Published Monday, October 4, 1999, in the Miami Herald
Can Quest Net carry its prodigious load of projects?
JAMES McNAIR
jmcnair@herald.com
Quest Net Corp. of Aventura is an eye-catching start-up with a wild jumble of business plans, a penchant for publicity and a warning from its auditors about its survival chances. Buy the stock or not, just don't offend its CEO, Camilo Pereira.
Twice this month, Pereira responded testily to message board postings on the Web site Raging Bull. He upbraided one member for falsifying news about Quest Net. And when a critic accused Pereira of living it up on a plane or a yacht with champagne and a Cuban cigar, he snarled right back.
``By the way, just got some Cuban in my last trip,' Pereira wrote, ``but they're not big enough for your big mouth.'
Nothing like a CEO willing to stand up for his company. But can this company, which aims to become a ``global' Internet company, stand up on its own? Can a company with $202,000 in annual revenue and an $8 million net loss justify a market value of $77 million And why doesn't Pereira, who owns Quest Net stock worth $23 million, settle his personal bankruptcy problems?
For a technology company, Quest Net doesn't have great bloodlines. It was formed in July 1998 by the merger of a publicly traded shell company and Pact Communications, an Internet Service Provider (ISP) based in Fort Lauderdale and headed by Pereira, 39. In the absence of public offerings and venture capital, Quest Net has fueled itself by issuing its Nasdaq Bulletin Board-listed stock for everything from bills to acquisitions. Its stock closed Friday at $3.47 a share.
Quest Net has an ambitious array of businesses. It still runs the ISP. It owns Web sites for the sale of cars, boats and planes. It is building a high-speed wireless network from Key West to Jupiter and turning buildings, such as the Hollywood Bread building, into wireless and fiber-optic portals.
If that doesn't dazzle you, Quest Net has more irons in the fire. It plans to begin reselling domestic and international long-distance service. It plans to install public-access Internet kiosks in the United States, Europe and South Africa. It is buying a stake in a Web site designer in South Africa.
But now for Pereira's grandest plan of all, code-named Projecto Unidad: To lay the first undersea fiber-optic cable to Havana, thus bringing the Internet revolution to the disconnected masses of Cuba.
``With the change in the political atmosphere and the emergence of a more open relationship between Cuba and major world powers, the demand for bandwidth and voice capacity is expected to grow sharply as the Cuban economy continues to develop and diversify,' Quest Net said when it announced the project in March.
SPREADING ITSELF
Start-up companies, especially those whose stock is publicly owned, usually debut by doing one or two things and doing them well. Quest Net seems to be taking more of a shotgun approach. Here's a breakdown of its businesses:
Quest Net calls itself ``one of the largest regional Internet Service Providers.' Yet in its report for the fiscal year ended June 30, Quest Net says it has only 57 customers.
Quest Net claimed $933,837 in revenue last year from software development work. But the work was for one customer, and the money, although booked, hasn't been received. Quest Net sued the client, Secure Transaction International of Deerfield Beach, for the $867,842 balance. Secure Transaction says Quest Net never provided any usable programming.
``The usefulness of it is zero,' said Norman Malinski, Secure's attorney. ``It doesn't work. There's no source code. It won't run.'
Of its advertising Web sites, only one -- an airplane classifieds site called wingsonline.com -- is operational. Similar sites for boats, cars and motorcycles are under construction. Wings Online, acquired in March, generated $105,169 in revenue last year.
Quest Net is constructing a wireless network to transmit voice, video and data between Key West and Jupiter and is outfitting ``smart' buildings. So far, it has three such buildings under its belt.
In a powder puff interview with Wallstreetreporter.com in March -- which Quest Net paid $3,850 for -- Pereira said his company had $39 million in revenue ``in our books.' Then he says some of that money is in the form of stock that might not be worth anything if the issuing companies don't go public. After giving that caveat, Pereira predicted 1999 revenue of $5.7 million.
The projections turned out to be way off. In an interview from South Africa, where he recently spent two weeks, Pereira said that revenue projection was made before the falling-out with Secure Transaction. But he remains optimistic about his company's prospects on all fronts.
Judging from the company's recent stock price, investors don't share Pereira's optimism. Since spiking up to $30 on Jan. 5 amid the national Internet stock mania, Quest Net shares have calmed down and are drifting at the $4 level. One big question is whether Pereira, 39, can actually pull off all of his plans. In 1999, Quest Net limited its ISP market to Florida while placing greater emphasis on its wireless ventures in South Florida. Pereira dismissed the notion that his company is biting off more than he can chew. He quoted scripture from the wannabe's Bible.
``Eventually all companies were small,' he said. ``Microsoft was small. Sprint and MCI were small.'BACK IN BANKRUPTCY
A native of Brazil, Pereira served in the Israeli army and received a college degree in hotel administration from Tadmor College in Jerusalem. He topped out as rooms division manager for the Sun City resort in South Africa. He co-founded Pact in 1996.
Pereira also declared personal bankruptcy in 1996. Quest Net's latest filing with the Securities and Exchange Commission mentions his discharge from bankruptcy in February 1997. What it doesn't say is that he was back in bankruptcy five months later. That case has not been discharged. Pereira said he is current in his monthly payments of more than $2,000.
Rebecca Del Medico, a lawyer who signed off on the SEC filing, called the omission an oversight.
``It fell through the cracks,' she said. ``We will be correcting that.'
Otherwise, the SEC filing portrays Pereira as a handsomely compensated person. In the past year, Pereira received a $125,000 salary, a $440,625 restricted stock award and a July 1 stock grant worth $877,643. That upped his total Quest Net holdings to 6.7 million shares -- none of which can be sold, Pereira said, for two years from the date of issue.
Still, at Friday's price of $3.47 a share, that's a $23.1 million stash.
Pereira sees fit to share the wealth -- with family members. His wife Maxine, who serves as Quest Net's executive vice president, received a salary of $148,000 and restricted stock worth $154,675 last year, bumping her up to 136,000 shares. And her father, David Plant, received 101,333 Quest Net shares in January for performing unspecified consulting work valued at $7,600. At January's average stock price of more than $10, Plant's compensation came to more than $1 million. At the current price, that cache of stock is worth $351,000.
Del Medico said Maxine Pereira, 34, does a number of things for the high-tech company, including administration and sales. Her background? Cosmetology and marketing.
CLEAN INVESTMENT
For now, Quest Net is flush with the proceeds of a $5 million stock sale in May to an investment firm in the Cayman Islands called James LLC. Oddly, Pereira couldn't identify the principals of the firm or name any of its other holdings. He said he dealt only with James' attorneys and, through due diligence, ascertained that the money was clean.
The resale of James' 1.7 million shares is now before the SEC.
Pereira said Quest Net has the option of raising another $5 million from its Cayman Island backers, but stressed that the company has enough working capital to last until mid-2000. He said the company has enough cash on hand to expand its wireless, ISP, Web site and long-distance interests.
Peter Treadway, an analyst with Southeast Research Partners in New York, isn't moved at all by the entry of yet another reseller of long-distance telephone service.
``Long distance has become a commodity and really is just a tough way to make a living,' he said.
Then there's the cost of laying a fiber-optic cable from Key West to Havana. Quest Net estimates it will cost $9 million. Pereira expresses no doubt that he will pull off what could be the online equivalent of tearing down the Berlin Wall, financial, political and oceanographic hurdles notwithstanding.
Enrique Lopez, a former AT&T manager and now president of AKL Group, a telecommunications consulting firm in Coral Gables, said he doesn't believe Cuba will be opening the floodgates to the Internet anytime soon. He also said previous attempts to lay a fiber-optic line to Cuba fizzled.
``At least three other companies have gone this route -- all well funded and raring to go,' Lopez said. ``There are transfer-of-technology issues. There are environmental issues with reefs. If this was attainable, there's no doubt it would have been done already.'
So is Projecto Unidad just a ploy to pump up Quest Net's sagging stock price? Pereira denies it. But consider a Quest Net news release on April 28.
Quest Net said it was one of half a dozen companies cited by Ivy Mackenzie president and fund manager James Broadfoot for showing ``consistent earnings growth of 25 percent or more each year.' Never mind that Quest Net was on its way to an $8 million loss, Broadfoot denied touting the company.
``I don't recall ever hearing of the company,' Broadfoot said.
Pereira said he is backtracking to find out how that snafu could have happened.
``I have considered the possibility that Mr. Broadfoot mentioned Qwest, as in Qwest Communications,' he said. ``Obviously we should have internal controls of those. I have never been shy to discipline people in my company, and if that (Quest's alleged tout by Broadfoot) doesn't reflect reality, we will be disciplining somebody.' |
