<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1998.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______.
Commission file number: 1-12680
ORYX TECHNOLOGY CORP.
(Exact 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 Number)
1100 Auburn Street
Fremont, California 94538
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (510) 492-2080
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
preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No
--- ---
The number of shares outstanding of the issuer's Common Stock as of
November 30, 1998 was 13,205,821.
1
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ORYX TECHNOLOGY CORP.
FORM 10-QSB
Table of Contents
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements and Notes to
Condensed Consolidated Financial Statements..................... 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 9
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds...................... 13
Item 6. Exhibits and Reports on Form 8-K............................... 13
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ORYX TECHNOLOGY CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
November 30, February 28,
1998 1998
----------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,065,000 $ 722,000
Accounts receivable, net 768,000 1,100,000
Inventories 395,000 397,000
Other current assets 221,000 670,000
Net assets of discontinued operations - 1,060,000
------------ ------------
Total current assets 3,449,000 3,949,000
Property and equipment, net 440,000 490,000
Other assets 155,000 1,114,000
------------ ------------
$ 4,044,000 $ 5,553,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ - $ 129,000
Capital lease and other obligations 16,000 16,000
Deferred revenue 576,000 874,000
Accounts payable 458,000 431,000
Accrued liabilities 737,000 998,000
------------ ------------
Total current liabilities 1,787,000 2,448,000
Deferred gain - 646,000
Capital lease and other obligations, less current portion 16,000 12,000
------------ ------------
Total liabilities 1,803,000 3,106,000
------------ ------------
Stockholders' equity:
Series A 2% Convertible Cumulative Preferred Stock 107,000 107,000
Common Stock, 13,205,821 and 13,124,821 issued
and outstanding 13,000 13,000
Additional paid in capital 19,984,000 19,711,000
Accumulated deficit (17,863,000) (17,384,000)
------------ ------------
Total stockholders' equity 2,241,000 2,447,000
------------ ------------
$ 4,044,000 $ 5,553,000
------------ ------------
------------ ------------
</TABLE>
See the accompanying notes to condensed consolidated financial statements.
3
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ORYX TECHNOLOGY CORP.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
---------------------------------- ----------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Revenue $ 1,135,000 2,334,000 3,678,000 6,822,000
Cost of sales 816,000 1,398,000 2,600,000 4,802,000
--------------- --------------- --------------- ---------------
Gross profit 319,000 936,000 1,078,000 2,020,000
--------------- --------------- --------------- ---------------
Operating expenses:
Marketing and selling 45,000 333,000 159,000 942,000
General and administrative 446,000 630,000 1,108,000 2,174,000
Research and development 191,000 350,000 436,000 2,687,000
--------------- --------------- --------------- ---------------
Total operating expenses 682,000 1,313,000 1,703,000 5,803,000
--------------- --------------- --------------- ---------------
Loss from operations (363,000) (377,000) (625,000) (3,783,000)
Interest income (expense), net 32,000 (102,000) 3,000 (148,000)
Net gain on sale of investment (Note 9) 1,383,000 1,383,000
Other Income (Note 10) 146,000 146,000
--------------- --------------- --------------- ---------------
Income (loss) from continuing operations (185,000) 904,000 (476,000) (2,548,000)
--------------- --------------- --------------- ---------------
Loss from discontinued operations - (1,002,000) - (2,765,000)
--------------- --------------- --------------- ---------------
Net loss (185,000) (98,000) (476,000) (5,313,000)
Dividends (2,000) (1,000) (3,000) (2,000)
--------------- --------------- --------------- ---------------
Net loss attributable to Common Stock (187,000) (99,000) (479,000) (5,315,000)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Basic income (loss) per common share from
continuing operations $ (0.01) $ 0.07 $ (0.04) $ (0.19)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Basic loss per common share from
discontinued operations - (0.08) - (0.21)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Basic net income (loss) per common share $ (0.01) $ (0.01) $ (0.04) $ (0.40)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Weighted average common shares used to compute
basic net income (loss) per share (Note 4) 13,157,221 13,124,821 13,135,621 13,124,821
--------------- --------------- --------------- ---------------
Diluted income (loss) per common share from
Continuing operations $ (0.01) $ 0.07 $ (0.04) $ (0.19)
--------------- --------------- --------------- ---------------
Diluted loss per common share from
Discontinued operations - (0.08) - (0.21)
--------------- --------------- --------------- ---------------
Diluted net income (loss) per common share $ (0.01) $ (0.01) $ (0.04) $ (0.40)
--------------- --------------- --------------- ---------------
Weighted average common shares used to compute
diluted net income (loss) per share (Note 4) 13,157,221 13,347,515 13,135,621 13,124,821
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
See the accompanying notes to condensed consolidated financial statements.
4
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ORYX TECHNOLOGY CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
November 30,
-------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss (476,000) (5,313,000)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Loss from discontinued operations - 2,765,000
Depreciation and amortization 122,000 326,000
Non-cash stock compensation charge 91,000 -
Gain on sale of investment - (1,383,000)
Recognized gain on sale of Instruments business (146,000)
Changes in assets and liabilities:
Accounts receivable, net 332,000 863,000
Inventories 2,000 533,000
Other current assets 449,000 (277,000)
Other assets (41,000) (6,000)
Deferred revenue (298,000) -
Accounts payable 27,000 (447,000)
Accrued liabilities (79,000) 424,000
---------------- ----------------
Net cash used in continued operations (17,000) (2,515,000)
Net cash used in discontinued operations (940,000) (1,819,000)
---------------- ----------------
Net cash used in operations (957,000) (4,334,000)
---------------- ----------------
Cash flows from investing activities:
Net proceed from sale of investment - 1,383,000
Capital expenditures (72,000) (280,000)
Proceeds from sale of discontinued operations 2,000,000 -
---------------- ----------------
Net cash provided by investing activities 1,928,000 1,103,000
---------------- ----------------
Cash flows from financing activities:
Sale of note receivable 500,000 -
Repayment of bank line of credit (129,000) -
Proceeds from notes payable 21,000 877,000
Proceeds from exercise of options and warrants for common stock - 693,000
Other (20,000) 3,000
---------------- ----------------
Net cash provided by financing activities 372,000 1,573,000
---------------- ----------------
Net increase (decrease) in cash and cash equivalents 1,343,000 (1,658,000)
Cash and cash equivalents at beginning of period 722,000 2,389,000
---------------- ----------------
Cash and cash equivalents at end of period 2,065,000 731,000
---------------- ----------------
---------------- ----------------
</TABLE>
See the accompanying notes to condensed consolidated financial statements.
5
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ORYX TECHNOLOGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - GENERAL
The information contained in the following Notes to Condensed Consolidated
Financial Statements is condensed; accordingly, the financial statements
contained herein should be reviewed in conjunction with the Company's Form
10-KSB, as amended for the year ended February 28, 1998.
The results of operations for the interim periods presented are not
necessarily indicative of the results expected for the entire year.
The financial information for the periods ended November 30, 1998 and 1997
included herein is unaudited but includes all adjustments which, in the
opinion of management of the Company, are necessary to present fairly the
financial position of the Company and its subsidiary at November 30, 1998,
and the results of their operations and cash flows for the three and nine
month periods ended November 30, 1998 and November 30, 1997.
NOTE 2 - STOCKHOLDERS' EQUITY
On August 11, 1998, the Company entered into a seventeen month Marketing
Agreement (the "Agreement") to receive investor relation services from
Continental Capital. The Company will issue to Continental Capital up to
202,500 shares of common stock in consideration for services to be received.
At November 30, 1998, 81,000 shares of common stock have been issued, and the
additional 121,500 shares can be issued subject to satisfaction of certain
escrow provisions. In addition, a warrant to purchase 60,000 shares of common
stock at $1.09 per share with a two-year term was issued to Continental
Capital. The Company is recognizing expense as the services are received, and
recorded $46,000 in expense from inception of the agreement to November 30,
1998.
NOTE 3 - INVENTORIES
The components of inventory were as follows:
<TABLE>
<CAPTION>
November 30, February 28,
1998 1998
---------------- -----------------
<S> <C> <C>
Raw materials $ 98,000 $ 84,000
Finished goods 297,000 313,000
---------------- -----------------
---------------- -----------------
$ 395,000 $ 397,000
---------------- -----------------
---------------- -----------------
</TABLE>
6
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NOTE 4 - INCOME (LOSS) PER SHARE
Basic earnings per share is computed by dividing income or 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 options, warrants, and preferred stock.
Due to the net losses from operations incurred for the three and nine month
periods ended November 30, 1998 and nine months ended November 30, 1997, all
common stock securities outstanding were considered anti-dilutive and were
excluded from the calculations of diluted net loss per share. Net income
(loss) has not been adjusted for any period presented for purposes of
computing basic and diluted earnings per share. Anti-dilutive securities and
common stock equivalents at November 30, 1998 which could be dilutive in
future periods include common stock options to purchase 2,821,000 shares of
common stock, warrants to purchase 4,439,000 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.
NOTE 5 - CREDIT FACILITY
In March 1998, the Company amended its credit facility reducing the Accounts
Receivable Revolving Batch Facility and Inventory Credit Line from $4,000,000
and $1,500,000 respectively, to a maximum borrowing of $500,000 each. Under
the amended agreement, the Accounts Receivable Revolving Batch Facility
expires in March 1999 and the Inventory Credit Line expires in August 1999.
At November 30, 1998, the Company did not have amounts outstanding under
either the Accounts Receivable Revolving Batch Facility or the Inventory
Credit Line.
NOTE 6 - COMPREHENSIVE INCOME
In March 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." Comprehensive
income, as defined, includes all changes in equity during a period from
non-owner sources including unrealized gains and losses on available-for-sale
securities. There is no difference between net loss attributable to common
stock and comprehensive loss for all periods presented.
NOTE 7 - NEW ACCOUNTING STANDARD
In June 1997, the FASB issued SFAS No. 131 ("SFAS 131"), "Disclosure about
Segments of an 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
on the Company's consolidated financial statement disclosures.
NOTE 8 - DISPOSITION
On March 2, 1998, the Company sold substantially all of the properties,
assets, rights, business and certain liabilities of its Oryx Power Products
Corporation subsidiary ("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.
As the Company had a loss on disposal, all losses were recognized as if the
transaction was completed as of February 28, 1998. The sale of the Power
Products business has been accounted for as a discontinued operation, and
accordingly, the net assets held for sale and operating results of Power
Products for the fiscal year ended February 28, 1998 and nine months ended
November 30, 1997 were segregated and reported as discontinued operations. At
November 30, 1998, the Company had not yet recorded any additional
consideration related to the sale of Power Products as the sales
contingencies conditions required for such additional consideration had not
been met.
7
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NOTE 9 - SALE OF SECURITIES OF DAS DEVICES ON FISCAL 1998
During the third quarter ended November 30, 1997, the Company sold 2,000,000
Series A Preferred shares of DAS Devices, Inc. for a total consideration of
$1,400,000, resulting in a gain of approximately $1,383,000.
At November 30, 1998, the Company continues to hold 2,000,000 Series A
Preferred shares and 800,000 shares of Common Stock of DAS Devices, Inc. The
Company accounts for its investment in DAS Device, Inc. under the cost method
and has $15,000 cost as the remaining balance of its investment.
NOTE 10 - SALE OF NOTE PAYABLE AND HOLDINGS
On November 24, 1998, the Company sold to a third party 1,000,000 shares of
Class A Common Stock of Oryx Instruments and Materials Corporation ("OIMC"
also known as "I&M") owned by the Company and a $1,000,000 note receivable
from OIMC for a cash payment of $500,000. In connection with the sale, the
Company recognized a deferred gain of $646,000, resulting from the prior
disposition of OIMC Class A Common Stock shares, which was initially deferred
until receipt occurred of payments under the $1,000,000 note receivable.
Prior to this transaction, the Company's investment in OIMC was fully
reserved. As a result of the transaction, the Company recognized a net gain
of $146,000, which is included in other income.
At November 30, 1998, the Company continues to hold 1,000,000 shares of Class
A Common Stock of OIMC representing approximately a 10% ownership interest in
OIMC. The Company accounts for its investment in OIMC under the cost method
and has fully reserved the remaining cost balance.
8
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion and analysis is designed to be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations set forth in the Company's Form 10-KSB, as amended, for the fiscal
year ended February 28, 1998.
Some of the information in this report, including the discussion of the
Company's strategy, and various statements concerning the Company's plans for
expansion and expectations for growth constitute 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 a result of the risks and uncertainties described under the
caption "Risk Factors" set forth in Part I of the Company's Form 10-KSB, as
amended, and those identified by the Company from time to time in other
filings with the Securities and Exchange Commission (the "Commission"), press
releases and other communications.
In addition to an analysis of recent and historical financial results, the
Form 10-KSB, as amended, includes an analysis of certain of the risks of the
Company's business, including risks relating to the competitive environment
in which the Company operates. Although the Company has sought to identify
the most significant risks to its business, the Company cannot predict
whether or to what extent any of such risks will be realized nor can there be
any assurance that the Company has identified all possible problems that the
Company might face. All investors should carefully read the Form 10-KSB, as
amended, together with this Form 10-QSB, and the Company's other public
filings, and consider all such risks before making an investment decision
with respect to the Company's securities.
BUSINESS SEGMENTS
During fiscal 1998, the Company embarked upon a major restructuring program
that resulted in the sale on February 27, 1998 of the Instruments business
segment of Oryx Instruments and Materials Corporation, and the sale on March
2, 1998 of substantially all the assets and the business of Oryx Power
Products Corporation. Following this restructuring, the Company organized
itself into two operating segments: SurgX Corporation and a Materials
business segment. In addition, a corporate segment includes certain
activities that are not related to any other operations. The operating
businesses are as follows:
<TABLE>
<CAPTION>
Segment/Subsidiary Businesses
------------------ ----------
<S> <C>
SurgX Corporation - Surge Protection Components
Materials - Sputtering Target Assemblies
</TABLE>
In the course of selling the business units described above, the Company
disposed of business segments that had accounted for a substantial majority
of its revenues. The Company believes that this downsizing has substantially
reduced its losses and the resulting operations will provide capital to
support on-going development activities; however, the actual future impact of
the downsizing cannot be determined with any certainty.
Operating results for the Instruments business segment, sold February 27,
1998, are reflected in the financial statements for the three and nine months
periods ended November 30, 1997. Therefore, for comparison purposes only,
operating results for the Instruments business segment for the nine months
ended November 30, 1997 are identified below:
9
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<TABLE>
<CAPTION>
Nine Months Pro Forma
Ended Nine Months Ended
November 30, 1998 November 30, 1997
------------------ ----------------------------------------------------------------
Oryx Oryx Technology Instruments Pro Forma
Technology Consolidated Business Segment Oryx Technology
Consolidated without
Instruments Business
------------------- ------------------ ------------------ --------------------
<S> <C> <C> <C> <C>
Revenues $3,678,000 $6,822,000 $ 2,944,000 $ 3,878,000
Cost of sales 2,600,000 4,802,000 2,307,000 2,495,000
------------------- ------------------ ------------------ --------------------
Gross Profit 1,078,000 2,020,000 637,000 1,383,000
Operating expenses:
Marketing and sales 159,000 942,000 866,000 76,000
General and administrative 1,108,000 2,174,000 317,000 1,857,000
Research and development 436,000 2,687,000 1,300,000 1,387,000
------------------- ------------------ ------------------ --------------------
Total operating expenses 1,703,000 5,803,000 2,483,000 3,320,000
Loss from operations $ (625,000) $(3,783,000) $(1,846,000) $(1,937,000)
------------------- ------------------ ------------------ --------------------
------------------- ------------------ ------------------ --------------------
</TABLE>
RESULTS OF OPERATIONS
For the quarter ended November 30, 1998, revenues decreased by $1,199,000 or
51% from $2,334,000 for the quarter ended November 30, 1997, to $1,135,000
for the quarter ended November 30, 1998. Revenues for the nine months ended
November 30, 1998 decreased $3,144,000 or 46% from $6,822,000 for the nine
months ended November 30, 1997 to $3,678,000 for the nine months ended
November 30,1998. The decrease in revenues for both periods is primarily
related to the loss of sales from the previously sold Instruments business
segment.
For government research and development contracts included in consolidated
revenue and cost of sales, the Company recognized $73,000 and $412,000 of
revenue and $127,000 and $572,000 of cost of sales for the three and nine
months ended November 30, 1998, respectively. This compares to $247,000 and
$508,000 of revenue and $193,000 and $376,000 of cost of sales recognized
under government contracts for the three and nine months ended November 30,
1997, respectively. The Company does not expect significant revenue from
government contracts for the rest of the fiscal 1999, due to the completion
of outstanding projects.
The Company's gross profit decreased from $936,000 for the quarter ended
November 30, 1997, to $319,000 for the quarter ended November 30, 1998,
representing a decrease of $617,000 or 66%. Gross profit decreased by
$942,000 or 47% from $2,020,000 for the nine months ended November 30, 1997
to $1,078,000 for the nine months ended November 30, 1998. The decrease in
gross profit for both periods is primarily attributable to the loss of gross
profit contribution from the Instruments business segment.
Marketing and selling expenses decreased from $333,000 for the quarter ended
November 30, 1997, to $45,000 for the quarter ended November 30, 1998,
representing a decrease of $288,000 or 86%. Marketing and selling expenses
decreased by $783,000 or 83% from $942,000 for the nine months ended November
30, 1997 to
10
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$159,000 for the nine months ended November 30, 1998. The decrease in both
periods is primarily due to the reduction of marketing and sales expenses
directly related to the Instruments business segment.
General and administrative expenses decreased from $630,000 for the quarter
ended November 30, 1997, to $446,000 for the quarter ended November 30, 1998,
representing a decrease of $184,000 or 29%. General and administrative
expenses decreased by $1,066,000 or 49% from $2,174,000 for the nine months
ended November 30, 1997 to $1,108,000 for the nine months ended November 30,
1998. The decrease in general and administrative expenses in both periods is
due to an overall reduction in expenses of supporting the new organization
structure and the reduction in general and administrative costs directly
associated with the Instruments business segment.
Research and development expenses decreased from $350,000 in the quarter
ended November 30, 1997, to $191,000 for the quarter ended November 30, 1998,
representing a decrease of $159,000 or 45%. Research and development expenses
decreased $2,251,000 or 84% from $ 2,687,000 for the nine months ended
November 30, 1997 to $436,000 for the nine months ended November 30, 1998.
Decreases in research and development spending for the three months ended
November 30, 1998 were primarily as a result of the elimination of research
and development expenses associated with the Instruments business segment.
Decreases in research and development spending for the nine months ended
November 30, 1998 were primarily as a result of the elimination of research
and development expenses associated with the Instruments business segment and
the elimination of SurgX development activities related to on-chip
(integrated circuit) ESD protection.
Development funding from non-government third parties, that the Company
records as an offset to its research and development expenses, decreased from
$541,000 for the nine months ended November 30, 1997 to $255,000 for the nine
months ended November 30, 1998 representing a decrease of $286,000. During
the three months ended November 30, 1998, there was no development funding
recorded from non-government third parties, compared to $511,000 for the
quarter ended November 30, 1997. This decrease is attributed to full
utilization of the $1.7 million in development funds received between
September 1997 and March 1998.
During the third quarter ended November 30, 1997, the Company sold 2,000,000
Series A Preferred shares of DAS Devices, Inc. for a total consideration of
$1,400,000 resulting in a gain of approximately $1,383,000. At November 30,
1998, the Company continues to hold 2,000,000 shares of Series A Preferred
shares and 800,000 shares of Common Stock of DAS Devices, Inc. The Company
accounts for its investment in DAS Device, Inc. under the cost method and has
$15,000 cost as the remaining balance of its investment.
On March 2, 1998, the Company sold substantially all of the properties,
assets, rights, business and certain liabilities of its subsidiary OryxPower
Products Corporation. As the Company had a loss on disposal, all losses were
recognized as if the transaction was completed as of February 28, 1998. The
sale of Power Products has been accounted for as a discontinued operation,
and accordingly, the operating results of Power Products for the nine months
ended November 30, 1998 and 1997 were segregated and reported as discontinued
operations.
The Company continues to focus its development activities on improvements in
electrical performance and reductions in manufacturing costs for its SurgX
technology. The Company believes these development efforts must be successful
in order to enhance the commercial viability of this technology. While the
Company believes it has financial and technical resources to support these
activities through fiscal 1999, there can be no assurance that these
technological improvements can be commercially developed, or that, if
developed, will actually increase the commercial viability of the SurgX
technology. While the Company is actively pursuing new development funding
contracts to offset costs of current development activities, there can be no
assurance that the Company will be successful in this endeavor.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased by $161,000 or 11% from a surplus of
$1,501,000 at February 28, 1998 to a surplus of $1,662,000 at November 30,
1998. Cash and cash equivalents increased by $1,343,000 or 186% from $722,000
for the year ended February 28, 1998 to $2,065,000 for the quarter ended
November 30, 1998. This increase in cash and cash equivalents is primarily
due to net proceeds from the sale of the business of Oryx Power
11
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Products Corporation and the Instruments business segment. The $476,000 net
loss from continuing operations for the nine months ended November 30, 1998,
was offset by non-cash items and working capital changes.
On November 24, 1998, the Company sold 1,000,000 shares of Class A Common
Stock of Oryx Instruments and Materials Corporation ("OIMC" or also known as
"I&M") owned by the Company and a $1,000,000 note receivable from OIMC in
exchange for a cash payment of $500,000 (see Note 10).
In March 1998, the Company amended its credit facility reducing the Accounts
Receivable Revolving Batch Facility and Inventory Credit Line from $4,000,000
and $1,500,000 respectively, to a maximum borrowing of $500,000 each. Under
the amended agreement, the Accounts Receivable Revolving Batch Facility
expires in March 1999, and the Inventory Credit Line expires in August 1999.
At November 30, 1998, the Company did not have amounts outstanding under
either the Accounts Receivable Revolving Batch Facility or the Inventory
Credit Line.
Management believes it has sufficient capital to meet its fiscal year 1999
operating plan.
YEAR 2000 UPDATE
Many currently installed computer systems, software products and other
equipment utilizing microprocessors are coded to accept only two digit
entries in the date code field. These date code fields will need to accept
four digit entries to distinguish twenty-first century dates from twentieth
century dates. This is commonly referred to as the "Year 2000 issue."
The Company is aware of the Year 2000 issue and has commenced a program to
identify, remediate, test and develop plans to address the Year 2000 issue.
The Company has no legacy mainframe or mini-computer systems. Its corporate
networks and computing hardware operate exclusively on Novell Netware and
Microsoft Windows Operating Systems. The Company relies on its fully
integrated Macola Progression MIS system for all accounting, manufacturing,
and procurement functions. The Company does not currently make use of EDI or
other forms of electronic data exchange (other than e-mail) with any of its
customers, business partners, financial institutions or suppliers. Further,
the Company has no substantial data collections, automated manufacturing, or
automated testing systems which could be materially adversely affected by
Year 2000 problems.
As of November 30, 1998, the Company had completed several Year 2000
projects, including upgrades of its Novell Network Operating Systems and tape
backup software, evaluation of workstations for Year 2000 compliance,
evaluation of the Company's MIS system and testing of beta software for the
MIS system, evaluation of the Company's email and servers, evaluation of
network routing, interconnect, and firewall hardware and software compliance
and evaluation of the Company's telephone and voicemail equipment. The
Company's review of the Year 2000 issue with respect to its internal systems
preliminarily indicates no material problems.
As of November 30, 1998, the following Year 2000 projects are in process:
completion of the new email system and the conversion of email from the old
system, installation of Netcellent (MACOLA) V6.7 MIS system update to convert
all databases to Year 2000 compliant formats (expected completion date is
January 1999), development of a list of critical vendors and identification
of any material vendor problems (expected completion is March 1999) and
evaluation of equipment containing embedded controllers (ongoing during 1998
and 1999). As of November 30, 1998, the Company's aggregate expenditures
(excluding employee costs) in connection with Year 2000 compliance has been
less than $10,000 and the Company estimates the total cost of its Year 2000
projects will be approximately $50,000.
The Company has also initiated discussions with Bussmann and Iriso, the
Company's two primary licensees, with respect to their state of readiness for
year 2000. The Company has not yet completed its evaluation of Year 2000
compliance by Bussmann and Iriso and, upon completion of such review, will
develop contingency plans if Bussmann or Iriso is not Year 2000 compliant.
12
<PAGE>
The Company currently does not anticipate that the cost of Year 2000
compliance will be material to its financial condition or results of
operations. However, satisfactorily addressing the Year 2000 issue is
dependent on many factors, some of which are not completely within the
Company's control. Should the Company's internal systems or the internal
systems of one or more significant vendors, manufacturers or suppliers fail
to achieve Year 2000 compliance, the Company's business and its results of
operations could be adversely affected. The failure to correct a material
Year 2000 problem could result in an interruption in, or failure of, certain
normal business activities or operations. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of
the Year 2000 readiness of third-party suppliers and customers, the Company
is unable to determine at this time whether the consequences of Year 2000
failures will have a material impact on the Company's results of operations,
liquidity or financial condition. However, in the event that the Company's
primary licensees, Bussmann and Iriso, or their respective customers or
vendors suffer a material interruption in business activity due to computer
malfunctions resulting from Year 2000 noncompliance, licensing revenues to
the Company from Bussmann and/or Iriso and the Company's financial condition
could be materially adversely affected. The Company's Year 2000 compliance
project is expected to significantly reduce the Company's level of
uncertainty about the Year 2000 issue and, in particular, about the Year 2000
compliance and readiness of third parties it deals with. The Company believes
that, with the implementation of new business systems and completion of the
project as scheduled, the possibility of significant interruptions of normal
operations should be reduced.
Readers are cautioned that forward-looking statements contained in the Year
2000 Update should be read in conjunction with the Company's disclosures
about forward-looking statements in Item 2 above.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 11, 1998, the Company entered into a seventeen month Marketing
Agreement (the "Agreement") to receive investor relation services from
Continental Capital. The Company will issue to Continental Capital up to
202,500 shares of common stock in consideration for services to be received.
At November 30, 1998, 81,000 shares of common stock have been issued, and the
additional 121,500 shares can be issued subject to certain escrow provisions.
In addition, a warrant to purchase 60,000 shares of common stock at $1.09 per
share with a two-year term was also issued. The Company is recognizing
expense as the services are received, and has recorded $46,000 expense from
inception of the agreement to November 30, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
1. The Annual Meeting of Stockholders of Oryx Technology Corp. was held at
the Company's administrative offices, located at 1100 Auburn Street,
Fremont, California, on Monday, October 26, 1998 at 10:00 a.m.
2. Out of 13,034,821 shares of Common Stock and 4,500 shares of Series A
Preferred Stock entitled to vote at such meeting, there were present in
person or by proxy 9,650,813 shares.
3. The vote for the nominated directors was as follows:
<TABLE>
<CAPTION>
NOMINEE IN FAVOR WITHHELD
- ------- -------- --------
<S> <C> <C>
Phillip Micciche 9,520,538 130,275
Mitchel Underseth 9,520,538 130,275
Andrew Intrater 9,520,538 130,275
John H. Abeles 9,520,538 130,275
Jay M. Haft 9,520,538 130,275
Richard Hubbard 9,520,538 130,275
Doug McBurnie 9,520,538 130,275
Ted D. Morgan 9,520,538 130,275
</TABLE>
4. Ratification of Selection of Independent Auditors.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
9,573,575 53,938 23,300
</TABLE>
5. Amendment of the Company's 1993 Incentive and Non-Qualified Stock Option
Plan increasing the number of shares authorized to be issued under the
Plan to 3,625,000 from 2,625,000.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
2,348,533 758,740 73,250
</TABLE>
6. Amendment of the Company's 1996 Directors Non-Qualified Stock Option
Plan increasing the number of shares authorized to be issued under the
Plan to 250,000 from 120,000.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
2,489,965 776,940 74,870
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description of Document
----------- -----------------------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
During the quarter ended November 30, 1998, the Company filed
a Current Report on Form 8-K.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ORYX TECHNOLOGY CORP.
Dated: January 14, 1999 By: /s/ Philip J. Micciche
----------------------
Philip J. Micciche
Principal Executive Officer
/s/ Mitchel Underseth
----------------------
Mitchel Underseth
Principal Financial and Accounting Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ORYX TECHNOLOGY CORP. FOR THE NINE MONTHS ENDED
NOVEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> NOV-30-1998
<CASH> 2,065,000
<SECURITIES> 0
<RECEIVABLES> 924,000
<ALLOWANCES> 156,000
<INVENTORY> 395,000
<CURRENT-ASSETS> 3,449,000
<PP&E> 872,000
<DEPRECIATION> 432,000
<TOTAL-ASSETS> 4,044,000
<CURRENT-LIABILITIES> 1,787,000
<BONDS> 0
0
107,000
<COMMON> 19,997,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,044,000
<SALES> 3,678,000
<TOTAL-REVENUES> 3,678,000
<CGS> 2,600,000
<TOTAL-COSTS> 4,303,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,000)
<INCOME-PRETAX> (476,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (476,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (479,000)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
