<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NO. 0-17816
------------------------
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 77-0148208
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
47265 FREMONT BOULEVARD, FREMONT, CALIFORNIA 94538
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
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 34,147,003 shares of the registrant's Common Stock issued and
outstanding on July 31, 1998.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations -- Three and
six months ended June 30, 1998 and 1997..................... 1
Condensed Consolidated Balance Sheets -- June 30, 1998 and
December 31, 1997........................................... 2
Condensed Consolidated Statements of Cash Flows -- Six
months ended June 30, 1998 and 1997......................... 3
Notes to Condensed Consolidated Financial Statements -- June
30, 1998.................................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7
Item 3. Quantitative and Qualitative Disclosure about Market Risk... 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 10
SIGNATURES........................................................ 11
</TABLE>
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues........................................ $ 222 $ 1,454 $ 324 $ 2,463
Cost of revenues.................................... 625 1,001 884 1,959
------- ------- ------- -------
Gross profit........................................ (403) 453 (560) 504
Other costs and expenses:
Engineering and development......................... 515 262 997 535
Sales, marketing and regulatory..................... 1,165 784 1,658 1,443
General and administrative.......................... 2,917 1,200 3,849 1,906
------- ------- ------- -------
Total other costs and expenses............ 4,597 2,246 6,504 3,884
------- ------- ------- -------
Loss from operations................................ (5,000) (1,793) (7,064) (3,380)
Gain on sale of dental assets....................... -- 1,740 -- 1,740
Interest income..................................... 99 21 200 32
Interest expense.................................... (712) (131) (2,503) (943)
------- ------- ------- -------
Net loss.................................. $(5,613) $ (163) $(9,367) $(2,551)
======= ======= ======= =======
Net loss per share, basic and diluted............... $ (0.17) $ (0.01) $ (0.28) $ (0.09)
======= ======= ======= =======
Shares used in calculation of basic and diluted net
loss per share.................................... 33,801 27,886 33,404 27,879
======= ======= ======= =======
</TABLE>
See accompanying notes.
1
<PAGE> 4
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 8,448 $ 1,958
Accounts receivable, net.................................. 374 312
Inventories, net.......................................... 42 127
Other current assets...................................... 259 140
-------- --------
Total current assets................................... 9,123 2,537
Property and equipment, net............................... 458 204
Other non-current assets.................................. 40 208
-------- --------
Total assets...................................... $ 9,621 $ 2,949
======== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities:
Current portion of long-term debt......................... $ 34 $ 31
Accounts payable.......................................... 419 284
Deferred revenues......................................... 160 --
Accrued payroll and related expenses...................... 263 221
Accrued warranty and other expenses....................... 702 619
-------- --------
Total current liabilities.............................. 1,578 1,155
Long-term debt, net of current portion...................... 6,773 945
Other long-term liabilities................................. 432 --
-------- --------
Total liabilities...................................... 8,783 2,100
Stockholders' equity:
Preferred Stock, $0.001 par value, 2,000 shares
authorized, none issued or outstanding................. -- --
Common Stock, $.001 par value, 75,000 shares authorized,
34,137 and 32,308 shares issued and outstanding at June
30, 1998 and December 31, 1997, respectively........... 34 32
Additional paid-in capital................................ 47,470 38,151
Deferred compensation..................................... (237) (272)
Accumulated deficit....................................... (46,429) (37,062)
-------- --------
Total stockholders' equity............................. 838 849
-------- --------
Total liabilities and stockholders' equity........ $ 9,621 $ 2,949
======== ========
</TABLE>
See accompanying notes.
2
<PAGE> 5
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FOR OPERATING ACTIVITIES:
Net loss.................................................. $(9,367) $(2,551)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 75 94
Amortization of deferred compensation.................. 2,622 --
Amortization of debt issuance costs.................... 182 --
Gain on sale of dental assets.......................... -- (1,740)
Warrant accretion and beneficial conversion features
associated with 1997 and 1998 Notes................... 1,950 863
Issuance of common stock for services.................. 150 --
Provision for doubtful accounts........................ -- 30
Changes in assets and liabilities:
Accounts receivable.................................... (62) (308)
Inventories............................................ 85 202
Other current assets................................... (119) 168
Accounts payable....................................... 135 (1,137)
Other accrued liabilities and deferred revenue......... 285 339
Other long-term liabilities............................ 432 --
------- -------
Total adjustments................................. 5,735 (1,489)
------- -------
Net cash used in operating activities............. (3,632) (4,040)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (329) --
------- -------
Net cash used in investing activities............. (329) --
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on capital lease obligations...................... (13) --
Issuance of common stock, net of offering costs........... 1,128 190
Issuance of redeemable convertible notes.................. 9,350 3,743
Proceeds from sale of dental assets....................... -- 4,000
Costs associated with sale of dental assets............... -- (411)
Capitalization of debt issuance costs..................... (14) --
------- -------
Net cash provided by financing activities......... 10,451 7,522
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 6,490 3,482
Cash and cash equivalents at beginning of period............ 1,958 647
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 8,448 $ 4,129
======= =======
</TABLE>
See accompanying notes.
3
<PAGE> 6
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
1. BASIS OF PRESENTATION
The Company develops, manufactures and markets laser systems for
applications in ophthalmology. Prior to June 26, 1997, the Company had also
developed, manufactured and marketed lasers and air abrasive cavity preparation
systems for use in dentistry. A substantial portion of the Company's revenues
(80% for the first six months of 1997) were derived from the domestic and
international sales of the Company's dental laser and air abrasive products.
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries after elimination of all material
intercompany balances and transactions. Certain reclassifications have been made
to prior year amounts in order to conform to the current presentation.
The condensed consolidated financial data for the three and six-month
periods ended June 30, 1998 and 1997 are unaudited, but include all adjustments
(consisting only of normal recurring adjustments) that management of the Company
believes to be necessary for fair presentation of the financial position and
results of operations for 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, 1997 included in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
The preparation of unaudited financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
2. NET LOSS PER SHARE
Effective December 31, 1997, the Company adopted Financial Accounting
Standards Board No. 128 "Earnings Per Share" (EPS) and, accordingly, all prior
periods have been restated. Basic EPS is computed as net income (loss) divided
by the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur from common shares
issuable through stock options, warrants and other convertible securities.
7,580,557 and 920,522 common equivalent shares as of June 30, 1998 and 1997,
respectively, have been excluded from the shares used to calculate diluted EPS
as their effect is anti-dilutive.
3. REVENUE RECOGNITION
Revenues are recognized at time of shipment, net of any allowances for
future obligations or trade-in rights. A provision for the estimated future cost
of warranty is made at the time a sale is recorded.
4
<PAGE> 7
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:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.......................................... $ 265 $ 416
Work-in-process........................................ 123 167
Finished goods......................................... 300 190
----- -----
688 773
Less reserves.......................................... (646) (646)
----- -----
Inventory, net......................................... $ 42 $ 127
===== =====
</TABLE>
5. COMPREHENSIVE INCOME
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," effective January 1, 1998.
This statement requires the disclosure of comprehensive income and its
components in a full set of general purpose financial statements. Comprehensive
income is defined as net income plus revenues, expenses, gains and losses that,
under generally accepted accounting principles, are excluded from net income.
The Company does not have any components of comprehensive income which are
excluded from net income for the three and six months ended June 30, 1998 and
1997 and, as such, no separate statement of comprehensive income has been
presented.
6. ISSUANCE OF REDEEMABLE CONVERTIBLE NOTES
In January 1998, the Company completed an approximately $9,350,000 private
placement of convertible notes (convertible into the Company's common stock)
with warrants. The promissory notes are convertible at any time, at the option
of the holder. The notes bear interest at a rate of 12%, payable-in-kind
semi-annually (additional convertible notes), and convert at a price of $3.00
per share. The notes have a maturity date of January 2001 and the Company has an
option to extend the maturity date of the notes for an additional two years for
additional warrant consideration. Warrants to purchase 1,870,000 shares of the
Company's common stock were issued as part of this private placement with an
exercise price of $3.00 per share and an expiration date of January 2003. The
warrants issued had a fair value of approximately $1.87 per warrant at the time
of issuance. The fair value of these warrants has been reflected as additional
consideration for the convertible notes, recorded as a discount on the debt and
accreted as interest expense to be amortized over the life of the convertible
notes.
7. SALE OF DENTAL ASSETS
In June 1997, the Company completed the sale of the Company's assets
associated with the Company's dental laser, air abrasive and composite curing
systems (the "Dental Assets") to Lares Research. The purchase price paid for the
Dental Assets was $5,500,000, consisting of $4,000,000 in cash paid at closing
and $1,500,000 in the form of a promissory note, with two installments due in
three and four years, respectively (the "Lares Note"). Although the Company
anticipates collecting interest and principal on the Lares Note, due to
subordination of the Lares Note to its Bank, collection is not reasonably
assured and the Company intends to recognize proceeds from the sale and interest
on the Lares Note as cash is received.
8. SUBSEQUENT EVENTS
On July 10, 1998, the Company had the annual shareholders meeting. At such
meeting, the Company's stockholders elected Dr. Michael S. McFarland and Mr.
Timothy A. Marcotte as Class II Directors of the Company and ratified the
appointment of PriceWaterhouseCoopers LLP as the Company's independent auditors
for the year ending December 31, 1998.
5
<PAGE> 8
On August 7, 1998, the Company's application for listing on the NASDAQ
National Market System ("NMS") was approved by the NASDAQ Stock Market, Inc. The
Company's shares of common stock, under the trading symbol SNRS, commenced
trading on the NASDAQ NMS on August 13, 1998.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
OVERVIEW
All statements contained herein that are not historical facts including,
but not limited to, statements regarding the Company's plans for future
development and operation of its business, are based on current expectations.
These statements are forward-looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are the following: a lack of
sufficient capital to finance the Company's business plan on terms satisfactory
to the Company; changes in labor, equipment and capital costs; the Company's
inability to obtain the necessary authorizations from the Food and Drug
Administration ("FDA") to enable it to market its products domestically;
competitive factors, such as the introduction of new technologies and
competitors into the ophthalmic laser business; general business and economic
conditions; and the other risk factors described from time to time in the
Company's reports filed with the Securities and Exchange Commission. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which statements are made pursuant to the Private
Securities Litigation Reform Act of 1995 and, as such, speak only as of the date
made.
The Company develops, manufacturers and markets laser systems for
applications in ophthalmology. Prior to June 26, 1997, the Company had
developed, manufactured and marketed lasers and air abrasion cavity preparation
systems for use in dentistry. A substantial portion of the Company's revenues
(80% for the first six months of 1997) were derived from the domestic and
international sales of the Company's dental laser and air abrasive products.
In June 1997, the Company completed the sale of the Company's assets
associated with the Company's dental laser, air abrasive and composite curing
systems (the "Dental Assets") to Lares Research. Lares is a privately held
company located in Chico, California. Lares paid the Company $4,000,000 in cash
at closing and delivered a promissory note for $1,500,000, which bears interest
at the rate of 8%. Under the Lares Note, $1,000,000 is payable on the third
anniversary of the closing, and $500,000 is payable on the fourth anniversary of
the closing. The Lares Note is subordinate in right of payment to Lares'
obligations to its bank (the "Bank"). Lares has agreed that so long as the Lares
Note is outstanding, its aggregate obligations to the Bank will not exceed
$4,750,000. Although the Company anticipates collecting interest and principal
on the Lares Note, due to subordination of the Lares Note to the Bank,
collection is not reasonably assured and the Company intends to recognize
proceeds from the sale and interest on the Lares Note as cash is received. This
transaction was approved by the Company's stockholders on June 26, 1997.
Since mid-1992, the Company has focused a portion of its efforts on
engineering and development of its laser corneal shaping product, known as Laser
Thermal Keratoplasty (the "LTK System") for the treatment of refractive errors
of the eye, such as hyperopia (farsightedness) and presbyopia. The LTK System is
based upon patented technology acquired in the Company's acquisitions of
in-process technology from Laser Biotech, Inc. and Emmetropix Corporation in
1992. The Company is in Phase III of its United States clinical trials of the
LTK System and expects no significant revenue from this product until the
product is approved for sale in the United States. Therefore, the Company
expects to continue to have net losses at least through the year the LTK System
is approved for sale in the United States. While the results from the clinical
trials have been satisfactory to date, there can be no assurance that the LTK
System will be approved for sale in the United States or that the Company will
successfully develop or market the LTK System.
The Company has incurred substantial losses in the past six years which
have seriously depleted its working capital. Sales of its existing ophthalmic
products at current levels will not be sufficient to sustain the continued
development and regulatory licensing of the LTK System. Historically, the
Company has been able to raise additional working capital for all aspects of its
business through the private placement of its common stock and securities
convertible into common stock. Private placements of common stock raised
approximately $15,296,000 in net proceeds between 1994 and 1996. In the first
quarter of 1997, the Company issued in a series of private placements
(collectively, the "1997 Notes Placement") 5% redeemable convertible notes due
7
<PAGE> 10
1999 (convertible into common stock) and warrants to purchase common stock for
aggregate net proceeds of approximately $3,743,000.
In January 1998, the Company completed a private placement of convertible
notes (convertible into the Company's common stock) with warrants (the "1998
Notes Placement") and received proceeds of approximately $9,350,000. The
promissory notes are convertible at any time, at the option of the holder. The
notes bear interest at a rate of 12%, payable-in-kind semi-annually (additional
convertible notes), and convert at a price of $3.00 per share. The notes have a
maturity date of January 2001 and the Company has an option to extend the
maturity date of the notes for an additional two years for additional warrant
consideration. Warrants to purchase 1,870,00 shares of the Company's common
stock were issued as part of this private placement with an exercise price of
$3.00 per share and an expiration date of January 2003. The warrants issued had
a fair value of approximately $1.87 per warrant at the time of issuance. The
fair value of these warrants has been reflected as additional consideration for
the convertible notes, recorded as a discount on the debt and accreted as
interest expense to be amortized over the life of the convertible notes.
FINANCIAL CONDITION
As of June 30, 1998, the Company had $8,448,000 in cash and cash
equivalents. The Company's operating activities used $3,632,000 in the six
months ended June 30, 1998 and used $4,040,000 in cash during the same period in
1997. Substantial portions of the 1997 and 1998 losses were funded with the
proceeds of a series of private placements. The 1997 Notes Placement had
aggregate net proceeds of approximately $3,743,000 and the 1998 Notes Placement
generated aggregate proceeds of approximately $9,350,000.
The Company's current operations continue to be cash flow negative,
limiting the Company's working capital resources. Working capital at June 30,
1998 amounted to approximately $7,545,000. At December 31, 1997, working capital
amounted to approximately $1,382,000. Although the Company's management believes
existing working capital will provide sufficient funds for the Company's planned
operations through mid-1999, the Company's long-term ability to continue as a
going concern is dependent upon performing profitably or obtaining further
financing.
RESULTS OF OPERATIONS
Revenues for the three and six-month periods ended June 30, 1998 totaled
$222,000 and $324,000, respectively, compared to $1,454,000 and $2,463,000,
respectively, for the same periods in 1997. The vast majority of this revenue
decline was due to the fact that the Company had no revenue from dental
operations in the first half of 1998 since it sold the Dental Assets during the
second quarter of 1997. In addition, ophthalmic revenues for the first half of
1998 were approximately $169,000 lower, or 34%, as compared to the same period
in 1997. This reduction was primarily due to the deferral from revenue
recognition of certain international shipments with trade-in rights.
Costs of revenues and related negative margins for the three- and six-month
periods ended June 30, 1998 resulted from the underabsorption of manufacturing
overhead due to the Company's low revenue levels. Gross profits as a percentage
of revenue for the first six months in 1997 were 20%.
Engineering and development expenses totaled $515,000 and $997,000,
respectively, for the three- and six-month periods ended June 30, 1998, compared
to $262,000 and $535,000, respectively, for the same periods in 1997. The
increase in the engineering and development expenses was due to the increase in
expenditures related to the development of the LTK System partially offset by
the elimination of expenditures related to the development of dental products
during the first six months of 1997.
Sales, marketing and regulatory costs were $1,165,000 and $1,658,000,
respectively, for the three- and six-month periods ended June 30, 1998, compared
to $784,000 and $1,443,000, respectively, for the same periods in 1997. The
increase for the three- and six-month periods was due primarily to increased
marketing and regulatory spending for the ophthalmic products partially offset
by the elimination of marketing expenses for dental products.
8
<PAGE> 11
General and administrative expenses were $2,917,000 and $3,849,000,
respectively, for the three- and six-month periods ended June 30, 1998, compared
to $1,200,000 and $1,906,000, respectively, for the same periods of 1997. The
increase in general and administrative expenses for the three- and six-month
periods ended June 30, 1998 as compared to the same periods in 1997 was
primarily due to the expenses associated with the issuance of warrants and stock
options to consultants of the Company, and increased compensation costs for
certain executive officers.
Interest income was $99,000 and $200,000, respectively, for the three- and
six-month periods ending June 30, 1998 and $21,000 and $32,000, respectively,
for the same periods in 1997. The increase in interest income between the three-
and six-month periods ending June 30, 1998 and June 30, 1997 was due to higher
average balances in the Company's interest bearing accounts.
Interest expense was $712,000 and $2,503,000, respectively, for the three-
and six-month periods ending June 30, 1998 and $131,000 and $943,000,
respectively, for the same periods in 1997. The increase in interest expense for
the three- and six-month periods ending June 30, 1998 as compared to the same
periods in 1997 was due to the interest accrued by the Company in connection
with the 1998 Notes Placement (the "1998 Notes"), at a rate of 12% per annum
according to the terms of the 1998 Notes, non-cash interest expense accrued for
the fair value of the warrants and conversion features of such notes, as well as
placement costs that were partially amortized as additional interest expense.
The net loss for the three- and six-month periods ended June 30,1998 of
$5,613,000 and $9,367,000, respectively, was primarily due to the lack of
revenue from the Company's ophthalmic products to offset the expenses associated
with the development and regulatory approval of the LTK System and the general
expenses associated with the operations of the Company, including the non-cash
expenses associated with the various convertible notes, warrants and options
issued by the Company to fund its operations while awaiting FDA approval to
market the LTK System in the United States.
The Company's current operations continue to be cash flow negative, further
straining the Company's working capital resources. The level of current product
sales is not sufficient to provide enough cash to support the ongoing
development and regulatory approval of the LTK System, as well as maintain the
Company's basic corporate infrastructure. In order to continue its current level
of operations beyond mid-1999 and have sufficient funds to launch the LTK System
in the United States, 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 may be
necessary for the Company to curtail spending or suspend operations in their
entirety.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the millenium (year 2000) approaches. The "Year
2000" problem is pervasive and complex, as virtually every computer operation
will be affected in the same way by the rollover of the two-digit year value to
00. The issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Company is utilizing both internal and external resources to identify,
correct or reprogram, and test the systems for Year 2000 compliance. It is
anticipated that all of the Company's reprogramming efforts will be completed by
March 31, 1999, allowing adequate time for testing. This process includes
obtaining confirmations from the Company's primary vendors that plans are being
developed or are already in place to address processing of transactions in the
Year 2000. However, there can be no assurance that the systems of other
companies on which the Company's systems rely will also be converted in a timely
manner, or that any such failure to convert by another company would not have
material adverse effects on the Company's business, financial conditions or
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in any hedge or derivative financial instrument
transactions.
9
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.1 Form of Amended and Restated Change of Control Agreement by
and between the Company and its President and Chief
Executive Officer(1)
10.2 Form of Amended and Restated Change of Control Agreement by
and between the Company and its executive officers (other
than the President and Chief Executive Officer)(1)
27 Financial Data Schedule
</TABLE>
- ---------------
(1) Incorporated by reference from the Company's Current Report on Form 8-K
dated May 19, 1998 (File No. 0-17816).
B. REPORTS ON FORM 8-K
The Company filed the following report on Form 8-K during the second
quarter of 1998:
<TABLE>
<CAPTION>
DATE OF FILING DATE OF REPORT ITEMS REPORTED
-------------- -------------- --------------
<S> <C> <C>
May 19, 1998 May 19, 1998 5, 7
</TABLE>
Items 1, 2, 3, 4 and 5 of Part II are omitted because of the absence of
conditions under which they are required.
10
<PAGE> 13
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.
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Date: August 14, 1998, By: /s/ C. RUSSELL TRENARY, III
-----------------------------------------
President and Chief Executive Officer
Date: August 14, 1998 By: /s/ TIMOTHY A. MARCOTTE
-----------------------------------------
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
11
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.1 Form of Amended and Restated Change of Control Agreement by
and between the Company and its President and Chief
Executive Officer(1)........................................
10.2 Form of Amended and Restated Change of Control Agreement by
and between the Company and its executive officers (other
than the President and Chief Executive Officer)(1)..........
27 Financial Data Schedule.....................................
</TABLE>
- ---------------
(1) Incorporated by reference from the Company's Current Report on Form 8-K
dated May 19, 1998 (File No. 0-17816).
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 8,448,000
<SECURITIES> 0
<RECEIVABLES> 458,000
<ALLOWANCES> 84,000
<INVENTORY> 42,000
<CURRENT-ASSETS> 9,123,000
<PP&E> 836,000
<DEPRECIATION> 378,000
<TOTAL-ASSETS> 9,621,000
<CURRENT-LIABILITIES> 1,578,000
<BONDS> 0
0
0
<COMMON> 34,000
<OTHER-SE> 804,000
<TOTAL-LIABILITY-AND-EQUITY> 9,621,000
<SALES> 222,000
<TOTAL-REVENUES> 222,000
<CGS> 625,000
<TOTAL-COSTS> 625,000
<OTHER-EXPENSES> 4,597,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 712,000
<INCOME-PRETAX> (5,613,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,613,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,613,000)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
