Reverse Split:
AGTI, which manufactures machines for electronic bingo, dropped to $0.017/share on 7/7. They then did a 1:4 reverse split. Following the reverse split, the stock, trading as AGTID, has fallen another 60%, to $0.03/share.
AGTI also did not suggest a reason for a reverse split. However, they did not cut their number of authorized shares, and it is suggested that they wanted to be able to effectively issue 4 times as many shares without putting it to a shareholder vote. Thus, their motivation seems to have been different from FIBR's, which claims it will cut the number of authorized shares. However, the result for Osicom's stock will probably be the same: a drop in price of 50% or more.
I predict a free-fall to well below $2/share pre-split, and perhaps even below $1/share, because of the universally well-known devastating impact of reverse splits on a stock's price. Even post-split, it is very possible this will lead to the complete breakdown of the stock, with Chapter 11 to be filed within two quarters. As a reverse split is almost always conducted by a company in dire financial difficulty, this announcement will signal such a perception to Osicom's suppliers and customers, even if it's not the case. Osicom's suppliers will begin demanding cash on delivery, and customers will be reluctant to give business to a company they fear may go out of business.
Thus, even though people point to the book value per share now, the fact is that if the company is prevented from production because of supplier difficulties, its sales will drop to zero, leading to massive losses. The book value will then be irrelevant, and in any case, the book value is irrelevant unless the company can be liquidated for that. The ISO 9000 factory in China may have some value, but what else does Osicom have? A bunch of products which were valuable 9 months ago, but which now have been matched by competitors, through management's inability to sell them and thus establish a niche.
I hope I'm wrong about this, but as it has happened in the overwhelming majority of reverse split cases, it is what I fear. It is very possible that this action of Par Chadha and his hand-picked board will be the coup-de-grace of Osicom. |
