<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A2
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended February 28, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
--------------- ---------------
Commission file number 1-12680
---------------
ORYX TECHNOLOGY CORP.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer as specified in its charter)
Delaware 22-2115841
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 Auburn Street, Fremont, California 94538
- ----------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number, including area code: (510) 492-2080
------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class On which registered
------------------- -------------------
Common Stock, $.001 par value NASDAQ
- ----------------------------- ------------------------
Common Stock Purchase Warrants NASDAQ
- ------------------------------ ------------------------
Securities registered pursuant to Section 12(g) of the Act:
None
- --------------------------------------------------------------------------------
(Title of class)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB [ X ]
---
Issuer's revenues from continuing operations for its most recent fiscal
year were $8,449,000.
As of May 15, 1998, 13,124,821 shares of Common Stock and Preferred Stock
convertible into 52,515 shares of Common Stock of Registrant were
outstanding. The aggregate market value of the shares of Common Stock held by
non-affiliates of Registrant, based on the average of the closing bid and
asked prices on April 30, 1998: $1 and $1-1/32 quoted by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), was
approximately $12,543,561.(1)
13,124,821 shares of the Company's Common Stock were outstanding as of
April 30, 1998.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants
(b) FINANCIAL STATEMENTS
The financial statements listed on the index to financial statements
on page F-1 are filed as part of this Form 10-KSB/A2.
1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned thereunto duly authorized on this 14th day
of October, 1998.
ORYX TECHNOLOGY CORP.
By: /s/ Philip J. Micciche
----------------------
Philip J. Micciche,
President & CEO
In accordance with the Securities Exchange Act of 1934, this Report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
President, CEO
/s/ Philip J. Micciche and Director October 14, 1998
- ---------------------- (Principal Executive
Philip J. Micciche Officer
Secretary, Treasurer
/s/ Andrew Intrater and Director October 14, 1998
- ----------------------
Andrew Intrater
Chief Financial
/s/ Mitchel Underseth Officer and Director October 14, 1998
- ---------------------- (Principal Financial
Mitchel Underseth and Accounting Officer)
/s/ John H. Abeles Director October 14, 1998
- ----------------------
John H. Abeles
(signatures continued next page)
2
<PAGE>
(signatures continued from previous page)
Signature Title Date
- --------- ----- ----
/s/ Jay M. Haft Director October 14, 1998
- ----------------------
Jay M. Haft
/s/ Richard Hubbard Director October 14, 1998
- ----------------------
Richard Hubbard
/s/ Doug McBurnie Director October 14, 1998
- ----------------------
Doug McBurnie
/s/ Ted D. Morgan Director October 14, 1998
- ----------------------
Ted D. Morgan
3
<PAGE>
ORYX TECHNOLOGY CORP.
Index to Consolidated Financial Statements
February 28, 1998 and February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheet at February 28, 1998
and 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statement of Operations for the
years ended February 28, 1998 and 1997. . . . . . . . . . . . . . . F-4
Consolidated Statement of Stockholders' Equity for the
years ended February 28, 1998 and 1997. . . . . . . . . . . . . . . F-5
Consolidated Statement of Cash Flows for the
years ended February 28, 1997 and 1997. . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . F-7
</TABLE>
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 28, 1998 and 1997, 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.
PRICE WATERHOUSE LLP
San Jose, California
May 22, 1998
F-2
<PAGE>
ORYX TECHNOLOGY CORP.
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1998 1997
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 722,000 $ 2,389,000
Accounts receivable, net of allowance for doubtful
accounts of $93,000 and $60,000 1,100,000 1,617,000
Inventories 397,000 2,132,000
Other current assets 670,000 73,000
Net assets of discontinued operations 1,060,000 3,900,000
------------ -------------
Total current assets 3,949,000 10,111,000
Property and equipment, net 490,000 1,200,000
Other assets 1,114,000 226,000
------------ -------------
$ 5,553,000 $ 11,537,000
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ 129,000 $ -
Capital lease obligations 16,000 38,000
Deferred revenue 874,000 450,000
Accounts payable 431,000 1,317,000
Accrued liabilities 998,000 900,000
------------ -------------
Total current liabilities 2,448,000 2,705,000
Deferred gain (Note 5) 646,000 -
Capital lease obligations, less current portion 12,000 35,000
------------ -------------
Total liabilities 3,106,000 2,740,000
------------ -------------
Commitments and contingencies (Notes 1 and 13)
Stockholders' equity:
Series A 2% Convertible Cumulative Preferred Stock,
$0.001 par value; 3,000,000 shares authorized;
4,500 shares issued and outstanding,
liquidation value $113,000 107,000 107,000
Common Stock, $0.001 par value; 25,000,000 shares
authorized; 13,124,821 and 12,961,692 issued
and outstanding 13,000 13,000
Additional paid-in capital 19,711,000 18,920,000
Accumulated deficit (17,384,000) (10,243,000)
------------ -------------
Total stockholders' equity 2,447,000 8,797,000
------------ -------------
$ 5,553,000 $ 11,537,000
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ORYX TECHNOLOGY CORP.
Consolidated Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997
<S> <C> <C>
Net revenue $ 8,449,000 $ 6,470,000
Cost of sales 6,234,000 4,605,000
------------ ------------
Gross profit 2,215,000 1,865,000
------------ ------------
Operating expenses:
Marketing and selling 1,141,000 1,109,000
General and administrative 2,911,000 2,939,000
Research and development 2,669,000 2,157,000
------------ ------------
Total operating expenses 6,721,000 6,205,000
------------ ------------
Loss from operations (4,506,000) (4,340,000)
Interest income (expense), net (350,000) 10,000
Equity in loss of investee - (20,000)
Net gain on sales of investment 1,383,000 -
------------ ------------
Loss from continuing operations (3,473,000) (4,350,000)
Discontinued operations:
Income (loss) from discontinued operations (3,588,000) 2,348,000
Loss on disposal of discontinued operations (78,000) -
------------ ------------
Income (loss) from discontinued operations (3,666,000) 2,348,000
------------ ------------
Net loss (7,139,000) (2,002,000)
Dividends (2,000) (10,000)
------------ ------------
Net loss attributable to Common Stock $ (7,141,000) $ (2,012,000)
============ ============
Basic and diluted loss per common share from continuing operations $ (0.26) $ (0.41)
Basic and diluted income (loss) per common share from discontinued
operations (0.28) 0.22
------------ ------------
Basic and diluted net loss per common share (Note 2 ) $ (0.54) $ (0.19)
============ ============
Weighted average common shares used to compute
basic and diluted net loss per share (Note 2 ) 13,105,000 10,650,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ORYX TECHNOLOGY CORP.
Consolidated Statement of Stockholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SERIES A 2%
CONVERTIBLE CUMULATIVE ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 29, 1996 34,875 $ 832,000 9,228,668 $ 9,000 $ 13,629,000 $ (8,231,000) $ 6,239,000
Issuance of Common Stock and warrants
in private placements, net of issuance
costs of $681,000 - - 2,836,130 4,000 4,139,000 - 4,143,000
Issuance of Common Stock upon exercise
of options - - 187,318 - 230,000 - 230,000
Issuance of Common Stock upon exercise
of warrants - - 349,590 - 599,000 - 599,000
Issuance of warrants in exchange for
services - - - - 60,000 - 60,000
Repurchase of underwriter units - - - - (475,000) - (475,000)
Conversion of Preferred Stock to Common
Stock (30,375) (725,000) 366,875 - 738,000 - 13,000
Net Loss - - - - - (2,002,000) (2,002,000)
Preferred Stock dividend - - - - - (10,000) (10,000)
------- --------- ---------- -------- ------------ ------------ -----------
Balance at February 28, 1997 4,500 107,000 12,968,581 13,000 18,920,000 (10,243,000) 8,797,000
Proceeds from SurgX Corporation
subsidiary stock sale, net of issuance
costs of $15,000 - - - - 485,000 - 485,000
Issuance of Common Stock upon exercise
of warrants - - 156,240 - 213,000 - 213,000
Issuance of warrants in exchange for
financing services - - - - 93,000 - 93,000
Net Loss - - - - - (7,139,000) (7,139,000)
Preferred Stock dividend - - - - - (2,000) (2,000)
------- --------- ---------- -------- ------------ ------------ -----------
Balance at February 28, 1998 4,500 $ 107,000 13,124,821 $ 13,000 $ 19,711,000 $(17,384,000) $ 2,447,000
======= ========= ========== ======== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ORYX TECHNOLOGY CORP.
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,139,000) $ (2,002,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss (income) from discontinued operations 3,666,000 (2,348,000)
Equity in loss of investee - 20,000
Gain on sale of investment (1,383,000) -
Value of warrants issued for services and debt issuance 93,000 60,000
Depreciation and amortization 458,000 248,000
Changes in assets and liabilities (net of effects from disposal of
subsidiaries):
Accounts receivable (483,000) (877,000)
Inventories 548,000 (1,546,000)
Other current assets (148,000) 105,000
Other assets 20,000 14,000
Deferred revenue 609,000 117,000
Accounts payable (622,000) (862,000)
Accrued liabilities 694,000 426,000
------------- -------------
Net cash used in continuing operating activities (3,687,000) (6,645,000)
Net cash provided by (used in) discontinued operations (826,000) 2,251,000
------------- -------------
Net cash used in operations (4,513,000) (4,394,000)
------------- -------------
Cash flows from investing activities:
Capital expenditures (321,000) (931,000)
Investment in development stage company - (25,000)
Net proceeds from sale of an investment 1,383,000 -
------------- -------------
Net cash provided by (used in) investing activities 1,062,000 (956,000)
------------- -------------
Cash flows from financing activities:
Accounts receivable financing 1,000,000 -
Borrowings from (repayment of) bank line of credit 129,000 (352,000)
Repayment of notes payable - (400,000)
Payment of capital lease obligations (38,000) (21,000)
Proceeds from sale of minority interest in SurgX Corp. 485,000 -
Proceeds from issuance of Common Stock and warrants, net - 4,143,000
Proceeds from exercise of options for Common Stock - 243,000
Proceeds from exercise of warrants for Common Stock 213,000 599,000
Repurchase of underwriter units - (475,000)
Payment of preferred stock dividend (2,000) (10,000)
Other (3,000) 97,000
------------- -------------
Net cash provided by financing activities 1,784,000 3,824,000
------------- -------------
Net decrease in cash and cash equivalents (1,667,000) (1,526,000)
Cash and cash equivalents at beginning of period 2,389,000 3,915,000
------------- -------------
Cash and cash equivalents at end of period $ 722,000 $ 2,389,000
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 298,000 $ 50,000
============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquired under capital lease obligations $ 8,000 $ 54,000
============= =============
</TABLE>
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 assemblies used in the production of
computer memory disks, electromagnets, electrostatic discharge test
equipment, secondary ion mass spectrometer measurement devices, and are
developing products that provide electrostatic discharge protection.
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. Since its initial public offering, the Company has completed a
number of private placement sales of its Common Stock. Common Stock sold
in private placement offerings during fiscal years 1997, 1996 and 1995
totaled approximately 2.8 million shares, 4.8 million shares and 0.9
million shares and resulted in net proceeds of $4,143,000, $4,759,000 and
$575,000, respectively.
The Company's cumulative losses and cash used in fiscal 1998 operations
result in uncertainty about the Company's future viability. However,
management believes the recent restructuring, the sale of a portion of the
Instruments and Materials business (see Note 5), and the sale of Oryx Power
Product Corporation ("Power Products") (see Note 6) will significantly
reduce operating losses, and the net proceeds generated from these
transactions and outstanding credit facilities will enable the Company to
continue as a going concern through February 28, 1999.
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company's fiscal year ends on the last day of February. The year ended
February 28, 1998 is referred to as fiscal 1998.
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.
F-7
<PAGE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents.
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. The Company periodically reviews the
recovery of property and equipment based upon estimated cash flows.
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 seven years for goodwill and purchased technology. The Company
periodically reviews recoverability of intangible assets based upon
estimated future cash flows. Intangible assets have been included in net
assets of discontinued operations.
EQUITY IN DAS DEVICE INC.
The fiscal 1997 consolidated statements of operations include charges of
$20,000 for the equity in net loss of an investee accounted for on the
equity method. As a result of additional outside investors in the
investee's common stock during fiscal 1997, the Company's net ownership in
the investee was reduced from 40% to less than 5%. As a result of this
reduction, the Company's investment was accounted for using the cost method
for the year ended February 28, 1998. In fiscal 1998, the Company sold 42%
of its holdings in DAS Device Inc. and realized a gain of $1,383,000.
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.
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.
F-8
<PAGE>
NET LOSS PER SHARE
Basic earnings per share is computed by dividing loss available to common
stockholders by the weighted average common shares outstanding for the
period. Diluted earnings per share reflects the weighted average common
shares outstanding plus the potential effect of dilutive securities which
are convertible to common shares such as option, warrants, and preferred
stock. Due to the net losses from continuing operations incurred in fiscal
1998 and 1997, all common stock equivalents outstanding were considered
anti dilutive and were excluded from the calculations of diluted net loss
per share. No adjustments were made to net loss attributable to common
stock in the calculation of basic or diluted earnings per share in fiscal
1998 or 1997. Anti dilutive securities and common stock equivalents at
February 28, 1998 which could be dilutive in future periods include common
stock options to purchase 2,562,000 shares of common stock, warrants to
purchase 4,224,000 shares of common stock, 4,500 shares of Series A
preferred stock which may be converted into 53,000 shares of common stock
and the minority interest investment and subsidiary stock options to
purchase 304,000 shares in the Company's SurgX subsidiary which could
reduce the Company's share of profits in the calculation of earnings per
share in future periods.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130
establishes standards for reporting and display of comprehensive income and
its components in a financial statement that is displayed with the same
prominence as other financial statements for the periods beginning after
December 15, 1997. Comprehensive income, as defined, includes all changes
in equity (net assets) during a period from nonowner sources including
unrealized gains and losses an available-for-sale securities.
Reclassification of financial statements for earlier periods for
comparative purposes is required. The Company will adopt SFAS 130 beginning
in fiscal 1999 and does not expect such adoption to have a material effect
on the consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131 ("SFAS 131"), "Disclosure about
Segments of and Enterprise and Related Information." This statement
establishes standards for the way companies report information about
operations segments in annual financial statements for the periods
beginning after December 15, 1997. It also establishes standards for
related disclosures about products and services, geographic areas, and
major customers. It is not expected that adoption of SFAS 131 will have an
impact to the Company's consolidated financial statements.
F-9
<PAGE>
3. DETAILS OF BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1998 1997
<S> <C> <C>
Inventories:
Raw materials $ 84,000 $ 1,211,000
Work-in-progress - 153,000
Finished goods 313,000 768,000
--------- -----------
$ 397,000 $ 2,132,000
========= ===========
Property and equipment:
Machinery and equipment $ 459,000 $ 852,000
Furniture and fixtures 225,000 759,000
Automobiles 11,000 11,000
Leasehold improvements 105,000 225,000
--------- -----------
800,000 1,847,000
Less: Accumulated depreciation (310,000) (647,000)
--------- -----------
$ 490,000 $ 1,200,000
========= ===========
Accrued liabilities:
Compensation $ 316,000 $ 205,000
Professional fees 199,000 203,000
Warranty - 150,000
Facilities 31,000 72,000
Disposal related costs 138,000 -
Other 314,000 270,000
--------- -----------
$ 998,000 $ 900,000
========= ===========
</TABLE>
F-10
<PAGE>
4. ACQUISITION OF POWER SENSORS CORPORATION
In December 1996, the Company acquired certain assets and assumed certain
liabilities of Power Sensors Corporation ("PSC") in exchange for 600,000
shares of Class A Common Stock of Oryx Power Products Corporation, a
wholly-owned subsidiary of the Company. The stock issued represented
approximately 6% of the outstanding stock of Power Products at February 28,
1997. The acquisition 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:
<TABLE>
<S> <C>
Current assets $ 338,000
Furniture and equipment 300,000
Research and development in process 670,000
Purchased technology 340,000
Goodwill 355,000
----------
Total assets 2,003,000
----------
Accounts payable and accrued liabilities 460,000
Capital lease assumed 268,000
Bank loans assumed 555,000
----------
Total liabilities 1,283,000
----------
Total purchase price $ 720,000
==========
</TABLE>
The total purchase price was derived based on the estimated fair value of
the stock issued of $600,000 and acquisition expenses of $120,000. The
agreement allowed the holders of such stock, under certain conditions, on
the three year anniversary of the acquisition to require the Company to
redeem the stock issued for a promissory note of $1.5 million payable in
equal annual installments over four years commencing in the year 2000.
Accordingly, the stock was accounted for as mandatorily redeemable
securities at estimated fair value and accretes up to the redemption value
in accordance with the terms of the agreement. In connection with the
disposal of Power Products (see Note 6) the stock balance was included in
net assets from discontinued operations and the accretion of redemption
value in the amount of $189,000 and $37,000 for the years ended February
28, 1998 and 1997, respectively, were included in income (loss) from
discontinued operations.
On March 2, 1998, the Company disposed of Power Products, and accordingly,
the results of PSC as well as Power Products have been accounted for as a
discontinued operation (see Note 6).
F-11
<PAGE>
5. DISPOSITION
On February 27, 1998, a third party acquired 8,000,000 newly issued shares
of the authorized Class A Common Stock of Oryx Instruments and Materials
Corporation ("I&M") from I&M in exchange for $500,000 in cash (the "Sale").
Prior to the Sale, I&M was essentially a wholly owned subsidiary of the
Company.
As part of the Sale, I&M repurchased 8,000,000 of the 10,000,000 shares of
Class A Common Stock held by the Company for an aggregate redemption price
of $1,500,000 payable $500,000 in cash and a $1,000,000 in a non-interest
bearing note (the "Note Receivable"). The Note Receivable balance is
payable one-third on February 27, 1999 and two-thirds on February 27, 2000.
The transaction resulted in a gain of $646,000 for the Company, which is
being deferred until receipt of payments under the Note Receivable. As a
result of the transaction, the Company has fully reserved its remaining
19.9% ownership investment in I&M at February 28, 1998. The Note Receivable
is included in other assets at February 28, 1998.
Immediately prior to the repurchase, I&M distributed to the Company
substantially all of the assets and liabilities comprising the materials
business previously conducted by I&M as well as certain other assets. Net
assets retained by the Company totaled $1,300,000. Revenues from the sold
Instruments portion of I&M were $3,688,000 and $2,194,000 for the years
ended February 28, 1998 and 1997, respectively.
6. DISCONTINUED OPERATIONS
On March 2, 1998, the Company sold substantially all of the properties,
assets, rights, business and certain liabilities of Oryx Power Products
Corporation ("Power Products") for $2,000,000 in cash and a contingent
additional amount up to $4,000,000 to be calculated based upon sales of
certain specified products to specified customers during the fourteen month
period immediately following the closing of the transaction. The disposal
of Power Products has been accounted for as a discontinued operation and
accordingly the net assets held for disposal and operating results of Power
Products were segregated and reported as discontinued operations. As the
Company has estimated a loss on disposal, all losses were recognized as if
the transaction was completed as of February 28, 1998. Prior year financial
statements have been restated to reflect the discontinuance of the Power
Products operations. Revenue from Power Products were $10,022,000 and
$20,390,000 for the years ended February 28, 1998 and 1997, respectively.
F-12
<PAGE>
The components of net assets of discontinued operations included in the
Consolidated Balance Sheet are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1998 1997
<S> <C> <C>
Cash $ 13,000 $ 691,000
Accounts receivable 228,000 1,840,000
Inventory 2,571,000 2,663,000
Other current assets 95,000 98,000
---------- ----------
Current Assets 2,907,000 5,292,000
Property & equipment, net 1,158,000 1,474,000
Non current assets 632,000 909,000
---------- ----------
Total assets 4,697,000 7,675,000
Current liabilities (2,567,000) (2,284,000)
Non current liabilities ( 245,000) ( 854,000)
Mandatorily redeemable securities ( 825,000) ( 637,000)
---------- ----------
Total liabilities (3,637,000) (3,775,000)
---------- ----------
Net assets of discontinued operations $ 1,060,000 $ 3,900,000
=========== ===========
</TABLE>
Income (loss) from discontinued operations are net of income taxes of
$25,000 and $40,000 for the years ended February 28, 1998 and 1997,
respectively. The tax benefit resulting from the loss on disposal of Power
Products was immaterial. Transaction costs related to the disposal were
$1,018,000.
7. FINANCING ARRANGEMENTS
On December 4, 1996, the Company entered into a credit facility with a
financial institution for borrowings of $530,000 bearing interest at 10.5%.
The credit facility is payable over 48 monthly payments of principal and
interest and is collaterized by specified manufacturing equipment. At
February 28, 1998, the Company had borrowings outstanding of $360,000 under
this facility which was included in net assets of discontinued operations.
At February 28, 1997, the Company had outstanding borrowings of $530,000
under a loan assumed in connection with PSC acquisition. The loan was
collaterized by business assets of the Company. During the year ended
February 28, 1998, the Company paid off the entire balance of this loan.
F-13
<PAGE>
In May 1997, the Company entered into a facility which included an Accounts
Receivable Revolving Batch Facility and an Inventory Line of Credit with a
financial institution. The Inventory Line of Credit provides for
borrowings of up to $1.5 million ($750,000 of which is subject to an
inventory appraisal). The Accounts Receivable Revolving Batch Facility
allows the Company to factor up to a maximum of $4 million, provided that
any amount in excess of $3.5 million is supported by an equal amount of
unused availability under the Inventory Line of Credit. Under the
facility, the Company is required to sell on an undiscounted, non recourse
basis all accounts receivable. In exchange, advances are available to the
Company up to 85% of the face amount of eligible accounts receivable (as
defined) up to a maximum amount of $4 million. Accounts receivable in the
amount of $1,100,000 at February 28, 1998 were due from lender. Financing
costs under the arrangement are equal to the greater of the institution's
base rate plus 1.25% or 7.0%. In March 1998, the agreement was amended to
reduce the Account Receivable Revolving Batch Facility and the Inventory
Credit Line to a maximum borrowings of $500,000 each. Under the amended
agreement, the Accounts Receivable Revolving Batch Facility expires in
March 1999 and the Inventory Line of Credit expires in May 1999.
At February 28, 1998, the Company had borrowings outstanding of $465,000
under the Inventory Line of Credit, of which $336,000 was included in net
assets of discontinued operations, and advances of $1,691,000 under the
Accounts Receivable Revolving Batch Facility, of which $691,000 related to
discontinued operations.
In February 1998, the Company entered into a bridge loan facility with a
financial institution for borrowings of amounts up to $1,000,000 bearing
interest at the institution's base rate plus 4% with a minimum of 7% per
annum. The facility expires on September 15, 1998. As consideration upon
signing the facility, the financial institution received warrants to
purchase 174,546 shares of common stock exercisable through February 2001
at an exercise price of $1.15. The Company recorded an expense of $93,000
upon issuance of the warrants. At February 28, 1998, there were no
borrowings under this credit facility.
8. SERIES A 2% CONVERTIBLE CUMULATIVE PREFERRED STOCK
The Company has authorized 3,000,000 shares of Preferred Stock with a par
value of $0.001 per share of which 45,000 of such shares are designated
Series A 2% Convertible Cumulative Preferred Stock (the Series A Stock).
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 28, 1998,
the Company had reserved 52,515 shares of Common Stock for issuance upon
conversion of the Series A Stock. 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. In the event of
F-14
<PAGE>
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. 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.
9. 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 110%
for persons owning more than 10% of the Company's capital stock and 100%
for options issued to other persons for incentive options, or 85% of the
fair market value of the stock at the date of grant for non statutory
options. 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 ten years. Options vest over a period
determined by the Board of Directors, generally four years, and are
adjusted pro rata for any changes in the capitalization of the Company,
such as stock splits and stock dividends.
In 1995 and 1996, the Company adopted the 1995 and 1996 Directors Stock
Option Plan (the "Directors' Plans"). The 1995 and 1996 Directors' Plan,
which expires in 2005 and 2006, respectively, provide for nonstatutory
stock options to be granted to nonemployee directors of the Company. The
Board of Directors may terminate the Directors' Plans at anytime at its
discretion. Options under the Directors' Plans are granted at prices
determined by the Board of Directors, subject to certain conditions more
fully described in the Directors' Plans. 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 ten years of grant. The
1995 and 1996 Directors' Plan provides that each nonemployee director
receive options to purchase 45,000 and 30,000 shares, respectively, of the
Company's Common Stock with 15,000 and 10,000, respectively, 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 1995 Directors' Plan of which 195,000 options were
outstanding with an average exercise price of $1.56 per share as of
February 28, 1998. The Company has 120,000 shares authorized under the
1996
F-15
<PAGE>
Directors' Plan of which 90,000 options were outstanding with an average
exercise price of $1.77 per share as of February 28, 1998.
A summary of stock option activity under the 1993 Plan and the Directors'
Plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------
WEIGHTED-
SHARES AVERAGE
AVAILABLE EXERCISE
FOR PRICE
GRANT SHARES PER SHARE
<S> <C> <C> <C>
Balance at February 28, 1996 608,382 738,618 $1.54
Additional shares authorized 620,000 - -
Options granted (786,500) 786,500 $1.94
Options canceled 143,253 (143,253) $1.90
Options exercised - (187,318) $1.22
--------- ----------
Balance at February 28, 1997 585,135 1,194,547 $1.81
Additional shares authorized 1,000,000 - -
Options granted (1,530,000) 1,530,000 $1.54
Options canceled 162,621 (162,621) $1.96
Options exercised - - -
--------- ----------
Balance at February 28, 1998 217,756 2,561,926 $1.64
========= ==========
</TABLE>
The following table summarizes information about employee stock options
outstanding at February 28, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- -----------------------------
WEIGHTED-AVERAGE
REMAINING WEIGHTED- WEIGHTED-
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.00 - 1.38 911,040 8.3 $ 1.27 273,589 $ 1.14
$1.58 - 2.25 1,625,886 8.5 1.82 627,458 1.95
$2.38 - 3.00 25,000 6.2 2.95 18,770 2.95
--------- --------
Total 2,561,926 8.4 $ 1.64 919,817 $ 1.73
========= ========
</TABLE>
F-16
<PAGE>
FAIR VALUE DISCLOSURES
Had compensation cost for the Plans been determined based on the fair value
of each stock option on its grant date, as prescribed in SFAS 123, the
Company's net loss and net loss per share in fiscal 1998 would have been
$7,491,000 and $0.57, respectively, and in fiscal 1997 would have been
$2,395,000 and $0.22, respectively.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants during the applicable period: dividend yields
of 0% for both periods; expected volatility of 77% for fiscal 1998 and 60%
for fiscal 1997; risk-free interest rate of 6.10% for fiscal 1998 and 6.29%
for fiscal 1997 for options granted; and a weighted average expected option
term of five years for both periods. The weighted average fair value of
options granted during fiscal years 1998 and 1997 was $0.87 and $0.73,
respectively. The weighted average fair value of options to purchase
common shares of the Company's subsidiaries were not material during fiscal
years 1998 and 1997.
SUBSIDIARY STOCK PLAN
In November 1995, the Company's subsidiary, SurgX Corporation, adopted
stock option plans under which the Board of Directors granted options to
management to purchase Class B common shares in the subsidiary at their
fair market values as determined by the Board of Directors. Class B common
shares authorized for issuance in the subsidiary 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 to be available for
issuance under this stock plan. Such options are not transferable except
in the event of a public offering of the subsidiary's stock or an
acquisition of the subsidiary, 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 this subsidiary will change as a result of future
exercises of stock options and, to the extent this subsidiary contributes
profits, outstanding subsidiary stock options may dilute the Company's
share of profits in the calculation of earnings per share.
At February 28, 1998, there were 304,000 options to purchase shares of
SurgX Corporation class B common stocks of which 161,000 were vested. These
options had an average exercise price of $0.80 and an average remaining
contractual life of 7.4 years.
During fiscal 1998, the Company sold 333,000 Class A shares of SurgX
Corporation for net proceeds of $485,000. At February 28, 1998, there were
10,333,000 Class A common shares of SurgX Corporation outstanding and with
the exception of 333,000 shares of SurgX Corporation sold in fiscal 1998,
all of the subsidiary Class A shares outstanding were owned by the Company.
F-17
<PAGE>
WARRANTS
The following warrants at February 28, 1998, and the number of shares of
the Company's Common Stock which may be purchased at exercise, were
outstanding and exercisable at February 28, 1998:
<TABLE>
<CAPTION>
ORIGINAL ISSUABLE WARRANT WARRANT WARRANT
WARRANTS COMMON COMMENCEMENT EXPIRATION EXERCISE
OUTSTANDING SHARES DATE DATE PRICE
<S> <C> <C> <C> <C>
1,173,900 2,291,495 Apr. 1994 Apr. 1999 $3.50
37,500 37,500 Oct. 1994 Oct. 2004 $2.00
379,000 558,585 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
100,000 100,000 Apr. 1996 Mar. 2001 $1.31
90,730 90,730 Dec. 1996 Dec. 2001 $1.90
40,000 76,000 Dec. 1996 Apr. 1999 $3.50
72,800 72,800 Feb. 1997 Feb. 2002 $1.90
174,546 174,546 Feb. 1998 Feb. 2001 $1.15
--------- ---------
2,891,027 4,224,207
========= =========
</TABLE>
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 ("Underwriters' Warrants") entitling
the holder to purchase from the Company 110,000 units at an exercise price
of $11.55 per unit, subject to dilution provisions. Each unit consisted 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 (also
subject to dilution provisions). As a result of subsequent dilutive
offerings, the Underwriters' Warrants were convertible into 323,916 units
at a exercise price of $3.71 per unit and each underlying warrant was
convertible into 1.9 common shares. During fiscal 1997, 100,000 units were
exercised resulting in proceeds of $371,000. In December 1996, the Company
repurchased and retired the remaining units in exchange for $475,000 and
40,000 warrants to purchase 76,000 shares at $3.50 per warrant, which may
be exercised through April 1999.
In connection with a bridge loan facility described in Note 7, in fiscal
1998 the Company issued to a financial institution 174,546 shares of common
stock exercisable through February 2001 at an exercise price of $1.15.
F-18
<PAGE>
In certain circumstances and defined time frames, the Company may call
certain of the above warrants. The terms of most warrants are subject to
adjustment in certain circumstances including antidilution protection.
10. RESEARCH CONTRACTS AND DEVELOPMENT FUNDING
The Company is party to certain research contracts which are accounted for
on a percentage of completion basis. Revenues and cost of sales recorded
under such contracts totaled $716,000 and $734,000 during fiscal 1998 and
$627,000 and $403,000 during fiscal 1997, respectively.
During fiscal 1998 and fiscal 1997, the Company received development
funding from third parties to assist in the commercialization of certain of
the Company's products. Such funding is recorded as an offset to research
and development expenses when contract specified technical milestones have
been achieved. During fiscal 1998 and fiscal 1997, $1,307,000 and
$1,107,000, respectively, was credited to research and development expenses
under these arrangements.
11. 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 28,
1998, 100% of the accounts receivable balance was due from the lender
described in Note 7.
F-19
<PAGE>
12. INCOME TAXES
Deferred income taxes reflect the tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
and income tax purposes. The Company provides a valuation allowance for
deferred tax assets when it is more likely than not, based on currently
available evidence, that some portion or all of the deferred tax assets
will not be realized. Management believes that the available objective
evidence creates sufficient uncertainly regarding the realizability of
deferred tax assets such that a full valuation allowance is required at
February 28, 1998.
Deferred tax assets (liabilities) comprise the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1998 1997
<S> <C> <C>
Net operating loss carryforwards $ 3,511,000 $ 2,438,000
Inventory reserves 149,000 60,000
R&D credit carryforwards 366,000 330,000
Intangibles - 283,000
Other 600,000 394,000
----------- -----------
Gross deferred tax assets 4,626,000 3,505,000
Fixed assets (36,000) (67,000)
----------- -----------
Net deferred tax assets 4,590,000 3,438,000
Deferred tax assets from discontinued
operations 750,000 763,000
----------- -----------
5,340,000 4,201,000
Valuation allowance (5,340,000) (4,201,000)
----------- -----------
Net deferred tax asset $ - $ -
=========== ===========
</TABLE>
No provision for federal income taxes has been recorded because of losses
incurred.
At February 28, 1998, the Company had federal net operating loss
carryforwards of approximately $9,700,000 which may be utilized to reduce
future taxable income through 2013, subject to certain limitations. In
accordance with section 382 of the Internal Revenue Code, the amounts of
and the benefits from net operating losses that can be carried forward are
limited in certain circumstances, including a cumulative stock ownership
change of more than 50% over a three-year period. The Company's initial
public offering and subsequent private placements have triggered ownership
changes of greater than 50% and, accordingly, the future utilization of tax
carryforwards generated through the date of such offerings are limited.
F-20
<PAGE>
13. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under operating
lease agreements, which expire in various periods through 2002. The
Company also leases certain assets under long-term lease agreements that
are classified as capital leases. The total amount of assets acquired
under capital lease arrangements which are included in property and
equipment is $47,000 and $324,000 and accumulated amortization on such
assets totaled of $14,000 and $107,000, at February 28, 1998 and
February 28, 1997, respectively.
Future minimum lease obligations are payable as follows:
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
YEAR ENDING FEBRUARY LEASES LEASES TOTAL
<S> <C> <C> <C>
1999 $ 21,000 $ 727,000 $ 748,000
2000 9,000 467,000 476,000
2001 - 358,000 358,000
2002 - 116,000 116,000
--------- ------------ ------------
Total minimum lease payments 30,000 $ 1,668,000 $ 1,698,000
Less amount representing interest (2,000) ============ ============
---------
Present value of minimum lease payments 28,000
Less current portion (16,000)
---------
Long-term portion of obligations
under capitalized leases $ 12,000
=========
</TABLE>
Rental expense for the years ended February 28, 1998 and 1997 was $516,000
and $345,000, respectively.
14. SEGMENT INFORMATION
The Company groups its business into two operating segments and a corporate
segment: (i) Instruments and Materials includes specialized materials
produced through a patented bonding process and the Company's electrostatic
discharge and secondary ion mass spectrometer measurement devices; and
(ii) SurgX, a development stage operation that utilizes the Company's
patented technology that protects microchips and related products from
overvoltage.
The segment information has been restated to reflect the discontinuance of
operations of the Power Products segment (see Note 6). All results of
operations relating to the Instruments
F-21
<PAGE>
portion of Instruments and Materials segment prior to its disposition have
been included in the consolidated information (see Note 5).
Consolidated business segment information as of February 28, 1998 and
February 28, 1997, and for each of the years then ended is summarized as
follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenues:
Instruments and Materials
Instruments $ 3,688,000 $ 2,194,000
Materials 4,678,000 4,240,000
SurgX 83,000 36,000
Corporate - -
------------ ------------
$ 8,449,000 $ 6,470,000
============ ============
Operating income/(loss):
Instruments and Materials
Instruments $ (2,319,000) $ (2,651,000)
Materials 1,378,000 1,340,000
SurgX (1,315,000) (880,000)
Corporate (2,250,000) (2,149,000)
------------ ------------
$ (4,506,000) $ (4,340,000)
============ ============
Depreciation and amortization expense:
Instruments and Materials
Instruments $ 312,000 $ 181,000
Materials 43,000 37,000
SurgX 88,000 13,000
Corporate 15,000 17,000
------------ ------------
$ 458,000 $ 248,000
============ ============
Identifiable assets:
Instruments and Materials :
Instruments (see Note 5) $ - $ 3,931,000
Materials 1,518,000 694,000
SurgX 375,000 507,000
Corporate 2,600,000 2,505,000
------------ ------------
4,493,000 7,637,000
Plus: Net assets of discontinued operations 1,060,000 3,900,000
------------ ------------
$ 5,553,000 $ 11,537,000
============ ============
Capital expenditures:
Instruments and Materials :
Instruments (see Note 5) $ 98,000 $ 478,000
Materials 47,000 80,000
SurgX 172,000 317,000
Corporate 4,000 56,000
------------ ------------
321,000 931,000
============ ============
</TABLE>
F-22
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-85556, No. 333-07409, No. 333-13887 and No.
333-62767) and in the Prospectus constituting part of the Registration
Statement on Form S-3 (No. 333-11391, No. 333-23317 and No. 333-63991) of
Oryx Technology Corp. of our report dated May 22, 1998, appearing on Page F-2
of this Annual Report on Form 10-KSB/A2 for the year ended February 28, 1998.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
San Jose, California
October 13, 1998
