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 June 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 25,467,036 of the Registrant's Common Stock issued and outstanding on
August 12, 1996.
<PAGE>
INDEX
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Statements of Operations--Three and Six
months ended June 30, 1996 and 1995 1
Consolidated Balance Sheets--June 30, 1996 and
December 31, 1995 2
Consolidated Statements of Cash Flows--Six months ended
June 30, 1996 and 1995 3
Notes to consolidated financial statements--June 30, 1996 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 6
SIGNATURES 7
i
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Consolidated Statements of Operations
(unaudited)
<CAPTION>
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
--------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net revenues $1,039 $1,154 $2,560 $3,293
Cost of revenues 898 762 2,038 1,971
--------------------------------------------------------------
Gross profit 141 392 522 1,322
Other costs and expenses:
Engineering and development 170 116 345 232
Sales, marketing and regulatory 882 659 1,996 1,560
General and administrative 640 450 1,206 912
--------------------------------------------------------------
Total other costs and expenses 1,692 1,225 3,547 2,704
Loss from operations (1,551) (833) (3,025) (1,382)
Interest income 2 4 33 4
--------------------------------------------------------------
Net loss $(1,549) $(829) $(2,992) $(1378)
==============================================================
Net loss per share $(0.06) $(0.08) $(0.12) $(0.13)
==============================================================
Shares used in calculation of
net loss per share 25,395 11,043 25,355 10,614
==============================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
1
<PAGE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Consolidated Balance Sheets
June 30, December 31,
1996 1995
-----------------------
(unaudited) (Note)
(In thousands)
Assets
Current assets:
Cash and cash equivalents $319 $3,514
Accounts receivable, net of allowance 762 1,048
Inventories 2,299 1,666
Prepaid expenses 150 257
---------------------
Total current assets 3,530 6,485
Property and equipment, net 187 204
---------------------
Total assets $3,717 $6,689
=====================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $869 $1,097
Accrued payroll and related expenses 263 181
Accrued warranty 324 324
Other accrued expenses 322 342
---------------------
Total current liabilities 1,778 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, 25,467,036 and 25,280,056 shares issued
and outstanding at June 30, 1996 and
December 31, 1995 respectively. 25 25
Additional paid-in-capital 29,382 29,196
Accumulated deficit (27,468) (24,476)
---------------------
Total stockholders' equity 1,939 4,745
---------------------
Total liabilities and stockholders' equity $3,717 $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)
Six months ended June 30,
1996 1995
-----------------------
(In thousands)
Cash flows from operating activities
Net loss $ (2,992) $ (1,378)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, amortization and additions to 53 82
allowance for doubtful accounts
Changes in assets and liabilities:
Accounts receivable 271 12
Inventories (633) 455
Prepaid expenses 107 160
Accounts payable (228) 166
Accrued payroll and related expenses 82 (27)
Other accrued expenses (20) (256)
-----------------------
Total adjustments (368) 592
-----------------------
Net cash used in operating activities (3,360) (786)
-----------------------
Cash flows from investing activities
Purchase of property and equipment (21) (8)
-----------------------
Net cash used in investing activities (21) (8)
-----------------------
Cash flows from financing activities
Payment on capital lease obligations ---- (8)
Issuance of common stock, net of offering costs 186 984
Purchase of Treasury Stock ---- (55)
-----------------------
Net cash provided by (used in) financing activities 186 921
-----------------------
Net increase (decrease) in cash and equivalents (3,195) 127
Cash and cash equivalents at beginning of period 3,514 559
-----------------------
Cash and cash equivalents at end of period $319 $686
=======================
See accompanying notes.
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
June 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 June 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
June 30, 1996 has an accumulated deficit of approximately $27,468,000. 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 upon returning to profitable
operations. Management's plans include increasing sales through expanded
marketing efforts on existing products and pursuing timely regulatory
approval for certain products under development. Management also recognizes
the need for infusion of cash during the fiscal year 1996 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 June 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:
June 30, December 31,
1996 1995
-------------------------------------
(In thousands)
Raw materials $1,159 $909
Work-in-process 452 237
Finished goods 688 520
-------------------------------------
$2,299 $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.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Condition
As of June 30, 1996 the Company had $ 319,000 in cash and cash equivalents. The
Company's operating activities used $3,360,000 in the six months ended June 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.
Working capital amounted to $4,541,000 at December 31, 1995 and decreased to
$1,752,000 at June 30, 1996. Working capital, including the proceeds from the
1995 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 to pursue the dental
business and support ongoing development and regulatory approval of the LTK
system. In order 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.
Financing Subsequent to June 30, 1996: 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.
Results of Operations
Revenues of $1,039,000 and $2,560,000 for the three and six month periods ended
June 30, 1996 represent 10% and 22% decreases, respectively over the $1,154,000
and $3,293,000 for the same periods in 1995. MicroPrep, the Company's air
abrasive cavity preparation system which was introduced in June 1994, continues
to exhibit strong customer acceptance and accounted for approximately 64% of the
Company's revenues for the three and six month periods ended June 30, 1996.
Gross profit decreased as a percentage of revenue from approximately 34% and 40%
for the three and six month periods ended June 30, 1995 to 14% and 20% for the
same periods in 1996, due primarily to lower overhead absorption due to reduced
unit sales.
Engineering and development expenses increased $54,000 (47%) and $114,000 (49%)
to $170,000 and $345,000 for the three and six month periods ended June 30,
1996, over the $116,000 and $231,000 expense for the same periods in 1995. This
increased effort was directed primarily toward the Company's air abrasion
product line.
Sales, marketing and regulatory costs increased $223,000 (34%) and $436,000
(28%) to $882,000 and $1,996,000 for the three and six months ended June 30,
1996, respectively, from the $659,000 and $1,560,000 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.
General and administrative expenses increased to $640,000 and $1,200,000 from
the $450,000 and $912,000 for the three and six month periods ended June 30,
1996 and 1995, respectively due to increased legal expenses and directors and
officers liability insurance.
5
<PAGE>
The Company's net losses of $1,549,000 and $2,992,000 for the three and six
month periods ended June 30, 1996 were caused by lower revenue, lower gross
margins due to overhead under-absorption resulting from reduced unit sales, as
well as increased operating expenses as compared to the same periods in 1995.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
A. The Company's Annual Meeting of Shareholders was held on June 18, 1996.
B. The following individual was reelected to the Company's Board of Directors
and received the number of votes in favor and votes withheld as follows:
Director Votes in favor Votes withheld
-------- -------------- --------------
Joseph D. Koenig 18,336,673 83,821
The following directors' terms in office continued after the meeting:
Joseph W. Shaffer
David W. Light
Ronald A. Slocum
C. In addition to the election of directors, votes were cast for the
ratification of Ernst & Young LLP as the Company's independent auditors for
the fiscal year ending December 31, 1996, as follows:
For Against Abstain
--- ------- -------
18,385,763 16,089 818,642
6
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 12, 1996 By: s/ David W. Light
---------------------------------------
President and Chief Executive Officer
Acting Chief Financial Officer
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996
</LEGEND>
<CIK> 0000846771
<NAME> SUNRISE TECHNOLOGIES INC
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 319
<SECURITIES> 0
<RECEIVABLES> 802
<ALLOWANCES> 40
<INVENTORY> 2,299
<CURRENT-ASSETS> 3,530
<PP&E> 2,406
<DEPRECIATION> 2,219
<TOTAL-ASSETS> 3,717
<CURRENT-LIABILITIES> 1,778
<BONDS> 0
<COMMON> 29,407
0
0
<OTHER-SE> (27,468)
<TOTAL-LIABILITY-AND-EQUITY> 3,717
<SALES> 1,039
<TOTAL-REVENUES> 1,039
<CGS> 898
<TOTAL-COSTS> 898
<OTHER-EXPENSES> 1,683
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,548)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,548)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,548)
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
