Osicom responds to Barrons:
8/24/97 - Osicom Technologies Cites Errors in Barron's Article; CEO Says He Taped Interview
SANTA MONICA, CALIF. (Aug. 24) BUSINESS WIRE -Aug. 24, 1997--Osicom Technologies, Inc., in response to an article which appeared in the latest issue of Barron's, has made public a letter written by Par Chadha, its chief executive officer, to the editor of Barron's. In the letter, which contains specific examples of what Mr. Chadha calls inaccuracies, false and defamatory statements and inaccurate quotes or statements taken out of context, Mr. Chadha states, "As you are aware, I taped the interview. This is not a case of selective memory -- at least not on my part." The complete text of the letter follows: -0- August 24, 1997 Mr. Edwin A. Finn, Jr., Editor Barron's 200 Liberty Street New York, NY 10281 Dear Mr. Finn:
Your article, "Buyer Beware," contains numerous inaccuracies, false and defamatory statements and inaccurate quotes or statements taken out of context. As you are aware, I taped the interview. This is not a case of selective memory -- at least not on my part.
When I first learned that the reporter on this story was a former employee of a fund engaged in the short-selling of stocks, I expressed concern. As I mentioned when we met, the short-selling community has had a long running campaign of using innuendo and false and misleading information in their attempt to discredit the company and its management and ultimately harm its shareholders. After reading the story, my concerns appear to have been justified.
-- In the second sentence of your article, for example, your reporter states, "By early this year...the duo (Barry Witz and Par Chadha) had transformed Osicom Technologies Inc. into one of California's fastest-growing companies..." The fact is that while we appreciate your recognition of our company's growth and the contributions Mr. Witz made to the company while a Director, he was neither a member of nor played a role in the management of the company. He was a director of Osicom from October 1, 1996 to May 5, 1997. During that time, he played the same role in the growth of the company as other Directors.
-- The next sentence begins, "Chadha was being hailed as a visionary, and he boasted that Osicom had better technology for computer networking than its far-larger rival, Cisco Systems." While I am flattered at being "hailed as a visionary," I did not "boast" that we had better technology than Cisco Systems. What you will find if you review your tape of my discussion with your reporter is during the interview, when asked about the quality of our products, I responded that several of our products had won industry awards and were ranked at the top of their respective categories, ahead of competitive products including those produced by much larger companies, such as 3-Com, Ascend and Cisco Systems. Like much else in the story, your reporter's version of this conversation is distorted.
I could continue to go through the article, paragraph-by-paragraph but won't due to space and time constraints. I do, however, want to hit a few of the more egregious errors.
-- Early in the story, your reporter states, "...both are subjects of active criminal investigations on both sides of the Atlantic because of the pair's extensive dealings with one John J. O'Carroll, whom British investigators describe as a henchman for a guy who's been convicted of laundering $136 million for the Cali drug cartel." Later, the story states, "O'Carroll is ... the subject of a money-laundering investigation by the U.K.'s Crown Prosecution Services, according to a memo filed in federal court in May 1996 by the U.S. Attorney for the Eastern District of New York...The memo further says that authorities are probing the involvement of some unnamed U.S. citizens with off-shore companies registered in the Channel Islands and the British Virgin Islands. Persons with knowledge of the investigation say that two of the U.S. citizens being studied for their dealings with O'Carroll are Chadha and Witz. (1) I have never had any dealings with John J. O'Carroll, let alone extensive dealings, nor do I know the man. (2) Neither I nor my attorneys have any knowledge of any criminal or other investigations. These same allegations were published several months ago by The Daily Telegraph in London, investigated by their attorneys and found to have no basis in fact. As a result, as we pointed out in our meeting with you and your reporter, after investigating the matter, The Daily Telegraph published an apology and a retraction. Please rest assured that you will be receiving the same demand from our attorneys concerning this and other inaccuracies published in your article within the next several days.
-- Nearly one third of the article -- including a chart which takes up approximately 30% of a page -- is devoted to the airing of salacious allegations by Eric Brown, a former employee of Scorpion Technologies, about alleged misdeeds at that company. No current or past member of Osicom's management was ever an officer or director of Scorpion. I had no involvement with that company except through a third party sale of one of my subsidiaries to a company called Saturn which in turn, sold it to Scorpion. I would hold that your reporter's inclusion of this information is further evidence of his bias and attempt to distort the truth. While not relevant, since none of the allegations concern me or Osicom, I find it particularly interesting that your article gives the credence it does to Mr. Brown's allegations given the fact that you say he admitted "his own wrongdoings" in a sworn deposition, "which included phonying financial reports, lying to Scorpion's auditors and smoking pot. Brown tried to explain his acts by noting his history of manic depression, for which he sometimes took medication."
-- Your article states, "Osicom's shares jumped nearly two points to just under $12 in April, when Chadha's firm announced that it would provide products for MCI for a U.S. Postal Service contract that could be worth $3 billion. But in reality, Osicom got only a part of that $3 billion contract, and a small part at that: $18 million over several years, Osicom officials said in an interview. Aside from the fact that the press release concerning this contract was approved by all parties concerned, the news release reads in part, "Osicom Technologies, Inc. today announced that it will supply MCI Communications Corp. with network remote access units to support MCI's Managed Network Services (MNS) contract with the U.S. Postal Service. The MNS contract has an initial term of five years and two three-year renewal options and a guaranteed value of at least $100 million and a potential value of up to $3 billion...Under the MNS contract, MCI will provide the U.S. Postal Service an array of telecommunications services...." The news release is very clear that Osicom's contract is to supply MCI with remote access units to support MCI's MNS. It in no way states or implies otherwise. Bloomberg got it right. Reuters got it right. The Los Angeles Times got it right.
-- Finally, and perhaps most amazing of all -- though there are numerous disturbing errors in the article -- is your reporter's analysis of our numbers. Your article states, "In the latest reported quarter of April 1997, the negative cash flow continued, but Osicom reported earnings nonetheless. Those earnings wouldn't have been possible, however, if Osicom hadn't made several changes to its balance sheet: It increased its payables to trade creditors from 65 days of sales costs in January to 88 days in April; the company boosted the percentage of research and development expenses that it capitalized from 24% a year earlier to 46%." In a word, this is ridiculous! Anyone with a basic understanding of accounting knows that a change in the average age of payables could not possibly affect earnings one way or another. Equally ridiculous, as any CPA would tell you, is the statement, "Osicom's earnings wouldn't have been possible if the company hadn't made several changes to its balance sheet."
-- Some other errors in your reporters "analysis" of our numbers include: (1) The number of days of cost of goods sold in accounts payable increased from 81 days to 88 days in April, not from 65 to 88 days as you reported; (2) The number of days of cost of goods sold decreased from 100 days in the comparable period in April 1996; (3) The company, in accordance with GAAP, has net cash flow from operations of $2,324,000. Thus, a proper analysis of the company would show that it had positive cash flow even after the software development costs that were capitalized; (4) Regarding the capitalization of product development costs: The periods compared in the article are not comparable in light of the acquisitions during FY ended January 1997. The company has an aggressive and focused research and development program in place that includes nine identified new products, of which some are in beta testing, as well as development programs for new concepts. The focus of Osicom is bringing new technologies to market rather than focusing on technologies that have declining margins and markets. The fact that Osicom can do more development with a smaller engineering staff should be commended: the larger the engineering staff, the smaller the percentage of cost that appear to be capitalized; (5) The implication that it is improper to capitalize product enhancement costs is improper is just plain wrong.
As I stated earlier, these are just a few examples of the errors, false and defamatory statements and inaccuracies in this article. (You didn't even spell my name right in the photo caption.) I look forward to hearing from you soon concerning this matter. Sincerely, Par Chadha Chief Executive Officer -0- |
