--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30 , 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to _______
Commission File No. 0-27122
ADEPT TECHNOLOGY, INC.
----------------------
(Exact name of Registrant as specified in its charter)
California 94-2900635
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
150 Rose Orchard Way
San Jose, California 95134
-------------------------------------------- ----------------------------
(Address of Principal executive offices) (Zip Code)
(408) 432-0888
----------------------------------------------------
(Registrant's telephone number, including area code)
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
------- -------
The number of shares of the Registrant's common stock outstanding as of October
30, 2000 was 10,855,540.
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
ADEPT TECHNOLOGY, INC.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
September 30, 2000 and June 30, 2000........................................................ 3
Condensed Consolidated Statements of Operations
Three months ended September 30, 2000 and October 2, 1999................................... 4
Condensed Consolidated Statements of Cash Flows
Three months ended September 30, 2000 and October 2, 1999................................... 5
Notes to Condensed Consolidated Financial Statements.......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 12
Item 3. Qualitative and Quantitative Disclosures About Market Risk...................................... 28
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................................. 29
Item 6. Exhibits and Reports on Form 8-K................................................................ 29
Signatures...................................................................................... 30
Index to Exhibits............................................................................... 31
</TABLE>
2
<PAGE>
<TABLE>
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
September 30, June 30,
2000 2000
------- -------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,721 $13,487
Short-term investments 2,854 6,950
Accounts receivable, less allowance for doubtful accounts of
$593 at September 30, 2000 and $637 at June 30, 2000 22,721 25,527
Inventories 17,818 15,153
Deferred tax and other current assets 6,919 7,049
------- -------
Total current assets 56,033 68,166
Property and equipment at cost 28,716 25,675
Less accumulated depreciation and amortization 21,227 20,092
------- -------
Property and equipment, net 7,489 5,583
Goodwill and other intangibles, net 21,604 16,963
Other assets 5,499 2,811
------- -------
Total assets $90,625 $93,523
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,805 $10,841
Other accrued liabilities 9,541 10,732
------- -------
Total current liabilities 18,346 21,573
Long-term liabilities:
Deferred income tax 1,403 1,222
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value:
5,000 shares authorized, none issued and outstanding -- --
Common stock, no par value:
25,000 shares authorized, 10,809 shares issued and outstanding
at September 30, 2000, and 10,677 shares at June 30, 2000 68,047 67,184
Retained earnings 2,829 3,544
------- -------
Total shareholders' equity 70,876 70,728
------- -------
Total liabilities and shareholders' equity $90,625 $93,523
======= =======
<FN>
See accompanying notes.
</FN>
</TABLE>
3
<PAGE>
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
Three months ended
------------------
September 30, October 2,
------------- ----------
2000 1999
---- ----
Net revenues $ 27,621 $ 20,634
Cost of revenues 14,783 12,747
-------- --------
Gross margin 12,838 7,887
Operating expenses:
Research, development and engineering 4,866 3,459
Selling, general and administrative 7,836 7,257
Merger-related charges -- 988
Amortization of goodwill and other intangibles 1,425 --
-------- --------
Total operating expenses 14,127 11,704
-------- --------
Operating loss (1,289) (3,817)
Interest income, net 189 309
-------- --------
Loss before benefit from income taxes (1,100) (3,508)
Benefit from income taxes (385) (1,062)
-------- --------
Net loss $ (715) $ (2,446)
======== ========
Net loss per share:
Basic $ (0.07) $ (0.26)
======== ========
Diluted $ (0.07) $ (0.26)
======== ========
Number of shares used in computing per share amounts:
Basic 10,743 9,491
======== ========
Diluted 10,743 9,491
======== ========
See accompanying notes.
4
<PAGE>
<TABLE>
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<CAPTION>
Three months ended
------------------
September 30, October 2,
------------- ----------
2000 1999
---- ----
<S> <C> <C>
Operating activities
Net loss $ (715) $ (2,446)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 746 784
Amortization 1,486 25
Loss (gain) on disposal of property and equipment 12 (2)
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable 2,909 1,154
Inventories (2,665) (1,158)
Deferred tax assets and other prepaid expenses 495 615
Other assets (655) (251)
Accounts payable (2,770) 620
Accrued liabilities (2,163) (882)
-------- --------
Total adjustments (2,605) 905
-------- --------
Net cash used in operating activities (3,320) (1,541)
-------- --------
Investing activities
Business acquisitions (7,050) --
Purchase of property and equipment (2,355) (356)
Proceeds from the sale of property and equipment -- 8
Purchases of short-term available-for-sale investments (10,680) (41,517)
Sales of short-term available-for-sale investments 14,776 40,279
-------- --------
Net cash used in investing activities (5,309) (1,586)
-------- --------
Financing activities
Proceeds from employee stock incentive program and employee
stock purchase plan, net of repurchases and cancellations 863 298
-------- --------
Net cash provided by financing activities 863 298
-------- --------
Decrease in cash and cash equivalents (7,766) (2,829)
Cash and cash equivalents, beginning of period 13,487 11,816
-------- --------
Cash and cash equivalents, end of period $ 5,721 $ 8,987
======== ========
Supplemental disclosure of noncash activities:
Inventory capitalized into property and equipment including
related tax $ 228 $ 65
Cash paid during the period for:
Taxes paid $ 256 $ 227
<FN>
See accompanying notes.
</FN>
</TABLE>
5
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. General
The accompanying condensed consolidated financial statements have been
prepared in conformity with generally accepted accounting principles.
However, certain information or footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The
information furnished in this report reflects all adjustments which, in
the opinion of management, are necessary for a fair statement of the
consolidated financial position, results of operations and cash flows
as of and for the interim periods. Such adjustments consist of items of
a normal recurring nature. The condensed consolidated financial
statements included herein should be read in conjunction with the
audited financial statements and notes thereto for the fiscal year
ended June 30, 2000 included in the Company's Form 10-K as filed with
the Securities and Exchange Commission on September 28, 2000. Results
of operations for interim periods are not necessarily indicative of the
results of operations that may be expected for the fiscal year ending
June 30, 2001 or for any other future period.
Net (Loss) Income per Share
Basic net (loss) income per share is based on the weighted average
number of shares of common stock outstanding during the period,
excluding restricted stock, while diluted net (loss) income per share
is based on the weighted average number of shares of common stock
outstanding during the period and the dilutive effects of common stock
equivalents (mainly stock options), determined using the treasury stock
method, outstanding during the period, unless the effect of including
the common stock equivalents are anti-dilutive.
Derivative Financial Instruments
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards, or SFAS, No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133, as amended
by SFAS No. 137 and 138, establishes methods of accounting for
derivative financial instruments and hedging activities related to
those instruments as well as other hedging activities. The Company's
foreign currency exchange rate hedging activities have been
insignificant to date, and the adoption of SFAS No. 133 did not have a
material impact on our financial position, results of operations or
cash flows.
The Company's product sales are predominantly denominated in U.S.
dollars. However, certain international operating expenses are
predominately paid in their respective local currency. During 2000, the
Company began a foreign currency hedging program to hedge its exposure
to foreign currency exchange risk on local international operational
expenses and revenues. Realized and unrealized gains and losses on
forward currency contracts that are effective as hedges of assets and
liabilities, are recognized in income. The Company recognized gains of
$196,000 for the three months ended September 30, 2000.
The Company may enter into foreign exchange contracts as a hedge
against foreign currency denominated receivables. The Company does not
engage in currency speculation. Market value gains and losses on
contracts are recognized currently, offsetting gains or losses on the
associated receivables. Foreign currency transaction gains and losses
are included in current earnings. Foreign exchange contracts totaled
$3,931,400 at September 30, 2000. There were no foreign exchange
contracts at October 2, 1999.
6
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
2. Mergers and Acquisitions.
HexaVision Technologies Inc.
On July 21, 2000, the Company acquired HexaVision Technologies Inc.
("HexaVision"), a Canadian corporation. HexaVision is a machine vision
research and development company. Under the terms of the purchase
agreement, Adept paid $5.5 million in cash, which includes transaction
costs of $0.4 million. In addition, the Company will be issuing shares
of its common stock with a value of $1.1 million and making two cash
payments totaling approximately $1.6 million to the shareholders of
HexaVision contingent upon the continued employment of more than 50% of
selected HexaVision employees through July 2001. The Company deposited
$1.6 million into an escrow account pending resolution of the
contingencies. These contingent cash payments and share issuances will
be accounted for as additional purchase price when the contingencies
have been resolved. If the payments are made and the shares issued,
these amounts will be allocated to goodwill. The acquisition of
HexaVision has been accounted for under the purchase method of
accounting.
The purchase price of HexaVision was allocated, based on preliminary
estimates of fair value, to goodwill and other intangible assets.
Goodwill represents the excess of the purchase price of the net tangible
and intangible assets acquired over their estimated fair value. Other
intangible assets primarily represent developed technology and assembled
workforce and non-compete covenants. The allocation of the purchase
price is subject to change based upon the completion of an independent
valuation of the assets and liabilities of HexaVision as well as the
determination of the final transaction costs.
<TABLE>
For the HexaVision acquisition, below is a table of the preliminary
acquisition cost, preliminary purchase price allocation and annual
amortization of the intangible assets acquired:
(in thousands)
<CAPTION>
Annual
Amortization Amortization
Acquisition Cost Life of Intangibles
------------------------- ------------------- ---------------------
<S> <C> <C> <C>
Cash $ 5,100
Transaction costs..................... 352
----------------
Total acquisition cost........... $ 5,452
================
Purchase Price Allocation
Net liabilities assumed............ $ (205)
Developed and core technology...... 140 30 months $ 56
Non-compete covenant............... 130 30 months 52
Assembled workforce................ 254 30 months 102
Goodwill........................... 5,133 30 months 2,053
---------------- ----------------
Total............................ $ 5,452 $ 2,263
================ ================
</TABLE>
7
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following pro forma data was prepared to illustrate the estimated
effect of the acquisition of HexaVision as if the acquisition of
HexaVision had occurred as of the beginning of the year ended June 30,
2000:
(in thousands):
Net revenues............................................... $ 99,331
Net loss................................................... (5,502)
Net loss (income) per share:
Basic.................................................... $ (0.56)
Diluted.................................................. $ (0.56)
The pro forma results of operation have been prepared for comparison
purposes only and do not necessarily indicate what results would have
been if the acquisition of HexaVision occurred at the beginning of the
year ended June 30, 2000.
3. Financial Instruments
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Short-term investments consist principally of commercial paper and tax
exempt municipal bonds with maturities between three and 12 months,
market auction rate preferred stock and auction rate notes with
maturities of 12 months or less. Investments are classified as
held-to-maturity, trading, or available-for-sale at the time of
purchase.
At September 30, 2000 and June 30, 2000, all of the Company's
investments in marketable securities were classified as
available-for-sale and were carried at fair market value which
approximated cost. Material unrealized gains and losses, if any, would
have been recorded in shareholders' equity. Fair market value is based
on quoted market prices on the last day of the fiscal period. The cost
of the securities is based upon the specific identification method.
Realized gains or losses, interest, and dividends are included in
interest income. During fiscal year 2000 and the three months ended
September 30, 2000, realized and unrealized gains and losses on
available-for-sale investments were not material.
4. Inventories
Inventories are stated at the lower of standard cost, which
approximates actual (first-in, first-out method) or market (estimated
net realizable value). The components of inventory are as follows:
(in thousands) September 30, June 30,
2000 2000
------------- -----------
Raw materials...................... $ 6,972 $ 6,097
Work-in-process.................... 4,795 3,036
Finished goods..................... 6,051 6,020
------------ -----------
$ 17,818 $ 15,153
============ ===========
8
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. Property and Equipment
Property and equipment are recorded at cost.
The components of property and equipment are summarized as follows:
(in thousands) September 30, June 30,
2000 2000
------------ ------------
Cost:
Machinery and equipment................ $ 14,795 $ 13,303
Computer equipment..................... 10,300 8,975
Office furniture and equipment......... 3,621 3,397
------------ ------------
28,716 25,675
Accumulated depreciation and amortization 21,227 20,092
------------ ------------
Net property and equipment............... $ 7,489 $ 5,583
============ ============
6. Merger-Related Expenses
In July 1999, the Company incurred a merger-related charge of $988,000
relating to the acquisition of BYE/Oasis and the closure of BYE/Oasis
facilities in Texas. Included in this amount were merger-related
expenses of $558,000, expenses relating to the closure of facilities in
Texas of $195,000 and other non-recurring expenses relating to the
acquisition of $235,000.
7. Income Taxes
The Company provides for income taxes during interim reporting periods
based upon an estimate of its annual effective tax rate.
<TABLE>
8. Net Loss per Share
<CAPTION>
Three months ended
---------------------------------
(in thousands) September 30, October 2,
2000 1999
------------ ------------
<S> <C> <C>
Net loss ....................................... $ (715) $ (2,446)
Basic:
Weighted average shares outstanding........... 10,743 9,491
============ ============
Net loss per share............................ $ (.07) $ (.26)
============ ============
Diluted:
Weighted average shares outstanding........... 10,743 9,491
Effect of dilutive securities
- employee stock options................... -- --
------------ ------------
Adjusted weighted average shares outstanding
- assumed conversion....................... 10,743 9,491
============ ============
Net loss per share $ (.07) $ (.26)
============ ============
</TABLE>
9
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
9. Impact of Recently Issued Accounting Standards
Staff Accounting Bulletin No. 101 - Revenue Recognition
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" or SAB 101. SAB 101
provides guidance on the recognition, presentation and disclosure of
revenue in financial statements. In recent actions, the SEC has further
delayed the required implementation date which, for the Company, will
be the fourth quarter of fiscal 2001, retroactive to the beginning of
the fiscal year. The Company is in the process of assessing the impact
of SAB 101 on its consolidated results of operations, financial
position, and cash flows based upon the most current information.
10. Segment Information
The Company adopted Statement of Financial Accounting Standards No. 131
(SFAS 131), "Disclosures about Segments of an Enterprise and Related
Information," in 1999. SFAS 131 establishes standards for reporting
information about operating segments and related disclosures about
products, geographic information and major customers. The Company has
three reportable business segments, the Assembly and Material Handling
("AMH") operations segment, the Semiconductor operations segment and
the SILMA Software operations segment.
The AMH operations segment provides intelligent automation software and
hardware products for assembly, material handling and packaging
applications.
The Semiconductor operations segment provides semiconductor
contamination control products, such as, standard and customized
products for contamination control (mini and micro environments),
Standard Mechanical Interfaces ("SMIF") wafer integration and front-end
wafer handling solutions for semiconductor OEMs. In addition, the
segment provides end users guidance and inspection vision products and
robots to end users.
The SILMA Software ("SILMA") operations segment provides 3-D graphical
simulation tools for assembly process design, simulation and analysis.
The reportable segments are each managed separately because they
manufacture and distribute distinct products with different production
processes.
The Company evaluates performance and allocates resources based on
segment revenues and segment operating (loss) income. Segment operating
(loss) income comprises income before unallocated research and
development expenses, unallocated selling, general and administrative
expenses, amortization of intangibles, interest income, interest and
other expenses and income taxes.
Management does not fully allocate research and development expenses
and selling, general and administrative expenses when making capital
spending decisions, expense funding decisions or assessing segment
performance. There were no intersegment sales or transfers between
segments.
Segment information for total assets and capital expenditures is not
presented as such information is not used in measuring segment
performance or allocating resources among segments.
10
<PAGE>
<TABLE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
<CAPTION>
Three months ended
---------------------------------
(in thousands) September 30, October 2,
2000 1999
------------- -------------
<S> <C> <C>
Revenue:
Assembly and Material Handling operations............... $ 22,480 $ 17,401
Semiconductor operations................................ 3,749 2,319
SILMA Software operations............................... 1,392 914
------------- -------------
Total revenue...................................... $ 27,621 $ 20,634
============= =============
Operating (loss) income:
Assembly and Material Handling operations............... $ 5,713 $ 2,914
Semiconductor operations................................ 709 381
SILMA Software operations............................... (148) (527)
-------------- --------------
Segment profit ......................................... 6,274 2,768
Unallocated research, development and engineering and
selling, general and administrative.................. (7,563) (6,585)
Interest income......................................... 193 309
Interest expense........................................ (4) -
------------- -------------
Loss before benefit from
income taxes.......................................... $ (1,100) $ (3,508)
============= =============
</TABLE>
11. Comprehensive Income
For the three months ended September 30, 2000 and October 2, 1999,
there were no significant differences between the Company's
comprehensive (loss) income and its net (loss) income.
12. Reclassification
Certain amounts presented in the financial statements for prior periods
have been reclassified to conform to the presentation for fiscal 2001.
11
<PAGE>
ADEPT TECHNOLOGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward-looking statements. These statements involve known
and unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from any future
results, performances or achievements expressed or implied by the
forward-looking statements. Forward-looking statements include, but are not
limited to, statements about:
o marketing and commercialization of our products under development;
o our estimates regarding our capital requirements and our needs for
additional financing;
o plans for future products and services and for enhancements of existing
products and services:
o our ability to attract customers and market our products;
o our intellectual property;
o our ability to establish relationships with suppliers, systems
integrators and OEMs for the supply and distribution of our products;
o plans for future acquisitions and for the integration of recent
acquisitions; and
o sources of revenues and anticipated revenues, including the
contribution from the growth of new products and markets.
In some cases, forward-looking statements can be identified by terms such as
"may," "intend,", "might," "will," "should," "could," "would," "expect,"
"believe," "estimate," "predict," "potential," or the negative of these terms,
and similar expressions intended to identify forward-looking statements. These
statements reflect our current views with respect to future events and are based
on assumptions subject to risks and uncertainties. Given these uncertainties,
undue reliance should not be placed on these forward-looking statements. Also,
these forward-looking statements represent our estimates and assumptions only as
of the date of this report.
OVERVIEW
We provide intelligent production automation solutions to our customers in many
industries including the semiconductor, wireless communications, photonics,
food, automotive, life sciences and electronics industries. We utilize our
comprehensive portfolio of high precision mechanical components and application
development software to deliver automation solutions that meet our customer's
increasingly complex manufacturing requirements. We offer our customers a
comprehensive and tailored automation solution that we call Rapid Deployment
Automation, or RDA, that reduces the time and cost to design, engineer and
launch products into high-volume production. We market and sell our products
worldwide through more than 300 system integrators, our direct sales force and
OEMs.
This discussion summarizes the significant factors affecting our consolidated
operating results, financial condition, liquidity and cash flow during the
quarter ended September 30, 2000. Unless otherwise indicated, references to any
quarter in this Management's Discussion and Analysis of Financial Condition and
Results of Operations refer to our fiscal quarter ended September 30, 2000. This
discussion should be read with the consolidated financial statements and
financial statement footnotes included in this Quarterly Report on Form 10-Q.
12
<PAGE>
ADEPT TECHNOLOGY, INC.
Results of Operations
Three Month Periods Ended September 30, 2000 and October 2, 1999
Net revenues. Our net revenues increased by 33.9% to $27.6 million for the three
months ended September 30, 2000 from $20.6 million for the three months ended
October 2, 1999. The increase over the first quarter of 1999 is primarily
attributable to continued growth in mechanized system sales and stand-alone
controller sales, which were up 39.1%, collectively, versus the corresponding
quarter a year ago. We also experienced gains domestically in two of our growth
markets. Sales in the semiconductor markets were 13.6% of revenue, up 62% from
the corresponding quarter a year ago, and sales into the photonics markets
represented 4.5% of revenue versus less than 1.0% of revenue for the
corresponding quarter a year ago.
Our domestic sales totaled $16.1 million for the three months ended September
30, 2000, compared with $11.1 million for the three months ended October 2,
1999, an increase of 44.6%. The growth in domestic sales was principally
attributable to increases in sales to the semiconductor markets, which were
primarily made in the domestic market.
Our international sales totaled $11.5 million for the three months ended
September 30, 2000, compared with $9.5 million for the three months ended
October 2, 1999, an increase of 21.2%. The growth in international sales came
primarily from increased sales of stand-alone controllers to European-based OEM
customers. This growth was somewhat offset by the continued strength of the U.S.
dollar against the euro. We expect to see continued price pressure in these
markets which may have a negative effect on revenue.
Gross margin. Gross margin as a percentage of net revenue was 46.5% for the
three months ended September 30, 2000 compared to 38.2% for the three months
ended October 2, 1999. Exclusive of the write down of $665,000 for excess and
obsolete spare parts inventory in the first quarter of the prior year, the
improvement in gross margin for the three months ended September 30, 2000 was
primarily the result of increased volumes, while manufacturing operating
expenses remained relatively flat. These improvements represent a better
utilization of existing manufacturing resources, but as we enter new markets or
experience significant growth in existing markets, the acquisition of additional
capacity to meet those needs could negatively impact margins in the future.
Research, Development and Engineering Expenses. Research, development and
engineering expenses increased by 40.7% to $4.9 million, or 17.6% of net
revenues, for the three months ended September 30, 2000 from $3.5 million, or
16.8% of net revenues, for the three months ended October 2, 1999. The increase
in the three months ended September 30, 2000 was primarily due to increases in
salaries and payroll-related expenses of $502,000, project material expenses of
$78,000 and facilities expenses of $267,000. We expect that project and
operating expenses will continue to increase as we continue to invest in new
product development opportunities made available through our recent
acquisitions. Research, development and engineering expenses for the three
months ended September 30, 2000 were partially offset by third party funding of
$18,000, compared to $129,000 for the three months ended October 2, 1999. We
expect that we will continue to receive third party development funding from the
government as well as other third parties during fiscal 2001. However, any funds
budgeted by the government or other third parties for our development projects
may be curtailed or eliminated at any time.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 8.0% to $7.8 million, or 28.4% of net
revenues, for the three months ended September 30, 2000, as compared with $7.3
million, or 35.2% of net revenues, for the three months ended October 2, 1999.
The increased level of spending for the three months ended September 30, 2000
was primarily attributable to increased headcount and compensation-related
expenses. We expect that selling, general and administrative expenses will
continue to increase as we continue to invest in new product marketing
opportunities made available through our recent acquisitions.
13
<PAGE>
ADEPT TECHNOLOGY, INC.
Merger-Related Charges. We did not incur any merger-related expenses during the
three months ended September 30, 2000. In the quarter ended October 2, 1999, we
incurred merger-related charges of $988,000 relating to the acquisition of
BYE/Oasis and the closure of BYE/Oasis facilities in Texas. Included in this
amount were merger-related expenses of $558,000, expenses relating to the
closure of facilities in Texas of $195,000, and other non-recurring expenses
relating to the BYE/Oasis acquisition of $235,000.
Amortization of Goodwill and Other Intangibles. We incurred non-cash expenses of
$1.4 million in amortization of goodwill and other intangibles relating to the
acquisition of HexaVision, Nanomotion and Pensar for the three months ended
September 30, 2000. See note 2 (Mergers and Acquisitions) to our condensed
consolidated financial statements.
Interest Income, Net. Interest income for the three months ended September 30,
2000 was $189,000 compared to $309,000 for the three months ended October 2,
1999. The decrease was a result of a lower average cash balance attributable to
our acquisition of HexaVision on July 21, 2000. See note 2 (Mergers and
Acquisitions) to our condensed consolidated financial statements.
Benefit from Income Taxes. Our effective tax rate was 35% for the three months
ended September 30, 2000 and 30% for the three months ended October 2, 1999. For
the three months ended September 30, 2000, the effective tax rate was based on
estimates of the annual effective tax rate.
Derivative Financial Instruments. Our product sales are predominantly
denominated in U.S. dollars. However, certain international operating expenses
are predominately paid in their respective local currency. During 2000, we began
a foreign currency hedging program to hedge our exposure to foreign currency
exchange risk on local international operational expenses and revenues. Realized
and unrealized gains and losses on forward currency contracts that are effective
as hedges of assets and liabilities are recognized in income. We recognized
gains of $196,000 for the three months ended September 30, 2000 and none in
1999.
Impact of Inflation
The effect of inflation on our business and financial position has not been
significant to date.
Liquidity and Capital Resources
As of September 30, 2000, we had working capital of approximately $37.7 million,
including $5.7 million in cash and cash equivalents and $2.9 million in
short-term investments.
Cash and cash equivalents decreased $7.7 million from June 30, 2000. Net cash
used in operating activities of $3.3 million was primarily attributable to the
net loss adjusted by depreciation and amortization, increased inventories,
decreased accounts payable and accrued liabilities offset by decreased accounts
receivable. The increase in inventories of $2.7 million during the quarter
related primarily to new product introductions. Cash used in investing
activities during the quarter included $7.1 million in cash paid as part of the
purchase price for the acquisition of HexaVision, which was completed during the
quarter, and $2.4 million used to purchase property and equipment, offset by
$4.1 million of net proceeds from sales of short-term investments. Cash flows
from financing activities during the quarter consisted of $0.9 million in
proceeds from our employee stock incentive plan.
We believe 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 our capital requirements for at least the next 12 months.
Acquisitions
On July 21, 2000, we completed the acquisition of HexaVision Technologies Inc.,
a Canadian corporation. HexaVision is a machine vision research and development
company. In connection with the acquisition, we paid $5.5 million in cash, which
includes transaction costs of $0.4 million, and will be issuing shares of our
common
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stock to the shareholders of HexaVision with a value of $1.1 million, subject to
certain conditions. In addition, the terms of the acquisition provide that we
will make two payments totaling approximately $1.6 million to the shareholders
of HexaVision contingent upon the continued employment of selected HexaVision
employees through July 2001. We deposited $1.6 million into an escrow account
pending resolution of these contingencies. These contingent cash payments and
share issuances will be accounted for as additional purchase price when the
contingencies have been resolved. If the payments are made and the shares are
issued, these amounts will be allocated to goodwill. We have accounted for the
acquisition under the purchase method. We believe the acquisition of HexaVision
will enhance our machine vision products for all markets and facilitate our
entry into the PC-based machine vision market. HexaVision's core technology
incorporates techniques to achieve accuracies up to 1/40th of a pixel with
machine vision measurement algorithms that can increase our performance in
critical and demanding applications such as vision servoing for the
microelectrical, fiber optic, semiconductor, metrology and photonics industries.
New Accounting Pronouncements
Staff Accounting Bulletin No. 101 - Revenue Recognition
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" or SAB 101. SAB 101 provides guidance on
the recognition, presentation and disclosure of revenue in financial statements.
In recent actions, the SEC has further delayed the required implementation date
which, for us, will be the fourth quarter of fiscal 2001, retroactive to the
beginning of the fiscal year. We are in the process of assessing the impact of
SAB 101 on our consolidated results of operations, financial position and cash
flows based upon the most current information.
Statement of Financial Accounting Standard No. 133 - Accounting for Derivative
Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, of SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133, as amended by SFAS No. 137 and
138, establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. Our foreign currency exchange rate hedging activities have been
insignificant to date, and the adoption of SFAS No. 133 did not have a material
impact on our financial position, results of operations or cash flows.
FACTORS AFFECTING FUTURE OPERATING RESULTS
RISKS RELATED TO OUR BUSINESS
You should not rely on our past results to predict our future performance
because our operating results fluctuate due to factors which are difficult to
forecast.
Our past revenue growth and other operating results may not be accurate
indicators of our future performance. Our quarterly operating results have been
subject to significant fluctuations in the past, and we expect this to continue
in the future. The factors that may contribute to these fluctuations include:
o fluctuations in capital spending, cyclicality and other economic
conditions domestically and internationally in one or more industries
in which we sell our products;
o new product introductions by us or by our competitors;
o changes in product mix and pricing by us, our suppliers or our
competitors;
o availability of components and raw materials for our products;
o our failure to manufacture a sufficient volume of products in a timely
and cost-effective manner;
o our failure to anticipate the changing product requirements of our
customers;
o a change in market acceptance of our products or a shift in demand for
our products;
o changes in the mix of sales by distribution channels;
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ADEPT TECHNOLOGY, INC.
o exchange rate fluctuations; and
o extraordinary events such as litigation or acquisitions.
Our gross margins may vary greatly depending on the mix of sales of lower margin
hardware products, particularly mechanical subsystems purchased from third party
vendors, and higher margin software products.
Our operating results may also be affected by general economic and other
conditions affecting the timing of customer orders and capital spending. For
example, our operations during the third and fourth quarters of fiscal 1998, the
first three quarters of fiscal 1999 and the first quarter of fiscal 2000 were
adversely affected by a continuing downturn in hardware purchases by customers
in the electronics industry, particularly disk-drive manufacturers and to a
lesser extent communication manufacturers. We cannot estimate when or if a
sustained revival in these key hardware markets will occur.
We generally recognize product revenue upon shipment or, for certain
international sales, upon receipt by the customers. As a result, our net
revenues and results of operations for a fiscal period will be affected by the
timing of orders received and orders shipped during the period. A delay in
shipments near the end of a fiscal period, for example, due to product
development delays or delays in obtaining materials may cause sales to fall
below expectations and harm our operating results for the period.
In addition, our continued investments in research and development, capital
equipment and ongoing customer service and support capabilities result in
significant fixed costs that we cannot reduce rapidly. As a result, if our sales
for a particular fiscal period are below expected levels, our operating results
for the period could be materially adversely affected.
In the event that in some future fiscal quarter our net revenues or operating
results fall below the expectations of public market analysts and investors, the
price of our common stock may fall. We may not be able to increase or sustain
our profitability on a quarterly or annual basis in the future.
Sales of our products depend on the capital spending habits of our customers,
which tend to be cyclical.
Intelligent automation systems using our products can range in price from
$75,000 to several million dollars. Accordingly, our success is directly
dependent upon the capital expenditure budgets of our customers. Our future
operations may be subject to substantial fluctuations as a consequence of
domestic and foreign economic conditions, industry patterns and other factors
affecting capital spending. Although the majority of our international customers
are not in the Asia-Pacific region, we believe that any instability in the
Asia-Pacific economies could also have a material adverse effect on the results
of our operations as a result of a reduction in sales by our customers to those
markets. Domestic or international recessions or a downturn in one or more of
our major markets, such as the electronics, communications, semiconductor,
appliances, pharmaceutical, food processing or automotive components industries,
and resulting cutbacks in capital spending would have a direct, negative impact
on our business.
We sell some of our products to the semiconductor industry, which is subject to
sudden, extreme, cyclical variations in product supply and demand. The timing,
length and severity of these cycles are difficult to predict. In some cases,
these cycles have lasted more than a year. Semiconductor manufacturers may
contribute to these cycles by misinterpreting the conditions in the industry and
over- or under-investing in semiconductor manufacturing capacity and equipment.
We may not be able to respond effectively to these industry cycles.
Downturns in the semiconductor industry often occur in connection with, or
anticipation of, maturing product cycles for both semiconductor companies and
their customers and declines in general economic conditions. Industry downturns
have been characterized by reduced demand for semiconductor devices and
equipment, production over-capacity and accelerated decline in average selling
prices. During a period of declining demand, we must be able to quickly and
effectively reduce expenses and motivate and retain key employees. Our ability
to reduce expenses in response to any downturn in the semiconductor industry is
limited by our need for continued investment in engineering and research and
development and extensive ongoing customer service and support requirements. The
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long lead time for production and delivery of some of our products creates a
risk that we may incur expenditures or purchase inventories for products which
we cannot sell. A downturn in the semiconductor industry could therefore harm
our revenues and gross margin if demand drops or average selling prices decline.
Industry upturns have been characterized by abrupt increases in demand for
semiconductor devices and equipment and production under-capacity. During a
period of increasing demand and rapid growth, we must be able to quickly
increase manufacturing capacity to meet customer demand and hire and assimilate
a sufficient number of qualified personnel. Our inability to ramp-up in times of
increased demand could harm our reputation and cause some of our existing or
potential customers to place orders with our competitors.
Many of the key components and materials of our products come from single source
suppliers and their procurement requires lengthy lead times.
We obtain many key components and materials and some significant mechanical
subsystems from sole or single source suppliers with whom we have no guaranteed
supply arrangements. In addition, some of our sole or single sourced components
and mechanical subsystems incorporated into our products have long procurement
lead times. Our reliance on sole or single source suppliers involves certain
significant risks including:
o loss of control over the manufacturing process;
o potential absence of adequate supplier capacity;
o potential inability to obtain an adequate supply of required
components, materials or mechanical subsystems; and
o reduced control over manufacturing yields, costs, timely delivery,
reliability and quality of components, materials and mechanical
subsystems.
We depend on Sanmina Corporation for the supply of our circuit boards, NSK
Corporation for the supply of our linear modules, which are mechanical devices
powered by an electric motor that move in a straight line, and which can be
combined as building blocks to form simple robotic systems, Yaskawa Electric
Corp. for the supply of our 6-axis robots, Samsung Electronics Co., Ltd. for the
supply of semiconductor robots, Hirata Corporation for the supply of our Adept
Cobra 600 robot mechanism and Adept Cobra 800 robot mechanisms and Imaging
Technology Incorporated and Matrox Electronic Systems Ltd. for the supply of our
computer vision processors, which are used to digitize images from a camera and
perform measurements and analysis. If any one of these significant sole or
single source supplier were unable or unwilling to manufacture the components,
materials or mechanical subsystems we need in the volumes we require, we would
have to identify and qualify acceptable replacements. The process of qualifying
suppliers may be lengthy, and additional sources may not be available to us on a
timely basis, on acceptable terms or at all. If supplies of these items were not
available from our existing suppliers and a relationship with an alternative
vendor could not be developed in a timely manner, shipments of our products
could be interrupted and reengineering of these products could be required. In
the past, we have experienced quality control or specification problems with
certain key components provided by sole source suppliers, and have had to design
around the particular flawed item. We have also experienced delays in filling
customer orders due to the failure of certain suppliers to meet our volume and
schedule requirements. Some of our suppliers have also ceased manufacturing
components that we require for our products, and we have been required to
purchase sufficient supplies for the estimated life of its product line.
Problems of this nature with our suppliers may occur in the future.
Disruption or termination of our supply sources could require us to seek
alternative sources of supply, and could delay our product shipments and damage
relationships with current and prospective customers, any of which could have a
material adverse effect on our business. If we incorrectly forecast product mix
for a particular period and we are unable to obtain sufficient supplies of any
components or mechanical subsystems on a timely basis due to long procurement
lead times, our business, financial condition and results of operations could be
substantially impaired. Moreover, if demand for a product for which we have
purchased a substantial amount of components fails to meet our expectations, we
would be required to write off the excess inventory. A prolonged inability to
obtain adequate
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timely deliveries of key components could have a material adverse effect on our
business, financial condition and results of operations.
Because our product sales are seasonal, we may not be able to maintain a steady
revenue stream.
Our product sales are seasonal. We have historically had higher bookings for our
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 and summer vacations. In the event bookings for our
products in the June fiscal quarter are lower than anticipated and our backlog
at the end of the June fiscal quarter is insufficient to compensate for lower
bookings in the September fiscal quarter, our results of operations for the
September fiscal quarter and future quarters will suffer. For example, with the
exception of the quarter ending March 1999, our net revenues decreased as a
result of reduced product bookings in each of the two previous fiscal quarters
ending December 1999. In addition, during the quarter ending September 1999 our
revenue declined for similar reasons. As a whole, our revenues were adversely
affected by a decline in orders from customers primarily in the disk-drive
industry during fiscal 2000 and fiscal 1999 and, to a lesser extent, the
communications markets in fiscal 1999.
A significant percentage of our product shipments occur in the last month of
each fiscal quarter. Historically, this has been due in part, at times, to our
inability to forecast the level of demand for our products or of the product mix
for a particular fiscal quarter. To address this problem we periodically stock
inventory levels of completed robots, machine controllers and certain strategic
components. If shipments of our products fail to meet forecasted levels, the
increased inventory levels and increased operating expenses in anticipation of
sales that do not materialize could adversely affect our business.
Orders constituting our backlog are subject to changes in delivery schedules and
customer cancellations resulting in lower than expected revenues
Backlog should not be relied on as a measure of anticipated activity or future
revenues, because the orders constituting our backlog are subject to changes in
delivery schedules and in certain instances are subject to cancellation without
significant penalty to the customer. We have in the past experienced changes in
delivery schedules and customer cancellations that resulted in our revenues in a
given quarter being materially less than would have been anticipated based on
backlog at the beginning of the quarter. Similar delivery schedule changes and
order cancellations may adversely affect our operating results in the future.
Because we do not have long-term contracts with our customers, they may cease
purchasing our products at any time.
We generally do not have long-term contracts with our customers. As a result,
our agreements with our customers do not provide any assurance of future sales.
Accordingly our customers are not required to make minimum purchases and may
cease purchasing our products at any time without penalty. Because our customers
are free to purchase products from our competitors, we are exposed to
competitive price pressure on each order. Any reductions, cancellations or
deferrals in customer orders could have a negative impact on our financial
condition and results of operations.
We are expanding development of intelligent automation solutions for the
photonics industry, and our entry into this industry will require us to develop
significant new capabilities and may not be successful.
We are expanding development of our intelligent automation solutions targeted at
the photonics industry. We expect to devote significant financial, engineering
and management resources to expand our development and marketing of these
solutions. Our success in the photonics industry depends upon our ability to,
among other things:
o accurately determine the features and functionality that our photonics
customers require or prefer;
o successfully design and implement intelligent automation solutions that
include these features and functionality;
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o enter into agreements with system integrators, manufacturers and
distributors; and
o achieve market acceptance for our photonics solutions.
Our photonics solutions may not achieve broad market acceptance for a variety of
reasons including:
o photonics companies may continue their current production methods and
may not adopt our intelligent automation solutions;
o photonics companies may determine that the costs and resources required
to switch to our intelligent automation solutions are unacceptable to
them;
o system integrators, manufacturers and OEMs may not enter into
agreements with us; and
o competition from traditional, well-established photonics manufacturing
methods.
We have limited experience in developing and marketing products for the
photonics industry. If we do not successfully develop and achieve market
acceptance of products for the photonics industry, our ability to increase our
revenue may be limited and our business and our results of operations will
suffer.
We charge a fixed price for a certain products which may make us vulnerable to
cost overruns.
Our operating results fluctuate when our gross margins vary. Our gross margins
vary for a number of reasons, including:
o the mix of products we sell;
o the average selling prices of products we sell;
o the costs to manufacture, market, service and support our new products
and enhancements;
o the costs to customize our systems; and
o our efforts to enter new markets.
We charge a fixed price for certain of our products, including the products that
we added as a result of our acquisition of Pensar. If the costs we incur in
completing a customer order for these products exceed our expectations, we
generally cannot pass those costs on to our customer.
We have significant fixed costs which are not easily reduced during a downturn.
We continue to invest in research and development, capital equipment and
extensive ongoing customer service and support capability worldwide. These
investments create significant fixed costs that we may be unable to reduce
rapidly if we do not meet our sales goals. Moreover, if we fail to obtain a
significant volume of customer orders for an extended period of time, we may
have difficulty planning our future production and inventory levels, which could
also cause fluctuations in our operating results.
If our targeted photonics market develops more slowly than we expect, our
revenue will not grow as fast as anticipated, if at all.
Segments of the photonics market that we target as an element of our growth
strategy are either emerging or rapidly changing and the potential size of these
market segments and the timing of their development are difficult to predict. If
our targeted segments of this market develop more slowly than we expect, our
ability to increase our revenue may
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be limited. We depend, in part, upon the broad acceptance by photonic
manufacturers of our material handling and component assembly solutions, as well
as our simulation software and robot vision and motion control technology.
We rely on systems integrators and OEMs to sell our products.
We believe that our ability to sell products to system integrators and OEMs will
continue to be important to our success. Our relationships with system
integrators and OEMs are generally not exclusive, and some of our system
integrators and OEMs may expend a significant amount of effort or give higher
priority to selling products of our competitors. In the future, any of our
system integrators or our OEMs may discontinue their relationships with us or
form additional competing arrangements with our competitors. The loss of, or a
significant reduction in revenues from, system integrators or OEMs to which we
sell a significant amount of our product could negatively impact our business,
financial condition or results of operations.
As we enter new geographic and applications markets, we must locate system
integrators and OEMs to assist us in building sales in those markets. We may not
be successful in obtaining effective new system integrators or OEMs or in
maintaining sales relationships with them. In the event a number of our system
integrators and/or OEMs experience financial problems, terminate their
relationships with us or substantially reduce the amount of our products they
sell, or in the event we fail to build an effective systems integrator or OEM
channel in any new markets, our business, financial condition and results of
operations could be adversely affected.
In addition, a substantial portion of our 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 we
have from time to time experienced difficulty in collecting payments from
certain of these companies. As a result, we perform ongoing credit evaluations
of our customers. To the extent we are unable to mitigate this risk of
collections from system integrators, our results of operations may be harmed.
Our products generally have long sales cycles and implementation periods, which
increase our costs in obtaining orders and reduces the predictability of our
earnings.
Our products are technologically complex. Prospective customers generally must
commit significant resources to test and evaluate our products and to install
and integrate them into larger systems. Orders expected in one quarter may shift
to another quarter or be cancelled as a result of the customers' budgetary
constraints, internal acceptance reviews, and other factors affecting the timing
of customers' purchase decisions. In addition, customers often require a
significant number of product presentations and demonstrations, in some
instances evaluating equipment on site, before reaching a sufficient level of
confidence in the product's performance and compatibility with the customer's
requirements to place an order. As a result, our sales process is often subject
to delays associated with lengthy approval processes that typically accompany
the design and testing of new products. The sales cycles of our products often
last for many months or even years. In addition, the time required for our
customers to incorporate our products into their systems can vary significantly
with the needs of our customers and generally exceeds several months, which
further complicates our planning processes and reduces the predictability of our
operating results. Longer sales cycles require us to invest significant
resources in attempting to make sales, which may not be realized and delay the
generation of revenue.
Our international operations may subject us to divergent regulatory requirements
and other risks that may harm our operating results.
International sales were $11.5 million for the quarter ended September 30, 2000,
$44.9 million for the fiscal year ended June 30, 2000, $41.2 million for the
fiscal year ended June 30, 1999 and $39.8 million for the fiscal year ended June
30, 1998. This represented 41.7%, 45.2%, 47.2%, and 37.8% of net revenues for
the respective periods. We also purchase some components and mechanical
subsystems from foreign suppliers. As a result, our operating results are
subject to the risks inherent in international sales and purchases, which
include the following:
o unexpected changes in regulatory requirements;
o political and economic changes and disruptions;
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o transportation costs and delays;
o foreign currency fluctuations;
o export/import controls;
o tariff regulations and other trade barriers;
o higher freight rates;
o difficulties in staffing and managing foreign sales operations;
o greater difficulty in accounts receivable collection in foreign
jurisdictions; and
o potentially adverse tax consequences.
Foreign exchange fluctuations may render our products less competitive relative
to locally manufactured product offerings, or could result in foreign exchange
losses. In calendar 2000, the value of major European currencies has dropped
against the U.S. dollar. To date, we have not reflected that change in currency
value in our selling prices. In order to maintain a competitive price for our
products in Europe, we may have to provide discounts or otherwise effectively
reduce our prices, resulting in a lower margin on products sold in Europe.
Continued change in the values of European currencies or changes in the values
of other foreign currencies could have a negative impact on our business,
financial condition and results of operations.
In addition, duty, tariff and freight costs can materially increase the cost of
crucial components for our products. We anticipate that past turmoil in Asian
financial markets and the deterioration of the underlying economic conditions in
certain Asian countries may continue to have an impact on our sales to customers
located in or whose projects are based in those countries due to the impact of
restrictions on government spending imposed by the International Monetary Fund
on those countries receiving the International Monetary Fund's assistance. In
addition, customers in those countries may face reduced access to working
capital to fund component purchases, such as our products, due to higher
interest rates, reduced bank lending due to contractions in the money supply or
the deterioration in the customer's or our bank's financial condition or the
inability to access local equity financing.
Maintaining operations in different countries requires us to expend significant
resources to keep our operations coordinated and subjects us to differing laws
and regulatory regimes that may affect our service offerings and revenue.
We may incur currency exchange-related losses in connection with our reliance on
our single or sole source foreign suppliers.
We make yen-denominated purchases of certain components and mechanical
subsystems from certain of our sole or single source Japanese suppliers.
Depending on the amount of yen-denominated purchases, we may engage in hedging
transactions in the future. However, notwithstanding these precautions, we
remain 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. Our current or any future currency exchange strategy may not
be successful in avoiding exchange-related losses. Any exchange-related losses
or exposure may negatively effect our business, financial condition or results
of operations.
If our hardware products do not comply with standards set forth by the European
Union, we will not be able to sell them in Europe.
Our hardware products are required to comply with European Union Low Voltage,
Electro-Magnetic Compatibility, and Machinery Safety Directives. The European
Union mandates that our products carry the CE mark denoting that
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these products are manufactured in strict accordance to design guidelines in
support of these directives. These guidelines are subject to change and to
varying interpretation. New guidelines impacting machinery design go into effect
each year. To date, we have retained TUV Rheinland to help certify that our
controller-based products, including some of our robots, meet applicable
European Union directives and guidelines. Although our existing certified
products meet the requirements of the applicable European Union directives, we
cannot assure that future products can be designed, within market window
constraints, to meet the future requirements. If any of our robot products or
any other major hardware products do not meet the requirements of the European
Union directives, we would be unable to legally sell these products in Europe.
Thus, our business, financial condition and results of operations could be
harmed.
Our hardware and software products may contain defects that could increase our
expenses exposure to liabilities and harm our reputation and future business
prospects.
Our hardware and software products are complex and, despite extensive testing,
our new or existing products or enhancements may contain defects, errors or
performance problems when first introduced, when new versions or enhancements
are released or even after these products or enhancements have been used in the
marketplace for a period of time. We may discover product defects only after a
product has been installed and used by customers. We may discover defects,
errors or performance problems in future shipments of our products. These
problems could result in expensive and time consuming design modifications or
large warranty charges, expose us to liability for damages, damage customer
relationships and result in loss of market share, any of which could harm our
reputation and future business prospects. In addition, increased development and
warranty costs could reduce our operating profits and could result in losses.
The existence of any defects, errors or failures in our products could also lead
to product liability claims or lawsuits against us or against our customers. A
successful product liability claim could result in substantial cost and divert
management's attention and resources, which could have a negative impact on our
business, financial condition and results of operations. Although we are not
aware of any product liability claims to date, the sale and support of our
products entail the risk of these claims.
The success of our business depends on our key employees.
We are highly dependent upon the continuing contributions of our key management,
sales, and product development personnel. In particular, we would be adversely
affected if we were to lose the services of Brian Carlisle, Chief Executive
Officer and Chairman of the Board of Directors, who has provided significant
leadership to us since our inception, or Bruce Shimano, Vice President, Research
and Development and a Director, who has guided our research and development
programs since inception. In addition, the loss of the services of any of our
senior managerial, technical or sales personnel could impair our business,
financial condition, and results of operations. We do not have employment
contracts with any of our executive officers and do not maintain key man life
insurance on the lives of any of our key personnel.
Our future success depends on our continuing ability to attract, retain and
motivate highly-qualified managerial, technical and sales personnel.
Competition for qualified technical personnel in the intelligent automation
industry is intense. Our inability to recruit and train adequate numbers of
qualified personnel on a timely basis would adversely affect our ability to
design, manufacture, market and support our products.
In addition, our success will depend on our ability to hire additional
experienced engineers, senior management and sales and marketing personnel. The
robust economy and opportunities available in other high technology companies
has made and could continue to make recruiting and retaining employees,
especially design engineers, more difficult for us. Competition for these
personnel is intense, particularly in geographic areas recognized as high
technology centers such as the Silicon Valley area, where our principal offices
are located, and other locations where we maintain design sites. To attract and
retain individuals with the requisite expertise, we may be required to grant
large option or other stock-based incentive awards, which may be dilutive to
shareholders. We may also be required to pay significant base salaries and cash
bonuses, which could harm our operating results. If we do not
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succeed in hiring and retaining candidates with appropriate qualifications, we
will not be able to grow our business and our operation results will be harmed.
If we become subject to unfair hiring claims, we could be prevented from hiring
needed personnel, incur liability for damages and incur substantial costs in
defending ourselves.
Companies in our industry whose employees accept positions with competitors
frequently claim that these competitors have engaged in unfair hiring practices
or that the employment of these persons would involve the disclosure or use of
trade secrets. These claims could prevent us from hiring personnel or cause us
to incur liability for damages. We could also incur substantial costs in
defending ourselves or our employees against these claims, regardless of their
merits. Defending ourselves from these claims could divert the attention of our
management away from our operations.
If we are unable to identify and make acquisitions, our ability to expand our
operations and increase our revenue may suffer.
In the latter half of fiscal 2000, a significant portion of our growth has been
attributable to acquisitions of other businesses and technologies. Although we
have no specific commitments or understandings with respect to any acquisitions
currently, we expect that acquisitions of complementary companies, products and
technologies in the future will play an important role in our ability to expand
our operations, hire additional personnel and increase our revenue. If we are
unable to identify suitable targets for acquisition or complete acquisitions on
acceptable terms, our ability to expand our service offerings and increase our
revenue may be impaired. Even if we are able to identify and acquire acquisition
candidates, we may be unable to realize the benefits anticipated as a result of
these acquisitions.
Any acquisitions we make could disrupt our business, increase our expenses and
adversely affect our financial condition or operations.
During fiscal 2000, we acquired Pensar, NanoMotion and BYE/Oasis. In July 2000,
we acquired HexaVision. These acquisitions introduced us to industries and
technologies in which we have limited previous experience. In the future we may
make material acquisitions of, or large investments in, other businesses that
offer products, services, and technologies that management believes will further
our strategic objectives. We cannot be certain that we would successfully
integrate any businesses, technologies or personnel that we might acquire, and
any acquisitions might divert our management's attention away from our core
business. Any future acquisitions or investments we might make would present
risks commonly associated with these types of transactions, including:
o difficulty in combining the product offerings, operations, or work
force of an acquired business;
o potential loss of key personnel of an acquired business;
o adverse effects on existing relationships with suppliers and customers;
o disruptions of our on-going businesses;
o difficulties in realizing our potential financial and strategic
position through the successful integration of the acquired business;
o difficulty in maintaining uniform standards, controls, procedures, and
policies;
o potential negative impact on results of operation due to amortization
of goodwill, other intangible assets acquired or assumption of
anticipated liabilities;
o risks associated with entering markets in which we have limited
previous experience; and
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o the diversion of management attention.
The risks described above, either individually or in the aggregate, could
significantly harm our business, financial condition and results of operations.
We expect that future acquisitions, if any, could provide for consideration to
be paid in cash, shares of our common stock, or a combination of cash and common
stock. In addition, we may issue additional equity in connection with future
acquisitions, which could result in dilution of our shareholders' equity
interest. Fluctuations in our stock price may make acquisitions more expensive
or prevent us from being able to complete on terms that are acceptable to us.
Our failure to protect our intellectual property and proprietary technology may
significantly impair our competitive advantage.
Our success and ability to compete depend in large part upon protecting our
proprietary technology. We rely on a combination of patent, trademark and trade
secret protection and nondisclosure agreements to protect our proprietary
rights. The steps we have taken may not be sufficient to prevent the
misappropriation of our intellectual property, particularly in foreign countries
where the laws may not protect our proprietary rights as fully as in the United
States. The patent and copyright law and trade secret protection may not be
adequate to deter third party infringement or misappropriation of our patents,
trademarks and similar proprietary rights. In addition, patents issued to Adept
may be challenged, invalidated or circumvented. Our rights granted under those
patents may not provide competitive advantages to us, and the claims under our
patent applications may not be allowed. We may be subject to or may initiate
interference proceedings in the United States Patent and Trademark Office, which
can demand significant financial and management resources. The process of
seeking patent protection can be time consuming and expensive and patents may
not be issued from currently pending or future applications. Moreover, our
existing patents or any new patents that may be issued may not be sufficient in
scope or strength to provide meaningful protection or any commercial advantage
to us.
We may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights in order to determine the scope and
validity of our proprietary rights or the proprietary rights of our competitors.
These claims could result in costly litigation and the diversion of our
technical and management personnel.
We may face costly intellectual property infringement claims.
We have from time to time received communications from third parties asserting
that we are infringing certain patents and other intellectual property rights of
others or seeking indemnification against such alleged infringement. For
example, some end users of our products have notified us that they have received
a claim of patent infringement from the Jerome H. Lemelson Foundation, alleging
that their use of our machine vision products infringes certain patents issued
to Mr. Lemelson. In addition, we have been notified that other end users of our
AdeptVision VME line and the predecessor line of Multibus machine vision
products have received letters from the Lemelson Foundation which refer to Mr.
Lemelson's patent portfolio and offer the end user a license to the particular
patents. As claims arise, we evaluate their merits. Any claims of infringement
brought of third parties could result in protracted and costly litigation, that
damages for infringement, and the necessity of obtaining a license relating to
one or more of our products or current or future technologies, which may not be
available on commercially reasonable terms or at all. Litigation, which could
result in substantial cost to us and diversion of our resources, may be
necessary to enforce our patents or other intellectual property rights or to
defend us against claimed infringement of the rights of others. Any intellectual
property litigation and the failure to obtain necessary licenses or other rights
could have a material adverse effect on our business, financial condition and
results of operations. Some of our end users have notified us that they may seek
indemnification from us for damages or expenses resulting from any claims make
by the Jerome H. Lemelson Foundation. We cannot predict the outcome of this or
any similar litigation which may arise in the future. Litigation of this kind
may have a material adverse effect on our business, financial condition or
results of operations.
New accounting guidance could result in delayed recognition of our revenues.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" or SAB 101. SAB 101 provides guidance on
the recognition, presentation and disclosure of revenue in
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ADEPT TECHNOLOGY, INC.
financial statements. In recent actions, the SEC has further delayed the
required implementation date which, for us, will be the fourth quarter of fiscal
2001, retroactive to the beginning of the fiscal year. We are still in the
process of assessing the impact of SAB 101 on our consolidated results of
operations, financial position, and cash flows based upon the most current
information. In certain situations, application of the new accounting could
delay the recognition of revenue that might otherwise have been recognized in
earlier periods. As a result, our reported revenue may fluctuate more widely
among fiscal periods in the future, and reported revenue for a particular fiscal
period may not meet expectations.
Risks Related to Our Industry
We face intense competition in the market for intelligent automation products.
The market for intelligent automation products is highly competitive. We believe
that the principal competitive factors affecting the market for our products
are:
o product functionality and reliability;
o customer service;
o price;
o delivery; and
o product features such as flexibility, programmability and ease of use.
We compete with a number of robot companies, motion control companies, machine
vision companies and simulation software companies. Many of our competitors have
substantially greater financial, technical and marketing resources than us. In
addition, we may in the future face competition from new entrants in one or more
of our markets.
Many of our competitors in the robot market are integrated manufacturers of
products that produce robotics equipment internally for their own use and may
also compete with our products for sales to other customers. Some of these large
manufacturing companies have greater flexibility in pricing because they
generate substantial unit volumes of robots for internal demand and may have
access through their parent companies to large amounts of capital. Any of our
competitors may seek to expand their presence in other markets in which we
compete.
Our current or potential competitors may develop products comparable or superior
in terms of price and performance features to those developed by us or adapt
more quickly than we can to new or emerging technologies and changes in customer
requirements. We may be required to make substantial additional investments in
connection with our research, development, engineering, marketing and customer
service efforts in order to meet any competitive threat, so that we will be able
to compete successfully in the future. We expect that in the event the
intelligent automation market expands, competition in the industry will
intensify, as additional competitors enter our markets and current competitors
expand their product lines. Increased competitive pressure could result in a
loss of sales or market share, or cause us to lower prices for our products, any
of which could harm our business.
We may not be able to keep up with the rapid pace of technological change and
new product development that characterize the intelligent automation industry.
The intelligent automation industry is characterized by rapid technological
change and new product introductions and enhancements. Our ability to remain
competitive depends greatly upon the technological quality of our products and
processes compared to those of our competitors and our ability both to continue
to develop new and enhanced products and to introduce those products at
competitive prices and on a timely and cost-effective basis. We may not
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be successful in selecting, developing and manufacturing new products or in
enhancing our existing products on a timely basis or at all. Our new or enhanced
products may not achieve market acceptance. Our failure to successfully select,
develop and manufacture new products, or to timely enhance existing technologies
and meet customers' technical specifications for any new products or
enhancements on a timely basis, or to successfully market new products, could
harm our business. If we cannot successfully develop and manufacture new
products or meet specifications, our products could lose market share, our
revenues and profits could decline, or we could experience operating losses. New
technology or product introductions by our competitors could also cause a
decline in sales or loss of market acceptance for our existing products or force
us to significantly reduce the prices of our existing products.
From time to time we have experienced delays in the introduction of, and certain
technical and manufacturing difficulties with, some of our products, and we may
experience technical and manufacturing difficulties and delays in future
introductions of new products and enhancements. Our failure to develop,
manufacture and sell new products in quantities sufficient to offset a decline
in revenues from existing products or to successfully manage product and related
inventory transitions could harm our business.
Our success 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, implementation of
manufacturing processes and effective sales, marketing and customer service.
Because of the complexity of our products, significant delays may occur between
a product's initial introduction and commencement of volume production.
The development and commercialization of new products involve many difficulties,
including:
o the identification of new product opportunities;
o the retention and hiring of appropriate research and development
personnel;
o the determination of the product's technical specifications;
o the successful completion of the development process;
o the successful marketing of the product and the risk of having
customers embrace new technological advances; and
o additional customer service costs associated with supporting new
product introductions or required for field upgrades.
For example, we are currently in the process of releasing our new micro and nano
positioning mechanisms, NanoMotion process modules, SmartModules, Standard
Platforms and Semiconductor front-ends. These products include significant new
networking, hardware and software technology. The development of these products
may not be completed in a timely manner, and these products may not achieve
acceptance in the market. The development of these products has required, and
will require, that we expend significant financial and management resources. If
we are unable to continue to successfully develop these or other new products in
response to customer requirements or technological changes, our business may be
harmed.
If we fail to adequately invest in research and development, we may be unable to
compete effectively.
We have limited resources to allocate to research and development and must
allocate our resources among a wide variety of projects. Because of intense
competition in our industry, the cost of failing to invest in strategic products
is high. If we fail to adequately invest in research and development, we may be
unable to compete effectively in the intelligent automation markets in which we
operate.
If we do not comply with environmental regulations, our business may be harmed.
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ADEPT TECHNOLOGY, INC.
We are 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 our products. We believe that we are currently in
compliance with all material environmental regulations in connection with our
manufacturing operations, and that we have obtained all necessary environmental
permits to conduct our business. However, our failure to comply with present or
future regulations could subject us to a variety of consequences that could harm
our business, including:
o the imposition of substantial fines;
o suspension of production; and
o alteration of manufacturing processes or cessation of operations.
Compliance with environmental regulations could require us to acquire expensive
remediation equipment or to incur substantial expenses. Our failure to control
the use, disposal, removal, storage, or to adequately restrict the discharge of,
or assist in the cleanup of, hazardous or toxic substances, could subject us to
significant liabilities, including joint and several liability under certain
statutes. The imposition of liabilities of this kind could harm our financial
condition.
Failure to obtain export licenses could harm our business.
We must comply with U.S. Department of Commerce regulations in shipping its
software products and other technologies outside the United States. Any
significant future difficulty in complying could harm our business, financial
condition and results of operations.
Risks Related to our Stock
Our stock price has fluctuated and may continue to fluctuate widely.
The market price of our common stock has fluctuated substantially in the past.
Between September 30, 1999 and September 30, 2000, the price of our common
stock, as reported on the Nasdaq National Market, has ranged from a low of $5.44
to a high of $58.19. The market price of our common stock will continue to be
subject to significant fluctuations in the future in response to a variety of
factors, including:
o future announcements concerning our business or that of our competitors
or customers;
o the introduction of new products or changes in product pricing policies
by us or our competitors;
o litigation regarding proprietary rights or other matters;
o change in analysts' earnings estimates;
o developments in the financial markets;
o quarterly fluctuations in operating results; and
o general conditions in the intelligent automation industry.
Furthermore, stock prices for many companies, and high technology companies in
particular, fluctuate widely for reasons that may be unrelated to their
operating results. Those fluctuations and general economic, political and market
conditions, such as recessions or international currency fluctuations, may
adversely affect the market price of our common stock.
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ADEPT TECHNOLOGY, INC.
We may be subject to securities class action litigation if our stock price is
volatile, which could result in substantial costs, distract management and
damage our reputation.
In the past, securities class action litigation has often been brought against
companies following periods of volatility in the market price of their
securities. Companies, like us, that are involved in rapidly changing technology
markets are particularly subject to this risk. We may be the target of
litigation of this kind in the future. Any securities litigation could result in
substantial costs, divert management's attention and resources from our
operations and negatively affect our public image and reputation.
<TABLE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily to
our investment portfolio. We maintain an investment policy designed to ensure
the safety and preservation of our invested funds by limiting default risk,
market risk and reinvestment risk. The table below presents principal amounts
and related weighted-average interest rates by year of maturity for our
investment portfolio.
<CAPTION>
Fair
(in thousands) 2000 2001 2002 Total Value
-------------- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Cash equivalents
Fixed rate................. $ 13,487 -- -- $ 13,487 $ 13,487
Average rate............... 3.90% -- -- 3.90%
Auction rate securities
Fixed rate................ $ 3,500 -- -- $ 3,500 $ 3,500
Average rate.............. 4.49% -- -- 4.49%
Auction rate preferred
Variable rate............. $ 3,450 -- -- $ 3,450 $ 3,450
Average rate.............. 4.64% -- -- 4.64%
-------- ------ ------- -------- --------
Total Investment Securities. $ 20,437 -- -- $ 20,437 $ 20,437
-------- ------ ------- -------- --------
Average rate.............. 4.13% -- -- 4.13%
</TABLE>
We mitigate default risk by investing in high credit quality securities and by
positioning our portfolio to respond appropriately to a significant reduction in
a credit rating of any investment issuer of guarantor. Our portfolio includes
only marketable securities with active secondary or resale markets to ensure
portfolio liquidity and maintains a prudent amount of diversification. We
conduct business on a global basis. Consequently, we are exposed to adverse or
beneficial movements in foreign currency exchange rates. We enter into foreign
currency forward contracts to minimize the impact of exchange rate fluctuations
on certain foreign currency commitments and balance sheet positions and may
enter into foreign exchange forward contracts in the future. The realized gains
and losses on these contracts are deferred and offset against realized and
unrealized gains and losses when the transaction occurs.
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ADEPT TECHNOLOGY, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are party to various legal proceedings or claims, either
asserted or unasserted, which arise in the ordinary course of our business.
Management has reviewed pending legal matters and believes that the resolution
of these matters will not have a material adverse effect on our business,
financial condition or results of operations.
Some end users of our products have notified us that they have received a claim
of patent infringement from the Jerome H. Lemelson Foundation, alleging that
their use of our machine vision products infringes certain patents issued to Mr.
Lemelson. In addition, we have been notified that other end users of our
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.
Some of these end users have notified us that they might seek indemnification
from us for any damages or expenses resulting from this matter.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) The following exhibits are filed as part of this report.
10.1 Industrial R&D Lease Agreement dated October 31, 2000 between
the Registrant and Tri-Valley Campus 1, LLC for premises
located at Livermore, California.
10.2 Lease Agreement dated June 1, 1998 between Registrant and
Technology Centre Associates LLC for the premises located at
150 Rose Orchard Way, San Jose, California.
10.3 Amendment No. 1 dated September 9, 1997 to Office Building
Lease between Registrant and Puente Hills Business Center II
dated May 20, 1993.
10.4 Amendment No. 2 dated June 17, 1998 to Office Building Lease
between Registrant and Puente Hills Business Center II dated
May 20, 1993.
27.1 Financial Data Schedule.
b) Reports on Form 8-K.
On July 27, 2000, a Form 8-K was filed by Adept announcing the
completion of the acquisition of HexaVision Technologies Inc. On
October 25, 2000, a Form 8-K/A was filed by Adept to amend the
July 27, 2000 Form 8-K and include certain pro forma financial
statements of HexaVision Technologies Inc. and Adept.
On October 26, 2000, a Form 8-K was filed by Adept announcing its
first quarter operating results.
On October 26, 2000, a Form 8-K was filed by Adept announcing its
proposed public offering of shares of its common stock.
On October 26, 2000, a Form 8-K was filed by Adept announcing the
filing by the Company of a registration statement on Form S-1 with
the Securities and Exchange Commission.
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ADEPT TECHNOLOGY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 2000 ADEPT TECHNOLOGY, INC.
By: /s/ Michael W. Overby
--------------------------------------
Michael W. Overby
Vice President, Finance and
Chief Financial Officer
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ADEPT TECHNOLOGY, INC.
INDEX TO EXHIBITS
EXHIBITS
10.1 Industrial R&D Lease Agreement dated October 31, 2000 between the
Registrant and Tri-Valley Campus 1, LLC for premises located at
Livermore, California.
10.2 Lease Agreement dated June 1, 1998 between Registrant and Technology
Centre Associates LLC for the premises located at 150 Rose Orchard Way,
San Jose, California.
10.3 Amendment No. 1 dated September 9, 1997 to Office Building Lease
between Registrant and Puente Hills Business Center II dated May 20,
1993.
10.4 Amendment No. 2 dated June 17, 1998 to Office Building Lease between
Registrant and Puente Hills Business Center II dated May 20, 1993.
27.1 Financial Data Schedule.
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