OSICOM TECHNOLOGIES INC, 10-Q, 2000-12-13

OSICOM TECHNOLOGIES INC
10-Q, 2000-12-13
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

-------------------

FORM 10-Q

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2000

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 0-15810

OSICOM TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

<TABLE>
<S> <C>
NEW JERSEY 22-2367234
(STATE OR OTHER JURISDICTION OF INCORPORATION (IRS EMPLOYER IDENTIFICATION NUMBER)
OR ORGANIZATION)

9990 MESA RIM ROAD
SAN DIEGO, CALIFORNIA 92121
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>

(858) 558-3960
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

-------------------

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

Common Stock, $.30 par value per share, Outstanding: 12,433,357 shares at
December 4, 2000.

This Form 10-Q, future filings of the registrant, and oral statements made
with the approval of an authorized executive officer of the Registrant may
contain forward looking statements. In connection therewith, please see the
cautionary statements and risk factors contained in Item 2. 'Fluctuations in
Revenue and Operating Results' and 'Forward Looking Statements -- Cautionary
Statement', which identify important factors which could cause actual results to
differ materially from those in any such forward-looking statements.

================================================================================

<PAGE>

OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
2000 2000
------------ -----------
(UNAUDITED)
(In Thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents.................................... $ 12,735 $ 13,511
Accounts receivable, net................................ 10,225 11,639
Inventory, net.......................................... 10,615 13,004
Prepaid expenses and other current assets............... 2,713 1,503
Investment in marketable securities..................... 97,908 168,750
-------- --------
TOTAL CURRENT ASSETS................................ 134,196 208,407
-------- --------
PROPERTY AND EQUIPMENT, NET................................. 15,609 5,520
-------- --------
OTHER ASSETS
Purchased technology, net............................... 1,116 1,395
Capitalized software, net............................... -- 1,773
Other assets............................................ 10,605 3,337
Investment in former subsidiary......................... 6,310 --
Due from disposal of discontinued operations............ 1,699 2,833
-------- --------
TOTAL OTHER ASSETS.................................. 19,730 9,338
-------- --------
TOTAL ASSETS................................................ $169,535 $223,265
-------- --------
-------- --------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Short-term debt......................................... $ 1,185 $ 5,407
Current maturities of long term debt.................... 195 721
Accounts payable........................................ 4,547 6,417
Other current and accrued liabilities................... 10,134 6,376
-------- --------
TOTAL CURRENT LIABILITIES........................... 16,061 18,921
-------- --------
Long-term debt and capital lease obligations................ 3,749 1,806
-------- --------
TOTAL LIABILITIES................................... 19,810 20,727
-------- --------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST
Preferred stock of subsidiary; 8,954 shares issued and
outstanding; subsidiary liquidation preference
$48,800............................................... 48,080 --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; cumulative dividends;
liquidation preference $6,578 including accumulated
dividends............................................. 1 1
Common stock, $.30 par value; 16,667 shares authorized;
12,320 shares issued and 12,311 shares outstanding at
October 31, 2000; 11,483 shares issued and 11,474
shares outstanding at January 31, 2000................ 3,696 3,445
Additional paid-in capital.............................. 113,307 102,418
Notes receivable from option exercises.................. (5,034) --
Deferred stock compensation............................. (1,623) --
Accumulated deficit..................................... (102,475) (67,771)
Accumulated unrealized gain on marketable securities.... 93,842 164,514
Treasury stock, at cost; 9 shares at October 31, 2000
and January 31, 2000.................................. (69) (69)
-------- --------
TOTAL STOCKHOLDERS' EQUITY.......................... 101,645 202,538
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $169,535 $223,265
-------- --------
-------- --------
</TABLE>

<PAGE>

OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
-------------------- --------------------
2000 1999 2000 1999
--------- -------- --------- --------
(In Thousands, except per share amounts)
<S> <C> <C> <C> <C>
NET SALES.............................................. $ 10,849 $18,948 $ 32,273 $55,283
COST OF SALES.......................................... 7,340 9,620 23,067 28,957
-------- ------- -------- -------
GROSS PROFIT....................................... 3,509 9,328 9,206 26,326
-------- ------- -------- -------
OPERATING EXPENSES
Selling and marketing.............................. 4,335 3,999 13,561 12,629
Engineering, research and development.............. 5,707 2,171 18,093 6,934
General and administrative......................... 4,186 2,639 12,386 8,564
Stock compensation................................. 400 -- 1,236 --
Other operating expenses........................... 93 93 2,348 279
-------- ------- -------- -------
TOTAL OPERATING EXPENSES....................... 14,721 8,902 47,624 28,406
-------- ------- -------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS............... (11,212) 426 (38,418) (2,080)
-------- ------- -------- -------
OTHER INCOME (CHARGES)
Investment income.................................. 494 53 1,855 85
Interest expense................................... (234) (454) (746) (1,518)
Other income (charges)............................. -- 51 (4) 53
Gain on sales of marketable securities............. 4,049 14,170 4,049 14,170
-------- ------- -------- -------
TOTAL OTHER INCOME (CHARGES)................... 4,309 13,820 5,154 12,790
-------- ------- -------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES................................................ (6,903) 14,246 (33,264) 10,710
PROVISION FOR INCOME TAXES............................. -- 3,406 -- 3,406
-------- ------- -------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS............... (6,903) 10,840 (33,264) 7,304
LOSS FROM DISCONTINUED OPERATIONS (NET OF INCOME TAX OF
$-0-, $-0-, $-0- AND $-0-)........................... -- (1,271) -- (2,620)
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS (NET OF
INCOME TAX BENEFIT OF $-0-, $3,406, $-0- AND
$3,406).............................................. -- (8,036) -- (8,036)
-------- ------- -------- -------
NET INCOME (LOSS)...................................... $ (6,903) $ 1,533 $(33,264) $(3,352)
-------- ------- -------- -------
-------- ------- -------- -------
INCOME (LOSS) PER COMMON SHARE:
PREFERRED STOCK DIVIDENDS.......................... 579 295 1,555 780
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES...... $ (7,482) $ 1,238 $(34,819) $(4,132)
-------- ------- -------- -------
-------- ------- -------- -------
BASIC
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
(RESTATED, IN THOUSANDS)..................... 11,845 9,552 11,658 9,046
NET INCOME (LOSS) PER COMMON SHARE:
Continuing Operations...................... $ (0.63) $ 1.10 $ (2.99) $ 0.72
Discontinued Operations.................... n/a (0.97) n/a (1.18)
-------- ------- -------- -------
NET INCOME (LOSS) PER COMMON SHARE............. $ (0.63) $ 0.13 $ (2.99) $ (0.46)
-------- ------- -------- -------
-------- ------- -------- -------
DILUTED
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
(RESTATED, IN THOUSANDS)..................... 11,845 10,405 11,658 10,416
NET INCOME (LOSS) PER COMMON SHARE:
Continuing Operations...................... $ (0.63) $ 1.04 $ (2.99) $ 0.68
Discontinued Operations.................... n/a (0.90) n/a (1.02)
-------- ------- -------- -------
NET INCOME (LOSS) PER COMMON SHARE..................... $ (0.63) $ 0.14 $ (2.99) $ (0.34)
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>

<PAGE>

OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------- -------------------
2000 1999 2000 1999
--------- ------- --------- -------
(In Thousands)
<S> <C> <C> <C> <C>
COMPREHENSIVE INCOME AND ITS COMPONENTS
CONSIST OF THE FOLLOWING:
Net income(loss)........................................ $ (6,903) $ 1,533 $ (33,264) $(3,352)
Change in unrealized gains on marketable securities..... (100,082) 91,049 (70,672) 91,049
--------- ------- --------- -------
COMPREHENSIVE INCOME (LOSS)................................. $(106,985) $92,582 $(103,936) $87,697
--------- ------- --------- -------
--------- ------- --------- -------
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31
---------------------
2000 1999
---------- -------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations..................... $(33,264) $ 7,304
-------- -------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................... 3,345 3,471
Accounts receivable and inventory reserves.......... 5,416 1,442
Expenses paid through issuance of securities........ -- 548
Gain on sale of marketable securities............... (4,049) (14,170)
Deferred and other stock compensation............... 1,236 --
Provision for income taxes.......................... -- 3,406
Changes in assets and liabilities net of effects of
business entity divestures:
Increase in accounts receivable..................... (12,127) (2,653)
Increase in inventories............................. (6,732) (3,462)
Decrease (increase) in other current assets......... 491 (1,268)
Increase in accounts payable........................ 1,061 3,203
Increase in accrued expenses........................ 5,776 2,585
Increase (decrease) in other current liabilities.... 211 (341)
-------- -------
NET CASH PROVIDED BY (USED) IN CONTINUING
OPERATING ACTIVITIES.......................... (38,636) 65
NET CASH PROVIDED BY (USED) IN DISCONTINUED
OPERATING ACTIVITIES.......................... -- 1,779
-------- -------
NET CASH USED IN OPERATING ACTIVITIES........... (38,636) 1,844
-------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment...................... (12,473) (1,896)
Capitalized software development costs.................. -- (894)
Cash received from sale of marketable securities........ 4,219 13,717
Advances to affiliates, net of repayments............... 808 (8,528)
Other assets............................................ (343) (2,755)
Expenditures for investments............................ (6,929) --
Cash of former subsidiary............................... (6,961) --
Investing activities of discontinued operations......... -- 351
Decrease in cash of discontinued operations............. -- 943
-------- -------
NET CASH USED IN INVESTING ACTIVITIES........... (21,679) 938
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of short-term debt, net of
repayments............................................ (211) 1,353
Proceeds from long term debt............................ 2,417 907
Repayment of long-term debt............................. (402) (45)
Proceeds from issuance of preferred stock by
subsidiary............................................ 46,638 --
Proceeds from issuance of common stock by subsidiary.... 7,851 --
Proceeds from stock option exercises.................... 3,246 2,599
Preferred stock dividends............................... -- (481)
Purchases of treasury stock............................. -- (153)
Other................................................... -- (73)
Financing activities of discontinued operations......... -- (3,072)
-------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES....... 59,539 1,035
-------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (776) 3,817
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD............ 13,511 3,480
-------- -------
CASH AND CASH EQUIVALENTS -- END OF PERIOD.................. $ 12,735 $ 7,297
-------- -------
-------- -------
</TABLE>

<PAGE>

OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In Thousands, except share and per share amounts)

Through our subsidiaries we design, manufacture and market integrated
optical networking and bandwidth aggregation products for enhancing the
performance of data and telecommunications networks. Our products are deployed
in telephone companies, Internet Service Providers, governmental bodies and the
corporate/campus networks that make up the 'enterprise' segment of the
networking marketplace. We have facilities in San Diego, Fremont, and Santa
Monica, California. Our former subsidiaries, NETsilicon, Inc. and Entrada
Networking, Inc., are located in Waltham, Massachusetts and San Diego,
California, respectively. We market and sell our products and services through
a broad array of channels including worldwide distributors, value added
resellers, original equipment manufacturers ('OEM's'), local and long distance
carriers and governmental agencies.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying financial data as of October 31, 2000 and January 31, 2000,
for the three and nine months ended October 31, 2000 and 1999, have been
prepared by us, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The January 31, 2000 balance sheet was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. However, we believe that the
disclosures we have made are adequate to make the information presented not
misleading. These consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto included in our
Annual Report on Form 10-K for the year ended January 31, 2000.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that affect
the reported amounts of assets, liabilities, revenues and expenses, and the
disclosure of contingent assets and liabilities. Actual results could differ
from these estimates. In the opinion of Management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows as of October 31, 2000
and for the three and nine months ended October 31, 2000, have been made. The
results of operations for the nine months ended October 31, 2000 are not
necessarily indicative of the operating results for the full year.

On August 31, 2000, we completed a merger of Entrada with Sync Research,
Inc. ('Sync'), a Nasdaq listed company in which we received 4,244,155 shares of
the merged entity which changed its name to Entrada Networks, Inc. and changed
its symbol to ESAN. We purchased 93,900 shares of Sync in the open market during
June and July, 2000 for $388 and on August 31, 2000 purchased an additional
1,001,818 shares directly from Entrada for $3,306. After these transactions we
owned approximately 49% of Entrada Networks and we have accounted for our
interest at cost as of October 31, 2000. We distributed most of our Entrada
shares to our shareholders, option holders and warrant holders of record as of
November 20, 2000. The distribution was made at the rate of one-fourth (0.25) of
an Entrada share for each of our outstanding shares and each option or warrant
to acquire our common shares which is exercised prior to April 30, 2001. We have
granted options to purchase 410,000 of our Entrada shares for $3.19 per share
(the merger price) to several of our then officers and consultants. More
information concerning Entrada is available in its public filings with the
Securities and Exchange Commission.

<PAGE>

OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(In Thousands, except share and per share amounts)

DISCONTINUED OPERATIONS

Our Far East business unit, consisting of Uni Precision Industrial Limited
('Uni'), has been accounted for as a discontinued operation pursuant to our
formal adoption on May 15, 1999 of a plan to sell this division. As of January
31, 2000, we sold Uni to a group led by its Hong Kong-based management for
$2,500 in cash in repayment of our advances to Uni and a $3,000 non-voting
redeemable preferred security. This security has not been considered in the
estimated proceeds from disposal due to the uncertainty of future collection.
Net assets disposed, at their expected realizable values, have been separately
classified in the accompanying balance sheets. During the quarter and nine
months ended October 31, 2000 we received payments of $280 and $808,
respectively.

NETSILICON, INC.

In connection with the initial public offering by NETsilicon, Inc. ('NSI'),
our remaining 55.4% interest became non-voting shares. Accordingly, the
accompanying financial statements reflect the results of operations of NSI
through September 14, 1999 at which time our remaining interest is accounted for
as an 'available for sale security.' Under this accounting, the 7.5 million
shares of NSI held by us are marked-to-market at the end of each reporting
period with the difference between our basis and the fair market value as
reported on Nasdaq reported as a separate element of stockholders' equity and is
included in the computation of comprehensive income. In October 2000, we sold
350,000 shares of our investment in NSI at an approximate average price of
$12.05 per share reducing the number of shares we own to 7.1 million. The
purchasers have the right to receive additional NSI shares from us if the three
day average high for the NSI common stock, as quoted on Nasdaq at December 31,
2000 is less than the price paid to us by the purchasers. This price protection
is limited to $8.00 per share. Our former Chairman and CEO purchased 100,000 of
these shares of NSI for $1,164. As a result, our remaining interest is
approximately 51% as of October 31, 2000 and continues to be accounted for as a
marked-to-market security.

STOCK COMPENSATION

We account for employee-based stock compensation utilizing the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
'Accounting for Stock Issued to Employees.' Accordingly, compensation cost for
stock options issued to employees is measured as the excess, if any, of the fair
market price of our common stock at the date of grant over the amount an
employee must pay to acquire the stock. This amount appears as a separate
component of stockholders' equity and is being amortized on an accelerated basis
by charges to operations over the vesting period of the options in accordance
with the method described in Financial Accounting Standards Board Interpretation
No. 28. All such amounts relate to options to acquire common stock of Sorrento
Networks granted by it to its employees; during the three and nine months ended
October 31, 2000 Sorrento Networks amortized $303 and $981 respectively of the
total $2,605 it recorded for deferred stock compensation.

For non-employees, we compute the fair value of stock-based compensation in
accordance with Statement of Financial Accounting Standards No. 123, 'Accounting
for stock-Based Compensation,' and Emerging Issues Tax Force (EITF) 96-18,
'Accounting for Equity Instruments that are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services.' All such amounts
relate to options to acquire common stock of Sorrento Networks granted by it to
its consultants; during the three and nine months ended October 31, 2000
Sorrento Networks recorded $97 and $255 respectively for options granted to
consultants.

<PAGE>

OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(In Thousands, except share and per share amounts)

RECENT ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards ('SFAS') No. 133, 'Accounting
for Derivative Instruments and Hedging Activities', as amended by SFAS 137 and
138, is effective for financial statements with fiscal quarters of all fiscal
years beginning after June 15, 2000. The Accounting Standards Executive
Committee issued Statement of Position ('SOP') 98-1, 'Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use,' and SOP 98-5,
'Reporting on the Costs of Start-up Activities,' effective in the current or
future periods. The adoption or future adoption of these standards has had or
will have no material effects, if any, on our financial position or results of
operations.

The Financial Accounting Standards Board issued Interpretation ('FIN') No.
44, 'Accounting for Certain Transactions involving Stock Compensation,' an
Interpretation of APB Opinion No. 25. FIN 44 clarifies the application of
Opinion No. 25 for (a) the definition of an employee for purposes of applying
Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a
non-compensatory plan, (c) the accounting consequences of various modifications
to the terms of a previously fixed stock option award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
is effective July 2, 2000, but certain conclusions cover specific events that
occur after either December 15, 1998, or January 12, 2000. The adoption of this
standard had no material effect, if any, on our financial position or results of
operations.

The Securities and Exchange Commission issued Staff Accounting Bulletin No.
101, Revenue Recognition ('SAB 101') which broadly addresses how companies
report revenues in their financial statements effective the fourth fiscal
quarter of years beginning after December 31, 1999. We are currently evaluating
the effect, if any, of the adoption of this policy on our financial position or
results of operations.

BALANCE SHEET DETAIL

Inventories at October 31, 2000 and January 31, 2000 consist of:

<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
2000 2000
----------- -----------
<S> <C> <C>
Raw material.................................. $ 6,842 $ 9,024
Work in process............................... 2,949 3,677
Spare parts................................... -- 141
Finished goods................................ 3,116 4,232
------- -------
12,907 17,074
Less: Valuation reserve....................... 2,292 4,070
------- -------
$10,615 $13,004
------- -------
------- -------
</TABLE>

PROPERTY AND EQUIPMENT

In October 2000, we completed our purchase of a 41,000 square foot facility
immediately adjacent to our existing San Diego, California facility. The
purchase price was $4,805 including the assumption of existing indebtedness of
$2,417 on a thirty-year, 7.6% fixed rate mortgage, with total annual payments of
$210.

<PAGE>

OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(In Thousands, except share and per share amounts)

STOCKHOLDERS' EQUITY

We are authorized to issue the following shares of stock:

16,666,667 shares of Common Stock ($.30 par value)

2,000,000 shares of Preferred Stock ($.01 par value) of which the
following series have been designated:

2,500 shares of Preferred Stock, Series A

1,000 shares of Preferred Stock, Series B

100,000 shares of Preferred Stock, Series C

3,000 shares of Preferred Stock, Series D

1,000,000 shares of Preferred Stock, Series E

We have outstanding the following shares of preferred stock:

<TABLE>
<CAPTION>
SHARES PAR LIQUIDATION
OUTSTANDING VALUE PREFERENCE
----------- ----- -----------
<S> <C> <C> <C>
Series A........................................ 2,500 $ 1 $2,500
Accrued, unpaid dividends....................... -- -- 1,225
Series D........................................ 2,853 -- 2,853
----- ----- ------
5,353 $ 1 $6,578
----- ----- ------
----- ----- ------
</TABLE>

Preferred stock dividends during the quarters and nine months ended October
31, 2000 and 1999 consist of:

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
----------------- -----------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accrued, unpaid dividends (Series A)..... $ 38 $ 38 $ 113 $113
Accrued, unpaid dividends (Series C)..... -- -- -- --
Deemed dividends (Series C).............. -- -- -- 103
Dividends paid (Series C)................ -- 257 -- 564
Deemed dividends (Sorrento Series A)..... 541 -- 1,442 --
---- ---- ------ ----
$579 $295 $1,555 $780
---- ---- ------ ----
---- ---- ------ ----
</TABLE>

OTHER CAPITAL STOCK TRANSACTIONS

On March 3, 2000, Sorrento Networks, Inc. completed a sale of 8,596,333
shares of its Series A Convertible Preferred Stock receiving net proceeds of
$46,638. These shares were sold to a group of investors. 1,467,891 shares were
purchased, pursuant to a previously contracted right of participation, by
entities in which one of our former officers, who was an outside director at
that time, was a partner or member. In addition, Sorrento paid a finders fee of
$1,950 through the issuance by Sorrento of 357,799 shares of its Series A
Convertible Preferred Stock to an entity in which one of our former officers,
who was an outside director at that time, was a partner. Subsequent to the
purchase of 2,697,248 of these shares an officer and director of the purchaser
joined the Board of Directors of Sorrento. One of our outside directors
purchased 45,872 shares and a director of Sorrento, purchased 91,744 in this
placement.

Each share of Sorrento's Series A Preferred Stock is convertible into one
share of Sorrento's common stock at the option of the holder, may vote on an 'as
converted' basis except for

<PAGE>

OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(In Thousands, except share and per share amounts)

election of directors, and has a liquidation preference of $5.45 per share. The
shares are automatically converted into Sorrento's common stock upon an
underwritten public offering by Sorrento with an aggregate offering price of at
least $50,000. In the event Sorrento does not complete a $50,000 public offering
by March 1, 2001, the holders of at least 50% of the then outstanding Series A
shares may request to be redeemed at the shares then adjusted liquidation
preference. The net proceeds from the issuance of these shares has been
classified as a minority interest in the accompanying financial statements. The
difference between the net proceeds received on the sale of these shares and
their liquidation preference of $48,800 will be recorded as a deemed dividend
during the period from issuance to March 31, 2001. During the three and nine
months ended October 31, 2000 we recorded a deemed dividend of $541 and $1,442,
respectively, with respect to the Sorrento Series A shares.

STOCK OPTION PLANS

We have three stock options plans in effect: the 1988 Stock Option Plan, the
1997 Incentive and Non-Qualified Stock Option Plan and the 1997 Director Stock
Option Plan. In addition, we have adopted two new plans: the 2000 Stock
Incentive Plan, and the 2000 Employee Stock Purchase Plan. The stock options
have been made available to officers, directors, employees and consultants. All
options are granted at not less than fair value at the date of grant and have
terms varying from 3 to 10 years. The purpose of these plans is to attract,
retain, motivate and reward our officers, directors, employees and consultants
to maximize their contribution towards our success. At October 31, 2000 there
were 4,268,624 shares under option at prices varying from $3.00 to $69.13 per
share.

EARNINGS PER SHARE CALCULATION

The following data show the amounts used in computing basic earnings per
share for the quarters ended October 31, 2000 and 1999.

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------- ---------------------
2000 1999 2000 1999
------- ------ -------- -------
<S> <C> <C> <C> <C>
Net loss................................ $(6,903) $1,533 $(33,264) $(3,352)
Less: preferred dividends............... (579) (295) (1,555) (780)
------- ------ -------- -------
Net loss available to common
shareholders used in basic EPS........ $(7,482) $1,238 $(34,819) $(4,132)
------- ------ -------- -------
------- ------ -------- -------
Average number of common shares used in
basic EPS............................. 11,844,816 10,405,040 11,657,679 10,416,082
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

We had a net loss for the quarter and nine months ended October 31, 2000 and
for the nine months ended October 31, 1999. Accordingly, the effect of dilutive
securities including convertible preferred stock, vested and nonvested stock
options and warrants to acquire common stock are not included in the

<PAGE>

OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(In Thousands, except share and per share amounts)

calculation of EPS because their effect would be antidilutive. The following
data shows the effect on income and the weighted average number of shares of
dilutive potential common stock.

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------- ---------------------
2000 1999 2000 1999
------- ------ -------- -------
<S> <C> <C> <C> <C>
Net loss available to common
shareholders used in basic EPS........ $(7,482) $1,238 $(34,819) $(4,132)
Preferred stock dividends............... -- -- -- --
------- ------ -------- -------
Net loss available to common
shareholders used in basic EPS........ $(7,482) $1,238 $(34,819) $(4,132)
------- ------ -------- -------
------- ------ -------- -------
Average number of common shares used in
basic EPS............................. 11,844,816 9,552,001 11,657,679 9,045,872
Effect of dilutive securities:
Convertible preferred stock......... 31,623 489,722 10,541 607,709
Stock benefit plans................. 1,574,748 350,228 1,954,255 645,890
Warrant exercises................... 87,522 13,089 108,101 116,611
---------- --------- ---------- ---------
Average number of common shares and
dilutive potential common stock used
in diluted EPS........................ 13,538,709 10,405,040 13,730,576 10,416,082
---------- --------- ---------- ---------
---------- --------- ---------- ---------
</TABLE>

The shares issuable upon exercise of options and warrants represents the
quarterly average of the shares issuable at exercise net of the shares assumed
to have been purchased, at the average market price for the period, with the
assumed exercise proceeds. Accordingly, options and warrants with exercise
prices in excess of the average market price for the period are excluded because
their effect would be antidilutive.

RELATED PARTY TRANSACTIONS

During July 2000, we agreed to loan $300 for three years at the applicable
federal rate provided for in Internal Revenue Code Section 1274 to one of our
officers in connection with accepting employment. This loan is full recourse and
the officer has pledged his options to acquire our common stock and any options
he may receive from any of our subsidiaries as collateral. As of October 31,
2000 he has received approximately $269 of this amount for which the interest
rate is 6.60%.

During October 2000, our former CEO and Chairman, and another former
officer, exercised options to acquire 578,500 shares of our common stock.
Pursuant to our agreement with our former CEO and Chairman, we loaned the
exercise price of $5,034 related to the exercise of 507,388 stock options at the
applicable federal rate of 6.30% for two years. The loan is fully collateralized
by the 507,388 shares of our common stock.

COMMITMENTS

In September 2000, we entered into a two year employment agreement with
Xin Cheng, our present Chairman and Chief Executive Officer, ending March 2002,
which provides for a salary of $250 per year. In addition, he is entitled to a
bonus equal to two year's base salary payable at the end of the contract. We
have the right to terminate this contract for cause. However, should he be
terminated without cause he will receive a continuation of his salary and
benefits for two years and he is required to provide consulting services to us
during that period.

<PAGE>

OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(In Thousands, except share and per share amounts)

We entered into a two year employment contract with Rohit Phansalkar, our
immediate past Chairman and Chief Executive Officer, ending May 2002, which
provides for a salary of $250 per year. He resigned as our CEO in September
2000, in order that the CEO of our Sorrento subsidiary become our CEO and
Chairman of the Board. His contract requires us to continue his salary and
benefits for two years, during which he is available to provide consulting
services to us.

Four of our officers, an employee and consultant have a two year employment
agreements ending in May, July and August 2002, which provide for salaries
totaling $1,096. These contracts may be terminated for cause. However, should
any of these individuals be terminated without cause or resign in certain
circumstances they will receive a continuation of their salary and benefits for
two years, and they are required to provide consulting services to us during
that period.

CONCENTRATIONS OF CREDIT RISK

Although we are directly affected by the economic well being of our
significant customers listed in the following table, we do not believe that
significant credit risks exists at October 31, 2000. All customer receivables
are within terms and we perform ongoing credit evaluations of our customers
financial condition.

The following data shows net sales to customers who represented more than
10% of net sales during the quarter and nine months ended October 31, 2000 as a
percentage of net sales and the customers accounting for more than 10% of net
receivables at October 31, 2000:

<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
------------------------------------ PERCENTAGE OF NET
QUARTER ENDED NINE MONTHS ENDED RECEIVABLES AT
OCTOBER 31, 2000 OCTOBER 31, 2000 OCTOBER 31, 2000
---------------- ---------------- ----------------
<S> <C> <C> <C>
Customer A.......................... 19.8% 6.7% 22.2%
Customer B.......................... 14.4 14.9 15.3
Customer C.......................... 10.9 7.9 16.4
Customer D.......................... 9.0 7.5 14.1
</TABLE>

SUBSEQUENT EVENTS

In November 2000, we completed a sale of our investment in a customer of our
Sorrento subsidiary for gross proceeds of $10,300, a gain of $4,100. The gross
proceeds included $320 in accrued dividends. $787 of these proceeds will be held
in escrow until December 2001 by the purchaser.

<PAGE>

OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(In Thousands, except share and per share amounts)

SEGMENT INFORMATION

<TABLE>
<CAPTION>
SORRENTO MERET ENTRADA
NETWORKS OPTICAL NETWORKS NETSILICON OTHER TOTAL
-------- ------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Three months ended October 31,
2000:
Net sales to external
customers................... $ 7,157 $ 1,551 $ 2,141 $ -- $ -- $ 10,849
Intersegment sales............ -- -- -- -- -- --
------- ------- ------- ------ -------- --------
Total net sales........... 7,157 1,551 2,141 -- -- 10,849
Cost of goods sold............ 4,951 1,017 1,372 -- -- 7,340
------- ------- ------- ------ -------- --------
Gross profit.............. 2,206 534 769 -- -- 3,509
------- ------- ------- ------ -------- --------
Operating income (loss) from
continuing operations....... (8,139) 31 (266) -- (2,838) (11,212)
Depreciation & amortization
expense..................... 578 126 143 -- 137 984
Valuation allowance
additions................... (397) 4 8 -- -- (385)
Capital asset additions....... 1,889 78 260 -- 5,449 7,676
Total assets.............. 26,200 9,114 n/a n/a 134,221 169,535
Three months ended October 31,
1999:
Net sales to external
customers................... $ 2,187 $ 1,924 $ 8,030 $6,807 $ -- $ 18,948
Intersegment sales............ -- -- -- -- -- --
------- ------- ------- ------ -------- --------
Total net sales........... 2,187 1,924 8,030 6,807 -- 18,948
Cost of goods sold............ 1,349 1,070 4,459 2,742 -- 9,620
------- ------- ------- ------ -------- --------
Gross profit.............. 838 854 3,571 4,065 -- 9,328
------- ------- ------- ------ -------- --------
Operating income (loss) from
continuing operations....... (1,602) 668 507 1,803 (950) 426
Depreciation & amortization
expense..................... 547 68 810 104 -- 1,529
Valuation allowance
additions................... (79) -- 160 15 -- 96
Capital asset additions....... 383 -- 194 189 -- 766
Total assets.............. 7,188 25,871 23,037 n/a 101,277 157,373
</TABLE>

<PAGE>

OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(In Thousands, except share and per share amounts)

SEGMENT INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
SORRENTO MERET ENTRADA
NETWORKS OPTICAL NETWORKS NETSILICON OTHER TOTAL
-------- ------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Nine months ended October 31,
2000:
Net sales to external
customers................... $ 15,392 $ 4,989 $11,892 $ -- $ -- $ 32,273
Intersegment sales............ -- -- -- -- -- --
-------- ------- ------- ------- -------- --------
Total net sales........... 15,392 4,989 11,892 -- -- 32,273
Cost of goods sold............ 9,813 2,789 10,465 -- -- 23,067
-------- ------- ------- ------- -------- --------
Gross profit.............. 5,579 2,200 1,427 -- -- 9,206
-------- ------- ------- ------- -------- --------
Operating income (loss) from
continuing operations....... (26,565) 1,003 (7,859) -- (4,997) (38,418)
Depreciation & amortization
expense..................... 1,810 372 1,024 -- 139 3,345
Valuation allowance
additions................... 351 304 4,761 -- -- 5,416
Capital asset additions....... 6,433 129 444 -- 5,467 12,473
Total assets.............. 26,200 9,114 n/a n/a 134,221 169,535
Nine months ended October 31,
1999:
Net sales to external
customers................... $ 8,433 $ 5,679 $21,034 $20,137 $ -- $ 55,283
Intersegment sales............ -- -- -- -- -- --
-------- ------- ------- ------- -------- --------
Total net sales........... 8,433 5,679 21,034 20,137 -- 55,283
Cost of goods sold............ 3,887 3,485 12,008 9,577 -- 28,957
-------- ------- ------- ------- -------- --------
Gross profit.............. 4,546 2,194 9,026 10,560 -- 26,326
-------- ------- ------- ------- -------- --------
Operating income (loss) from
continuing operations....... (3,270) 1,536 (27) 2,540 (2,859) (2,080)
Depreciation & amortization
expense..................... 636 437 1,798 600 -- 3,471
Valuation allowance
additions................... 3 315 390 734 -- 1,442
Capital asset additions....... 800 -- 437 659 -- 1,896
Total assets.............. 7,188 25,871 23,037 n/a 101,277 157,373
</TABLE>

<PAGE>

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the consolidated unaudited
financial statements and related notes thereto. Further reference should be made
to our Form 10-K for the year ended January 31, 2000.

RESULTS OF OPERATIONS/COMPARISON OF THE QUARTER ENDED AND NINE MONTHS ENDED
OCTOBER 31, 2000 AND 1999

In connection with the initial public offering by NETsilicon, Inc. ('NSI'),
our remaining 55.4% interest became non-voting shares. Accordingly, our
financial statements for fiscal 2000 include the results of operations of
NETsilicon only through September 14, 1999 at which time our remaining interest
is accounted for as an 'available for sale' security which is marked-to-market
at the end of each period. The amounts included in our fiscal 2001 quarter and
nine months are not comparable to our fiscal 2000 quarter and nine months as
NETsilicon is no longer included in our consolidated results. Readers should
refer to NETsilicon's quarterly report on Form 10-Q for information concerning
NETsilicon. In October 2000, we sold 350,000 shares of our investment in NSI for
$4.2 million thereby reducing our ownership to approximately 51% as of
October 31, 2000. Our remaining 7.1 million shares continue to be accounted for
as a marked-to-market security.

On August 31, 2000, we completed a merger of Entrada with Sync Research,
Inc. ('Sync'), a Nasdaq listed company, in which we received 4,244,155 shares of
the merged entity which changed its name to Entrada Networks, Inc. and changed
its symbol to ESAN. We purchased 93,900 shares of Sync in the open market during
June and July, 2000 for $388 and on August 31, 2000 purchased an additional
1,001,818 shares directly from Entrada for $3,306. After these transactions we
owned approximately 49% of Entrada Networks and we have accounted for our
interest at cost as of October 31, 2000. We distributed most of our Entrada
shares to our shareholders, option holders, and warrant holders of record as of
November 20, 2000. The distribution was made at the rate of one-fourth (0.25) of
an Entrada share for each of our outstanding shares and each option or warrant
to acquire our common shares which is exercised prior to April 30, 2001. We have
granted options to purchase 410,000 of our Entrada shares for $3.19 per share
(the merger price) to several of our then officers and consultants. The amounts
included in our fiscal 2001 quarter and nine months are not comparable to our
fiscal 2000 quarter and nine months as Entrada was included in our consolidated
results only through August 31, 2000. More information concerning Entrada is
available in its public filings with the Securities and Exchange Commission.

Net sales. Our consolidated net sales from continuing operations were $10.8
million for the quarter ended October 31, 2000 compared to $18.9 million for the
comparable three months ended October 31, 1999, a decrease of 42.9%. This
decline in net sales reflects an increase of $4.9 million at Sorrento Networks
('Sorrento') and a decrease of $373,000 at Meret Optical Communications
('Meret'). The remaining decline was related to Entrada and NSI. During the nine
months ended October 31, 2000 our net sales from continuing operations decreased
to $32.3 million from $55.3 million a decrease of 41.6%. This decline in net
sales reflects an increase of $6.9 million at Sorrento and a $690,000 decline at
Meret. The remaining decline was related to Entrada and NSI.

Gross profit. Cost of sales consists principally of the costs of components,
subcontract assembly from outside manufacturers, and in-house system
integration, quality control, final testing and configuration costs.
Consolidated gross profit decreased to $3.5 million, or by 62.4%, for the
quarter ended October 31, 2000 from $9.3 million for quarter ended October 31,
1999. This decline reflects a $1.4 million increase at Sorrento and a $320,000
decrease at Meret. The remaining decline was related to Entrada and NSI.
Consolidated gross profit decreased to $9.2 million, or by 65.0%, for the nine
months ended October 31, 2000 from $26.3 million for the nine months ended
October 31, 1999. This decline reflects a $1.0 million increase in Sorrento and
a $17,000 increase at Meret. The remaining decline was related to Entrada and
NSI.

Selling and marketing. Selling and marketing expenses consist primarily of
employee compensation and related costs, commissions to sales representatives,
tradeshow expenses, facilities

<PAGE>

costs, and travel expenses. We intend to increase expenditures for sales and
marketing including the recruitment of additional sales and marketing personnel,
the expansion of our domestic and international sales channels and the
establishment of strategic relationships. In addition, we expect sales
commissions to increase as we increase our sales volume. Our consolidated
selling and marketing expenses increased to $4.3 million, or 39.8% of net sales,
for quarter ended October 31, 2000 from $4.0 million, or 21.2% of net sales for
the comparable three months ended last year. Our selling and marketing expenses
increased to $13.6 million or 42.1% of net sales during the nine months ended
October 31, 2000 from $12.6 million or 22.8% for the comparable nine months
ended last year.

Engineering, research and development. Engineering, research and development
expenses consist primarily of compensation related costs for engineering
personnel, facilities costs, and materials used in the design, development and
support of our technologies. All research and development costs are expensed as
incurred. We expect research and development costs to increase substantially as
we continue to develop our technologies and future products. Our consolidated
engineering, research and development expenses increased to $5.7 million, or
52.8% of net sales, for the quarter ended October 31, 2000 from $2.2 million, or
11.6% of net sales, for the comparable three months ended last year. Our
consolidated engineering, research and development expenses increased to $18.1
million, or 56.0% of net sales, from $6.9 million, or 12.5% of net sales, for
the nine months ended October 31, 1999.

General and administrative. General and administrative expenses consist
primarily of employee compensation and related costs, legal and accounting fees,
public company costs, and allocable occupancy costs. Our consolidated general
and administrative expenses increased to $4.2 million, or 38.5% of net sales,
for the quarter ended October 31, 2000 from $2.6 million, or 13.8 % of net
sales, for the comparable quarter ended last year. Our consolidated general and
administrative expenses increased to $12.4 million, or 38.4% of net sales, for
the nine months ended October 31, 2000 from $8.6 million, or 15.6% of net sales,
for the comparable period last year.

Other operating expenses. Other operating expenses for the quarters ended
October 31, 2000 and 1999 include $93,000 of amortization of purchased
technology related to acquisitions included in Meret. During the nine months
ended October 31, 2000, approximately $2.1 million of these costs were
attributable to the closure of one of Entrada's facilities and valuation
reserves recorded against distributor receivables and capitalized software costs
of Entrada and $279 of amortization of purchased technology related to
acquisitions included in Meret.

Other income (charges). Other net income (charges) from continuing
operations decreased to $4.3 million and $ 5.2 million in income for the quarter
and nine months ended October 31, 2000 from $13.8 million and $12.8 million in
income for the same comparable periods last year. Our investment income
increased by $441,000 and $1.8 million during the three and nine months ended
October 31, 2000 resulting from short-term investments of our surplus cash. Our
interest expenses decreased by $220,000 and $772,000 for the three and nine
months ended October 31, 2000 from the comparable period last year resulting
from reductions in our short term borrowings. The overall decrease in other
income resulted from a reduction in the gain from the sale of portions of our
investment in NSI. Our gain on the sale was $4.0 million during the three and
nine month ended October 31, 2000 compared to $14.2 million for the same
comparable periods last year.

Income taxes. There was no provision for income taxes for quarters and nine
months ended October 31, 2000 and 1999. We have carry forwards of domestic
federal net operating losses, which may be available, in part, to reduce future
taxable income in the United States. However, due to potential adjustments to
the net operating loss carry forwards as provided by the Internal Revenue Code
with respect to future ownership changes, future availability of the tax
benefits is not assured. In addition, we provided a valuation allowance in full
for our deferred tax assets as it is our opinion that it is more likely than not
that some portion or all of the assets will not be realized.

Discontinued operations. We completed our disposition of our Far East
business unit as of January 31, 2000, accordingly we had no discontinued
operations during the three and nine months ended October 31, 2000. Net assets
to be disposed of, at their expected realizable values, have

<PAGE>

been separately classified in the accompanying balance sheets at October 31,2000
and January 31, 2000.

SORRENTO NETWORKS

Net sales. Net sales increased to $7.1 million, or 227.2%, for the quarter
ended October 31, 2000 from $2.2 million for the three months ended October 31,
1999. During the quarter ended October 31, 2000, Sorrento shipped product to
eight customers of which five customers represented 92.0% of Sorrento's net
sales. These five customers represented 30.0%, 21.8%, 16.6%, 13.6% and 10.0%
individually of Sorrento's net sales for the quarter ended October 31, 2000.
During the quarter ended October 31, 1999, Sorrento shipped product to five
customers of which three customers represented 91.6% of net sales for the
quarter. These three customers represented 72.7%, 10.5%, and 8.4% individually
of Sorrento's net sales for the quarter ended October 31, 1999. During the nine
months ended October 31, 2000, net sales increased to $15.4 million, or 83.3%,
from $8.4 million for the comparable nine months last year. During the nine
months ended October 31, 2000, Sorrento shipped product to twelve customers of
which four customers represented 77.7% of net sales. During the nine months
ended October 31, 2000 one customer represented 31.3% of Sorrento's net sales.
During the nine months ended October 31, 1999, Sorrento shipped product to nine
customers of which three customers represented 89.8% of net sales. Sorrento
expects to continue to experience significant fluctuations in its quarterly
revenues as a result of its long and variable sales cycle as well as its highly
concentrated customer base.

Gross profit. Gross profit increased to $2.2 million, or 163.2%, for the
quarter ended October 31, 2000 from $838,000 for the comparable quarter last
year. Our gross margin decreased to 30.8% of net sales for the quarter ended
October 31, 2000 from 38.3% of net sales for the comparable quarter last year.
Our gross margin decreased to 36.2% for the nine months ended October 31, 2000
from 53.9% for the nine months ended October 31, 1999. Both the three and nine
month declines in gross margins primarily relate to increased manufacturing
overhead costs in anticipation of increased revenues, changes in our product
mix, and higher gross margins on sales to a single customer in the prior year.

Selling and marketing. Selling and marketing expenses increased to $3.8
million, or 53.5% of net sales, for the quarter ended October 31, 2000 from $1.2
million, or 54.5% of net sales for the comparable period last year. For the nine
months ended October 31, 2000, selling and marketing expenses increased to $10.4
million, or 67.5% of net sales, from $3.9 million or 46.4% of net sales for the
nine months ended October 31, 1999. The increase in sales and marketing expenses
was the result of increases in personnel, sales commissions, marketing programs
and product promotions, trade show participation, and operating expenses related
to our foreign sales offices. We increased our sales and marketing personnel to
53 at October 31, 2000 from 20 at October 31, 1999. We are continually
evaluating our resource requirements and will plan accordingly for any additions
necessary to expand our domestic and international sales force and marketing
efforts.

Engineering, research and development. Engineering, research and development
expenses increased to $5.2 million, or 73.2% of net sales, for the quarter ended
October 31, 2000 from $509,000, or 23.3% of net sales, for the quarter ended
October 31, 1999. For the nine months ended October 31, 2000, engineering,
research and development expenses increased to $14.6 million, or 94.8% of net
sales, from $1.7 million, or 20.2% of net sales, for the same nine months ended
last year. The increases were primarily due to increased personnel and related
expenses, increases in the development of new prototypes, increases in design
and development of new products as well as enhancements to existing products. We
increased our research and development personnel to 96 at October 31, 2000 from
11 at October 31, 1999. We expect our research and development expenses to
increase in future periods to support our efforts in our continued development
of end-to-end optical networking solutions for the metropolitan market.

General and administrative. General and administrative expenses increased to
$858,000, or 12.0% of net sales, for the quarter ended October 31, 2000 from
$731,000, or 33.4% of net sales, for the comparable quarter ended last year. For
the nine months ended October 31, 2000, general and administrative expenses
increased to $5.9 million, or 38.3% of net sales, from $2.3 million, or

<PAGE>

27.4% of net sales, for the comparable nine months last year. The increase
primarily resulted from professional fees and costs associated with Sorrento's
cancelled initial public offering, increased personnel and related expenses, and
increased infrastructure costs necessary to support our planned growth. We have
increased our general and administrative personnel to 24 at October 31, 2000
from 18 for the same comparable period a year ago.

Deferred and other stock compensation. Deferred and other stock compensation
for the quarter and nine months ended October 31, 2000 includes $303,000 and
$981,000, respectively, of amortization of deferred stock compensation and
$97,000 and $255,000, respectively, of expense resulting from the amortization
of the value of stock options granted to consultants. In connection with the
grants of stock options with exercise prices determined to be below the fair
value of Sorrento's common stock on the date of grant, Sorrento recorded
deferred stock compensation of $2.6 million, which is being amortized on an
accelerated basis over the vesting period of the options.

MERET OPTICAL COMMUNICATIONS

During the periods prior to January 31, 2000 Meret was an integral portion
of the 'Optical Networking' business unit which also included Sorrento. As of
January 31, 2000, we separated Meret from the Optical Networking business
segment. For periods prior to January 31, 2000 amounts reported for the Meret
segment of our business may not be indicative of the results of operations that
would have resulted had Meret been operated as a stand-alone entity.

Net sales. Net sales for Meret decreased slightly to $1.6 million, or 15.8%,
for the quarter ended October 31, 2000 from $1.9 million for the quarter ending
October 31, 1999. During the nine months ended October 31, 2000 net sales
declined slightly to $4.9 million, or 12.2%, from $5.7 million for the
comparable nine months.

Gross Profit. Gross profit decreased to $534,000, or by 37.5%, for the
quarter ended October 31, 2000 from $854,000 for the quarter ended October 31,
1999. Meret's gross margins decreased to 34.4% for the quarter ended October 31,
2000 from 44.4% for the comparable quarter last year. During the nine months
ended October 31, 2000 Meret's gross profit remained unchanged at $2.2 million
compared to the nine months ended October 31, 1999. Meret's gross margins
increased to 44.1% for the nine months ended October 31, 2000 from 38.6% for the
same comparable nine months last year. The changes in gross margins for the
three and nine months ended October 31, 2000 resulted from changes in product
mix.

Selling and Marketing. Selling and marketing expenses decreased to $62,000,
or 3.9% of net sales, for the quarter ended October 31, 2000 from $170,000, or
8.8% of net sales, for the comparable period last year. For the nine months
ended October 31, 2000, selling and marketing expenses decreased to $347,000, or
6.9% of net sales, from $596,000, or 10.5% of net sales, for the nine months
ended October 31, 1999. Travel and advertising expenses decreased as Meret
focused its selling and marketing efforts to support only the Meret product
group. We anticipate increased expenditures during the remainder of the fiscal
year to support expected growth of Meret's business.

Engineering, Research and Development. Meret incurred engineering expenses
during the quarter and nine months ended October 31, 2000 of $47,000 and
$134,000, respectively. No engineering expenses were incurred during the three
and nine months ended October 31, 1999. After Meret's separation from the
Optical Networking segment, we increased engineering expenditures to update
older products and we will continue to increase engineering spending through the
fiscal year to support existing as well as new products.

General and Administrative. Our general and administrative expenses
increased to $300,000 for the quarter ended October 31, 2000 and to $438,000 for
the nine months ended October 31, 1999. General and administrative expenses
increased due to the separation of our Optical Networking division and to build
an infrastructure to support our expected future growth.

Other operating expenses. Other operating expenses of $93,000 and $279,000
for the quarter and nine months ended October 31, 2000 remained unchanged
compared to the same periods

<PAGE>

ended October 31, 1999. These costs represent the amortization of purchased
technology related to prior acquisitions.

ENTRADA NETWORKS

The results of Entrada were included in our consolidated results only
through August 31, 2000. Additional information regarding the Entrada is
available from its various filings with the Securities and Exchange Commission
which are available online at www.freeedgar.com and www.sec.gov or from the
Securities and Exchange Commission.

NETSILICON

The results of NSI are not included in our consolidated results for the
quarter and nine months ended October 31, 2000 as it ceased to be a subsidiary
as of September 15, 1999. Additional information regarding NSI is available from
its various filings with the Securities and Exchange Commission which are
available online at www.freeedgar.com and www.sec.gov or from the Securities and
Exchange Commission.

LIQUIDITY AND CAPITAL RESOURCES

We finance our operations through a combination of debt and equity
financing. At October 31, 2000, our working capital was $118.1 million including
$12.7 million in cash and cash equivalents.

The amounts included in our statement of cash flows for the nine months
ended October 31, 2000 are not comparable to our nine months ended October 31,
1999 due to the inclusion of NSI for only eight months ended September 15, 1999
and Entrada for only the seven months ended August 31, 2000. Readers should
refer to NSI's and Entrada's quarterly reports on Form 10-Q for information
concerning NSI and Entrada.

Our continuing operations used cash flows of $38.6 million during the nine
months ended October 31, 2000. During the nine months ended October 31, 1999
continuing activities provided cash flows of $65,000 and discontinued operations
provided cash of $1.8 million. The increase in cash flows used by operations
reflects a substantial increase in our net loss as well as increases in accounts
receivable and inventories, partially offset by decreases in other current
assets and increases in accounts payable, accrued expenses and other current
liabilities. The increased loss from continuing operations reflects our
continued commitment to grow Sorrento Networks.

To support our anticipated growth, we expect our research and development,
selling and marketing, and general and administrative expenses will increase in
future periods. There can be no assurance that our available cash will be
sufficient to fund such additional expenses.

Our standard payment terms ranges from net 30 to net 90 days. Receivables
from international customers have frequently taken longer to collect.

We provide long-term equipment financing to a customer of Sorrento and the
purchase agreement with this customer provides for invoiced installation and
other deployment expenses not to exceed 10% of the equipment cost. The terms of
this financing provide that the customer may convert any balances outstanding
longer than 90 days into a level payment 35-month term note at prime plus 3% per
annum interest. We financed $5,971 of receivables, including deployment
expenses, for this customer and received payments of $635, including interest of
$178, on these finance contracts during the nine months ended October 31, 2000.
During the nine months ended October 31, 2000 and 1999 we made sales of $4.8
million and $3.1, respectively, and reimbursed deployment expenses of $409,000
to this customer during the nine months ended October 31, 2000.

Our investing activities during the nine months ended October 31, 2000 used
cash flows of $21.7 million including the $7.0 million in cash balances at
Entrada on August 31, 2000 when it ceased to be a subsidiary. We purchased
property and equipment of $12.5 million, invested $3.3 million in Entrada, and
invested $3.2 million in one of Sorrento's customers. During the nine months
ended October 31, 2000 we received $4.2 million from the sale of 350,000 of our
shares in

<PAGE>

NSI and $808 from the purchasers of our discontinued operation. During the nine
months ended October 31, 1999 the investing activities of our continuing
operations provided cash flows of $938,000. This consisted primarily of net
proceeds from the sale of our shares in NSI of $13.7 million net of cash held by
NSI at the time of sale of $1.7 million partially offset by purchases of capital
equipment of $1.9 million, expenditures for software development costs of
$894,000, increases in notes receivable and other assets of $2.8 million and net
advances to affiliates of $8.5 million.

In October 2000, we completed our purchase of a 41,000 square foot facility
immediately adjacent to our existing San Diego, California facility. The
purchase price was $4.8 million including the assumption of existing
indebtedness of $2.4 million on a thirty-year, 7.6% fixed rate mortgage, with
total annual payments of approximately $210,000.

Our financing activities during the nine months ended October 31, 2000
provided cash flows of $59.5 million which consisted primarily of $46.6 million
in net proceeds from a private placement by Sorrento of its convertible
preferred stock, $7.9 million in net proceeds from a private placement by
Entrada of its common stock, $3.2 million in proceeds from option and warrant
exercises and $2.4 million in proceeds from long term debt offset by repayments
of short and long term debt. During the nine months ended October 31, 1999 the
financing activities of our continuing operations provided cash flows of $4.1
million and the financing of discontinued operations used cash flows of $3.1
million. The net cash flow provided by continuing operations consisted of $1.4
million from net proceeds on short term borrowings, $2.6 million in proceeds
from stock option exercises, $907,000 in net proceeds from long term debt offset
by $481,000 of dividends paid to our preferred shareholders.

We have various lines of credit totaling $8.0 million. Outstanding
borrowings against these lines of credit were $1.8 million at October 31, 2000.
Our various credit lines are collateralized by accounts receivable, inventory
and equipment.

During March 2000, our subsidiary, Sorrento Networks, Inc., completed a
private placement of 8,596,333 shares of its Series A Convertible Preferred
Stock to a group of investors receiving net proceeds of approximately $46.6
million.

Each share of Sorrento's Series A Preferred Stock is convertible into one
share of Sorrento's common stock at the option of the holder, may vote on an 'as
converted' basis except for election of directors, and has a liquidation
preference of $5.45 per share. The shares are automatically converted into
Sorrento's common stock upon an underwritten public offering by Sorrento with an
aggregate offering price of at least $50,000. In the event Sorrento does not
complete a $50,000 public offering by March 1, 2001, the holders of at least 50%
of the then outstanding Series A shares may request a redemption of the shares
at the then adjusted liquidation preference. The net proceeds from the issuance
of these shares has been classified as a minority interest in the accompanying
financial statements. The difference between the net proceeds received on the
sale of these shares and their liquidation preference of $48,800 will be
recorded as a deemed dividend during the period from issuance to March 31, 2001.
During the quarter and nine months ended October 31, 2000 we recorded deemed
dividends of $541 and $1.4 million with respect to the Sorrento Series A shares.

In August 2000, our Entrada subsidiary completed a private placement of
2,431,818 of its common shares receiving net proceeds of approximately $7.9
million. We purchased 1,001,818 of these shares for $3.3 million. At the time of
Entrada's merger with Sync, Entrada owed us $25.5 million for non-interest
bearing advances which was contributed by us to the capital of the merged
entity; this contribution neither provided nor used cash and has been excluded
from the statement of cash flows for the nine months ended October 31, 2000.

We anticipate that our available cash resources, together with the proceeds
of Sorrento's private placement, will be sufficient to meet our presently
anticipated capital requirements through the middle of Fiscal 2002. Nonetheless,
our future capital requirements may vary materially from those now planned
including the need for additional working capital to accommodate planned growth,
hiring and infrastructure needs. In addition, in the event the holders of at
least 50% of Sorrento's Series A Preferred shares request a redemption of their
shares we would require additional capital; we are exploring various financing
alternatives, including the tender of our common or preferred shares, to
address this potentiality. There can be no assurances that our working capital
requirements will

<PAGE>

not exceed our ability to generate sufficient cash internally to support our
requirements and that external financing will be available or that, if
available, such financing can be obtained on terms favorable to us and our
shareholders.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards ('SFAS') No. 133, 'Accounting
for Derivative Instruments and Hedging Activities,' as amended by SFAS 137 and
138, is effective for financial statements with fiscal quarters of all fiscal
years beginning after June 15, 2000. The Accounting Standards Executive
Committee issued Statement of Position ('SOP') 98-1, 'Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use,' and SOP 98-5,
'Reporting on the Costs of Start-up Activities,' effective in the current or
future periods. The adoption or future adoption of these standards has had or
will have no material effects, if any, on our financial position or results of
operations.

EFFECTS OF INFLATION AND CURRENCY EXCHANGE RATES

We believe that the relatively moderate rate of inflation in the United
States over the past few years has not had a significant impact on our sales or
operating results or on the prices of raw materials. There can be no assurance,
however, that inflation will not have a material adverse effect on our operating
results in the future.

We periodically need additional financing for our large operating losses and
capital expenditures associated with establishing and expanding our operations.
The interest rate that we will be able to obtain on debt financing will depend
on market conditions at that time, and may differ from the rates we have secured
on our current debt. Additionally, the interest rates charged by our present
lenders adjust on the basis of the lenders' prime rate.

Almost of our sales and expenses have been denominated in U.S. dollars and
to date our business has not been significantly affected by currency
fluctuations. However, we conduct business in several different countries and
thus fluctuations in currency exchange rates could cause our products to become
relatively more expensive in particular countries, leading to a reduction in
sales in that country. In addition, inflation in such countries could increase
our expenses. In the future, we may engage in foreign currency denominated sales
or pay material amounts of expenses in foreign currencies and, in such event,
may experience gains and losses due to currency fluctuations. Our operating
results could be adversely affected by such fluctuations. We attempt to minimize
our currency exposure risks through working capital management and do not hedge
our exposure to translation gains and losses related to foreign currency
exposures.

<PAGE>

OTHER MATTERS

We settled the pending consolidated class action case filed against us. See
Part II, Item 1, 'Other Information -- Legal Proceedings'.

FLUCTUATIONS IN REVENUE AND OPERATING RESULTS

The networking and bandwidth aggregation industry is subject to fluctuation
and the declines and increases recently experienced by us are not necessarily
indicative of the operating results for any future periods. Our operating
results may fluctuate as a result of a number of factors, including the timing
of orders from, and shipments to, customers; the timing of new product
introductions and the market acceptance of those products; increased
competition; changes in manufacturing costs; availability of parts; changes in
the mix of product sales; the rate of end user adoption and carrier and private
network deployment of WAN data, video and audio communication services; factors
associated with international operations; and changes in world economic
conditions.

FORWARD-LOOKING STATEMENTS -- CAUTIONARY STATEMENT

All statements other than statements of historical fact contained in this
Form 10-Q, in our future filings with the Securities and Exchange Commission, in
our press releases and in our oral statements made with the approval of an
authorized executive officer are forward-looking statements. Words such as
'propose,' 'anticipate,' 'believe,' 'estimate,' 'expect,' 'intend,' 'may,'
'should', 'could,' 'will' and similar expressions are intended to identify such
forward-looking statements. These forward-looking statements are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Although we believe that our expectations reflected in these
forward-looking statements are based on reasonable assumptions, such statements
involve risk and uncertainties and no assurance can be given that actual results
will be consistent with these forward-looking statements. Important factors that
could cause actual results to differ materially from those forward-looking
statements include without limitation: unanticipated technical problems related
to our products; our ability, or lack thereof, to make, market and sell optical
networking products; the greater financial, technical and other resources of our
many, larger competitors in the marketplace for optical networking products;
changed market conditions, new business opportunities or other factors that
might affect our decisions as to the best interest of its shareholders; the
failure of the Company to achieve sales of its optical networking products to
customers pursuant to the strategic alliance and equipment purchase agreements
entered into during the Company's first nine months of fiscal 2001; our
potential inability to enforce any agreement in China or other foreign
jurisdictions in which we sell and deliver products under the laws and legal
system in effect in the applicable jurisdiction; and other risks detailed from
time to time in the Company's reports filed with the U.S. Securities and
Exchange Commission.

We wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. These risks and uncertainties are described in the
following section. We specifically decline any obligation to publicly release
the result of any revisions which may be made to any forward-looking statements
to reflect anticipated or unanticipated events or circumstances occurring after
the date of such statements, or to update the reasons why actual results could
differ from those projected in the forward-looking statements.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to financial market risks, including changes in interest
rates and foreign currency rates. Our exposure to interest rate risk is the
result of our need for periodic additional financing for our large operating
losses and capital expenditures associated with establishing and expanding our
operations.

<PAGE>

Almost all of our sales have been denominated in U.S. dollars. A portion of
our expenses are denominated in currencies other than the U.S. dollar and in the
future a larger portion of our sales could also be denominated in non-U.S.
currencies. As a result, currency fluctuations between the U.S. dollar and the
currencies in which we do business could cause foreign currency translation
gains or losses that we would recognize in the period incurred. We cannot
predict the effect of exchange rate fluctuations on our future operating results
because of the number of currencies involved, the variability of currency
exposure and the potential volatility of currency exchange rates. We attempt to
minimize our currency exposure risk through working capital management and do
not hedge our exposure to translation gains and losses related to foreign
currency net asset exposures.

We do not hold or issue derivative, derivative commodity instruments or
other financial instruments for trading purposes. Investments held for other
than trading purposes do not impose a material market risk.

We believe that the relatively moderate rate of inflation in the United
States over the past few years and the relatively stable interest rates incurred
on short-term financing have not had a significant impact on our sales,
operating results or prices of raw materials. There can be no assurance,
however, that inflation or an upward trend in short-term interest rates will not
have a material adverse effect on our operating results in the future should we
require debt financing in the future.

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On November 6, 2000, the court granted final approval to the settlement of
the consolidated shareholder class actions pending in Federal district court in
Los Angeles against us and certain present and former officers, and dismissed
the actions against all defendants with prejudice. The settlement, which was
entered into without any admission of liability by any of the defendants,
provided for an aggregate cash payment to class members of $3.75 million, plus
accrued interest from September 1, 2000, if any, less approved attorneys' fees
and related expenses. The settlement will be funded by our insurance carrier,
and does not have a material adverse effect on our financial position or results
of operations.

The settled lawsuit, entitled 'In re Osicom Technologies, Inc. Securities
Litigation, Master File No. CV-99-4321-R', was filed on August 20, 1999 against
the Company and our then Chief Executive Officer, our then President and our
former Chief Financial Officer, in the United States District Court for the
Central District of California. The consolidated complaint generally alleged
that, during the period July 1, 1998 to April 20, 1999, the defendants made
false and misleading public statements related to a contract entered into by our
former Far East business unit with a Japanese customer. The consolidated
complaint asserted that the defendants' conduct violated Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, and SEC Rule 10b-5 promulgated
thereunder, as well as state common law. The consolidated complaint did not
specify an amount of damages.

From time to time, we are involved in various other legal proceedings and
claims incidental to the conduct of our business. Although it is impossible to
predict the outcome of any outstanding legal proceedings, we believe that such
legal proceedings and claims, individually and in the aggregate, are not likely
to have a material effect on our financial position or results of operations or
cash flows.

<PAGE>

ITEM 2. CHANGES IN SECURITIES

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable

ITEM 5. OTHER INFORMATION

Not Applicable

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

A. Exhibits

10.1 -- Agreement dated June 12, 2000 with Par Chadha

10.2 -- Agreement dated March 3, 2000 with Xin Cheng

10.3 -- Agreement dated May 22, 2000 with Rohit Phansalkar

10.4 -- Agreement dated May 22, 2000 with Christopher E. Sue

20 -- Consolidated Financial Statements for the Quarter Ended
October 31, 2000 (included in Part I, Item 1)

21 -- Subsidiaries of the Registrant (file herewith)

27 -- Financial Data Schedule

B. Reports on Form 8-K

September 19, 2000 -- Resignation of Chairman and Chief Executive
Officer

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

OSICOM TECHNOLOGIES, INC.
(Registrant)

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ CHRISTOPHER E. SUE Vice President of Finance December 12, 2000
......................................... Principal Accounting Officer
(CHRISTOPHER E. SUE)
</TABLE>