As filed with the Securities and Exchange Commission on July 1, 1996
Registration Statement No. 33-72104
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ORYX TECHNOLOGY CORP.
(Name of Small Business Issuer in its Charter)
-----------------
Delaware 22-2115841
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
3600
(Primary Standard Industrial
Classification Code Number)
47341 Bayside Parkway
Fremont, California 94538 47341 Bayside Parkway
(510) 249-1144 Fremont, California 94538
(Address and telephone number of (Address of principal place of business or
principal executive offices) intended principal place of business)
Arvind Patel
Oryx Technology Corp.
47341 Bayside Parkway
Fremont, California 94538
(510) 249-1144
(Name, address and telephone number of agent for service)
--------------------
WITH COPIES TO:
James Schneider, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard
Suite 1900
Fort Lauderdale, Florida 33301
(954) 763-1200
--------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
<PAGE>
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box:
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier registration statement for the same offering.
[X] [Registration Number 33-72104]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
(Represents previous registration fee table at time of effectiveness)
=============================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price per Aggregate Offering Registration
Securities to be Registered Registered Unit(2) Price(2) Fee
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Units(1) 1,265,000(3) $7.00 $8,855,000 $3,053.45
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock (par value $.001 per share) 2,530,000(4) $3.50 $8,855,000 $3,053.45
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock Purchase Warrants 1,265,000 $ --- $ --- $ ---
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock issuable under Warrants(5) 1,265,000(6) $3.50 $4,427,500 $1,526.72
- -----------------------------------------------------------------------------------------------------------------------------
Units underlying Underwriters' Unit Purchase 110,000 $8.40 $ 924,000 $ 318.62
Warrants(7)
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock(8) 220,000 $4.20 $ 924,000 $ 318.62
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock(9) 110,000 $4.20 $ 462,000 $ 159.31
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock(10) 37,500 $2.28 $ 85,500 $ 29.48
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL (Previously Paid) $8,459.65
=============================================================================================================================
(1) Each Unit consists of two shares of Common Stock, $.001 par value per share, and one callable Common Stock Purchase
Warrant to purchase one share of Common Stock.
(2) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(b).
(3) Includes 165,000 Units previously issuable pursuant to the Underwriters' Over-Allotment Option (not exercised).
(4) Includes 330,000 shares of Common Stock previously issuable pursuant to the Underwriters' Over-Allotment Option (not
exercised).
(5) Represents shares issuable upon exercise of the callable Common Stock Purchase Warrants registered hereby together
with such additional indeterminate number of shares as may be issued upon exercise of such Warrants by reason of the
anti-dilution provisions contained therein.
(6) Includes 165,000 shares of Common Stock issuable upon exercise of the callable Common Stock Purchase Warrants pursuant
to the Underwriters' Over-Allotment Option (not exercised).
(7) Represents Units issuable upon exercise of the Underwriters' Unit Purchase Warrants together with such additional
indeterminate number of shares as may be issued by reason of the anti-dilution provisions contained therein.
<PAGE>
(8) Represents shares issuable upon exercise of the Underwriters' Unit Purchase Warrants, together with such additional
indeterminate number of shares as may be issued upon exercise of such Warrants by reason of the anti-dilution
provisions contained therein.
(9) Represents shares issuable upon exercise of the Common Stock Purchase Warrants included within the Underwriters'
Unit Purchase Warrants, together with such additional indeterminate number of shares as may be issued upon exercise of
such Warrants by reason of the anti-dilution provisions contained therein.
(10) Represents shares issuable upon exercise of certain warrants issued in the Registrant's interim debt financing,
together with such additional indeterminate number of shares as may be issued upon exercise of such warrants by reason
of the anti-dilution provisions contained therein.
The Registrant hereby undertakes to amend this Registration Statement on such date or dates as may be necessary to
delay its effective date until the Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or
until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
</TABLE>
<PAGE>
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ORYX TECHNOLOGY CORP.
Cross Reference Sheet for Prospectus Under Form SB-2
Form SB-2 Item No. and Caption Caption or Location in Prospectus
------------------------------ ---------------------------------
<S> <C>
1. Forepart of Registration Statement and Cover Page; Cross Reference Sheet; Outside Front
Outside Front Cover of Prospectus Cover Page of Prospectus
2. Inside Front and Outside Back Cover Inside Front and Outside Back Cover Pages of
Pages of Prospectus Prospectus
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page; Risk Factors; Underwriting;
6. Dilution Not Applicable
7. Selling Security Holders Cover Page; Sales by Selling Security Holders
8. Plan of Distribution Outside Front Cover Page of Prospectus;
Underwriting
9. Legal Proceedings Business - Legal Proceedings
10. Directors, Executive Officers, Management
Promoters and Control Persons
11. Security Ownership of Certain Principal Stockholders
Beneficial Owners and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Not Applicable
14. Disclosure of Commission Position on Management; Undertakings
Indemnification for Securities Act Liabilities
15. Organization within Last Five Years Not Applicable
16. Description of Business Business
17. Management's Discussion and Analysis Management's Discussion and Analysis of
or Plan of Operation Financial Condition and Results of Operations
18. Description of Property Business - Facilities
19. Certain Relationships and Related Transactions Certain Transactions
20. Market for Common Equity and Related Risk Factors; Description of Securities;
Stockholder Matters Shares Eligible for Future Sale
21. Executive Compensation Management - Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Accountants Not Applicable
on Accounting and Financial Disclosure
Information contained herein is subject to completion or amendment. A Registration Statement
relating to these securities has been filed with the Securities and Exchange Commission. These securities
may not be sold nor may offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the solicitation of an offer to buy
nor shall there be any sale of these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the securities laws of any such State.
</TABLE>
<PAGE>
PRELIMINARY PROSPECTUS DATED JULY 1, 1996
SUBJECT TO COMPLETION
1,100,000 Units
ORYX TECHNOLOGY CORP.
On April 6, 1994, an offering of 1,100,000 Units was underwritten on a
firm commitment basis by J.W. Charles Securities, Inc., J.W. Charles Clearing
Corp. and Corporate Securities Group, Inc. (the "Underwriters") at an offering
price of $7.00 per Unit. Each Unit ("Unit") consisted of two shares of Common
Stock, par value $.001 per share (the "Common Stock"), and one callable Common
Stock Purchase Warrant (collectively the "Warrants") of ORYX Technology Corp.
(the "Company" or "ORYX"). Each Warrant currently entitles the holder thereof to
purchase 1.9 shares of Common Stock at an exercise price of $3.50 per Warrant
which is the equivalent of $1.84 per share of Common Stock (subject to further
adjustment in certain events) until April 6, 1999. The shares of Common Stock
and the Warrants are transferrable separately. The Warrants are callable by the
Company commencing October 6, 1994 based on fulfillment of certain criteria. See
"Description of Securities." This Prospectus also relates to the resale by
certain persons of 37,500 shares of Common Stock underlying certain warrants
(the "Bridge Warrants") issued in connection with a prior interim debt financing
and which were also included in the Prospectus related to the public offering of
the Company's Units. The Bridge Warrants are exercisable at $2.28 per share.
This Prospectus also relates to the Underwriters' Warrants and shares of Common
Stock underlying the Underwriters' Warrants as hereinafter described. See "Sales
by Selling Security Holders" and "Underwriting."
Prior to the Company's public offering, there was no market for the
Units, the Common Stock or the Warrants of the Company. The public offering
price per Unit was determined in negotiations between the Representative of the
Underwriters and the Company. The Common Stock and the Warrants are quoted on
the National Association of Securities Dealers Automated Quotation System (Small
Cap) ("NASDAQ") under the symbols "ORYX" and "ORYXW," and on the Pacific Stock
Exchange ("PSE") under the symbols "OXT" and "OXTW," respectively. Until June 6,
1994, the Units were quoted on NASDAQ under the symbol "ORYXU" and on the PSE
under the symbol "OXTU." On June 25, 1996, the closing price on NASDAQ for the
Common Stock was $3.375 and the closing price for the Warrants was $2.93. There
have been no recent reported trades on the PSE.
The Company intends to furnish annual reports to its stockholders
containing audited financial statements and may distribute quarterly reports for
each of the first three quarters of each fiscal year containing unaudited
condensed financial information.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The original date of this Prospectus is April 6, 1994.
This Prospectus is amended pursuant to a Post-Effective
Amendment dated July __, 1996.
<PAGE>
PROSPECTUS SUMMARY
The Company
Oryx Technology Corp. ("Oryx" or the "Company") designs, manufactures
and markets specialized components, analytical equipment and instrumentation
products for original equipment manufacturers ("OEMs") in the information
technology industry. This industry includes office equipment, computers,
telecommunications and consumer electronics. The Company markets or has in
product development, technologically-advanced products which perform diagnostic
and analytical functions and address industry requirements for efficient power
conversion, surge protection and specialized materials technology. The Company
has concentrated its product development programs in critical areas where the
larger manufacturers of office equipment, computers, computer peripherals and
other electronic and telecommunications products depend upon complementary
technology and product support. The Company operates in three distinct market
segments: (i) power conversion products, (ii) electrical surge protection
products, and (iii) materials analysis and test equipment and specialized
materials products.
In November 1995, the Company made a strategic decision to improve
business focus and execution by separating its core businesses and placing
assets for each core business into wholly-owned subsidiaries. Three new
subsidiaries were formed: Oryx Power Products Corporation, SurgX Corporation and
Oryx Instruments and Materials Corporation. The subsidiaries are intended to
provide additional management and employee motivation to increase the value of
each business through potential equity ownership tied more closely to each
business unit, and to position the Company to be better able to seek financing
or equity investment at the subsidiary level in order to develop the Company's
businesses.
Oryx' and its subsidiaries' customer base for their current product
lines includes the following OEMs: Pitney-Bowes Corp., Xerox Corporation, IBM
Corporation, Seagate Technology, Inc., Akashic Memories Corporation, and Western
Digital Media Corporation. The Company plans to market its existing lines, and,
possibly additional product lines to these and other OEMs during fiscal 1997.
Oryx also derives revenues from sales of products based on its patented
IntrageneTM ceramic metallization and joining system and from the design and
fabrication of electromagnet systems. IntrageneTM is a proprietary metallurgical
technology developed by Oryx which affords the Company the capacity to
metallize, solder or braze a comprehensive range of difficult-to-join
engineering ceramics, graphite and refractory metals used in electronic and
structural applications.
2
<PAGE>
The Company's predecessor, Advanced Technology, Inc. ("ATI"), was
incorporated on April 21, 1976 in New Jersey. On July 25, 1993, ATI formed the
Company as a wholly-owned Delaware subsidiary, and on September 29, 1993, ATI
merged into the Company.
The Company's offices are located at 47341 Bayside Parkway, Fremont,
California 94538, and its telephone number is (510) 249- 1144.
The Offering
Securities Offered................. 1,100,000 Units, each Unit consisting of
two shares of Common Stock and one
Warrant, were offered and sold pursuant to
the Company's public offering on April 6,
1994. Each Warrant currently entitles the
holder thereof to purchase 1.9 shares of
Common Stock at an exercise price of $3.50
per Warrant which is the equivalent of
$1.84 per share of Common Stock (subject
to further adjustment in certain
circumstances) until April 6, 1999,
subject to being called. The Company may
call the Warrants for repurchase on 30
days' written notice, at a price of $.05
per Warrant, provided that the closing bid
price of the Common Stock, for 20 trading
days within a 30 consecutive trading day
period ending not more than 10 days prior
to the date on which the Company gives
notice of repurchase, has been at least
$4.50 per share [129% of the offering
price per share, attributing no value to
the Warrants] during the exercise period
commencing October 6, 1994 through October
6, 1996 or at least $5.10 per share [146%
of the offering price per share,
attributing no value to the Warrants]
thereafter. The Warrants and the Common
Stock were immediately detachable and
separately transferable at the time of
issuance. See "Description of Securities."
Common Stock Outstanding
at May 31,1996,(1)..................... 10,020,668 shares
3
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Warrants Outstanding at
May 31, 1996(2)....................... 1,100,000 Warrants
Units Underlying Under-
writers' Warrants..................... 318,421 Units (adjusted pursuant to
anti-dilution provisions)
Use of Proceeds.......................... For expansion of operations and
product line and for working
capital
NASDAQ and PSE Symbols,
respectively
Common Stock.......................... ORYX; OXT
Warrants.............................. ORYXW; OXTW
- --------------------
(1) Does not include (i) up to 2,090,000 shares issuable pursuant to the
exercise of the Warrants; (ii) up to 1,241,842 shares issuable pursuant
to the Underwriters' Warrants (assuming exercise of the Warrants
included in the Underwriters' Warrants); (iii) up to 2,865,526 shares of
Common Stock granted or reserved for issuance upon exercise of options
under the Company's Incentive and Nonqualified Stock Option Plan and
other options and warrants for members of management, key employees and
others; and (iv) 406,875 shares issuable upon conversion of the
Company's Series A $25 2% Convertible Cumulative Preferred Stock. See
"Underwriting," "Management," "Description of Securities" and "Sales by
Selling Security Holders."
(2) Does not include 318,421 warrants issuable upon exercise of the Under-
writers' Warrants.
Risk Factors
An investment in the Common Stock offered hereby is speculative and
involves a high degree of risk. Investors should carefully consider the risk
factors enumerated hereafter before investing in the shares of Common Stock. See
"Risk Factors."
Summary Consolidated Financial Information
The following table sets forth selected financial information concerning
the Company (which includes its predecessor) and its subsidiaries and is
qualified by reference to the consolidated financial statements and notes
thereto included elsewhere in this Prospectus. See "Financial Statements."
4
<PAGE>
Consolidated Balance February 28 February 29
Sheet Data: 1995 1996
---- ----
Cash and cash equivalents $ 1,376,000 $ 3,939,000
Working capital $ 3,679,000 $ 4,698,000
Total assets $ 8,255,000 $ 12,340,000
Total long-term obligations $ 1,451,000 $ 34,000
Total liabilities $ 4,528,000 $ 6,101,000
Stockholders' equity $ 3,727,000 $ 6,239,000
Consolidated Statement of
Operations Data:
Revenue $ 11,352,000 $ 16,136,000
Income (loss) from operations $ (2,791,000) $ (3,635,000)
Income (loss) before income
taxes and extraordinary gain $ (3,281,000) $ (4,150,000)
Extraordinary gain $ -- $ 1,433,000
Preferred stock dividend $ 27,000 $ 20,000
Net loss attributable
to common stock $ (3,316,000) $ (2,779,000)
Net loss per common share
before extraordinary gain $ (1.02) $ (0.73)
Net loss per common share $ (1.02) $ (0.48)
Weighted average common shares
and equivalents
outstanding 3,238,900 5,789,642
RISK FACTORS
The securities offered hereby involve a high degree of risk. It is
impossible to foresee and describe all the risks and business, economic and
financial factors which may affect the Company. Prospective investors should
carefully consider the risk and speculative factors, as well as other matters
set forth elsewhere in this Prospectus, before making an investment in the
Company.
Liquidity and Capital Resources
The Company's working capital increased from $3,679,000 at February 28,
1995 to $4,698,000 at February 29, 1996. This increase resulted from cash raised
in a number of private equity offerings. The Company's ratio of current assets
to current liabilities was 2.20:1 at February 28, 1995, and 1.77:1 at February
29, 1996. The Company's operating losses, increasing accounts payable, loss of
its line of credit and inventory build-up have continued in the fiscal year
ended February 29, 1996, and together with the loss of the line of credit
arrangement and required payments on certain short term financings, have further
exacerbated the Company's cash flow needs.
5
<PAGE>
On February 28, 1996, the Company's line of credit terminated and the
outstanding balance was repaid in full in March 1996. The Company is currently
pursuing other credit arrangements and hopes to establish a replacement facility
by June 30, 1996. Failure to obtain a replacement line of credit facility or
other financing could have a severe adverse impact on the Company. Failure by
the Company to establish a new credit facility could impact the Company's
growth, liquidity and ability to meet its financial obligations and,
potentially, its overall financial viability. In order to meet its presently
forecasted obligations for the fiscal year ending February 28, 1997, the Company
anticipates needing to raise at least $5,000,000 in new equity or debt
financing. If the Company's Power Products subsidiary is able to increase its
profit margin on power products, through a reduction in component costs or
otherwise, or its Instruments and Materials subsidiary is able to gain greater
market acceptance for its IMCS 11000 automated testers or SIMS products, the
Company's overall need for additional financing may be reduced. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
History of Unprofitability; Substantial Recent Operating Losses and Accumulated
Deficit
Since its initial public offering in April 1994, the Company has not
been profitable on a quarterly or annual basis. At February 29, 1996, the
Company had an accumulated deficit of $8,231,000, of which $2,779,000 reflects
the Company's losses for the year ended February 29, 1996. The Company's
accumulated deficit is expected to increase as a result of future losses.
The Company expected to achieve profitable operations by the second half
of its fiscal year ending February 28, 1996. However, the Company experienced
significant delays and additional costs in the development of its material
analysis, electrostatic discharge testing and surge protection product lines and
experienced deterioration of gross margins in the power products group, all of
which have caused the Company's continuing losses. Currently, the Company
expects to commence shipment of evaluation units of its secondary ion mass
spectrometer instrument in the first half of the fiscal year commencing March 1,
1996, and hopes to have such product commercially available in the market by the
end of fiscal 1997. In addition, the Company shipped two initial units of its
new IMCS 11000 electrostatic discharge tester in December 1995 which were
accepted by customers in the first quarter of fiscal year ending February 28,
1997. While the Company believes it can eventually attain profitable operations
based on new product introductions and upgrades scheduled to occur in its surge
protection products and equipment subsidiaries and power products subsidiary,
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there can be no assurance that the Company will be profitable in the fiscal year
ending February 28, 1997 or thereafter. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Need for Additional Financing
The Company does not believe that its current finances will enable it to
satisfy all of its anticipated financing needs for the fiscal year ending
February 28, 1997. Although the Company intends to pay off the amounts owed to
Zenith Electronics Corporation ("Zenith"), pursuant to the parties' settlement
agreement, if the Company is not successful in securing a new line of credit
facility or generating other funds in an amount sufficient to pay off the
amounts owed to Zenith, the Company will need to secure additional equity or
debt financing, or sell significant assets to meet its financial obligations. In
the event the Company requires additional equity or debt financing, or attempts
to raise capital through an asset sale, there can be no assurance that such
transactions can be effected in a timely manner to meet all the Company's needs,
or at all, or that any such transaction will be on terms acceptable to the
Company or in the interest of its stockholders. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Risks of New Phase of Development
The Company has invested substantially in the development of proprietary
technologies in surface analysis, electrostatic surge testing of integrated
circuits and surge protection. However, there can be no assurance that the
Company will be successful in commercializing these technologies or any other
products, or developing financially viable businesses based on these
technologies or products. Results of operations in the future will be influenced
by numerous factors, including technological developments by the Company, its
customers and competitors, increases in expenses associated with product
development and sales growth, market acceptance of the Company's products, the
ability of the Company to successfully control its costs of development,
overhead and other costs and manage its operations, the capacity of the Company
to develop and manage the introduction of new products, and by competition.
There can be no assurance that revenue growth will be sustained or profitability
on a quarterly or annual basis will be achieved. Accordingly, there can be no
assurance that the Company will be able to implement its business plan, expand
its operations and develop and sustain profitable operations. See "Business."
Significant Customer Dependence
For the years ended February 29, 1996 and February 28, 1995, sales to
Pitney Bowes accounted for approximately 41% and 27% of consolidated revenues,
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<PAGE>
respectively. The Company expects that sales to Pitney Bowes will continue to
represent a significant percentage of the Company's sales through at least 1997.
The Company's operating results would be materially and adversely affected by
any loss of business from, the cancellation of orders by, or decreases in prices
of products sold to, Pitney Bowes. There can be no assurance that such customer
or any other customers will in the future continue to purchase products from the
Company at levels that equal or exceed those of prior periods, if at all. While
the Company actively pursues new customers, there can be no assurances that the
Company will be successful in its efforts, and any significant weakening in
customer demand would have a material adverse effect on the Company. See
"Management's Discussion of Analysis of Financial Condition and Results of
Operations."
Risks Associated with Management of Growth; Internal Control Deficiencies
The Company has recently experienced and may continue to experience
substantial growth in the number of employees and the scope of its operations,
resulting in increased responsibilities for management. To manage growth
effectively, the Company will need to continue to improve its operational,
financial and management information systems and to develop and maintain sound
internal controls. In connection with the Company's audit for the fiscal year
ended February 28, 1995, the Company's independent accountants identified a
reportable condition in the Company's internal controls with respect to its
inventory management systems as it relates to tracking the movement of costed
inventory which resulted in an adjustment to the fiscal 1995 financial
statements. Another reportable condition was identified with respect to the
Company's record keeping for equity financing and share issuance transactions.
In connection with the Company's audit for the fiscal year ended February 29,
1996, the Company's independent accountants identified a further reportable
condition relating to physical inventory procedures specifically with regard to
substantial adjustments that resulted from physical inventories taken during the
fiscal year ended February 29, 1996. The resulting adjustments were reflected in
the fiscal 1996 financial statements. A reportable condition indicates that a
material error or irregularity may occur in the Company's quarterly and year-end
financial statements and may not be detected on a timely basis by the Company's
employees, thereby possibly resulting in a misstatement of the Company's
financial statements. While the Board of Directors have instituted action to
correct the preceding conditions, there can be no assurance that the Company
will be able to effectively achieve or manage any future growth, or develop and
maintain strong internal controls. Such failure could result in a material
adverse effect on the Company's financial condition and results of operations
and could result in a misstatement of operating results.
8
<PAGE>
Cost of Power Conversion Products
In July 1995, the Company's contract with Zenith, pursuant to which
Zenith manufactured certain power conversion products for the Company at a fixed
price per unit, expired in accordance with its terms. Since such time, the
Company has manufactured power conversion products at its facility in Reynosa,
Mexico, while purchasing components for such products from various third party
manufacturers and distributors. The Company has purchased many components for
power conversion products from distributors at prices which are higher than
those offered directly from manufacturers, and the current market prices of such
components are substantially higher than the prices of such components
anticipated by the Company at the time it entered into the Zenith contract.
Accordingly, the Company has incurred higher costs in producing its power
conversion products and the Company's per unit profit margin on such products
has decreased. There can be no assurance that the Company will be able to
produce such products at a lower cost or negotiate more favorable, or even as
favorable, terms for the components thereof, in the future and, therefore, the
Company's profit margin on power products may be subject to further erosion,
which would have a material adverse effect on the Company. See "Business - Oryx
Power Products Corporation."
Reliance on Third Party Manufacturers May Disrupt Operations
The Company relies on third-party manufacturers for the supply of
substantially all key components for all of its products. The Company's reliance
on outside manufacturers generally, and a sole manufacturer or a limited group
of manufacturers in particular, involves several risks, including without
limitation, a potential inability to obtain an adequate supply of required
components and reduced control over pricing, quality, cost, and timely delivery
of components. Any inability to obtain adequate deliveries or any other
circumstances that would require the Company to seek alternative sources of
supply or to manufacture such components internally could lead to disruption of
the operations of the Company, product deficiencies, unanticipated and
fluctuating expenses, unpredictable revenues, and sales and marketing
dislocations that are beyond the Company's control, and may have a material
adverse effect on the Company's business and operations.
See "Business."
Technological Changes Affecting Products and Product Development Risks
The design and manufacture of technologically advanced components and
equipment continually undergo rapid and significant technological change. The
Company's success will depend upon its ability to maintain a competitive
position with respect to its proprietary and other enhanced technology and to
continue to attract and retain qualified personnel in all phases of its
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<PAGE>
operations. The Company's business is, to a large degree, dependent on the
enhancement of its current products and the development of new products.
Critical to the Company's success and future profitability will be its capacity
to develop new technologies for new product lines and product upgrades. Product
development and enhancement involve substantial research and development
expenditures and a high degree of risk, and there is no assurance that the
Company's product development efforts will be successful, will be accepted by
the market, or that such development efforts can be completed on a
cost-effective or timely basis. While the Company will continue to actively
develop and research new products and anticipates committing funds and personnel
to such efforts, there can be no assurance that future technological
developments will not render existing or proposed products of the Company
uneconomical or obsolete or that the Company will not be adversely affected by
competition or by the future development of commercially viable products by
others. See "Business."
Quarterly Fluctuations of Operating Results
The Company's quarterly operating results have in the past been, and
will in the future be, subject to fluctuation. The Company's operating results
are impacted by numerous factors, such as product introductions or modifications
by competitors, market acceptance of the Company's products and its customers'
products, product price changes, product mix, purchasing patterns of OEMs and
other customers, delays in, or failure to receive, orders due to customer
financial difficulties, and overall economic trends. The Company plans to
introduce product upgrades or new product lines from time-to-time, which could
generate short-term order fluctuations and have an adverse impact on sales of
certain existing products. In addition, customer orders may involve competing
capital budget considerations for the customer, thus making the timing of
customer orders difficult to predict and uneven. Any delay or failure to receive
anticipated orders, or any deferrals or cancellation of existing orders, would
adversely affect the Company's financial performance. The Company's expense
levels are based in part on its expectations as to future revenues and, in
particular, revenue growth, and the Company may be unable to adjust spending in
a timely manner to compensate for any revenue shortfall. Accordingly, operating
results in any one quarter could be materially adversely affected by, among
other factors, a failure to receive, ship or obtain customer acceptance of
sufficient orders in that quarter. Any weakening in demand for the Company's
products could have a material adverse effect on the Company's operating results
and the Company's ability to achieve profitability.
10
<PAGE>
Backlog and Inventory
The Company's power products subsidiary operates with a substantial
backlog due primarily to orders from OEMs for custom power supplies, which
generally comprise between 50% to 60% of the Company's total revenues. However,
the Company's backlog at the beginning of a quarter typically does not include
all sales required to achieve the Company's sales objectives for the power
products subsidiary for that quarter. Therefore, the power products subsidiary's
net sales and operating results for a quarter depend on the Company shipping
orders scheduled to be sold during that quarter and obtaining additional orders
for products to be sold during that same quarter. Moreover, the terms of
customer purchase orders generally provide that the customer may cancel or
reschedule all or a substantial portion of the order with limited notice and
with little or no penalty. The Company has experienced rescheduling in the past
and, to a lesser extent, cancellations, and expects that it will experience such
changes in the future. If the Company is unable to adjust its parts orders to
meet its actual product demand, the result may be that the Company has a parts
or product inventory which is substantially different from the number and mix of
products actually sold. Any such inventory imbalance could result in inventory
write downs or other unexpected charges, contributing to significant
fluctuations in operating results from quarter to quarter.
The Company's other subsidiaries operate with virtually no backlog.
Therefore, because the Company ships most of its current products within a short
period after receipt of an order, the Company's net sales and operating results
for a quarter depend on the Company's ability to obtain orders for and ship
products within the same quarter. See "Business."
Competition
The Company is engaged in certain highly competitive and rapidly
changing segments of the electronic components and systems manufacturing
industry in which technological advances, costs, consistency and reliability of
supply are critical to competitive position. In addition, the competition for
recruitment of personnel in the technologically-advanced manufacturing industry
is continuous and highly intense. The Company competes or may subsequently
compete, directly or indirectly, with a large number of companies which may
provide products or components comparable to those provided by the Company. In
addition, many present or prospective competitors are larger, better
capitalized, more established and have greater access to resources necessary to
produce a competitive advantage. In particular, there are a large number of
competitors producing power conversion products, many of which are larger and
more established technology oriented companies in the United States as well as
low cost manufacturers in the Far East. While the Company intends to compete in
11
<PAGE>
the power conversion products area through upgrading products that have not
received critical focus by most present manufacturers and distributors, it is
possible that competitors may also introduce more technologically advanced power
conversion products in the future. Although the Company believes that its
materials, components, equipment and products represent technologically advanced
applications and methodology and that the Company can ultimately occupy an
attractive market position, there can be no assurance that the Company will be
able to compete effectively in some or all of its markets. See "Business."
No Assurances of Protection for Patents and Proprietary Rights; Reliance on
Trade Secrets
The Company relies on a combination of patent, copyright, trademark and
trade secret laws, non-disclosure agreements and other intellectual property
protection methods to protect its proprietary technology. The Company currently
holds several patents relating to its power products group. In addition, the
Company holds a patent in the United States for IntrageneTM and has patent
applications pending in the United States for technology associated with its
SurgXTM product line. While the Company believes its patent and patent
applications, if granted, will provide significant proprietary protection, there
can be no assurance that any existing or subsequently obtained patents will
provide the Company with substantial competitive advantages, or that challenges
will not be instituted against the validity or enforceability of any patents
owned by the Company, or if initiated, that such challenges will not be
successful. To the extent the Company wishes to assert its patent rights, there
can be no assurance that any claims of the Company's patents will be sufficient
to protect the Company's technology, and the cost of any litigation to uphold
the validity of a patent and prevent infringement can be substantial even if the
Company prevails. In addition, there can be no assurance that others will not
independently develop similar technologies, duplicate the Company's technology,
or legitimately design around the patented aspects of the Company's technology.
Competitors or potential competitors may have filed applications for or received
patents, and may obtain additional patents and proprietary rights relating to
technology competitive with that of the Company. Furthermore, if additional
patents do not issue from present or future patent applications, the Company may
be subject to greater competition.
In certain cases, the Company also relies on trade secrets to protect
proprietary technology and processes which it has developed or may develop in
the future. There can be no assurance that secrecy obligations will be honored
or that others will not independently develop similar or superior technology.
The protection of proprietary technology through claims of trade secret status
has been the subject of increasing claims and litigation by various companies,
12
<PAGE>
both in order to protect proprietary rights, and for competitive purposes, even
where proprietary claims are unsubstantiated. The prosecution of proprietary
claims or the defense of such claims is costly and uncertain given the rapid
development of the principles of law pertaining to this area. See "Business -
Patents and Proprietary Rights."
Dependence on Key Personnel
The success of the Company is highly dependent upon the continued
services of Mr. Arvind Patel, Chief Executive Officer and a director of the
Company. Although the Company has entered into an employment agreement with Mr.
Patel and the Company employs various other skilled executives and employees,
the loss of Mr. Patel's services could have a material adverse effect on the
business of the Company. The Company maintains $1,000,000 of key man life
insurance on the life of Mr. Patel as to which the Company is the beneficiary.
There can be no assurance that the Company will be able to replace Mr. Patel in
the event his services become unavailable. See "Management."
No Dividends on Common Stock
The Company has not paid any cash dividends on its Common Stock since
its inception and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. Payment of dividends is likely to be restricted under
the terms of any new credit facility. The future payment of dividends is
directly dependent upon future earnings of the Company, its financial
requirements and other factors to be determined by the Company's Board of
Directors, as well as the possible consent of any of its prospective lenders.
For the foreseeable future, it is anticipated that any earnings which may be
generated from the Company's operations will be used to finance the growth of
the Company and will not be paid to holders of Common Stock. See "Dividend
Policy."
Risk of Significant Dilution
As a result of various transactions previously undertaken by the
Company, there are convertible securities and warrants and options of the
Company currently outstanding for the conversion and purchase of up to
approximately 6,600,000 shares of Common Stock, which represent significant
additional potential dilution for existing stockholders of the Company. These
underlying shares of Common Stock are not included in currently outstanding
shares, weighted average shares and equivalents outstanding or the computation
of loss (or any subsequent earnings) per share. In addition, as a result of the
anti-dilution provisions included in certain of these derivative securities,
there may be further dilution based on the price that the Company issues other
securities in the future. See "Business," Management" and "Certain
Transactions."
13
<PAGE>
Volatility of Stock Price
There can be no assurance that the market price of the Common Stock will
not decline below the price at which such shares are being offered pursuant to
this Prospectus, particularly since the market price of the Company's Common
Stock has fluctuated substantially since the Company's initial public offering
in April 1994. The Company believes that a variety of factors could cause the
price of the Company's Common Stock to fluctuate substantially, including, for
example, the Company's ability to establish a credit facility to replace its
former facility with its bank, announcements of developments related to the
Company's business, liquidity and financial viability, fluctuations in the
Company's operating results and order levels, general conditions in the
Company's industries, the technology industry in general or the United States or
worldwide economy, announcements of technological innovations, new products or
product enhancements by the Company or its competitors, developments in patents
or other intellectual property rights, and developments in the Company's
relationships with its customers, distributors and suppliers. In addition, in
recent years, the stock market in general and the market for shares of small
capitalization stocks in particular has experienced extreme price fluctuations
which have often been unrelated to the operating performance of affected
companies. Such fluctuations could adversely affect the market price of the
Company's Common Stock and the Warrants and ability to obtain additional
financing. See "Price of Common Stock and Warrants."
14
<PAGE>
Necessity to Maintain Current Prospectus
The shares of Common Stock issuable upon exercise of the Warrants have
been registered with the Securities and Exchange Commission. The Warrant Agent
Agreement pursuant to which the Warrants have been issued provides for the
extension of the exercise period of the Warrants by the Company upon fulfillment
of certain notice provisions to the Warrant Holders. The Company will be
required, from time-to-time, to file post-effective amendments to its
registration statement in order to maintain a current prospectus covering the
issuance of such shares upon exercise of the Warrants. The Company intends to
use its best efforts to cause such post-effective amendments to become
effective; however, to date, the Company has not maintained the effectiveness of
the Registration Statement. If for any reason a required post-effective
amendment is not filed or does not become effective or is not maintained, the
holders of the Warrants may be prevented from exercising their Warrants. See
"Description of Securities - Warrants."
State Blue Sky Registration Required to Exercise Warrants
Holders of the Warrants have the right to exercise the Warrants only if
the underlying shares of Common Stock are qualified, registered or exempt for
sale under applicable securities laws of the states in which the various holders
of the Warrants reside. The Company cannot issue shares of Common Stock to
holders of the Warrants in states where such shares are not qualified,
registered or exempt. The Company has undertaken, however, to qualify or
register such shares (or to secure an exemption for their issuance) in certain
states. See "Description of Securities - Warrants."
Callable Warrants and Impact on Investors
The Warrants included in the Units are subject to repurchase by the
Company in certain circumstances. The Company's exercise of this right would
force a holder of Warrants to exercise the Warrants and pay the exercise price
at a time when it may be disadvantageous for the holder to do so, to sell the
Warrants at the then current market price when the holder might otherwise wish
to hold the Warrants for possible additional appreciation, or to accept the
repurchase price, which is likely to be substantially less than the market value
of the Warrants in the event of a repurchase call. Holders who do not exercise
their Warrants prior to a repurchase will forfeit their right to purchase the
shares of Common Stock underlying the Warrants. The foregoing notwithstanding,
the Company may not call the Warrants at any time that a current registration
statement under the Act is not then in effect. See "Description of Securities -
Warrants."
15
<PAGE>
Exercise of Underwriters' Warrants
In connection with the Company's prior public offering, the Company sold
to the Underwriters, for nominal consideration, the Underwriters' Warrants. The
Underwriters' Warrants are exercisable commencing April 6, 1995 and will
continue until April 6, 1999 at a purchase price of $11.55 per Unit. The
Underwriters' Warrants may have certain dilutive effects because the holders
thereof will be given the opportunity to profit from a rise in the market price
of the underlying shares with a resulting dilution in the interest of the
Company's other stockholders. The terms on which the Company could obtain
additional capital during the life of the Underwriters' Warrants may be
adversely affected because the holders of the Underwriters' Warrants might be
expected to exercise them at a time when the Company would otherwise be able to
obtain comparable additional capital in a new offering of securities at a price
per share greater than the exercise price of the Underwriters' Warrants.
The Company has agreed that, at the request of the holders under certain
circumstances, it will register under federal and state securities laws the
Underwriters' Warrants and/or the securities issuable thereunder. See
"Underwriting." Exercise of these registration rights could involve substantial
expense to the Company, and may adversely affect the terms upon which the
Company may obtain additional funding and may adversely affect the price of the
Common Stock and the Warrants. See "Underwriting."
Authorization of Preferred Stock
The Board of Directors is authorized to issue shares of preferred stock
and to fix the dividend, liquidation, conversion, redemption and the rights,
preferences and limitations of such shares without any further vote or action of
the stockholders. Accordingly, the Board of Directors is empowered, without
stockholder approval, to issue preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting power
of other rights of the holders of the Company's Common Stock. In the event of
issuance, the preferred stock could be utilized, under certain circumstances, as
a method of discouraging and delaying or preventing a change of control of the
Company. Although the Company has no present intention to issue any additional
shares of its preferred stock, there can be no assurance that the Company will
not do so in the future.
USE OF PROCEEDS
In the event all of the Warrants were to be exercised, the Company would
receive net proceeds of approximately $3,775,000, after payment of offering
expenses estimated to be approximately $75,000. Upon any redemption of the
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<PAGE>
Warrants, the Company is obligated under the terms of its Underwriting Agreement
to pay the Underwriter a fee of 6% of the aggregate exercise price of each
Warrant exercised, subject to certain restrictions. See "Underwriting." No
proceeds will be obtained by the Company from the Warrants except upon the
exercise of the Warrants. It is anticipated that the net proceeds, if any, will
be used by the Company for expansion of operations and product line and for
working capital. The actual allocation of proceeds realized from the exercise of
the Warrants will depend upon the amount and timing of such exercises, the
Company's operating revenues and cash position at such time and its working
capital requirements during the course of such exercise period. There can be no
assurances that any of the Warrants, the Bridge Warrants, or the Underwriters'
Warrants will be exercised.
While the intended use of proceeds is consistent with the Company's
current business plan objectives, the Company reserves the right to change the
use of proceeds depending on working capital requirements and opportunities
afforded to the Company. Pending utilization of the proceeds as described above,
the net proceeds of the offering will be deposited in interest bearing accounts
or invested in money market instruments, government obligations, certificates of
deposits or similar short-term investment grade interest bearing investments.
The net proceeds of approximately $6,000,000 realized by the Company
from the public offering of the Units consummated in April 1994 were utilized by
the Company to acquire from Zenith certain assets of its power conversion
products group, for product development, expansion of sales and marketing
programs of the Company, relocation of power conversion manufacturing equipment,
repayment of promissory notes, acquisition of an interest in DAS Devices, Inc.
and for working capital purposes.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The
Company presently intends to retain future earnings, if any, to finance the
expansion of its business and does not anticipate that any cash dividends will
be paid in the foreseeable future on its Common Stock. Future dividend policy
will depend on the Company earnings, capital requirements, expansion plans,
financial condition and other relevant factors as well as the possible need to
obtain the consent of any of its lenders.
PRICE OF COMMON STOCK AND WARRANTS
Since the Company's initial public offering of the Common Stock and
Warrants on April 6, 1994, the Company's Common Stock and Warrants have traded
principally on the NASDAQ SmallCap Market under the symbols "ORYX" AND "ORYXW,"
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<PAGE>
respectively. Prior to April 6, 1994, there was no public market for the
Company's securities. From April 6, 1994 through June 6, 1994, the Company had
Units which were also traded on NASDAQ, at which time the Company requested
withdrawal of such listing. The following table sets forth the high and low bid
quotations for the Common Stock and Warrants for the periods indicated, as
reported by NASDAQ. These quotations reflect prices between dealers, do not
include retail mark-ups, mark-downs or commissions and may not necessarily
represent actual transactions.
Common Stock Warrants
-------------------- --------------------
High Low High Low
---- --- ---- ---
1995 Fiscal year
- ----------------
1st Quarter $3-3/8 $2-7/8 $1 $1/4
2nd Quarter $3 $1-7/8 $11/16 $9/16
3rd Quarter $2-1/8 $7/8 $5/8 $3/32
4th Quarter $1-3/8 $3/4 $7/16 $3/32
1996 Fiscal year
- ----------------
1st Quarter $1-9/16 $1-3/16 $17/32 $1/4
2nd Quarter $2-1/4 $1 $3/4 $1/4
3rd Quarter $2-1/8 $1-1/4 $27/32 $5/8
4th Quarter $1-3/4 $7/8 $25/32 $3/8
1997 Fiscal Year
- ----------------
1st Quarter $3-11/16 $1-1/4 $2-11/16 $1/2
On June 25, 1996, the closing price for the Common Stock was $3.375, and
for the Warrants was $2.93.
The Company's Common Stock and Warrants are also listed for trading on
the Pacific Stock Exchange under the symbols "OXT" and "OXTW," respectively.
Prior to June 6, 1994, the Company's Units were also traded on the Pacific Stock
Exchange, at which time the Company requested withdrawal of the listing for the
Units. There have been no recent reported trades on the PSE.
As of April 30, 1996, the number of record holders of the Company's
Common Stock and Warrants were approximately 124 and 15, respectively.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
February 29, 1996, and as adjusted to give effect to the exercise of all of the
Warrants.
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<TABLE>
<CAPTION>
February 29, 1996
----------------------------
Actual As Adjusted
----------- -----------
<S> <C> <C>
Notes payable, less current portion........................... $ 34,000 $ 34,000
Stockholders' equity:
Preferred Stock, $.001 par value per share; 3,000,000
shares authorized; 45,000 shares of Series A Preferred
Stock, authorized of which 34,875 are issued and
outstanding.......................................... $ 832,000 $ 832,000
Common Stock, $.001 par value per share; 25,000,000
shares authorized; 9,228,668 shares issued and
outstanding; 11,318,668 shares to be outstanding
following the Offering(1)............................ $ 9,000 $ 11,000
Additional paid-in capital.................................... $13,629,000 $17,402,000
Accumulated deficit........................................... $(8,231,000) $(8,231,000)
----------- -----------
Total stockholders' equity........................... $ 6,239,000 $10,014,000
Total capitalization................................. $ 6,273,000 $10,048,000
=========== ===========
- ---------------
(1) Rounded to the nearest thousand. Does not include (i) up to 1,241,842 shares issuable
pursuant to the Underwriters' Warrants (assuming exercise of the Warrants included in
the Underwriters' Warrants); (ii) up to 2,865,526 shares of Common Stock granted or
reserved for issuance upon exercise of options under the Company's Incentive and
Nonqualified Stock Option Plan and other options and warrants for members of
management, key employees and others; and (iii) 406,875 shares issuable upon conversion
of the Company's Series A $25 2% Convertible Cumulative Preferred Stock. See
"Underwriting," "Management," "Description of Securities" and "Sales by Selling
Security Holders."
</TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
The information set forth below is qualified by reference to, and should
be read in conjunction with, the Company's consolidated financial statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus. The following
selected financial data are derived from the consolidated financial statements
of the Company included elsewhere in this Prospectus.
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<PAGE>
Operations Statement Data
Consolidated Balance February 28 February 29
Sheet Data: 1995 1996
---- ----
Cash and cash equivalents $ 1,376,000 $ 3,939,000
Working capital $ 3,679,000 $ 4,698,000
Total assets $ 8,255,000 $ 12,340,000
Total long-term obligations $ 1,451,000 $ 34,000
Total liabilities $ 4,528,000 $ 6,101,000
Stockholders' equity $ 3,727,000 $ 6,239,000
Consolidated Statement of
Operations Data:
Revenue $ 11,352,000 $ 16,136,000
Income (loss) from operations $ (2,791,000) $ (3,635,000)
Income (loss) before income
taxes and extraordinary gain $ (3,281,000) $ (4,150,000)
Extraordinary gain $ -- $ 1,433,000
Preferred stock dividend $ 27,000 $ 20,000
Net loss attributable
to common stock $ (3,316,000) $ (2,779,000)
Net loss per common share
before extraordinary gain $ (1.02) $ (0.73)
Net loss per common share $ (1.02) $ (0.48)
Weighted average common shares
and equivalents
outstanding 3,238,900 5,789,642
Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion in the section "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" contains trend
analysis and other forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Actual results could differ materially from
those projected in the forward-looking statements as result of numerous
considerations, including, without limitation, the risk factors set forth above
in the section "Risk Factors" and "Business."
Business Segments
The Company has organized its operations into three operating segments:
Power Products, Instruments and Materials, and Electrical Surge Protection. In
addition, a corporate segment includes certain activities that are not directly
related to any other operations.
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<PAGE>
In November 1995 the Company undertook strategic evaluations of each of its
businesses with the objective of maximizing stockholder value and creating
improved focus and execution in its core businesses. The businesses were
segregated and incorporated into three wholly-owned subsidiaries as follows.
Segment/Subsidiary Businesses
Oryx Power Products - Power Conversion Products
Corporation (OPP) - Contract Manufacturing
Oryx Instruments and - Material Analysis and Test
Materials Corporation Equipment
(OIM) - Specialized Materials
- Contract R&D
SurgX Corporation (SC) - Surge Protection Components
Consolidated Results of Operations
For the year ended February 29, 1996, revenues increased $4,784,000
(42%) from $11,352,000 for the year ended February 28, 1995 to $16,136,000. The
growth in revenues was primarily attributable to the increased volume from
custom power conversion products, and in particular one significant OEM customer
(41% of all revenues). Revenues from Instruments and Materials increased during
the period as the hard disk drive industry continued to expand production and
the semiconductor industry demanded more test equipment. Management expects that
revenues from Oryx Power Products will increase in the fiscal year commencing
March 1, 1996, due to increasing demand for custom power supplies, particularly
related to Oryx Power Products' largest customer, and the new focus on contract
manufacturing services. However, there can be no assurance that such increase
will occur.
The Company's gross profit decreased from $3,180,000 for the year ended
February 28, 1995 to $3,116,000 for the year ended February 29, 1996,
representing a decrease of $64,000 or 2%. Cost of sales as a percentage of
revenues was 72.0% for the year ended February 28, 1995 and 80.7% for the year
ended February 29, 1996, an increase of 12%. The increase in the cost of sales
for the year ended February 29, 1996, was primarily attributable to the cost
associated with start-up of the Mexican manufacturing plant and the higher than
expected materials cost as the Company commenced procuring raw materials for the
manufacturing operations directly without the benefit of Zenith's greater buying
power. In some instances these materials were subject to quota allocation,
increasing their cost to the Company. Management believes that margins will
improve in the fiscal year commencing March 1, 1996 since the manufacturing
transition of the Power Products line is virtually complete, and additional
efficiencies should occur with increased plant utilization as the contract
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<PAGE>
manufacturing services business ramps up, and as materials previously subject to
quota become more abundant. Further, management has put in place cost saving
measures in other product lines to improve gross margins. However, there can be
no assurance that such improvement in gross margins will be realized.
Operating expenses increased from $5,971,000 for the year ended February
28, 1995 to $6,751,000 for the year ended February 29, 1996, representing an
increase of $780,000, or 13%. This increase reflects (i) the increased
investment by the Company in research and development for the diagnostic and
electrostatic surge testing equipment and surge protection product areas, (ii)
stepped-up employment of personnel to manage and integrate its operations, and
(iii) the establishment of distribution and procurement facilities in McAllen,
Texas to support Power Products. In addition, increased sales and marketing
expenses were incurred to promote sales of the Company's products.
More specifically, marketing and selling expenses increased $415,000 or
42.7%, from $972,000 for the year ended February 28, 1995 to $1,387,000 for the
year ended February 29, 1996 in order to launch new products. General and
administrative expenses increased from $1,738,000 for the year ended February
28, 1995 to $2,541,000 for the year ended February 29, 1996, representing an
increase of $803,000 or 46.2%. This increase in general and administrative
expenses reflects the continued increase in infrastructure investment to support
the growth in revenues and certain litigation settled during the year.
Management anticipates that sales and marketing expenses will increase in line
with revenue increases from new product sales in the fiscal year commencing
March 1, 1996.
Research and development expenses increased from $1,986,000 for the year
ended February 28, 1995 to $2,823,000 for the year ended February 29, 1996,
representing an increase of $837,000 or 42%. These developmental efforts are
expected to result in commercially viable products during the fiscal year
commencing March 1, 1996. In conjunction with its acquisition of Zenith's power
products division, the Company wrote-off approximately $1.3 million of research
and development in process, primarily associated with the development of a
custom power supply for an existing OEM customer, in the first quarter of fiscal
year 1995. This product commenced shipment in the third quarter of fiscal year
1995. The Company believes that research and development expenses will continue
at a high level for the foreseeable future.
Interest expense increased from $154,000 for the year ended February 28,
1995 to $320,000 for the year ended February 29, 1996, representing an increase
of $166,000 or 108%. The increase was primarily associated with warrants issued
in bridge loans and higher line of credit borrowings at increased interest rates
due to the Company's default on certain financial covenants. See "Liquidity and
Capital Resources."
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<PAGE>
The Company also incurred a loss of $336,000 for the year ended February
28, 1995 and a loss of $195,000 for the year ended February 29, 1996 related to
losses on its equity investment in DAS Devices, Inc.
On February 29, 1996 the Company entered into a settlement agreement
with Zenith which resulted in an extraordinary gain from a debt restructuring of
$1,433,000 from the reduction of the Company's indebtedness to Zenith and
settlement of other claims, offset by expenses. See "Business-Acquisition of
Zenith Power Conversion Products Group."
Prior to the extraordinary gain related to the Zenith debt, the Company
incurred a loss of $4,192,000 in the fiscal year ended February 29, 1996
compared to a net loss of $3,289,000 for the fiscal year ended February 28,
1995, an increase of $903,000 or 27.5%. This was attributable to the high
start-up costs associated with commencement of manufacturing and distribution
operations in Mexico and Texas, respectively, as well as the Company's
continuing high level of research and development expenditures.
During the fiscal year commencing March 1, 1996, the Company anticipates
that it may experience additional operating losses primarily as a result of
product roll-out expenses associated with the diagnostic and electrostatic surge
test equipment product lines. Management currently anticipates that with growing
revenues in the custom power supply product line and its new contract
manufacturing business, and the successful roll-out of its diagnostic and
electrostatic surge test equipment products, it could achieve profitability in
the second half of the fiscal year ending February 28, 1997. However, there can
be no assurance that the Company will be able to achieve such profitability, or
if it does, that it will be able to sustain profitable operations.
Segment Results
ORYX POWER PRODUCTS CORPORATION
Year Ended Year Ended
February 29 February 28
(dollars in thousands) 1996 1995
- -------------------------------------------------------------------------------
Revenues $12,014 $ 8,500
Cost of Sales 9,947 6,046
------- ------
Gross Profit 2,067 2,454
Operating Expenses 2,611 2,948
------- ------
Operating Income(Loss) $( 544) $( 494)
===== =====
In April 1995, the Company acquired the Power Products division of
Zenith Electronics Corporation. The operations in fiscal 1996 represent 12
months of operations whereas fiscal 1995 reflects approximately 10.5 months of
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<PAGE>
operations. Additionally, in fiscal 1995, the Company purchased its finished
products from Zenith under a fixed price contract, whereas in early fiscal 1996
the Company commenced manufacturing products at its facility in Reynosa, Mexico.
Revenues for the year ended February 29, 1996 increased $3,514,000 or
41.3% from $8,500,000 for the year ended February 28, 1995 to $12,014,000 for
the year ended February 29, 1996. The revenue increase primarily relates to the
ramp up of volume shipments of a custom power supply to Power Products' largest
customer. Gross Margins decreased by $387,000 or 15.8% from $2,454,000 for the
year ended February 28, 1995 to $2,067,000 for the year ended February 29, 1996.
This decrease primarily relates to start-up costs and inefficiencies as the
subsidiary commenced production at its new Mexican manufacturing plant. Higher
raw material costs were incurred in the 1996 fiscal year as Power Products
commenced direct raw material purchases, and write-offs were made for slow
moving and obsolete inventory.
Operating expenses decreased $337,000 or 11.4% from $2,948,000 for the
year ended February 28, 1995 to $2,611,000 for the year ended February 29, 1996.
This decrease is attributable to a write-off of purchased research and
development in fiscal 1995 and offset by two ongoing circumstances: increased
sales and marketing expenses as Power Products increased the size of its sales
force, and the establishment of procurement and distribution at its McAllen,
Texas location.
Power Products' loss from operations for the year ended February 29,
1996 was $544,000, an increase of 10.1% compared to a loss from operations of
$494,000 for the year ended February 28, 1995. The loss primarily resulted from
increased sales and marketing and general and administration expenses, along
with lower gross margins in the fiscal year ended February 29, 1996. The
extraordinary gain in fiscal 1996 of $1,433,000 resulted from settlement of
debts related to the acquisition of Power Products from Zenith.
ORYX INSTRUMENTS AND MATERIALS CORPORATION
Year Ended Year Ended
February 29 February 28
(dollars in thousands) 1996 1995
- -------------------------------------------------------------------------------
Revenues $ 4,114 $ 2,777
Cost of Sales 3,073 2,126
------- ------
Gross Profit 1,041 651
Operating Expenses 1,956 1,218
------- ------
Operating Income(Loss) $( 915) $( 567)
===== =====
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Revenues for the year increased $1,337,000 or 48.1% to $4,114,000 for
the year ended February 29, 1996 from $2,777,000 for the year ended February 28,
1995. The increase in revenues was primarily attributable to growth in the
ceramic metallization and joining system business which experienced increased
demand as the hard disk drive industry expanded manufacturing capacity. In
addition, electrostatic discharge testing equipment revenues improved as the
semiconductor industry in general increased capital equipment purchases.
Gross profit increased $390,000 or 60% from $651,000 for the year ended
February 28, 1995 to $1,041,000 for the year ended February 29, 1996. The
improvement in gross margin was primarily due to increased revenues.
Operating expenses increased $738,000 or 60.6% from $1,218,000 for the
year ended February 28, 1995 to $1,956,000 for the year ended February 29, 1996.
This increase was foremost the result of greater research and development
expenses primarily attributable to the SIMS product.
The loss from operations for the year increased $348,000 or 61% from
$567,000 for the year ended February 28, 1995 to $915,000 for the year ended
February 29, 1996. The higher research and development expenses more than offset
the increase in gross margins. Instruments and Materials has recently shipped
two systems of the new electrostatic surge test equipment and expects acceptance
of these and other systems in the first half of the fiscal year ending February
28, 1997. The Company expects that it will ship its first secondary ion mass
spectrometer in the first half of fiscal 1997. However, there can be no
assurance that the new products being introduced will meet customer expectations
or that the ceramic metallization and joining system business will continue to
grow, or that profitability will be achieved for the business.
SURGX CORPORATION
Year Ended Year Ended
February 29 February 28
(dollars in thousands) 1996 1995
- -------------------------------------------------------------------------------
Revenues $ 8 $ 75
Operating Expenses 561 522
------- ------
Operating Income(Loss) $( 553) $( 447)
===== =====
Operating expenses increased $39,000 or 7.5% from $522,000 for the year
ended February 28, 1995 to $561,000 for the year ended February 29, 1996. The
increase primarily reflects additional research and development expenses to
develop commercial products. Due to the higher level of research and development
expenses and the lack of commercial product sales, the loss from operations
increased $106,000 or 23.7% from $447,000 for the year ended February 28, 1995
to $553,000 for the year ended February 29, 1996.
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There can be no assurance that SurgX can continue to spend at its current rate.
While SurgX is looking for customers or joint venture partners to fund future
development efforts, there can be no assurance that those efforts will be
successful. In the event that the Company fails to establish a relationship on
acceptable terms with at least one corporate partner, the Company currently
anticipates liquidating SurgX and terminating the surge protection product line.
CORPORATE
Year Ended Year Ended
February 29 February 28
(dollars in thousands) 1996 1995
- -------------------------------------------------------------------------------
Operating Expenses $ 1,623 $ 1,283
------ ------
Operating Income(Loss) $(1,623) $(1,283)
===== =====
The increase in operating expenses and loss from operations of $340,000
or 26.5% from $1,283,000 for the year ended February 28, 1995 to $1,623,000 for
the year ended February 29, 1996 primarily relates to certain litigation
expenses incurred during the year. The litigation was settled on satisfactory
terms.
Liquidity and Capital Resources
The Company's working capital improved $1,019,000 or 27.7% from a
surplus of $3,679,000 at February 28, 1995, to a surplus of $4,698,000 at
February 29, 1996. This increase resulted principally from cash raised in a
number of private equity offerings. The Company's ratio of current assets to
current liabilities was 2.20:1 at February 28, 1995, and 1.77:1 at February 29,
1996. The Company's operating losses, increasing accounts payable, loss of its
line of credit and inventory build-up have continued in the fiscal year ended
February 29, 1996, and together with the loss of the line of credit arrangement
and required payments on certain short term financings, have further exacerbated
the Company's cash flow needs.
Net cash used in operating activities was $372,000 for the year ended
February 28, 1995, compared with net cash used in operations of $1,997,000 for
the year ended February 29, 1996, an increase of 437%. In May 1995 the Company
completed a private placement of Common Stock, resulting in net proceeds of
$1,700,000. The net proceeds from this offering funded the Company's operating
deficit. In February 1996 the Company closed a private placement of 3,208,000
shares of Common Stock under Regulation S of the Securities Act of 1933,
resulting in net proceeds of $3,600,000. In addition, the Company issued a
warrant to purchase 224,560 shares of Common Stock at $1.375 per share to
Yorkton Securities, Inc. in partial payment of placement agent fees incurred in
connection with such offering. On May 15, 1996, the Company closed an additional
installment of the Regulation S offering for net proceeds of approximately
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$880,000 in consideration of the issuance of 792,000 shares of Common Stock and
issued a second warrant to Yorkton to purchase 32,000 shares of Common Stock at
$1.375 per share. In February 1996 the Company issued 322,551 warrants for
$400,000 of short-term secured loans. The warrants provide for an exercise price
of $1.25 per share of common stock. The indebtedness was repaid out of the first
installment of the Regulation S offering described above. The Company entered
into a revolving line of credit facility of up to $1,500,000 with Comerica Bank
on November 15, 1994, which was subject to maintaining certain financial
covenants. The Company was in default of such covenants during the fiscal year
ended February 29, 1996; the Bank and the Company entered into a Modification
and Forbearance Agreement in January 1996 terminating the line of credit
facility and requiring all amounts outstanding to be repaid to the Bank by
February 28, 1996. All such amounts were repaid in March 1996. The Company's
initial public offering of its securities, which resulted in the receipt of net
proceeds of approximately $6,000,000, was completed in April 1994. The Company
used approximately $3,500,000 and $650,000 of such net proceeds respectively to
buy the Zenith assets and repay outstanding indebtedness at the time of the
public offering.
The Company believes that it will require additional financing, from a
combination of credit lines and sales of equity, of at least $5,000,000 to
support anticipated operations in the fiscal year ended February 28, 1997.
Although the Company intends to pay off the amounts owed to Zenith pursuant to
the parties' settlement agreement, if the Company is not successful in securing
a new line of credit facility or generating other funds in an amount sufficient
to pay off the amounts owed to Zenith, the Company will need to secure
additional equity or debt financing, or sell significant assets to meet its
financial obligations. In the event the Company requires additional equity or
debt financing, or attempts to raise capital through an asset sale, there can be
no assurance that such transactions can be effected on a timely basis to meet
the Company's needs, or at all, or that any such transaction will be on terms
acceptable to the Company or in the interest of its stockholders.
BUSINESS
Introduction
Oryx Technology Corp. designs, manufactures and markets specialized
components, analytical equipment and instrumentation products for original
equipment manufacturers in the information technology industry. This industry
includes office equipment, computers, telecommunications and consumer
electronics. The Company markets or has in product development,
technologically-advanced products which perform diagnostic and analytical
functions and address industry requirements for efficient power conversion,
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<PAGE>
surge protection and specialized materials technology. The Company has
concentrated its product development programs in critical areas where the larger
manufacturers of office equipment, computers, computer peripherals and other
electronic and telecommunications products depend upon complementary technology
and product support. The Company operates in three distinct market segments: (i)
power conversion products, (ii) electrical surge protection products, and (iii)
materials analysis and test equipment and specialized materials products.
In November 1995, the Company made a strategic decision to improve
business focus and execution by separating its core businesses and placing
assets for each core business into wholly-owned subsidiaries. Three new
subsidiaries were formed: Oryx Power Products Corporation, SurgX Corporation and
Oryx Instruments and Materials Corporation. The subsidiaries are intended to
provide additional management and employee motivation to increase the value of
each business through potential equity ownership tied more closely to each
business unit, and to position the Company to be better able to seek financing
or equity investment at the subsidiary level in order to develop the businesses
without diluting Oryx stockholders.
======================================
Oryx Technology Corp.
======================================
================================================================================
Oryx Oryx Instruments
Power Products SurgX and Materials
Corporation Corporation Corporation
================================================================================
- - Power Conversion - Surge Protection - Materials analysis
Products Components and test equipment
- - Contract Manufacturing - Specialized
Materials
- Contract R&D
Oryx' and its subsidiaries' customer base for their current product
lines includes the following OEMs: Pitney-Bowes Corp., Xerox Corporation, IBM
Corporation, Seagate Technology, Inc., Akashic Memories Corporation, and Western
Digital Media Corporation. The Company currently plans to market its existing
lines, and, possibly additional product lines to these and other OEMs during
fiscal 1997. The Company has also undertaken research programs with the National
Aeronautics and Space Administration and the Department of Defense and plans to
pursue further joint research programs with major companies in the information
technology industry.
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<PAGE>
Oryx also derives revenues from sales of products based on its patented
IntrageneTM ceramic metallization and joining system and from the design and
fabrication of electromagnet systems. IntrageneTM is a proprietary metallurgical
technology developed by Oryx which affords the Company the capacity to
metallize, solder or braze a comprehensive range of difficult-to-join
engineering ceramics, graphite and refractory metals used in electronic and
structural applications.
The Company's predecessor, Advanced Technology, Inc., was incorporated
on April 21, 1976 in New Jersey. On July 25, 1993, ATI formed the Company as a
wholly-owned Delaware subsidiary, and on September 29, 1993, ATI merged into the
Company.
ORYX Power Products Corporation
Oryx Power Products Corporation ("Power Products") designs, manufactures
and markets both custom and standard AC to DC switching power supplies for
various electronics products, and provides contract manufacturing services to
OEMs.
BACKGROUND
All electronic hardware products require some form of AC to DC or DC to
DC power conversion. Consequently, the supply of DC power becomes an integral
part of each product's cost, reliability, packaging and function. Typically, the
power conversion system constitutes over 10% of the cost, internal space and
weight of the product. However, the advancement of power technology (AC/DC and
DC/DC) has not paralleled developments in other segments of the industry, and
while product technology (logic/memory, etc.) has improved over ten-fold in size
and cost, power has made only a two-fold improvement in such areas during the
last decade.
In addition to the need to improve the basic power conversion
technology, OEMs are demanding products which are more portable, reliable,
energy efficient and better performing. It is Power Products' belief that large
companies worldwide are not investing significant resources in this area and
instead depend upon low technology vendors, primarily in the Far East, for
supply and technological developments. Power Products' further believes that the
high quality, low cost manufacturing capability it has established at its plant
in Reynosa, Mexico can be leveraged to provide cost-competitive contract
manufacturing capacity to OEMs. Power Products' management believes the low
labor costs and Power Products' skilled Mexican labor force, allow it to compete
effectively against other suppliers of contract manufacturing services. In
fiscal 1997, Power Products expects an increasing amount of revenues from
contract manufacturing services.
29
<PAGE>
ACQUISITION OF ZENITH POWER CONVERSION PRODUCTS GROUP
On April 11, 1994, the Company consummated the first and primary phase
of an Asset Purchase Agreement with Zenith Electronics Corporation for the
purchase of certain assets of Zenith's power conversion products group. Through
such acquisition, which was consummated simultaneously with the closing of the
Company's initial public offering, the Company acquired accounts receivable,
customer sales orders, manufacturing, research and development equipment,
computer equipment, engineering documents and certain intellectual property
rights relating to power conversion engineering and design, and office furniture
and fixtures. In connection with such acquisition, the Company also agreed to
assume warranty obligations associated with previous sales by the Zenith power
conversion products group. In December 1994, the Company began taking possession
of the inventories and manufacturing equipment of the Zenith power conversion
products group. The manufacturing equipment has been installed at the Company's
manufacturing plant in Reynosa, Mexico and inventories are held nearby at the
Company's new distribution center in McAllen, Texas.
The Company (i) paid Zenith a purchase price of approximately $6,285,000
as well as assuming warranty obligations of $20,000 and (ii) incurred
approximately $364,000 of expenses associated with the power conversion products
group acquisition. The purchase price to Zenith was paid $3,600,000 in cash,
$624,000 withheld by Zenith on collection of acquired receivables, $20,000 by
assumption of warranty obligations and in the form of a promissory note issued
by the Company to Zenith in the principal amount of $2,061,000 (the "Zenith
Note"). The purchase price for the acquisition, based on the closing date
valuation of assets of the Zenith power conversion products group, increased by
approximately $1,000,000 from the Company's initial estimate due primarily to
greater than anticipated inventory. Zenith agreed that $624,000 of such increase
would be withheld by Zenith on accounts receivable.
As part of the terms of the acquisition, the Company contracted with
Zenith to manufacture the Company's power conversion products during a
transition period of up to 12 months on a fixed price per unit basis, with the
Company having an option to extend the manufacturing arrangement for up to three
additional months on terms to be negotiated in the future. Upon the termination
of that contract manufacturing arrangement in April 1995, Zenith delivered to
the Company the inventories and manufacturing equipment of the Zenith power
conversion products group.
On October 30, 1995, the Company received notice from Zenith that the
Company had defaulted on the Zenith Note, entitling Zenith to declare all
amounts immediately due and owing. On February 29, 1996 the Company entered into
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<PAGE>
a settlement agreement with Zenith which, together with subsequent amendments,
resulted in Zenith's agreement to forgive all outstanding indebtedness,
including the amounts due on the Zenith Note and certain accounts payable, in
exchange for (i) $1,000,000 payable over the course of seven months, bearing
interest at a rate of 12% per annum, and (ii) warrants to purchase 400,000
common shares at $1.00 per share and 100,000 common shares at $5.00 per share.
The warrants expire March 15, 2001. If the Company fails to abide by the terms
of the settlement agreement, the indebtedness to Zenith will be reinstated at
the balances claimed less any amounts already paid.
BUSINESS
Power Products manufactures its products at its manufacturing facility
in Reynosa, Mexico, and distributes the products from facilities in McAllen,
Texas. Product design, engineering, marketing and sales are based at the
Company's facilities in Mount Prospect, Illinois. Power Products designs,
manufactures and markets both standard and custom AC to DC switching power
supplies. Custom power supplies are specifically designed for a particular
customer's products, whereas standard power supplies are designed to be used
"off the shelf" by customers who do not require customized power supplies for
their particular applications. Over ninety percent of Power Products' products
are distributed in the United States with the balance marketed overseas,
primarily in Europe.
In the fiscal year ended February 28, 1995, Power Products experienced
two significant trends in the standard and custom product lines. The standard
power supply product line, which had been experiencing significant growth, had a
decline in revenues due primarily to its largest customer terminating the
product in which the power supply was used, resulting in a reduction in annual
revenue from that customer of approximately $1.4 million. This trend continued
for the fiscal year ended February 29, 1996. This decline in standard product
revenue was more than offset by growth in the custom power supply product line.
This growth primarily related to a new custom power supply which was developed
for a current OEM customer and commenced volume shipment in the last quarter of
fiscal year 1995. In fiscal 1996, the custom power supply product line surpassed
the standard power supply product line in terms of revenue generation.
In fiscal 1996, Power Products' management, as part of the Company's new
overall strategic focus, undertook an analysis of the current business and the
future business direction in order to increase the number of units sold and
eventually, achieve profitability. As a result, in addition to focusing on
growing the custom power supply product business, management decided to actively
pursue manufacturing contracts utilizing the low cost manufacturing capability
afforded by its Mexico facilities. In the fiscal year ended February 29, 1996,
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<PAGE>
Power Products received its first commitment to provide contract manufacturing
services. Power Products believes that such commitment may result in as much as
$3.5 million of revenues in fiscal 1997.
PRODUCTS AND DISTRIBUTION
The major customers for custom power conversion products are Pitney
Bowes Corp., Xerox Corp. and IBM Corporation. The standard products fall in the
low-to-mid power range with 30-400 watt offerings in the electronics industry
such as telecommunications, computers and medical equipment. As discussed
previously, the Company introduced a new custom power supply for a current
customer during the latter half of fiscal 1995. This customer has accounted for
the majority of growth in Power Products' revenue in 1996 representing 56% of
Power Products' revenues (41% of consolidated revenues). A substantial purchase
commitment for calendar year 1996 is in effect. All product distribution is done
from the Company's McAllen, Texas location. All sales and marketing, including
customer order processing, is handled out of the Company's Mt. Prospect,
Illinois location.
The Company's standard power supplies are sold in the United States
through both manufacturers representatives and distributors. There are
approximately seven manufacturers representative organizations in the United
States who have exclusive territories and generally handle all order activity
for customers in excess of 1,000 units annually. There are also approximately 37
distributors in the United States who do not have exclusive territories. Allied
Electronics, Inc. is the only national distributor, distributing Power Products
products in over 70 sales locations. The other 36 distributors are local or
regional in marketing scope. Several of the distributors perform value-added
services, such as cable and harness assembly and voltage settings, in addition
to local stocking. European sales are handled through five master international
distributors consisting of Powersolve (England), Elbatex (Switzerland), Acal
Auriema (Netherlands) Powerbox (Sweden) and Power System Technick (Germany).
Master distributors do not have exclusive territories and can sell in any
European country where they maintain an office. Agreements with manufacturers
representatives and distributors generally do not provide rights to return
product.
Power Products' current marketing plans contemplate having its
manufacturers representatives becoming more involved in promoting business both
with existing accounts, and with new business customers. Management has added
regional sales managers to promote the custom and standard product lines, and is
actively upgrading its present manufacturers representative and distributors
organizations.
32
<PAGE>
For standard products, Power Products' principal competitorsare Astec
America, Ltd., Computer Products, Inc., Power One, Inc., Kepco, Inc., LH
Research Corporation, Lambda Electronics, Inc., Todd Products Group, Inc. and
Acme Electric Corp. Custom Products competition comes primarily from Zytec,
Inc., Chloride Corporation, AT&T Microelectronics, and ITT Corporation, as well
as a number of Pacific Rim companies such as Sun Moon Star, Delta Products
Corp., Phihong and Fortron Source.
MANUFACTURING
In December 1994, Power Products established and commenced distribution
from its warehouse located in McAllen, Texas. From this distribution center,
Power Products distributes finished products, and procures raw materials for
shipment to the Company's manufacturing plant in Reynosa, Mexico, which is less
than 10 miles from McAllen, Texas. The manufacturing equipment purchased from
Zenith was fully installed in the first half of fiscal year 1996 and all
production is now performed at the Reynosa, Mexico plant. Power Products
employed 318 manufacturing and support personnel at its Mexico plant as of April
30, 1996.
SurgX Corporation
SurgX Corporation ("SurgX") designs, manufactures and markets surge
protection components to OEMs in the computer and telecommunications industry to
provide board test and integrated circuit level protection against electrostatic
discharge ("ESD").
BACKGROUND
As the information technology industry progresses in capacity, speed and
performance, it is moving toward faster circuit performance, smaller chip
geometries and lower operating voltages. Coinciding with these trends is the
proliferation of various equipment and information networks. These developments
have been accompanied by increases in both product susceptibility to failure
from over-voltage threats as well as more widespread incidences of such threat
possibilities, resulting in the "burn-out" of chips and circuitry. These threats
can originate from inside or outside the products and can arise from such
factors as human body electrostatic discharge, induced lightning effects,
spurious line transients and other complex sources related to the tremendous
increase in hand held and portable electronics. During the last decade, new
products emerged to address this need to protect integrated circuits from
electrostatic discharge damage. Related specialized products range from wrist
straps worn by electronics assembly workers, to special anti-static packaging of
both components and sub-assemblies.
The U.S. market for surge protection devices was previously estimated by
an industry commentator to have reached $800 million by 1995, and is comprised
of some mature devices such as gas discharge tubes, varistors and TVS diodes and
33
<PAGE>
thyristors. Though proven for performance and reliability, each of these
technologies has only a narrow range of application. In addition, none achieves
the desired combination of high speed, elevated power handling capability, low
clamping voltage and low capacitance. Furthermore, present conventional devices
and methodology are expensive. At the present time, approximately ten
manufacturers supply over 70% of the surge protection products sold worldwide.
Among the major suppliers are Shinko, Harris Semiconductor, Inc., Siemens
Components, Inc., Panasonic, General Instruments Corp., AVX Microsemi Corp. and
Motorola Corp. It is estimated that over 50% of current devices are used in
telecommunications, but the market for computer equipment protection is now
growing rapidly.
BUSINESS
In 1993, Oryx assembled an experienced product design team for the
development and manufacture of a family of specialized components designed to
protect chips, chip modules, and assembled printed circuit boards. The Company
completed preliminary prototypes of its SurgXTM products in fiscal year 1995 and
commenced customer sampling of the first components utilizing the SurgXTM
technology, primarily connectors used in the telecommunications and computer
industries.
The proprietary SurgXTM technology for over-voltage protection is
comprised of a specialized polymer formulation containing inorganic solids,
metal particles and adhesion-promoting agents which can be tailored for use
against surge threats with different voltage and power levels. In 1994, the
Company designed and packaged an ESD formulation for several connector
configurations as well as the two standard surface-mount packages. By
controlling the basic formulation and adapting solutions to various customer
designs, SurgX expects to become a major supplier of such devices. Toward this
objective, SurgX plans to undertake computer modeling of both the surge
protection phenomena as well as the predictive behavior of device performance
and applicability.
In 1994, the Company applied for trademarks for the SurgXTM, as well as
SurgAidTM and SurgTapeTM for related products described below with the United
States Patent and Trademark Office. These trademarks are now registered. In
1995, the Company also filed two patents on surge suppressing devices, materials
and manufacturing processes, which are in the process of being split into eleven
patents, and a third patent on devices was filed in 1996.
SurgX's approach to the market consists of two parallel paths. The first
product group will be a series of board-level devices and inserts for board
mount connectors initially addressing the less than 50 watt ESD segment of the
existing diode market with lower price and higher performance, and ultimately,
expanding to include the 500 watt line transient segment of the diode market. In
34
<PAGE>
1989, the diode market represented $100 million of the total $250 million TVS
components which were sold in the United States. Based upon an industry
analysis, the diode market was previously estimated to represent $450 million of
the projected total $800 million TVS components market in the United States in
1995. Within this segment, traditionally packaged plug compatible devices less
than 50 watt represented $89 million in 1989 and represented $400 million in
1995. The first product group is designed to address the ESD segment of the 500
watt diode market.
The second product group, SurgTapeTM, is an inexpensive on-board surge
protection device which can be installed directly into the integrated circuits
package as well as into any component, sub-assembly or product-level. Management
believes that the development of low cost, small size, and easy to use
SurgTapeTM devices could achieve rapid penetration in electronics manufacturing.
However, management is not able to estimate the projected size of this market
without conducting further market studies and obtaining more detailed
information with respect to potential customers.
PRODUCTS AND DISTRIBUTION
A limited number of SurgX components was supplied to various OEMs in the
fourth quarter of fiscal 1995 and during fiscal 1996. According to feedback from
potential customers, the samples were well received. However, it became apparent
to management that in order to effectively penetrate the market, the Company
would have to mass produce the product. In fiscal 1996 a strategic review of the
business was undertaken as part of the Company's overall restructuring. The
Company determined that it would be more efficient to establish a relationship
with an experienced corporate partner who could provide the necessary high
volume manufacturing and distribution channels. It was also determined that
SurgX should seek development partners to develop SurgTapeTM in order to reduce
the associated development expenses.
Currently, management is in advanced stages of discussions with several
potential partners, and anticipates formalizing at least one manufacturing and
distribution arrangement by the end of fiscal year 1997. There can be no
assurance, however, that SurgX will be able to consummate any of these
relationships, that any such relationship will be on commercially advantageous
terms to SurgX, or that any of the products developed will be commercially
successful. In the event that the Company fails to establish a relationship on
acceptable terms with at least one corporate partner, the Company currently
anticipates liquidating SurgX and terminating the surge protection product line.
Oryx Instruments and Materials Corporation
Oryx Instruments and Materials Corporation ("Instruments and Materials")
35
<PAGE>
designs, manufactures and markets material analysis and test equipment,
specialized materials and electromagnet systems for the hard disk drive and
semiconductor industries.
BACKGROUND
Instruments and Materials consists of three core businesses: specialized
materials based upon the patented IntrageneTM ceramic metallization and joining
system, the design of electromagnets, and a material analysis and test equipment
business which includes a secondary ion mass spectrometer product line.
Introduced in the mid-1970's, secondary ion mass spectrometry ("SIMS")
is a surface analytical technique used by the semiconductor, plastics and
metallurgical industries for diagnostic purposes. SIMS analysis has
traditionally been limited to custom analytical laboratories staffed with highly
skilled analysts. Due to the high costs and skill required as a result of the
complexity of its instrumentation, SIMS equipment has traditionally been
expensive, ranging in price from $500,000 to $2.0 million.
In response to perceived industry needs, Instruments and Materials has
developed a new generation of SIMS instrumentation which is significantly
smaller, simpler and less expensive to operate compared to existing SIMS
equipment. Instruments and Materials presently anticipates commencing customer
shipments of SIMS products in fiscal year 1997. The anticipated selling price
for the SIMS instrumentation is expected to be between $250,000 and $350,000,
depending on the configuration, which is substantially lower than the price of
competitive SIMS equipment.
ACQUISITION OF IMCS
In August 1993, the Company entered into an agreement for the purchase
of stock from Intek Diversified Corporation ("Intek") pursuant to which the
Company acquired all of the outstanding capital stock of IMCS Corporation (a
wholly-owned subsidiary of Intek). In connection with such transaction, the
Company also acquired product inventory owned by IMCX Corporation, another
wholly-owned subsidiary of Intek, obtained the right to employ certain
technology pertaining to IMCS's products presently owned by IMCX, and a license
for the use of additional proprietary technology of IMCX relating to U.S. Patent
4,617,542. The IMCS products license relates to electrostatic discharge
simulation equipment, and the patent license relates to a high voltage switching
device. In consideration for the stock, the Company paid to Intek the cash sum
of $75,000, issued a non-interest bearing promissory note in the amount of
$180,000 in exchange for the aforementioned inventory, payable in 24
installments of $7,500 each commencing October 1, 1993 through September 1,
1995, and agreed to pay to IMCX various royalties for a specified term. In
conjunction with the purchase of IMCS, the Company entered into a royalty
36
<PAGE>
agreement with Intek whereby the Company will pay, for a 15-year term, a royalty
to IMCX on all IMCS product sales. During the initial twelve months following
the acquisition or until IMCS generates $750,000 of product sales, whichever
occurs first, the royalty will be 6% of IMCS product sales. The royalty will be
8% of IMCS product sales for the remainder of the royalty period with the
aggregate maximum royalty not to exceed $800,000. IMCS also agreed to pay AT&T a
supplemental royalty for the same 15-year term equal to 3% of sales over
$333,000 of certain IMCS products with the maximum supplemental royalty limited
to $150,000.
BUSINESS
Through the IMCS acquisition, the Instruments and Materials product
group offers to semiconductor chip and product manufacturers a series of
products for testing over-voltage susceptibility. Instruments and Materials
manufactures five different models: Model 700, a low cost, manual electrostatic
discharge (ESD) simulator; Model 4600, an automated latch-up tester; Model 7000,
an automated ESD simulator; and Model 9000, an automated charged device model
(CDM) simulator based on a licensed AT&T design and Model 11000 an automated
multifunctional tester. The prices for these models range from $12,000 to
$200,000, and are primarily being marketed directly, and through manufacturers
representatives and distributors, to the Company's customer base.
The Company also manufactures high quality sputtering target assemblies
using its patented IntrageneTM metal to non-metal and metal to metal joining
process. The IntrageneTM process is a proprietary methodology developed by
metallurgists and materials scientists at the Company and has been granted six
U.S. patents as well as national phase patents based on two European patent
applications and three Japanese patents. The IntrageneTM process allows for the
ability to metallize, solder or braze a wide range of engineering ceramics,
graphite and refractory metals.
Sputtering has been a viable method for thin film deposition of metals,
metal oxides and other ceramic materials for over 40 years. The coating material
to be "sputtered" is made in the form of a "target." These targets are
manufactured by materials companies and sold to end-users and are particularly
significant for thin film deposition on magnetic memory (hard) disks. Once a
target is made, it must usually be incorporated into the sputtering apparatus by
joining it to a backing plate to make sound electrical, thermal and mechanical
contact. The bonding of a target to the backing plate, which is usually made of
copper, forms what is known as the "bonded target assembly." A major problem
with fabricating large bonded target assemblies has been the cumbersome and
relatively expensive methods by which the targets are joined to the backing
plate. These joints are often substandard and inadequate for handling high power
throughput.
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<PAGE>
The Company's background in engineering materials and joining has
allowed it to develop several approaches to bonding brittle solids of low to
intermediate thermal expansion to typical high-expansion backing plate materials
such as copper and aluminum. IntrageneTM bonding provides a void free atomic
bond which yields a metallurgical bond between mating surfaces. This results in
increased efficiency of both electrical transmission and heat transfer across
the bonded surface. The Company's experience in assembly design and stress
reduction combined with the ability to produce bonded target assemblies has
enabled it to become a supplier of such products selling directly to the
thin-film magnetic media manufacturers which use this product in the production
of rigid disks for hard disk drive assemblies.
The Company's primary customers of the bonded targets are IBM
Corporation, Seagate Recording Media, Inc. (formerly, Conner Peripherals and
Seagate Magnetics), Akashic Memories Corporation, and Western Digital Media
Corporation. The Company has also undertaken research programs with NASA and the
DoD, and has been the recipient of four Phase I and two Phase II research
contracts from NASA and three Phase I research contracts from the DoD during its
1992-1995 fiscal years, most of which involve applications of its IntrageneTM
and related core technology. The contracts represent grants totaling $1,310,000.
The Company also is negotiating joint product development and research programs
with major companies in the information technology industry, and intends to
continue pursuing additional research contracts with the United States
government.
Instruments and Materials derived its revenues primarily from sales of
its ceramic metallization and joining system in the fiscal year ended February
29, 1996. Demand for these products has increased as the primary customer has
expanded its own manufacturing capacity. Management currently believes that the
business will sustain this moderate growth in fiscal year 1997. In fiscal 1997,
Instruments and Materials intends to emphasize the growth of its materials
analysis and test equipment business due to the high margin associated with them
and the market potential. In the fourth quarter of fiscal 1996, newly developed
IMCS 11000 automated testers were shipped to two customers and the first machine
was accepted in March 1996. Instruments and Materials presently anticipates
commercial shipment of its first SIMS product in the first half of fiscal 1997.
Management believes that these initial customers will enable it to establish an
installed base for reference selling in the future. However, there can be no
assurance that these systems will meet the technical requirements of customers
or that a significant market for such products will develop if the Company fails
to establish a market presence for these products, the Company will have to
consider taking steps to reduce losses in this line of business.
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<PAGE>
Regulation and Environmental Matters
The Company is subject to various federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices, and the use and disposal of hazardous or
potentially hazardous substances. The Company believes that its facilities and
practices for controlling and disposing of the limited amount of waste and
potentially hazardous materials it produces are in compliance with applicable
environmental laws and regulations. The development of any additional
manufacturing operations by the Company may require the Company to comply with
government regulations designed to protect the environment from wastes and
emissions and from hazardous substances, particularly with respect to the
emission of air pollutants, the discharge of cooling water, the disposal of
residues and the storage of hazardous substances. The extent of government
regulation which might result from any legislation or administrative action
cannot be accurately predicted.
Patents and Proprietary Rights
Proprietary protection for the Company's products, processes and
know-how is important to its business, and the Company plans to prosecute and
defend its patents and proprietary technology. The Company's policy is to file
patent applications to protect its technology, inventions and improvements as
soon as practicable. The Company also relies upon trade secrets, know-how and
continuing technological innovation to develop and maintain its competitive
position.
The Company owns and will maintain six patents, five of which are
associated with the IntrageneTM process. The patents expire in 1999 and 2000.
The Company plans to file improvement patent applications which may effectively
broaden the Company's proprietary protection, but there can be no assurances
that such improvement patent applications will be granted. The Company does not
believe that the expiration of such patents will have a materially adverse
effect on its competitive position relative to the marketing of its ceramic
metallization and bonding system products.
The Company has also filed for two patents with respect to its SurgX
product line for surge suppressing devices, and materials manufacturing process
which are in the process of being split into eleven patents and a third patent
on devices was filed for in 1996.
Employees
As of April 30, 1996 the Company employed 393 persons on a full-time
basis. Included among full time employees are 4 executive officers, 18 managers
and executive personnel, 27 engineering personnel, 8 marketing personnel and 336
manufacturing and administrative personnel. Of the Company's full-time
employees, some hold Ph.D. or Masters Degrees in one or more fields of science.
The Company's employees are not covered by any collective bargaining agreements,
and the Company believes its employee relations are satisfactory.
39
<PAGE>
Facilities
The Company presently occupies an approximately 18,000 square foot
office, laboratory and manufacturing facility in Fremont, California under a
lease with Renco Investment Company that expires on June 15, 1998. Rent for the
remaining term of the lease is at a monthly base rental of $10,000 through
December 15, 1996 and $15,688 from December 16, 1996 through June 15, 1998,
subject to annual adjustments based on increases in the lessor's costs of
operating the building. The Company also presently leases other manufacturing
space in Fremont, California on a shorter term basis. On July 12, 1995, the
Company entered into a lease agreement with SCI Limited Partnership, for 3,600
square feet of manufacturing space also located in Fremont, California. The term
of the lease is three years and lease payments are $3,359 per month including
operating expenses. On January 1, 1995, the Company entered into a 3 year lease
with FINSA, a Mexican property company, for a 40,000 square foot manufacturing
plant in Reynosa, Mexico. The cost is $217,890 per year plus additional park
fees and taxes. The Company also leases an 8,000 square foot warehouse in
McAllen, Texas from Hospitak/Meditron which began on November 15, 1994, and
continues for 3 years at $3,520 per month. In addition, on October 19, 1995, the
Company began leasing 9,697 square feet in Mt. Prospect, Illinois under an
agreement with OTR (State Teachers Retirement System of Ohio). Rental costs on
such facility are $6,869 per month, and the lease continues for a period of five
years.
Each of the properties described above is in satisfactory condition for
the purpose for which it is used.
Legal Proceedings
On December 29, 1995, a stockholder of Oryx brought a derivative action
in the United States District Court for the Southern District of New York
pursuant to Section 16 (b) of the Securities Exchange Act of 1934 (the "Act") on
behalf of Oryz to recover profits allegedly due Oryx. Plaintiff alleges that
Bruce L. Schindler, a director of Oryx, purchased 66,667 shares of Oryx common
stock and, within six months of such purchase, sold 59,000 shares of Oryx common
stock at higher prices, in violation of Section 16 (b) of the Act. Based on
these allegations, the stockholder seeks to force Me. Schindler to disgorge to
Oryx the short-swing profits realized by him from such trades.
Oryx and its counsel have reviewed the trades made by Mr. Schindler.
After taking into account commissions paid by Mr. Schindler, Oryx has determined
that Mr. Schindler realized a net profit $19,167.00 from the trades. Mr.
Schindler has disgorged and paid to Oryx the $19,167.00 in profits realized by
him from the trades. Based on Mr. Schindler's complete disgorgement of such
profits, the stockholder has agreed to dismiss his complaint in exchange for the
payment of his attorneys' fees and costs in the approximate amount of $4,000.
The Company knows of no material litigation or claims pending,
threatened or contemplated to which the Company is or may become a party.
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<PAGE>
MANAGEMENT
The names and ages of the Company's directors and executive officers are
as follows:
Name Position Age
---- -------- ---
Arvind Patel Chief Executive Officer and 49
Director
Andrew G. Wilson Chief Financial Officer 40
Dr. John H. Abeles Chairman of the Board and 51
Director
Andrew Intrater Secretary, Treasurer 33
and Director
Jay M. Haft Director 60
Nitin T. Mehta Director 49
Ted D. Morgan Director 54
Bruce L. Schindler Director 52
ARVIND PATEL has served as Chief Executive Officer of the Company from
its organization through July 1993. Between July 1993 and October 1993, Mr.
Patel served as Executive Chairman of the Company. From October 1993 to the
present, Mr. Patel has served as Chief Executive Officer of the Company. Mr.
Patel has served as a Director of the Company from its organization to the
present. Between February 1987 and June 1992, Mr. Patel was a General Partner of
Praktek Corp. and Managing Director of its affiliate, Praktek Venture Fund, San
Francisco, California, which provided asset management services and financing
for various commercial entities especially those engaged in advanced technology
operations. Prior thereto, between June 1985 and January, 1987, Mr. Patel was
President and Chief Executive Officer of Upstart Computer Corporation,
Emeryville, California, a manufacturer of computer peripheral equipment. Mr.
Patel received his B.S. in Mechanical Engineering and M.B.A. from London
University.
ANDREW G. WILSON has served as Chief Financial Officer since November
1993 with additional responsibilities for human resources. From October 1992
through September 1993, Mr. Wilson was Vice President-Finance and Operations and
Chief Financial Officer for Meta Software, Inc., Campbell, California, a
computer software company. From January 1988 through August 1992, Mr. Wilson was
Vice President Finance and Chief Financial Officer for Interlink Computer
Services Inc., Fremont, California, a privately held company specializing in the
development and sales of networking software. Mr. Wilson received his B.A. in
Economics from the University of Manchester in Great Britain and is a member of
the Institute of Chartered Accountants in both England and Wales.
JOHN H. ABELES, M.D., has been a director of the Company since its
organization in July 1993 and of ATI commencing October 1991 and Chairman of the
Board of the Company since October 1993. Since March 1992, Dr. Abeles has been
General Partner of Northlea Partners Ltd. ("Northlea Partners"), Boca Raton,
Florida, a private investment partnership. Since 1980, Dr. Abeles has been
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<PAGE>
President of MedVest, Inc., Boca Raton, Florida, a business and financial
consulting firm. Dr. Abeles serves on the Board of Directors of I- Flow
Corporation, Irvine, California, a publicly traded company which manufactures
infusion devices, DUSA Pharmaceuticals, Inc., a publicly traded company which is
developing photodynamic therapy products, and Accumed International, Chicago,
Illinois, a publicly traded company which produces diagnostic tests. He is
President and a Director of Healthcare Acquisition Corporation, a publicly
traded special purpose acquisition corporation.
ANDREW INTRATER has been employed in various executive capacities with
the Company since its organization in July, 1993 and with ATI, the Company's
predecessor corporation, since 1981. Mr. Intrater was Chief Operating Officer of
ATI since May 1993, and Chief Operating Officer through November 1995 and became
Chief Operating Officer of Oryx Instruments and Materials, Secretary, Treasurer
and a Director of the Company from its organization through August 1995. Between
September 1985 and May 1993, Mr. Intrater served as President of ATI and has
been a director of the Company and its predecessor in interest since 1983. Mr.
Intrater received his B.S. in Chemical Engineering from Rutgers University and
M.S. in Materials Science from Columbia University.
JAY M. HAFT has served as a director of the Company since February 1995.
He is a strategic consultant of growth stage companies. He specializes in
international corporate finance, mergers and acquisitions, and in the
representation of emerging growth companies. He has actively participated in
strategic planning and fund raising for many of his clients, including high-
tech companies, leading edge medical technology companies and technical product
and marketing companies. He is a Managing General Partner of Venture Capital
Associates, Ltd. and GenAm "1" Venture Fund, a domestic and international
venture capital fund, respectively. Mr. Haft is a Director of numerous public
and private corporations, including the following: Robotic Vision Systems, Inc.
(OTC), Noise Cancellation Technologies, Inc. (OTC), Extech Inc. (OTC),
Healthcare Acquisition Corp. (OTC), CAS Medical Systems (OTC), Viragen, Inc.
(OTC), PC Service Source, Inc. (OTC), and Nova Technologies, Inc. (OTC). He
serves as Chairman of the Board for Noise Cancellation Technologies, Inc.,
Extech, Inc., and Healthcare Acquisition Corp. He is currently of counsel to
Parker Duryee Rosoff & Haft, in New York. He was previously a senior corporate
partner of such firm (1989-1995). He is a graduate of Yale College and Law
School.
NITIN T. MEHTA has served as a director of the Company since March 1995.
He is CEO of Mehta & Company, Inc., a merchant banking firm founded in 1988 to
assist companies in developing strategies to create wealth for their
shareholders. He is also CEO and Chairman of Compex Services, Inc. Prior to
founding Mehta & Company, he was a General Partner of an investment firm, Weiss,
Peck and Greer Venture Partners. He was an investor and COO of James
River-Handi-Kup Company. Prior to that he was Senior Vice President with Royal
42
<PAGE>
Viking Line. He serves on various Boards such as non-profit organizations
including Fort Mason Center Foundation and the San Francisco Zoo. He holds a
BSME summa cum laude from S.D. Tech, and MBA from the University of Wisconsin
and a Doctorate in Business Policy from the Harvard Business School.
TED D. MORGAN was recently elected as a director of the Company in April
1996. He is Founder and Managing Partner of Alternative Technologies
International ("ATI"), Santa Rosa, California. ATI is an international financial
advisory firm specializing in services for emerging growth companies with unique
proprietary technologies. Prior to founding ATI, he developed several companies
including the Office Club which merged with Office Depot in 1990.
BRUCE L. SCHINDLER has served as a director of the Company since
February 1995. He is currently an independent investor. Previously, he was
involved in arena financing and the development of several companies. He
received his B.S. in Finance from New York University.
Directors are elected at the Company's annual meeting of stockholders
and serve for one year or until their successors are elected and qualified.
Officers are elected by the Board of Directors and their terms of office are,
except to the extent governed by an employment contract, at the discretion of
the Board. The Company pays to its non-management members of its Board of
Directors $750.00 for each meeting attended in person and $250.00 for each
meeting in which the Director participates through telephone communications.
All of the Company's executive officers are full time employees of the
Company. Of the Company's seven current directors, Dr. Abeles, and Messrs.
Mehta, Schindler, Haft and Morgan are independent directors. The Representatives
of the Underwriters have been provided the right to designate a nominee to the
Company's Board of Directors for a period of five years commencing April 6,
1994, and the Company's officers, directors and affiliated stockholders had
agreed to vote in favor of such nominee during this period. The Representatives
exercised this right in January 1995, nominating Mr. Schindler to be elected as
a Director, and he was duly appointed in February, 1995. On March 28, 1995, the
Company's Board of Directors established a Compensation Committee consisting of
Messrs. Abeles, Haft and Mehta and an Audit Committee consisting of Messrs.
Mehta and Schindler. The Company currently has no Nominating Committee. The
Company has agreed with Yorkton Securities, the Placement Agent in the private
placement of its 1996 securities offerings, that Yorkton Securities will have
the right to nominate up to two Company Directors. Of the current Directors, Mr.
Ted Morgan is the only designee.
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<PAGE>
Key Employees
-------------
DR. RONALD N. SPAIGHT, age 51, became Chief Operating Officer of Oryx
Power Products in November 1995. Between May 1992 and October 1993, Dr. Spaight
was a senior partner with Asia Business Systems, San Jose, California, an
international consulting firm which specializes in providing consulting services
to advanced technology firms. Prior thereto, Dr. Spaight was with IBM Corpora-
tion for 17 years and held a series of managerial positions, including Director
of Scientific Visualization Systems, Yorktown, New York, between March 1990 and
February 1992; Director-Banking Products Laboratory, Charlotte, North Carolina
between March 1988 and February 1990; and Product Manager-Workstation and Typing
Systems, Lexington, Kentucky between October 1986 and March 1988. Dr. Spaight
received his Ph.D. in Electrical Engineering from Iowa State University.
KAREN SHRIER, age 48, has been Division Manager for the Company's SurgX
Products Division since June 1993. Between February 1992 and June 1993, Ms.
Shrier was an independent consultant providing advisory services to advanced
technology firms. Prior thereto, between November 1989 and February 1993, Ms.
Shrier was Vice President for Marketing and then President of Electromer
Corporation, Belmont, California, a manufacturer of surge suppressing
components. Previously, between September 1987 and October 1989, Ms. Shrier was
technical director for Orcon Corporation, Union City, California, a manufacturer
of aircraft insulation and carpet seaming tapes. Ms. Shrier spent ten years at
Raychem and is the recipient of patents either individually or jointly for
"Electrical Overstress Protection Material," "Overvoltage Protection Device and
Material," "CIP #1 Overvoltage Protection Device and material" and Electrical
Connector with Overvoltage Protection Feature." Ms. Shrier received her B.S. in
Chemistry from the University of Washington.
DR. BERNARD HALL, age 35, has been Director of Engineering of the
Company since August 1993. Between January 1989 and August 1993, Dr. Hall was a
staff scientist with Charles Evans & Associates, Redwood City, California, which
is engaged in the manufacture of analytical equipment and materials
characterization. Dr. Hall is the recipient of a patent for "A Plasma Etching
Method and Apparatus." Dr. Hall completed his Ph.D. at Weizman Institute of
Science and the University of Manitoba.
JAMES INTRATER, age 31, has been employed by the Company in various
technical and management capacities since 1986. Between 1986 and 1988, he served
as Materials Engineer. Between 1988 and June 1993, he was Vice President for
Research and Development at ATI, and since July 1993 has been Director of
Technology for the Company. Mr. Intrater received his B.S. in Ceramic
Engineering from Rutgers University.
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<PAGE>
ROBERT JAYNES, age 55, is Vice President Marketing and Sales since
September 1995. Between 1991 and 1995 Mr. Jaynes was Director of Sales at
Physical Electronics, Minnesota, a manufacturer of surface analysis
instrumentation. Prior thereto Mr. Jaynes has held various industrial sales
management positions, including Surface Science Labs, and Harris.
THOMAS LANDGRAF, age 53, has been Vice-President Operations, with Oryx
Power Products since October 1994. Mr. Landgraf was Vice President Operations
for Tectrol in 1993 and 1994, and was Vice President Operations for Wyse
Technology Corp. from 1989-1993. Mr. Landgraf served as President of Zenith
Taiwan from 1981-1984 and 1985-1989, and Director of Manufacturing Zenith
Electronics Magnetic Division from 1984-1985. Previous to that he held various
manufacturing and engineering management positions.
SUMMARY COMPENSATION TABLE
Name and
Principal Fiscal Other Annual
Position Year Salary Bonus Compensation*
- -------- ---- ------ ----- -------------
Arvind Patel, 1996 $140,996 $ -- $3,600
Chief Executive 1995 $128,397 $ -- $ --
Officer 1994 $ 97,821 $ -- $ --
Andrew Intrater 1996 $103,063 $ -- $8,578*
President, Trea- 1995 $ 93,583 $ -- $8,578*
surer and Secretary 1994 $ 82,538 $ -- $8,578*
Andrew Wilson 1996 $108,064 $ -- $ --
Chief Financial 1995 $ 97,563 $ -- $ --
Officer 1994 $ 25,307 $ -- $ --
Kailash Joshi 1995 $133,211 $ -- $ --
President 1994 $ 64,744 $ -- $ --
- ----------------
* Other compensation in relation to Mr. Intrater consists of premiums paid on
behalf of Mr. Intrater for term life insurance in the face amount of $1,000,000
which is payable to Mr. Intrater's beneficiary upon his death, less the amount
of the premiums theretofore paid on his behalf which are remitted to the
Company. The table does not include other amounts for personal benefits received
by employees in general. The Company also acquired key man insurance on the life
of Mr. Patel of which it is the beneficiary. The Company believes that the
incremental costs of such benefits to each of the identified executive officers
did not exceed the lesser of $50,000 or 10% of the total annual salary and bonus
of such executive officers.
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<PAGE>
The following table sets forth as to the Chief Executive Officer and
each of the executive officers named under the Summary Compensation Table,
certain information with respect to grants of options to purchase shares of
Common Stock of the Company as of and for the year ended February 29, 1996.
Option/SAR Grants
Year Ended February 29, 1996
Number of % of Total
Securities Options/
Underlying SARs Exercise
Option/SARs Granted to or Base Expira-
Granted Employees Price tion
Number (#) in 1996 ($ per Share) Date
---------- ------- ------------- ----
Arvind Patel -0- $ - $ - -
Andrew Intrater -0- $ - $ - -
Kailash Joshi -0- $ - $ - -
- --------------------------
Employment Agreements
The Company has entered into an employment agreement dated as of April
15, 1993 with Mr. Arvind Patel, terminable immediately by either party,
providing for annual compensation of $137,000 during the term of the agreement.
In the event Mr. Patel dies, becomes disabled or is terminated without cause by
the Company, he or his estate will receive his annual compensation for six
months. Mr. Patel has also entered into a non-competition agreement with the
Company which precludes his engagement in competitive activities during the term
of his employment, precludes him from soliciting customers and employees of the
Company for a period of twelve months following termination of his employment,
and also requires Mr. Patel to maintain the confidentiality of information and
proprietary data relating to the Company and its activities.
The Company has also entered into an employment agreement dated as of
May 3, 1993 with Mr. Andrew Intrater, terminable immediately by either party,
providing for annual compensation of $100,000 during the term of the agreement.
In the event Mr. Intrater is terminated without cause by the Company, he will
receive his annual compensation for a period of six months. Mr. Intrater has
also entered into a non-competition agreement with the Company which precludes
his engagement in competitive activities during the term of his employment,
precludes him from soliciting customers and employees of the Company for a
period of twelve months following termination of his employment, and also
requires Mr. Intrater to maintain the confidentiality of information and
proprietary data relating to the Company and its activities.
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<PAGE>
The Company plans to establish during its 1997 fiscal year a bonus
incentive program for its executive management personnel pursuant to which
executives will have the opportunity to earn as a bonus up to 30% of their base
salary based on a combination of individual performance and profitability of the
Company or product line. The program will be administered by an independent
compensation committee of the Board of Directors, consisting of Messrs. Abeles
and Mehta.
Dr. John H. Abeles, the Company's Chairman of the Board and a director
of the Company since October 1991, received a bonus of $1,600 which was awarded
to him by the Board of Directors in October 1993 for general services provided
to the Company as an unpaid director and his agreement to serve as Chairman of
the Board.
The Company currently offers basic health and major medical insurance to
its employees. The Company has adopted a non-contributory 401(k) Plan for its
employees who wish to participate on a voluntary basis, but no retirement,
pension or similar program has been adopted by the Company.
Incentive and Nonqualified Stock Option Plan
- --------------------------------------------
On March 3, 1993, the Company adopted its Incentive and Nonqualified
Stock Option Plan (the "Plan") under which, as subsequently amended, 1,125,000
shares of Common Stock have been reserved for issuance to officers, directors,
employees and consultants of the Company upon exercise of options designated as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986 or upon exercise of nonstatutory options. The primary
purpose of the Plan is to attract and retain capable executives, employees,
directors, advisory board members and other consultants by offering such
individuals a greater personal interest in the Company's business by encouraging
stock ownership. The Plan is administered by a compensation committee consisting
of outside members of the Board of Directors which will determine, among other
things, the persons to be granted options, the number of shares subject to each
option and the option price. The Plan terminates on March 3, 2003.
The exercise price of any incentive stock option granted under the Plan
to an eligible employee must be equal to the fair market value of the shares on
the date of grant, and with respect to persons owning more than 10% of the
outstanding Common Stock, the exercise price may not be less than 110% of the
fair market value of the shares underlying such option on the date of grant. The
Compensation Committee will determine the term of each option and the manner in
which it may be exercised provided that no incentive stock option may be
exercisable more than ten years after the date of grant, except for optionees
who own more than 10% of the Company's Common Stock, in which case the option
may not be for more than five years. Further, no Director of the Company or
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<PAGE>
other person who is not an employee of the Company will be eligible to receive
incentive stock options. From the date of grant until three months prior to the
exercise, the optionee must be an employee of the Company in order to exercise
any options, except in the case of disability or death of the employee. Options
are not transferable except upon the death of the optionee. In the event of
disability, options must be exercised within twelve months of termination of
employment as determined by the Compensation Committee. Nonqualified options
will have similar terms except the exercise price therefor may not be less than
85% of the fair market value of the shares underlying such options, and the term
of such nonqualified options may not extend beyond ten years and one week. The
Compensation Committee has the power to impose additional limitations,
conditions and restrictions in connection with the grant of any option.
The Company has issued options to purchase an aggregate of 1,263,109
shares of Common Stock of the Company pursuant to the Plan to the following
officers and key employees of the Company (as well as other employees of the
Company) at the weighted average exercise prices described below:
Weighted
Average
Number Exercise
Name of Shares Price
---- --------- -----
Arvind R. Patel 241,569 $1.807
Andrew Wilson 110,719 $1.959
Andrew Intrater 95,625 $1.923
Karen P. Shrier 84,000 $1.072
Ronald N. Spaight 34,656 $1.389
Bernard Hall 60,269 $1.695
James Intrater 52,250 $1.931
Robert Jaynes 30,000 $2.000
Thomas Landgraf 12,000 $1.375
Under the terms of the grant, the options will vest in various increments over
various periods following the date of grant, except with respect to Messrs.
Patel, Wilson, A. Intrater, Ms. Shrier and Messrs. Spaight, Hall, J. Intrater,
Jaynes and Landgraf, as to whom options to purchase 64,888, 24,469, 24,375,
11,400, 2,500, 12,269, 12,500, 75,000 and 3,000, respectively, vested at the
date of grant. In addition, in the event of an optionee's disability, all
options granted will immediately vest, and in the event of an optionee's death,
all options will similarly vest but expire one year thereafter. In the event the
optionee voluntarily terminates his or her employment or should such employment
be terminated by the Company, options that are vested through the date of
termination may be exercised for a period of three months following the date of
termination.
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<PAGE>
Directors' Non-Qualified Stock Option Plan
- ------------------------------------------
At the Company's 1995 Annual Stockholders' Meeting, the Company's
stockholders approved the establishment of the 1995 Directors Non-Qualified
Stock Option Plan (the "Directors Plan") providing for grants to the Company's
non-employee Directors ("Outside Directors") in order to attract and retain
Outside Directors who possess a high degree of competence, experience,
leadership and motivation. Under Rule 16b-3 ("Rule 16b-3") promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), options grants
to officers and directors are not subject to the short-swing profit prohibitions
set forth in Section 16(b) of the Exchange Act if the option plan is
administered by the Board of Directors, if each member is "disinterested", or a
committee of the Board each member of which is "disinterested", i.e., a director
who is not, during the one year period prior to service as an administrator of a
plan, or during such service, granted or awarded equity securities pursuant to
the Plan. Because the Company's Plan does not provide for formula-based stock
option grants, any option grants made thereunder to the Company's Outside
Directors who also serve on the Compensation Committee, namely Dr. Abeles and
Messrs. Haft and Mehta will disqualify future and contemporaneous grants under
the current program from the exemption provided in Rule 16b-3 and subject all
future option grants to the Company's officers and directors to the short-swing
profit prohibitions of Section 16(b) of the Exchange Act. Accordingly, in order
to reward its present Outside Directors, attract additional Outside Directors,
and align the Outside Directors' interests with those of the Company's
stockholders, the Board of Directors and the Compensation Committee deemed it
advisable to adopt the Directors Plan under which non-qualified stock options to
purchase 225,000 shares of the Company's Common Stock may be granted to the
Company's Outside Directors.
A total of 225,000 shares of Common Stock were reserved for issuance to
the Company's Outside Directors upon exercise of non-qualified options. The
Director's Plan is administered by the Compensation Committee of the Company's
Board of Directors, which will at all times consist solely of Outside Directors.
Under the Directors Plan, each current Outside Director, namely Dr. Abeles and
Messrs. Haft, Mehta, Morgan and Schindler, initially received options to
purchase 45,000 shares of the Company's Common Stock, effective as of February
6, 1995 or such later date on which such Outside Director was appointed to the
Board of Directors. However, the grant date of such initial grants was August 1,
1995, the date of the Company's Annual Meeting of Stockholders at which the
Directors Plan was approved, for purposes of determining the exercise price.
Each Outside Director who joins the Company's Board of Directors subsequent to
the approval of the Directors Plan will initially receive options to purchase
45,000 shares of the Company's Common Stock, effective as of the date he or she
is appointed or elected to the Company's Board of Directors. In addition, each
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<PAGE>
Outside Director will be granted options to purchase 15,000 shares of the
Company's Common Stock at such time as his or her initial grants described above
are fully vested.
All options granted under the Directors Plan will vest in three equal
annual installments commencing with the date of grant, provided that the Outside
Director continues to serve on the Company's Board of Directors. The exercise
price of the options granted under the Directors Plan will be equal to the fair
market value of the Company's Common Stock on the date of grant. The options are
not transferable except upon the death of the optionee. In the event of an
optionee's disability, all options granted will immediately vest, and in the
event of an optionee's death, all options will similarly vest but expire one
year thereafter. In the event the optionee voluntarily resigns from the Board of
Directors or declines to stand for reelection, options that are vested through
the date of such resignation or declination may be exercised for a period of
three months thereafter. The Directors Plan provides that it may not be amended
more than once every six months, other than to comport with changes in the
Internal Revenue Code of 1986, as amended, the Employee Retirement Income
Security Act, or the rules thereunder. The Compensation Committee has the power
to impose additional limitations, conditions and restrictions in connection with
the grant of any option.
Additional Grants of Options
- ----------------------------
In addition to the options issued pursuant to the Plan, on August 1,
1993, the Company issued nonqualified options to Mr. William Wittmeyer to
purchase 6,375 shares of Common Stock of the Company at an exercise price of
$1.07 per share for services rendered in connection with the acquisition by the
Company of IMCS. The options were immediately vested and expire five years
following the date of vesting. On July 15, 1993, the Company issued nonqualified
options to Mr. Arthur Barufka to purchase 15,000 shares of the Common Stock of
the Company at an exercise price of $1.07 per share for financial advisory
services unrelated to the initial public offering. The options were immediately
vested and expire three years following the date of grant.
On May 10, 1994, the Company issued nonqualified options to Materials
Modification, Inc. and Ms. Renee Ford, consultants to the Company, to purchase
3,000 shares and 9,000 shares of Common Stock of the Company, respectively, at
an exercise price of $1.07 per share. The options were immediately vested and
expire ten years following the date of vesting.
Subsidiary Stock Plans
- ----------------------
In November 1995, the Company's newly formed, wholly-owned subsidiaries,
Oryx Power Products Corporation, Oryx Instruments and Materials Corporation and
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SurgX Corporation, each adopted stock option plans under which the Board of
Directors of each of the subsidiaries granted options to management to purchase
Class B common shares in the subsidiaries at at least their fair market values
as determined by each Board of Directors. Class B common shares authorized for
issuance in each of the Subsidiaries are identical to the 10,000,000 shares of
Class A common shares owned by the Company, except the Class A common shares
possess a liquidation preference. The Board of Directors authorized 1,500,000
million shares of Class B common shares for each of the three Subsidiaries to be
available for issuance under these stock plans. Such options are not
transferable except in the event of a public offering of the Subsidiaries'
stock, and may be repurchased by the Company at its option. Grants under the
plan are for amounts, vesting periods and option terms established by each
subsidiary's Board of Directors.
Subsidiary stock options granted, and which vest ratably over a five
year period, are as follows:
Oryx Instrument and Materials Corporation 920,000
Oryx Power Products Corporation 992,000
SurgX Corporation 280,000
The sole officer and/or Director of the Company to receive options
pursuant to the Subsidiary stock option program was Andrew Intrater, Secretary,
Treasurer and a Director of the Company, who received options to purchase
340,000 shares of Instruments and Materials exercisable at $.45 per share.
CERTAIN TRANSACTIONS
The Company was incorporated in Delaware on July 26, 1993, and on
September 29, 1993 executed a Plan and Agreement of Merger with Advanced
Technology, Inc., a New Jersey corporation and the Company's parent corporation
and predecessor. ATI was organized on April 2, 1976 under the laws of the State
of New Jersey. In connection with this merger, the Company exchanged with the
stockholders of ATI an equal number of shares for the outstanding shares of
capital stock of ATI outstanding at the time of the merger. The nominal number
of shares of the Company outstanding at the time of the merger were cancelled as
part of the Plan and Agreement of Merger. In addition, the Company exchanged
45,000 shares of its Series A Preferred Stock for the 45,000 shares of Series A
Preferred Stock that were outstanding of the predecessor corporation and which
had the same designations and preferences that had been established for the
Series A Preferred Stock of the predecessor corporation.
In May, 1993, the Company entered into a Consulting Agreement with Mr.
Bruce L. Schindler providing for him to serve as a management consultant to the
Company until April 6, 1997, and also providing for a monthly consulting fee of
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$2,083.33. The Company believes that the Consulting Agreement entered into with
Mr. Schindler was fairly priced relative to services that were available from
other unaffiliated third parties in view of Mr. Schindler's background and
experience.
In May, 1993, ATI issued an aggregate of $375,000 principal amount of
its secured promissory notes at an interest rate equal to the published prime
rate of The Wall Street Journal, but not to exceed 9% per annum, and 45,000
shares of its Series A $25 2% Convertible Cumulative Preferred Stock convertible
into 525,000 shares of Common Stock of the Company. The notes were retired from
the proceeds of the Company's public offering completed in April 1994. Northlea
Partners, of which Dr. John Abeles is the General Partner, acquired $25,000
principal amount of such promissory notes and 3,000 shares of Series A Preferred
Stock, and members of the family of Mr. Bruce L. Schindler acquired $9,375
principal amount of such promissory notes and 1,125 shares of Series A Preferred
Stock.
On March 21, 1994, the Company issued $150,000 principal amount of its
short-term promissory notes with interest at a rate equal to 9% per annum. The
Company also issued its Bridge Warrants to purchase an aggregate of 37,500
shares of Common Stock at an exercise price equal to 65% of the offering price
per share (attributing no value to the Warrants). The notes were repaid on April
6, 1994 from the proceeds of the Company's public offering of its securities.
Mrs. Judith A. Schindler, the wife of Mr. Bruce L. Schindler, a Director of the
Company, acquired $75,000 principal amount of such short-term promissory notes
and received Bridge Warrants to purchase 18,750 shares of Common Stock. In
March, 1995, Mrs. Schindler transferred Bridge Warrants to purchase 9,375 shares
of Common Stock to Dr. Abeles, Chairman of the Board and a Director of the
Company.
On May 10, 1994, the Company issued options to purchase 3,000 shares of
Common Stock of the Company to Materials Modification, Inc. at an exercise price
of $1.07 per share, as well as 2,679 shares of Common Stock of the Company in
lieu of cash in consideration for consulting services related to research and
development contracts. Also on such date, the Company issued options to purchase
9,000 shares of Common Stock of the Company to Ms. Renee Ford at an exercise
price of $1.07 per share, as well as 536 shares of Common Stock of the Company
in lieu of cash, in consideration for consulting services related to research
and development contracts.
In November 1994, the Company completed a warrant issuance which
resulted in the issuance of warrants to purchase approximately 379,000 shares of
Common Stock at a price of $2.00 per share producing proceeds to the Company of
approximately $280,000. Northlea Partners, Ltd., a partnership whose General
Partner is Dr. John H. Abeles, the Chairman of the Board of the Company,
acquired $18,750 principal amount of such warrants with the right to purchase
25,000 shares of Common Stock.
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In May 1995, the Company completed a private placement consisting of
2,536,290 shares of Common Stock pursuant to which the Company received proceeds
of approximately $1,900,000. Northlea Partners, Ltd., acquired for a
consideration of $150,000, 200,000 shares of this private placement. Mr. Nitin
T. Mehta, Director of the Company, acquired for himself and through his
retirement account set up by Mehta & Co., Inc., 573,334 shares of Common Stock
for a consideration of $430,000 principal amount. Mrs. Judith A. Schindler, wife
of Bruce L. Schindler, a Director of the Company, acquired for a consideration
of $50,000, 66,667 common shares of this private placement. Jay M. Haft, a
Director of the Company, acquired 89,600 shares of Common Stock for $67,200
consideration. Andrew Wilson, the Company's Chief Financial Officer, acquired
10,000 shares for $7,500 consideration. Arvind Patel, the Company's Chief
Executive Officer and a Director, acquired for himself and his two children a
total of 40,000 shares for a consideration of $30,000.
In February 1996, the Company issued warrants to purchase 332,551 shares
of Common Stock at a per share price of $1.25 in connection with a bridge loan
made to the Company which was subsequently repaid. Northlea Partners, Ltd.
received warrants to purchase 96,789 shares of Common Stock relating to this
bridge loan. Mr. Nitin Mehta received warrants to purchase 117,049 shares of
Common Stock relating to this bridge loan. Arvind Patel received warrants to
purchase 16,096 shares of Common Stock relating to this bridge loan.
SCIENTIFIC ADVISORY BOARD
The Company has a Scientific Advisory Board comprised of scientists who
have expertise in areas of relevance to the Company's research and development
activities. The Company may consult with Scientific Advisory Board members for
assistance in the planning and implementation of the Company's research and
development program, to ascertain new technological advances and scientific
developments pertaining to the Company's products and processes and for matters
relating to product development and marketing advice. Each member of the
Scientific Advisory Board is expected to devote at least eight hours of service
each year to the Company, and at least one meeting per year of the Scientific
Advisory Board will be held in conjunction with the meeting of the Board of
Directors of the Company. In addition, individual members of the Scientific
Advisory Board may be called upon to consult with the Company on an individual
contract basis.
DR. ARDEN BEMENT, JR. former Deputy Under-Secretary of Defense, is
currently regarded as a leading contributor to materials science in the United
States. Currently Basil S. Turner Distinguished Professor of Engineering at
Purdue University, he was Vice President of Science and Technology at TRW and
Professor of Nuclear Materials at the Massachusetts Institute of Technology, and
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is a member of the National Science Board. Dr. Bement received an M.S. in
Metallurgical Engineering from the University of Idaho and a Ph.D. from the
University of Michigan.
DR. ALEXANDER PINES is Professor of Chemistry at the University of
California at Berkley and Senior Scientist at the Lawrence Berkeley Laboratory.
Dr. Pine's research has been focused in nuclear magnetic resonance theory and
attendant applications in chemistry and materials science. A member of the
National Academy of Sciences, he is the recipient of numerous patents and awards
including the 1991 Wolf Prize in Chemistry. Dr. Pines has a B.S. in Chemistry
from the University of Jerusalem and a Ph.D. in Chemistry from the Massachusetts
Institute of Technology.
DR. RENEE FORD is a well-known writer and editor in the materials
research field and is currently the founding editor and editor-in-chief of
Materials Technology (formerly Materials & Processing Report), a prominent
monthly journal relative to materials sciences published by Elsevier Science
Publishing Co. in association with the Materials Processing Center at the
Massachusetts Institute of Technology. Dr. Ford is an active consultant in the
United States and internationally on processing technologies and personnel in
the advanced materials field. Dr. Ford has a M.A. in Chemistry from the
University of Virginia and a Ph.D in Chemistry from Columbia University.
Each member of the Scientific Advisory Board has entered into an
agreement with the Company which requires the member to maintain the
confidentiality of the Company's trade secrets and other proprietary data
derived by the member during the course of his or her relationship with the
Company. The agreements also provide that all inventions, discoveries and trade
secrets conceived and developed by such members in conjunction with their
services to the Company shall become the proprietary property of the Company. In
addition, members of the Scientific Advisory Board are precluded from being
engaged in any capacity with any enterprise whose activities are competitive
with those of the Company. The Company is not aware of any conflicts which
presently exist.
Members of the Scientific Advisory Board will be compensated by payment
of $1,000 per year in consideration for such service and will be reimbursed for
reasonable expenses incurred in connection with their attendance at meetings and
provision of any services specifically requested by the Company. In addition, on
December 31, 1992, each member of the Company's Scientific Advisory Board
acquired 3,050 shares of Common Stock of the Company at a purchase price of
approximately $1.07 per share.
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of May 31, 1996 (i) by each person
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who is known to the Company to be the owner of more than five percent (5%) of
the Company's Common Stock, (ii) by each of the Company's Directors, (iii) by
each of the Company's executive officers, and (iv) by all Directors and
executive officers of the Company as a group. As of May 31, 1996, there were
issued and outstanding 10,020,668 shares of Common Stock of the Company.
Number of
Shares of
Common Stock Percent of
Name and Address Beneficially Beneficial
or Identity of Group Owned Ownership
- -------------------- ----- ---------
Arvind Patel (1) 255,414 2.5%
47341 Bayside Parkway
Fremont, CA 94538
Andrew Intrater (2) 204,526 2.0%
47341 Bayside Parkway
Fremont, CA 94538
Andrew Wilson (3) 47,219 0.5%
47341 Bayside Parkway
Fremont, CA 94538
John Abeles (4) 514,183 5.1%
2365 Northwest 41st Street
Boca Raton, FL 33431
Jay M. Haft(5) 114,600 1.1%
2 Grove Isle Dr, #1208B
Coconut Grove, FL 33122
Nitin T. Mehta (6) 715,352 7.1%
58 Greenoaks Drive
Atherton, CA 94027
Ted D. Morgan (7) 15,000 0.1%
5213 El Mecado Parkway
Santa Rosa, CA 95403(7)
Bruce L. Schindler (8) 114,167 1.1%
2255 Glades Road, #324A
Boca Raton, FL 33431
Windstar Investments N.V. 666,667 6.7%
200 East Broward Blvd.,
Suite 1900
Fort Lauderdale, FL 33302
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Equitable Life Assurance 1,000,000 10.0%
Society
City Place House
55 Basinghall Street
London EC2V 5DR
Valeo Limited 872,000 8.7%
4th Floor, Celtic House
Victoria Street
Douglas, Isle of Man
IM99 1QZ British Isles
Clarion Finanz AG 690,000 6.9%
Muhlebachstrasse 42
8024 Zurich
Switzerland
All Officers and Directors
as a Group (8 persons) (9) 1,956,809 19.5%
(1) Includes 95,460 shares subject to stock options and 35,000 shares held
as a custodian for Mr. Patel's minor children. Also includes 16,096
shares of Common Stock issuable upon conversion of the 1996 Bridge
Warrant (assuming $20,166 of principal and interest due under 1996
Bridge Note).
(2) Includes 30,938 shares subject to stock options.
(3) Includes 37,219 shares subject to stock options.
(4) Includes 323,008 shares of Common Stock held by Northlea Partners Ltd.,
a consultant to the Company, of which Dr. Abeles is the General Partner,
and 35,000 shares issuable upon conversion of the Company's Series A
Preferred Stock also held by Northlea Partners. Also includes 9,375
shares of Common Stock issuable upon exercise of certain Bridge
Warrants. Includes 25,000 shares of Common Stock issuable upon
conversion of Warrants, held by Northlea Partners. Also includes 25,000
shares subject to other stock options. Also includes 96,789 shares of
Common Stock issuable upon conversion of the 1996 Bridge Warrant
(assuming $121,000 of principal and interest due under 1996 Bridge
Note).
(5) Includes 25,000 shares subject to stock options.
(6) Includes 213,333 shares of Common Stock held for the benefit of Mr.
Mehta in a retirement account set up by Mehta & Co., Inc. Includes
25,000 shares subject to stock options. Also includes 117,019 shares of
Common Stock issuable upon conversion of the 1996 Bridge Warrant
(assuming $146,208 of principal and interest due under 1996 Bridge
Note).
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(7) Includes 15,000 shares subject to stock options.
(8) Includes 66,667 shares of Common Stock owned by Mr. Schindler's wife,
Judith A. Schindler. Also includes 13,124 shares issuable upon
conversion of the Company's Series A Preferred Stock which are also held
in trusts set up for his three children, for which Mr. and Mrs.
Schindler are named as trustees. Also includes 9,375 shares of Common
Stock issuable upon exercise of certain Bridge Warrants issued to Mrs.
Schindler. Mr. Schindler disclaims any beneficial rights to all of the
above shares and rights. Also includes 25,000 shares subject to stock
options.
(9) Includes an aggregate of 600,395 shares issuable upon exercise of
warrants and stock options and conversion of Preferred Stock, included
pursuant to notes (1)-(8).
DESCRIPTION OF SECURITIES
The Company is currently authorized to issue up to 25,000,000 shares of
Common Stock par value $.001 per share, of which 10,020,668 shares were
outstanding as of May 31, 1996. The Company is also authorized to issue up to
3,000,000 shares of Preferred Stock, par value $.001 per share, of which 34,875
shares of Series A Preferred Stock were outstanding as of the date of this
Prospectus.
Common Stock
Each share of Common Stock entitles the holders thereof to one vote.
Holders of Common Stock do not have cumulative voting rights which means that
the holders of more than 50% of the shares voting for the election of directors
can elect all of the directors if they choose to do so, and in such event, the
holders of the remaining shares will not be able to elect any directors. The
By-Laws of the Company require that only a majority of the issued and
outstanding shares of Common Stock of the Company need be represented to
constitute a quorum and to transact business at a stockholders' meeting.
Subject to the dividend rights of the holders of any outstanding shares
of Preferred Stock, holders of shares of Common Stock are entitled to share, on
a ratable basis, such dividends as may be declared by the Board of Directors out
of funds legally available therefor. Upon liquidation, dissolution or winding up
of the Company, after payment to creditors and holders of any outstanding shares
of preferred stock, the assets of the Company will be divided pro rata on a per
share basis among the holders of the Common Stock. The Common Stock has no
preemptive, subscription or conversion rights and is not redeemable by the
Company. The Shares of the Company's Common Stock which may be issued upon
exercise of the Warrants, the Underwriters' Warrants and the Bridge Warrants
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offered hereby, when issued in accordance with the terms of such warrants, will
be duly authorized, validly issued, fully paid and non-assessable.
Common Stock Purchase Warrants
The Warrants were issued in registered form pursuant to an Agreement,
dated April 6, 1994 (the "Warrant Agreement"), between the Company and North
American Transfer Co., as Warrant Agent (the "Warrant Agent"). The following
discussion of certain terms and provisions of the Warrants is qualified in its
entirety by reference to the detailed provisions of the Statement of Rights,
Terms and Conditions for the Warrants which forms a part of the Warrant
Agreement. A form of the certificate representing the Warrants and a form of the
Warrant Agreement have been filed as exhibits to the Registration Statement of
which this Prospectus forms a part.
Each of the Warrants currently entitles the registered holder to
purchase 1.9 shares of Common Stock. The Warrants are exercisable at $3.50 per
Warrant which is the equivalent of $1.84 per share of Common Stock, subject to
certain further adjustments. The Warrants are entitled to the benefit of
adjustments in their exercise prices and in the number of shares of Common Stock
or other securities deliverable upon the exercise thereof in the event of a
stock dividend, stock split, reclassification, reorganization, consolidation or
merger.
The Warrants may be exercised at any time commencing October 6, 1994 and
continuing thereafter until April 6, 1999, unless such period is extended by the
Company. After the expiration date, Warrant holders shall have no further
rights. Warrants may be exercised by surrendering the certificate evidencing
such Warrant, with the form of election to purchase on the reverse side of such
certificate properly completed and executed, together with payment of the
exercise price and any transfer tax, to the Warrant Agent. If less than all of
the Warrants evidenced by a warrant certificate are exercised, a new certificate
will be issued for the remaining number of Warrants. Payment of the exercise
price may be made by cash, bank draft or official bank or certified check equal
to the exercise price.
Warrant holders do not have any voting or any other rights as
stockholders of the Company. The Company has the right at any time beginning
October 6, 1994 to repurchase the Warrants, at a price of $.05 per Warrant, by
written notice to the registered holders thereof, mailed 30 days prior to the
repurchase date. The Company may exercise this right only if the closing bid
price for the Common Stock for 20 trading days during a 30 consecutive trading
day period ending no more than 10 days prior to the date that the notice of
repurchase is given, equals or exceeds $4.50 [129% of the offering price per
share attributing no value to the Warrants] (subject to adjustment) during the
exercise period commencing October 6, 1994 through October 6, 1996, and equals
or exceeds $5.10 per share [146% of the offering price per share, attributing no
value to the
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Warrants](subject to adjustment) thereafter. Any such repurchase shall be for
all outstanding Warrants. If the Company exercises its right to call Warrants
for repurchase, such Warrants may still be exercised until the close of business
on the day immediately preceding the date fixed for repurchase. If any Warrant
called for repurchase is not exercised by such time, it will cease to be
exercisable, and the holder thereof will be entitled only to the repurchase
price. Notice of repurchase will be mailed to all holders of Warrants of record
at least thirty (30) days, but not more than sixty (60) days, before the
repurchase date. The foregoing notwithstanding, the Company may not call the
Warrants at any time that a current registration statement under the Act is not
then in effect.
The Warrant Agreement permits the Company and the Warrant Agent, without
the consent of Warrant holders, to supplement or amend the Warrant Agreement in
order to cure any ambiguity, manifest error or other mistake, or to address
other matters or questions arising thereunder that the Company and the Warrant
Agent deem necessary or desirable and that do not adversely affect the interest
of any Warrant holder. The Company and the Warrant Agent may also supplement or
amend the Warrant Agreement in any other respect with the written consent of
holders of not less than a majority in the number of the Warrants then
outstanding; however, no such supplement or amendment may (i) make any
modification of the terms upon which the Warrants are exercisable or may be
redeemed; or (ii) reduce the percentage interest of the holders of the Warrants
without the consent of each Warrant holder affected thereby.
In order for the holder to exercise a Warrant, there must be an
effective registration statement, with a current prospectus, on file with the
Securities and Exchange Commission covering the shares of Common Stock
underlying the Warrant, and the issuance of such shares to the holder must be
registered, qualified or exempt under the laws of the state in which the holder
resides. If required, the Company will file a new registration statement with
the Commission with respect to the securities underlying the Warrants prior to
the exercise of such Warrants and will deliver a prospectus with respect to such
securities to all holders thereof as required by Section 10(a)(3) of the
Securities Act of 1933. See "Risk Factors Necessity to Maintain Current
Prospectus" and "State Blue Sky Registration Required to Exercise the Warrants."
Preferred Stock
The Company is authorized to issue 3,000,000 shares of Preferred Stock,
par value $.001 per share, issuable in such series and bearing such voting,
dividend, conversion, liquidation and other rights and preferences as the Board
of Directors may determine. Of such shares, 45,000 shares were designated Series
A $25 2% Convertible Cumulative Preferred Stock (the "Series A Preferred
Stock"), and 34,875 shares are outstanding as of May 31, 1996.
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Shares of Series A Preferred Stock accrue cumulative preferred cash
dividends at the annual rate of 2% or $0.50 per share, payable semi-annually
commencing November 1, 1993. The holders of the Series A Preferred Stock have no
right to have the Company redeem such shares, and the Company is not obligated
to redeem such shares under any circumstances. The holders of Series A Preferred
Stock are entitled to receive, upon a voluntary or involuntary dissolution,
liquidation or winding up of the Company, $25.00 per share plus an amount equal
to all accrued and unpaid dividends, if any.
At the election of the holder thereof, each share of Series A Preferred
Stock is convertible into 11.6666 shares of Common Stock, subject to certain
adjustments. If all 34,875 shares of outstanding Series A Preferred Stock were
converted, there would be issued 406,875 shares of Common Stock of the Company.
Holders of Series A Preferred Stock have one vote per share on all matters
submitted to the stockholders of the Company. In addition, the affirmative vote
of at least a majority of the outstanding Series A Preferred Stock is required
to approve any adverse change in the preferences, rights or limitations with
respect to the Series A Preferred Stock. The holders of the Series A Preferred
Stock are entitled to piggyback registration rights in respect to the underlying
shares of Common Stock if at any time the Company files any further registration
statement.
Interim Financing Securities
In March 1994, the Company issued $150,000 principal amount of 9%
Promissory Notes (the "Interim Notes") and Bridge Warrants to purchase 37,500
shares of Common Stock. The Interim Notes were retired from the proceeds of the
Company's public offering in April
1994.
Each Bridge Warrant entitles the holder to purchase one share of Common
Stock at an exercise price of $2.28 per share on or prior to March 31, 1999. The
resale of the shares of Common Stock issuable upon exercise of the Bridge
Warrants has been registered concurrently with this offering, and the Company
has agreed to maintain an effective registration statement and current
prospectus concerning the issuance of the shares upon exercise of the Bridge
Warrants during their term. See "Sales by Selling Security Holders."
Capitalization of Subsidiaries
In November 1995, the Company restructured its operations and organized
three wholly-owned subsidiaries into which the Company placed its core
businesses and related assets. The three subsidiaries formed were Oryx Power
Products Corporation, SurgX Corporation and Oryx Instruments and Materials
Corporation (collectively the "Subsidiaries"). Each of the Subsidiaries was
organized under the laws of Delaware with authorized capitalization of
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20,000,000 shares of Class A Common Stock, 5,000,000 shares of Class B Common
Stock and 5,000,000 shares of Preferred Stock for all subsidiaries except SurgX
Corporation. The Class B Common Stock will be used to fulfill options granted to
members of management and other key employees of the Subsidiaries. The Class A
Common Stock was issued to the Company in exchange for all assets and
liabilities including intellectual property associated with the respective
businesses. The Class A Common Stock and Class B Common Stock are identical
except that the Class A Common Stock possesses a liquidation preference. As of
the date hereof, each of the Subsidiaries has 10,000,000 shares of Class A
Common Stock issued and outstanding and held by the Company. No shares of Class
B Common Stock or Preferred Stock has been issued. However, Power Products has
granted options to purchase 992,000 shares of Class B Common Stock, Instruments
and Materials have granted options to purchase 920,000 shares of Class B Common
Stock and SurgX has granted options to purchase 280,000 shares of Class B Common
Stock to management and key employees which will vest ratably over a period of
five years.
Section 203 of Delaware Law
Under Section 203 of the Delaware General Corporation Law ("Section
203"), certain "business combinations" between a Delaware corporation whose
stock is publicly traded or held of record by more than 2,000 stockholders and
"interested stockholder" are prohibited for a three-year period following the
date that such stockholder became an interested stockholder, unless (i) the
corporation has elected in its certificate of incorporation not to be governed
by Section 203 (the Company has not made such an election), (ii) the business
combination was approved by the Board of Directors of the corporation before the
other party to the business combination became an interested stockholder, (iii)
upon consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee benefit plans in which
the employees do not have a confidential right to tender or vote stock held by
the plan, or (iv) the business combination was approved by he Board of Directors
of the corporation and ratified by 66 2/3% of the voting stock which the
interested stockholder did not own. The three year prohibition also does not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors. The
term "business combination" is defined generally to include mergers or
consolidations between a Delaware corporation and an "interested stockholder,"
transactions with an "interested stockholder" involving the assets or stock of
the corporation or its majority-owned subsidiaries and transactions which
increase an interested stockholder's percentage ownership of stock. The term
"interested stockholder" is defined generally as a stockholder who, together
with affiliates and associates, owns (or, within three years prior, did own) 15%
or more of a Delaware corporation's voting stock.
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Possible Application of California General Corporation Law
Section 2115 of the California General Corporation Law may have
application at some future time to the Company inasmuch as it is domiciled in
California. At present it is anticipated that the Company will be exempt from
the application of Section 2115 since more than one-half of its outstanding
capital stock is held by residents outside of California. In the event the
Company were no longer able to qualify for the above residency exemption or
other applicable exemption, Section 2115 would apply various provisions of the
California General Corporation Law to the Company notwithstanding the Company's
incorporation under Delaware law. The California Corporation Law is generally
considered to be more favorable to the interests of stockholders than the
Delaware General Corporation Law and, among other provisions, affords
stockholders the right to cumulate votes in the election of directors, is more
restrictive as to the duty of care required of directors, provides greater
inspection rights with respect to corporate records and imposes additional
conditions and requirements relative to the consummation of business
combinations.
Transfer Agent and Warrant Agent
The transfer agent and warrant agent for the shares of Common Stock and
Warrants is North American Transfer Co., 147 West Merrick
Road, Freeport, New York 11520.
SALES BY SELLING SECURITY HOLDERS
The resale of 37,500 shares of Common Stock issuable upon the exercise
of the Bridge Warrants has also been registered in connection with this offering
and are covered by this Prospectus. The Bridge Warrants have been issued to the
private investors listed below (the "Bridge Investors") in connection with the
Company's interim debt financing completed in March 1994, in which the Company
agreed to register the resale of the shares concurrently with its public
offering and pay all expenses in connection therewith (other than brokerage
commissions and fees and expenses of counsel). The Company has agreed to
maintain an effective registration statement and current prospectus covering the
issuance and public sale of shares of Common Stock issuable upon exercise of the
Bridge Warrants during their term. The Bridge Warrants are exercisable at $2.28
per share, and the Company will receive an aggregate of $85,500 if all of the
Bridge Warrants are exercised. Such shares have been included in the
Registration Statement of which this Prospectus forms a part.
62
<PAGE>
The following table sets forth certain information with respect to such
investors. The Company will not receive any proceeds from any sale of shares by
the Bridge Investors.
Beneficial
Ownership
of Shares of Beneficial
Common Stock Ownership
Bridge Investor Prior to Sale(1) After Sale(2)
- --------------- ---------------- -------------
Anthony R. Fischer, Jr. 18,750
812 N. Linden Drive
Beverly Hills, CA 90201
Judith A. Schindler 89,166(3) 79,791
2255 Glades Road
#324A
Boca Raton, FL 33431
Northlea Partners Ltd.
2365 N.W. 41st Street
Boca Raton, FL 33431 514,183 504,808
- ----------------
(1) Assumes all of the Bridge Warrants are exercised and no
additional shares or Units are acquired.
(2) Assumes all of the shares subject to Bridge Warrants are sold by
each investor.
(3) Excludes 25,000 shares of Common Stock underlying options
granted to Bruce L. Schindler (see "Principal Stockholders").
Mrs. Schindler is the wife of Mr. Bruce L. Schindler, a Director of the
Company (see "Principal Stockholders"). Northlea Partners, Ltd. is a partnership
of which Dr. John Abeles, the Chairman of the Board of the Company, is the
General Partner of Northlea Partners Ltd. (See "Management"). Mr. Fischer has
not ever held any position or office with the Company or had any other material
relationship with the Company.
The Common Stock issuable to the investors upon exercise of the Bridge
Warrants may be offered and sold from time to time as market conditions permit
in the over-the-counter market, or otherwise, at prices and terms then
prevailing or at prices related to the then current market price, or in
negotiated transactions. Such shares offered hereby may be sold by one or more
of the following methods, without limitation: (a) a block trade in which a
broker or dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
63
<PAGE>
broker or dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (d) face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the investors
may arrange for other brokers or dealers to participate. Such brokers or dealers
may receive commissions or discounts from the investors in amounts to be
negotiated. Such brokers or dealers and any other participating brokers or
dealers may be deemed to be "underwriters" within the meaning of the Securities
Act, in connection with such sales.
SHARES ELIGIBLE FOR FUTURE SALE
As of May 31, 1996, 10,020,668 shares of Common Stock of the Company
were outstanding of which 7,061,879 shares are "restricted" securities, as such
term is defined under Rule 144 of the Securities Act of 1933.
In general, Rule 144 (as presently in effect), promulgated under the
Securities Act of 1933, permits a stockholder of the Company who has
beneficially owned restricted shares of Common Stock for at least two years to
sell without registration, within any three-month period, such number of shares
not exceeding the greater of 1% of the then outstanding shares of Common Stock
or, if the Common Stock is quoted on NASDAQ or an exchange, the average weekly
trading volume during the four calendar weeks preceding the sale, assuming
compliance by the Company with certain reporting requirements of Rule 144.
Furthermore, if the restricted shares of Common Stock are held for at least
three years by a person not affiliated with the Company (in general, a person
who is not an executive officer, director or principal stockholder of the
Company during the three-month period prior to resale), such restricted shares
can be sold without any volume limitation. As of May 31, 1996, approximately
3,333,358 shares of the Company's Common Stock currently outstanding would have
been deemed held for at least two years and will be eligible for sale, subject
to the volume limitations and other restrictions of Rule 144. Any sales of
shares by stockholders pursuant to Rule 144 may have a depressive effect on the
price of the Company's Common Stock.
UNDERWRITING
The Company previously entered into an Underwriting Agreement with J.W.
Charles Securities, Inc., Corporate Securities Group, Inc., and J.W. Charles
Clearing Corp., pursuant to which the Company sold and the Underwriters
purchased 1,100,000 Units of the Company's securities at an offering price of
$7.00 per Unit.
The Underwriters offered the Units to the public at the public offering
price and to dealers, who were members of the National Association of Securities
Dealers, Inc. ("NASD"), at the public offering price less concessions not in
excess of $.32 per Unit.
64
<PAGE>
The Company also granted an option to the Underwriters, exercisable
during the 30-day period from the date of the Prospectus, to purchase up to a
maximum of 165,000 additional Units solely to cover over-allotments. Such
over-allotment option was not exercised by the Underwriter. The Company also
paid the Representatives a non-accountable expense allowance of $231,000.
The Company also sold to the Underwriters, for an aggregate price of
$110, non-callable warrants (the "Underwriters' Warrants") entitling the
Underwriters to purchase from the Company 318,421 Units at an exercise price of
$11.55 per Unit (165% of the public offering price). The Underwriters' Warrants
could not be transferred or exercised for one year from the date of the
Prospectus, except to officers and partners of the Underwriters or members of
the underwriting or selling group, if any, and were exercisable during the
four-year period commencing April 6, 1995 (the "Warrant Exercise Term");
provided that transfers of the Underwriter's Warrants after one year must have
been immediately followed by exercise, or the transferred Underwriter's Warrants
would lapse. During the Warrant Exercise Term, the holders of the Underwriters'
Warrants are given, at nominal cost, the opportunity to profit from a rise in
the market price of the Company's Common Stock. To the extent that the
Underwriters' Warrants are exercised, dilution to the percentage ownership of
the Company's stockholders will occur. Further, the terms upon which the Company
will be able to obtain additional equity capital may be adversely affected since
the holders of the Underwriters' Warrants may be expected to exercise them at a
time when the Company would, in all likelihood, be able to obtain additional
equity capital on terms more favorable to the Company than those provided in the
Underwriters' Warrants. Any profit realized by the Underwriters on sale of the
Underwriters' Warrants or the underlying Unit securities may be deemed
additional underwriting compensation. The Company has agreed with the
Underwriters that the Warrants, if any, issued to the Underwriters upon exercise
of any of the Underwriters' Warrants will not be subject to repurchase by the
Company. In all other respects the Warrants issuable pursuant to the
Underwriters' Warrants are identical to the Warrants contained in the Units.
Subject to certain limitations and exclusions, the Company has agreed,
at the request of the holders of a majority of the Underwriters' Warrants, to
register the Underwriters' Warrants, and the underlying shares of Common Stock,
under the Act on two occasions during the Warrant Exercise Term, and on one such
occasion at the Company's expense. The Company has also agreed to include such
Underwriters' Warrants and underlying shares of Common Stock in any appropriate
registration statement filed by the Company during that period.
65
<PAGE>
The Company had also previously entered into a consulting agreement with
the Representatives for them to offer financial consulting services to the
Company for a period of two years which concluded April 6, 1996. In addition,
the Company agreed to pay the Representatives or the soliciting NASD members,
commencing one year from the date of this Prospectus, a fee equal to four
percent of the aggregate exercise price of the Warrants that are exercised if:
(i) the market price of the Common Stock on the date of such exercise is greater
than the exercise price of the Warrant, (ii) the exercise of the Warrant was
solicited by a NASD member, (iii) the Warrant is not held in a discretionary
account of a Representative, (iv) the solicitation was not in violation of Rule
10b-6 under the Securities Exchange Act of 1934, and (v) the Representative and
any dealer to whom a re-allowance is to be made is then a member in good
standing of the NASD. A portion of such fee may be re-allowed to NASD member
broker-dealers soliciting any such exercise.
The Representatives have the right, for a period of five years following
the closing of the Offering, to designate a nominee, reasonably acceptable to
the Company, for election to the Company's Board of Directors or, in lieu
thereof, to have a representative attend all Board of Directors meetings of the
Company. The Company (and its current directors, officers and 5% stockholders)
have agreed to support any such nominee designated by the Representatives. The
Representatives have designated Mr. Bruce L. Schindler as its nominee.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Act.
The foregoing includes a summary of the principal terms of the
Underwriting Agreement and does not purport to be complete. Reference is made to
the copy of the form of Underwriting Agreement filed as an exhibit to the
Company's Registration Statement of which this Prospectus forms a part.
LEGAL MATTERS
Legal matters in connection with the securities being offered hereby
will be passed upon for the Company by Atlas, Pearlman, Trop & Borkson, P.A.,
200 East Las Olas Boulevard, Suite 1900, Fort
Lauderdale, Florida 33301.
EXPERTS
The consolidated financial statements of Oryx Technology Corp. as of
February 29, 1996 and February 28, 1995 and for the years then ended included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
66
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act of
1933 with respect to the securities being offered hereby. This Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits thereto. For further information about the Company and the securities
offered hereby, reference is made to the Registration Statement and to the
exhibits filed as a part thereof. The statements contained in this Prospectus as
to the contents of any contract or other document identified as exhibits in this
Prospectus are not necessarily complete, and in each instance, reference is made
to a copy of such contract or document filed as an exhibit to the Registration
Statement, each statement being qualified in any and all respects by such
reference. The Registration Statement, including exhibits, may be inspected
without charge at the principal reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Los
Angeles, California Regional Office of the Commission, 5757 Wilshire Boulevard,
Suite 500 East, Los Angeles, California 90036-3648, and copies of all or any
part thereof may be obtained from the Commission upon payment of fees prescribed
by the Commission from the Public Reference Section of the Commission at its
principal office in Washington, D.C. set forth above.
67
<PAGE>
ORYX TECHNOLOGY CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
- -------------------------------------------------------------------------------
Page
----
Report of Independent Accountants...........................................F-2
Consolidated Balance Sheet at February 29, 1996
and February 28, 1995...................................................F-3
Consolidated Statement of Operations for the two years
ended February 29, 1996.................................................F-4
Consolidated Statement of Stockholders' Equity for the
two years ended February 29, 1996.......................................F-5
Consolidated Statement of Cash Flows for the two years
ended February 29, 1996.................................................F-6
Notes to Consolidated Financial Statements..................................F-7
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board Of Directors and Shareholders Of
Oryx Technology Corp.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Oryx
Technology Corp. And its subsidiaries at February 29, 1996 and February 28,
1995, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 1 to the
financial statements, the Company has suffered recurring losses from operations
and, during the year ended February 29, 1996, did not make payments on certain
liabilities as they became due. These items raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
PRICE WATERHOUSE LLP
SAN JOSE, CALIFORNIA
MAY 13, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
ORYX TECHNOLOGY CORP.
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------------------
February 29, February 28,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,939,000 $ 1,376,000
Accounts receivable, net of allowance for doubtful
accounts of $139,000 and $213,000 2,690,000 2,520,000
Inventories 3,880,000 2,795,000
Other current assets 256,000 65,000
------------ ------------
Total current assets 10,765,000 6,756,000
Property and equipment, net 1,298,000 879,000
Investment in development stage company 20,000 186,000
Intangible assets, net 49,000 294,000
Other assets 208,000 140,000
------------ ------------
$ 12,340,000 $ 8,255,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit $ 352,000 $ --
Notes payable to shareholders 400,000 --
Convertible promissory note payable and current of portion
capital lease 1,044,000 817,000
Accounts payable 3,186,000 1,303,000
Accrued liabilities 1,085,000 957,000
------------ ------------
Total current liabilities 6,067,000 3,077,000
Capital lease obligations, less current portion 34,000 77,000
Promissory note, less current portion -- 1,374,000
------------ ------------
Total liabilities 6,101,000 4,528,000
------------ ------------
Commitments and contingencies (Notes 1, 5, 12 and 13)
Stockholders' equity (Notes 5, 6, 7 and 8):
Series A 2% Convertible Cumulative Preferred Stock,
$0.001 par value; 3,000,000 shares authorized;
34,875 and 43,500 shares issued and outstanding,
liquidation value $872,000 and $1,088,000 832,000 1,038,000
Common Stock, $0.001 par value; 25,000,000 and
10,000,000 shares authorized; 9,228,668 and
4,325,020 issued and outstanding 9,000 4,000
Additional paid-in capital 13,629,000 8,137,000
Accumulated deficit (8,231,000) (5,452,000)
------------ ------------
Total stockholders' equity 6,239,000 3,727,000
------------ ------------
$ 12,340,000 $ 8,255,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ORYX TECHNOLOGY CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------
Year Ended
-----------------------------
February 29, February 28,
1996 1995
------------ -------------
<S> <C> <C>
Revenue $ 16,136,000 $ 11,352,000
Cost of sales 13,020,000 8,172,000
------------ ------------
Gross profit 3,116,000 3,180,000
------------ ------------
Operating expenses:
Marketing and selling 1,387,000 972,000
General and administrative 2,541,000 1,738,000
Research and development 2,823,000 1,986,000
Write off of purchased research and development -- 1,275,000
------------ ------------
Total operating expenses 6,751,000 5,971,000
------------ ------------
Loss from operations (3,635,000) (2,791,000)
Interest expense, net 320,000 154,000
Equity in losses of investee 195,000 336,000
------------ ------------
Loss before income taxes and extraordinary gain (4,150,000) (3,281,000)
Provision for income taxes 42,000 8,000
------------ ------------
Loss before extraordinary gain (4,192,000) (3,289,000)
Extraordinary gain from debt restructuring (Note 5) 1,433,000 --
------------ ------------
Net loss (2,759,000) (3,289,000)
Preferred stock dividend (20,000) (27,000)
------------ ------------
Net loss attributable to Common Stock $ (2,779,000) $ (3,316,000)
------------ ------------
Net loss per common share before extraordinary gain
(Note 2) $ (0.73) $ (1.02)
Extraordinary gain from debt restructuring 0.25 --
------------ ------------
Net loss per common share $ (0.48) $ (1.02)
============ ============
Weighted average common shares and
equivalents outstanding (Note 2) 5,789,642 3,238,900
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ORYX TECHNOLOGY CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------
Series A 2%
Convertible Cumulative
Preferred Stock Common Stock Additional
--------------------- ------------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
------- ----------- ---------- ------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1994 45,000 $ 1,075,000 1,132,143 $2,000 $ 1,236,000 $(2,136,000) $ 177,000
Repurchase of Preferred Stock (1,500) (37,000) -- -- -- -- (37,000)
Issuance of Common Stock and warrants
in initial public offering, net of
issuance costs of $1,700,000 -- -- 2,200,000 2,000 5,998,000 -- 6,000,000
Issuance of Common Stock and warrants
in private placements, net of
issuance costs of $56,000 -- -- 941,460 -- 795,000 -- 795,000
Issuance of Common Stock pursuant to
investments, consultants and exercise
of stock options -- -- 51,417 -- 108,000 -- 108,000
Net loss -- -- -- -- -- (3,289,000) (3,289,000)
Preferred stock dividend -- -- -- -- -- (27,000) (27,000)
------- ----------- ---------- ------ ------------ ----------- -----------
Balance at February 28, 1995 43,500 1,038,000 4,325,020 4,000 8,137,000 (5,452,000) 3,727,000
Issuance of Common Stock and warrants
in private placements, net of issuance
costs of $560,000 -- -- 4,835,831 5,000 4,754,000 -- 4,759,000
Issuance of warrants in connection
with debt restructuring -- -- -- -- 366,000 -- 366,000
Issuance of warrants in connection
with shareholder notes payable -- -- -- -- 213,000 -- 213,000
Issuance of Common Stock upon exercise
of options -- -- 525 -- 1,000 -- 1,000
Conversion of Preferred Stock to Common
Stock (8,625) (206,000) 100,625 -- 206,000 -- --
Repurchase of Common Stock -- -- (33,333) -- (48,000) -- (48,000)
Net Loss -- -- -- -- -- (2,759,000) (2,759,000)
Preferred stock dividend -- -- -- -- -- (20,000) (20,000)
------- ----------- ---------- ------ ------------ ----------- -----------
Balance at February 29, 1996 34,875 $ 832,000 9,228,668 $9,000 $ 13,629,000 $(8,231,000) $ 6,239,000
======= =========== ========== ====== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
ORYX TECHNOLOGY CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
- ----------------------------------------------------------------------------------------
Year Ended
--------------------------
February 29, February 28,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,759,000) $(3,289,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Equity in losses of investee 195,000 336,000
Extraordinary gain on debt restructuring (1,433,000) --
Interest imputed on shareholder notes payable warrant 213,000 --
Depreciation and amortization 421,000 303,000
Acquired research and development in progress -- 1,275,000
Changes in assets and liabilities (net of effects
of Zenith acquisition and debt restructuring):
Accounts receivable (170,000) (924,000)
Inventories (789,000) 925,000
Other current assets (191,000) (30,000)
Other assets (68,000) (72,000)
Accounts payable 2,258,000 960,000
Accrued liabilities 326,000 144,000
----------- -----------
Net cash used in operating activities (1,997,000) (372,000)
----------- -----------
Cash flows from investing activities:
Capital expenditures (726,000) (323,000)
Purchase of Zenith -- (3,864,000)
Investment in development stage company (29,000) (522,000)
----------- -----------
Net cash used in investing activities (755,000) (4,709,000)
----------- -----------
Cash flows from financing activities:
Borrowings/(repayment) of bank line of credit 352,000 (115,000)
Payment of capital lease obligations (77,000) (69,000)
Proceeds from initial public offering of Common Stock, net -- 6,212,000
Proceeds from issuance of Common Stock/warrants, net 4,760,000 903,000
Payments for repurchase of Series A 2%
Convertible Cumulative Preferred Stock -- (37,000)
Proceeds from (repayment of) notes payable to stockholders 400,000 (375,000)
Borrowings/repayment of long-term debt (52,000) (86,000)
Other (68,000) (49,000)
----------- -----------
Net cash provided by financing activities 5,315,000 6,384,000
----------- -----------
Net increase in cash and cash equivalents 2,563,000 1,303,000
Cash and cash equivalents at beginning of period 1,376,000 73,000
----------- -----------
Cash and cash equivalents at end of period $ 3,939,000 $ 1,376,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ORYX TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. THE COMPANY
Oryx Technology Corp. ("Oryx" or the "Company"), a Delaware corporation,
and its subsidiaries manufacture power conversion products, assemblies
used in the production of computer memory disks, electromagnets, and
electrostatic discharge test and simulation equipment.
In April 1994, the Company completed an initial public offering of 2.2
million shares of Common Stock which resulted in proceeds to the Company
of approximately $6.0 million, net of issuance costs of approximately
$1.7 million. Approximately $3.5 million of the net proceeds were used to
acquire the Power Conversion Products Group of Zenith Electronics
Corporation. (See Note 5.)
The Company completed a private placement of 2.5 million shares of Common
Stock in February and April of 1995, which resulted in proceeds of
$1,773,000, net of issuance costs of approximately $203,000.
Additionally, the Company completed a private placement of 3.2 million
shares of Common Stock in February of 1996, which resulted in proceeds of
$3,560,000, net of issuance costs of approximately $450,000.
The Company has incurred a cumulative loss of $8,231,000 since inception
through February 29, 1996. Further, as discussed in Notes 5 and 6, the
Company did not make payments on certain liabilities when they became due
and had its line of credit revoked. Management believes that by
separating its business units, it will be able to better control
expenses; however, additional financing will be needed to enable the
Company to fund operations through February 28, 1997. The Company is
currently seeking additional debt and equity financing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Oryx
Technology Corporation and its wholly owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents.
F-7
<PAGE>
ORYX TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INVENTORIES
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three to ten years. Leasehold improvements are amortized using
the straight-line method over the shorter of the lease term or the
estimated useful lives of the assets.
REVENUE RECOGNITION
Revenues are generally recognized upon shipment of product. However,
where a shipment is subject to customer acceptance criteria, revenue is
deferred until customer acceptance. Revenue from research contracts in
process is recognized under the percentage of completion method.
INTANGIBLE ASSETS
The cost of intangible assets is amortized using the straight line method
over the estimated useful lives of the assets, seventeen years for
patents and five years for goodwill and covenants not to compete. The
Company periodically reviews recoverability of intangible assets based
upon estimated future cash flows, and in the fourth quarter of 1996 wrote
off $130,000 of remaining goodwill.
INVESTMENT
The Company's 40% investment in DAS Devices, Inc. is accounted for using
the equity method.
INCOME TAXES
Deferred income taxes are provided for temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. The benefits from utilization of net operating loss
carryforwards will be reflected as part of the income tax provision if
and when realizable.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
common and equivalent shares outstanding during each period presented.
Common equivalent shares include Common Stock issuable upon the exercise
of stock options and warrants using the treasury stock method, or upon
conversion of preferred stock. Common and equivalent shares are excluded
from the computation if their effects are anti-dilutive, except that,
pursuant to the requirements of the Securities and Exchange Commission,
common and equivalent shares issued between November 15, 1992 and April
6, 1994 have been included in the computation for periods through
F-8
<PAGE>
ORYX TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
the closing of the Company's initial public offering, even if anti-
dilutive. Common stock equivalents were anti-dilutive for the years ended
February 29, 1996 and February 28, 1995.
MANAGEMENT ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
PRESENTATION
Certain prior year consolidated financial statement balances have been
reclassified to conform to the 1996 presentations.
3. DETAILS OF BALANCE SHEET COMPONENTS
February 29, February 28,
1996 1995
----------- -----------
Inventories:
Raw materials $ 2,453,000 $ 1,442,000
Work-in-progress 136,000 46,000
Finished goods 1,291,000 1,307,000
----------- -----------
$ 3,880,000 $ 2,795,000
----------- -----------
Property and equipment:
Machinery and equipment $ 1,236,000 $ 694,000
Furniture and fixtures 595,000 476,000
Automobiles 11,000 16,000
Leasehold improvements 111,000 41,000
----------- -----------
1,953,000 1,227,000
Less: Accumulated depreciation
and amortization (655,000) (348,000)
----------- -----------
$ 1,298,000 $ 879,000
=========== ===========
Included above are $252,000 of machinery and equipment under capital
leases at February 29, 1996 and February 28, 1995 and accumulated
amortization of $85,000 and $52,000, respectively for the years then
ended.
F-9
<PAGE>
ORYX TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
February 29, February 28,
1996 1995
---------- -----------
Accrued liabilities:
Compensation $ 272,000 $ 166,000
Deferred revenues 333,000 149,000
Consulting fees 60,000 146,000
Interest 27,000 109,000
Facilities 73,000 61,000
Other 320,000 326,000
---------- -----------
$1,085,000 $957,000
========== ===========
4. INVESTMENT IN DEVELOPMENT STAGE COMPANY
In July 1994, the Company acquired 50% of the outstanding stock of DAS
Devices, Inc. (DAS Devices), a company that plans to develop and
manufacture magnetic read-write heads for use in computer disk drives.
The Company purchased the stock for approximately $500,000 in cash and
33,333 shares of the Company's Common Stock. As a result of a private
placement of DAS Devices common stock in November 1994, Oryx's ownership
interest was reduced to 40%. Since its inception July 1994, DAS Devices
has been in the development stage and its operations principally involve
research and development. Consequently, no revenues have been derived
from the sale of its planned products.
The investment balance of $20,000 at February 29, 1996 approximates
Oryx's 40% share of the net assets of DAS Devices, Inc. (cash of
$104,000, less liabilities of $40,000). The equity in net losses of
investee of $195,000 for the year ended February 29, 1996 represents
Oryx's share of losses (40% of $426,000) and a $25,000 write-down, to
adjust the carrying value of the investment to the Company's share of the
underlying net assets.
5. ACQUISITION OF POWER CONVERSION PRODUCTS GROUP AND DEBT RESTRUCTURING
In April 1994, the Company acquired certain assets of the Power
Conversion Products Group of Zenith Electronics Corporation ("Zenith").
This acquisition occurred simultaneous with the closing of the Company's
initial public offering. The transaction was accounted for as a purchase;
accordingly, the purchase price and costs of the acquisition were
allocated to the assets and liabilities acquired based upon their
estimated fair market values at the date of acquisition as follows:
F-10
<PAGE>
ORYX TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Accounts receivable, net $ 1,318,000
Inventory on consignment 3,465,000
Property and equipment, net 321,000
Research and development in process 1,275,000
Intangible assets, principally goodwill 290,000
--------------
Total purchase price $ 6,669,000
==============
The total purchase price was derived as follows:
Paid from proceeds of initial public offering $ 3,500,000
Withheld from collection of acquired
accounts receivable 624,000
Expenses of acquisition 364,000
Convertible promissory note 2,061,000
Other 120,000
--------------
$ 6,669,000
==============
The promissory note bore interest at 6% per year and was payable in three
annual installments commencing October 1995. On February 1996, after
having defaulted on its initial payment, the Company entered into the
Settlement Agreement with Zenith covering the principal amount
outstanding of the promissory note, accrued interest, and certain
accounts payable and inventory relating to the Company's contract
manufacturing arrangement with Zenith. In accordance with the Settlement
Agreement and subsequent amendments, Zenith agreed to forgive all amounts
owed in exchange for a $1,000,000 note and warrants to purchase 400,000
common shares for $1.00 per share and warrants to purchase 100,000 common
shares for $5.00 per share. The warrants are exercisable until March
2001. The $366,000 value of these warrants at the time of issuance, as
determined by the Company and supported by independent appraisal, reduced
the extraordinary gain. In connection with the settlement, the Company
recorded an extraordinary gain of $1,433,000 which was calculated as
follows:
Principal amount of promissory note $ 2,061,000
Accrued interest on promissory note 225,000
Accounts payable for inventory purchases 541,000
--------------
Total consideration received by Oryx 2,827,000
Amounts due pursuant to the Settlement Agreement (1,028,000)
Value of warrants issued to Zenith (366,000)
--------------
Net extraordinary gain on debt restructuring $ 1,433,000
==============
F-11
<PAGE>
ORYX TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The $1,000,000 owed to Zenith under the Settlement Agreement bears
interest at 12% per year and is payable to as follows: $500,000 due on or
before April 22, 1996, and the remainder to be paid in five monthly
installments of $100,000 plus interest beginning on May 31, 1996. Amounts
due through April 22, 1996 were remitted according to the payment
schedule.
PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma information reflects the results of
operations for the year ended February 28, 1995 as if the acquisition of
the Power Conversion Products Group had occurred prior to March 1, 1994,
and after giving effect to certain adjustments. These pro forma results
have been prepared for comparative purposes only and do not purport to be
indicative of what operating results would have been had the acquisition
actually taken place prior to March 1, 1994 or what operating results may
occur in the future.
Net revenues $ 12,182,000
=============
Net loss $ (1,982,000)
=============
Net loss per share $ (0.61)
=============
6. BANK LINE OF CREDIT AND NOTES PAYABLE TO SHAREHOLDERS
In November 1994, the Company entered into a line of credit agreement with
a financial institution which provided for borrowing up to 70% of eligible
accounts receivable to a maximum of $1,500,000 which was dependent on the
Company maintaining financial covenants. In January 1996, the Company and
its lending institution entered into the Modification and Forbearance
Agreement based upon the Company's default on certain financial covenants
under the Company's line of credit facility. The Modification and
Forbearance Agreement eliminated all remaining borrowing capacity under
the line of credit as of February 28, 1996 and mandated the terms of
repayment for all outstanding balances. Interest is charged at the lending
institution's prime rate (8.25% at February 29, 1996) plus 5%. At February
29, 1996, the borrowings outstanding under the line of credit totaled
$352,000 due February 28, 1996. There were no borrowings outstanding under
this facility at February 28, 1995.
In January and February 1996, the Company issued $400,000 in notes payable
to certain shareholders bearing interest at 10%. As additional
consideration, the shareholders received warrants to purchase 322,551
shares of common stock exercisable through January 2001 at an exercise
price of $1.25. The Company recorded as interest expense $213,000, the
value of the warrants, as determined by the Company and supported by an
independent appraisal, during the year ended February 29, 1996.
F-12
<PAGE>
ORYX TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In March 1994, the Company issued $150,000 of nine percent notes payable
which were repaid with funds received from the initial public offering. In
connection therewith, the Company issued warrants to purchase 37,500
shares of Common Stock at sixty-five percent of the initial public
offering price to the holders of the notes. The Company recorded interest
expense of approximately $46,000 during the year ended February 28, 1995
related to these warrants.
Cash paid for interest totaled $42,000 and $67,000 for fiscal 1996 and
1995, respectively.
7. SERIES A 2% CONVERTIBLE CUMULATIVE PREFERRED STOCK
In May 1993, the Company completed a financing consisting of promissory
notes and Series A 2% Convertible Cumulative Preferred Stock. In
conjunction with the financing, the Company amended its articles of
incorporation to authorize 3,000,000 shares of Preferred Stock with a par
value of $0.001 per share and to designate 45,000 of such shares Series A
2% Convertible Cumulative Preferred Stock (the Series A Stock).
CONVERSION RIGHTS
Each share of Series A Stock may be converted, at the option of the
holder, into approximately 11.67 shares of Common Stock. As of February
29, 1996, the Company had reserved 424,375 shares of Common Stock for
issuance upon conversion of the Series A Stock.
DIVIDENDS
The holders of Series A Stock are entitled to receive a cumulative
dividend of $0.50 per share per annum, subject to any restrictions imposed
by the Delaware General Corporation Law. The dividend is payable semi-
annually.
LIQUIDATION
In the event of liquidation and to the extent assets are available, the
holders of the Series A Stock are entitled to a liquidation preference
distribution of $25.00 per share plus accrued but unpaid dividends.
VOTING RIGHTS
Each share of the Series A Stock is entitled to one vote per share on all
matters submitted to a vote of stockholders of the Company.
F-13
<PAGE>
ORYX TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. STOCK PLANS AND WARRANTS
ORYX STOCK PLANS
In March 1993, the Company adopted the Incentive and Nonqualified Stock
Option Plan (the "1993 Plan"). The 1993 Plan, which expires in 2003,
provides for incentive as well as nonstatutory stock options. The Board of
Directors may terminate the 1993 Plan at any time at its discretion.
Options under the 1993 Plan are granted at prices determined by the Board
of Directors, subject to certain conditions. Generally, these conditions
require that the exercise price of options granted may not be below a) for
incentive options, 110%, for persons owning more than 10% of the Company's
capital stock and 100% for options issued to other persons, or b) for
nonstatutory options, 85% of the fair market value of the stock at the
date of grant. Options granted to persons owning more than 10% of the
Company's capital stock may not have a term in excess of five years, and
all other options must expire within 10 years.
Options vest over a period determined by the Board of Directors, generally
4 years, and are adjusted pro rata for any changes in the capitalization
of the Company, such as stock splits and stock dividends.
In August 1995, the Company adopted the 1995 Directors Stock Option Plan
(the "Directors' Plan"). The Directors' Plan, which expires in 2005,
provides for nonstatutory stock options to be granted to nonemployee
directors of the Company. The Board of Directors may terminate the
Directors' Plan at anytime at its discretion.
Options under the Directors' Plan are granted at prices determined by the
Board of Directors, subject to certain conditions more fully described in
the Directors' Plan. Generally. these conditions require that the exercise
price of options granted may not be below 110% for persons owning more
than 10% of the Company's capital stock and 100% for options issued to
other persons of the fair market valve of the stock at the date of grant.
Options must expire within 10 years of grant.
The Directors' Plan provides that each nonemployee director receive
options to purchase 45,000 shares of the Company's Common Stock with
15,000 vested and exercisable upon grant with the remainder vesting in
equal annual installments over a three year period. The Company has
225,000 shares authorized under the Directors' Plan of which 180,000
options have been granted at $1.81 per share as of February 29, 1996.
F-14
<PAGE>
ORYX TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A summary of stock option activity under the 1993 Plan and the Directors'
Plan is as follows:
<TABLE>
<CAPTION>
Shares Options Outstanding
Available ----------------------------
for Price
Grant Shares per Share
----------- ----------- -----------
<S> <C> <C> <C>
Balance at February 28, 1994 149,621 375,379 $1.00-$5.13
Options granted (93,601) 93,601 $1.38-$3.00
Options exercised - (3,000) $1.07
----------- -----------
Balance at February 28, 1995 56,020 465,980 $1.00-$5.13
Additional shares authorized 825,000 - -
Options granted (294,500) 294,500 $1.81-$2.00
Options canceled 21,862 (21,862) $1.13-$2.00
Options exercised - (525) $1.13
----------- -----------
Balance at February 29, 1996 608,382 738,093 $1.00-$5.13
=========== ===========
</TABLE>
The Company issued 12,000 nonplan options at an exercise price of $1.07
during the year ended February 28, 1995. Options to purchase 392,105
shares of Common Stock were vested and exercisable at February 29, 1996.
SUBSIDIARY STOCK PLANS
In November 1995, the Company's newly formed, wholly owned subsidiaries,
Oryx Power Products Corporation, Oryx Instruments and Materials
Corporation and SurgX Corporation, each adopted stock option plans under
which the Board of Directors granted options to management to purchase
Class B common shares in the subsidiaries at their fair market values as
determined by the Board of Directors. Class B common shares authorized for
issuance in each of the subsidiaries are identical to the ten million
shares of Class A common shares owned by the Company, except the Class A
shares possess a liquidation preference. The Board of Directors authorized
1.5 million shares of Class B common shares for each of the three
subsidiaries to be available for issuance under these stock plans. Such
options are not transferable except in the event of a public offering of
the subsidiary's stock, and may be repurchased by the Company at its
option. Grants under the plan are for amounts, vesting periods and option
terms established by the Company's Board of Directors. The Company's
ownership percentage of these subsidiaries will change as a result of
future exercises of stock options and, to the extent these subsidiaries
contribute profits, outstanding subsidiary stock options may dilute the
Company's share of profits in the calculation of earnings per share.
F-15
<PAGE>
ORYX TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Subsidiary stock options granted during the fiscal year ended February 29,
1996, which vest ratably over a five year period, and each subsidiary's
Class A shares held by the Company were as follows:
Number Number
Options Class A Shares
-------- --------------
Oryx Instrument and Materials Corporation 920,000 10,000,000
Oryx Power Products Corporation 992,000 10,000,000
Surgx Corporation 280,000 10,000,000
WARRANTS
The following warrants at February 29, 1996, and the number of shares of
the Company's Common Stock which may be purchased at exercise, were
outstanding and exercisable at February 29, 1996:
Original Issuable Warrant
Warrants Common Commencement Expiration Exercise
Outstanding Shares Date Date Price
----------- --------- ------------ ----------- --------
1,100,000 2,035,000 Oct. 1994 Oct. 1999 $3.50
37,500 37,500 Oct. 1994 Oct. 2004 $2.00
379,000 541,030 Nov. 1994 Oct. 2004 $2.00
322,551 322,551 Feb. 1996 Jan. 2001 $1.25
400,000 400,000 Feb. 1996 Mar. 2001 $1.00
100,000 100,000 Feb. 1996 Mar. 2001 $5.00
224,560 224,560 Feb. 1996 Feb. 2001 $1.38
--------- ---------
2,563,611 3,660,641
========= =========
In addition to the foregoing, in connection with the Company's initial
public offering, the Company sold to the underwriters, for an aggregate
price of $110, noncallable warrants (the "Underwriters' Warrants")
entitling the underwriters to originally purchase from the Company 110,000
units at an exercise price of $11.55 per unit, subject to dilution
provisions. Each unit consists of two shares of Common Stock and one
callable warrant to purchase one additional share of Common Stock at an
exercise price of $3.50. The dilutive effect on the warrants is subject to
interpretation and may, at February 29, 1996, convert to 293,418 units at
an exercise price of $4.34 per unit and each underlying warrant may be
convertible into 1.85 common shares at $3.50. The Underwriters' Warrants
are exercisable through April 1999.
F-16
<PAGE>
ORYX TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In certain circumstances and defined time frames, the Company may call
many of the above warrants. The terms of most warrants are subject to
adjustment in certain circumstances (including anti-dilution protection).
9. RESEARCH CONTRACTS
The Company is party to certain research contracts which are accounted for
on a percentage of completion basis. All expenses incurred in connection
with such contracts are included in cost of sales.
Net revenue and cost of sales related to research contracts are as
follows:
Year ended
------------------------------
February 29, February 28,
1996 1995
-------------- --------------
Revenue $ 439,000 $ 418,000
Cost of sales 366,000 384,000
-------------- --------------
Gross profit $ 73,000 $ 34,000
============== ==============
10. SALES TO MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company's customers are primarily in the office equipment,
semiconductor and computer disk drive manufacturing industries. The
Company maintains reserves for potential credit losses; historically,
such losses have been minor and within management's expectations. The
Company's accounts receivable are principally derived from sales in the
United States. All transactions are denominated in U.S. dollars. At
February 29, 1996, accounts receivable from two Power Products segment
customers represented 36% and 12%, respectively, of total accounts
receivable. At February 28, 1995, accounts receivable from the same two
customers represented 39% and 12%, respectively, of total accounts
receivable.
F-17
<PAGE>
ORYX TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table summarizes the percentage of consolidated net sales
to significant customers:
Year Ended
------------------------
February 29, February 28,
1996 1995
---------- ----------
Power Products - Customer A 41% 27%
Instruments and Materials - Customer B - 14%
11. RELATED PARTY TRANSACTIONS
The Company pays life insurance premiums for certain officers of the
Company. Such premiums will be repaid to the Company upon certain events,
including the officer's death or termination of the officer's employment
with the Company. Cumulative premium payments of $82,000 and $74,000 at
February 28, 1996 and February 28, 1995 are included in other assets.
12. INCOME TAXES
The tax provisions for the years ended February 28, 1996 and 1995 consist
of state taxes currently payable and foreign tax provisions. No provision
for federal income taxes has been recorded because of losses incurred.
Deferred tax assets (liabilities) comprise the following:
February 29, February 28,
1996 1995
-------------- -------------
Net operating loss carryforwards $ 1,200,000 $ 815,000
Inventory reserves 540,000 157,000
R&D credit carryforwards 180,000 61,000
Intangibles 517,000 478,000
Other 331,000 180,000
-------------- --------------
Gross deferred tax assets 2,768,000 1,691,000
Fixed assets (58,000) (51,000)
-------------- --------------
Net deferred tax assets 2,710,000 1,640,000
Valuation allowance (2,710,000) (1,640,000)
-------------- --------------
Net deferred tax asset $ - $ -
============== ==============
F-18
<PAGE>
ORYX TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Due to uncertainty of realization, no benefit for deferred tax assets has
been recognized in the accompanying financial statements.
At February 29, 1996 and February 28, 1995, the Company had net operating
loss carryforwards of approximately $2,990,000 and $2,200,000 which may
be utilized to reduce future taxable income through 2010, subject to
certain limitations. Under the Tax Reform Act of 1986, the amounts of and
the benefits from net operating losses that can be carried forward may be
impaired or limited in certain circumstances. Events which may cause
changes in the amount of net operating losses that the Company may
utilize in any one year include, but are not limited to, a cumulative
stock ownership change of more than 50% over a three-year period. The
Company's initial public offering in April 1994 and its private
placements in 1996 may have triggered ownership changes of greater than
50% and, accordingly, the potential benefits from utilization of tax
carryforwards generated through the date of the offering are limited. The
annual limitation on the utilization of those carryforwards approximates
$600,000.
13. COMMITMENTS AND CONTINGENCIES
In conjunction with a fiscal 1994 acquisition, the Company entered into
an agreement whereby the Company will pay an 8% royalty through August 5,
2008 on sales of certain Instruments and Materials products with the
aggregate maximum royalty not to exceed $800,000. Additionally, a
supplemental royalty of 3% of sales over $333,000 of certain products is
to be paid, with the maximum supplemental royalty limited to $150,000.
Aggregate royalty expense has not been significant for the 1996 or 1995
fiscal years.
The Company leases its facilities and certain equipment under operating
lease agreements, which expire in various periods through 2001.
In addition, during fiscal 1995 and prior, the Company entered into
certain noncancellable lease agreements for equipment. These leases
qualify as capital leases and, accordingly, are accounted for as the
acquisition of an asset and the incurrence of a liability. Capital lease
obligations totaling $81,000 were incurred during fiscal 1995.
F-19
<PAGE>
ORYX TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Future minimum lease obligations are payable as follows:
Capitalized Operating
Year Ending February Leases Leases Total
-------------------- ------------ ------------ -----------
1997 $ 56,000 $ 601,000 $ 657,000
1998 32,000 590,000 622,000
1999 8,000 194,000 202,000
2000 - 92,000 92,000
2001 - 31,000 31,000
----------- ----------- -----------
Total minimum lease payment $ 96,000 $ 1,508,000 $ 1,604,000
=========== ===========
Less amount representing interest (18,000)
-----------
Present value of minimum lease
payments 78,000
Less current portion (44,000)
-----------
Long-term portion of obligations
under capitalized leases $ 34,000
===========
Rental expense for the years ended February 29, 1996 and February 28, 1995
was $602,000 and $299,000, respectively.
In the course of its business, the Company has been named as a defendant
in a certain action and could incur an uninsured liability. In the opinion
of management, the outcome of such litigation will not have a material
adverse effect on the results of operations or financial condition of the
Company.
14. SEGMENT INFORMATION
The Company groups its business into three operating segments and a
corporate segment: (i) Power Products includes the Company's standard and
custom AC to DC power supplies; (ii) Instruments and Materials includes
specialized materials produced through a patented bonding process and the
Company's development stage secondary ion mass spectrometer; and (iii)
SurgX, a development stage operation that utilizes the Company's patented
technology that protects microchips and related products from overvoltage.
F-20
<PAGE>
ORYX TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Consolidated business segment information as of February 29, 1996 and
February 28, 1995, and for each of the years then ended is summarized as
follows:
1996 1995
-------------- ---------
Revenues
Power Products $ 12,014,000 $ 8,500,000
Instruments and Materials 4,114,000 2,777,000
SurgX 8,000 75,000
Corporate - -
-------------- --------------
$ 16,136,000 $ 11,352,000
============== =============
Operating Loss
Power Products $ (544,000) $ (494,000)
Instruments and Materials (915,000) (567,000)
SurgX (553,000) (447,000)
Corporate (1,623,000) (1,283,000)
-------------- --------------
$ (3,635,000) $ (2,791,000)
============== ===============
Identifiable Assets
Power Products $ 5,487,000 $ 5,378,000
Instruments and Materials 2,914,000 1,502,000
SurgX - -
Corporate 3,939,000 1,375,000
-------------- --------------
$ 12,340,000 $ 8,255,000
============== ==============
Depreciation and Amortization Expense
Power Products $ 252,000 $ 140,000
Instruments and Materials 169,000 163,000
Surge Protection - -
Corporate - -
-------------- ---------------
$ 421,000 $ 303,000
============== ==============
Capital Expenditures
Power Products $ 418,000 $ 6,820,000
Instruments and Materials 308,000 172,000
Surge Protection - -
Corporate - -
-------------- --------------
$ 726,000 $ 6,992,000
============== ==============
F-21
<PAGE>
ORYX TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
As is more fully discussed in Note 5, the Power Products' 1995 loss from
operations includes a $1,275,000 write-off of research and development in
process related to the Company's acquisition of the Power Conversion
Products Group. Additionally, 1995 Power Products capital expenditures
include $6,669,000 for this acquisition. The 1996 extraordinary gain of
$1,433,000 resulted from the restructuring of certain obligations owed by
the Company related to the acquisition and Power Products' subsequent
activities.
15. SUBSEQUENT EVENTS
In March 1996, the Company repaid $400,000 of notes payable to
stockholders plus accrued interest, repaid the $352,000 outstanding
balance on its bank line of credit, and paid $500,000 of the amount owing
to Zenith under the Settlement Agreement.
In April 1996, the Company issued a warrant to purchase 100,000 shares of
Common Stock at an exercise price of $1.31 per share to a stockholder in
exchange for investment banking services to be rendered to the Company.
The warrants are exercisable until March 2001.
In May 1996, the Company completed a private placement of 792,000 common
shares for $1.25 per share resulting in proceeds, net of issuance costs,
of approximately $900,000. In connection with this offering, the placement
agent received 32,000 warrants to purchase an equivalent number of shares
of common stock at $1.38 per share.
F-22
<PAGE>
No dealer, sales person or any other
person has been authorized to give any
information or to make any
representations not contained in this
Prospectus in connection with this offer
made hereby. If given or made, such
information or representations must not
be relied upon as having been authorized
by the Company or any Underwriter. This
Prospectus does not constitute an offer
to sell or a solicitation of any offer
to buy any of the securities offered 1,100,000 WARRANTS
hereby in any circumstance in which such
offer or solicitation would be unlawful.
Neither the delivery of this Prospectus
nor any sale made hereunder shall under
any circumstances create an implication
that information herein is correct at
any time subsequent to the date of this
Prospectus. ORYX TECHNOLOGY CORPORATION
------------
TABLE OF CONTENTS
Page
----
Prospectus Summary..................
Rick Factors........................
Use of Proceeds.....................
Dividend Policy..................... ---------------------------
Price of Common Stock and Warrants..
Capitalization...................... PROSPECTUS
Selected Financial Data.............
Management's Discussion and ---------------------------
Analysis of Financial Con-
dition and Results of
Operations........................
Business............................
Management..........................
Certain Transactions................
Scientific Advisory Board...........
Principal Stockholders..............
Description of Securities...........
Sales by Selling Security Holders
Shares Eligible for
Future Sale.......................
Underwriting........................
Legal Matters.......................
Experts.............................
Additional Information..............
Index to Financial Statements.......
,1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Indemnification of Directors and Executive Officers
Section 145 of the General Corporation Law of Delaware, under which
jurisdiction the Company is incorporated, empowers a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he or she
is or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise. A corporation may indemnify against
expenses (including attorneys' fees) and, other than in respect of an action by
or in the right of the corporation, against judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such action, suit
or proceeding if the person indemnified acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action by or in the right of the corporation, no indemnification of expenses may
be made in respect to any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action was brought shall
determine that, despite the adjudication of liability, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. Section 145 of the General Corporation Law of Delaware further provides
that to the extent a director, officer, employee or agent of the corporation has
been successful in the defense of any action, suit or proceeding referred to
above or in the defense of any claim, issue or matter therein, he or she shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
The By-Laws of the Company require the Company to indemnify its
directors and officers to the fullest extent permitted by the General
Corporation Law of the State of Delaware.
Pursuant to the Underwriting Agreement, included as Exhibit 1.1 to this
Registration Statement, between the Company and the Underwriters named therein,
the officers and directors of the Company are indemnified by the Underwriters,
and the Underwriters are indemnified by the Company, against certain civil
liabilities under the Securities Act of 1933.
II-1
<PAGE>
Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in
connection with the issuance and distribution of the securities offered hereby.
The Company is responsible for the payment of all expenses in connection with
the offering.
Blue Sky filing fees and expenses........................ $ 1,000.00*
Printing and engraving expenses.......................... $10,000.00*
Legal fees and expenses.................................. $30,000.00*
Accounting fees and expenses............................. $30,000.00*
Transfer Agent and Warrant Agent fees.................... $ 1,000.00*
Miscellaneous............................................ $ 3,000.00*
---------
Total...........................................` $75,000.00*
=========
- --------------------
* Estimated
Recent Sales of Unregistered Securities
In May 1993, ATI issued $375,000 principal amount of its secured
promissory notes and 45,000 shares of its Series A $25 2% Convertible Cumulative
Preferred Stock to a limited group of accredited or otherwise qualified
investors based on their financial resources and knowledge of investments. In
addition, each of the investors was provided with information and had access to
relevant additional information concerning ATI. Accordingly, the issuance of the
shares was exempt from the registration requirements of the Act pursuant to the
exemption set forth in Section 3(b), 4(2) and Rule 505 thereunder of the Act.
In July 1993, ATI issued 915 shares of its Common Stock to Mr. Patrick
Baldwin upon exercise of warrants previously granted to him in June 1992.
Inasmuch as Mr. Baldwin was an accredited investor, had a pre-existing
relationship with ATI and had access to relevant information concerning ATI, the
issuance of such shares was exempt from the registration requirements of the Act
pursuant to the exemptions set forth in Section 4(2) of the Act.
In March 1994, the Company issued $150,000 principal amount of its short
term promissory notes and warrants to purchase up to 37,500 shares of its Common
Stock to two accredited investors based on either their pre-existing
relationship with the Company, their financial resources and knowledge of
investments. In addition, each of the investors was provided with information
and had access to relevant additional information concerning the Company.
Accordingly, the issuance of the securities was exempt form the registration
requirements of the Act pursuant to the exemption set forth in Section 4(2) of
the Act.
In July 1994, the Company acquired 50% of the outstanding capital stock
of DAS Devices, Inc. in exchange for cash and 33,333 shares of the Company's
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Common Stock to a limited group of accredited or otherwise qualified investors
based on their financial resources and knowledge of investments. These shares
were reacquired by the Company during fiscal 1996. In addition, each of the
investors was provided with information and had access to relevant information
concerning the Company. Accordingly, the issuance of the shares was exempt from
the registration requirements of the Act pursuant to the exemption set forth in
Section 3(b), Section 4(2) and Rule 505 of the Act.
Between February and April 1995, the Company issued 2,536,000 shares of
Common Stock to a limited group of accredited or otherwise qualified investors
based on their financial resources and knowledge of investments. In addition,
each of the investors was provided with information and had access to relevant
additional information concerning the Company. Accordingly, the issuance of the
shares was exempt from the registration requirements of the Act pursuant to the
exemption set forth in Section 3(b), 4(2) and Rule 505 of the Act.
In February 1996, the Company entered into a Settlement Agreement with
Zenith pursuant to which, among other things, the Company issued warrants to
purchase 400,000 shares of Common Stock of the Company exercisable at $1.00 per
share and warrants to purchase 100,000 shares of Common Stock of the Company
exercisable at $5.00 per share. Inasmuch as Zenith was an accredited investor,
had a pre-existing relationship with the Company and had access to relevant
information concerning the Company, the issuance of such securities was exempt
from the registration requirements of the Act pursuant to the exemption set
forth in Section 4(2) and Section 4(6) of the Act.
Between January and February 1996, the Company issued promissory notes
in the principal amount of $400,000 and warrants to purchase 322,551 shares of
Common Stock of the Company to five investors, four of whom were stockholders of
the Company. Inasmuch as such investor and/or stockholders were accredited
investors, had a pre-existing relationship with the Company and had access to
relevant information concerning the Company, the issuance of such shares was
exempt from the registration requirements of the Act pursuant to the exemption
set forth in Section 4(2) and Section 4(6) of the Act.
Between February and May, 1996, the Company issued 4,000,000 shares of
Common Stock of the Company to a limited group of institutional non-U.S.
investment firms pursuant to Regulation S of the Act. Each of the investors was
provided with information and had access to relevant information concerning the
Company. In connection with this offering, the placement agent therefor, a
non-U.S. firm, received warrants to purchase 256,560 shares of Common Stock of
the Company at a per share price of $1.375. Accordingly, the issuance of the
securities was exempt from the registration requirements of the Act pursuant to
the exemption set forth in Sections 4(2), (4(6) and Regulation S of the Act.
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Since June 1993, the Company has issued options to purchase 1,263,109
shares of Common Stock pursuant to its 1993 Plan and Directors' Plan to various
key employees, officers, directors and consultants of the Company. In addition,
during this time, the Company has issued Options to purchase 2,192,000 shares of
common stock pursuant to its various subsidiary stock plans to various
employees, executives and officers of its various subsidiaries. Inasmuch as all
of such employees were either accredited or otherwise qualified investors, or
had a pre-existing relationship with the Company and/or its subsidiaries and had
access to relevant information concerning the Company and/or its subsidiaries,
the issuance of such securities was exempt from the registration requirements of
the Act pursuant to the exemption set forth in Sections 3(b), 4(2) and Rule 505
of the Act.
In April 1996, the Company issued a warrant to purchase 100,000 shares
of Common Stock at a per share price of $1.31 to a stockholder of the Company in
exchange for investment banking services to be rendered to the Company. Inasmuch
as the stockholder was an accredited investor, had a pre-existing relationship
with the Company and had access to relevant information concerning the Company,
the issuance of such securities was exempt from the registration requirements of
the Act pursuant to the exemption set forth in Sections 4(2) and 4(6) of the
Act.
No underwriters were involved in any of the transactions described
above, nor were any commissions paid in connection therewith except as indicated
above.
Exhibits
Exhibit No. Description of Exhibits
- ----------- -----------------------
3.1 Certificate of Incorporation of the Registrant dated
July 26, 19931
3.2 Bylaws of the Registrant dated July 26, 19931
3.3 Certificate of Amendment to Certificate of Incorpora-
tion dated July 23, 19931
3.3A Certificate of Amendment of Certificate of Incorpora-
tion dated February 7, 19964
4.1 Specimen Common Stock Certificate1
4.2 Specimen Common Stock Purchase Warrant1
4.3 Warrant Agency Agreement including Statement of
Rights, Terms and Conditions for Callable Stock
Purchase Warrants2
4.4 Incentive and Nonqualified Stock Option Plan, as
Amended1
4.4A 1995 Directors Stock Option Plan4
4.5 Form of Promissory Note issued to Series A Preferred
Stock investors1
4.6 Unit Purchase Warrant1
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4.7 Form of Common Stock Purchase Agreement executed by
each investor in private placement consummated on May
26, 19952
4.8 Form of Registration Rights Agreement executed by
each investor in private placement dated February 29
and May 13, 19962
4.9 Form of Warrant issued to various investors in
February 1996 Bridge Financing4
4.10 Form of Warrants issued to Yorkton Securities, Inc.
in February 1996 and May 19964
10.1 Lease Agreement with Renco Investment Company re:
Fremont, California office, a laboratory and
manufacturing facility1
10.2 Lease Agreement with FINSA re: Reynosa, Mexico,
manufacturing facility3
10.3 Lease Agreement with Greer Enterprises re: Fremont,
California manufacturing facility3
10.4 Lease Agreement with Hospitak/Meditron re: McAllen,
Texas, warehouse facility3
10.5 Lease Agreement with Security Capital Industrial
Trust re: Fremont, California manufacturing facility4
10.6 Lease Agreement with OTR, State Teachers Retirement
System of Ohio re: Mt. Prospect, Illinois office4
10.7 Consulting Agreement with Bruce L. Schindler1
10.8 Financial Consulting Agreement with J. W. Charles/CSG1
10.9 Letter of Employment and Non-Competition Agreement
with Arvind Patel1
10.10 Letter of Employment and Non-Competition Agreement
with Andrew Intrater1
10.11 Agreement for the Purchase and Sale of Stock with
Intek Diversified Corporation1
10.12 Asset Purchase Agreement with Zenith Electronics
Corporation1
10.13 Promissory Notes issued in interim debt financing1
10.14 Common Stock Purchase Warrants issued in interim debt
financing3
10.15 Placement Agency Agreement between the Company and
Yorkton Securities, Inc. dated February 8, 1996, as
amended April 22, 19964
10.16 Form of Subscription Agreement between the Company
and various investors in Yorkton Private Placement
dated February 29, 1996 and May 13, 19964
10.17 Offering Memorandum dated February 8, 1996 and
Supplement thereto dated April 22, 1996, relating to
Yorkton private placement4
10.18 Settlement Agreement between the Company and Zenith
Electronics Corporation dated February 29, 1996, as
amended April 16, 19964
21 Subsidiaries of the Registrant4
23 Consent of Independent Accountants*
* Filed herewith.
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1 Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2 (Registration No. 33-72104) which became effective on April 6,
1994 and is incorporated herein by reference.
2 Previously filed as an exhibit to the Company's Current Report on Form 8-K
filed with the Commission on March 27, 1995.
3 Previously filed as an exhibit to the Company's Annual Report on Form 10-KSB
for the fiscal year ended February 28, 1995.
4 Previously filed on an exhibit to the Company's Annual Report on Form 10-FSB
for the fiscal year ended February 29, 1996.
Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities being made, a post-effective amendment to this Registration
Statement:
(i) To include any Prospectus required by Section 10(a)
(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
which, individually or together, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any additional or changed material
information with respect to the plan of distribution.
(2) For determining any liability under the Securities Act of
1933, as amended, treat each post-effective amendment as a new
registration statement relating to the securities offered, and the
offering of the securities at that time to be the initial bona fide
offering.
(3) To file a post-effective amendment to remove any of the
securities that remain unsold at the end of the offering.
(b) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt deliver to each purchaser.
(c) The undersigned Registrant hereby undertakes that:
(1) For determining any liability under the Securities Act of
1933, as amended, treat the information omitted from the form of
prospectus filed as part of this Registration Statement in
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<PAGE>
reliance upon Rule 430A and contained in a form of prospectus filed by
the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act of 1933, as amended, as part of this Registration
Statement as of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act of
1933, as amended, treat each post-effective amendment that contains a
form of prospectus as a new registration statement for the securities
offered in the Registration Statement, and that offering of the
securities at that time as the initial bona fide offering of these
securities.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that, in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(e) The undersigned Registrant hereby undertakes that:
(1) For determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant under Rule 424(b)(1), or
(4), or 497(h) under the Securities Act as part of this Registration
Statement as of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as a
new registration statement for the securities offered in the
Registration Statement, and that offering of the securities at that time
as the initial bona fide offering of those securities.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned in the City of Fremont, State of California, on June 28, 1996.
ORYX TECHNOLOGY CORP.
By: /s/ Arvind Patel
--------------------------
Arvind Patel,
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement was signed by the
following persons in the capacities and on the dates stated.
Signature Title Date
Principal Executive
/s/ Arvind Patel Officer and Director June 28, 1996
- ----------------------
Arvind Patel
Secretary, Treasurer
/s/ Andrew Intrater and Director June 28, 1996
- ----------------------
Andrew Intrater
Principal Financial and
/s/ Andrew G. Wilson Accounting Officer June 28, 1996
- ----------------------
Andrew G. Wilson
Chairman of the
/s/ John H. Abeles Board and Director June 28, 1996
- ----------------------
John H. Abeles
/s/ Jay M. Haft Director June 28, 1996
- ----------------------
Jay M. Haft
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/s/ Nitin T. Mehta Director June 28, 1996
- ----------------------
Nitin T. Mehta
/s/ Bruce L. Schindler Director June 28, 1996
- ----------------------
Bruce L. Schindler
/s/ Ted D. Morgan Director June 28, 1996
- ----------------------
Ted D. Morgan
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We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated May 13, 1996 relating
to financial statements of Oryx Technology Corp., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts."
PRICE WATERHOUSE LLP
San Jose, California
June 26, 1996
