FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

Osicom Technologies, Inc.
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2800 28th Street, Suite 100
Santa Monica, CA 90405
(310) 828-7496

UNION CITY, Ca., December 4, 1996/FOOLWIRE/ --- Osicom Technologies announced record financial results for the third fiscal quarter 1996, with revenues of $33.3 million, gross profit of $10.4 million, and net income of $1.3 million, or $0.14 per share. This compares to restated results due to pooling of interests for the third quarter 1995 of $8.9 million revenues, $3.4 million gross profit, and net income of $120,000, or $0.02 per share.

For the nine month period, Osicom had revenues of $78.7 million and gross profit of $23.7 million. The nine-month after-tax net loss, which includes the previously announced non-recurring charges taken in the period for acquisition-related expenses of $10.8 million, was $9.4 million, or ($1.32) per share. This compares to the nine months ended Oct. 31, 1995 restated results due to pooling of interests of $25.6 million revenues, $9.3 million gross profit, and a net loss of $351,000, or ($0.13) per share. Excluding the acquisition-related charges and amortization, net income for the nine months ended Oct. 31, 1996, would have been $2.1 million, or $0.29 per share.

Financial results for the quarter and nine months ended Oct. 31, 1995 have been restated to reflect the pooling of interests accounting associated with the acquisitions of Digital Products, Inc. and Builders Warehouse Association, Inc. In addition, earnings per share amounts for the third quarter and nine-month periods of the prior year have been adjusted for the 2-for-1 stock split effected on Feb. 12, 1996.

A LOOK BEHIND THE NUMBERS. The company talked about what they think the numbers indicate. First there is what they termed the "gee whiz" factor. Looking at where they came from, at last year's numbers, they are showing a growth rate of over 1200%. Then there is the size factor. Annualizing their revenues, they are now at a revenue run rate of over $130 million per year. This puts them in the top 15 networking companies.

COMPETING AGAINST BIG PLAYERS. The company still faces the expected questions -- are they anything more than a "me too" company and how can they compete against the likes of Cisco, Bay Networks, etc.? The company answers the questions by telling people to look at their customers. For example, Xerox, Motorola, AT&T, Silicon Graphics, MCI, NASDAQ. All broker/dealers who are members of NASDAQ are getting their quotes via Osicom's networking gear. These companies are some of the most astute buyers in the industry. Osicom says that they won this business because they make a superior product. As for how they compete against formidable companies like Cisco, Bay, Ascend, 3Com, and Shiva, the company said to look at the results of the recent "bake-off" conducted by Communications Week, the networking trade paper. Osicom's remote access router, the NetHopper, beat all of the above and a host of others to win the prestigious Max awards. They won because their product was easier to use, had better features, and a more robust design. While Osicom still doesn't have the size or valuation of the larger players, they do compete and say they can win. They added that in many of Cisco's and Bay's product lines, they are not competing at all because they provide complementary products. Cisco et al. support the large enterprise solution and Osicom connects the smaller workgroup.

WHAT IS THEIR STRATEGY GOING FORWARD? Their mission is to be the most competitive provider of innovative solutions for users of converged communications systems and information technologies. In other words, they design products that connect people and businesses to each other and to the Internet. Today, data, video, and voice travel over separate wires. Tomorrow they will converge and Osicom feels they have the skill set to aid in that process. Their goal is to make it all acceptable in the most user-friendly way possible. Their goal is to have all their products manual-free, even their enterprise switches. That means that installation should be as simple as plug-and-play. Network setup and diagnostics should be no more complicated than browsing a home page on the Internet and in some cases they are already there, leading the market.

ORGANIZATIONAL CHANGES. To expedite this process, they have made some organizational changes. Sharon Chadha has been named Chairman. Par Chadha, the company's visionary leader, has been named CEO. They named a new head of the broadband unit. The head of the Rockwell unit is now in charge of the networking division comprising 3 business units including remote access (headquartered in Annapolis); switches, concentrators, and hubs (based in Chicago); and the network adaptor unit (located in Santa Barbara). Pete Peterson, from DPI, is running the multi-fuction server unit which just won the Xerox contract. Tony Morrow heads up the wireless unit. They divided the company into these functional business units which have P&L responsibilities for design, manufacturing, and marketing in order to take advantage of inter-engineering synergies. Other functions, such as finance and accounting, information services, marketing, sales, and manufacturing are accessible and available across the organization. By structuring themselves in this manner, they hope to be able to more quickly integrate the various cultures and take advantage of the economies of scale. For example, on a manufacturing basis their buying power has increased almost proportionally to their revenue increase over the past year. They can leverage this new strength. In fact, they estimate that over the next year or so, they should be able to reduce their cost of goods sold by approximately 20% even if all other factors stay the same.

RECENT INSIDER PURCHASES AND PLANS. With regard to insider buying, Sharon, Par and Barry purchased approximately 300,000 shares or about 3% of the outstanding stock between September and October. The three now own approximately 40% of the company's outstanding shares. They plan to increase their position further.

ANALYST ESTIMATES. The company indicated that the estimates out there are not taking into account the synergies of the organization. They need to do better than the estimates if they can. They need to grow at least the rate the market is growing and they would like to do that on a quarter to quarter basis so they can catch up with some of their competitors. The market is growing at least at 30% overall. So the challenge they face is to drive the synergies of the organization and beat estimates.

PRINT SERVER BUSINESS. The print server business is going through a growth cycle. They are continuously winning OEM awards in that business, Xerox is the latest one announced. In the Observer, there were 5 different OEMs that announced their different printer lines and Osicom was in each one of them as the network connectivity solution. They have a whole series of products they are launching over the course of the next two years that will further help them grow that business.

REMOTE ACCESS. For the remote access business, which includes both dial-up and lease line routers and some remote access server products they are launching next quarter, and then a higher aggregation with some switching fabrics built in -- these products are also going through a growth cycle. They became a supplier to Ingram Micro-D in August of this year. A month later they won the Tech Data distribution agreement. That trend continues, they are seeing more robustness in that business as well.

NETWORK ADAPTORS. In the network adaptor business they have the best core technologies in that business. They have won 7 OEM agreements in the last 5-6 months and one of the latest ones they started shipping is Silicon Graphics. That business is going through a growth cycle although most of the business in that group is in the future rather than in the past.

SWITCHES, HUBS, ETC. The positive switch business is a mature business for them, especially the hub part. They make unmanaged and managed hubs. The business that is growing in this area is not the hubs but the concentrators -- the FDDI concentrators in the workgroup arena (they supply a key software piece that gets integrated into most of the FDDI chips made by Motorola, so they get royalties from that. They, in fact, have almost a 40% market share for anyone who uses that particular part. They just started shipping their Ethernet workgroup switch products, a 10-100 switch along with 24 ports. Because this is an OEM product, they don't see the margin benefit. These products have better margins than the hub products, but are not high margin. The switching for them is going to be in big demand starting in June/July of 1997 when they start participating in both the fiber channel and the Gigabit/Ethernet products. They have plans coming up in the following year also in the ATM switch products. They will grow rapidly in that business. They just recently got both the FBI and the IRS concentrator award in the hub/switch business.

BROADBAND. In the broadband business and video they got the Southern New England Telephone in their video delivery business. That business is also seeing growth.

So they are seeing growth in all parts of the business. Their 5 major business units are all reporting capture of some major wins.

MANUFACTURING SYNERGIES. The manufacturing organization has already begun to work together. The resources in the United States have been pooled together to become a national manufacturing organization and they are directly working with the head of all global manufacturing organizations. They have started to port first pieces of the network adaptor business and then some of the routers are going to start coming in from the facility in China in the first calendar quarter of 1997. Every month there is another product that is being ported. The 20% is a good estimate of cost reductions they see without any changes in their procurement, just by capturing an existing run of the product and moving it to their Far East operations. That is a cost reduction of about 20%.

SYNERGIES POSITIVELY IMPACT GROSS MARGINS AND COMPETITIVENESS. They are expecting to start to see their margins growing by the late first quarter/early second quarter. Currently on the majority of these products they make between 40% and 65% margins. Their gross margin goal is 50%. If they have another 20% in their back pockets just in manufacturing efficiencies, the majority of their competitors don't have that. Only a few very large competitors are able to capture this type of manufacturing efficiencies. Secondly, they are cutting costs by reducing the chip count on all boards and all system level products. Hence, their overall cost of products is going down. Since they control major parts of the technology that is used in these products, they have benefits of having both US manufacturing and Far East manufacturing, both in-house and sub-contractor based. This gives them a lot of flexibility to manage their costs. Right now they are making 65% margins on some of their switch products, yet they are still 25% cheaper than most all of the switch manufacturers.

VALUATION. The company was asked if the same "low valuation" situation relative to competitors exists in the print server product market. Osicom responded that they think they do have a relatively low valuation in that market as well. They compete in the network server market against Hewlett-Packard, Intel, and Emulex. Osicom believes they have the product line that is winning most of the OEM business, both in the US and Japan. The only contract they cited that they haven't won is IBM. All the other places they have been able to capture a portion of the business; because not all of the business is always available due to pre-existing contracts, etc. Emulex has a fairly decent valuation compared to Osicom.

ENCRYPTION PRODUCTS. The company was asked about Cylink and indicated that they compete with Cylink in terms of frame relay encryption. Osicom says that they win a lot of contracts for this technology, especially in the banking industry and they won the Best of Show Award at Interop last year for their frame relay encryption products. Osicom said that they will probably make some inroads into firewall and that type of area as part of the security arrangement. They don't think they will be developing anything in that business in-house, but they think they will make some joint ventures with companies that are up-and-coming stars who have the right security to be built into their products. The interesting thing about their frame relay encryption product is that it is a really economical means for a lot of companies to send their data around the world and to use frame relay versus other lease line alternatives. What has kept people from sending sensitive data such as financial data across the public network is the fact that encryption has been so expensive. Prior to their recent introduction of their RouterRate Plus products, it cost several thousand dollars per port to encrypt data. Osicom's products have that cost down to less than $300, so they expect to see quite an up-tick in that business.

ANALYST COVERAGE. The company was asked why there aren't more analysts following them. They indicated that they have spent a lot of time with the analyst community. The company's story has been, because of the acquisitions they make, etc., that they are a company in transformation. This is the first time people have seen the numbers representing all the combined companies and synergies, etc. They hope that in the very near term they will see coverage from a number of good names in the analyst community.

MANAGING DIVERSE R&D RESOURCES. The company was asked how they will bring the diverse R&D resources from the various acquired companies together effectively in a market that is growing and changing as fast as the networking market. The company answered that first they have named a chief technology officer for the company. Secondly, even though Rockwell had a lot of money invested in technology and they own a variety of core technologies in that business, the other businesses that are in that group are as competent and have as accomplished an R&D staff. To make their lives simpler, for the most part these companies were founded by the engineers and the people who run the businesses, so there is pre-existing R&D relationships or past relationships between them already. For example the FDDI business, the person who runs that business is considered one of the foremost authorities in the FDDI business and they supply Motorola, in the chipset business, some of the software that goes along with their product. The R&D budget, trailing, is running over $2 million per quarter and they recently acquired a company based in India with a staff of about 12 software engineers and they added a few additional signal processing engineers in that facility to start some of the next generation products that would work along with their other domestic R&D facilities in other time zones. R&D is the crucial part of their success in the future. They have so many different staffs and diversity, but they are insulated by the fact that most of these engineers have worked with each other in different places and found each other. They are trying not to centralize the R&D, but make key components in different divisions designed with the view that they need to be shared and used by other businesses. For example, if their remote access business needs to be in LANs and in that business they are going to need a switch, the fabric they are going to use is designed by another division. If they need a PCI bus, then their business in the LAN business that is in the adaptor business unit will be supplying the PCI chips already owned. Osicom's corporate management has to make sure that the various R&D groups know what is being developed where, how they can use it, and when it will be available and this is an ongoing and extremely crucial effort.

STANDARDS. As far as standards, they participate in about 14 different standards organizations on a continuous basis. Their engineers participate in the development of standards in the bodies that implement the standard. They have to stay on top of it. Whether they actually design a product or not is a business decision based on either their sale and marketing capabilities or their customer base. If several of those things don't exist, having a product won't make a difference. In the ATM and how they protect the shareholder value, for example, their goal is not to enter any market for which they don't see a customer base that will buy the product without having to do "missionary" work that may or may not pan out.

THE ATM MARKET. They go through a fair amount of research in their customer base and try to match their customer demands with products they are coming out with in the next 12-24 months. ATM is not one of those products. ATM in their case is a backbone product. They need to be able to connect through the wide area networks whether it is their remote access products or remote access servers. So, for them, that part of ATM is stable. In fact what people will see is that two years out, Osicom will be in the ATM business, but they will be using converged technologies, mixing broadband video and data using ATM and offering that to their telephone company customers who are using their video switches. Those customers will be able to use Osicom's ATM switches two years out if they want to have data and video coexist in certain areas. They are carefully watching the set-top box business. They are in fact the supplier to several cable companies in the set-top boxes out of their broadband business. But, that is a very different business than they are in. They will participate from a cable modem perspective and xDSL. They will stay focused in the workgroup end, delivery at the subscriber end and the client end where they are very successful today. They will not be in the ATM switch at the local level, they will not be participating at the set-top box level.

EXPENSES GOING FORWARD. The company was asked about operating expenses over the next couple quarters. The company answered that R&D will stay somewhere between $2 million and $2.5 million per quarter for the next several quarters. G&A is not expanding and is fairly stable. They think they have staff in every location that is sufficient to manage their growth, so SG&A costs won't change and in some areas they will come down because of efficiencies. But SG&A should remain relatively the same as this quarter. The company indicated that we will see improvement in sales, improvement in margins and most of those will flow to the bottom line without expansion of the costs related to SG&A and R&D.

BALANCE SHEET HIGHLIGHTS. Current assets are at $55 million over a total asset base of $84.9 million. Working at a current ratio they are at a 1.3 current ratio as well as a debt-to-equity of only 13%. Lastly they are looking at a return on capital annualized using this quarter of 13%. As of October 31st the company has $9.5 million in cash and cash equivalents. Headcount in the US is about 458. They have 50 people in Hong Kong and about 1200 in China. Accounts receivable is approximately $16 million and inventory is at $24 million.

PRODUCT/TECHNOLOGY STRATEGY. There are several new technologies that they feel they need to participate in to maintain product availability to their current customer base and channels. They mentioned fiber channel being one and network switches, Gigabit/Ethernet, xDSL are others. These products are not necessarily going to be developed by the group currently developing products for the next 12 months. So they need to put other design teams in place. For Gigabit/Ethernet and fiber channel they have already done that in Chicago. They are also looking to do some DSP work to participate in wide area network products. That work is going to be done in their facility in India but will be done on behalf of their remote access division. The management team in place is capable of managing and capturing whatever it takes for them to make sure they maintain their product introduction plan and not lose touch with the new technologies that are coming in or materially change the number of dollars it costs to do it.

GENERAL STRENGTHS/WEAKNESSES. The company feels right now they are very strong in point products in each segment. Their next generation products are products that glue different products together so they can offer a complete solution. One of the presentations they are beginning to make now is along those lines. Where they are going to remain vulnerable is in the enterprise level. Fortunately they are not looking to be in the enterprise business for at least two years so they think that if in the next 12-18 months they think they are weak in that business they will make appropriate either R&D adjustments or acquisitions to buy technology in that business.

MARKETING PROGRAMS. They have appointed a vice president of marketing who has taken charge of creating a unified image for the company. They are going to maintain their name as Osicom Technologies. In that scheme, all the divisions have already changed their names and are responding to customers as Osicom Technologies Network Business Unit, etc. Over the course of the next few months they will be launching some trade and business advertising. They think it will take another 3-4 months to transition over into the new image.

DISTRIBUTION ISSUES. The biggest distribution challenge they face is that they have little or no presence in the European and South American markets. They are very good in Hong Kong and Japan. They are not present in Canada in any real sense. So, in sales and distribution, they need to enter some markets but don't want to take the risk of managing far-flung businesses in remote locations with different currencies, sales patterns, and customs. So over the next two years they will enter into a fair number of agreements giving them strategic partnerships. They are looking forward to having Ingram and Tech Data, for example, to sell into Europe and into South America.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.