Osicom Stock Explodes in Anticipation of Spin-Offs.

OSICOM Technologies Inc.'s remarkable stock jump -- its share price rose from $7.20 in October to around $120 last week -- is perhaps all the more unusual because the company appears to be in the process of selling off all its assets.

Much of Osicom's growth is due to a general surge in fiber-optic shares, but analysts say that a proposed spin-off and initial public offering, plus a promising product, are helping propel the stock to new heights.

"There's a global tidal wave (for fiber-optic companies), and (Osicom is) in front of it," said Donald Cunningham, director of research at Gilmour Associates.

Cunningham put 9,000 securities through a mathematical program to isolate promising companies that could be expected to show a regularly strong performance. Osicom was one of the companies picked. "They are not the highest flyer but they are predictably consistent winners," Cunningham said.

Founded in 1981 by Par Chadha, a former chairman of Phoenix Laser Systems Inc. and a director at the Rand Research Corp., Osicom originally made personal computers. That company eventually shut down.

In 1993. Chadha reinvented Osicom as a company that manufactures and markets products that increase capacity for fiber-optic networks.

Chadha has been operating the company under a three-phase strategy. Phase one, which was completed in September 1996, involved acquiring companies that produced needed technologies, such as routing software and access protocols. In the second phase, which continues today, the company worked with the technologies to design new products.

The third phase is apparently to sell off the assets.

Currently, Osicom consists of three entities acquired during phase one: NETsilicon, Network Access, and Sorrento Networks. Its fourth division, a manufacturing facility in China, was recently sold.

Joe Gladue, director of research for Chapman Co., said Osicom plans to sell Maryland-based Network Access, which manufactures data networking products such as switches and hubs.

Already spun off is Waltham, Mass.-based NETsilicon, which manufactures computer chips. Osicom still owns 55 percent of the company's stock, which was trading at $29.25 last week.

Soon to be spun off is Santa Monica-based Sorrento, anticipated to be the company's most profitable branch because of its innovative fiber optic product, the dense wave division multiplexer, which enhances the number of signals that can be carried on a strand in a fiber-optic network from one to 32.

"With the growth in bandwidth demand, that's something that's very valuable," said Gladue.

Because of the pending IPO, Osicom is in a quiet period and declined comment. The company has not yet filed papers with the Securities and Exchange Commission regarding the spin-off.

Gladue said the company is trying to work out a deal with the Internal Revenue Service that would allow the NETsilicon stocks to be transferred to Osicom shareholders tax free. A similar deal is in the works for the Sorrento stocks it holds, according to Gladue.

If a deal cannot be reached with the IRS, Osicom would remain a shell company that simply holds stocks in NETsilicon and Sorrento.

"It's a good buy," said Gladue. "It's easy to see what the NETsilicon stocks are worth, and investors get a piece of Sorrento, which is in a hot market space right now."

In a recent report, Gladue established a 12-month price target of $134 and rated it a "long-term buy."

Coming off a year of major losses in 1998, Osicom is finally turning a profit. For the third quarter ended Oct. 31, net income was $1.5 million (13 cents per diluted share), compared with a loss of $3.4 million (50 cents) for the like period a year earlier.

Although there remains a $3.4 million loss on the books for the nine months ended Oct. 31, "net income from continuing operations went positive for the first time," said Cunningham. "The company is signing up a lot of business."

Although Gladue said projecting earnings is difficult because Osicom is in a quiet period, he expects $34.3 million in revenue for 2000, a 17 percent jump over 1999 revenues. (A company spokesman said fourth-quarter numbers will be announced later this month.)

                         Osicom Technologies Inc.
YEAR (Jan.31)                    1999    1998
Revenue (millions)              $94.9    $119
Operating Expenses (millions)    46.5    51.8
Operating Loss (millions)        (12)  (14.6)
Net Loss (millions)            (13.4)    (16)
Loss Per Share                ($1.99) ($3.25)

SUMMARY

Business: Optical networking products

Headquarters: Santa Monica 

CEO: Par Chadha

Market Cap: $1.3 billion

Dividend Yield: N/A [*]

Total Liabilities: $31.4 million

P/E Ratio: N/A

Long-Term Debt: $1.9 million

(*.)Osicom does not pay dividends.