-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rpqtx+o5jk1HxeSHJ2AjggnuR1vg7dJsowZ9MLA+8+vtQ/PIm9YDLrYg3UF/ywVp oGIqtiFV9m80paPkZjf3Tw== /in/edgar/work/0001016843-00-000839/0001016843-00-000839.txt : 20001114 0001016843-00-000839.hdr.sgml : 20001114 ACCESSION NUMBER: 0001016843-00-000839 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARO TECHNOLOGIES INC CENTRAL INDEX KEY: 0000917491 STANDARD INDUSTRIAL CLASSIFICATION: [3829 ] IRS NUMBER: 593157093 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23081 FILM NUMBER: 759947 BUSINESS ADDRESS: STREET 1: 125 TECHNOLOGY PARK CITY: LAKE MARY STATE: FL ZIP: 32746-6204 BUSINESS PHONE: 4073339911 MAIL ADDRESS: STREET 1: FARO TECHNOLOGIES INC STREET 2: 125 TECHNOLOGY PARK CITY: LAKE MARY STATE: FL ZIP: 32746 10-Q 1 0001.txt 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 September 30, 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 November 6, 2000: 11,020,682 FARO Technologies, Inc. Index to Form 10-Q PART I. FINANCIAL INFORMATION Page Number Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 3 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2000 and 1999 4 Condensed Consolidated Statements of Shareholders' Equity 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 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 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 14 Signatures 14 2 FARO TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------ ------------ (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents (Note C) $ 6,617,817 $ 6,637,184 Short term investments - at cost (Note C) 6,423,850 6,494,262 Accounts receivable - net of allowance 8,633,789 9,812,838 Income taxes refundable 151,592 234,470 Inventories (Note D) 6,178,519 6,199,414 Prepaid expenses and other assets 725,781 447,894 Deferred income taxes 601,130 494,088 ------------ ------------ Total current assets 29,332,478 30,320,150 ------------ ------------ PROPERTY AND EQUIPMENT - at cost: Machinery and equipment 2,911,613 2,895,706 Furniture and fixtures 1,254,278 1,094,927 Leasehold improvements 74,686 34,086 ------------ ------------ Total 4,240,577 4,024,719 Less accumulated depreciation (2,580,593) (2,356,572) ------------ ------------ Property and equipment, net 1,659,984 1,668,147 ------------ ------------ INTANGIBLE ASSETS - net 4,443,629 5,979,072 INVESTMENTS - at cost (Note C) 4,541,063 3,747,694 NOTES RECEIVABLE (Note E) 1,259,793 130,936 DEFERRED INCOME TAXES 258,977 257,913 ------------ ------------ TOTAL ASSETS $ 41,495,924 $ 42,103,912 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 2,237,516 $ 2,200,408 Accrued and other current liabilities 3,376,815 2,847,076 Current portion of unearned service revenues 542,131 317,918 Customer deposits 73,470 84,904 ------------ ------------ Total current liabilities 6,229,932 5,450,306 OTHER LONG-TERM LIABILITIES 165,893 54,260 ------------ ------------ TOTAL LIABILITIES 6,395,825 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 47,549,064 47,544,844 Unearned compensation (28,391) (123,404) Accumulated deficit (9,494,210) (9,307,651) Accumulated other comprehensive income: Cumulative translation adjustments, net of tax (2,786,800) (1,374,878) Treasury stock (150,625) (150,625) ------------ ------------ Total shareholders' equity 35,100,099 36,599,346 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 41,495,924 $ 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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ------------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Sales $ 8,810,972 $ 7,025,005 $ 29,584,018 $ 22,540,937 Cost of sales 3,196,895 3,391,029 11,133,799 9,577,211 ------------ ------------ ------------ ------------ Gross profit 5,614,077 3,633,976 18,450,219 12,963,726 Operating expenses: Selling 3,233,294 2,824,957 10,264,455 8,120,043 General and administrative 1,481,068 1,511,350 4,124,963 4,017,697 Depreciation and amortization 626,517 879,535 2,067,932 2,607,631 Research and development 876,605 895,227 2,691,460 2,582,794 Employee stock options 31,671 42,243 95,013 126,717 ------------ ------------ ------------ ------------ Total operating expenses 6,249,155 6,153,312 19,243,823 17,454,882 ------------ ------------ ------------ ------------ Loss from operations (635,078) (2,519,336) (793,604) (4,491,156) Interest income 219,810 163,448 584,604 520,171 Other income, net 139,937 230,522 252,634 380,923 ------------ ------------ ------------ ------------ Income (loss) before income taxes (275,331) (2,125,366) 43,634 (3,590,062) Income tax (expense) benefit (85,056) 461,616 (230,193) 620,966 ------------ ------------ ------------ ------------ Net loss $ (360,387) $ (1,663,750) $ (186,559) $ (2,969,096) ============ ============ ============ ============ NET LOSS PER SHARE - BASIC $ (0.03) $ (0.15) $ (0.02) $ (0.27) ============ ============ ============ ============ NET LOSS PER SHARE - DILUTED $ (0.03) $ (0.15) $ (0.02) $ (0.27) ============ ============ ============ ============
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 SHARES AMOUNTS CAPITAL COMPENSATION ----------- ----------- ----------- ----------- BALANCE, DECEMBER 31, 1998 11,048,137 $ 11,048 $47,520,732 $ (292,316) Net loss 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) Net loss Currency translation adjustment, net of tax Comprehensive loss Issuance of common stock 1,172 1 4,220 Amortization of unearned compensation 95,013 ----------- ----------- ----------- ----------- BALANCE, SEPTEMBER 30, 2000 (Unaudited) 11,060,682 $ 11,061 $47,549,064 $ (28,391) =========== =========== =========== =========== ACCUMULATED OTHER ACCUMULATED COMPREHENSIVE TREASURY DEFICIT INCOME (LOSS) STOCK TOTAL ----------- ----------- ----------- ----------- BALANCE, DECEMBER 31, 1998 $(1,912,829) $ 199,381 $ (150,625) $45,375,391 Net loss (7,394,822) (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 (9,307,651) (1,374,878) (150,625) 36,599,346 Net loss (186,559) (186,559) Currency translation adjustment, net of tax (1,411,922) (1,411,922) ----------- Comprehensive loss (1,598,481) Issuance of common stock 4,221 Amortization of unearned compensation 95,013 ----------- ----------- ----------- ----------- BALANCE, SEPTEMBER 30, 2000 (Unaudited) $(9,494,210) $(2,786,800) $ (150,625) $35,100,099 =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements 5 FARO TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- 2000 1999 ----------- ----------- OPERATING ACTIVITIES: Net loss $ (186,559) $(2,969,096) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 2,067,932 2,800,828 Bad debt expense, net of charge offs 95,000 130,000 Inventory reserve 355,000 -- Deferred income taxes (108,106) 42,383 Employee stock options 95,013 126,695 Change in operating assets and liabilities: Decrease (increase) in: Accounts receivable 505,904 954,128 Income taxes refundable 82,878 (698,957) Inventories (407,389) (1,846,542) Prepaid expenses and other assets (319,976) (177,522) Increase (decrease) in: Accounts payable and accrued liabilities 774,103 1,638,008 Unearned service revenues 371,702 168,527 Customer deposits (5,217) (6,429) ----------- ----------- Net cash provided by operating activities 3,320,285 162,023 ----------- ----------- INVESTING ACTIVITIES: (Payments for) proceeds from investments, net (722,958) 2,073,718 Notes receivable (1,147,647) 46,491 Purchases of property and equipment (860,060) (607,354) Payments of patent costs (114,421) (121,665) Payments of product design costs -- (358,592) Payments for other intangibles (131,798) (173,384) ----------- ----------- Net cash provided by (used in) investing activities (2,976,884) 859,214 ----------- ----------- FINANCING ACTIVITIES: Payments on debt (7,159) (331,435) Proceeds from issuance of common stock, net 4,221 21,461 ----------- ----------- Net cash used in financing activities (2,938) (309,974) ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (359,830) (147,767) ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (19,367) 563,496 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,637,184 1,183,656 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,617,817 $ 1,747,152 =========== ===========
See accompanying notes to condensed consolidated financial statements. 6 FARO TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 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 total consideration was $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 (see Note E). 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 nine months ended September 30, 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. 7 NOTE C - CASH AND INVESTMENTS CASH AND CASH 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 cash equivalents and classified as trading securities, which are carried at their fair value based upon the quoted market prices of those investments. INVESTMENTS - Short-term investments and Investments ordinarily consist of debt securities acquired with cash not immediately needed in operations. Short-term investments have maturities of less than one year. Investments have maturities of at least one year (none have maturities exceeding two years). At September 30, 2000 and December 31, 1999, cash and investments consisted of the following: SEPTEMBER 30, DECEMBER 31, 2000 1999 ----------- ----------- Cash and cash equivalents $ 6,617,817 $ 6,637,184 Short-term investments 6,423,850 6,494,262 Investments 4,541,063 3,747,694 ----------- ----------- Total cash and investments $17,582,730 $16,879,140 =========== =========== NOTE D - INVENTORIES At September 30, 2000 and December 31, 1999, inventories consist of the following: SEPTEMBER 30, DECEMBER 31, 2000 1999 ----------- ----------- Raw materials $ 1,779,612 $ 1,914,543 Finished goods 1,483,142 1,191,977 Sales demonstration 2,915,765 3,092,894 ----------- ----------- Total inventories $ 6,178,519 $ 6,199,414 =========== =========== NOTE E - NOTES RECEIVABLE 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 maximum aggregate amount of the loans is estimated to be approximately $2 million. The Company was not obligated to provide the loans until the German tax authorities issue an assessment of the tax to the former CATS shareholders and the ultimate amount of the loans depends on the issuance by such authorities of a final tax assessment. Moreover, the loan commitment would cease if the Company's share price rises to $11.34 per share (the price establishing the tax liability) for five or more consecutive days. In June 2000, the German tax authorities issued a preliminary tax assessment to the former CATS shareholders. In connection therewith, on June 20, 2000 the Company and each of the former CATS shareholders entered into an Amended and Restated Loan Agreement and the Company granted initial loans to the former CATS shareholders in the aggregate amount of $1.1 million ("the Initial Loans"). The Initial Loans, recorded net of an unamortized discount of $68,000, are for a term of three years, at an interest rate of approximately 4.3%, and grant the borrowers an option to extend the term for an additional 8 three years. As collateral for the loans, each of the former CATS shareholders has pledged to the Company the number of shares of Company common stock equal to the amount of the Initial Loan divided by $6.375. If the maximum amount of the loans is granted pursuant to the loan agreements, as amended and restated, the loans will be secured by 313,725 shares. All loans granted will be a non-recourse obligation of the former CATS shareholders. NOTE F - 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 SEPTEMBER 30, ------------------------------------------------------ 2000 1999 ------------------------ ------------------------ PER-SHARE PER-SHARE SHARES Amount SHARES AMOUNT ---------- ------- ---------- ------- Basic EPS 11,020,682 $ (.03) 11,017,810 $ (.15) Effect of dilutive securities -- -- ---------- ---------- Diluted EPS 11,020,682 $ (.03) 11,017,810 $ (.15) ========== ========== THREE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------ 2000 1999 ------------------------ ------------------------ PER-SHARE PER-SHARE SHARES Amount SHARES AMOUNT ---------- ------- ---------- ------- Basic EPS 11,020,174 $ (.02) 11,013,885 $ (.27) Effect of dilutive securities -- -- ---------- ---------- Diluted EPS 11,020,174 $ (.02) 11,013,885 $ (.27) =========== ==========
9 NOTE G - 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 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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------------------------------------------- 2000 1999 2000 1999 ---------------------------- ---------------------------- SALES: United States $ 4,378,705 $ 2,297,742 $14,631,289 $10,449,564 Germany 1,498,452 1,849,935 6,287,967 5,100,516 United Kingdom 411,703 450,032 1,993,141 1,791,406 France 717,477 390,001 2,134,405 812,609 Other foreign 1,804,635 2,037,295 4,537,216 4,386,842 ----------- ----------- ----------- ----------- Total $ 8,810,972 $ 7,025,005 $29,584,018 $22,540,937 =========== =========== =========== =========== SEPTEMBER 30, DECEMBER 31, 2000 1999 ----------- ----------- LONG-LIVED ASSETS (NET): United States $ 2,612,794 $ 2,522,654 Germany 3,455,609 5,083,420 Other foreign 35,210 41,145 ----------- ----------- Total $ 6,103,613 $ 7,647,219 =========== ===========
10 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 SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1999 SALES. Sales increased $1.8 million, or 25.4%, from $7.0 million for the three months ended September 30, 1999 to $8.8 million for three months ended September 30, 2000. The increase primarily resulted from increases in product unit sales in all geographic regions, partially offset by the effect of the stronger U.S. dollar in the second quarter of 2000 (approximately $400,000). GROSS PROFIT. Gross profit increased $2.0 million, or 54.5%, from $3.6 million for the three months ended September 30, 1999 to $5.6 million for the three months ended September 30, 2000. Gross margin increased, to 63.7% for the three months ended September 30, 2000 from 51.7% for the three months ended September 30, 1999. The increase in gross margin was primarily a result of cost reductions for computer hardware and software products in the three months ended September 30, 2000, partially offset by the effect of the stronger U.S. dollar. SELLING EXPENSES. Selling expenses increased $408,000, or 14.5%, from $2.8 million for the three months ended September 30, 1999 to $3.2 million for the three months ended September 30, 2000. This increase was primarily a result of higher selling expenses in the United States, principally composed of higher compensation and marketing expenses ($332,000), and Europe ($178,000) offset in part by the effect of the stronger U.S. dollar in 2000 (approximately $145,000). GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses decreased $30,000, or 2.0%, from $1.5 million for the three months ended September 30, 1999 to $1.4 million for the three months ended September 30, 2000. The decrease was due to decreases across many expense categories in the United States ($111,000), offset by increase in expenses in Europe ($81,000, net of the effect of the stronger U.S. dollar in 2000). DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses decreased $253,000, or 28.8%, from $880,000 for the three months ended September 30, 1999 to $627,000 for the three months ended September 30, 2000. This decrease was primarily due to the $3,073,000 impairment loss on acquired intangibles at the end of 1999, which reduced the amount of remaining acquired intangibles to be amortized, offset in part by depreciation on assets added in the second half of 1999. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses decreased $19,000, or 2.1%, from $895,000 for the three months ended September 30, 1999 to $877,000 million for the three months ended September 30, 2000 principally as a result of the effect of the stronger U.S. dollar in 2000. INTEREST INCOME. Interest income increased $56,000, or 34.5%, from $163,000 for the three months ended September 30, 1999, to $220,000 for the three months ended September 30, 2000. The increase was primarily attributable to an increase in the average amount of interest-earning cash, cash equivalents, and investments held through the third quarter of 2000 (see Liquidity and Capital Resources below). INCOME TAX EXPENSE. Income tax expense increased $547,000 from, an income tax benefit of $462,000 for the three months ended September 30, 1999, to an $85,000 expense for the three months 11 ended September 30, 2000, principally as a result of the increase in U.S. income before income taxes during the third quarter of 2000. NET INCOME. Net loss decreased $1.3 million from $1.7 million for the three months ended September 30, 1999 to $360,000 for the three months ended September 30, 2000 due to the factors stated above. NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1999 SALES. Sales increased $7.1 million, or 31.2%, from $22.5 million for the nine months ended September 30, 1999 to $29.6 million for nine months ended September 30, 2000. The increase primarily resulted from increases in product unit sales in all geographic regions, partially offset by the effect of the stronger U.S. dollar in the first half of 2000 (approximately $1.1 million). GROSS PROFIT. Gross profit increased $5.4 million, or 42.3%, from $13.0 million for the nine months ended September 30, 1999 to $18.4 million for the nine months ended September 30, 2000. Gross margin increased to 62.4% for the nine months ended September 30, 2000 from 57.5% for the nine months ended September 30, 1999. The increase in gross margin was primarily a result of cost reductions for computer hardware and software products in the nine months ended September 30, 2000, partially offset by the effect of the stronger U.S. dollar. SELLING EXPENSES. Selling expenses increased $2.2 million, or 26.4%, from $8.1 million for the nine months ended September 30, 1999 to $10.3 million for the nine months ended September 30, 2000. This increase was primarily a result of higher selling expenses in the United States ($1.4 million), principally composed of higher compensation and marketing, and in Europe ($1.0 million), offset in part by the effect of the stronger U.S. dollar in 2000 (approximately $250,000). GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased $107,000, or 2.7%, from $4.0 million for the nine months ended September 30, 1999 to $4.1 million for the nine months ended September 30, 2000. The increase was due to increases across many categories related to the company's expansion in Europe ($140,000) and in the U.S. ($42,000), offset in part by the effect of the stronger U.S. dollar in 2000 (approximately $75,000). DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses decreased $540,000, or 20.7%, from $2.6 million for the nine months ended September 30, 1999 to $2.1 million for the nine months ended September 30, 2000. This decrease was principally due to the $3,073,000 impairment loss on acquired intangibles recorded at the end of 1999, which reduced the amount of remaining acquired intangibles to be amortized. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased $109,000, or 4.2%, from $2.6 million for the nine months ended September 30, 1999 to $2.7 million for the nine months ended September 30, 2000. The change was due principally to increase in expenses in the United States ($198,000), primarily compensation, offset in part by the effect of the stronger U.S. dollar in 2000 ($75,000) on European expenses. INTEREST INCOME. Interest income increased $65,000, or 12.4%, from $520,000 for the nine months ended September 30, 1999, to $585,000 for the nine months ended September 30, 2000. The increase was primarily attributable to higher average yields of interest-earning cash, cash equivalents, and investments held in 2000 (see Liquidity and Capital Resources below). INCOME TAX EXPENSE. Income tax expense increased $851,000 from an income tax benefit of $621,000 for the nine months ended September 30, 1999, to income tax expense of $230,000 for the nine months ended September 30, 2000. The income tax provision for the nine months ended September 30, 2000 resulted from the generation of earnings before income taxes by he Company's U.S. operations during the first nine months of 2000. 12 NET INCOME. Net loss decreased $2.8 million from $3.0 million for the nine months ended September 30, 1999 to $186,000 for the nine months ended September 30, 2000 due to the factors stated above. LIQUIDITY AND CAPITAL RESOURCES For the nine months ended September 30, 2000, net cash provided by operating activities was $3.3 million compared to $162,000 for the nine months ended September 30, 1999. The increase was principally due to improved earnings and a net decrease in operating assets, in 2000. Net cash used in investing activities was $3.0 million for the nine months ended September 30, 2000, compared to net cash provided from investing activities of $859,000 for the nine months ended September 30, 1999. The increase in net cash used in investing activities is primarily attributable a loan granted to each of two former shareholders of CATS pursuant to the CATS acquisition agreement ($1.1 million), purchases of property and equipment ($860,000) and a net increase in investments ($723,000). Net cash used in financing activities for the nine months ended September 30, 2000 decreased to $3,000, compared to $310,000 for the nine months ended September 30, 1999. The Company's principal commitments at September 30, 2000 were leases on its headquarters and regional offices and a loan commitment, to the two former shareholders of CATS, in the maximum amount of $2.0 million (of which $1.1 million has been loaned at September 30, 2000). There were no material commitments for capital expenditures at that date. 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 denominated in foreign currencies represent 47% 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 completed a 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. No significant information system projects were deferred to accommodate the year 2000 issues. At the date of this report, the Company had not experienced any material problems related to the year 2000 nor has it become aware of any significant 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 September 30, 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. 13 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 nine 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 6. EXHIBITS AND REPORTS ON FORM 8-K a.) Exhibits EXHIBIT NO. DESCRIPTION ----------- ----------- 27.7 Financial Data Schedule (FOR SEC USE ONLY) b.) Reports on Form 8-K On August 25, 2000, the Registrant filed a Current Report on Form 8-K in connection with a Change in the Registrant's Certifying Accountant. 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: November 13, 2000 FARO TECHNOLOGIES, INC. (Registrant) By: /s/ GREGORY A. FRASER --------------------------------------------- Gregory A. Fraser Executive Vice President, Secretary and Treasurer (Duly Authorized Officer and Principal Financial Officer) 14 EX-27.7 2 0002.txt
5 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 6,617,817 6,423,850 9,044,209 (410,420) 6,178,519 29,332,478 4,240,577 (2,580,593) 41,495,924 6,229,932 0 0 0 11,061 35,089,038 41,495,924 29,584,018 29,584,018 11,133,799 19,243,823 0 0 0 43,634 230,193 (186,559) 0 0 0 (186,559) (0.02) (0.02)
-----END PRIVACY-ENHANCED MESSAGE-----