Business profile: a direct path to the public market.

Small business owners who don't exactly meet the specifications for a professional underwriter to take them public have some reason to rejoice. Simply take a few cues from Terrence Brown and Reginald Waters. This ambitious duo did what an increasing number of business owners are doing: they took their fledgling company public without an underwriter via a direct public offering (DPO).

Waters, 30, and Brown, 31, founded their Washington, D.C.-based information technologies and engineering services company after graduating from Howard University with degrees in mechanical engineering in 1991. Over the last seven years, Advanced Engineering Design has provided innovative problem solving in areas ranging from geographic information systems to software development and information technologies. Their projects have included assisting in the development of information technologies and engineering support services in the U.S. and South Africa. Most recently Advanced Engineering Design won a contract to provide technical assistance and engineering services for the development of a recycling plant in the Bahamas.

The pair surrendered 16% of the company ownership for a chance to tap the capital markets for much-needed financing to pursue the next phase of their business plan. Right now, the daring duo is on a mission to raise $2 million by selling 400,000 shares of stock at $5 a share in a direct public offering. So far they've sold about 2,000 shares and need to raise an additional $100,000 by year's end, according to the terms of their offering.

If successful, Brown says a significant chunk of the proceeds will be used to buy equipment and open an office in South Africa, where Advanced Engineering Design was a subcontractor on a large urban development project sponsored by the U.S. Agency for International Development in 1996.

Unlike a typical IPO (initial public offering), where stock is purchased by an underwriter and then sold to investors, DPO stock is sold directly to investors instead of being underwritten by an investment bank "middleman." Potential investors must contact the firm directly or call Advanced Engineering Design's stockbroker, Three Arrows Capital Corp. of Bethesda, Maryland.

While staging a DPO can be a cost-saving endeavor because it cuts out the costly overhead of an underwriter, DPOs have their own unique set of challenges. Usually in an IPO, the underwriter has a team of brokers to promote the stock to potential investors. This is not the case in a DPO. "It's a lot harder to create a market for your shares. You need to market and promote your own company, which is no easy task," says Brown, whose stock is not yet traded on any exchange. "But we went ahead because if you're not in the game you can't play."

Advanced Engineering Design used a process called Regulation A, which costs an average of $50,000-$70,000, but less than the $100,000 to issue an IPO. Waters says the costs range from state filing fees paid to the Securities and Exchange Commission to lawyers, accountants and other professionals. "These provisions are designed to help a small company go public with as little expense as possible without having to comply with a full range of regulations," says Richard Wulff, chief of the office of small business at the SEC.

Brown hopes the DPO is just the start. "People invest in potential. Right now we're offering investors a chance to get access to us before we do an IPO in three to five years."

For more information on how to purchase the company's stock, contact Advanced Engineering Design at 202-508-1064; member.aol.com/aedca/. Or contact Three Arrows Capital Corp. at 888-286-1911; www.three arrowscapital.com.