Prospectus Summary
This summary highlights selected information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including "Risk Factors" and our consolidated financial statements, before making an investment decision.
Sunrise Telecom
We manufacture and market service verification equipment to pre-qualify, verify and diagnose telecommunications and Internet networks. Our products offer broad functionality, leading-edge technology and compact size to test the variety of new digital subscriber line, or DSL, services, fiber optics, cable TV networks and signaling networks. We design our products to maximize technicians' effectiveness in the field and to provide realistic network simulations for equipment manufacturers to test their products. Our customers include incumbent local exchange carriers, or ILECs, such as Bell Atlantic Corporation and SBC Communications Inc., competitive local exchange carriers, or CLECs, such as Covad Communications Group, Inc. and NorthPoint Communications Group, Inc., and other service providers, network infrastructure suppliers and installers throughout North America, Latin America, Europe and the Asia/Pacific region.
According to Ryan Hankin Kent, Inc., the number of DSL lines and cable TV modems in homes and businesses in the United States and Canada will grow from 2.1 million in 1999 to 24.7 million in 2003. We believe that service verification products are required for the efficient deployment and maintenance of broadband networks and that the dramatic growth in broadband service, driven by the Internet, will accelerate the need for our products. For the year ended December 31, 1999, our net sales were approximately $61.5 million and our net income was approximately $10.9 million.
Our service verification products are used for a broad range of telecommunications transmission and signaling technologies, including:
. DSL. Our new DSL products test the most popular types of DSL service, including asymmetric DSL, or ADSL, symmetric DSL, or SDSL, high bit-rate DSL, or HDSL, and ISDN DSL, or IDSL. Our DSL products have accounted for virtually all of our net sales.
. Cable TV. We recently introduced a new service verification solution for cable network operators who are converting their analog cable networks into digital networks capable of providing Internet and voice services.
. Fiber Optics. We recently introduced three new products to verify fiber optic transmissions in the access network and to analyze services carried on fiber optics in the central office. Our fiber optic products allow service providers to verify fiber optic services based on North American and international transmission standards.
. Signaling. We recently introduced an Internet browser-based remote testing and surveillance solution for service providers to test and monitor various and changing signaling protocols.
Our products offer the following key benefits:
. Design Flexibility. We design our products to be flexible and to evolve as customer needs change. For instance, a flexible design allows the customer to adapt their SunSet xDSL test set to new DSL services and applications as network standards evolve, thereby protecting the customer's investment in the test equipment.
. Customer Driven Features. Each of our products is highly tailored to our customers' needs. Our marketing engineers continually interact with our customers during the design process to ensure that our products are the best available solution for them.
. Handheld Design. Most of our DSL and fiber optic products weigh less than three pounds and offer handheld convenience. The compact, lightweight design of these products enable field technicians to access problems and verify line operation quickly.
. Rapid and Efficient DSL Deployment. Our products allow field and office technicians to test DSL lines rapidly and efficiently to ensure that they are properly connected to the central office and that they can support a specific type and speed of DSL service. In a single device, our products can be used to pre-qualify facilities for services, identify the source of problems and verify the proper operation of newly installed service before handing service over to customers.
. Improved Network Quality and Reliability. Field and office technicians use our products to diagnose and locate a variety of problems and degradations in broadband service. This allows service providers to identify and repair problems and to restore service efficiently. As a result, our products support our customers' need to provide high quality and reliable service.
Our objective is to be a leading provider of service verification test equipment for a broad range of applications within the global telecommunications industry. The key elements of our strategy are to maintain our leadership position in DSL service verification equipment, to penetrate the growing market for verification test equipment for fiber optics and cable TV, to expand beyond field verification testing into remote testing, alarm and surveillance and central office testing applications, to continue to expand internationally, to pursue strategic acquisitions and joint ventures and to pursue follow-on sales opportunities by continuing to develop and market hardware modules which can be inserted into the chassis of our service verification equipment.
We were incorporated in California as Sunrise Telecom, Inc. in October 1991. Prior to the closing of this offering, we intend to reincorporate as a Delaware corporation and change our name to Sunrise Telecom Incorporated. Our principal executive offices are located at 22 Great Oaks Boulevard, San Jose, California 95119, and our telephone number is (408) 363-8000.
The Offering
Common stock offered by Sunrise..................... shares Common stock offered by the selling stockholders.... shares Common stock to be outstanding after this offering.. shares Use of proceeds..................................... We expect to use up to $3.0 million to pay down recent borrowings under our line of credit. We have not made other specific allocations regarding the remaining net proceeds and expect to use the balance to expand our business generally. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.............. SRTI Unless otherwise noted, the information in this prospectus, including the information above:
. assumes 14,971,000 shares of common stock outstanding at December 31, 1999;
. reflects a -for-one stock split of our common stock, which will occur before the closing of this offering;
. excludes approximately 3,086,435 shares of common stock reserved for issuance under our 1993 stock option plan, our 2000 stock plan and our 2000 employee stock purchase plan, of which 817,700 shares were subject to outstanding options at December 31, 1999 issued at a weighted average exercise price of $4.39 per share;
. excludes 166,667 shares of contingently issuable stock as part of the Pro.Tel acquisition; and . assumes our reincorporation from California to Delaware, which will occur before the closing of this offering.
Summary Consolidated Financial Information The table below sets forth summary consolidated financial information for the periods indicated. It is important that you read this information together with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the notes to them included elsewhere in this prospectus.
Year Ended December 31, 1995 1996 1997 1998 1999 (in thousands, except per share data)
Consolidated Statement of Operations:
Net sales............................ $10,674 $20,174 $29,064 $28,535 $61,465
Cost of sales........................ 2,880 5,189 7,652 7,590 14,736
Gross profit....................... 7,794 14,985 21,412 20,945 46,729
Operating expenses:
Research and development........... 1,722 3,051 5,892 6,203 10,694
Sales and marketing................ 2,565 5,444 7,645 7,764 15,215
General and administrative......... 649 1,019 1,632 2,243 3,912
Total operating expenses........... 4,936 9,514 15,169 16,210 29,821
Income from operations............. 2,858 5,471 6,243 4,735 16,908
Other income, net.................... 22 51 112 224 327
Income before income taxes......... 2,880 5,522 6,355 4,959 17,235
Income taxes......................... 1,107 2,081 1,899 1,588 6,291
Net income......................... $ 1,773 $ 3,441 $ 4,456 $ 3,371 $10,944
Earnings per share: (1)
Basic.............................. $ 0.30 $ 0.23 $ 0.74
Diluted............................ $ 0.30 $ 0.22 $ 0.72
Shares used in computing earnings per
share: (1)
Basic.............................. 14,882 14,846 14,889
Diluted............................ 14,965 15,001 15,275
December 31, 1999 Actual As Adjusted (2) (in thousands) Consolidated Balance Sheet Data: Cash and cash equivalents............................. $ 8,615 Working capital....................................... 16,029 Total assets.......................................... 38,266 Notes payable, less current portion................... 638 Total stockholders' equity............................ 25,471 (1) See Note 1 of the notes to consolidated financial statements of Sunrise for a detailed explanation of the determination of the number of shares used to compute basic and diluted earnings per share. (2) "As Adjusted" reflects the application of the net proceeds from the sale of shares of our common stock by us at an assumed initial public offering price of $ per share, after deducting the underwriting discount and the estimated offering expenses. See "Use of Proceeds" and "Capitalization."