eOn Communications Falls Apart (EONC)

Apr. 6.06 | About: Inventergy Global, (INVT)

eOn Communications Corporation (NASD:EONC) provides solutions for customer content centers that allow their clients to provide voice, e-mail and web-based communications. The company calls them "customer interaction management solutions". The company just announced an option to buy a company called Spark Technology Corporation, which provides cellphone solutions. I don't see much relationship between the businesses of the two companies. But, oh, the CEO of eOn owns 97% of Spark, and maybe that is enough.

Eon's stock, which has run from $.51 to about $3.00 since last November was hammered down over 15% on the Spark news and sits at about $2.25. After hours, it got more of a haircut.

I don't know why the stock ran up in the first place. The company did less than $3 million in the quarter that ended January 31. In the quarter before that (10/31/05) revenue was $3.2 million. In the quarter before that (7/31/05) revenue was $4.7 million. In the latest quarter, the company had a small operating income of $180,000 from continuing operations. The company also had gains from the sales of some businesses and these were treated as income from discontinued operations or disposal of discontinued operations.

This is a small company that seems to like to trade in and out of other businesses. It sold its interest in Cortelco Shanghai Telecom and now is setting itself up to buy Spark. By the way, according to the company 10-Q, "Cortelco Shanghai also performs engineering development projects for Spark." To make matters more interesting "the Company loaned Spark $200,000 and $100,000 on November 14, 2005 and January 18, 2006..."

In general, I would view all of this as a red flag.

The book is not closed on the Spark transaction, and perhaps the board will view the reaction of investors as a strong negative vote. Let's hope so.

EONC 1-yr Chart



Douglas A. McIntyre is the former Editor-in-Chief of Financial World Magazine. He was also president of Switchboard.com when it was the 10th most visited site on the internet, according to MediaMetrix. He has been chief executive of FutureSource, LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. McIntyre can be reached at douglasamcintyre@gmail.com.