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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended February 28, 1999
OR
[_] TRANSITION REPORT UNDER 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.
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(Name of small business issuer in its charter)
Delaware 22-2115841
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 Auburn Street, Fremont, California 94538
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(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number, including area code: (510) 492-2080
Securities registered under Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $.001 par value NASDAQ
Common Stock Purchase Warrants NASDAQ
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
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(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
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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. / /
Issuer's revenues from continuing operations for its most recent fiscal
year were $4,642,000.
As of April 30, 1999, 15,261,439 shares of Common Stock and Preferred
Stock convertible into 43,750 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, 1999: $2-3/16 and $2-1/4 quoted by the National Association
of Securities Dealers Automated Quotation System ("NASDAQ"), was approximately
$30,815,662.1
Transitional Small Business Disclosure Format (check one): Yes / / No /X/
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to stockholders in
connection with the 1999 Annual Meeting of Stockholders are incorporated by
reference into Part III.
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(1) For purposes of this Report, shares held by non-affiliates were
determined by aggregating the number of shares held by officers and directors of
the Registrant, and by others who, to Registrant's knowledge, own 5% or more of
Registrant's Common Stock, including shares of Preferred Stock convertible into
Common Stock, and subtracting those shares from the total number of shares
outstanding. The price quotations supplied by NASDAQ
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represent prices between dealers and do not include retail mark-up, markdown or
commission and do not represent actual transactions.
This Annual Report on Form 10-KSB contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
particularly statements regarding market opportunities, market share growth,
competitive growth, new product introductions, success of research and
development, research and development expenses, customer acceptance of new
products, gross margin and selling, general and administrative expenses. These
forward-looking statements involve risks and uncertainties, and the cautionary
statements set forth below identify important factors that could cause actual
results to differ materially from those predicted in any such forward looking
statements. Such factors include, but are not limited to, adverse changes in
general economic conditions, including adverse changes in the specific markets
for the Company's products, adverse business conditions, adverse changes in
customer order patterns, increased competition, lack of acceptance of new
products, pricing pressures, lack of success in technological advancement, risks
associated with sales to foreign customers (including the downturn of economic
trends and unfavorable currency movements in the Asia Pacific marketplace),
risks associated with the Company's efforts to comply with Year 2000
requirements, and other factors, such as those listed below.
PART I
BUSINESS
Item 1. DESCRIPTION OF BUSINESS
Introduction
Oryx Technology Corp. ("Oryx" or the "Company") is the successor of
Advanced Technology, Inc. ("ATI"), which 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 with and into the Company.
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The Company restructured its operations during fiscal 1998. Through
fiscal 1998, the Company designed, manufactured and marketed 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. Through fiscal 1998, the Company operated three majority owned
subsidiaries, as depicted below, focusing on three distinct market segments: (i)
power conversion products (Oryx Power Products Corporation), (ii) electrical
surge protection products (SurgX), and (iii) materials analysis and test
equipment and specialized materials products (Oryx Instruments and Materials
Corporation). During the later part of fiscal 1998 the Company embarked upon a
major restructuring program which resulted in the sale on February 27, 1998 of
the test equipment portion of the business of Oryx Instruments and Materials
Corporation ("Instruments and Materials") and on March 2, 1998 the sale of
substantially all of the business of Oryx Power Products Corporation in its
entirety.
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Oryx Technology
Corp.
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Oryx Oryx Instruments
Power Products Surgx and Materials
Corporation Corporation Corporation
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- - Power Conversion Products - Surge Protrection - Instruments (Test Equipment)
- - Contract Manufacturing Components - Specialized Materials
- Contract R&D
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Effective with the 1999 fiscal year (beginning March 1, 1998), the
Company restructured itself as a specialized materials-based business as
depicted below, designing, licensing and selling its proprietary technologies
to provide electrostatic discharge (ESD) protection and to coat materials
used in the disk drive industry (with Intragene, a patented process, and
other ceramic metallization and joining system products).
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Oryx Technology
Corp.
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Materials Division SurgX Corporation
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- - Specialized Materials - Electrostatic Discharge
- - Contract R&D Protection Components
Oryx's customer base for its current product lines includes the
following OEMs: Cooper Bussmann, ("Cooper Bussmann") and Iriso Electronics, Co.
LTD, a Japanese connector manufacturer ("IRISO"), which are licensees for the
proprietary SurgX(TM) technology, Heraeus Precision Engineering PTE, LTD,
Matsubo Company LTD, Max Media Corporation Technology Inc., Seagate Technology,
Inc., Western Digital Corp., and Western Digital Media Corporation. The
following customers individually represented more than 10% of the Company's
total revenue and, as a group, represented 70% of the Company's revenue for the
year ended February 28, 1999: Heraeus Precision Engineering PTE, LTD, Matsubo
Company LTD, Max Media Corporation Technology, Inc. and Western Digital
Corporation. The Company currently plans to market its existing product lines to
these and other OEMs during fiscal 2000.
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SURGX CORPORATION
SurgX Corporation ("SurgX") is currently the subsidiary through which
the Company designs, manufactures and sells its surge protection products and
technology. The underlying technologies developed by SurgX are currently
licensed exclusively to two licensees, Cooper Bussmann and IRISO. Products
manufactured by these licensees and utilizing SurgX's proprietary technology are
targeted to be sold to OEMs in the computer, communication, and electronics
industries to provide protection against electrostatic discharge (ESD) events
through connectors and discrete devices at the printed circuit board level.
Business Overview
In 1993, the Company assembled a product design team for the development
and manufacture of a family of specialized components designed to protect
against electrostatic discharge for integrated circuits, integrated circuit
modules, and assembled printed circuit boards. The Company completed preliminary
prototype development of a product utilizing its SurgX(TM) technology in fiscal
1995, and first production releases of product incorporating SurgX technology
were shipped by the Company's licensee, Cooper Bussmann, at the beginning of
calendar year 1998. Only limited volume shipments of surface mount devices
utilizing SurgX technology have been shipped to date as the Company's licensees
are in the process of implementing high volume manufacturing.
The proprietary SurgX 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 at different voltage and power levels. In calendar 1996,
the formulation originally designed in 1994 was modified to fit unique
requirements of the Cooper Bussmann manufacturing process, and to improve
response voltage performance. In calendar 1998, the formulation and
manufacturing process was modified to accommodate new high volume, low cost
manufacturing process currently being implemented by both Cooper Bussmann and
IRISO.
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Market for the Company's Technologies
As the information technology industry increases capacity and
performance, it is requiring faster speeds, smaller chip geometries and lower
operating voltages. These developments have been accompanied by increases in
product susceptibility to failures from over-voltage threats mainly from ESD.
Failure to address these problems can result in the destruction of chips and
circuitry. These threats can originate from inside or outside the products
and can arise from such factors as ESD, induced lightning effects, spurious
line transients and other complex over-voltage sources. During the last
decade, new products have emerged to address protection of integrated
circuits from ESD. Related specialized products range from wrist straps worn
by electronics assembly workers, to special anti-static packaging of both
components and sub-assemblies as well as board level protection devices such
as diodes and varistors.
The global market for all over-voltage protection devices currently
is estimated at $1.9 billion and includes some more mature "TVS" (Transient
Voltage Suppression) devices such as gas discharge tubes, varistors, and
diodes. The major markets targeted for new surge protection devices and
technologies such as those represented by the Company's technology are
telecommunication, automotive and computers. Sales of surge protection
devices are divided among varistors (40%), diodes (40%), and gas discharge
tubes and surge resistor networks (20%).
Gas discharge tubes, varistors, and diodes are all used as protection
from over-voltage transients. The Company's SurgX(TM) technology is a new
polymer based technology, used to protect against over-voltage transients.
Gas discharge tubes are traditionally used for protection of signal
lines such as phone lines, computer data line communications and antennae
because low capacitance of the tubes does not interfere with the band width
of high frequency communication circuits. Gas discharge tubes are also used
for the protection of AC powerlines since they can handle high currents. Gas
discharge tubes are inherently bipolar, have low capacitance, in the .5 to
2pF range, and handle the high currents in the 5 to 20,000 amps range. A
negative attribute of the gas discharge tubes is their slow turn on, which
allows some of the over voltage pulse to get through and damage sensitive
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electronics, and conversely, the difficulty in turning off after the transient
has ended.
Varistors are typically used for protection of electronic components
from transients generated on the power lines supplying electronic systems. The
varistor is bipolar in nature but has the largest capacitance of the common
overvoltage protection devices, commonly ranging between 200 to 10,000pF. As
long as the varistor is large enough, it can handle high currents. Varistors'
typical response times cited are slow.
Diodes offer the tightest clamping voltage and fastest response times of
standard over-voltage protection devices. For this reason, diodes have been the
preferred over-voltage protection device for Integrated Circuits protection at
the board level. Diodes are used extensively on signal lines, and on printed
circuit boards used in communications, computer, industrial and automotive
electronics. Diode response times are one nanosecond or less, capacitances are
commonly greater than 10 to 100's of pF, and the response to voltages is
unidirectional. Diodes include Zener diodes, silicon avalanche diodes, and
sidactors. In some specific instances switching diodes may also be used as
transient voltage surge diodes, although these are not true suppressors and are
offered as low cost alternatives to Zeners and silicon avalanche diodes.
SurgX is an over-voltage protection component, which is designed for
extensive use on printed circuit boards. It addresses many of the same
applications as diodes. Like the Varistor and the Gas Discharge Tubes, SurgX is
bipolar in nature, allowing a single SurgX component to replace two diode
devices. The capacitance of SurgX devices is typically less than one pF, lower
than that of any of the standard overvoltage protection components it is
intended to replace. SurgX devices can therefore be used at high frequencies
without interfering with signal transmission. The low capacitance is
particularly important as the frequencies of today's electronics go beyond 10
mega hertz. Over-voltage devices with capacitances greater than 10 pF interfere
with megahertz signals. The slow response time of the gas discharge tubes
prohibits their use for ESD protection of signal lines, even though they have
the low capacitance required.
SurgX can be used as a diode replacement in ESD over-voltage transient
applications since it has nanoseconds response, with a fold back trigger
response similar to a sidactor diode, low
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capacitance, a very small footprint, lower leakage current than either a diode
or a varistor, and high current shunting capability. In larger packages with
larger electrodes, the energy handling capability of SurgX increases, thereby
allowing its use in applications such as modems, where gas discharge tubes and
varistors would typically be used.
Though proven for performance and reliability, each of the
traditional over-voltage protection 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 methodologies are
expensive for use on all signal lines on a given circuit board. SurgX
components are intended to address the low cost, low capacitance needs
required for signal line protection in electronics. The major suppliers for
traditional over-voltage protection products include General Semiconductor,
Harris Semiconductor, Inc., Motorola Corp., AVX, and Siemens Components, Inc.
Primary Market Segment
The discrete TVS diode is the primary market addressed by SurgX. This
market is forecasted to be approximately $900 million in calendar 1999 with
an estimated forecast annual average growth rate of 8% in terms of dollar
value, and 11% in terms of unit volume, through 2003. To a lesser extent,
SurgX will seek to participate in the varistor market, which is approximately
the same size as the diode segment. Within these markets the most important
use criteria tends to be cost. After cost, the level of capacitance, response
time, size, energy handling and leakage current are important criteria. It is
the latter criteria on which SurgX will initially compete. The low
capacitance requirement of ESD protection devices in many circuit designs
will provide the initial entry into the diode market segment. If low cost
manufacturing processes in development by Oryx's licensees are successful,
the Company anticipates that production costs should be competitive with
diode product costs, thereby allowing SurgX products to compete directly
against diodes on price.
The Company believes that its technology has competitive advantages over
traditional over-voltage protection devices. These include lower capacitance,
smaller footprint on the board and potential lower cost. Further, Surgx has a
hidden price advantage relative to a diode, because one bi-directional SurgX
component does the function of two unidirectional diodes. However, there can be
no assurances that customers will value the
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advantages of SurgX(TM) technology such that they will change from the current
over-voltage protection devices in use.
Product Development
SurgX's approach to the market had consisted of two parallel product
paths: on board-level ESD protection and on-chip ESD protection.
Its first product group is based on board-level ESD protection,
incorporating SurgX's liquid polymer-based material into discrete ESD
protection components. SurgX is focusing substantially all development
efforts in the first product group. In calendar 1998 these products were
produced and sold to end users in limited quantities by Cooper Bussmann. Due
to market demand for high volume low cost components, in calendar 1999 both
IRISO and Cooper Bussmann, with the assistance of SurgX, have focussed on
developing low cost manufacturing processes capable of producing up to 100
million units per month. In calendar 1999, IRISO launched a SurgX component
in a standard passive component package style, its 0805 package. Similarly in
calendar 1999, Cooper Bussmann through the use of an Asian contract
manufacturer downsized the SurgX 1206 surface mount product and adopted the
smaller 0805 footprint package. IRISO and Cooper Bussmann are looking to
launch SurgX into the diode segment of the over-voltage suppression market
provided that they succeed in implementing low cost volume manufacturing
capabilities.
Oryx's second product group, SurgTape, was to provide on-chip protection
by placing SurgX-based tape inside the IC package on the leadframe. This product
has not been commercially developed. Consequently, limited development efforts
have shifted to adoption of SurgTape for custom applications such as
connector insert arrays to protect against ESD being introduced through the
printed circuit board on incoming signal lines and sensitive disk drives head
assemblies by laminating SurgTape to the drive's flexible printed circuit.
Competition
Other than conventional manufacturers of over-voltage transient
protective devices, the main competitor to SurgX and the Company's licensees,
Cooper Bussman and IRISO, is Littlefuse, Inc. which recently announced a
polymer base over-voltage protection product, which compete directly with
SurgX products. As SurgX components become price competitive and available in
high volumes, SurgX will attempt to compete with conventional over-voltage
transient protection manufacturers such as General Semiconductor, Motorola
Corp., and AVX.
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Channels of Distribution
In fiscal year 1996, the Company undertook a strategic review of the
SurgX business. The Company determined that it would be more efficient to
establish a relationship with one or more experienced corporate partners who
could provide the necessary high volume manufacturing and distribution channels.
In fiscal year 1997, an exclusive, world wide (except for Japan)
license was granted to Cooper Bussmann for the manufacture and marketing of
surface mount and connector array components using the SurgX(TM) technology.
In consideration for this license, Cooper Bussmann paid $750,000 in
development funding, and, subject to terms of the license agreement, was
obligated to pay royalties for approximately 11 years to SurgX based upon
Cooper Bussmann's sales of SurgX surface mount components and connectors. In
September of 1997, this license agreement was amended, extending its term to
20 years, expanding the licensed rights to Cooper Bussmann for SurgTape for
board-level ESD protection, and providing SurgX with $1,700,000 (in the form
of non-refundable minimum royalties) to finance further the development and
commercialization of SurgTape. If SurgTape is successfully commercialized,
products using that technology will be marketed by Cooper Bussmann under the
SurgX trademark. At this time, SurgTape has not been commercialized and
activities to develop SurgTape for board-level ESD protection have been
significantly curtailed.
Cooper Bussmann is a leading manufacturer of fuses. Cooper Bussmann's
target market for SurgX is the rapidly growing electronics market. Cooper
Bussmann has taken on the manufacturing of discrete components using SurgX. In
calendar 1999, to address the market requirements of high volume and low cost,
Cooper Bussmann initiated offshore manufacturing through an Asian contract
manufacturer.
In November 1997, IRISO made an equity investment of $500,000 in SurgX
in exchange for an ownership interest of approximately 3%. In conjunction with
this equity investment, IRISO received a 15-year co-license to manufacture and
sell the Company's SurgX technology exclusively in Japan for board level ESD
protection. These products are marketed under the SurgX trademarks. Iriso
shipped samples to customers in calendar 1998,
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and in calendar 1999 IRISO plans volume production and sales of the 0805 Surface
Mount components.
Intellectual property
As part of its efforts to establish brand name recognition for its SurgX
product line, the Company intends to register unique names for its products with
different applications. For instance, the trademark SurgX was issued by the US
Patent and Trademark Office on March 17, 1998. Also under review with the US
Patent and Trademark Office are SurgTape and a SurgX service mark (logo).
The two foundation patents filed by the Company in 1995 on
manufacturing processes, methods of making the SurgX compositions and SurgX
devices have been divided by the US Patent and Trademark Office into 11
different inventions for filings as individual patents. To date, three of
these patents have been filed; In September 1998, one of the three patents
filed, method of manufacturing SurgX overvoltage protection devices, was
issued in the US. In 1997, foreign filings were initiated in 10 countries
plus Europe on the two foundation patents. Except for the grant of the two
foundation patents by Singapore, and the issue of one foundation patent by
Australia, all of the foreign patents are in process. A third patent on
surface mount devices and connector component designs was filed in the US in
1996 and in Europe in 1997 are still in the review process. In 1998, two
additional patents on overvoltage protection inside the IC package were
filed. The Company believes its patent application disclosures cover
significant proprietary art in devices, processes and materials.
Research and Development
The Company is directing substantially all of its development effort to
achieve lower response voltage performance and cost reductions in manufacturing
and packaging processes for its board level protection product. The Company
believes that if it realizes these improvements, SurgX's market will expand
significantly. Development projects to achieve these objectives; utilizing
SurgeTape for on-board level protection and laser machining techniques have been
curtailed in favor of alternative manufacturing process.
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SurgTape was conceived as an inexpensive, on-board surge protection
device for direct installation into the IC package. Due to inconclusive
initial development trials, and insufficient funding, efforts to develop
SurgTape for on chip protection were suspended in calendar 1998. Management
believes that the development of low cost, small size, and easy to use
SurgTape or variation of SurgTape, for application inside the integrated
circuit package remains a potential alternative to existing ESD protection
devices. However, given the Company's resource constraints and the technical
challenges involved, the Company will only restart this development effort if
it can achieve technology improvements and development funds become
available. However, there can be no assurances that SurgTape can be
commercially developed, and if developed, that IC manufacturers will embrace
this technology to replace or supplement existing on-chip ESD protection
devices.
After development efforts for the board level protection products are
successfully completed, the Company will renew efforts to investigate new
development programs for new application for its SurgX technology.
ORYX INSTRUMENTS AND MATERIALS CORPORATION
Prior to February 27, 1998 Oryx Instruments and Materials Corporation
("Instruments and Materials") designed, manufactured and marketed test
equipment, specialized materials and electromagnet systems for the hard disk
drive and semiconductor industries. On February 27, 1998, a third party acquired
8,000,000 shares of Class A Common Stock of Instruments and Materials for a
purchase price of $500,000. As part of the sale transaction, Instruments and
Materials then redeemed 8,000,000 shares of the Company's holdings of 10,000,000
shares of Class A Common Stock for an aggregate price of $1,500,000. Original
terms of the redemption included $500,000 paid to the Company on the closing,
$333,000 payable on February 27, 1999 and $667,000 payable on February 27, 2000,
pursuant to a promissory note and stock pledge agreement. As part of the sale,
Instruments & Materials distributed all the assets and liabilities of the
materials business segment and certain other assets of the instruments business
segment to the Company. On November 24 1998, the Company sold its $1,000,000
promissory note and 1,000,000 of its 2,000,000 shares of Class A Common Stock
for $500,000 in cash to the majority shareholder of Instrument and Materials.
The
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Company currently retains an ownership interest in Instrument and Material of
less than 10.0%.
Materials Business Unit Background
The Company currently owns and operates the former materials division of
Instruments and Materials. This division offers specialized materials assemblies
based upon the Company's patented Intragene-TM- ceramic metallization and
joining system.
The materials division product line consists of Intragene-TM--based
sputtering target assemblies and electromagnet systems. The sputtering target
assemblies have been sold into the rigid disk market since 1986 and are
considered one of the most reliable such assemblies in the market today.
Sputtering target assemblies are sold to end-users as source materials
for coating other materials via a vacuum-based process called sputtering.
Sputtering is employed as the primary method for depositing thin film functional
and protective layers on rigid magnetic media (hard disks), as well as in many
semiconductor-manufacturing operations. 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."
The materials division manufactures these high qualities sputtering
target assemblies based primarily on its patented Intragene-TM- metal to
non-metal and metal to metal joining process. The Intragene-TM- 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 Intragene-TM- process facilitates the ability to metallize, solder or braze
a wide range of engineering ceramics, graphite and refractory metals. The
materials division also manufactures electromagnet systems which produce very
accurate and high level electromagnet fields. These products are sold to
magnetic recording head manufacturers who often utilize these systems for wafer
plating.
The materials division employs personnel with extensive backgrounds in
engineering materials and joining. This has
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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. 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 to the thin-film magnetic media
manufacturers.
The materials division's primary customers of bonded target assemblies
are Fuji Electric, Heraeus Precision Engineering PTE, LTD, Matsubo Company LTD,
Max Media Corporation Technology Inc., Seagate Technology, Inc. (formerly,
Conner Peripherals and Seagate Magnetics), and Western Digital Media
Corporation. The following customers, individually represented more than 10% of
the Company's total revenue and, as a group, represented 81% of the Company's
revenue of the Materials business for the fiscal year ended February 28, 1999:
Heraeus Precision Engineering PTE, LTD (Oryx's representative for Seagate, Fuji
Malaysia and Max Media Corporation Technology, Inc. Singapore), Matsubo Company
LTD (Oryx's representative for the Japanese market), Max Media Corporation
Technology, Inc. and Western Digital Corporation. The materials division derives
substantially all of its revenues from rigid magnetic media manufacturers.
During fiscal 1999 this industry sector was affected by a significant slowdown
in the disk drive industry resulting in the closure of magnetic media plants,
migration of U.S. based plants to lower cost locations and bankruptcies. Despite
this turmoil, sales of the Company were not adversely affected. However, the
Company expects that sales in fiscal 2000 will be significantly below fiscal
1999 sales as consolidation and plant closures continue, and newer, more
cost-effective technologies take hold.
Magnetic media manufacturers are presently working on new technologies
as alternatives to sputtering target assemblies. These technologies, chemical
vapor deposition and ion beam deposition are expected to provide superior
product performance at a lower cost compared to existing sputtering target
assemblies. While these technologies are still in the development stage, the
Company anticipates that one or both of these technologies will become endorsed
by major magnetic media manufacturers within the next two years, which
ultimately would render sputtering target assemblies obsolete within the next
three to five years.
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The Company has explored the feasibility of becoming a provider of
chemical vapor deposition and ion beam deposition, but has abandoned this effort
due to the lack of capital resources and technical expertise. In order to offset
reduced sales, the Company is investigating offering new products to its
existing customers; however, there can be no assurance that the Company will be
successful in this endeavor, or that contribution from sales of new products
will offset lost revenue contribution from sales of sputtering target
assemblies.
The turmoil in the magnetic media industry coupled with the advent of
new technologies, will have a significant effect on the future profitability of
the materials division. Whereas the materials division was profitable in fiscal
1999, there can be no assurance that it will be profitable in fiscal 2000 or
thereafter.
Research & Development/Government Contracts
The Company's operations in the ESD and materials businesses have been
partially funded through third party development funding and government
contracts.
In fiscal year 1999, the Company recognized development funding of
$423,000 received from non-government third parties to assist in the development
of certain products, as an offset to its research and development expenses. This
compares to $1,307,000 of development funding recorded in fiscal year 1998. The
Company has research government contracts in which $412,000 and $716,000 of
revenue and $670,000 and $734,000 of cost of sales were recognized for the years
ending February 28, 1999 and February 28, 1998, respectively. Research and
development net expenses were $419,000 and $2,669,000 for the years ended
February 28, 1999 and 1998, respectively.
The Company has undertaken research programs with the Department of
Defense (DOD) and has been the recipient of four Phase I and two Phase II SBIR
(Small Business Innovative Research) contracts from NASA, two Phase I contracts
from the DOD, and one Phase I contract from the National Science Foundation
(NSF) during its 1992-1997 fiscal years. Most involve applications of its
Intragene-TM- and SurgX(TM) technology. The contracts represent grants totaling
over $2.7 million.
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The Company has been awarded two Phase II SBIR research and development
contracts. One such contract with the US Army Tank Automotive Command in Warren,
Michigan is valued at $600,000 and is for development of impact absorbing
Materials. This contract started in March 1996, has a 33-month term and will be
concluded by June 1999. The other contract from BMDO, monitored through the
Office of Naval Research, relates to the development of a fabrication protocol
for the high volume manufacturing of the Company's SurgX devices for ESD surge
suppression. This contract started in July 1997, has a 24-month term and is
valued at approximately $1.5 million with one-half being provided as matching
funds from Oryx or partner companies. The expected completion of this contract
is July 1999.
ORYX POWER PRODUCTS CORPORATION (DISCONTINUED OPERATION)
On March 7, 1998, Todd Power Corporation ("Todd") acquired substantially
all of the properties, assets, rights, business and certain liabilities of Oryx
Power Products Corporation ("Power Products") for a purchase price of $2,000,000
in cash and a contingent additional amount of up to $4,000,000 to be calculated
based upon future sales of certain of Power Products' specified products to
named customers during the fourteen month period immediately following the sale.
Sales during this fourteen-month period (ended May 1, 1999) were at a level
whereby the Company may be paid up to approximately $250,000 out of the total
$4,000,000 contingent payment. The actual amount paid to the Company will vary
pursuant to terms and conditions of the purchase agreement. 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. The Company
recognized a loss on disposal, all losses were recognized as if the transaction
were 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 was $10,022,000 for the year ended February 28,
1998. Loss from discontinued operations, net of taxes, was $3,666,000 for the
year ended February 28, 1998.
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
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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 comply
with applicable environmental laws and regulations. While the Company has not
experienced any material adverse effect on its operations from compliance with
government 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 resulting in the expenditure of additional funds
by the Company to comply with those government regulations. The extent of
government regulation which might result from any future 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. The Company currently has numerous
patents issued and in process. 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 which are associated with
the Intragene process and three patents for its SurgX(TM) technology. The
Intragene patents expire in 1999 and 2000. 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 plans to file improvement patent
applications, which may effectively broaden proprietary protection. There can be
no assurance, however, that such improvement patent applications will be
granted.
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Employees
As of April 30, 1999, the Company employed 19 people on a full-time
basis. Included among full time employees are 2 executive officers, 2 managers
and executive personnel, 4 engineering personnel, 3 administrative personnel and
8 manufacturing personnel. The Company's employees are not covered by any
collective bargaining agreements, and the Company believes its employee
relations are satisfactory.
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RISK FACTORS
History of Unprofitability; 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 except for the quarters ended
May 31, 1996, August 31, 1996 and November 30, 1996. At February 28, 1999,
the Company had an accumulated deficit of $18,075,000. The Company
anticipates operating losses will continue through fiscal year 2000 and that
the Company will achieve profitability once trial demonstrations of a process
resulting in a lower manufacturing cost for its SurgX technology occur and
SurgX's licensees are successful in marketing and selling products
incorporating SurgX technologies. However, there can be no assurance that the
Company will be successful in the implementation of a lower manufacturing
cost for its SurgX technology, or that the Surgx's licensees will
successfully market and sell products incorporating Surgx's technology.
Restructuring of Company Operations; Company Downsizing
At the end of fiscal 1998, the Company undertook a substantial
restructuring of its operations, such that the majority of the Company's
activities may properly be deemed "developmental." In the course of selling its
various business units, the Company disposed of operations which had accounted
for a substantial majority of its revenues. While the Company believes that this
downsizing has substantially reduced its losses and enabled it to focus on key
strategic businesses, the actual impact cannot be certain. In the absence of
increased sales from its remaining businesses and key technology developments,
such restructuring may have sharply reduced the Company's revenues without
creating opportunities to offset equally the lost revenues.
Liquidity and Capital Resources
The Company has on going capital requirements associated with the
design, development, testing and marketing of new products. The Company
anticipates, based on management's internal forecasts and assumptions
relating to its operations, that its existing capital resources will be
sufficient to satisfy the Company's contemplated cash requirements for at
least the next twelve
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months. In the event that the Company's plans change or its cash projections and
assumptions prove inaccurate, the Company could be required to seek additional
financing. The Company has no current arrangements with respect to sources of
additional financing, and there can be no assurance that the Company would be
able to obtain additional financing if and when needed, or that, if available,
such additional financing would be on the terms acceptable to the Company.
The Company's working capital increased $111,111 from $1,501,000 at
February 28, 1998 to $1,612,000 at February 28, 1999 primarily due to proceeds
from the sale of the business units mentioned earlier. The Company's ratio of
current assets to current liabilities was 2.2:1 at February 28, 1999 and 1.6:1
at February 28, 1998. The sale of the business of Power Products and the
Company's majority interest in Instruments and Materials substantially reduced
the Company's operating losses and provided sufficient capital to meet its
fiscal 1999 operating plan.
In April of 1999, 939,536 public warrants were exercised causing
issuance of 1,973,022 shares of the Company's common stock providing cash
proceeds to the Company of approximately $3,333,000. These proceeds, in
combination with the Company's cash at the end of fiscal 1999, should be
sufficient to support the Company's operating activities through the
Company's fiscal year end February 29, 2000.
Risks of New Phase of Development
The Company has invested substantially in the development of its
proprietary ESD surge protection technology.
During fiscal 1998, the Company amended its licensing agreement with
Cooper Bussmann, in addition to other considerations, to fund $1,700,000 for
continued development activities for SurgX's board level ESD protection
technology. These funds were primarily exhausted by February 1998 and the
Company revamped its development efforts to bring its operating costs in line
with projected available funds. As a result of these steps, substantially all
development activities related to on-chip ESD protection was halted. In
September 1998, joint development efforts with Cooper Bussmann resulted in
demonstration trials of two low-cost manufacturing processes, capable of
reducing product costs by as much as 60% and, ultimately, providing a potential
five-to-ten fold decrease in product costs. At this time, these demonstrated
processes have
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not been transferred to a manufacturing process and there can be no assurance
that such processes will prove reliable once incorporated into manufacturing
environment. In January 1999, Cooper Bussmann entered into a contract
manufacturing arrangement with an Asian manufacturing company to produce
SurgX(TM) discrete components. Cooper Bussmann's contract manufacturer will
utilize a modified version of Cooper Bussmann's new low cost manufacturing
process for its initial product launch. However, there can be no assurance that
Cooper Bussmann's contract manufacturer will be successful in producing SurgX
discrete components at the requisite quality and yields levels, or that their
manufacturing process will achieve volume capabilities and cost targets required
to provide a cost competitive product, or that they will be able to incorporate
manufacturing process improvement in the future to reduce product cost and
enhance product performance.
In February 1999, IRISO implemented a low cost manufacturing process
capable of producing five million units per month. Currently, only limited
volume has been manufactured and there can be no assurance that successful
full scale manufacturing can be achieved.
Development results in the future will be influenced by numerous
factors, including the availability of funding, technological developments by
the Company, its customers and competitors, increases in expenses associated
with product development, market acceptance of the Company's products, the
ability of the Company successfully to control its costs of development,
overhead and other costs, the capacity of the Company to develop and manage the
introduction of new products, and competition.
Significant Customer Dependence; No Assurance of Future Royalty Payments
The Company entered into two exclusive license agreements with Cooper
Bussmann and IRISO for use of its SurgX(TM) technology for ESD protection on
discrete components and connector arrays. In exchange for the licensed
rights, the Company receives a royalty equal to a percentage of each
licensee's gross profit on sales of licensee products utilizing the SurgX
technology. While the Company has assisted licensees to date and expect to be
available to assist the licensees in their future efforts to exploit this
technology, the Company's future royalties are based solely upon the
successful
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sales, marketing and manufacturing efforts of its licensees. While the
license agreements contain minimum annual royalty payment requirements for
the licensees to maintain their exclusive rights, there can be no assurance
that the licensees will pay the minimum royalty or that these minimum
payments will provide enough revenue to continue to support the Company's
operations. In the case of Cooper Bussmann, minimum royalty payments through
2001 have already been satisfied to maintain exclusivity, and there can be no
assurances that the Company will receive any royalty payments from Cooper
Bussmann through this time period unless Cooper Bussmann is successful in
selling products using SurgX technology in excess of the minimum royalty
payments, and such sales have not yet been material. To date, Cooper Bussmann
and IRISO have shipped only limited quantities to customers of products
incorporating SurgX technology.
Reliance on Third Party Manufacturers
The Company relies on third-party manufacturers for the supply of
substantially all key components for its products. In the case of the materials
division, it relies on Toyo Tansco USA for its raw materials for sputtering
target assemblies and Heraeus Precision Engineering PTE, LTD for paste for
metallizing the raw material. While reliance on a single supplier 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, the Company believes its sole
source arrangements have provided a lower cost, higher quality product than
sourcing material from multiple sources. However, any inability to obtain
adequate deliveries or other circumstances that would require the Company to
seek alternate sources of supply could lead to disruption of the operations of
the Company, product deficiencies, unanticipated and fluctuating expenses,
unpredictable revenues, and may have a material adverse effect on the Company's
business and operations.
New Products and Technological Changes; Uncertainty as to Future
Research and Development Funding
The development, design and manufacture of technology constantly
undergoes rapid and significant change. The Company's success will depend upon
its ability to maintain a competitive position with respect to its proprietary
and other enhanced
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technology and to continue to attract and retain qualified personnel in all
phases of its operations. The Company's business is, to a large degree,
dependent upon the enhancement of SurgX's current technology. Critical to the
Company's success and future profitability will be its capacity to improve this
technology. 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, or that there will be sufficient funds to
support development 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.
To date, the Company's research and development program has been
supported by government contracts and development funding contracts with
customers and other third parties. Substantially all funds for government and
other third party contracts have already been received and used by the Company.
The Company is completing the final phases of two government contracts with the
DOD and the Office of Naval Research and is continuing to work on two small
development contracts with third parties. While the Company is actively seeking
additional contracts with strategic partners it is not currently investigating
or petitioning any government agencies for development contracts. While the
Company has, in the past, been successful in securing such contracts, there can
be no assurances that the Company will be successful in entering into such
contracts in the future.
Fluctuations of Quarterly Operating Results
The Company's quarterly operating results have in the past been, and
will in the future be, subject to significant fluctuation. The Company's
operating results are impacted by numerous factors, such as in market acceptance
of the Company's SurgX' products; Cooper Bussmann's and IRISO's continued
marketing, sales and financial support of SurgX technology, containment of
development costs, the level of activity of the disk drive industry, purchasing
patterns of OEMs and other customers, delays in, or failure to receive, orders
due to customer financial difficulties, and overall economic trends. In
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addition, customer orders may involve design-in requirements, 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, the successful launch of SurgX products by Cooper
Bussmann and IRISO and the recovery of the disk drive industry. The Company may
be unable to adjust spending in a timely manner to compensate for any delay in
product development, or revenue shortfall, or the recovery of the disk drive
industry. 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 or delays in acceptance of the SurgX
technology would have a material adverse effect on the Company's operating
results.
Inventory Backlog; Reliance on Licensing Revenue
Backlog at the beginning of a quarter typically does not include all
sales required to achieve the Company's sales and operating targets for a
quarter, which depend on the Company's shipping orders scheduled to be sold
during that quarter. The terms of customer purchase orders generally provide
that the customer may delay a substantial portion of the order with limited
notice and with little or no penalty. The Company has experienced
rescheduling in the past and expects that it will experience such changes in
the future. Moreover, as the Company transitions to a licensing operation for
the majority of its revenues, it will maintain far less direct control over
shipments of products resulting in revenues to it, and hence, less visibility
as to financial performance and projected earnings, if any. In such case, the
Company will have to rely on the success of its licensees, Cooper Bussmann
and IRISO, in selling products incorporating the Company's technology.
Competition
The Company is engaged in certain highly competitive and rapidly
changing segments of the electronic components 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
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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. Recently, LittleFuse,
Inc., a major supplier of protection devices, announced it will sell a
polymer based ESD protection device with similar performance characteristics
to the products being offered by the Company's licensees, and it is uncertain
how LittleFuse, Inc. entry into this market will affect future sales of the
Company's licensees. In addition, competitors are likely to be larger,
better capitalized, more established and have greater access to resources
necessary to produce a competitive advantage.
Dependence on Proprietary Technology
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 owns six
patents for its Intragene technology, all which expire in 1999 and 2000. SurgX
has patents issued and applications in process in the U.S., the European Patent
Office (Australia, Belgium, Switzerland, Liechtenstein, Germany, Denmark,
France, United Kingdom, Spain, Ireland, Italy, Luxembourg, the Netherlands,
Portugal and Sweden), Canada, Japan, Australia, Vietnam, Singapore, Korea and
Mexico. The Company's intellectual properties will not be protected in countries
in which it has not filed for patent 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 will 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, there can be no assurance
that patent will be issued for existing patent applications and,
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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 secrets status
has been the subject of increasing claims and litigation by various companies,
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, in any case.
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. 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 lenders, underwriters or others. 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.
Risk of Significant Dilution
On February 27, 1998 the Company entered into a financing arrangement
with KBK Financial, Inc. ("KBK") which provided the Company with a six-month
bridge loan for an amount up to $1,000,000. In consideration for this loan, the
Company issued to KBK warrants to purchase 174,546 shares of Common Stock at a
per share price of $1.15. The Warrants are exercisable for a period of three
years and expire in 2001.
In fiscal 1999, as part of its sale of the Power Products business,
the Company issued non-statutory options to former key employees of Oryx
Power Products to purchase a total of 205,000 shares of the Company's Common
Stock at an exercise price of $0.95 per share. In addition, the Company
issued a non-statutory option to a former key employee of Oryx Power Products
to purchase 50,000 shares of the Company's Common Stock at an exercise price
of $0.25 per share.
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On August 7, 1998, the Company entered into a Market Access Program
Marketing Agreement with Continental Capital & Equity Corporation
("Continental") pursuant to which the Company agreed to issue to Continental up
to 202,500 shares of Oryx Common Stock, subject to an escrow provision expiring
on August 1, 1999, and a two (2) year warrant to purchase 60,000 shares of the
Company's Common Stock, at an exercise price of $1.09 per share.
On April 6, 1999, public warrants for the purchase of 2,549,190
shares of Common Stock expired. Prior to expiration, in March 1999 and early
April 1999, a total of 1,973,022 shares of Common Stock were issued in
connection with the exercise of 939,536 of the Company's public warrants.
This represented an increase of approximately 14.8% in the number of shares
of the Company's Common Stock outstanding.
As a result of these and various other transactions previously
entered by the Company, as of April 30, 1999, there were convertible
securities and private warrants and options currently outstanding for the
conversion and purchase of up to approximately 5,472,931 shares of Common
Stock. These represent significant additional potential dilution for existing
stockholders of the Company. These underlying shares of Common Stock are not
included in currently outstanding shares. 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 at which the Company issues
other securities in the future.
Volatility of Stock Price
The market price of the Company's Common Stock has fluctuated
substantially since the Company's initial public
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offering in April 1994. The Company believes that a variety of factors could
cause the price of the Company's Common Stock to continue to fluctuate
substantially, including, for example, 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
industries served by the Company, 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 have experienced extreme
price fluctuations often unrelated to the operating performance of affected
companies. Such fluctuations could adversely affect the market price of the
Company's securities and ability to obtain additional financing.
Potential Nasdaq Delisting
On August 26, 1998, the Company received a notice from Nasdaq that the
Company's Common Stock would be subject to delisting from the Nasdaq Small Cap
Market, effective with the close of business on November 26, 1998 unless the
Company's Common Stock had a closing bid price of $1.00 per share for ten
consecutive trading days prior to November 26, 1998 or Nasdaq granted the
Company a stay of delisting pursuant to the Nasdaq rules. On November 26, 1998,
the closing bid price of the Company's Common Stock had not been above $1.00 per
share for ten consecutive trading days, and the Company petitioned Nasdaq for a
stay of delisting. On January 7, 1999 Nasdaq informed the Company that it was in
compliance with all requirements necessary for continued listing on the Nasdaq
Small Cap Market. However, there can be no assurance that the Company will
continue to meet Nasdaq's listing requirements. If the Company's Common Stock is
delisted, the Common Stock will be traded on the "pink sheets," and the Company
may be subject to the "penny stock" rules promulgated by the Securities and
Exchange Commission, which require, among other things that, prior to any
transaction in the Company's Common Stock by a broker or dealer, that such
broker or dealer provide its customer with a disclosure document summarizing
certain risks of investing in penny stocks and obtains from the customer a
signed written acknowledgement of
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receipt of the document. Further, any broker or dealer effecting a transaction
in the Company's Common Stock would have to disclose the bid and offer quote for
the stock as well as the broker or dealer compensation in connection with such
transaction. Delisting of the Company's Common Stock from the Nasdaq Small Cap
Market may make it more difficult to trade the Company's shares and for the
Company to raise funds through the issuance of stock.
Authorization of New Series of Preferred Stock and Potential Adverse
Effect on Common Stock; Anti-Takeover Effect of Issuance 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 limitation 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
or other rights of the holder 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. As of February 28, 1999, the Company had 3,750 shares of Preferred
Stock outstanding with an obligation to pay dividends thereon at the annual rate
of $0.50 per share. Each share of Preferred Stock may be converted, at the
option of the holder, into approximately 11.67 shares of Common Stock. 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.
Item 2. Description of Property
The Company presently operates its businesses in two separate
facilities. On July 12, 1995, the Company entered into a lease agreement with
SCI Limited Partnership, for 3,600 square feet of manufacturing space located in
Fremont, California. The term of the lease was for three years, which was
extended on April 12, 1999 for an additional two years at a rate of $4,644 per
month including operating expenses. On August 12, 1996, SurgX entered into an
agreement with E.B.J. Partners LP to lease a 22,000 square foot facility in
Fremont, California. The
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monthly rental fee is $19,286 and the lease terminates August 30, 2001. The
Company also leases another smaller manufacturing space on a short term basis.
Each of the properties described above is in satisfactory condition for
the purpose for which it is used.
Item 3. Legal Proceedings
The Company knows of no material litigation or claims pending,
threatened or contemplated to which the Company is or may become a party.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the Company's fiscal year ended February
28, 1999, no matters were submitted to a vote of security holders.
PART II
Item 5. Market for the Company's Common Stock and Warrants and Related
Stockholder Matters
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 Small Cap Market under the symbols "ORYX" AND "ORYXW,"
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.
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Common Stock Warrants
------------------ ------------------
High Low High Low
------- ------- ------- -------
1998 FISCAL YEAR
1st Quarter $2-7/16 $0-3/4 $2-1/4 $1-3/32
2nd Quarter $1-9/16 $0-13/16 $1-15/32 $0-3/16
3rd Quarter $2-3/16 $1-1/8 $2 $0-3/4
4th Quarter $1-17/32 $0-15/16 $1-13/32 $0-19/32
1999 FISCAL YEAR
1st Quarter $1-3/8 $0-15/16 $1-3/32 $0-3/8
2nd Quarter $1-11/32 $0-5/8 $0-11/16 $0-1/4
3rd Quarter $1-15/32 $0-11/32 $0-7/16 $0-1/16
4th Quarter $2-9/16 $1-1/32 $1-5/32 $0-1/8
On April 30, 1999 the closing price for the Company's Common Stock
was $2.1875 per share. On April 6, 1999 the Company's public warrants,
exercisable for an aggregate of 2,549,190 shares of Common Stock, expired.
Prior to expiration, 939,536 warrants were exercised resulting in the
issuance of 1,973,022 shares of Common Stock.
The Company's Common Stock and Warrants had also been listed for
trading on the Pacific Exchange under the symbols "ORYX" and "ORYXW,"
respectively. The Company requested that the Common Stock and Warrants be
removed from the Pacific Exchange, which occurred in May 1998.
As of April 30, 1999 the number of record holders of the Company's
Common Stock was approximately 102.
The Company has never paid cash dividends on its Common Stock, but as
noted above, pays a $.50 annual dividend on its outstanding shares of Preferred
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. Future dividend policy will
depend on the Company's 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.
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Item 6. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
This Annual Report on Form 10-KSB contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
particularly statements regarding market opportunities, market share growth,
competitive growth, new product introductions, success of research and
development, research and development expenses, customer acceptance of new
products, gross margin and selling, general and administrative expenses. These
forward-looking statements involve risks and uncertainties, and the cautionary
statements set forth below identify important factors that could cause actual
results to differ materially form those predicted in any such forward looking
statements. Such factors include, but are not limited to, adverse changes in
general economic conditions, including adverse changes in the specific markets
for the Company's products, adverse business conditions, adverse changes in
customer order patterns, increased competition, lack of acceptance of new
products, pricing pressures, lack of success in technological advancement, risks
associated with sales to foreign customers (including the downturn of economic
trends and unfavorable currency movements in the Asia Pacific marketplace),
risks associated with the Company's efforts to comply with Year 2000
requirements, and other factors, including in addition to those listed below,
others not mentioned.
Business Segments
Through fiscal year 1999, the Company operated in two main business
segments: Materials and SurgX (97% owned subsidiary). These businesses
operate independently and are supported by a corporate segment providing for
all administrative, accounting, and financial activities. As noted above in
Part I, during fiscal year 1998, the Company embarked upon a major
restructuring program. This resulted in the sale on February 27, 1998 of
approximately 80% of the Company's interest in Oryx Instruments and Materials
Corporation and the sale on March 2, 1998 of substantially all of the assets
and the entire business of Power Products Corporation. As part of the sale of
its majority position in Instruments and Materials, the Company retained
certain assets from Instruments and Materials relating to sputtering targets
assembly (Materials). Management took these steps to reduce losses and enable
the Company to concentrate on its electrostatic discharge protection business.
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Segment/Subsidiary Businesses
------------------ ----------
SurgX Corporation -Electrostatic Discharge
Protection Components
Materials Division -Specialized Materials
Assemblies
-Contract R&D
Consolidated Results of Continuing Operations
For the fiscal year ended February 28, 1999, revenues from continuing
operations decreased $3,807,000 or 45% from $8,449,000 for the year ended
February 28, 1998 to $4,642,000 for the year ended February 28, 1999. The
decrease in revenues was primarily related to the loss of sales from the
Instruments business segment sold in late fiscal 1998. Due to the sale,
revenue for the 1999 fiscal year was primarily derived from the sale of
sputtering target assemblies. Due to the downturn in the disk drive industry,
fiscal year 2000 target assemblies revenues are anticipated to be
significantly lower than fiscal year 1999 levels of $4,037,000. The Company
anticipates that royalty revenue from its SurgX technology during the first
half of fiscal year 2000 will be minimal since volume shipments from its
licensees are not scheduled to occur at the earliest in late in fiscal year
2000.
The Company's gross profit decreased $1,036,000 or 46.8 % from
$2,215,000 for the fiscal year ended February 28, 1998 to $1,179,000 for the
year ended February 28, 1999. Cost of sales as a percentage of revenues
increased slightly to 74.6% for the year ended February 28, 1999 from 73.8% for
the fiscal year ended February 28, 1998. The decrease in gross profit for the
year ended February 28, 1999 was primarily attributable to the loss of gross
profit contribution from the Instruments business segment.
Funding recognized as revenue and cost of sales associated with
government contracts for the fiscal year ended February 28, 1999 were $412,000
and $670,000 respectively. This compares to revenue and cost of sales of
$716,000 and $734,000, respectively, associated with government contracts for
the fiscal year ended February 28, 1998. The Company expects revenue from
government contracts for the fiscal 2000 to be lower than fiscal 1999 as the
Company is completing the final phase of its two remaining
34
<PAGE>
government contracts, and the company does not anticipate securing any new
government contracts during fiscal 2000.
Marketing and selling expenses decreased to $207,000 or 81.9%, from
$1,141,000 for the fiscal year ended February 28, 1998. This decrease is
primarily due to the reduction of marketing and selling expenses directly
related to the Instrument business segment. The Company expects selling and
marketing expenses to remain flat during fiscal year 2000 since primarily all of
the Company's sales and marketing activities will be carried out by SurgX's
licensees.
General and administrative expenses decreased $1,307,000 or 44.9% from
$2,911,000 for the fiscal year ended February 28, 1998 to $1,604,000 for the
year ended February 28, 1999. This decrease in general and administrative
expenses reflects the 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. The Company does not
anticipate significant changes in general and administrative costs during fiscal
year 2000.
Research and development expenses decreased $2,250,000 or 84.3% from
$2,669,000 for the fiscal year ended February 28, 1998 to $419,000 for the year
ended February 28, 1999. The decrease in research and development expenditures
were primarily as a result of the elimination of research and development
expenses associated with the Instruments business segment and the substantial
reduction of SurgX development activity related to on-chip ESD protection. Due
to the Company's improved liquidity position, SurgX is planning to increase
research and development expenditures in fiscal year 2000 and explore
alternative applications and additional market opportunities for its SurgX
technology.
Development funding from non-government third parties, which the Company
records as an offset to its research and development expenses, decreased 884,000
or 67.7% from $1,307,000 for fiscal year ended February 28, 1998 to $423,000 for
the fiscal year ended February 28, 1999. This decrease is attributed to
recognizing a majority of the $1.7 million in development funds received from
Cooper Bussmann in fiscal 1998. SurgX does not anticipate to receive any
significant development funding during fiscal 2000.
35
<PAGE>
For fiscal year ended February 28, 1999 the Company recorded net
interest income of $14,000. This compares to $350,000 of net interest expense
for the fiscal year ended February 28, 1998. The favorable net change from
interest expense to interest income is attributable to the elimination of
interest expenses associated with the Company's credit lines which had been
utilized in fiscal 1998 to fund operating losses.
For the fiscal year ended February 28, 1999, the Company recorded
$363,000 of other income. The $363,000 of other income recorded in fiscal 1999
is comprised of a $146,000 gain recognized from the sale of I&M, and $217,000
associated with receipt of 54,455 restricted shares of Common Stock of Applied
Magnetics Corporation in connection with consulting services provided to DAS
Devices, Inc.
During fiscal year 1999, the Company recorded a $15,000 loss on the
write-off of its investment in DAS Devices, Inc. versus a gain of $1,383,000
on such investment in fiscal year 1998. During fiscal year 1998, the Company
had sold, to qualified private investors, 2,000,000 shares of its Series A
Preferred Stock holdings in DAS Devices for $1,400,000. After this
transaction, the Company's equity holding of DAS Devices, Inc. was 2,000,000
shares of Series A Preferred and 800,000 shares of common stock which were
valued on the Company's books at $15,000. In fiscal 1999, DAS Devices, Inc.
was purchased by Applied Magnetics Corporation. Oryx did not receive any
consideration for its remaining ownership in Series A Preferred or common
stock due to priority liquidation preferences held by other DAS Devices, Inc.
preferred stock holders, and subsequently wrote-off its remaining investment
in DAS Devices, Inc.
The Company believes its operating losses will continue until its
licensees begin volume shipments of SurgX devices. Volume shipments are
anticipated to commence during the later half of fiscal 2000, at which time the
Company believes that it will achieve profitability. However, there can be no
assurance that the Company's licensees will be able to successfully launch SurgX
products, that certain technology enhancements by SurgX currently under
development will be realized, or that royalty income from its SurgX technology
will be enough to offset reduced sales from the Material division.
36
<PAGE>
Segment Results
SURGX CORPORATION
February 28 February 28
(dollars in thousands) 1999 1998
- ------------------------------------------------------------------
Revenues $ 193 $ 83
Cost of sales 284 0
-------- -------
Gross Profit (91) 83
Operating Expenses 891 2,705
Development Funding
(Offset against R &D) (423) (1,307)
-------- -------
Operating Income (Loss) $ (559) $(1,315)
-------- -------
Revenues for fiscal 1999 increased $110,000 or 133% to $193,000 for the
year ended February 28, 1999 from $83,000 for the year ended February 28, 1998.
This increase in revenue is primarily associated with selling SurgX liquid to
the Company's licensee. Revenues for fiscal 2000 are expected to increase as
the Company's licensees begin shipping SurgX products in volume.
Cost of sales for the fiscal year ended February 28, 1999 represents the
costs associated with manufacturing SurgX component materials to Cooper Bussmann
and IRISO pursuant to existing license agreements. Since start-up manufacturing
costs were incurred in fiscal year 1997, and the Cooper Bussmann product launch
was delayed until the beginning of fiscal year 1999, there were no costs of
sales recorded in fiscal year 1998. The Company anticipates that the cost of
sales will increase in fiscal 2000 to meet increased requirements for SurgX
liquid material.
Operating expenses decreased $1,814,000 or 67%, from $2,705,000 for the
fiscal year ended February 28, 1998 to $891,000 for the year ended February 28,
1999. The decrease in operating expenses primarily reflects the substantial
reduction of costs associated with development efforts for on-chip ESD
protection, which were suspended during the 1998 fiscal year. During fiscal year
1999, SurgX recognized $423,000 in development funding from third parties
compared to $1,307,000 of such funding
37
<PAGE>
in fiscal year 1998, a decrease of $884,000 or 67.6%. While SurgX is looking to
its customers, or to other potential joint venture partners, to continue to fund
its development efforts, there can be no assurance that those efforts will be
successful and if successful, will provide sufficient funding to offset
associated development costs.
Due to substantial reduction of research and development expenses
associated with the on-chip ESD protection program, offset by a reduction in
recognized development funding the loss from operations decreased $756,000 or
57.5% from $1,315,000 for the fiscal year ended February 28, 1998 to $559,000
for the fiscal year ended February 28, 1999.
ORYX INSTRUMENTS AND MATERIALS CORPORATION
On February 27, 1998, a third party acquired 8,000,000 shares of Class A
Common Stock of Oryx Instruments and Materials Corporation for a purchase price
of $500,000. As part of the sale transaction, Oryx Instruments and Materials
then redeemed 8,000,000 shares of the Company's 10,000,000 share holdings of
Class A Common Stock for an aggregate price of $1,500,000. Terms of the
8,000,000 share stock redemption include $500,000 paid on the closing, and
$333,000 payable on February 27, 1999 and $667,000 payable on February 27, 2000,
under a promissory note and stock pledge agreement. As part of the sale, Oryx
Instruments & Materials distributed all the assets and liabilities of the
materials business segment and certain other assets to the Company. A deferred
gain of approximately $646,000 was recorded by the Company on this transaction.
As a result of the transaction, the Company had fully reserved its remaining
19.9% ownership investment in Oryx Instruments and Materials at February 28,
1998. On November 24, 1998, the Company subsequently sold 1,000,000 shares of
its remaining Class A common stock of Oryx Instruments Corporation (I&M) and the
$1,000,000 note receivable from I&M in exchange for a cash payment of $500,000.
As a result of this transaction, the Company recognized a profit of $146,000 on
its previously recorded $646,000 deferred gain. (See below)
38
<PAGE>
Cash received by Oryx $ 500,000
Recognition of deferred gain 646,000
Less:
Sales of Note Receivable (1,000,000)
Sale of I&M stock (recorded
at zero value) (-)
-----------
Net gain realized $ 146,000
===========
As a result of the above transaction, the Company's remaining
interest in I&M was approximately 10%, which was fully reserved at February
28, 1999
Material Business Segment
o Specialized Materials
o Contract R&D
Year Ended Year Ended
February 28 February 28
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------
Revenues $4,449 $4,678
Cost of sales 3,179 3,300
------ ------
Gross Profit 1,270 1,378
Operating Expenses 285 0
------ ------
Operating Income (Loss) $ 985 $1,378
------ ------
Revenues for fiscal year 1999 decreased $229,000 or 4.9 % to $4,449,000
for the year ended February 28, 1999 from $4,678,000 for the year ended February
28, 1998. The decrease in revenue was primarily attributable to a decline of
$304,000 in revenue recognized from research government contracts, offset by an
increase of $75,000 revenue in the sputtering target assemblies business.
However, the Company anticipates that sales in fiscal 2000 from sputtering
target assemblies will be significantly below fiscal 1999 sales as consolidation
and plant closures continue in the magnetic media industry, and from reduced
billing on existing research government contracts which are substantially
finished.
Gross profit decreased $108,000 or 7.8 % from $1,378,000 for the year
ended February 28, 1998 to $1,270,000 for the year ended
39
<PAGE>
February 28, 1999. This decrease is primarily attributable to $240,000 less in
gross profit related to research government contracts, offset by increase sales
on lower manufacturing costs for sputtering target assemblies.
Operating expenses in fiscal 1999 are associated with marketing, and
administrative services not previously provided to the Material Business Unit.
Income from operations for the 1999 fiscal year decreased $393,000 or
28.5% from $1,378,000 for the fiscal year ended February 28, 1998 to $985,000
for the year ended February 28, 1999.
The Company expects that the results of operations for sputtering target
assemblies in fiscal year 2000 will be adversely affected by the continued
economic turmoil in the magnetic media industry, and consequently that its gross
profits and gross profit margins are likely to decline in fiscal year 2000.
CORPORATE
Year Ended Year Ended
February 28, February 28,
(dollars in thousands) 1999 1998
- -----------------------------------------------------------------------------
Operating Expenses $ 1,477 $ 2,250
------- -------
Operating Income (Loss) $(1,477) $(2,250)
======= =======
The decrease in operating expenses and loss from corporate operations of
$773,000 or 34.4% from $2,250,000 for the fiscal year ended February 28, 1998 to
$1,477,000 for the fiscal year ended February 28, 1999 primarily relates to
reduction in labor, facilities, and professional services costs.
Liquidity and Capital Resources
The Company's working capital increased $111,000 or 7.4% from a surplus
of $1,501,000 at February 28, 1998, to a surplus of $1,612,000 at February 28,
1999. The Company's ratio of current assets to current liabilities was 1.6:1 at
February 28, 1998, and 2.1:1 at February 28, 1999.
40
<PAGE>
Net cash used in operations for the year the ended February 28, 1999
was $1,469,000 consisting of $529,000 from continuing operations primarily in
the form of operating losses and $940,000 from discontinued operations resulting
from the sale of Oryx Power Products. Net cash used in operations for the fiscal
year ended February 28, 1998, was $4,513,000 consisting of $3,687,000 from
continuing operations and $826,000 from discontinued operations. Net cash used
in continuing operations consists primarily of operating losses.
Net cash provided by investing activities was $1,901,000 for the fiscal
year ended February 28, 1999, consisting primarily of proceeds from the
Company's sale of the business of Oryx Power Products Corporation. Net cash
provided by investing activities was $1,062,000 for the 1998 fiscal year,
primarily from the Company's sale of securities of DAS Devices, Inc. The Company
does not expect to have any material capital expenditures for the year ended
February 29, 2000.
Net cash provided by financing activities was $416,000 for the fiscal
year ended February 28, 1999. This represents a decline of $1,368,000 or 76.7%
from net cash provided by financing activities in fiscal 1998. Cash provided by
financing activities during fiscal 1999 was primarily attributed to the sale of
a note receivable, involving the sale of the Instrument Business. Net cash
provided by financing activities for the fiscal year ended February 28, 1998 was
$1,784,000, primarily from the sale of approximately 3% ownership in the
Company's subsidiary SurgX to IRISO, one of the Company's licensees, and
proceeds from funding for an account receivable facility and inventory facility
provided by KBK Financial.
In May 1997, the Company entered into a credit facility which included
an Accounts Receivable Revolving Batch Facility and an Inventory Line of Credit
with KBK Financial, Inc. The Inventory Line of Credit provided for borrowings of
up to $1.5 million ($750,000 of which is subject to an inventory appraisal). The
Accounts Receivable Revolving Batch Facility allowed the Company to factor up to
a maximum of $4 million, provided that any amount in excess of $3.5 million was
supported by an equal amount of unused availability under the Inventory Line of
Credit. Under the facility, the Company was required to sell on an undiscounted,
non recourse basis all accounts receivable. In exchange, cash advances were
available to the Company up to 85% of the face amount of eligible accounts
receivable (as defined)
41
<PAGE>
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 were equal to the greater of the lender's base rate plus 1.25% or
not less than 7.0%. In March 1998, the agreement was amended to reduce the
Account Receivable Revolving Batch Facility and the Inventory Credit Line to
maximum borrowings of $500,000 each. Under the amended agreement, the Accounts
Receivable Revolving Batch Facility expired in March 1999 and the Inventory Line
of Credit expired in May 1999.
At February 28, 1999, the Company did not have amounts outstanding under
either the Accounts Receivable Revolving Batch Facility or the Inventory Credit
Line. 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 KBK Financial, Inc. for borrowings of amounts up to $1,000,000, bearing
interest at the lender's base rate plus 4% with a minimum of 7% per annum. As
consideration upon signing the facility, KBK Financial, Inc. received
warrants to purchase 174,546 shares of common stock 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. This facility expired unused on September 15,
1998.
In April of 1999, 939,536 public warrants were exercised for 1,973,022
shares of the Company's common stock providing cash proceeds to the Company of
approximately $3,333,000. The Company believes that with such proceeds it has
sufficient capital to meet its anticipated working capital requirements through
fiscal year 2000. However, in the event the Company fails to meet its fiscal
year 2000 operating plan, the Company might need additional funding to be
obtained by selling assets, raising additional equity, or taking other steps. If
the Company requires additional equity financing or attempts to raise capital
through an asset sale, there can be no assurance that such transactions can be
effected in time to meet the Company's needs, if at all, or that any such
transaction will be on terms acceptable to the Company or in the interest of its
stockholders.
42
<PAGE>
Year 2000 Issue
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 collection, automated manufacturing, or automated testing
systems which could be materially adversely affected by Year 2000 problems.
As of February 28, 1999, the Company had completed several Year 2000
projects, including an upgrade 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 suggests no
material problems.
As of February 28, 1999, the following Year 2000 projects are completed
or in process: A new Y2K Compliant email system has been installed and tested
and the conversion of email from the old system has been completed; the new
compliant Netcellent (MACOLA) V6.7 MIS system has been installed and related
databases have been converted to Year 2000 compliant formats. This was completed
prior to the 1999 fiscal year end, and the final 1999
43
<PAGE>
inventory and financial close were completed on the new system and data
without problems. A list of critical vendors has been identified and
questionnaires have been sent to these vendors. Vendor response has been
quite favorable with most having programs in place. The company is working
with or will replace any remaining vendors who are not compliant. Evaluation
of equipment containing embedded controllers is ongoing during 1999, although
none is currently considered mission critical. As of February 28, 1999, the
Company's aggregate expenditures (excluding employee costs) in connection
with Year 2000 compliance have been less than $30,000 and the Company
estimates that the total cost of its Year 2000 projects will be approximately
$50,000.
The Company has also initiated discussions with Cooper Bussmann and
IRISO, the Company's primary licensees, with respect to their state of readiness
for year 2000. Cooper Bussmann has a detailed Y2K plan which has been in place
since 1996 and has completed most major phases. They provide regular status on
implementation, and the Company feels Cooper Bussmann will be compliant. The
Company has not yet completed its evaluation of IRISO's Year 2000 compliance
and, upon completion of such review, will develop contingency plans if IRISO is
not Year 2000 compliant.
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 result's of operations, liquidity or financial condition. However, in
the event that the Company's primary licensees, Cooper Bussmann and Iriso, or
their respective customers or vendors suffer a material interruption in business
activity due to computer malfunctions
44
<PAGE>
resulting from Year 2000 noncompliance, licensing revenues to the Company from
Cooper 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 read in conjunction with the Company's disclosures about
forward-looking statements immediately proceeding "Part I-Business."
ORYX POWER PRODUCTS CORPORATION (Discontinued operations)
On March 7, 1998, Todd Power Corporation ("Todd") acquired
substantially all of the properties, assets, rights, business and certain
liabilities of Oryx Power Products Corporation ("Power Products") for a
purchase price of $2,000,000 in cash and a contingent additional amount of up
to $4,000,000 to be calculated based upon future sales of certain of Power
Products' specified products to named customers during the fourteen month
period immediately following the sale. Sales during this fourteen-month
period (ended May 1, 1999) were at a level whereby the Company may be paid up
to approximately $250,000 out of the total $4,000,000 contingent payment. The
actual amount paid to the Company will vary pursuant to terms and conditions
of the purchase agreement. 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. The Company recognized a loss on disposal, all
losses were recognized as if the transaction were 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
was $10,022,000 for the year ended February 28, 1998. Loss from discontinued
operations, net of taxes, was $3,666,000 for the year ended February 28, 1998.
45
<PAGE>
Item 7. Financial Statements
The response to this item is submitted in a separate section of this
report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The information required by this item is incorporated by reference from
the information under the caption "Election of Directors," with respect to
Directors, and under the caption "Management," with respect to Executive
Officers, contained in the Company's definitive Proxy Statement which will be
filed with the Commission in connection with the solicitation of proxies for the
Company's 1999 Annual Meeting of Stockholders (the "Proxy Statement").
Item 10. Executive Compensation
The information required by this item is incorporated by reference to
the information under the caption "Executive Compensation" to be contained in
the Proxy Statement.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to
the information under the caption "Security Ownership of Certain Beneficial
Owners and Management" to be contained in the Proxy Statement.
Item 12. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to
the information under the caption "Certain Transactions" to be contained in the
Proxy Statement.
46
<PAGE>
Item 13. Exhibits, Lists and Reports on Form 8-K
(a) Financial Statements and Schedules
The financial statements listed on the index to financial statements on
page F-1 are filed as part of this Form 10-KSB.
(b) Reports on Form 8-K
The Company filed with the Commission two Reports on Form 8-K during
the fiscal quarter ended February 28, 1999. The first such report was filed
on December 8, 1998 for the purpose of reporting a Note and Stock Purchase
Agreement between the Company, Corus Investment and Oryx Instruments &
Material Corporation. The second such Report was filed on February 23, 1999
for the purpose of reporting an Assignment Agreement between the Company and
Philip J. Micciche.
(c) Exhibits
Exhibit No. Description of Exhibits
----------- -----------------------
3.1 Certificate of Incorporation of the Registrant dated July 26,
1993(1)
3.2 Bylaws of the Registrant dated July 26, 1993(1)
3.3 Certificate of Amendment to Certificate of Incorporation dated
July 23, 1993(1)
3.3A Certificate of Amendment of Certificate of Incorporation dated
February 7, 1996(4)
4.1 Specimen Common Stock Certificate(1)
4.2 Specimen Common Stock Purchase Warrant(1)
4.3 Warrant Agency Agreement including Statement of Rights, Terms
and Conditions for Callable Stock Purchase Warrants(2)
4.4 Incentive and Nonqualified Stock Option Plan, as Amended(5)
4.4A 1996 Directors Stock Option Plan(5)
4.4B 1995 Directors Stock Option Plan(6)
4.5 Form of Promissory Note issued to Series A Preferred Stock
investors(1)
4.6 Unit Purchase Warrant(1)
4.7 Form of Warrants issued to Yorkton Securities, Inc. in December
1996 and February 1997(8)
4.8 Nonstatutory Stock Option Agreement, dated as of March 1, 1998,
between the Registrant and Bharat Shah(5)
47
<PAGE>
4.9 Nonstatutory Stock Option Agreement, dated as of March 1, 1998,
between the Registrant and Bharat Shah(5)
4.10 Nonstatutory Stock Option Agreement, dated as of March 1, 1998,
between the Registrant and Paul Dickerson(5)
4.11 Nonstatutory Stock Option Agreement, dated as of March 1, 1998,
between the Registrant and Thomas Landgraf(5)
4.12 Nonstatutory Stock Option Agreement, dated as of March 1, 1998,
between the Registrant and Charles Ray(5)
4.13 Nonstatutory Stock Option Agreement, dated as of March 1, 1998,
between the Registrant and Gary Sollner(5)
4.14 Warrant dated as of August 10, 1998, between the Registrant and
Continental Capital & Equity Corporation(14)
4.15 Stock Warrant dated as of February 27, 1998, between the
Registrant and KBK Financial, Inc.(14)
10.1 Lease Agreement with Renco Investment Company re: Fremont,
California office, a laboratory and manufacturing facility (1)
10.2 Lease Agreement with FINSA re: Reynosa, Mexico, manufacturing
facility(3)
10.3 Lease Agreement with Greer Enterprises re: Fremont, California
manufacturing facility(3)
10.4 Lease Agreement with Hospitak/Meditron re: McAllen, Texas,
warehouse facility(3)
10.5 Lease Agreement with Security Capital Industrial Trust re:
Fremont, California manufacturing facility(4)
10.6 Lease Agreement with OTR, State Teachers Retirement System of
Ohio re: Mt. Prospect, Illinois office(4)
10.7 Lease Agreement with E.B.J. Partners LP re: Fremont, California
office and manufacturing facility(12)
10.8 Letter of Separation Agreement with Andrew Wilson(12)
10.9 Letter of Employment Agreement with Mitchel Underseth(12)
48
<PAGE>
10.10 Letter of Employment Agreement with Philip Micciche(12)
10.11 Letter of Employment and Non-Competition Agreement with Andrew
Intrater(1)
10.12 Agreement for the Purchase and Sale of Stock with Intek
Diversified Corporation(1)
10.13 Asset Purchase Agreement with Zenith Electronics Corporation(1)
10.14 Promissory Notes issued in interim debt financing(1)
10.15 Common Stock Purchase Warrants issued in interim debt
financing(3)
10.16 Placement Agency Agreement between the Registrant and Yorkton
Securities, Inc. dated February 8, 1996, as amended April 22,
1996(4)
10.17 Form of Subscription Agreement between the Registrant and
various investors in Yorkton Private Placement dated February
29, 1996 and May 13, 1996(4)
10.18 Offering Memorandum dated February 8, 1996 and Supplement
thereto dated April 22, 1996, relating to Yorkton private
placement(4)
10.19 Settlement Agreement between the Registrant and Zenith
Electronics Corporation dated February 29, 1996, as amended
April 16, 1996(4)
10.20 Agreement between the Registrant and Cooper Bussmann dated
July, 1996(12)
10.21 Agreement between the Registrant and National Semiconductor
dated June 7, 1996(12)
10.22 Agreement between the Registrant and LSI Logic dated September
30, 1996(12)
10.23 Agency Agreement between the Registrant and Yorkton Securities,
Inc. dated December 4, 1996, as amended January 23, 1997(8)
10.24 Form of Subscription Agreement between the Registrant and
various investors in Yorkton Private Placement dated December
4, 1996(9)
10.25 Asset Purchase Agreement relating to the acquisition of Power
Sensors Corporation by Oryx Power Products Corporation dated
December 19, 1996(7)
10.26 Stock Purchase and Reorganization Agreement by and among the
Registrant, Corus Investment, Ltd. and Oryx Instruments and
Materials Corporation Dated February 27, 1998(10)
49
<PAGE>
10.27 Stockholders' Agreement Dated February 27, 1998(10)
10.28 Pledge Agreement Dated February 27, 1998(10)
10.29 Promissory Note Dated February 27, 1998(10)
10.30 Asset Purchase Agreement by and among the Registrant, Todd Power
Corporation and Oryx Power Products Corporation Dated March 2,
1998(11)+
10.31 License Agreement with IRISO Electronics Limited(13)
10.32 Stock Purchase Agreement with IRISO Electronics Limited(13)
10.33 Agreement with Office of Naval Research(13)
10.34 Das Devices Inc. Preferred Stock Purchase Agreement(13)
10.35 Arvind Patel Separation Agreement(13)
10.36 Amended Cooper Bussmann License Agreement (13)
10.37 Revolving Account Transfer and Purchase Agreement(13)
10.38 First Amendment to Loan Agreement(13)
10.39 Revolving Credit Promissory Note(13)
10.40 Second Amendment to Loan Agreement(13)
10.41 Market Access Program Marketing Agreement dated as of August 7,
1998, by and between the Registrant and Continental Capital &
Equity Corporation. (14)
10.42 Term Promissory Note dated February 27, 1998 payable to KBK
Financial, Inc.(13)
10.43 Loan Agreement dated May 29, 1997 with KBK Financial, Inc.(13)
10.44 Note and Stock Purchase Agreement and Release dated November 6,
1998 by and among the Registrant, Corus Investment LTD.
and Oryx Instruments and Materials Corporation. (15)
10.45 Promissory Note payable by Mitchel Underseth dated July 15,
1998*
10.46 Assignment Agreement between Philip J. Micciche and the
Registrant dated November 24, 1998*
10.47 Extension Rent Agreement between ProLogis LP and the Registrant
dated April 12, 1999*
21 Subsidiaries of the Registrant(4)
23.1 Consent of Independent Accountants*
27.1 Financial Data Schedule*
50
<PAGE>
* Filed herewith.
+ Confidential treatment has been requested with respect to certain
portions of these Exhibits. Such portions have been omitted from this
filing and have been filed separately with the Securities and Exchange
Commission.
(1) Previously filed as an exhibit to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-72104) which became
effective on April 6, 1994 and incorporated herein by reference.
(2) Previously filed as an exhibit to the Registrant's Current Report on
Form 8-K filed with the Commission on March 27, 1995.
(3) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended February 28, 1995.
(4) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-KSB (as amended) for the fiscal year ended February 29, 1996.
(5) Previously filed as an exhibit to the Registrant's Registration
Statement on Form S-8 (Registration No. 333-62767) filed with the
Commission on September 1, 1998 and incorporated herein by reference.
(6) Previously filed as an exhibit to the Registrant's Registration
Statements on Form S-8 (Registration No. 333-07409) filed with the
Commission on July 2, 1996 and incorporated herein by reference.
(7) Previously filed as an exhibit to the Registrant's Current Report on
Form 8-K filed with the Commission on January 3, 1997.
(8) Previously filed as an exhibit to the Registrant's Current Report on
Form 8-K filed with the Commission on February 21, 1997.
(9) Previously filed as an exhibit to the Registrant's Registration
Statement on Form S-3 (Registration No. 333-23317) filed with the
Commission on March 31, 1997 and incorporated herein by reference.
51
<PAGE>
(10) Previously filed as an exhibit to the Registrant's Current Report on
Form 8-K filed with the Commission on March 16, 1998.
(11) Previously filed as an exhibit to the Registrant's Current Report on
Form 8-K filed with the Commission on March 23, 1998.
(12) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended February 28, 1997.
(13) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended February 28, 1998.
(14) Previously filed as an exhibit to the Registrant's Registration
Statement on Form S-3 (Registration No. 333-63991) which became
effective on September 22, 1998 and is incorporated herein by
reference.
(15) Previously filed as an exhibit to the Registrant's Current Report on
Form 8-K filed with the Commission on April 14, 1999.
52
<PAGE>
SIGNATURES
In accordance with 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 27th day of May 1999.
ORYX TECHNOLOGY CORP.
By: /s/ Philip J. Micciche
-----------------------------
Philip J. Micciche,
President & CEO
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant, and in the capacities and
on the date indicated.
Signature Title Date
- --------- ----- ----
President, Chief
Executive Officer
/s/ Philip J. Micciche and Director May 27, 1999
- -------------------------- (Principal Executive
Philip J. Micciche Officer)
/s/ Andrew Intrater Secretary, Treasurer May 27, 1999
- -------------------------- and Director
Andrew Intrater
Chief Financial May 27, 1999
/s/ Mitchel Underseth Officer and Director
- -------------------------- (Principal Financial
Mitchel Underseth Officer and Principal
Accounting Officer)
/s/ John H. Abeles Director May 27, 1999
- --------------------------
John H. Abeles
(signatures continued next page)
53
<PAGE>
(signatures continued from previous page )
Signature Title Date
- --------- ----- ----
/s/ Jay M. Haft Director May 27, 1999
- --------------------------
Jay M. Haft
/s/ Richard Hubbard Director May 27, 1999
- --------------------------
Richard Hubbard
/s/ Doug McBurnie Director May 27, 1999
- --------------------------
Doug McBurnie
/s/ Ted D. Morgan Director May 27, 1999
- --------------------------
Ted D. Morgan
54
<PAGE>
ORYX TECHNOLOGY CORP.
Index to Consolidated Financial Statements
February 28, 1999 and February 28, 1998
- --------------------------------------------------------------------------------
PAGE
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheet at February 28, 1999
and 1998............................................................ F-3
Consolidated Statement of Operations for the
years ended February 28, 1999 and 1998............................. F-4
Consolidated Statement of Stockholders' Equity for the
years ended February 28, 1999 and 1998.............................. F-5
Consolidated Statement of Cash Flows for the
years ended February 28, 1999 and 1998.............................. 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 28, 1999 and 1998, 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.
PricewaterhouseCoopers LLP
San Jose, California
May 25, 1999
F-2
<PAGE>
ORYX TECHNOLOGY CORP.
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
February 28, February 28,
1999 1998
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,570,000 $ 722,000
Accounts receivable, net of allowance for doubtful
accounts of $118,000 and $93,000 696,000 1,100,000
Inventories 384,000 397,000
Other current assets 278,000 670,000
Net assets of discontinued operations - 1,060,000
------------ ------------
Total current assets 2,928,000 3,949,000
Property and equipment, net 434,000 490,000
Other assets 141,000 1,114,000
------------ ------------
$ 3,503,000 $ 5,553,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Bank borrowings $ - $ 129,000
Capital lease and other short term obligations 12,000 16,000
Deferred revenue 408,000 874,000
Accounts payable 355,000 431,000
Accrued liabilities 541,000 998,000
------------ ------------
Total current liabilities 1,316,000 2,448,000
Deferred gain on Sale of I&M Division -- 646,000
Capital lease and other long term obligation, less current portion 16,000 12,000
------------ ------------
Total liabilities 1,332,000 3,106,000
Stockholders' equity:
Series A 2% Convertible Cumulative Preferred Stock,
$0.001 par value; 3,000,000 shares authorized;
3,750 and 4,500 shares issued and outstanding,
liquidation value $94,000 and $113,000 89,000 107,000
Common Stock, $0.001 par value; 25,000,000 shares
authorized; 13,290,464 and 13,124,821 issued and outstanding 13,000 13,000
Additional paid-in capital 20,144,000 19,711,000
Accumulated deficit (18,075,000) (17,384,000)
------------ ------------
Total stockholders' equity 2,171,000 2,447,000
------------ ------------
$ 3,503,000 $ 5,553,000
============ ============
</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,
1999 1998
<S> <C> <C>
Net revenue $ 4,642,000 $ 8,449,000
Cost of sales 3,463,000 6,234,000
------------ ------------
Gross profit 1,179,000 2,215,000
Operating expenses:
Marketing and selling 207,000 1,141,000
General and administrative 1,604,000 2,911,000
Research and development 419,000 2,669,000
------------ ------------
Total operating expenses 2,230,000 6,721,000
------------ ------------
Loss from operations (1,051,000) (4,506,000)
Interest income (expense), net 14,000 (350,000)
Other income 363,000 --
Net gain (write down) on investment (15,000) 1,383,000
------------ ------------
Loss from continuing operations (689,000) (3,473,000)
------------ ------------
Discontinued operations:
Loss from discontinued operations -- (3,588,000)
Loss on disposal of discontinued operations -- (78,000)
------------ ------------
Loss from discontinued operations -- (3,666,000)
------------ ------------
Net loss (689,000) (7,139,000)
Dividends (2,000) (2,000)
------------ ------------
Net loss attributable to Common Stock $ (691,000) $ (7,141,000)
============ ============
Basic and diluted loss per common share from continuing operations $ (0.05) $ (0.26)
Basic and diluted loss per common share from discontinued operations -- (0.28)
------------ ------------
Basic and diluted net loss per common share (Note 2) $ (0.05) $ (0.54)
============ ============
Weighted average common shares used to compute basic and
diluted loss per share (Note 2) 13,158,000 13,105,000
============ ============
</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 28, 1997 4,500 $107,000 12,968,581 $13,000 $18,920,000 $(10,243,000) $8,797,000
Issuance of Common Stock and
warrants in private placements,
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
Issuance of Common Stock upon
exercise of options -- -- 24,469 -- 28,000 -- 28,000
Issuance of Common Stock upon
exercise of warrants -- -- 10,922 -- 18,000 -- 18,000
Issuance of stock option in
exchange for services -- -- -- -- 209,000 -- 209,000
Issuance of Common Stock in
exchange for investor relations
services -- -- 121,500 -- 143,000 -- 143,000
Issuance of warrants in exchange
for investor relations services -- -- -- -- 17,000 -- 17,000
Conversion of Preferred Stock
to Common Stock (750) (18,000) 8,752 -- 18,000 -- --
Net Loss -- -- -- -- -- (689,000) (689,000)
Preferred Stock dividend -- -- -- -- -- (2,000) (2,000)
----- -------- ---------- ------- ----------- ------------ ----------
Balance at February 28, 1999 3,750 $ 89,000 13,290,464 $13,000 $20,144,000 $(18,075,000) $2,171,000
===== ======== ========== ======= =========== ============ ==========
</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,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (689,000) $(7,139,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss from discontinued operations -- 3,666,000
Gain on sale of investment -- (1,383,000)
Non-cash stock compensation charge 173,000 93,000
Depreciation and amortization 155,000 458,000
Recognized Gain on sale of Instruments business (146,000) --
Changes in assets and liabilities (net of effects from disposal of subsidiaries):
Accounts receivable 404,000 (483,000)
Inventories 13,000 548,000
Other current assets 405,000 (148,000)
Other assets (27,000) 20,000
Deferred revenue (466,000) 609,000
Accounts payable (76,000) (622,000)
Accrued liabilities (275,000) 694,000
----------- -----------
Net cash used in continued operations (529,000) (3,687,000)
Net cash used in discontinued operations (940,000) (826,000)
----------- -----------
Net cash used in operations (1,469,000) (4,513,000)
----------- -----------
Cash flows from investing activities:
Capital expenditures (99,000) (321,000)
Proceeds from sale of discontinued operations 2,000,000 --
Net proceeds from sale of shares of an investment -- 1,383,000
----------- -----------
Net cash provided by investing activities 1,901,000 1,062,000
----------- -----------
Cash flows from financing activities:
Sale of Accounts Receivable to a financial institution -- 1,000,000
Sale of Note Receivable 500,000 --
Borrowings(repayment) of bank line of credit (129,000) 129,000
Proceeds from notes payable 19,000 --
Payment of capital lease obligations (19,000) (38,000)
Proceeds from sale of minority interest on SurgX Corp. -- 485,000
Proceeds from exercise of options for Common Stock 28,000 --
Proceeds from exercise of warrants for Common Stock 18,000 213,000
Payment of preferred stock dividend (2,000) (2,000)
Other 1,000 (3,000)
----------- -----------
Net cash provided by financing activities 416,000 1,784,000
----------- -----------
Net increase (decrease) in cash and cash equivalents 848,000 (1,667,000)
Cash and cash equivalents at beginning of period 722,000 2,389,000
----------- -----------
Cash and cash equivalents at end of period $ 1,570,000 $ 722,000
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid during the period $ 40,000 $ 298,000
=========== ===========
Supplemental disclosure of noncash investing and financing activities:
Property and equipment acquired under capital lease obligations $ -- $ 8,000
=========== ===========
</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 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.
The Company's cumulative losses and cash used in fiscal 1999 operations
results in uncertainty about the Company's future viability. In the prior
year, the sale of a portion of Instruments and Materials business (see note
4), and the sale of Oryx Power Products Corporation ("Power Products") (see
note 5) significantly reduced operating losses enabling the Company to
continue as a going concern. The exercise of public warrants in April 1999,
which resulted in net cash proceeds of $3.3 million will contribute the
Company's ability to continue as a going concern through at least February
29, 2000.
CONCENTRATION OF CREDIT RISKS
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. The Company's accounts receivable are principally derived
from sales in the United States. All transactions are denominated in U.S.
dollars. Significant customers who represented 10% or more of revenue for
the respective periods were as follow:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28,
1999 1998
<S> <C> <C>
Customer A 27% 6%
Customer B 22% 5%
Customer C 11% 11%
Customer D 10% 13%
Customer E 3% 12%
</TABLE>
Fiscal 1998 includes sales by Oryx Instruments business sold in
February 1998.
F-7
<PAGE>
ORYX TECHNOLOGY CORP.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The Company markets its products both domestically and
internationally. Sales by geographic region are as follow:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28,
1999 1998
<S> <C> <C>
Net Revenues:
United States $3,595,000 $6,434,000
Singapore 1,043,000 1,302,000
Pacific Rim (Taiwan and Japan) 4,000 693,000
France -- 20,000
---------- ----------
Net Revenues $4,642,000 $8,449,000
========== ==========
</TABLE>
Fiscal 1998 includes sales by Oryx Instruments business sold on February
1998.
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, 1999 is referred to as fiscal 1999.
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 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 or market and cost being
determined on a first-in, first-out basis.
F-8
<PAGE>
ORYX TECHNOLOGY CORP.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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.
INVESTMENT IN DAS DEVICES, INC.
The Company accounts for its investment in DAS Devices, Inc. ("DAS
Devices") using the cost method. See Note 6 for related investment
activity.
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.
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
1999 and 1998, 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
1999 or 1998. Anti dilutive securities and common stock equivalents at
February 28, 1999 which could be dilutive in future periods include common
stock options to purchase 3,507,000 shares of common stock, warrants to
purchase 4,435,000 shares of common stock, 3,750 shares of Series A
preferred stock which may be converted into 44,000 shares of common stock
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.
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.
NEW ACCOUNTING STANDARD
In June 1998, the FASB issued Statement of Financial Accounting Standard
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
(SFAS No. 133) which establishes accounting and reporting standards for
derivative instruments, and for hedging activities. It requires that an
entity recognizes all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. Management has not yet evaluated the effects of this change on its
operations. The company will adopt SFAS No. 133 as required for its second
quarterly filing in fiscal 2001. The Company currently does not hold any
instruments which would be effected by SFAS No. 133.
F-9
<PAGE>
ORYX TECHNOLOGY CORP.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. DETAILS OF BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1999 1998
<S> <C> <C>
Inventories:
Raw materials $ 75,000 $ 84,000
Finished goods 309,000 313,000
--------- ---------
$ 384,000 $ 397,000
========= =========
Other current assets:
Investment in Applied Magnetics Corporation $ 218,000 $ --
Note receivable -- 500,000
Other 60,000 170,000
--------- ---------
$ 278,000 $ 670,000
========= =========
Property and equipment:
Machinery and equipment $ 501,000 $ 459,000
Furniture and fixtures 250,000 225,000
Automobiles 43,000 11,000
Leasehold improvements 105,000 105,000
--------- ---------
899,000 800,000
Less: Accumulated depreciation (465,000) (310,000)
--------- ---------
$ 434,000 $ 490,000
========= =========
Accrued liabilities:
Compensation $ 192,000 $ 316,000
Professional fees 116,000 199,000
Facilities 22,000 31,000
Disposal related costs -- 138,000
Other 211,000 314,000
--------- ---------
$ 541,000 $ 998,000
========= =========
</TABLE>
F-10
<PAGE>
ORYX TECHNOLOGY CORP.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
4. 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 $1,000,000 in a non-interest
bearing note (the "Note Receivable"). The Note Receivable balance was
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 was
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 was
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. Revenue from the sold
Instruments portion of I&M were $3,688,000 for the year ended February 28,
1998.
On November 24, 1998, the Company sold 1,000,000 shares of Class A Common
Stock of I&M owned by the Company and the $1,000,000 note receivable from
I&M in exchange for a cash payment of $500,000. As a result of this
transaction, the Company recognized a gain of $146,000. The gain of
$146,000 consist of the $500,000 in cash received and recognition of the
$646,000 deferred gain less the sale of the $1,000,000 note receivable.
5. 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. Revenue from Power
Products was $10,022,000 for the year ended February 28, 1998.
F-11
<PAGE>
ORYX TECHNOLOGY CORP.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The components of net assets of discontinued operations included in the
Consolidated Balance Sheet are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28,
1998
<S> <C>
Cash $ 13,000
Accounts receivable 228,000
Inventory 2,571,000
Other current assets 95,000
-----------
Current Assets 2,907,000
Property & equipment, net 1,158,000
Non current assets 632,000
-----------
Total assets 4,697,000
Current liabilities (2,567,000)
Non current liabilities (245,000)
Mandatorily redeemable securities (825,000)
-----------
Total liabilities (3,637,000)
Net assets of discontinued operations $ 1,060,000
===========
</TABLE>
Loss from discontinued operations are net of income taxes of $25,000 for
the year ended February 28,1998. The tax benefit resulting from the loss
on disposal of Power Products was immaterial. Transaction costs related
to the disposal were $1,018,000.
6. INVESTMENT IN DAS DEVICES
In fiscal 1998, the Company sold 42% of its holdings in DAS Devices for
$1.4 million and realized a gain of $1,383,000, net of its prorata cost
basis and expenses of $17,000. At February 28, 1998 the Company's
investment in DAS Devices was $15,000. During fiscal year 1999, Applied
Magnetics Corp. purchased DAS Devices and the Company did not receive
any consideration for its holding due to the priority of liquidation
preference to other DAS Devices stockholders. As a result the Company
recorded a $15,000 loss on the write-off of its remaining investment in
DAS Devices.
7. CONTINENTAL CAPITAL & EQUITY CORPORATION TRANSACTION
During fiscal 1999, the Company entered into a seventeen month marketing
agreement to receive investor relations services from Continental
Capital. In consideration for services to be rendered, the Company
agreed to issue 162,000 shares of common stock over defined periods,
40,500 shares of common stock which are contingently issuable upon
certain milestones and an immediately exercisable warrant to purchase
60,000 shares of common stock at $1.09, with a two-year term. The
Company issued 121,500 shares of common stock to Continental Capital in
fiscal 1999 under this agreement. The Company recorded expense of
$147,000 relating to the services received which was based on the
Company's stock price during the year. Expense relating to the
F-12
<PAGE>
ORYX TECHNOLOGY CORP.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
issuance of these shares is not necessarily representative of expense to
be incurred in future periods as the expense is based on the Company's
prevailing stock price during the periods the shares are issued. The
Company also issued the warrant during fiscal 1999 and will amortize the
value of $29,000 relating to the warrant over the agreement term.
8. 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, 1999, there were no borrowings
under this credit facility.
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.
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. The Company has no intention to renew or extend any of
these facilities. 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. At February 28, 1999, there were no
borrowings outstanding under these credit facilities.
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 expired unused 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.
9. 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
F-13
<PAGE>
ORYX TECHNOLOGY CORP.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Common Stock. The Company had reserved 43,763 and 52,515 shares of
Common Stock for issuance upon conversion of the Series A Stock as of
February 28, 1999 and 1998, respectively. During fiscal 1999, a holder
of Series A Preferred Stock converted 750 units into 8,752 shares of
Common Stock. The holders of Series A Preferred 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 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.
10. 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. Under the 1995 Director's
Plan, shares vest in three equal annual installments of 15,000 shares on
the first, second and third anniversaries of the date of the grant.
Under 1996 Director's Plan, 10,000 shares vest and are exercisable upon
grant with the remainder vesting in equal annual installments on the
first and second anniversaries of the date of grant. The Company has
225,000 shares authorized under the 1995 Directors' Plan of which
180,000 options were outstanding with an average exercise price of $1.58
per share as of February 28, 1999. The Company has 250,000 shares
authorized under the 1996 Directors' Plan of which 150,000 options were
outstanding with an average exercise price of $1.61 per share as of
February 28, 1999.
F-14
<PAGE>
ORYX TECHNOLOGY CORP.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
A summary of stock option activity under the 1993 Plan and the Directors' Plans
is as follows:
<TABLE>
<CAPTION>
SHARES WEIGHTED-
AVAILABLE AVERAGE
FOR EXERCISE PRICE
GRANT SHARES PER SHARE
<S> <C> <C> <C>
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
Additional shares authorized 1,130,000 -- $ --
Options granted (1,242,000) 1,242,000 $ 1.14
Options canceled 272,044 (272,044) $ 1.45
Options exercised -- (24,469) $ 1.15
----------- -----------
Balance at February 28, 1999 377,800 3,507,413 $ 1.47
=========== ===========
</TABLE>
The following table summarizes information about employee stock options
outstanding under the 1993 and the Directors' Plans at February 28, 1999:
<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>
$0.25 - 0.25 50,000 0.4 $0.25 -- $0.00
$0.69 - 1.03 450,000 6.3 0.89 91,156 1.01
$1.07 - 1.58 1,918,601 8.4 1.37 773,821 1.35
$1.79 - 2.25 1,088,812 7.1 1.93 838,446 1.94
----------- -----------
Total 3,507,413 7.6 $1.47 1,703,423 $1.62
=========== ===========
</TABLE>
F-15
<PAGE>
ORYX TECHNOLOGY CORP.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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, 1999, there were 304,000 options to purchase shares of
SurgX Corporation class B common stocks of which 232,437 were vested. These
options had an average exercise price of $0.80 and an average remaining
contractual life of 6.4 years.
During fiscal 1998, the Company sold 333,000 Class A shares of SurgX
Corporation for net proceeds of $485,000. At February 28, 1999, 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.
A summary of stock option activity under the SurgX subsidiary stock option
plan is as follow:
<TABLE>
<CAPTION>
SHARES WEIGHTED-
AVAILABLE AVERAGE
FOR EXERCISE PRICE
GRANT SHARES PER SHARE
<S> <C> <C> <C>
Balance at February 28, 1997 1,217,500 282,500 $0.80
Additional shares authorized -- -- $ --
Options granted (36,000) 36,000 $0.80
Options canceled 14,500 (14,500) $0.80
Options exercised -- -- $ --
----------- -----------
Balance at February 28, 1998 1,196,000 304,000 $0.80
Additional shares authorized -- -- $ --
Options granted -- -- $ --
Options canceled -- -- $ --
Options exercised -- -- $ --
----------- -----------
Balance at February 28, 1999 1,196,000 304,000 $0.80
=========== ===========
</TABLE>
F-16
<PAGE>
ORYX TECHNOLOGY CORP.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding under
the SurgX subsidiary stock option plan at February 28, 1999:
<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>
$0.80 304,000 6.4 $0.80 232,437 $0.80
Total 304,000 6.4 $0.80 232,437 $0.80
</TABLE>
FAIR VALUE DISCLOSURES
Had compensation cost for all 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 1999
would have been $1,366,000 and $0.10, respectively, and in fiscal 1998
would have been $7,491,000 and $0.57, 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 86% for
fiscal 1999 and 77% for fiscal 1998; risk-free interest rate of 5.42%
for fiscal 1999 and 6.10% for fiscal 1998 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
1999 and 1998 was $1.03 and $0.87, respectively. The weighted average
fair value of options to purchase common shares of the Company's
subsidiaries were not material during fiscal years 1999 and 1998.
F-17
<PAGE>
ORYX TECHNOLOGY CORP.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
WARRANTS
The following warrants at February 28, 1999, and the number of shares of
the Company's Common Stock which may be purchased at exercise, were
outstanding and exercisable at February 28, 1999:
<TABLE>
<CAPTION>
ORIGINAL ISSUABLE WARRANT WARRANT WARRANT
WARRANTS COMMON COMMENCEMENT EXPIRATION EXERCISE
OUTSTANDING SHARES DATE DATE PRICE
<S> <C> <C> <C> <C>
1,168,699 2,421,262 Apr. 1994 Apr. 1999 $3.50
37,500 37,500 Oct. 1994 Oct. 2004 $2.00
379,000 572,508 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 82,800 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
60,000 60,000 Aug. 1998 Aug. 2000 $1.09
----------- -----------
2,945,826 4,434,697
=========== ===========
</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 8, in fiscal
1998 the Company issued warrants to KBK Financial, Inc. to purchase
174,546 shares of Common Stock exercisable through February 2001
at an exercise price of $1.15.
During fiscal 1999, the Company issued to Continental Capital & Equity
Corporation a immediately exercisable warrant to purchase 60,000 shares
of Common Stock at an exercise price of $1.09, with a two year term, in
exchange for investor relation services (see Note 7).
In April 1999, 939,536 public warrants were exercised into 1,973,022
shares of the Company's common stock providing cash proceeds to the
Company of approximately $3,333,000.
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.
F-18
<PAGE>
ORYX TECHNOLOGY CORP.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
11. 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 $412,000 and $670,000 during fiscal 1999 and
$716,000 and $734,000 during fiscal 1998, respectively. The expected
completion of these contracts are May and July 1999.
During fiscal 1999 and fiscal 1998, 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 1999 and fiscal 1998, $423,000 and $1,307,000,
respectively, was credited to research and development expenses under these
arrangements.
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 uncertainty regarding the realizability of
deferred tax assets such that a full valuation allowance is required at
February 28, 1999.
Deferred tax assets (liabilities) comprise the following:
<TABLE>
<CAPTION>
February 28, February 28,
1999 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforwards $ 3,904,000 $ 3,511,000
R&D credit carryforwards 343,000 366,000
Reserves 98,000 149,000
Other 609,000 600,000
----------- -----------
Gross deferred assets 4,954,000 4,626,000
Fixed assets (12,000) (36,000)
----------- -----------
Net deferred tax assets 4,942,000 4,590,000
Deferred tax assets from discontinued operations -- 750,000
----------- -----------
4,942,000 5,340,000
Valuation allowance (4,942,000) (5,340,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
</TABLE>
F-19
<PAGE>
ORYX TECHNOLOGY CORP.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
No provision for federal income taxes has been recorded because of losses
incurred.
At February 28, 1999, the Company had federal net operating loss and
research and development credit carryforwards of approximately $11,200,000
and $234,000, respectively. Such federal net operating loss and research
and development credit carryforwards will expire on various dates from 2004
through 2019, 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 change of greater
than 50% and, accordingly, the future utilization of federal net operating
loss and research and development credit carryforwards generated through
the dates of such offerings are limited.
13. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under operating
lease agreements, which expire in various periods through 2002.
Future minimum lease obligations are payable as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING FEBRUARY LEASES
<S> <C>
2000 $305,000
2001 286,000
2002 116,000
---------
Total minimum lease payments $707,000
========
</TABLE>
Rental expense for the years ended February 28, 1999 and 1998 was $333,000
and $516,000, respectively.
F-20
<PAGE>
ORYX TECHNOLOGY CORP.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
14. RELATED PARTIES
On February 1999, the Company received 54,455 shares of Common Stock of
Applied Magnetics Corp. ("Applied Magnetics") assigned to it by the
Company's Chief Executive Officer. The CEO received the shares in
connection with his providing consulting services to DAS Devices, a
magnetic read-write head manufacturer that recently merged with Applied
Magnetics. The shares of Applied Magnetics Common Stock received by the
Company in this transaction will be restricted until a registration
statement filed by Applied Magnetics with the Securities and Exchange
Commission is declared effective by the Commission. As a result, the
Company recorded $218,000 as other income equal to the fair market value
of the shares received as of February 28, 1999.
During fiscal 1999, the Company made a loan to an employee for $35,000,
at a rate of 7% per annum, repayable at the earlier of July 15, 2000, or
thirty days after the debtor ceases to be a full-time employee of the
Company.
15. SEGMENT INFORMATION
The Company groups its business into two operating segments and a
corporate segment, in accordance SFAS No. 131 "Disclosure about Segments
and Enterprise and Related Information.": (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.
All results of operations relating to the Instruments portion of
Instruments and Materials segment prior to its disposition have been
included in the consolidated information (see Note 4).
All the Company's long lived assets are located in the United States.
F-21
<PAGE>
ORYX TECHNOLOGY CORP.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Consolidated business segment information as of February 28, 1999 and February
28, 1998, and for each of the years then ended is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Revenues:
Instruments and Materials
Instruments $ -- $ 3,688,000
Materials 4,449,000 4,678,000
SurgX 193,000 83,000
Corporate -- --
----------- -----------
$ 4,642,000 $ 8,449,000
=========== ===========
Operating income/(loss):
Instruments and Materials
Instruments $ -- $(2,319,000)
Materials 985,000 1,378,000
SurgX (559,000) (1,315,000)
Corporate (1,477,000) (2,250,000)
----------- -----------
$(1,051,000) $(4,506,000)
=========== ===========
Identifiable assets:
Instruments and Materials
Instruments (see Note 5) $ -- $ --
Materials 1,020,000 1,518,000
SurgX 459,000 375,000
Corporate 2,155,000 2,600,000
----------- -----------
3,634,000 4,493,000
Plus: Net assets of discontinued operations -- 1,060,000
----------- -----------
$ 3,634,000 $ 5,553,000
=========== ===========
</TABLE>
F-22
<PAGE>
Exhibit 10.45
$35,000 AGGREGATE PRINCIPAL AMOUNT
- ----------------------------------
$35,000 July 15, 1998
Fremont, California
Subject to the terms and conditions of this Promissory Note (the
"Note"), for value received, Mitchel Underseth, an individual ("Maker"), hereby
promises to pay to Oryx Technology Corp., a Delaware corporation, ("Holder"),
the principal sum of Thirty Five Thousand Dollars ($35,000), together with
interest thereon from July _, 1998, in the following amounts and on the terms
set forth below.
1. Interest Rate. The principal amount outstanding under this Note shall
bear interest from July, 15, 1998, at the rate of seven percent (7.00%) per
annum, but in no case higher than the maximum rate allowed by law. Interest
shall accrue on the unpaid balance of this Note computed on the basis of a
365/366-day year and actual days elapsed.
2. Maturity Date. The unpaid principal balance and all accrued interest
under this Note shall be due and payable on the earlier of (i) July 15, 2000 or
(ii) thirty (30) days after Maker ceases to be a fall-time employee of Oryx
Technology Corp. (the "Maturity Date").
Payment.
(a) Principal and interest under this Note shall be payable in full on
the Maturity Date.
(b) All amounts payable under this Note are payable in lawful money of
the United States of America at the address of Holder as set forth below, or at
such other address as Holder shall designate in writing to Maker.
(c) Any payment made by Maker to Holder shall be credited first to the
costs of collection, then to payment of accrued interest and the remainder shall
be credited to outstanding principal hereunder.
4. Prepayment. Maker may prepay this Note, in whole or in part, together
with interest accrued to the date payment is received, at the option of the
Maker, without any prepayment penalty on no less than ten (10) days' written
notice to Holder.
5. Right to Accelerate Payment. This Note shall become immediately due
and payable in the full amount of principal and interest then unpaid, at the
option of Holder of this Note without notice or demand, upon the occurrence of
any of the following events:
(a) A petition is filed by or against Maker under any bankruptcy or
similar law, a receiver is appointed to take possession of a substantial part of
the property of Maker or Maker makes a general assignment for the benefit of his
creditors; or
(b) Maker fails to make payment of interest or principal when due under
this Note.
6. General Provisions,
(a) Waiver of Presentment, Protest & Demand; Non-Waiver. Maker waives
diligence, presentment, protest and demand and notice of such protest, demand,
dishonor and nonpayment
<PAGE>
of this Note. Maker further expressly agrees that this Note, or any payment
hereunder may be extended from time to time by Holder, and acceptance by Holder
of performance which does not strictly comply with the terms of this Note shall
not be deemed to be a waiver of Holder's rights.
(b) Powers & Rights Not Waived; Remedies Cumulative. No delay or failure
on the part of Holder in the exercise of any power or right shall operate as a
waiver thereof; nor shall any single or partial exercise of the same preclude
any other or further exercise thereof, or the exercise of any other power or
right, and the rights and remedies of Holder are cumulative to, and are not
exclusive of, any rights or remedies such Holder would otherwise have.
(c) Costs of Collection. In the event it becomes necessary for Holder to
retain legal counsel for the enforcement of this Note or any of its terms, if
successful in such enforcement by legal proceedings or otherwise, Holder shall
be reimbursed by Maker for Holder's reasonably incurred attorneys' fees and
other costs and expenses of collection.
(d) Replacement. On receipt of evidence reasonably satisfactory to Maker
of the loss, theft, destruction or mutilation of this Note and, in the case of
loss, theft or destruction, on delivery of an indemnity agreement or bond
reasonably satisfactory in form and amount to Maker, or in the case of
mutilation, on surrender and cancellation of this Note, Maker at its expense
will execute and deliver, in lieu of this Note, a new promissory note of like
tenor.
(e) Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of California, as such laws
are applied to contracts entered into by residents of such state and performed
in such state.
(f) Binding on Successors. This Note may not be assigned by Maker
without the prior written consent of Holder, which may be withheld for any
reason. The terms of this Note shall apply to, inure to the benefit of, and bind
all parties hereto and their successors and permitted assigns. As used herein
the term "Maker" shall include the undersigned Maker and any other person or
entity who may subsequently become liable for the payment hereof The term
"Holder" shall include the Holder as well as any other person or entity to whom
this Note or any interest in this Note is conveyed or transferred.
(g) Notices. Any notice required or permitted under this Note shall be
given in writing and shall be deemed to have been duly given on (i) the date of
service if served personally on the party to whom notice is to be given, (ii)
the date of delivery by facsimile (provided that the original facsimile is
promptly mailed by first class mail, postage prepaid and properly addressed to
the recipient of such facsimile), or (iii) the fifth day after mailing if mailed
to the party to whom notice is to be given, by certified mail (return receipt
requested), postage prepaid, and properly addressed to Holder at Holder's
address set forth below and to Maker at the address set forth below, or at such
other address as any party may designate in writing pursuant to the terms
hereof.
(h) Modification. This Note and any of its terms may be changed, waived
or terminated only by a written instrument signed by the party against which
enforcement of that change, waiver or termination is sought.
"MAKER"
/s/ Mitchel Underseth
---------------------------
Mitchel Underseth
Address: 1776 Almeda Diablo
Diablo, California 94528
<PAGE>
Acknowledged: "HOLDER"
ORYX TECHNOLOGY CORP.
/s/ Philip J. Micciche
-------------------------------
Fremont, California 94538
By: Philip J. Micciche
Title: CEO
Address: 1100 Auburn Street
Fremont California 94538
<PAGE>
Exhibit 10.46
ASSIGNMENT AGREEMENT
This Assignment Agreement is entered into as of November 24, 1998 by
and between Philip J. Micciche ("Micciche") and Oryx Technology Corp., a
Delaware corporation (the "Company").
RECITALS
A. Micciche has agreed to assign to the Company all his rights to
compensation in connection with consulting services provided by Micciche to DAS
Devices, Inc., a Delaware corporation ("DAS Devices").
B. Micciche has entered into that certain Non-Competition Agreement
dated as of November 24, 1998 (the "Non-Competition Agreement") with DAS Devices
which provides that, effective on February 11, 1999, the closing date of the
merger of AMC Merger Subsidiary, Inc., a Delaware corporation, with and into DAS
Devices, Micciche is entitled to receive 54,455 shares of Applied Magnetics
Corporation Common Stock (the "Shares").
AGREEMENT
NOW, THEREFORE, for good and valuable consideration paid and received,
the parties agree as follows:
1. ASSIGNMENT. Micciche does hereby convey, grant, bargain, sell,
transfer, assign, gift and deliver unto the Company, its successors and assigns,
and the Company does hereby accept all right, title and interest of Micciche in
and to all rights and benefits under the Non-Competition Agreement, including,
but not limited to, all rights to the Shares, to have and to hold all of the
properties, assets and rights granted and transferred hereby, with the
appurtenances thereof, unto the Company, its successors and assigns forever.
2. FURTHER ASSURANCES. Micciche for himself and his successors and
assigns, does hereby covenant with the Company, its successor and assigns, that
Micciche and his successors and assigns will do, execute, acknowledge and
deliver, or will cause to be done, executed, acknowledged and delivered all such
further acts, deeds, bills of sale, transfers, assignments and conveyances,
powers of attorney, conveying and confirming unto the Company, its successors
and assigns, all and singular, the properties hereby granted, sold, assigned,
gifted, transferred, conveyed and delivered as the Company, its successors or
assigns, shall reasonably require, provided, however, that the Company, its
successors and assigns shall prepare all necessary documentation.
1
<PAGE>
3. MISCELLANEOUS.
(a) GOVERNING LAW. This Assignment Agreement shall be governed by the
laws of the State of California without reference to rules of conflicts of law.
(b) SEVERABILITY. If any portion of this Assignment Agreement is held by
a court of competent jurisdiction to conflict with any federal, state or local
law, or to be otherwise invalid or unenforceable, such portion of this
Assignment Agreement shall be of no force or effect and this Assignment
Agreement shall otherwise remain in full force and effect and be construed as if
such portion had not been included in this Assignment Agreement.
(c) ENTIRE AGREEMENT. This Assignment Agreement contains the entire
agreement and understanding of the parties and supersedes all prior discussions,
agreements and understandings relating to the subject matter hereof. This
Assignment Agreement may not be changed or modified, except by an agreement in
writing executed by the Company and Micciche.
(d) HEADINGS. All captions and section headings used in this Assignment
Agreement are for convenience only and do not form a part of this Assignment
Agreement.
(e) COUNTERPARTS. This Assignment Agreement may be executed in
counterparts, and each counterpart shall have the same force and effect as an
original and shall constitute an effective, binding agreement on the part of
each of the undersigned.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Assignment
Agreement as of the date first set forth above.
/s/ Philip J. Micciche
----------------------------------
Philip J. Micciche
ORYX TECHNOLOGY CORP.
By: /s/ Mitch Underseth
------------------------------
Name: Mitch Underseth
Title: Chief Financial Officer
3
<PAGE>
Exhibit 10.47
EXTENSION AGREEMENT
THIS EXTENSION AGREEMENT is entered into as of the 12th day of April, 1999 by
and between ProLogis Limited Partnership-I a Delaware Limited Partnership
(formerly known as SCI Limited Partnership-I (the "Landlord") and Oryx
Technology Corporation, Inc., a Delaware Corporation (the "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant have entered into a Lease, dated as of the 30TH day
of January 1996, pursuant to which Landlord leased to Tenant certain premises
located at 46713 FREMONT BOULEVARD, FREMONT, CA (such lease, as heretofore and
hereafter modified, being herein referred to as the "Lease").
WHEREAS, Landlord and Tenant desire to extend the term of the Lease on the terms
and conditions set forth below
NOW THEREFORE, in consideration of Ten Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Landlord and Tenant agree as follows:
1. The term of the Lease is extended for TWENTY (24) months, such
that the Lease shall terminate on the 3 1ST day of JANUARY 2001.
All of the terms and conditions of the Lease shall remain in
full force and effect during such extension period except that
the Monthly Base Rent shall be as follows during such extension:
Months Rent
2/1/99 - 1/31/01 $3,780
*Expenses for the calendar year 1999 are being billed at
$864 per month.
2. Except as modified herein, the I-ease, and all of the terms and
conditions thereof, shall remain in full force and effect.
3. Any obligation or liability whatsoever of ProLogisTrust, a
Maryland real estate investment trust, which may arise at any
time under the Lease or this Agreement or any obligation or
liability which may be incurred by it pursuant to any other
instrument, transaction or undertaking contemplated hereby,
shall not be personally binding upon, nor shall resort for the
enforcement thereof be had to the property of, its trustees,
directors, shareholders, officers, employees, or agents
regardless of whether such obligation or liability is in the
nature of contract, tort or otherwise.
IN WITNESS WHEREOF, the parties hereto have signed this Extension Agreement as
of the day and year first above written.
ProLogis Limited Partnership-I a Delaware
Limited Partnership
By: /s/ Ned K. Anderson
------------------------
Name: Ned K. Anderson
Title: Managing Director
LANDLORD
<PAGE>
Oryx Technology Corporation Inc.
a Delaware Corporation
By: /s/ Victor Tan
------------------------------
Name: Victor Tan
Title: Vice President/GM
TENANT
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-8 (No. 333-68801, No. 333-62767, No. 333-85556,
No. 333-07409, No. 333-13887 and No. 333-62767) and in the Registration
Statement on Forms S-3 (No. 333-63991, No. 333-11391, No. 333-23317 and
No. 333-63891) of Oryx Technology Corp. of our report dated May 25, 1999
relating to the financial statements, which appear in this Form 10-KSB.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
May 25, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ORYX TECHNOLOGY CORP. FOR THE YEAR ENDED FEBRUARY 28,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 1,570
<SECURITIES> 0
<RECEIVABLES> 814
<ALLOWANCES> 118
<INVENTORY> 384
<CURRENT-ASSETS> 2,928
<PP&E> 899
<DEPRECIATION> 465
<TOTAL-ASSETS> 3,503
<CURRENT-LIABILITIES> 1,316
<BONDS> 0
0
89
<COMMON> 20,157
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,503
<SALES> 4,642
<TOTAL-REVENUES> 4,642
<CGS> 3,463
<TOTAL-COSTS> 5,693
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (689)
<INCOME-TAX> 0
<INCOME-CONTINUING> (689)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (691)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
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