UNITED STATES
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 29, 2000
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 as specified 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
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Securities registered pursuant to 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 Small Cap Market
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
None
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(Title of class)
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Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|
Issuer's revenues from continuing operations for its most recent fiscal
year were $755,000.
As of April 30, 2000, 16,616,287 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, 2000: $2.2813 and $2.4375 quoted by the National Association
of Securities Dealers Automated Quotation System ("NASDAQ"), was approximately
$33,795,386.(1)
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
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 by our licensees, success of
research and development efforts by our licensees and customer acceptance of new
products. 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 our products, adverse business conditions, dependence upon
our licensees for the commercial success of our products, adverse changes in
customer order patterns, increased competition, lack of acceptance of new
products, pricing pressures, lack of success in technological advancement, and
factors such as those listed in Risk Factors below.
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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 represent prices between
dealers and do not include retail mark-up, markdown or commission and do not
represent actual transactions.
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PART I
Item 1. Description of Business.
Introduction
Oryx Technology Corp. is the successor of Advanced Technology, Inc.,
which was incorporated on April 21, 1976 in New Jersey. On July 25, 1993,
Advanced Technology formed Oryx as a wholly-owned Delaware subsidiary, and on
September 29, 1993, Advanced Technology merged with and into Oryx Technology
Corp. References to "Oryx," "we," "our" and "us" refer to Oryx Technology Corp.
and its consolidated subsidiary.
During 1998 we initiated a restructuring of our business operations so
that today we have two primary focuses:
o collecting royalties from our two licensees, Cooper Bussmann
and IRISO Electronics, Inc., and licensing our Intragene
technology to Oryx Advanced Materials, Inc.; and
o investing in technology start-up companies through a
majority-owned investment and management services company.
Oryx Ventures, LLC
We are in the process of establishing Oryx Ventures, LLC, a Delaware
limited liability company, to act as an investment and management services
entity for us. Oryx Ventures will be majority owned by Oryx and will be managed
by Oryx employees. We will contribute investment funds to Oryx Ventures from our
existing cash balances and from our internal cash flow generated from future
royalty income from licensing our SurgX and Intragene technologies.
Oryx Ventures will invest such funds and provide management services at
the direction of its board of managers, primarily with technology-oriented
start-up companies. Oryx Ventures will typically invest in early stage funding
of technology start-up companies and will provide its management services to
these companies to leverage its capital investment and facilitate such companies
securing more substantial funding from third parties. Through a management
services agreement, Oryx Ventures will provide services to its portfolio
companies in exchange for equity in these companies. These services may include:
senior executive mentoring, sales and marketing strategy, business development
activities, assistance in fund raising and administrative services such as
accounting, human resources and information technology services. Oryx will
receive a portion of the profits and losses from Oryx Ventures as well as a
portion of any assets distributed by Oryx Ventures upon liquidation or
otherwise.
SurgX Corporation
SurgX Corporation, or SurgX, is currently the subsidiary through which
we license our surge protection technology. The underlying technologies
developed by SurgX are currently licensed exclusively to two licensees, Cooper
Electronics Technology, Inc., or Cooper
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Bussmann, and IRISO Electronics Company, Ltd., or IRISO. Products manufactured
by these licensees and utilizing SurgX's proprietary technology are targeted to
be sold to original equipment manufacturers, or OEMs, in the computer,
communication, and electronics industries to provide protection against
electrostatic discharge, or ESD, events through discrete devices at the printed
circuit board level.
Business Overview
Our 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 implemented by both Cooper Bussmann and IRISO. In calendar
2000 we are in the process of transferring all trade secrets and manufacturing
know-how for SurgX liquid to our licensees to facilitate the transfer of
manufacturing SurgX liquid from SurgX to our licensees.
Licensees
In fiscal year 1996, we undertook a strategic review of the SurgX
business. We 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.
Cooper Bussmann
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.
At this time, SurgTape has not been commercialized and activities by SurgX to
develop SurgTape for board-level ESD protection have been abandoned.
Cooper Bussmann is a leading manufacturer of fuses and its target
market for SurgX is the rapidly growing electronics market. Cooper Bussmann had
initially taken on the manufacturing of discrete components using SurgX. In
fiscal 2000, to address the market requirements of high volume and low cost,
Cooper Bussmann initiated offshore manufacturing through an Asian contract
manufacturer. The current capacity of this contract manufacturer is ten million
units per month with the ability to expand and handle increased capacity in the
future to accommodate anticipated demand for products incorporating SurgX
technology. During fiscal
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2000, Cooper Bussmann also formed Cooper Electronic Technologies, Inc. to handle
research and development, sales and marketing functions to support the marketing
of Cooper Bussmann products incorporating SurgX and other technologies.
Due to the transfer of manufacturing offshore and the reorganization of
Cooper Bussman in fiscal 2000, sales of SurgX products were minimal. However,
Cooper Bussmann's restructuring of its manufacturing and other operations is
facilitating its successful marketing of our SurgX technology and recently SurgX
technology has been designed-in products offered by five major OEMs and is also
in active product evaluation with approximately 40 customers.
IRISO
In November 1997, IRISO, involved in the manufacturing, development and
sales of high engineering connectors and precision metal pins for electronic
equipment, made an 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 our SurgX technology
exclusively in Japan for board level ESD protection. These products are marketed
under the SurgX trademarks. In fiscal 1999 IRISO started volume production and
sales of the 0805 surface mount components. Sales in fiscal 2000 have been
minimal with IRISO shipping production quantities to two major OEMs and in
lesser amounts to five other customers. Eleven customers are currently
evaluating IRISO products incorporating the SurgX technology. In fiscal 2000,
IRISO paid us $75,000 to maintain its exclusivity for the SurgX license in
Japan.
Market for the SurgX Technology
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 approximately $2.1 billion and includes some more mature transient
voltage suppression, or TVS, 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 our 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%).
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Gas discharge tubes, varistors, and diodes are all used as protection
from over-voltage transients. Our SurgX(TM) technology is a 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 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 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.
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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
Our licensees, Cooper Bussmann and IRISO, have sole responsibility for
marketing products using our SurgX technology. The discrete TVS diode is the
primary market targeted by our licensees. This market is forecasted to be
approximately $900 million in calendar year 2000 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, our licensees 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. Our licensees have not focused on the low price, high volume
diode market since, to date, they have not been able to achieve product costs
competitive with diodes. However, they are currently focusing on cost reduction
initiatives to reduce product cost to better compete in the high volume, low
price diode market.
We believe that our 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 advantages of SurgX(TM) technology
such that they will change from the current over-voltage protection devices in
use.
Product Development
Prior to fiscal year 2000, SurgX employees were dedicated to product
development and SurgX's approach to the market consisted of two parallel product
paths: on board-level ESD protection and on-chip ESD protection. During fiscal
year 2000, all SurgX research and development efforts were transferred to Cooper
Electronic Technologies, Inc., a business unit of Cooper Bussmann dedicated to
technical sales, marketing and development support of overvoltage protection
technologies and other technologies of Cooper Bussmann.
Our first product group was based on board-level ESD protection,
incorporating SurgX's liquid polymer-based material into discrete ESD protection
components. In fiscal 1999 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 fiscal 2000 both IRISO and Cooper
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Bussmann, with the assistance of SurgX, focussed on developing low cost
manufacturing processes capable of producing up to 100 million units per month.
While their combined current manufacturing capacity for SurgX products is
approximately twenty million units per month, their existing manufacturing
facilities are scaleable and existing manufacturing capacity can expand readily
to meet increased demand for SurgX products.
Cooper Electronic Technologies, Inc. is actively working on new product
development and has developed and introduced a four line array product which was
developed to address the requirements of the cellular market. It is also
developing a smaller footprint component, an 0402 package style. In addition,
Cooper Bussmann has initiated a program to evaluate and develop low-cost product
offerings to compete directly with low-priced diodes.
In fiscal 2000, IRISO launched a SurgX component in a standard passive
component package style, its 0805 package, which is the focus of its current
development efforts for the SurgX technology.
The 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 due to inconclusive test results to date. We
concluded that expected expenditures necessary to test and commercialize this
product did not warrant further development. However, we have entered into an
agreement with Rexam Image Products which will allow Rexam to determine the
technical feasibility of our SurgTape technology for use in on-board line
transient protection and on-chip electrostatic discharge protection. Rexam will
pay for this evaluation and, if the evaluation is positive, we may enter into a
license agreement with Rexam for the Surg terms mutually acceptable to Rexam and
us. Rexam is a wholly owned subsidiary of Rexam PLC, a U.K. based high
technology coated films company with annual revenues of approximately $3
billion.
Competition
Other than conventional manufacturers of over-voltage transient
protective devices, the main competitor to the SurgX technology licensed to
Cooper Bussmann and IRISO, is Littlefuse, Inc. which has 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, our licensees will attempt to compete with conventional over-voltage
transient protection manufacturers such as General Semiconductor, Motorola
Corp., and AVX.
Evolution of Our Business
During fiscal 1998 we initiated a restructuring of our operations.
Through fiscal 1998, we designed, manufactured and marketed specialized
components, analytical equipment and instrumentation products for original
equipment manufacturers, in the information technology industry. This industry
includes office equipment, computers, telecommunications and consumer
electronics. Through fiscal 1998, we operated three majority owned subsidiaries,
focusing on three distinct market segments:
o power conversion products (Oryx Power Products Corporation);
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o electrical surge protection products (SurgX Corporation); and
o materials analysis and test equipment and specialized
materials products (Oryx Instruments and Materials
Corporation).
During the later part of fiscal 1998 we embarked upon a major restructuring
program which resulted in
o the sale on February 27, 1998 of the test equipment portion of
the business of Oryx Instruments and Materials Corporation;
o the sale on March 2, 1998 of substantially all of the business
of Oryx Power Products Corporation in its entirety.
o the sale on August 18, 1999 of the remaining operations of
Oryx Instruments and Materials Corporation, consisting of the
carbon target assembly and related materials coating business.
Sale of Oryx Instruments and Materials Corporation (Test Equipment Business).
Prior to February 27, 1998, Oryx Instruments and Materials Corporation, or Oryx
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 Oryx Instruments and Materials for a purchase
price of $500,000. As part of the sale transaction, Oryx Instruments and
Materials then redeemed 8,000,000 shares of our 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 us 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, Oryx
Instruments and Materials distributed all the assets and liabilities of the
materials business segment and certain other assets of the instruments business
segment to us. On November 24 1998, we sold our $1,000,000 promissory note and
1,000,000 of our 2,000,000 shares of class A common stock for $500,000 in cash
to the majority shareholder of Oryx Instrument and Materials. We currently
retain an ownership interest in Oryx Business Instruments and Materials of less
than 10.0%.
Sale of Oryx Power Products Corporation. On March 7, 1998, Todd Power
Corporation, or Todd, acquired substantially all of the properties, assets,
rights, business and certain liabilities of Oryx Power Products Corporation, or
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 there were no
amounts due out of the total $4,000,000 contingent payment. We will not receive
any further payments from the sale of Power Products. 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. We recognized a loss on
disposal and all losses were
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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.
Sale of Oryx Instruments and Materials Corporation (Carbon Target Assembly and
Materials Coating Business). On August 18, 1999, we sold to Oryx Advanced
Materials, Inc., or OAMI, certain specified assets associated with the carbon
target assembly manufacturing and related materials coating business for a cash
payment of $400,000 and the assumption of substantially all of the liabilities
associated with such business. We retained ownership of approximately $280,000
in accounts receivable balances relating to the materials business subsequent to
the disposition. In addition, we licensed to OAMI certain patents and other
technology associated with the purchased assets. OAMI will pay us royalty
payments over ten years, with a maximum royalty payment of $2.2 million for the
first three years, based on OAMI's gross profits. As of April 30, 2000, OAMI had
paid us a total of $249,000 in royalty payments and was in arrears for
additional royalty payments owed to us.
The disposal of OAMI and Oryx Instruments and Materials have been
aggregated as they represent the final sale of one business segment and the
operating results of OAMI and Oryx Instruments and Materials have been
segregated and reported as discontinued operations. Prior year financial
statements have been restated to reflect discontinuance of the OAMI and Oryx
Instruments and Materials operations.
Research and Development
In fiscal year 2000, we transferred all of our SurgX research and
development to Cooper Technologies, Inc., a subsidiary of Cooper Bussmann.
Previously, our operations in the ESD and materials businesses had been
partially funded through third party development funding and government
contracts We recognize development funding received from non-government third
parties to assist in the development of certain products, as an offset to our
research and development expenses. In fiscal 2000 we did not receive any
research and development funding from non-government third parties. This
compares to $423,000 of development funding recorded in fiscal year 1999. We had
research government contracts in which $128,000 and $412,000 of revenue and
$216,000 and $670,000 of cost of sales were recognized for the years ending
February 29, 2000 and February 28, 1999, respectively. Research and development
net expenses were $954,000 and $419,000 for the years ended February 29, 2000
and February 28, 1999, respectively. In fiscal year 2000 we completed our two
remaining government contracts. We now have no open government development
contracts nor do we anticipate obtaining research and development government
contracts or non-government development funding in the future.
Regulation and Environmental Matters
We are subject to various federal, state and local laws, regulations
and recommendations relating to safe working conditions, laboratory and
manufacturing practices, and the use and disposal of hazardous or potentially
hazardous substances. We believe that our facility 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 we
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have not experienced any material adverse effect on operations from compliance
with government regulations, the development of any manufacturing operations by
us would require us in the future 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 us 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.
Intellectual Property
Proprietary protection for our products, processes and know-how is
important to its business. We currently have numerous patents issued and in
process. We also rely upon trade secrets, know-how and continuing technological
innovation to develop and maintain our competitive position. Our policy is to
file patent applications to protect our technology, inventions and improvements
as soon as practicable. To the extent applicable, we will continue to work on
patent applications currently in process at the Patent Office. However, since we
have transferred all product development and manufacturing to our licensees, it
is the responsibility of our licensees to file patent applications or amendments
or otherwise protect the intellectual property that they develop in connection
with the licensed SurgX technology.
The trademark SurgX was issued by the US Patent and Trademark Office on
March 17, 1998.
The two foundation patents filed by us in 1995 on manufacturing
processes, methods of making the SurgX compositions and SurgX devices have been
divided by the U.S. 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 U.S. 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 U.S. 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. We believe our patent application disclosures cover significant
proprietary art in devices, processes and materials.
We owned and maintained six patents which are associated with the
Intragene process and own and maintain three patents for our SurgX(TM)
technology. The Intragene patents were licensed to Oryx Advanced Materials, Inc.
in connection with the sale by us of our carbon target assembly and materials
coating businesses and some expired in 1999 and the remaining patents will
expire in 2000. We expect that our licensees will file improvement patent
applications with respect to the SurgX patents, 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, 2000, we employed 11 people on a full-time basis.
Included among full time employees are 1 executive officer, 3 managers and other
executive personnel, 1 engineering employee, 2 administrative personnel and 4
manufacturing employees. Our employees are not covered by any collective
bargaining agreements, and we believe our employee relations are satisfactory.
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RISK FACTORS
If you purchase shares of our common stock, you will take on financial
risk. In deciding whether to invest, you should carefully consider the following
factors, the information contained in this 10-KSB and the other information that
we have referred to you.
It is especially important to keep these risk factors in mind when you
read forward-looking statements. These are statements that relate to future
periods and include statements about our:
o expected operating results;
o market opportunities;
o acquisition opportunities;
o ability to compete; and
o stock price.
Generally, the words "anticipates," "believes," "expects," "intends"
and similar expressions identify forward-looking statements. Forward-looking
statements involve risks and uncertainties, and our actual results could differ
materially from the results discussed in the forward-looking statements because
of these and other factors.
Forward-looking statements are current only as of the date of these
offering materials. We do not have any obligation to inform you if
forward-looking statements, or the circumstances they are based on, change.
Company Risks
Our corporate restructuring strategy from an operating company to a technology
licensing and investment and management services company may not be successful.
During fiscal years 1998 and 1999 we disposed of substantially all of
our operating businesses and we are now a licensing entity with our primary
source of income deriving from royalties from our SurgX technology licensed to
Cooper Bussmann and IRISO and our Intragene technology licensed to Oryx Advanced
Materials, Inc. In the course of selling various business units, we disposed of
operations which had accounted for substantially all of our revenues. While we
believe that this downsizing has substantially reduced our losses and enabled us
to focus on key strategic businesses, the actual impact cannot be certain. In
the absence of increased sales of our SurgX and Intragene technologies through
our licensees, such restructuring may have sharply reduced our revenues without
creating opportunities to offset equally the lost revenues.
Our strategy of relying on licensing royalties and using the proceeds
to fund the acquisition of other businesses and technologies presents special
risks.
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We have shifted the strategic focus of our business from an operating
business exploiting our own developed technologies to a licensing and investment
business where we intend to use the royalty revenues from our licensed SurgX and
Intragene technologies to fund investments in start-up technology companies.
This investment strategy involves a number of special risks, including:
o increased operating expenses to support investment in our new
management services venture;
o strain on managerial and operational resources as management
tries to support multiple businesses;
o potential issuance of securities in connection with raising
capital to fund investments or using our equity in connection
with our investment strategy may lessen the rights of holders
of our currently outstanding securities; and
o the need to incur additional debt.
We may not be able to successfully address these problems. Moreover,
our future operating results will depend to a significant degree upon our
ability to invest in early stage development companies and insure their
follow-on financing, growth and success. In addition, many of the investment
opportunities we are currently examining are in early-stage companies with
limited operating histories and limited or no revenues. These investments may
have a negative impact on our financial statements. Further, we may not be able
to successfully develop these young companies and there can be no assurances
that we will either recoup our investments or receive any return on our
investment in any company.
We are dependent on the licensees of our SurgX and Intragene technologies for
substantially all of our revenues.
Our future royalties from the licenses of our SurgX and Intragene
technologies are based solely upon the successful sales, marketing,
manufacturing and development efforts of our licensees.
While the license agreements for our SurgX technology 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 our 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 we 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.
Although we have received approximately $250,000 in royalty revenue
from licensing our Intragene technology to Oryx Advanced Materials, Inc., or
OAMI, there can be no assurances that we will receive any future royalty revenue
from OAMI. There are no minimum annual royalty payment requirements under our
license with OAMI. Our future royalties from
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our license of the Intragene technology will be based solely upon the successful
sales, marketing and manufacturing efforts of OAMI. Although management of OAMI
was previously employed by us, OAMI is a new entity and there can be no
assurances that it will be successful in manufacturing and selling products
based upon the Intragene technology. OAMI is currently in default under its
agreement with us due to its failure to make required royalty payments. We are
currently negotiating with OAMI to restructure the royalty arrangement to take
into account a slow-down in OAMI's business. There can be no assurance that we
will reach a satisfactory agreement with OAMI.
We may not be able to raise sufficient funds to finance our acquisition
strategy.
At present, our sole sources of revenue are licensing royalties payable
by the licensees of our SurgX and Intragene technologies. We anticipate, based
on management's internal forecasts and assumptions relating to our operations,
that our existing capital resources will be sufficient to satisfy our
contemplated cash requirements for at least the next twelve months.
However, we may not have sufficient funds to finance our proposed
strategy of seeking investments in or acquisitions of new technologies. In
addition, in the event that our plans change or our cash projections and
assumptions prove inaccurate, we could be required to seek additional financing
to support existing operations. Our present business plan may require us to
raise additional funds, however we have no current arrangements with respect to
sources of additional financing, and there can be no assurance that we 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 us.
We may incur significant costs to avoid investment company status and may suffer
adverse consequences if deemed to be an investment company.
We may incur significant costs to avoid investment company status and
may suffer other adverse consequences if deemed to be an investment company
under the Investment Company Act of 1940. Some equity investments in other
businesses made by us may constitute investment securities under the 1940 Act. A
company may be deemed to be an investment company if it owns investment
securities with a value exceeding 40% of our total assets, subject to certain
exclusions. Investment companies are subject to registration under, and
compliance with, the 1940 Act unless a particular exclusion or Commission safe
harbor applies. If we were to be deemed an investment company, we would become
subject to the requirements of the 1940 Act. As a consequence, we would be
prohibited from engaging in business or issuing our securities as we have in the
past and we might be subject to civil and criminal penalties for noncompliance.
In addition, certain of our contracts might be voidable, and a court-appointed
receiver could take control of Oryx and liquidate our business.
Although our investment securities currently comprise less than 40% of
our assets, fluctuations in the value of these securities or of our other assets
may cause this limit to be exceeded. This would require us to attempt to reduce
our investment securities as a percentage of our total assets. This reduction
can be attempted in a number of ways, including the disposition of investment
securities and the acquisition of non-investment security assets. If we sell
investment securities, we may sell them sooner than we otherwise would. These
sales may
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be at depressed prices and we may never realize anticipated benefits from, or
may incur losses on, these investments. Some investments may not be sold due to
contractual or legal restrictions or the inability to locate a suitable buyer.
Moreover, we may incur tax liabilities when we sell assets. We may also be
unable to purchase additional investment securities that may be important to our
operating strategy. If we decide to acquire non-investment security assets, we
may not be able to identify and acquire suitable assets and businesses.
We depend on certain key employees, and the loss of any of those employees may
harm our business.
Our performance is substantially dependent on the performance of our
executive officers and other key employees, in particular, Philip Micciche, our
president and chief executive officer, and Mitchel Underseth, our chief
financial officer. The familiarity of these individuals with the industry makes
them especially critical to our success. In addition, our success in our
investment strategy is dependent on our ability to attract and retain high
quality personnel with skills necessary to evaluate and manage investments in
high-tech startup companies. The loss of the services of any of our executive
officers or key employees may harm our business. Competition for such personnel
is intense.
We have a history of unprofitability; recent operating losses and accumulated
deficit and may not be profitable in the future.
Since our initial public offering in April 1994, we have 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 29, 2000, we had an
accumulated deficit of $20,087,000. We anticipate operating losses will continue
through fiscal year 2001. There can be no assurance that we will receive any
licensing royalty revenues from the licensees of our SurgX and Intragene
technologies or that our licensees will be successful in marketing and selling
products incorporating our SurgX or Intragene technologies. There can also be no
assurances that our new management services and investment business related to
start-up companies will be profitable in the future.
We rely on our licensees, Cooper Bussmann, IRISO and Oryx Advanced Materials, to
manufacture and market products incorporating our SurgX and Intragene
technologies and there can be no assurance that they will be successful in doing
so.
We rely exclusively on our licensees to manufacture and market products
incorporating our SurgX and Intragene technologies. Our SurgX licensees have
developed low-cost manufacturing processes using our licensed technology.
However, there can be no assurance that they will be able to incorporate
manufacturing process improvement in the future to further reduce product cost
and enhance product performance to allow them to compete in the high volume, low
price diode market.
Further, manufacturing development results produced by our licensees in
the future will be influenced by numerous factors, including:
the availability of funding;
o technological developments by our licensees, their customers
and competitors;
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o increases in expenses associated with product development;
o market acceptance of products incorporating the SurgX and
Intragene technologies;
o our licensees' ability to successfully control their costs of
development, overhead and other costs; and
o our licensees' capacity to develop and manage the introduction
of new products.
We rely exclusively on our licensees for research and development in connection
with our SurgX and Intragene technologies.
The development, design and manufacture of technology constantly
undergo rapid and significant change. We rely on our licensees, Cooper Bussmann
and IRISO, for technological improvements to the SurgX technology and our
licensee, Oryx Advanced Materials, for technological improvements to the
Intragene technology. At present, we do not support any research and development
or manufacturing activities internally. Our success will depend upon our
licensees' ability to maintain a competitive position with respect to our
proprietary and other enhanced technology and to continue to attract and retain
qualified personnel in all phases of our operations. Our business is, to a large
degree, dependent upon the enhancement of the SurgX and Intragene current
technology. Critical to our success and future profitability will be the
capacity of our licensees 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 these 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
SurgX or Intragene products uneconomical or obsolete.
We may experience fluctuations in future operating results which may adversely
affect the price of our common stock.
Our quarterly operating results have in the past been, and will in the
future be, subject to significant fluctuation, which could adversely affect the
price of our common stock. Our operating results are impacted by numerous
factors, such as
o market acceptance of SurgX products;
o Cooper Bussmann's and IRISO's continued marketing, sales and
financial support of SurgX technology;
o overall economic trends; and
o possible negative impact on our balance sheet due to the
accounting treatment of our investment in portfolio companies.
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In addition, customer orders may involve design-in requirements, thus
making the timing of customer orders difficult to predict and uneven.
Our expense levels are based in part on our expectations as to future
royalty revenues and, in particular, volume shipments of SurgX products by
Cooper Bussmann and IRISO. We may be unable to adjust spending in a timely
manner to compensate for any delay in product development or revenue shortfall.
Any weakening in demand for our products or delays in acceptance of the SurgX
technology would have a material adverse effect on our operating results.
Potential intellectual property claims and litigation could subject us to
significant liability for damages and invalidation of our proprietary rights.
Litigation may be necessary in the future to enforce our patents and
other intellectual property rights, to protect our trade secrets or to determine
the validity and scope of the proprietary rights of others.
Litigation could harm our business and result in:
o substantial settlement or related costs, including
indemnification of customers;
o diversion of our or our licensee's management and technical
resources;
o discontinuing the use and sale of infringing products;
o expending significant resources to develop non-infringing
technology; and
o obtaining licenses to infringed technology.
Our success is heavily dependent upon our proprietary technologies. We
rely on a combination of patent, trademark, copyright and trade secret laws,
nondisclosure and other contractual provisions, and technical measures to
protect our intellectual property rights. Our patents, trademarks or copyrights
may be challenged and invalidated or circumvented. Our patents may not be of
sufficient scope or strength or be issued in all countries where our products
can be sold. The expiration of some of our patents may harm our business.
Others may develop technologies that are similar or superior to our
technologies, duplicate our technologies or design around our patents. Effective
intellectual property protection may be unavailable or limited in some foreign
countries. Despite efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise use aspects of processes and devices
that we regard as proprietary. Policing unauthorized use of our proprietary
information is difficult, and the steps we have taken may not prevent
misappropriation of our technologies.
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Industry Risks
If our licensees are unable to successfully compete in the market for products
using our SurgX and Intragene technologies, our business would be adversely
affected.
The licensees of our SurgX and Intragene technologies are 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. Our licensees
compete or may subsequently compete, directly or indirectly, with a large number
of companies which may provide products or components comparable to those
provided by us. In addition, competitors are likely to be larger,
better-capitalized, more established and have greater access to resources
necessary to produce a competitive advantage.
Investment Risks
We have not paid and do not intend to pay any dividends on our common stock.
We have not paid any cash dividends on our common stock since our
inception and do not anticipate paying cash dividends on our common stock in the
foreseeable future. The future payment of dividends is directly dependent upon
our future earnings, our financial requirements and other factors to be
determined by our 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 our operations will be used to
finance our growth and will not be paid to holders of common stock.
The price of our common stock has been volatile and may continue to experience
volatility.
The market price of our common stock has been, and in the future could
be, significantly affected by factors such as:
o actual or anticipated fluctuations in operating results;
o announcements of technical innovations;
o new products or new contracts;
o competitors or their customers;
o developments with respect to patents or proprietary rights;
o changes in financial estimates by securities analysts; and
o general market conditions.
Further, the trading prices of the stocks of many technology companies,
including our share price, are at or near historical highs and reflect
price/earnings ratios substantially above historical levels. There can be no
assurance that these trading prices and price/earnings ratios will be sustained.
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Charter provisions limit the authority of our stockholders, and therefore
minority stockholders may not be able to significantly influence Oryx's
governance or affairs.
Our board of directors has the authority to issue shares of preferred
stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by shareholders. The rights of the holders of common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of our outstanding voting stock.
The conversion or exercise of currently outstanding convertible securities and
warrants would result in significant dilution to holders of our common stock.
As a result of various other transactions previously entered by us, as
of April 30, 2000, there were convertible securities and private warrants and
options currently outstanding for the conversion and purchase of up to
approximately 4,788,750 shares of common stock. These represent significant
additional potential dilution for our existing stockholders. 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 we issue other securities in the future.
Item 2. Description of Property.
We presently operate our businesses in one facility located in Fremont,
California. 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
monthly rental fee is $19,286 and the lease terminates August 30, 2001. We are
currently subleasing a portion of our facility at market rates.
The property described above is in satisfactory condition for the
purpose for which it is used.
Item 3. Legal Proceedings.
We know of no material litigation or claims pending, threatened or
contemplated to which Oryx is or may become a party.
Item 4. Submission of Matters to a Vote of Security Holders.
During the fourth quarter of the our fiscal year ended February 29,
2000, no matters were submitted to a vote of security holders.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Since our initial public offering of common stock and warrants on April
6, 1994, our 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 our securities. From April 6, 1994
through June 6, 1994, we had Units which were also traded on NASDAQ, at which
time we 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, markdowns or commissions and may not
necessarily represent actual transactions.
Common Stock Warrants
------------ --------
High Low High Low
---- --- ---- ---
1999 Fiscal year
----------------
1st Quarter $1.3750 $0.9375 $1.0938 $0.3750
2nd Quarter $1.3438 $0.6250 $0.6875 $0.2500
3rd Quarter $1.4688 $0.3438 $0.4375 $0.0625
4th Quarter $2.5625 $1.0313 $1.1563 $0.1250
2000 Fiscal year
----------------
1st Quarter $2.4688 $1.6563 $0.9375 $0.0313
2nd Quarter $2.3125 $1.4375 Expired
3rd Quarter $2.0938 $1.0000 Expired
4th Quarter $5.0625 $1.6250 Expired
On April 30, 2000 the closing price for our common stock was $2.2812
per share. On April 6, 1999 our 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.
Our common stock and warrants had also been listed for trading on the
Pacific Exchange under the symbols "ORYX" and "ORYXW," respectively. We
requested that the common stock and warrants be removed from the Pacific
Exchange, which occurred in May 1998.
As of April 30, 2000 the number of record holders of our common stock
was approximately 88.
We have never paid cash dividends on our common stock, but as noted
above, we pay a $.50 annual dividend on its outstanding shares of preferred
stock. We presently intend to retain future earnings, if any, to finance the
expansion of our business and do not anticipate that any cash dividends will be
paid in the foreseeable future. Future dividend policy will depend on our
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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.
Item 6. Management's Discussion and Analysis or Plan of Operation.
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 efforts by our licensees and our licensees' customer acceptance of
new products. 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 our products, adverse business conditions, dependence upon
licensees for the commercial success of our products, increased competition,
lack of acceptance of our licensees' new products, pricing pressures, lack of
success in technological advancement and other factors, including those listed
below.
Business Segments
Through fiscal year 1999, we operated in two main business segments:
Materials and SurgX, a 97% owned subsidiary. These businesses operated
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, we embarked upon a major restructuring program. This
resulted in the sale on February 27, 1998 of approximately 80% of our 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, we retained certain assets from Instruments and Materials relating to
sputtering targets assembly, or Materials. We sold this remaining business
during the second quarter of fiscal 2000, for a cash payment of $400,000. We
retained approximately $280,000 in accounts receivable for this business and the
purchaser of the business assumed substantially all of the liabilities
associated with this business. Management took these steps to reduce losses and
enable us to concentrate on our electrostatic discharge protection business
through our SurgX subsidiary.
Consolidated Results of Continuing Operations
For the fiscal year ended February 29, 2000, revenues from continuing
operations increase $150,000 or 25% from $605,000 for the year ended February
28, 1999 to $755,000 for the year ended February 29, 2000. The increase in
revenues was primarily attributed to the royalty revenue from OAMI and IRISO
plus an increase in revenue from the sale of SurgX liquid to our licensees,
offset by reduced government contract revenue. Royalty revenue in the future is
dependent on the success of our licensees. We have no view of what level of
revenue will be achieved in the future, if any at all.
Cost of sales for the fiscal year ended February 29, 2000 represents
the costs associated with manufacturing SurgX component materials for Cooper
Bussmann and IRISO pursuant to
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existing license agreements. We anticipate that the cost of sales in fiscal 2001
will be significantly reduced as we are in the process of transferring our SurgX
Liquid manufacturing operations, equipment and know-how to our licensee.
Our gross loss decreased $296,000 or 15 % from $349,000 for the fiscal
year ended February 28, 1999 to $53,000 for the year ended February 29, 2000.
Cost of sales as a percentage of revenues decreased to 107% for the year ended
February 29, 2000 from 158% for the fiscal year ended February 28, 1999. The
decrease in gross loss for the year ended February 29, 2000 was primarily
attributable to an increase of $324,000 in royalty revenues in fiscal 2000.
Funding recognized as revenue and cost of sales associated with
government contracts for the fiscal year ended February 29, 2000 were $128,000
and $216,000 respectively. This compares to revenue and cost of sales of
$412,000 and $670,000, respectively, associated with government contracts for
the fiscal year ended February 28, 1999. We do not expect any revenue or costs
from government contracts in fiscal 2001 and we do not have plans to pursue any
new government contracts in the future.
General and administrative expenses increased $256,000 or 17% from
$1,526,000 for the fiscal year ended February 28, 1999 to $1,782,000 for the
year ended February 29, 2000. The increase in general and administrative
expenses is attributed to increase in severance cost, legal services and
non-cash equity investor relation expenses associated with a marketing program
entered into with Continental Capital on August 1998. We anticipate an increase
in general and administrative costs during fiscal year 2001 due to an increase
in head-count and other activities related to our new Oryx Ventures business.
Research and development expenses increased $535,000 or 128% from
$419,000 for the fiscal year ended February 28, 1999 to $954,000 for the year
ended February 29, 2000. The increase in research and development expenditures
were primarily as a result of an increase of development efforts for a thin film
based technology product, non-cash expense recorded for stock options granted to
development consultants, and the absence of development funding from a
non-government third party. We anticipate to substantially reduce research and
development expenses during fiscal 2001, due to the transfer of all of our SurgX
research and development activities to Cooper Electronic Technologies.
Development funding from non-government third parties are recorded as
an offset to research and development expenses. During fiscal 2000, we did not
record any amount for development funding, compared to $423,000 recorded as an
offset to research and development expenses for fiscal year ended February 28,
1999. We do not anticipate receiving any development funding during fiscal 2001
or thereafter.
For fiscal year ended February 29, 2000 we recorded net interest income
of $177,000. This compares to $14,000 of net interest income for the fiscal year
ended February 28, 1999. This increase is attributable to higher cash and
investment balances.
For the fiscal year ended February 29, 2000, we recorded $11,000 of
other expenses compared to $217,000 of other income recorded in fiscal 1999,
which is associated with receipt
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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, we recorded a $15,000 loss on the write-off of
our investment in DAS Devices, Inc. In fiscal 1999, DAS Devices, Inc. was
purchased by Applied Magnetics Corporation. We did not receive any consideration
for our 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 our remaining investment in DAS Devices,
Inc.
We believe our operating losses will continue through fiscal 2001 as
the anticipated royalty revenue from our SurgX and Intragene technology will not
be sufficient to cover expected operation expenses, including additional cost
associated with the Oryx Ventures business for fiscal 2001.
Oryx Instruments and Materials Discontinued Operations
On August 18, 1999, pursuant to the terms of an Asset Purchase
Agreement dated as of June 1, 1999 by and among Oryx Technology Corp., or Oryx,
and Oryx Advanced Materials Inc., or OAMI, Oryx sold to OAMI certain specified
assets associated with Oryx' carbon target assembly manufacturing and related
materials coating business, or the Materials business, for a cash payment of
$400,000 and the assumption of substantially all of the liabilities associated
with such business. We retained ownership of approximately $280,000 in accounts
receivable balances relating to the Materials business subsequent to the
disposition. In addition, Oryx licensed to OAMI certain patents and other
technology associated with the purchased assets. OAMI will pay Oryx royalty
payments over ten years, with a maximum royalty payment of $2.2 million for the
first three years, based on OAMI's gross profits. As of February 29, 2000, we
have received $249,000 in royalty payments from OAMI for the period June 1, 1999
to August 31, 1999.
In addition, on February 27, 1998, Corus Investments Ltd., a Bahamas
Company, acquired 8,000,000 shares of the authorized Class A common stock of
Oryx Instruments and Materials Corporation , or Oryx Instruments and Materials,
for a purchase price of $500,000. Prior to the sale, Instruments was a wholly
owned subsidiary of Oryx. As part of the sale, Oryx Instruments and Materials
redeemed 8,000,000 of the 10,000,000 shares of Class A common stock held by us
for an aggregate redemption 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 and
Materials distributed all the assets and liabilities of the materials business
segment and certain other assets to us. A deferred gain of approximately
$646,000 was recorded by us at the time of the transaction. We fully reserved
our remaining 19.9% ownership investment in Oryx Instruments and Materials at
February 28, 1998. On November 24, 1998, we subsequently sold 1,000,000 shares
of our remaining Class A common stock of Oryx
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Instruments and Materials and the $1,000,000 note receivable from Oryx
Instruments and Materials in exchange for a cash payment of $500,000. As a
result of this transaction, we recognized a profit of $146,000.
The disposal of OAMI and Oryx Instruments and Materials have been
aggregated as they represent the final sale of one business segment and the
operating results of OAMI and Oryx Instruments and Materials have been
segregated and reported as discontinued operations. Prior year financial
statements have been restated to reflect discontinuance of the OAMI and Oryx
Instruments and Materials operations. Revenue from the segment was $1,049,000
and $4,037,000 for fiscal 2000 and 1999, respectively. Income from the
discontinued operations was $268,000 and $1,243,000 for fiscal 2000 and 1999,
respectively. Income taxes related to the discontinued operations and gain on
disposal of the Materials business were immaterial. Transaction costs related to
the Materials disposal were $55,000.
Liquidity and Capital Resources
Our working capital increased $3,349,000 or 208% from a surplus of
$1,612,000 at February 28, 1999, to a surplus of $4,961,000 at February 29, 2000
primarily attributed to proceeds from exercise of our public and private
warrants. Our ratio of current assets to current liabilities was 2.1:1 at
February 28, 1999, and 7.8:1 at February 29, 2000.
Net cash used in operations for the year the ended February 29, 2000
was $1,206,000 consisting of $1,826,000 from continuing operations primarily in
the form of operating losses offset by $620,000 net cash provided by
discontinued operations resulting from the sale of the Material business on June
1, 1999 and the. Net cash used in operations for the fiscal year ended February
28, 1999, was $1,474,000 consisting of $1,575,000 from continuing operations
offset by $101,000 net cash provided by discontinued operations, primarily in
the form of operating losses.
Net cash used in investing activities was $522,000 for the fiscal year
ended February 29, 2000, primarily attributable to the purchase of short-term
investments partially offset by cash provided by proceeds from the sale of the
Material business. Net cash provided by investing activities was $1,906,000 for
the 1999 fiscal year, consisting primarily of proceeds from our sale of the
business of Oryx Power Products Corporation. We do not expect to have any
material capital expenditures for the year ended February 28, 2001.
Net cash provided by financing activities was $4,687,000 for the fiscal
year ended February 29, 2000. This represents an increase of $4,271,000 or
1,027% from net cash provided by financing activities in fiscal 1999. Cash
provided by financing activities during fiscal 2000 was primarily attributed to
$4,246,000 provided by the exercise of public and private warrants and $471,000
provided by the exercise of stock options for common stock. Net cash provided by
financing activities for the fiscal year ended February 28, 1999 was $416,000,
primarily from the sale of a note receivable, involving the sale of the
instruments business.
In May 1997, we 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 us
24
<PAGE>
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, we were required to sell on an
undiscounted, non-recourse basis all accounts receivable. In exchange, cash
advances were available to us up to 85% of the face amount of eligible accounts
receivable, as defined, to a maximum amount of $4 million. 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. As of February 29, 2000, we do not have
outstanding any available debt or line of credit facilities.
We believe that we have sufficient capital to meet our anticipated
working capital requirements through fiscal year 2001. However, in the event we
fail to meet our fiscal year 2001 operating plan, we might need additional
funding to be obtained by raising additional equity or taking other steps. If we
require additional equity, there can be no assurance that such transactions can
be effected in time to meet our needs, if at all, or that any such transaction
will be on terms acceptable to us or in the interest of its stockholders.
Item 7. Financial Statements.
The response to this item is submitted in Item 13.
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.
25
<PAGE>
The names and ages of our directors and executive officers as of
February 29, 2000 are as follows:
Name Position Age
---- -------- ---
Philip J. Micciche President, CEO and Director 66
Mitchel Underseth CFO and Director 43
Andrew Intrater Secretary, Treasurer and Director 38
Dr. John H. Abeles Director 55
Jay M. Haft Director 64
Richard Hubbard Director 40
Doug McBurnie Director 57
Ted. D. Morgan Director 58
PHILIP J. MICCICHE was elected to serve as Oryx' President and Chief
Executive Officer and to serve as a director of Oryx on April 25, 1997. From
1993 through 1995, Mr. Micciche was Chief Executive Officer of AXCIS Information
Networks, a provider of sports information data. From 1990 through 1992, Mr.
Micciche was President of Dysan International/Magnetics L.P. and oversaw its
initial public offering in Hong Kong in 1991. From 1983 through 1990, he held
several executive management positions at Xidex Corp. In one of those positions,
Mr. Micciche brought the division from a loss to a substantial profit in less
than 15 months. From 1983 through 1985, Mr. Micciche was Senior Vice President
Marketing at Xidex Magnetics, where sales increased $42 million in that two-year
time period. Xidex merged with Dysan Corp. in 1985. Prior to 1983, Mr. Micciche
held positions as Chief Executive Officer, Vice President Sales, Product Sales
Manager and Chief Engineer for various companies. Mr. Micciche received his BSEE
from Northeastern University in Boston.
MITCHEL UNDERSETH has served as Chief Financial Officer of Oryx since
November 25, 1996, with additional responsibilities for human resources. Mr.
Underseth currently works part-time for Oryx and also serves as the Chief
Financial Officer for Aptix Corporation, a privately held electronic design
automation company providing software and hardware. Mr. Underseth was elected as
a director of Oryx in October 1997. From August 1992 through November 1996, Mr.
Underseth was Chief Financial Officer of Triptych CD/San Joaquin Packaging in
Stockton, California. From March 1990 through April 1992, Mr. Underseth was
Chief Financial Officer of Dysan International/Magnetic L.P., a spin-off of
Xidex's Flexible Disk Group. From September 1986 through March 1990, Mr.
Underseth was Vice President-Finance of Xidex Flexible Disk Group and Rigid
Oxide Group in Santa Clara, California. Mr. Underseth received his M.B.A. from
the University of Washington in Seattle and his B.S. in Business from Lewis and
Clark College in Portland, Oregon.
26
<PAGE>
ANDREW INTRATER has been a director, Secretary and Treasurer of Oryx
since its organization in July 1993. He had been employed in various executive
capacities with Oryx in July 1993 until March 1998 when he resigned from Oryx's
employment following the sale of Oryx' majority ownership position in Oryx
Instruments & Materials Corporation, since renamed as Oryx Instruments
Corporation. Mr. Intrater is currently the President and Chief Executive Officer
of Oryx Instruments Corporation. Mr. Intrater previously held various executive
positions with ATI, the predecessor corporation to Oryx. Between September 1988
and May 1993, Mr. Intrater served as President of ATI and was a director since
1983. Mr. Intrater received his B.S. in Chemical Engineering from Rutgers
University and a M.S. in Materials Science from Columbia University.
JOHN H. ABELES, M.D., has been a director of Oryx since its
organization in July 1993 and of ATI commencing October 1991 and Chairman of the
Board of Oryx from October 1993 until April 1997. Since March 1992, Dr. Abeles
has been a General Partner of Northlea Partners Ltd., Boca Raton, Florida, a
private investment partnership. Since 1980, Dr. Abeles has been President of
MedVest, Inc., Boca Raton, Florida, a business and financial consulting firm.
Dr. Abeles serves on the board of directors of I-Flow Corporation, Irvine,
California, a publicly traded company which manufactures infusion devices, DUSA
Pharmaceuticals, Inc., a publicly traded company, which is developing
photodynamic therapy products, Pharma Print Corporation, which manufactures
botanical products, Encore Medical Corporation, which is an orthopedic implant,
concern and Ambersand Medical Inc., which is researching medical diagnostic
equipment.
JAY M. HAFT has been a director of Oryx since February 1995. He is a
strategic and financial consultant for growth stage companies and is active in
international corporate finance, mergers and acquisitions, as well as in the
representation of emerging growth companies. He has actively participated in
strategic planning and fund raising for many high-tech companies, leading edge
medical technology companies and technical product, service and marketing
companies. He is a Managing General Partner of Gen Am "1" Venture Fund, an
international venture capital fund. Mr. Haft is also a director of numerous
public and private corporations, including Robotic Vision Systems, Inc., NCT
Group, Inc., DECAP Group, Encore Medical Corporation, PC Service Source, Inc.,
DUSA Pharmaceuticals, Inc., and Thrift Management, Inc. He serves as Chairman of
the Board of Noise Cancellation Technologies, Inc. He is currently of counsel to
the law firm of Parker Duryee Rosoff & Haft, in New York. Mr. Haft was
previously a senior corporate partner of such firm, from 1989 to1994, and prior
to that a founding partner of Wofsey, Certilman, Haft et al. from 1966 to 1988.
Mr. Haft is a past member of the Florida Commission for Government
Accountability to the People, Treasurer of the Miami Ballet and a trustee of
Florida International University. He is a graduate of Yale College and Yale Law
School.
RICHARD HUBBARD has been a director of Oryx since October 1997. Mr.
Hubbard is currently a director and an analyst with the VMR High Octane Fund at
Value Management & Research GmbH. The High Octane Fund invests in small to
mid-cap companies worldwide. Since 1991, Mr. Hubbard has been a founding member
of Namco, an African marine diamond mining and exploration company. He was a
director at Acomex Ltd. where he was involved in the launch of Video Plus, a
video coding and recording system, in the United Kingdom market.
27
<PAGE>
Mr. Hubbard was a founding partner in Connolly and Hubbard Trading, a trading
company specializing in foreign exchange and commodities.
DOUG MCBURNIE has been a director of Oryx since July 1997. Mr. McBurnie
is retired. He was formerly Senior Vice President, Computer, Consumer & Network
Products Group, of VLSI Technology. In that position he was responsible for
VLSI's businesses in Advanced Computing, ASIC's, Consumer Digital Entertainment
and Local/Wide Area Networking. Prior to joining VLSI, Mr. McBurnie was with
National Semiconductor where he was senior vice president and general manager of
their Communications and Consumer Group. Previously, he was vice president and
general manager of National's Local Area Network Division. Under his leadership,
National became the recognized leader in networking circuits, one of the top
telecom IC suppliers, and made a strong push into consumer entertainment
markets. Prior to joining National Semiconductor, he held key executive
positions at a number of Silicon Valley companies, including Xidex Corporation,
Precision Monolithics and Fairchild Semiconductor. Mr. McBurnie holds a bachelor
of arts degree in business administration from Baldwin Wallace College in Berea,
Ohio.
TED D. MORGAN had been a director of Oryx since April 1996 and resigned
on April 30, 2000. He is Founder and Managing Partner of Alternative
Technologies International , or ATI, Santa Rosa, California. ATI is an
international financial advisory firm specializing in services for emerging
growth companies with unique proprietary technologies. Prior to founding ATI, he
founded several companies including the Office Club, which merged with Office
Depot in 1990.
All directors are elected annually by the stockholders of Oryx and
serve until their respective successors are duly elected and qualified.
Board Committees and Meetings
During the fiscal year ending February 29, 2000, there were five
meetings of our board of directors. Each Board member attended 75% or more of
the aggregate of the meetings of the board of directors and the meetings of all
committees of the board of directors on which he served except for John Abeles
and Richard Hubbard who each attended 60% of such meetings and Ted D. Morgan who
attended 20% of such meetings.
The compensation committee was established on March 28, 1995. The
members of the compensation committee are Dr. John H. Abeles, Jay M. Haft and
Richard Hubbard, none of whom is employees of Oryx. The compensation committee
makes recommendations with respect to compensation of senior officers and
granting of stock options and stock awards. The compensation committee met once
during the fiscal year ended February 29, 2000.
The audit committee was established on March 28, 1995. The members of
the audit committee are Jay Haft, and Ted Morgan, neither of whom is an employee
of Oryx. The functions of the audit committee are to define the scope of the
audit, review the auditor's reports and comments, and monitor the internal
auditing procedures of Oryx. The audit committee met once during the fiscal year
ended February 29, 2000.
There is no nominating committee of the board of directors.
28
<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended
requires our directors and executive officers, and persons who own more than 10%
of a registered class of the Company's equity securities, to file with the
Commission initial reports of ownership and reports of changes in ownership of
common stock and other equity securities of Oryx. Officers, directors and
greater than 10% stockholders are required by Commission regulation to furnish
us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such
reports and amendments thereto furnished to us and written representations from
the reporting persons that no other reports were required during the fiscal year
ended February 29, 2000, we believe that all Section 16(a) filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with during the fiscal year ended February 29, 2000.
Item 10. Executive Compensation.
Cash Compensation
The following table sets forth the total compensation earned by the
Chief Executive Officer and the other executive officers of Oryx whose total
salary and compensation exceeded $100,000 for services rendered in all
capacities for the year ended February 29, 2000 and for the years ended February
28, 1999 and February 28, 1998.
29
<PAGE>
Summary Compensation Table
Name and Fiscal Other Annual All Other
Principal Position Year Salary Bonus Compensation Compensation
------------------ ------ -------- ----------- ------------ ------------
Philip Micciche, 2000 $160,000 $3,817 (2) $ -
President & Chief 1999 $158,542 $ - $ -
Executive Officer 1998 $127,308 $ - $4,000 (1) $ -
Mitchel Underseth 2000 $135,750 $ - $8,765 (4) $ -
Chief Financial 1999 $126,377 $ - $3,600 (5) $ -
Officer 1998 $137,558 $44,053 (3) $3,600 (5) $ -
Andrew Intrater, 2000 $ - $ - $ - $ -
Secretary/Treasurer 1999 $ - $ - $ - $ -
1998 $135,000 $ - $ - $8,578 (6)
(1) Other annual compensation consists of payment for consulting
services provided by Mr. Micciche to Oryx.
(2) All other compensation consists of vehicle allowance provide to Mr.
Micciche.
(3) Mr. Underseth received a $44,053 performance bonus in March 1998
attributable to fiscal year 1998.
(4) Consisting of $1,800 in payments to Mr. Underseth in lieu of Oryx
supplied health benefits and $6,965 for payment in lieu of accrued vacation
time.
(5) Other annual compensation consists of payments to Mr. Underseth in
lieu of Oryx supplied health benefits.
(6) Other compensation consists of premiums paid on behalf of Mr.
Intrater for term life insurance in the face amount of $1,000,000, which is
payable to Mr. Intrater's beneficiary upon his death, less the amount of the
premiums theretofore paid on his behalf which are remitted to us.
The following table sets forth as to the Chief Executive Officer and
each of the executive officers named under the Summary Compensation Table,
certain information with respect to options to purchase shares of common stock
of Oryx as of and for the year ended February 29, 2000. We did not grant any
options to officers for the fiscal year ended February 29, 2000.
30
<PAGE>
<TABLE>
Year and Fiscal Year-End Option SAR/Values
<CAPTION>
Value of
Number of unexercised in-
unexercised the-money
Shares Options/SARS at Options/SARS
Acquired FY-end (#) at FY-end ($)
on Value exercisable/ exercisable/
Name Exercise (#) Realized ($) unexercisable unexercisable(1)
------------------ ------------ ------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Philip Micciche - - 521,705/358,295 1,365,489/934,279
Mitchel Underseth 100,000 227,049 247,845/222,155 576,931/549,654
Andrew Intrater - - 279,970/105,657 664,189/259,966
-------------------------------------------------------------------- -----------------
<FN>
(1) Calculated on the basis of the closing price of $4.0625 per share
on February 29, 2000 minus the exercise price.
</FN>
</TABLE>
Employment Agreements
We entered into an employment agreement dated as of March 15, 1999 with
Mr. Philip Micciche, Chief Executive Officer, terminable by either party,
providing for annual compensation of $160,000 to Mr. Micciche from March 1, 1999
through the end of February 2000 and $176,000 from March 1, 2000 through the end
of February 2001. Bonuses or incentive compensation and additional stock option
grants may be paid or granted in the sole discretion of the board of directors.
In the event Mr. Micciche is terminated without cause by us, he will receive all
compensation and benefits for the remaining term of the employment agreement.
We entered into an employment agreement dated as of November 1, 1996
with Mr. Mitchel Underseth, Chief Financial Officer, terminable immediately by
either party, providing for annual compensation of $120,000, with increases in
salary based upon the recommendation of the Compensation Committee. In the event
Mr. Underseth is terminated without cause by us, he will receive his annual
compensation for six months. Mr. Underseth is currently a part-time employee
with us and his compensation has been proportionately adjusted to reflect hours
worked.
We entered into an employment agreement dated as of May 3, 1993 with
Mr. Andrew Intrater, Secretary and Treasurer, terminable immediately by either
party, providing for annual compensation of $100,000 during the term of the
agreement and increases in salary based upon the recommendation of the
Compensation Committee. In the event Mr. Intrater is terminated without cause by
us, he will receive his annual compensation for six months. Mr. Intrater also
entered into a non-competition agreement with us which restricts his engagement
in competitive activities during the term of his employment and prohibits him
from soliciting customers and employees of Oryx for a period of twelve months
following termination of his employment. This agreement also requires Mr.
Intrater to maintain the confidentiality of information and proprietary data
relating to Oryx and its activities. On February 27, 1998, these agreements
terminated upon Mr. Intrater's resignation from Oryx. Mr. Intrater continues to
serve as Director, Secretary and Treasurer of Oryx.
31
<PAGE>
We currently offers basic health and major medical insurance to our
employees. We have adopted a non-contributory 401(k) plan for our employees who
wish to participate on a voluntary basis, but no retirement, pension or similar
program has been adopted by us.
Remuneration of Non-Employee Directors
Each member of the board of directors who is not an employee of Oryx is
compensated for his services as director as follows: $750.00 for each board
meeting attended in person, and $250.00 for each board meeting attended by
telephone. In addition, each non-employee member of the board of directors is
granted stock options under the director's non-qualified stock option plans as
described below.
Description of Incentive and Nonqualified Stock Option Plan
On March 3, 1993, we adopted the incentive and nonqualified stock
option plan, or the plan, pursuant to which, 3,625,000 shares of common stock
have been reserved for issuance to officers, directors, employees and
consultants of Oryx upon exercise of options granted under the plan. The primary
purpose of the plan is to attract and retain capable executives, employees,
directors, advisory board members and other consultants by offering such
individuals a greater personal interest in our business by encouraging stock
ownership. Options granted under the plan may be designated as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986
or nonstatutory options. The plan is administered by a compensation committee
consisting of outside members of the board of directors which will determine,
among other things, the persons to be granted options, the number of shares
subject to each option and the option price. The plan terminates on March 3,
2003.
Options under the plan may be granted to officers, directors, employees
and consultants of Oryx, provided that only employees may be granted incentive
stock options. The exercise price of any incentive stock option granted under
the plan must be equal to the fair market value of the shares on the date of
grant, and with respect to persons owning more than 10% of the outstanding
common stock, the exercise price may not be less than 110% of the fair market
value of the shares underlying such option on the date of grant. The exercise
price of nonstatutory stock options may not be less than 85% of the fair market
value of the shares underlying such options, and the term of such nonqualified
options may not extend beyond ten years and one week. The Compensation Committee
determines the term of each option and the manner in which it may be exercised
provided that no incentive stock option may be exercisable more than ten years
after the date of grant, except for optionees who own more than 10% of the our
common stock, in which case the option may not have a term greater than five
years. The Compensation Committee has the power to impose additional
limitations, conditions and restrictions in connection with the grant of any
option.
There are issued and outstanding options to purchase an aggregate of
2,811,453 shares of common stock pursuant to the plan. The following officers
and key employees of Oryx have been granted options under the plan at the
weighted-average exercise prices described below as of April 30, 2000:
32
<PAGE>
Average
Number Exercise
Name of Shares Price
------------------------- --------------------------- --------------------------
Philip Micciche 880,000 $ 1.449
Mitchel Underseth 470,000 $ 1.611
Andrew Intrater 385,627 $ 1.666
Directors' Non-Qualified Stock Option Plans
At our 1995 annual stockholders' meeting, our stockholders approved the
establishment of the 1995 directors non-qualified stock option plan, or the 1995
directors plan, providing for grants to our non-employee directors, or outside
directors, in order to attract and retain outside directors who possess a high
degree of competence, experience, leadership and motivation.
A total of 225,000 shares of common stock have been reserved for
issuance exercise of non-qualified options under the 1995 directors plan. The
1995 director's plan is administered by the compensation committee of our board
of directors, which will at all times consist solely of outside directors. Under
the 1995 directors plan, outside directors received options to purchase 45,000
shares of our common stock, effective as of February 6, 1995. Each outside
director who joins our board of directors subsequent to the approval of the 195
directors plan will initially receive options to purchase 45,000 shares of our
common stock, effective as of the date he or she is appointed or elected to our
board of directors. Each outside director will also receive options to purchase
15,000 shares of our common stock at such time as his or her initial grants are
fully vested. All options granted under the 1995 directors plan vest in three
equal annual installments on the first, second and third anniversaries of the
date of the grant, provided that the outside director continues to serve on our
board of directors as of such dates.
At our 1996 annual stockholders' meeting, our stockholders approved the
1996 directors non-qualified stock option plan, or the 1996 directors plan,
providing for grants to our outside directors in order to attract and retain
outside directors who possess a high degree of competence, experience,
leadership and motivation.
A total of 250,000 shares of Common Stock have been reserved for
issuance upon exercise of non-qualified options under the 1996 directors plan.
The 1996 director's plan is administered by the compensation committee of our
board of directors, which will at all times consist solely of outside directors.
Under the 1996 directors plan, outside directors received options to purchase
30,000 shares of our common stock, effective as of April 1, 1996. Each outside
director who joins our board of directors subsequent to the approval of the 1996
directors plan will initially receive options to purchase 30,000 shares of our
common stock, effective as of the date he or she is appointed or elected to our
board of directors. Ten thousand of the option shares granted under the 1996
directors plan vest on the date of grant and the balance vest in equal annual
installments on the first and second anniversaries of the date of grant,
provided that the outside director continues to serve on our board of directors
as of such dates.
33
<PAGE>
The exercise price of the options granted under the 1995 and 1996
directors plans will equal the fair market value of our common stock on the date
of grant. The options are not transferable except upon the death of the
optionee. In the event of an optionee's disability, all options granted will
immediately vest, and in the event of an optionee's death, all options will
similarly vest but expire one year thereafter. In the event the optionee
voluntarily resigns from the board of directors or ceases to serve as a board
member, options that are vested through the date of such resignation or
cessation may be exercised for a period of three months thereafter. Both the
1995 and 1996 directors plans provide, respectively, that such plan may not be
amended more than once every six months, other than to comport with changes in
the Internal Revenue Code of 1986, as amended, the Employee Retirement Income
Security Act, or the rules thereunder. The Compensation Committee has the power
to impose additional limitations, conditions and restrictions in connection with
the grant of any option under the 1995 directors plan or the 1996 directors
plan.
On April 1, 1999, Ted Morgan was granted options to purchase an
aggregate of 15,000 shares of our common stock, issued from the 1995 directors
plan.
Additional Grants of Options
On February 27, 1998, in consideration for a bridge loan, we issued a
stock warrant to a financial institution to purchase 174,546 shares of our
common stock at an exercise price of $1.15 per share. This warrant was exercised
on February 2000.
In fiscal 1999, as part of its sale of the Power Products business, we
issued non-statutory options to former key employees of Oryx Power Products to
purchase a total of 205,000 shares of our common stock at an exercise price of
$0.95 per share. In addition, we issued a non-statutory option to a former key
employee of Oryx Power Products to purchase 50,000 shares of our common stock at
an exercise price of $0.25 per share.
On August 7, 1998, we entered into a market access program marketing
agreement with Continental Capital and Equity Corporation pursuant to which we
agreed to issue to Continental up to 202,500 shares of our common stock, subject
to an escrow provision expiring on August 1, 1999, and a two-year warrant to
purchase 60,000 shares of our common stock, at an exercise price of $1.09 per
share.
On August 15, 1998 Bernard Hall was granted a non-qualified stock
option to purchase 85,000 shares of our common stock at an exercise price of
$1.00 in exchange for consulting services associated with developing guidance on
testing procedures in requirements for ESD.
On April 29, 1999 Darren Imai was granted a non-qualified stock option
to purchase 25,000 shares of our common stock at an exercise price of $2.25 in
exchange of consulting services related to the development efforts for a thin
film based technology product.
Subsidiary Stock Plans
In November 1995, our subsidiary, SurgX Corporation, adopted a stock
option plan under which the board of directors of SurgX granted options to
management to purchase Class B common shares in the subsidiary at the fair
market value of such shares as determined by the
34
<PAGE>
SurgX board of directors. Class B common shares authorized for issuance in SurgX
are identical to the 10,000,000 shares of Class A common shares owned by us,
except that the Class A common shares possess a liquidation preference.
1,500,000 million shares of SurgX Class B common shares are 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, and may be re-purchased by
us at our option. Grants under the plan are for amounts, vesting periods and
option terms established by the SurgX board of directors. As of April 30, 2000,
there were 304,000 SurgX stock options granted which vest ratably over a five
year period.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial
ownership of the our common stock as of April 30, 2000
o by each person who is known to us to be the owner of more than
5% of our common stock;
o by each of our directors;
o by each of our executive officers; and
o by all directors and executive officers of Oryx as a group.
<TABLE>
As of April 30, 2000, there were issued and outstanding 16,616,287
shares of our common stock.
<CAPTION>
Number of
Shares of
Name and Address of Beneficial Owner Common Stock Percent of Class
---------------------------------------------- ------------- ----------------
<S> <C> <C>
Philip Micciche 598,362 (1) 3.6%
1100 Auburn Street Fremont, CA
94538
Mitchel Underseth 297,851 (2) 1.8%
1100 Auburn Street Fremont, CA
94538
Andrew Intrater 492,990 (3) 3.0%
47341 Bayside Parkway
Fremont, CA 94538
John Abeles 414,132 (4) 2.5%
2365 Northwest 41st Street Boca Raton, FL
33431
Jay M. Haft 127,650 (5) *
35
<PAGE>
Number of
Shares of
Name and Address of Beneficial Owner Common Stock Percent of Class
---------------------------------------------- ------------- ----------------
2 Grove Isle Dr, #1208B
Coconut Grove, FL 33122
Richard Hubbard 40,000 (6) *
130, Minories
London, EC3N 1NT U.K.
Doug McBurnie 40,000 (7) 0.2%
1109 McKay Drive, MS 24 San Jose,
CA 95131
VMR High Octane Fund 842,105 5.1%
c/o Meespeirson Fund Services
19-20 North Quay
Douglas, Isle of Man 1M991M
Windstar Investments N.V. 1,084,220 6.5%
200 East Broward Blvd.
Suite 1900
Fort Lauderdale, Florida 33302
All officers and directors 2,010,985 (10) 12.1%
as a group (7 persons)
<FN>
* Represents less than 1% of the outstanding shares
(1) Represents shares subject to stock options exercisable as of April
30, 2000 or within 60 days thereafter.
(2) Represents shares subject to stock options exercisable as of April
30, 2000 or within 60 days thereafter.
(3) Includes 182,833 shares of common stock held by Mr. Intrater. Also
includes 310,157 shares subject to stock options exercisable as of April 30,
2000 or within 60 days thereafter.
(4) Includes 227,007 shares of common stock held by Northlea Partners
Ltd. of which Dr. Abeles is the General Partner, and 35,000 shares issuable upon
conversion of the our Series A preferred stock also held by Northlea Partners.
Also includes 9,375 shares of common stock issuable upon exercise of certain
bridge warrants. Includes 37,750 shares of common stock issuable upon conversion
of warrants, held by Northlea Partners. Also includes 105,000 shares subject to
stock options exercisable as of April 30, 2000 or within 60 days thereafter.
36
<PAGE>
(5) Includes 105,000 shares subject to stock options exercisable as of
April 30, 2000 or within 60 days thereafter. Also includes 22,650 shares of
common stock issuable upon conversion of warrants.
(6) Represents shares subject to stock options exercisable as of April
30, 2000 or within 60 days thereafter.
(7) Represents shares subject to stock options exercisable as of April
30, 2000 or within 60 days thereafter.
(8) Represents shares subject to stock options exercisable as of April
30, 2000 or within 60 days thereafter.
(9) Includes 507,553 shares of common stock issuable upon conversion of
warrants.
(10) Includes an aggregate of 1,611,370 shares issuable upon exercise
of warrants and stock options and conversion of Preferred Stock, included
pursuant to notes (1)-(9).
</FN>
</TABLE>
Item 12. Certain Relationships and Related Transactions
In July, 1998, we extended an unsecured loan in the aggregate principal
amount of $35,000 to Mitchel Underseth, Chief Financial Officer and a director
of the Oryx to the terms of a promissory note. The note bears interest of seven
percent (7.0%) per annum and is payable in full on the earlier of July 15, 2000
or thirty days after Mr. Underseth's full-time employment with Oryx is
terminated. Principal and interest under the note are payable in full on such
maturity date. As of February 29, 2000, there was outstanding principal and
interest of $12,977 under the note. Due to Mr. Underseth's current part-time
employment status, he is currently negotiating with us an amendment to the note.
In February, 1999 we received approximately 55,000 shares of common
stock of Applied Magnetics Corp., or Applied Magnetics, assigned to us by our
Chief Executive Officer, Philip Micciche. Mr. Micciche received shares pursuant
to a non-competition agreement executed by Mr. Micciche in connection with his
providing consulting services to DAS Devices, Inc., a magnetic read-write head
manufacturer that recently merged with Applied Magnetics. The shares of Applied
Magnetics common stock received by us were sold on July 1, 1999.
Oryx is paying legal costs incurred by Philip Micciche, our Chief
Executive Officer, and Mitchel Underseth, our Chief Financial Officer, in
connection with Comdisco, Inc. v. Micciche, Underseth, et al filed in Santa
Clara County Superior Court, in which Messrs. Micciche and Underseth have been
named, individually, as defendants. At our request, Messrs. Micciche and
Underseth were named as advisors to DAS Devices, Inc. prior to its acquisition
by Applied Magnetics in order to attempt to maximize our equity investment in
DAS Devices. Messrs. Micciche and Underseth were named as defendants in a
lawsuit brought by Comdisco, Inc. in connection with alleged defaults under a
leasing agreement between Comdisco and DAS Devices. As of April 30, 2000, Oryx
had paid an aggregate of $24,906 in legal expenses in connection with this
matter.
Item 13. Exhibits and Reports on Form 8-K.
37
<PAGE>
(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
We did not file any Reports on Form 8-K with the Commission during the
fiscal quarter ended February 29, 2000.
(c) Exhibits
Exhibit Description of Exhibits
------- -----------------------
2.2 Asset Purchase Agreement dated as of June 1, 1999 by and between the
Registrant and Oryx Advanced Materials, Inc. (1)
3.1 Certificate of Incorporation of the Registrant dated July 26, 1993 (2)
3.2 Bylaws of the Registrant dated July 26, 1993 (2)
3.3 Certificate of Amendment to Certificate of Incorporation dated July 23,
1993 (4)
3.3A Certificate of Amendment of Certificate of Incorporation dated February
7, 1996 (5)
4.1 Specimen Common Stock Certificate (2)
4.2 Specimen Common Stock Purchase Warrant (2)
4.3 Warrant Agency Agreement including Statement of Rights, Terms and
Conditions for Callable Stock Purchase Warrants (3)
4.4 Incentive and Nonqualified Stock Option Plan, as Amended (6)
4.4A 1996 Directors Stock Option Plan (6)
4.4B 1995 Directors Stock Option Plan (7)
4.5 Form of Promissory Note issued to Series A Preferred Stock investors
(2)
4.6 Unit Purchase Warrant (2)
4.7 Form of Warrants issued to Yorkton Securities, Inc. in December 1996
and February 1997 (9)
4.8 Nonstatutory Stock Option Agreement, dated as of March 1, 1998, between
the Registrant and Bharat Shah (6)
4.9 Nonstatutory Stock Option Agreement, dated as of March 1, 1998, between
the Registrant and Bharat Shah (6)
4.10 Nonstatutory Stock Option Agreement, dated as of March 1, 1998, between
the Registrant and Paul Dickerson (6)
4.11 Nonstatutory Stock Option Agreement, dated as of March 1, 1998, between
the Registrant and Thomas Landgraf (6)
4.12 Nonstatutory Stock Option Agreement, dated as of March 1, 1998, between
the Registrant and Charles Ray (6)
4.13 Nonstatutory Stock Option Agreement, dated as of March 1, 1998, between
the Registrant and Gary Sollner (6)
4.14 Warrant dated as of August 10, 1998, between the Registrant and
Continental Capital & Equity Corporation (15)
38
<PAGE>
4.15 Stock Warrant dated as of February 27, 1998, between the Registrant and
KBK Financial, Inc. (15)
10.1 Lease Agreement with Renco Investment Company re: Fremont, California
office, a laboratory and manufacturing facility (2)
10.2 Lease Agreement with FINSA re: Reynosa, Mexico, manufacturing facility
(4)
10.3 Lease Agreement with Greer Enterprises re: Fremont, California
manufacturing facility (4)
10.4 Lease Agreement with Hospitak/Meditron re: McAllen, Texas, warehouse
facility (4)
10.5 Lease Agreement with Security Capital Industrial Trust re: Fremont,
California manufacturing facility (5)
10.6 Lease Agreement with OTR, State Teachers Retirement System of Ohio re:
Mt. Prospect, Illinois office (5)
10.7 Lease Agreement with E.B.J. Partners LP re: Fremont, California office
and manufacturing facility (13)
10.8 Letter of Separation Agreement with Andrew Wilson (13)
10.9 Letter of Employment Agreement with Mitchel Underseth (13)
10.10 Letter of Employment Agreement with Philip Micciche (13)
10.11 Letter of Employment and Non-Competition Agreement with Andrew Intrater
(2)
10.12 Agreement for the Purchase and Sale of Stock with Intek Diversified
Corporation (2)
10.13 Asset Purchase Agreement with Zenith Electronics Corporation (2)
10.14 Promissory Notes issued in interim debt financing (2)
10.15 Common Stock Purchase Warrants issued in interim debt financing (4)
10.16 Placement Agency Agreement between the Registrant and Yorkton
Securities, Inc. dated February 8, 1996, as amended April 22, 1996 (5)
10.17 Form of Subscription Agreement between the Registrant and various
investors in Yorkton Private Placement dated February 29, 1996 and May
13, 1996 (5)
10.18 Offering Memorandum dated February 8, 1996 and Supplement thereto dated
April 22, 1996, relating to Yorkton private placement (5)
10.19 Settlement Agreement between the Registrant and Zenith Electronics
Corporation dated February 29, 1996, as amended April 16, 1996 (5)
10.20 Agreement between the Registrant and Cooper Bussmann dated July, 1996
(13)
10.21 Agreement between the Registrant and National Semiconductor dated June
7, 1996 (13)
10.22 Agreement between the Registrant and LSI Logic dated September 30, 1996
(13)
10.23 Agency Agreement between the Registrant and Yorkton Securities, Inc.
dated December 4, 1996, as amended January 23, 1997 (9)
10.24 Form of Subscription Agreement between the Registrant and various
investors in Yorkton Private Placement dated December 4, 1996 (10)
39
<PAGE>
10.25 Asset Purchase Agreement relating to the acquisition of Power Sensors
Corporation by Oryx Power Products Corporation dated December 19, 1996
(8)
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 (11)
10.27 Stockholders' Agreement Dated February 27, 1998 (11)
10.28 Pledge Agreement Dated February 27, 1998 (11)
10.29 Promissory Note Dated February 27, 1998 (11)
10.30 Asset Purchase Agreement by and among the Registrant, Todd Power
Corporation and Oryx Power Products Corporation Dated March 2, 1998
(12)+
10.31 License Agreement with IRISO Electronics Limited (14)
10.32 Stock Purchase Agreement with IRISO Electronics Limited (14)
10.33 Agreement with Office of Naval Research (14)
10.34 DAS Devices Inc. Preferred Stock Purchase Agreement (14)
10.35 Arvind Patel Separation Agreement (14)
10.36 Amended Cooper Bussmann License Agreement (14)
10.37 Revolving Account Transfer and Purchase Agreement (14)
10.38 First Amendment to Loan Agreement (14)
10.39 Revolving Credit Promissory Note (14)
10.40 Second Amendment to Loan Agreement (14)
10.41 Market Access Program Marketing Agreement dated as of August 7, 1998,
by and between the Registrant and Continental Capital & Equity
Corporation. (15)
10.42 Term Promissory Note dated February 27, 1998 payable to KBK Financial,
Inc. (14)
10.43 Loan Agreement dated May 29, 1997 with KBK Financial, Inc. (14)
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. (16)
10.45 Promissory Note payable by Mitch Underseth dated July 15, 1998 (17)
10.46 Assignment Agreement between Philip J. Micciche and Registrant dated
November 24, 1998 (17)
10.47 Extension Rent Agreement between ProLogis LP and Registrant dated April
12, 1999 (17)
10.48 Employment Agreement between Registrant and Phillip J. Micciche dated
March 15, 1999.*
21 Subsidiaries of the Registrant (5)
23.1 Consent of Independent Accountants*
27.1 Financial Data Schedule*
* 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.
40
<PAGE>
(1) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K filed with the Commission on September 2, 1999.
(2) 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 incorporated herein by reference.
(3) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K filed with the Commission on March 27, 1995.
(4) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended February 28, 1995.
(5) 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.
(6) 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.
(7) 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.
(8) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K filed with the Commission on January 3, 1997.
(9) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K filed with the Commission on February 21, 1997.
(10) 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.
(11) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K filed with the Commission on March 16, 1998.
(12) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K filed with the Commission on March 23, 1998.
(13) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended February 28, 1997.
(14) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended February 28, 1998.
41
<PAGE>
(15) 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.
(16) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K filed with the Commission on April 14, 1999.
(17) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended February 28, 1999.
42
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized on this 30th day of May, 2000.
ORYX TECHNOLOGY CORP.
By: /s/ Philip J. Micciche
----------------------
Philip J. Micciche,
President and Chief
Executive Officer
<TABLE>
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 dates indicated.
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Philip J. Micciche President, Chief May 30, 2000
---------------------- Executive Officer
Philip J. Micciche and Director
(Principal Executive
Officer)
/s/ Andrew Intrater Secretary, Treasurer May 30, 2000
------------------- and Director
Andrew Intrater
/s/ Mitchel Underseth Chief Financial May 30, 2000
--------------------- Officer and Director
Mitchel Underseth (Principal Financial
Officer and Principal
Accounting Officer)
/s/ John H. Abeles Director May 30, 2000
------------------
John H. Abeles
/s/ Jay M. Haft Director May 30, 2000
---------------
Jay M. Haft
/s/ Thomas Guzek Director May 30, 2000
----------------
Thomas Guzek
/s/ Richard Hubbard Director May 30, 2000
-------------------
Richard Hubbard
/s/ Doug McBurnie Director May 30, 2000
-----------------
Doug McBurnie
</TABLE>
43
<PAGE>
Oryx Technology Corp.
Index to Consolidated Financial Statements
February 29, 2000 and February 28, 1999
------------------------------------------------------------------------------
Page
----
Report of Independent Accountants...................................... F-2
Consolidated Balance Sheet at February 29, 2000
and February 28, 1999............................................ F-3
Consolidated Statement of Operations for the
years ended February 29, 2000 and February 28, 1999............. F-4
Consolidated Statement of Stockholders' Equity for the
years ended February 29, 2000 and February 28, 1999.............. F-5
Consolidated Statement of Cash Flows for the
years ended February 29, 2000 and February 28, 1999.............. F-6
Notes to Consolidated Financial Statements............................. F-7
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Oryx Technology Corp.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Oryx
Technology Corp. and its subsidiaries at February 29, 2000 and February 28,
1999, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States. 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 auditing standards generally accepted in the
United States 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
April 28, 2000
F-2
<PAGE>
<TABLE>
Oryx Technology Corp.
Consolidated Balance Sheet
----------------------------------------------------------------------------------------------------------------------
<CAPTION>
February 29, February 28,
2000 1999
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,529,000 $ 1,570,000
Short term investments 989,000 -
Accounts receivable, net of allowance for doubtful
accounts of $40,000 and $118,000 50,000 696,000
Inventories - 384,000
Other current assets 127,000 278,000
--------------- ---------------
Total current assets 5,695,000 2,928,000
Property and equipment, net 262,000 434,000
Other assets 32,000 141,000
--------------- ---------------
$ 5,989,000 $ 3,503,000
=============== ===============
Liabilities, Mandatorily Redeemable Preferred Stock and Stockholders' Equity
Current liabilities:
Accounts payable $ 43,000 $ 355,000
Accrued liabilities 672,000 541,000
Capital lease and other short term obligations - 12,000
Deferred revenue 19,000 408,000
--------------- ---------------
Total current liabilities 734,000 1,316,000
Capital lease and other long term obligation, less current portion - 16,000
--------------- ---------------
Total liabilities 734,000 1,332,000
--------------- ---------------
Commitments and Contingencies (Note 13)
Series A 2% mandatorily redeemable preferred stock 89,000 89,000
Stockholders' equity:
Common Stock, $0.001 par value; 25,000,000 shares
authorized; 16,457,682 and 13,290,464 issued and outstanding 16,000 13,000
Additional paid-in capital 25,237,000 20,144,000
Accumulated deficit (20,087,000) (18,075,000)
--------------- ---------------
Total stockholders' equity 5,166,000 2,082,000
--------------- ---------------
$ 5,989,000 $ 3,503,000
=============== ===============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
Oryx Technology Corp.
Consolidated Statement of Operations
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
February 29, February 28,
2000 1999
<S> <C> <C>
Net revenue $ 755,000 $ 605,000
Cost of sales 808,000 954,000
-------------- ---------------
Gross profit (Loss) (53,000) (349,000)
-------------- ---------------
Operating expenses:
General and administrative 1,782,000 1,526,000
Research and development 954,000 419,000
-------------- ---------------
Total operating expenses 2,736,000 1,945,000
-------------- ---------------
Loss from operations (2,789,000) (2,294,000)
Interest income, net 177,000 14,000
Net write down on investment - (15,000)
Other income (expenses) (11,000) 217,000
-------------- ---------------
Loss from continuing operations (2,623,000) (2,078,000)
-------------- ---------------
Discontinued operations:
Income from discontinued operations 268,000 1,243,000
Income on disposal of discontinued operations 345,000 146,000
-------------- ---------------
Income from discontinued operations 613,000 1,389,000
-------------- ---------------
Net loss (2,010,000) (689,000)
Dividends (2,000) (2,000)
-------------- ---------------
Net loss attributable to Common Stock $ (2,012,000) $ (691,000)
============== ===============
Basic and diluted loss per common share from continuing operations $ (0.17) $ (0.16)
Basic and diluted income per common share from discontinued operations 0.04 0.11
-------------- ---------------
Basic and diluted net loss per common share $ (0.13) $ (0.05)
============== ===============
Weighted average common shares used to compute basic and
diluted net loss per share 15,271,000 13,158,000
============== ===============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
Oryx Technology Corp.
Consolidated Statement of Stockholders' Equity
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Common Stock
Shares Amount
<S> <C> <C> <C> <C>
Balance at February 28, 1998 13,124,821 $ 13,000
Issuance of Common Stock upon exercise of options 24,469 -
Issuance of Common Stock upon exercise of warrants 10,922 -
Issuance of stock option in exchange for services - -
Issuance of Common Stock in exchange
for investor relations services 121,500 -
Issuance of warrants in exchange for investor relations services - -
Conversion of Preferred Stock to Common Stock 8,752 -
Net Loss - -
Preferred Stock dividend - -
------------ ---------
Balance at February 28, 1999 13,290,464 13,000
Issuance of Common Stock upon exercise of options 446,906 -
Issuance of Common Stock upon exercise of warrants 2,639,312 3,000
Issuance of stock option in exchange for services
and employee terminations - -
Issuance of Common Stock in exchange
for investor relations services 81,000 -
Issuance of warrants in exchange for investor relations services - -
Net Loss - -
Preferred Stock dividend - -
------------ ---------
Balance at February 29, 2000 16,457,682 $ 16,000
============ =========
Additional
Paid-In Accumulated
Capital Deficit Total
Balance at February 28, 1998 $19,711,000 $(17,384,000) $ 2,340,000
Issuance of Common Stock upon exercise of options 28,000 - 28,000
Issuance of Common Stock upon exercise of warrants 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 143,000 - 143,000
Issuance of warrants in exchange for investor relations services 17,000 - 17,000
Conversion of Preferred Stock to Common Stock 18,000 - 18,000
Net Loss - (689,000) (689,000)
Preferred Stock dividend - (2,000) (2,000)
----------- ------------ ------------
Balance at February 28, 1999 20,144,000 (18,075,000) 2,082,000
Issuance of Common Stock upon exercise of options 471,000 - 471,000
Issuance of Common Stock upon exercise of warrants 4,243,000 - 4,246,000
Issuance of stock option in exchange for services
and employee terminations 215,000 - 215,000
Issuance of Common Stock in exchange
for investor relations services 152,000 - 152,000
Issuance of warrants in exchange for investor relations services 12,000 - 12,000
Net Loss - (2,010,000) (2,010,000)
Preferred Stock dividend - (2,000) (2,000)
----------- ------------ ------------
Balance at February 29, 2000 $25,237,000 $(20,087,000) $ 5,166,000
=========== ============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-5
<PAGE>
<TABLE>
Oryx Technology Corp.
Consolidated Statements of Cash Flows
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended Year Ended
February 29, February 28,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,010,000) $ (689,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Income from discontinued operations (268,000) (1,056,000)
Gain on sale of discontinued operations (345,000) (146,000)
Loss from asset disposition 8,000 -
Depreciation and amortization 135,000 126,000
Non-cash stock compensation 392,000 173,000
Changes in assets and liabilities
Accounts receivable 85,000 1,000
Inventories - 11,000
Other current assets (20,000) 410,000
Other assets 109,000 (21,000)
Deferred revenue (59,000) (121,000)
Accounts payable (82,000) (70,000)
Accrued liabilities 229,000 (193,000)
------------- ------------
Net cash used in continuing operations (1,826,000) (1,575,000)
Net cash provided by discontinued operations 620,000 101,000
------------- ------------
Net cash used in operations (1,206,000) (1,474,000)
------------- ------------
Cash flows from investing activities:
Capital expenditures (100,000) (94,000)
Proceeds from assets disposition 16,000 -
Purchase of short term investment (989,000) -
Proceeds from sale of Applied Magnetics shares 151,000 -
Proceeds from sale of discontinued operations 400,000 2,000,000
------------- ------------
Net cash provided (used) by investing activities (522,000) 1,906,000
------------- ------------
Cash flows from financing activities:
Sale of Note Receivable - 500,000
Repayment of bank line of credit - (129,000)
Payment of capital lease obligations (9,000) (19,000)
Payment from (repayment of) notes payable (19,000) 19,000
Proceeds from exercise of warrants for Common Stock 4,246,000 18,000
Proceeds from exercise of options for Common Stock 471,000 28,000
Payment of preferred stock dividend (2,000) (2,000)
Other - 1,000
------------- ------------
Net cash provided by financing activities 4,687,000 416,000
------------- ------------
Net increase in cash and cash equivalents 2,959,000 848,000
Cash and cash equivalents at beginning of period 1,570,000 722,000
------------- ------------
Cash and cash equivalents at end of period $ 4,529,000 $ 1,570,000
============= ============
Supplemental disclosures of cash flow information:
Interest paid during the period $ - $ 40,000
============= ============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-6
<PAGE>
Oryx Technology Corp.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
1. The Company
During fiscal 2000, Oryx Technology Corp. ("Oryx" or the "Company"), a
Delaware corporation, and its subsidiaries completed its strategic
repositioning of the Company to a licensing entity. At February 29, 2000,
the Company was primarily involved in the business of licensing its
proprietary SurgX and Intragene technology. The Company transferred the
research and development of its SurgX electrostatic discharge protection
technology to its licensees and began the process of transferring to its
licensees the manufacturing of its SurgX liquid. Additionally, during
fiscal 2000, the Company sold its Material business (see Note 4) which it
has accounted for as a discontinued operations and subsequently licensed
its Intragene technology.
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 29, 2000 is referred to as fiscal 2000. Certain prior year amounts
have been reclassified to conform to current year presentation.
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.
Concentration of credit Risks
Our customers are primarily the licensees of our proprietary SurgX
technology and the Intragene technology. 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:
Year Ended Year Ended
February 29, February 28,
2000 1999
Cooper Electronic Technologies 40% 27%
Oryx Advanced Materials, Inc 33% -
Governments Contracts 17% 68%
Iriso Electronics, Co. LTD 10% -
Inventories
Inventories are stated at the lower of cost or market and cost being
determined on a first-in, first-out basis.
F-7
<PAGE>
Oryx Technology Corp.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
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.
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 accounted for its investment in DAS Devices, Inc. ("DAS
Devices") using the cost method. See Note 5 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. Royalty revenues are
recognized when they are earned, contractually payable and collectability
is probable.
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 and diluted earnings per share for the periods presented have been
computed by dividing income or loss available to common stockholders by the
weighted average common shares outstanding for the period. Due to the net
losses from continuing operations incurred in fiscal 2000 and 1999, all
common stock equivalents (options, warrants and preferred stock)
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 2000 or 1999. Anti dilutive securities and
common stock equivalents at February 29, 2000 which could be dilutive in
future periods include common stock options to purchase 3,216,000 shares of
common stock, warrants to purchase 1,253,000 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.
F-8
<PAGE>
Oryx Technology Corp.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
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. 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.
3. Details of Balance Sheet Components
February 29, February 28,
2000 1999
Inventories:
Raw materials $ - $ 75,000
Finished goods - 309,000
-------------------------
$ - $ 384,000
=========================
Other current assets:
Investment in Applied Magnetics Corporation $ - $ 218,000
Receivable from Todd Power 65,000 -
Other 62,000 60,000
-------------------------
$ 127,000 $ 278,000
=========================
Property and equipment:
Machinery and equipment $ 467,000 $ 501,000
Furniture and fixtures 231,000 250,000
Automobiles - 43,000
Leasehold improvements 84,000 105,000
-------------------------
782,000 899,000
Less: Accumulated depreciation (520,000) (465,000)
-------------------------
$ 262,000 $ 434,000
=========================
Accrued liabilities:
Compensation $ 336,000 $ 192,000
Professional fees 106,000 116,000
Facilities 10,000 22,000
Other 220,000 211,000
-------------------------
$ 672,000 $ 541,000
=========================
F-9
<PAGE>
Oryx Technology Corp.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
4. Instruments and Materials Discontinued Operations
On August 18, 1999, pursuant to the terms of an Asset Purchase Agreement
dated as of June 1, 1999 by and among Oryx Technology Corp. ("Oryx") and
Oryx Advanced Materials Inc. ("OAMI"), Oryx sold to OAMI certain specified
assets associated with Oryx' carbon target assembly manufacturing and
related materials coating business (the "Materials" business) for a cash
payment of $400,000 and the assumption of substantially all of the
liabilities associated with such business. The Company retained ownership
of approximately $280,000 in accounts receivable balances relating to the
Materials business subsequent to the disposition. In addition, Oryx
licensed to OAMI certain patents and other technology associated with the
purchased assets. OAMI will pay Oryx royalty payments over ten years, with
a maximum royalty payment of $2.2 million for the first three years, based
on OAMI's gross profits. As of February 29, 2000, the Company has received
and recognized $249,000 in royalty payments from OAMI for fiscal 2000.
In addition, on February 27, 1998, Corus Investments Ltd., a Bahamas
Company, acquired 8,000,000 shares of the authorized Class A Common Stock
of Oryx Instruments and Materials Corporation (the "Instruments" business)
for a purchase price of $500,000 (the "Sale"). Prior to the Sale,
Instruments was a wholly owned subsidiary of the Company. As part of the
Sale, Instruments redeemed 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.
The disposal of OAMI and Oryx Instruments and Materials have been
aggregated as they represent the final sale of one business segment, and
the operating results of OAMI and Oryx Instruments and Materials have been
segregated and reported as discontinued operations. Prior year financial
statements have been restated to include the results of operations of OAMI
and Oryx Instruments and Materials as discontinued operations. Revenue from
discontinued operations was $1,049,000 and $4,037,000 for the year ended
February 29, 2000 and February 28, 1999, respectively. Income taxes related
to the discontinued operations and the tax benefit resulting from the gain
on disposal of the OAMI business were immaterial. Transaction costs related
to the OAMI disposal were $55,000. The Company has no remaining assets or
liabilities relating to the Instruments and Materials business as of
February 29, 2000.
5. 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 in fiscal 1999 on the write-off of its remaining investment in
DAS Devices.
6. 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
and Equity Corporation. 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 81,000 and 121,500 shares of common stock to Continental Capital &
Equity Corporation in fiscal 2000 and 1999, respectively, under this
agreement. The Company recorded expense of $177,000 and $147,000 during
fiscal 2000 and fiscal 1999, respectively, relating to the services
received which was based on the Company's stock price during the fiscal
years. The
F-10
<PAGE>
Oryx Technology Corp.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Company also issued the warrant during fiscal 1999 and amortized the value
of $29,000 relating to the warrant over the agreement term.
8. Financing Arrangements
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 expired in March 1999 and the
Inventory Line of Credit expired in May 1999.
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% Mandatorily Redeemable 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% Mandatorily Redeemable Convertible Cumulative Preferred Stock
(the Series A Stock). Each share of Series A Stock may be converted, at the
option of the holder, into approximately 11.67 shares of Common Stock. The
Company had reserved 43,763 shares of Common Stock for issuance upon
conversion of the Series A Stock as of February 29, 2000. 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 a 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. A change in the majority of the voting
control of the outstanding stock is considered a liquidation event which
could cause the Series A Stock to be redeemed. 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
F-11
<PAGE>
Oryx Technology Corp.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
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 195,000 options were outstanding with an
average exercise price of $1.60 per share as of February 29, 2000. 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 29, 2000.
In fiscal 1999, as part of its sale of the Power Products business, the
Company issued non-statutory options under a special Stock Option Plan 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 and 50,000 shares at an exercise price of $0.25 per share.
F-12
<PAGE>
A summary of stock option activity under the 1993 Plan, the Directors'
Plans and other stock options granted is as follows:
Shares Weighted-
Available Average
For Exercise Price
Grant Shares Per Share
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
Additional shares authorized 215,000 -
Options granted (270,000) 270,000 $ 1.96
Options canceled 114,062 (114,062) $ 1.43
Options exercised - (446,906) $ 1.06
---------- ----------
Balance at February 29, 2000 436,862 3,216,445 $ 1.57
========== ==========
<TABLE>
The following table summarizes information about employee stock options at
February 29, 2000:
<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>
$0.69 - 1.00 177,125 4.8 $0.86 111,500 $0.94
$1.07 - 1.58 1,777,828 7.4 1.38 1,101,318 1.37
$1.79 - 2.25 1,261,500 7.1 1.93 847,500 1.94
--------- ---------
Total 3,216,453 7.1 $1.57 2,060,318 $1.58
========= =========
</TABLE>
F-13
<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 29, 2000, there were 304,000 options to purchase shares of
SurgX Corporation class B common stocks of which 303,437 were vested. These
options had an average exercise price of $0.80 and an average remaining
contractual life of 5.4 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.
There was no activity under the SurgX subsidiary stock option plan during
fiscal 2000 and fiscal 1999. At February 29, 2000 and February 28, 1999
there were 1,196,000 shares available for grant and 304,000 options
outstanding with an average exercise price of $0.80 per share.
<TABLE>
The following table summarizes information about stock options outstanding
under the SurgX subsidiary stock option plan at February 29, 2000:
<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 5.4 $0.80 303,437 $0.80
--------------- --------------
Total 304,000 5.4 $0.80 303,437 $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 2000 would have
been $2,687,000 and $0.18, respectively, and in fiscal 1999 would have been
$1,366,000 and $0.10, respectively.
F-14
<PAGE>
Oryx Technology Corp.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
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 2000 and
fiscal 1999; risk-free interest rate of 5.98% for fiscal 2000 and 5.42% for
fiscal 1999 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 2000 and 1999 was $1.45 and $1.03,
respectively. The weighted average fair value of options to purchase common
shares of the Company's subsidiaries were not material during fiscal years
2000 and 1999.
Warrants
The following warrants at February 29, 2000, and the number of shares of
the Company's Common Stock which may be purchased at exercise, were
outstanding and exercisable at February 29, 2000:
Original Issuable Warrant Warrant Warrant
Warrants Common Commencement Expiration Exercise
Outstanding Shares Date Date Price
37,500 37,500 Oct. 1994 Oct. 2004 $2.00
379,000 572,290 Nov. 1994 Oct. 2004 $2.00
133,145 133,145 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
9,480 9,480 Apr. 1996 Mar. 2001 $1.31
---------- ----------
1,059,125 1,252,415
========== ==========
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. KBK Financial, Inc exercised these warrants in February
2000.
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). Continental Capital &
Equity Corporation exercised these warrants in February 2000.
The terms of some warrants are subject to adjustment in certain
circumstances including antidilution protection.
11. Research Contracts and Development Funding
The Company has been 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 $128,000 and $216,000 during
fiscal 2000 and $412,000 and $670,000 during fiscal 1999, respectively.
These contracts were completed during the fiscal 2000.
During fiscal 1999, 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,
F-15
<PAGE>
Oryx Technology Corp.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
$423,000 was credited to research and development expenses under these
arrangements. No amount was credited during fiscal 2000.
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 29, 2000.
The tax effects of temporary differences and carryforwards that give rise
to significant portions of deferred tax assets and liabilities at February
29, 2000 and February 28, 1999 are as follows:
February 29, February 28,
2000 1999
-----------------------------------
Net operating loss carryforwards $ 4,884,000 3,904,000
R&D credit carryforwards 436,000 343,000
Inventory reserves - 98,000
Deferred revenue 8,000 163,000
Intangible 48,000 137,000
Other 271,000 309,000
-----------------------------------
Gross deferred assets 5,647,000 4,954,000
Fixed assets 7,000 (12,000)
-----------------------------------
Net deferred tax assets 5,654,000 4,942,000
Valuation allowance (5,654,000) (4,942,000)
-----------------------------------
Net deferred tax assets $ - $ -
===================================
<TABLE>
No provision for federal income taxes has been recorded because of losses
incurred. The provision for (benefit from) income taxes reconciles to the
amounts computed by applying the statutory federal rate to loss before
income taxes as follows:
<CAPTION>
February 29, February 28,
2000 1999
----------------------------
<S> <C> <C>
Statutory U.S. federal tax $ (683,000) $ (234,000)
Valuation allowance with respect to federal deferred tax assets 727,000 226,000
Other (44,000) 8,000
----------------------------
Effective tax $ - $ -
============================
</TABLE>
At February 29, 2000, the Company had federal net operating loss and
research and development credit carryforwards of approximately $13,885,000
and $295,000, respectively. Such federal net operating loss and research
and development credit carryforwards will expire on various dates from 2004
through 2020, subject to certain limitations. In accordance with Section
382 of the Internal Revenue Code, the amounts of and the
F-16
<PAGE>
Oryx Technology Corp.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
benefits from net operating losses that can be carried forward are limited
in certain circumstances, including a cummulative 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 dates of such offerings may be 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:
Operating
Year Ending February Leases
2001 $ 250,000
2002 $ 123,000
2003 1,000
------------
Total minimum lease payments $ 374,000
============
Rental expense for the years ended February 29, 2000 and 1999 was $173,000
and $260,000, respectively.
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 were restricted until a registration statement
filed by Applied Magnetics with the Securities and Exchange Commission was
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. These shares were sold by the Company in
July 1999 recording proceeds of $151,000 and a loss on sale of investment
of $67,000.
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. The outstanding balance was $12,977 as of February 29, 2000 and
$32,927 as of February 28, 1999.
15. Segment Information
The Company operates in a single industry segment (as defined by SFAS No.
131 "Disclosure about Segments and Enterprise and Related Information.") to
license the SurgX and Intragene Technology.
F-17
<PAGE>
Oryx Technology Corp.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
The Company licenses its technologies both domestically and
internationally. Revenue by geographic region is as follows:
Year Ended Year Ended
February 29, February 28,
2000 1999
Net Revenues:
United States $ 676,000 $ 601,000
Japan 79,000 4,000
---------- ----------
Net Revenues $ 755,000 $ 605,000
========== ==========
All sales are denominated in United States dollars. All of the Company's
assets are located within the United States.
F-18
