Though the Osicom story below is by Christopher Byron and is dated Jan. 13, it isn't the story your search found (Witz is not mentioned). The story below refers to a "companion piece" which likely is the story in question.
A rocketing stock without any fuel
Osicom watches business sink - and sends shares soaring
OPINION
By Christopher Byron
MSNBC CONTRIBUTOR
JAN. 13 - There are lots of reasons why a stock can go from $1.78 to $18.84. But when the run-up occurs in less than 80 trading days without a backdrop of any important news developments, you can reasonably assume the gain has nothing to do with the business prospects of the company itself. More likely than not, you're looking at a company that's having trouble selling its own products, so decides to promote its stock instead.
CASE IN POINT: Osicom Technologies Inc. of Santa Monica, Calif. Osicom makes components that enhance performance of data and telecommunications networks. The company's products include devices that increase an optical fiber's transmission capacity, and chips that make devices such as printers and digital cameras network-ready.
People are apparently willing to pay good money for these things since, in the latest three-month period for which the company has released financial results (July-October 1998), Osicom reported net revenues of $19.04 million from selling them.
The trouble is, the business is apparently not so hot these days - at least if Osicom itself is any guide. We may deduce that from the fact that revenues to the company are in a tailspin, having declined steadily quarter-by-quarter over the last year, and as of Oct. 31, were off nearly 38 percent from the January 1998 level.
Meanwhile, losses have exploded, and now cumulatively total $15 million over the last five quarters, or 13 percent of revenues during the period. And the cash-flow picture is no better, with cash flow from operations exceeding a negative $7 million since January of 1998, versus a small but nonetheless positive $344,000 in cash from operations during the comparable 1997 period.
All of which helps explain why Osicom's stock price fell from nearly $18 per share last January, to a low of less than $2 by September as the bad news began to pile up.
But it doesn't explain why - with the bad news continuing to accumulate, and with no end yet in sight for the slump in sales - Osicom's stock price should have done a 180 degree U-turn last Sept. 10 and begun rising at a rate of 3 percent per day. It climbed for the next 80 trading days until Monday, Jan. 4, when it touched an intraday high of $18.37 per share.
Why would a stock do that - soar in value by more than 800 percent when its underlying business shows signs of coming apart?
One person who might be able to shed some light on that question is Osicom's chairman and chief executive officer, Parvinder Chadha. Unfortunately, requests for an interview with Chadha brought the news that he is out of the country and unavailable for interviews, thereby leaving only his company's stock promoters - a firm named Boston Communications Inc. - and the public record itself as a source of possible leads.
The facts of the case suggest that Osicom's stock has been driven skyward less by any expectation of improvement in the company's business prospects than by a plan to create a certain scarcity value in its stock.
As one might expect, the company's financial spokesmen say there's no mystery about the run-up at all. - People are beginning to realize the value of its products, enthuses a spokesman. Fortunately, in the case of Chadha and his pals, the public record is more enlightening.
It turns out that stock promotions are nothing new to Chadha, who hired a known stock swindler back in the mid-1990s to hype Osicom's share price from $7 to more than $50 in a presage of the more recent run-up. For more about that episode, read our companion piece.
As for this most recent run-up, the facts of the case suggest that Osicom's stock has been driven skyward less by any expectation of improvement in the company's business prospects than by a plan to create a certain scarcity value in its stock. Throw in an aggressive promotional effort via the media, along with a conveniently announced plan for an Internet-linked IPO spin-off (what else!), and presto, a stock that was fully valued at less than $2 becomes - for a brief but glorious moment - an $18 high-flier.
The ups and downs of Osicom's stock
By the early summer of 1998, Osicom's stock was selling for barely $7 and falling fast; the situation was dire. It was time for radical action, or Osicom, then listed on the Nasdaq SmallCap market, would find itself blocked from moving to the Nasdaq National Market, a long-cherished goal of Chadha's. (A listing on the Nasdaq National Market brings the opportunity for institutional investors, who normally don't dabble in SmallCap stocks. But a National Market listing is denied any company selling for less than $5 per share - the Nasdaq definitional threshold for so-called penny stocks.)
Data provided by Microsoft Investor
What to do? In July, Chadha tried his most audacious move yet - a one-for-three -reverse stock split designed to shrink the market float of Osicom's stock sharply, and by doing so cause the price of the individual shares to rise. As of April 30, 1998, total shares outstanding in the company equaled just under 21 million. Then came the reverse split, and by July 24 the shares outstanding stood at only 7 million.
But the real significance of this was in the stock's float - that is, in the number of shares that were actually being publicly traded. With the reverse-split the float imploded as well, and according to the company's financial spokesmen the total now stands at no more than about 3 million shares that are actually available for trading in the public market.
The very tightness of the float is what makes Nasdaq shares like Osicom so volatile, and when the company announced in late summer that it was spinning off a subsidiary as a stock dividend IPO to existing Osicom shareholders, it lit a match that soon had Osicom's stock price ablaze. Chat rooms heated up, and when the market as a whole rebounded from its Aug. 31 trough of 7,539 for the Dow Industrials, Osicom took off for the moon. The twin impact of a sharply diminished float, plus a 50 percent increase in daily trading volume over the previous eight months of the year, sent Osicom's share price up sharply and steadily, day after day.
Finally, in the six days of trading that began Christmas eve, the excitement over Osicom reached its final blow-out phase, and the stock surged 63 percent, to top out at $18.37 on Monday, Jan. 4. Since then, it looks as if short-sellers have seized control of the situation and as of Wednesday of last week they had hammered the stock back down to around $14 on volume of more than 500,000 shares.
So, is there any way to know what Osicom is really worth? Under the present circumstances, not hardly, for here we have a company with a tainted past and a history of alleged or actual involvement with stock swindlers - only some of which is disputed. What's more, the increase in its stock price was intentionally stirred up by a company-orchestrated reverse-stock-split designed to create scarcity value in the shares. |
