-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EYUvk8wbd8CJk+9o5tu9uIG/YhcAX1tiJ6LjqmUVfzZHJD0L2DzZTKuy4WqPafG4 F+1MEVrsmBc/0qgu5KZJPg== 0000950005-96-000780.txt : 19961001 0000950005-96-000780.hdr.sgml : 19961001 ACCESSION NUMBER: 0000950005-96-000780 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960930 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADEPT TECHNOLOGY INC CENTRAL INDEX KEY: 0000865415 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 942900635 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-98816 FILM NUMBER: 96636794 BUSINESS ADDRESS: STREET 1: 150 ROSE ORCHARD WAY CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4084320888 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K |X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended June 30, 1996 or |_| Transition report pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934 for the transition period from ________________ to _______________. Commission file number: 0-27122 ADEPT TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) California 94-29000635 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 150 Rose Orchard Way, San Jose, California 95134 (Address of principal executive office) (zip code) Registrant's telephone number, including area code: (408) 432-0888 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - -------------------------------- ------------------------- None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on August 31, 1996 as reported on the Nasdaq National Market, was approximately $33,021,118. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of August 31, 1996, the registrant had outstanding 7,956,995 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE The registrant has incorporated by reference into Part III of this Form 10-K portions of its Proxy Statement for the Annual Meeting of Shareholders to be held November 21, 1996. Portions of the registrant's Annual Report to Shareholders for the fiscal year ended June 30, 1996 are incorporated by reference into Parts II and IV of this Form 10-K. PART I Special Note Regarding Forward-Looking Statements Certain statements in this Report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: the potential fluctuations in the Company's quarterly and annual results of operations; the cyclicality of capital spending of the Company's customers; the Company's dependance on the continued growth in the intelligent automation market; the risks associated with sole or single sources of supply and lengthy procurement lead times; the Company's highly competitive industry; rapid technological change within the Company's industry; the lengthy sales cycles for the Company's products; the risks associated with reliance on system integrators; the risks associated with international sales and purchases; the risks associated with potential acquisitions and the need to manage growth; the risks associated with new product development and the need to manage product transitions, including any difficulties or delays in the development, production, testing and marketing of the Company's new PC products under development, and generally in the migration of Silma from the UNIX platform to the PC platform or difficulties or delays in the development, production, testing and marketing of the Company's other new products under development; the Company's dependence on retention and attraction of key employees; the risks associated with product defects; the Company's dependence on third-party relationships; the uncertainty of patent and proprietary technology protection and third party intellectual property claims; changes in, or failure to comply with, government regulation; general economic and business conditions; the failure of any new products to be accepted in the marketplace; the inability of the Company to effectively integrate Silma's personnel into the Company; decreased investment in robotics generally, and in the Company's intelligent automation products particularly, as a result of general or specific economic conditions or conditions affecting any of the Company's primary markets; decreased acceptance of the Company's current products in the marketplace; and other factors referenced in this Report. SILMA, SoftMachines and the Company's logo are registered trademarks of Adept Technology, Inc. Adept, AdeptModules, AdeptMotion, Adept MV-8, Adept MV-19, AdeptOne, AdeptThree, AdeptVision VME, Adept 1850, Adept 550, Adept Flexible Feeder, AIM, CimStation, MotionWare, PalletWare, AdeptRAPID, SoftAssembly, V+ and VisionWare are trademarks of Adept Technology, Inc. This Report also includes trademarks of companies other than Adept Technology, Inc. ITEM 1. BUSINESS Introduction Adept Technology, Inc. ("Adept" or the "Company") designs, manufactures and markets intelligent automation software and hardware products for manufacturers in the electronics, telecommunications, appliances, pharmaceutical, food processing and automotive components industries. The Company provides a broad, flexible line of software intensive, computer-driven, automation products for assembly, material handling and packaging applications. The Company's products include machine controllers for robot mechanisms and other flexible -2- automation equipment, machine vision systems, simulation software and a family of mechanisms including robots and linear modules. In addition, the Company recently introduced a vision-based flexible part feeder. Adept's Rapid Deployment Automation ("RDA") approach addresses many of the challenges facing manufacturers seeking to implement intelligent automation systems. The goal of RDA is to significantly reduce the total time required to conceptualize, justify, quote, sell and implement an intelligent automation system, and thereby eliminate significant barriers to the broad deployment of intelligent automation technology. The Company sells, markets and supports its products on a worldwide basis through more than 100 system integrators, its direct sales force and OEMs. The system integrators, OEMs or end users combine various components of Adept's standard product line with material handling devices, peripheral equipment, application software and tooling into flexible automation workcells or production lines. Industry Background Industrial robots provided the foundation for the development of the intelligent automation industry. In the 1970s, robots with simple controllers that lacked sensing capabilities became widely used in the automotive industry for technologically simple, low precision applications such as spot welding. By the late 1970s, industrial robots with more advanced capabilities became commercially available. These new capabilities included computer-based motion controllers which enabled flexible, programmable motion, and machine vision systems which enabled computer analysis of camera images. With these technical advances, robots gained increasing acceptance, but their use remained limited because their rudimentary software and sensing capabilities were insufficient to support more demanding tasks such as those required on flexible assembly lines. During the early 1980s, technical advances enabled robots to perform a wide range of functions in new applications such as assembly, material handling and packaging. These advances included sophisticated sensing for robot guidance that allowed robots to locate, correctly orient and pick up parts, conveyor tracking that made it possible to handle parts from moving conveyors and direct-drive robots that were faster and more accurate than gear-driven robots. In addition, real-time multitasking software enabled the coordination of the many asynchronous tasks required in assembly, material handling and packaging. This greater functionality made robots viable in a broad range of production environments. The development of advanced software and sensory products, coupled with high level programming languages and computer-based controller architectures, contributed to the establishment of the intelligent automation industry. The ability of intelligent automation to address new applications such as assembly, material handling and packaging is reflected in the growth of the intelligent automation industry in the 1990s. According to the Robotic Industries Association, shipments by U.S. robot suppliers grew from $455 million in 1992 to $898 million in 1995. In addition, according to the Automated Imaging Association, shipments by North American machine vision suppliers grew from $638 million in 1992 to $1.1 billion in 1995. Market Forces Market forces in certain manufacturing industries have contributed to the growth of the intelligent automation industry. These market forces include: World class product quality. Manufacturers competing in global markets must provide products that meet the highest quality standards of their customers. Manufacturers across a wide range of industries have found that -3- replacing manual production lines with automated lines has resulted in a significant reduction in product defects and has enabled volume production of high quality, technologically advanced products. Time-to-volume production. Rapid achievement of full volume production is critical to increasing or simply retaining market share in most markets today. As a result, the financial return a manufacturer achieves on a new product depends in significant part on quickly achieving volume production. Miniaturization. Many products, such as camcorders, disk drives and portable audio products, have been steadily shrinking in size and are now at an advanced state of miniaturization. Manual labor is inherently inaccurate and generates particles that destroy miniature parts and circuits and, as a result, automation is often required to improve accuracy and maintain a clean environment. In addition, because the parts may exhibit high part-to-part variability, the assembly of these products can often only be successfully performed with the aid of real-time sensory feedback to accurately acquire, inspect and align parts. Declining automation costs, rising labor costs. The price performance ratio of automation products has improved over time, while labor costs have risen in most industrial regions of the world. According to the U.S. Bureau of Labor Statistics, total manufacturing compensation rates in the U.S., including wages, salaries and employer costs for employee benefits, have increased an average of 4% per annum from 1990 to 1994. Moreover, the appeal of offshore manufacturing is waning for some manufacturers who previously moved operations offshore but have more recently increased their domestic manufacturing operations. Challenges Facing Manufacturers Despite the expanding use and application of intelligent automation in numerous industries, significant challenges nonetheless remain for manufacturers who seek to implement intelligent automation systems. Increasing need for flexibility. To achieve widespread deployment, intelligent automation must become as flexible as traditional manual production lines. Rapidly contracting product life cycles, shrinking batch sizes, increasing miniaturization, product line proliferation and the high cost of capital equipment are causing manufacturers to seek flexible manufacturing techniques. These techniques must allow manufacturers to quickly and cost-effectively change over production lines so that such production lines can be used for multiple products and over multiple product life cycles. In addition, these techniques must enable manufacturers to adapt to part and process variability. High risk custom engineering content. A significant amount of custom content is engineered into most automated manufacturing lines. Custom content is time consuming to develop and implement, and makes it difficult to predict system throughput, yield and cost. Manufacturing managers who are new to automation are reluctant to implement an automation line when these key performance factors are at risk, and often have automated their production lines only after competitors have established a new manufacturing standard and a proven approach. In addition, custom hardware and software increase the cost and difficulty associated with training personnel and supporting automated systems. Shortage of manufacturing engineers. The implementation of most automation lines requires both mechanical engineering and advanced computer programming skills. As a result, experience with software programming and workcell architecture has been critical to the design of systems that perform to expectations. However, there is a shortage of manufacturing engineers who have the combination of skills and experience needed to implement intelligent automation systems. Moreover, many manufacturers are decreasing their manufacturing engineering staff, thereby reducing the available pool of manufacturing engineers. -4- Long sales and implementation cycle. It can be several years from the time a manufacturer first considers establishing an automated line to the time the automation system is installed and operating satisfactorily. The sales and implementation cycle includes conceptualizing, justifying, quoting, selling and implementing the automation line. This long sales and implementation cycle increases the perceived risk of automation and fails to address time-to-volume production requirements in industries with short product life cycles. In addition, the Company believes that because users typically purchase subsequent systems only after they are satisfied with their initial systems, the long sales and implementation cycle has limited the growth of the intelligent automation industry. All of the challenges set forth above contribute to higher risks and costs in implementing intelligent automation. Eliminating or significantly reducing these potential problems improves the economic and technological justifications for utilizing intelligent automation. The intelligent automation suppliers that are best able to meet these challenges will be better positioned to achieve significant competitive advantages. The Adept Solution The Company's RDA approach addresses many of the challenges faced today by manufacturers seeking to implement intelligent automation systems. The goal of RDA is to significantly reduce the total time required to conceptualize, justify, quote, sell and implement an intelligent automation system, and thereby eliminate significant barriers to the broad deployment of intelligent automation technology. RDA is implemented through a line of hardware and software products, including machine controllers for robot mechanisms and other flexible automation equipment, machine vision systems, vision-based flexible part feeders, simulation software, and a family of mechanisms including robots and linear modules. The following diagram illustrates the Company's RDA approach: [Depiction of Adept's Rapid Development Automation Approach which includes the RDA System Design Layer, the RDA Process Knowledge Layer, the RDA Real-Time Control Layer and the RDA Mechanical Component Layer.] -5- The Company seeks to provide the following key benefits to manufacturers through RDA: Increased flexibility. Adept believes that software and sensory products are the key elements of flexible automation solutions. Through its software intensive, computer-driven approach to intelligent automation, the Company distinguishes itself from companies that attempt to address the challenges of automation solely with hardware solutions. Software and sensory products provide the flexibility to quickly reconfigure production lines for product change-overs and to respond to product or process variations. For example, the Company's machine vision products minimize the need for time consuming set ups and enable inspection of critical part dimensions. In addition, the Company's scalable controller hardware is highly configurable, includes local area networking capability and can control a simple, stand alone robot or be expanded to control multiple robots. Reduced custom engineering. Adept provides a broad range of modular components which are designed to significantly reduce the custom engineering required to implement intelligent automation. The Company's scalable controller is the foundation of this architecture, allowing these modular components to be quickly configured into complex systems and reconfigured as needs change. In addition, Adept has established relationships with automation vendors who offer components which complement the Company's RDA product line. Adept believes that the combination of its modular scalable product line and relationships with other automation vendors significantly reduces custom engineering and its associated support risks. Reduced dependence on manufacturing engineers. Adept believes that programming an automation workcell should not require extensive software programming expertise. The Company has developed smart application software products which utilize icon-based programming and are based on its Assembly and Information Management (AIM) software technology. In addition, the Company works closely with over 100 system integrators worldwide which provide end users with outside engineering resources to deliver application-specific solutions incorporating the Company's products. Shortened implementation cycle. The combination of flexibility, ease of implementation and modularity allows Adept products to be quickly integrated into standard workcells or production lines. Ease of integration is further enhanced by providing industry standard networking and communication interfaces. The Company's simulation software products further shorten the implementation cycle by reducing the time required to design and test automation concepts. Adept believes that its RDA approach combined with the expertise of system integrators and customer support and training can significantly reduce implementation time. Strategy The Company's objective is to become the leading supplier worldwide of a broad line of intelligent automation products for assembly, material handling and packaging applications. The Company seeks to achieve this objective by implementing the following business strategy: Expand Rapid Deployment Automation. Adept's goal is to dramatically compress the sales and implementation cycle of intelligent automation systems through the expansion of its RDA approach. Adept is pursuing this goal through new developments in simulation software, AIM software technology and unique flexible feeding products. The Company believes that a shorter sales and implementation cycle will contribute to the demand for intelligent automation. Extend technology leadership. Adept's expertise in machine controllers for robots and other flexible automation equipment, machine vision systems and simulation software has enabled it to be a leading innovator in the development of intelligent automation products. Adept seeks to leverage its existing technology base to accelerate -6- the development of new and enhanced products and to lower costs. The Company intends to continue to make significant investments in research and development in order to broaden its technology base. Continue to focus on higher growth application segments. Adept's strategy is to continue to target the higher growth segments of the intelligent automation market, such as assembly, material handling and packaging applications. These applications are used in a broad range of industries, including the electronics, telecommunications, appliances, pharmaceutical, food processing and automotive components industries. Diversification across a broad range of industries maximizes opportunities for growth and reduces Adept's dependence on the capital spending cycles of any one industry. Maximize sales through complementary channels. Adept's strategy is to build end user demand for its products through its direct sales force while utilizing a network of experienced system integrators and OEMs to provide turnkey intelligent automation systems. The Company's direct sales force provides a strong ongoing presence at the end user level by providing product information, assistance in designing solutions to production issues and referrals to application-specific system integrators. Adept seeks to continually strengthen its important channel relationships by providing certain system integrators with qualified leads and by working with its system integrators to jointly build demand for the Company's products rather than competing with them in their systems business. Increase global market presence. A key element of Adept's strategy is to increase its presence in the global intelligent automation market by further expansion in markets which the Company believes represent substantial opportunities, including Europe, Japan and the Pacific Rim. The Company seeks to increase its market share in these areas by emphasizing its advanced software and sensing technology and broad, flexible product line. In addition, Adept intends to continue to make significant investments in marketing, sales and support in international markets. Leverage manufacturing strength. Adept seeks to focus its manufacturing resources on activities which enable the Company to differentiate its product line and add distinctive value. Adept's manufacturing activities include the assembly, test and configuration of its products. This strategy enables the Company to leverage product development, manufacturing and management resources while retaining greater control over product delivery, final product configuration and the timing of new product introductions, all of which are critical to meeting customer expectations. Technology The Company's technology integrates the following key elements of RDA: mechanical design, machine controller design, advanced servo systems, motion control software, machine vision software, real-time database management software and simulation software. The following table lists the Company's technology by RDA layer: [Chart Illustrating Adept's technology with respect to the four levels of its Rapid Deployment Automation approach] -7- Hardware Direct-drive robot technology. The Company was the first to develop and market a robot incorporating direct-drive motor technology. Direct-drive technology eliminates gears and linkages from the drive train of the mechanism, thereby significantly increasing robot speed and improving the robot's product life, reliability and accuracy. Controller technology. The Company has applied its expertise in high performance motion control to the design of an open architecture, VME bus-based scalable machine controller. The scalability of this architecture allows the same basic components to be combined into a number of controller configurations that cost-effectively address a range of requirements from low end systems which control a single robot to high end, complex systems which control multiple mechanisms and incorporate machine vision. In addition, all of the Company's controller products support the same graphical user interface and can execute the same application programs, thereby allowing software development investments to be leveraged across a number of applications. The controller includes a number of technologically advanced capabilities designed specifically to address the intelligent automation market including: special ASICs for controlling direct-drive motors, reading encoders and controlling power up sequencing of complex high power systems; safety circuits that meet domestic and international specifications; technology to protect the controller from voltage spikes, electrical noise and power brownouts; and high wattage (6000 watt) switching power amplifiers. Software Servo software. The most basic level in Adept's software architecture is the servo software which directs individual motors to follow motion commands generated from the higher V+ software level. This software has been designed to provide closed-loop control for the Company's robots as well as other vendors' robots. The servo software layer includes algorithms for adaptive feedforward control, direct-drive motor control, force control and position control, and a number of safety and diagnostic features. Real-time programming language and operating system software. The next level in the software architecture is the V+ programming language and operating system layer. V+ allows software developers to create automation software systems and is the key enabling technology for the Company's intelligent automation approach. This automation programming environment provides a high level language coupled with a multitasking operating system and built in capability for integrating robots, machine vision, sensors, workcell control and general communications. These capabilities enable the development of sophisticated application software that can adaptively control mechanical systems based upon real-time sensory input while simultaneously maintaining communication with other factory equipment. V+ offers the user approximately 300 instructions for programming an intelligent automation workcell. It includes a trajectory generator and continuous path planner which compute the path of the robot's tool in real time based upon predefined data or sensory input. V+ also includes a number of network communication facilities and supports RS232, RS422, Ethernet, TCP/IP, FTP and NFS. In addition, this software includes a multitasking, multiprocessor, time-sliced, deterministic, real-time operating system. This operating system allows V+ to execute dozens of tasks concurrently and permits control to pass between tasks in a predictable manner, often several times per millisecond. The V+ operating system also allows the installation of additional processors into the controller and automatically reassigns tasks to optimize overall system performance, providing a key scalability feature not found in other controllers. -8- Machine vision. The real-time control layer of the software also includes machine vision software technology, which quickly recognizes parts that are randomly positioned and have an unknown orientation ranging up to 360 degrees, as compared with other solutions which simply locate translated images with very limited rotation. The ability to quickly recognize parts which have large variations in orientation is crucial for high speed part feeding where the part orientation is not known, such as in flexible part feeders. The Company's machine vision software can also measure part dimensions for inspection purposes. Vision can be used to acquire parts from stationary locations or from conveyors. Cameras can be stationary, fixed in the workcell or attached to a robot. Data-driven module software. The next level in the Company's software hierarchy is the AIM layer. AIM simplifies the implementation of intelligent automation workcells by combining a point and click graphical user interface with an icon-based programming method that does not require advanced computer programming skills. This method combines task level statements with a high performance real-time database, and a structure for representing process knowledge. The AIM task-level statements allow the developer to specify at a very high level what operations the workcell is to perform, such as "insert a component into a socket using vision to correct for part irregularities." This command is automatically coupled to data contained in the real-time database that specifies the physical aspects of the workcell, such as the location of a part. The information contained in the databases can be created or downloaded from a computer or simulation system at any time. Finally, the AIM system automatically invokes the routines that capture the process knowledge and dictate how the specified operation will be performed. In this way, an AIM workcell can be "programmed" by a person who understands as few as ten process actions rather than hundreds of programming instructions or thousands of lines of conventional code. The Company provides application-specific versions of AIM that have built in process knowledge to address general motion, vision and part palletizing applications. In addition, process knowledge can be added by end users and system integrators, many of whom have developed their own AIM application-specific packages. Simulation software. The highest level in the Company's software architecture is the simulation software layer, developed by Silma, a leader in the field of simulation software. Silma's core product, CimStation, allows machines to be modeled with 3D graphics, and then animated in response to software control programs. Mechanisms can be defined graphically and the mathematics necessary to animate them (kinematic models) are generated automatically. CimStation also allows the dynamics of mechanisms to be modeled, which enables machine cycle times to be accurately predicted. Silma has also added application interfaces to this core technology for certain markets. New Technology Part Feeding Technology. Part feeding has historically been accomplished by designing custom devices that could only accommodate a single part or class of parts. The Company has developed new part feeding technology which integrates vision, software and motion control technology with a simple mechanical device. The Company's new flexible feeder recirculates the parts and mechanically separates them, relying on vision to identify individual parts. This flexible feeder can be rapidly reconfigured through software to handle a wide variety of parts ranging from simple rectangular objects to complex molded or machined parts. -9- Products The Company's core product families include robot mechanisms and other mechanical products, guidance and inspection vision products, vision-based flexible part feeders, machine controllers, machine control software and simulation software. The following diagram depicts the Company's products by RDA layer: [Depiction of Adept's products with respect to the four layers of its Rapid Deployment Automation approach.] Robot Mechanisms and Other Mechanical Products The Company designs and manufactures three SCARA (Selective Compliance Assembly Robot Arm) style robot mechanisms called the AdeptOne, the AdeptThree and the recently announced AdeptThree-XL, which are all designed for assembly, material handling and packaging tasks. The links and joints of a SCARA robot are somewhat analogous to the shoulder, elbow and wrist of a human. This configuration is well-suited to a large number of assembly and material handling tasks. The AdeptOne is the faster model, while the AdeptThree and AdeptThree-XL offer a larger work envelope and handle a larger payload. The AdeptThree-XL provides improved performance -10- specifications over the existing AdeptThree. The improved performance specifications address the needs in the packaging market as well as other markets. This product has been designed to deliver increased performance and ease-of-use, thereby furthering the Company's RDA strategy. All three robots utilize direct-drive motor technology. U.S. list prices start at $42,295 for the AdeptOne, $52,295 for the AdeptThree and $57,295 for the AdeptThree-XL, and increase depending on the configuration of the robot mechanism, controller and system software. The Company also sources and markets two robot mechanisms, which are built to the Company's specifications by Hirata Corporation ("Hirata"). The Adept 550 robot is a light-duty SCARA robot that can be table mounted and offers a small work envelope when space is at a premium. The Adept 550 robot has a U.S. list price of $29,745 for the robot, controller and system software. The Adept 1850 robot is a palletizing robot which is used to palletize completed product assemblies or packaged products at the end of an assembly line and allows customers to perform this task with a robot that uses the same control and software architecture as the upstream assembly line. U.S. list prices for this product start at $79,695 for the robot, controller and system software. The Company also offers a line of linear modules, called AdeptModules, which the Company purchases from NSK Ltd. ("NSK"). These single axis devices can be coupled together by the user to form a custom robot mechanism for applications requiring a robot with fewer than four axes. U.S. list prices for these modules start at $6,063. Guidance and Inspection Vision Products The Company offers a line of machine vision products, the AdeptVision VME line, which are used for robot guidance and inspection applications. For the guidance applications, AdeptVision VME is added into the controller by inserting a printed circuit board and enabling the vision system software. For inspection applications such as gauging and dimensioning, the AdeptVision VME product is sold as an integrated inspection vision system comprised of a controller with the vision board and software. U.S. list prices for the AdeptVision VME products start at $10,200 for inspection applications and $14,500 for guidance applications. Machine Controllers The Company's controller products are based on the VME bus architecture standard. A large array of controller configurations are possible depending on the features selected by the customer. The Company's controllers are configured on a five slot chassis, called the Adept MV-5, an eight slot chassis, called the Adept MV-8, a ten slot chassis, called the Adept MV-10, or a nineteen slot chassis, called the Adept MV-19. All controllers include a system processor board and a system input/output module. Additional functionality can be incorporated by adding printed circuit boards and additional software. For example, motion control is added by inserting a motion control board. Printed circuit boards can be added for machine vision, graphical user interface capability and additional communication inputs and outputs. The controller products are sold independently for machine control and inspection vision applications and are also sold as a component of the robot systems. U.S. list prices for machine controllers start at $8,995. Machine Control Software Adept's V+ programming language and operating system software includes specific instructions for motion control, machine vision, force sensing, workcell control and general communications. These capabilities are integrated to perform real-time machine control. The basic V+ software is included in the price of the system. More advanced V+ features are available in a number of packages with U.S. list prices under $1,000. -11- The Company's AIM software simplifies the integration, programming and operation of automation workcells and lines. AIM accomplishes this goal by providing a formal method for capturing application-specific process knowledge and then allowing users lacking advanced programming expertise to easily utilize this embedded knowledge to accomplish a specific task. Several application-specific versions of AIM are sold by the Company, including MotionWare, which addresses motion applications such as those requiring sophisticated conveyor tracking, VisionWare, which simplifies the use of vision in both guidance and inspection applications, and PalletWare, which includes special knowledge of box palletizing strategies. The basic AIM package and the application-specific versions of AIM are packaged into several modules with U.S. list prices that each range from $1,000 to $1,500. Simulation Software Adept's simulation software products simulate the layout and throughput of workcells and other equipment and generate the programs to run the workcells. There are four simulation software products that have U.S. list prices that range from $8,000 to $60,000 and up. The CimStation Robotics product simulates robot workcells for the Company's robot products as well as a number of other robot vendors' products. This product is used to test layouts and cycle times and to generate robot application programs. The CimStation Inspection product simulates the operation of coordinate measurement machines and generates programs that would be tedious to program manually given the complex inspection tasks these machines perform. The SoftMachines product tests programs for machine tool operations. This is a productivity tool for machine tool users who would otherwise have to perform the time consuming task of testing programs on the machine tool itself. Finally, SoftAssembly is used to simulate and test product assembly and to develop assembly sequences and procedures. Vision-based Flexible Feeder The Company's Adept Flexible Feeder combines machine vision, software and a flexible feeding mechanism. The Adept Flexible Feeder is designed to handle a broad array of small parts and can be rapidly reconfigured to accommodate new products, thus preserving the flexibility of the workcell or production line. This product is currently in low-volume production, but additional design work must be performed in order to optimize cost and performance. There can be no assurance that the commercialization of this product will be successfully completed or that this product will achieve acceptance in the market. Customers and Applications The Company sells its products to system integrators, end users and OEMs. End users of the Company's products include a broad range of manufacturing companies in the electronics, telecommunications, appliances, pharmaceutical, food processing and automotive components industries. These companies use Adept's products to perform a wide variety of functions in assembly, material handling and packaging applications, including mechanical assembly, printed circuit board assembly, dispensing, palletizing and inspection. No customer accounted for more than 10% of the Company's net revenues in fiscal 1994, 1995 and 1996. Sales, Distribution and Marketing Sales and Distribution The Company's products are marketed through system integrators, its direct sales force and OEMs. System Integrators. A substantial portion of the Company's shipments are through system integrators, and the Company views its relationships with these organizations as important to the Company's success. The Company -12- has established relationships with over 100 system integrators worldwide that provide expertise and process knowledge for a wide range of specific applications. These relationships are generally not regional and are mutually nonexclusive, although the Company continuously works to earn voluntary exclusive use of its products through product performance and support. The greater the investment in equipment and training and the higher the purchase volume, the greater the discount the system integrator receives. In certain international markets, the system integrators perform marketing and support functions directly. A substantial portion of the Company's sales are to system integrators that specialize in designing and building production lines for manufacturers. Many of these companies are small operations with limited financial resources, and the Company has from time to time experienced difficulty in collecting payments from certain of these companies. To the extent the Company is unable to mitigate this risk of collections from system integrators, the Company's results of operations may be materially adversely affected. Furthermore, there can be no assurance that any of these system integrators will not discontinue their relationships with the Company or form additional competing arrangements with the Company's competitors. In the event a number of the Company's system integrators experience financial problems, terminate their relationships with the Company or substantially reduce the amount of the Company's products they sell, or in the event the Company fails to build an effective systems integrator channel in any new markets, the Company's business, financial condition and results of operations could be materially adversely affected. Direct Sales Force. The Company employs a direct sales force which calls on end users to communicate the capabilities of the Company's products and support services and obtain up-to-date information on market requirements. Adept's sales force possesses specific expertise in automation solutions and advises end users on alternative production line designs, special application techniques, equipment sources and system integrator selection. This sales force works closely with system integrators and OEMs to integrate the Adept product line into their systems, provides sales leads to certain system integrators and obtains intelligent automation system quotes from system integrators for end users. As of June 30, 1996, the Company's North American sales organization included 13 individuals. The Company has four sales and customer support offices in North America, located in San Jose, California; Southbury, Connecticut; Southfield, Michigan; and Cincinnati, Ohio. As of June 30, 1996, the Company's international sales organization included nine persons covering Europe, two persons covering Japan and one person covering Singapore. The Company has six international sales and customer support offices located in Dortmund, Germany; Massy, France; Arezzo, Italy; Toyohashi, Japan; Kenilworth, the United Kingdom; and Singapore. Some of the Company's largest manufacturing end user customers have in-house engineering departments that are comparable to a captive system integrator. These engineering groups can establish a corporate integrator relationship with the Company that offers benefits similar to those provided to the Company's system integrators. OEMs. The Company's OEM customers typically purchase one standard product configuration, which the OEM integrates with additional hardware and software and sells under the OEM's label to end users and other resellers. The sale of the Company's products generally involves the delays frequently associated with large capital expenditures. The Company's net revenues depend in significant part upon the decision of a prospective customer to upgrade or expand existing manufacturing facilities or to construct new manufacturing facilities, all of which typically involve a significant capital commitment. In the event one or more large orders fails to close as forecasted for a fiscal quarter, the Company's net revenues and operating results for such quarter could be materially adversely affected. -13- International sales for the fiscal years ended 1994, 1995 and 1996 were $23.1 million, $24.0 million and $32.2 million, respectively. The Company currently expects that international sales will continue to account for a significant portion of its net revenues; however, there can be no assurance that international sales will increase or that the current level of international sales will be sustained. The Company's operating results are subject to the risks inherent in international sales and purchases, including, but not limited to, various regulatory requirements, political and economic changes and disruptions, transportation delays, foreign currency fluctuations, export/import controls, tariff regulations, higher freight rates, difficulties in staffing and managing foreign sales operations, greater difficulty in accounts receivable collection and potentially adverse tax consequences. Marketing Adept's marketing organization, which consisted of 43 persons as of June 30, 1996, supports the Company's various channels in a number of ways. Product management works with end users, system integrators, corporate integrators and the Company's sales engineers to continuously gather input on product performance and end user needs. This information is used to enhance existing products and to develop new products. A marketing programs group generates and qualifies new business through industrial trade shows, various direct marketing programs such as direct mail and telemarketing, public relations efforts and advertising in industry periodicals. This marketing group is responsible for tracking customers and prospects through the Company's marketing database. The marketing group also publishes a document called the MVP catalog, which lists software and hardware components that have been certified by Adept to be compatible with the Company's product line. The Company also expends considerable effort on the development of thorough technical documentation and user manuals for the Adept product line, and views well-designed manuals as critical to simplifying the installation, programming, use and maintenance of the Company's products. Backlog The Company's backlog at June 30, 1996 was approximately $13.0 million, as compared with approximately $17.0 million at June 30, 1995. The Company includes in its backlog customer orders for products for which it has accepted signed purchase orders with assigned delivery dates within nine months in the case of sales to end users and system integrators, and one year in the case of sales to OEMs. The Company's business is characterized by short term order and shipment schedules. Because orders constituting the Company's current backlog are subject to changes in delivery schedules and in certain instances may be subject to cancellation without significant penalty, and because the Company utilizes its backlog to balance seasonal fluctuations in its bookings, the Company's backlog at any date may not be indicative of demand for the Company's products or actual net revenues for any period in the future. Services and Support The Company's service and support organization, which consisted of 77 persons as of June 30, 1996, is designed to support the customer from the design of the automation line through ongoing support of the installed system. This organization included 33 application engineers/programmers as of June 30, 1996 based in a number of the Company's sales offices in the U.S., Europe and Asia. This team is experienced in applying the Company's product line to solve a wide array of application issues, and operates toll-free telephone support lines called "the Hotline" to provide advice on issues such as software programming structure, layout problems and system installation. End users and system integrators can also hire these experts on a consulting basis to help resolve new or difficult application issues. -14- The Company also maintains a team of instructors, consisting of seven instructors as of June 30, 1996, which develops training courses on subjects ranging from basic system maintenance to advanced programming. These courses are geared both for manufacturing engineers who design and implement automation lines and for operators who operate and maintain equipment once it is in production. The Company's field service organization, which consisted of 33 persons as of June 30, 1996, is based in six service centers located in San Jose, California; Cincinnati, Ohio; Massy, France; Dortmund, Germany; Arezzo, Italy and Toyohashi, Japan. The field-based service engineers maintain and repair Adept products at the end user's facilities. Personnel based at these service centers also provide advice to customers on spare parts, product upgrades and preventative maintenance. Research and Development The Company's research and development efforts are focused on the design of intelligent automation products which address the challenges of designing, implementing, installing, operating and modifying automated production lines. The Company intends to focus its research and development efforts on the development of an integrated product line which further implements the Company's RDA approach and which reduces cost, enhances performance and improves ease of use. The Company has devoted, and intends to devote in the future, a significant portion of its resources to research and development programs. As of June 30, 1996, the Company had 87 persons, including seven temporary or contract personnel, engaged in research, development and engineering. The Company's research, development and engineering expenses for fiscal 1994, 1995 and 1996 were approximately $7.1 million, $6.6 million and $8.1 million, respectively, and represented 14.0%, 11.2% and 9.9%, respectively, of net revenues. The Company's future success will depend on its ability to enhance its existing products and to develop and introduce, on a timely and cost-effective basis, new products and enhancements that keep pace with technological developments and address the needs of its customers. The Company is currently developing a number of new products which further implement RDA's goal of providing easy to use intelligent automation systems to the end user. In connection with the Company's Silma business and in response to competitive pressures, the Company has accelerated development of new simulation programs and currently expects to introduce two new PC-based products. These new off-line simulation and programming software packages are being designed to operate under Windows NT, with the functionality of the Company's UNIX products. One of these products is a new simulation software package called "AdeptRAPID." AdeptRAPID is a robotic simulation product tailored specifically for Adept robots and Adept's AIM software, which is designed to quickly generate alternative conceptual layouts and cycle time estimates for implementing an intelligent automation system. It can also be used to load AIM databases automatically. The Company commenced shipments of AdeptRAPID to beta sites during fiscal year 1996. Additionally, CimStation Inspection, a product that allows customers to develop programs and simulate coordinate measuring machine inspection, will also be released under the new PC-based format. Other Adept products currently under development include AdeptWindows which will allow the Company's customers to do all development work, including vision applications, on the PC in the Windows 95 operating system. This open architecture product will allow customers to combine the features of the Company's AIM and V+ software products with other PC-based software products. In addition, the Company is introducing FlexFeedWare, an extension of Adept AIM MotionWare, which will enable customers faster and easier implementation of the Company's Flexible Feeder. The Company has also announced its intention to introduce MV Controller Integration Kits which will provide an integrated plug and play solution for connecting AdeptModules with the MV Controller. Production shipment of AdeptRAPID, CimStation Inspection, AdeptWindows and MV Controller Integration Kits are currently expected to commence in the second half of fiscal 1997. There can be no assurance that AdeptRAPID, CimStation Inspection, AdeptWindows, FlexFeedWare, MV Controller Integration Kits or any of the Company's other products under -15- development will be developed in a timely manner or that such products will achieve acceptance in the market. If the Company is unable to successfully develop these or other new products that respond to customer requirements or technological changes, the Company's business, financial condition and results of operations would be materially adversely affected. The development and commercialization of new products involve many risks, including the identification of new product opportunities, the retention and hiring of appropriate research and development personnel, the definition of the product's technical specifications, the successful completion of the development process and the successful marketing of the product. The development of these products has required, and will require, the Company to expend significant financial and management resources. The markets in which the Company competes are characterized by rapid technological change and new product introductions and enhancements. The Company's ability to remain competitive and its future success will depend in significant part upon the technological quality of its products and processes relative to those of its competitors and its ability both to develop new and enhanced products and to introduce such products at competitive prices and on a timely and cost-effective basis. There can be no assurance that the Company will be successful in selecting, developing and manufacturing new products or in enhancing its existing products on a timely basis or at all, or that such products will achieve market acceptance. The success of the Company in developing, introducing, selling and supporting new and enhanced products depends upon a variety of factors, including timely and efficient completion of hardware and software design and development, timely and efficient implementation of manufacturing processes, and effective sales, marketing and customer service. In addition, because of the complexity of the Company's products, significant delays can occur between a product's initial introduction in the market and commencement of volume production. In addition, new or existing software products or enhancements may contain errors or performance problems when first introduced, when new versions or enhancements are released, or even after such products or enhancements have been used in the marketplace for a period of time. Despite testing by the Company, such defects may be discovered only after a product has been installed and used by customers. There can be no assurance that such errors or performance problems will not be discovered in future shipments of the Company's products, resulting in expensive and time consuming design modifications or large warranty charges, damaging customer relationships and resulting in loss of market share, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. Manufacturing Adept seeks to focus its manufacturing resources on activities which enable the Company to differentiate its product line and add distinctive value. Adept's manufacturing activities include the assembly, test and configuration of its products. The Company believes that by performing these operations it can better ensure the quality and performance of its products. The Company outsources low unit volume, low value-added manufacturing operations, including standard and build-to-print fabricated parts such as machinery, sheet metal fabrication and assembled printed circuit boards. The Company also sources some robot mechanisms. The purchased robot mechanisms are tested to meet defined quality standards and then configured into complete products which are tested again prior to shipment to the customer. This strategy enables the Company to leverage product development, manufacturing and management resources while retaining greater control over product delivery, final product configuration and the timing of new product introductions, all of which are critical to meeting customer expectations. The Company's manufacturing organization has expertise in mechanical, electrical, electronic and software assembly and test. In addition, because outstanding quality and reliability over the life of the Company's products are key to customer satisfaction and customers' repeat purchases of future automation products, the Company believes its quality assurance plans and organization are a key part of its business strategy. The Company's quality assurance -16- organization develops detailed instructions for all manufacturing and test operations. These instructions are established in writing, implemented through training of the manufacturing work force, and monitored to assure compliance. In addition, the Company's quality assurance organization works closely with vendors to develop instructions and to remedy quality problems if they arise. The Company obtains many key components and materials and some significant mechanical subsystems from sole or single source suppliers. The Company purchases components, materials and mechanical subsystems from sole or single source suppliers pursuant to purchase orders placed from time to time in the ordinary course of business and has no guaranteed supply arrangements with such suppliers. Certain of these components and mechanical subsystems have long procurement lead times. The Company's reliance on sole or single source suppliers involves several significant risks, including loss of control over the manufacturing process, the potential absence of adequate supplier capacity, potential inability to obtain an adequate supply of required components, materials or mechanical subsystems and reduced control over manufacturing yields, costs, timely delivery, reliability and quality of components, materials or mechanical subsystems. In the event that any significant sole or single source supplier were unable or unwilling to manufacture certain components, materials or mechanical subsystems in required volumes, the Company would be required to identify and qualify acceptable replacements. The process of qualifying suppliers could be lengthy, and there can be no assurance that any additional sources would be available to the Company on a timely basis or on acceptable terms. If supplies of such items were not available from sole or single source suppliers and a relationship with an alternative supplier could not be timely developed, shipments of the Company's products could be interrupted and reengineering of the affected product could be required. In particular, the Company buys some significant mechanical subsystems from certain sole source suppliers with lengthy procurement lead times, including robot mechanisms from Hirata and NSK, image processing circuit boards from Imaging Technology Incorporated and power transistors from International Rectifier Corporation. Although to date the Company has not experienced any difficulty in obtaining robot mechanisms or image processing circuit boards, from time to time the Company has not obtained sufficient amounts of power transistors on a timely basis, and has been required to use inventory scheduled for shipment in future quarters to meet product demand. There can be no assurance that the Company will not face shortages of one or more of these subsystems or components in the future. Any failure by the Company to obtain sufficient robot mechanisms or components on a timely basis could delay shipments of its products and could have a material adverse effect on the Company's business, financial condition and results of operations. The Company has experienced quality control problems with certain key components provided by sole source suppliers, and has had to design around the particular flawed item. The Company has also experienced delays in filling customer orders due to the failure of certain suppliers to meet the Company's volume and schedule requirements. Certain suppliers of the Company have also ceased manufacturing components which the Company requires for its products, and the Company has been required to purchase sufficient supplies for the estimated life of its product line. There can be no assurance that these problems will not occur in the future with the Company's suppliers. Disruption or termination of the Company's supply sources could require the Company to pay more for components, materials or mechanical subsystems, or to seek alternative sources of supply, and could delay the Company's product shipments and damage relationships with current and prospective customers, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. If the Company incorrectly forecasts product mix for a particular period and the Company is unable to obtain sufficient supplies of any components or mechanical subsystems on a timely basis due to long procurement lead times, the Company's business, financial condition and results of operations could be materially affected. Moreover, if demand for a product for which the Company has purchased a substantial amount of components fails to meet the Company's expectations, the Company would be required to write off the excess inventory, thereby materially adversely affecting the Company's results of operations. A prolonged inability to obtain adequate timely deliveries of key components would have a material adverse effect on the Company's business, financial condition and results of operations. -17- The Company's hardware products are required to receive European Community ("EC") electrical compliance and safety certification in certain European countries, including France, Germany, Italy and Switzerland. EC certification mandates a rigorous examination of the Company's products by certain European agencies for adherence to a number of stringent electrical and safety requirements, and products must be designed to meet these standards. These standards can change and are subject to varying interpretation. The Company has certified that its current VME controller products and the AdeptOne and AdeptThree robot products meet applicable EC Directives and Standards. The Flexible Feeder and the AdeptThree-XL have not yet been certified in Europe, and there can be no assurance that the Company will receive such certification. In the event any of the Company's robot products or any other major hardware products were refused EC certification, the Company's European sales and its business, financial condition and results of operations could be materially adversely affected. The Company is subject to a variety of environmental regulations relating to the use, storage, handling and disposal of certain hazardous substances used in the manufacturing and assembly of the Company's products. The Company believes that it is currently in compliance with all material environmental regulations in connection with its manufacturing operations, and that it has obtained all necessary environmental permits to conduct its business. Any failure by the Company to comply with present or future regulations could subject the Company to the imposition of substantial fines, suspension of production, alteration of manufacturing processes or cessation of operations, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. Compliance with such regulations could require the Company to acquire expensive remediation equipment or to incur substantial expenses. Any failure of the Company to control the use, disposal, removal or storage of, or to adequately restrict the discharge of, or assist in the cleanup of, hazardous or toxic substances, could subject the Company to significant liabilities, including joint and several liability under certain statutes. The imposition of such liabilities could materially adversely affect the Company's business, financial condition and results of operations. Competition The market for intelligent automation products is highly competitive. The Company competes with a number of robot companies, motion control companies, machine vision companies and simulation software companies. Many of the Company's competitors have substantially greater financial, technical, marketing and other resources than the Company. Although to date the Company's competitors have not offered a broad range of intelligent automation products, it is possible that one or more of these competitors may in the future, through acquisitions or otherwise, offer a more comprehensive line of products which are competitive with a broader range of the Company's products or with the Company's entire product line. In addition, the Company may in the future face competition from new entrants in one or more of its markets. The principal competitive factors affecting the market for the Company's products are product functionality and reliability, customer service and price, and product features such as flexibility, programmability and ease of use. The Company believes that it competes favorably with respect to these factors. In addition, to date, the Company's competitors have been unable to successfully commercialize direct-drive technology, although there can be no assurance that one or more of them will not do so in the future. The Company's principal competitors in the U.S. robot market include a U.S. subsidiary of Japan-based Fanuc Ltd. ("Fanuc") and a U.S. subsidiary of Seiko Corporation ("Seiko"). In the European robot market, the Company principally competes with Robert Bosch GmbH, which to date has sold most of its products in Germany, and with Fanuc and Seiko. In the Japanese robot market, over a dozen robot companies compete with the Company, including Fanuc, Nippon Denso, Panasonic Company, Sankyo Company Limited, Seiko, Toshiba Corporation and Yamaha Corporation. Certain of these large manufacturing companies have greater flexibility in pricing than the Company, because they generate substantial unit volumes of robots for internal demand and may have access through their parent companies to large sources of capital. There can be no assurance that any of the Company's competitors -18- will not seek to expand its presence in other markets in which the Company competes. In addressing the Japanese market, the Company is at a competitive disadvantage as compared to Japanese suppliers, many of whom have long-standing collaborative relationships with Japanese manufacturers. Although the Company expects to continue to invest significant resources in the Japanese market in the future, there can be no assurance that the Company will be able to achieve significant sales growth in the Japanese intelligent automation market. The Company's principal competitors in the market for motion control systems include Allen-Bradley Co. ("Allen-Bradley"), a subsidiary of Rockwell International Corporation, in the United States, and Siemens AG in Europe. In addition, the Company faces motion control competition from two major suppliers of motion control boards, Galil Motion Control, Inc. and Delta Tau Data Systems, Inc. These motion control boards are purchased by end users which engineer their own custom motion control systems. In the simulation software market, the Company's competitors include Tecnomatix Technologies, Inc., an Israel-based company which sells mostly to major automotive manufacturers, and Deneb Robotics Inc. In the machine vision market, the Company faces competition from Cognex Corporation, Robotic Vision Systems Inc. and Allen-Bradley. There can be no assurance that current or potential competitors of the Company will not develop products comparable or superior in terms of price and performance features to those developed by the Company or adapt more quickly than the Company to new or emerging technologies and changes in customer requirements. In addition, no assurance can be given that the Company will not be required to make substantial additional investments in connection with its research, development, engineering, marketing and customer service efforts in order to meet any competitive threat, or that the Company will be able to compete successfully in the future. The Company expects that in the event the intelligent automation market expands, competition in the industry will intensify, as additional competitors enter the Company's markets and current competitors expand their product fines. Increased competitive pressure could result in a loss of sales or market share, or cause the Company to lower prices for its products, any of which could materially adversely affect the Company's business, financial condition and results of operations. Proprietary Technology and Intellectual Property The Company relies on a combination of patent, copyright and trade secret protection and nondisclosure agreements to protect its proprietary rights. In the U.S. the Company holds three hardware patents and two software patents. The Company also holds one hardware patent issued in France, Germany, Great Britain, Italy and Sweden, and relies on trade secrets principles to protect its proprietary technology in real-time multitasking software structure, continuous path motion control and assembly of robot mechanisms. There can be no assurance, however, that patent law, copyright law and trade secret protection will be adequate to deter misappropriation of its technology, that any patents issued to the Company will not be challenged, invalidated or circumvented, that the rights granted thereunder will provide competitive advantages to the Company, or that the claims under any patent application will be allowed. The process of seeking patent protection can be time consuming and expensive, and there can be no assurance that patents will issue from currently pending or future applications or that the Company's existing patents or any new patents that may be issued will be sufficient in scope or strength to provide meaningful protection or any commercial advantage to the Company. Furthermore, there can be no assurance that others will not independently develop similar products, duplicate the Company's products or design around any patents issued to the Company. The Company may be subject to or may initiate interference proceedings in the U.S. Patent and Trademark Office, which can demand significant financial and management resources. In addition, a substantial amount of the Company's sales are in international markets, and there can be no assurance that foreign intellectual property law will adequately protect the Company's intellectual property rights. -19- The Company has from time to time received communications from third parties asserting that the Company is infringing certain patents and other intellectual property rights of others or seeking indemnification against such alleged infringement. As claims arise, the Company evaluates their merits. No assurance can be given that any of these claims will not result in protracted and costly litigation, that damages for infringement will not be assessed or that should it be necessary or desirable to obtain a license relating to one or more of the Company's products or current or future technologies, the Company will be able to do so on commercially reasonable terms or at all. Litigation, which could result in substantial cost to and diversion of resources of the Company, may be necessary to enforce patents or other intellectual property rights of the Company or to defend the Company against claimed infringement of the rights of others. Any such litigation and the failure to obtain necessary licenses or other rights could have a material adverse effect on the Company's business, financial condition and results of operations. In particular, one end user of the Company's products has notified the Company that it has received a claim of patent infringement from Jerome H. Lemelson, alleging that its use of the Company's machine vision products infringes certain patents issued to Mr. Lemelson. This end user of the Company's products is currently engaged in litigation with Mr. Lemelson involving certain of these patents, and the validity, enforceability and infringement of those patents have been placed in issue. The Company has not been named in this litigation, although certain products sold by the Company, as well as products of others, were identified in connection with this litigation as part of an allegedly infringing use. A magistrate report and recommendation concluded that Mr. Lemelson's claims in such litigation should not be enforced. Recently, the district court in such litigation adopted such report and recommendation. There can be no assurance, however, that Mr. Lemelson will not successfully appeal the district court ruling to a higher court, or that Mr. Lemelson will not be successful in other suits in other jurisdictions. In addition, the Company has been notified that other end users of the Company's AdeptVision VME line and the predecessor line of Multibus machine vision products have received letters from Mr. Lemelson which refer to Mr. Lemelson's patent portfolio and offer the end user a license to the particular patents. Certain end users, including the end user currently in litigation with Mr. Lemelson, have notified the Company that they may seek indemnification from the Company for damages or expenses resulting from this matter. The Company may incur significant costs if it is required to indemnify any purchasers or users of the Company's products for damages or expenses resulting from the litigation or if Mr. Lemelson elects to seek damages directly from the Company. The Company cannot predict the outcome of this or any similar litigation which may arise in the future, and although such products have not represented a material portion of the Company's net revenues in fiscal 1994, 1995 or 1996, there can be no assurance that any such litigation will not have a material adverse effect on the business, financial condition or results of operations of the Company. Employees At June 30, 1996, the Company had 341 full-time employees, including 96 in operations, 134 in sales and marketing, 80 in engineering, and 31 in administration. In addition, at June 30, 1996 the Company utilized the services of 38 temporary or contract personnel, including 13 in operations, 12 in sales and marketing, seven in engineering and six in administration. The Company's employees are not represented by any collective bargaining organization, and the Company has never experienced a work stoppage. The Company believes that its relationships with its employees are good. The Company is highly dependent upon the continuing contributions of its key management, sales and product development personnel. In particular, the Company would be materially adversely affected if it were to lose the services of Brian Carlisle, Chief Executive Officer and Chairman of the Board of Directors of the Company, who has provided significant leadership to the Company since its inception, or Bruce Shimano, Vice President, Research and Development and a Director of the Company, who has guided the Company's research and development programs since its inception. In addition, the loss of the services of any of the Company's senior managerial, technical or sales personnel could materially adversely affect the Company's business, financial condition and results of operations. The Company's future success also heavily depends on its continuing ability to attract, retain and motivate highly -20- qualified managerial, technical and sales personnel. Competition for qualified technical personnel in the intelligent automation industry is intense. The Company's inability to recruit and train adequate numbers of qualified personnel on a timely basis would adversely affect the Company's ability to design, manufacture, market and support its products. The Company does not have employment contracts with any of its executive officers and does not maintain key man life insurance on the lives of any of its key personnel. The Company has recently experienced a period of revenue growth and an expansion in the number of its employees, the scope of its operating and financial systems and the geographic area of its operations, due in part to its acquisition of SILMA Incorporated ("Silma") in June 1995. In January 1996 the Company implemented a management reorganization of the Silma group in order to better integrate the group's activities into the Company, and Adept continues to work on the integration of Silma into Adept. The Company's growth has resulted in new and increased responsibilities for management personnel and has placed additional demands upon the Company's management, operating and financial systems and resources. There can be no assurance that the Company's systems, procedures, controls and staffing will be successfully managed or will be adequate to successfully support the Company's operations. ITEM 2. PROPERTIES The Company's headquarters and principal research and development and manufacturing facilities are located in a 92,448 square foot leased building in San Jose, California. The lease expires in December 1997 and provides for annual lease payments of approximately $665,000. The Company leases an additional 10,000 square feet in an adjacent building in San Jose for its Silma division, which lease expires in April 1998. The Company has an option to renew the San Jose lease for up to an additional three years. The Company also leases a 3,596 square foot facility in City of Industry, California at which the Company's software development group is based. The City of Industry lease terminates in August 1997, and the Company has an option to renew for up to an additional four years. The Company also leases facilities for sales and customer training in Southbury, Connecticut; Southfield, Michigan; Cincinnati, Ohio; Massy, France; Dortmund, Germany; Arezzo, Italy; Toyohashi, Japan; and Kenilworth, the United Kingdom. The Company anticipates seeking expanded facilities for its headquarters at the termination of its headquarters lease and expects that it may need additional facilities to accommodate its proposed expansion of operations. The Company currently expects that suitable additional or substitute facilities will be available as required on commercially reasonable terms. ITEM 3. LEGAL PROCEEDINGS Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. -21- EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are as follows: Name Age Position ---- --- -------- Brian R. Carlisle........ 45 Chairman of the Board of Directors and Chief Executive Officer Charles S. Duncheon...... 45 Senior Vice President, Marketing and Sales Telecommunications Industry & Americas Richard J. Casler, Jr. .. 44 Vice President, Engineering James E. Kuhl............ 55 Vice President, Operations Betsy A. Lange........... 36 Vice President, Finance and Chief Financial Officer Bruce E. Shimano......... 47 Vice President, Research and Development, Secretary and Director Brian R. Carlisle has served as the Company's Chief Executive Officer and Chairman of the Board of Directors since he co-founded the Company in June 1983. From June 1980 to June 1983, he served as General Manager and from June 1977 to June 1980, he served as project manager of the West Coast Division of Unimation, Inc. ("Unimation"), where he was responsible for new product strategy and development for Unimation's electric robots, control systems, sensing systems and other robotics applications. Mr. Carlisle received a B.S. and M.S. in mechanical engineering from Stanford University. Charles S. Duncheon has served as the Company's Senior Vice President of Marketing and Sales since September 1988. From May 1984 to May 1987, he served as General Sales Manager and from May 1987 to September 1988 as Vice President of North American Sales. Prior to that time, Mr. Duncheon served in various marketing positions with Fared Robot Systems, Inc., a robot company, and in various engineering and manufacturing positions at Monsanto Corporation, an international chemicals company. Mr. Duncheon received a B.S. in industrial engineering from Purdue University and an M.B.A. from Southern Illinois University. Richard J. Casler, Jr. has served as the Company's Vice President of Engineering since April 1993 and from October 1992 to March 1993 served as Director of Robot Interface Development. In October 1986, Mr. Casler co-founded Genesis Automation, Inc., a developer of robots and automation for the service industry, and served as its president until October 1992. From October 1981 to October 1986, Mr. Casler was manager of product development at Unimation and at Unimation's parent company, Westinghouse Electric Corporation. Mr. Casler received a B.S. and an M.S. in mechanical engineering from the Massachusetts Institute of Technology. James E. Kuhl has served as the Company's Vice President of Operations since November 1992. From July 1991 to June 1992, Mr. Kuhl was Director of Operations for PolyFlex Circuits, Inc., a manufacturer of flexible membrane printer circuits. From February 1991 to June 1991, he served as manager of mechanical engineering at Honeywell, Inc., an industrial automation company. Prior to that time, Mr. Kuhl held various manufacturing and marketing management positions in the microcomputer group of Motorola, Inc. Mr. Kuhl received a B.S. in electrical engineering from Pennsylvania State University and an M.B.A. from the University of Rochester. Betsy A. Lange has served as the Company's Vice President, Finance and Chief Financial Officer since July 1993. Ms. Lange joined the Company as an accounting manager in December 1987 and became its controller in May 1991. Prior to that time, Ms. Lange served in various accounting positions for five years at Avantek, Inc., a manufacturer of microwave components. Ms. Lange received a B.S. in business administration from California PolyTechnic State University (San Luis Obispo) and an M.B.A. from Santa Clara University. -22- Bruce E. Shimano has served as the Company's Vice President, Research and Development, and as a director since he co-founded the Company in June 1983. Prior to that time, he was Director of Software Development at Unimation. Mr. Shimano received a B.S., an M.S. and a Ph.D. in mechanical engineering from Stanford University. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated by reference from the section captioned "Market for Registrant's Common Stock and Related Stockholder Matters" contained in the Company's 1996 Annual Report to Shareholders for the fiscal year ended June 30, 1996, portions of which are filed as Exhibit 13.1 hereto (the "Annual Report to Shareholders"). ITEM 6. SELECTED FINANCIAL DATA The information required by this item is incorporated by reference from the section captioned "Selected Consolidated Financial Data" in the Company's Annual Report to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is incorporated by reference from the Company's Annual Report to Shareholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is incorporated by reference from the Company's Annual Report to Shareholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item concerning the Company's directors is incorporated by reference from the section captioned "Election of Directors" contained in the Company's Proxy Statement related to the Annual Meeting of Shareholders to be held November 21, 1996, to be filed by the Company with the Securities and Exchange Commission within 120 days of the end of the Company's fiscal year pursuant to General Instruction G(3) of Form 10-K (the "Proxy Statement"). The information required by this item concerning executive officers is set forth in Part I of this Report. The information required by this item concerning compliance with Section 16(a) of the Exchange Act is incorporated by reference from the section captioned "Section 16(a) Beneficial Ownership Compliance" contained in the Proxy Statement. -23- ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from the section captioned "Executive Compensation and Other Matters" contained in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from the section captioned "Security Ownership of Certain Beneficial Owners and Management" contained in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference from the sections captioned "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions" contained in the Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) Financial Statements The following financial statements are incorporated by reference in Item 8 of this Report: Independent Auditors' Report Consolidated Balance Sheets at June 30, 1995 and 1996 Consolidated Statements of Income for the years ended June 30, 1994, 1995 and 1996 Consolidated Statements of Shareholders' Equity for the years ended June 30, 1994, 1995 and 1996 Consolidated Statements of Cash Flows for the years ended June 30, 1994, 1995 and 1996 Notes to Consolidated Financial Statements (a)(2) Financial Statement Schedules II - Valuation and Qualifying Accounts Additional schedules are not required under the related schedule instructions or are inapplicable, and therefore have been omitted. (a)(3) Exhibits 3.1 Restated Articles of Incorporation of the Registrant. 3.2(1) Bylaws of the Registrant, as amended to date. 10.1(1) 1983 Stock Incentive Program, and form of Agreement thereto. 10.2(1) 1993 Stock Option Plan, and form of agreement thereto. 10.3(1) 1995 Employee Stock Purchase Plan, and form of agreements thereto. 10.4(1) 1995 Director Stock Option Plan, and form of agreement thereto. -24- 10.5(1) Form of Indemnification Agreement between the Registrant and its officers and directors. 10.6.1(1) Lease Agreement between the Registrant and Technology Associates I dated July 18, 1986, as amended. 10.6.2(1) Office Building Lease between Registrant and Puente Hills Business Center II dated May 20, 1993, as amended. 10.6.3(1) Standard Office Lease - Gross between SILMA Incorporated and South Bay/Copley Joint Venture dated November 11, 1992. 10.7(1) Loan Payoff Plan dated August 3, 1993 between Registrant and Charles Duncheon. 11.1 Statement regarding computation of per share earnings. 13.1 Portions of Registrant's Annual Report to Shareholders for the fiscal year ended June 30, 1996. 22.1(1) Subsidiaries of the Registrant. 23.1 Consent of Ernst & Young LLP. 24.1 Power of Attorney (See Page 26). 27.1 Financial Data Schedule. - ------------------ (1) Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form S- 1 (Reg. No. 33-98816) as declared effective by the Commission on December 15, 1995. (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the quarter ended June 30, 1996. (c) Exhibits. See Item 14(a)(3) above. (d) Financial Statement Schedules. See Item 14(a)(2) above. -25- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. ADEPT TECHNOLOGY, INC. By: /s/ Brian R. Carlisle -------------------------------------- Brian R. Carlisle Chairman of the Board of Directors and Chief Executive Officer Date: September 27, 1996 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Brian R. Carlisle and Betsy A. Lange and each of them, his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, to sign any and all amendments (including post-effective amendments) to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title Date --------- ----- ----- /s/ Brian R. Carlisle Chairman of the Board of Directors and Chief September 27, 1996 - ----------------------------------- Executive Officer (Principal Executive (Brian R. Carlisle) Officer) /s/ Betsy A. Lange Vice President, Finance and Chief Financial September 27, 1996 - ----------------------------------- Officer (Principal Financial and Accounting (Betsy A. Lange) Officer) /s/ Bruce E. Shimano Vice President, Research and Development, September 27, 1996 - ----------------------------------- Secretary and Director (Bruce E. Shimano) -26- Signature Title Date --------- ----- ----- /s/ Cary R. Mock Director September 27, 1996 - ----------------------------------- (Cary R. Mock) /s/ John E. Pomeroy Director September 27, 1996 - ----------------------------------- (John E. Pomeroy) /s/ Wendell G. Van Auken Director September 27, 1996 - ----------------------------------- (Wendell G. Van Auken)
-27- SCHEDULE II ADEPT TECHNOLOGY, INC. VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Balance Additions at Charged to Balance Beginning Costs and at End Description of Period Expenses Deductions(1) of Period - ---------------------------------- --------- ---------- ------------- --------- Year ended June 30, 1994: Allowance for doubtful accounts $ 303 $ 88 $ 151 $ 240 Year ended June 30, 1995: Allowance for doubtful accounts 240 305 63 482 Year ended June 30, 1996: Allowance for doubtful accounts 482 277 294 465 - ---------------- (1) Includes write offs net of recoveries.
EX-3.1 2 RESTATED ARTICLES OF INCORPORATION RESTATED ARTICLES OF INCORPORATION OF ADEPT TECHNOLOGY, INC. Brian R. Carlisle and Robert P. Latta hereby certify that: 1. They are the duly elected President and Assistant Secretary, respectively, of Adept Technology, Inc., a California corporation. 2. The Restated Articles of Incorporation of this corporation, as amended to the date of the filing of these Restated Articles of Incorporation and with the omissions required by Section 910 of the Corporations Code are hereby amended and restated to read as follows: I The name of this corporation is Adept Technology, Inc. II The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated by the California Corporations Code. III (A) This corporation is authorized to issue 30,000,000 shares of its capital stock, which shall be divided into two classes known as "Common Stock" and "Preferred Stock." (B) The total number of shares of Common Stock which this corporation is authorized to issue is 25,000,000, and the total number of shares of Preferred Stock which this corporation is authorized to issue is 5,000,000. (C) The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of this corporation is authorized to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and within the limitations or restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series, to determine the designation and par value of any series and to fix the number of shares of any series. IV (A) Limitation of Directors' Liability. The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. (B) Indemnification of Corporate Agents. This corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject only to the applicable limits set forth in Section 204 of the California Corporations Code with respect to actions for breach of duty to the corporation and its shareholders. (C) Repeal or Modification. Any repeal or modification of the foregoing provisions of this Article Fourth by the shareholders of this corporation shall not adversely affect any right of indemnification or limitation of liability of a director or officer of this corporation relating to acts or omissions occurring prior to such repeal or modification. -2- 3. The foregoing Restated Articles of Incorporation have been duly approved by the Board of Directors of said corporation. 4. The foregoing Restated Articles of Incorporation were approved by the required vote of the shareholders of said corporation in accordance with Sections 902 and 903 of the California General Corporations Code at a Special Meeting of Shareholders, the record date for which was September 29, 1995. The total number of outstanding shares of the corporation entitled to vote as of the record date for said meeting was 2,188,721 shares of Common Stock, 1,250,000 shares of Series A Preferred Stock, 1,251,192 shares of Series B Preferred Stock, 766,013 shares of Series C Preferred Stock, and 775,577 shares of Series D Preferred Stock. The number of shares of stock voting in favor of the foregoing Restated Articles of Incorporation equaled or exceeded the vote required. The vote required was more than 50% of the outstanding shares of Common Stock and more than 50% of the outstanding shares of Preferred Stock. The Restated Articles are necessary as a result of the automatic conversion of all outstanding Preferred Stock upon the effectiveness of the corporation's initial public offering. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in the foregoing Restated Articles of Incorporation are true and correct of our own knowledge. Executed at San Jose, California, on December 20, 1995. /s/ Brian R. Carlisle ----------------------------------------- Brian R. Carlisle, President /s/ Robert P. Latta ----------------------------------------- Robert P. Latta, Assistant Secretary -3- EX-11.1 3 STATEMENT OF COMPUTATION OF NET INCOME PER SHARE Exhibit 11.1 ADEPT TECHNOLOGY, INC. Statement of Computation of Net Income Per Share (in thousands, except per share data) (unaudited) Year Ended June 30, -------------------------- 1995 1996 -------- ------- Net income $ 925 $ 5,777 ======== ======= Weighted average common stock outstanding 5,661 7,009 Weighted average common stock equivalent shares 647 700 Shares related to SAB No. 55, 64, and 83 97 24 -------- ------- Shares use to compute net income per share 6,405 7,733 ======== ======= Net income per common share $ .14 $ .75 ======== ======= EX-13.1 4 PORTIONS OF ANNUAL REPORT Exhibit 13.1 SELECTED CONSOLIDATED FINANCIAL DATA
Year Ended June 30, --------------------------------------------------------- 1992 1993 1994 1995 1996 -------- -------- -------- -------- -------- (in thousands, except per share data) Statements of Operations Data: Net revenues..................................... $ 33,658 $ 43,065 $ 50,618 $ 59,069 $ 81,572 Cost of revenues................................. 18,312 22,142 28,089 34,788 46,812 -------- -------- -------- -------- -------- Gross margin.................................. 15,346 20,923 22,529 24,281 34,760 Operating expenses: Research, development and engineering......... 4,246 5,628 7,075 6,598 8,098 Selling, general and administrative........... 12,754 13,451 13,486 14,722 20,201 Acquired in-process research and development (1)............................. -- -- -- 2,972 -- -------- -------- -------- -------- -------- Total operating expenses.................... 17,000 19,079 20,561 24,292 28,299 Operating income (loss)....................... (1,654) 1,844 1,968 (11) 6,461 Interest income, net.......................... 212 191 163 440 496 -------- -------- -------- -------- -------- Income (loss) before provision for income taxes................................ (1,442) 2,035 2,131 429 6,957 Provision for (benefit from) income taxes..... 37 145 (150) (496) 1,180 -------- -------- -------- -------- -------- Net income (loss)............................. $ (1,479) $ 1,890 $ 2,281 $ 925 $ 5,777 ======== ======== ======== ======== ======== Net income (loss) per share (2)............... $ (.26) $ .32 $ .37 $ .14 $ .75 ======== ======== ======== ======== ======== Shares used in per share calculation (2)...... 5,703 5,912 6,218 6,405 7,733 ======== ======== ======== ======== ========
June 30, --------------------------------------------------------- 1992 1993 1994 1995 1996 -------- -------- -------- -------- -------- (in thousands) Balance Sheet Data: Cash, cash equivalents and short term investments $ 5,361 $ 8,350 $ 6,677 $ 8,812 $ 10,975 Working capital.................................. 15,374 16,664 18,772 19,757 35,030 Total assets..................................... 21,776 25,892 29,304 38,371 56,352 Long term liabilities............................ 169 127 203 117 26 Total shareholders' equity....................... 17,337 19,307 21,598 25,678 42,823 - --------------- (1) In June 1995 the Company acquired SILMA Incorporated and incurred a charge of $3.0 million for acquired in-process research and development in connection with such purchase. See Note 2 of Notes to Consolidated Financial Statements. (2) See Note 1 of Notes to Consoldiated Financial Statements for a discussion of the computation of net income (loss) per share.
Quarterly Results of Operations (Unaudited) Exhibit 13.1 The Company operates and reports financial results ending on the last Saturday of a thirteen week period for each of its first three fiscal quarters and at June 30 for its fiscal year end. For convenience, the Company has indicated in this annual report its fiscal quarters end on September 30, December 31, and March 31.
Three Months Ended ------------------------------------------------------------------------------ Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, 1994 1994 1995 1995 1995 1995 1996 1996 ------- ------- ------- ------- ------- ------- ------- ------- (in thousands) Net revenues .................................. $13,483 $13,846 $15,016 $16,724 $19,671 $20,743 $20,800 $20,358 Cost of revenues .............................. 7,872 7,884 8,937 10,095 11,358 11,923 11,852 11,679 ------- ------- ------- ------- ------- ------- ------- ------- Gross margin ................................ 5,611 5,962 6,079 6,629 8,313 8,820 8,948 8,679 Operating expenses: Research, development and engineering ....... 1,602 1,605 1,587 1,804 1,946 2,073 2,112 1,967 Selling, general and administrative ......... 3,401 3,599 3,674 4,048 4,801 4,985 5,126 5,289 Acquired in-process research and development(1) ............................. -- -- -- 2,972 -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- Total operating expenses .................. 5,003 5,204 5,261 8,824 6,747 7,058 7,238 7,256 Operating income (loss) ....................... 608 758 818 (2,195) 1,566 1,762 1,710 1,423 Interest income, net .......................... 68 86 130 156 101 33 210 152 ------- ------- ------- ------- ------- ------- ------- ------- Income (loss) before provision income taxes ... 676 844 948 (2,039) 1,667 1,795 1,920 1,575 Provision for (benefit from) income taxes ..... (99) (123) (138) (136) 288 312 325 255 ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) ............................. $ 775 $ 967 $ 1,086 $(1,903) $ 1,379 $ 1,483 $ 1,595 $ 1,320 ======= ======= ======= ======= ======= ======= ======= ======= As a Percentage of Net Revenues: Net revenues .................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenues .............................. 58.4 56.9 59.5 60.3 57.7 57.5 57.0 57.4 ------- ------- ------- ------- ------- ------- ------- ------- Gross margin ................................ 41.6 43.1 40.5 39.7 42.3 42.5 43.0 42.6 Operating expenses: Research, development and engineering ....... 11.9 11.6 10.6 10.8 9.9 10.0 10.2 9.6 Selling, general and administrative ......... 25.2 26.0 24.5 24.2 24.4 24.0 24.6 26.0 Acquired in-process research and development. -- -- -- 17.8 -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- Total operating expenses .................. 37.1 37.6 35.1 52.8 34.3 34.0 34.8 35.6 Operating income (loss) ....................... 4.5 5.5 5.4 (13.1) 8.0 8.5 8.2 7.0 Interest income, net .......................... 0.5 0.6 0.9 0.9 0.5 0.2 1.0 0.7 ------- ------- ------- ------- ------- ------- ------- ------- Income (loss) before provision for income taxes 5.0 6.1 6.3 (12.2) 8.5 8.7 9.2 7.7 Provision for (benefit from) income taxes ..... (0.7) (0.9) (0.9) (0.8) 1.5 1.5 1.5 1.2 ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) ............................. 5.7% 7.0% 7.2% (11.4)% 7.0% 7.2% 7.7% 6.5% ======= ======= ======= ======= ======= ======= ======= ======= - --------------- (1) In June 1995 the Company acquired SILMA Incorporated and incurred a charge of $3.0 million for acquired in-process research and development in connection with such purchase. See Note 2 of Notes to Consolidated Financial Statements.
Market for Registrant's Common Stock and Related Stockholder Matters The Company's Common Stock has been traded on the NASDAQ National Market under the symbol ADTK since the Company's initial public offering on December 15, 1995. The following table sets forth the range of high and low closing sale prices as reported on the Nasdaq National Market System. Dec. 31, Mar. 31, Jun. 30, 1995 1996 1996 -------- -------- -------- High........................... $ 10.75 $ 15.75 $ 14.00 Low............................ $ 9.75 $ 13.75 $ 12.50 At June 30, 1996, there were approximately 487 shareholders of record. To date, the Company has neither declared nor paid cash dividends on shares of its Common Stock. The Company currently intends to retain all future earnings for its business and does not anticipate paying cash dividends on its Common Stock in the foreseeable future. Exhibit 13.1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Special Note Regarding Forward-Looking Statements Certain statements in the following Management's Discussion and Analysis of Financial Condition and Results of Operations constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: the potential fluctuations in the Company's quarterly and annual results of operations; the cyclicality of capital spending of the Company's customers; the Company's dependence on the continued growth of the intelligent automation market; the risks associated with sole or single sources of supply and lengthy procurement lead times; the Company's highly competitive industry; rapid technological change within the Company's industry; the lengthy sales cycles for the Company's products; the risks associated with reliance on system integrators; the risks associated with international sales and purchases; the risks associated with potential acquisitions and the need to manage growth; the risks associated with new product development and the need to manage product transitions, including any difficulties or delays in the development, production, testing and marketing of the Company's new PC products under development, and generally in the migration of Silma from the UNIX platform to the PC platform or difficulties or delays in the development, production, testing and marketing of the Company's other new products under development; the Company's dependence on retention and attraction of key employees; the risks associated with product defects; the Company's dependence on third-party relationships; the uncertainty of patent and proprietary technology protection and third party intellectual property claims; changes in, or failure or inability to comply with, government regulations; general economic and business conditions; the failure of any new products to be accepted in the marketplace; the inability of the Company to effectively integrate Silma's personnel into the Company; decreased investment in robotics generally, and in the Company's intelligent automation products particularly, as a result of general or specific economic conditions or conditions affecting any of the Company's primary markets; decreased acceptance of the Company's current products in the marketplace; and the other factors referenced in this Management's Discussion and Analysis of Financial Condition and Results of Operations and the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996. OVERVIEW The Company designs, manufactures and markets intelligent automation software and hardware products for assembly, material handling and packaging applications. The Company's products currently include machine controllers for robot mechanisms and other flexible automation equipment, machine vision systems, simulation software and a family of mechanisms including robots and linear modules. In addition, the Company recently introduced a vision-based flexible part feeder. The Company's net revenues have increased over time as its robot product lines have grown, its advanced software and sensing technologies have enabled robots to perform a wider range of functions and the Company has expanded its channel of system integrators. In fiscal 1994 the Company began selling significant volumes of its software and controller products to OEMs. In addition, net revenues from international sales have increased as the Company has expanded its international sales and marketing operations. The Company sells its products through system integrators, its direct sales force and OEMs. System integrators and OEMs add application-specific hardware and software to the Company's products, thereby enabling the Company to provide solutions to a diversified industry base, including the electronics, telecommunications, appliances, pharmaceutical, food processing and automotive components industries. Net revenues have increased in each of the Company's last three fiscal years; however, there can be no assurance that the Company's net revenues will continue to grow or that the Company will be profitable in future periods. Accordingly, the Company's historical results of operations should not be relied upon as an indication of future performance. In June 1995 the Company purchased the assets and assumed the liabilities of SILMA Incorporated ("Silma"), a developer of simulation software. The acquisition was accounted for under the purchase method of accounting. 1 Exhibit 13.1 Results of Operations Comparison of Fiscal 1994 to 1995 Net revenues. The Company's net revenues increased by 16.7% from $50.6 million in fiscal 1994 to $59.1 million in fiscal 1995. The growth in net revenues was primarily attributable to increased shipments of robot products, in particular the Company's then new Adept 550 Robot, increased shipments of the Company's motion controller product, and to a lesser extent, to increased service revenues. International sales, including sales to Canada, were $23.1 million or 45.6% of net revenues in fiscal 1994 as compared with $24.0 million or 40.6% of net revenues in fiscal 1995. The absolute dollar increase in international sales in fiscal 1995 reflects the Company's continued investment in international sales, marketing and distribution activities. Gross margin. Gross margin percentage was 44.5% in fiscal 1994 and 41.1% in fiscal 1995. The decrease in gross margin was primarily attributable to a higher proportion of sales of lower margin mechanical subsystems sourced from third parties in the second half of the fiscal year, increased warranty costs associated with new products, and higher costs for yen denominated purchases of mechanisms and components due to unfavorable exchange rates. Research, Development and Engineering. Research, development and engineering expenses decreased by 7.0%, from $7.1 million or 14.0% of net revenues in fiscal 1994 to $6.6 million or 11.2% of net revenues in fiscal 1995. The decrease in research, development and engineering expenses is primarily attributable to a reduction in prototype expenses and receipt of third party development funding of $250,000, partially offset by higher outside consulting expenses. Selling, General and Administrative. Selling, general and administrative expenses increased 8.9% from $13.5 million or 26.6% of net revenues in fiscal 1994 to $14.7 million or 24.9% of net revenues in fiscal 1995. This increased spending was primarily attributable to increased headcount, and to a lesser extent, to an increase in sales commissions associated with the Company's higher revenue levels. Acquired In-Process Research and Development. In June 1995 the Company purchased the assets and assumed the liabilities of Silma for $5.0 million. The assets acquired included net tangible assets valued at $531,000, completed software, goodwill and other intangibles totaling $1.5 million, and software in the development stage valued at approximately $3.0 million which was expensed in the June 1995 fiscal quarter as it had not yet reached technological feasibility and did not have alternative future uses. Interest Income (Expense), Net. Interest income, net increased from $163,000 in fiscal 1994 to $440,000 in fiscal 1995. The increase was primarily attributable to additional interest income earned on higher invested cash balances. Provision for (Benefit from) Income Taxes. Income tax benefit was $150,000 and $496,000 in fiscal years 1994 and 1995, respectively. These tax provisions are comprised primarily of state income taxes, foreign taxes and federal alternative minimum taxes and have been reduced due to the utilization of net operating loss carryforwards. The tax provisions were further reduced by adjustments of the valuation allowance for deferred tax assets of $300,000 and $1.0 million in fiscal years 1994 and 1995, respectively, offset by the tax impact of the nondeductible charge for acquired in-process research and development made in connection with the acquisition of Silma in June 1995. Comparison of Fiscal 1995 to 1996 Net revenues. The Company's net revenues increased by 38.1% from $59.1 million in fiscal 1995 to $81.6 million in fiscal 1996. The growth in net revenues was primarily attributable to higher shipments of existing products, increased service and upgrade revenues and, to a lesser extent, to increased net revenues from simulation software. International sales, including sales to Canada, were $24.0 million or 40.6% of net revenues in fiscal 1995, as compared with $32.2 million or 39.4% of net revenues in fiscal 1996. 2 Exhibit 13.1 Although net revenues increased in fiscal year 1996, the Company did experience moderation in its overall growth rate in the second half of fiscal 1996 as compared to the Company's growth rate in prior quarters. See "Significant Fluctuations in Operating Results." In addition, although the Company's Silma business contributed to the Company's overall revenue growth in fiscal 1996, in the fourth quarter of fiscal 1996 the Silma business experienced lower revenues due to unexpected competitive pressures and organizational issues. The Company is continuing to work on the integration of Silma into the Company following the management reorganization of the Silma group during the third quarter of fiscal 1996 to better integrate the group's activities into the Company. Gross margin. Gross margin percentage was 41.1% in fiscal 1995 and 42.6% in fiscal 1996. The increase in gross margin was primarily attributable to higher gross margins on simulation software products from Silma, of which there were none in fiscal 1995. The Company expects that it will continue to experience fluctuations in gross margin percentage due to changes in its sales and product mix. Research, Development and Engineering. Research, development and engineering expenses increased by 22.7% from $6.6 million in fiscal 1995 to $8.1 million in fiscal 1996. The increase in research, development and engineering expenses is primarily attributable to the addition of the research and development expenses of the Company's Silma business. The increase in research, development and engineering expenses for fiscal 1996 was partially offset by $1.1 million of third party development funding as compared with only $250,000 of third party development funding in fiscal 1995. The Company expects that it will continue to receive third party development funding from the federal and California state governments during fiscal 1997 but that the amount of such funding will be lower than amounts received in fiscal 1996. There can be no assurance that any funds budgeted by either government for the Company's development projects will not be curtailed or eliminated at any time. As a percentage of net revenues, research, development and engineering expenses decreased from 11.2% in fiscal 1995 to 9.9% in fiscal 1996. Research, development and engineering expenses as a percentage of net revenues declined because the increase in research, development and engineering expenses was more than offset by the increase in net revenues. Selling, General and Administrative. Selling, general and administrative expenses increased 37.2% from $14.7 million or 24.9% of net revenues in fiscal 1995 to $20.2 million or 24.8% of net revenues in fiscal 1996. This increased spending was primarily attributable to the addition of the Company's Silma business, and to a lesser extent, to increased headcount and sales commissions associated with the Company's higher revenue levels, additional administrative expenses associated with being a public company and a higher employee incentive bonus accrual. The increase in the incentive bonus accrual was primarily attributable to higher operating profitability in fiscal 1996 as compared with fiscal 1995. The Company expects that selling, general and administrative expenses will continue to increase in absolute dollars in future periods, although as a percentage of net revenues, selling, general and administrative expenses may fluctuate in future periods. Interest Income (Expense), Net. Interest income, net in fiscal 1995 was $440,000, compared to $496,000 in fiscal 1996. The increase was due to additional interest income earned by the investment of cash proceeds from the sale of common stock in the Company's initial public offering in December 1995, partially offset by lower investment yields in fiscal 1996. Provision for (Benefit from) Income Taxes. The Company recorded a tax benefit of ($496,000) in fiscal 1995 due to the utilization of net operating loss carryforwards and a reduction in the valuation allowance for deferred tax assets, offset by the tax impact of the nondeductible charge for acquired in-process research and development made in connection with the acquisition of Silma in June 1995. The Company's effective tax rate in fiscal 1996 was 17%. The Company's tax rate differed from the statutory income tax rate primarily due to the utilization of tax credit carryforwards and to a reduction in the valuation allowance for deferred tax assets, partially offset by state income taxes and taxes on the Company's foreign operations. 3 Exhibit 13.1 Derivative Financial Instruments. The Company makes yen-denominated purchases of certain components and mechanical subsystems from Japanese suppliers. In fiscal 1995 this resulted in material unfavorable foreign exchange transactions included in cost of revenues. At certain times the Company has entered into forward foreign exchange contracts, primarily to hedge against the short term impact of foreign currency fluctuations on purchases denominated in yen. The maturities of the forward foreign exchange contracts are short term in nature, generally 90 days. The Company sells its products to certain Japanese customers in yen. Depending on the ratio of yen-denominated purchases to yen-denominated sales, the Company may engage in additional hedging transactions in the future. Notwithstanding these precautions, however, the Company remains subject to the transaction exposures that arise from foreign exchange movements between the dates foreign currency export sales or purchase transactions are recorded and the dates cash is received or payments are made in foreign currencies. Significant Fluctuations in Operating Results The Company's operating results have historically been, and will continue to be, subject to significant quarterly and annual fluctuations due to a number of factors, including fluctuations in capital spending domestically and internationally or in one or more industries to which the Company sells its products, new product introductions by the Company or its competitors, changes in product mix and pricing by the Company, its suppliers or its competitors, availability of components and raw materials, failure to manufacture a sufficient volume of products in a timely and cost-effective manner, failure to introduce new products on a timely basis, failure to anticipate changing customer product requirements, lack of market acceptance or shifts in the demand for the Company's products, changes in the mix of sales by distribution channel, changes in the spending patterns of the Company's customers, and extraordinary events such as litigation or acquisitions. The Company's gross margins may vary greatly depending on the mix of sales of lower margin hardware products, particularly mechanical subsystems sourced from third parties, and higher margin software products. The Company's operating results will also be affected by general economic and other conditions affecting the timing of customer orders and capital spending. The Company generally recognizes product revenue upon shipment or, for certain international sales, upon receipt by the customer. The Company's net revenues and results of operations for a fiscal period will therefore be affected by the timing of orders received and orders shipped during such period. A delay in shipments near the end of a fiscal period, due for example to product development delays or to delays in obtaining materials, could materially adversely affect the Company's business, financial condition and results of operations for such period. Moreover, continued investments in research and development, capital equipment and ongoing customer service and support capabilities will result in significant fixed costs which the Company will not be able to reduce rapidly and, therefore, if the Company's sales for a particular fiscal period are below expected levels, the Company's business, financial condition and results of operations for such fiscal period could be materially adversely affected. In addition, while in some years revenue from international sales has helped buffer the Company against slowdowns in U.S. capital spending, in other years the higher costs associated with international sales, combined with downturns in international markets, have adversely affected the Company's results of operations. There can be no assurance that the Company will be able to increase or sustain profitability on a quarterly or annual basis in the future. The Company has experienced and is expected to continue to experience seasonality in product bookings. The Company has historically had higher bookings for its products during the June quarter of each fiscal year and lower bookings during the September quarter of each fiscal year, due primarily to the slowdown in sales to European markets. In the past the Company has generally been able to maintain revenue levels during the September fiscal quarter by utilizing backlog from the June fiscal quarter. In the June quarter of fiscal 1996, however, sales were lower than anticipated due to competitive pressures and organizational issues with respect to the Company's Silma group. In addition, in the September quarter of fiscal 1997, sales to European and other international markets decreased substantially, as several large orders were delayed by customers. The decrease in product bookings has resulted in decreased net revenues for the September quarter of fiscal 1997. The Company currently expects that net revenues for the September fiscal quarter will be between $17.8 and $18.8 million. The Company currently expects that it will show a profit for the September fiscal quarter. As a result of the decreased net revenues, however, the Company expects that earnings for the September fiscal quarter will be significantly below analysts' expectations. In addition, the Company currently believes that a number of factors will limit the Company's ability to grow earnings through the end of calendar 1996. These factors include the overall moderation in the growth rate of the intelligent automation industry, the slowdown in sales to European and other international markets, the competitive pressures and organizational issues facing the Silma business and increased investments in product development and marketing programs. The Company currently expects that production 4 Exhibit 13.1 shipments of certain new products under development, including AdeptRAPID and CimStation Inspection on the PC, an AdeptWindows PC interface for MV Controllers and AdeptModules on MV Controller Integration Kits, will commence in the latter half of fiscal 1997. However, there can be no assurance that these products will be timely developed or that they will achieve acceptance in the marketplace. Moreover, because product bookings were low in the September quarter of fiscal 1997, the Company's backlog is also down and inventories have increased. In the event product bookings and net revenues for the December quarter of fiscal 1997 are insufficient to compensate for the lower product bookings in the September fiscal quarter, the Company's results of operations for the December quarter of fiscal 1997 and future fiscal quarters could be materially adversely affected. In addition, a significant percentage of the Company's product shipments occur in the last month of each fiscal quarter. Historically this has been due to a lack of component availability from sole or single source suppliers or, with respect to components with long procurement lead times, due to inaccurate forecasting of the level of demand for the Company's products or of the product mix for a particular fiscal quarter. The Company has therefore from time to time been required to utilize components and other materials for current shipments which were scheduled to be incorporated into products to be shipped in subsequent periods. If the Company were unable to obtain additional components or mechanical subsystems to meet increased demand for its products, or to meet demand for a product mix which differed from the forecasted product mix, or if for any reason the Company failed to ship sufficient product prior to the end of the fiscal quarter, the Company's business, financial condition and results of operations could be materially adversely affected. Liquidity and Capital Resources The Company completed its initial public offering of common stock in December 1995, raising approximately $10.0 million net of offering expenses. Prior to December 1995, the Company financed its operations through private sales of equity securities, cash flow from operations, capital equipment leases, and bank lines of credit. As of June 30, 1996, the Company had working capital of approximately $35.0 million, including $8.1 million in cash and cash equivalents and $2.9 million in short term investments. Cash Flows From Operating Activities Net cash provided by (used in) operating activities was $6.1 million for fiscal 1995 and ($5.6) million for fiscal 1996. The decrease from fiscal 1995 to fiscal 1996 reflects an increase in accounts receivable and inventories, partially offset by net income adjusted for depreciation. The increase in accounts receivable is attributable in part to the Company's higher net revenues in fiscal 1996. In addition, some of the Company's customers have been lengthening the time period over which they pay the Company for products shipped to such customers. The increase in inventories is attributable in part to the Company's higher net revenues in fiscal 1996 and also to lower than expected product shipments in the June quarter of fiscal 1996. Cash Flows From Investing Activities Net cash used in investing activities was $6.7 million in fiscal 1995, due primarily to purchases of short term investments aggregating $2.9 million, purchases of property and equipment aggregating $2.0 million, and $1.8 million paid for the acquisition of Silma. Net cash used in investing activities was $2.9 million in fiscal 1996, due primarily to purchases of property and equipment aggregating $3.0 million, offset by some proceeds from the sale of property and equipment. Property and equipment purchases in fiscal 1996 included $551,000 for test fixtures, tooling and other factory investments, $1.2 million for MIS equipment and $1.1 million for laboratory and other equipment. The Company currently anticipates capital expenditures of approximately $4.4 million during fiscal 1997, including approximately $1.5 million for test fixtures, tooling and other factory investments, approximately $1.3 million for MIS equipment and approximately $1.6 million for laboratory and other equipment. 5 Exhibit 13.1 Cash Flows From Financing Activities Net cash of $10.7 million was provided by financing activities in fiscal 1996, including $10.0 million in proceeds from the sale of common stock in the Company's initial public offering and $973,000 in proceeds from employee stock incentive and purchase plans and payments on notes receivable from shareholders, partially offset by principal payments on capital lease obligations of $292,000. The Company believes that the existing cash and cash equivalent balances as well as short term investments and anticipated cash flow from operations will be sufficient to support the Company's working capital requirements for at least the next twelve months. New Accounting Pronouncements In 1995, the Financial Accounting Standards Board released the Statement of Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". FAS 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. FAS 121 is effective for fiscal years beginning after December 15, 1995. Adoption of FAS 121 is not expected to have a material impact on the Company's financial position or results of operations. The Company accounts for its stock option plans and its employee stock purchase plan in accordance with the provisions of the Accounting Principles Board's Opinion No. 25 (APB), "Accounting for Stock Issued to Employees". In 1995, the Financial Accounting Standards Board released the Statement of Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based Compensation". FAS 123 provides an alternative to APB 25 and is effective for fiscal years beginning after December 15, 1995. As permitted under FAS 123, the Company expects to continue to account for its employee stock plans in accordance with provisions of APB 25. Accordingly, FAS 123 is not expected to have any material impact on the Company's financial position or results of operations. 6 Exhibit 13.1 ADEPT TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEETS (in thousands) June 30, June 30, 1995 1996 ------- ------- ASSETS Current assets: Cash and cash equivalents $ 5,912 $ 8,075 Short term investments 2,900 2,900 Accounts receivable, less allowance for doubtful accounts of $482 in 1995 and $465 in 1996 13,592 20,495 Inventories 8,787 14,808 Deferred tax assets and prepaid expenses 1,142 2,255 ------- ------- Total current assets 32,333 48,533 Property and equipment at cost: Computer equipment 2,849 3,312 Office furniture and equipment 1,438 1,767 Machinery and equipment 8,496 11,450 ------- ------- 12,783 16,529 Less accumulated depreciation and amortization 8,866 10,798 ------- ------- Net property and equipment 3,917 5,731 Intangible assets related to acquisition of Silma Incorporated, net of accumulated amortization of $306 in 1996 1,473 1,167 Other assets 648 921 ------- ------- Total assets $38,371 $56,352 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,785 $ 6,894 Accrued payroll and related expenses 2,014 2,635 Accrued warranty 1,026 1,387 Accrued customer rebates 644 99 Deferred revenue 408 561 Other accrued liabilities 1,410 1,839 Current portion of obligations under capital leases 289 88 ------- ------- Total current liabilities 12,576 13,503 Obligations under capital leases 117 26 Commitments and contingencies Shareholders' equity: Preferred stock, no par value: 5,000 shares authorized, none issued and outstanding -- -- Convertible preferred stock, no par value: 4,372 shares authorized at June 30, 1995; none at June 30, 1996; 4,043 issued and outstanding at June 30, 1995, none at June 30, 1996 30,185 -- Common stock, no par value: 25,000 shares authorized; 2,120 and 7,869 issued and outstanding at June 30, 1995 and 1996, respectively 3,977 45,383 Accumulated deficit (8,337) (2,560) ------- ------- 25,825 42,823 Less notes receivable from shareholders 147 -- ------- ------- Total shareholders' equity 25,678 42,823 ------- ------- Total liabilities and shareholders' equity $38,371 $56,352 ======= ======= See accompanying notes. Exhibit 13.1 ADEPT TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) Year Ended June 30, --------------------------------- 1994 1995 1996 ------- ------- ------- Net revenues $50,618 $59,069 $81,572 Cost of revenues 28,089 34,788 46,812 ------- ------- ------- Gross margin 22,529 24,281 34,760 Operating expenses: Research, development and engineering 7,075 6,598 8,098 Selling, general and administrative 13,486 14,722 20,201 Acquired in-process research and development -- 2,972 -- ------- ------- ------- Total operating expenses 20,561 24,292 28,299 ------- ------- ------- Operating income (loss) 1,968 (11) 6,461 Interest income 236 476 540 Interest expense 73 36 44 ------- ------- ------- Income before provision for income taxes 2,131 429 6,957 Provision for (benefit from) income taxes (150) (496) 1,180 ------- ------- ------- Net income $ 2,281 $ 925 $ 5,777 ======= ======= ======= Net income per share $ .37 $ .14 $ .75 ======= ======= ======= Shares used in computing net income per share 6,218 6,405 7,733 ======= ======= ======= See accompanying notes. Exhibit 13.1 ADEPT TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Year Ended June 30, ------------------------------- 1994 1995 1996 ------- ------- ------- Operating activities Net income $ 2,281 $ 925 $ 5,777 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,410 1,533 2,364 (Gain) loss on disposal of property and equipment 256 87 (45) Acquired in-process research and development -- 2,972 -- Tax benefit from stock plans -- -- 367 Changes in operating assets and liabilities: Accounts receivable (2,890) (1,206) (6,903) Inventories (1,515) (1,491) (6,853) Deferred tax assets and prepaid expenses (421) (406) (1,113) Other assets 201 (620) (317) Accounts payable 1,081 3,887 109 Accrued payroll and related expenses (700) (2) 621 Accrued warranty (107) 315 361 Accrued customer rebates 78 176 (545) Deferred revenue (6) (189) 153 Other accrued liabilities 627 151 388 ------- ------- ------- Total adjustments (1,986) 5,207 (11,413) ------- ------- ------- Net cash provided by (used in) operating activities 295 6,132 (5,636) ------- ------- ------- Investing activities Purchase of property and equipment, net (2,177) (2,040) (2,968) Proceeds from the sale of property and equipment 51 24 58 Purchases of available for sale investments -- (2,900) (13,500) Sales of available for sale investments -- -- 13,500 Cash paid for acquisition, net of cash received -- (1,818) -- ------- ------- ------- Net cash used in investing activities (2,126) (6,734) (2,910) ------- ------- ------- Financing activities Principal payment for capital lease obligations (263) (186) (292) Proceeds from sales and leaseback of property and equipment 411 -- -- Proceeds from common stock issued under initial public offering -- -- 10,028 Proceeds from employee stock incentive program, employee stock purchase plan, net of repurchases, cancellations, and payments of notes receivable from shareholders 10 23 973 ------- ------- ------- Net cash provided by (used in) financing activities 158 (163) 10,709 ------- ------- ------- Increase (decrease) in cash and cash equivalents (1,673) (765) 2,163 Cash and cash equivalents, beginning of period 8,350 6,677 5,912 ------- ------- ------- Cash and cash equivalents, end of period $ 6,677 $ 5,912 $ 8,075 ======= ======= ======= Supplemental disclosure of noncash activities: Conversion of preferred stock to common stock $ -- $ -- $30,185 Inventory capitalized into property, equipment and related tax $ -- $ -- $ 873 Cash paid during the period for: Interest $ 73 $ 36 $ 44 Taxes $ 252 $ 27 $ 1,781 Capital lease obligations of approximately $411 were incurred when the Company entered into capitalized leases for new equipment in fiscal 1994. There were no new capital leases in fiscal 1995 or 1996. Capital lease obligations of approximately $202 were assumed as part of the Company's acquisition of SILMA Incorporated (see Note 2). See accompanying notes.
Exhibit 13.1 ADEPT TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands)
Convertible Notes Preferred Stock Common Stock Receivable Total ----------------- ---------------- Accumulated From Shareholders' Shares Amount Shares Amount Deficit Shareholders Equity ------ ------ ------ ------ ----------- ------------ ------------- Balance at June 30, 1993 4,043 $ 30,185 1,570 $ 812 ($11,543) ($ 147 $ 19,307 Common stock issued under employee stock incentive program -- -- 10 10 -- -- 10 Net income -- -- -- -- 2,281 -- 2,281 ------ ------- ----- ------- ------- ------ -------- Balance at June 30, 1994 4,043 30,185 1,580 822 (9,262) (147) 21,598 Common stock issued under employee stock incentive program -- -- 18 23 -- -- 23 Common stock issued in connection with acquisition -- -- 522 3,132 -- -- 3,132 Net income -- -- -- -- 925 -- 925 ------ ------- ----- ------- ------- ------ -------- Balance at June 30, 1995 4,043 30,185 2,120 3,977 (8,337) (147) 25,678 Common stock issued under initial public offering net of issuance costs -- 1,250 10,028 -- -- 10,028 Conversion of preferred stock to common stock (4,043) (30,185) 4,067 30,185 -- -- -- Common stock issued under employee stock incentive program, employee stock purchase plan, net of repurchase, cancellations, and payments of notes receivable from shareholders -- -- 432 826 -- 147 973 Tax benefit from stock plans -- -- -- 367 -- -- 367 Net income -- -- -- -- 5,777 -- 5,777 ------ ------- ----- ------- ------- ------ -------- Balance at June 30, 1996 -- $ -- 7,869 $45,383 ($ 2,500) $ -- $ 42,823 ====== ======= ===== ======= ======= ====== ======== See accompanying notes.
Exhibit 13.1 ADEPT TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Summary of Significant Accounting Policies Organization Adept Technology, Inc. ("Adept" or the "Company") was incorporated under the laws of the state of California on June 14, 1983. The Company designs, manufactures and markets intelligent automation software and hardware products for automating assembly, material handling and packaging applications. Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned international subsidiaries, and SILMA Incorporated ("Silma"), acquired by the Company on June 28, 1995 (see Note 2). Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Foreign Currency Translation The Company applies Financial Accounting Standards Board Statement No. 52, Foreign Currency Translation, with respect to its international operations, which are sales and service entities. All monetary assets and liabilities are translated at the current exchange rate at the end of the period, nonmonetary assets and liabilities are translated at historical exchange rates, and revenues and expenses are translated at average exchange rates in effect during the period. Gains or (losses) which result from the process of remeasuring foreign currency financial statements in U.S. dollars were $72,000, $38,000 and $(105,000) in fiscal 1994, 1995 and 1996, respectively. As these amounts have been immaterial, the Company has included these gains and (losses) in net income. Transaction gains and (losses) were $30,000, $(59,000) and $70,000 in fiscal 1994, 1995 and 1996, respectively. Reverse Stock Split In October 1995, the Company's Board of Directors and shareholders approved a 1-for-4 reverse stock split of the Company's preferred and common stock. All preferred, common, common equivalent shares and income per share amounts in the accompanying consolidated financial statements have been retroactively adjusted to give effect to this reverse stock split. In addition, the Board of Directors and shareholders approved changing the authorized common stock from 30,000,000 shares to 25,000,000. Cash, Cash Equivalents and Short Term Investments Cash and Cash Equivalents--Cash and cash equivalents reflect highly liquid investments with maturities at the date of purchase of three months or less. Cash equivalents consist of commercial paper and money market accounts. Through June 30, 1996, the Company has invested cash in excess of operating requirements in A1/P1 rated investments at prevailing market interest rates at the time of purchase. At June 30, 1995, the Company had reflected a bank overdraft of approximately $991,000 in accounts payable on the consolidated balance sheet. This amount was repaid to the bank on July 5, 1995. Short Term Investments--Effective at the beginning of fiscal year 1995, the Company adopted Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (FAS No. 115). FAS No. 115 requires the Company to determine the appropriate classification of its investments in debt and equity securities at the time of purchase and to reevaluate such classification as of each balance sheet date. The Company's short term investments consist of U.S. government agency securities and money market auction rate preferred stock with maturities of one year or less, are classified as available for sale, and as such are carried at fair value. Fair value is based upon quoted market prices on the last day of the fiscal year. The cost of debt securities sold is based on the specific identification method. The Company had no investments in equity securities at June 30, 1995 and 1996. Due to insignificant differences between the cost and fair value of the Company's investments, the adoption of FAS No. 115 had no material effect on the Company's investments at 1 Exhibit 13.1 ADEPT TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 1, 1994. In accordance with FAS No. 115, prior period financial statements have not been restated. Cash, cash equivalents, and short term investments consisted of the following (in thousands):
Cost at Cost at FMV at 6/30/95 6/30/96 6/30/96 ------- -------- -------- Cash and cash equivalents Cash............................................ $ 514 $ 1,486 $ 1,486 Money market funds.............................. 157 1,143 1,143 Commercial paper................................ 5,241 5,446 5,446 ------- -------- -------- Cash and cash equivalents........................... 5,912 8,075 8,075 ------- -------- -------- Short-term investments Government agency notes......................... - 1,000 1,000 Market auction preferred........................ 2,900 1,900 1,900 ------- -------- -------- Short-term investments.............................. 2,900 2,900 2,900 ------- -------- -------- Cash, cash equivalents and short-term investments... $ 8,812 $ 10,975 $ 10,975 ======= ======== ========
Realized gains or losses, interest, and dividends are included in interest income. At June 30, 1995, the fair market value of cash, cash equivalents and short term investments approximated cost. At June 30, 1995, and 1996, realized and unrealized gains or losses from available-for-sale securities were not material. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. The components of inventories are as follows (in thousands): June 30, --------------------- 1995 1996 ------- -------- Raw materials................................. $ 4,877 $ 9,488 Work-in-process............................... 2,473 3,069 Finished goods................................ 1,437 2,251 ------- -------- $ 8,787 $ 14,808 ======= ======== Revenue Recognition The Company generally recognizes revenue on products at the time of shipment. For certain international sales where title and risk of loss are transferred at the customer's site, revenue is recognized upon receipt of product by the customer. A provision for the estimated cost to repair or replace products under warranty at the time of sale are recorded in the same period as the related revenues. The Company recognizes software revenue, primarily related to its simulation software products, in accordance with the American Institute of Certified Public Accountants' Statement of Position 91-1 on Software Revenue Recognition. License revenue is recognized on shipment of the product provided that no significant vendor or postcontract support obligations remain and that collection of the resulting receivable is deemed probable by management. Insignificant vendor and post contract support obligations are accrued upon shipment. Service revenue includes training, consulting and customer support. Revenues from training and consulting are recognized at the time the service is performed. Deferred revenue, which is included in other accrued liabilities, primarily relates to software support contracts sold under separate arrangements with customers. The term of the software support contract is generally one year, and the Company recognizes the associated revenue on a pro rata basis over the life of the contract. 2 Exhibit 13.1 ADEPT TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, money market auction rate preferred stocks and trade receivables. The Company places its cash equivalents and short term investments with high credit-quality financial institutions. The Company invests its excess cash in commercial paper, readily marketable debt instruments and collateralized funds of U.S., state and municipal government entities. The Company has established guidelines relative to credit ratings, diversification and maturities that seek to maintain safety and liquidity. The Company manufactures and sells its products to system integrators, end users and OEMs in diversified industries. The Company performs ongoing credit evaluations of its customers and does not require collateral. However, the Company may require the customers to make payments in advance of shipment or to provide a letter of credit. The Company provides reserves for potential credit losses, and such losses have been within management's expectations. Depreciation and Amortization Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, which range from three to five years. Assets under capital leases are amortized over the shorter of the asset life or the remaining lease term. Research, Development and Engineering Costs Research, development and engineering costs, other than research and development costs of computer software, are charged to expense when incurred. The Company has received third party funding of $0, $250,000 and $1,081,000 in fiscal 1994, 1995 and 1996, respectively. The Company has offset research, development and engineering expenses by the third party funding, as the third party funding is based upon research and development expenditures and the Company retains the rights to any technology that is developed. Software Development Costs Software development costs have been accounted for in accordance with Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed (FAS No. 86). Under the standard, capitalization of software development costs begins upon the establishment of technological feasibility, subject to net realizable value considerations. In the Company's case, capitalization would begin upon completion of a working model, as the Company does not prepare detail designs as part of the development process. Through June 30, 1996, the Company has only capitalized the $898,000 of purchased software acquired in the Silma acquisition (see Note 2) which is included in intangible assets on the consolidated balance sheet. Such costs are amortized on a straight-line basis over five years, the estimated useful life or the ratio of current revenue to the total current and anticipated future revenue, whichever is greater. Amortization expense for the fiscal year ended June 30, 1996 was $180,000. Intangible Assets Related to Acquisition of Silma Intangible assets related to the acquisition of Silma included goodwill of $486,000, $898,000 of purchased software and a non-compete agreement of $89,000. Goodwill and the non-compete agreement are amortized on a straight-line basis over estimated useful lives of five and three years, respectively. Reclassification Certain amounts presented in the financial statements for fiscal 1994 have been reclassified to conform to the presentation for fiscal 1996. Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). Under FAS 109, the liability method is used to account for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. 3 Exhibit 13.1 ADEPT TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock-Based Compensation In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123). The Company will be required to adopt FAS 123 in fiscal 1997. It is the Company's intention to continue to account for employee stock options in accordance with Accounting Principles Board Opinion No. 25 and to adopt the "disclosure only" alternative described in FAS 123. Long-Lived Assets In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (FAS 121), which requires impairment losses to be recorded on long-lived assets used in operations, such as property and equipment, when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those asset are less than the carrying amount of the assets. The Company will adopt FAS 121 in fiscal 1997. Based on current circumstances management does not believe the effect of such adoption will be material. Net Income Per Share Net income per share is computed using the weighted average number of shares of common stock and dilutive common equivalent shares from convertible preferred stock (using the if-converted method) and from stock options and warrants (using the treasury stock method). Pursuant to the Securities and Exchange Commission Staff Accounting Bulletins, common stock and common equivalent shares issued by the Company at prices below the assumed public offering price during the twelve-month period prior to the initial public offering have been included in the calculation through September 30, 1995 as if they were outstanding for all periods presented regardless of whether they are dilutive (using the treasury stock method at an assumed public offering price). 2. Acquisition Effective June 28, 1995, the Company completed the acquisition of the outstanding stock of Silma, a developer of simulation software. The total purchase price was $4,976,000, including a cash payment of $1,380,000, the issuance of 521,992 shares of the Company's common stock at a $6.00 fair value per share and related acquisition costs of $464,000. The transaction was accounted for as a purchase. The purchase price, including related acquisition costs, was allocated based on an independent appraisal obtained by the Company to the tangible and intangible assets acquired and liabilities assumed based on their respective fair values on the date of the acquisition as follows (in thousands): Cash................................................ $ 23 Trade accounts receivable........................... 773 Equipment, furniture and fixtures................... 504 Other current assets................................ 46 Other assets........................................ 20 Intangibles:........................................ Completed software............................. 898 Non-compete agreement.......................... 89 Acquired in-process research and development... 2,972 Goodwill....................................... 486 4,445 ----- ------- Total assets........................................ 5,811 Liabilities assumed................................. (835) ------- Net assets acquired............................ $ 4,976 ======= To determine the value of the completed software, the expected future cash flow of each existing software product was discounted, taking into account risks related to the characteristics and applications of each product, existing and future markets, and assessments of the life cycle stage of each product. This analysis resulted in a valuation of $898,000 for 4 Exhibit 13.1 ADEPT TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS completed software, which had reached technological feasibility and therefore was capitalizable. This software is being amortized on a straight-line basis over a five year period. To determine the value of the software in the development stage, the Company considered, among other factors, the stage of development of each project, the time and resources needed to complete each project, expected income and associated risks. Associated risks include the inherent difficulties and uncertainties in completing each project and thereby achieving technological feasibility, and risks related to the viability of potential changes in future target markets. This analysis resulted in a valuation of $2,972,000 for software in the development stage that had not yet reached technological feasibility and did not have alternative future uses. Therefore, in accordance with generally accepted accounting principles, the $2,972,000 of software in the development stage was expensed in June 1995 as acquired in-process research and development. Other intangible assets will be amortized on a straight-line basis over estimated useful lives ranging from three to five years. The following unaudited pro forma combined results of operations of the Company and Silma for the year ended June 30, 1995 have been prepared assuming that the acquisition of Silma had occurred at the beginning of the period presented. The following pro forma information is not necessarily indicative of the results that would have occurred had the transaction been completed at the beginning of the period indicated, nor is it indicative of future operating results (in thousands, except per share data): Year ended June 30, --------------------- 1995 1996 ------- -------- Net revenues................................ $ 54,449 $ 62,721 Income (loss) from operations............... 2,063 (746) Net income.................................. 2,391 59 Net income per share........................ $ .35 $ .01 3. Derivative Financial Instruments The Company purchased certain components and mechanical subsystems from Japanese suppliers denominated in yen. During September 1995, the Company began selling some of its products to certain Japanese customers in yen. As a result, the Company is subject to transaction exposures that arise from foreign exchange movements between the dates foreign currency transactions are recorded (i.e., export sales or purchases) and the dates they are paid (i.e., cash receipts or payments in foreign currencies). The Company from time to time may enter into forward foreign exchange contracts primarily to hedge against the short term impact of foreign currency fluctuations of invoices and orders denominated in yen. The maturities of the forward exchange contracts are short term in nature, (generally 90 days). Because the impact of movements in currency exchange rates on forward foreign exchange contracts offsets the related impact on the underlying items being hedged, these financial instruments do not subject the Company to speculative risk that would otherwise result from changes in currency exchange rates. Realized and unrealized gains and losses on instruments that hedge firm commitments are deferred and included in the measurement of the subsequent transaction; however, losses are deferred only to the extent of expected gains on the future commitment. Currency forward contract amounts for derivatives at June 30, 1995 and June 30, 1996 are approximately $994,000 and $0, respectively. 4. Commitments and Contingencies Commitments The Company leases certain equipment under long term leases which are treated as capital leases. Accordingly, capitalized costs of approximately $692,000 and $534,000 are included in property and equipment for the years ended June 30, 1995 and 1996, respectively. Accumulated amortization of the leased equipment amounted to approximately $366,000 and $372,000 for the respective periods and related amortization is included in depreciation expense on the Consolidated Statements of Cash Flows. 5 Exhibit 13.1 ADEPT TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company's lease on its major facility will expire in December 1997. Future minimum payments for capital and operating leases as of June 30, 1996 are as follows (in thousands): June 30, 1996 ------------------------- Capital Operating Leases Leases ------- --------- Fiscal Year 1997...................................... $ 97 $ 1,409 1998...................................... 27 914 1999...................................... -- 411 2000...................................... -- 288 2001...................................... -- 136 Later years............................... -- 91 ----- ------- Total minimum lease payments................... 124 $ 3,249 Less amount representing interest......... 10 ----- Present value of net minimum payments..... $ 114 ===== Total rent expense for all facility and equipment operating leases was approximately $1,182,000, $1,195,000 and $1,406,000 in fiscal years 1994, 1995 and 1996, respectively. Contingencies The Company has from time to time received communications from third parties asserting that the Company is infringing certain patents and other intellectual property rights of others or seeking indemnification against such alleged infringement. There is presently no litigation involving such claims, and, the Company believes that the ultimate resolution, if any, of these matters will not have a material adverse effect on its financial position, results of operations or cash flows. 5. Shareholders' Equity Public Offering In December 1995, the Company sold a total of 1,250,000 shares of common stock at $9.50 per share through its initial public offering. The net proceeds (after underwriters' commission and fees and other costs associated with the offering) totaled approximately $10,028,000. In connection with the offering, all convertible preferred stock totaling approximately 4,043,000 shares with an aggregate paid-in value of approximately $30,185,000 were converted into approximately 4,067,000 shares of common stock of the Company. Preferred Stock The Board of directors has the authority to issue, without further action by the Shareholders, up to 5,000,000 shares of preferred stock in one or more series and to fix the price, rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting a series or the designation of such series, without any further vote or action by the Company's shareholders. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of delaying, deferring or preventing a change in control of the Company without further action by the shareholders and may adversely affect the market price of, and the voting and other rights of, the holders of Common Stock. Stock Plans The Company's 1983 Employee Stock Incentive Program (the "1983 Plan") was adopted by the Board of Directors in August 1983. The 1983 Plan provided for the grant of incentive stock options to employees (including officers and employee directors) and nonstatutory stock options to employees (including officers and employee directors) and consultants of the Company. In general, options and common stock purchased pursuant to stock purchase rights granted under the 1983 Plan vest and become exercisable starting one year after the date of grant, with 25% of the shares subject to the option exercisable at that time and an additional 1/48th of the shares subject to the option becoming exercisable each month thereafter. Upon the voluntary or involuntary termination of employment (including as a result of death or disability) by a holder of unvested 6 Exhibit 13.1 ADEPT TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS shares of the Company's common stock purchased pursuant to stock purchase rights granted under the 1983 Plan, the Company may exercise an option to repurchase such shares at their original issue price. The Board of Directors determines the exercise price which must be at least equal to the fair market value of shares on the date of grant. The 1983 Plan expired according to its terms in August 1993. Currently outstanding options under the 1983 Plan and common stock purchased pursuant to stock purchase rights granted under the 1983 Plan continue to be governed by the terms of the 1983 Plan and by the terms of the respective option and stock purchase and stock restriction agreements between the Company and the holders thereof. The Company's 1993 Stock Plan (the "1993 Plan") was adopted by the Board of Directors in April 1993 and approved by the Company's shareholders in June 1993. The 1993 Plan provides for grants of incentive stock options to employees (including officers and employee directors) and nonstatutory stock options to employees (including officers and employee directors) and consultants of the Company. The terms of the 1993 Plan are similar to the 1983 Plan, and the terms of the options granted under the 1993 Plan generally may not exceed ten years. The Board of Directors determines the exercise price which must be at least equal to the fair market value of shares on the date of grant. The options may be exercised at the time or times determined by the Board of Directors. The following table summarizes activity for the stock plans (in thousands, except per share data):
Options ------------------------------------------------------ Available Price Per Aggregate for Grant Outstanding Share Price --------- ----------- --------------- --------- Balance at June 30, 1993................. 188 512 $ .80 - $ 3.20 $ 417 Additional shares authorized........ 438 -- -- -- Granted............................. (320) 320 $1.20 - $ 5.40 448 Canceled............................ 19 (19) $ .80 - $ 3.00 (18) Shares expired...................... (199) -- $ .80 - $ 2.00 -- Exercised........................... -- (10) $ .80 - $ 2.00 (10) ---- ----- ------- Balance at June 30, 1994................. 126 803 $ .80 - $ 5.40 837 Additional shares authorized........ 375 -- -- -- Granted............................. (280) 280 $5.40 - $ 6.00 1,645 Canceled............................ 23 (23) $ .80 - $ 6.00 (66) Shares Expired...................... (6) -- $ .80 - $ 5.40 -- Exercised........................... -- (18) $ .80 - $ 5.40 (23) ---- ----- ------- Balance at June 30, 1995................. 238 1,042 $ .80 - $ 6.00 2,393 Additional shares authorized........ 800 -- -- -- Granted............................. (203) 203 $7.00 - $ 18.25 2,130 Canceled............................ 39 (39) $ .80 - $ 14.75 (175) Shares Expired...................... (1) -- $ .80 -- Exercised........................... -- (382) $ .80 - $ 14.75 (524) ---- ----- ------- Balance at June 30, 1996................. 873 824 $ .80 - $ 18.25 $ 3,824 ==== ===== =======
Stock options totaling approximately 645,000 and 454,000 were exercisable at June 30, 1995 and 1996, respectively. The Company has an option to repurchase all or a portion of the shares, depending on the length of employment, at the original selling price in the event the employee terminates employment. At June 30, 1995 and 1996, 0 and 439 common shares issued were subject to repurchase under these agreements. In October 1995, the Company's Board of Directors and shareholders approved a 650,000 share increase in the number of common shares available for grant under the Company's 1993 Stock Plan. 7 Exhibit 13.1 ADEPT TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Employee Stock Purchase Plan The Company's 1995 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors and approved by the shareholders in October 1995. The Purchase Plan allows eligible employees, through payroll deductions, to purchase shares of the Company's common stock at 85% of the lesser of the fair market value of the common stock on the first day or last day of the six month purchase period. Each offering period is 12 months in duration. The initial offering period began on the effective date of the initial public offering and will end on the last trading day on or before October 31, 1996, and subsequent offering periods will begin on the first trading day on or after May 1 and November 1 of each year. A total of 300,000 shares of the Company's common stock has been reserved for issuance under the Purchase Plan. Director Option Plan The Company's 1995 Director Option Plan (the "Director Plan") was adopted by the Board of Directors and approved by the shareholders of the Company in October 1995. The option grants under the Director Plan are automatic and nondiscretionary, and the exercise price of the options is at the fair market value of the common stock on the date of grant. A total of 150,000 shares of common stock has been reserved for issuance under the Director Plan. Notes Receivable From Shareholders The notes receivable from shareholders arose from the sale of the Company's common stock to certain employees under the stock purchase rights. Such full recourse notes were secured by the shares sold, bore interest at rates ranging from 7% to 9% per year. All notes receivable from shareholders were repaid before June 30, 1996. 6. Employee Savings and Investment Plan In May 1988, the Company adopted a 401(k) savings and investment plan in which all employees, at least 21 years of age, are eligible to participate. The Company may make a matching contribution based on an employee's elective deferrals of $0.25 per every dollar deferred by the employee, not to exceed $12.00 per week. The Company's matching contributions were $82,000, $90,000 and $133,000 in fiscal 1994, 1995 and 1996. 7. Income Taxes The provision for (benefit from) income taxes consists of the following (in thousands): Year Ended June 30, ----------------------------- 1994 1995 1996 ------ ------- ------- Current: Federal.................................. $ 30 $ 150 $ 1,545 State.................................... 92 241 585 Foreign.................................. 28 113 250 ------ ------- ------- Total current................................ 150 504 2,380 Deferred: Federal.................................. (255) (822) (1,160) State.................................... (45) (178) (40) ------ ------- ------- Total deferred............................... (300) (1,000) (1,200) ------ ------- ------- Provision for (benefit from) income taxes.... $ (150) $ (496) $ 1,180 ====== ======= ======= 8 Exhibit 13.1 ADEPT TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The difference between the provision for (benefit from) income taxes and the amount computed by applying the federal statutory income tax rate to income before provision for income taxes is explained below (in thousands): Year Ended June 30, ---------------------------- 1994 1995 1996 ----- ------- ------- Tax at federal statutory rate.............. $ 725 $ 146 $ 2,366 Tax benefits of net operating loss carryforward utilization................ (661) (1,158) (1,149) Nondeductible charge for purchased research and development................ -- 1,010 -- Adjustment of valuation allowance.......... (300) (1,000) (805) State taxes, net of federal benefit........ 61 241 360 Impact of temporary differences............ -- 276 -- Foreign taxes.............................. -- -- 173 Other...................................... 25 (11) 235 ----- ------- ------- Provision for (benefit from) income taxes.. $(150) $ (496) $ 1,180 ===== ======= ======= Significant components of the Company's deferred tax assets and liabilities as of June 30, 1995 and 1996 are as follows (in thousands): 1995 1996 ------- ------- Deferred tax assets: Net operating loss carryforwards............... $ 1,000 $ 800 Tax credit carryforwards....................... 1,400 500 Inventory valuation accounts................... 500 950 Warranty reserves.............................. 400 550 Depreciation................................... 400 100 Other accruals and reserves not currently deductible for tax purposes................ 800 780 Other.......................................... 100 10 ------- ------- Total deferred tax assets.......................... 4,600 3,690 Valuation allowance................................ (2,900) (890) ------- ------- Net deferred tax assets............................ 1,700 2,800 Deferred tax liabilities: Intangible assets.............................. (400) (300) ------- ------- Total net deferred tax assets...................... $ 1,300 $ 2,500 ======= ======= The change in the valuation allowance was a net decrease of approximately $900,000 for fiscal year 1995. At June 30, 1996, the Company had net operating loss carryforwards for federal income tax purposes of approximately $2.3 million, which if unused, will expire beginning in fiscal year 2001. The Company also had research credit carryforwards of approximately $500,000, which if unused, will expire beginning in fiscal year 1997. Utilization of the net operating loss carryforwards and the deduction equivalent of approximately $375,000 of the tax credit carryforwards is limited to approximately $350,000 per year. For financial reporting purposes, a valuation allowance of $890,000 has been established to offset the deferred tax assets related to certain tax credits and net operating loss carryforwards. When realized, the tax benefits related to the valuation allowance will be applied to reduce goodwill and other intangible assets related to the acquisition of Silma. Pretax income (losses) from foreign operations were approximately $2,000, $(257,000) and $548,000 in fiscal years 1994, 1995 and 1996, respectively. 9 Exhibit 13.1 ADEPT TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Industry and Geographic Information The Company and its subsidiaries operate in one industry segment: the design, manufacturing and marketing of intelligent automation software and hardware products for automating assembly, material handling and packaging applications. International sales, which include export sales and foreign operation net revenues, account for a significant portion of the Company's net revenues and are summarized as a percentage of net revenues by geographic areas as follows: Year Ended June 30, -------------------------- 1994 1995 1996 ------ ------ ------ United States........................... 54.4% 59.4% 60.6% International: Europe.............................. 30.0 29.1 31.7 Other international................. 15.6 11.5 7.7 ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== ===== Foreign operations net revenues and identifiable assets have constituted less than 10% of consolidated net revenues and identifiable assets, respectively, to date. The Company had export sales of approximately 37%, 32% and 29% of the net revenues in fiscal years 1994, 1995 and 1996, respectively. Approximately 59%, 66% and 79% of the export sales were to Europe in fiscal years 1994, 1995 and 1996, respectively. The balance of export sales was primarily to Asia in each of the three fiscal years. 10 EXHIBIT 13.1 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Shareholders Adept Technology, Inc. We have audited the accompanying consolidated balance sheets of Adept Technology, Inc. as of June 30, 1995 and 1996 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended June 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Adept Technology, Inc. at June 30, 1995 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles. Ernst & Young LLP San Jose, California July 30, 1996 EX-23.1 5 REPORT OF ERNST & YOUNG LLP EXHIBIT 23.1 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Adept Technology, Inc. of our report dated July 30, 1996, included in the 1996 Annual Report to Shareholders of Adept Technology, Inc. Our audits also included the financial statement schedule of Adept Technology, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-3656) pertaining to the 1983 Employee Stock Incentive Plan, 1993 Stock Plan, 1995 Employee Stock Purchase Plan and 1995 Director Option Plan of Adept Technology, Inc. of our report dated July 30, 1996, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule in this Annual Report (Form 10-K) of Adept Technology, Inc. Ernst & Young LLP San Jose, California September 24, 1996 EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE CONSOLIDATED CONDENSED BALANCE SHEET AS OF JUNE 30, 1996 AND THE CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE YEAR ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS JUN-30-1996 JUL-01-1995 JUN-30-1996 8,075 2,900 20,960 465 14,808 48,533 16,529 10,798 56,352 13,503 0 45,383 0 0 (2,560) 56,352 81,572 81,572 46,812 75,111 0 0 44 6,957 1,180 5,777 0 0 0 5,777 0.75 0.75
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