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                      SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 28, 1997
                                                        

                         Commission file number 1-12680

                              ORYX TECHNOLOGY CORP.
           (Name of Small Business Issuer as specified in its charter)

        Delaware                              22-2115841
(State or other jurisdiction of              (I.R.S. Employer
incorporation or organization)                Identification No.)


47341 Bayside Parkway, Fremont, California              94538

(Address of principal executive offices)            (Zip Code)

Issuer's Telephone Number, including area code:  (510) 249-1144

Securities registered pursuant to Section 12(b) of the Act:

                                                    Name of each exchange
    Title of each class                               on which registered

Common Stock, $.001 par value                NASDAQ/Pacific Stock Exchange
Common Stock Purchase Warrants               NASDAQ/Pacific Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

                                      None
--------------------------------------------------------------------------------
                                (Title of class)

--------------------------------------------------------------------------------
                                (Title of class)
         Check whether the Issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such  shorter  period  that the Issuer was  required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days. Yes X No

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of the  Issuer's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [__]

         Issuer's revenues for its most recent fiscal year were $26,860,000.


         As of May 15, 1997,  13,124,821  shares of Common  Stock and  Preferred
Stock  convertible  into  52,515  shares  of  Common  Stock of  Registrant  were
outstanding.  The  aggregate  market value of the shares of Common Stock held by
non-affiliates of Registrant,  based on the average of the closing bid and asked
prices on April 30, 1997: 1-15/32 and 1-5/16 quoted by the National  Association
of Securities Dealers Automated Quotation System ("NASDAQ"), was approximately
$14,700,000.


         13,124,821  shares of the Company's Common Stock were outstanding as of
April 30, 1997.

         Transitional Small Business Disclosure Format (check one):
         Yes      No  X



                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive  Proxy  Statement to be delivered to  stockholders in
connection  with the 1997 Annual Meeting of  Stockholders  are  incorporated  by
reference into Part III.
-------------------
         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,  mark-down or commission and do not
represent actual transactions.


<PAGE>


         Some of the information in this report, including the discussion of the
Company's  strategy,  production  plans,  distribution  strategies  and  various
statements  concerning the Company's  plans for expansion and  expectations  for
growth  for both the  Company  and the  markets  in which the  Company  competes
constitute  forward-looking  statements within the meaning of Section 27A of the
Securities Act of 1933, as amended,  and Section 21E of the Securities  Exchange
Act of 1934,  as amended.  Actual  results  could differ  materially  from those
projected  in the  forward-looking  statements  as a  result  of the  risks  and
uncertainties  described under the caption "Risk Factors" set forth in Part I of
this  report  and those  identified  by the  Company  from time to time in other
filings with the Securities and Exchange  Commission (the  "Commission"),  press
releases and other communications.


                                     PART I

                                    BUSINESS

Item 1.  Description of Business

Introduction

         Oryx Technology Corp. ("Oryx" or the "Company")  designs,  manufactures
and markets  specialized  components,  analytical  equipment and instrumentation
products  for  original  equipment  manufacturers  ("OEMs")  in the  information
technology  industry.  This  industry  includes  office  equipment,   computers,
telecommunications  and  consumer  electronics.  The  Company  markets or has in
product development,  technologically-advanced products which perform diagnostic
and analytical  functions and address industry  requirements for efficient power
conversion,  surge protection and specialized materials technology.  The Company
has  concentrated its product  development  programs in critical areas where the
larger  manufacturers of office equipment,  computers,  computer peripherals and
other  electronic  and  telecommunications  products  depend upon  complementary
technology and product  support.  The Company  operates in three distinct market
segments:  (i) power  conversion  products,  (ii)  electrical  surge  protection
products,  and (iii)  materials  analysis  and test  equipment  and  specialized
materials products.

         In  November  1995,  the Company  made a strategic  decision to improve
     business focus and execution by separating its core  businesses and placing
assets  for  each  core  business  into  wholly-   owned   subsidiaries.   Three
subsidiaries were formed: Oryx Power Products Corporation, SurgX Corporation and
Oryx  Instruments and Materials  Corporation.  The  subsidiaries are intended to
provide additional  management and employee  motivation to increase the value of
each  business  through  potential  equity  ownership  tied more closely to each
business  unit,  and to position the Company to be better able to seek financing
or equity  investment at the subsidiary level in order to develop the businesses
without diluting  Oryx stockholders.

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                                 Oryx Technology
                                      Corp.

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                          Oryx Instruments and Materials
                                   Corporation

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                                      SurgX
                                   Corporation

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                                      Oryx
                                 Power Products
                                   Corporation
--------------------------------------------------------------------------------



- Power Conversion                     - Surge Protection    -Materials analysis
  Products                               Components           and test equipment
- Contract Manufacturing                                    - Specialized
                                                              Materials
                                                            - Contract R&D

--------------------------------------------------------------------------------


         Oryx' and its  subsidiaries'  customer base for their  current  product
lines  includes the  following  OEMs:  Akashic  Memories,  Bussmann  Corporation
("Bussmann"),  Fuji  Electric  Co., Ltd, IBM  Corporation,  Pitney-Bowes  Corp.,
Seagate Technology,  Inc., Trace Storage Technology Corp., Western Digital Media
Corporation,  and Xerox  Corporation.  The Company currently plans to market its
existing  lines to these and other OEMs during fiscal 1998. The Company has also
undertaken   research   programs  with  the  National   Aeronautics   and  Space
Administration  ("NASA")  and the  Department  of Defense  ("DoD")  and plans to
pursue further joint research programs with major companies in or supporting the
information technology industry.

         The Company's  predecessor,  Advanced  Technology,  Inc.  ("ATI"),  was
incorporated  on April 21, 1976 in New Jersey.  On July 25, 1993, ATI formed the
Company as a wholly-owned  Delaware  subsidiary,  and on September 29, 1993, ATI
merged into the Company.

ORYX POWER PRODUCTS CORPORATION

         Oryx   Power   Products   Corporation   ("Power   Products")   designs,
manufactures  and markets custom and standard AC/DC switching power supplies and
high density DC/DC power conversion products for various  electronics  products,
and provides contract manufacturing services to OEMs.

         Background

         All electronic  hardware  products  require some form of AC/DC or DC/DC
power conversion.  Consequently, the supply of DC power becomes an integral part
of each product's  cost,  reliability,  packaging and function.  Typically,  the
power conversion  system  constitutes  over 10% of the cost,  internal space and
weight of the product.  However,  the advancement of power technology (AC/DC and
DC/DC) has not paralleled  developments  in other segments of the industry,  and
while product technology (logic/memory, etc.) has improved over ten-fold in size
and cost,  power has made only a two-fold  improvement  in such areas during the
last decade.

         In  addition  to  the  need  to  improve  the  basic  power  conversion
technology,  OEMs are  demanding  products  which are more  portable,  reliable,
energy efficient and better performing.  It is Power Products' belief that large
companies  worldwide  are not investing  significant  resources in this area and
instead  depend upon low  technology  vendors,  primarily  in the Far East,  for
supply and technological developments. Power Products' further believes that the
high quality,  low cost  manufacturing  capability it has established at its ISO
9002  certified  plant in  Reynosa,  Mexico,  coupled  with its  North  American
distribution   capabilities   out  of  Texas  can  be   leveraged   to   provide
cost-competitive  power  conversion  products.  In  addition,   Power  Products'
management  believes  the low labor costs and Power  Products'  skilled  Mexican
labor  force and recent  ISO  certification,  allow them to compete  effectively
against other suppliers of contract manufacturing services.


         Acquisition of Zenith Power Conversion Products Group

         On April 11, 1994, the Company  consummated the first and primary phase
of an Asset Purchase  Agreement with Zenith Electronics  Corporation  ("Zenith")
for the purchase of certain assets of Zenith's power conversion  products group.
Through such acquisition,  which was consummated simultaneously with the closing
of  the  Company's  initial  public  offering,  the  Company  acquired  accounts
receivable,  customer  sales  orders,  manufacturing,  research and  development
equipment,  computer equipment,  engineering  documents and certain intellectual
property rights relating to power conversion  engineering and design, and office
furniture and fixtures.  In connection with such  acquisition,  the Company also
agreed to assume  warranty  obligations  associated  with previous  sales by the
Zenith power  conversion  products  group.  In December  1994, the Company began
taking possession of the inventories and  manufacturing  equipment of the Zenith
power conversion products group. The manufacturing  equipment has been installed
at Power Products'  manufacturing  plant in Reynosa,  Mexico and inventories are
held nearby at Power Products' new distribution center in McAllen, Texas.

         The  Company  (a)  paid  Zenith  a  purchase  price  of   approximately
$6,285,000  and  assumed  warranty  obligations  of  $20,000,  and (b)  incurred
approximately $364,000 of expenses associated with the power conversion products
group  acquisition.  The purchase  price to Zenith was paid  $3,600,000 in cash,
$624,000  withheld by Zenith on collection of acquired  receivables,  $20,000 by
assumption of warranty  obligations  and in the form of a promissory note issued
by the Company to Zenith in the  principal  amount of  $2,061,000  (the  "Zenith
Note").  The  purchase  price for the  acquisition,  based on the  closing  date
valuation of assets of the Zenith power conversion products group,  increased by
approximately  $1,000,000 from the Company's  initial  estimate due primarily to
greater than anticipated inventory. Zenith agreed that $624,000 of such increase
would be withheld by Zenith on accounts receivable.

         As part of the terms of the  acquisition,  the Company  contracted with
Zenith  to  manufacture  the  Company's  power  conversion   products  during  a
transition  period of up to 12 months on a fixed price per unit basis,  with the
Company having an option to extend the manufacturing arrangement for up to three
additional months on terms to be negotiated in the future.  Upon the termination
of that contract  manufacturing  arrangement in April 1995,  Zenith delivered to
the Company the  inventories  and  manufacturing  equipment  of the Zenith power
conversion products group.

         On October 30, 1995, The Company  received  notice from Zenith that the
Company  had  defaulted  on the Zenith  Note,  entitling  Zenith to declare  all
amounts  immediately due and owing. On February 28, 1996 Power Products  entered
into  a  settlement  agreement  with  Zenith  which,  together  with  subsequent
amendments,   resulted  in  Zenith's   agreement  to  forgive  all   outstanding
indebtedness,  including the amounts due on the Zenith Note and certain accounts
payable, in exchange for (a) $1,000,000 payable over the course of seven months,
bearing interest at a rate of 12 percent per annum, and (b) warrants to purchase
400,000  common shares at $1.00 per share and 100,000 common shares at $5.00 per
share.  The warrants  expire March 15, 2001. The amount due under the settlement
was paid off in fiscal year 1997 and there are no  outstanding  balances  due to
Zenith.  In connection with the settlement  agreement,  the Company  reported an
extraordinary gain in fiscal year 1996 of $1,433,000.

         Acquisition of Power Sensors Corporation

         On December 19, 1996, Power Products acquired all the assets, assumed a
portion  of  the   liabilities,   and  hired  key  personnel  of  Power  Sensors
Corporation, an Illinois corporation,  for 6 percent of the outstanding Series A
Common Stock of Power  Products and cash  payment of  $120,000.  Power  Products
believes  this  acquisition  will  facilitate  its entry into one of the fastest
growing segments of the power  conversion  product market.  In addition,  adding
DC/DC power  conversion  products  to its current  product  line,  allows  Power
Products to offer a more complete power conversion solution.

         Business

         Power  Products  manufactures  its  products  at its own  manufacturing
facility in the border city of Reynosa,  Mexico,  and  distributes  the products
from a facility in nearby McAllen, Texas. Product design, engineering, marketing
and sales are based at Power  Products'  facility in Mount  Prospect,  Illinois.
Custom products are specifically  designed for a particular customer's products,
whereas  standard  products are designed to be used "off the shelf." Over ninety
percent of Power  Products'  offerings are distributed in the United States with
the balance marketed overseas, primarily in Europe.

         In  fiscal  year  1996,  Power  Products'  management,  as  part of the
Company's  new overall  strategic  focus,  undertook  an analysis of the current
business  and the future  business  direction in order to increase the number of
units sold and eventually,  achieve  profitability.  As a result, in addition to
focusing on growing the custom  power  supply  business,  management  decided to
actively pursue  manufacturing  contracts  utilizing the low cost  manufacturing
capability afforded by its Mexican facilities. In the fiscal year ended February
28, 1997,  contract  manufacturing was significantly  below  expectations due to
delays in starting up one major contract.

         During the fiscal year ended  February  28,  1997,  Power  Products was
notified  by  its  largest  customer,   Pitney  Bowes  Corp.,  that  they  would
discontinue  purchasing  one of the power  supply  products  they had  purchased
during fiscal years 1996 and 1997. Revenues from this custom power supply during
the fiscal year ended  February 28, 1997  represented  63% of total revenues for
Power Products and 48% of consolidated  revenue of the Company.  Sales for Power
Products'  standard product line during the fiscal year 1997 increased after two
years of decline due to increased marketing efforts and the addition of regional
sales managers.  Contract  manufacturing  activity  increased  during the fourth
quarter of fiscal year 1997 and Power Products expects continued growth in these
services during fiscal year 1998.

Due to the loss of substantially  all of Pitney Bowes revenues,  Power Products'
fiscal year 1998 revenues are expected to be significantly below its fiscal year
1997  revenues.  Power  Products  expects that the addition of the DC/DC product
line and the  anticipated  growth in contract  manufacturing  services will help
offset some of the lost revenues  attributable to Pitney Bowes,  however,  there
can no assurance that Power Products will be able to increase revenues enough to
achieve profitably for fiscal year 1998.

         Products  and  Distribution.  The  major  customers  for  custom  power
conversion products are IBM Corporation, Pitney Bowes Corp., and Xerox Corp. The
standard  products  fall  into the  low-to-mid  power  range  with  30-400  watt
offerings in the electronics industry such as telecommunications,  computers and
medical  equipment.  All  product  distribution  is done  from  Power  Products'
McAllen,  Texas  location.  All sales and  marketing,  including  customer order
processing, is handled out of Power Products' Mt. Prospect, Illinois location.

         Power  Products'  standard power supplies are sold in the United States
through  both  manufacturers   representatives   and  distributors.   There  are
approximately  seven  manufacturers  representative  organizations in the United
States who have exclusive  territories  and generally  handle all order activity
for  customers  who purchase in excess of 1,000 units  annually.  There are also
approximately 32 distributors in the United States, with 72 sales locations, who
do not have exclusive territories. Allied Electronics, Inc. is the only national
distributor,  distributing  Power Products  supplies in over 70 sales locations.
The other 32 distributors are local or regional in marketing  scope.  Several of
the  distributors  perform  value-added  services,  such as  cable  and  harness
assembly and voltage settings, in addition to local stocking. European sales are
handled through four master international  distributors consisting of Powersolve
(England),  Elbatex  (Switzerland),  Acal  Auriema  (Netherlands),  and Powerbox
(Sweden).  Master distributors do not have exclusive territories and can sell in
any  European   country   where  they  maintain  an  office.   Agreements   with
manufacturers  representatives and distributors  generally do not provide rights
to return product.

         Power  Products'  current  marketing  strategy  includes  utilizing its
manufacturers  representatives  to promote business both with existing  accounts
and with new customers. Management recently hired a senior industry executive as
Vice President of Sales and Marketing to focus on developing  relationships with
large OEMs in the telecommunications  and data communications  industries and to
further develop  distribution  channels for the AC/DC and DC/DC standard product
lines.

         For standard products,  Power Products' principal competitors are Astec
America,  Ltd.,  Computer  Products,  Inc., Power One, Inc., Kepco, Inc., Lambda
Electronics,  Inc. and Todd Products Group,  Inc.  Custom  products  competition
comes primarily from Zytec, Inc., Chloride Corporation, Lucent Technologies, and
ITT  Corporation,  as well as a number of Pacific  Rim  companies  such as Delta
Products Corp. and Phihong.

         Manufacturing.   In  December  1994,  Power  Products  established  and
commenced  distribution from its warehouse located in McAllen,  Texas. From this
distribution center, Power Products distributes finished products,  and procures
raw materials for shipment to its manufacturing plant in Reynosa,  Mexico, which
is  approximately  10 miles from McAllen,  Texas.  The  manufacturing  equipment
purchased from Zenith was fully installed in the first half of fiscal year 1996.
In fiscal year 1997, an automated surface mount line was installed in the Mexico
plant which increased the plant's overall capacity and due to the  technological
enhancements  of this line,  opened up additional  market  opportunities  in the
custom  products  line.  During  fiscal year 1997,  ISO 9002  certification  was
achieved at the Mexico plant and the primary  phase of DC/DC  manufacturing  was
transferred  to the Mexico plant.  Power  Products  employed  approximately  250
manufacturing and support personnel at its Mexico plant as of April 30, 1997.


         SURGX CORPORATION

         SurgX  Corporation  ("SurgX")  designs,  manufactures and markets surge
protection  components  to OEMs in the computer and  electronics  industries  to
provide  protection  against  electrostatic  discharge  ("ESD")  at the  printed
circuit board level.  SurgX is also attempting to migrate this solution into the
integrated circuit (IC) package.

         Background

         As the information  technology industry  progresses in capacity,  speed
and performance,  it is moving toward faster circuit  performance,  smaller chip
geometries and lower  operating  voltages.  Coinciding  with these trends is the
proliferation of various equipment and information networks.  These developments
have been  accompanied  by increases in both product  susceptibility  to failure
from over-voltage threats as well as more widespread incidences of such threats,
resulting in the "burn-out" of chips and circuitry.  These threats can originate
from inside or outside  the  products  and can arise from such  factors as human
body  electrostatic   discharge,   induced  lightning  effects,   spurious  line
transients and other complex over-voltage  sources.  During the last decade, new
products  emerged  to  address  this need to protect  integrated  circuits  from
electrostatic  discharge damage.  Related specialized  products range from wrist
straps worn by electronics assembly workers, to special anti-static packaging of
both components and sub-assemblies.

         The United States market for surge protection  devices was estimated by
an industry  commentator  to have reached $800 million in 1995, and is comprised
of some mature devices such as gas discharge  tubes,  varistors,  TVS (transient
voltage suppression),  diodes and thyristors.  Though proven for performance and
reliability,  each of these technologies has only a narrow range of application.
In addition, none achieves the desired combination of high speed, elevated power
handling  capability,  low clamping  voltage and low  capacitance.  Furthermore,
present conventional devices and methodology are expensive. At the present time,
approximately ten manufacturers supply over 70% of the surge protection products
sold  worldwide.  Among the major  suppliers are Shinko,  Harris  Semiconductor,
Inc.,  Siemens  Components,  Inc.,  Panasonic,  General  Instrument  Corp.,  AVX
Microsemi  Corp. and Motorola Corp. It is estimated that over 50% of present ESD
protection devices are used in  telecommunications,  but the market for computer
equipment protection is now growing rapidly.

         Business

         In 1993, the Company  assembled an experienced  product design team for
the development and manufacture of a family of specialized  components  designed
to protect  integrated  circuits,  integrated  circuit  modules,  and  assembled
printed  circuit boards.  The Company  completed  preliminary  prototypes of its
SurgXTM  products in fiscal  year 1995 and  commenced  customer  sampling of the
first components utilizing the SurgXTM technology,  primarily connectors used in
the telecommunications and computer industries.

         The  proprietary  SurgXTM  technology  for  over-voltage  protection is
comprised of a specialized  polymer  formulation  containing  inorganic  solids,
metal  particles  and  adhesion-promoting  agents  which can be tailored for use
against surge threats with  different  voltage and power  levels.  In 1994,  the
company  designed  and  packaged  an  ESD  formulation  for  several   connector
configurations  as  well  as  the  two  standard   surface-mount   packages.  By
controlling  the basic  formulation and adapting  solutions to various  customer
designs,  SurgX expects to become a major supplier of such devices.  Toward this
objective,  SurgX  plans  to  undertake  computer  modeling  of both  the  surge
protection  phenomena as well as the predictive  behavior of device  performance
and applicability.

         In 1994, the Company applied for trademarks for the SurgXTM,  SurgAidTM
and  SurgTapeTM  varies for  related  products  described  below with the United
States Patent and Trademark  Office.  SurgX and SurgTape are in the final stages
of the trademarking  process and a time extension has been filed for SurgAid. In
1995, the Company also filed two patents on surge suppressing devices, materials
and manufacturing processes, which are in the process of being split into eleven
patents.  A third patent on devices was filed in 1996. In 1997,  foreign filings
were initiated on the two initial  patents.  In 1997, SurgX filed a service mark
application for the SurgX logo design.

         SurgX's  approach to the market  consists of two  parallel  paths.  The
first  product  group will be a series of  board-level  devices  and inserts for
board mount connectors initially addressing the less than 50 watt ESD segment of
the  existing  diode  market  with  lower  price  and  higher  performance,  and
ultimately,  expanding  to include  the 500 watt line  transient  segment of the
diode market.  In 1989, the diode market  represented  $100 million of the total
$250 million TVS components which were sold in the United States.  Based upon an
industry analysis, the diode market is believed to represent $450 million of the
estimated total $800 million TVS components market in the United States in 1995.
Within this segment, traditionally packaged plug compatible devices less than 50
watts  represented $89 million in 1989 and is estimated to have represented $400
million in 1995.  The first product group is designed to address the ESD segment
of the 500 watt diode market.

         The  first  product  group  is  considered   off-chip   protection  for
integrated  circuits,  that is the  supplemental  devices that are not contained
within the IC and/or the IC package. The first product group is discrete devices
typically  added at the board level to protect the circuitry on printed  circuit
boards.  The second product group,  SurgTape,  is intended to supplement on-chip
ESD protection by placing SurgTape inside the IC package on the leadframe.

         SurgTapeTM is intended to be an inexpensive,  on-board surge protection
device  to be  installed  directly  into  the IC  package  as well as into  many
components or  sub-assemblies.  Management  believes that the development of low
cost, small size, and easy to use SurgTapeTM  devices for application inside the
integrated  circuit  package could be an  alternative to existing ESD Protection
Devices of the high lead count, high value IC market.  Management's  preliminary
estimate  of the high lead count,  high value IC market is two billion  units in
1998.  Management  is planning  further  market  studies to obtain more detailed
information  with  respect to  potential  customers  and  market  opportunities.
However,  there can be no  assurance  that  SurgX  will be able to  commercially
develop  this  product,  or that IC  manufacturers  will  replace or  supplement
existing ESD protection devices with SurgTape(TM).

         Products and Distribution

         A limited number of SurgX  components  were supplied to various OEMs in
the fourth quarter of fiscal year 1995 and during fiscal year 1996. According to
feedback from potential customers,  the samples were well received.  However, it
became apparent to management that in order to effectively penetrate the market,
SurgX would have to mass produce the  product.  In fiscal year 1996, a strategic
review  of  the  business  was  undertaken  as  part  of the  Company's  overall
restructuring.  The  Company  determined  that it  would  be more  efficient  to
establish a relationship with an experienced corporate partner who could provide
the necessary high volume manufacturing and distribution  channels.  It was also
determined that SurgX should seek development  partners to develop SurgTapeTM in
order to reduce the associated development expenses.

         In fiscal  year  1997,  an  exclusive,  world wide  (except  for Japan)
license was granted to  Bussmann,  a  subsidiary  of Cooper  Industries  for the
manufacture and marketing of SurgX surface mount and connector array components.
In  consideration  for this  license,  Bussmann  paid  $750,000  in  development
funding, and, subject to terms of the license agreement,  will pay royalties for
approximately  11 years to SurgX based upon  Bussmann's  sales of surface  mount
components and  connectors.  The product is marketed by Bussmann under the SurgX
trademark.  Bussmann  is a leading  manufacturer  of fuses and was  seeking  new
circuit  protection  technology for rapid market  expansion.  Bussmann's  target
market for SurgX is the rapidly growing electronics market. Since the signing of
the license  agreement in July 1996,  Bussmann has taken on the manufacturing of
SurgX  components  using liquid SurgX  manufactured by SurgX.  Bussmann has also
commenced  sampling  customers,  and  has  launched  a  world  wide  advertising
campaign.

         In fiscal year 1997,  SurgX  entered into two SurgTape  milestone-based
product  development  agreements  with two  major  manufacturers  of  integrated
circuits.  Currently,  SurgX  has  completed  the  electrical  proof of  concept
milestone  with one IC  manufacturer  and is in the final stages of the proof of
concept   with  the  second  IC   manufacturer.   Management   anticipates   the
co-development  contracts  may lead to  supply  contracts  with the  development
partners in calendar year 1998. There can be no assurance,  however,  that SurgX
will  be  able  to  consummate  any  of  these  relationships,   that  any  such
relationship will be on commercially advantageous terms to SurgX, or that any of
the products developed will be commercially successful.

         ORYX INSTRUMENTS AND MATERIALS CORPORATION

         Oryx   Instruments   and  Materials   Corporation   ("Instruments   and
Materials")  designs,  manufactures  and  markets  materials  analysis  and test
equipment,  specialized  materials and  electromagnet  systems for the hard disk
drive and semiconductor industries.

         Background

         Instruments  and  Materials  is  comprised  of  two  core   businesses:
specialized  materials  assemblies based upon the patented  IntrageneTM  ceramic
metallization  and joining system,  and a materials  analysis and test equipment
business which includes secondary ion mass spectrometer (SIMS) and electrostatic
discharge (ESD) simulator product lines.

         The most mature product line consists of  IntrageneTM-based  sputtering
target  assemblies.  These have been sold into the rigid disk market  since 1986
and are still  considered one of the most reliable such assemblies in the market
today.

         Sputtering  target  assemblies are manufactured by materials  companies
and sold to end-users as source  materials  for coating  other  materials  via a
vacuum based process  called  sputtering.  Sputtering is employed as the primary
method for depositing thin film functional  layers on rigid magnetic media (hard
disks), as well as in many semiconductor manufacturing operations. Once a target
is made,  it must  usually be  incorporated  into the  sputtering  apparatus  by
joining it to a backing plate to make sound  electrical,  thermal and mechanical
contact.  The bonding of a target to the backing plate, which is usually made of
copper, forms what is known as the "bonded target assembly."

         The ESD simulator line has been part of the Company's  product offering
since 1993 and serves both chip design and QA/Reliability departments of several
semiconductor   companies.   The  installed  base  of  ESD  simulators  made  by
Instruments  and  Materials  and its  predecessor  company,  IMCS,  exceeds  700
systems, world-wide.

         The most  recent  addition to the  Instruments  and  Materials  product
offering is the TTS 2000 Process Monitoring Tool, a SIMS system. The fundamental
development  and prototype  system build was completed in early fiscal year 1995
and subsequent  productizing efforts have been geared to employing the system as
a semi-automatic  process  monitoring tool for the rigid disk and  semiconductor
industries.  This  system is used to study the  chemistry  and  distribution  of
chemicals on the surface of rigid disks and semiconductor wafers.

         Introduced in the mid-1970's,  secondary ion mass spectrometry ("SIMS")
is a  surface  analytical  technique  used by the  semiconductor,  plastics  and
metallurgical   industries   for   diagnostic   purposes.   SIMS   analysis  has
traditionally been limited to custom analytical laboratories staffed with highly
skilled  analysts.  Due to the high costs and skill  required as a result of the
complexity  of  its  instrumentation,  SIMS  equipment  has  traditionally  been
expensive, ranging in price from $750,000 to $2.0 million.

         In response to perceived industry needs,  Instruments and Materials has
developed  a new  generation  of  SIMS  instrumentation,  called  the  TTS-2000,
designed for production  process  monitoring,  which is  significantly  smaller,
simpler and less expensive to operate  compared to existing SIMS equipment which
is generally  used in  non-production  environments.  Instruments  and Materials
began  customer  shipments  of its TTS product in fiscal year 1997.  The selling
price for the  instrumentation is between $280,000 and $350,000,  depending upon
the configuration.


         Acquisition of IMCS

         In August 1993, the Company  entered into an agreement for the purchase
of stock from Intek  Diversified  Corporation  ("Intek")  pursuant  to which the
Company  acquired all of the  outstanding  capital stock of IMCS  Corporation (a
wholly-owned  subsidiary of Intek).  In connection  with this  transaction,  the
Company also  acquired  product  inventory  owned by IMCX  Corporation,  another
wholly-owned   subsidiary  of  Intek,  obtained  the  right  to  employ  certain
technology  pertaining to IMCS' products  presently owned by IMCX, and a license
for the use of additional proprietary technology of IMCX relating to U.S. Patent
No.  4,617,542.  The IMCS products  license relates to  electrostatic  discharge
simulation equipment, and the patent license relates to a high voltage switching
device.  In consideration  for the stock, the Company paid to Intek the cash sum
of  $75,000,  issued a  non-interest  bearing  promissory  note in the amount of
$180,000  in  exchange  for  the   aforementioned   inventory,   payable  in  24
installments  of $7,500 each  commencing  October 1, 1993  through  September 1,
1995,  and agreed to pay to IMCX  various  royalties  for a specified  term.  In
conjunction  with the  purchase  of IMCS,  the  Company  entered  into a royalty
agreement with Intek whereby the Company will pay, for a 15-year term, a royalty
to IMCX on all IMCS product sales.  During the initial  twelve months  following
the  acquisition  or until IMCS generates  $750,000 of product sales,  whichever
occurs first,  the royalty will be 6% of IMCS product sales. The royalty will be
8% of IMCS  product  sales for the  remainder  of the  royalty  period  with the
aggregate maximum royalty not to exceed $800,000. IMCS also agreed to pay AT&T a
supplemental  royalty  for the same  15-year  term  equal  to 3% of  sales  over
$333,000 of certain IMCS products with the maximum  supplemental royalty limited
to $150,000.

         Business

         Through the IMCS  acquisition,  the Instruments  and Materials  product
group  offers  to  semiconductor  chip and  product  manufacturers  a series  of
products for testing over-voltage susceptibility as a result of ESD. Instruments
and Materials  manufactures four different models: Model 700, a low cost, manual
electrostatic discharge (ESD) simulator; Model 7000, an automated ESD simulator;
and Model 9000, an automated  charged  device model (CDM)  simulator  based on a
licensed AT&T design and Model 11000, an automated  multifunctional  tester. The
prices for these models range from $12,000 to $300,000,  and are primarily being
marketed  directly to Instruments and Materials'  customer base. There were four
system installations of the 11000 in fiscal year 1997.

         The introduction of the TTS-2000 Process Monitoring Tool in fiscal year
1997  has  brought  about a high  level of  interest  in  implementing  the SIMS
technique  on the  factory  floor of rigid disk  manufacturers.  There were four
systems  shipped in fiscal year 1997.  These  systems are utilized on production
lines  with the intent of  producing  extensive  surface  chemistry  data,  over
several months,  in order to begin correlating  trends in surface  contamination
with overall process yields. As a result,  the TTS-2000 may be able to establish
its utility to the customer as a process  monitoring  tool - a system which will
ultimately  help increase yields while  detecting  process  problems before they
become catastrophic yield losses for the customer.

         Instruments  and  Materials'  primary  strategic  market is rigid  disk
manufacturers.  There are projected to be over 200 disk production  lines in the
world by the year 2000.  With the  potential  to  monitor a number of  different
types of production  processes,  a dedicated  TTS-2000 could be used in multiple
places in a single  production line.  However,  there can be assurance that this
product  will  meet  the  customer's   technical   requirement   for  a  process
manufacturing  tool,  or that the  yield  detection  capabilities  will  provide
utility to the manufacturing process.

         Another  potential  market is the  semiconductor  market for monitoring
production wafers for various contamination problems or other  chemistry-related
phenomena.  This  market is  believed  to be even larger than that for the rigid
disk market. With additional resources,  Instruments and Materials believes that
some system  modifications  and  re-engineering  of the TTS-2000  could make the
adoption of a TTS system into the  semiconductor  market a reality in the coming
years. However, there can be no assurance that Instruments and Materials will be
able to develop this product or be willing to invest the necessary  resources to
participate in this market.

         Instruments  and Materials also  manufactures  high quality  sputtering
target assemblies based primarily on its patented IntrageneTM metal to non-metal
and metal to metal joining  process.  The  IntrageneTM  process is a proprietary
methodology  developed by metallurgists and materials  scientists at Instruments
and  Materials and has been granted six U.S.  patents as well as national  phase
patents based on two European patent  applications  and three Japanese  patents.
The IntrageneTM  process allows for the ability to metallize,  solder or braze a
wide range of engineering ceramics, graphite and refractory metals.

         Instruments  and  Materials'  background in  engineering  materials and
joining has allowed it to develop  several  approaches to bonding brittle solids
of low to intermediate thermal expansion to typical high-expansion backing plate
materials such as copper and aluminum.  Instruments and Materials' experience in
assembly design and stress reduction combined with the ability to produce bonded
target  assemblies has enabled it to become a supplier of such products  selling
directly to the thin-film magnetic media manufacturers.

         Instruments and Materials'  primary customers of the bonded targets are
Akashic Memories  Corporation,  Seagate Recording Media, Inc. (formerly,  Conner
Peripherals and Seagate Magnetics),  Trace Technology, and Western Digital Media
Corporation. The company has also undertaken research programs with NASA and the
Department of Defense,  and has been the recipient of four Phase I and two Phase
II  research  contracts  from  NASA,  two Phase I  research  contracts  from the
Department  of  Defense,  and one Phase I research  contract  from the  National
Science  Foundation  during its 1992-1997  fiscal  years,  most of which involve
applications  of its  IntrageneTM  and related core  technology.  The  contracts
represent  grants  totaling over $2 million.  Instruments  and Materials also is
negotiating joint product development and research programs with major companies
in the  information  technology  industry,  and  intends  to  continue  pursuing
additional research contracts with the United States government.

         Instruments and Materials derived its revenues  primarily from sales of
its bonded  sputtering  target  assemblies in the fiscal year ended February 28,
1997.  Demand for these  products has increased as  world-wide  demand for rigid
magnetic  media  has  increased  and  produced  a  corresponding   expansion  in
manufacturing  capacity.  Management  currently  believes that the business will
sustain this growth in fiscal year 1998.  In fiscal year 1998,  Instruments  and
Materials  intends  to  emphasize  the  growth  of its  TTS and  test  equipment
businesses  due to the high margin and the large  market  potential.  Management
believes  that the initial  system  installations  performed in fiscal year 1997
will enable it to  establish  an  installed  base for  reference  selling in the
future.  However,  there can be no  assurance  that these  systems will meet the
technical  requirements  of  customers  or that a  significant  market  for such
products will develop.  If Instruments and Materials fails to establish a market
presence  for these  products,  it will have to consider  taking steps to reduce
losses in this line of business.

         Regulation and Environmental Matters

         Instruments  and  Materials  is subject to various  federal,  state and
local laws, regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices, and the use and disposal of hazardous or
potentially  hazardous  substances.  Instruments and Materials believes that its
facilities and practices for  controlling and disposing of the limited amount of
waste and  potentially  hazardous  materials it produces are in compliance  with
applicable environmental laws and regulations. The development of any additional
manufacturing operations by Instruments and Materials may require the Company to
comply with  government  regulations  designed to protect the  environment  from
wastes and emissions and from hazardous substances, particularly with respect to
the emission of air pollutants,  the discharge of cooling water, the disposal of
residues  and the  storage of  hazardous  substances.  The extent of  government
regulation  which might  result from any future  legislation  or  administrative
action cannot be accurately predicted.

         Patents and Proprietary Rights

         Proprietary   protection  for  Instruments  and  Materials'   products,
processes  and  know-how is  important  to its  business,  and  Instruments  and
Materials plans to prosecute and defend its patents and proprietary  technology.
Instruments and Materials' policy is to file patent  applications to protect its
technology, inventions and improvements as soon as practicable.  Instruments and
Materials also relies upon trade secrets,  know-how and continuing technological
innovation to develop and maintain its competitive position.

         Instruments and Materials owns and will maintain seven patents, five of
which are associated  with the  IntrageneTM  process.  The  IntrageneTM  patents
expire in 1999 and 2000.  Instruments  and Materials  plans to file  improvement
patent  applications  which may effectively  broaden  Instruments and Materials'
proprietary  protection,  but there can be no assurances  that such  improvement
patent applications will be granted.  Instruments and Materials does not believe
that the expiration of such patents will have a materially adverse effect on its
competitive position relative to the marketing of its ceramic  metallization and
bonding system products.

         The Company has also filed for two  patents  with  respect to its SurgX
product line for surge suppressing devices, and materials  manufacturing process
which are in the process of being split into eleven  patents and a third  patent
application  on  devices  was  filed in  1996.  In 1997,  foreign  filings  were
initiated on the two initial patents.

EMPLOYEES

         As of April 30,  1997 the Company  employed  360 persons on a full-time
basis.  Included among full time employees are 5 executive officers, 20 managers
and  executive  personnel,  30  engineering  personnel,  10 sales and  marketing
personnel, 21 administrative  personnel and 274 manufacturing  personnel. Of the
Company's full-time employees, some hold Ph.D. or Masters Degrees in one or more
fields of science.  The Company's  employees  are not covered by any  collective
bargaining  agreements,  and the Company  believes  its employee  relations  are
satisfactory.


<PAGE>


                                  RISK FACTORS


     History  of  Unprofitability;   Substantial  Recent  Operating  Losses  and
Accumulated Deficit

         Since its initial  public  offering in April 1994,  the Company has not
been  profitable  on a quarterly or annual  basis except for the quarters
ended May 31, 1996, August 31, 1996 and November 30, 1996. At February 28, 1997,
the Company had an accumulated  deficit of  $10,243,000.  During the fiscal year
ended February 28, 1997, the Company's largest customer,  Pitney Bowes, notified
the  Company  it would  significantly  reduce  its  purchases  during the fourth
quarter ended February 28, 1997 and in the ensuing year. Due to the  significant
reduction  in sales to Pitney  Bowes,  the Company  expects  that it will not be
profitable  for the fiscal  year  ending  February  28, 1998 and there can be no
assurance that the Company will be profitable thereafter.


         Liquidity and Capital Resources

         The Company's working capital increased from $4,698,000 at February 29,
1996 to $6,514,000 at February 28, 1997.  The Company's  ratio of current assets
to current  liabilities  was 1.77:1 at February  29, 1996 and 2.31:1 at February
28,  1997.  In the fiscal year ended  February  28,  1997,  the  Company  raised
additional capital of $4,143,000,  net of issuance costs of $681,000 pursuant to
private  placement  offerings  in which it issued and sold an  aggregate  of 2.8
million shares of its common stock to certain qualified  institutional investors
under  Regulation  S of the  Securities  Act of 1933,  as amended.  In addition,
during fiscal year 1997, some of the Company's Warrants,  Underwriters Units and
Stock Options were  exercised,  providing the Company with $842,200 of proceeds.
The Company  recently  closed a $5,500,000  asset based  borrowing  facility and
believes, based upon the Company's projections which include significant revenue
growth from new product lines, that this financing will be sufficient to satisfy
all of the Company's  anticipated  financing needs through at least February 28,
1998. In the event the Company requires additional equity or debt financing,  or
attempts to raise capital through an asset sale,  there can be no assurance that
such  transactions  can be  effected  in a  timely  manner  to  meet  all of the
Company's  needs,  or at all,  or that  any  such  transaction  will be on terms
acceptable to the Company or in the interest of its stockholders.


         Risks of New Phase of Development

         The  Company  has  invested   substantially   in  the   development  of
proprietary  technologies in surface  analysis,  electrostatic  surge testing of
integrated circuits and surge protection,  and has shipped four units of its new
secondary  ion mass  spectrometer.  The Company  has also  completed a licensing
agreement  for  part  of its  SurgX  technology  with  an  electronic  component
manufacturer.  There can be no assurance  that the Company will be successful in
further  commercializing these technologies or any other products, or developing
financially viable businesses based on these technologies. Results of operations
in the future will be influenced by numerous  factors,  including  technological
developments  by the  Company,  its  customers  and  competitors,  increases  in
expenses associated with product development and sales growth, market acceptance
of the Company's  products,  the ability of the Company to successfully  control
its costs of development,  overhead and other costs,  and manage its operations,
the  capacity  of the  Company to develop  and  manage the  introduction  of new
products, and competition. There can be no assurance that revenue growth will be
sustained  or  profitability  on a quarterly  or annual  basis will be achieved.
Accordingly,  there  can be no  assurance  that  the  Company  will  be  able to
implement  its  business  plan,  expand its  operations  and develop and sustain
profitable operations.

         On  December  19,  1996,  Oryx  Power  Products   Corporation   ("Power
Products"), the Company's power products subsidiary, acquired all of the assets,
assumed a portion of the  liabilities,  and hired key personnel of Power Sensors
Corporation,  an Illinois  corporation  ("Power  Sensors")  for 6 percent of the
outstanding  Series  A  Common  Stock of Power  Products  and cash  payments  of
$120,000.  The Asset Purchase  Agreement for this acquisition  provides that if,
within 3 years of December  19, 1996,  Power  Products is not itself sold in its
entirety to, or  purchased  by, a third party for cash or public  securities  of
such third party or publicly traded as a company whose securities are registered
under the Securities Act of 1993 or is a reporting  company under the Securities
Act of 1934,  then each of the  holders  of the Power  Products  Series A Common
Stock issued in the acquisition,  shall have the option on that date to exchange
such Common Stock into a non-interest  bearing promissory note of Power Products
in an amount equal to $2.50 per share of Common  Stock for a total  indebtedness
of  $1,500,000.  Power  Sensors is a developer and  manufacturer  of DC/DC power
conversion  products.  While this acquisition is intended to provide the Company
with the  entry  into the  DC/DC  power  supply  market  and to  generate  sales
sufficient  to help offset the  reduction  in sales to Pitney Bowes as discussed
above,  there can be no assurance that the Company will be able to  successfully
market  such  products  or that  any  sales of such  products  will  offset  any
reductions in the Company's sales to Pitney Bowes or any other customer.

     Risks Associated with Management of Growth; Internal Control Deficiencies

         The Company has recently  experienced  and may  continue to  experience
substantial  growth in the number of employees and the scope if its  operations,
resulting in increased  responsibilities  and changes in  management.  To manage
growth   effectively,   the  Company  will  need  to  continue  to  improve  its
operational,  financial and  management  information  systems and to develop and
maintain  sound internal  controls.  Failure to do so could result in a material
adverse  effect on the Company's  financial  condition and results of operations
and could result in a misstatement of operating results.  In connection with the
audit of fiscal year 1995,a reportable  condition was identified with respect to
the  Company's   record   keeping  for  equity   financing  and  share  issuance
transactions.  In connection  with the Company's audit for the fiscal year ended
February 29, 1996, the Company's  independent  accountants  identified a further
reportable condition relating to physical inventory procedures specifically with
regard to substantial  adjustments that resulted from physical inventories taken
during the fiscal year ended February 29, 1996. The resulting  adjustments  were
reflected in the fiscal year 1996 financial  statements.  A reportable condition
indicates  that a  material  error or  irregularity  may occur in the  Company's
quarterly and year-end financial  statements and may not be detected on a timely
basis by the Company's  employees,  thereby possibly resulting in a misstatement
of the Company's financial  statements.  Management has taken actions to resolve
these  conditions,  although  there can be no assurance that the controls put in
place will lead to an adequate internal control structure.




         Significant Customer Dependence

         For the fiscal years ended  February  28,  1997,  February 29, 1996 and
February 28, 1995, sales to Pitney Bowes accounted for  approximately  52%, 41%,
and 27% of consolidated  revenues,  respectively.  The Company will experience a
significant  reduction  in sales to Pitney  Bowes  during the 1998 fiscal  year.
Accordingly,  the Company's  operating  results will be materially and adversely
affected by the loss of business  from Pitney  Bowes.  There can be no assurance
that such customer or any other customers will in the future  purchase  products
from the Company at levels that equal or exceed  those of prior  periods,  if at
all. While the Company actively pursues new customers, there can be no assurance
that  the  Company  will be  successful  in its  efforts,  and  any  significant
weakening  in  customer  demand  would  have a  material  adverse  effect on the
Company.

         Reliance on Third Party Manufacturers May Disrupt Operations

         The  Company  relies on  third-party  manufacturers  for the  supply of
substantially all key components for all of its products. The Company's reliance
on outside manufacturers  generally,  and a sole manufacturer or a limited group
of  manufacturers  in  particular,  involves  several risks,  including  without
limitation,  a  potential  inability  to obtain an  adequate  supply of required
components and reduced control over pricing,  quality, cost, and timely delivery
of  components.  Any  inability  to  obtain  adequate  deliveries  or any  other
circumstances  that would  require  the Company to seek  alternative  sources of
supply or to manufacture such components  internally could lead to disruption of
the  operations  of  the  Company,   product  deficiencies,   unanticipated  and
fluctuating   expenses,   unpredictable   revenues,   and  sales  and  marketing
dislocations  that are beyond  the  Company's  control,  and may have a material
adverse effect on the Company's business and operations.

     Technological Changes Affecting Products and Product Development Risks

         The design and manufacture of technologically  advanced  components and
equipment  continually undergo rapid and significant  technological  change. The
Company's  success  will  depend  upon its  ability to  maintain  a  competitive
position with respect to its  proprietary  and other enhanced  technology and to
continue  to  attract  and  retain  qualified  personnel  in all  phases  of its
operations.  The Company's  business is, to a large degree,  dependent  upon the
enhancement  of its  current  products  and  the  development  of new  products.
Critical to the Company's success and future  profitability will be its capacity
to develop new technologies for new product lines and product upgrades.  Product
development  and  enhancement  involve  substantial   research  and  development
expenditures  and a high  degree  of risk,  and there is no  assurance  that the
Company's product  development  efforts will be successful,  will be accepted by
the  market,   or  that  such   development   efforts  can  be  completed  on  a
cost-effective  or  timely  basis.   There  can  be  no  assurance  that  future
technological  developments will not render existing or proposed products of the
Company uneconomical obsolete or that the Company will not be adversely affected
by competition or by the future  development of commercially  viable products by
others.

         Quarterly Fluctuations of Operating Results

         The Company's  quarterly  operating  results have in the past been, and
will in the  future  be,  subject  to  significant  fluctuation.  The  Company's
operating   results  are   impacted  by  numerous   factors,   such  as  product
introductions  or  modifications  by  competitors,   market  acceptance  of  the
Company's products and its customers' products,  product price changes,  product
mix, purchasing patterns of original equipment  manufacturers ("OEMs") and other
customers,  delays in, or failure to receive,  orders due to customer  financial
difficulties,  and  overall  economic  trends.  The Company  plans to  introduce
product  upgrades or new product lines from  time-to-time,  which could generate
short-term  fluctuations  and have a material adverse impact on sales of certain
existing  products.  In addition,  customer orders may involve competing capital
budget  considerations  for the  customer,  thus  making the timing of  customer
orders  difficult  to  predict  and  uneven.  Any delay or  failure  to  receive
anticipated  orders, or any deferrals or cancellation of existing orders,  would
adversely  affect the Company's  financial  performance.  The Company's  expense
levels  are based in part on its  expectations  as to future  revenues  and,  in
particular,  revenue growth, and the Company may be unable to adjust spending in
a timely manner to compensate for any revenue shortfall. Accordingly,  operating
results in any one quarter  could be  materially  adversely  affected  by, among
other  factors,  a failure to receive,  ship or obtain  customer  acceptance  of
sufficient  orders in that quarter and any weakening in demand for the Company's
products could have a material adverse effect on the Company's operating results
and the Company's ability to achieve profitability.

         Backlog and Inventory

         Power Products  historically has generally  operated with a substantial
backlog.  However,  as a result of the  reduction in business from Pitney Bowes,
Power Products no longer operates with significant backlog. Moreover, backlog at
the  beginning  of a quarter  typically  does not include all sales  required to
achieve the Company's sales and operating  targets for a quarter,  which targets
depend  on the  Company's  shipping  orders  scheduled  to be sold  during  that
quarter.  The terms of  customer  purchase  orders  generally  provide  that the
customer may cancel or reschedule all or a substantial portion of the order with
limited  notice and with  little or no  penalty.  The  Company  has  experienced
rescheduling  in the past and, to a lesser  extent,  cancellations,  and expects
that it will  experience  such  changes in the future.  If the Company is unable
timely to adjust its parts orders to meet actual product demand from  customers,
the result may be that the  Company  has a parts or product  inventory  which is
substantially  different from the number and mix of products  actually sold. Any
such  inventory  imbalance  could  result  in  inventory  write  downs  or other
unexpected  charges,  contributing  to  significant  fluctuations  in  operating
results from quarter to quarter.

         Additionally,  the Company's other subsidiaries  operate with virtually
no backlog.  Therefore,  because the Company ships most of its products within a
short period after  receipt of an order,  the  Company's net sales and operating
results for a quarter  depend on the Company's  ability to obtain orders for and
ship  products  within the same  quarter.  There can be no  assurance,  that the
Company  will be able  to  obtain  a  sufficient  level  of  orders  to  achieve
profitability on a quarterly basis.

         Competition

         The  Company  is  engaged in certain  highly  competitive  and  rapidly
changing  segments  of  the  electronic  components  and  systems  manufacturing
industry in which technological advances,  costs, consistency and reliability of
supply are critical to competitive  position.  In addition,  the competition for
recruitment of personnel in the technologically-advanced  manufacturing industry
is  continuous  and highly  intense.  The Company  competes or may  subsequently
compete,  directly or  indirectly,  with a large number of  companies  which may
provide products or components  comparable to those provided by the Company.  In
addition,   many  present  or  prospective   competitors   are  larger,   better
capitalized,  more established and have greater access to resources necessary to
produce a  competitive  advantage.  In  particular,  there are a large number of
competitors  producing power conversion  products,  many of which are larger and
more  established  technology  oriented  companies  in  the  United  States.  In
addition,  many low cost manufacturers exist in the Far East who may be expected
to introduce  more  technologically  advanced power  conversion  products in the
future.  There can be no  assurance  that the  Company  will be able to  compete
effectively in the Power Conversion market or any other of its markets.

     No Assurances of Protection for Patents and Proprietary Rights; Reliance on
Trade Secrets

         The Company relies on a combination of patent, copyright, trademark and
trade secret laws,  non-disclosure  agreements and other  intellectual  property
protection  methods  to  protect  its  proprietary  technology.  There can be no
assurance that any existing or  subsequently  obtained  patents will provide the
Company with substantial competitive advantages,  or that challenges will not be
instituted  against the validity or  enforceability  of any patents owned by the
Company,  or if initiated,  that such challenges will not be successful.  To the
extent the Company wishes to assert its patent rights, there can be no assurance
that any claims of the  Company's  patents  will be  sufficient  to protect  the
Company's technology, and the cost of any litigation to uphold the validity of a
patent and prevent infringement can be substantial even if the Company prevails.
In  addition,  there can be no  assurance  that  others  will not  independently
develop   similar   technologies,   duplicate  the  Company's   technology,   or
legitimately  design around the patented  aspects of the  Company's  technology.
Competitors or potential competitors may have filed applications for or received
patents,  and may obtain additional  patents and proprietary  rights relating to
technology  competitive  with that of the Company.  Furthermore,  if  additional
patents do not issue from present or future patent applications, the Company may
be subject to greater competition.

         In certain  cases,  the Company also relies on trade secrets to protect
proprietary  technology  and processes  which it has developed or may develop in
the future.  There can be no assurance that secrecy  obligations will be honored
or that others will not  independently  develop similar or superior  technology.
The protection of proprietary  technology through claims of trade secrets status
has been the subject of increasing  claims and litigation by various  companies,
both in order to protect proprietary rights, and for competitive purposes,  even
where  proprietary  claims are  unsubstantiated.  The prosecution of proprietary
claims or the  defense of such  claims is costly and  uncertain  given the rapid
development of the principles of law pertaining to this area.

         No Dividends on Common Stock

         The Company has not paid any cash  dividends  on its Common Stock since
its inception and does not anticipate  paying cash dividends on its Common Stock
in the foreseeable future. The future payment of dividends is directly dependent
upon future  earnings  of the  Company,  its  financial  requirements  and other
factors to be  determined by the  Company's  Board of Directors,  as well as the
possible consent of lenders, underwriters or others. For the foreseeable future,
it is  anticipated  that any earnings  which may be generated from the Company's
operations  will be used to finance  the growth of the  Company  and will not be
paid to holders of Common Stock.

         Risk of Significant Dilution

         On December 23, 1996, the Company  issued and sold 1,134,130  shares of
Common  Stock to  various  investors  in a  private  placement  exempt  from the
registration  requirements of the Securities Act under  Regulation S thereunder.
On February 7, 1997, the Company issued and sold an additional 910,000 shares of
Common  Stock in a second  closing  of the same  offering  described  above (the
transactions described in the previous two sentences shall be referred to herein
collectively as the "Regulation S Offering.")

         In  connection  with the  Regulation S Offering,  the Company  retained
Yorkton Securities,  Inc. ("Yorkton") to act as placement agent pursuant to that
certain Agency  Agreement dated as of December 4, 1996 and amended as of January
23, 1997 (the "Agency Agreement").  Under the terms of the Agency Agreement, the
Company issued Yorkton  warrants to purchase  90,730 and 72,800 shares of Common
Stock for a per share  exercise  price of $1.90 (the  "Yorkton  Warrants").  The
Yorkton  Warrants  are  exercisable  for a period of five years from the date of
each closing of the Regulation S offering.

         As  a  result  of  these  and  various  other  transactions  previously
undertaken  by the  Company,  as of February 28,  1997,  there were  convertible
securities and warrants and options of the Company currently outstanding for the
conversion and purchase of up to approximately 5,480,000 shares of Common Stock,
which  represent   significant   additional   potential  dilution  for  existing
stockholders  of the Company.  These  underlying  shares of Common Stock are not
included  in  currently  outstanding  shares.  In  addition,  as a result of the
anti-dilution  provisions  included in certain of these  derivative  securities,
there may be further  dilution  based on the price that the Company issues other
securities in the future.

         Volatility of Stock Price

         The  market  price  of  the  Company's   Common  Stock  has  fluctuated
substantially  since the Company's  initial  public  offering in April 1994. The
Company  believes  that a  variety  of  factors  could  cause  the  price of the
Company's Common Stock to continue to fluctuate  substantially,  including,  for
example,  announcements  of  developments  related  to the  Company's  business,
liquidity  and financial  viability,  fluctuations  in the  Company's  operating
results and order levels,  general  conditions in the  industries  served by the
Company,  the  technology  industry in general or the United States or worldwide
economy,  announcements  of technological  innovations,  new products or product
enhancements by the Company or its competitors, developments in patents or other
intellectual  property rights,  and developments in the Company's  relationships
with its customers,  distributors and suppliers.  In addition,  in recent years,
the stock  market in general  and the market for shares of small  capitalization
stocks in particular has experienced extreme price fluctuations which have often
been  unrelated  to  the  operating  performance  of  affected  companies.  Such
fluctuations   could  adversely   affect  the  market  price  of  the  Company's
Csecurities and ability to obtain additional financing.

         Authorization of Preferred Stock

         The Board of Directors is authorized to issue shares of preferred stock
and to fix the dividend,  liquidation,  conversion,  redemption  and the rights,
preferences  and limitation of such shares without any further vote or action of
the  stockholders.  Accordingly,  the Board of Directors is  empowered,  without
stockholder  approval,  to issue  preferred  stock with  dividend,  liquidation,
conversion, voting or other rights which could adversely affect the voting power
of other rights of the holder of the  Company's  Common  Stock.  In the event of
issuance, the preferred stock could be utilized, under certain circumstances, as
a method of  discouraging  and delaying or preventing a change of control of the
Company. As of February 28, 1997, the Company had 4500 shares of Preferred Stock
outstanding  with an obligation to pay dividends  thereon.  Although the Company
has no present  intention to issue any additional shares of its preferred stock,
there can be no assurance that the Company will not do so in the future.

Item 2.  Description of Property

         The Company  presently  occupies an  approximately  18,000  square foot
office,  laboratory and  manufacturing  facility in Fremont,  California under a
lease with Renco Investment  Company that expires on June 15, 1998. Rent for the
remaining term of the lease is $15,688 through June 15, 1998,  subject to annual
adjustments  based on increases in the lessor's costs of operating the building.
The  Company  also  presently  leases  other  manufacturing  space  in  Fremont,
California on a shorter term basis. On July 12, 1995, the Company entered into a
lease  agreement  with  SCI  Limited  Partnership,  for  3,600  square  feet  of
manufacturing space also located in Fremont,  California.  The term of the lease
is three  years and lease  payments  are  $3,359 per month  including  operating
expenses.  On January  1, 1995,  the  Company  entered  into a 3 year lease with
FINSA, a Mexican property company,  for a 40,000 square foot manufacturing plant
in Reynosa,  Mexico. The cost is $217,890 per year plus additional park fees and
taxes. The Company also leases an 8,000 square foot warehouse in McAllen,  Texas
from  Hospitak/Meditron  which began on November 15, 1994,  and  continues for 3
years at $3,520 per month.  In addition,  on October 19, 1995, the Company began
leasing 9,697 square feet in Mt. Prospect,  Illinois under an agreement with OTR
(State Teachers  Retirement  System of Ohio).  Rental costs on such facility are
$6,869 per month,  and the lease continues for a period of five years. 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
approximately $21,100 and the term of the lease expires August 30, 2001.

         Each of the properties described above is in satisfactory condition for
the purpose for which it is used.

Item 3.  Legal Proceedings

         The  Company  knows  of  no  material  litigation  or  claims  pending,
threatened or contemplated to which the Company is or may become a party.

Item 4.  Submission of Matters to a Vote of Security Holders

         During the fourth  quarter of the Company's  fiscal year ended February
28, 1997, no matters were submitted to a vote of security holders.

                                     PART II

Item 5. Market for the  Company's  Units,  Common  Stock and  Warrants  and
Related Stockholder Matters
         Since the  Company's  initial  public  offering of the Common Stock and
Warrants on April 6, 1994,  the Company's  Common Stock and Warrants have traded
principally on the NASDAQ Small Cap Market under the symbols "ORYX" AND "ORYXW,"
respectively.  Prior  to April 6,  1994,  there  was no  public  market  for the
Company's  securities.  From April 6, 1994 through June 6, 1994, the Company had
Units  which were also  traded on NASDAQ,  at which time the  Company  requested
withdrawal of such listing.  The following table sets forth the high and low bid
quotations  for the Common  Stock and  Warrants  for the periods  indicated,  as
reported by NASDAQ.  These  quotations  reflect prices between  dealers,  do not
include  retail  mark-ups,  mark-downs or  commissions  and may not  necessarily
represent actual transactions.




                                        Common Stock               Warrants
                                        High      Low           High      Low


1996 Fiscal year
1st Quarter                             $1-9/16  $1-3/16       $17/32       $1/4
2nd Quarter                             $2-1/4   $1             $3/4        $1/4
3rd Quarter                             $2-1/8   $1-1/4         $27/32      $5/8
4th Quarter                             $1-3/4   $7/8           $25/32      $3/8

1997 Fiscal year
1st Quarter                             $3-11/16 $1-1/4         $2-11/16    $1/2
2nd Quarter                             $4-1/16  $2-5/16        $3-5/8    $1-7/8
3rd Quarter                             $3-3/16  $2-1/8         $2-19/32  $1-1/2
4th Quarter                             $2-15/16 $2-1/16        $2-7/8   $1-9/16



         On May 20, 1997,  the per share  closing price for the Common Stock was
$1-1/4, and for the Warrants was $1-1/2.

         The Company's  Common Stock and Warrants are also listed for trading on
the Pacific Stock Exchange  under the symbols "ORYX" and "ORYXW,"  respectively.
Prior to June 6, 1994, the Company's Units were also traded on the Pacific Stock
Exchange,  at which time the Company requested withdrawal of the listing for the
Units.  On May 20,  1997,  the  closing  sales  prices for the Common  Stock and
Warrants, as reported on the Pacific Stock Exchange were the same as on NASDAQ.

     As of April 30, 1997 the number of record  holders of the Company's  Common
Stock and Warrants were approximately 120 and 14, respectively.

         The  Company has never paid cash  dividends  on its Common  Stock.  The
Company  presently  intends to retain  future  earnings,  if any, to finance the
expansion of its business and does not  anticipate  that any cash dividends will
be paid in the foreseeable future. The Company is also substantially  restricted
from the payment of dividends under the terms of its Underwriting Agreement with
J.W. Charles, Inc. Future dividend policy will depend on the Company's earnings,
capital  requirements,  expansion plans,  financial condition and other relevant
factors  as well  as the  possible  need to  obtain  the  consent  of any of its
lenders, J. W.
Charles and placement agents, for its recent private offerings.


Item 6.  Management's  Discussion  and Analysis of Financial  Conditions and
         Results of Operations

         The following  discussion in the Section  "Management's  Discussion and
Analysis of  Financial  Conditions  and Results of  Operations"  contains  trend
analysis and other forward-looking  statements within the meaning of Section 27A
of the  Securities  Act of 1933, as amended,  and Section 21E of the  Securities
Exchange Act of 1934, as amended.  Actual results could differ  materially  from
those projected in the  forward-looking  statements as a result of risk factors,
including,  without  limitation,  those set  forth  above in the  section  "Risk
Factors."

         Business Segments

         The Company has organized its operations into three operating segments:
Power Products,  Instruments and Materials,  and SurgX. In addition, a Corporate
segment includes  certain  activities that are not directly related to any other
operations.  In November 1995, the Company  undertook  strategic  evaluations of
each of its businesses  with the objective of maximizing  stockholder  value and
creating  improved  focus and execution in its core  businesses.  The businesses
were  segregated  and  incorporated  into three  wholly  owned  subsidiaries  as
follows.

         Segment/Subsidiary                                 Businesses

         Oryx Power Products                        - Power Conversion Products
         Corporation (OPP)                          - Contract Manufacturing

         Oryx Instruments and Materials             - Material Analysis and Test
         Corporation (OIM)                            Equipment
                                                    - Specialized Materials
                                                       Assemblies
                                                    - Contract R&D

         SurgX Corporation (SC)                    - Surge Protection Components

         Consolidated Results of Operations

         For the  fiscal  year  ended  February  28,  1997,  revenues  increased
$10,724,000 or 66% from  $16,136,000  for the year ended  February  29,  1996 to
$26,860,000.  The growth in revenues was primarily attributable to the increased
volume from custom power conversion products and, in particular, one significant
OEM customer which will significantly  reduce its purchases in fiscal year 1998.
Such customer  accounted for 52% of  consolidated  revenues in fiscal year 1997.
Revenues from the Company's  specialized  materials  product line  increased and
initial shipments of the Company's TTS 2000 Process Monitoring Tool were made in
fiscal  year 1997.  Management  expects  that  revenues  for fiscal 1998 will be
slightly  less  than in  fiscal  1997 as  increases  in  sales  of  DC/DC  power
conversion   products,   TTS  2000   process   monitoring   tools  and  contract
manufacturing  services are expected to substantially  offset the loss of Pitney
Bowes business. See Risk Factors "Customer Dependence". However, there can be no
assurance that such increase in revenues will occur.

         The Company's gross profit increased from $3,116,000 for the year ended
February  29,  1996  to  $8,385,000  for  the  year  ended  February  28,  1997,
representing an increase of $5,269,000 or 169%. Cost of sales as a percentage of
revenues was 81% for the year ended  February 29, 1996,  which  decreased to and
69% for the year ended  February  28,  1997. The increase in gross  profit  for 
the year ended February 28, 1997  was primarily  attributable to
the increased volume from custom power conversion products, initial shipments of
the  higher  margin  TTS  2000  Process   Monitoring  Tool,  and   manufacturing
efficiencies at the Reynosa,  Mexico plant. Due to the anticipated  reduction in
sales of the Company's  custom power  conversion  products,  management  expects
gross profits both in absolute  terms and as a percentage of gross revenue to be
lower in fiscal year 1998.  Management is currently instituting cost containment
programs  in addition  to  increasing  sales  activities  of new product  lines.
However,  there can be no assurances that  additional  sales will be achieved or
savings from cost control activities realized.

         Operating  expenses  increased  from  $6,751,000  for  the  year  ended
February  29,  1996 to  $10,280,000  for  the  year  ended  February  28,  1997,
representing an increase of $3,529,000,  or 52%. This increase  reflects (i) the
establishment of administration activities within the three business units, (ii)
the increased  investment by the Company in research and development for the TTS
2000 process monitoring tool and ESD test equipment and surge protection product
areas, (iii) manufacturing development of the surge protection product, and (iv)
the product launch of the TTS 2000.

         More specifically, marketing and selling expenses increased $623,000 or
45%, from  $1,387,000 for the year ended February 29, 1996 to $2,010,000 for the
year ended February 28, 1997.  This increase is  attributable  to product launch
efforts  associated  with  the  TTS  2000  Process  Monitoring  Tool  and  surge
protection  products.  These product  launch  efforts will continue in fiscal 
year 1998 and the Company  expects  selling and  marketing  expenses will
increase in line with revenue increases from these products.

         General and  administrative  expenses increased from $2,541,000 for the
year ended February 29, 1996 to $4,499,000 for the year ended February 28, 1997,
representing  an increase of  $1,958,000  or 77%.  This  increase in general and
administrative  expenses  reflects the creation of infrastructure to support the
three separate business units, higher personnel costs due to increased headcount
and higher salaries, increased facilities costs, higher professional services 
fees associated with regulatory compliance and investor relations. The Company 
does not expect general and administrative  costs to increase during fiscal year
1998 as the segregation of the business units was completed in fiscal year 1997.
While there can be no  assurance  that costs can be contained at the same levels
as in 1997,  the Company is currently  taking active steps to reduce general and
administrative expenses.

          Research and  development  expenses  increased  $278,000 or 10%,  from
$2,823,000 for the year ended February 29, 1996 to $3,101,000 for the year ended
February 28,  1997.  The  increase in expenses  was offset,  to some extent,  by
development  funding of $1,107,000  recognized by SurgX, which is recorded as an
offset to research and development expenses, from third parties to assist in the
development  and  commercialization  of certain  products.  The Company  expects
research and development  expenses will increase as development efforts continue
on  the  commercialization  of  SurgX's  products.  However,  there  can  be  no
assurances that SurgX will receive additional  development funding and therefore
that  development  efforts will continue at current  levels.  During fiscal year
1997, in conjunction with its acquisition of the assets of Power Sensors,  Inc.,
the  Company  wrote-off  approximately  $670,000  of  in  process  research  and
development costs associated with the development of a high density DC/DC custom
power supply.

         Net  interest  expense  decreased  from  $320,000  for the  year  ended
February 29, 1996 to $10,000 for the year ended February 28, 1997, a decrease of
$310,000 or 93%. This decrease is primarily  associated  with the Company paying
off bridge  loans,  the Zenith note and a credit  facility at the  beginning  of
fiscal 1997.

         The Company  recorded a $20,000  loss on its equity  investment  in DAS
Devices,  Inc. during fiscal 1997. This compares to a loss of $195,000  recorded
in fiscal year 1996.  During  fiscal 1997,  Das Devices  announced and partially
completed a plan of recapitalization involving the sale of additional securities
which, when entirely implemented,  would reduce the Company's ownership interest
in Das Devices, Inc. from 40% to approximately 5% on a fully diluted basis.

         On February 29, 1996 the Company  entered  into a settlement  agreement
with Zenith which resulted in an extraordinary gain from a debt restructuring of
$1,433,000  from the  reduction  of the  Company's  indebtedness  to Zenith  and
settlement  of other claims  offset by expenses.  See  Description  of Business,
"Acquisition of Zenith Power Conversion Products Group" above.

         Prior to the extraordinary gain related to the Zenith debt, the Company
incurred a loss of $  4,192,000  in the  fiscal  year ended  February  29,  1996
compared  to a net loss of  $1,965,000  for the fiscal year ended  February  29,
1997, a decrease of $2,227,000 or 53%.  This was attributable to the increased
volume for one power  conversion  product which resulted in increased  revenues,
manufacturing efficiencies and reduced raw material purchase prices.

         During  the  fiscal  year   commencing   March  1,  1997,  the  Company
anticipates that it will experience  additional  operating losses primarily as a
result of the loss of revenue from the custom power conversion product mentioned
above.  The  Company  plans  to  continue  to  invest  in the TTS  2000  process
monitoring  tool and ESD test  equipment  product  lines  and  Surge  protection
devices  product lines and does not anticipate  that it will achieve  profitable
operation  until the fourth quarter of fiscal 1998, and thus expects to report a
loss for the entire  1998  fiscal  year.  Management  expects  sales to increase
during the second half of fiscal 1998 as market  acceptance  expands for the TTS
2000,  the newly acquired DC/DC power  conversion  product line is  successfully
launched,  and  replacement  business  for custom power  conversion  products is
achieved. The Company does not expect that its surge protection business will be
profitable for an indefinite period beyond the 1998 fiscal year, and the Company
may, in light of other  considerations,  be forced to evaluate  its strategy for
such business.  However, there can be no assurance that the Company will be able
to achieve such  profitability  or, if it does,  that it will be able to sustain
profitable operations.







         Segment Results

                         ORYX POWER PRODUCTS CORPORATION

<TABLE>
                                                                  Year Ended                  Year Ended
                                                                 February 28,                February 29,
(dollars in thousands)                                               1997                        1996
-----------------------------------------------------------------------------------------------------
<S>                                                                   <C>                           <C>
Revenues $20,390                                                     $12,014
Cost of Sales                                                         13,870                        9,947
                                                                      ------                        -----
Gross Profit                                                           6,520                        2,067
Operating Expenses                                                     4,075                        2,611
                                                                      ------                        -----
Operating Income(Loss)                                                $2,445                      $(  544)
                                                                       =====                        =====
</TABLE>

         In April 1994,  the Company  acquired  the Power  Products  division of
Zenith.  In early fiscal 1996, the Company commenced  manufacturing  products at
its  facility in Reynosa,  Mexico that were  previously  acquired  under a fixed
price contract with Zenith.

         In December  1996,  the Company  acquired all assets,  assumed  certain
liabilities,  and hired key  personnel  of Power  Sensors,  Inc., a designer and
manufacturer of DC/DC power  converters.  In early 1997, Power Sensors personnel
moved to the Oryx Power Products  offices in Mt. Prospect,  Illinois,  and DC/DC
production was transferred to the Company's  manufacturing  facility in Reynosa,
Mexico.

         Revenues for the year ended February 28, 1997 increased  $8,376,0000 or
70% from  $12,014,000 for the year ended February 29, 1996 to $ 20,390,000 for
the year ended February 28, 1997. The revenue increase  primarily relates to the
ramp up of volume shipments of a custom power supply to Power Products'  largest
customer. Gross Profit increased by $4,453,000 or 215%, from $2,067,000 for the
year ended February 29, 1996 to $6,520,000 for the year ended February 28, 1997.
This increase  relates  primarily to  manufacturing  efficiencies  and favorable
procurement   programs  associated  with  the  Company's   significantly  higher
production  volumes.

         Operating expenses  increased  $1,464,000 or 56%, from $2,611,000 for
the year ended  February 29, 1996 to $4,075,000  for the year ended February 28,
1997.  The  increase  is  attributable  to  additional  engineering,  sales  and
administrative  expenses as resources  were brought on board to support  growing
customer  requirements  in both the AC/DC and DC/DC  produce  lines.  A one time
write-off of $670,000 of incomplete R&D costs associated with the acquisition of
the assets of Power  Sensors,  Inc. is  included  in fiscal year 1997  operating
expenses.

         Power Products'  income from operations for the year ended February 28,
1997 was  $2,445,000,  an increase of $2,989,000  from the $544,000 loss for the
year ended February 29, 1996.

<PAGE>


ORYX INSTRUMENTS AND MATERIALS CORPORATION

<TABLE>
                                                                  Year Ended                  Year Ended
                                                                 February 28,                February 29,
(dollars in thousands)                                               1997                        1996
-----------------------------------------------------------------------------------------------------

<S>                                                                    <C>                          <C>
Revenues         $6,434                                               $4,114
Cost of Sales                                                          4,323                        3,073
                                                                       -----                        -----
Gross Profit                                                           2,111                        1,041
Operating Expenses                                                     3,422                        1,956
                                                                       -----                        -----
Operating Income(Loss)                                                $(1,311)                      $( 915)
                                                                        =====                         ====
</TABLE>
         Revenues for fiscal year 1997 increased $2,320,000 or 56% to $6,434,000
for the year ended February 28, 1997 from $4,114,000 for the year ended February
29, 1996. The increase in revenues was primarily  attributable  to growth in the
ceramic  metallization and joining system business which  experienced  increased
demand as the hard disk  drive  industry  expanded  manufacturing  capacity.  In
addition,  initial  shipments  of the TTS Process  Monitoring  Tool began in the
second quarter of fiscal year 1997.

         Gross profit  increased  $1,070,000 or 103% from  $1,041,000  for the
year ended February 29, 1996 to $2,110,000 for the year ended February 28, 1997.
The improvement in gross profit was primarily due to increased revenues.

         Operating  expenses  increased  $1,466,000 or 75% from $1,956,000 for
the year ended  February 29, 1996 to $3,422,000  for the year ended February 28,
1997. This increase was primarily a result of greater costs  associated with the
product introduction and rollout of the TTS Process Monitoring Tool.

         The loss from  operations for the year  increased  $397,000 or 43% from
$915,000 for the year ended  February 29, 1996 to $1,311,000  for the year ended
February 28, 1997.  During fiscal 1997, due to indications of market  acceptance
of the TTS Process  Monitoring Tool,  Instruments and Materials  invested in the
organization  by hiring  scientists,  hardware  and  software  engineers,  field
service   engineers  and   application   engineers  to  support  the  successful
commercialization  of this product.  These  increased costs more than offset the
increase in gross margins.  However, there can be no assurance that future sales
will be at a level to offset  additional  operating costs or that  profitability
will be achieved for the business.

                                SURGX CORPORATION


<TABLE>
                                                                  Year Ended                  Year Ended
                                                                 February 28,                February 29,
(dollars in thousands)                                               1997                        1996
-----------------------------------------------------------------------------------------------------

<S>                                                                   <C>                            <C>
Revenues $  36                                                        $   8
Cost of Sales                                                           282                             0
Operating Expenses                                                    1,741                           561
Development Funding*                                                 (1,107)                            0
                                                                     -------                    ---------
*(Offset against R &D)
Operating Income (Loss)                                               $(880)                        $(553)
                                                                        ===                           ===

</TABLE>

         Cost of sales for  fiscal  1997  represent  the costs  associated  with
establishing  and testing the  manufacturing  process to sell SurgX  material to
Bussmann  pursuant to a license  agreement  executed in fiscal  1997.  Operating
expenses increased  $1,180,000 or 210% from $561,000 for the year ended February
29, 1996 to  $1,741,000  for the year ended  February 28, 1997.  The increase in
operating  expenses  primarily  reflects  additional  research  and  development
expenses to develop  commercial  products.  During fiscal 1997,  SurgX  received
$1,107,000 in development  funding from third parties which defrayed the cost of
research,  development and the commercialization of certain products. Due to the
higher level of research and  development  expenses and the cost associated with
the  manufacturing  launch of the  Bussmann  product,  the loss from  operations
increased  $327,000 or 59% from $553,000 for the year ended February 29, 1996 to
$880,000 for the year ended  February  28,  1997.  While SurgX is looking to its
customer or joint  venture  partners to  continue to fund  development  efforts,
there can be no  assurance  that those  efforts will be  successful,  and in the
event that SurgX is unable to secure additional  development funding,  there can
be no assurance that the current or proposed  level of  development  efforts for
fiscal  1998 can  continue  or that any other  product  other than the  Bussmann
product will be made commercially available.


                                    CORPORATE

                                     Year Ended                  Year Ended
                                     February 28,                February 29,
(dollars in thousands)                      1997                        1996
--------------------------------------------------------------------------------

Operating Expenses                       $ 2,149                      $ 1,623
                                           -----                        -----
Operating Income(Loss)                   $(2,149)                     $(1,623)
                                           =====                        =====

         The increase in operating  expenses and loss from corporate  operations
of  $526,000  or 32% from  $1,623,000  for the year ended  February  29, 1996 to
$2,149,000 for the year ended  February 28, 1997 primarily  relates to increases
in costs of  professional  services fees  associated  with statutory  compliance
activities and investor  relations  activities  related to the separation of the
Company's businesses and management of same.

    Liquidity and Capital Resources

         The  Company's  working  capital  improved  $1,816,000  or 42% from a
surplus of  $4,698,000  at February  29,  1996,  to a surplus of  $6,514,000  at
February  28,  1997.  This  increase  resulted  from the  reduction  of  current
liabilities  through a payoff of a bank line of credit  and  retiring  a note to
Zenith,  principally  with  cash  raised  in a  number  of  unregistered  equity
offerings.  The Company's  ratio of current  assets to current  liabilities  was
1.77:1 at February 29, 1996,  and 2.31:1 at February  28,  1997.  The  Company's
operating losses, and inventory build-up have continued in the fiscal year ended
February 28, 1997, and together with the revenue loss from its largest customer,
have prompted the Company to secure debt financing, in order to fund anticipated
operating losses, as described below.

         Net cash used in operating activities was $1,997,000 for the year ended
February 29, 1996,  compared with net cash used in operations of $2,277,000  for
the year ended  February 28, 1997, an increase of 14%. The increase in cash used
in operating activities in fiscal year 1997 principally related to paying off of
accounts payable that accumulated in late fiscal year 1996. In fiscal year 1996,
the Company completed private placements of Common Stock, resulting in net 
proceeds of $4,759,000. The net proceeds from these offerings funded the 
Company's operating deficit. In the fiscal year ended February 28, 1997, the 
Company raised additional capital of $4,143,000, net of issuance costs of 
$681,000 pursuant to private placement offerings in which it issued and sold an 
aggregate of 2.8 million shares of its common stock to certain qualified 
institutional investors under Regulation S of the Securities Act of 1933, as 
amended. In consideration for these offering, the Company issued warrants to its
placement agent to purchase 32,000 shares of common stock at $ 1.375 per share 
and 163,530
shares of Common  stock at $ 1.90 per share.  In  September  1996 the  placement
agent exercised  100,000 warrants issued in connection with the prior Regulation
S  financings,  resulting in proceeds to the Company of  $137,500.  In September
1996,  the  Company's  underwriters  in its initial  public  offering  exercised
100,000 unit purchase warrants resulting in net proceeds of $371,000. Subject to
terms of the unit purchase  warrant,  200,000 common shares and 100,000 warrants
to purchase  190,000  shares of common at $3.50 per  warrant  were issued to the
underwriters.  In December  1996, the Company  repurchased  and retired from the
underwriters  the  remaining  223,961  unit  purchase  warrants for $475,000 and
40,000 warrants to purchase 76,000 common shares at $3.50 per warrant.

         The Company  entered into a revolving line of credit  facility of up to
$1,500,000  with  Comerica  Bank on  November  15,  1994,  which was  subject to
maintaining  certain  financial  covenants.  The  Company was in default of such
covenants  during the fiscal  year ended  February  29,  1996;  the Bank and the
Company entered into a Modification  and  Forbearance  Agreement in January 1996
terminating the line of credit facility and requiring all amounts outstanding to
be repaid to Comerica Bank by February 28, 1996. All such amounts were repaid in
March 1996.

         In May 1997, the Company closed a $ 5,500,000 borrowing  facility.  The
facility  includes  an  Accounts  Receivable  Revolving  Batch  Facility  and an
Inventory Line of Credit. The Account Receivable Revolving Batch Facility allows
the Company to borrow up to a maximum of $4,000,000, provided that any amount in
excess of $3,500,000 must be supported by an equal amount of unused availability
under the  Inventory  Line of Credit.  The  Inventory  Line of Credit allows the
Company to borrow up to  $1,500,000  ($750,000  which is subject to an inventory
appraisal).  The  Company  anticipates  that  this  borrowing  facility  will be
sufficient  to cover its  fiscal  1998 cash  requirements  provided  that  sales
increases and expense reductions  anticipated in the Company's current operating
plan are achieved.  In the event its sales objectives or cost reduction  targets
are not achieved,  the Company will need to secure additional funding by selling
assets, raising additional equity, or taking other steps to obtain the financing
necessary to continue  operations at their  anticipated  level. In the event the
Company  requires  additional  equity  financing,  or attempts to raise  capital
through an asset sale,  there can be no assurance that such  transactions can be
effected  in time to meet  the  Company's  needs,  or at all,  or that  any such
transaction will be on terms acceptable to the Company or in the interest of its
stockholders.

Item 7.  Financial Statements

         The response to this item is  submitted  in a separate  section of this
report.


Item 8. Changes in and  Disagreements  with  Accountants  on Accounting and
        Financial Disclosure

         Not applicable.

Item 9.  Directors,  Executive  Officers,  Promoters  and Control  Persons;
         Compliance with Section 16(a) of the Exchange Act

         The information required by this item is incorporated by reference from
the  information  under the caption  "Election  of  Directors,"  with respect to
Directors,  and  under the  caption  "Management,"  with  respect  to  Executive
Officers,  contained in the Company's  definitive  Proxy Statement which will be
filed with the Commission in connection with the solicitation of proxies for the
Company's 1997 Annual Meeting of Stockholders (the "Proxy Statement").

Item 10. Executive Compensation

         The  information  required by this item is incorporated by reference to
the information  under the caption  "Executive  Compensation" to be contained in
the Proxy Statement.

Item 11. Security Ownership of Certain Beneficial Owners and Management

         The  information  required by this item is incorporated by reference to
the  information  under the caption  "Security  Ownership of Certain  Beneficial
Owners and Management" to be contained in the Proxy Statement.

Item 12. Certain Relationships and Related Transactions

         The  information  required by this item is incorporated by reference to
the information under the caption "Certain  Transactions" to be contained in the
Proxy Statement.

Item 13. Exhibits, Lists and Reports on Form 8-K

         Financial Statements and Schedules

         The financial statements listed on the index to financial statements on
page F-1 are filed as part of this Form 10-KSB.

         (b)      Reports on Form 8-K



         The Company  filed with the  Commission  two Reports on Form 8-K during
the fiscal  quarter ended  February 28, 1997. The first such Report was filed on
February  7, 1997 for the purpose of  reporting  the  private  placement  of the
Company's  common  stock  pursuant to  Regulation  S. The second such Report was
filed on December 19, 1996 for the purpose of reporting the private placement of
the Company's  common stock pursuant to Regulation S and the  acquisition of the
assets of Power Sensors Corporation.


         (c)      Exhibits

Exhibit No.       Description of Exhibits

   F-1            Financial Statements
   3.1            Certificate of  Incorporation of the Registrant dated July 26,
                  1993(1) 3.2 Bylaws of the  Registrant  dated July 26,  1993(1)
                  3.3  Certificate of Amendment to Certificate of  Incorporation
                  dated  July 23,  1993(1)  3.3A  Certificate  of  Amendment  of
                  Certificate  of  Incorporation  dated  February 7, 1996(4) 4.1
                  Specimen Common Stock Certificate(1) 4.2 Specimen Common Stock
                  Purchase  Warrant(1)  4.3 Warrant Agency  Agreement  including
                  Statement of Rights,  Terms and  Conditions for Callable Stock
                  Purchase Warrants(2)
   4.4            Incentive  and  Nonqualified  Stock Option Plan, as Amended(5)
                  4.4A 1996 Directors Stock Option Plan(5)
   4.5            Form of  Promissory  Note issued to Series A  Preferred  Stock
                  investors(1) 4.6 Unit Purchase Warrant(1)
   4.7            Form  of  Warrants  issued  to  Yorkton  Securities,  Inc.  in
                  December 1996 and February  1997(7)
   10.1           Lease  Agreement with Renco  Investment  Company re:  Fremont,
                  California office, a laboratory and manufacturing facility(1)
   10.2           Lease Agreement with FINSA re: Reynosa, Mexico,  manufacturing
                  facility(3)
   10.3           Lease Agreement with Greer Enterprises re: Fremont, California
                  manufacturing facility(3)
   10.4           Lease Agreement with  Hospitak/Meditron  re:  McAllen,  Texas,
                  warehouse facility(3)
   10.5           Lease  Agreement with Security  Capital  Industrial  Trust re:
                  Fremont, California manufacturing facility(4)
   10.6           Lease Agreement with OTR, State Teachers  Retirement System of
                  Ohio re: Mt. Prospect, Illinois office(4)
   10.7           Lease   Agreement  with  E.B.J.   Partners  LP  re:   Fremont,
                  California office and manufacturing facility*
   10.8           Letter of Separation Agreement with Andrew Wilson*
   10.9           Letter of Employment Agreement with Mitchel Underseth*
   10.10          Letter of Employment Agreement with Philip Micciche*
   10.11          Letter of Employment and Non-Competition Agreement with Andrew
                  Intrater(1)
   10.12          Agreement  for the  Purchase  and  Sale of  Stock  with  Intek
                  Diversified Corporation(1)
   10.13          Asset    Purchase    Agreement    with   Zenith    Electronics
                  Corporation(1)
   10.14          Promissory Notes issued in interim debt financing(1)
   10.15          Common  Stock  Purchase   Warrants   issued  in  interim  debt
                  financing(3)
   10.16          Placement  Agency  Agreement  between  the Company and Yorkton
                  Securities,  Inc. dated February 8, 1996, as amended April 22,
                  1996(4)
   10.17          Form of Subscription Agreement between the Company and various
                  investors in Yorkton Private Placement dated February 29, 1996
                  and May 13, 1996(4)
   10.18          Offering  Memorandum  dated  February  8, 1996 and  Supplement
                  thereto  dated April 22,  1996,  relating  to Yorkton  private
                  placement(4)
   10.19          Settlement   Agreement   between   the   Company   and  Zenith
                  Electronics  Corporation  dated  February 29, 1996, as amended
                  April 16, 1996(4)
   10.20          Agreement  between the Company and Bussmann dated July,  1996*
                  10.21 Agreement between the Company and National Semiconductor
                  dated June 7, 1996*
   10.22          Agreement  between the  Company and LSI Logic dated  September
                  30, 1996*
   10.23          Lease Agreement between Power Sensors Corporation and Copelco
                  dated December 7, 1995*
   10.24          Agency Agreement  between the Company and Yorkton  Securities,
                  Inc. dated December 4, 1996, as amended January 23, 1997(7)
   10.25          Form of Subscription Agreement between the Company and various
                  investors  in Yorkton  Private  Placement  dated  December  4,
                  1996(8)
   10.26          Asset Purchase  Agreement relating to the acquisition of Power
                  Sensors  Corporation by Oryx Power Products  Corporation dated
                  December 19, 1996(6)
   21             Subsidiaries of the Registrant(4)
   23             Consent of Independent Accountants*
*  Filed herewith.

 (1)  Previously filed as an exhibit to the Company's  Registration Statement on
      Form SB-2  (Registration  No. 33-72104) which became effective on April 6,
      1994 and is incorporated herein by reference.

 (2)  Previously filed as an exhibit to the Company's Current Report on Form 8-K
      filed with the Commission on March 27, 1995.

 (3)  Previously  filed as an exhibit  to the  Company's  Annual  Report on Form
      10-KSB for the fiscal year ended February 28, 1995.

 (4)  Previously  filed as an exhibit  to the  Company's  Annual  Report on Form
      10-KSB (as Amended) for the fiscal year ended February 29, 1996.

 (5)  Previously filed as an exhibit to the Company's  Registration Statement on
      Form S-8 (Registration No. 333-13887) filed with the Commission on October
      10, 1996 and is incorporated herein by reference.

 (6)  Previously filed as an exhibit to the Company's Current Report on Form 8-K
      filed with the Commission on January 3, 1997.

 (7)  Previously filed as an exhibit to the Company's Current Report on Form 8-K
      filed with the Commission on February 21, 1997.

 (8)  Previously filed as an exhibit to the Company's  Registration Statement on
      Form S-3  Registration No. 333- 23317) which became effective on March 31,
      1997 and is incorporated herein by reference.


<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 29th day of May, 1996.

                                          ORYX TECHNOLOGY CORP.



                                          By: /S/ Philip J. Micciche
                                               Philip J. Micciche,
                                               President & CEO


         In accordance  with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant,  and in the capacities and
on the date indicated.

Signature                      Title                                Date

                               President, CEO

/s/ Philip J. Micciche         and Director                         May 29, 1997
----------------------

Philip J. Micciche


                               Secretary, Treasurer                 May 29, 1997

/s/ Andrew Intrater            and Director
Andrew Intrater


                               Chief Financial                      May 29, 1997

/s/ Mitchel Underseth          Officer
Mitchel Underseth


                               Chairman of the                      May 29, 1997

/s/ Arvind Patel               Board and Director
Arvind Patel


(signatures continued next page)




<PAGE>


(signatures continued from previous page)

Signature                      Title                                Date




/s/ John H. Abeles             Director                             May 29, 1997
----------------------

John H. Abeles



/s/ Jay M. Haft                Director                             May 29, 1997
----------------------

Jay M. Haft



/s/ Ted D. Morgan              Director                             May 29, 1997
----------------------

Ted D. Morgan


<PAGE>



                                                    EXHIBIT F-1

                                               FINANCIAL STATEMENTS
                                                 FEBRUARY 28, 1997



<PAGE>



Index to Consolidated Financial Statements

                                                                        Page

Report of Independent Accountants...................................     F-2

  Sheet at February 28, 1997
      and February 29, 1996..........................................    F-3

Consolidated Statement of Operations for the years
      ended February 28, 1997 and February 29, 1996..................    F-4

Consolidated Statement of Stockholders' Equity for the
      years ended February 28, 1997 and February 29, 1996............    F-5

Consolidated Statement of Cash Flows for the years
      ended February 28, 1997 and February 29, 1996..................    F-6

Notes to Consolidated Financial Statements...........................    F-7




<PAGE>



                        Report of Independent Accountants


To the Board of Directors and Shareholders of
Oryx Technology Corp.


In our opinion,  the  accompanying  consolidated  balance  sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present  fairly,  in all  material  respects,  the  financial  position  of Oryx
Technology  Corp.  and its  subsidiaries  at February  28, 1997 and February 29,
1996,  and the  results of their  operations  and their cash flows for the years
then ended in conformity with generally accepted  accounting  principles.  These
financial  statements are the  responsibility of the Company's  management;  our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable  assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.



PRICE WATERHOUSE LLP
San Jose, California

May 16, 1997, except for Note 14, which is as of May 29, 1997


<PAGE>


--------------------------------------------------------------------------------
                             Oryx Technology Corp.
                           Consolidated Balance Sheet
--------------------------------------------------------------------------------

The accompanying notes are an integral part of these financial statements.

F-44
<TABLE>
                                                                                 February 28,        February 29,
                                                                                     1997                1996
                                     Assets
<S>                                                                                   <C>                 <C>
Current assets:
   Cash and cash equivalents                                                    $     3,080,000    $      3,939,000
   Accounts receivable, net of allowance for doubtful
     accounts of $97,000 and $139,000                                                 3,457,000           2,690,000
   Inventories                                                                        4,795,000           3,880,000
   Other current assets                                                                 171,000             256,000
                                                                                ---------------    ----------------
       Total current assets                                                          11,503,000          10,765,000

Property and equipment, net                                                           2,674,000           1,298,000
Intangible assets, net                                                                  755,000              49,000
Other assets                                                                            380,000             228,000
                                                                                ---------------     ---------------
                                                                                $    15,312,000       $  12,340,000


                Liabilities, Mandatorily Redeemable Securities,
                            and Stockholders' Equity
Current liabilities:
   Bank borrowings                                                              $       215,000       $           -
   Capital lease obligations                                                            137,000              16,000
   Bank line of credit                                                                        -             352,000
   Notes payable                                                                              -           1,428,000
   Accounts payable                                                                   2,686,000           3,186,000
   Accrued liabilities                                                                1,951,000           1,085,000
                                                                                ---------------    ----------------
       Total current liabilities                                                      4,989,000           6,067,000

Capital lease obligations, less current portion                                         184,000              34,000
Bank borrowings, less current portion                                                   705,000                   -
                                                                                ---------------    ----------------
       Total liabilities                                                              5,878,000           6,101,000
                                                                                ---------------    ----------------


Mandatorily redeemable securities (Note 4)                                              637,000                   -

Commitments and contingencies (Notes 1 and 12)

Stockholders' equity: (Notes 4,5,6,7, and 8)
   Series  A 2%  Convertible  Cumulative  Preferred  Stock,  $0.001  par  value;
     3,000,000   shares   authorized;   4,500  and  34,875   shares  issued  and
     outstanding,
     liquidation value $113,000 and $872,000                                            107,000             832,000
   Common Stock, $0.001 par value; 25,000,000 shares
     authorized; 12,968,581 and 9,228,668 issued
     and outstanding                                                                     13,000               9,000
   Additional paid-in capital                                                        18,920,000          13,629,000
   Accumulated deficit                                                              (10,243,000)         (8,231,000)
                                                                                ---------------    ----------------
       Total stockholders' equity                                                     8,797,000           6,239,000
                                                                                ---------------    ----------------
                                                                                $    15,312,000       $  12,340,000

</TABLE>

<PAGE>


--------------------------------------------------------------------------------
                             Oryx Technology Corp.
                      Consolidated Statement of Operations
--------------------------------------------------------------------------------
<TABLE>

                                                                                  Year Ended          Year Ended
                                                                                 February 28,        February 29,
                                                                                     1997                1996
<S>                                                                                  <C>                 <C>
Net revenue                                                                     $    26,860,000     $    16,136,000
Cost of sales                                                                        18,475,000          13,020,000
                                                                                ---------------    ----------------
   Gross profit                                                                       8,385,000           3,116,000
                                                                                ---------------    ----------------

Operating expenses:
   Marketing and selling                                                              2,010,000           1,387,000
   General and administrative                                                         4,499,000           2,541,000
   Research and development, net                                                      3,101,000           2,823,000
   Acquired in-process research and development                                         670,000                   -
                                                                                ---------------    ----------------
       Total operating expenses                                                      10,280,000           6,751,000
                                                                                ---------------    ----------------

Loss from operations                                                                 (1,895,000)         (3,635,000)
Interest expense, net                                                                    10,000             320,000
Equity in losses of investee                                                             20,000             195,000
                                                                                ---------------    ----------------

Loss before income taxes and extraordinary gain                                      (1,925,000)         (4,150,000)
Provision for income taxes                                                               40,000              42,000
                                                                                ---------------    ----------------

Loss before extraordinary gain                                                       (1,965,000)         (4,192,000)
Extraordinary gain from debt restructuring                                                    -           1,433,000

Net loss                                                                             (1,965,000)         (2,759,000)
Dividends and accretion                                                                 (47,000)            (20,000)
                                                                                ---------------    ----------------
   Net loss attributable to Common Stock                                        $    (2,012,000)   $     (2,779,000)
                                                                                 ===============    ===============

Net loss per common share before extraordinary gain                             $         (0.19)   $          (0.73)
Extraordinary gain from debt restructuring                                                    -                0.25
                                                                                ---------------    ----------------
Net loss per common share                                                       $         (0.19)   $          (0.48)
                                                                                ===============    ================

Weighted average common shares outstanding                                           10,650,000           5,789,642
                                                                                ===============    ================

</TABLE>

<PAGE>


--------------------------------------------------------------------------------
                             Oryx Technology Corp.
                 Consolidated Statement of Stockholders' Equity
--------------------------------------------------------------------------------

The accompanying notes are an integral part of these financial statements.

F-66

<TABLE>
                                                                Series A 2%
                                                         Convertible Cumulative                 Additional
                                                     Preferred Stock          Common Stock         Paid-In    Accumulated
                                                   Shares        Amount    Shares       Amount     Capital    Deficit      Total

<S>                                                <C>       <C>         <C>            <C>      <C>         <C>          <C>
Balance at February 28, 1995                       43,500   $1,038,000   4,325,020  $   4,000   $8,137,000  $(5,452,000) $3,727,000

Issuance of Common Stock and warrants in private
   placements, net of issuance costs of $560,000        -            -   4,835,831      5,000    4,754,000           -    4,759,000
Issuance of warrants in connection with debt
   restructuring                                        -            -           -          -      366,000           -      366,000
Issuance of warrants in connection with shareholder     -            -     213,000          -      213,000
  notes payable
Issuance of Common Stock upon exercise of options       -            -         525          -        1,000           -        1,000
Conversion of Preferred Stock to Common Stock      (8,625)    (206,000)    100,625          -      206,000           -            -
Repurchase of Common Stock                              -            -     (33,333)         -      (48,000)          -      (48,000)
Net Loss                                                -            -           -          -            -  (2,759,000)  (2,759,000)
Preferred stock dividend                                -            -           -          -            -     (20,000)     (20,000)
                                                ---------   ----------  ----------  ---------   ----------  ----------  -----------
Balance at February 29, 1996                       34,875      832,000   9,228,668      9,000   13,629,000  (8,231,000)   6,239,000

Issuance of Common Stock and warrants in private
   placements, net of issuance costs of $681,000        -            -   2,836,130      4,000    4,139,000           -    4,143,000
Issuance of Common Stock upon exercise of options       -            -     199,818          -      243,000           -      243,000
Issuance of Common Stock upon exercise of warrants      -            -     349,590          -      599,000           -      599,000
Issuance of warrants in exchange for services           -            -           -          -       60,000           -       60,000
Repurchase of underwriter units                         -            -           -          -     (475,000)          -     (475,000)
Conversion of Preferred Stock to Common Stock     (30,375)    (725,000)    354,375          -      725,000           -             -
Accretion of redemption value on manditorily
   redeemable securities                                -            -           -          -            -     (37,000)     (37,000)
Net Loss                                                -            -           -          -            -  (1,965,000)  (1,965,000)
Preferred Stock dividend                                -            -           -          -            -     (10,000)     (10,000)
                                                ---------   ----------  ----------  ---------   ----------  ----------  -----------
Balance at February 28, 1997                        4,500   $  107,000  12,968,581  $  13,000  $18,920,000$(10,243,000) $ 8,797,000
                                                =========   ==========  ==========  =========   ==========  ==========

</TABLE>


<PAGE>


--------------------------------------------------------------------------------
                             Oryx Technology Corp.
                     Consolidated Statement of Cash Flows
--------------------------------------------------------------------------------

<TABLE>
                                                                                  Year Ended          Year Ended
                                                                                 February 28,        February 29,
                                                                                     1997                1996
Cash flows from operating activities:
<S>                                                                                   <C>              <C>
   Net loss                                                                     $    (1,965,000) $    (2,759,000)
   Adjustments to reconcile net loss to net cash used in operating activities:
     Equity in losses of investee                                                        20,000          195,000
     Extraordinary gain on debt restructuring                                                 -       (1,433,000)
     Value of warrants issued for services and in connection with notes payable          60,000          213,000
     Depreciation and amortization                                                      558,000          421,000
     Acquired in-process research and development                                       670,000                -
     Changes  in  assets  and  liabilities  (net of  effects  of  Power  Sensors
       acquisition and debt restructuring):
         Accounts receivable                                                           (645,000)        (170,000)
         Inventories                                                                   (764,000)        (789,000)
         Other current assets                                                           150,000         (191,000)
         Other assets                                                                  (147,000)         (68,000)
         Accounts payable                                                              (688,000)       2,258,000
         Accrued liabilities                                                            474,000          326,000
                                                                                ---------------  ---------------
           Net cash used in operating activities                                     (2,277,000)      (1,997,000)
                                                                                ---------------  ---------------

Cash flows from investing activities:
   Capital expenditures                                                              (1,553,000)        (726,000)
   Purchase of Power Sensors                                                           (120,000)               -
   Investment in development stage company                                              (25,000)         (29,000)
                                                                                ---------------- ---------------
           Net cash used in investing activities                                     (1,698,000)        (755,000)
                                                                                ---------------  ---------------

Cash flows from financing activities:
   Borrowings/(repayment) of bank line of credit                                       (352,000)         352,000
   Proceeds from (repayment of) notes payable                                        (1,428,000)         400,000
   Repayment of long-term debt                                                          (25,000)         (52,000)
   Borrowings of long-term debt                                                         390,000                -
   Payment of capital lease obligations                                                 (51,000)         (77,000)
   Proceeds from issuance of Common Stock/warrants, net                               4,143,000        4,760,000
   Proceeds from exercise of options for Common Stock                                   243,000                -
   Proceeds from exercise of warrants for Common Stock                                  599,000                -
   Repurchase of underwriter units                                                     (475,000)               -
   Other                                                                                 72,000          (68,000)
                                                                                ---------------  ---------------

           Net cash provided by financing activities                                  3,116,000        5,315,000
                                                                                ---------------  ---------------
Net increase (decrease) in cash and cash equivalents                                   (859,000)       2,563,000
Cash and cash equivalents at beginning of period                                      3,939,000        1,376,000
                                                                                ---------------  ---------------
Cash and cash equivalents at end of period                                      $     3,080,000  $     3,939,000
                                                                                ===============  ===============

Supplemental disclosures of cash flow information:
   Interest paid during the period                                              $        50,000  $        42,000
                                                                                ===============  ===============

Supplemental disclosure of noncash investing and financing activities:
   Property and equipment acquired under capital lease obligations              $        54,000  $             -
                                                                                ===============  ===============

   Accretion of redemption value                                                $        37,000  $             -
                                                                                ===============  ===============

</TABLE>

 600,000  shares  of  subsidiary  common  stock were issued in connection with
the acquisition of Power Sensors Corporation.


<PAGE>

                             Oryx Technology Corp.
                   Notes to Consolidated Financial Statements

1.   The Company

     Oryx Technology Corp.  ("Oryx" or the "Company"),  a Delaware  corporation,
     and its subsidiaries manufacture power conversion products, assemblies used
     in the production of computer memory disks,  electromagnets,  electrostatic
     discharge test, and secondary ion mass spectrometer measurement devices.

     In April 1994,  the Company  completed  an initial  public  offering of 2.2
     million shares of Common Stock which resulted in proceeds to the Company of
     approximately  $6.0 million,  net of issuance costs of  approximately  $1.7
     million.  Since its initial  public  offering,  the Company has completed a
     number of private placement sales of its Common Stock. Common Stock sold in
     private placement offerings during fiscal years 1997, 1996 and 1995 totaled
     approximately 2.8 million shares, 4.8 million shares and 0.9 million shares
     and  resulted  in net  proceeds of  $4,143,000,  $4,759,000  and  $575,000,
     respectively.

     The  Company's  cumulative  losses,  its loss of a  significant  customer's
     orders  that  represented  approximately  48% of fiscal  1997  consolidated
     revenues,  and cash used in fiscal 1997  operations  result in  uncertainty
     about the Company's future  viability.  However,  management  believes that
     liquidity  from the  combination  of  existing  and new  product  revenues,
     savings from planned cost  reduction  measures,  new focus  resulting  from
     recent  management  changes,  ability to generate  asset and or  technology
     sales and the Company's  recently secured bank financing (see Note 14) will
     be sufficient to enable the Company to continue as a going concern  through
     February 28, 1998.

     Management estimates
     The  preparation  of financial  statements  in  accordance  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the  reported  amounts of assets and  liabilities,
     disclosures  of  contingent  assets  and  liabilities  at the  date  of the
     financial  statements,  and the  reported  amounts of revenues and expenses
     during  the  reported  period.  Actual  results  could  differ  from  those
     estimates.


2.   Summary of Significant Accounting Policies

     Basis of presentation
      The Company's fiscal year ends on the last day of February. The year ended
      February 28, 1997 is referred to as fiscal 1997.

    Principles of consolidation
     The  consolidated   financial  statements  include  the  accounts  of  Oryx
     Technology  Corporation and its wholly owned subsidiaries.  All significant
     intercompany transactions and accounts have been eliminated.

    Cash and cash equivalents
      The  Company  considers  all highly  liquid  instruments  with an original
      maturity of three months or less to be cash equivalents.

     Inventories
      Inventories  are stated at the lower of cost,  determined  on a  first-in,
      first-out basis, or market.

     Property and equipment
      Property and equipment are stated at cost.  Depreciation is computed using
      the  straight-line  method over the estimated  useful lives of the assets,
      generally three to ten years.  Leasehold  improvements are amortized using
      the  straight-line  method  over  the  shorter  of the  lease  term or the
      estimated useful lives of the assets. The Company periodically reviews the
      recovery of property and equipment based upon estimated cash flows.

     Intangible assets
      The cost of intangible  assets is amortized using the straight line method
      over the estimated useful lives of the assets, seventeen years for patents
      and  ten  years  for  goodwill  and  purchased  technology.   The  Company
      periodically  reviews  recoverability  of  intangible  assets  based  upon
      estimated future cash flows.

    Equity in net loss of investee
     The fiscal 1997 and 1996  consolidated  statements  of  operations  include
     charges of $20,000 and  $195,000  for the equity in net loss of an investee
     accounted  for on the  equity  method.  As a result of  additional  outside
     investments in the investee during fiscal 1997, the Company's
     net  ownership  in the  investee was reduced from 40% to less than 5%. As a
     result of this reduction,  the Company's investment  subsequent to February
     28, 1997, will be accounted for using the cost method.

    Revenue recognition
     Revenues are generally recognized upon shipment of product.  However, where
     a shipment is subject to customer acceptance criteria,  revenue is deferred
     until customer  acceptance.  Revenue from research  contracts in process is
     recognized under the percentage of completion method.

    Income taxes
     Deferred  income taxes are provided for temporary  differences  between the
     financial  reporting  basis and the tax basis of the  Company's  assets and
     liabilities.   The  benefits  from   utilization   of  net  operating  loss
     carryforwards  will be reflected as part of the income tax provision if and
     when realizable.

    Net loss per share
     Net loss per share is computed using the weighted  average number of common
     and dilutive  equivalent shares  outstanding  during each period presented.
     Common equivalent shares include Common Stock issuable upon the exercise of
     stock  options  and  warrants  using the  treasury  stock  method,  or upon
     conversion of preferred stock.  Common  equivalent shares are excluded from
     the  computation  if their  effects  are  antidilutive.  As a result of net
     losses,  common stock  equivalents of the Company were antidilutive for the
     years ended  February 28, 1997 and February  29,  1996.  Additionally,  net
     income in the calculation of earnings per share for the year ended February
     28, 1997  includes an adjustment  to reflect the earnings  attributable  to
     holders of dilutive securities in subsidiaries of the Company.

    New accounting standards
     In February 1997, the Financial Accounting Standards Board issued Statement
     of Financial  Accounting  Standards ("SFAS") No. 128, "Earnings Per Share."
     This  statement  will be  effective  for the  Company's  fiscal year ending
     February  28,  1998.  Under SFAS No.  128,  primary  earnings  per share is
     replaced by basic  earnings per share and fully diluted  earnings per share
     is replaced by diluted  earnings per share. If the Company had adopted SFAS
     No.  128 for the year ended  February  28,  1997,  basic loss per share and
     diluted loss per share would not have  differed from the net loss per share
     presented  in the  Statement  of  Operations  because  the  effect of stock
     equivalents  was  antidilutive.  SFAS No. 128 will require the  retroactive
     restatement of all previously reported amounts upon adoption.


3.   Details of Balance Sheet Components
<TABLE>
                                                                                 February 28,        February 29,
                                                                                     1997                1996
     <S>                                                                              <C>                 <C>
     Inventories:
       Raw materials                                                            $     3,090,000    $      2,453,000
       Work-in-progress                                                                 153,000             136,000
       Finished goods                                                                 1,552,000           1,291,000
                                                                                ---------------    ----------------
                                                                                $     4,795,000    $      3,880,000
                                                                                ===============    ================

     Property and equipment:
       Machinery and equipment                                                  $     2,427,000    $      1,236,000
       Furniture and fixtures                                                         1,060,000             595,000
       Automobiles                                                                       11,000              11,000
       Leasehold improvements                                                           362,000             111,000
                                                                                ---------------    ----------------
                                                                                      3,860,000           1,953,000
       Less:  Accumulated depreciation                                               (1,186,000)           (655,000)
                                                                                ---------------    ----------------
                                                                                $     2,674,000    $      1,298,000
                                                                                ===============    ================

     Accrued liabilities:
       Compensation                                                             $       417,000    $        272,000
       Deferred revenues                                                                450,000             333,000
       Professional fees                                                                163,000              60,000
       Warranty                                                                         276,000              26,000
       Facilities                                                                        76,000              73,000
       Other                                                                    569,000            321,000
              -------------------------------------------------------------------------        -----------
                                                                                $     1,951,000    $      1,085,000
                                                                                ===============    ================

</TABLE>



<PAGE>



4.   Acquisition of Power Sensors Corporation

     In December 1996, the Company  acquired  certain assets and assumed certain
     liabilities  of Power Sensors  Corporation  ("PSC") in exchange for 600,000
     shares  of  Class A Common  Stock of Oryx  Power  Products  Corporation,  a
     wholly-owned  subsidiary  of  the  Company.  The  stock  issued  represents
     approximately   6%  of  the  outstanding   stock  of  Oryx  Power  Products
     Corporation  at February 28, 1997. The  acquisition  was accounted for as a
     purchase; accordingly, the purchase price and costs of the acquisition were
     allocated to the assets and liabilities acquired based upon their estimated
     fair market values at the date of acquisition as follows:

       Current assets                                            $       338,000
       Furniture and equipment                                           300,000
       Research and development in process                               670,000
       Purchased technology                                              340,000
       Goodwill                                                          355,000
                                                                 ---------------
         Total assets                                                  2,003,000

       Accounts payable and accrued liabilities                          460,000
       Capital lease assumed                                             268,000
       Bank loans assumed                                                555,000
                                                                 ---------------
         Total liabilities                                             1,283,000
                                                                 ---------------
              Total purchase price                               $       720,000
                                                                 ===============

     The total  purchase  price was derived based on the estimated fair value of
     the stock issued of $600,000  and  acquisition  expenses of  $120,000.  The
     agreement allows the holders of such stock,  under certain  conditions,  on
     the three year  anniversary  of the  acquisition  to require the Company to
     redeem the stock  issued for a promissory  note of $1.5 million  payable in
     equal  annual  installments  over four years  commencing  in the year 2000.
     Accordingly,  the stock was recorded in the  consolidated  balance sheet as
     mandatorily  redeemable securities at estimated fair value and will accrete
     up to the redemption value in accordance with the terms of the agreement.


<PAGE>



     Pro forma information (unaudited)
     The  following  unaudited  pro forma  information  reflects  the results of
     operations for the year ended  February 28, 1997, as if the  acquisition of
     Power Sensors  Corporation  had occurred  prior to March 1, 1996, and after
     giving  effect to certain  adjustments.  These pro forma  results have been
     prepared for comparative  purposes only and do not purport to be indicative
     of what  operating  results  would have been had the  acquisition  actually
     taken place prior to March 1, 1996, or what operating  results may occur in
     the future.

         Net revenues                                           $        27,403
                                                                ===============

         Net loss                                               $        (2,812)
                                                                ===============

         Net loss per share                                     $         (0.26)
                                                                ===============



5.   Acquisition of Power Conversion Products Group and Debt Restructuring

     In April 1994, the Company  acquired certain assets of the Power Conversion
     Products Group of Zenith Electronics Corporation ("Zenith"). As part of the
     acquisition,  the Company signed a $2.1 million convertible promissory note
     payable to Zenith  which bore  interest  at 6% per year and was  payable in
     three annual installments commencing October 1995.

     In February  1996, the Company  entered into the Settlement  Agreement with
     Zenith covering the principal  amount  outstanding of the promissory  note,
     accrued  interest,  and certain accounts payable and inventory  relating to
     the Company's  agreements  with Zenith.  In accordance  with the Settlement
     Agreement and subsequent  amendments,  Zenith agreed to forgive all amounts
     owed by the Company in exchange for a $1,000,000  note payable and warrants
     to  purchase  400,000  common  shares for $1.00 per share and  warrants  to
     purchase  100,000  common  shares for $5.00 per  share.  The  warrants  are
     exercisable until March 2001.




<PAGE>



     In connection with the settlement,  the Company  recorded an  extraordinary
gain of $1,433,000 which was calculated as follows:

       Principal amount of promissory note                      $     2,061,000
       Accrued interest on promissory note                              225,000
       Accounts payable for inventory purchases                         541,000
                                                                ---------------
       Total consideration received by Oryx                           2,827,000

       Amounts due pursuant to the Settlement Agreement              (1,028,000)
       Value of warrants issued to Zenith                              (366,000)
                                                                 ---------------
       Net extraordinary gain on debt restructuring              $     1,433,000
                                                                 ===============

     The  $1,028,000  owed to Zenith under the  Settlement  Agreement was repaid
during fiscal 1997.


6.   Financing Arrangements

     On December 4, 1996,  the Company  entered  into a credit  facility  with a
     financial institution for borrowings of $530,000 bearing interest at 10.5%.
     The credit  facility is payable over 48 monthly  payments of principal  and
     interest and is  collaterized  by  specified  manufacturing  equipment.  At
     February 28, 1997, the Company had borrowings outstanding of $390,000, with
     a remaining unused credit facility of $140,000.

     In conjunction  with the Power Sensors  acquisition,  the Company assumed a
     loan with a financial  institution  in the amount of $555,000.  The loan is
     payable over 60 monthly  payments of principal  and  interest.  The loan is
     collaterized  by  business  assets of the  Company.  The  interest  rate is
     determined as 2% over a specified bank index and was 10.25% at February 28,
     1997.  At February  28, 1997,  the Company had  borrowings  outstanding  of
     $530,000.

     The  aggregate  payments for each of the next five years of long-term  debt
     outstanding  at February 28, 1997 are $215,000 in fiscal 1998,  $251,000 in
     fiscal 1999, $216,000 in fiscal 2000, $124,000 in fiscal 2001, and $114,000
     in fiscal 2002.

     On February 29, 1996,  the Company had  outstanding  borrowings of $352,000
     under a line of credit agreement with a financial institution.  The line of
     credit was terminated and the borrowings were repaid during fiscal 1997.

     In fiscal 1996,  the Company  issued  $400,000 in notes  payable to certain
     shareholders  bearing  interest at 10%. As  additional  consideration,  the
     shareholders  received  warrants to purchase 322,551 shares of common stock
     exercisable through January 2001 at an exercise price of $1.25. The Company
     recorded  as  interest  expense  $213,000  representing  the  value  of the
     warrants,  as  determined  by the Company and  supported by an  independent
     appraisal,  during the year ended February 29, 1996. The notes payable were
     repaid during fiscal 1997.


7.   Series A 2% Convertible Cumulative Preferred Stock

     The Company has authorized  3,000,000  shares of Preferred Stock with a par
     value of $0.001 per share and of which 45,000 of such shares are designated
     Series A 2% Convertible  Cumulative  Preferred  Stock (the Series A Stock).
     Each share of Series A Stock may be converted, at the option of the holder,
     into  approximately  11.67 shares of Common Stock. As of February 28, 1997,
     the Company had reserved  52,515  shares of Common Stock for issuance  upon
     conversion  of the  Series A  Stock.  The  holders  of  Series A Stock  are
     entitled  to receive a  cumulative  dividend  of $0.50 per share per annum,
     subject to any  restrictions  imposed by the Delaware  General  Corporation
     Law. The dividend is payable semi-annually. In the event of liquidation and
     to the extent assets are  available,  the holders of the Series A Stock are
     entitled to a liquidation preference  distribution of $25.00 per share plus
     accrued but unpaid dividends.  Each share of the Series A Stock is entitled
     to one vote per share on all matters submitted to a vote of stockholders of
     the Company.


8.   Stock Plans and Warrants

     Oryx Stock Plans
     In March 1993,  the Company  adopted the Incentive and  Nonqualified  Stock
     Option  Plan (the  "1993  Plan").  The 1993  Plan,  which  expires in 2003,
     provides for incentive as well as nonstatutory stock options.  The Board of
     Directors may terminate the 1993 Plan at any time at its discretion.

     Options  under the 1993 Plan are granted at prices  determined by the Board
     of Directors,  subject to certain conditions.  Generally,  these conditions
     require that the exercise price of options  granted may not be below a) for
     incentive options,  110%, for persons owning more than 10% of the Company's
     capital  stock  and 100% for  options  issued to other  persons,  or b) for
     nonstatutory options, 85% of the fair market value of the stock at the date
     of grant.  Options granted to persons owning more than 10% of the Company's
     capital  stock may not have a term in excess of five  years,  and all other
     options must expire within 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 August 1995, the Company  adopted the 1995  Directors  Stock Option Plan
     (the  "Directors'  Plan").  The  Directors'  Plan,  which  expires in 2005,
     provides  for  nonstatutory  stock  options to be  granted  to  nonemployee
     directors  of the  Company.  The  Board  of  Directors  may  terminate  the
     Directors' Plan at anytime at its discretion.  Options under the Directors'
     Plan are granted at prices determined by the Board of Directors, subject to
     certain conditions more fully described in the Directors' Plan.  Generally,
     these conditions require that the exercise price of options granted may not
     be below 110% for  persons  owning more than 10% of the  Company's  capital
     stock and 100% for options issued to other persons of the fair market valve
     of the stock at the date of grant.  Options must expire within ten years of
     grant. The Directors' Plan provides that each nonemployee  director receive
     options to purchase 45,000 shares of the Company's Common Stock with 15,000
     vested  and  exercisable  upon grant  with the  remainder  vesting in equal
     annual  installments  over a three year  period.  The  Company  has 225,000
     shares  authorized  under the Directors' Plan of which 180,000 options have
     been granted at $1.81 per share as of February 28, 1997.

     A summary of stock option  activity  under the 1993 Plan and the Directors'
Plan is as follows:

<TABLE>
                                                                                        Options Outstanding
                                                                  Shares                               Weighted-
                                                                 Available                              Average
                                                                    For                             Exercise Price
                                                                   Grant             Shares            Per Share

       <S>                                                          <C>                 <C>                    <C>
       Balance at February 28, 1995                                  56,020             465,980               $1.29

       Additional shares authorized                                 825,000                   -                   -
       Options granted                                             (294,500)            294,500               $1.89
       Options canceled                                              21,862             (21,862)              $1.72
       Options exercised                                                  -                (525)              $1.13
                                                            ---------------     ---------------
       Balance at February 29, 1996                                 608,382             738,093               $1.52

       Additional shares authorized                                 500,000                   -                   -
       Options granted                                             (786,500)            786,500               $1.94
       Options canceled                                              24,565             (24,565)              $1.03
       Options exercised                                                  -            (199,818)              $1.18
                                                            ---------------     ---------------
       Balance at February 28, 1997                                 346,447           1,300,210               $1.82
                                                            ===============     ===============


</TABLE>



<PAGE>



     The following  table  summarizes  information  about employee stock options
outstanding at February 28, 1997:

<TABLE>

                                          Options Outstanding                           Options Exercisable
                                           Weighted-Average
                                               Remaining          Weighted-                            Weighted-
     Range ofNumber        Contractual         Average             Number            Average
     Exercise Prices       Outstanding           Life          Exercise Price      Exercisable      Exercise Price
      <S>                     <C>                <C>                 <C>                <C>               <C>
     $0.80                          472          0.2             $   0.80                   472        $  0.80
     $1.00-1.97               1,066,738          8.4                 1.72               482,765           1.58
     $2.00-2.38                 189,500          9.1                 2.12                50,650           2.03
     $3.00                       43,500          7.2                 3.00                23,925           3.00
                          -------------                                           -------------
        Total                 1,300,210          8.5             $   1.82               557,812        $  1.67
                          =============                                           =============

</TABLE>

     Fair Value Disclosures
     Had compensation cost for the Plans been determined based on the fair value
     of each stock  option on its grant date,  as  prescribed  in SFAS 123,  the
     Company's  net loss and net loss per share for fiscal 1997  would have been
     $2,395,000  and  $0.22,  respectively,  and in fiscal  1996 would have been
     $2,855,000 and $0.49, respectively.

     The fair value of each option is  estimated  on the date of grant using the
     Black-Scholes  option  pricing  model with the following  weighted  average
     assumptions used for grants during the applicable  period:  dividend yields
     of 0% for  both  periods;  expected  volatility  of 60% for  both  periods;
     risk-free  interest rate of 6.07% for fiscal 1996 and 6.29% for fiscal 1997
     for options  granted;  and a weighted  average expected option term of five
     years for fiscal 1996 and five years for fiscal 1997. The weighted  average
     fair value of options  granted  during fiscal years 1997 and 1996 was $0.73
     and $0.47,  respectively.  The  weighted  average  fair value of options to
     purchase  common  shares of the  Company's  subsidiaries  were not material
     during fiscal years 1997 and 1996.

     The above pro forma amounts include  compensation expense based on the fair
     value of options  granted and vesting  during the years ended  February 28,
     1997 and February 29, 1996 and exclude the effects of options granted prior
     to March 1,  1995.  Accordingly,  the above pro forma net loss and net loss
     per share are not  representative  of the effects of computing stock option
     compensation expense using the fair value method for future periods.

     Subsidiary Stock Plans
     In November  1995,  the  Company's  wholly owned  subsidiaries,  Oryx Power
     Products Corporation,  Oryx Instruments and Materials Corporation and SurgX
     Corporation,  each  adopted  stock  option  plans  under which the Board of
     Directors  granted  options to management to purchase Class B common shares
     in the  subsidiaries at their fair market values as determined by the Board
     of Directors.  Class B common shares authorized for issuance in each of the
     subsidiaries  are  identical  to the ten  million  shares of Class A common
     shares  owned  by  the  Company,  except  the  Class  A  shares  possess  a
     liquidation  preference.  The Board of  Directors  authorized  1.5  million
     shares of Class B common  shares for each of the three  subsidiaries  to be
     available  for  issuance  under these  stock  plans.  Such  options are not
     transferable  except in the event of a public offering of the  subsidiary's
     stock 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 these subsidiaries will change as a
     result of future  exercises  of stock  options  and,  to the  extent  these
     subsidiaries  contribute profits,  outstanding subsidiary stock options may
     dilute the Company's  share of profits in the  calculation  of earnings per
     share.

     The number of  subsidiary  shares of common  stock and  options to purchase
     common stock,  which vest ratably over a five year period,  outstanding  at
     February 28, 1997 were as follows:

<TABLE>
                                                                Class B            Class B            Class A
                                                                Options        Options Vested         Shares

       <S>                                                      <C>                   <C>          <C>
       Oryx Instrument and Materials Corporation                1,139,000             184,000      10,000,000
       Oryx Power Products Corporation                          1,381,000             201,000      10,600,000
       SurgX Corporation                                          282,500              56,500      10,000,000

</TABLE>

     At February 28, 1997,  with the  exception of 600,000  shares of Oryx Power
     Products Corporation, all of the subsidiary Class A shares outstanding were
     owned by the Company. Warrants The following warrants at February 28, 1997,
     and the  number  of  shares  of the  Company's  Common  Stock  which may be
     purchased at exercise,
     were outstanding and exercisable at February 28, 1997:

<TABLE>
                      Original           Issuable              Warrant                Warrant          Warrant
                      Warrants            Common            Commencement            Expiration        Exercise
                     Outstanding          Shares                Date                   Date             Price

                      <S>                 <C>                  <C>                     <C>               <C>
                      1,173,900           2,230,410            Oct.  1994              Oct. 1999         $3.50
                         37,500              37,500            Oct.  1994              Oct. 2004         $2.00
                        379,000             541,030             Nov. 1994              Oct. 2004         $2.00
                        322,551             322,551             Feb. 1996              Jan. 2001         $1.25
                        400,000             400,000             Feb. 1996              Mar. 2001         $1.00
                        100,000             100,000             Feb. 1996              Mar. 2001         $5.00
                        124,560             124,560             Feb. 1996              Feb. 2001         $1.38
                        100,000             100,000             Apr. 1996              Mar. 2001         $1.31
                         32,000              32,000             May  1996              May  2001         $1.38
                         90,730              90,730             Dec. 1996              Dec. 2001         $1.90
                         72,800              72,800             Feb. 1997              Feb. 2002         $1.90
                  -------------       -------------
                      2,833,041           4,051,581
                  =============       =============

</TABLE>

     In addition to the  foregoing,  in connection  with the  Company's  initial
     public  offering,  the Company sold to the  underwriters,  for an aggregate
     price of $110,  noncallable warrants  ("Underwriters'  Warrants") entitling
     the holder to purchase from the Company  110,000 units at an exercise price
     of $11.55 per unit, subject to dilution provisions.  Each unit consisted of
     two  shares of Common  Stock  and one  callable  warrant  to  purchase  one
     additional  share of  Common  Stock  at an  exercise  price of $3.50  (also
     subject  to  dilution  provisions).  As a  result  of  subsequent  dilutive
     offerings,  the Underwriters'  Warrants were convertible into 323,916 units
     at a  exercise  price of $3.71  per unit and each  underlying  warrant  was
     convertible  into 1.9  common  shares.  During  1997,  100,000  units  were
     exercised resulting in proceeds of $371,000.  In December 1996, the Company
     repurchased  and retired the remaining  Underwriters'  Warrants in exchange
     for $475,000  and 40,000  warrants to purchase  76,000  shares at $3.50 per
     warrant, which may be exercised through April 1999.

     In certain circumstances and defined time frames, the Company may call many
     of the above warrants. The terms of most warrants are subject to adjustment
     in certain circumstances (including antidilution protection).





<PAGE>



9.   Research Contracts and Development Funding

     The Company is party to certain research  contracts which are accounted for
     on a percentage of completion  basis.  Revenues and cost of sales  recorded
     under such contracts  totaled  $627,000 and $403,000 during fiscal 1997 and
     $439,000 and $366,000 during fiscal 1996, respectively.

     During fiscal 1997,  the Company  received  development  funding from third
     parties to assist in the  commercialization  of  certain  of the  Company's
     products. Such funding is recorded as an offset to research and development
     expenses when contract specified  technical  milestones have been achieved.
     During  fiscal 1997,  $1,107,000  was credited to research and  development
     expenses under these arrangements.


10.  Sales to Major Customers and Concentration of Credit Risk

     The   Company's   customers   are   primarily  in  the  office   equipment,
     semiconductor and computer disk drive manufacturing industries. The Company
     maintains reserves for potential credit losses;  historically,  such losses
     have  been  minor  and  within  management's  expectations.  The  Company's
     accounts  receivable  are  principally  derived  from  sales in the  United
     States.  All transactions are denominated in U.S. dollars.  At February 28,
     1997,  accounts  receivable from three customers  represented  16%, 14% and
     12%,  respectively,  of total accounts  receivable.  During fiscal 1997 and
     1996, sales to a single customer of the Power Products segment  represented
     52% and 41% of  consolidated  net  revenues.  The  contract  related to the
     majority  of sales to this  customer  was  terminated  at the end of fiscal
     1997.


11.  Income Taxes

     The tax  provisions  for the years ended February 28, 1997 and 1996 consist
     of state taxes currently  payable and foreign tax provisions.  No provision
     for federal income taxes has been recorded because of losses incurred.

     Deferred tax assets (liabilities) comprise the following:

                                                February 28,        February 29,
                                                    1997                1996

       Net operating loss carryforwards        $     2,438,000  $     1,200,000
Inventory reserves                                     257,000          540,000
R&D credit carryforwards                               331,000          180,000
       Intangibles                                     759,000          517,000
       Other                                           503,000          331,000
                                                   -----------        ---------
         Gross deferred tax assets                   4,288,000        2,768,000
Fixed assets                                           (87,000)         (58,000)
                                                    ----------        ---------
Net deferred tax assets                              4,201,000        2,710,000
Valuation allowance                                 (4,201,000)      (2,710,000)
                                               ---------------  ---------------
         Net deferred tax asset                $             -  $             -
                                               ===============  ===============

     Due to uncertainty of  realization,  no benefit for deferred tax assets has
been recognized in the accompanying financial statements.

     At February 28, 1997, the Company had net operating loss  carryforwards  of
     approximately  $6,400,000  which may be utilized to reduce  future  taxable
     income through 2011, subject to certain  limitations.  Under the Tax Reform
     Act of 1986, the amounts of and the benefits from net operating losses that
     can be carried forward may be impaired or limited in certain circumstances,
     including  a  cumulative  stock  ownership  change  of more than 50% over a
     three-year  period.  The Company's  initial public  offering and subsequent
     private  placements  have triggered  ownership  changes of greater than 50%
     and,   accordingly,   the  potential   benefits  from  utilization  of  tax
     carryforwards generated through the date of such offerings are limited. 

12.  Commitments and Contingencies

     In conjunction with a fiscal 1994 acquisition,  the Company entered into an
     agreement whereby the Company will pay an 8% royalty through August 5, 2008
     on sales of certain  Instruments and Materials  products with the aggregate
     maximum  royalty  not to  exceed  $800,000.  Additionally,  a  supplemental
     royalty of 3% of sales over  $333,000  of certain  products  is to be paid,
     with the  maximum  supplemental  royalty  limited  to  $150,000.  Aggregate
     royalty expense has not been significant for the 1997 or 1996 fiscal years.

     The Company  leases its facilities and certain  equipment  under  operating
     lease agreements, which expire in various periods through 2002. The Company
     also leases  certain  assets  under  long-term  lease  agreements  that are
     classified as capital  leases.  The total amount of assets  acquired  under
     capital lease  arrangements which are included in property and equipment is
     $406,000 and $252,000 and  accumulated  amortization on such assets totaled
     of $137,000  and  $85,000,  at February  28, 1997 and  February  29,  1996,
     respectively.

     Future minimum lease obligations are payable as follows:

<TABLE>
                                                                  Capitalized       Operating
       Year Ending February                                         Leases           Leases          Total

         <S>                                                    <C>             <C>              <C>
         1998 $                                                 140,000     $     875,000     $  1,015,000
         1999                                                   103,000           600,000          703,000
         2000                                                   90,000            555,000          645,000
         2001                                                   33,000            479,000          512,000
         2002                                                   -                 325,000          325,000
              ---------------------------------------------------            ------------      -----------
         Total minimum lease payments                           366,000     $   2,834,000    $   3,200,000
                                                                            =============    =============
         Less amount representing interest                      (45,000)
                                                           ------------
         Present value of minimum lease payments                321,000
         Less current portion                                  (137,000)
                                                          -------------
         Long-term portion of obligations
            under capitalized leases                      $     184,000
                                                          =============
</TABLE>

     Rental  expense for the years ended February 28, 1997 and February 29, 1996
was $739,000 and $602,000, respectively.

     In the course of its business, the Company has been named as a defendant in
     a certain action and could incur an uninsured liability.  In the opinion of
     management, the outcome of such litigation will not have a material adverse
     effect on the results of operations or financial condition of the Company.


13.  Segment Information

     The  Company  groups its  business  into  three  operating  segments  and a
     corporate  segment:  (i) Power Products includes the Company's standard and
     custom AC to DC and DC to DC power supplies; (ii) Instruments and Materials
     includes specialized  materials produced through a patented bonding process
     and  the   Company's   electrostatic   discharge  and  secondary  ion  mass
     spectrometer  measurement  devices;  and (iii) SurgX,  a development  stage
     operation  that utilizes the Company's  patented  technology  that protects
     microchips and related  products from  overvoltage.  Consolidated  business
     segment  information as of February 28, 1997 and February 29, 1996, and for
     each of the years then ended is summarized as follows:

<TABLE>
                                                                                     1997                1996
       <S>                                                                           <C>                 <C>
       Revenues:
         Power Products                                                         $    20,390,000    $     12,014,000
         Instruments and Materials                                                    6,434,000           4,114,000
         SurgX                                                                           36,000               8,000
         Corporate                                                                            -                   -
                                                                                ---------------    ----------------
                                                                                $    26,860,000         $16,136,000
                                                                                ===============         ===========

       Operating income/(loss):
         Power Products                                                         $     2,445,000    $       (544,000)
         Instruments and Materials                                                   (1,311,000)           (915,000)
         SurgX                                                                         (880,000)           (553,000)
         Corporate                                                                   (2,149,000)         (1,623,000)
                                                                                ---------------    ----------------
                                                                                $    (1,895,000)   $     (3,635,000)
                                                                                ===============    ================

       Identifiable assets:
         Power Products                                                         $     7,676,000    $      5,487,000
         Instruments and Materials                                                    4,625,000           2,914,000
         SurgX                                                                          507,000                   -
         Corporate                                                                    2,504,000           3,939,000
                                                                                ---------------    ----------------
                                                                                $    15,312,000    $     12,340,000
                                                                                ===============    ================

       Depreciation and amortization expense:
         Power Products                                                         $       310,000    $        252,000
         Instruments and Materials                                                      218,000             169,000
         SurgX                                                                           13,000                   -
         Corporate                                                                       17,000                   -
                                                                                ---------------    ----------------
                                                                                $       558,000    $        421,000
                                                                                ===============    ================

       Capital expenditures:
         Power Products                                                         $       622,000    $        418,000
         Instruments and Materials                                                      558,000             308,000
         SurgX                                                                          317,000                   -
         Corporate                                                                       56,000                   -
                                                                                ---------------    ----------------
                                                                                $     1,553,000    $        726,000
                                                                                ===============    ================

</TABLE>

     As is more fully  discussed in Note 4, the Power  Products'  1997 loss from
     operations  includes a $670,000  write-off of research and  development  in
     process related to the Company's acquisition of the assets of Power Sensors
     Corporation. Additionally, 1997 Power Products capital expenditures include
     $120,000 for this acquisition.  The 1996  extraordinary  gain of $1,433,000
     resulted from the restructuring of certain  obligations owed by the Company
     related to the acquisition of the Power Conversion Products Group and Power
     Products' subsequent activities.


14.  Subsequent Event

     In May 1997, the Company  entered into a borrowing  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 borrow up to a maximum of $4 million,  provided  that
     any amount in excess of $3.5  million  must be 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,  limited
     recourse basis all accounts receivable. In exchange, the Company may borrow
     under  the  Facility  up to 85% of the face  amount  of  eligible  accounts
     receivable (as defined) up to the maximum lending amount of $4 million. The
     interest rate is equal to the greater of the  institution's  base rate plus
     1.25% or 7.0%.