SEC Filing | FARO Technologies Inc

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [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 [ ] Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from _________ to __________ Commission File Number: 0-23081 FARO TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) FLORIDA 59-3157093 ------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 125 TECHNOLOGY PARK DRIVE, LAKE MARY, FLORIDA 32746 --------------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including area code: 407-333-9911 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 [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: Class: Voting Common Stock, $.001 Par Value Outstanding at May 12, 2000: 11,354,014 1

FARO Technologies, Inc. Index to Form 10-Q PART I. FINANCIAL INFORMATION Page Number Item 1. Financial Statements Condensed Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 3 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2000 and 1999 4 Condensed Consolidated Statements of Shareholders' Equity 5 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 PART II. OTHER INFORMATION Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 2

PART I. FINANCIAL INFORMATION Item 1. Financial Statements FARO TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS MARCH 31, DECEMBER 31, 2000 1999 --------------------- --------------------- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents (Note C) $ 6,916,314 $ 6,637,184 Short-term investments (Note C) 6,467,808 6,494,262 Accounts receivable - net of allowance 10,549,110 9,812,838 Income taxes refundable 151,592 234,470 Inventories 6,939,098 6,199,414 Prepaid expenses and other assets 468,302 447,894 Deferred income taxes 572,669 494,088 --------------------- --------------------- Total current assets 32,064,893 30,320,150 --------------------- --------------------- PROPERTY AND EQUIPMENT - at cost: Machinery and equipment 2,953,191 2,895,706 Furniture and fixtures 1,167,230 1,094,927 Leasehold improvements 74,686 34,086 --------------------- --------------------- Total 4,195,107 4,024,719 Less accumulated depreciation (2,585,568) (2,356,572) --------------------- --------------------- Property and equipment, net 1,609,539 1,668,147 --------------------- --------------------- INTANGIBLE ASSETS - net 5,285,370 5,979,072 INVESTMENTS (Note C) 2,497,684 3,747,694 NOTES RECEIVABLE 121,681 130,936 DEFERRED INCOME TAXES 262,210 257,913 --------------------- --------------------- TOTAL ASSETS $41,841,377 $42,103,912 ===================== ===================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 2,845,854 $ 2,200,408 Accrued and other current liabilities 2,657,342 2,847,076 Current portion of unearned service revenues 608,145 317,918 Customer deposits 102,805 84,904 --------------------- --------------------- Total current liabilities 6,214,146 5,450,306 LONG-TERM LIABILITIES 67,867 54,260 --------------------- --------------------- TOTAL LIABILITIES 6,282,013 5,504,566 --------------------- --------------------- SHAREHOLDERS' EQUITY: Class A preferred stock - par value $.001, 10,000,000 shares authorized, no shares issued and outstanding Common stock - par value $.001, 50,000,000 shares authorized, 11,394,014 and 11,392,842 issued; 11,020,682 and 11,019,510 outstanding, respectively 11,061 11,060 Additional paid-in capital 47,549,065 47,544,844 Unearned compensation (91,733) (123,404) Accumulated deficit (9,725,221) (9,307,651) Accumulated other comprehensive income: Cumulative translation adjustments, net of tax (2,033,183) (1,374,878) Treasury stock (150,625) (150,625) --------------------- --------------------- Total shareholders' equity 35,559,364 36,599,346 --------------------- --------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $41,841,377 $42,103,912 ===================== ===================== See accompanying notes to condensed consolidated financial statements. 3

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) THREE MONTHS ENDED MARCH 31, ------------------------------------------------- 2000 1999 ------------------------------------------------- Sales $ 9,849,767 $ 6,904,496 Cost of sales 3,940,360 2,738,729 --------------------- --------------------- Gross profit 5,909,407 4,165,767 Operating expenses: Selling 3,630,141 2,544,114 General and administrative 1,295,134 1,307,334 Depreciation and amortization 638,099 864,469 Research and development 1,001,447 774,266 Employee stock options 31,671 42,246 --------------------- --------------------- Total operating expenses 6,596,492 5,532,429 --------------------- --------------------- Loss from operations (687,085) (1,366,662) Interest income 197,249 94,469 Other income 72,266 79,927 --------------------- --------------------- Loss before income taxes (417,570) (1,192,266) Income tax benefit - 51,475 --------------------- --------------------- Net loss $ (417,570) $(1,140,791) ===================== ===================== NET LOSS PER COMMON SHARE - BASIC $ (0.04) $ (0.10) ===================== ===================== NET LOSS PER COMMON SHARE - DILUTED $ (0.04) $ (0.10) ===================== ===================== See accompanying notes to condensed consolidated financial statements. 4

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common Stock Additonal ------------------------ Paid-in Unearned Accumulated Shares Amounts Capital Compensation Deficit ----------- --------- ------------- ------------ ------------ BALANCE, JANUARY 1, 1998 9,919,000 $ 9,919 $ 36,502,004 $ (464,480) $ 3,018,265 Net loss (4,931,094) Currency translation adjustment, net of tax Comprehensive loss Issuance of common stock 1,129,137 1,129 10,323,564 Income tax benefit resulting from the exercise of stock options 695,164 Amortization of unearned compensation 172,164 Acquisition of treasury stock ----------- --------- ------------- ------------ ------------ BALANCE, DECEMBER 31, 1998 11,048,137 11,048 47,520,732 (292,316) (1,912,829) Net loss (7,394,822) Currency translation adjustment, net of tax Comprehensive loss Issuance of common stock 11,373 12 24,112 Amortization of unearned compensation 168,912 ----------- --------- ------------- ------------ ------------ BALANCE, DECEMBER 31, 1999 11,059,510 11,060 47,544,844 (123,404) (9,307,651) Net loss (417,570) Currency translation adjustment, net of tax Comprehensive loss Issuance of common stock 1,172 1 4,221 Amortization of unearned compensation 31,671 ----------- --------- ------------- ------------ ------------ BALANCE, MARCH 31, 2000 (Unaudited) 11,060,682 $ 11,061 $ 47,549,065 $ (91,733) (9,725,221) =========== ========= ============= ============ ============ Accumulated Other Comprehensive Treasury Income (Loss) Stock Total ------------- ----------- -------------- BALANCE, JANUARY 1, 1998 $ (126,297) $ 38,939,411 Net loss (4,931,094) Currency translation adjustment, net of tax 325,678 325,678 -------------- Comprehensive loss (4,605,416) Issuance of common stock 10,324,693 Income tax benefit resulting from the exercise of stock options 695,164 Amortization of unearned compensation 172,164 Acquisition of treasury stock (150,625) (150,625) ------------- ----------- -------------- BALANCE, DECEMBER 31, 1998 199,381 (150,625) 45,375,391 Net loss (7,394,822) Currency translation adjustment, net of tax (1,574,259) (1,574,259) -------------- Comprehensive loss (8,969,081) Issuance of common stock 24,124 Amortization of unearned compensation 168,912 ------------- ----------- -------------- BALANCE, DECEMBER 31, 1999 (1,374,878) (150,625) 36,599,346 Net loss (417,570) Currency translation adjustment, net of tax (658,305) (658,305) -------------- Comprehensive loss (1,075,875) Issuance of common stock 4,222 Amortization of unearned compensation 31,671 ------------- ----------- -------------- BALANCE, MARCH 31, 2000 (Unaudited) $(2,033,183) $ (150,625) $ 35,559,364 ============= =========== ============== See accompanying notes to condensed consolidated financial statements. 5

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) THREE MONTHS ENDED MARCH 31, ----------------------------------------------------- 2000 1999 --------------------- --------------------- OPERATING ACTIVITIES: Net loss $ (417,570) $(1,140,791) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 638,099 864,469 Bad debt expense, net of charge offs 30,000 - Inventory reserve (234,561) - Deferred income taxes (82,878) (130,197) Employee stock options 31,671 - Change in operating assets and liabilities: Decrease (increase) in: Accounts receivable (991,065) 131,568 Income taxes refundable 82,878 23,653 Inventories (520,079) (1,175,160) Notes receivable - 46,335 Prepaid expenses and other assets (32,596) (181,773) Increase (decrease) in: Accounts payable and accrued liabilities 568,395 57,030 Unearned service revenues 311,348 189,787 Customer deposits 21,337 1,800 --------------------- --------------------- Net cash used in operating activities (595,021) (1,313,279) --------------------- --------------------- INVESTING ACTIVITIES: Cash received from investments 1,276,464 1,423,251 Purchases of property and equipment (225,556) (169,481) Payments of patent costs - (34,390) Payments of product design costs - (109,459) Payments for other intangibles (5,612) (20,848) --------------------- --------------------- Net cash provided by investing activities 1,045,296 1,089,073 --------------------- --------------------- FINANCING ACTIVITIES: Payments on debt (6,094) (83,776) Proceeds from issuance of common stock, net 4,220 54,114 --------------------- --------------------- Net cash used in financing activities (1,874) (29,662) --------------------- --------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (169,271) 118,767 --------------------- --------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 279,130 (135,101) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,637,184 1,183,656 --------------------- --------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,916,314 $ 1,048,555 ===================== ===================== See accompanying notes to condensed consolidated financial statements. 6

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED) NOTE A - DESCRIPTION OF ORGANIZATION AND BUSINESS FARO Technologies, Inc. and Subsidiaries (the "Company") develops, manufactures, markets and supports Computer Aided Design (CAD)-based quality assurance products and CAD-based inspection and statistical process control software. On May 15, 1998, the Company acquired CATS GmbH for total consideration of $16,069,000 consisting of $5 million in cash, 916,668 shares of common stock and the assumption of certain outstanding liabilities of CATS. The purchase price includes direct costs of the acquisition in the amount of $674,000. In addition, 333,332 shares of common stock were placed in escrow, to be issued provided CATS met certain sales performance goals within an eighteen-month period following the acquisition. These sales goals were not met by November 15, 1999. The 90-day period for registering disputes expired on February 13, 2000 with no claims. The 333,332 shares held by the escrow agent will be returned to the Company once the required documentation requirements have been met. The acquisition was treated as a purchase for accounting purposes and, accordingly, the operating results of CATS have been included in the Company's consolidated financial statements since May 15, 1998. The Company has three wholly-owned subsidiaries, FARO Worldwide, Inc., Faro Europe GmbH and Co. KG, a German company, and Antares LDA, a Portuguese company. In connection with a restructuring of legal entities in Europe, effective January 1, 1999, CATS was consolidated under the name of Faro Europe GmbH and Co. KG. NOTE B - BASIS OF PRESENTATION The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and footnote disclosure required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the consolidated financial position and operating results for the interim periods have been included. The consolidated results of operations for the three months ended March 31, 2000 are not necessarily indicative of results that may be expected for the year ending December 31, 2000. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999 included in the Company's Annual Report to Stockholders included by reference within the Company's Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to current year presentation. NOTE C - CASH AND INVESTMENTS CASH AND EQUIVALENTS - The Company considers cash on hand and amounts on deposit with financial institutions which have original maturities of three months or less to be cash and cash equivalents. All short-term investments in debt securities which have maturities of three months or less are included in cash and equivalents and classified as trading securities, which are carried at their fair value based upon the quoted market prices of those investments. 7

INVESTMENTS - Short-term investments ordinarily consist of short-term debt securities acquired with cash not immediately needed in operations. Such amounts have maturities of less than one year. Investments ordinarily consist of debt securities acquired with cash not immediately needed in operations. Such amounts have maturities of at least one year (none have maturities exceeding eighteen months). At March 31, 2000 and December 31, 1999, cash and investments consisted of the following: March 31, December 31, 2000 1999 ----------- ----------- Cash and cash equivalents $ 6,916,314 $ 6,637,184 Short-term investments 6,467,808 6,494,262 Investments 2,497,684 3,747,694 ----------- ----------- Total cash and investments $15,881,806 $16,879,140 =========== =========== NOTE D - INVENTORIES At March 31, 2000 and December 31, 1999, inventories consist of the following: March 31, December 31, 2000 1999 ---------- ---------- Raw materials $2,405,931 $1,914,543 Finished goods 1,459,689 1,191,977 Sales demonstration 3,073,478 3,092,894 ---------- ---------- Total inventories $6,939,098 $6,199,414 ========== ========== NOTE E - EARNINGS PER SHARE A reconciliation of the number of common shares used in the calculation of basic and diluted earnings per share ("EPS") is presented below: Three months ended March 31, ------------------------------------------------- 2000 1999 --------------------- --------------------- Per-Share Per-Share Shares Amount Shares Amount ---------- --------- ---------- --------- Basic EPS 11,019,836 $ (.04) 11,009,247 $ (.10) Effect of dilutive securities -- -- ---------- ---------- Diluted EPS 11,019,836 $ (.04) 11,009,247 $ (.10) ========== ========== NOTE F - SEGMENT GEOGRAPHIC DATA The Company develops, manufactures, markets and supports Computer Aided Design (CAD)-based quality assurance products and CAD-based inspection and statistical process control software. This one line of business represents more than 99% of consolidated sales. The Company operates through sales teams established by geographic area. Each team is equipped to deliver the entire line of Company products to customers within its geographic area. The Company has aggregated the sales teams into a single operating segment as a result of the 8

similarities in the nature of products sold, the type of customers and the methods used to distribute the Company's products. The following table presents information about the Company by geographic area: Three months ended March 31, ----------------------------- 2000 1999 ---------- ---------- SALES: United States $4,657,383 $3,619,540 Germany 2,065,952 1,323,046 United Kingdom 951,842 580,653 France 748,196 151,892 Other foreign 1,426,394 1,229,365 ---------- ---------- Total $9,849,767 $6,904,496 ========== ========== March 31, December 31, 2000 1999 ---------- ---------- LONG-LIVED ASSETS (NET): United States $2,459,263 $2,522,654 Germany 4,397,400 5,083,420 Other foreign 38,246 41,145 ---------- ---------- Total $6,894,909 $7,647,219 ========== ========== 9

PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY, INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS FORM 10-Q, AND THE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCLUDED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999 SALES. Sales increased $2.9 million, or 42.0%, from $6.9 million for the three months ended March 31, 1999 to $9.8 million for three months ended March 31, 2000. The increase primarily resulted from increases in product sales in the United States (an increase of $1.1 million, or 30.6%, from $3.6 million to $4.7 million), the three European countries where the Company has sales offices (an increase of $1.7 million, or 81.0%, from $2.1 million to $3.8 million), and export sales to the remainder of the world (an increase of $0.1 million, or 8.3%, from $1.2 million to $1.3 million). GROSS PROFIT. Gross profit increased $1.7 million, or 40.5%, from $4.2 million for the three months ended March 31, 1999 to $5.9 million for the three months ended March 31, 2000. Gross margin decreased slightly, to 60.0% for the three months ended March 31, 2000 from 60.3% for the three months ended March 31, 1999. The decrease in gross margin was primarily a result of a slightly different mix of products. SELLING EXPENSES. Selling expenses increased $1.1 million, or 44.0%, from $2.5 million for the three months ended March 31, 1999 to $3.6 million for the three months ended March 31, 2000. This increase was primarily a result of higher selling expenses in the United States ($0.7 million), principally composed of higher compensation (including sales commissions) and marketing costs and in Europe ($0.4 million), where sales commissions and marketing costs also increased. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were virtually unchanged, at $1.3 million for the three months ended March 31, 1999 and 2000. Expenses in the United States increased $0.1 million, primarily due to increased recruiting costs, while European expenses decreased by $0.1 million, primarily due to foreign exchange rates. DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses decreased $226,000, or 26.2%, from $864,000 for the three months ended March 31, 1999 to $638,000 for the three months ended March 31, 2000. This decrease was almost entirely due to the $3,073,000 impairment loss on acquired intangibles, which reduced the amount of remaining acquired intangibles to be amortized, and the write-off of $1.2 million of patents and capitalized research and development costs at the end of 1999. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased $0.2 million, or 25.0%, from $0.8 million for the three months ended March 31, 1999 to $1.0 million for the three months ended March 31, 2000. The increase was primarily due to increases in the United States ($0.2 million), largely in salaries and software translation costs. INTEREST INCOME. Interest income increased $0.1 million, or 100%, from $0.1 million for the three months ended March 31, 1999, to $0.2 million for the three months ended March 31, 2000. The increase primarily was attributable to an increase in the average yields of interest-earning cash, cash equivalents, and investments held through the first quarter of 2000. 10

INCOME TAX BENEFIT. Income tax benefit decreased from $0.1 million for the three months ended March 31, 1999, to zero for the three months ended March 31, 2000. The Company's loss resulted from its European operations, which have a valuation allowance offsetting its tax benefits. NET LOSS. Net loss decreased $0.7 million, or 63.6%, from $1.1 million for the three months ended March 31, 1999 to $0.4 million for the three months ended March 31, 2000, due to the factors stated above. LIQUIDITY AND CAPITAL RESOURCES For the three months ended March 31, 2000, net cash used for operating activities was $0.6 million, compared to cash used for operating activities of $1.3 million for the three months ended March 31, 1999. The decrease was primarily due to a $0.7 million lower loss in the three months ended March 31, 2000. Cash used in operating activities is primarily composed of an increase in accounts receivable of $1.0 million, an increase in inventory of $0.5 million and the net loss of $0.4 million, partially offset by non-cash depreciation and amortization of $0.6 million and an increase in accounts payable and accrued liabilities of $0.6 million. Net cash provided by investing activities was $1.0 million for the three months ended March 31, 2000, virtually unchanged from the net cash provided by investing activities of $1.1 million for the three months ended March 31, 1999. Net cash used in financing activities for the three months ended March 31, 2000 was $2,000, compared to net cash used of $30,000 for the three months ended March 31, 1999. In April 1997, the Company obtained a one-year unsecured $1.0 million line of credit, which bears interest at the 30-day commercial paper rate plus 2.65% per annum. There were no outstanding borrowings under this loan agreement, which has been renewed annually, at March 31, 2000. The Company's principal commitments at March 31, 2000 were leases on its headquarters and regional offices and a loan commitment to the two former shareholders of CATS (see Part II, Item 5, Other Information). There were no material commitments for capital expenditures at March 31, 2000. The Company believes that its cash, investments, cash flows from operations and funds available from its credit facilities will be sufficient to satisfy its working capital, loan commitment and capital expenditure needs at least through 2000. FOREIGN EXCHANGE EXPOSURE Sales outside the United States represent a significant portion of the Company's total revenues. Fluctuations in exchange rates between the U.S. dollar and the currencies where the Company conducts such business may have a material adverse effect on the Company's business, results of operation and financial condition, particularly its operating margins, and could also result in exchange losses. The impact of future exchange rate fluctuations on the results of the Company's operations cannot be accurately predicted. To the extent that the percentage of the Company's non-U.S. dollar revenues derived from international sales increases in the future, the risks associated with fluctuations in foreign exchange rates will increase. Historically, the Company has not managed the risks associated with fluctuations in exchange rates but may undertake transactions to manage such risks in the future using forward foreign exchange contracts, foreign currency options or other instruments to hedge these risks. YEAR 2000 During fiscal 1999, the Company continued its company-wide program to prepare the Company's computer systems for year 2000 compliance. The year 2000 issue relates to computer systems that use the last two digits rather than all four to define a year and whether such systems would properly and accurately process information when the year changed to 2000. At the date of this report, the Company had not yet experienced any material problems related to the year 2000. A few issues were discovered in 1999, but the problems were resolved with no major disruption to the Company's business operations. The Company has not become aware of any significant 11

year 2000 issues affecting the Company's major customers or suppliers. The Company also has not received any material complaints regarding any year 2000 issues related to its products. Year 2000 related costs through March 31, 2000 were limited to employees' time and were expensed as incurred. The remaining estimated cost to address any additional year 2000 problems is deemed immaterial. No significant information system projects were deferred to accommodate the year 2000 issues. EFFECTS OF INFLATION Inflation generally affects the Company by increasing the cost of labor, equipment and raw materials. The Company does not believe that inflation has had any material effect on the Company's business over the last three years. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is incorporated by reference herein from the section of this report in Part I, Item 2, under the caption "Foreign Exchange Exposure." PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION On May 15, 1998, the Company acquired CATS Computer Aided Technologies, GmbH ("CATS"), a company based in Germany that develops, markets, and supports 3-D measurement retrofit and statistical process control software. The CATS acquisition agreement provided that the Company would provide a loan to the two former shareholders of CATS to fund their tax liability in connection with the shares of FARO common stock that they received in the acquisition. The former CATS shareholders remain key employees of the Company. Pursuant to a Loan Agreement dated August 2, 1999 with each of the former CATS shareholders, the Company has agreed to loan to the former CATS shareholders an amount equal to their tax obligation to the German tax authorities in connection with the acquisition of CATS. The aggregate amount of the loans is estimated to be approximately $2 million. The Company is not obligated to provide the loans until the German tax authorities request payment for the tax from the former CATS shareholders, which has not yet occurred. Moreover, the loan commitment will cease if the Company's share price rises to $11.34 per share (the price establishing the tax liability) for several consecutive days. If the loans are made, they will be for a term of three years, at an interest rate of approximately 4.3%, with an option for the borrower to extend the term for an additional three years. As collateral for the loans, the former CATS shareholders will pledge to the Company the number of shares of Company common stock equal to the amount of the loan divided by $6.375. If the amount of the loans is $2 million, the loans will be secured by 313,725 shares. The loans will be a non-recourse obligation of the former CATS shareholders. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a.) Exhibits Exhibit No. Description ----------- ----------- 27.7 Financial Data Schedule (FOR SEC USE ONLY) 12

99.1 Loan Agreement dated August 2, 1999 between FARO Technologies, Inc. and Wendelin Karl Johannes Scharbach (Filed as Exhibit 99.1 to Registrant's Quarterly Report on Form 10-Q for the three months ended September 30, 1999, and incorporated herein by reference). 99.2 Loan Agreement dated August 2, 1999 between FARO Technologies, Inc. and Siegfried Kurt Buss (Filed as Exhibit 99.2 to Registrant's Quarterly Report on Form 10-Q for the three months ended September 30, 1999, and incorporated herein by reference). b.) Reports on Form 8-K None 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: May 12, 2000 FARO TECHNOLOGIES, INC. (Registrant) By: /s/ Stuart W. Jones --------------------------------------- Stuart W. Jones Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) 13

5 0000917491 FARO TECHNOLOGIES, INC. 1 US DOLLARS 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 6,916,314 6,467,808 10,865,090 (315,980) 6,939,098 32,064,893 4,195,107 (2,585,568) 41,841,377 6,214,146 0 0 0 11,061 35,548,303 41,841,377 9,849,767 9,849,767 3,940,360 6,596,492 0 0 0 (417,570) 0 (417,570) 0 0 0 (417,570) (0.04) (0.04)