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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
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. 0-10428
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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 IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
3400 W. WARREN AVENUE, 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 [ ]
Common Stock, $0.001 Par Value -- 46,463,746 shares as of May 5, 2000.
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<PAGE> 2
INDEX
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item Financial Statements (Unaudited)
1.
Condensed Consolidated Statements of Operations -- Three
months ended March 31, 2000 and 1999........................ 1
Condensed Consolidated Balance Sheets -- March 31, 2000 and
December 31, 1999........................................... 2
Condensed Consolidated Statements of Cash Flows -- Three
months ended March 31, 2000 and 1999........................ 3
Notes to Condensed Consolidated Financial
Statements -- March 31, 2000................................ 4
Item Management's Discussion and Analysis of Financial Condition
2. and Results of Operations................................... 6
Item Quantitative and Qualitative Disclosures About Market
3. Risk........................................................ 9
PART II. OTHER INFORMATION
Item Changes in Securities and Use Proceeds......................
1. 10
Item Exhibits and Reports on Form 8-K............................
6. 10
Signatures.................................................. 11
</TABLE>
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- ----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net revenues................................................ $ 18 $ 13
Cost of revenues............................................ 719 384
-------- -------
Gross loss.................................................. (701) (371)
Operating expenses:
Research and development.................................. 1,018 1,366
Sales, marketing and regulatory........................... 2,581 1,378
General and administrative................................ 1,432 2,423
-------- -------
Total operating expenses.................................... 5,031 5,167
-------- -------
Loss from operations........................................ (5,732) (5,538)
Interest income........................................... 244 277
Interest expense.......................................... (10,545) (3,207)
-------- -------
Net loss.................................................... $(16,033) $(8,468)
======== =======
Net loss per share, basic and diluted....................... $ (0.35) $ (0.21)
======== =======
Shares used in calculation of basic and diluted net loss per
share..................................................... 46,406 40,392
======== =======
</TABLE>
See accompanying notes.
1
<PAGE> 4
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 13,646 $ 10,643
Accounts receivables, net................................. 466 327
Inventories, net.......................................... 4,422 1,973
Other current assets...................................... 1,440 462
-------- --------
Total current assets.............................. 19,974 13,405
Property and equipment, net............................... 1,451 1,280
Other non-current assets.................................. 219 220
-------- --------
Total assets...................................... $ 21,644 $ 14,905
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 5,114 $ 5,028
Accounts payable.......................................... 1,749 416
Accrued liabilities....................................... 1,535 2,205
-------- --------
Total current liabilities......................... 8,398 7,649
Notes payable and other long-term liabilities............... 7,272 5,155
-------- --------
Total liabilities................................. 15,670 12,804
-------- --------
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, 75,000,000 shares
authorized, 46,459,086 and 46,321,157 shares issued and
outstanding at March 31, 2000 and December 31, 1999,
respectively........................................... 46 46
Additional paid-in capital................................ 105,453 85,139
Notes receivable for common stock......................... (1,550) (1,550)
Deferred compensation..................................... (914) (506)
Accumulated deficit....................................... (97,061) (81,028)
-------- --------
Total stockholders' equity........................ 5,974 2,101
-------- --------
Total liabilities and stockholders' equity........ $ 21,644 $ 14,905
======== ========
</TABLE>
See accompanying notes.
2
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SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- -------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FOR OPERATING ACTIVITIES:
Net loss.................................................. $(16,033) $(8,468)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 149 89
Amortization of deferred compensation.................. 80 301
Amortization of debt issuance costs.................... 1 7
Warrant accretion and beneficial conversion features
associated with 1997, 1998 and 1999 Notes............. 10,247 2,881
Warrants issued to consultants in lieu of cash......... -- 1,081
Conversion of accrued interest on notes payable........ -- 578
Changes in assets and liabilities:
Accounts receivable.................................... (139) (38)
Inventories............................................ (2,449) (190)
Other current assets................................... (978) 14
Accounts payable....................................... 1,333 287
Other accrued liabilities.............................. (670) (295)
Other long-term liabilities............................ 308 (312)
-------- -------
Net cash used in operating activities....................... (8,151) (4,065)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (320) (318)
-------- -------
Net cash used in investing activities....................... (320) (318)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt obligations............................ (40) (9)
Issuance of common stock, net of offering costs........... 171 1,881
Issuance of redeemable convertible notes, net of issuance
costs.................................................. 11,217 10,000
Proceeds from issuance of promissory notes................ -- 4,000
Proceeds from issuance of debt obligations................ 126 --
-------- -------
Net cash provided by financing activities................... 11,474 15,872
-------- -------
Net increase in cash and cash equivalents................... 3,003 11,489
Cash and cash equivalents at beginning of period............ 10,643 9,889
-------- -------
Cash and cash equivalents at end of period.................. $ 13,646 $21,378
======== =======
</TABLE>
See accompanying notes.
3
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SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary after elimination of all inter-company
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 periods ended March 31,
2000 and 1999 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, 1999 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 March 31, 2000 has an accumulated deficit of $97,061,000. The accompanying
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 achieving profitable operations, of which there can be no
assurance. Management's plans include increasing sales through increased direct
sales and marketing efforts on existing products and pursuing timely regulatory
approval for certain products under development. Management also recognized the
need for infusion of cash. In January 2000, the Company raised approximately
$11,200,000, net of offering costs, in the form of convertible debentures and
warrants. In the event needed working capital is not raised, the Company has the
option of scaling back its expenditures to conserve cash until such financing or
other alternative business solutions are implemented.
2. NET LOSS PER SHARE
Basic Earnings Per Share ("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.
Common equivalent shares are excluded from the computation of net loss per share
if their effect is anti-dilutive. 6,251,196 and 7,934,417 common equivalent
shares as of March 31, 2000 and 1999 respectively, have been excluded from the
shares used to calculate diluted EPS, as their effect is anti-dilutive.
3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
value and consisted of the following on the dates indicated:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials........................................ $2,423 $1,589
Work-in-process...................................... 1,774 344
Finished goods....................................... 225 40
------ ------
Inventory, net....................................... $4,422 $1,973
====== ======
</TABLE>
4. ISSUANCE OF 2000 CONVERTIBLE DEBENTURES
On January 11, 2000, the Company completed a $11,700,000 ($11,200,000 net
of offering costs) private placement of convertible debentures with warrants.
These debentures are convertible into the Company's
4
<PAGE> 7
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
MARCH 31, 2000
common stock at a conversion price of $5.916, at the option of the holder, and
mature in June 2002. The debentures bear an interest rate of 7% per annum,
payable in kind or cash at the option of the Company and is payable quarterly.
There are two types of associated warrants issued in connection with the
debentures. Type A are five-year warrants with an exercise price of $6.803. Type
B warrants are two-year warrants with an exercise price of $6.803 and are
callable at the Company's option once the closing stock price is equal to or
higher than $7.823 for a continuous period of twenty trading days.
The Company recorded approximately $10,247,000 as non-cash expenses
associated with the financing costs of the 1998, 1999 and 2000 financings. Of
this amount, approximately $81,000 refers to non-cash charges for warrants
issued as part of the 1998 and 1999 financings and represents the first quarter
2000's portion of the amortization of the total implied value of such warrants,
as determined on the date the financings became effective, using the
Black-Scholes method of valuation. The remaining $10,166,000 represents non-cash
charges recognized in the first quarter 2000 associated with the January 2000
Convertible Debenture financing. These first quarter charges originate from the
valuation of mark to market of the Convertible Debentures in the amount of
approximately $9,438,000 and the determination of the implied fair value, by
means of the Black-Scholes valuation method, of the warrants attached to the
January 2000 Convertible Debentures in the amount of approximately $728,000.
There remains a total of approximately $9,971,000 of non-cash charges resulting
from the determination of the implied fair value of the warrants on the
effective date of the financing, using the Black-Scholes valuation method, that
will be amortized over the remaining life of the warrants. Thus amount is
registered in a contra-account to the "notes payable and other long-term
liabilities" line on the Balance Sheet as an offset to the original Convertible
Debenture amount of $11,700,000. The contra-account will reflect a corresponding
decrease equal to the non-cash charge amortized quarterly.
5. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Investments and Hedging Activities" which is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. In
July of 1999, the FASB issued Statement of Financial Standards No. 137 ("SFAS
137"), "Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of FASB Statement No. 133," which defers the effective
date to all fiscal quarters of fiscal years beginning after June 15, 2000. The
Company has not yet evaluated the effects of this change on its operations. The
Company will adopt SFAS 133 as required for its first quarterly filing of the
fiscal year 2001.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 provides guidance
for revenue recognition under certain circumstances. The Company believes that
SAB 101 will not have a material impact on its financial position or results of
operations.
In March 2000, The Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation -- an interpretation of APB Opinion No. 25 ("FIN 44"). This
Interpretation clarified the definition of employee for purposes of applying
Accounting Practice Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25"), the criteria for determining whether a plan qualifies as a
non-compensatory plan, the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and the accounting for an
exchange of stock compensation awards in a business combination. This
Interpretation is effective July 1, 2000, but certain conclusions in this
Interpretation covers specific events that occur after either December 15, 1998,
or January 12, 2000. Management believes that FIN 44 will not have a material
effect on the financial position or results of operations of the Company.
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 ("SEC"). The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made.
The Company develops, manufactures and markets laser systems for
applications in ophthalmology. Substantially all of our business activities,
including engineering and development, manufacturing, assembly and testing take
place at our facility in Fremont, California.
Our working capital is seriously depleted due to our substantial losses in
the past eight years. Sales of our existing ophthalmic products at current
levels will not be sufficient to sustain the continued development and
regulatory licensing of our holmium laser corneal shaping product or process
known as the Laser Thermal Keratoplasty (the "LTK System"). We have been able to
raise additional working capital for all aspects of our business through the
private placements of our common stock and convertible notes with warrants. We
raised approximately $3,700,000 in the form of promissory notes with warrants in
February and March 1997 (the "1997 Notes Placement"). We raised approximately
$9,300,000, net of offering costs, in the form of promissory notes with warrants
in January 1998 (the "1998 Notes Placement"), and approximately $11,800,000, net
of offering costs, from the sale of common stock in December 1998 (the "1998
Equity Offering"). In January 1999, we raised $10,000,000, net of offering
costs, in the form of promissory notes with warrants (the "1999 Notes
Placement"). In January 2000, we raised $11,200,000, net of offering costs, in a
private placement in the form of convertible debentures and warrants (the "2000
Notes Placement").
On January 13, 2000, $5,000,000 of the principal amount of the 1999 Notes
became convertible into the Company's Common Stock at a conversion price of
$4.00 per share when the Ophthalmic Devices Panel (the "ODP") unanimously voted
to recommend that the FDA approve the Company's LTK System in the United States
for the temporary reduction of low to moderate hyperopia with conditions
relating to patient symptoms, longevity of effect and the effect of retreatment.
As of March 31, 2000, this portion of the Notes have not yet been converted by
the holder.
The Company's current operations continue to be cash flow negative, further
straining our working capital resources. At our current rate of cash
expenditures, we may need to raise additional working capital during 2000 to
fund operations. We expect to spend approximately $1,110,000 for additional
capital expenditures in fiscal year 2000. No assurance can be given that
additional financing will be available, or if available, that it will be
available on terms favorable to our stockholders and us. If funds are not
available to finance the Company's operations and bridge its working capital
needs until revenues and profits are achieved, we may need to scale back
expenditures and limit our operational capacity until such financing or other
alternative business solutions are implemented.
On January 13, 2000, the ODP unanimously voted to recommend that the FDA
approve the Sunrise LTK System in the United States for the temporary reduction
of low to moderate hyperopia with conditions relating to labeling regarding
patient symptoms, longevity of effect and the effect of retreatment. Final FDA
approval is expected sometime within three to nine months from the January 13
ODP approval although we can not be certain we will obtain that approval within
that time frame, if at all.
6
<PAGE> 9
On January 27, 2000 the Company announced that it had passed its
ISO9001/EN46001 certification audit for the Company's quality system and
therefore is certified for the International Organization for Standards ISO
9001, European Commission EN 46001 and CE marking (European Community Seal of
Approval).
FINANCIAL CONDITION
As of March 31, 2000, the Company had $13,646,000 in cash and cash
equivalents. The Company's operating activities used $8,151,000 in the three
months ended March 31, 2000 and $4,065,000 in cash during the same period in
1999. Substantial portions of the 1999 and 2000 losses were funded with the
proceeds of a series of private placements. The 1999 Notes Placement had
aggregate net proceeds of approximately $10,000,000 and the 2000 Notes Placement
generated aggregate net proceeds of approximately $11,200,000.
The Company's current operations continue to be cash flow negative,
limiting the Company's working capital resources. Working capital at March 31,
2000 amounted to approximately $11,576,000. At December 31, 1999, working
capital amounted to approximately $5,756,000. The Company's ability to continue
as a going concern is dependent upon performing profitably or obtaining further
financing. The Company has invested a significant portion of its working capital
during the first quarter of 2000 in the ramp-up of manufacturing capabilities,
build-up of materials and components for the production of the Hyperion LTK
System and its market preparation for the launch on the domestic and
international markets. The existing working capital is insufficient to fund the
continuation of manufacturing activities and market launch preparation through
the end of the year at the current rate of expenditures without replenishment by
either the results of sales revenues from the Hyperion LTK System or the raising
of new funds in the form of debt or new equity instruments. Sales of the
Hyperion LTK System can be made to certain international markets where it is
approved by the local regulatory authorities. Sales to the domestic market can
only be made after the Company receives FDA approval and there is no assurance
that such FDA approval will be obtained in a timely manner, or if at all.
Additionally, there is no assurance the Company will be able to raise sufficient
working capital from the capital markets or through debt instruments. Management
believes that if revenues from sales or new funds from debt or equity
instruments are insufficient to maintain the current expenditure rate, it will
be necessary to extensively curtail its operations until an appropriate business
solution is implemented.
RESULTS OF OPERATIONS
Revenues of $18,000 for the three-month period ended March 31, 2000
represent a 38% increase from revenues of $13,000 for the same period in 1999.
Costs of revenues and the resulting negative margin for the three-month
period ended March 31, 2000 reflect charges of unabsorbed manufacturing
overhead.
Research and development expenses totaled $1,018,000 for the three month
period ended March 31, 2000, compared to $1,366,000 for the same period in 1999.
The 25% decrease in engineering and development expenses compared to those of
1999 was primarily due to the decrease in consulting services and supplies
related to the development of the LTK System.
Sales, marketing and regulatory costs were $2,581,000 for the three-month
period ended March 31, 2000, compared to $1,378,000 for the same period in 1999.
The 87% increase in sales, marketing and regulatory expenses in the first
quarter of 2000 was due to the increase in marketing efforts in preparation of
the Hyperion LTK System market launch which is expected later in the year,
following final FDA approval, although we can not be certain that we will obtain
that approval this year, if at all. In addition, the other components of the
increase are higher consulting fees in connection with the ongoing clinical
studies and increased headcount in sales, customer support and professional
education.
General and administrative expenses were $1,432,000 for the three-month
period ended March 31, 2000, compared to $2,423,000 for the same period of 1999.
The decrease of approximately 41% in general and administrative expenses for the
three-month period ended March 31, 2000 as compared to the same period in 1999,
was primarily due to a significant decrease in non-cash compensation charges
attributed to the issuance
7
<PAGE> 10
of warrants and stock options to consultants of the Company in lieu of cash,
offset by a slight increase in expenses resulting from the increase in
headcount. Approximately $81,000 of general and administrative expenses in the
first quarter of 2000 was attributed to non-cash option charges and expense
related to the determination of the fair value of warrants issued to consultants
in lieu of cash compared to the $1,383,000 expense for the first quarter of
1999.
Net interest and other expense for the three month period ended March 31,
2000 of $10,301,000 represents non-cash interest charges pursuant to the 1998,
1999 and 2000 Notes Placements and related warrants, compared to $2,930,000 for
the same period of 1999. Approximately $10,249,000, or 99%, of the Company's net
interest expense was due to non-cash charges incurred in connection with the
1998, 1999 and 2000 Notes Placement. The implied fair value of the warrants, the
conversion features and the placement costs of such notes are recorded as
non-cash interest expense in 1999 and 2000. The 1998 Notes, the 1999 Notes, and
the 2000 Notes bear a stated interest rate of 12%, 5% and 7%, respectively. The
effective rate of interest of such notes, which includes the nominal interest
rate, the amortization of the fair value of the warrants and the mark to market
value of the Notes' principal amounts is approximately 26%, 16% and 76%,
respectively.
The net loss for the three-month period ended March 31, 2000 of $16,033,000
was primarily due to the lack of revenue from the ophthalmic products to offset
the expenses associated with the development, marketing and regulatory approval
of the LTK System and the general expenses associated with the operations of the
Company. Approximately $10,328,000, or 64% of the net loss, was primarily
attributable to non-cash charges associated with the January 1999 and 2000 debt
financings. The Company has the option of scaling back its expenditures, if
necessary, to conserve cash until such financing or alternative business
solutions are implemented.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Investments and Hedging Activities" which is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. In
July of 1999, the FASB issued Statement of Financial Standards No. 137 ("SFAS
137"), "Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of FASB Statement No. 133," which defers the effective
date to all fiscal quarters or fiscal years beginning after June 15, 2000. The
Company has not yet evaluated the effects of this change on its operations. The
Company will adopt SFAS 133 as required for its first quarterly filing of the
fiscal year 2001.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 provides guidance
for revenue recognition under certain circumstances. The Company believes that
SAB 101 will not have a material impact on its financial position or results of
operations.
In March 2000, The Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation -- an interpretation of APB Opinion No. 25 ("FIN 44"). This
Interpretation clarified the definition of employee for purposes of applying
Accounting Practice Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25"), the criteria for determining whether a plan qualifies as a
non-compensatory plan, the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and the accounting for an
exchange of stock compensation awards in a business combination. This
Interpretation is effective July 1, 2000, but certain conclusions in this
Interpretation covers specific events that occur after either December 15, 1998,
or January 12, 2000. Management believes that FIN 44 will not have a material
effect on the financial position or results of operations of the Company.
8
<PAGE> 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to financial market risks due primarily to changes
in interest rates. The Company does not use derivatives to alter the interest
characteristics of its investment securities or its debt instruments. The
Company has no holdings of derivative or commodity instruments and does not
transact business in foreign currencies.
The fair value of the Company's cash and cash equivalents or related income
would not be significantly impacted by changes in interest rates since the
investment maturities are short and the interest rates are primarily fixed.
It is not possible to anticipate the level of interest and the rates past
2000. Changes in interest rates have no impact on our debt as the 1998 Notes,
1999 Notes and 2000 Notes bear fixed interest rates of 12%, 5% and 7%,
respectively.
9
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 11, 2000, the Company completed a private placement of
convertible debentures in the aggregate principal amount of approximately
$11,700,000 and related warrants. The proceeds of the private placement to the
Company was approximately $11,200,000 cash, net of offering costs. The
debentures bear interest at the rate of 7% per annum for a term of 2 1/2 years
and are convertible at the option of the investors for a price set at a discount
of 25% of the average of the ten lowest closing bid prices of the Company's
Common Stock in February 2000, which equates to $5.916 per share.
Investors also were issued two classes of warrants. Each warrant is
exercisable to purchase 25% of the number of shares represented by the
conversion into shares of the Company's Common Stock of the debentures to which
the warrant relates at an exercise price equal to a premium of 15% to the
conversion price of the debentures. Class A warrants represent rights to
purchase an aggregate of 494,426 shares of the Company's Common Stock at an
exercise price of $6.803 per share and have an expiration date of January 11,
2005. Class B warrants represent rights to purchase an aggregate of 494,426
shares of the Company's Common Stock at an exercise price of $6.803 per share,
have an expiration date of January 11, 2002 and are callable by the Company if
the stock's closing bid price exceeds a 25% premium to the exercise price for a
period of 20 consecutive trading days.
The private placement was made to a limited number of accredited investors
pursuant to the exemption from registration under Section 4(2) and Rule 506 of
Regulation D.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27 Financial Data Schedule
</TABLE>
B. REPORTS ON FORM 8-K
The Company filed the following reports on Form 8-K during the period ended
March 31, 2000:
(a) Report on Form 8-K dated January 14, 2000 to report under Item 5
that the Company issued a private placement of convertible debentures with
associated warrants;
(b) Report on Form 8-K dated March 6, 2000 to report under Item 5 the
establishment of the conversion rate and warrant exercise price of the
January 2000 debentures and related warrants.
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: May 15, 2000 By: /s/ C. RUSSELL TRENARY, III
-----------------------------------------
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2000 By: /s/ PETER E. JANSEN
-----------------------------------------
Vice President, Finance and Chief
Financial Officer
(Principal Financial Officer)
11
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 13,646,000
<SECURITIES> 0
<RECEIVABLES> 469,000
<ALLOWANCES> (3,000)
<INVENTORY> 4,422,000
<CURRENT-ASSETS> 19,974,000
<PP&E> 2,513,000
<DEPRECIATION> (1,062,000)
<TOTAL-ASSETS> 21,644,000
<CURRENT-LIABILITIES> 8,398,000
<BONDS> 0
0
0
<COMMON> 46,000
<OTHER-SE> 5,974,000
<TOTAL-LIABILITY-AND-EQUITY> 21,644,000
<SALES> 18,000
<TOTAL-REVENUES> 18,000
<CGS> 0
<TOTAL-COSTS> 719,000
<OTHER-EXPENSES> 5,031,000
<LOSS-PROVISION> (11,000)
<INTEREST-EXPENSE> (10,545,000)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,033,000)
<EPS-BASIC> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
