SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended June 30, 1996 or
|_| Transition report pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________________
to _______________.
Commission file number: 0-27122
ADEPT TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
California 94-29000635
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
150 Rose Orchard Way, San Jose, California 95134
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code: (408) 432-0888
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- -------------------------------- -------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based upon the closing sale price of the Common Stock on
August 31, 1996 as reported on the Nasdaq National Market, was approximately
$33,021,118. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of August 31, 1996, the registrant had outstanding 7,956,995 shares
of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant has incorporated by reference into Part III of this Form
10-K portions of its Proxy Statement for the Annual Meeting of Shareholders to
be held November 21, 1996. Portions of the registrant's Annual Report to
Shareholders for the fiscal year ended June 30, 1996 are incorporated by
reference into Parts II and IV of this Form 10-K.
<PAGE>
PART I
Special Note Regarding Forward-Looking Statements
Certain statements in this Report constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things, the following: the potential fluctuations in the Company's
quarterly and annual results of operations; the cyclicality of capital spending
of the Company's customers; the Company's dependance on the continued growth in
the intelligent automation market; the risks associated with sole or single
sources of supply and lengthy procurement lead times; the Company's highly
competitive industry; rapid technological change within the Company's industry;
the lengthy sales cycles for the Company's products; the risks associated with
reliance on system integrators; the risks associated with international sales
and purchases; the risks associated with potential acquisitions and the need to
manage growth; the risks associated with new product development and the need to
manage product transitions, including any difficulties or delays in the
development, production, testing and marketing of the Company's new PC products
under development, and generally in the migration of Silma from the UNIX
platform to the PC platform or difficulties or delays in the development,
production, testing and marketing of the Company's other new products under
development; the Company's dependence on retention and attraction of key
employees; the risks associated with product defects; the Company's dependence
on third-party relationships; the uncertainty of patent and proprietary
technology protection and third party intellectual property claims; changes in,
or failure to comply with, government regulation; general economic and business
conditions; the failure of any new products to be accepted in the marketplace;
the inability of the Company to effectively integrate Silma's personnel into the
Company; decreased investment in robotics generally, and in the Company's
intelligent automation products particularly, as a result of general or specific
economic conditions or conditions affecting any of the Company's primary
markets; decreased acceptance of the Company's current products in the
marketplace; and other factors referenced in this Report.
SILMA, SoftMachines and the Company's logo are registered trademarks of
Adept Technology, Inc. Adept, AdeptModules, AdeptMotion, Adept MV-8, Adept
MV-19, AdeptOne, AdeptThree, AdeptVision VME, Adept 1850, Adept 550, Adept
Flexible Feeder, AIM, CimStation, MotionWare, PalletWare, AdeptRAPID,
SoftAssembly, V+ and VisionWare are trademarks of Adept Technology, Inc. This
Report also includes trademarks of companies other than Adept Technology, Inc.
ITEM 1. BUSINESS
Introduction
Adept Technology, Inc. ("Adept" or the "Company") designs, manufactures
and markets intelligent automation software and hardware products for
manufacturers in the electronics, telecommunications, appliances,
pharmaceutical, food processing and automotive components industries. The
Company provides a broad, flexible line of software intensive, computer-driven,
automation products for assembly, material handling and packaging applications.
The Company's products include machine controllers for robot mechanisms and
other flexible
-2-
<PAGE>
automation equipment, machine vision systems, simulation software and a family
of mechanisms including robots and linear modules. In addition, the Company
recently introduced a vision-based flexible part feeder.
Adept's Rapid Deployment Automation ("RDA") approach addresses many of
the challenges facing manufacturers seeking to implement intelligent automation
systems. The goal of RDA is to significantly reduce the total time required to
conceptualize, justify, quote, sell and implement an intelligent automation
system, and thereby eliminate significant barriers to the broad deployment of
intelligent automation technology.
The Company sells, markets and supports its products on a worldwide
basis through more than 100 system integrators, its direct sales force and OEMs.
The system integrators, OEMs or end users combine various components of Adept's
standard product line with material handling devices, peripheral equipment,
application software and tooling into flexible automation workcells or
production lines.
Industry Background
Industrial robots provided the foundation for the development of the
intelligent automation industry. In the 1970s, robots with simple controllers
that lacked sensing capabilities became widely used in the automotive industry
for technologically simple, low precision applications such as spot welding. By
the late 1970s, industrial robots with more advanced capabilities became
commercially available. These new capabilities included computer-based motion
controllers which enabled flexible, programmable motion, and machine vision
systems which enabled computer analysis of camera images. With these technical
advances, robots gained increasing acceptance, but their use remained limited
because their rudimentary software and sensing capabilities were insufficient to
support more demanding tasks such as those required on flexible assembly lines.
During the early 1980s, technical advances enabled robots to perform a
wide range of functions in new applications such as assembly, material handling
and packaging. These advances included sophisticated sensing for robot guidance
that allowed robots to locate, correctly orient and pick up parts, conveyor
tracking that made it possible to handle parts from moving conveyors and
direct-drive robots that were faster and more accurate than gear-driven robots.
In addition, real-time multitasking software enabled the coordination of the
many asynchronous tasks required in assembly, material handling and packaging.
This greater functionality made robots viable in a broad range of production
environments. The development of advanced software and sensory products, coupled
with high level programming languages and computer-based controller
architectures, contributed to the establishment of the intelligent automation
industry.
The ability of intelligent automation to address new applications such
as assembly, material handling and packaging is reflected in the growth of the
intelligent automation industry in the 1990s. According to the Robotic
Industries Association, shipments by U.S. robot suppliers grew from $455 million
in 1992 to $898 million in 1995. In addition, according to the Automated Imaging
Association, shipments by North American machine vision suppliers grew from $638
million in 1992 to $1.1 billion in 1995.
Market Forces
Market forces in certain manufacturing industries have contributed to
the growth of the intelligent automation industry. These market forces include:
World class product quality. Manufacturers competing in global markets
must provide products that meet the highest quality standards of their
customers. Manufacturers across a wide range of industries have found that
-3-
<PAGE>
replacing manual production lines with automated lines has resulted in a
significant reduction in product defects and has enabled volume production of
high quality, technologically advanced products.
Time-to-volume production. Rapid achievement of full volume production
is critical to increasing or simply retaining market share in most markets
today. As a result, the financial return a manufacturer achieves on a new
product depends in significant part on quickly achieving volume production.
Miniaturization. Many products, such as camcorders, disk drives and
portable audio products, have been steadily shrinking in size and are now at an
advanced state of miniaturization. Manual labor is inherently inaccurate and
generates particles that destroy miniature parts and circuits and, as a result,
automation is often required to improve accuracy and maintain a clean
environment. In addition, because the parts may exhibit high part-to-part
variability, the assembly of these products can often only be successfully
performed with the aid of real-time sensory feedback to accurately acquire,
inspect and align parts.
Declining automation costs, rising labor costs. The price performance
ratio of automation products has improved over time, while labor costs have
risen in most industrial regions of the world. According to the U.S. Bureau of
Labor Statistics, total manufacturing compensation rates in the U.S., including
wages, salaries and employer costs for employee benefits, have increased an
average of 4% per annum from 1990 to 1994. Moreover, the appeal of offshore
manufacturing is waning for some manufacturers who previously moved operations
offshore but have more recently increased their domestic manufacturing
operations.
Challenges Facing Manufacturers
Despite the expanding use and application of intelligent automation in
numerous industries, significant challenges nonetheless remain for manufacturers
who seek to implement intelligent automation systems.
Increasing need for flexibility. To achieve widespread deployment,
intelligent automation must become as flexible as traditional manual production
lines. Rapidly contracting product life cycles, shrinking batch sizes,
increasing miniaturization, product line proliferation and the high cost of
capital equipment are causing manufacturers to seek flexible manufacturing
techniques. These techniques must allow manufacturers to quickly and
cost-effectively change over production lines so that such production lines can
be used for multiple products and over multiple product life cycles. In
addition, these techniques must enable manufacturers to adapt to part and
process variability.
High risk custom engineering content. A significant amount of custom
content is engineered into most automated manufacturing lines. Custom content is
time consuming to develop and implement, and makes it difficult to predict
system throughput, yield and cost. Manufacturing managers who are new to
automation are reluctant to implement an automation line when these key
performance factors are at risk, and often have automated their production lines
only after competitors have established a new manufacturing standard and a
proven approach. In addition, custom hardware and software increase the cost and
difficulty associated with training personnel and supporting automated systems.
Shortage of manufacturing engineers. The implementation of most
automation lines requires both mechanical engineering and advanced computer
programming skills. As a result, experience with software programming and
workcell architecture has been critical to the design of systems that perform to
expectations. However, there is a shortage of manufacturing engineers who have
the combination of skills and experience needed to implement intelligent
automation systems. Moreover, many manufacturers are decreasing their
manufacturing engineering staff, thereby reducing the available pool of
manufacturing engineers.
-4-
<PAGE>
Long sales and implementation cycle. It can be several years from the
time a manufacturer first considers establishing an automated line to the time
the automation system is installed and operating satisfactorily. The sales and
implementation cycle includes conceptualizing, justifying, quoting, selling and
implementing the automation line. This long sales and implementation cycle
increases the perceived risk of automation and fails to address time-to-volume
production requirements in industries with short product life cycles. In
addition, the Company believes that because users typically purchase subsequent
systems only after they are satisfied with their initial systems, the long sales
and implementation cycle has limited the growth of the intelligent automation
industry.
All of the challenges set forth above contribute to higher risks and
costs in implementing intelligent automation. Eliminating or significantly
reducing these potential problems improves the economic and technological
justifications for utilizing intelligent automation. The intelligent automation
suppliers that are best able to meet these challenges will be better positioned
to achieve significant competitive advantages.
The Adept Solution
The Company's RDA approach addresses many of the challenges faced today
by manufacturers seeking to implement intelligent automation systems. The goal
of RDA is to significantly reduce the total time required to conceptualize,
justify, quote, sell and implement an intelligent automation system, and thereby
eliminate significant barriers to the broad deployment of intelligent automation
technology. RDA is implemented through a line of hardware and software products,
including machine controllers for robot mechanisms and other flexible automation
equipment, machine vision systems, vision-based flexible part feeders,
simulation software, and a family of mechanisms including robots and linear
modules. The following diagram illustrates the Company's RDA approach:
[Depiction of Adept's Rapid Development Automation Approach
which includes the RDA System Design Layer, the RDA Process
Knowledge Layer, the RDA Real-Time Control Layer and
the RDA Mechanical Component Layer.]
-5-
<PAGE>
The Company seeks to provide the following key benefits to
manufacturers through RDA:
Increased flexibility. Adept believes that software and sensory
products are the key elements of flexible automation solutions. Through its
software intensive, computer-driven approach to intelligent automation, the
Company distinguishes itself from companies that attempt to address the
challenges of automation solely with hardware solutions. Software and sensory
products provide the flexibility to quickly reconfigure production lines for
product change-overs and to respond to product or process variations. For
example, the Company's machine vision products minimize the need for time
consuming set ups and enable inspection of critical part dimensions. In
addition, the Company's scalable controller hardware is highly configurable,
includes local area networking capability and can control a simple, stand alone
robot or be expanded to control multiple robots.
Reduced custom engineering. Adept provides a broad range of modular
components which are designed to significantly reduce the custom engineering
required to implement intelligent automation. The Company's scalable controller
is the foundation of this architecture, allowing these modular components to be
quickly configured into complex systems and reconfigured as needs change. In
addition, Adept has established relationships with automation vendors who offer
components which complement the Company's RDA product line. Adept believes that
the combination of its modular scalable product line and relationships with
other automation vendors significantly reduces custom engineering and its
associated support risks.
Reduced dependence on manufacturing engineers. Adept believes that
programming an automation workcell should not require extensive software
programming expertise. The Company has developed smart application software
products which utilize icon-based programming and are based on its Assembly and
Information Management (AIM) software technology. In addition, the Company works
closely with over 100 system integrators worldwide which provide end users with
outside engineering resources to deliver application-specific solutions
incorporating the Company's products.
Shortened implementation cycle. The combination of flexibility, ease of
implementation and modularity allows Adept products to be quickly integrated
into standard workcells or production lines. Ease of integration is further
enhanced by providing industry standard networking and communication interfaces.
The Company's simulation software products further shorten the implementation
cycle by reducing the time required to design and test automation concepts.
Adept believes that its RDA approach combined with the expertise of system
integrators and customer support and training can significantly reduce
implementation time.
Strategy
The Company's objective is to become the leading supplier worldwide of
a broad line of intelligent automation products for assembly, material handling
and packaging applications. The Company seeks to achieve this objective by
implementing the following business strategy:
Expand Rapid Deployment Automation. Adept's goal is to dramatically
compress the sales and implementation cycle of intelligent automation systems
through the expansion of its RDA approach. Adept is pursuing this goal through
new developments in simulation software, AIM software technology and unique
flexible feeding products. The Company believes that a shorter sales and
implementation cycle will contribute to the demand for intelligent automation.
Extend technology leadership. Adept's expertise in machine controllers
for robots and other flexible automation equipment, machine vision systems and
simulation software has enabled it to be a leading innovator in the development
of intelligent automation products. Adept seeks to leverage its existing
technology base to accelerate
-6-
<PAGE>
the development of new and enhanced products and to lower costs. The Company
intends to continue to make significant investments in research and development
in order to broaden its technology base.
Continue to focus on higher growth application segments. Adept's
strategy is to continue to target the higher growth segments of the intelligent
automation market, such as assembly, material handling and packaging
applications. These applications are used in a broad range of industries,
including the electronics, telecommunications, appliances, pharmaceutical, food
processing and automotive components industries. Diversification across a broad
range of industries maximizes opportunities for growth and reduces Adept's
dependence on the capital spending cycles of any one industry.
Maximize sales through complementary channels. Adept's strategy is to
build end user demand for its products through its direct sales force while
utilizing a network of experienced system integrators and OEMs to provide
turnkey intelligent automation systems. The Company's direct sales force
provides a strong ongoing presence at the end user level by providing product
information, assistance in designing solutions to production issues and
referrals to application-specific system integrators. Adept seeks to continually
strengthen its important channel relationships by providing certain system
integrators with qualified leads and by working with its system integrators to
jointly build demand for the Company's products rather than competing with them
in their systems business.
Increase global market presence. A key element of Adept's strategy is
to increase its presence in the global intelligent automation market by further
expansion in markets which the Company believes represent substantial
opportunities, including Europe, Japan and the Pacific Rim. The Company seeks to
increase its market share in these areas by emphasizing its advanced software
and sensing technology and broad, flexible product line. In addition, Adept
intends to continue to make significant investments in marketing, sales and
support in international markets.
Leverage manufacturing strength. Adept seeks to focus its manufacturing
resources on activities which enable the Company to differentiate its product
line and add distinctive value. Adept's manufacturing activities include the
assembly, test and configuration of its products. This strategy enables the
Company to leverage product development, manufacturing and management resources
while retaining greater control over product delivery, final product
configuration and the timing of new product introductions, all of which are
critical to meeting customer expectations.
Technology
The Company's technology integrates the following key elements of RDA:
mechanical design, machine controller design, advanced servo systems, motion
control software, machine vision software, real-time database management
software and simulation software. The following table lists the Company's
technology by RDA layer:
[Chart Illustrating Adept's technology with respect to the four levels of its
Rapid Deployment Automation approach]
-7-
<PAGE>
Hardware
Direct-drive robot technology. The Company was the first to develop and
market a robot incorporating direct-drive motor technology. Direct-drive
technology eliminates gears and linkages from the drive train of the mechanism,
thereby significantly increasing robot speed and improving the robot's product
life, reliability and accuracy.
Controller technology. The Company has applied its expertise in high
performance motion control to the design of an open architecture, VME bus-based
scalable machine controller. The scalability of this architecture allows the
same basic components to be combined into a number of controller configurations
that cost-effectively address a range of requirements from low end systems which
control a single robot to high end, complex systems which control multiple
mechanisms and incorporate machine vision. In addition, all of the Company's
controller products support the same graphical user interface and can execute
the same application programs, thereby allowing software development investments
to be leveraged across a number of applications.
The controller includes a number of technologically advanced
capabilities designed specifically to address the intelligent automation market
including: special ASICs for controlling direct-drive motors, reading encoders
and controlling power up sequencing of complex high power systems; safety
circuits that meet domestic and international specifications; technology to
protect the controller from voltage spikes, electrical noise and power
brownouts; and high wattage (6000 watt) switching power amplifiers.
Software
Servo software. The most basic level in Adept's software architecture
is the servo software which directs individual motors to follow motion commands
generated from the higher V+ software level. This software has been designed to
provide closed-loop control for the Company's robots as well as other vendors'
robots. The servo software layer includes algorithms for adaptive feedforward
control, direct-drive motor control, force control and position control, and a
number of safety and diagnostic features.
Real-time programming language and operating system software. The next
level in the software architecture is the V+ programming language and operating
system layer. V+ allows software developers to create automation software
systems and is the key enabling technology for the Company's intelligent
automation approach. This automation programming environment provides a high
level language coupled with a multitasking operating system and built in
capability for integrating robots, machine vision, sensors, workcell control and
general communications. These capabilities enable the development of
sophisticated application software that can adaptively control mechanical
systems based upon real-time sensory input while simultaneously maintaining
communication with other factory equipment.
V+ offers the user approximately 300 instructions for programming an
intelligent automation workcell. It includes a trajectory generator and
continuous path planner which compute the path of the robot's tool in real time
based upon predefined data or sensory input. V+ also includes a number of
network communication facilities and supports RS232, RS422, Ethernet, TCP/IP,
FTP and NFS. In addition, this software includes a multitasking, multiprocessor,
time-sliced, deterministic, real-time operating system. This operating system
allows V+ to execute dozens of tasks concurrently and permits control to pass
between tasks in a predictable manner, often several times per millisecond. The
V+ operating system also allows the installation of additional processors into
the controller and automatically reassigns tasks to optimize overall system
performance, providing a key scalability feature not found in other controllers.
-8-
<PAGE>
Machine vision. The real-time control layer of the software also
includes machine vision software technology, which quickly recognizes parts that
are randomly positioned and have an unknown orientation ranging up to 360
degrees, as compared with other solutions which simply locate translated images
with very limited rotation. The ability to quickly recognize parts which have
large variations in orientation is crucial for high speed part feeding where the
part orientation is not known, such as in flexible part feeders. The Company's
machine vision software can also measure part dimensions for inspection
purposes. Vision can be used to acquire parts from stationary locations or from
conveyors. Cameras can be stationary, fixed in the workcell or attached to a
robot.
Data-driven module software. The next level in the Company's software
hierarchy is the AIM layer. AIM simplifies the implementation of intelligent
automation workcells by combining a point and click graphical user interface
with an icon-based programming method that does not require advanced computer
programming skills. This method combines task level statements with a high
performance real-time database, and a structure for representing process
knowledge.
The AIM task-level statements allow the developer to specify at a very
high level what operations the workcell is to perform, such as "insert a
component into a socket using vision to correct for part irregularities." This
command is automatically coupled to data contained in the real-time database
that specifies the physical aspects of the workcell, such as the location of a
part. The information contained in the databases can be created or downloaded
from a computer or simulation system at any time. Finally, the AIM system
automatically invokes the routines that capture the process knowledge and
dictate how the specified operation will be performed. In this way, an AIM
workcell can be "programmed" by a person who understands as few as ten process
actions rather than hundreds of programming instructions or thousands of lines
of conventional code.
The Company provides application-specific versions of AIM that have
built in process knowledge to address general motion, vision and part
palletizing applications. In addition, process knowledge can be added by end
users and system integrators, many of whom have developed their own AIM
application-specific packages.
Simulation software. The highest level in the Company's software
architecture is the simulation software layer, developed by Silma, a leader in
the field of simulation software. Silma's core product, CimStation, allows
machines to be modeled with 3D graphics, and then animated in response to
software control programs. Mechanisms can be defined graphically and the
mathematics necessary to animate them (kinematic models) are generated
automatically. CimStation also allows the dynamics of mechanisms to be modeled,
which enables machine cycle times to be accurately predicted. Silma has also
added application interfaces to this core technology for certain markets.
New Technology
Part Feeding Technology. Part feeding has historically been
accomplished by designing custom devices that could only accommodate a single
part or class of parts. The Company has developed new part feeding technology
which integrates vision, software and motion control technology with a simple
mechanical device. The Company's new flexible feeder recirculates the parts and
mechanically separates them, relying on vision to identify individual parts.
This flexible feeder can be rapidly reconfigured through software to handle a
wide variety of parts ranging from simple rectangular objects to complex molded
or machined parts.
-9-
<PAGE>
Products
The Company's core product families include robot mechanisms and other
mechanical products, guidance and inspection vision products, vision-based
flexible part feeders, machine controllers, machine control software and
simulation software. The following diagram depicts the Company's products by RDA
layer:
[Depiction of Adept's products with respect to the four layers of
its Rapid Deployment Automation approach.]
Robot Mechanisms and Other Mechanical Products
The Company designs and manufactures three SCARA (Selective Compliance
Assembly Robot Arm) style robot mechanisms called the AdeptOne, the AdeptThree
and the recently announced AdeptThree-XL, which are all designed for assembly,
material handling and packaging tasks. The links and joints of a SCARA robot are
somewhat analogous to the shoulder, elbow and wrist of a human. This
configuration is well-suited to a large number of assembly and material handling
tasks. The AdeptOne is the faster model, while the AdeptThree and AdeptThree-XL
offer a larger work envelope and handle a larger payload. The AdeptThree-XL
provides improved performance
-10-
<PAGE>
specifications over the existing AdeptThree. The improved performance
specifications address the needs in the packaging market as well as other
markets. This product has been designed to deliver increased performance and
ease-of-use, thereby furthering the Company's RDA strategy. All three robots
utilize direct-drive motor technology. U.S. list prices start at $42,295 for the
AdeptOne, $52,295 for the AdeptThree and $57,295 for the AdeptThree-XL, and
increase depending on the configuration of the robot mechanism, controller and
system software.
The Company also sources and markets two robot mechanisms, which are
built to the Company's specifications by Hirata Corporation ("Hirata"). The
Adept 550 robot is a light-duty SCARA robot that can be table mounted and offers
a small work envelope when space is at a premium. The Adept 550 robot has a U.S.
list price of $29,745 for the robot, controller and system software. The Adept
1850 robot is a palletizing robot which is used to palletize completed product
assemblies or packaged products at the end of an assembly line and allows
customers to perform this task with a robot that uses the same control and
software architecture as the upstream assembly line. U.S. list prices for this
product start at $79,695 for the robot, controller and system software.
The Company also offers a line of linear modules, called AdeptModules,
which the Company purchases from NSK Ltd. ("NSK"). These single axis devices can
be coupled together by the user to form a custom robot mechanism for
applications requiring a robot with fewer than four axes. U.S. list prices for
these modules start at $6,063.
Guidance and Inspection Vision Products
The Company offers a line of machine vision products, the AdeptVision
VME line, which are used for robot guidance and inspection applications. For the
guidance applications, AdeptVision VME is added into the controller by inserting
a printed circuit board and enabling the vision system software. For inspection
applications such as gauging and dimensioning, the AdeptVision VME product is
sold as an integrated inspection vision system comprised of a controller with
the vision board and software. U.S. list prices for the AdeptVision VME products
start at $10,200 for inspection applications and $14,500 for guidance
applications.
Machine Controllers
The Company's controller products are based on the VME bus architecture
standard. A large array of controller configurations are possible depending on
the features selected by the customer. The Company's controllers are configured
on a five slot chassis, called the Adept MV-5, an eight slot chassis, called the
Adept MV-8, a ten slot chassis, called the Adept MV-10, or a nineteen slot
chassis, called the Adept MV-19. All controllers include a system processor
board and a system input/output module. Additional functionality can be
incorporated by adding printed circuit boards and additional software. For
example, motion control is added by inserting a motion control board. Printed
circuit boards can be added for machine vision, graphical user interface
capability and additional communication inputs and outputs. The controller
products are sold independently for machine control and inspection vision
applications and are also sold as a component of the robot systems. U.S. list
prices for machine controllers start at $8,995.
Machine Control Software
Adept's V+ programming language and operating system software includes
specific instructions for motion control, machine vision, force sensing,
workcell control and general communications. These capabilities are integrated
to perform real-time machine control. The basic V+ software is included in the
price of the system. More advanced V+ features are available in a number of
packages with U.S. list prices under $1,000.
-11-
<PAGE>
The Company's AIM software simplifies the integration, programming and
operation of automation workcells and lines. AIM accomplishes this goal by
providing a formal method for capturing application-specific process knowledge
and then allowing users lacking advanced programming expertise to easily utilize
this embedded knowledge to accomplish a specific task. Several
application-specific versions of AIM are sold by the Company, including
MotionWare, which addresses motion applications such as those requiring
sophisticated conveyor tracking, VisionWare, which simplifies the use of vision
in both guidance and inspection applications, and PalletWare, which includes
special knowledge of box palletizing strategies. The basic AIM package and the
application-specific versions of AIM are packaged into several modules with U.S.
list prices that each range from $1,000 to $1,500.
Simulation Software
Adept's simulation software products simulate the layout and throughput
of workcells and other equipment and generate the programs to run the workcells.
There are four simulation software products that have U.S. list prices that
range from $8,000 to $60,000 and up. The CimStation Robotics product simulates
robot workcells for the Company's robot products as well as a number of other
robot vendors' products. This product is used to test layouts and cycle times
and to generate robot application programs. The CimStation Inspection product
simulates the operation of coordinate measurement machines and generates
programs that would be tedious to program manually given the complex inspection
tasks these machines perform. The SoftMachines product tests programs for
machine tool operations. This is a productivity tool for machine tool users who
would otherwise have to perform the time consuming task of testing programs on
the machine tool itself. Finally, SoftAssembly is used to simulate and test
product assembly and to develop assembly sequences and procedures.
Vision-based Flexible Feeder
The Company's Adept Flexible Feeder combines machine vision, software
and a flexible feeding mechanism. The Adept Flexible Feeder is designed to
handle a broad array of small parts and can be rapidly reconfigured to
accommodate new products, thus preserving the flexibility of the workcell or
production line. This product is currently in low-volume production, but
additional design work must be performed in order to optimize cost and
performance. There can be no assurance that the commercialization of this
product will be successfully completed or that this product will achieve
acceptance in the market.
Customers and Applications
The Company sells its products to system integrators, end users and
OEMs. End users of the Company's products include a broad range of manufacturing
companies in the electronics, telecommunications, appliances, pharmaceutical,
food processing and automotive components industries. These companies use
Adept's products to perform a wide variety of functions in assembly, material
handling and packaging applications, including mechanical assembly, printed
circuit board assembly, dispensing, palletizing and inspection. No customer
accounted for more than 10% of the Company's net revenues in fiscal 1994, 1995
and 1996.
Sales, Distribution and Marketing
Sales and Distribution
The Company's products are marketed through system integrators, its
direct sales force and OEMs.
System Integrators. A substantial portion of the Company's shipments
are through system integrators, and the Company views its relationships with
these organizations as important to the Company's success. The Company
-12-
<PAGE>
has established relationships with over 100 system integrators worldwide that
provide expertise and process knowledge for a wide range of specific
applications. These relationships are generally not regional and are mutually
nonexclusive, although the Company continuously works to earn voluntary
exclusive use of its products through product performance and support. The
greater the investment in equipment and training and the higher the purchase
volume, the greater the discount the system integrator receives. In certain
international markets, the system integrators perform marketing and support
functions directly.
A substantial portion of the Company's sales are to system integrators
that specialize in designing and building production lines for manufacturers.
Many of these companies are small operations with limited financial resources,
and the Company has from time to time experienced difficulty in collecting
payments from certain of these companies. To the extent the Company is unable to
mitigate this risk of collections from system integrators, the Company's results
of operations may be materially adversely affected. Furthermore, there can be no
assurance that any of these system integrators will not discontinue their
relationships with the Company or form additional competing arrangements with
the Company's competitors. In the event a number of the Company's system
integrators experience financial problems, terminate their relationships with
the Company or substantially reduce the amount of the Company's products they
sell, or in the event the Company fails to build an effective systems integrator
channel in any new markets, the Company's business, financial condition and
results of operations could be materially adversely affected.
Direct Sales Force. The Company employs a direct sales force which
calls on end users to communicate the capabilities of the Company's products and
support services and obtain up-to-date information on market requirements.
Adept's sales force possesses specific expertise in automation solutions and
advises end users on alternative production line designs, special application
techniques, equipment sources and system integrator selection. This sales force
works closely with system integrators and OEMs to integrate the Adept product
line into their systems, provides sales leads to certain system integrators and
obtains intelligent automation system quotes from system integrators for end
users. As of June 30, 1996, the Company's North American sales organization
included 13 individuals. The Company has four sales and customer support offices
in North America, located in San Jose, California; Southbury, Connecticut;
Southfield, Michigan; and Cincinnati, Ohio. As of June 30, 1996, the Company's
international sales organization included nine persons covering Europe, two
persons covering Japan and one person covering Singapore. The Company has six
international sales and customer support offices located in Dortmund, Germany;
Massy, France; Arezzo, Italy; Toyohashi, Japan; Kenilworth, the United Kingdom;
and Singapore.
Some of the Company's largest manufacturing end user customers have
in-house engineering departments that are comparable to a captive system
integrator. These engineering groups can establish a corporate integrator
relationship with the Company that offers benefits similar to those provided to
the Company's system integrators.
OEMs. The Company's OEM customers typically purchase one standard
product configuration, which the OEM integrates with additional hardware and
software and sells under the OEM's label to end users and other resellers.
The sale of the Company's products generally involves the delays
frequently associated with large capital expenditures. The Company's net
revenues depend in significant part upon the decision of a prospective customer
to upgrade or expand existing manufacturing facilities or to construct new
manufacturing facilities, all of which typically involve a significant capital
commitment. In the event one or more large orders fails to close as forecasted
for a fiscal quarter, the Company's net revenues and operating results for such
quarter could be materially adversely affected.
-13-
<PAGE>
International sales for the fiscal years ended 1994, 1995 and 1996 were
$23.1 million, $24.0 million and $32.2 million, respectively. The Company
currently expects that international sales will continue to account for a
significant portion of its net revenues; however, there can be no assurance that
international sales will increase or that the current level of international
sales will be sustained. The Company's operating results are subject to the
risks inherent in international sales and purchases, including, but not limited
to, various regulatory requirements, political and economic changes and
disruptions, transportation delays, foreign currency fluctuations, export/import
controls, tariff regulations, higher freight rates, difficulties in staffing and
managing foreign sales operations, greater difficulty in accounts receivable
collection and potentially adverse tax consequences.
Marketing
Adept's marketing organization, which consisted of 43 persons as of
June 30, 1996, supports the Company's various channels in a number of ways.
Product management works with end users, system integrators, corporate
integrators and the Company's sales engineers to continuously gather input on
product performance and end user needs. This information is used to enhance
existing products and to develop new products. A marketing programs group
generates and qualifies new business through industrial trade shows, various
direct marketing programs such as direct mail and telemarketing, public
relations efforts and advertising in industry periodicals. This marketing group
is responsible for tracking customers and prospects through the Company's
marketing database. The marketing group also publishes a document called the MVP
catalog, which lists software and hardware components that have been certified
by Adept to be compatible with the Company's product line. The Company also
expends considerable effort on the development of thorough technical
documentation and user manuals for the Adept product line, and views
well-designed manuals as critical to simplifying the installation, programming,
use and maintenance of the Company's products.
Backlog
The Company's backlog at June 30, 1996 was approximately $13.0 million,
as compared with approximately $17.0 million at June 30, 1995. The Company
includes in its backlog customer orders for products for which it has accepted
signed purchase orders with assigned delivery dates within nine months in the
case of sales to end users and system integrators, and one year in the case of
sales to OEMs. The Company's business is characterized by short term order and
shipment schedules. Because orders constituting the Company's current backlog
are subject to changes in delivery schedules and in certain instances may be
subject to cancellation without significant penalty, and because the Company
utilizes its backlog to balance seasonal fluctuations in its bookings, the
Company's backlog at any date may not be indicative of demand for the Company's
products or actual net revenues for any period in the future.
Services and Support
The Company's service and support organization, which consisted of 77
persons as of June 30, 1996, is designed to support the customer from the design
of the automation line through ongoing support of the installed system. This
organization included 33 application engineers/programmers as of June 30, 1996
based in a number of the Company's sales offices in the U.S., Europe and Asia.
This team is experienced in applying the Company's product line to solve a wide
array of application issues, and operates toll-free telephone support lines
called "the Hotline" to provide advice on issues such as software programming
structure, layout problems and system installation. End users and system
integrators can also hire these experts on a consulting basis to help resolve
new or difficult application issues.
-14-
<PAGE>
The Company also maintains a team of instructors, consisting of seven
instructors as of June 30, 1996, which develops training courses on subjects
ranging from basic system maintenance to advanced programming. These courses are
geared both for manufacturing engineers who design and implement automation
lines and for operators who operate and maintain equipment once it is in
production.
The Company's field service organization, which consisted of 33 persons
as of June 30, 1996, is based in six service centers located in San Jose,
California; Cincinnati, Ohio; Massy, France; Dortmund, Germany; Arezzo, Italy
and Toyohashi, Japan. The field-based service engineers maintain and repair
Adept products at the end user's facilities. Personnel based at these service
centers also provide advice to customers on spare parts, product upgrades and
preventative maintenance.
Research and Development
The Company's research and development efforts are focused on the
design of intelligent automation products which address the challenges of
designing, implementing, installing, operating and modifying automated
production lines. The Company intends to focus its research and development
efforts on the development of an integrated product line which further
implements the Company's RDA approach and which reduces cost, enhances
performance and improves ease of use.
The Company has devoted, and intends to devote in the future, a
significant portion of its resources to research and development programs. As of
June 30, 1996, the Company had 87 persons, including seven temporary or contract
personnel, engaged in research, development and engineering. The Company's
research, development and engineering expenses for fiscal 1994, 1995 and 1996
were approximately $7.1 million, $6.6 million and $8.1 million, respectively,
and represented 14.0%, 11.2% and 9.9%, respectively, of net revenues.
The Company's future success will depend on its ability to enhance its
existing products and to develop and introduce, on a timely and cost-effective
basis, new products and enhancements that keep pace with technological
developments and address the needs of its customers. The Company is currently
developing a number of new products which further implement RDA's goal of
providing easy to use intelligent automation systems to the end user. In
connection with the Company's Silma business and in response to competitive
pressures, the Company has accelerated development of new simulation programs
and currently expects to introduce two new PC-based products. These new off-line
simulation and programming software packages are being designed to operate under
Windows NT, with the functionality of the Company's UNIX products. One of these
products is a new simulation software package called "AdeptRAPID." AdeptRAPID is
a robotic simulation product tailored specifically for Adept robots and Adept's
AIM software, which is designed to quickly generate alternative conceptual
layouts and cycle time estimates for implementing an intelligent automation
system. It can also be used to load AIM databases automatically. The Company
commenced shipments of AdeptRAPID to beta sites during fiscal year 1996.
Additionally, CimStation Inspection, a product that allows customers to develop
programs and simulate coordinate measuring machine inspection, will also be
released under the new PC-based format. Other Adept products currently under
development include AdeptWindows which will allow the Company's customers to do
all development work, including vision applications, on the PC in the Windows 95
operating system. This open architecture product will allow customers to combine
the features of the Company's AIM and V+ software products with other PC-based
software products. In addition, the Company is introducing FlexFeedWare, an
extension of Adept AIM MotionWare, which will enable customers faster and easier
implementation of the Company's Flexible Feeder. The Company has also announced
its intention to introduce MV Controller Integration Kits which will provide an
integrated plug and play solution for connecting AdeptModules with the MV
Controller. Production shipment of AdeptRAPID, CimStation Inspection,
AdeptWindows and MV Controller Integration Kits are currently expected to
commence in the second half of fiscal 1997. There can be no assurance that
AdeptRAPID, CimStation Inspection, AdeptWindows, FlexFeedWare, MV Controller
Integration Kits or any of the Company's other products under
-15-
<PAGE>
development will be developed in a timely manner or that such products will
achieve acceptance in the market. If the Company is unable to successfully
develop these or other new products that respond to customer requirements or
technological changes, the Company's business, financial condition and results
of operations would be materially adversely affected.
The development and commercialization of new products involve many
risks, including the identification of new product opportunities, the retention
and hiring of appropriate research and development personnel, the definition of
the product's technical specifications, the successful completion of the
development process and the successful marketing of the product. The development
of these products has required, and will require, the Company to expend
significant financial and management resources.
The markets in which the Company competes are characterized by rapid
technological change and new product introductions and enhancements. The
Company's ability to remain competitive and its future success will depend in
significant part upon the technological quality of its products and processes
relative to those of its competitors and its ability both to develop new and
enhanced products and to introduce such products at competitive prices and on a
timely and cost-effective basis. There can be no assurance that the Company will
be successful in selecting, developing and manufacturing new products or in
enhancing its existing products on a timely basis or at all, or that such
products will achieve market acceptance. The success of the Company in
developing, introducing, selling and supporting new and enhanced products
depends upon a variety of factors, including timely and efficient completion of
hardware and software design and development, timely and efficient
implementation of manufacturing processes, and effective sales, marketing and
customer service. In addition, because of the complexity of the Company's
products, significant delays can occur between a product's initial introduction
in the market and commencement of volume production. In addition, new or
existing software products or enhancements may contain errors or performance
problems when first introduced, when new versions or enhancements are released,
or even after such products or enhancements have been used in the marketplace
for a period of time. Despite testing by the Company, such defects may be
discovered only after a product has been installed and used by customers. There
can be no assurance that such errors or performance problems will not be
discovered in future shipments of the Company's products, resulting in expensive
and time consuming design modifications or large warranty charges, damaging
customer relationships and resulting in loss of market share, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Manufacturing
Adept seeks to focus its manufacturing resources on activities which
enable the Company to differentiate its product line and add distinctive value.
Adept's manufacturing activities include the assembly, test and configuration of
its products. The Company believes that by performing these operations it can
better ensure the quality and performance of its products. The Company
outsources low unit volume, low value-added manufacturing operations, including
standard and build-to-print fabricated parts such as machinery, sheet metal
fabrication and assembled printed circuit boards. The Company also sources some
robot mechanisms. The purchased robot mechanisms are tested to meet defined
quality standards and then configured into complete products which are tested
again prior to shipment to the customer. This strategy enables the Company to
leverage product development, manufacturing and management resources while
retaining greater control over product delivery, final product configuration and
the timing of new product introductions, all of which are critical to meeting
customer expectations.
The Company's manufacturing organization has expertise in mechanical,
electrical, electronic and software assembly and test. In addition, because
outstanding quality and reliability over the life of the Company's products are
key to customer satisfaction and customers' repeat purchases of future
automation products, the Company believes its quality assurance plans and
organization are a key part of its business strategy. The Company's quality
assurance
-16-
<PAGE>
organization develops detailed instructions for all manufacturing and test
operations. These instructions are established in writing, implemented through
training of the manufacturing work force, and monitored to assure compliance. In
addition, the Company's quality assurance organization works closely with
vendors to develop instructions and to remedy quality problems if they arise.
The Company obtains many key components and materials and some
significant mechanical subsystems from sole or single source suppliers. The
Company purchases components, materials and mechanical subsystems from sole or
single source suppliers pursuant to purchase orders placed from time to time in
the ordinary course of business and has no guaranteed supply arrangements with
such suppliers. Certain of these components and mechanical subsystems have long
procurement lead times. The Company's reliance on sole or single source
suppliers involves several significant risks, including loss of control over the
manufacturing process, the potential absence of adequate supplier capacity,
potential inability to obtain an adequate supply of required components,
materials or mechanical subsystems and reduced control over manufacturing
yields, costs, timely delivery, reliability and quality of components, materials
or mechanical subsystems. In the event that any significant sole or single
source supplier were unable or unwilling to manufacture certain components,
materials or mechanical subsystems in required volumes, the Company would be
required to identify and qualify acceptable replacements. The process of
qualifying suppliers could be lengthy, and there can be no assurance that any
additional sources would be available to the Company on a timely basis or on
acceptable terms. If supplies of such items were not available from sole or
single source suppliers and a relationship with an alternative supplier could
not be timely developed, shipments of the Company's products could be
interrupted and reengineering of the affected product could be required. In
particular, the Company buys some significant mechanical subsystems from certain
sole source suppliers with lengthy procurement lead times, including robot
mechanisms from Hirata and NSK, image processing circuit boards from Imaging
Technology Incorporated and power transistors from International Rectifier
Corporation. Although to date the Company has not experienced any difficulty in
obtaining robot mechanisms or image processing circuit boards, from time to time
the Company has not obtained sufficient amounts of power transistors on a timely
basis, and has been required to use inventory scheduled for shipment in future
quarters to meet product demand. There can be no assurance that the Company will
not face shortages of one or more of these subsystems or components in the
future. Any failure by the Company to obtain sufficient robot mechanisms or
components on a timely basis could delay shipments of its products and could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company has experienced quality control problems with certain key
components provided by sole source suppliers, and has had to design around the
particular flawed item. The Company has also experienced delays in filling
customer orders due to the failure of certain suppliers to meet the Company's
volume and schedule requirements. Certain suppliers of the Company have also
ceased manufacturing components which the Company requires for its products, and
the Company has been required to purchase sufficient supplies for the estimated
life of its product line. There can be no assurance that these problems will not
occur in the future with the Company's suppliers. Disruption or termination of
the Company's supply sources could require the Company to pay more for
components, materials or mechanical subsystems, or to seek alternative sources
of supply, and could delay the Company's product shipments and damage
relationships with current and prospective customers, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. If the Company incorrectly forecasts product mix for a
particular period and the Company is unable to obtain sufficient supplies of any
components or mechanical subsystems on a timely basis due to long procurement
lead times, the Company's business, financial condition and results of
operations could be materially affected. Moreover, if demand for a product for
which the Company has purchased a substantial amount of components fails to meet
the Company's expectations, the Company would be required to write off the
excess inventory, thereby materially adversely affecting the Company's results
of operations. A prolonged inability to obtain adequate timely deliveries of key
components would have a material adverse effect on the Company's business,
financial condition and results of operations.
-17-
<PAGE>
The Company's hardware products are required to receive European
Community ("EC") electrical compliance and safety certification in certain
European countries, including France, Germany, Italy and Switzerland. EC
certification mandates a rigorous examination of the Company's products by
certain European agencies for adherence to a number of stringent electrical and
safety requirements, and products must be designed to meet these standards.
These standards can change and are subject to varying interpretation. The
Company has certified that its current VME controller products and the AdeptOne
and AdeptThree robot products meet applicable EC Directives and Standards. The
Flexible Feeder and the AdeptThree-XL have not yet been certified in Europe, and
there can be no assurance that the Company will receive such certification. In
the event any of the Company's robot products or any other major hardware
products were refused EC certification, the Company's European sales and its
business, financial condition and results of operations could be materially
adversely affected.
The Company is subject to a variety of environmental regulations
relating to the use, storage, handling and disposal of certain hazardous
substances used in the manufacturing and assembly of the Company's products. The
Company believes that it is currently in compliance with all material
environmental regulations in connection with its manufacturing operations, and
that it has obtained all necessary environmental permits to conduct its
business. Any failure by the Company to comply with present or future
regulations could subject the Company to the imposition of substantial fines,
suspension of production, alteration of manufacturing processes or cessation of
operations, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. Compliance with such
regulations could require the Company to acquire expensive remediation equipment
or to incur substantial expenses. Any failure of the Company to control the use,
disposal, removal or storage of, or to adequately restrict the discharge of, or
assist in the cleanup of, hazardous or toxic substances, could subject the
Company to significant liabilities, including joint and several liability under
certain statutes. The imposition of such liabilities could materially adversely
affect the Company's business, financial condition and results of operations.
Competition
The market for intelligent automation products is highly competitive.
The Company competes with a number of robot companies, motion control companies,
machine vision companies and simulation software companies. Many of the
Company's competitors have substantially greater financial, technical, marketing
and other resources than the Company. Although to date the Company's competitors
have not offered a broad range of intelligent automation products, it is
possible that one or more of these competitors may in the future, through
acquisitions or otherwise, offer a more comprehensive line of products which are
competitive with a broader range of the Company's products or with the Company's
entire product line. In addition, the Company may in the future face competition
from new entrants in one or more of its markets. The principal competitive
factors affecting the market for the Company's products are product
functionality and reliability, customer service and price, and product features
such as flexibility, programmability and ease of use. The Company believes that
it competes favorably with respect to these factors. In addition, to date, the
Company's competitors have been unable to successfully commercialize
direct-drive technology, although there can be no assurance that one or more of
them will not do so in the future.
The Company's principal competitors in the U.S. robot market include a
U.S. subsidiary of Japan-based Fanuc Ltd. ("Fanuc") and a U.S. subsidiary of
Seiko Corporation ("Seiko"). In the European robot market, the Company
principally competes with Robert Bosch GmbH, which to date has sold most of its
products in Germany, and with Fanuc and Seiko. In the Japanese robot market,
over a dozen robot companies compete with the Company, including Fanuc, Nippon
Denso, Panasonic Company, Sankyo Company Limited, Seiko, Toshiba Corporation and
Yamaha Corporation. Certain of these large manufacturing companies have greater
flexibility in pricing than the Company, because they generate substantial unit
volumes of robots for internal demand and may have access through their parent
companies to large sources of capital. There can be no assurance that any of the
Company's competitors
-18-
<PAGE>
will not seek to expand its presence in other markets in which the Company
competes. In addressing the Japanese market, the Company is at a competitive
disadvantage as compared to Japanese suppliers, many of whom have long-standing
collaborative relationships with Japanese manufacturers. Although the Company
expects to continue to invest significant resources in the Japanese market in
the future, there can be no assurance that the Company will be able to achieve
significant sales growth in the Japanese intelligent automation market.
The Company's principal competitors in the market for motion control
systems include Allen-Bradley Co. ("Allen-Bradley"), a subsidiary of Rockwell
International Corporation, in the United States, and Siemens AG in Europe. In
addition, the Company faces motion control competition from two major suppliers
of motion control boards, Galil Motion Control, Inc. and Delta Tau Data Systems,
Inc. These motion control boards are purchased by end users which engineer their
own custom motion control systems. In the simulation software market, the
Company's competitors include Tecnomatix Technologies, Inc., an Israel-based
company which sells mostly to major automotive manufacturers, and Deneb Robotics
Inc. In the machine vision market, the Company faces competition from Cognex
Corporation, Robotic Vision Systems Inc. and Allen-Bradley.
There can be no assurance that current or potential competitors of the
Company will not develop products comparable or superior in terms of price and
performance features to those developed by the Company or adapt more quickly
than the Company to new or emerging technologies and changes in customer
requirements. In addition, no assurance can be given that the Company will not
be required to make substantial additional investments in connection with its
research, development, engineering, marketing and customer service efforts in
order to meet any competitive threat, or that the Company will be able to
compete successfully in the future. The Company expects that in the event the
intelligent automation market expands, competition in the industry will
intensify, as additional competitors enter the Company's markets and current
competitors expand their product fines. Increased competitive pressure could
result in a loss of sales or market share, or cause the Company to lower prices
for its products, any of which could materially adversely affect the Company's
business, financial condition and results of operations.
Proprietary Technology and Intellectual Property
The Company relies on a combination of patent, copyright and trade
secret protection and nondisclosure agreements to protect its proprietary
rights. In the U.S. the Company holds three hardware patents and two software
patents. The Company also holds one hardware patent issued in France, Germany,
Great Britain, Italy and Sweden, and relies on trade secrets principles to
protect its proprietary technology in real-time multitasking software structure,
continuous path motion control and assembly of robot mechanisms. There can be no
assurance, however, that patent law, copyright law and trade secret protection
will be adequate to deter misappropriation of its technology, that any patents
issued to the Company will not be challenged, invalidated or circumvented, that
the rights granted thereunder will provide competitive advantages to the
Company, or that the claims under any patent application will be allowed.
The process of seeking patent protection can be time consuming and
expensive, and there can be no assurance that patents will issue from currently
pending or future applications or that the Company's existing patents or any new
patents that may be issued will be sufficient in scope or strength to provide
meaningful protection or any commercial advantage to the Company. Furthermore,
there can be no assurance that others will not independently develop similar
products, duplicate the Company's products or design around any patents issued
to the Company. The Company may be subject to or may initiate interference
proceedings in the U.S. Patent and Trademark Office, which can demand
significant financial and management resources. In addition, a substantial
amount of the Company's sales are in international markets, and there can be no
assurance that foreign intellectual property law will adequately protect the
Company's intellectual property rights.
-19-
<PAGE>
The Company has from time to time received communications from third
parties asserting that the Company is infringing certain patents and other
intellectual property rights of others or seeking indemnification against such
alleged infringement. As claims arise, the Company evaluates their merits. No
assurance can be given that any of these claims will not result in protracted
and costly litigation, that damages for infringement will not be assessed or
that should it be necessary or desirable to obtain a license relating to one or
more of the Company's products or current or future technologies, the Company
will be able to do so on commercially reasonable terms or at all. Litigation,
which could result in substantial cost to and diversion of resources of the
Company, may be necessary to enforce patents or other intellectual property
rights of the Company or to defend the Company against claimed infringement of
the rights of others. Any such litigation and the failure to obtain necessary
licenses or other rights could have a material adverse effect on the Company's
business, financial condition and results of operations. In particular, one end
user of the Company's products has notified the Company that it has received a
claim of patent infringement from Jerome H. Lemelson, alleging that its use of
the Company's machine vision products infringes certain patents issued to Mr.
Lemelson. This end user of the Company's products is currently engaged in
litigation with Mr. Lemelson involving certain of these patents, and the
validity, enforceability and infringement of those patents have been placed in
issue. The Company has not been named in this litigation, although certain
products sold by the Company, as well as products of others, were identified in
connection with this litigation as part of an allegedly infringing use. A
magistrate report and recommendation concluded that Mr. Lemelson's claims in
such litigation should not be enforced. Recently, the district court in such
litigation adopted such report and recommendation. There can be no assurance,
however, that Mr. Lemelson will not successfully appeal the district court
ruling to a higher court, or that Mr. Lemelson will not be successful in other
suits in other jurisdictions. In addition, the Company has been notified that
other end users of the Company's AdeptVision VME line and the predecessor line
of Multibus machine vision products have received letters from Mr. Lemelson
which refer to Mr. Lemelson's patent portfolio and offer the end user a license
to the particular patents. Certain end users, including the end user currently
in litigation with Mr. Lemelson, have notified the Company that they may seek
indemnification from the Company for damages or expenses resulting from this
matter. The Company may incur significant costs if it is required to indemnify
any purchasers or users of the Company's products for damages or expenses
resulting from the litigation or if Mr. Lemelson elects to seek damages directly
from the Company. The Company cannot predict the outcome of this or any similar
litigation which may arise in the future, and although such products have not
represented a material portion of the Company's net revenues in fiscal 1994,
1995 or 1996, there can be no assurance that any such litigation will not have a
material adverse effect on the business, financial condition or results of
operations of the Company.
Employees
At June 30, 1996, the Company had 341 full-time employees, including 96
in operations, 134 in sales and marketing, 80 in engineering, and 31 in
administration. In addition, at June 30, 1996 the Company utilized the services
of 38 temporary or contract personnel, including 13 in operations, 12 in sales
and marketing, seven in engineering and six in administration. The Company's
employees are not represented by any collective bargaining organization, and the
Company has never experienced a work stoppage. The Company believes that its
relationships with its employees are good.
The Company is highly dependent upon the continuing contributions of
its key management, sales and product development personnel. In particular, the
Company would be materially adversely affected if it were to lose the services
of Brian Carlisle, Chief Executive Officer and Chairman of the Board of
Directors of the Company, who has provided significant leadership to the Company
since its inception, or Bruce Shimano, Vice President, Research and Development
and a Director of the Company, who has guided the Company's research and
development programs since its inception. In addition, the loss of the services
of any of the Company's senior managerial, technical or sales personnel could
materially adversely affect the Company's business, financial condition and
results of operations. The Company's future success also heavily depends on its
continuing ability to attract, retain and motivate highly
-20-
<PAGE>
qualified managerial, technical and sales personnel. Competition for qualified
technical personnel in the intelligent automation industry is intense. The
Company's inability to recruit and train adequate numbers of qualified personnel
on a timely basis would adversely affect the Company's ability to design,
manufacture, market and support its products. The Company does not have
employment contracts with any of its executive officers and does not maintain
key man life insurance on the lives of any of its key personnel.
The Company has recently experienced a period of revenue growth and an
expansion in the number of its employees, the scope of its operating and
financial systems and the geographic area of its operations, due in part to its
acquisition of SILMA Incorporated ("Silma") in June 1995. In January 1996 the
Company implemented a management reorganization of the Silma group in order to
better integrate the group's activities into the Company, and Adept continues to
work on the integration of Silma into Adept. The Company's growth has resulted
in new and increased responsibilities for management personnel and has placed
additional demands upon the Company's management, operating and financial
systems and resources. There can be no assurance that the Company's systems,
procedures, controls and staffing will be successfully managed or will be
adequate to successfully support the Company's operations.
ITEM 2. PROPERTIES
The Company's headquarters and principal research and development and
manufacturing facilities are located in a 92,448 square foot leased building in
San Jose, California. The lease expires in December 1997 and provides for annual
lease payments of approximately $665,000. The Company leases an additional
10,000 square feet in an adjacent building in San Jose for its Silma division,
which lease expires in April 1998. The Company has an option to renew the San
Jose lease for up to an additional three years. The Company also leases a 3,596
square foot facility in City of Industry, California at which the Company's
software development group is based. The City of Industry lease terminates in
August 1997, and the Company has an option to renew for up to an additional four
years. The Company also leases facilities for sales and customer training in
Southbury, Connecticut; Southfield, Michigan; Cincinnati, Ohio; Massy, France;
Dortmund, Germany; Arezzo, Italy; Toyohashi, Japan; and Kenilworth, the United
Kingdom. The Company anticipates seeking expanded facilities for its
headquarters at the termination of its headquarters lease and expects that it
may need additional facilities to accommodate its proposed expansion of
operations. The Company currently expects that suitable additional or substitute
facilities will be available as required on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
-21-
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name Age Position
---- --- --------
Brian R. Carlisle........ 45 Chairman of the Board of Directors and Chief
Executive Officer
Charles S. Duncheon...... 45 Senior Vice President, Marketing and Sales
Telecommunications Industry & Americas
Richard J. Casler, Jr. .. 44 Vice President, Engineering
James E. Kuhl............ 55 Vice President, Operations
Betsy A. Lange........... 36 Vice President, Finance and Chief
Financial Officer
Bruce E. Shimano......... 47 Vice President, Research and Development,
Secretary and Director
Brian R. Carlisle has served as the Company's Chief Executive Officer
and Chairman of the Board of Directors since he co-founded the Company in June
1983. From June 1980 to June 1983, he served as General Manager and from June
1977 to June 1980, he served as project manager of the West Coast Division of
Unimation, Inc. ("Unimation"), where he was responsible for new product strategy
and development for Unimation's electric robots, control systems, sensing
systems and other robotics applications. Mr. Carlisle received a B.S. and M.S.
in mechanical engineering from Stanford University.
Charles S. Duncheon has served as the Company's Senior Vice President
of Marketing and Sales since September 1988. From May 1984 to May 1987, he
served as General Sales Manager and from May 1987 to September 1988 as Vice
President of North American Sales. Prior to that time, Mr. Duncheon served in
various marketing positions with Fared Robot Systems, Inc., a robot company, and
in various engineering and manufacturing positions at Monsanto Corporation, an
international chemicals company. Mr. Duncheon received a B.S. in industrial
engineering from Purdue University and an M.B.A. from Southern Illinois
University.
Richard J. Casler, Jr. has served as the Company's Vice President of
Engineering since April 1993 and from October 1992 to March 1993 served as
Director of Robot Interface Development. In October 1986, Mr. Casler co-founded
Genesis Automation, Inc., a developer of robots and automation for the service
industry, and served as its president until October 1992. From October 1981 to
October 1986, Mr. Casler was manager of product development at Unimation and at
Unimation's parent company, Westinghouse Electric Corporation. Mr. Casler
received a B.S. and an M.S. in mechanical engineering from the Massachusetts
Institute of Technology.
James E. Kuhl has served as the Company's Vice President of Operations
since November 1992. From July 1991 to June 1992, Mr. Kuhl was Director of
Operations for PolyFlex Circuits, Inc., a manufacturer of flexible membrane
printer circuits. From February 1991 to June 1991, he served as manager of
mechanical engineering at Honeywell, Inc., an industrial automation company.
Prior to that time, Mr. Kuhl held various manufacturing and marketing management
positions in the microcomputer group of Motorola, Inc. Mr. Kuhl received a B.S.
in electrical engineering from Pennsylvania State University and an M.B.A. from
the University of Rochester.
Betsy A. Lange has served as the Company's Vice President, Finance and
Chief Financial Officer since July 1993. Ms. Lange joined the Company as an
accounting manager in December 1987 and became its controller in May 1991. Prior
to that time, Ms. Lange served in various accounting positions for five years at
Avantek, Inc., a manufacturer of microwave components. Ms. Lange received a B.S.
in business administration from California PolyTechnic State University (San
Luis Obispo) and an M.B.A. from Santa Clara University.
-22-
<PAGE>
Bruce E. Shimano has served as the Company's Vice President, Research
and Development, and as a director since he co-founded the Company in June 1983.
Prior to that time, he was Director of Software Development at Unimation. Mr.
Shimano received a B.S., an M.S. and a Ph.D. in mechanical engineering from
Stanford University.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this item is incorporated by reference from
the section captioned "Market for Registrant's Common Stock and Related
Stockholder Matters" contained in the Company's 1996 Annual Report to
Shareholders for the fiscal year ended June 30, 1996, portions of which are
filed as Exhibit 13.1 hereto (the "Annual Report to Shareholders").
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference from
the section captioned "Selected Consolidated Financial Data" in the Company's
Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is incorporated by reference from
the Company's Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference from
the Company's Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item concerning the Company's
directors is incorporated by reference from the section captioned "Election of
Directors" contained in the Company's Proxy Statement related to the Annual
Meeting of Shareholders to be held November 21, 1996, to be filed by the Company
with the Securities and Exchange Commission within 120 days of the end of the
Company's fiscal year pursuant to General Instruction G(3) of Form 10-K (the
"Proxy Statement"). The information required by this item concerning executive
officers is set forth in Part I of this Report. The information required by this
item concerning compliance with Section 16(a) of the Exchange Act is
incorporated by reference from the section captioned "Section 16(a) Beneficial
Ownership Compliance" contained in the Proxy Statement.
-23-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the section captioned "Executive Compensation and Other Matters" contained in
the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the sections captioned "Compensation Committee Interlocks and Insider
Participation" and "Certain Transactions" contained in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
The following financial statements are incorporated by
reference in Item 8 of this Report:
Independent Auditors' Report
Consolidated Balance Sheets at June 30, 1995 and 1996
Consolidated Statements of Income for the years ended June 30,
1994, 1995 and 1996
Consolidated Statements of Shareholders' Equity for the
years ended June 30, 1994, 1995 and 1996
Consolidated Statements of Cash Flows for the years ended
June 30, 1994, 1995 and 1996
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
II - Valuation and Qualifying Accounts
Additional schedules are not required under the related
schedule instructions or are inapplicable, and therefore have been omitted.
(a)(3) Exhibits
3.1 Restated Articles of Incorporation of the Registrant.
3.2(1) Bylaws of the Registrant, as amended to date.
10.1(1) 1983 Stock Incentive Program, and form of Agreement
thereto.
10.2(1) 1993 Stock Option Plan, and form of agreement
thereto.
10.3(1) 1995 Employee Stock Purchase Plan, and form of
agreements thereto.
10.4(1) 1995 Director Stock Option Plan, and form of
agreement thereto.
-24-
<PAGE>
10.5(1) Form of Indemnification Agreement between the
Registrant and its officers and directors.
10.6.1(1) Lease Agreement between the Registrant and Technology
Associates I dated July 18, 1986, as amended.
10.6.2(1) Office Building Lease between Registrant and Puente
Hills Business Center II dated May 20, 1993, as
amended.
10.6.3(1) Standard Office Lease - Gross between SILMA
Incorporated and South Bay/Copley Joint Venture
dated November 11, 1992.
10.7(1) Loan Payoff Plan dated August 3, 1993 between
Registrant and Charles Duncheon.
11.1 Statement regarding computation of per share
earnings.
13.1 Portions of Registrant's Annual Report to
Shareholders for the fiscal year ended
June 30, 1996.
22.1(1) Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
24.1 Power of Attorney (See Page 26).
27.1 Financial Data Schedule.
- ------------------
(1) Incorporated by reference to exhibits filed with Registrant's
Registration Statement on Form S- 1 (Reg. No. 33-98816) as declared
effective by the Commission on December 15, 1995.
(b) Reports on Form 8-K. The Company did not file any reports on
Form 8-K during the quarter ended June 30, 1996.
(c) Exhibits. See Item 14(a)(3) above.
(d) Financial Statement Schedules. See Item 14(a)(2) above.
-25-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ADEPT TECHNOLOGY, INC.
By: /s/ Brian R. Carlisle
--------------------------------------
Brian R. Carlisle
Chairman of the Board of Directors
and Chief Executive Officer
Date: September 27, 1996
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Brian R. Carlisle and Betsy A. Lange and
each of them, his or her true and lawful attorneys-in-fact and agents, each with
full power of substitution and resubstitution, to sign any and all amendments
(including post-effective amendments) to this Annual Report on Form 10-K and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, or any of
them, shall do or cause to be done by virtue hereof.
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
<CAPTION>
Signature Title Date
--------- ----- -----
<S> <C> <C>
/s/ Brian R. Carlisle Chairman of the Board of Directors and Chief September 27, 1996
- ----------------------------------- Executive Officer (Principal Executive
(Brian R. Carlisle) Officer)
/s/ Betsy A. Lange Vice President, Finance and Chief Financial September 27, 1996
- ----------------------------------- Officer (Principal Financial and Accounting
(Betsy A. Lange) Officer)
/s/ Bruce E. Shimano Vice President, Research and Development, September 27, 1996
- ----------------------------------- Secretary and Director
(Bruce E. Shimano)
-26-
<PAGE>
Signature Title Date
--------- ----- -----
/s/ Cary R. Mock Director September 27, 1996
- -----------------------------------
(Cary R. Mock)
/s/ John E. Pomeroy Director September 27, 1996
- -----------------------------------
(John E. Pomeroy)
/s/ Wendell G. Van Auken Director September 27, 1996
- -----------------------------------
(Wendell G. Van Auken)
</TABLE>
-27-
<PAGE>
SCHEDULE II
<TABLE>
ADEPT TECHNOLOGY, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<CAPTION>
Balance Additions
at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions(1) of Period
- ---------------------------------- --------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
Year ended June 30, 1994:
Allowance for doubtful accounts $ 303 $ 88 $ 151 $ 240
Year ended June 30, 1995:
Allowance for doubtful accounts 240 305 63 482
Year ended June 30, 1996:
Allowance for doubtful accounts 482 277 294 465
<FN>
- ----------------
(1) Includes write offs net of recoveries.
</FN>
</TABLE>
RESTATED ARTICLES OF INCORPORATION
OF
ADEPT TECHNOLOGY, INC.
Brian R. Carlisle and Robert P. Latta hereby certify that:
1. They are the duly elected President and Assistant Secretary,
respectively, of Adept Technology, Inc., a California corporation.
2. The Restated Articles of Incorporation of this corporation, as
amended to the date of the filing of these Restated Articles of Incorporation
and with the omissions required by Section 910 of the Corporations Code are
hereby amended and restated to read as follows:
I
The name of this corporation is Adept Technology, Inc.
II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business,
or the practice of a profession permitted to be incorporated by the California
Corporations Code.
III
(A) This corporation is authorized to issue 30,000,000 shares of its
capital stock, which shall be divided into two classes known as "Common Stock"
and "Preferred Stock."
(B) The total number of shares of Common Stock which this corporation
is authorized to issue is 25,000,000, and the total number of shares of
Preferred Stock which this corporation is authorized to issue is 5,000,000.
(C) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors of this corporation is authorized to determine or
alter the rights, preferences, privileges, and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock, and within the
<PAGE>
limitations or restrictions stated in any resolution or resolutions of the Board
of Directors originally fixing the number of shares constituting any series, to
increase or decrease (but not below the number of shares of any such series then
outstanding) the number of shares of any such series subsequent to the issue of
shares of that series, to determine the designation and par value of any series
and to fix the number of shares of any series.
IV
(A) Limitation of Directors' Liability. The liability of the directors
of this corporation for monetary damages shall be eliminated to the fullest
extent permissible under California law.
(B) Indemnification of Corporate Agents. This corporation is authorized
to provide indemnification of agents (as defined in Section 317 of the
California Corporations Code) through bylaw provisions, agreements with agents,
vote of shareholders or disinterested directors or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to the applicable limits set forth in Section
204 of the California Corporations Code with respect to actions for breach of
duty to the corporation and its shareholders.
(C) Repeal or Modification. Any repeal or modification of the foregoing
provisions of this Article Fourth by the shareholders of this corporation shall
not adversely affect any right of indemnification or limitation of liability of
a director or officer of this corporation relating to acts or omissions
occurring prior to such repeal or modification.
-2-
<PAGE>
3. The foregoing Restated Articles of Incorporation have been duly
approved by the Board of Directors of said corporation.
4. The foregoing Restated Articles of Incorporation were approved by
the required vote of the shareholders of said corporation in accordance with
Sections 902 and 903 of the California General Corporations Code at a Special
Meeting of Shareholders, the record date for which was September 29, 1995. The
total number of outstanding shares of the corporation entitled to vote as of the
record date for said meeting was 2,188,721 shares of Common Stock, 1,250,000
shares of Series A Preferred Stock, 1,251,192 shares of Series B Preferred
Stock, 766,013 shares of Series C Preferred Stock, and 775,577 shares of Series
D Preferred Stock. The number of shares of stock voting in favor of the
foregoing Restated Articles of Incorporation equaled or exceeded the vote
required. The vote required was more than 50% of the outstanding shares of
Common Stock and more than 50% of the outstanding shares of Preferred Stock. The
Restated Articles are necessary as a result of the automatic conversion of all
outstanding Preferred Stock upon the effectiveness of the corporation's initial
public offering.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in the foregoing Restated Articles of
Incorporation are true and correct of our own knowledge.
Executed at San Jose, California, on December 20, 1995.
/s/ Brian R. Carlisle
-----------------------------------------
Brian R. Carlisle, President
/s/ Robert P. Latta
-----------------------------------------
Robert P. Latta, Assistant Secretary
-3-
Exhibit 11.1
ADEPT TECHNOLOGY, INC.
Statement of Computation of Net Income Per Share
(in thousands, except per share data)
(unaudited)
Year Ended June 30,
--------------------------
1995 1996
-------- -------
Net income $ 925 $ 5,777
======== =======
Weighted average common stock outstanding 5,661 7,009
Weighted average common stock equivalent shares 647 700
Shares related to SAB No. 55, 64, and 83 97 24
-------- -------
Shares use to compute net income per share 6,405 7,733
======== =======
Net income per common share $ .14 $ .75
======== =======
Exhibit 13.1
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
<CAPTION>
Year Ended June 30,
---------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net revenues..................................... $ 33,658 $ 43,065 $ 50,618 $ 59,069 $ 81,572
Cost of revenues................................. 18,312 22,142 28,089 34,788 46,812
-------- -------- -------- -------- --------
Gross margin.................................. 15,346 20,923 22,529 24,281 34,760
Operating expenses:
Research, development and engineering......... 4,246 5,628 7,075 6,598 8,098
Selling, general and administrative........... 12,754 13,451 13,486 14,722 20,201
Acquired in-process research and
development (1)............................. -- -- -- 2,972 --
-------- -------- -------- -------- --------
Total operating expenses.................... 17,000 19,079 20,561 24,292 28,299
Operating income (loss)....................... (1,654) 1,844 1,968 (11) 6,461
Interest income, net.......................... 212 191 163 440 496
-------- -------- -------- -------- --------
Income (loss) before provision for
income taxes................................ (1,442) 2,035 2,131 429 6,957
Provision for (benefit from) income taxes..... 37 145 (150) (496) 1,180
-------- -------- -------- -------- --------
Net income (loss)............................. $ (1,479) $ 1,890 $ 2,281 $ 925 $ 5,777
======== ======== ======== ======== ========
Net income (loss) per share (2)............... $ (.26) $ .32 $ .37 $ .14 $ .75
======== ======== ======== ======== ========
Shares used in per share calculation (2)...... 5,703 5,912 6,218 6,405 7,733
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short term investments $ 5,361 $ 8,350 $ 6,677 $ 8,812 $ 10,975
Working capital.................................. 15,374 16,664 18,772 19,757 35,030
Total assets..................................... 21,776 25,892 29,304 38,371 56,352
Long term liabilities............................ 169 127 203 117 26
Total shareholders' equity....................... 17,337 19,307 21,598 25,678 42,823
<FN>
- ---------------
(1) In June 1995 the Company acquired SILMA Incorporated and incurred a charge
of $3.0 million for acquired in-process research and development in
connection with such purchase. See Note 2 of Notes to Consolidated
Financial Statements.
(2) See Note 1 of Notes to Consoldiated Financial Statements for a discussion
of the computation of net income (loss) per share.
</FN>
</TABLE>
<PAGE>
<TABLE>
Quarterly Results of Operations (Unaudited) Exhibit 13.1
The Company operates and reports financial results ending on the last
Saturday of a thirteen week period for each of its first three fiscal quarters
and at June 30 for its fiscal year end. For convenience, the Company has
indicated in this annual report its fiscal quarters end on September 30,
December 31, and March 31.
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30,
1994 1994 1995 1995 1995 1995 1996 1996
------- ------- ------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues .................................. $13,483 $13,846 $15,016 $16,724 $19,671 $20,743 $20,800 $20,358
Cost of revenues .............................. 7,872 7,884 8,937 10,095 11,358 11,923 11,852 11,679
------- ------- ------- ------- ------- ------- ------- -------
Gross margin ................................ 5,611 5,962 6,079 6,629 8,313 8,820 8,948 8,679
Operating expenses:
Research, development and engineering ....... 1,602 1,605 1,587 1,804 1,946 2,073 2,112 1,967
Selling, general and administrative ......... 3,401 3,599 3,674 4,048 4,801 4,985 5,126 5,289
Acquired in-process research and
development(1) ............................. -- -- -- 2,972 -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses .................. 5,003 5,204 5,261 8,824 6,747 7,058 7,238 7,256
Operating income (loss) ....................... 608 758 818 (2,195) 1,566 1,762 1,710 1,423
Interest income, net .......................... 68 86 130 156 101 33 210 152
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before provision income taxes ... 676 844 948 (2,039) 1,667 1,795 1,920 1,575
Provision for (benefit from) income taxes ..... (99) (123) (138) (136) 288 312 325 255
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) ............................. $ 775 $ 967 $ 1,086 $(1,903) $ 1,379 $ 1,483 $ 1,595 $ 1,320
======= ======= ======= ======= ======= ======= ======= =======
As a Percentage of Net Revenues:
Net revenues .................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues .............................. 58.4 56.9 59.5 60.3 57.7 57.5 57.0 57.4
------- ------- ------- ------- ------- ------- ------- -------
Gross margin ................................ 41.6 43.1 40.5 39.7 42.3 42.5 43.0 42.6
Operating expenses:
Research, development and engineering ....... 11.9 11.6 10.6 10.8 9.9 10.0 10.2 9.6
Selling, general and administrative ......... 25.2 26.0 24.5 24.2 24.4 24.0 24.6 26.0
Acquired in-process research and development. -- -- -- 17.8 -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses .................. 37.1 37.6 35.1 52.8 34.3 34.0 34.8 35.6
Operating income (loss) ....................... 4.5 5.5 5.4 (13.1) 8.0 8.5 8.2 7.0
Interest income, net .......................... 0.5 0.6 0.9 0.9 0.5 0.2 1.0 0.7
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before provision for income taxes 5.0 6.1 6.3 (12.2) 8.5 8.7 9.2 7.7
Provision for (benefit from) income taxes ..... (0.7) (0.9) (0.9) (0.8) 1.5 1.5 1.5 1.2
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) ............................. 5.7% 7.0% 7.2% (11.4)% 7.0% 7.2% 7.7% 6.5%
======= ======= ======= ======= ======= ======= ======= =======
<FN>
- ---------------
(1) In June 1995 the Company acquired SILMA Incorporated and incurred a charge
of $3.0 million for acquired in-process research and development in
connection with such purchase. See Note 2 of Notes to Consolidated
Financial Statements.
</FN>
</TABLE>
Market for Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock has been traded on the NASDAQ National Market
under the symbol ADTK since the Company's initial public offering on December
15, 1995. The following table sets forth the range of high and low closing sale
prices as reported on the Nasdaq National Market System.
Dec. 31, Mar. 31, Jun. 30,
1995 1996 1996
-------- -------- --------
High........................... $ 10.75 $ 15.75 $ 14.00
Low............................ $ 9.75 $ 13.75 $ 12.50
At June 30, 1996, there were approximately 487 shareholders of record. To
date, the Company has neither declared nor paid cash dividends on shares of its
Common Stock. The Company currently intends to retain all future earnings for
its business and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future.
<PAGE>
Exhibit 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Special Note Regarding Forward-Looking Statements
Certain statements in the following Management's Discussion and Analysis of
Financial Condition and Results of Operations constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things, the following: the potential fluctuations in the Company's
quarterly and annual results of operations; the cyclicality of capital spending
of the Company's customers; the Company's dependence on the continued growth of
the intelligent automation market; the risks associated with sole or single
sources of supply and lengthy procurement lead times; the Company's highly
competitive industry; rapid technological change within the Company's industry;
the lengthy sales cycles for the Company's products; the risks associated with
reliance on system integrators; the risks associated with international sales
and purchases; the risks associated with potential acquisitions and the need to
manage growth; the risks associated with new product development and the need to
manage product transitions, including any difficulties or delays in the
development, production, testing and marketing of the Company's new PC products
under development, and generally in the migration of Silma from the UNIX
platform to the PC platform or difficulties or delays in the development,
production, testing and marketing of the Company's other new products under
development; the Company's dependence on retention and attraction of key
employees; the risks associated with product defects; the Company's dependence
on third-party relationships; the uncertainty of patent and proprietary
technology protection and third party intellectual property claims; changes in,
or failure or inability to comply with, government regulations; general economic
and business conditions; the failure of any new products to be accepted in the
marketplace; the inability of the Company to effectively integrate Silma's
personnel into the Company; decreased investment in robotics generally, and in
the Company's intelligent automation products particularly, as a result of
general or specific economic conditions or conditions affecting any of the
Company's primary markets; decreased acceptance of the Company's current
products in the marketplace; and the other factors referenced in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996.
OVERVIEW
The Company designs, manufactures and markets intelligent automation software
and hardware products for assembly, material handling and packaging
applications. The Company's products currently include machine controllers for
robot mechanisms and other flexible automation equipment, machine vision
systems, simulation software and a family of mechanisms including robots and
linear modules. In addition, the Company recently introduced a vision-based
flexible part feeder. The Company's net revenues have increased over time as its
robot product lines have grown, its advanced software and sensing technologies
have enabled robots to perform a wider range of functions and the Company has
expanded its channel of system integrators. In fiscal 1994 the Company began
selling significant volumes of its software and controller products to OEMs. In
addition, net revenues from international sales have increased as the Company
has expanded its international sales and marketing operations.
The Company sells its products through system integrators, its direct sales
force and OEMs. System integrators and OEMs add application-specific hardware
and software to the Company's products, thereby enabling the Company to provide
solutions to a diversified industry base, including the electronics,
telecommunications, appliances, pharmaceutical, food processing and automotive
components industries. Net revenues have increased in each of the Company's last
three fiscal years; however, there can be no assurance that the Company's net
revenues will continue to grow or that the Company will be profitable in future
periods. Accordingly, the Company's historical results of operations should not
be relied upon as an indication of future performance.
In June 1995 the Company purchased the assets and assumed the liabilities of
SILMA Incorporated ("Silma"), a developer of simulation software. The
acquisition was accounted for under the purchase method of accounting.
1
<PAGE>
Exhibit 13.1
Results of Operations
Comparison of Fiscal 1994 to 1995
Net revenues. The Company's net revenues increased by 16.7% from $50.6 million
in fiscal 1994 to $59.1 million in fiscal 1995. The growth in net revenues was
primarily attributable to increased shipments of robot products, in particular
the Company's then new Adept 550 Robot, increased shipments of the Company's
motion controller product, and to a lesser extent, to increased service
revenues. International sales, including sales to Canada, were $23.1 million or
45.6% of net revenues in fiscal 1994 as compared with $24.0 million or 40.6% of
net revenues in fiscal 1995. The absolute dollar increase in international sales
in fiscal 1995 reflects the Company's continued investment in international
sales, marketing and distribution activities.
Gross margin. Gross margin percentage was 44.5% in fiscal 1994 and 41.1% in
fiscal 1995. The decrease in gross margin was primarily attributable to a higher
proportion of sales of lower margin mechanical subsystems sourced from third
parties in the second half of the fiscal year, increased warranty costs
associated with new products, and higher costs for yen denominated purchases of
mechanisms and components due to unfavorable exchange rates.
Research, Development and Engineering. Research, development and engineering
expenses decreased by 7.0%, from $7.1 million or 14.0% of net revenues in fiscal
1994 to $6.6 million or 11.2% of net revenues in fiscal 1995. The decrease in
research, development and engineering expenses is primarily attributable to a
reduction in prototype expenses and receipt of third party development funding
of $250,000, partially offset by higher outside consulting expenses.
Selling, General and Administrative. Selling, general and administrative
expenses increased 8.9% from $13.5 million or 26.6% of net revenues in fiscal
1994 to $14.7 million or 24.9% of net revenues in fiscal 1995. This increased
spending was primarily attributable to increased headcount, and to a lesser
extent, to an increase in sales commissions associated with the Company's higher
revenue levels.
Acquired In-Process Research and Development. In June 1995 the Company purchased
the assets and assumed the liabilities of Silma for $5.0 million. The assets
acquired included net tangible assets valued at $531,000, completed software,
goodwill and other intangibles totaling $1.5 million, and software in the
development stage valued at approximately $3.0 million which was expensed in the
June 1995 fiscal quarter as it had not yet reached technological feasibility and
did not have alternative future uses.
Interest Income (Expense), Net. Interest income, net increased from $163,000 in
fiscal 1994 to $440,000 in fiscal 1995. The increase was primarily attributable
to additional interest income earned on higher invested cash balances.
Provision for (Benefit from) Income Taxes. Income tax benefit was $150,000 and
$496,000 in fiscal years 1994 and 1995, respectively. These tax provisions are
comprised primarily of state income taxes, foreign taxes and federal alternative
minimum taxes and have been reduced due to the utilization of net operating loss
carryforwards. The tax provisions were further reduced by adjustments of the
valuation allowance for deferred tax assets of $300,000 and $1.0 million in
fiscal years 1994 and 1995, respectively, offset by the tax impact of the
nondeductible charge for acquired in-process research and development made in
connection with the acquisition of Silma in June 1995.
Comparison of Fiscal 1995 to 1996
Net revenues. The Company's net revenues increased by 38.1% from $59.1 million
in fiscal 1995 to $81.6 million in fiscal 1996. The growth in net revenues was
primarily attributable to higher shipments of existing products, increased
service and upgrade revenues and, to a lesser extent, to increased net revenues
from simulation software. International sales, including sales to Canada, were
$24.0 million or 40.6% of net revenues in fiscal 1995, as compared with $32.2
million or 39.4% of net revenues in fiscal 1996.
2
<PAGE>
Exhibit 13.1
Although net revenues increased in fiscal year 1996, the Company did experience
moderation in its overall growth rate in the second half of fiscal 1996 as
compared to the Company's growth rate in prior quarters. See "Significant
Fluctuations in Operating Results." In addition, although the Company's Silma
business contributed to the Company's overall revenue growth in fiscal 1996, in
the fourth quarter of fiscal 1996 the Silma business experienced lower revenues
due to unexpected competitive pressures and organizational issues. The Company
is continuing to work on the integration of Silma into the Company following the
management reorganization of the Silma group during the third quarter of fiscal
1996 to better integrate the group's activities into the Company.
Gross margin. Gross margin percentage was 41.1% in fiscal 1995 and 42.6% in
fiscal 1996. The increase in gross margin was primarily attributable to higher
gross margins on simulation software products from Silma, of which there were
none in fiscal 1995.
The Company expects that it will continue to experience fluctuations in gross
margin percentage due to changes in its sales and product mix.
Research, Development and Engineering. Research, development and engineering
expenses increased by 22.7% from $6.6 million in fiscal 1995 to $8.1 million in
fiscal 1996. The increase in research, development and engineering expenses is
primarily attributable to the addition of the research and development expenses
of the Company's Silma business. The increase in research, development and
engineering expenses for fiscal 1996 was partially offset by $1.1 million of
third party development funding as compared with only $250,000 of third party
development funding in fiscal 1995. The Company expects that it will continue to
receive third party development funding from the federal and California state
governments during fiscal 1997 but that the amount of such funding will be lower
than amounts received in fiscal 1996. There can be no assurance that any funds
budgeted by either government for the Company's development projects will not be
curtailed or eliminated at any time. As a percentage of net revenues, research,
development and engineering expenses decreased from 11.2% in fiscal 1995 to 9.9%
in fiscal 1996. Research, development and engineering expenses as a percentage
of net revenues declined because the increase in research, development and
engineering expenses was more than offset by the increase in net revenues.
Selling, General and Administrative. Selling, general and administrative
expenses increased 37.2% from $14.7 million or 24.9% of net revenues in fiscal
1995 to $20.2 million or 24.8% of net revenues in fiscal 1996. This increased
spending was primarily attributable to the addition of the Company's Silma
business, and to a lesser extent, to increased headcount and sales commissions
associated with the Company's higher revenue levels, additional administrative
expenses associated with being a public company and a higher employee incentive
bonus accrual. The increase in the incentive bonus accrual was primarily
attributable to higher operating profitability in fiscal 1996 as compared with
fiscal 1995. The Company expects that selling, general and administrative
expenses will continue to increase in absolute dollars in future periods,
although as a percentage of net revenues, selling, general and administrative
expenses may fluctuate in future periods.
Interest Income (Expense), Net. Interest income, net in fiscal 1995 was
$440,000, compared to $496,000 in fiscal 1996. The increase was due to
additional interest income earned by the investment of cash proceeds from the
sale of common stock in the Company's initial public offering in December 1995,
partially offset by lower investment yields in fiscal 1996.
Provision for (Benefit from) Income Taxes. The Company recorded a tax benefit of
($496,000) in fiscal 1995 due to the utilization of net operating loss
carryforwards and a reduction in the valuation allowance for deferred tax
assets, offset by the tax impact of the nondeductible charge for acquired
in-process research and development made in connection with the acquisition of
Silma in June 1995. The Company's effective tax rate in fiscal 1996 was 17%. The
Company's tax rate differed from the statutory income tax rate primarily due to
the utilization of tax credit carryforwards and to a reduction in the valuation
allowance for deferred tax assets, partially offset by state income taxes and
taxes on the Company's foreign operations.
3
<PAGE>
Exhibit 13.1
Derivative Financial Instruments. The Company makes yen-denominated purchases of
certain components and mechanical subsystems from Japanese suppliers. In fiscal
1995 this resulted in material unfavorable foreign exchange transactions
included in cost of revenues. At certain times the Company has entered into
forward foreign exchange contracts, primarily to hedge against the short term
impact of foreign currency fluctuations on purchases denominated in yen. The
maturities of the forward foreign exchange contracts are short term in nature,
generally 90 days. The Company sells its products to certain Japanese customers
in yen. Depending on the ratio of yen-denominated purchases to yen-denominated
sales, the Company may engage in additional hedging transactions in the future.
Notwithstanding these precautions, however, the Company remains subject to the
transaction exposures that arise from foreign exchange movements between the
dates foreign currency export sales or purchase transactions are recorded and
the dates cash is received or payments are made in foreign currencies.
Significant Fluctuations in Operating Results
The Company's operating results have historically been, and will continue to be,
subject to significant quarterly and annual fluctuations due to a number of
factors, including fluctuations in capital spending domestically and
internationally or in one or more industries to which the Company sells its
products, new product introductions by the Company or its competitors, changes
in product mix and pricing by the Company, its suppliers or its competitors,
availability of components and raw materials, failure to manufacture a
sufficient volume of products in a timely and cost-effective manner, failure to
introduce new products on a timely basis, failure to anticipate changing
customer product requirements, lack of market acceptance or shifts in the demand
for the Company's products, changes in the mix of sales by distribution channel,
changes in the spending patterns of the Company's customers, and extraordinary
events such as litigation or acquisitions. The Company's gross margins may vary
greatly depending on the mix of sales of lower margin hardware products,
particularly mechanical subsystems sourced from third parties, and higher margin
software products. The Company's operating results will also be affected by
general economic and other conditions affecting the timing of customer orders
and capital spending. The Company generally recognizes product revenue upon
shipment or, for certain international sales, upon receipt by the customer. The
Company's net revenues and results of operations for a fiscal period will
therefore be affected by the timing of orders received and orders shipped during
such period. A delay in shipments near the end of a fiscal period, due for
example to product development delays or to delays in obtaining materials, could
materially adversely affect the Company's business, financial condition and
results of operations for such period. Moreover, continued investments in
research and development, capital equipment and ongoing customer service and
support capabilities will result in significant fixed costs which the Company
will not be able to reduce rapidly and, therefore, if the Company's sales for a
particular fiscal period are below expected levels, the Company's business,
financial condition and results of operations for such fiscal period could be
materially adversely affected. In addition, while in some years revenue from
international sales has helped buffer the Company against slowdowns in U.S.
capital spending, in other years the higher costs associated with international
sales, combined with downturns in international markets, have adversely affected
the Company's results of operations. There can be no assurance that the Company
will be able to increase or sustain profitability on a quarterly or annual basis
in the future.
The Company has experienced and is expected to continue to experience
seasonality in product bookings. The Company has historically had higher
bookings for its products during the June quarter of each fiscal year and lower
bookings during the September quarter of each fiscal year, due primarily to the
slowdown in sales to European markets. In the past the Company has generally
been able to maintain revenue levels during the September fiscal quarter by
utilizing backlog from the June fiscal quarter.
In the June quarter of fiscal 1996, however, sales were lower than anticipated
due to competitive pressures and organizational issues with respect to the
Company's Silma group. In addition, in the September quarter of fiscal 1997,
sales to European and other international markets decreased substantially, as
several large orders were delayed by customers. The decrease in product bookings
has resulted in decreased net revenues for the September quarter of fiscal 1997.
The Company currently expects that net revenues for the September fiscal quarter
will be between $17.8 and $18.8 million. The Company currently expects that it
will show a profit for the September fiscal quarter. As a result of the
decreased net revenues, however, the Company expects that earnings for the
September fiscal quarter will be significantly below analysts' expectations. In
addition, the Company currently believes that a number of factors will limit the
Company's ability to grow earnings through the end of calendar 1996. These
factors include the overall moderation in the growth rate of the intelligent
automation industry, the slowdown in sales to European and other international
markets, the competitive pressures and organizational issues facing the Silma
business and increased investments in product development and marketing
programs. The Company currently expects that production
4
<PAGE>
Exhibit 13.1
shipments of certain new products under development, including AdeptRAPID and
CimStation Inspection on the PC, an AdeptWindows PC interface for MV Controllers
and AdeptModules on MV Controller Integration Kits, will commence in the latter
half of fiscal 1997. However, there can be no assurance that these products will
be timely developed or that they will achieve acceptance in the marketplace.
Moreover, because product bookings were low in the September quarter of fiscal
1997, the Company's backlog is also down and inventories have increased. In the
event product bookings and net revenues for the December quarter of fiscal
1997 are insufficient to compensate for the lower product bookings in the
September fiscal quarter, the Company's results of operations for the December
quarter of fiscal 1997 and future fiscal quarters could be materially adversely
affected.
In addition, a significant percentage of the Company's product shipments occur
in the last month of each fiscal quarter. Historically this has been due to a
lack of component availability from sole or single source suppliers or, with
respect to components with long procurement lead times, due to inaccurate
forecasting of the level of demand for the Company's products or of the product
mix for a particular fiscal quarter. The Company has therefore from time to time
been required to utilize components and other materials for current shipments
which were scheduled to be incorporated into products to be shipped in
subsequent periods. If the Company were unable to obtain additional components
or mechanical subsystems to meet increased demand for its products, or to meet
demand for a product mix which differed from the forecasted product mix, or if
for any reason the Company failed to ship sufficient product prior to the end of
the fiscal quarter, the Company's business, financial condition and results of
operations could be materially adversely affected.
Liquidity and Capital Resources
The Company completed its initial public offering of common stock in December
1995, raising approximately $10.0 million net of offering expenses. Prior to
December 1995, the Company financed its operations through private sales of
equity securities, cash flow from operations, capital equipment leases, and bank
lines of credit. As of June 30, 1996, the Company had working capital of
approximately $35.0 million, including $8.1 million in cash and cash equivalents
and $2.9 million in short term investments.
Cash Flows From Operating Activities
Net cash provided by (used in) operating activities was $6.1 million for fiscal
1995 and ($5.6) million for fiscal 1996. The decrease from fiscal 1995 to fiscal
1996 reflects an increase in accounts receivable and inventories, partially
offset by net income adjusted for depreciation. The increase in accounts
receivable is attributable in part to the Company's higher net revenues in
fiscal 1996. In addition, some of the Company's customers have been lengthening
the time period over which they pay the Company for products shipped to such
customers. The increase in inventories is attributable in part to the Company's
higher net revenues in fiscal 1996 and also to lower than expected product
shipments in the June quarter of fiscal 1996.
Cash Flows From Investing Activities
Net cash used in investing activities was $6.7 million in fiscal 1995, due
primarily to purchases of short term investments aggregating $2.9 million,
purchases of property and equipment aggregating $2.0 million, and $1.8 million
paid for the acquisition of Silma. Net cash used in investing activities was
$2.9 million in fiscal 1996, due primarily to purchases of property and
equipment aggregating $3.0 million, offset by some proceeds from the sale of
property and equipment. Property and equipment purchases in fiscal 1996 included
$551,000 for test fixtures, tooling and other factory investments, $1.2 million
for MIS equipment and $1.1 million for laboratory and other equipment. The
Company currently anticipates capital expenditures of approximately $4.4 million
during fiscal 1997, including approximately $1.5 million for test fixtures,
tooling and other factory investments, approximately $1.3 million for MIS
equipment and approximately $1.6 million for laboratory and other equipment.
5
<PAGE>
Exhibit 13.1
Cash Flows From Financing Activities
Net cash of $10.7 million was provided by financing activities in fiscal 1996,
including $10.0 million in proceeds from the sale of common stock in the
Company's initial public offering and $973,000 in proceeds from employee stock
incentive and purchase plans and payments on notes receivable from shareholders,
partially offset by principal payments on capital lease obligations of $292,000.
The Company believes that the existing cash and cash equivalent balances as well
as short term investments and anticipated cash flow from operations will be
sufficient to support the Company's working capital requirements for at least
the next twelve months.
New Accounting Pronouncements
In 1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of". FAS 121
requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. FAS 121 is effective for fiscal years beginning
after December 15, 1995. Adoption of FAS 121 is not expected to have a material
impact on the Company's financial position or results of operations.
The Company accounts for its stock option plans and its employee stock purchase
plan in accordance with the provisions of the Accounting Principles Board's
Opinion No. 25 (APB), "Accounting for Stock Issued to Employees". In 1995, the
Financial Accounting Standards Board released the Statement of Financial
Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based
Compensation". FAS 123 provides an alternative to APB 25 and is effective for
fiscal years beginning after December 15, 1995. As permitted under FAS 123, the
Company expects to continue to account for its employee stock plans in
accordance with provisions of APB 25. Accordingly, FAS 123 is not expected to
have any material impact on the Company's financial position or results of
operations.
6
<PAGE>
Exhibit 13.1
ADEPT TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, June 30,
1995 1996
------- -------
ASSETS
Current assets:
Cash and cash equivalents $ 5,912 $ 8,075
Short term investments 2,900 2,900
Accounts receivable, less allowance for doubtful
accounts of $482 in 1995 and $465 in 1996 13,592 20,495
Inventories 8,787 14,808
Deferred tax assets and prepaid expenses 1,142 2,255
------- -------
Total current assets 32,333 48,533
Property and equipment at cost:
Computer equipment 2,849 3,312
Office furniture and equipment 1,438 1,767
Machinery and equipment 8,496 11,450
------- -------
12,783 16,529
Less accumulated depreciation and amortization 8,866 10,798
------- -------
Net property and equipment 3,917 5,731
Intangible assets related to acquisition of Silma
Incorporated, net of accumulated amortization
of $306 in 1996 1,473 1,167
Other assets 648 921
------- -------
Total assets $38,371 $56,352
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,785 $ 6,894
Accrued payroll and related expenses 2,014 2,635
Accrued warranty 1,026 1,387
Accrued customer rebates 644 99
Deferred revenue 408 561
Other accrued liabilities 1,410 1,839
Current portion of obligations under capital leases 289 88
------- -------
Total current liabilities 12,576 13,503
Obligations under capital leases 117 26
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value:
5,000 shares authorized, none issued and outstanding -- --
Convertible preferred stock, no par value:
4,372 shares authorized at June 30, 1995;
none at June 30, 1996; 4,043 issued and outstanding
at June 30, 1995, none at June 30, 1996 30,185 --
Common stock, no par value:
25,000 shares authorized; 2,120 and 7,869 issued and
outstanding at June 30, 1995 and 1996, respectively 3,977 45,383
Accumulated deficit (8,337) (2,560)
------- -------
25,825 42,823
Less notes receivable from shareholders 147 --
------- -------
Total shareholders' equity 25,678 42,823
------- -------
Total liabilities and shareholders' equity $38,371 $56,352
======= =======
See accompanying notes.
<PAGE>
Exhibit 13.1
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Year Ended June 30,
---------------------------------
1994 1995 1996
------- ------- -------
Net revenues $50,618 $59,069 $81,572
Cost of revenues 28,089 34,788 46,812
------- ------- -------
Gross margin 22,529 24,281 34,760
Operating expenses:
Research, development and engineering 7,075 6,598 8,098
Selling, general and administrative 13,486 14,722 20,201
Acquired in-process research
and development -- 2,972 --
------- ------- -------
Total operating expenses 20,561 24,292 28,299
------- ------- -------
Operating income (loss) 1,968 (11) 6,461
Interest income 236 476 540
Interest expense 73 36 44
------- ------- -------
Income before provision for income taxes 2,131 429 6,957
Provision for (benefit from) income taxes (150) (496) 1,180
------- ------- -------
Net income $ 2,281 $ 925 $ 5,777
======= ======= =======
Net income per share $ .37 $ .14 $ .75
======= ======= =======
Shares used in computing net income per share 6,218 6,405 7,733
======= ======= =======
See accompanying notes.
<PAGE>
Exhibit 13.1
<TABLE>
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Year Ended June 30,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Operating activities
Net income $ 2,281 $ 925 $ 5,777
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,410 1,533 2,364
(Gain) loss on disposal of property and equipment 256 87 (45)
Acquired in-process research and development -- 2,972 --
Tax benefit from stock plans -- -- 367
Changes in operating assets and liabilities:
Accounts receivable (2,890) (1,206) (6,903)
Inventories (1,515) (1,491) (6,853)
Deferred tax assets and prepaid expenses (421) (406) (1,113)
Other assets 201 (620) (317)
Accounts payable 1,081 3,887 109
Accrued payroll and related expenses (700) (2) 621
Accrued warranty (107) 315 361
Accrued customer rebates 78 176 (545)
Deferred revenue (6) (189) 153
Other accrued liabilities 627 151 388
------- ------- -------
Total adjustments (1,986) 5,207 (11,413)
------- ------- -------
Net cash provided by (used in) operating activities 295 6,132 (5,636)
------- ------- -------
Investing activities
Purchase of property and equipment, net (2,177) (2,040) (2,968)
Proceeds from the sale of property and equipment 51 24 58
Purchases of available for sale investments -- (2,900) (13,500)
Sales of available for sale investments -- -- 13,500
Cash paid for acquisition, net of cash received -- (1,818) --
------- ------- -------
Net cash used in investing activities (2,126) (6,734) (2,910)
------- ------- -------
Financing activities
Principal payment for capital lease obligations (263) (186) (292)
Proceeds from sales and leaseback of property and equipment 411 -- --
Proceeds from common stock issued under initial public offering -- -- 10,028
Proceeds from employee stock incentive program, employee
stock purchase plan, net of repurchases, cancellations, and
payments of notes receivable from shareholders 10 23 973
------- ------- -------
Net cash provided by (used in) financing activities 158 (163) 10,709
------- ------- -------
Increase (decrease) in cash and cash equivalents (1,673) (765) 2,163
Cash and cash equivalents, beginning of period 8,350 6,677 5,912
------- ------- -------
Cash and cash equivalents, end of period $ 6,677 $ 5,912 $ 8,075
======= ======= =======
Supplemental disclosure of noncash activities:
Conversion of preferred stock to common stock $ -- $ -- $30,185
Inventory capitalized into property, equipment and related tax $ -- $ -- $ 873
Cash paid during the period for:
Interest $ 73 $ 36 $ 44
Taxes $ 252 $ 27 $ 1,781
<FN>
Capital lease obligations of approximately $411 were incurred when the Company
entered into capitalized leases for new equipment in fiscal 1994. There were no
new capital leases in fiscal 1995 or 1996. Capital lease obligations of
approximately $202 were assumed as part of the Company's acquisition of SILMA
Incorporated (see Note 2).
See accompanying notes.
</FN>
</TABLE>
<PAGE>
Exhibit 13.1
<TABLE>
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<CAPTION>
Convertible Notes
Preferred Stock Common Stock Receivable Total
----------------- ---------------- Accumulated From Shareholders'
Shares Amount Shares Amount Deficit Shareholders Equity
------ ------ ------ ------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 4,043 $ 30,185 1,570 $ 812 ($11,543) ($ 147 $ 19,307
Common stock issued under employee
stock incentive program -- -- 10 10 -- -- 10
Net income -- -- -- -- 2,281 -- 2,281
------ ------- ----- ------- ------- ------ --------
Balance at June 30, 1994 4,043 30,185 1,580 822 (9,262) (147) 21,598
Common stock issued under
employee stock incentive program -- -- 18 23 -- -- 23
Common stock issued in connection
with acquisition -- -- 522 3,132 -- -- 3,132
Net income -- -- -- -- 925 -- 925
------ ------- ----- ------- ------- ------ --------
Balance at June 30, 1995 4,043 30,185 2,120 3,977 (8,337) (147) 25,678
Common stock issued under initial public
offering net of issuance costs -- 1,250 10,028 -- -- 10,028
Conversion of preferred stock to common stock (4,043) (30,185) 4,067 30,185 -- -- --
Common stock issued under employee stock
incentive program, employee
stock purchase plan, net of repurchase,
cancellations, and payments of notes
receivable from shareholders -- -- 432 826 -- 147 973
Tax benefit from stock plans -- -- -- 367 -- -- 367
Net income -- -- -- -- 5,777 -- 5,777
------ ------- ----- ------- ------- ------ --------
Balance at June 30, 1996 -- $ -- 7,869 $45,383 ($ 2,500) $ -- $ 42,823
====== ======= ===== ======= ======= ====== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
Exhibit 13.1
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization
Adept Technology, Inc. ("Adept" or the "Company") was incorporated under the
laws of the state of California on June 14, 1983. The Company designs,
manufactures and markets intelligent automation software and hardware products
for automating assembly, material handling and packaging applications.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company, its wholly-owned international subsidiaries, and SILMA Incorporated
("Silma"), acquired by the Company on June 28, 1995 (see Note 2).
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Foreign Currency Translation
The Company applies Financial Accounting Standards Board Statement No. 52,
Foreign Currency Translation, with respect to its international operations,
which are sales and service entities. All monetary assets and liabilities are
translated at the current exchange rate at the end of the period, nonmonetary
assets and liabilities are translated at historical exchange rates, and revenues
and expenses are translated at average exchange rates in effect during the
period. Gains or (losses) which result from the process of remeasuring foreign
currency financial statements in U.S. dollars were $72,000, $38,000 and
$(105,000) in fiscal 1994, 1995 and 1996, respectively. As these amounts have
been immaterial, the Company has included these gains and (losses) in net
income. Transaction gains and (losses) were $30,000, $(59,000) and $70,000 in
fiscal 1994, 1995 and 1996, respectively.
Reverse Stock Split
In October 1995, the Company's Board of Directors and shareholders approved
a 1-for-4 reverse stock split of the Company's preferred and common stock. All
preferred, common, common equivalent shares and income per share amounts in the
accompanying consolidated financial statements have been retroactively adjusted
to give effect to this reverse stock split. In addition, the Board of Directors
and shareholders approved changing the authorized common stock from 30,000,000
shares to 25,000,000.
Cash, Cash Equivalents and Short Term Investments
Cash and Cash Equivalents--Cash and cash equivalents reflect highly liquid
investments with maturities at the date of purchase of three months or less.
Cash equivalents consist of commercial paper and money market accounts. Through
June 30, 1996, the Company has invested cash in excess of operating requirements
in A1/P1 rated investments at prevailing market interest rates at the time of
purchase. At June 30, 1995, the Company had reflected a bank overdraft of
approximately $991,000 in accounts payable on the consolidated balance sheet.
This amount was repaid to the bank on July 5, 1995.
Short Term Investments--Effective at the beginning of fiscal year 1995, the
Company adopted Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities (FAS No. 115). FAS No. 115
requires the Company to determine the appropriate classification of its
investments in debt and equity securities at the time of purchase and to
reevaluate such classification as of each balance sheet date. The Company's
short term investments consist of U.S. government agency securities and money
market auction rate preferred stock with maturities of one year or less, are
classified as available for sale, and as such are carried at fair value. Fair
value is based upon quoted market prices on the last day of the fiscal year. The
cost of debt securities sold is based on the specific identification method. The
Company had no investments in equity securities at June 30, 1995 and 1996. Due
to insignificant differences between the cost and fair value of the Company's
investments, the adoption of FAS No. 115 had no material effect on the Company's
investments at
1
<PAGE>
Exhibit 13.1
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
July 1, 1994. In accordance with FAS No. 115, prior period financial statements
have not been restated. Cash, cash equivalents, and short term investments
consisted of the following (in thousands):
<CAPTION>
Cost at Cost at FMV at
6/30/95 6/30/96 6/30/96
------- -------- --------
<S> <C> <C> <C>
Cash and cash equivalents
Cash............................................ $ 514 $ 1,486 $ 1,486
Money market funds.............................. 157 1,143 1,143
Commercial paper................................ 5,241 5,446 5,446
------- -------- --------
Cash and cash equivalents........................... 5,912 8,075 8,075
------- -------- --------
Short-term investments
Government agency notes......................... - 1,000 1,000
Market auction preferred........................ 2,900 1,900 1,900
------- -------- --------
Short-term investments.............................. 2,900 2,900 2,900
------- -------- --------
Cash, cash equivalents and short-term investments... $ 8,812 $ 10,975 $ 10,975
======= ======== ========
</TABLE>
Realized gains or losses, interest, and dividends are included in interest
income. At June 30, 1995, the fair market value of cash, cash equivalents and
short term investments approximated cost. At June 30, 1995, and 1996, realized
and unrealized gains or losses from available-for-sale securities were not
material.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
The components of inventories are as follows (in thousands):
June 30,
---------------------
1995 1996
------- --------
Raw materials................................. $ 4,877 $ 9,488
Work-in-process............................... 2,473 3,069
Finished goods................................ 1,437 2,251
------- --------
$ 8,787 $ 14,808
======= ========
Revenue Recognition
The Company generally recognizes revenue on products at the time of
shipment. For certain international sales where title and risk of loss are
transferred at the customer's site, revenue is recognized upon receipt of
product by the customer. A provision for the estimated cost to repair or replace
products under warranty at the time of sale are recorded in the same period as
the related revenues.
The Company recognizes software revenue, primarily related to its simulation
software products, in accordance with the American Institute of Certified Public
Accountants' Statement of Position 91-1 on Software Revenue Recognition. License
revenue is recognized on shipment of the product provided that no significant
vendor or postcontract support obligations remain and that collection of the
resulting receivable is deemed probable by management. Insignificant vendor and
post contract support obligations are accrued upon shipment. Service revenue
includes training, consulting and customer support. Revenues from training and
consulting are recognized at the time the service is performed.
Deferred revenue, which is included in other accrued liabilities, primarily
relates to software support contracts sold under separate arrangements with
customers. The term of the software support contract is generally one year, and
the Company recognizes the associated revenue on a pro rata basis over the life
of the contract.
2
<PAGE>
Exhibit 13.1
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash equivalents, money market auction rate
preferred stocks and trade receivables. The Company places its cash equivalents
and short term investments with high credit-quality financial institutions. The
Company invests its excess cash in commercial paper, readily marketable debt
instruments and collateralized funds of U.S., state and municipal government
entities. The Company has established guidelines relative to credit ratings,
diversification and maturities that seek to maintain safety and liquidity. The
Company manufactures and sells its products to system integrators, end users and
OEMs in diversified industries. The Company performs ongoing credit evaluations
of its customers and does not require collateral. However, the Company may
require the customers to make payments in advance of shipment or to provide a
letter of credit. The Company provides reserves for potential credit losses, and
such losses have been within management's expectations.
Depreciation and Amortization
Depreciation and amortization are computed using the straight-line method
over the estimated useful lives of the assets, which range from three to five
years. Assets under capital leases are amortized over the shorter of the asset
life or the remaining lease term.
Research, Development and Engineering Costs
Research, development and engineering costs, other than research and
development costs of computer software, are charged to expense when incurred.
The Company has received third party funding of $0, $250,000 and $1,081,000 in
fiscal 1994, 1995 and 1996, respectively. The Company has offset research,
development and engineering expenses by the third party funding, as the third
party funding is based upon research and development expenditures and the
Company retains the rights to any technology that is developed.
Software Development Costs
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed (FAS No. 86). Under
the standard, capitalization of software development costs begins upon the
establishment of technological feasibility, subject to net realizable value
considerations. In the Company's case, capitalization would begin upon
completion of a working model, as the Company does not prepare detail designs as
part of the development process. Through June 30, 1996, the Company has only
capitalized the $898,000 of purchased software acquired in the Silma acquisition
(see Note 2) which is included in intangible assets on the consolidated balance
sheet. Such costs are amortized on a straight-line basis over five years, the
estimated useful life or the ratio of current revenue to the total current and
anticipated future revenue, whichever is greater. Amortization expense for the
fiscal year ended June 30, 1996 was $180,000.
Intangible Assets Related to Acquisition of Silma
Intangible assets related to the acquisition of Silma included goodwill of
$486,000, $898,000 of purchased software and a non-compete agreement of $89,000.
Goodwill and the non-compete agreement are amortized on a straight-line basis
over estimated useful lives of five and three years, respectively.
Reclassification
Certain amounts presented in the financial statements for fiscal 1994 have
been reclassified to conform to the presentation for fiscal 1996.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). Under FAS
109, the liability method is used to account for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
3
<PAGE>
Exhibit 13.1
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). The Company will be required to adopt FAS 123 in fiscal
1997. It is the Company's intention to continue to account for employee stock
options in accordance with Accounting Principles Board Opinion No. 25 and to
adopt the "disclosure only" alternative described in FAS 123.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" (FAS 121), which requires impairment losses to be
recorded on long-lived assets used in operations, such as property and
equipment, when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those asset are less than the carrying amount
of the assets. The Company will adopt FAS 121 in fiscal 1997. Based on current
circumstances management does not believe the effect of such adoption will be
material.
Net Income Per Share
Net income per share is computed using the weighted average number of shares
of common stock and dilutive common equivalent shares from convertible preferred
stock (using the if-converted method) and from stock options and warrants (using
the treasury stock method). Pursuant to the Securities and Exchange Commission
Staff Accounting Bulletins, common stock and common equivalent shares issued by
the Company at prices below the assumed public offering price during the
twelve-month period prior to the initial public offering have been included in
the calculation through September 30, 1995 as if they were outstanding for all
periods presented regardless of whether they are dilutive (using the treasury
stock method at an assumed public offering price).
2. Acquisition
Effective June 28, 1995, the Company completed the acquisition of the
outstanding stock of Silma, a developer of simulation software. The total
purchase price was $4,976,000, including a cash payment of $1,380,000, the
issuance of 521,992 shares of the Company's common stock at a $6.00 fair value
per share and related acquisition costs of $464,000.
The transaction was accounted for as a purchase.
The purchase price, including related acquisition costs, was allocated based
on an independent appraisal obtained by the Company to the tangible and
intangible assets acquired and liabilities assumed based on their respective
fair values on the date of the acquisition as follows (in thousands):
Cash................................................ $ 23
Trade accounts receivable........................... 773
Equipment, furniture and fixtures................... 504
Other current assets................................ 46
Other assets........................................ 20
Intangibles:........................................
Completed software............................. 898
Non-compete agreement.......................... 89
Acquired in-process research and development... 2,972
Goodwill....................................... 486 4,445
----- -------
Total assets........................................ 5,811
Liabilities assumed................................. (835)
-------
Net assets acquired............................ $ 4,976
=======
To determine the value of the completed software, the expected future cash
flow of each existing software product was discounted, taking into account risks
related to the characteristics and applications of each product, existing and
future markets, and assessments of the life cycle stage of each product. This
analysis resulted in a valuation of $898,000 for
4
<PAGE>
Exhibit 13.1
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
completed software, which had reached technological feasibility and therefore
was capitalizable. This software is being amortized on a straight-line basis
over a five year period.
To determine the value of the software in the development stage, the Company
considered, among other factors, the stage of development of each project, the
time and resources needed to complete each project, expected income and
associated risks. Associated risks include the inherent difficulties and
uncertainties in completing each project and thereby achieving technological
feasibility, and risks related to the viability of potential changes in future
target markets. This analysis resulted in a valuation of $2,972,000 for software
in the development stage that had not yet reached technological feasibility and
did not have alternative future uses. Therefore, in accordance with generally
accepted accounting principles, the $2,972,000 of software in the development
stage was expensed in June 1995 as acquired in-process research and development.
Other intangible assets will be amortized on a straight-line basis over
estimated useful lives ranging from three to five years.
The following unaudited pro forma combined results of operations of the
Company and Silma for the year ended June 30, 1995 have been prepared assuming
that the acquisition of Silma had occurred at the beginning of the period
presented. The following pro forma information is not necessarily indicative of
the results that would have occurred had the transaction been completed at the
beginning of the period indicated, nor is it indicative of future operating
results (in thousands, except per share data):
Year ended June 30,
---------------------
1995 1996
------- --------
Net revenues................................ $ 54,449 $ 62,721
Income (loss) from operations............... 2,063 (746)
Net income.................................. 2,391 59
Net income per share........................ $ .35 $ .01
3. Derivative Financial Instruments
The Company purchased certain components and mechanical subsystems from
Japanese suppliers denominated in yen. During September 1995, the Company began
selling some of its products to certain Japanese customers in yen. As a result,
the Company is subject to transaction exposures that arise from foreign exchange
movements between the dates foreign currency transactions are recorded (i.e.,
export sales or purchases) and the dates they are paid (i.e., cash receipts or
payments in foreign currencies). The Company from time to time may enter into
forward foreign exchange contracts primarily to hedge against the short term
impact of foreign currency fluctuations of invoices and orders denominated in
yen. The maturities of the forward exchange contracts are short term in nature,
(generally 90 days). Because the impact of movements in currency exchange rates
on forward foreign exchange contracts offsets the related impact on the
underlying items being hedged, these financial instruments do not subject the
Company to speculative risk that would otherwise result from changes in currency
exchange rates. Realized and unrealized gains and losses on instruments that
hedge firm commitments are deferred and included in the measurement of the
subsequent transaction; however, losses are deferred only to the extent of
expected gains on the future commitment.
Currency forward contract amounts for derivatives at June 30, 1995 and June
30, 1996 are approximately $994,000 and $0, respectively.
4. Commitments and Contingencies
Commitments
The Company leases certain equipment under long term leases which are
treated as capital leases. Accordingly, capitalized costs of approximately
$692,000 and $534,000 are included in property and equipment for the years ended
June 30, 1995 and 1996, respectively. Accumulated amortization of the leased
equipment amounted to approximately $366,000 and $372,000 for the respective
periods and related amortization is included in depreciation expense on the
Consolidated Statements of Cash Flows.
5
<PAGE>
Exhibit 13.1
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's lease on its major facility will expire in December 1997.
Future minimum payments for capital and operating leases as of June 30, 1996 are
as follows (in thousands):
June 30, 1996
-------------------------
Capital Operating
Leases Leases
------- ---------
Fiscal Year
1997...................................... $ 97 $ 1,409
1998...................................... 27 914
1999...................................... -- 411
2000...................................... -- 288
2001...................................... -- 136
Later years............................... -- 91
----- -------
Total minimum lease payments................... 124 $ 3,249
Less amount representing interest......... 10
-----
Present value of net minimum payments..... $ 114
=====
Total rent expense for all facility and equipment operating leases was
approximately $1,182,000, $1,195,000 and $1,406,000 in fiscal years 1994, 1995
and 1996, respectively.
Contingencies
The Company has from time to time received communications from third parties
asserting that the Company is infringing certain patents and other intellectual
property rights of others or seeking indemnification against such alleged
infringement. There is presently no litigation involving such claims, and, the
Company believes that the ultimate resolution, if any, of these matters will not
have a material adverse effect on its financial position, results of operations
or cash flows.
5. Shareholders' Equity
Public Offering
In December 1995, the Company sold a total of 1,250,000 shares of common
stock at $9.50 per share through its initial public offering. The net proceeds
(after underwriters' commission and fees and other costs associated with the
offering) totaled approximately $10,028,000. In connection with the offering,
all convertible preferred stock totaling approximately 4,043,000 shares with an
aggregate paid-in value of approximately $30,185,000 were converted into
approximately 4,067,000 shares of common stock of the Company.
Preferred Stock
The Board of directors has the authority to issue, without further action by
the Shareholders, up to 5,000,000 shares of preferred stock in one or more
series and to fix the price, rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting a series or the designation of such series,
without any further vote or action by the Company's shareholders. The issuance
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the shareholders and may adversely affect the market price of,
and the voting and other rights of, the holders of Common Stock.
Stock Plans
The Company's 1983 Employee Stock Incentive Program (the "1983 Plan") was
adopted by the Board of Directors in August 1983. The 1983 Plan provided for the
grant of incentive stock options to employees (including officers and employee
directors) and nonstatutory stock options to employees (including officers and
employee directors) and consultants of the Company. In general, options and
common stock purchased pursuant to stock purchase rights granted under the 1983
Plan vest and become exercisable starting one year after the date of grant, with
25% of the shares subject to the option exercisable at that time and an
additional 1/48th of the shares subject to the option becoming exercisable each
month thereafter. Upon the voluntary or involuntary termination of employment
(including as a result of death or disability) by a holder of unvested
6
<PAGE>
Exhibit 13.1
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
shares of the Company's common stock purchased pursuant to stock purchase rights
granted under the 1983 Plan, the Company may exercise an option to repurchase
such shares at their original issue price. The Board of Directors determines the
exercise price which must be at least equal to the fair market value of shares
on the date of grant. The 1983 Plan expired according to its terms in August
1993. Currently outstanding options under the 1983 Plan and common stock
purchased pursuant to stock purchase rights granted under the 1983 Plan continue
to be governed by the terms of the 1983 Plan and by the terms of the respective
option and stock purchase and stock restriction agreements between the Company
and the holders thereof.
The Company's 1993 Stock Plan (the "1993 Plan") was adopted by the Board of
Directors in April 1993 and approved by the Company's shareholders in June 1993.
The 1993 Plan provides for grants of incentive stock options to employees
(including officers and employee directors) and nonstatutory stock options to
employees (including officers and employee directors) and consultants of the
Company. The terms of the 1993 Plan are similar to the 1983 Plan, and the terms
of the options granted under the 1993 Plan generally may not exceed ten years.
The Board of Directors determines the exercise price which must be at least
equal to the fair market value of shares on the date of grant.
The options may be exercised at the time or times determined by the Board of
Directors.
<TABLE>
The following table summarizes activity for the stock plans (in thousands,
except per share data):
<CAPTION>
Options
------------------------------------------------------
Available Price Per Aggregate
for Grant Outstanding Share Price
--------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1993................. 188 512 $ .80 - $ 3.20 $ 417
Additional shares authorized........ 438 -- -- --
Granted............................. (320) 320 $1.20 - $ 5.40 448
Canceled............................ 19 (19) $ .80 - $ 3.00 (18)
Shares expired...................... (199) -- $ .80 - $ 2.00 --
Exercised........................... -- (10) $ .80 - $ 2.00 (10)
---- ----- -------
Balance at June 30, 1994................. 126 803 $ .80 - $ 5.40 837
Additional shares authorized........ 375 -- -- --
Granted............................. (280) 280 $5.40 - $ 6.00 1,645
Canceled............................ 23 (23) $ .80 - $ 6.00 (66)
Shares Expired...................... (6) -- $ .80 - $ 5.40 --
Exercised........................... -- (18) $ .80 - $ 5.40 (23)
---- ----- -------
Balance at June 30, 1995................. 238 1,042 $ .80 - $ 6.00 2,393
Additional shares authorized........ 800 -- -- --
Granted............................. (203) 203 $7.00 - $ 18.25 2,130
Canceled............................ 39 (39) $ .80 - $ 14.75 (175)
Shares Expired...................... (1) -- $ .80 --
Exercised........................... -- (382) $ .80 - $ 14.75 (524)
---- ----- -------
Balance at June 30, 1996................. 873 824 $ .80 - $ 18.25 $ 3,824
==== ===== =======
</TABLE>
Stock options totaling approximately 645,000 and 454,000 were exercisable at
June 30, 1995 and 1996, respectively. The Company has an option to repurchase
all or a portion of the shares, depending on the length of employment, at the
original selling price in the event the employee terminates employment. At June
30, 1995 and 1996, 0 and 439 common shares issued were subject to repurchase
under these agreements. In October 1995, the Company's Board of Directors and
shareholders approved a 650,000 share increase in the number of common shares
available for grant under the Company's 1993 Stock Plan.
7
<PAGE>
Exhibit 13.1
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Employee Stock Purchase Plan
The Company's 1995 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the shareholders in October
1995. The Purchase Plan allows eligible employees, through payroll deductions,
to purchase shares of the Company's common stock at 85% of the lesser of the
fair market value of the common stock on the first day or last day of the six
month purchase period. Each offering period is 12 months in duration. The
initial offering period began on the effective date of the initial public
offering and will end on the last trading day on or before October 31, 1996, and
subsequent offering periods will begin on the first trading day on or after May
1 and November 1 of each year. A total of 300,000 shares of the Company's common
stock has been reserved for issuance under the Purchase Plan.
Director Option Plan
The Company's 1995 Director Option Plan (the "Director Plan") was adopted by
the Board of Directors and approved by the shareholders of the Company in
October 1995. The option grants under the Director Plan are automatic and
nondiscretionary, and the exercise price of the options is at the fair market
value of the common stock on the date of grant. A total of 150,000 shares of
common stock has been reserved for issuance under the Director Plan.
Notes Receivable From Shareholders
The notes receivable from shareholders arose from the sale of the Company's
common stock to certain employees under the stock purchase rights. Such full
recourse notes were secured by the shares sold, bore interest at rates ranging
from 7% to 9% per year. All notes receivable from shareholders were repaid
before June 30, 1996.
6. Employee Savings and Investment Plan
In May 1988, the Company adopted a 401(k) savings and investment plan in
which all employees, at least 21 years of age, are eligible to participate. The
Company may make a matching contribution based on an employee's elective
deferrals of $0.25 per every dollar deferred by the employee, not to exceed
$12.00 per week. The Company's matching contributions were $82,000, $90,000 and
$133,000 in fiscal 1994, 1995 and 1996.
7. Income Taxes
The provision for (benefit from) income taxes consists of the following (in
thousands):
Year Ended June 30,
-----------------------------
1994 1995 1996
------ ------- -------
Current:
Federal.................................. $ 30 $ 150 $ 1,545
State.................................... 92 241 585
Foreign.................................. 28 113 250
------ ------- -------
Total current................................ 150 504 2,380
Deferred:
Federal.................................. (255) (822) (1,160)
State.................................... (45) (178) (40)
------ ------- -------
Total deferred............................... (300) (1,000) (1,200)
------ ------- -------
Provision for (benefit from) income taxes.... $ (150) $ (496) $ 1,180
====== ======= =======
8
<PAGE>
Exhibit 13.1
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The difference between the provision for (benefit from) income taxes and the
amount computed by applying the federal statutory income tax rate to income
before provision for income taxes is explained below (in thousands):
Year Ended June 30,
----------------------------
1994 1995 1996
----- ------- -------
Tax at federal statutory rate.............. $ 725 $ 146 $ 2,366
Tax benefits of net operating loss
carryforward utilization................ (661) (1,158) (1,149)
Nondeductible charge for purchased
research and development................ -- 1,010 --
Adjustment of valuation allowance.......... (300) (1,000) (805)
State taxes, net of federal benefit........ 61 241 360
Impact of temporary differences............ -- 276 --
Foreign taxes.............................. -- -- 173
Other...................................... 25 (11) 235
----- ------- -------
Provision for (benefit from) income taxes.. $(150) $ (496) $ 1,180
===== ======= =======
Significant components of the Company's deferred tax assets and liabilities
as of June 30, 1995 and 1996 are as follows (in thousands):
1995 1996
------- -------
Deferred tax assets:
Net operating loss carryforwards............... $ 1,000 $ 800
Tax credit carryforwards....................... 1,400 500
Inventory valuation accounts................... 500 950
Warranty reserves.............................. 400 550
Depreciation................................... 400 100
Other accruals and reserves not currently
deductible for tax purposes................ 800 780
Other.......................................... 100 10
------- -------
Total deferred tax assets.......................... 4,600 3,690
Valuation allowance................................ (2,900) (890)
------- -------
Net deferred tax assets............................ 1,700 2,800
Deferred tax liabilities:
Intangible assets.............................. (400) (300)
------- -------
Total net deferred tax assets...................... $ 1,300 $ 2,500
======= =======
The change in the valuation allowance was a net decrease of approximately
$900,000 for fiscal year 1995.
At June 30, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $2.3 million, which if unused, will
expire beginning in fiscal year 2001. The Company also had research credit
carryforwards of approximately $500,000, which if unused, will expire beginning
in fiscal year 1997. Utilization of the net operating loss carryforwards and the
deduction equivalent of approximately $375,000 of the tax credit carryforwards
is limited to approximately $350,000 per year.
For financial reporting purposes, a valuation allowance of $890,000 has been
established to offset the deferred tax assets related to certain tax credits and
net operating loss carryforwards. When realized, the tax benefits related to the
valuation allowance will be applied to reduce goodwill and other intangible
assets related to the acquisition of Silma.
Pretax income (losses) from foreign operations were approximately $2,000,
$(257,000) and $548,000 in fiscal years 1994, 1995 and 1996, respectively.
9
<PAGE>
Exhibit 13.1
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Industry and Geographic Information
The Company and its subsidiaries operate in one industry segment: the
design, manufacturing and marketing of intelligent automation software and
hardware products for automating assembly, material handling and packaging
applications. International sales, which include export sales and foreign
operation net revenues, account for a significant portion of the Company's net
revenues and are summarized as a percentage of net revenues by geographic areas
as follows:
Year Ended June 30,
--------------------------
1994 1995 1996
------ ------ ------
United States........................... 54.4% 59.4% 60.6%
International:
Europe.............................. 30.0 29.1 31.7
Other international................. 15.6 11.5 7.7
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
Foreign operations net revenues and identifiable assets have constituted
less than 10% of consolidated net revenues and identifiable assets,
respectively, to date.
The Company had export sales of approximately 37%, 32% and 29% of the net
revenues in fiscal years 1994, 1995 and 1996, respectively. Approximately 59%,
66% and 79% of the export sales were to Europe in fiscal years 1994, 1995 and
1996, respectively. The balance of export sales was primarily to Asia in each of
the three fiscal years.
10
<PAGE>
EXHIBIT 13.1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Adept Technology, Inc.
We have audited the accompanying consolidated balance sheets of Adept
Technology, Inc. as of June 30, 1995 and 1996 and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Adept
Technology, Inc. at June 30, 1995 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
San Jose, California
July 30, 1996
EXHIBIT 23.1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Adept Technology, Inc. of our report dated July 30, 1996, included in the
1996 Annual Report to Shareholders of Adept Technology, Inc.
Our audits also included the financial statement schedule of Adept Technology,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-3656) pertaining to the 1983 Employee Stock Incentive Plan,
1993 Stock Plan, 1995 Employee Stock Purchase Plan and 1995 Director Option Plan
of Adept Technology, Inc. of our report dated July 30, 1996, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule in this Annual Report (Form 10-K) of Adept Technology, Inc.
Ernst & Young LLP
San Jose, California
September 24, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FORM THE CONSOLIDATED CONDENSED BALANCE SHEET AS
OF JUNE 30, 1996 AND THE CONSOLIDATED CONDENSED STATEMENT OF
INCOME FOR THE YEAR ENDED JUNE 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 8,075
<SECURITIES> 2,900
<RECEIVABLES> 20,960
<ALLOWANCES> 465
<INVENTORY> 14,808
<CURRENT-ASSETS> 48,533
<PP&E> 16,529
<DEPRECIATION> 10,798
<TOTAL-ASSETS> 56,352
<CURRENT-LIABILITIES> 13,503
<BONDS> 0
<COMMON> 45,383
0
0
<OTHER-SE> (2,560)
<TOTAL-LIABILITY-AND-EQUITY> 56,352
<SALES> 81,572
<TOTAL-REVENUES> 81,572
<CGS> 46,812
<TOTAL-COSTS> 75,111
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44
<INCOME-PRETAX> 6,957
<INCOME-TAX> 1,180
<INCOME-CONTINUING> 5,777
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,777
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.75
</TABLE>
