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A briefing for investors

Communication and Osicom


At first glance, the one-paragraph press release from Osicom Technologies looks good for shareholders.

The release, issued Wednesday, says that Par Chadha, Osicom's chief executive, bought almost 350,000 shares of the company's depressed stock.

But the release doesn't reveal that Chadha acquired the shares from an institutional investor that had approached Osicom about selling its stock back to the company. Nor does it say that Chadha sold many more Osicom shares last year than he bought this year.

The announcement may just add to recent controversy surrounding Osicom, a Santa Monica-based computer-networking company whose three-year string of losses widened to $16 million last year.

Judging by the red-hot demand for computer networking products, Osicom should be doing well. But while earnings at industry leader Cisco Systems have more than tripled in the last three years, Osicom has gone from earning $370,000 in 1995 to mounting losses in each of the last three years.

Revenue surged to $119 million for the 1998 fiscal year ended in January from less than $6 million for 1995. The jump stems largely from an acquisition binge: Osicom has completed six major purchases since 1993.


Meanwhile, Osicom's losses have taken a dramatic toll on its stock. The price peaked at $20.50 in June 1996, but has shriveled almost 88% since then, to $2.53 on Thursday on Nasdaq.

The losses stem from the cost of the acquisitions, Chadha said in an interview Thursday.

"If you just look at our after-tax numbers, it would show a large loss," he said. "If you took out the one-time [expenses] related to acquisitions, it would show a different story."

Like other technology companies, Osicom has also been hurt by fallout from the Asian financial crisis, he said.

Osicom has introduced three networking products recently and promises that it will return to profitability by the end of its fiscal year.

As for Chadha's recent stock purchase, he said he agreed to buy the shares from the large shareholder because he already had planned to acquire Osicom stock later this year.

"The opportunity came, I had the financial wherewithal and I'm confident about the prospects of the company," Chadha said.

It's generally considered bullish when a CEO or other top insider buys company shares. Wall Street wisdom holds that if someone who best understands the company and its prospects thinks the stock is undervalued, then maybe other investors should jump in too.

But experts who track insider buying say investors should check out the circumstances surrounding such purchases. If the insider is doing anything other than purchasing shares on the open market with his own money, analysts say, the buying may be going on for reasons other than purely a belief that the stock will go up.

In the recent transaction, Chadha bought 348,578 shares at $2.867 a share, or almost $1 million. A company spokesman said Chadha notified investors in a recent conference call that the institutional investor, a large bank, planned to sell its shares--and that he planned to buy them.

The press release, Chadha said, was put out simply to let investors know he had completed the purchase. Unlike many companies, Osicom allows individual investors to take part in its quarterly conference calls, a spokesman said.

According to CDA/Investnet, a Rockville, Md.-based service that tracks insider activity, Chadha sold more than 750,000 shares in the second half of last year at prices ranging from $2.13 to $7.50. Chadha said the number of shares he sold was about "500,000 and change."

Chadha said he didn't want to sell the shares but had to do so. His wife, Sharon, the majority owner of now-defunct Buzz magazine, used the shares as collateral to borrow money to fund the publication, Chadha said. But as Osicom's price fell, the brokerage house that issued the loan began selling the shares to guard against losing money if the share price fell further.

Chadha said he currently owns about 980,000 Osicom shares and holds options on 600,000 more.

Osicom today will undergo a 1-for-3 "reverse stock split," in which the number of outstanding shares will be cut by two-thirds. That has the effect of tripling the price of the shares.

Osicom is doing the reverse split so the company can upgrade its listing on the Nasdaq market to the top-tier National Market from the lower-rung Small-Cap Market. It's also being done to attract institutional shareholders that shy away from buying penny stocks, which these days are classified as those selling for less than $5 a share.

Osicom has been in the news in recent years for reasons other than its basic business.

An August 1997 story in Barron's magazine said Chadha was the subject of a criminal investigation in the U.S. and Britain. Chadha sued the magazine in Britain, claiming he isn't under investigation. A judge recently sided with Barron's, which had argued that the suit shouldn't be heard in that country, Chadha said. Chadha said he has appealed that decision.

A December 1996 article in BusinessWeek said Osicom's stock may have been manipulated by firms associated with organized crime--without Osicom management being aware of it. Chadha disputed that its stock was influenced by anyone affiliated with the underworld.


Sliding Stock

Shares of computer networker Osicom have plunged from their peak of $20.50 in 1996. Monthly closes at latest on Nasdaq:

Thursday close: $2.53

Source: Bloomberg News

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