SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
- -----
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934 for the quarter ended September 30, 1996 or
- ----- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (no fee required) for the transition period
- ----- from _______________ to _______________.
Commission File No. 0-17816
Sunrise Technologies International, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 77-0148208
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
47257 Fremont Boulevard, Fremont, California 94538
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 623-9001
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
There were 27,866,613 of the Registrant's Common Stock issued and outstanding on
November 6, 1996.
<PAGE>
TABLE OF CONTENTS
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Statements of Operations-Three
and nine months ended September 30, 1996 and 1995 1
Consolidated Balance Sheets-September 30, 1996
and December 31, 1995 2
Consolidated Statements of Cash Flows-Nine months
ended September 30, 1996 and 1995 3
Notes to consolidated financial statements-
September 30, 1996 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5
SIGNATURES 6
ii
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Consolidated Statements of Operations
(unaudited)
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1996 1995 1996 1995
-----------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net revenues $1,767 $387 $4,327 $3,680
Cost of revenues 1,046 440 3,084 2,411
-----------------------------------------------------------------------
Gross profit (loss) 721 (53) 1,243 1,269
Other costs and expenses:
Engineering and development 149 119 494 351
Sales, marketing and regulatory 942 533 2,938 2,093
General and administrative 668 734 1,873 1,646
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Total other costs and expenses 1,759 1,386 5,305 4,090
-----------------------------------------------------------------------
Loss from operations (1,038) (1,439) (4,062) (2,821)
Interest income 10 2 43 6
-----------------------------------------------------------------------
Net loss $(1,028) $(1,437) $(4,019) $(2,815)
=======================================================================
Net loss per share $(0.04) $(0.11) $(0.16) $(0.24)
=======================================================================
Shares used in calculation of
net loss per share 26,932 13,234 25,898 11,487
=======================================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
1
<PAGE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Consolidated Balance Sheets
September 30, December 31,
1996 1995
----------------------------
(unaudited) (Note)
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 1,443 $ 3,514
Accounts receivable, net of allowance 1,014 1,048
Inventories 2,031 1,666
Prepaid expenses 308 257
----------------------------
Total current assets 4,796 6,485
Property and equipment, net 187 204
----------------------------
Total assets $ 4,983 $ 6,689
============================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 770 $ 1,097
Accrued payroll and related expenses 306 181
Accrued warranty 324 324
Other accrued expenses 362 342
----------------------------
Total current liabilities 1,762 1,944
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 2,000,000
shares authorized, none issued or outstanding.
Common stock, $0.001 par value, 40,000,000
shares authorized, 27,866,613 and 25,280,056
shares issued and outstanding at September
30, 1996 and December 31, 1995 respectively. 28 25
Additional paid-in-capital 31,688 29,196
Accumulated deficit (28,495) (24,476)
----------------------------
Total stockholders' equity 3,221 4,745
----------------------------
Total liabilities and stockholders' equity $ 4,983 $ 6,689
============================
Note: The consolidated balance sheet at December 31, 1995 has been derived from
the audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
2
<PAGE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
Increase(decrease) in cash and cash equivalents
(unaudited)
Nine months ended
September 30,
1996 1995
---------------------
(In thousands)
Cash flows from operating activities
Net loss $(4,019) $(2,815)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, amortization and additions to
allowance for doubtful accounts 85 78
Changes in assets and liabilities:
Accounts receivable 4 437
Inventories (365) 284
Prepaid expenses (51) (81)
Accounts payable (327) (30)
Accrued payroll and related expenses 125 25
Other accrued expenses 20 (299)
---------------------
Total adjustments (509) 414
---------------------
Net cash used in operating activities (4,528) (2,401)
---------------------
Cash flows from investing activities
Purchase of property and equipment (38) (39)
---------------------
Net cash used in investing activities (38) (39)
---------------------
Cash flows from financing activities
Payment on capital lease obligations -- (12)
Issuance of common stock, net of offering costs 2,495 7,573
Purchase of Treasury Stock -- (55)
---------------------
Net cash provided by financing activities 2,495 7,506
---------------------
Net increase (decrease) in cash and equivalents (2,071) 5,066
Cash and cash equivalents at beginning of period 3,514 559
---------------------
Cash and cash equivalents at end of period $ 1,443 $ 5,625
=====================
See accompanying notes.
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
September 30, 1996
1. Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries after elimination of all material intercompany
balances and transactions.
The consolidated financial data at and for the periods ended September 30,
1996 and 1995 are unaudited, but include all adjustments (consisting only of
normal recurring adjustments) that the management of Sunrise Technologies
International, Inc. believes to be necessary for fair presentation of the
periods presented. Interim results are not necessarily indicative of results
for the full year. The financial statements should be read in conjunction
with the audited financial statements for the year ended December 31, 1995
included in the Company's annual report on Form 10-K filed with the
Securities and Exchange Commission.
The Company has incurred significant losses for the last several years and,
at September 30, 1996 has an accumulated deficit of approximately
$28,495,000. The accompanying condensed financial statements have been
prepared assuming the Company will continue as a going concern. The Company's
long-term ability to continue as a going concern is dependent on returning to
profitable operations. Management's plans include increasing sales through
expanded marketing efforts for existing products and pursuing timely
regulatory approval for certain products under development. Management also
recognizes the need for infusion of cash and is actively pursuing various
options including securing additional equity financing. If the Company is
unable to obtain additional working capital resources from the placement of
debt or equity instruments, or the sale of some of its assets, it will be
necessary for the Company to curtail or suspend operations.
2. Net Loss Per Share
Net loss per share for the periods ended September 30, 1996 and 1995 is based
solely on weighted average shares of common stock outstanding during the
period. Common equivalent shares have not been considered in the computation
since their inclusion would have an antidilutive effect.
3. Revenue Recognition
Revenues are recognized at time of shipment.
4. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consisted of the following on the dates indicated:
September 30, December 31,
1996 1995
--------------------------------
(In thousands)
Raw materials $1,166 $ 909
Work-in-process 435 237
Finished goods 430 520
--------------------------------
$2,031 $1,666
================================
4
<PAGE>
5. Income Taxes
Due to the Company's losses from operations, all deferred tax assets, which
primarily result from net operating loss carry forwards, have been offset in
full by a valuation allowance in accordance with SFAS No. 109.
6. Subsequent Events
On October 29, 1996, the Company signed a memorandum of understanding to
acquire EyeSys Technologies, Inc. for 12,500,000 newly-issued shares of
common stock. Completion of the transaction is subject to approval by the
shareholders of both companies and other conditions. Closing conditions
include a requirement that Sunrise raise additional working capital.
7. Litigation Settlements
In July 1996, the Company settled all of its outstanding litigation with
American Dental Technologies ("ADT"). These matters were reported on most
recently in the Company's Form 10-K for the year ended December 31, 1995. The
material terms of the settlement are as follows:
1. Sunrise waived its rights to collect a judgment of $940,000 obtained
against ADT in a prior case, which had been subject to an appeal by
ADT.
2. Sunrise obtained a non-exclusive license to certain ADT patents
covering air abrasion systems used in dental applications.
3. Sunrise will pay ADT a royalty of 7% on all air abrasion products
shipped after December 31, 1996.
4. If Sunrise sells its dental air abrasion business before July 1998, it
must pay to ADT a transfer fee equal to 10% of the amount received for
the air abrasion business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Revenues of $1,767,000 and $4,327,000 for the three- and nine-month periods
ended September 30, 1996 represent 357% and 18% increases, respectively over the
$387,000 and $3,680,000 for the same periods in 1995. MicroPrep, the Company's
air abrasion cavity preparation system introduced in June 1994, continues to
exhibit strong customer acceptance and accounted for approximately 60% of the
Company's revenues for the three- and nine-month periods ended September 30,
1996.
Gross profit as a percentage of sales was 41% for the three months ended
September 30, 1996. Gross profit for the same period of 1995 was negative 14%
due to the effect of fixed manufacturing costs on a relatively low sales volume.
For the nine-month period ended September 30, 1996, gross profit as a percentage
of sales increased from 34% to 41%. This increase is due to increased absorption
of overheads due to higher sales and production volumes.
Engineering and development expenses increased $30,000 (25%) and $143,000 (41%)
to $149,000 and $494,000 for the three- and nine-month periods ended September
30, 1996, over the $119,000 and $351,000 expense for the same periods in 1995.
This increased effort was directed primarily toward the Company's air abrasion
product line with relatively level spending on the advancement of the LTK
system.
5
<PAGE>
General and administrative expenses for the three-month period ended September
30, 1996 decreased to $668,000 from $734,000 for the same period in 1995. This
decrease is due to decreased legal expenses and the Company's efforts to reduce
costs. General and administrative expenses for the nine-month period ended
September 30, 1996 increased to $1,873,000 from $1,646,000 in the same period of
1995. The increase is due to relatively higher legal expenses in earlier
quarters of 1996.
Sales, marketing and regulatory costs increased $409,000 (77%) and $845,000
(40%) to $942,000 and $2,938,000 for the three and nine months ended September
30, 1996, respectively, from the $533,000 and $2,093,000 for the same 1995
periods, due to increased costs relating to the implementation of a direct sales
organization as well as increased marketing and regulatory costs.
Financial Condition
As of September 30, 1996 the Company had $1,443,000 in cash and cash
equivalents. The Company's operating activities used $4,528,000 in the nine
months ended September 30, 1996 and used $4,495,000 in cash during fiscal 1995.
A substantial portion of the 1995 and 1996 losses were funded by the $7.5
million net proceeds received from the completion of private placements of
15,100,000 shares of the Company's common stock at prices ranging from $0.50 to
$0.625 per share in June and September 1995. In August 1996, the Company closed
a private placement of approximately 2,300,000 shares of its common stock in
exchange for approximately $2,200,000 net proceeds to the Company. This
financing will be used primarily to support FDA clinical trials for the
Company's Corneal Shaping System, ongoing research and development, and general
and administrative costs including costs associated with possible acquisitions.
Working capital amounted to $4,541,000 at December 31, 1995 and decreased to
$3,034,000 at September 30, 1996. Working capital, including the proceeds from
the private placements, was used to fund the Company's 1995 and 1996 losses.
The Company's current operations continue to be cash-flow negative, further
straining the Company's limited working capital resources. The level of current
product sales is not sufficient to provide enough cash for adequate working
capital to expand the dental business and support ongoing marketing and
regulatory development of the ophthalmic subsidiary. To continue its current
level of operations, it will be necessary for the Company to obtain additional
working capital resources, whether from debt or equity sources. If the Company
is unable to obtain additional working capital resources from the placement of
debt or equity instruments, or the sale of some of its assets, it will be
necessary for the Company to curtail or suspend operations.
Subsequent Events
On October 29, 1996, the Company signed a memorandum of understanding to acquire
EyeSys Technologies, Inc. for 12,500,000 newly-issued shares of common stock.
Completion of the transaction is subject to approval by the shareholders of both
companies and other conditions. Closing conditions include a requirement that
Sunrise raise additional working capital.
Date: November 12, 1996 By: s/ David W. Light
----------------------------------------
Chairman and Chief Executive Officer
Acting Chief Financial Officer
6
