product lines are, in 
some cases ready for, and in other cases being prepared for, commercial 
production. A portion of the proceeds from the Company's initial public 
offering was used to fund the production of start-up inventory necessary for 
initial deliveries to customers. By filling sales orders and generating 
increases in accounts receivable and cash flow, management believes 
traditional asset-based financing will be attainable to satisfy ongoing 
working capital needs. In addition to successfully completing its initial 
public offering in April, 1997, the Company also secured a $1,000,000 credit 
facility (see Liquidity and Capital Resources below). In April, 1998, the 
Company sold 750,000 shares of common stock in the Private Placement, 
resulting in net proceeds to the Company of approximately $5,175,000.

     Loss from operations increased to approximately $1,269,000 in the year 
ended March 31, 1997 as compared to income from operations of approximately 
$90,000 in the corresponding period in 1996. The dollar increase in loss from 
operations was largely attributable to the increase in research and 
development, and selling, general and administrative costs, and cost of 
product sales and service as discussed above. In future periods, gross 
margins may be affected by price competition or changes in sales channels, 
increases in the costs of goods or changes in the mix of products sold.

     Loss before income taxes increased to approximately $6,938,000 in the 
year ended March 31, 1997 as compared to loss before income taxes of 
approximately $537,000 in the corresponding period in 1996. The dollar 
increase in loss before income taxes was largely attributable to the increase 
in financing costs associated with a private placement and operating costs as 
discussed above.


                                      13
<PAGE>


     A valuation allowance has been established equal to the amount of income 
taxes pending evidence that the Company will be able to generate taxable net 
income which will be offset by the net tax loss carryforward in future years. 
Financing expense associated with the issuance of bridge units is 
non-deductible and is being treated as a capital transaction for income tax 
reporting purposes. The use of net operating losses by the Company in the 
future to offset taxable income may be limited to the event of a change in 
control of the Company in accordance with Section 382 of the Internal Revenue 
Code.

     Net loss for the year ended March 31, 1997 was approximately $6,938,000 
or ($1.72) per share, compared to a pro forma net loss of approximately 
$775,000 or ($.26) per share for the same period in 1996. Pro forma data 
presented in the accompanying statement of operations reflect the result of 
operations on a pro forma basis had the officer been employed by the Company 
for the entire period at a compensation level equal to that contained in the 
agreement disclosed in Note F--Commitments and Contingent Liabilities.

Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997

     Net sales for the first quarter ended June 30, 1998 were approximately 
$433,000, an increase of 392% over the approximately $88,000 recorded for the 
corresponding quarter of 1997. The revenue increase was driven primarily by 
the general availability of the Company's T2000 product line. Product sales 
increased to approximately $304,000 in the first quarter ended June 30, 1998 
compared to $1,000 recorded for the corresponding quarter of 1997. The sales 
for the quarter ended June 30, 1997 were primarily from one customer while 
the product sales for the quarter ended June 30, 1998 were primarily from 
four customers.

     Gross profits for the first quarter ended June 30, 1998 were 
approximately $200,000 or 46% of sales, compared to the approximately $49,000 
or 56% of sales for the corresponding quarter of 1997. The amount of gross 
profit increase was due to increased product sales as discussed above. The 
gross profits on product sales for the first quarter ended June 30, 1998 were 
approximately $114,000 or 37% of product sales. The product sales, cost of 
sales and resulting gross profits were affected by increased capitalized 
software amortization costs and sales discounts to distributors and value 
added resellers.

     Selling, general & administrative expenses for the first quarter ended 
June 30, 1998 were approximately $1,533,000, an increase of 140% over the 
approximately $639,000 recorded for the corresponding quarter of 1997. The 
dollar increase in these expenses over the prior year reflected additional 
spending for personnel, advertising and substantial marketing expenditures 
made in connection with promotion of the Company's T2000 product line.

     Research & development expenses for the first quarter ended June 30, 
1998 were approximately $555,000, an increase over the approximately $23,000 
recorded for the corresponding quarter of 1997. The majority of the research 
and development expenditures for the 1997 quarter were software development 
costs incurred on products after achieving technological feasibility and were 
capitalized for future amortization.

     Interest & financing expenses for the first quarter ended June 30, 1998 
were approximately $-0-, a decrease over the approximately $10,000 recorded 
for the corresponding quarter of 1997. Other expenses for the first quarter 
ended June 30, 1998, were approximately $69,000, an increase over the 
approximately $32,000 recorded for the corresponding quarter of 1997. The 
increase in other expenses are due primarily to expenses associated with the 
continued registration of certain of the Company's publicly traded securities 
and other related items.

     The Company does not believe that inflation has had a material adverse 
effect on sales or income during the past several years. Increases in 
supplies or other operating costs may adversely affect the Company's 
operations; however, the Company believes it may increase prices of its 
products and systems to offset increases in costs of goods sold or other 
operating costs.

     Based on its experience to date, the Company believes that its future 
operating results may be subject to quarterly variations based on a variety 
of factors, including seasonal changes in the weather. Such effects may not 
be apparent in the Company's operating results during a period of expansion. 
However, the Company can make no assurances that its business can be 
significantly expanded under any circumstances.


                                      14
<PAGE>


Liquidity and Capital Resources

     The Company's operations to date have concentrated on continuing 
development of its products establishing acceptance of its software products 
in the telecommunications industry, providing services to its existing 
customer base and securing financing necessary to fund development, 
operations and expansion of its business.

     In the year ended March 31, 1998, the Company received net proceeds of 
approximately $5,885,100 from an initial public offering of the Company's 
Common Stock and Warrants. The Company also secured a $1,000,000 one year 
credit facility in the year ended March 31, 1998, which is secured by 
investments, receivables and fixed assets. The Company used approximately 
$(3,488,000) in cash flows from operating activities, excluding changes in 
assets and liabilities, during the year ended March 31, 1998, compared to 
approximately $(1,518,000) for fiscal year 1997. The increase in cash flows 
used in operating activities excluding changes in assets and liabilities was 
mainly due to the increase in selling, general and administrative expenses 
and research and development expenses discussed above. The total net cash 
used by operating activities was approximately $(3,642,300) for the year 
ended March 31, 1998, compared to approximately $(1,187,000) for the 
corresponding fiscal year 1997.

     Cash used by investing activities totaled approximately $1,762,000 for 
the year ended March 31, 1998 as compared to approximately $646,000 for 
fiscal year 1997. The main component of that investing activity was the 
investment in short-term securities of approximately $960,200, as well as 
continued expenditures for capitalized software development and property and 
equipment of approximately $465,300 and $337,000, respectively. The majority 
of the expenditures related to continued development of the Telecom 2000 
product line.

     Cash provided by financing activities totaled approximately $5,880,600 
for the year ended March 31, 1998, compared to approximately $1,654,900 for 
the corresponding fiscal year 1997. The Company successfully completed an 
Initial Public Offering in April 1997, which yielded net proceeds of 
approximately $5,885,100. The Company has access to a $1,000,000 credit line 
through May 1999, secured by investments, fixed assets and receivables, but 
did not borrow against that line of credit during the year ended March 31, 
1998. While there is no assurance of its renewal, the Company believes that 
this credit facility should remain available to the Company for working 
capital requirements.

     In the quarter ended June 30, 1998, the Company received net proceeds of 
approximately $5,100,000 from a private placement of the Company's common 
stock and net proceeds of approximately $9,000,000 from the exercise of the 
Company's common stock warrants. The Company also renewed a $1,000,000 one 
year credit facility that is secured by investments, receivables and fixed 
assets. The Company used approximately $(1,756,000) in cash flows from 
operating activities, excluding changes in assets and liabilities, during the 
first quarter ended June 30, 1998, compared to approximately $(577,000) for 
the corresponding quarter of 1997. The increase in cash flows used in 
operating activities excluding changes in assets and liabilities was mainly 
due to the increase in selling, general and administrative expenses and 
research and development expenses discussed above. The total net cash used by 
operating activities was approximately $(2,144,000) for the first quarter 
ended June 30, 1998, compared to approximately $(914,000) for the 
corresponding quarter of 1997.

     Cash used by investing activities totalled approximately $3,099,000 for 
the first quarter ended June 30, 1998 as compared to approximately $2,997,900 
for the corresponding quarter of 1997. The main component of that investing 
activity was the investment in short-term securities of approximately 
$2,917,000, as well as continued expenditures for capitalized software 
development and property and equipment of approximately $30,000 and $151,000, 
respectively. The majority of the expenditures related to continued 
development of the Company's T2000 product line.

     Cash provided by financing activities totalled approximately $14,113,000 
compared to approximately $5,883,000 for the corresponding quarter of 1997. 
The Company successfully completed a private placement in April 1998 that 
yielded net proceeds of approximately $5,100,000, and exercises of the 
Company's common stock warrants prior to their redemption in June 1998 
yielded net proceeds of approximately $9,000,000. The Company has access to a 
$1,000,000 credit line secured by investments, fixed assets and receivables, 
but did not borrow against that line of credit during the first quarter ended 
June 30, 1998.


                                      15
<PAGE>


     The Company expects to continue to make significant investments in the 
future to support its overall growth. Currently, it is anticipated that 
ongoing operations will be financed primarily from net proceeds of the 
private placement, warrant exercise, the line of credit facility, and from 
internally generated funds. The Company presently has a line of credit, 
investments, and cash and cash equivalents on hand and believes that these 
will be sufficient to meet cash requirements as needed. However, as indicated 
in the Company's most recent Annual Report on Form 10-KSB, as amended, while 
operating activities may provide cash in certain periods, to the extent the 
Company experiences growth in the future, the Company anticipates that its 
operating and product development activities may use cash and consequently, 
such growth may require the Company to obtain additional sources of 
financing. There can be no assurances that unforeseen events may not require 
more working capital than the Company currently has at its disposal.

Future Operating Results

     The preceding paragraphs and the following discussion include 
forward-looking statements regarding the Company's future financial position 
and results of operations. Actual financial position and results of 
operations may differ materially from these statements. All such statements 
are qualified by the cautionary statements set forth above under "Forward 
Looking and Cautionary Statements" and "Risk Factors," as well as the 
following statements.

     The Company has invested significant amounts in the research and 
development and the initial product roll-out marketing and selling for the 
Telecom 2000 product line. The emphasis, attention, and dedication of 
Company's limited resources for the Telecom 2000 product line have caused 
and, in management's view, will continue to cause negative operating 
earnings. However, the Company believes that the value and sales potential of 
the Telecom 2000 product line outweighs the risk of continued operating 
losses.

     The first products of the Telecom 2000 product line became generally 
available during the second quarter of fiscal 1998 and the Company believes 
that revenues will continue to grow as contracts are finalized and products 
are delivered over fiscal 1999. The protracted process of obtaining 
governmental regulatory approval of products (i.e. Federal Communications 
Commission product certification) and the hiring of senior telecommunications 
sales and technical staff in the current low-unemployment-rate economy have 
caused, and may continue to cause, an effect on the delivery of the Company's 
products to market. To date the Company has received all regulatory approvals 
which it has sought, and has been able to hire senior telecommunications 
sales and technical staff, although no assurance can be given to such results 
in the future.

     The Company does not expect revenue growth to occur ratably over the 
1999 and 2000 fiscal years; instead, the Company expects that the major 
impact of the Telecom 2000 product introduction on revenues and earnings will 
occur during fiscal 1999. Revenue growth in fiscal 1999 will depend to a 
large extent on the timing of the Company's rollout for products in the 
Telecom 2000 product line.

     Because of the foregoing uncertainties affecting the Company's future 
operating results, past performance should not be considered to be a reliable 
indicator of future performance. The use of historical trends to anticipate 
results or trends in future periods may be inappropriate. In addition, the 
Company's participation in a highly dynamic industry may result in 
significant volatility in the price of the Company's common stock.


                                      16
<PAGE>


                                    BUSINESS

     e-Net develops, produces, markets and supports open telecommunications 
software and related hardware that enable, enhance, and manage telephone 
communications over the Internet, private IP networks and "intranets," and 
other types of DDNs. The Company's Telecom 2000-TM- Products provide a 
user-friendly method of high fidelity telephone communications through DDNs. 
Through the use of Telecom 2000 Products, organizations can reduce their 
telephone expenses by extending their telephone services to remote offices 
and mobile employees, in some cases bypassing long distance service charges, 
while using their existing internal DDNs.

Company Background

     Since its founding, the Company has focused on the development of 
software-based telecommunications products that enable, enhance or manage 
telephone communications. In the early 1990's, prior to the Company's 
founding, its principal founder, President and Chief Executive Officer, 
Robert A. Veschi, collaborated in developing telephony-over-data 
telecommunications products with Arthur Henley and Scott Grau, two other 
founders of the Company. Working within a corporation named Officecom, Inc., 
this product development effort included the invention by Messrs. Henley and 
Grau of the technology covered by the 353 Patent. In order to continue this 
product development effort, in March 1996 the Company acquired all right, 
title and interest in and to the 353 Patent from Messrs. Henley and Grau in 
consideration of a five percent royalty against gross profits from the sale 
of products covered by the 353 Patent. The Company completed this 
intellectual property acquisition in April 1996 by purchasing all of the 
assets of Officecom, Inc. for $50,000.

     The Company purchased a set of products, licenses and contracts from a 
Washington, DC area telecommunications firm, OctaCom, Inc., in May 1995. This 
transaction included the assignment of contracts to provide services to 
Sprint Communications Company, LP ("Sprint") and Comsat Corp., the 
acquisition of the Company's IntelliCD-TM- and DebitBill-TM- products, and an 
exclusive license for e-Net NMS-TM-. The initial revenue and contract base 
for the Company was established at this time.

     The Company was awarded a contract known as Internet Protocol Dial 
Services Support ("IP Dial Support") by Sprint in February 1996, under which 
e-Net technical personnel provide Internet usage, management and maintenance 
services to Sprint. Sprint expanded e-Net's IP Dial Support role in February 
1997 by adding to the contract Sprint Frame-Relay network reporting using the 
Company's Intelli-Series-TM- product.

     The Company announced its first Telecom 2000 Products in April 1996. 
Thereafter, the Company established two significant "beta" test sites for the 
Telecom 2000 system: Intermedia Communication Incorporated ("ICI"), a 
substantial regional competitive local exchange carrier ("CLEC"), in October 
1996, and Sprint, a major long distance services provider, in November 1996. 
These agreements provided e-Net with Telecom 2000 Product usage experience 
and established references for e-Net with these two companies. Long distance 
services providers and CLECs, such as ICI and Sprint, are among the Company's 
primary target customers for Telecom 2000 Products.

     Having completed "beta" testing, in May 1997 the Company announced its 
IP version of Telecom 2000. In July 1997, the Company began sales of Telecom 
2000 Products with the introduction of the Telecom 2000 Desktop System. In 
August 1997, the Federal Communications Commission certified the Telecom 2000 
Desktop System for interconnection to public telephone systems, eliminating a 
regulatory impediment to sales, and in October 1997 the Company announced 
that it had hired its first Vice-President of Sales.

Industry Background

     The Internet is a global web of computer networks. Developed over 25 
years ago, this "network of networks" allows any computer attached to the 
Internet to talk to any other using the Internet Protocol. The Internet has 
traditionally been subsidized by the U.S. federal government, and was 
historically used by academic institutions, defense contractors and 
government agencies primarily for remote access to host computers and for 
sending and receiving e-mail. As the number of commercial entities that rely 
on the Internet for business communications and commerce has increased, the 
level of federal subsidies has significantly diminished, and funding for 
Internet infrastructure and backbone operations has shifted primarily to the 
private sector.


                                      17
<PAGE>


     In the mid-1990's, companies began to develop and market products that 
delivered audio, including voice, over the Internet. Early Internet telephony 
required cumbersome components to make Internet-based telephone calls, such 
as personal computer speakers and microphones. In addition, participants in 
the telephone call had to use identical software, running at the same time. 
Voice quality was poor, with a half-duplex nature and with long delays; 
however, the promise of this technology was established because the Internet 
telephone call could seemingly be made "free," even over long international 
distances, and because the extraordinary increase in users of the Internet 
began to create a large target market for the products. See "-Competition."

     "Voice-over-IP" refers to the transmission of voice as digital data on 
IP-compatible networks, which include the Internet as well as 
Internet-compatible, private "Intranets." IP networks are increasing in usage 
and popularity as a function of an increase in the number of Internet users. 
"Telephony" is distinguishable from "voice" in that voice is the sound of 
speech, whereas "telephony" means voice coupled with features such as 
full-duplex, call waiting, call holding, call transfer, conference calling, 
billing, voice-mail and the like. Management believes that telephony on IP 
networks is becoming more attractive because of the low cost of using IP 
networks (especially the Internet), because of the growing number of IP 
network users and because IP telephony products like e-Net's are improving 
their voice sound quality. The Company believes that, due to the demand for 
lower cost telephone service, the market for telephony through DDNs, while in 
its early stages, holds significant potential for growth. According to a 
recent report issued by the technology industry analysis firm Frost and 
Sullivan, market for Internet telephony gateways is forecast to grow from 
$4.7 million in 1996 to $1.8 billion in 2001. Although the Company has not 
participated in any of the formal research contained in the Frost and 
Sullivan report and cannot endorse its methods or conclusions, the Company 
generally believes that this market will grow substantially and that its 
products are well positioned to capture a significant share of this new, 
emerging market.

Telecom 2000-TM- Products

     The Company's Telecom 2000 Products enable telephony through DDNs. 
Telecom 2000 Products provide high fidelity duplex voice and telefax through 
DDNs, and also generally offer traditional telephony features such as call 
waiting, call holding, call transfer, conference calling, billing, voice-mail 
and the like. The Company views its products as offering several competitive 
advantages. First, Telecom 2000 Products facilitate low-cost DDN telephone 
service with substantially the same operating features and the voice quality 
of traditional telephone service. Next, the use of Telecom 2000 Products can 
be gradually implemented so that growth from small installations to large 
installations can occur while the user maintains high levels of performance 
and preserves a substantial amount of its prior technology investment. 
Finally, the distributed architecture of Telecom 2000 Products is designed to 
avoid problems associated with centralized systems, such as system-wide 
telephony loss due to the malfunction of a single computer or PBX, 
limitations on system growth and excessive hardware cost. There are three 
classes of Telecom 2000 Products, two of which include products that are 
available for delivery.

     Telecom 2000 Desktop - Small Systems

     This product set, with sales commencing in July 1997, consists of 
e-Net's award-winning Telecom 2000 Desktop system with two components, the 
TS-Workstation card and the CO-Gateway card. This system uses the customer's 
existing network computer installed base and its fixed-cost, 
available-capacity LAN/WAN, including the Internet, to provide peer-to-peer 
toll-quality telephony, with or without the use of a PBX.

     The small systems product set also includes the Telecom 2000 retail 
consumer product called NetConnect, with respect to which the Company 
announced general availability in May 1998. This product is a half-card TS 
circuit set with a dial-up functionality enabling Internet telephony for the 
individual consumer and home use, is the lowest-priced Telecom 2000 Product 
offering and, in management's view, offers a broad market potential. In 
combination with some of the advanced Internet "chat-room" services, this 
product is designed to provide a unique, secure, private-dialing-plan 
Internet telephony service with high fidelity, at a low price.

     Generally speaking, Telecom 2000 Desktop products are characterized by 
embedded firmware, which can be placed on a computer integrated circuit 
board, in the assembly of a modem (cable TV set-top, DSL box, ISDN pipe) or 
in a router, switch or multiplexer. Telecom 2000 Desktop products start with 
one port and scale up to 24 

                                      18
<PAGE>


ports. When all products are announced, the price range of the Telecom 2000 
Desktop product set is expected to be between $100 and $5,000.

     Telecom 2000 Customer-Premises-based Gateway - Medium Systems

     The Telecom 2000 Customer-Premises-based Gateway product set was 
announced in October 1997 and made available for shipment in February 1998. 
It provides T1/E1 voice-over-data advantages, consolidates customer 
site-originated telephone calling for data network-based transport and 
efficiency and delivers a mid-level of data network call volume handling on a 
cost-effective basis. Starting with 24 ports (T1 single span), the product is 
scaleable up to 96 channels per-chassis (and 192 ports in a dual back plane 
configuration). Each chassis is capable of being interconnected to obtain 
single-device performance, gaining more ports as a function of this "linking" 
or "ganging."

         The resulting product suite delivers a customer site application of
high voice quality with a low per-port data network telephony price. When all
products are announced, the price range of the Telecom 2000
Customer-Premises-based Gateway product set is expected to be between $5,000 and
$50,000.

         Telecom 2000-Trademark- Carrier-Class Gateway - Large Systems

     The large systems product set, Telecom 2000 Carrier-Class Gateways, was 
announced in December 1997, is under development and is anticipated to be 
ready for delivery by September 1998. Of all Telecom 2000 Products, it will 
offer the largest number of ports. It is designed to be scaleable from the 
equivalent of four T1s up to 60 T1s, with high fidelity voice quality, and is 
intended to meet fully all-existing and evolving standards for the emerging 
voice-over-IP carrier market. The Company believes that, at the time of its 
introduction, this system will be the only available DDN telephony technology 
offering over 1000 simultaneous call capacity in a single cost-effective, 
space-efficient chassis. Each chassis is capable of being interconnected to 
obtain single-device performance and greater port density, with no logical 
upward limitation on the total number of ports.

     The Telecom 2000 Carrier-Class Gateway is being designed to meet all 
interconnection and compression standards, will be certified in most foreign 
countries, and is designed to be fully NEBS-compliant for main long distance 
carriers, alternate access carrier, local exchange carrier and CLEC 
customers. When all products are announced, the price range of the Telecom 
2000 Carrier-Class Gateways product set is expected to be between $100,000 
and $500,000.

Other Company Products and Services

     e-Net NMS-TM- and IntelliSeries-TM-

     The Company sells a proprietary, expert systems-based, user friendly, 
object-oriented network and system management product called the e-Net 
NMS(TM) network management system. e-Net NMS provides enterprises with a 
broad range of capabilities for managing global telephone and data networks. 
This product offers automated management of operating problems, system 
configuration, system performance, system security, accounting, network 
traffic optimization and re-routing, configuration and database management, 
and system failure detection.

     e-Net has developed a set of products called IntelliSeries-TM- to 
provide a simple, inexpensive network usage and billing reporting capability. 
IntelliSeries uses imaging technology and is a general-purpose search and 
retrieval engine that can be used in a wide variety of user applications. One 
of e-Net's clients, Sprint, uses IntelliSeries products to provide its 
clients with database access to their monthly call detail record data and 
frame relay performance data.

     The Company believes that Telecom 2000 Products and competitors' 
voice-over-data products will gain usage on DDNs, and that this increase in 
usage will create greater data volume on DDNs. The Company anticipates that 
this volume growth will increase the opportunity for sales of data network 
management and network reporting products like e-Net's NMS and IntelliSeries 
products. The Company intends to couple sales and marketing of Telecom 2000 
Products with marketing activity for e-Net NMS and IntelliSeries Products.


                                      19
<PAGE>


Strategic Relationships

     e-Net has established, and intends to continue to establish, a variety 
of strategic relationships that are intended to result in the embedding of 
e-Net telephony-enabling technology in various DDN devices. Strategic 
partners are important to the Company because they have developed products or 
they deliver services established in the DDN communications market, but have 
not yet implemented telephony capability within those products or services.

     To date, Sprint has been the Company's largest customer. The IP Dial 
Support contract provided a significant increase in revenue to the Company, 
grew the Sprint technology relationship, validated the efficacy of the use of 
the IntelliSeries products and increased the Company's involvement in the 
Internet-related business and technology. Arising out of the growing Sprint 
technology relationship under the IP Dial Support contract, Sprint became a 
"beta" test site for the Company's Telecom 2000 Product in November 1996.

     In June 1997, the Company announced an agreement for cooperative 
marketing with Paradyne Corporation. Under the agreement, e-Net's Telecom 
2000 is demonstrated and sold operating in conjunction with Paradyne's DSL 
technology product called HotWire-TM-. Headquartered in Largo, Florida, 
Paradyne is a leading developer and provider of products and technologies 
that facilitate high-speed access to networks worldwide for communications, 
computing and information. The Company believes that Paradyne's DSL products 
are among the best products, in terms of price and performance, in the 
telecommunications industry. The Company believes that DSL products have a 
strong market potential. DSL technology delivers digital data at high speeds 
on existing copper telephone lines, and the Company expects that the Regional 
Bell Operating Companies ("RBOCs") may, at some point in the future, sell 
access to copper telephone lines to digital data service providers at a lower 
price, "unbundled" from other RBOC services. If so, digital data service 
providers and the home consumer will have the opportunity to provide and 
acquire more information at a lower cost with DSL. In particular, the 
Company's DDN telephony products could be used to include telephone service 
in those digital data service packages at a low price.

     In August 1997, the Company announced an agreement with Magellan Network 
Systems, Inc., ("Magellan") for product development and software integration 
of Magellan billing, voice-mail and other software with e-Net's Telecom 2000 
Carrier-Class Gateway products. This cooperative development and marketing 
arrangement is expected to give e-Net's Telecom 2000 Carrier-Class Gateway 
products the carrier-class software applications required to address the 
needs of large-call-volume customers. Magellan, a privately held corporation 
with headquarters in Sunnyvale, California, is a supplier of the M4000 
Enhanced Services Platform, offering long distance switching, debit card, 
calling card, international call-back and voicemail applications to domestic 
and international carriers and service providers. All of these applications 
integrate with Magellan's system management software, which provides 
sophisticated system management and billing capabilities. Magellan 
Communications, Inc., a related company, specializes in unified messaging 
systems and voice processing equipment for many of the world's leading 
telephone companies.

     In December 1997, the Company announced an agreement with Summa Four, 
Inc. to build e-Net's Telecom 2000 Carrier-Class Gateway. This agreement 
provides a preferential and discounted arrangement under which the two 
companies can purchase and license each other's products in order to deliver, 
through their respective sales channels, what the Company believes will be a 
unique product. Because of Summa Four's price and performance, management 
believes that embedding e-Net technology on Summa Four's existing product is 
the optimal approach for designing and building the Telecom 2000 
Carrier-Class Gateway. Summa Four also utilizes the same family of 
microprocessor that e-Net uses, which may reduce product development risk and 
delay. Summa Four is a leading provider of open, programmable switching 
platforms that enable telecommunications providers worldwide to build 
intelligent, flexible networks that support the rapid deployment of new 
wireline and wireless services. An ISO 9001 certified company, Summa Four is 
headquartered in Manchester, New Hampshire, and has sales, service and 
support offices in the United States, the U.K., Singapore and Japan.

     In January 1998, the Company announced that it had been awarded a 
contract from Com21, Inc. This agreement provides that e-Net will deliver 
certain of its existing software to Com 21 and develop additional software 
for Com21. The combined software delivered and developed by e-Net for Com21 
is intended to be used to integrate telephone and telefax capabilities into a 
cable television modem embedded in the cable television control unit 
typically located on top of the consumer's television set. This new system is 
expected to allow customers to plug 

                                      20
<PAGE>

their telephone, telefax and/or computer into their cable television system 
to take advantage of the speed of the cable system, which far exceeds the 
speed of other home data network transmission lines. Customers of cable 
systems would be able to make local calls without existing RBOC fees, and 
customers of cable systems that are connected to cable systems in other 
localities would be able to make long distance calls through the cable 
television system without incurring the long distance toll charges assessed 
by traditional long-distance telephony service carriers. The contract calls 
for e-Net to receive an up-front payment, milestone payments and a per-unit 
royalty for the 30 months following the introduction of the product. The 
contract is not exclusive, and the Company hopes to expand its offering of 
telephony products in the cable television market. Com21, which is located in 
Milpitas, California, develops, manufactures and markets cable modem based 
communication systems. Its ComUNITY Access system provides end-to-end 
Ethernet data communications over cable TV networks. The underlying ATM 
architecture makes possible mixed media (voice, data, video) applications 
from the same cable modem platform. Com21's systems serve business, SOHO 
(small office, home office) and residential markets.

     In April 1998, the Company signed a contract with IDT Corporation. Under 
this agreement, the Company has a license to distribute IDT's Net2Phone 
software with its retail consumer product, NetConnect. The agreement also 
permits e-Net's customers who use NetConnect to make Internet telephone calls 
on an ordinary telephone handset across IDT's Internet telephone network, 
with the Company receiving six and one half per cent (6.5%) of IDT's gross 
revenues arising from such use.

Sales and Marketing Strategy

     The Company's primary sales and marketing strategy is to expand its 
sales force and dedicate that force to creating strategic end-users and 
reseller channels for the Company's products. This strategy commenced with 
the hiring of the Company's first Vice-President of Sales in October 1997, 
and the subsequent hiring of four new Account Managers. With this sales force 
in place, the Company will seek to rapidly establish a few larger installed 
bases of users of Telecom 2000 Products.

     With the over one hundred corporate customers who have purchased the 
Telecom 2000 Starter Kit, an introductory unit of Telecom 2000 Desktop 
system, the Company believes it is beginning to create a class of "strategic 
end users." Management believes that many of these corporate enterprises have 
the capability to evolve into multi-user Telecom 2000 customers. Therefore, a 
first priority of the Company's business strategy is to take advantage of 
these accounts and increase their usage of e-Net's products.

     Management expects to further promote this sales strategy by the 
expansion of distribution arrangements through distributors and systems 
integrators. The Company intends to use a "channel sales" approach to 
penetrate its target markets. These channels will be based upon "value-added" 
inventory/warehousing capability, sales volume commitments, geographical 
positioning and other factors. e-Net has and is developing relationships with 
carrier product distributors, personal computer system integrators, complex 
information system builders and managers, Government-oriented resellers and 
foreign-country located dealers. The Company has existing reseller 
relationships with Unicent Technologies, Inc., Government Technology 
Services, Inc., Socrates, Inc. and Comtel Electronic Systems Gmbh. Several 
other major corporations have engaged in significant product testing dialogue 
with the Company and have acquired products for testing as a preliminary step 
toward developing more formal distribution arrangements.

     The Company adopted a number of additional sales techniques and has 
targeted certain other markets in order to enhance its primary sales 
strategy. These include: entering into royalty and licensing agreements for 
the Company's intellectual property (such as the Com21 contract); stressing 
the advantages offered by telephone usage on the Internet and private IP 
networks to the increasing number of major corporations that make routine use 
of these DDNs; marketing to the increasing numbers of small businesses and 
individuals that use the Internet by stressing the cost advantages and ease 
of use of the Company's products; marketing on the Internet itself, through 
the Company's web site, to more directly target the existing Internet users 
who the Company believes are more likely to recognize the advantages of the 
Company's products; marketing to PC users through print and television 
advertisements, with sales promotions such as trade shows and technology 
expositions, and other efforts to garner media coverage; and through the 
Company's three-person telephone sales organization.


                                      21
<PAGE>

     The market for the Company's software and services has only recently 
begun to develop, is rapidly evolving and is characterized by an increasing 
number of market entrants who have introduced or developed products and 
services for communication and commerce over DDNs. As is typical in the case 
of a new and rapidly evolving industry, demand and market acceptance for 
recently introduced products and services are subject to a high level of 
uncertainty. The industry is young and has few proven products. While the 
Company believes that its products offer significant advantages for telephony 
over DDNs, there can be no assurance that DDN telephony will become 
widespread, or that the Company's products for DDN telephony will become 
adopted for these purposes.

Government Regulation

     The Company is not currently subject to direct regulation by any 
government agency, other than regulations applicable to businesses generally, 
including the need to obtain Federal Communications Commission approval of 
certain products that connect directly to the public telephone system, and 
there are currently few laws or regulations directly applicable to access to 
or commerce on the Internet or to Internet telephony. However, due to the 
increasing popularity and use of the Internet, it is possible that a number 
of laws and regulations may be adopted with respect to the Internet, covering 
issues such as regulation of prices charged for this kind of telephony, user 
privacy, and quality of products and services. The adoption of any such laws 
or regulations may decrease the growth of the Internet or of Internet 
telephony, which may in turn decrease the demand for the Company's products 
and increase the Company's cost of doing business or otherwise have a 
material adverse effect on the Company's business, operating results or 
financial condition. Moreover, the applicability to the Internet of existing 
laws governing issues such as property ownership, libel and personal privacy 
is uncertain.

Patent, Trademark, Copyright and Proprietary Rights

     In March 1996, the Company acquired all right, title and interest in and 
to the 353 Patent. The Company believes that the 353 Patent is the first 
patent that specifically involves telephony through DDNs. The Company 
believes that the 353 Patent may provide certain strategic and technological 
advantages in the emerging market for telephony through DDNs. The Company can 
make no assurances, however, as to the extent of the advantages or 
protection, if any, that may be granted to the Company as a result of the 353 
Patent. The Company's current and anticipated product line is not wholly 
dependent on the validity or applicability of the 353 Patent, and not all of 
the Company's products are covered by the 353 Patent.

     The Company's success and ability to compete is dependent in part upon 
its proprietary technology. The source code for the Company's proprietary 
software is protected both as a trade secret and as a patented work, which 
the Company believes is a competitive advantage. There can be no assurance, 
however, as to the extent of the advantages or protection, if any, that may 
be granted to the Company as a result of its proprietary technology. The 
Company also uses certain technology that it purchases or licenses from third 
parties, including software that is integrated with internally developed 
software and used in the Company's products to perform key functions. Of 
particular note is certain standards-based compression software that the 
Company currently licenses from elemedia, an affiliate of Lucent 
Technologies, Inc. There can be no assurance that these third party 
technology licenses will continue to be available to the Company on 
commercially reasonable terms. Although the Company believes that it is not 
unduly reliant on any of these third parties or their products, and the 
Company is aware of alternate sources of supply, the loss of or inability to 
maintain any of these technology licenses may result in delays or reductions 
in product shipments until equivalent technology may be identified, licensed 
and integrated. Any such delays or reductions in product shipments may 
materially and adversely affect the Company's business, operating results and 
financial condition.

Competition

     The market for DDN products and services, including the telephony 
application, is new, intensely competitive, rapidly evolving and subject to 
rapid technological change. The Company expects competition to persist, 
intensify and increase in the future, from start-up companies to major 
technology and telecommunications companies. Almost all of the Company's 
current and potential competitors have longer operating histories, greater 
name recognition, larger installed customer bases and significantly greater 
financial, technical and marketing resources than the Company. Such 
competition may materially and adversely affect the Company's business, 
operating results or financial condition.


                                      22
<PAGE>


     The sets of competitors associated with the three classes of Telecom 
2000 Products are:

     DDN Telephony Small Systems

     A number of companies in this field have developed low-speed, 
half-duplex audio/voice communications software programs which use the 
Internet as a voice network and deliver voice by means of PC-based software, 
mostly for home users. These products compete with the Telecom 2000 Desktop 
Retail Consumer systems. Some of these competing products use the telephone 
handset, while some rely on PC-based speakers and microphones. Many of these 
products deliver voice sound which is delayed or which contains echo and 
"jitter," producing overall low quality, but some of these products are sold 
at a price substantially lower than the Company's products. Generally 
designed for the home user market, these competitor products have gained 
market share compared to e-Net, and some of the competitors are large 
software corporations that specialize in home PC software, giving them a 
competitive marketing advantage to e-Net due to their greater distribution 
channel capacity and name recognition.

     Some of the competitive products in this market provide computer 
telephony Graphical User Interfaces ("GUIs") in accordance with the Microsoft 
Telephony Applications Programmer Interface ("TAPI") standard, as does e-Net, 
while some do not. The level of sophistication of the GUI varies among the 
competitors. Some competitors of the Company have developed, produced and 
marketed products strictly for Internet telephony, not for other DDNs, while 
other competitors do not offer IP telephony but reside only on ATM-type DDNs. 
e-Net believes that its products are well-positioned because they offer 
telephony on all DDNs, including Ethernet in local area networks, which is 
relatively uncommon among its competitors. Within this field of competitors, 
some companies have developed, produced and marketed end-user/client 
application products that extend or replace PBX devices with computer 
software technology, like e-Net, delivering PBX-like features such as call 
waiting, call holding, call transfer, conference calling, billing, voice-mail 
and the like.

     Microsoft Corp., VocalTec Inc., NetSpeak Corp., Altigen Communications, 
Inc., Sphere Communications, Inc. and Quicknet Technologies, Inc. are some of 
the companies that compete with e-Net in the small systems market.

     DDN Telephony Medium Systems

     The companies that offer customer-premises-based gateway products 
delivering voice over DDNs that compete with Telecom 2000 
Customer-Premises-based Gateway systems are, in some cases, larger and have 
more significant revenues than e-Net. The greater size and market share of 
such companies may offer them greater distribution channel capacity and name 
recognition. Most of these companies offer telephony software features 
residing in computer file servers, so that all common telephone features such 
as dial-tone and off-hook detection are centralized. This approach has 
allowed these competitors to complete product development earlier in the 
technology cycle than e-Net; however, the Company believes that its products 
are well positioned now to gain market share due to the performance and cost 
advantages of their distributed architecture.

     VocalTec Inc., NetSpeak Corp., Micom Communications Corporation (a 
wholly-owned subsidiary of Nortel Corporation), Vienna Systems, Inc., a 
Newbridge Networks, Inc. affiliate, Clarent Corporation and Inter-Tel 
Communications are some of the companies that compete with e-Net in the 
medium systems market.

     DDN Telephony Large Systems

     To the knowledge of the Company, no competitive product has the intended 
and announced features, performance or design of e-Net's Telecom 2000 
Carrier-Class Gateway. However, the Company has reviewed a number of 
competitors' announcements that make general reference to intentions to 
launch or commence IP telephony products to enable voice for Internet service 
providers and data communications carriers. Data product companies with 
announced plans of this general nature that may compete with the Company in 
the future include Cisco Systems, Inc., Lucent Technologies, Inc., 3Com 
Corporation, Cabletron Systems, Inc., and Bay Networks, Inc.


                                      23
<PAGE>


Product Development

     The Company's current development efforts are focused on new products, 
product enhancements and implementing existing products within the three 
classes of Telecom 2000 Products: the Telecom 2000 Desktop and Retail 
Consumer systems, Telecom 2000 Customer-Premises-based Gateway, and the 
Telecom 2000 Carrier-Class Gateway system.

     DDN Telephony Small Systems

     For the Telecom 2000 Desktop product, one development priority is the 
improvement of DDN telephony network management software specific to the 
Telecom 2000 Desktop product. If very large numbers of Telecom 2000 Desktop 
product are installed on an private DDN intranet, the Company believes that 
customers will need network traffic engineering software to optimize the 
product's performance. The Company also is enhancing the conference-calling 
capability of this product to create a teleconferencing bridge that will 
extend the number of simultaneous conference calls on the system from the 
current three-call maximum to a 24 call maximum The Company believes that the 
development associated with the Telecom 2000 Desktop product network 
management software and teleconferencing bridge will be completed by 
September 1998.

     DDN Telephony Medium Systems

     A Company development priority for Telecom 2000 Customer-Premises-based 
Gateway products is the implementation of a greater level of "voice 
compression." Voice compression allows the products to transport more digital 
telephony on DDNs without increasing the bandwidth of the DDN. DDN bandwidth 
is valuable, and by compressing telephony, greater financial savings are 
gained by users. The Company currently uses a relatively modest compression 
scheme, known in the industry as "PCM," for its Telecom 2000 
Customer-Premises-based Gateway products. The Company has also made SX7300 
compression generally available, which is a significantly greater degree of 
compression, for Telecom 2000 Customer-Premises-based Gateway products since 
May 1998. The Company plans to have available for delivery to customers 
alternative compression schemes by the end of 1998.

     Greater voice compression, generally speaking, degrades voice quality 
for DDN telephony, so that DDN telephony users choose between the benefits of 
low bandwidth consumption and poor voice quality or the expense of higher 
bandwidth consumption with better voice quality. The Company's developments 
seek to reduce the lower voice quality of compression, and to allow customers 
to determine which bandwidth cost/voice quality tradeoff best suits their 
needs.

     DDN Telephony Large Systems

     The Company's highest priority is the Telecom 2000 Carrier-Class Gateway 
product, currently under development in conjunction with Summa Four. This 
product development also will address compression issues relevant to Telecom 
2000 Customer-Premises-Based Gateway products. Management believes that 
standards compliance for compression is important for a product aimed at 
telecommunications carriers. e-Net and Summa Four have chosen the compression 
standard set under a scheme licensed for elemedia and known as G.723.1. Other 
issues for development of this Carrier-Class gateway are maintaining 
interoperability with DDN and IP telephony gateways made by other 
manufacturers and insuring the efficient physical size and the environmental 
tolerance of the product. The Company plans to complete development of the 
Telecom 2000 Carrier-Class Gateway product in September 1998.

     These product developments are currently on schedule, but there can be
no assurance that product development will occur as expected or otherwise on a
timely and cost-effective basis, or, if introduced, that these products will
achieve market acceptance. If not, then the Company's business, financial
condition and results of operations would be materially and adversely affected.

     At March 31, 1998, the Company capitalized approximately $805,200, net 
of amortization, in software product development costs. All other product 
development costs have been expensed as incurred. The Company believes that 
significant investments in research and development are required to remain 
competitive. As a 


                                      24
<PAGE>

consequence, the Company intends to increase the amount of its research and
development expenditures in the future.

Year 2000 Matters

     The Year 2000 Issue is the result of computer programs being written 
using two digits rather than four to define the applicable year, 
consequently, in the year 2000 such systems may be unable to accurately 
process certain date-based information. The Company can potentially be 
affected by this issue through the internal computer applications on which it 
relies, as well as the software that it develops and sells. The Company is in 
process of reviewing all of its significant third party applications and 
obtaining documentation from the manufacturers that certify Year 2000 
compliance. The Company also is in process of examining the architecture of 
its products, as well as documentation on the third party components that are 
integrated into the Company's software products; the Company believes 
although at this stage no assurance can be given, that its products already 
are Year 2000 compliant. The Company is also developing a test plan, for both 
internal applications and software that the Company develops, to validate the 
results of its initial review. Should the Company find any items that are not 
Year 2000 compliant in the course of its testing, the Company will endeavor 
to take the necessary actions to correct the matter. The Company expects that 
its testing procedures and any required Year 2000 compliance activities will 
be completed by December 31, 1998. The Company does not anticipate that Year 
2000 compliance activities will have a material effect on the Company's 
business, product development, financial position or results of operations. 
However, there can be no assurance that the Company's systems and products 
are Year 2000 compliant until the successful completion of its testing 
procedures. Additionally, there can be no assurance that the systems of other 
companies on which the Company relies will be Year 2000 compliant which could 
result in a material adverse effect on the Company's business, financial 
condition and results of operations.

Employees

     The Company believes that one of its key competitive advantages is its 
technical experience and expertise. The Company's core development group 
includes individuals who have developed and implemented telecommunications 
network management software and other Internet and intranet related products 
and services as such products and services have emerged as a recognized 
application over the last twelve years. As of June 24, 1995, the Company had 
34 employees, including 15 in Product Development, 8 in Sales and Marketing, 
and 11 in Operations and Administration.

Facilities

     The Company leases approximately 5,500 square feet for its principal 
executive offices, which are located at 12800 Middlebrook Road, Suite 200, 
Germantown, Maryland 20874. The Company's Austin, Texas product development 
facilities are approximately 4,000 square feet and are located at 12710 
Research Blvd., Austin, Texas 78759. The Company also leases approximately 
1,500 square feet for storage and excess capacity located at 12325 Hymeadow 
Drive, Austin, Texas 78750. Base rental for the current premises is 
approximately $7,900, $6,600, and $1,200 per month, respectively. The leases 
require the Company to pay certain property taxes and certain operating 
expenses. The Company believes that its current and anticipated facilities 
are suitable and adequate for its operations.


                                      25
<PAGE>


                                   MANAGEMENT

         The officers and directors of the Company are as follows:


<TABLE>
<CAPTION>

                             Name                Age                 Title

<S>                                              <C>     <C>          
    Alonzo E. Short........................      58      Chairman of the Board
    Robert A. Veschi.......................      35      President, Chief Executive
                                                         Officer, Director
    Donald J. Shoff........................      43      Vice  President, Finance and
                                                         Chief Financial Officer
    Christina L. Swisher...................      33      Vice  President, Operations
                                                         and Secretary
    William W. Rogers, Jr. ................      56      Director
    Clive Whittenbury, Ph.D. ..............      64      Director
    William L. Hooton......................      46      Director

</TABLE>


     Each of the directors of the Company holds office until his or her 
successor is elected and qualified. At present, the Company's Bylaws provide 
for not less than one director nor more than nine directors. Currently, there 
are five directors in the Company. The Bylaws permit the Board of Directors 
to fill any vacancy and such director may serve until the next annual meeting 
of shareholders or until his successor is elected and qualified. Officers 
serve at the discretion of the Board of Directors. There are no family 
relationships among any officers or directors of the Company and none of the 
Company's officers and directors had been involved in any material legal 
proceedings during the past five years. Mr. Veschi served as a promoter of 
the Company and the consideration received for such services has been limited 
to the compensation disclosed under " -- Remuneration." The officers of the 
Company devote full time to the business of the Company.

     The principal occupation and business experience for each officer and 
director of the Company for at least the last five years are as follows:

     ALONZO E. SHORT, JR., Lt. Gen., USA (ret.), 58, has been chairman of the 
board of the Company since January 1996. General Short has more than 30 years 
experience in executive management, operations and the engineering, design 
and development of large-scale telecommunications and data systems. General 
Short retired from the service in 1994 following a career that included 
serving as deputy commanding general (1988-1990) and commanding general 
(1990-1991) of the U.S. Army Information Systems Command, a major information 
technology organization, which was responsible for all telecommunications 
during the Desert Shield/Desert Storm operation, among other 
responsibilities. From 1991 to 1994, General Short was director of the 
Defense Information Systems Agency, a major information technology 
organization which is responsible for telecommunications and related services 
to the President of the United States, Secret Service, Joint Chiefs of Staff, 
Secretary of Defense, among other high level federal entities. From 
1994-1997, General Short was president and chief executive officer of MICAH 
Systems, Inc., a Washington, D.C. metropolitan area based information, 
technologies management and consulting firm. In September 1997, General Short 
joined Lockheed Martin, an aerospace, defense, and information technology 
company, as a Vice-President. Since January 1996, General Short has been 
instrumental in the organization and development of the business of the 
Company.

     ROBERT A. VESCHI, 35, has been president, chief executive officer, and a 
director of the Company since January 1995. Mr. Veschi is the founder of the 
Company, which began its operations in June 1995. Mr. Veschi has significant 
experience in executive management, operations and the engineering, design 
and development of telecommunications and computer products and systems. From 
1986 to 1990, Mr. Veschi was manager of systems engineering for International 
Telemanagement, Inc., a Washington, D.C. metropolitan area based information, 
data and network systems firm. From 1990 to 1994, Mr. Veschi was a group 
president of I-Net, Inc., a Washington, D.C. metropolitan area based 
information, data and network systems firm. From December 1994 to May 1995, 
for approximately six months, Mr. Veschi was president and chief executive 
officer of Octacom, Inc., a Washington, D.C. metropolitan area based 
information, data and network systems firm, and a wholly-owned subsidiary of 
Octagon, Inc., an Orlando, Florida metropolitan area based publicly held 
technical services firm. From July 1994 to May 1995, for approximately nine 
months, Mr. Veschi was a vice president of telecommunications for 


                                      26
<PAGE>

Octagon, Inc., and from January 1995 to May 1995, for approximately four months,
Mr. Veschi was a member of the board of directors of such company. Since June
1995, Mr. Veschi has been instrumental in the organization, development and
promotion of the Company.

     DONALD J. SHOFF, CPA, 43, has been vice president of finance and chief 
financial officer since November 1997. Prior to that, Mr. Shoff was director 
of finance and assisted the Company as a consultant prior to employment. Mr. 
Shoff has 21 years of significant experience in both public accounting firms 
and with high technology companies, both public and private. From 1977 to 
1981, Mr. Shoff was a staff accountant and senior accountant on the staff of 
local Washington, D.C. public accounting firms. From 1982 to 1986, Mr. Shoff 
was the corporate cost accounting manager and a group controller for Science 
Applications International Corporation, a high technology products and 
professional services public corporation, where he was responsible for the 
corporate cost accounting functions and controllership of a high technology 
services operation group. From 1987 to 1992 and from 1993 to 1996, Mr. Shoff 
consulted independently and as a Senior Manager of Grant Thornton LLP, a 
major accounting and management consulting firm, with public and privately 
held high technology companies doing business with the Federal government. 
From 1992 to 1993 Mr. Shoff was vice president of finance and administration 
for Comsis Corporation, a Washington, D.C. based privately held engineering 
and technology company doing business with the Federal and various state 
governments. Mr. Shoff holds a B.B.A. degree from the Pennsylvania State 
University and is a certified public accountant.

     CHRISTINA L. SWISHER, 33, has been vice president of operations since 
December 1996 and secretary of the Company since February 1997. Ms. Swisher 
has significant experience in the computer networking management, systems and 
operations. From 1991 to 1993, Ms. Swisher was a technical and graphics 
specialist with the Air Force Association, a Washington, DC area based 
national services organization, where she was responsible for technical and 
statistical analyses. From 1993 to 1995, Ms. Swisher was the manager for 
computer networks for computer network systems and operations for I-Net, 
Inc., a Washington, DC metropolitan area based information, data and network 
systems firm. Since 1995, Ms. Swisher has been director of technical services 
with the Company, becoming vice president of operations in December 1996. 
Since June 1995, Ms. Swisher has been instrumental in the organization and 
development of the business of the company.

     WILLIAM W. ROGERS, JR., 56, has been a director of the Company since 
January 1997. Mr. Rogers has substantial senior management, operations and 
technical and engineering services experience. From 1972 to 1987, Mr. Rogers 
was a general manager engaged in operations, technical and engineering 
services for Boeing Computer Services, Inc. From 1987 to 1989, Mr. Rogers was 
president and chief executive officer of International Telemanagement , Inc., 
a McLean, Virginia based telecommunications and systems engineering and 
services company. From 1989 to 1991, Mr. Rogers was a vice president of 
Fluor-Daniel, where he was responsible for telecommunications and systems 
integration services. Since 1991, Mr. Rogers has been a vice president with 
Computer Sciences Corporation, a McLean, Virginia based technology products, 
systems and services company, where he is responsible for systems integration 
and related technical services. Since January 1997, Mr. Rogers has been 
instrumental in the organization and development of the Company. Mr. Rogers 
holds a B.A. degree from West Virginia University.

     WILLIAM L. HOOTON, 46, has been a director of the Company since January 
1996. Mr. Hooton has substantial experience in the management, design, 
operation, marketing and sales of image conversion systems, electronic 
imaging system integration, data automation and high performance data storage 
subsystems. From 1990 to 1993, Mr. Hooton was vice president of operations 
and technical and business development of the Electronic Information Systems 
Group of I-Net, Inc., a Washington, D.C. metropolitan area based information, 
data and network systems firm. Since 1993, Mr. Hooton has been president and 
chief executive officer of Q Corp., a Washington, D.C. metropolitan area high 
technology consulting firm specializing in digital imaging systems and other 
complex imagery in media. Since January 1996, Mr. Hooton has been a director 
of the Company and has been instrumental in the organization and development 
of the Company. Mr. Hooton holds a B.B.A. degree from the University of Texas.

     CLIVE G. WHITTENBURY, PH.D., 64, has been a director of the Company 
since June 1996. Dr. Whittenbury has substantial senior management, 
operations and technical advisory experience. From 1972 to 1979, Dr. 
Whittenbury was a senior vice president and, from 1976 to 1986, a director of 
Science Applications International Corporation ("SAIC"), a La Jolla, 
California based major international systems engineering firm with 


                                      27
<PAGE>

current annual revenues of approximately $2 billion. Since 1979, Dr. 
Whittenbury has been executive vice president and a director of the Erickson 
Group, Inc., a major international diversified products firm. Since 1994, Dr. 
Whittenbury has been a director of MVSI, Inc., a publicly held (NASDAQ: 
"MVSI") McLean, Virginia based laser vision robotics company. Dr. Whittenbury 
is a member of the International Advisory Board for the British Columbia 
Advanced Systems Institute, which manages commercialization programs in 
technology at the three major Vancouver/Victoria universities, a member of 
the Advisory Board of Compass Technology Partners, an investment fund, and is 
chairman of the Advisory Board (Laser Directorate) for the Lawrence Livermore 
National Laboratory. Dr. Whittenbury has also served as a technical advisor 
to three U.S. Congressional Committees, the Grace Commission and numerous 
major U.S. and foreign companies. Since June 1996, Dr. Whittenbury has been 
instrumental in the organization and development of the Company. Dr. 
Whittenbury holds a B.S. degree (physics) from Manchester University 
(England) and a Ph.D. degree (aeronautical engineering) from the University 
of Illinois.

Remuneration

     Executive Compensation

     The following table sets forth annual remuneration of $100,000 or more 
paid for the fiscal years ended March 31, 1996 and 1997 and proposed to be 
paid for the fiscal year ended March 31, 1998 to certain officers and 
directors of the Company:

     The following table sets forth certain compensation information for the 
fiscal years ended March 31, 1996, 1997 and 1998 with regard to the Company's 
chief executive officer and one other executive officer whose combined salary 
and bonus was $100,000 or more in fiscal year 1998 (the "Named Officers"):

                           Summary Compensation Table

<TABLE>
<CAPTION>

                                                                                                        Other
                                                Position                                               Annual
         Name of Individual                   with Company           Year     Salary      Bonus    Compensation(1)

<S>                                    <C>                          <C>       <C>         <C>             <C>  
Robert A. Veschi                       President, Chief Executive   1998      $175,000    $87,500         --
                                         Officer, Director          1997       175,000     87,500         --
                                                                    1996            --     25,000         --

Christina L. Swisher                   Vice President, Operations   1998        88,333     21,000         --
                                       and Secretary                1997        57,917      5,607         --
                                                                    1996         6,250      4,167         --
</TABLE>
- ----------------

(1)  The officers of the Company may receive remuneration as part of an 
     overall group insurance plan providing health, life and disability 
     insurance benefits for employees of the Company. The amount 
     allocable to each Named Officer  cannot be specifically ascertained, 
     but, in any event, did not in any reported fiscal year exceed the 
     lesser of $50,000 and such Named Officer's combined salary and bonus. 
     The Company has purchased key-man term life insurance on Mr. Veschi in 
     the amount of $2 million, which designates the Company as the owner and 
     beneficiary of the policy. The Company has agreed to grant to Ms. 
     Swisher options to purchase 60,000 shares of Common Stock, in 
     consideration of services during fiscal year 1998. However, such 
     options have not yet been granted by the Company and the terms thereof 
     have not yet been set.

         Director Compensation

     The directors of the Company, with the exception of Mr. Veschi, are 
entitled to annual remuneration of $24,000 pursuant to oral agreements 
between such directors and the Company. In addition, General Short receives 
$1,000 per month under a consulting services agreement for his additional 
specific business services on behalf of the Company.

     Each outside director of the Company is entitled to receive reasonable 
expenses incurred in attending meetings of the Board of Directors of the 
Company. The members of the Board of Directors intend to meet at least 
quarterly during the Company's fiscal year, and at such other times as duly 
called. The Company presently has four outside directors.

         Employment Agreement


                                      28
<PAGE>

     The Company has entered into an employment agreement (the "Agreement") 
with Robert A. Veschi, the president and chief executive officer of the 
Company, dated as of April 1, 1996. The Agreement will expire on March 31, 
2001. The current annual salary under the Agreement is $175,000, which salary 
may be increased to reflect annual cost of living increases and may be 
supplemented by discretionary merit and performance increases as determined 
by the Board of Directors of the Company. Mr. Veschi is entitled to an annual 
bonus equal to 50 percent of the salary provided under this Agreement, which 
bonus is not subject to any performance criteria.

     The Agreement provides, among other things, for participation in an 
equitable manner in any profit-sharing or retirement plan for employees or 
executives and for participation in other employee benefits applicable to 
employees and executives of the Company. The Agreement provides for the use 
of an automobile, payment of club dues and other fringe benefits commensurate 
with his duties and responsibilities. The Agreement also provides for 
benefits in the event of disability. The Agreement also contains non-compete 
provisions which are limited in geographical scope to the Washington, D.C. 
metropolitan area.

     Pursuant to the Agreement, Mr. Veschi's employment may be terminated by 
the Company with cause or by Mr. Veschi with or without good reason. 
Termination by the Company without cause, or by Mr. Veschi for good reason, 
would subject the Company to liability for liquidated damages in an amount 
equal to Mr. Veschi's current salary and a pro rata portion of his bonus for 
the remaining term of the Agreement, payable in a lump sum cash payment, 
without any set-off for compensation received from any new employment. In 
addition, Mr. Veschi would be entitled to continue to participate in and 
accrue benefits under all employee benefit plans and to receive supplemental 
retirement benefits to replace benefits under any qualified plan for the 
remaining term of the Agreement to the extent permitted by law.

Limitation on Liability of Directors

     As permitted by Delaware law, the Company's Certificate of Incorporation 
includes a provision that provides that the Company will, to the fullest 
extent permitted by Section 145 of the Delaware General Corporation Law, as 
amended from time to time ("DGCL"), indemnify all persons whom it may 
indemnify pursuant thereto. To the fullest extent permitted by the DGCL, a 
director of the Company shall not be personally liable to the Company or its 
stockholders for monetary damages for a breach of fiduciary duty as a 
director. The provisions are intended to afford directors protection against, 
and to limit their potential liability for, monetary damages resulting from 
suits alleging a breach of the duty of care by a director; they also diminish 
the potential rights of action which might otherwise be available to 
shareholders by limiting the liability of officers and directors to the 
maximum extent allowable under Delaware law and by affording indemnification 
against most damages and settlement amounts paid by a director of the Company 
in connection with any shareholders derivative action. As a consequence of 
these provisions, stockholders of the Company will be unable to recover 
monetary damages against directors for action taken by them that may 
constitute negligence or gross negligence in performance of their duties 
unless such conduct falls within an exception under DGCL or under Delaware 
case law. The provision, however, does not alter the applicable standards 
governing a director's fiduciary duty and does not eliminate or limit the 
right of the Company or any stockholder to obtain an injunction or any other 
type of equitable relief in the event of a breach of fiduciary duty. 
Management of the Company believes these provisions will assist the Company 
in securing and retaining qualified persons to serve as directors. The 
Company is unaware of any pending or threatened litigation against the 
Company or its directors that would result in any liability for which such 
director would seek indemnification or similar protection.

     The Company believes that the substantial increase in the number of 
lawsuits being threatened or filed against corporations and their directors 
has resulted in a growing reluctance on the part of capable persons to serve 
as members of boards of directors of public companies. The Company also 
believes that the increased risk of personal liability without adequate 
insurance or other indemnity protection for its directors could result in 
overcautious and less effective direction and management of the Company. The 
limitation on liability and indemnification provisions are intended to 
increase the protection provided directors and, thus, increase the Company's 
ability to attract and retain qualified persons to serve as directors. 
Additionally, the Company has procured directors liability insurance 
coverage, but there is no assurance that it will provide coverage to the 
extent of the director's claims for indemnification. In such event, the 
Company may be forced to bear a portion or all of the cost of the director's 
claims for indemnification and, the value of the Company stock may be 
adversely affected as a result. There is also no assurance that the Company 
will be able to continue to procure directors liability insurance. It is 
uncertain whether the Company's directors would continue to serve in such 
capacities if improved protection from liability were not provided.


                                      29
<PAGE>


     Insofar as indemnification for liabilities arising under the Act may be 
permitted to directors, officers and controlling persons of the small 
business issuer pursuant to the foregoing provisions, or otherwise, the small 
business issuer has been advised that in the opinion of the Commission such 
indemnification is against public policy as expressed in the Act and is, 
therefore, unenforceable.

                             PRINCIPAL STOCKHOLDERS

     The following table sets forth certain information regarding the 
Company's Common Stock owned as of June 24, 1998 and, as adjusted, to reflect 
the exercise of the Warrants, by (i) each person who is known by the Company 
to own beneficially more than five percent of the Company's Common Stock; 
(ii) each of the Company's officers and directors; and (iii) all officers and 
directors as a group. No assurance can be given as to the timing of exercise 
of the Warrants or whether all or any of the Warrants will be exercised.

<TABLE>
<CAPTION>

                                                                                            Percentage of Shares
                                                                                          --------------------------
                                                                                            Before          After
                                                          Position with        Number      Exercise of    Exercise of
                  Name and Address                           Company          of Shares     Warrant        Warrant (1
                  ----------------                           -------          ---------     -------       ----------
                                                                                          
                                                                                          
<S>             <C>                                    <C>                     <C>          <C>          <C>  
Alonzo E. Short, Jr., Lt. Gen.,
     USA (ret.) (2) ..............................     Chairman of the            90,000       1.06%        1.01%
                                                         Board
Robert A. Veschi (3)..............................     President, Chief        1,375,000      16.19        15.51
                                                         Executive
                                                         Officer, Director
Christina Swisher (3) ............................     Vice President,           120,000       1.41         1.35
                                                         Secretary
Donald J. Shoff (3) ..............................     Vice President,            50,000        .59          .56
                                                         Chief Financial
                                                         Officer
William L. Hooton (4) ............................     Director                   50,000        .59          .56
Clive W. Whittenbury, Ph.D. (5) ..................     Director                   50,000        .59          .56
William W. Rogers, Jr. (6) .......................     Director                    5,000        .06          .06
Edward Ratkovich, Maj. Gen.
     USA (ret.) (7) ..............................     Stockholder               500,000       5.89         5.64
Arthur Henley (8) ................................     Stockholder               537,500       6.33         6.06
Thomas T. Prousalis (9) ..........................     Stockholder               450,000       5.30         5.07
All Officers and Directors as a
     Group (7 persons) (10).......................                             1,740,000      20.49%       19.62%
</TABLE>

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

(1)  Does not include the exercise of options or warrants other than the
     Warrants.
(2)  c/o Lockheed Martin, 5203 Leesburg Pike, Suite 1501, Falls Church, Virginia
     22041.
(3)  c/o e-Net, Inc., 12800 Middlebrook Road, Suite 200, Germantown,
     Maryland 20874.
(4)  13333 Glen Taylor Lane, Herndon, Virginia 22071.
(5)  511 Trinity Avenue, Yuba City, California 95991. Does not include 250,000
     shares that are, to the Company's knowledge, beneficially owned by MVSI,
     Inc. Dr. Whittenbury is, to the Company's knowledge, a director of MVSI,
     Inc.
(6)   c/o CACI, 14200 Park Meadow Drive, Suite 200, Chantilly, Virginia 20151.
(7)  1030 Delf Drive, McLean, Virginia 22101. Does not include 250,000 shares
     that are, to the Company's knowledge, beneficially owned by MVSI, Inc. Gen.
     Ratkovich is, to the Company's knowledge, a significant shareholder,
     chairman and chief executive officer of MVSI, Inc.
(8)  10705 Bay Laurel Trail, Austin, Texas 78750. Includes vested options to
     purchase 50,000 shares of Common Stock. Also includes 487,500 shares owned
     by The Arthur Henley Family Trust.
(9)  1919 Pennsylvania Avenue, N.W., Suite 800, Washington, D.C. 20006. Does not
     include 250,000 shares that are, to the Company's knowledge, beneficially
     owned by MVSI, Inc. Mr. Prousalis is, to the Company's knowledge, a
     significant shareholder of MVSI, Inc.
(10) Includes vested options to purchase 50,000 shares of Common Stock.


                                      30
<PAGE>


                                 SELLING HOLDERS

     On April 15, 1998, the Company completed the Private Placement, 
resulting in the issuance of the Issued Private Placement Stock and the 
Placement Agent's Warrant. See "Description of Securities." This Prospectus 
relates to the offer and sale by the following Selling Holders of the Issued 
Private Placement Stock, and the Placement Agent's Stock underlying the 
Placement Agent's Warrant. Although the Company will receive the net proceeds 
from the exercise of the Placement Agent's Warrant, it will not receive any 
additional proceeds from the sale by any of the following Selling Holders of 
the Private Placement Stock. The following table sets forth certain 
information about the Selling Holders for whom the Company is registering 
Private Placement Stock for resale to the public. To the best of the 
Company's knowledge, none of the Selling Holders has any plan, arrangement, 
understanding, agreement, commitment or intention to sell their securities. 
None of the following individuals or entities has held any position or office 
within the Company nor has had any other material relationship with the 
Company other than in connection with the Private Placement.

<TABLE>
<CAPTION>

                                                                                               Amount of
                                                                              Amount of        Securities  Percentage
                                                         Amount of         Securities Being   Owned After     of
                                                      Securities Owned        Registered       Offering    Securities
                                                                                                 (1)(2)     Owned (2)
                                                   -------------------     ----------------   ----------- ------------
<S>                                                <C>                    <C>                     <C>         <C> 
Atlas Capital Partners, L.P. .................     10,000 Shares of       10,000 Shares of        0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Bryn Mawr Trust Co. A/C RA Hansen & FJ             
Campbell III, TTEES PA Merchant Group              
Ltd 401(k) Pension & Profit Sharing Plan......     10,000 Shares of       10,000 Shares of        0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Frank J. Campbell, III........................     7,000 Shares of        7,000 Shares of         0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Donaldson, Lufkin & Jenrette Securities            
Corporation Custodian F/B/O Frank J.               
Campbell III Account # 698-101714.............     10,000 Shares of       10,000 Shares of        0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Coutts (Jersey) Limited JY798967..............     100,000 Shares of      100,000 Shares of       0        1.17
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Gerard E. Dorsey..............................     10,000 Shares of       10,000 Shares of        0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Amir L. Ecker.................................     12,500 Shares of       12,500 Shares of        0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Donaldson Lufkin Jenrette Securities               
Corporation Custodian FBO Amir L. Ecker            
IRA Acct # 698-103058.........................     7,500 Shares of        7,500 Shares of         0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
The Ecker Family Partnership..................     7,500 Shares of        7,500 Shares of         0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Lancaster Investment Partners, L.P. ..........     200,000 Shares of      200,000 Shares of       0        2.33
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
</TABLE>


                                      31
<PAGE>

<TABLE>
<CAPTION>

                                                                                               Amount of
                                                                              Amount of        Securities  Percentage
                                                         Amount of         Securities Being   Owned After     of
                                                      Securities Owned        Registered       Offering    Securities
                                                                                                 (1)(2)     Owned (2)
                                                   -------------------     ----------------   ----------- ------------
<S>                                                <C>                    <C>                     <C>         <C> 
Lincoln Trust Company FBO Perry D.                 
Snavely IRA Account # 61076323................     10,000 Shares of       10,000 Shares of        0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Losty Capital Management......................     37,500 Shares of       37,500 Shares of        0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Ronald B. Mandell.............................     2,000 Shares of        2,000 Shares of         0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Irving L. Mazer, Esq. ........................     10,000 Shares of       10,000 Shares of        0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
James F. Meara, Jr. ..........................     5,000 Shares of        5,000 Shares of         0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Felix S. Miksis...............................     1,000 Shares of        1,000 Shares of         0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Harry Mittelman Revocable Trust...............     15,000 Shares of       15,000 Shares of        0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Mustang Partners, L.P. .......................     75,000 Shares of       75,000 Shares of        0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Porter Partners, L.P. ........................     50,000 Shares of       50,000 Shares of        0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
ProFutures Special Equities Fund, L.P. .......     60,000 Shares of       60,000 Shares of        0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Leonid S. Roytman and Alla S. Roytman              
JTTEN.........................................     5,000 Shares of        5,000 Shares of         0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Schottenfeld Associates, L.P. ................     15,000 Shares of       15,000 Shares of        0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Perry D. Snavely, Jr. ........................     22,500 Shares of       22,500 Shares of        0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Dr. Gershon Stern.............................     7,500 Shares of        7,500 Shares of         0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
</TABLE>


                                      32
<PAGE>

<TABLE>
<CAPTION>

                                                                                               Amount of
                                                                              Amount of        Securities  Percentage
                                                         Amount of         Securities Being   Owned After     of
                                                      Securities Owned        Registered       Offering    Securities
                                                                                                 (1)(2)     Owned (2)
                                                   -------------------     ----------------   ----------- ------------
<S>                                                <C>                    <C>                     <C>         <C> 
Robert M. Stern...............................     1,250 Shares of        1,250 Shares of         0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Susan J. Spector..............................     1,250 Shares of        1,250 Shares of         0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Talmor Capital Management Inc. ...............     2,500 Shares of        2,500 Shares of         0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Richard C. Walling............................     50,000 Shares of       50,000 Shares of        0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
Carolyn Wittenbraker..........................     5,000 Shares of        5,000 Shares of         0           *
                                                   Common Stock (Issued   Common Stock
                                                   Private Placement      (Issued Private
                                                   Stock)                 Placement Stock)
SUBTOTAL......................................     750,000                750,000
Pennsylvania Merchant Group Ltd. .............     75,000 Shares of       75,000 Shares of        0           *
                                                   Common Stock           Common Stock
                                                   (Placement Agent's     (Placement
                                                   Stock) (1)             Agent's Stock) (1)
TOTAL.........................................     825,000                825,000
</TABLE>

*        Less than 1%.
- -------------------------
(1)  Assumes exercise of all Warrants.
(2)  Assumes sale of all Offered Stock being registered.


         In April of 1997, the Company completed its Initial Public Offering,
resulting in the issuance of the Common Stock Representative Warrants and the
Warrant Representative Warrants. (The Warrants underlying the Warrant
Representative Warrants are the Underlying Warrants.) See "Description of
Securities." This Prospectus relates to the offer and sale by the following
Selling Holders of the Underwriter's Stock underlying the Common Stock
Representative Warrants and the Underwriter's Stock underlying the Underlying
Warrants. The following table sets forth certain information about the Selling
Holders for whom the Company is registering such Underwriter's Stock for resale
to the public. To the best of the Company's knowledge, none of the Selling
Holders has any plan, arrangement, understanding, agreement or commitment to
sell their securities. None of the following individuals or entities has held
any position or office within the Company nor has had any other material
relationship with the Company other than in connection with the Initial Public
Offering.

<TABLE>
<CAPTION>

                                                                                              Amount of
                                                                                              Securities    Percentage
                                                                          Amount of          Owned After       of
                                                Amount of              Securities Being        Offering     Securities
                 Recipient                   Securities Owned             Registered            (1)(2)      Owned (2)
                 ---------                   ----------------          ----------------      ------------   ----------
<S>                                          <C>                       <C>                       <C>        <C>
Robert T. Kirk..........................     240,000 Shares of Common  240,000 Shares of         0          2.79
                                             Stock (Underwriter's       Common Stock
                                             Stock) (3)                 (Underwriter's
                                                                        Stock) (3)
Michael Morrisett.......................     15,000 Shares of Common   15,000 Shares of          0             *
                                             Stock (Underwriter's       Common Stock
                                             Stock) (3)                 (Underwriter's
                                                                        Stock) (3)
Marie Lima..............................     15,000 Shares of Common   15,000 Shares of          0             *
                                              Stock (Underwriter's      Common Stock
                                              Stock) (3)                (Underwriter's
</TABLE>


                                      33
<PAGE>

<TABLE>
<CAPTION>


                                                                                               Amount of
                                                                                               Securities   Percentage
                                                                            Amount of        Owned After       of
                                                   Amount of             Securities Being      Offering     Securities
                   Recipient                    Securities Owned            Registered          (1)(2)      Owned (2)
                 ------------                  ------------------        ------------------  ------------   -----------
<S>                                           <C>                       <C>                       <C>         <C> 
                                                                        Stock) (3)
    David A. Carter.........................  15,000 Shares of Common   15,000 Shares of          0           *
                                              Stock (Underwriter's      Common Stock
                                              Stock) (3)                (Underwriter's
                                                                        Stock) (3)
    Wendy Tand Gusrae.......................  15,000 Shares of Common   15,000 Shares of          0           *
                                              Stock (Underwriter's      Common Stock
                                              Stock) (3)                (Underwriter's
                                                                        Stock) (3)
    Total...................................  300,000 Shares of         300,000 Shares of
                                              Common Stock              Common Stock
                                              (Underwriter's Stock)     (Underwriter's
                                              (3)                       Stock) (3)
</TABLE>

*        Less than 1%.

(1)  Assumes exercise of all Warrants.
(2)  Assumes sale of all Offered Stock being registered.
(3) One-half of this amount is Underwriter's Stock underlying Common Stock
Representative Warrants, and one-half of this amount is Underwriter's Stock
underlying the Underlying Warrants.


                              CERTAIN TRANSACTIONS

     In January 1995, in connection with the founding of the Company, the 
Company issued 300 shares of its Common Stock to Alonzo E. Short, Jr., 4,332 
shares to Robert A. Veschi, 400 shares to Christina L. Swisher, 167 shares to 
William L. Hooton, 167 shares to Donald J. Shoff, 1,583 shares to Arthur 
Henley and 1,500 shares to Thomas T. Prousalis, Jr. Each such founding 
shareholder was assessed $0.01 per share for his or her Common Stock, which 
amount was equivalent to its par value at the time. Taking into account a 
600:1 stock split effective as of March 1996 (the "Forward Split") and a 2:1 
reverse stock split effective as of March 1997 (the "Reverse Split"), each 
such shareholder acquired at that time the equivalent of 90,000, 1,300,000, 
120,000, 50,000, 50,000, 475,000 and 450,000 shares of today's Common Stock.

     In March 1996, the Company was loaned $500,000 by Edward Ratkovich, 
$250,000 by Robert Foise, $200,000 by Armstrong Industries and $50,000 by 
Martin Sumichrast. Principal and interest computed at the rate of eight 
percent annually was to become due at the earlier of June 1, 1997 or the 
expected June 1996 closing date of a proposed initial public offering of 
Company securities. As additional consideration for these loans, the Company 
issued 500,000 bridge units to Mr. Ratkovich, 250,000 to Mr. Foise, 200,000 
to Armstrong Industries and 50,000 to Mr. Sumichrast. Each bridge unit 
contained one share of Common Stock, one Class A Warrant and one Class B 
Warrant. In June 1996, the loan principal was converted into paid-in capital 
and accounted for as consideration for the bridge units. The Class A Warrants 
and Class B Warrants were canceled in March 1997 in exchange for each such 
shareholder receiving additional shares of Common Stock such that, even 
taking the Reverse Split into account, each such shareholder had 500,000, 
250,000, 200,000 and 50,000 shares of today's Common Stock.

     In August 1996, the Company entered into a letter of intent with MVSI, 
Inc. ("MVSI"), a Washington, D.C. area based NASDAQ-listed technology 
products and services company, in which the Company agreed to be acquired and 
become a wholly-owned subsidiary of MVSI in an exchange of securities. To the 
Company's knowledge, Edward Ratkovich is a significant shareholder and the 
chairman and chief executive officer of MVSI, Thomas T. Prousalis, Jr. is a 
significant shareholder of MVSI and Clive Whittenbury is a director of MVSI. 
Pursuant to the letter of intent, MVSI loaned the Company $500,000 for 
working capital. In October 1996, the Company entered into an agreement to be 
acquired by MVSI, subject to shareholder approval. MVSI loaned an additional 
$500,000 to the Company in November 1996. However, in January 1997, the 
parties mutually agreed to terminate the acquisition, primarily due to market 
conditions that involved a significant decrease in the bid price of MVSI's 
common stock and, thereby, the value of the purchase price.

     As part of a mutual cooperation agreement, in January 1997 MVSI loaned 
the Company an additional $250,000 under a convertible debenture. The 
aggregate principal amount of the convertible debenture at that time 


                                      34
<PAGE>

was $1,275,081, reflecting the total amount of loan advances made to the 
Company by MVSI. The terms provided for outstanding principal to bear annual 
interest of nine percent, and for principal to be convertible into Common 
Stock upon the completion of the Company's initial public offering at a ratio 
calculated using the offering price per share. In March 1997, MVSI converted 
the convertible debenture into 250,000 shares of Common Stock.

     In March 1996, the Company acquired all right, title and interest in the 
353 Patent from Arthur Henley and Scott Grau in consideration of a five 
percent overriding royalty interest against gross profits involving the use 
of the 353 Patent. The Company agreed to allocate $1,000,000 of its capital 
to develop and exploit the market opportunities of the 353 Patent by December 
31, 1996, or the 353 Patent would be subject to repurchase by its inventors. 
The Company satisfied this commitment timely.

     The Company paid legal fees of approximately $380,000 during the year 
ended March 31, 1997, to Thomas T. Prousalis, Jr., an attorney who is a 
significant stockholder of the Company, relating to the Initial Public 
Offering. The Company also paid $100,000 during the year ended March 31, 
1997, to Mr. Prousalis for services relating to an offering that was 
abandoned in September 1996.

     The Company rents an aircraft for business purposes from an entity owned 
by Robert A. Veschi, the Company's President and Chief Executive Officer. For 
the years ended March 31, 1998 and 1997, the Company paid $62,936 and 
$27,796, respectively for the rental of the aircraft.

     On April 16, 1997, the Company entered into a consulting agreement with 
Alonzo E. Short, Jr., Lt. Gen., USA (ret.), the Chairman of the Board, to 
provide services for a fixed monthly amount of $1,000. The amounts paid to 
the stockholder under that agreement totaled $12,000 for the fiscal year 
ending March 31, 1998.

     All ongoing and future transactions between the Company and any 
affiliate will be entered into on terms at least as favorable as could be 
obtained from unaffiliated, independent third parties.

                            DESCRIPTION OF SECURITIES

Common Stock

     The authorized capital stock of the Company consists of 50,000,000 
shares of Common Stock, $.01 par value. There are presently 8,220,924 issued 
and outstanding shares of Common Stock. Holders of the Common Stock do not 
have preemptive rights to purchase additional shares of Common Stock or other 
subscription rights. The Common Stock carries no conversion rights and is not 
subject to redemption or to any sinking fund provisions. All shares of Common 
Stock are entitled to share equally in dividends from sources legally 
available therefor when, as and if declared by the Board of Directors and, 
upon liquidation or dissolution of the Company, whether voluntary or 
involuntary, to share equally in the assets of the Company available for 
distribution to stockholders. All outstanding shares of Common Stock are 
validly authorized and issued, fully paid and nonassessable, and all shares 
to be sold and issued as contemplated hereby, will be validly authorized and 
issued, fully paid and nonassessable. The Board of Directors is authorized to 
issue additional shares of Common Stock, not to exceed the amount authorized 
by the Company's Certificate of Incorporation, and to issue options and 
warrants for the purchase of such shares, on such terms and conditions and 
for such consideration as the Board may deem appropriate without further 
stockholder action. The above description concerning the Common Stock of the 
Company does not purport to be complete. Reference is made to the Company's 
Certificate of Incorporation and By-laws which are available for inspection 
upon proper notice at the Company's offices, as well as to the applicable 
statutes of the State of Delaware for a more complete description concerning 
the rights and liabilities of stockholders.

     Each holder of Common Stock is entitled to one vote per share on all 
matters on which such stockholders are entitled to vote. Since the shares of 
Common Stock do not have cumulative voting rights, the holders of more than 
50 percent of the shares voting for the election of directors can elect all 
the directors if they choose to do so and, in such event, the holders of the 
remaining shares will not be able to elect any person to the Board of 
Directors.


                                      35
<PAGE>


Warrants

     Placement Agent's Warrant

     In connection with the Private Placement, the Company issued to the 
Placement Agent at a nominal purchase price the Placement Agent's Warrant for 
the purchase of 75,000 shares of Common Stock constituting the Placement 
Agent's Stock. The Company has agreed to indemnify the Placement Agent and 
certain other persons with respect to certain liabilities, including 
liabilities under the Securities Act. The Placement Agent's Warrant is 
exercisable for a five-year period ending on April 16, 2003 on a net basis at 
an exercise price equal to $9.00.

     Underwriter's Warrants

     In connection with the Initial Public Offering, the Company issued 
to the Underwriter at a nominal purchase price Common Stock Representative 
Warrants to purchase up to 150,000 shares of Common Stock constituting 
Underwriter's Stock and Warrant Representative Warrants to purchase 150,000 
Underlying Warrants to purchase 150,000 Shares of Common Stock also 
constituting Underwriter's Stock. The Common Stock Representative Warrants 
are exercisable for a five-year period ending on April 7, 2002 at an exercise 
price of $8.25 per share. The Warrant Representative Warrants are exercisable 
for a five-year period ending on April 7, 2002 at an exercise price of is 
$0.20625 per Underlying Warrant. Each Underlying Warrant is exercisable for a 
five (5) year period ending on April 7, 2002 to purchase one Share of Common 
Stock at an exercise price of $8.25 per share of Common Stock.

     Transfer Agent and Registrar

     The transfer agent and registrar for the securities of the Company is 
American Stock Transfer & Trust Company located at 40 Wall Street, New York, 
New York 10005.

     Reports to Securityholders

     The Company will furnish to holders of its securities annual reports 
containing audited financial statements. The Company may issue other 
unaudited interim reports to its securityholders as it deems appropriate.


                                      36
<PAGE>


                              PLAN OF DISTRIBUTION

     The Offered Stock may be sold from time to time by the Selling Holders 
or by pledgees, donees, transferees or other successors-in interest. The 
Offered Stock may be sold in transactions on the Nasdaq SmallCap Market, in 
privately negotiated transactions, through the writing of options on the 
shares, or a combination of such methods of sale, at fixed prices that may be 
changed, at market prices prevailing at the time of the sale, at prices 
related to such prevailing market prices or at negotiated prices. The Selling 
Holders may effect such transactions by the sale of the Offered Stock to or 
through broker-dealers, and such broker-dealers may receive compensation in 
the form of discounts, concessions or commissions from the Selling Holders 
and/or the purchasers of the Offered Stock for whom such broker-dealers may 
act as agent or to whom they may sell as principal, or both. Usual and 
customary or specifically negotiated brokerage fees or commissions may be 
paid by the Selling Holders in connection with sales of the Offered Stock. No 
underwriting arrangements have been entered into by the Selling Holders.

     The Selling Holders and intermediaries through whom the Offered Stock is 
sold may be deemed "underwriters," within the meaning of the Act, with 
respect to the Offered Stock and any profits realized or commissions received 
may be deemed underwriting compensation.

     The Selling Shareholders may also pledge the Offered Stock to a 
broker-dealer and upon default under such pledge the broker-dealer may effect 
sales of the Offered Stock pledged pursuant to this Prospectus. In addition, 
the Offered Stock covered by this Prospectus may be sold in private 
transactions or under Rule 144, rather than pursuant to this Prospectus.

     In order to comply with the securities laws of certain states, if 
applicable, the Offered Stock will be sold in such jurisdictions, if 
required, only through registered or licensed brokers or dealers.

     The Company will not receive any of the proceeds from the sale of the 
Offered Stock by the Selling Holders. The Company has agreed to bear the 
expenses of registration of the Offered Stock under federal and state 
securities laws, other than commissions, fees and discounts of underwriters, 
brokers, dealers and agents, and to indemnify the Selling Holders against 
certain liabilities, including liabilities under the Act.

                                LEGAL PROCEEDINGS

     e-Net, Inc. is not a party to any legal proceedings and, to the best of 
its information, knowledge and belief, none is contemplated or has been 
threatened.

                                  LEGAL MATTERS

     The validity of the Offered Stock being offered hereby will be passed 
upon for the Company by Williams & Connolly, Washington D.C.

                                     EXPERTS

     The financial statements of e-Net, Inc. as of March 31, 1998 and 1997 
and for the years ended March 31, 1998 and 1997 have been included herein in 
reliance on the reports dated May 27, 1998 of Grant Thornton LLP, Independent 
Certified Public Accountants, and upon the authority of said firm as experts 
in accounting and auditing.


                                      37
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>


                                                                                                   Page
                                                                                                   ----
<S>                                                                                                <C>
Report of Independent Certified Public Accountants
   Dated as of May 27, 1998                                                                         F-2

Financial Statements
   Balance Sheets as of March 31, 1998 and 1997                                                     F-3 
   Statements of Operations for the years ended March 31, 1998 and 1997                             F-4
   Statements of Cash Flows for the years ended March 31, 1998 and 1997                             F-5 
   Statements of Stockholders' Equity as of March 31, 1998 and 1997                                 F-6 
   Notes to Financial Statements                                                                    F-7

Report of Independent Certified Public Accountants
   Dated as of August 7, 1998                                                                      F-15

Unaudited Financial Statements
   Balance Sheets as of June 30 and March 31, 1998                                                 F-16
   Statements of Operations for the three months ended June 30, 1998 and 1997                      F-17
   Statements of Cash Flows for the three months ended June 30, 1998 and 1997                      F-18
   Statements of Stockholders' Equity as of June 30, 1998                                          F-19
   Notes to Unaudited Financial Statements                                                         F-20

</TABLE>


                                      F-1
<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
e-Net, Inc.

     We have audited the accompanying balance sheets of e-Net, Inc. (a
Delaware Corporation), as of March 31, 1998 and 1997, and the related statements
of operations, cash flows and stockholders' equity 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 generally accepted auditing 
standards. 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, the consolidated financial statements referred to above 
present fairly, in all material respects, the financial position of e-Net, 
Inc., as of March 31, 1998 and 1997, and the results of its operations and 
its cash flows for the years then ended, in conformity with generally 
accepted accounting principles.

Grant Thornton LLP

Vienna, Virginia
May 27, 1998


                                      F-2
<PAGE>


                                   e-NET, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>

                                                       ASSETS
                                                                                    March 31, 1998   March 31, 1997
                                                                                    --------------   --------------
Current Assets
<S>                                                                                 <C>              <C>           
    Cash and cash equivalents                                                       $      855,743   $      379,441
    Short-term investments                                                                 960,248               --
    Accounts receivable                                                                    334,602          113,181
    Inventory                                                                              202,917               --
    Prepaid expenses                                                                       176,264           14,800
                                                                                   ---------------   --------------
Total Current Assets                                                                     2,529,774          507,422

Deposits                                                                                    14,821            7,530

Property, Plant and Equipment, Net                                                         372,403          203,125

Software Development Costs                                                                 805,188          520,853

Deferred Initial Public Offering  Costs                                                         --          964,706
                                                                                    ---------------   --------------
                                                                                    $    3,722,186   $    2,203,636
                                                                                   ---------------   --------------
                                                                                   ---------------   --------------

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
    Accounts payable--trade                                                         $      314,010   $      105,301
    Accrued liabilities                                                                    561,093          330,580
    Capital lease obligation                                                                    --            4,480
                                                                                    ---------------   --------------

Total Current Liabilities                                                                  875,103          440,361

Accrued Initial Public Offering Costs                                                           --          887,843
                                                                                    ---------------   --------------

Total Liabilities                                                                          875,103        1,328,204

Stockholders' Equity
    Common stock, $.01 par value, 50,000,000 shares
       authorized, 5,750,000 and 4,250,000 shares
       outstanding at March 31, 1998 and 1997, respectively                                 57,500           42,500
    Stock subscriptions and notes receivable                                                   (46)             (46)
    Additional paid-in capital                                                          14,163,090        8,307,627
    Retained deficit                                                                   (11,373,461)      (7,474,649)
                                                                                   ---------------   --------------
Total Stockholders' Equity                                                               2,847,083          875,432
                                                                                   ---------------   --------------
                                                                                    $    3,722,186   $    2,203,636
                                                                                   ---------------   --------------
                                                                                   ---------------   --------------

</TABLE>


        The accompanying notes are an integral part of these statements.


                                      F-3
<PAGE>


                                   e-NET, INC.
                            STATEMENTS OF OPERATIONS
                               For the Years ended

<TABLE>
<CAPTION>


                                                                  March 31, 1998   March 31, 1997
                                                                  --------------   --------------
<S>                                                               <C>           <C> 
Sales
    Products                                                      $   347,451   $    24,000
    Services                                                          375,388       525,037
                                                                      -------       -------
Total sales                                                           722,839       549,037

Cost of product sold and service provided
    Products                                                          155,109        12,822
    Services                                                          191,995       397,205
                                                                      -------       -------
Total cost of product sold and service provided                       347,104       410,027

Gross profit                                                          375,735       139,010
Operating Expenses
    Selling, general and administrative                             3,474,852     1,171,212
    Research and development                                          804,830       236,846
                                                                      -------       -------

Loss from Operations                                               (3,903,947)   (1,269,048)
Interest and Financing Charges
    Interest expense--bridge financing                                     --    (5,385,135)
    Cost of abandoned stock registration                                   --      (284,575)
    Interest expense                                                   (5,214)      (19,356)
    Other expenses                                                   (195,403)         (442)
    Interest income                                                   205,752        20,963
                                                                      -------        ------
Loss Before Income Taxes                                           (3,898,812)   (6,937,593)

Income Tax Provision                                                       --            --
                                                                      -------       -------

Net Loss                                                          $             $
                                                                  
                                                                   (3,898,812)   (6,937,593)
                                                                  -----------   -----------
                                                                  -----------   -----------

Loss per Share                                                    $      (.68)  $     (1.72)
                                                                  -----------   -----------
                                                                  -----------   -----------
Weighted Average Shares Outstanding                                 5,708,904     4,034,247

</TABLE>




         The accompanying notes are an integral part of these statements


                                      F-4
<PAGE>


                                   e-NET, INC.
                            STATEMENTS OF CASH FLOWS
                               For the Years ended
<TABLE>
<CAPTION>

                                                                                     March 31, 1998    March 31, 1997
                                                                                     --------------    --------------
<S>                                                                                 <C>              <C>  
Increase (Decrease) in Cash and
Cash Equivalents
Cash Flows from Operating Activities
    Net loss                                                                        $   (3,898,812)  $   (6,937,593)
    Adjustments to reconcile net loss to net cash from
     operating activities
       Interest expense--private placement                                                      --        5,385,135
       Depreciation and amortization                                                       346,387           34,402
       Loss on retirement of property and equipment                                          1,779               --
       Stock Based Compensation                                                             62,244               --
       Changes in operating assets and liabilities
         (Increase) in accounts receivable                                                (221,421)         (59,504)
         (Increase) in inventory                                                          (202,917)              --
         (Increase) in prepaid expenses and deposits                                      (168,755)         (22,330)
         Increase in accounts payable and accrued                                          439,222          432,849
         liabilities
         (Decrease) increase in deferred revenue                                                --          (20,000)
                                                                                    ---------------  --------------
Net Cash (Used in) Provided by Operating Activities                                     (3,642,273)      (1,187,041)
                                                                                    ---------------  --------------
Cash Flows from Investing Activities
    Capital expenditures                                                                  (336,528)        (125,502)
    Short term investments                                                                (960,248)              --
    Capitalized software development costs                                                (465,251)        (520,853)
                                                                                    ---------------  --------------

Net Cash Used in Investing Activities                                                   (1,762,027)        (646,355)
                                                                                    ---------------  --------------
Cash Flows from Financing Activities
    Proceeds from initial public offering                                                5,885,082               --
    Payment of shareholder/officer loans                                                        --          (12,050)
    Proceeds from issuance of bridge notes payable                                              --          500,000
    Proceeds from issuance of debt instrument converted to                                      --        1,250,000
    equity
    Payments on capital leases                                                              (4,480)          (6,210)
    Payment of public offering costs                                                            --          (76,863)
                                                                                    ---------------  --------------
Net Cash Provided by Financing Activities                                                5,880,602        1,654,877
                                                                                    ---------------  --------------

Net (Decrease) Increase in Cash and Cash Equivalents                                       476,302         (178,519)

Cash and Cash Equivalents at Beginning of Period                                           379,441          557,960
                                                                                    ---------------  --------------

Cash and Cash Equivalents at End of Period                                          $      855,743   $      379,441
                                                                                    ---------------  --------------
                                                                                    ---------------  --------------
Supplemental Disclosures:
    Income Taxes Paid                                                               $           --   $           --
                                                                                    ---------------  --------------
                                                                                    ---------------  --------------

    Interest Paid                                                                   $          326   $        6,284
                                                                                    ---------------  --------------
                                                                                    ---------------  --------------
Noncash investing and financing activities

</TABLE>

In the year ended March 31, 1997, the Company issued 250,000 shares of common 
stock upon conversion of a convertible debenture with a principal amount of 
$1,250,000, plus accrued interest of $25,081.

        The accompanying notes are an integral part of these statements.


                                      F-5
<PAGE>


                                   e-NET, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                        
                                     Common Stock       Stock
                                     -------------     Subscription   Unamortized     Additional                     Total
                                     No. of             and Notes    Cost of Bridge    Paid-in       Retained     Stockholders'
                                     Shares    Amount   Receivable     Financing       Capital       Deficit        Equity
                                     ------   -------  -----------    -------------   ----------    ---------    ---------------
<S>                                 <C>         <C>       <C>       <C>               <C>           <C>           <C>    
Balance, March 31, 1996           3,750,000   37,500    (125,100)     (2,885,135)     3,662,600       (537,056)     152,809
Bridge loan converted to
   capital                               --       --          --         500,000             --             --      500,000
Issuance of common stock
   associated with the
   financing costs from
   the issuance of bridge 
   units                            500,000    5,000          --      (3,000,000)     3,495,000             --      500,000
Cancellation of note
   receivables in exchange
   for common stock                (250,000)  (2,500)    125,000             --        (122,500)            --           --
Amortization of the costs
   of bridge financing                   --       --          --       5,385,135             --             --    5,385,135
Conversion of debt to               250,000    2,500          --              --      1,272,581             --    1,275,081
   equity
Reclassification adjustment              --       --          54              --            (54)            --           --
Net loss                                 --       --          --              --           --       (6,937,593)  (6,937,593)
                                  ---------   ------   ---------      ----------      ---------     ----------   ----------
Balance, March 31, 1997           4,250,000  $42,500    $     46      $       --     $8,307,627    $(7,474,649) $   875,432
                                  ---------   ------   ---------      ----------      ----------     ----------   ----------
Issuance of common stock
associated with the Initial
Public Offering                   1,500,000   15,000          --              --      5,793,219             --    5,808,219

Stock based Compensation                 --       --          --              --         62,244             --       62,244
Net loss                                 --       --          --              --             --     (3,898,812)  (3,898,812)
                                  ---------   ------   ---------      ----------     ----------      ----------   ----------
Balance, March 31, 1998           5,750,000 $ 57,500   $     (46)         $   --    $14,163,090   $(11,373,461)  $2,847,083 
                                  ---------   ------   ---------      ----------     ----------      ----------   ----------
                                  ---------   ------   ---------      ----------     ----------      ----------   ----------

</TABLE>





        The accompanying notes are an integral part of these statements.


                                      F-6
<PAGE>


                                   e-NET, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

     e-Net, Inc., was incorporated on January 9, 1995, and the Company 
commenced operations on June 8, 1995. e-Net, Inc., a Delaware corporation 
("e-Net" or the "Company"), develops, produces, markets and supports open 
telecommunications software and related hardware that enable, enhance, and 
manage telephone communications over the Internet, private Internet Protocol 
("IP") networks and "intranets," and other types of digital data networks 
(collectively, "Digital Data Networks" or "DDNs"). The Company's Telecom 
2000(TM) products ("Telecom 2000 Products") provide a user-friendly method of 
high fidelity telephone communications through DDNs. Through the use of 
Telecom 2000 Products, organizations can reduce their telephone expenses by 
extending their telephone services to remote offices and mobile employees, in 
some cases bypassing long distance service charges, while using their 
existing internal DDNs. The Company has two office locations: corporate 
headquarters in Germantown, Maryland and research and development in Austin, 
Texas. The significant accounting policies used in the preparation of the 
accompanying financial statements are as follows:

 Inventory

     Inventory is stated at the lower of cost or market value. Cost is 
determined by the first-in, first-out method. The elements of cost include 
subcontracted costs and materials handling charges.

Revenue Recognition

     Revenue is recognized on the sale of software products upon shipment 
unless future obligations exist wherein a portion of the revenue is deferred 
until the obligation is satisfied. Revenue from services rendered is 
recognized either as the services are rendered based upon fixed hourly rates 
or at contractually determined fixed monthly fees.

     For the year ended March 31, 1998, the Company derived 56% and 19% of 
its sales from two customers, respectively.

     For the year ended March 31, 1997, the Company derived 78% and 21% of 
its sales from two customers, respectively.

Accounts Receivable

     Accounts receivable are stated at the unpaid balances, less allowance on 
uncollectible accounts, if any. Management periodically reviews its 
outstanding accounts receivable to assess collectibility of balances based on 
past experience and evaluation of current adverse situations which may affect 
collectibility of receivables. At March 31, 1998 and 1997, management 
established an allowance for uncollectible accounts in the amount of $3,200. 

Use of Estimates in the Preparation of Financial Statements          

     Preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and 
assumptions that affect the reported amounts of assets and liabilities and 
disclosure 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.

Property and Equipment

     Property and equipment are carried at cost, net of an allowance for 
accumulated depreciation and amortization. Depreciation is computed on 
equipment and furniture, using a straight-line method over a three-year 
period.

Investments

     The Company's investments in debt securities, which typically mature in 
one year or less, are generally held to maturity and valued at amortized 
cost, which approximates fair value. The aggregate fair value at March 31, 
1998 and 1997 was $ 960,248 and $ -0-, respectively for investments in United 
States Treasury debt securities. Securities investments that the Company has 
the positive intent and ability to hold to maturity are classified as 
held-to-maturity securities and recorded at cash and cash equivalents when 
maturity is three months or less and as short-term investments when maturity 
is longer than three months and less than one year.


                                      F-7
<PAGE>


                                   e-NET, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings Per Share

     The Company adopted Statement of Financial Accounting Standards ("SFAS") 
No. 128 for the fiscal year ended March 31, 1998. SFAS No. 128 replaces the 
presentation of primary and fully diluted earnings per share with a 
presentation of basic earnings per share and diluted earnings per share, if 
dilutive shares are outstanding. Basic earnings per share excludes dilution 
and is computed by dividing income or loss available to common stockholders 
by the weighted-average number of common shares outstanding for the period. 
Diluted earnings per share reflects the potential dilution that could occur 
if securities or other contracts to issue common stock were converted into 
common stock, but such securities or contracts are excluded if their effects 
would be anti-dilutive. Pursuant to the requirements of Staff Accounting 
Bulletin ("SAB") No. 98 of the Securities and Exchange Commission, issued in 
February 1998, common equivalent shares which have an anti-dilutive effect on 
net loss per share are no longer included in computing net loss per share for 
the periods presented. All prior-period loss per share data has been restated 
in accordance with SFAS No. 128 and SAB No. 98.

     Basic loss per common share was calculated by dividing net loss by the 
weighted average number of common shares outstanding during the period. 
Diluted loss per share was calculated the same as basic loss per share since 
the Company has a net loss for all periods presented which would make the 
conversion of securities or other contracts to common stock anti-dilutive.

<TABLE>
<CAPTION>

                                                                           Year Ended
                                                                            March 31
                                                                      1998             1997
                                                                     -----            -----
           <S>                                                <C>              <C> 
           Net Loss                                             $  (3,898,812)   $   (6,937,593)
           Loss per common share - basic & diluted              $        (.68)   $        (1.72)
           Number of common shares - basic & diluted               5,708,904          4,034,247
</TABLE>


Software Development Costs

     In accordance with the Statement of Financial Accounting Standards No. 
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or 
Otherwise Marketed," the Company has capitalized certain software development 
costs incurred after establishing technological feasibility. Costs incurred 
prior to such feasibility and certain hardware-related, development costs 
have been expensed as incurred as research and development costs. Software 
costs are amortized based upon the greater of amortization computed using the 
estimated useful life of the software or units sold as a function to expected 
units to be sold when the product is available for general release to 
customers. At March 31, 1998, the Company has capitalized $986,104 in 
software development costs and has recorded accumulated amortization of 
$180,916.

     Critical to the recoverability of the capitalized software costs is the
generation of related sales sufficient to recover such costs. Should sufficient
sales fail to materialize, the carrying amount of capitalized software costs may
be reduced accordingly in the future. 

Cash and Cash Equivalents

     For purposes of the statement of cash flows, the Company considers all 
cash held in checking and investment accounts with maturity dates of three 
months or less to be cash equivalents. The carrying amount approximates fair 
value because of the short-term maturity of the instruments.

Accounting Pronouncements Issued and Related Disclosures

     In 1997 the Financial Accounting Standards Board issued statement of 
Financial Accounting Standards No. 131 - "Disclosures about Segments of an 
Enterprise and Related Information," which established standards for 
reporting information about operating segments. In 1997 the Financial 
Accounting Standards Board also issued statement of Financial Accounting 
Standards No. 130 -"Reporting Comprehensive Income," which established 
standards for reporting and displaying comprehensive income and its 
components. The Company is required to adopt these two standards with its 
March 31, 1999 financial statements. The Company will be analyzing both 
standards during 1998 to determine what disclosures will be required.


                                      F-8
<PAGE>


                                   e-NET, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE B--SIGNIFICANT TRANSACTIONS

Private Placement Transaction

     In April 1998, the Company offered for sale to accredited investors 
750,000 shares of the Company's restricted common stock, par value $.01 per 
share, at $7.50 per share. The share price was based upon the average of the 
last reported sales prices for the Common Stock for the five (5) business 
days immediately preceding the date upon which the Offering Price is 
determined, which was April 3, 1998. The transaction was completed in April 
1998, and resulted in proceeds, net of transaction costs, to the Company of 
approximately $5,100,000.

Warrant Redemption

      In May 1998, the Company authorized the redemption of its publicly 
traded Redeemable Common Stock Purchase Warrants (warrants). The Company 
issued 1,725,000 warrants in its initial public offering, effective April 7, 
1997. Under the terms governing these Warrants, the Company may, for $.05 per 
warrant, redeem the warrants that have not already been exercised and 
converted to a share of common stock at an exercise price of $5.25, if the 
Company's common stock closing bid price equals or exceeds $10.00 per share 
for a thirty consecutive trading day period. Such a period ended on May 14, 
1998. The redemption is scheduled for June 19, 1998 and the transaction, if 
all warrants are exercised and converted into common stock, is anticipated to 
result in proceeds, net of transaction costs, to the Company of approximately 
$8,900,000.

      Pro Forma data presented below reflects the condensed balance sheet at 
March 31, 1998, as if the private placement and warrant redemption 
transactions had closed on March 31, 1998:

<TABLE>
<CAPTION>

                                                                                      Pro forma        Pro forma
                                                                    Historical       Adjustment      Balance Sheet
                                                                   -----------       ----------     ---------------
<S>                                                              <C>               <C>              <C>                         
Assets
Assets
     Cash and cash equivalents                                   $    1,815,991    $   14,000,000   $   15,815,991
     Other assets                                                     1,906,195                 --       1,906,195
                                                                 --------------    --------------   ---------------

Total Assets                                                     $    3,722,186    $   14,000,000   $   17,722,186
                                                                 --------------    --------------   ---------------
                                                                 --------------    --------------   ---------------

Liabilities and Stockholders' Equity
Liabilities                                                      $      875,103                --   $      875,103
                                                                 --------------    --------------   ---------------
Total Liabilities                                                       875,103                --          875,103
                                                                 --------------    --------------   ---------------
Stockholders' Equity
     Common stock                                                        57,500            24,750           82,250
     Additional paid-in capital, stock subscriptions
        and notes receivable                                         14,163,044        13,975,250       28,138,294
     Retained deficit                                              (11,373,461)                --      (11,373,461)
                                                                 --------------    --------------   ---------------
Total Stockholders' Equity                                            2,847,083        14,000,000       16,847,083
                                                                 --------------    --------------   ---------------
Total Liabilities and Stockholders' Equity                       $    3,722,186    $   14,000,000   $   17,722,186
                                                                 --------------    --------------   ---------------
                                                                 --------------    --------------   ---------------
</TABLE>


     A pro forma statement of operations is not presented, as the historical 
statement of operations reflects the transactions for the entire period. Pro 
forma share information is presented below.

<TABLE>
<CAPTION>
<S>                                                                                        <C>            
           Pro forma loss per share                                                        $         (.48)
                                                                                           --------------
                                                                                           --------------
           Pro forma weighted average shares outstanding                                        8,183,904
                                                                                           --------------
                                                                                           --------------
</TABLE>


                                      F-9
<PAGE>


                                  e-NET, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE C--COMPOSITION OF CERTAIN BALANCE SHEET CAPTIONS

Property and Equipment

         Property and equipment consist of the following at March 31:
<TABLE>
<CAPTION>

                                                                                          1998             1997
                                                                                         ------           -----
<S>                                                                                 <C>            <C>           
     Furniture and office equipment                                                 $    568,719   $      258,590
     Leasehold improvements                                                               23,438            2,602
                                                                                    ------------   --------------
                                                                                         592,157          261,192
     Less accumulated depreciation                                                      (219,754)         (58,067)
                                                                                    ------------   --------------
     Property and equipment--net                                                     $   372,403   $      203,125
                                                                                    ------------   --------------
                                                                                    ------------   --------------
</TABLE>

Accrued Liabilities

         Accrued liabilities consist of the following at March 31:
<TABLE>
<CAPTION>

                                                                                          1998             1997
                                                                                         -----            -----
<S>                                                                                 <C>               <C>           
     Accrued salaries                                                               $  119,151       $   43,042
     Accrued vacation                                                                   91,961           32,819
     Accrued profit-sharing plan                                                        80,000           32,216
     Accrued bonuses                                                                   233,100          202,250
     Accrued deferred rent                                                              24,582           16,773
     Accrued taxes and payroll liabilities                                               1,139            3,480
     Other accrued costs                                                                11,160               --
                                                                                    ------------   -------------
                                                                                    $  561,093          330,580
                                                                                    ------------   -------------
                                                                                    ------------   -------------
</TABLE>


                                     F-10
<PAGE>


                                   e-NET, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE D--INCOME TAXES

     For the periods ended March 31, 1997 and 1998, no benefit from income 
taxes associated with net operating losses has been reflected due to 
uncertainty as to the realizability of tax benefits associated with net 
operating losses to date. Financing expense associated with the issuance of 
bridge units is non-deductible and is being treated as a capital transaction 
for income tax reporting purposes.

       The income tax provision consists of the following for the period 
ended March 31, 1998:

<TABLE>
<CAPTION>

<S>                                                                                         <C> 
           Deferred
                Federal                                                                     $    1,211,257
                State                                                                              227,395
           Valuation allowance                                                                  (1,438,652)
                                                                                           ---------------
           Net provision                                                                    $           --
                                                                                           ---------------
                                                                                           ---------------
                                                      
</TABLE>

     The effective tax rate for the period ended March 31, 1998, was 0%. A 
reconciliation between the U.S. federal statutory rate and the effective tax 
rate follows:

<TABLE>
<CAPTION>

<S>                                                                                         <C>            
           Tax (benefit) at U.S. federal statutory rates                                    $   (1,325,596)
           Increase (decrease) resulting from:
                State tax (benefit)                                                               (154,393)
                Permanent differences                                                               41,337
                Valuation allowance                                                              1,438,652
                                                                                           ---------------
           Income tax provision                                                             $            --
                                                                                           ---------------
                                                                                           ---------------
</TABLE>


     The Company's reporting period for tax purposes is the calendar year. 
Taxes on the net loss for the period January through March is reflected in 
the calculation of the deferred tax asset. A valuation allowance has been 
recognized in an amount equal to the deferred tax asset.

     The tax effect of temporary differences between the financial statement 
amounts and tax bases of assets and liabilities which give rise to a deferred 
tax asset is as follows at March 31, 1998:

<TABLE>
<CAPTION>

<S>                                                                                         <C>           
           Net loss for January 1 through March 31, 1998                                    $      599,035
           Capitalized software                                                                   (339,766)
           Other assets                                                                                467
           Accrued expenses                                                                         47,819
           Accrued warranty and patent expenses                                                      1,485
           Depreciation expense                                                                     (7,193)
           Net operating loss                                                                    1,692,895
           Valuation allowance                                                                  (1,994,742)
                                                                                           ---------------
           Deferred taxes payable                                                           $           --
                                                                                           ---------------
                                                                                           ---------------
</TABLE>

     The use of net operating losses of the Company in the future to offset 
taxable income may be limited in the event of a change in control of the 
Company in accordance with Section 382 of the Internal Revenue Code.


                                     F-11
<PAGE>


                                   e-NET, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE E--COMMITMENTS AND CONTINGENT LIABILITIES

Lease Commitment

     The Company has three leases for office space that provide for aggregate 
monthly rent payments of approximately $15,000. At March 31, 1998, 
approximate future rental commitments are as follows: <TABLE><CAPTION>

     Year ending March 31,
           <S>                                                                              <C>            
           1999                                                                             $    267,631
           2000                                                                                  265,045
           2001                                                                                  266,378
           Thereafter                                                                            227,006
                                                                                           -------------
                                                                                            $  1,026,060
</TABLE>

     Rent expense for the years ended March 31, 1998, and March 31, 1997, 
totaled $201,000 and $79,000 respectively.

Employment Agreement

     The Company has an employment agreement with an officer with minimum 
future annual salary commitments of the Company under the agreements as 
follows:

<TABLE>
<CAPTION>

      Year ending March 31,                                                Salary          Bonus          Total
      ---------------------                                                ------          -----          -----
           <S>                                                          <C>            <C>             <C>         
           1999                                                         $    175,000   $   87,500    $  262,500
           2000                                                              175,000       87,500       262,500
           2001                                                              175,000       87,500       262,500
                                                                        ------------   ----------    ----------
                                                                        $    525,000   $  262,500    $   787,500
                                                                        ------------   ----------    -----------
                                                                        ------------   ----------    -----------
</TABLE>

     The agreement also provides for bonuses upon certain performance 
criteria of the Company and the determination of the Board of Directors. 
Pursuant to the agreement, employment may be terminated by the Company with 
cause or by the executive with or without good reason. Termination by the 
Company without cause, or by the executive for good reason, would subject the 
Company to liability for an amount equal to six months of the terminated 
executive's salary at the date of termination plus comparable insurance 
benefits being received prior to termination.


                                     F-12
<PAGE>


                                   e-NET, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE F--RELATED PARTY TRANSACTIONS

     The Company paid legal fees of approximately $380,000 during the year 
ended March 31, 1997, to an attorney who is a stockholder of the Company 
relating to the initial public offering that became effective in April 1997. 
The Company also paid $100,000 during the year ended March 31, 1997, to the 
same attorney and stockholder for services relating to the offering that was 
abandoned in September 1996.

      The Company rents an aircraft for business purposes from an entity 
owned by the Company's president. For the years ended March 31, 1998 and 
1997, the Company paid $63,000 and $28,000, respectively for the rental of 
the aircraft.

      The Company entered into a consulting agreement with the chairman of 
the board to provide services for a fixed monthly amount of $1,000. For the 
years ended March 31, 1998 and 1997, the Company paid $ 12,000 and $ -0-, 
respectively under the consulting agreement. 

NOTE G--DEFINED CONTRIBUTION PLAN

      Company established a Profit Sharing Plan and Trust (the Plan) in 
December 1995. Employees who were employed by the Company on the effective 
date of the Plan (January 14, 1995) were automatically eligible for 
participation. Employees hired after the effective date become eligible to 
participate if they are at least 21 years of age and have completed one year 
of service with the Company. Contributions are made at the discretion of 
management. Contributions to the Plan for the years ended March 31, 1998 and 
1997, were approximately $80,000 and $32,000, respectively. In January 1997, 
the Plan was converted into a retirement plan qualified under section 401(k) 
of the Internal Revenue Code (the 401(k) Plan). The 401(k) Plan allows the 
Company to determine the matching amount on an annual basis. The initial 
matching amount was established at 50% of employee deferrals up to 5% of 
eligible wages. Contributions to the 401(k) Plan for the year ended March 31, 
1998, were approximately $14,000. 

NOTE H--STOCK OPTION PLANS

     At March 31, 1998, the Company has two stock-based compensation plans 
which are described below. As permitted under generally accepted accounting 
principles, grants under those plans are accounted for following APB Opinion 
No. 25 and related interpretations. Accordingly, only the compensation cost 
associated with grants to non-employees or non-directors of the Company have 
been recognized in the amount of $62,244. The fair value for options issued 
in 1998 has been estimated at $2,400,000 as of the grant date using the Black 
Scholes model with the following weighted average assumptions: risk free 
interest rate of 5.31%; volatility factor of the expected market price of 
92.4%; and a weighted average expected life of the option of 3 years. Because 
option valuation models require the input of highly subjective assumptions 
and because changes in the assumptions can materially affect the fair value 
estimate, the existing model may not necessarily provide a reliable measure 
of the fair value of its stock options. Had compensation cost for the two 
stock-based compensation plans been determined based on the grant date fair 
values of the awards (the method prescribed in SFAS No. 123), reported net 
loss and loss per common share would have been reduced to the pro forma 
amounts shown below.

<TABLE>
<CAPTION>

                                                                                     Year Ended
                                                                                      March 31
                                                                                1998              1997
                                                                               -----             -----
<S>                                                                       <C>              <C>            
          Net Loss                                                        $  (3,898,812)   $   (6,937,593)
               As reported                                                   (4,978,812)
               Pro forma                                                     (6,937,593)
          Loss per common share - basic & diluted
               As reported                                                $        (.68)   $       (1.72)
               Pro forma                                                           (.87)           (1.72)

</TABLE>


                                     F-13
<PAGE>


                                   e-NET, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE H--STOCK OPTION PLANS (Continued)

Stock option plans:

     In April, 1997, the Board of Directors approved the adoption of the 
e-Net, Inc. 1997 Non-Qualified Stock Option Plan, including the allocation of 
up to 500,000 shares for option grants. The options are exercisable at fair 
market value measured at the grant date with varying vesting schedules. 
Options granted and vested under the plan to non-employees or directors in 
the twelve months ended March 31, 1998 were recorded as compensation expense 
of $62,244. Since the plan's inception, the Company has granted 272,000 
options, of which 177,120 are exercisable at March 31, 1998. Generally, stock 
options are granted at fair market value as determined by a moving average of 
trading activity prior to the grant date.

     During 1998, the Company committed to issue 502,179 non-qualified stock 
options under terms and conditions substantially the same as the 1997 Plan 
described above, contingent on the adoption of a new plan. The committed 
non-qualified stock options intended for the 1998 Plan are included in the 
tables below as if the plan was adopted and the options had been granted as 
of March 31, 1998.

<TABLE>
<CAPTION>

                                                   Stock Options
                                                                                                           Weighted
                                                                                                            Average
                                                                                         Outstanding    Exercise Price
                                                                                        ------------   -----------------

<S>                                                                                         <C>         <C>        
Balance at March 31, 1997 
     Granted                                                                                770,953     $      4.49
     Exercised                                                                                   --              --
     Canceled                                                                                (3,000)          4.14
                                                                                         ----------      -----------
Balance at March 31, 1998                                                                   767,953     $      4.49
                                                                                         ----------     -----------
                                                                                         ----------     -----------
</TABLE>

                                                 Number of Options
<TABLE>
<CAPTION>

                                                                                                 Year Ended
                                                                                                 March 31,
                                                                                             1998          1997
                                                                                            -----         -----
<S>                                                                                         <C>             <C>   
Exercisable, end of year                                                                    177,120          --
Weighted-average fair value per option of Options
     granted during the year                                                             $     3.14          --

</TABLE>

<TABLE>
<CAPTION>

                                                                       Options Outstanding     Options Exercisable
                                                                       Weighted
                                                                       Average     Weighted               Weighted
                                                                      Remaining    Average                Average
                       Range of                           Number     Contractual   Exercise   Number      Exercise
                   Exercise Prices                      Outstanding      Life        Price    Exercisable   Price
                   ---------------                      -----------      ----        -----    -----------   -----
<S>                                                       <C>            <C>      <C>          <C>        <C>    
$ 3.82 to $ 4.58                                           622,076        7.5      $  4.14      150,410    $  4.14
$ 4.59 to $ 5.34                                            10,877        7.7         4.88       10,877       4.88
$ 5.35 to $ 6.11                                            77,000        7.8         5.64        2,000       5.75
$ 6.12 to $ 6.87                                            38,000        7.9         6.40          500       6.64
$ 6.88 to $ 7.63                                            20,000        7.6         7.37       13,333       7.24
                                                           -------                              ------- 
     Totals                                                767,953        7.5      $  4.49      177,120   $   4.44
                                                           -------                              ------- 
                                                           -------                              ------- 

</TABLE>

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

      None.


                                     F-14
<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
e-Net, Inc.

     We have reviewed the accompanying balance sheet of e-Net, Inc. (a 
Delaware Corporation) as of June 30, 1998, and the related statements of 
operations, stockholders' equity and cash flows for the three-month period 
then ended. These financial statements are the responsibility of the 
Company's management.

     We conducted our review in accordance with standards established by the 
American Institute of Certified Public Accountants. A review of interim 
financial information consists principally of applying analytical procedures 
to financial data and making inquiries of persons responsible for financial 
and accounting matters. It is substantially less in scope than an audit 
conducted in accordance with generally accepted auditing standards, the 
objective of which is the expression of an opinion regarding the financial 
statements taken as a whole. Accordingly, we do not express such an opinion.

     Based on our review, we are not aware of any material modifications that 
should be made to the accompanying financial statements for them to be in 
conformity with generally accepted accounting principles.

     We have previously audited, in accordance with generally accepted 
auditing standards, the balance sheet as of March 31, 1998, and the related 
statements of operations, stockholders' equity and cash flows for the year 
then ended (not presented herein), and in our report dated May 27, 1998, we 
expressed an unqualified opinion on those financial statements. In our 
opinion, the information set forth in the accompanying condensed balance 
sheet as of March 31, 1998, is fairly stated, in all material respects, in 
relation to the balance sheet from which it has been derived.

Grant Thornton LLP

Vienna, Virginia
August 7, 1998


                                     F-15
<PAGE>


                                   e-NET, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>

                                                       ASSETS
                                                                                     June 30, 1998   March 31, 1998
                                                                                    --------------  ----------------
                                                                                      (Unaudited)       (Audited)
<S>                                                                                 <C>              <C>           
Current Assets
    Cash and cash equivalents                                                       $    9,726,123   $      855,743
    Short-term investments                                                               3,878,085          960,248
    Accounts receivable                                                                    649,965          334,602
    Inventory                                                                              277,209          202,917
    Prepaid expenses                                                                       192,518          176,264
                                                                                    --------------   --------------
Total Current Assets                                                                    14,723,900        2,529,774

Deposits and Other Assets                                                                   14,821           14,821

Property, and Equipment, Net                                                               468,111          372,403

Software Development Costs, Net                                                            780,698          805,188
                                                                                    --------------   --------------
                                                                                    $   15,987,530   $    3,722,186
                                                                                    --------------   --------------
                                                                                    --------------   --------------



                                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
    Accounts payable--trade                                                          $     417,496   $     314,010
    Accrued liabilities                                                                    475,799          561,093
                                                                                    --------------   --------------
Total Current Liabilities                                                                  893,295          875,103
Long Term Debt                                                                                   --              --
                                                                                    --------------   --------------

Total Liabilities                                                                          893,295          875,103

Stockholders' Equity
    Common stock, $.01 par value, 50,000,000 shares
       authorized, 8,220,924 and 5,750,000 shares outstanding
       at June 30 and March 31, 1998, respectively                                          82,209           57,500
    Stock subscriptions and notes receivable                                                   (23)             (46)
    Additional paid-in capital                                                          28,264,688       14,163,090
    Retained deficit
                                                                                       (13,252,639)     (11,373,461)
                                                                                    --------------   --------------
Total Stockholders' Equity                                                              15,094,235        2,847,083
                                                                                    --------------   --------------
                                                                                    $   15,987,530   $    3,722,186
                                                                                    --------------   --------------
                                                                                    --------------   --------------


</TABLE>


        The accompanying notes are an integral part of these statements.


                                     F-16
<PAGE>


                                   e-NET, INC.
                            STATEMENTS OF OPERATIONS
                                   (Unaudited)
                           Three Months ended June 30,
<TABLE>
<CAPTION>

                                                                                           1998             1997
                                                                                           ----             -----
<S>                                                                                 <C>              <C>           
Sales
    Products                                                                        $      303,895   $        1,170
    Services                                                                               129,375           86,834
                                                                                    --------------   --------------
Total sales                                                                                433,270           88,004

Cost of product sold and service provided
    Products                                                                               190,323              630
    Services                                                                                43,248           37,943
                                                                                    --------------   --------------
Total cost of product sold and service provided                                            233,571           38,573

Gross profit                                                                               199,699           49,431
Operating Expenses
    Selling, general and administrative                                                  1,532,884          638,549
    Research and development                                                               554,737           22,992
                                                                                    --------------   --------------
Loss from Operations                                                                    (1,887,922)        (612,110)
Interest and Financing Charges
    Interest and financing expense                                                              --          (10,103)
    Other expenses                                                                         (68,789)         (32,213)
    Interest income                                                                         77,533           67,109
                                                                                    --------------   --------------
Loss Before Income Taxes                                                                (1,879,178)        (587,317)
                                                                                    --------------   --------------
Income Tax Provision                                                                             --              --
Net Loss                                                                            $                $     (587,317)
                                                                                    --------------   --------------
                                                                                        (1,879,178)

Loss per Share                                                                      $         (.28)  $         (.11)
                                                                                    --------------   --------------
                                                                                    --------------   --------------
Weighted Average Shares Outstanding                                                      6,795,362        5,585,165

</TABLE>



        The accompanying notes are an integral part of these statements.


                                     F-17
<PAGE>


                                   e-NET, INC.
                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                           Three Months Ended June 30,
<TABLE>
<CAPTION>

                                                                                           1998             1997
                                                                                          ------           ------
<S>                                                                                 <C>              <C>            
Increase (Decrease) in Cash and
Cash Equivalents
Cash Flows from Operating Activities
    Net loss                                                                        $   (1,879,178)  $     (587,317)
    Adjustments to reconcile net loss to net cash from
     operating activities
       Depreciation and amortization                                                       109,556           10,000
       Stock-based compensation                                                             13,388               --
       Changes in operating assets and liabilities
         (Increase) in accounts receivable                                                (315,362)         (24,735)
         (Increase) in inventory                                                           (74,292)         (71,317)
         (Increase) in prepaid expenses, deposits and other                                (16,255)        (166,510)
         assets
         Increase (Decrease) in accounts payable and
           accrued liabilities                                                              18,192           73,823
                                                                                    --------------   --------------

Net Cash Used in Operating Activities                                                   (2,143,951)        (913,702)
                                                                                    --------------   --------------
Cash Flows from Investing Activities
    Capital expenditures                                                                  (150,774)         (64,161)
    Capitalized software development costs                                                 (30,000)        (130,745)
    Investments in short term securities                                                (2,917,837)      (2,802,973)
                                                                                    --------------   --------------

Net Cash Used in Investing Activities                                                   (3,098,611)      (2,997,879)
                                                                                    --------------   --------------
Cash Flows from Financing Activities
    Net proceeds from private placement of common stock and exercise of common
      stock warrants in 1998 and initial
      public offering of common stock in 1997                                           14,088,210        5,870,082
    Issuance of common stock                                                                24,709           15,000
    Payments of common stock subscriptions receivable                                           23                --
    Payments on capital leases                                                                   --           (2,286)

Net Cash Provided by Financing Activities                                               14,112,942        5,882,796
                                                                                    --------------   --------------

Net Increase in Cash and Cash Equivalents                                                8,870,380         1,971,215

Cash and Cash Equivalents at Beginning of Period                                           855,743          379,441
                                                                                    --------------   --------------

Cash and Cash Equivalents at End of Period                                          $    9,726,123   $    2,350,656
                                                                                    --------------   --------------
                                                                                    --------------   --------------
Supplemental Disclosures:
    Income Taxes Paid                                                               $           --   $           --
                                                                                    --------------   --------------
                                                                                    --------------   --------------

    Interest Paid                                                                   $           --   $          103
                                                                                    --------------   --------------
                                                                                    --------------   --------------

</TABLE>



        The accompanying notes are an integral part of these statements.


                                     F-18
<PAGE>


                                   e-NET, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                
                                           Common Stock         Stock
                                        ------------------    Subscriptions   Additional                       Total
                                        No. of                 and Notes       Paid-in       Retained     Stockholders'
                                        Shares       Amount    Receivable      Capital        Deficit         Equity
                                       -------      -------   -------------   -----------   ----------   ----------------
                                        
<S>                                     <C>         <C>         <C>         <C>             <C>               <C>         
Balance, April 1, 1998                  5,750,000   $ 57,500    $      (46) $ 14,163,090    $ (11,373,461)    $  2,847,083

Sale of common stock in
   private placement                      750,000     7,500           --     5,114,188             --            5,121,688

Exercise of common stock 
   warrants                              1,720,924   17,209           --     8,974,022             --            8,991,231

Stock-based compensation                       --        --           --        13,388             --               13,388

Payment of stock                               --        --           23            --             --                   23
   subscriptions

Net loss                                       --        --           --            --         (1,879,178)      (1,879,178)
                                        ---------  --------    ---------   ------------   --------------- ----------------

Balance, June 30, 1998                  8,220,924  $  82,209   $     (23) $ 28,264,688      $ (13,252,639)    $ 15,094,235
                                        ---------  --------    ---------   ------------   --------------- ----------------
                                        ---------  --------    ---------   ------------   --------------- ----------------

</TABLE>



        The accompanying notes are an integral part of these statements.


                                     F-19

<PAGE>


                                   e-NET, INC.
                    NOTES TO UNADUDITED FINANCIAL STATEMENTS

NOTE A--BASIS OF PRESENTATION

     The accompanying unaudited financial statements include the accounts of 
e-Net, Inc. (the "Company"). Such statements have been prepared in accordance 
with generally accepted accounting principles for interim financial 
information and pursuant to the regulations of the Securities and Exchange 
Commission; accordingly, they do not include all of the information and notes 
required by generally accepted accounting principles for complete financial 
statements. In the opinion of management, all adjustments considered 
necessary for a fair presentation (consisting of normal recurring accruals) 
have been included. The results of operations for the quarter ended June 30, 
1998 are not necessarily indicative of the results for the fiscal year ending 
March 31, 1999. The accompanying unaudited financial statements should be 
read in conjunction with the financial statements and notes thereto included 
in the Company's Annual Report on Form 10-KSB for the fiscal year ended March 
31, 1998.

NOTE B--SIGNIFICANT TRANSACTIONS

Private Placement Transaction

     In April 1998, the Company offered for sale to accredited investors 
750,000 shares of the Company's restricted common stock, par value $.01 per 
share, at $7.50 per share. The share price was based upon the average of the 
last reported sales prices for the Common Stock for the five (5) business 
days immediately preceding the date upon which the Offering Price is 
determined, which was April 3, 1998. The transaction was completed in April 
1998, and resulted in proceeds, net of transaction costs, to the Company of 
approximately $5,100,000.

Warrant Redemption

     In May 1998, the Company authorized the redemption of its publicly 
traded Redeemable Common Stock Purchase Warrants (Warrants). The Company had 
issued 1,725,000 warrants in its initial public offering, effective April 7, 
1997. Under the terms governing these Warrants, the Company was entitled to 
redeem, for $.05 per Warrant, the Warrants that had not already been 
exercised and converted to a share of common stock at an exercise price of 
$5.25, if the Company's common stock closing bid price equaled or exceeded 
$10.00 per share for a thirty consecutive trading day period. Such a period 
ended on May 14, 1998. The redemption occurred in June 19, 1998 and the 
exercise of Warrants prior to this date resulted in proceeds, net of 
transaction costs, to the Company of approximately $9,000,000.

NOTE C--INVENTORY

     Inventory is stated at the lower of cost or market value. Cost is 
determined by the first-in, first-out method. The elements of cost include 
subcontracted costs and materials handling charges.

NOTE D--SOFTWARE DEVELOPMENT COSTS

     The Company has capitalized certain software development costs incurred 
after establishing technological feasibility. Software costs will be 
amortized over the estimated useful life of the software once the product is 
available for general release to customers. The useful life of capitalized 
software development costs is estimated to be three years. At June 30, 1998, 
the Company has capitalized $780,698, net of accumulated amortization. Should 
sufficient product sales fail to materialize, the carrying amount of 
capitalized software costs may be reduced accordingly in the future. 
Amortization expense for the three-month period ended June 30, 1998 and 1997 
were $54,490 and $-0-, respectively.

NOTE E--LINE OF CREDIT FACILITY

     On May 31, 1998, the Company signed a one (1) year promissory note for a 
$1,000,000 line of credit facility which is secured by investments, 
receivables and fixed assets of the Company.


                                     F-20
<PAGE>

                                   e-NET, INC.
              NOTES TO UNADUDITED FINANCIAL STATEMENTS (Continued)

NOTE F--NON-QUALIFIED STOCK OPTION PLAN

     At June 30, 1998, the Company had two stock-based compensation plans. As 
permitted under generally accepted accounting principles, grants under those 
plans are accounted for following APB Opinion No. 25 and related 
interpretations. Accordingly, only the compensation cost associated with 
grants to non-employees or non-directors of the Company have been recognized 
in the amount of $13,388. All options granted to employees are 
non-compensatory.

NOTE G--INCOME TAXES

     The Company has generated net operating losses since its inception. At 
June 30, 1998, the Company recorded a valuation allowance in an amount equal 
to the deferred tax asset due to the uncertainty of generating future taxable 
income.

NOTE H--CONCENTRATION

     Approximately 73% of the Company's accounts receivable balance at June 
30, 1998 were from four customers, and approximately 73% of the Company's 
sales for the quarter ended June 30, 1998, were from four customers.


                                     F-21
<PAGE>




                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                
                                                      Page
                                                      ----
                                                                                
<S>                                                    <C>
          Prospectus Summary..........................  1
          Risk Factors................................  5
          Use of Proceeds............................. 10
          Dilution.................................... 10
          Market Prices for Common Stock.............. 11
          Capitalization.............................. 11
          Dividend Policy............................. 11
          Management's Discussion  and Analysis                     
            or Plan of Operation...................... 12
          Business.................................... 17
          Management.................................. 26
          Principal Stockholders...................... 30
          Selling Holders............................. 31
          Certain Transactions........................ 34
          Description of Securities................... 35
          Plan of Distribution........................ 37
          Legal Proceedings........................... 37
          Legal Matters............................... 37
          Experts..................................... 37           
          Index to Financial Statements...............F-1
          Report of Independent Certified Public
             Accountants..............................F-2

</TABLE>




          Until __________ ___, 1998 (40 days after the effective date of this
          Prospectus), all broker-dealers effecting transactions in the
          registered securities, whether or not participating in this
          distribution, may be required to deliver a Prospectus. This is in
          addition to the obligation of dealers to deliver a Prospectus with
          respect to their unsold allotments or subscriptions.


                                   e-Net, Inc.
                                     
                                1,125,000 Shares
                                 of Common Stock
                                     
                                     
                                     
                                     
                                     
                                     
                                   ----------
                                   PROSPECTUS
                                   ----------
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                     
                                 August 25, 1998
                                     
                                     
                                     

<PAGE>




                                    PART TWO

                     INFORMATION NOT REQUIRED IN PROSPECTUS

Limitation on Liability of Directors

     As permitted by Delaware law, the Company's Certificate of Incorporation 
includes a provision that provides that the Company will, to the fullest 
extent permitted by Section 145 of the Delaware General Corporation Law, as 
amended from time to time ("DGCL"), indemnify all persons whom it may 
indemnify pursuant thereto. To the fullest extent permitted by the DGCL, a 
director of the Company shall not be personally liable to the Company or its 
stockholders for monetary damages for a breach of fiduciary duty as a 
director. The provisions are intended to afford directors protection against, 
and to limit their potential liability for, monetary damages resulting from 
suits alleging a breach of the duty of care by a director; they also diminish 
the potential rights of action which might otherwise be available to 
shareholders by limiting the liability of officers and directors to the 
maximum extent allowable under Delaware law and by affording indemnification 
against most damages and settlement amounts paid by a director of the Company 
in connection with any shareholders derivative action. As a consequence of 
these provisions, stockholders of the Company will be unable to recover 
monetary damages against directors for action taken by them that may 
constitute negligence or gross negligence in performance of their duties 
unless such conduct falls within an exception under DGCL or under Delaware 
case law. The provision, however, does not alter the applicable standards 
governing a director's fiduciary duty and does not eliminate or limit the 
right of the Company or any stockholder to obtain an injunction or any other 
type of equitable relief in the event of a breach of fiduciary duty. 
Management of the Company believes these provisions will assist the Company 
in securing and retaining qualified persons to serve as directors. The 
Company is unaware of any pending or threatened litigation against the 
Company or its directors that would result in any liability for which such 
director would seek indemnification or similar protection.

     The Company believes that the substantial increase in the number of 
lawsuits being threatened or filed against corporations and their directors 
has resulted in a growing reluctance on the part of capable persons to serve 
as members of boards of directors of public companies. The Company also 
believes that the increased risk of personal liability without adequate 
insurance or other indemnity protection for its directors could result in 
overcautious and less effective direction and management of the Company. The 
limitation on liability and indemnification provisions are intended to 
increase the protection provided directors and, thus, increase the Company's 
ability to attract and retain qualified persons to serve as directors. 
Additionally, the Company has procured directors liability insurance 
coverage, but there is no assurance that it will provide coverage to the 
extent of the director's claims for indemnification. In such event, the 
Company may be forced to bear a portion or all of the cost of the director's 
claims for indemnification and, the value of the Company stock may be 
adversely affected as a result. There is also no assurance that the Company 
will be able to continue to procure directors liability insurance. It is 
uncertain whether the Company's directors would continue to serve in such 
capacities if improved protection from liability were not provided.

     Insofar as indemnification for liabilities arising under the Act may be 
permitted to directors, officers and controlling persons of the small 
business issuer pursuant to the foregoing provisions, or otherwise, the small 
business issuer has been advised that in the opinion of the Commission such 
indemnification is against public policy as expressed in the Act and is, 
therefore, unenforceable.

Item 25.  Other Expenses of Issuance and Distribution.

     The following is an itemization of expenses payable by the Company from 
the net proceeds of the Offering, incurred by the Company in connection with 
the issuance and distribution of the Offered Stock. All expenses are 
estimated.

<TABLE>
<CAPTION>

<S>                                                                                                <C>   
       SEC Registration and Filing Fee.......................................................      $7,031
       Nasdaq Registration and Filing Fee....................................................         -0-
       Financial Printing....................................................................       5,000
       Transfer Agent Fees...................................................................         -0-
       Accounting Fees and Expenses..........................................................      10,000
</TABLE>


                                     II-1
<PAGE>

<TABLE>
<CAPTION>

<S>                                                                                               <C>    
       Legal Fees and Expenses...............................................................     100,000
       Blue Sky Fees and Expenses............................................................         -0-
       Miscellaneous.........................................................................       8,969
                                                                                                ---------
               Total.........................................................................     131,000
                                                                                                ---------
                                                                                                ---------
</TABLE>

Item 26.  Recent Sales of Unregistered Securities.

     The following information describes issuance of all securities of the 
Company in private transactions not registered under the Act.

     In January 1995, the Company issued 10,000 shares of its Common Stock to 
16 persons, including the officers and directors of the Company, in a private 
placement transaction in consideration of $100, or its par value at the time 
of issuance. Taking into account the Splits, such shares of Common Stock were 
the equivalent of 3,000,000 shares of today's Common Stock. The securities 
issued by the Company in these transactions were "restricted" securities 
within the meaning of that term as defined in Rule 144 and were issued 
pursuant to the "private placement" exemption under Section 4(2) of the Act 
for sales of securities by an issuer not involving any public offering. The 
purchasers in these transactions were sophisticated and/or "accredited" 
investors as such terms are used in Regulation D under the Act.

     In March 1996, the Company issued 250,000 shares of its Common Stock to 
ATG Group, Inc., a Brookville, New York based investment firm, in a private 
placement transaction for aggregate consideration of $250,000, represented by 
a full recourse promissory note for the entire purchase price. Taking into 
account the Reverse Split, such shares of Common Stock were the equivalent of 
125,000 shares of today's Common Stock. However, in June 1996, ATG Group, 
Inc. agreed to cancel its shares of the Company's Common Stock in 
consideration of the cancellation of its $250,000 promissory note.

     In March 1996, the Company was loaned $500,000 by Edward Ratkovich, 
$250,000 by Robert Foise, $200,000 by Armstrong Industries and $50,000 by 
Martin Sumichrast. Principal and interest computed at the rate of eight 
percent annually was to become due at the earlier of June 1, 1997 or the 
expected June 1996 closing date of a proposed initial public offering of 
Company securities. As additional consideration for these loans, the Company 
issued 500,000 bridge units to Mr. Ratkovich, 250,000 to Mr. Foise, 200,000 
to Armstrong Industries and 50,000 to Mr. Sumichrast. Each bridge unit 
contained one share of Common Stock, one Class A Warrant and one Class B 
Warrant. In June 1996, the loan principal was converted into paid-in capital 
and accounted for as consideration for the bridge units. The Class A Warrants 
and Class B Warrants were canceled in March 1997, in exchange for each such 
shareholder receiving additional shares of Common Stock such that, even 
taking the Reverse Split into account, each such shareholder had 500,000, 
250,000, 200,000 and 50,000 shares of today's Common Stock. The securities 
issued by the Company in these transactions were "restricted" securities 
within the meaning of that term as defined in Rule 144 and were issued 
pursuant to the "private placement" exemption under Section 4(2) of the Act 
for sales of securities by an issuer not involving any public offering. The 
purchasers in these transactions were "accredited" persons as that term is 
used in Regulation D under the Act.

     In August 1996, the Company entered into a letter of intent with MVSI, 
Inc. ("MVSI"), a Washington, D.C. area based NASDAQ-listed technology 
products and services company, in which the Company agreed to be acquired and 
become a wholly-owned subsidiary of MVSI in an exchange of securities. To the 
Company's knowledge, Edward Ratkovich is a significant shareholder and the 
chairman and chief executive officer of MVSI, Thomas T. Prousalis, Jr. is a 
significant shareholder of MVSI and Clive Whittenbury is a director of MVSI. 
Pursuant to the letter of intent, MVSI loaned the Company $500,000 for 
working capital. In October 1996, the Company entered into an agreement to be 
acquired by MVSI, subject to shareholder approval. MVSI loaned an additional 
$500,000 to the Company in November 1996. However, in January 1997, the 
parties mutually agreed to terminate the acquisition, primarily due to market 
conditions that involved a significant decrease in the bid price of MVSI's 
common stock and, thereby, the value of the purchase price.

     As part of a mutual cooperation agreement, in January 1997 MVSI loaned 
the Company an additional $250,000 under a convertible debenture. The 
aggregate principal amount of the convertible debenture at that time was 
$1,275,081, reflecting the total amount of loan advances made to the Company 
by MVSI. The terms provided for outstanding principal to bear annual interest 
of nine percent, and for principal to be convertible into Common 


                                     II-2
<PAGE>

Stock upon the completion of the Company's initial public offering at a ratio
calculated using the offering price per share. In March 1997, MVSI converted the
convertible debenture into 250,000 shares of Common Stock. The securities issued
by the Company in these transactions were "restricted" securities within the
meaning of that term as defined in Rule 144 and were issued pursuant to the
"private placement" exemption under Section 4(2) of the Act for sales of
securities by an issuer not involving any public offering. The purchaser in this
transaction was an "accredited" person as that term is used in Regulation D
under the Act.

     In April 1998, the Company issued 750,000 shares of Common Stock in a 
private placement to various investors at a price of $7.50 per share, or an 
aggregate of $5,625,000. Pennsylvania Merchant Group served as the placement 
agent for this transaction, for a fee of six percent of the gross proceeds of 
the offering, or $337,500, plus a five year warrant to purchase 75,000 shares 
of Common Stock at an exercise price of $9.00 per share. The securities 
issued by the Company in these transactions were "restricted" securities 
within the meaning of that term as defined in Rule 144 and were issued 
pursuant to the exemption provided by Rule 506 of Regulation D under the Act 
for sales of securities by an issuer not involving any public offering. The 
purchasers in this transaction were "accredited" persons as that term is used 
in Regulation D under the Act.

     All of the foregoing restricted securities were appropriately marked 
with a restrictive legend and were issued for investment purposes only and 
not with a view to redistribution, absent registration. All of the foregoing 
purchasers were fully informed and advised concerning the Registrant, its 
business, financial and other matters. The Registrant was informed that each 
purchaser was able to bear the economic risk of its investment and was aware 
that the securities were not registered under the Act and cannot be 
re-offered or re-sold until they have been so registered or until there is an 
available exemption from the registration requirements of the Act. The 
Company's transfer agent and registrar was instructed to mark "stop transfer" 
on its ledgers to assure that these securities not be transferred absent 
registration or a determination that there is an available exemption from the 
registration requirements of the Act.

Item 27.  Exhibits

<TABLE>
<CAPTION>

     No.                                  Document
     ---                                  --------
     <S>  <C>            
     3.0  Certificate of Incorporation, filed January 9, 1995.*

     3.1  Certificate of Correction to Certificate of Incorporation, filed April
          14, 1998**

     3.2  Certificate of Amendment to Certification of Incorporation, filed
          April 14, 1998**

     3.3  By-laws, as amended.*

     4.0  Specimen Copy of Common Stock Certificate.*

     4.1  Form of Warrant Certificate.*

     4.2  Form of Representative's Warrant Agreement.*

     4.3  Form of Warrant Agreement.*

     4.4  Consent and Amendment No. 1 to Representative's Warrant Agreement.****

     5.1  Opinion of Williams & Connolly ****

    10.0  Employment Agreement, Robert A. Veschi, dated April 1, 1996
          (management contract or compensatory plan or arrangement).*

    10.1  United States Patent, Notice of Allowance, dated January 23, 1996.*

    10.2  Assignment of Patent Rights, dated March 22, 1996.*

    10.3  Sprint Agreement, dated March 1, 1996.*

    10.4  Financial Advisory Agreement with Barron Chase Securities, Inc., dated
          April 10, 1997.*

    10.5  Merger and Acquisition Agreement with Barron Chase Securities, Inc.,
          dated April 10, 1997.*

    10.6  Mutual Cooperation Agreement with MVSI, Inc., dated January 14, 1997.*

    10.7  Lockheed Martin Agreement, dated January 3, 1997.*

    10.8  Product Sales Agreement with Diamond Telecom, dated March 6, 1998.**

    10.9  Software Development Agreement with Com21, dated January 22, 1998.**

    10.10 Distributor Agreement with Comtel Electronic System GMBH, dated April
          9, 1998.**

    10.11 Joint Market Agreement with Paradyne Corporation, dated May 29,
          1997.**

    10.12 Form of Product Sales Agreement with PC Importers Inc. d/b/a Unicent
          Technologies.**

    10.13 1997 Nonqualified Stock Option Plan (management contract or
          compensatory plan or arrangement).**
</TABLE>


                                     II-3
<PAGE>

<TABLE>
<CAPTION>

     <S>   <C>                                                                     
     10.14 Government Reseller Agreement with Government Technology Services,
           Inc., dated August 27, 1997.**

     10.15 Memorandum of Understanding with Summa Four, Inc., dated April 17,
           1998.**

     10.16 Net2Phone Bundling Agreement with IDT Corporation, dated April 23,
           1998.**

     10.17 Joint Marketing Agreement with Magellan Network Systems, Inc., dated
           August 27, 1997****


     11.0  Computation of Per Share Loss ***

     21.0  Subsidiaries.*** 

     23.0  Consent of Grant Thornton LLP. ****
 
     23.1  Consent of Williams & Connolly (included in Exhibit 5.1)****

     25.0  Power of Attorney *****
</TABLE>

- ------------------
*     Incorporated by reference from the Company's Registration Statement on 
      Form SB-2, Registration No. 333-3860, as amended and declared effective
      on April 7, 1997 (the "IPO Registration Statement").

**    Incorporated by reference from Post-Effective Amendment No. 1 to the IPO
      Registration Statement, as declared effective on May 8, 1998.

***   Incorporated by reference from the Company's Annual Report on Form 10-KSB,
      filed June 29, 1998.

****  Filed herewith.

***** Previously filed.


Item 28.  Undertakings

     The undersigned Registrant hereby undertakes to provide to participating 
broker-dealers, at the closing, certificates in such denominations and 
registered in such names as required by the participating broker-dealers, to 
permit prompt delivery to each purchaser.

     The undersigned Registrant also undertakes:

     (1) To file, during any period in which offers or sales are being made, 
a post-effective amendment to this registration statement:

               (i) To include any prospectus required by section 10(a)(3) of 
         the Securities Act of 1933;

               (ii) To reflect in the Prospectus any facts or events arising
         after the effective date of the registration statement (or the most
         recent post-effective amendment thereof) which, individually or in the
         aggregate, represent a fundamental change in the information set forth
         in the registration statement:

               (iii) To include any material information with respect to the
         plan of distribution not previously disclosed in the registration
         statement or any material change to such information in the
         registration statement;

     (2) That, for the purpose of determining any liability under the 
Securities Act of 1933, each such post-effective amendment shall be deemed to 
be a new registration statement relating to the securities offered therein, 
and the offering of such securities at that time shall be deemed to be the 
initial bona fide offering thereof.

     (3) To remove from registration by means of a post-effective amendment 
any of the securities being registered which remain unsold at the termination 
of the offering.

     Insofar as indemnification for liabilities arising under the Securities 
Act of 1933 may be permitted to directors, officers and controlling persons 
of the registrant pursuant to the foregoing provisions, or otherwise, the 
registrant has been advised that in the opinion of the Securities and 
Exchange Commission such indemnification is against public policy as 
expressed in the Act and is, therefore, unenforceable. In the event that a 
claim for indemnification against such liabilities (other than the payment by 
the registrant of expenses incurred or paid by a director, officer or 
controlling person of the registrant in the successful defense of any action, 
suit or proceeding) is asserted by such director, officer or controlling 
person in connection with the securities being registered, the Registrant 
will, unless in the opinion of its counsel the matter has been settled by 
controlling precedent, submit to a court of appropriate jurisdiction the 
question whether such indemnification by it is against public policy as 
expressed in the Act and will be governed by the final adjudication of such 
issue.


                                     II-4
<PAGE>


                                   SIGNATURES

         In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement on Form SB-2 to be signed on its behalf by the
undersigned, in the County of Montgomery, State of Maryland, on August 24, 1998.

                                   e-NET, INC.

                                          By:       /s/ Robert A. Veschi
                                             -----------------------------------
                                             Robert A. Veschi
                                             President



<TABLE>
<CAPTION>


                             Name                                            Title                      Date

<S>                                                             <C>                              <C> 
                       *                                        Chairman of the Board            August 24, 1998
- -----------------------------------------------------
Alonzo E. Short, Jr., Lt. Gen., USA (ret.)

/s/Robert A. Veschi                                             President, Chief Executive       August 24, 1998
- -----------------------------------------------------
Robert A. Veschi                                                Officer, Director

/s/Donald J. Shoff                                              Chief Financial Officer (Chief   August 24, 1998
- -----------------------------------------------------           Accounting Officer)
Donald J. Shoff                                                 

                       *                                        Director                         August 24, 1998
- -----------------------------------------------------
William L. Hooton

                       *                                        Director                         August 24, 1998
- -----------------------------------------------------
Clive Whittenbury, Ph.D.

                       *                                        Director                         August 24, 1998
- -----------------------------------------------------
William W. Rogers, Jr.

</TABLE>


*        Attorney-in-Fact

         /s/Robert A. Veschi
         -----------------------------
         Robert A. Veschi


                                     II-5

<PAGE>




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


                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                                    EXHIBITS
                                       to
                                    FORM SB-2

                             REGISTRATION STATEMENT
                                      under
                           THE SECURITIES ACT OF 1933

                                   -----------

                                   e-NET, INC.


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

<PAGE>


                                  EXHIBIT INDEX
<TABLE>
<CAPTION>

  No.                                            Document
  ---                                            --------
     <S>  <C>            
     3.0  Certificate of Incorporation, filed January 9, 1995.*

     3.1  Certificate of Correction to Certificate of Incorporation, filed April
          14, 1998**

     3.2  Certificate of Amendment to Certification of Incorporation, filed
          April 14, 1998**

     3.3  By-laws, as amended.*

     4.0  Specimen Copy of Common Stock Certificate.*

     4.1  Form of Warrant Certificate.*

     4.2  Form of Representative's Warrant Agreement.*

     4.3  Form of Warrant Agreement.*

     4.4  Consent and Amendment No. 1 to Representative's Warrant Agreement.****

     5.1  Opinion of Williams & Connolly ****

    10.0  Employment Agreement, Robert A. Veschi, dated April 1, 1996
          (management contract or compensatory plan or arrangement).*

    10.1  United States Patent, Notice of Allowance, dated January 23, 1996.*

    10.2  Assignment of Patent Rights, dated March 22, 1996.*

    10.3  Sprint Agreement, dated March 1, 1996.*

    10.4  Financial Advisory Agreement with Barron Chase Securities, Inc., dated
          April 10, 1997.*

    10.5  Merger and Acquisition Agreement with Barron Chase Securities, Inc.,
          dated April 10, 1997.*

    10.6  Mutual Cooperation Agreement with MVSI, Inc., dated January 14, 1997.*

    10.7  Lockheed Martin Agreement, dated January 3, 1997.*

    10.8  Product Sales Agreement with Diamond Telecom, dated March 6, 1998.**

    10.9  Software Development Agreement with Com21, dated January 22, 1998.**

    10.10 Distributor Agreement with Comtel Electronic System GMBH, dated April
          9, 1998.**

    10.11 Joint Market Agreement with Paradyne Corporation, dated May 29,
          1997.**

    10.12 Form of Product Sales Agreement with PC Importers Inc. d/b/a Unicent
          Technologies.**

    10.13 1997 Nonqualified Stock Option Plan (management contract or
          compensatory plan or arrangement).**

    10.14 Government Reseller Agreement with Government Technology Services,
          Inc., dated August 27, 1997.**

    10.15 Memorandum of Understanding with Summa Four, Inc., dated April 17,
          1998.**

    10.16 Net2Phone Bundling Agreement with IDT Corporation, dated April 23,
          1998.**

    10.17 Joint Marketing Agreement with Magellan Network Systems, Inc., dated
          August 27, 1997****

    11.0  Computation of Per Share Loss ***

    21.0  Subsidiaries.***

    23.0  Consent of Grant Thornton LLP. ****

    23.1  Consent of Williams & Connolly (included as part of Exhibit 5.1)****

    25.0  Power of Attorney *****
</TABLE>

- ------------------
*     Incorporated by reference from the Company's Registration Statement on 
      Form SB-2, Registration No. 333-3860, as amended and declared effective
      on April 7, 1997 (the "IPO Registration Statement").

**    Incorporated by reference from Post-Effective Amendment No. 1 to the IPO
      Registration Statement, as declared effective on May 8, 1998.

***   Incorporated by reference from the Company's Annual Report on Form 10-KSB,
      filed June 29, 1998.

****  Filed herewith.

***** Previously filed.


<PAGE>
                                                                    Exhibit 4.4


                       CONSENT AND AMENDMENT NO. 1 TO THE
                       REPRESENTATIVE'S WARRANT AGREEMENT

     This Consent and Amendment No. 1 between the Company and Robert T. Kirk, an
individual ("Kirk"), dated as of August __, 1998 ("Amendment No. 1") to the
Representative's Warrant Agreement (the "Agreement") dated as of April 7, 1997
between e-Net, Inc. (the "Company") and Barron Chase Securities, Inc. (the
"Representative").

                              W I T N E S S E T H:

     WHEREAS, the Company and the Representative entered into the Agreement
providing for the issuance by the Company to the Representative and/or persons
related to the Representative as those persons are defined in Rule 2710 of the
NASD Rules of Conduct (the "Holder"), 150,000 warrants (the "Common Stock
Representative Warrants") to purchase 150,000 shares of the Company's common
stock (the "Shares") and 150,000 warrants (the "Warrant Representative Warrants"
and, together with the Common Stock Representative Warrants, the "Warrants") to
purchase 150,000 of the Company's Common Stock Purchase Warrants (the
"Underlying Warrants") exercisable to purchase 150,000 shares of the Company's
common stock;

     WHEREAS, the Warrants were issued to the Holders by the Company on April 7,
1997;

     WHEREAS, Section 15 of the Agreement provides that the terms and provisions
of the Agreement may not be modified, waived or amended except in a writing
executed by the Company and the Holders of at least a majority of the Warrants,
the Shares, the Underlying Warrants and the common stock issuable upon the
exercise of the Underlying Warrants (collectively, the "Registrable Shares")
based on underlying numbers of shares of common stock;

     WHEREAS, Section 15 of the Agreement provides that notice of any
modification, waiver or amendment shall be promptly provided to any Holder not
consenting to such modification, waiver or amendment;

     WHEREAS, Kirk, as the Holder of a majority of the Registrable Shares based
on underlying numbers of shares of common stock, and the Company wish to amend
the Agreement to reflect the original intent of the parties thereto; and

     WHEREAS, the Company wishes to provide notice of this Amendment No. 1 to
the non-consenting Holders pursuant to the Agreement.


<PAGE>

     NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

1. Amendment of Section 3.1(ii) of the Agreement

     Section 3.1(ii) is hereby amended by deleting the words after the word "by"
in the twelfth line thereto through the period at the end of that sentence and
inserting the following:

     (ii) the then per share Market Value or Purchase Price, whichever is
     greater.

2. Miscellaneous

     a. The Agreement, as hereby amended, is ratified and confirmed in all
respects and shall remain in full force and effect in accordance with its terms.

     b. All references to the Agreement shall mean such Agreement as amended
hereby and as it may in the future be amended, restated, supplemented or
modified from time to time.

     c. This Amendment No. 1 shall be construed and interpreted in accordance
with the laws of the State of Florida without giving effect to the rules of said
State governing the conflicts of laws.

     d. The Company shall cause this Amendment No. 1 to be mailed to each Holder
listed on Annex A hereof by first class registered mail, return receipt
requested.

     e. This Amendment No. 1 may be executed in counterparts and each of such
counterparts shall for all purposes be deemed an original, and such counterparts
shall together constitute but one and the same instrument.

                    [SIGNATURES APPEAR ON THE FOLLOWING PAGE]


<PAGE>


     IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
be duly executed, as of the day and year first above written.

                                            e-Net, Inc.


                                            /s/ Robert A. Veschi
                                            -------------------------
                                            By:  Robert A. Veschi
                                            Title:  President


                                            /s/ Robert T. Kirk
                                            -------------------------
                                            Robert T. Kirk


<PAGE>
                                                                      Annex A

                                     HOLDERS

Michael Morrisett

8626 S. Florence
- -----------------

Tulsa, Oklahoma 74137
- -----------------


Marie Lima

1630 N.W. 18th Avenue
- -----------------

Delray Beach, Florida 33446
- -----------------


David A. Carter

2735 N.W. 19th Way
- -----------------

Boca Raton, FL 33431
- -----------------


Wendy Tand Gusrae
15208 Tall Oak Avenue
Delray Beach, FL  33446


<PAGE>
                                                                   Exhibit 5.1


                               WILLIAMS & CONNOLLY
                            725 Twelfth Street, N.W.
                             Washington, D.C. 20005
                                  202-434-5000






                                 August 24, 1998




e-Net, Inc.
12800 Middlebrook Road, Suite 200
Germantown, Maryland 20787

     Re:  Shares of Common Stock, par value $0.01, of e-Net, Inc. (the
          "Company") to be offered and sold pursuant to the Company's
          Registration Statement on Form SB-2, as filed on June 29, 1998, as
          amended by Amendment No. 1 thereto, as filed on August , 1998 (such
          shares of Common Stock, the "Common Stock" and such amended
          Registration Statement, as it may be further amended from time to
          time, the "Registration Statement") 

Ladies & Gentlemen:

     We have acted as special counsel to the Company in connection with the
registration of 1,125,000 shares of Common Stock pursuant to the Registration
Statement of which: (A) 825,000 shares of Common Stock were issued or reserved
for issuance pursuant to a private placement in April 1998 (the "Private
Placement") comprised of (i) 750,000 shares of Common Stock issued in the
Private Placement (the "Issued Private Placement Stock"), and (ii) 75,000 shares
of Common Stock underlying a five-year warrant issued to Pennsylvania Merchant
Group Ltd., the placement agent for the Private Placement (the "Placement
Agent"), with an exercise price of $9.00 per share (such warrant, the "Placement
Agent's Warrant" and such underlying shares, the "Placement Agent's Stock"); and
(B) 300,000 shares of Common Stock (the "Underwriter's Stock" and, together with
the Private Placement Stock, the "Offered Stock") underlying: (i) five-year
warrants issued at the direction of Barron Chase Securities, Inc., the
underwriter (the "Underwriter") of the Company's initial public offering of
securities in April 1997 to purchase 150,000 shares of Common Stock, with an
exercise price of $8.25 per share (the "Common Stock Representative Warrants");
and (ii) five-year warrants to purchase 


<PAGE>

e-Net, Inc.
August 24, 1998
Page 2


150,000 shares of Common Stock, with an exercise price of $8.25 per share, which
warrants (the "Underlying Warrants") underlie five-year warrants issued at the
direction of the Underwriter to purchase the Underlying Warrants, with an
exercise price of $0.20625 per Underlying Warrant (the "Warrant Representative
Warrants" and collectively with the Common Stock Representative Warrants and the
Underlying Warrants, the "Underwriter's Warrants" and collectively with the
Underwriter's Warrants and the Placement Agent's Warrant, the "Warrants").

     We are members of the Bar of the District of Columbia. We do not hold
ourselves out as experts on, nor do we express any opinion as to or with respect
to the applicability of, the laws of any jurisdiction other than the laws of the
District of Columbia, the federal laws of the United States, and the General
Corporation Law of the State of Delaware (the "Opining Jurisdictions").

     We express no opinion with respect to any of the following legal issues:
(a) state or federal securities laws or regulations; (b) fraudulent transfer and
fraudulent conveyance laws; or (c) federal and state tax laws and regulations.

     In connection with this Opinion, we have examined: (i) the Registration
Statement; (ii) the prospectus related thereto (the "Prospectus"); (iii) the
Common Stock Purchase Agreement dated as of April 15, 1998 (the "Common Stock
Purchase Agreement") by and among the Company, the Placement Agent and each of
the purchasers named on the signature pages thereto pursuant to which the Issued
Private Placement Stock was issued; (iv) the Placement Agent's Warrant issued by
the Company to the Placement Agent dated as of April 15, 1998; and (v) the
Representative Warrant Agreement dated as of April 7, 1997 ("the "Representative
Warrant Agreement") by and between the Company and the Underwriter pursuant to
which the Underwriter's Warrants were issued. The Common Stock Purchase
Agreement, the Placement Agent's Warrant and the Representative Warrant
Agreement are collectively referred to herein as the "Agreements." In addition
to the foregoing, we have reviewed such documents and given consideration to
such matters of law and fact as we have deemed appropriate, in our professional
judgment, to render this Opinion. We have also relied, without further
independent investigation, as to certain matters of fact, on information
obtained from public officials, from officers of the Company and from other
sources believed by us to be responsible.

     The assumptions, opinions and conclusions stated below are subject to: (a)
bankruptcy, insolvency, reorganization, receivership, moratorium and other
similar laws affecting the rights and remedies of creditors generally; and (b)
general principles of equity and the exercise of judicial discretion.

     We have assumed, without further investigation, the following: (a) all
natural persons who are involved have sufficient legal capacity to enter into
all relevant 


<PAGE>

e-Net, Inc.
August 24, 1998
Page 3


Agreements, in such capacity as is provided thereby, and to perform
the transactions contemplated by such Agreements (collectively, the
"Transactions") or to carry out their roles in the Transactions; (b) each party
to the Transactions has satisfied those legal requirements that are applicable
to it to the extent necessary to make the Agreements to which it is a party
enforceable against it; (c) each party to the Transactions has complied with all
legal requirements pertaining to its status as such status relates to its rights
to enforce the Agreements against the other parties to the Transactions; (d)
each document submitted to us for review is accurate and complete, each such
document that is an original is authentic, each such document that is a copy
conforms to an authentic original, and all signatures on each such document are
genuine; (e) each certificate issued by a government official concerning a
person or entity's property or status is accurate, complete and authentic and
all official public records (including their proper indexing and filing) are
accurate and complete; (f) the conduct of the parties to the Transactions has
complied with any requirement of good faith, fair dealing and unconscionability;
(g) the parties have acted in good faith and without notice of any defense
against the enforcement of any rights created by the Transactions; (h) there are
no agreements or understandings among the parties, written or oral, and there is
no usage of trade or course of prior dealing among the parties that would, in
either case, define, supplement or qualify the terms of the Agreements; (i) all
statutes, judicial and administrative decisions, and rules and regulations of
governmental agencies constituting the law of the Opining Jurisdictions are
generally available (i.e., in terms of access and distribution following
publication or other release) to lawyers practicing in the Opining
Jurisdictions, and are in a format which makes legal research reasonably
feasible; (j) the constitutionality or validity of a relevant statute, rule,
regulation or agency action is not in issue unless a reported decision in the
Opining Jurisdiction has specifically addressed but not resolved, or has
established, its unconstitutionality or validity; (k) the parties will obtain
all permits and governmental approvals required in the future, and take all
actions similarly required, relevant to subsequent consummation of the
Transactions or performance of the Agreements; (l) all parties to the
Transactions will act in accordance with, and will refrain from taking any
action that is forbidden by, the terms and conditions of the Agreements; and (m)
the Transactions and the execution, delivery and performance of the Agreements
will not (i) breach, or result in a default under, any existing obligation of a
party to the Transactions to a contract to which such party is a party or by
which its property is bound, or (ii) breach or otherwise violate any existing
obligation of any court and administrative order, writ, judgment or decree that
names any such party and is specifically directed to it or its property. Each
assumption specifically described in this Opinion is made with the express
consent and approval of the Company. However, we have not relied on information
(including certificates or other documentation) or assumptions, otherwise
appropriate in the circumstances, if we have knowledge that the information or


<PAGE>

e-Net, Inc.
August 24, 1998
Page 3


assumptions are false or if we have knowledge of facts that under the
circumstances would make the reliance unreasonable.

     This Opinion speaks only as of its date. We have no obligation to advise
the Company (or any third party) of changes in law or fact that occur after the
date of this Opinion, even though the change may affect the legal analysis, a
legal conclusion or an informational confirmation in this Opinion.

     Based upon the foregoing and subject to the qualifications contained below,
we are of the opinion that the Issued Private Placement Stock was validly
authorized and, assuming that (a) the pertinent provisions of the Securities Act
of 1933 and such "blue sky" and other securities laws as may be applicable were
complied with and (b) such Issued Private Placement Stock was duly delivered
against payment therefor as contemplated by the Common Stock Purchase Agreement,
such Issued Private Placement Stock is validly issued, fully paid, and
nonassessable.

     Based upon the foregoing and subject to the qualifications contained in the
next paragraph, we are of the opinion that the Placement Agent's Stock and the
Underwriter's Stock are validly authorized and, when (a) the pertinent
provisions of the Securities Act of 1933 and such "blue sky" and other
securities laws as may be applicable have been complied with and (b) such
Placement Agent's Stock and Underwriter's Stock have been duly delivered against
payment therefor upon exercise of the Placement Agent's Warrant, the Common
Stock Representative Warrants and the Underlying Warrants, as the case may be,
all as contemplated by the Placement Agent's Warrant and the Representative
Warrant Agreement, such Placement Agent's Stock and Underwriter's Stock will be
validly issued, fully paid, and nonassessable.

     We note that the Company intended to increase the number of its authorized
shares of Common Stock from 10,000 to 50,000,000 (the "Increase") by means of a
Certificate of Amendment to its Certificate of Incorporation, which amendment
was filed with the Delaware Secretary of State on January 25, 1996 (the "Prior
Amendment"). The Increase, however, was not formally ratified by the
shareholders of the Company until a special meeting held on March 15, 1996. On
April 14, 1998, the Company filed a Certificate of Correction (the "Correction")
correcting the effective date of the Increase from January 25, 1996 to March 15,
1996. While the matter is not entirely free from doubt, in our opinion it is
very unlikely that the Correction was not effective to cause the Increase. Also
in our opinion, the Correction should be effective to correct the effective date
of the Increase to March 15, 1996.


<PAGE>

e-Net, Inc.
August 24, 1998
Page 5


     This Opinion deals only with the specific legal issues it explicitly
addresses. Accordingly, the express opinions set forth above concerning a
particular legal issue do not address any other matters.

     We consent to the filing of this opinion as an Exhibit to the Registration
Statement. In giving this consent, we do not admit that we are in the category
of persons whose consent is required under Section 7 of the Securities Act of
1933 or the rules and regulations thereunder.


                                           Very truly yours,



                                           /s/ Williams & Connolly
                                           -----------------------
                                           WILLIAMS & CONNOLLY



<PAGE>

                                                                   Exhibit 10.17

                            JOINT MARKETING AGREEMENT


Between Magellan Network Systems, Inc. ("Magellan"), a California corporation 
with a principal place of business at 1292 Hamerwood Avenue, Sunnyvale, 
California 94089, and e-Net, Inc. ("e-Net"), a Delaware corporation with 
principal offices at 12800 Middlebrook Road, Germantown, Maryland  20874-9204,

WHEREAS, Magellan is the owner and manufacturer of proprietary software products
and supplier of turnkey telecommunication switching solutions, and

WHEREAS, e-Net is the owner and manufacturer of a proprietary data telephony
(voice over data network) product called Telecom 2000-TM-, and

WHEREAS, the parties have jointly researched, and continue to research, the
efficacy of combining their products for sales to prospective customers, and of
combining their products with third-party products providing technical
performance and functionality enhancements to both of the parties' product
offerings, with an intended market of telecommunications carriers and
telecommunications equipment manufacturers, and the parties have decided that it
is in their mutual and respective best interests to enter into a program
intended to promote sales under this Agreement.

NOW, THEREFORE, in order to establish the terms and conditions under which the
parties' mutual and respective goals may be accomplished, in exchange of the
mutual covenants and premises below, consideration deemed adequate, the parties
agree as follows:

1.0 Definitions

MAGELLAN PRODUCT shall mean Magellan's proprietary software products, switching
systems and all products related to or derived therefrom, for purposes of
clarification and not limitations, algorithms, electronic computer protocols,
routines, subroutines or programs developed by or on behalf of Magellan or
otherwise owned by or in the custody of Magellan.

E-NET PRODUCT shall mean e-Net's proprietary data telephony (voice over data
network) product called Telecom 2000-TM-, and all products related to or
derived from Telecom 2000-TM- and/or related to or derived from US Patent No.
5,526,353 including specifically, for purposes of clarification and not
limitation, algorithms, electronic computer protocols, routines, subroutines or
programs developed by or on behalf of e-Net or otherwise owned by or in the
custody of e-Net.

<PAGE>


PROJECT shall mean a mutual effort by the parties to promote, sell, deliver, and
support a combination of the product technology capabilities of MAGELLAN PRODUCT
and E-NET PRODUCT, and selected third-party product in a marketing endeavor
further known as "Data Telephony for Telecommunications Carriers."

2.0 Scope of Agreement

(a) e-Net shall:

1) Sell and license E-NET PRODUCT to Magellan under mutually acceptable terms;

2) Give reasonable cooperation to the Project and Magellan in terms of
advertising, media and press relations, trade expositions and shows, and dealer
and distributor support; 
3) Make management, marketing and technical personnel reasonably available to 
assist the Project and Magellan to resolve issues and achieve joint and 
respective sales goals;
4) Provide training, technical data and product documentation to the Project 
and Magellan, where such training, technical data and product documentation 
is reasonably required to achieve joint and respective sales goals, but such 
provision shall be under mutually acceptable terms;
5) Make available after-sale support to the Project and Magellan including 
maintenance, software support and spare parts, technical data and product 
documentation, under mutually acceptable terms; and
6) Perform design enhancements, modifications, or improvements of E-NET 
PRODUCT when required by the Project in the joint determination of the 
parties, under mutually acceptable terms.

(b) Magellan shall:

1) Sell and license MAGELLAN PRODUCT to e-Net under mutually acceptable terms;
2) Give reasonable cooperation to the Project and e-Net in terms of advertising,
media and press relations, trade expositions and shows, and dealer and
distributor support; 
3) Make management, marketing and technical personnel reasonably available to
assist the Project and e-Net to resolve issues and achieve joint and respective
sales goals;
4) Provide training, technical data and product documentation to the Project and
e-Net, where such training, technical data and product documentation is
reasonably required to achieve joint and respective sales goals, but such
provision shall be under mutually acceptable terms;
5) Make available after-sale support to the Project and e-Net including
maintenance, software support and spare parts, technical data and product
documentation, under mutually acceptable terms; and


                                      - 2 -


<PAGE>


6) Perform design enhancements, modifications, or improvements of MAGELLAN
PRODUCT when required by the Project in the joint determination of the parties,
under mutually acceptable terms.

3.0  Restrictions on Use of Products, Trademarks, Trade Names, and Publicity


All use by a party of the other's product is restricted as
follows:
(a)      A party is strictly prohibited from reverse engineering,
         reverse compilation, or reverse assembly of the other's
         product;
(b)      A party is strictly prohibited from making a copy or copies
         of the other's product;
(c)      A party is strictly prohibited from sublicensing or otherwise
         transferring the other's product;
(d)      A party shall not use the trademarks or trade names of the
         other; and
(e)      A party shall not publicize this Agreement without the consent of the
         other party.

4.0 Term

This Agreement shall be for a term of one year, subject to termination by either
party at any time, except that obligations of nondisclosure and proprietary
rights shall survive termination, and, further, the specific agreements of the
parties pertaining to after-sale support (clauses 2.a.5 and 2.b.5) may survive
termination hereof.

5.0 Ownership and Proprietary Rights

(a) Ownership of Magellan Products. All rights, title and interest to MAGELLAN
PRODUCT shall at all times remain the exclusive property of Magellan. All
applicable copyrights, trade secrets, patents and other intellectual property
rights to MAGELLAN PRODUCT shall remain the exclusive property of Magellan. No
title to MAGELLAN PRODUCT is transferred to e-Net. e-Net shall not remove the
copyright, trademark and proprietary rights notices of Magellan, and shall
prohibit any such removal by its officers, agents, employees, and contractors.

e-Net acknowledges that MAGELLAN PRODUCT is proprietary and confidential and
constitutes valuable trade secrets of Magellan. e-Net agrees to safeguard
MAGELLAN PRODUCT with not less than the same degree of care as is exercised in
connection with e-Net's own most proprietary and confidential materials.

All aspects of MAGELLAN PRODUCT, including without limitation, programs, methods
of processing, specific design and structure of individual programs and their
interaction and unique programming techniques employed therein, if any, shall
remain the sole and exclusive property of Magellan, and shall not be used, 


                                      - 3 -


<PAGE>


sold, revealed, disclosed or otherwise communicated, directly or indirectly, by
e-Net to any person, company, or institution other than as set forth herein,
excepting such technical and business development communications, product
demonstrations, and detailed technical discussions as e-Net reasonably may deem
necessary to perform the Project.

(b) Ownership of e-Net Products. All rights, title and interest to E-NET PRODUCT
shall at all times remain the exclusive property of e-Net. All applicable
copyrights, trade secrets, patents and other intellectual property rights to
E-NET PRODUCT shall remain the exclusive property of e-Net. No title to E-NET
PRODUCT is transferred to Magellan. Magellan shall not remove the copyright,
trademark and proprietary rights notices of e-Net, and shall prohibit any such
removal by its officers, agents, employees, and contractors.

Magellan acknowledges that E-NET PRODUCT is proprietary and confidential and
constitutes valuable trade secrets of e-Net. Magellan agrees to safeguard E-NET
PRODUCT with not less than the same degree of care as is exercised in connection
with Magellan's own most proprietary and confidential materials.

All aspects of E-NET PRODUCT, including without limitation, programs, methods of
processing, specific design and structure of individual programs and their
interaction and unique programming techniques employed therein, if any, shall
remain the sole and exclusive property of e-Net, and shall not be used, sold,
revealed, disclosed or otherwise communicated, directly or indirectly, by
Magellan to any person, company, or institution other than as set forth herein,
excepting such technical and business development communications, product
demonstrations, and detailed technical discussions as Magellan reasonably may
deem necessary to perform the Project.

6.0 Limitation of Liability

IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER OR TO ANY OTHER THIRD PARTY
BASED ON CONTRACT, TORT OR OTHERWISE FOR LOSS OF REVENUES, LOST PROFITS, LOST
SAVINGS, OR INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES
ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT, EXCEPT THAT A PARTY MAY
BE FOUND SO LIABLE FOR ANY DAMAGES ARISING OUT OF OR RELATING TO A PARTY'S
INTENTIONAL OR GROSSLY NEGLIGENT VIOLATION OF CALUSES 3.a, 5.a or 5.b.

7.0 General

7.1 Compliance With Law


                                      - 4 -


<PAGE>


The parties agree that they are each responsible at their own expense for
compliance with all laws, and shall indemnify and save harmless the other from
any claim by a third party arising out of or related to non-compliance with law.

7.2 Jurisdiction.
The Agreement shall be governed by and construed in accordance with the laws of
the State of Delaware.

7.3 Dispute Resolution.
Disputes hereunder are to be settled by arbitration under the rules and 
administration of the American Arbitration Association ("AAA"). Such 
arbitration shall be heard by three arbitrators, all of whom have credentials 
in the fields of telecommunications, intellectual property, or both. Each 
party shall reselect one arbitrator, and those two shall select the third and 
final arbitrator. Each party shall bear their own costs during the 
arbitration, and AAA fees and costs will be divided and paid equally during 
the arbitration, but the panel of arbitrators shall be empowered to assess 
costs against a party, as well as other damages or sanctions. The arbitration 
shall take place in Atlanta, Georgia, governed by Delaware law of 
corporations and contracts.

7.4 Independent Contractors
It is expressly agreed that e-Net and Magellan are acting thereunder as
independent contractors, and under no circumstances shall any of the employees
of one party be deemed the employees of the other for any purpose.

7.5 Notice
Any notice required to be given by either party to the other shall be deemed
given ten (10) days after being deposited in the postal system in registered or
certified form with return receipt requested, postage paid, addressed to the
notified party at the address set forth above.

7.6 Assignment
A party may not assign this Agreement to any portion thereof without the
approval of the other party, which shall not be unreasonably withheld.

7.7 Amendment; Waiver
Any provision of this Agreement may only be amended or waived if such amendment
or waiver is in writing; and, if an amendment, executed by all parties hereto
and, if a waiver, executed by the party which is waiving the term, condition or
right.

7.8 Severability; Entire Agreement
Any provision of this Agreement that is prohibited or unenforceable in any 
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of 
such 

                                      - 5 -


<PAGE>


prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provisions in any other
jurisdiction. This Agreement constitutes the entire understanding of the parties
with relation to the subject matter hereof, and may be amended only by a writing
in accordance with clause 7.7 above.

7.9 Headings
The headings of the various sections of this Agreement have been inserted for
ease of reference only and shall be deemed not to be a part of this Agreement.

MADE AND ENTERED INTO this 27 day of August, 1997 by the undersigned authorized
representatives of the parties.

e-Net, Inc.                               Magellan Corporation
- -----------                               --------------------


/s/Robert A. Veschi                       /s/
- -----------------------------             ------------------------------
(Signature)                               (Signature)

Robert A. Veschi
- -----------------------------             ------------------------------
(Name)                                    (Name)

President & CEO                           CFO
- -----------------------------             ------------------------------
(Title)                                   (Title)


                                      - 6 -


<PAGE>

                                                                    Exhibit 23.0

               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS






         We have issued our reports dated May 27, 1998 accompanying the 
financial statements of e-Net, Inc. as of March 31, 1998 and 1997, and for the 
years then ended, contained in the Registration Statement and Prospectus. We 
consent to the use of the aforementioned reports in the Registration Statement 
and to the use of our name as it appears under the caption "Experts."



GRANT THORNTON LLP

Vienna, Virginia
August 24, 1998



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