Adept Technology 10Q/A 2006 Q3 Quarterly report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 1, 2006

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File No. 0-27122

ADEPT TECHNOLOGY, INC.

(Exact name of Registrant as Specified in its Charter)


Delaware		94-2900635
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

3011 Triad Drive, Livermore, California		94550
(Address of Principal Executive Offices)		(Zip Code)

(925) 245-3400

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YESx NO¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer¨		Accelerated Filer¨		Non-Accelerated Filerx

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES¨ NOx

The number of shares of the Registrant’s common stock outstanding as of May 12, 2006 was 6,851,980.

ADEPT TECHNOLOGY, INC.

FORM 10-Q/A

EXPLANATORY NOTE

This amendment no. 1 to the quarterly report on Form 10-Q/A (“Form 10-Q/A”) of Adept Technology, Inc. (“Adept”) is being filed to amend our quarterly report on Form 10-Q for the quarter ended April 1, 2006, which was originally filed on May 16, 2006 (the “Original 10-Q Filing”). In accordance with the rules of the Securities and Exchange Commission, this Form 10-Q/A amends and restates certain information in the following sections as a result of the current restatements described below:

Part I – Item 1. Condensed Consolidated Financial Statements (Unaudited)

Part I – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Part I – Item 3. Quantitative and Qualitative Disclosures About Market Risk

Part I – Item 4. Controls and Procedures

Part II – Item 6. Exhibits, consisting of certain currently dated certifications

Unaffected items have not been repeated in this Form 10-Q/A.

In September 2006, in the course of conducting the year end consolidation of Adept’s financial results for fiscal year 2006, and in conjunction with the audit of those results, we identified various errors in a number of accounts, primarily involving intercompany eliminations associated with the consolidation of international subsidiaries, resulting in changes to the foreign currency exchange gain (loss), cost of revenue, net income (loss) and ending balance sheet balances and other items as discussed in Note 16 to the Condensed Consolidated Financial Statements.

As a result of correcting these errors, we have restated our Condensed Consolidated Balance Sheet as of April 1, 2006, our Condensed Consolidated Statement of Operations for the three months and nine months ended April 1, 2006, and our Condensed Consolidated Statement of Cash Flows for the nine months ended April 1, 2006. We have also restated our notes to condensed consolidated financial statements as necessary to reflect the adjustments. Please see Note 16 to the Notes to Restated Condensed Consolidated Financial Statements for a discussion of the adjustments.

The Company has amended Part I Item 3. “Quantitative and Qualitative Disclosure About Market Risk” to reflect the restatement of cash and cash equivalents as of April 1, 2006.

The Company has also amended and restated Part I Item 4. “Controls and Procedures” and updated the certifications of the Chief Executive Officer and the Chief Financial Officer as of the date of this Form 10-Q/A.

This Form 10-Q/A only amends and restates the Items described above to reflect the effects of the restatement, and no attempt has been made to update other disclosures presented in our Form 10-Q for the quarter ended April 1, 2006. Accordingly, except for the foregoing information, this Form 10-Q/A continues to speak as of the filing date of the Original 10-Q Filing, and does not reflect events occurring after the date of the Original 10-Q Filing and does not update those disclosures affected by subsequent events. Forward-looking statements made in the Original 10-Q Filing have not been revised to reflect events, results or developments that have become known to us after the date of the original filing (other than the current restatements described above), and such forward-looking statements should be read in their historical context. Unless otherwise stated, the information in this Form 10-Q/A not affected by such current restatements is unchanged and reflects the disclosures made at the time of the Original 10-Q Filing. In addition, the filing of this Form 10-Q/A shall not be deemed an admission that the Original 10-Q Filing, when made, included any untrue statement of material fact or omitted to state a material fact necessary to make a statement made therein not misleading.

ADEPT TECHNOLOGY, INC.


		Page
PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets (Restated) April 1, 2006 and June 30, 2005		4

Condensed Consolidated Statements of Operations (Restated) Three and Nine months ended April 1, 2006 and April 2, 2005		5

Condensed Consolidated Statements of Cash Flows (Restated) Nine months ended April 1, 2006 and April 2, 2005		6

Notes to Restated Condensed Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

Item 3. Quantitative and Qualitative Disclosures About Market Risk		29

Item 4. Controls and Procedures		29

PART II - OTHER INFORMATION

Item 6. Exhibits		32

Signatures		33

Index to Exhibits		34

PART I – FINANCIAL INFORMATION

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ADEPT TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Restated)

(in thousands)


	April 1, 2006			June 30, 2005
	(as restated)
ASSETS
Current assets:
Cash and cash equivalents	$	2,456		$	5,334
Accounts receivable, less allowance for doubtful accounts of $514 at April 1, 2006 and $754 at June 30, 2005		14,759			11,184
Inventories, net		9,524			10,201
Other current assets		624			642

Total current assets		27,363			27,361
Property and equipment at cost		11,236			10,112
Less accumulated depreciation and amortization		(9,235	)		(8,869	)

Property and equipment, net		2,001			1,243
Goodwill		3,176			3,176
Other intangible assets, net		83			228
Other assets		215			201

Total assets	$	32,838		$	32,209

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Subordinated convertible note	$	—		$	3,000
Accounts payable		6,746			6,916
Accrued payroll and related expenses		2,114			1,501
Accrued warranty expenses		1,800			2,040
Deferred revenue and accrued restructuring expenses		98			82
Other accrued liabilities		652			727

Total current liabilities		11,410			14,266
Long-term liabilities:
Other long-term liabilities		216			242

Total liabilities		11,626			14,508

Stockholders’ equity:
Common stock, $0.001 par value and no par value: 19,000 and 14,000 shares authorized, 6,838 and 6,137 shares issued and outstanding at April 1, 2006 and June 30, 2005, respectively		148,140			144,183
Accumulated deficit:		(126,928	)		(126,482	)

Total stockholders’ equity		21,212			17,701

Total liabilities and stockholders’ equity	$	32,838		$	32,209

Reflects the one-for-five reverse stock split by Adept effective February 25, 2005

See accompanying notes

ADEPT TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Restated)

(unaudited)

(in thousands, except per share data)


	Three months ended						Nine months Ended
	April 1, 2006			April 2, 2005			April 1, 2006			April 2, 2005
	(as restated)						(as restated)
Revenues	$	15,074		$	13,025		$	42,694		$	36,103
Cost of revenues		8,241			7,061			22,493			19,349

Gross margin		6,833			5,964			20,201			16,754
Operating expenses:
Research, development and engineering		1,741			1,787			5,380			5,008
Selling, general and administrative		4,830			3,817			14,848			11,453
Restructuring charge (reversal), net		—			—			—			(33	)
Amortization of intangible assets		49			49			146			146

Total operating expenses		6,620			5,653			20,374			16,574

Operating income (loss)		213			311			(173	)		180
Interest expense, net		(17	)		(58	)		(65	)		(133	)
Foreign currency exchange gain (loss)		(17	)		50			(206	)		374

Income (loss) before income taxes		179			303			(444	)		421
Provision for income taxes		7			11			2			29

Net income (loss)	$	172		$	292		$	(446	)	$	392

Basic income (loss) per share	$	0.03		$	0.05		$	(0.07	)	$	0.06

Diluted income (loss) per share	$	0.02		$	0.05		$	(0.07	)	$	0.06

Number of shares used in computing basic per share amounts		6,414			6,124			6,237			6,046

Number of shares used in computing diluted per share amounts		7,092			6,246			6,237			6,154

Reflects the one-for-five reverse stock split by Adept effective February 25, 2005

See accompanying notes

ADEPT TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Restated)

(unaudited)

(in thousands)


	Nine months ended
	April 1,			April 2,
	2006			2005
	(as restated)
Operating activities
Net income (loss)	$	(446	)	$	392
Non-cash adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation		682			679
Stock compensation		641			—
Amortization of intangibles		146			146
Non-cash interest expense		120			135
Net changes in operating assets and liabilities:
Accounts receivable, net		(3,575	)		1,166
Inventories, net		676			(2,469	)
Other current assets		18			(253	)
Other assets		(14	)		2
Accounts payable		(170	)		38
Other accrued liabilities and deferred revenues		194			(1,490	)
Accrued restructuring expenses		—			(165	)
Other long-term liabilities		(26	)		115

Net cash used in operating activities		(1,754	)		(1,704	)

Investing activities
Purchase of property and equipment		(1,197	)		(661	)
Capitalized software		(243	)		—

Net cash used in investing activities		(1,440	)		(661	)

Financing activities
Proceeds from employee stock incentive program and employee stock purchase plan		316			772

Net cash provided by financing activities		316			772

Decrease in cash and cash equivalents		(2,878	)		(1,593	)
Cash and cash equivalents, beginning of period		5,334			4,957

Cash and cash equivalents, end of period	$	2,456		$	3,364

Cash paid during the period for:
Interest	$	464		$	4
Taxes	$	36		$	74
Supplemental Schedule of noncash investing and financing activities
The convertible subordinated note for $3.0 million was converted to 600,000 shares of common stock on February 28, 2006 pursuant to terms of the note dated August 6, 2003

See accompanying notes.

ADEPT TECHNOLOGY, INC.

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	General

The accompanying restated condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles. However, certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in this report reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the consolidated financial position, results of operations and cash flows as of and for the interim periods. The results for such periods are not necessarily indicative of the results to be expected for the full fiscal year or for any other future period. The condensed consolidated financial statements included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2005 included in Adept Technology, Inc.’s (“Adept” or the “Company”) Annual Report on Form 10-K as filed with the Securities and Exchange Commission on September 28, 2005.

The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Therefore, actual results could differ from those estimates and could have a material impact on our consolidated financial statements, and it is possible that such changes could occur in the near term.

The Company applies Statement of Financial Accounting Standards No. 52, “Foreign Currency Translation,” with respect to its international operations, which are primarily sales and service entities. The accounts denominated in non-U.S. currencies have been re-measured using the U.S. dollar as the functional currency. All monetary assets and liabilities are remeasured at the current exchange rate at the end of the period, nonmonetary assets and liabilities are remeasured at historical exchange rates, and revenues and expenses are remeasured at average exchange rates in effect during the period.

All current and historical share and per share information included in these condensed consolidated financial statements has been restated to reflect the results of Adept’s one-for-five reverse stock split effective February 25, 2005.

Certain amounts presented in the consolidated financial statements for prior periods have been reclassified to conform to the fiscal year 2006 presentation.

2.	Stock-Based Compensation

The Company has adopted stock plans that provide for the grant to employees of stock-based awards, including stock options and restricted shares, of Adept common stock. In addition, these plans permit the grant of nonstatutory stock-based awards to paid consultants and outside directors. Option awards are granted with an exercise price equal to the market price of our stock on the date of grant; those option awards generally vest evenly over the next four years of continuous service and have ten-year contractual terms. The Company also has an employee stock purchase plan (ESPP) that allows employees to purchase a limited number of shares of its common stock at a discount of 15% of the market value at certain plan-defined dates that are established at six-month intervals.

Adept has one employee stock purchase plan and four equity compensation plans, including the 2001 Stock Option Plan, 2003 Stock Option Plan, 2004 Director Option Plan and 2005 Equity Incentive Plan. As of April 1, 2006, there are 284,648 shares available for issuance under the 1998 Employee Stock Purchase Plan. The plan provides for an annual automatic increase in the number of shares available for issuance by the lesser of 120,000 shares, 3% of the shares outstanding, or a lesser amount as may be determined by the Board of Directors. There are 401,014 shares subject to outstanding options under the 2001 Stock Option Plan with 21,874 available for grant. Under the 2003 Stock Option Plan, there are 223,000 shares subject to outstanding options with 174,834 available for grant. The 2004 Director Option Plan has 22,000 shares subject to outstanding options with 37,709 available for grant. The 2005 Equity Incentive Plan has 400,000 shares authorized with 381,350 available for grant. Under all of these plans,

for employee grants, vesting is generally monthly in equal installments over a four year period. Under the director option plan, initial director grants vest one-fourth on the first anniversary of the grant, then monthly in equal installments thereafter for three years. Annual director grants vest monthly in equal installments over a four year period.

The Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share –Based Payment” (SFAS 123R), effective July 1, 2005. SFAS 123R requires the recognition of fair value of stock compensation as an expense in the calculation of net income. We recognize the stock compensation expense ratably over the vesting period of the individual equity instruments. All stock compensation recorded during the three and nine months ended April 1, 2006 has been accounted for as an equity instrument. Prior to July 1, 2005 we followed the Accounting Principles Board (“APB”) Opinion 25, “Accounting for Stock Issued to Employees”, and related interpretations for our stock compensation.

We have elected the modified prospective transition method for adopting SFAS 123R. Under this method, the provisions of SFAS 123R apply to all stock-based awards granted or other awards granted that are subsequently reclassified into equity. The unrecognized expense of awards not yet vested as of July 1, 2005, the date of SFAS 123R adoption by the Company, is now being recognized as expense in the calculation of net income using the same valuation method (the Black-Scholes model) and assumptions disclosed prior to our adoption of SFAS 123R. As of July 1, 2005, we had an unrecorded deferred stock-based compensation balance related to stock options of $1.1 million after estimated forfeitures. The unamortized compensation cost (previously being recognized under FAS 123 on a pro-forma basis) for options granted but not vested as of July 1, 2005 will be recognized ratably over the remaining vesting period of such options.

Under the provisions of SFAS 123R we recorded $202,000 and $641,000 of stock-based compensation expense on our unaudited condensed consolidated statement of operations for the three and nine months ended April 1, 2006, respectively, for our stock plans and ESPP. We did not record an income-tax benefit for the stock compensation expense because of the extent of our net operating loss carryforwards. We utilized the Black-Scholes valuation model for estimating the fair value of the compensation after the adoption of SFAS 123R. The weighted average grant-date fair values of the options granted under the stock option plans and shares subject to purchase under the ESPP for the three months ended April 1, 2006 were $5.46 and $3.34, respectively, and for the nine months ended April 1, 2006 were $4.70 and $2.95, respectively using the following assumptions.


	Three Months Ended April 1, 2006				Nine Months Ended April 1, 2006
	Stock Option Plan		Purchase Plan		Stock Option Plan		Purchase Plan
Average risk free interest rate	4.83	%	4.19	%	4.00	%	3.91	%
Expected life (in years)	2.89		0.50		3.20		0.50
Expected volatility	0.77		0.82		0.85		0.84
Dividend yield	0	%	0	%	0	%	0	%

The dividend yield of zero is based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. Expected volatility is based on the historical volatility of our common stock over the period commensurate with the expected life of the options or ESPP shares. The risk-free interest rate is based on observed and expected time to post-vesting exercise and forfeitures of options or ESPP shares by our employees. The expected life in years is based on the historic time to post-vesting exercise and forfeitures of the options or ESPP shares.

Based on our historical experience of option pre-vesting cancellations, we have assumed an annualized forfeiture rate of 20% for our options. Under the true-up provisions of SFAS 123R, we record additional expense if the actual forfeiture rate is lower than we estimated, and record a recovery of prior expense if the actual forfeiture is higher than we estimated.

A summary of stock option activity under the option plans as of April 1, 2006 and changes during the nine months then ended is presented below:


Options	Shares (in thousands)		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Outstanding at June 30, 2005	762		$	14.81
Granted	165			8.44
Exercised	(20	)		3.21
Forfeited or Expired	(41	)		33.94

Outstanding at April 1, 2006	866		$	12.97	7.66	$	2,629

Vested/Expected to Vest at April 1, 2006	760		$	13.79	7.16	$	2,316

Exercisable at April 1, 2006	454		$	18.44	6.61	$	1,352

During the nine months ended April 1, 2006, we granted options for 165,000 shares of common stock with an estimated total grant date fair market value of $621,000 after estimated forfeitures. The intrinsic value of options exercised during the nine months ended April 1, 2006 was $135,000. Cash received from stock option exercises and ESPP purchases was $66,000 and $251,000, respectively, during the nine months ended April 1, 2006. As of April 1, 2006, there was $660,000 of total unrecognized compensation cost related to nonvested stock options granted and outstanding; that cost is expected to be recognized through fiscal year 2010, with a weighted average remaining period of 1.4 years.

During the nine months ended April 1, 2006, we awarded 19,000 shares of restricted stock based on performance goals achieved. These shares have six months vesting that requires continuous service by the recipients. A summary of the status of the nonvested shares at April 1, 2006 is presented below:


Nonvested Shares	Shares (in thousands)	Weighted- Average Grant-Date Fair Value
Nonvested at July 1, 2005	0
Granted	19	$	14.00
Exercised	0
Forfeited or Expired	0

Outstanding at April 1, 2006	19	$	14.00

Vested or expected to vest at April 1, 2006	19	$	14.00

Exercisable at April 1, 2006	0

As of April 1, 2006, there was $268,000 of unrecognized compensation cost related to these shares. That cost is expected to be recognized upon share vesting in the quarter ended June 30, 2006.

SFAS 123R requires us to present pro forma information for the comparative period prior to the adoption as if we had accounted for all our employee stock options and stock acquired under our stock purchase plan under the fair value method of the original SFAS 123. The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation to the prior-year periods. Note that stock-based employee compensation expense for fiscal 2005 was revised in the fourth quarter of fiscal 2005 due to our revision of assumptions regarding the expected term and volatility of options, and the amounts shown here are consistent with the revision. The revision was based on an analysis of historic patterns of option exercises and forfeitures, which reduced the expected term from approximately 9 years to 3.35 years, and this change in expected term impacted the volatility calculation as well.


(dollars in thousands, except per share data).	Three Months Ended April 2, 2005			Nine Months Ended April 2, 2005
Net income as reported	$	292		$	392
Add: Employee stock compensation included in reported net income		—			—
Less: employee stock compensation under SFAS No. 123		(153	)		(465	)

Pro forma net income (loss)	$	139		$	(73	)

Net income per basic share as reported	$	0.05		$	0.06
Pro forma net income (loss) per basic share	$	0.02		$	(0.01	)
Net income per diluted share as reported	$	0.05		$	0.06
Pro forma net income (loss) per diluted share	$	0.02		$	(0.01	)

The weighted average fair values of the options granted under the stock option plans and shares subject to purchase under the ESPP for the three months ended April 2, 2005 were $3.80 and $2.39 respectively, and for the nine months ended April 2, 2005 were $3.44 and $2.58, respectively using the following assumptions.


	Three Months Ended April 2, 2005				Nine Months Ended April 2, 2005
	Stock Option Plan		Purchase Plan		Stock Option Plan		Purchase Plan
Average risk free interest rate	3.87	%	3.49	%	3.87	%	3.89	%
Expected life (in years)	3.35		0.50		3.35		0.50
Expected volatility	1.02		.88		.90		.87
Dividend yield	0	%	0	%	0	%	0	%

The amortization of stock compensation under SFAS 123R for the period after its adoption, and under APB 25 or SFAS 123 (pro forma disclosure) for the period prior to the adoption of SFAS 123R was done in accordance with Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 28. The total compensation costs of options granted, but not yet vested as of July 1, 2005, is expected to be recognized over the weighted average period of four years.

Shares issued by Adept upon exercise of options are generally newly issued shares, and the Company does not currently have a stock repurchase plan.

3.	Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Short-term investments typically consist of marketable securities and money market investments with maturities between three and 12 months. Investments are classified as held-to-maturity, trading, or available-for-sale at the time of purchase. At April 1, 2006, the Company held no short-term investments.

4.	Inventories

Inventories, net of reserves, are stated at the lower of standard cost, which approximates actual cost under the first-in, first-out method, or market value. The components of inventory are as follows:


	(in thousands)
	April 1, 2006		June 30, 2005
	(restated)
Raw materials	$	3,727	$	3,835
Work-in-process		1,592		2,176
Finished goods		4,205		4,190

	$	9,524	$	10,201

Inventory reserves for estimated obsolescence or unmarketable inventory were $2.2 million at April 1, 2006 and $2.5 million at June 30, 2005.

5.	Property and Equipment

Property and equipment are recorded at cost. We had fully-depreciated asset retirements of $316,000 during the quarter ended April 1, 2006.

The components of property and equipment are summarized as follows:


	(in thousands)
	April 1, 2006			June 30, 2005
Machinery and equipment	$	3,746		$	2,844
Computer equipment		5,453			5,234
Office furniture and equipment		2,037			2,034

		11,236			10,112
Accumulated depreciation and amortization		(9,235	)		(8,869	)

Net property and equipment	$	2,001		$	1,243

6.	Intangible Assets

The following is a summary of the gross carrying amount and accumulated amortization, aggregate amortization expense, and estimated remaining annual amortization expense related to the intangible assets subject to amortization.


	(in thousands) As of April 1, 2006
Amortizable intangible assets	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed technology	$	2,389	$	(2,306	)	$	83
Non-compete agreements		380		(380	)		—

Total	$	2,769	$	(2,686	)	$	83

The aggregate amortization expense for the nine months ended April 1, 2006 totaled $146 and the estimated amortization expense for the next two years is as follows:


	(in thousands) Amount
Remaining for fiscal year 2006	$	49
For fiscal year 2007		34

	$	83

7.	Warranties

The Company generally offers a two year parts and one year labor limited warranty for most of its hardware component products. The specific terms and conditions of those warranties are set forth in the Company’s “Terms and Conditions of Sale,” and published in sales catalogs and on each sales order acknowledgement. The Company estimates the costs that may be incurred under its limited warranty, and records a liability through charges to cost of revenues at the time product revenue is recognized. Factors that affect the Company’s warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and costs per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Changes in the Company’s warranty liability are as follows:


	(in thousands) Nine months ended
	April 1, 2006			April 2, 2005
Balance at beginning of period	$	2,040		$	2,111
Provision for warranties issued		966			895
Change in estimated warranty provision including expirations		—			(203	)
Warranty claims		(1,206	)		(809	)

Balance at end of period	$	1,800		$	1,994

8.	Legal Proceedings

From time to time, the Company is party to various legal proceedings or claims, either asserted or unasserted, which arise in the ordinary course of its business. The Company has reviewed pending legal matters and believes that the resolution of these matters will not have a material adverse effect on its business, financial condition or results of operations.

Adept has in the past received communications from third parties asserting that it has infringed certain patents and other intellectual property rights of others, or seeking indemnification against alleged infringement. While it is not feasible to predict or determine the likelihood or outcome of any actual or potential actions from such assertions against the Company, it believes the ultimate resolution of these matters will not have a material adverse effect on its financial position, results of operations or cash flows.

9.	Income Taxes

The Company provides for income taxes during interim reporting periods based upon an estimate of its annual effective tax rate. The Company also maintains a liability to cover the cost of additional probable tax exposure items pertaining to the filing of federal and state income tax returns, as well as filings in foreign jurisdictions. Each of these filing jurisdictions may audit the tax returns filed and propose adjustments. Adjustments arise from a variety of factors, including different interpretations of statutes and regulations. For the nine months ended April 1, 2006, the Company conducted an analysis of existing reserves for taxes and determined that an additional income tax provision of $2,000 was determined to be required.

10.

Income (Loss) per Share

Basic income (loss) per share is computed by dividing net income (loss), the numerator, by the weighted average number of shares of common stock outstanding, the denominator, during the period. Diluted income per share gives effect to equity instruments considered to be potential common shares, if dilutive, computed using the treasury stock method of accounting. The computation of diluted net income (loss) per share for the three months and nine months ended April 1, 2006 do not include the following securities because the effect of their inclusion would be anti-dilutive: options to purchase common stock of 347,440 and 366,583, respectively.


	Three months ended				Nine months ended
	April 1, 2006		April 2, 2005		April 1, 2006			April 2, ,2005
(in thousands)	(restated)				(restated)
Net Income (loss)	$	172	$	292	$	(446	)	$	392

Basic:
Weighted average number of shares used in computing basic per share amounts		6,414		6,124		6,237			6,046

Basic net income (loss) per share	$	0.03	$	0.05	$	(0.07	)	$	0.06

Diluted:
Weighted average number of common shares used in computing basic net income (loss) per share		6,414		6,124		6,237			6,046
Add: Weighted average number of dilutive potential Common stock		1,078		122		—			108

Weighted average number of common shares used in computing diluted net income (loss) per share		7,092		6,246		6,237			6,154

Diluted net income (loss) per share	$	0.02	$	0.05	$	(0.07	)	$	0.06

11.

Segment Information

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” requires disclosures of certain information regarding operating segments, products and services, geographic areas of operation and major customers. SFAS No. 131 reporting is based upon the “management approach”: how management organizes the company’s operating segments for which separate financial information is (i) available and (ii) evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Adept’s chief operating decision maker is its President and Chief Executive Officer, or CEO.

Adept’s business is focused towards delivering intelligent flexible production automation products, components and services for assembly and material handling applications under two categories: (1) Robotics and (2) Services and Support.

The Robotics segment provides intelligent production automation software and hardware component products externally to customers.

The Services and Support segment provides support services to customers including: supplies of spare parts and refurbished and new direct drive robots; providing information regarding the use of the Company’s automation equipment; assisting with the ongoing support of installed systems; consulting services for applications; and training courses ranging from system operation and maintenance to advanced programming geared towards manufacturing engineers who design and implement automation lines.

The Company evaluates performance and allocates resources based on segment revenue and segment profit. Segment profit is comprised of income before unallocated research, development and engineering expenses, unallocated general and administrative expenses, interest income, and interest and other expenses.

Management does not fully allocate research, development and engineering expenses and general and administrative expenses when making capital spending and expense funding decisions or assessing segment performance. There is no inter-segment revenue recognized. Transfers of materials or labor between segments are recorded at cost.

Segment information for total assets and capital expenditures is not presented as such information is not used in measuring segment performance or allocating resources between segments.


	Three months ended						Nine months ended
	April 1, 2006			April 2, 2005			April 1, 2006			April 2, 2005
(in thousands)	(restated)						(restated)
Revenues:
Robotics	$	9,277		$	8,743		$	25,349		$	24,599
Services and Support		5,797			4,282			17,345			11,504

Total revenues	$	15,074		$	13,025		$	42,694		$	36,103

Operating income:
Robotics	$	1,102		$	1,063		$	2,225		$	4,077
Services and Support		1,356			1,350			4,816			2,669

Segment profit		2,458			2,413			7,041			6,746
Unallocated research, development and engineering; selling; and general and administrative expenses		2,196			2,053			7,070			6,453
Restructuring (charges) reversal, net		—			—			—			(33	)
Amortization of intangible assets		49			49			146			146

Operating income (loss)		213			311			(173	)		180
Interest income		10			(5	)		55			13
Interest expense		(27	)		(53	)		(120	)		(146	)
Foreign currency gain (loss)		(17	)		50			(206	)		374

Income (loss) before income taxes	$	179		$	303		$	(444	)	$	421

Management also assesses the Company’s performance, operations and assets by geographic areas, and therefore revenue and long-lived tangible assets are summarized in the following table:


	Three months ended				Nine months ended
(in thousands)	April 1, 2006		April 2, 2005		April 1, 2006		April 2, 2005
Revenue:
United States	$	5,841	$	2,991	$	14,093	$	10,582
Germany		1,420		2,982		8,362		8,602
France		875		1,664		5,043		3,950
Switzerland		1,058		969		2,117		2,379
Other European countries		1,444		3,161		4,233		5,209
Singapore		1,519		392		4,247		1,537
All other countries		2,917		866		4,599		3,844

Total	$	15,074	$	13,025	$	42,694	$	36,103


(in thousands)	April 1, 2006		June 30, 2005
Long-lived tangible assets:
United States	$	1,944	$	1,231
All other countries		272		213

Total long-lived tangible assets	$	2,216	$	1,444

12.

Comprehensive Income

For the three and nine months ended April 1, 2006 and April 2, 2005, there were no significant differences between the Company’s comprehensive income or loss and its net income or loss.

13.

Equity

During the nine months ended April 1, 2006, 20,368 shares of common stock were issued upon the exercise of options under the Company’s stock option plans, and 54,292 shares of common stock were issued under the Company’s employee stock purchase plan (ESPP). Shares are issued semi-annually under the ESPP, in February and August. Total shares outstanding at April 1, 2006 were 6,838,024.

14.

Foreign Currency Translation

Translation gains (losses) resulting from the process of remeasuring foreign currency financial statements into U.S. dollars were $1,000 and $(215,200) for the three and nine months ended April 1, 2006, respectively, and $(39,100) and $13,100 for the three and nine months ended April 2, 2005, respectively. Foreign currency transaction gains (losses) were $(16,900) and $9,100 for the three and nine months ended April 1, 2006, respectively, and $89,400 and $360,600 for the three and six months ended April 2, 2005, respectively.

15.

Impact of Recently Issued Accounting Standards

Statement 151, Inventory Cost, an amendment to ARB No 43, Chapter 4, was issued by the Financial Accounting Standards Board (FASB) in November 2004. The pronouncement clarifies that abnormal amounts of idle facility exposure, freight, handling costs and wasted materials (spoilage) be recognized as current period charges and requires the allocation of fixed production overheads to inventory based on the normal capacity and cost of the production facilities. Statement 151 is the result of a broader effort by the FASB to improve the comparability of cross-border financial reporting by working with the International Accounting Standards Board (IASB) toward development of a single set of high quality accounting standards. Statement 151 is effective for inventory costs incurred during fiscal periods beginning after June 15, 2005. The Company believes that it is currently following the practices mandated in Statement 151, and as a result, the Company does not anticipate that the adoption of Statement 151 will have a significant impact on its financial condition or results of operations.

On December 16, 2004, the Financial Accounting Standards Board issued Statement 123R, Share-Based Payment, which is a revision of Statement 123, Accounting for Stock Based Compensation. Statement 123R supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees and amends Statement No. 95, Statement of Cash Flows. As amended effective April 14, 2005, Statement 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values (i.e., proforma disclosure is no longer an alternative to financial statement recognition). Statement 123R is effective for public companies (excluding small business issuers) at the beginning of the first interim or annual period beginning after June 15, 2005. Statement 123R became effective for Adept for the quarter ending October 1, 2005. See “Stock-Based Compensation” in Note 2 to the Company’s Condensed Consolidated Financial Statements for the pro forma net income and net income per share amounts, for the three and nine months ended April 2, 2005.

On November 10, 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. FAS 123R-3Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards. The Company has elected to adopt the “short-cut” method provided in the FASB Staff Position for calculating the tax effects of share-based compensation pursuant to SFAS 123R. The “short-cut” method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of share-based compensation, and to determine the subsequent impact on the APIC pool and the Condensed Consolidated Statements of Cash Flows of the tax effects of share-based compensation awards that are outstanding upon adoption of SFAS 123R.

16.

Restatement of Fiscal 2006 Interim Periods

In the course of conducting the year-end consolidation of Adept’s financial results for fiscal year 2006, and in conjunction with the audit of those results, we identified various errors in a number of accounts. Specifically, adjustments were made to address the following items relating to the interim results for the three and nine months ended April 1, 2006:

•

Improper elimination of the profit in inventory held by international subsidiaries which has been transferred from the U.S. resulting in overstatement of reported inventories and gross margins.

•

Improper identification and elimination of inter-company transactions and receivable/payable account balances between Adept subsidiaries.

•

Improper recording of foreign exchange transaction gains and losses.

•

Mistreatment or inconsistent re-measurement of balances denominated in foreign currencies or US dollar cash balance in foreign subsidiaries.

•

Erroneous consolidating entries for foreign subsidiaries created certain incorrect asset and liability balances within the consolidated financial statements.

Due primarily to the nature and volume of the consolidating adjustments and the complexities involved in the consolidation process, especially the consolidation of Adept’s international, foreign currency based subsidiaries, the company determined that it was necessary to essentially re-perform the consolidation of the financial statements for all interim periods of fiscal 2006 in order to be able to properly restate the financial statements for the interim periods of fiscal 2006. Due to insufficient documentation relating to certain errors and employee turnover in the finance organization, resulting in the absence of institutional knowledge as to certain incorrect items, the re-consolidation incorporated certain assumptions believed to be reasonable by management in order to render the financial statements materially accurate and reliable. Actions taken by Adept to address these issues included: re-computation of gross inventory to properly eliminate any inter-company profit; re-computation of standard cost of sales; reconciliation of foreign currency cash balances to reconciled bank statements; re-computation of foreign currency transactions and re-measurement of foreign currency balances; and the review of all accounts used in processing inter-company transactions, assuring that they were properly cleared or balanced. Specific procedures determined necessary to complete such actions were:

•

Inventory unit balances, from all locations, were re-calculated at standard to arrive at gross inventory values (before excess and obsolete reserves) which did not include any inter-company profit;

•

Monetary accounts held in foreign currencies were individually calculated at the appropriate rate for the balance sheet date;

•

Standard cost of sales were tied back to shipment details calculated at standard to assure that any inter-company profit was eliminated; and

•

All balance sheet accounts were reviewed for inter-company balances. All accounts found to be used in recording or clearing inter-company transactions were either cleared, determined to be in balance, or brought into balance.

The re-performed consolidation resulted in adjustments to: cost of revenue, foreign currency exchange gain/(loss), net income/(loss), net income/(loss) per share, cash, accounts receivable, inventories, accounts payable, accrued liabilities and stockholders equity. As a result of correcting all identified errors, we have restated our condensed consolidated balance sheet as of April 1, 2006; our condensed statements of operations for the three and nine months ended April 1, 2006; and our condensed statement of cash flows for the nine months ended April 1, 2006. As detailed below, the restatement resulted in the decrease of the previously reported net income by approximately ($1.1 million) creating a net loss of approximately ($172,000) for the three month period ended April 1, 2006. For the nine months period ended April 1, 2006 net income was reduced by ($1.9 million) creating a net loss of approximately ($446,000) compared to previously reported net income of approximately $1.4 million.

For the three month period ended April 1, 2006 material adjustments were required for the following areas: the re-computation of inventory to eliminate inter-company profit, as described above, resulted in a decrease of inventory by approximately ($892,000) and a corresponding increase in cost of revenue; inter-company accounts found to be out of balance were brought into balance resulting in part to an increase in inventory values of $818,000 and a net increase in cost of revenue of approximately ($384,000); and the correction of previously incorrect measurement of foreign currency transactions and balances affected various current asset and liability accounts and resulted in a positive income adjustment of approximately $151,000.

For the nine month period ended April 1, 2006 material adjustments were required for the following areas: the re-computation of inventory to eliminate inter-company profit, as described above, resulted in an decrease of inventory by approximately ($1.2 million) and a corresponding increase in cost of revenue; inter-company accounts found to be out of balance were brought into balance resulting in an increase in cost of revenue of approximately ($1.3 million); and the correction of previously incorrect measurement of foreign currency transactions and balances affected various current asset and liability accounts and resulted in a positive income adjustment of approximately $580,000.

CONDENSED CONSOLIDATED BALANCE SHEETS (Restated)

(in thousands)


	April 1, 2006
	As Previously Reported			As Restated
ASSETS
Current assets:
Cash and cash equivalents	$	2,146		$	2,456
Accounts receivable, less allowance for doubtful accounts of $514 at April 1, 2006 and $754 at June 30, 2005		16,450			14,759
Inventories, net		9,900			9,524
Other current assets		473			624

Total current assets		28,969			27,363
Property and equipment at cost		11,236			11,236
Less accumulated depreciation and amortization		(9,235	)		(9,235	)

Property and equipment, net		2,001			2,001
Goodwill		3,176			3,176
Other intangible assets, net		83			83
Other assets		209			215

Total assets	$	34,438		$	32,838

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		7,073			6,746
Accrued payroll and related expenses		1,893			2,114
Accrued warranty expenses		1,800			1,800
Deferred revenue		92			98
Other accrued liabilities		259			652

Total current liabilities		11,117			11,410
Long-term liabilities:
Other long-term liabilities		216			216

Total liabilities		11,333			11,626

Stockholders’ equity:
Common stock, $0.001 par value and no par value: 19,000 shares authorized, 6,838 shares issued and outstanding at April 1, 2006		148,140			148,140
Accumulated deficit		(125,035	)		(126,928	)

Total stockholders’ equity		23,105			21,212

Total liabilities and stockholders’ equity	$	34,438		$	32,838

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Restated)

(unaudited)

(in thousands, except per share data)


	Three months ended April 1, 2006						Nine months Ended April 1, 2006
	As Previously Reported			As Restated			As Previously Reported			As Restated
Revenues	$	15,074		$	15,074		$	42,694		$	42,694
Cost of revenues		7,123			8,241			20,429			22,493

Gross margin		7,951			6,833			22,265			20,201
Operating expenses:
Research, development and engineering		1,741			1,741			5,380			5,380
Selling, general and administrative		4,830			4,830			14,848			14,848
Amortization of intangible assets		49			49			146			146

Total operating expenses		6,620			6,620			20,374			20,374

Operating income (loss)		1,331			213			1,891			(173	)
Interest expense, net		(17	)		(17	)		(65	)		(65	)
Foreign currency exchange loss		(10	)		(17	)		(378	)		(206	)

Income (loss) before income taxes		1,304			179			1,448			(444	)
Provision for income taxes		7			7			2			2

Net income (loss)	$	1,297		$	172		$	1,446		$	(446	)

Basic income (loss) per share	$	0.20		$	0.03		$	0.23		$	(0.07	)

Diluted income (loss) per share	$	0.18		$	0.02		$	0.21		$	(0.07	)

Number of shares used in computing basic per share amounts		6,414			6,414			6,237			6,237

Number of shares used in computing diluted per share amounts		7,492			7,092			6,782			6,237

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Restated)

(unaudited)

(in thousands)


	Nine months ended April 1, 2006
	As Previously Reported			As Restated
Operating activities
Net income (loss)	$	1,446		$	(446	)
Non-cash adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation		682			682
Stock compensation		641			641
Amortization of intangibles		146			146
Non-cash interest expense		120			120
Net changes in operating assets and liabilities:
Accounts receivable, net		(5,266	)		(3,575	)
Inventories, net		301			676
Other current assets		169			18
Other assets		(9	)		(14	)
Accounts payable		157			(170	)
Other accrued liabilities and deferred revenues		(426	)		194
Accrued restructuring expenses		—			—
Other long-term liabilities		(26	)		(26	)

Net cash used in operating activities		(2,065	)		(1,754	)

Investing activities
Purchase of property and equipment		(1,440	)		(1,197	)
Capitalized software		—			(243	)

Net cash used in investing activities		(1,440	)		(1,440	)

Financing activities
Proceeds from employee stock incentive program and employee stock purchase plan		317			316

Net cash provided by financing activities		317			316

Decrease in cash and cash equivalents		(3,188	)		(2,878	)
Cash and cash equivalents, beginning of period		5,334			5,334

Cash and cash equivalents, end of period	$	2,146		$	2,456

Cash paid during the period for:
Interest	$	464		$	464
Taxes	$	36		$	36

Supplemental Schedule of noncash investing and financing activities
The convertible subordinated note for $3.0 million was converted to 600,000 shares of common stock on February 28, 2006 pursuant to terms of the note dated August 6, 2003

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

•

the economic environment affecting us and the markets we serve;

•

sources of revenues and anticipated revenues, including the contribution from the growth of new products, including our controls software strategy, and markets;

•

impact of new products or change in product mix on margins;

•

our expectations regarding our cash flows and the impact of the timing of receipts and disbursements;

•

our estimates regarding our liquidity and capital requirements;

•

marketing and commercialization of our products under development;

•

our ability to attract customers and the market acceptance of our products;

•

our ability to establish relationships with suppliers, systems integrators and OEMs for the supply and distribution of our products;

•

plans for future products and services and for enhancements of existing products and services;

•

plans for future acquisitions of products, technologies and businesses; and

•

our intellectual property.

In some cases, you can identify forward-looking statements by terms such as “may,” “intend,” “might,” “will,” “should,” “could,” “would,” “expect,” “believe,” “estimate,” “predict,” “potential,” or the negative of these terms, and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events, are based on assumptions which may or may not prove to be correct, and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these statements. We discuss many of these risks in greater detail under the heading “Risk Factors” in the Original Form 10-Q Filing. Also, these statements represent our estimates and assumptions only as of the date of the Original Form 10-Q Filing.

In this report, unless the context indicates otherwise, the terms “Adept,” “we,” “us,” and “our” refer to Adept Technology, Inc., a Delaware corporation, and its subsidiaries.

This report contains trademarks and trade names of Adept and other companies. Adept has 140 trademarks of which 15 are registered trademarks, some of which include the Adept Technology logo including (among others) AIM^®, FireBlox^®, HexSight^®, Adept Cobra 600™, Adept Cobra 800™, Adept Python™ Linear Modules, Adept SmartServo™, AdeptOne™, AdeptSix™, AdeptViper™ and Adept i-Sight™.

OVERVIEW

We provide intelligent vision-guided robotics and global robotics services to our customers in many industries including the electronics/communications, automotive, industrial appliance, food and pharmaceuticals, semiconductor, original equipment manufacturer, or OEM, and life sciences industries. This mix varies considerably from period to period due to a variety of market and economic factors. We utilize our comprehensive portfolio of high reliability mechanisms, high-performance motion controllers and application development software to deliver automation products that meet our customers’ increasingly complex manufacturing requirements. We offer our customers comprehensive and tailored automation products that reduce the time and cost to design, engineer and launch products into high-volume production. The benefits of Adept automation products include increased manufacturing flexibility for future product generations, less customized engineering and reduced dependence on production engineers. Our product range currently includes system design software, process knowledge software, integrated real-time vision and multi-axis motion controls, machine vision systems and software, industrial robots, and other flexible automation equipment. Our software has not generally been sold or licensed separately, except for vision software, though we intend to market and sell additional software licenses on a standalone basis in the foreseeable future. In recent years, we have expanded our robot product lines and developed advanced software and sensing technologies that have enabled robots to perform a wider range of functions. The Adept 4-axis robots, Adept’s SCARA (Selective Compliance Assembly Robot Arm) robots, are designed for a broad range of basic applications that otherwise utilize dedicated automation or manual labor. This technology is

fundamental to Adept’s business and Adept has recently made developments and launched new SCARA products, which we believe will favorably impact on our gross margins during fiscal 2006, as discussed in “Results of Operations-Gross Margin” below.

In response to the market need for a 6-axis robot that combines speed, flexibility and precision, in April 2005, we expanded our product portfolio to include the AdeptViper robot family, a line of 6-axis articulated robots designed specifically for precision assembly applications. The AdeptViper family consists of the S-650 and S-850 which combine an advanced 6-axis arm design with Adept’s high performance SmartControl software platform allowing 6-axis robotics to be used in small part assembly and material handling manufacturing. Sales of the new 6-axis robots have been $2.4 million in the first nine months of fiscal 2006.

In December 2005, we began shipments of a family of new high performance linear modules called Adept Python Linear Modules, primarily for the electronics and automotive markets. These single axis devices can be coupled together by the user to form application-specific custom robot mechanisms ranging from two to four axes. Each Adept Python Module is powered by an Adept MotionBlox 10, an integrated single axis motion controller and power amplifier. Adept Python Linear Modules feature fast delivery times, lower delivered costs, and reduced installation time. This new level of modularity and system level performance reduces the amount of software programming and cabling required in a workcell or a robotic system that performs a specific automation function. Historically, linear modules was a significant product line for Adept, which have experienced declining sales volumes in 2004 and 2005. Sales of the new family of linear modules reached $850,000 in the third quarter of fiscal 2006, the first full quarter since introduction, and we intend to focus on this as a growth opportunity.

International sales represented approximately 61% and 67% of our total revenues for the three and nine months ended April 1, 2006, respectively, as compared with 77% and 71% for the three and nine months ended April 2, 2005, respectively. In recognition of the international nature of our business, late in the third quarter of fiscal 2005 we announced a new global vertical market business initiative. The new initiative focused resources initially on developing applications for customers in the telecom and data storage vertical markets. We are working directly with leading customers in these markets, providing direct sales, service and engineering to develop more targeted products and applications. Through our direct involvement with end users during their product planning phase, rather than learning about the end users’ project after planning has been completed, we believe we will be more successful being included in the final design specifications for customers’ production and assembly lines, which we expect will positively impact the size of orders for our products.

Effective November 4, 2005, Adept reincorporated from California into Delaware. As a result of the reincorporation, Adept’s common stock now has a par value of $0.001 per share. The reincorporation did not result in any significant change in Adept’s business, management, employees, fiscal year, assets or liabilities, and did not cause the principal executive offices or other facilities or any employees of Adept to be relocated.

This discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flow during the three and nine month periods ended April 1, 2006. Unless otherwise indicated, references to any quarter in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to our third quarter ended April 1, 2006. This discussion should be read with the unaudited condensed consolidated financial statements and related disclosures included in this Quarterly Report on Form 10-Q and in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2005 included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on September 28, 2005.

Restatement

This Amended Quarterly Report on Form 10-Q/A includes our restated condensed consolidated financial statements as of April 1, 2006 and for the three and nine months ended April 1, 2006 resulting from the restatement more fully described in Note 16 to the Notes to Restated Condensed Consolidated Financial Statements.

Critical Accounting Policies

Management’s discussion and analysis of Adept’s financial condition and results of operations are based upon Adept’s condensed consolidated financial statements which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates, judgments 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. On an on-going basis, we evaluate our estimates, including those related to fixed price contracts, product returns, warranty obligations, bad debt, inventories, cancellation costs associated with long-term commitments, investments, intangible assets, income taxes, restructuring expenses, service contracts, stock-based compensation, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making estimates and judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Estimates, by their nature, are based on judgment and available information. Therefore, actual results could differ from those estimates and could have a material impact on our condensed consolidated financial statements, and it is possible that such changes could occur in the near term.

We have identified the accounting principles which we believe are most critical to our consolidated financial statements while considering accounting policies that involve the most complex or subjective decisions or assessments. These critical accounting policies described below include:

•

revenue recognition;

•

allowance for doubtful accounts;

•

inventories;

•

warranties;

•

deferred tax valuation allowance;

•

foreign currency exchange gain (loss);

•

goodwill; and

•

valuation of stock-based awards

Revenue Recognition. We generate revenues primarily from sales of production automation equipment and parts, and to a lesser extent from support and service activities associated with this equipment. A growing portion of our revenues arises from sales of software. Non-software product revenue consists primarily of sales of robots, refurbished robots and spare parts. We recognize non-software product revenue in accordance with Staff Accounting Bulletin 104, (“SAB 104”), when persuasive evidence of a non-cancelable arrangements exists, delivery has occurred and/or services have been rendered, the price is fixed or determinable, collectibility is reasonably assured, legal title and economic risk is transferred to the customer, and when an economic exchange has taken place. We use the signed purchase contract or purchase order as evidence of an arrangement. Product revenues are normally recognized at the point of shipment from Adept facilities since title and risk of loss passes to the customers at that time. Customers have no right of return other than for product defects covered by our warranty. Adept maintains a warranty liability based on its historical warranty experience and managements’ best estimate of Adept’s warranty liability at each balance sheet date. There are no acceptance criteria on our standard non-software products. We do not deem the fee to be fixed or determinable where a significant portion of the price is due after our normal payment terms, which are 30 to 90 days from the invoice date. In these cases, if all of the other conditions referred to above are met, we recognize the revenue as the invoice becomes due. In recording revenue, management exercises judgment about the collectibility of receivables based on a number of factors, including the customer’s past payment history and its current creditworthiness. If we conclude that collection is not reasonably assured, then the revenue is deferred until the uncertainty is removed, generally upon receipt of payment. Our experience is that we have been able to reliably determine whether collection is reasonably assured.

Adept sells two separate and distinct categories of software: (1) software elements within Adept’s robot and controller products, and (2) standalone software consisting primarily of Hexsight, a library of machine vision software tools. The software elements within Adept’s products are not sold separately nor are they marketed as separate product offerings to our customers. Our robots and controllers have features that are enabled or enhanced through the use of the software enabling tools and other software elements. Our software enabling tools or other software elements do not operate independently of the robots or controllers, and they are not sold separately and cannot be used without the robots or controllers. Adept believes that the software component of its products is incidental to its products and services taken as a whole. As a result, we recognize software revenue related to product sales in accordance with SAB 104, in consort with SOP 97-2.

We recognize stand-alone software revenue in accordance with the American Institute of Certified Public Accountants’ Statement of Position 97-2 (“SOP 97-2”),Software Revenue Recognition, as amended by SOP 98-9,Modification of SOP 97-2, Software Revenue Recognition With Respect to Certain Transactions. Under SOP 97-2, revenue attributable to an element in a customer arrangement is recognized when (i) persuasive evidence of an

arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, (iv) collectibility is probable and (v) the arrangement does not require services that are essential to the functionality of the software. License revenue is recognized on shipment of the product provided that no significant vendor or post-contract 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 of the licensed product. For software that is installed and integrated by the customer, revenue is recognized upon shipment assuming functionality has already been proven in prior sales and there are no customizations that would cause a substantial acceptance risk.

Service and Support revenue consists primarily of sales of spare parts and refurbished robots. Service revenue also includes training, consulting and customer support, the latter of which includes all field service activities; i.e., maintenance, repairs, system modifications or upgrades. Revenues from training and consulting are recognized at the time the service is performed and the customer has accepted the work. These revenues are not essential to the product functionality and, therefore, do not bear on revenue recognition policy for Adept’s component products.

Deferred revenues represent payments received from customers in advance of the delivery of products and/or services, or before the satisfaction of all revenue recognition requirements enumerated above, as well as cases in which we have invoiced the customer but cannot yet recognize the revenue for the same reasons discussed above.

Revenue for robot refurbishment relates to Adept-owned or customer-owned remanufactured robots and components. Adept receives parts returned from customers under warranty contracts, or Adept purchases surplus used parts available from customers or suppliers. These parts traditionally have lower cost, and internal analysis indicates that on average, we pay a percentage of the new part cost to acquire these components. The standard cost for acquired parts is therefore set at such percentage of cost in compliance with GAAP as reflected in the SAB 100 pronouncement requiring valuation of inventory at “lower of cost or market”. By contrast, the cost basis starting point for customer-owned remanufactured or repaired robots is zero since Adept does not own the robots. For all refurbishment and remanufacturing, we track all related costs and activities (material and labor) required to bring the robots up to standard using work orders. This revenue stream is included within the Services and Support segment.

Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We assess the customer’s ability to pay based on a number of factors, including our past transaction history with the customer and credit-worthiness of the customer. Management specifically analyzes accounts receivable and historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowances for doubtful accounts. We do not generally request collateral from our customers. If the financial condition of our customers were to deteriorate in the future, resulting in an impairment of their ability to make payments, additional allowances may be required.

Our policy is to record specific allowances against known doubtful accounts. An additional allowance is also calculated based on the greater of 0.5% of consolidated accounts receivable or 20% of consolidated accounts receivable more than 120 days past due. Specific allowances are netted out of the respective receivable balances for purposes of calculating this additional allowance. On an ongoing basis, we evaluate the credit worthiness of our customers and, should the default rate change or the financial positions of our customers change, we may increase this additional allowance percentage.

Inventories. Inventories are stated at the lower of standard cost, which approximates actual cost under the first-in, first-out method, or market value. We perform a detailed assessment of inventory at each balance sheet date, which includes, among other factors, a review of component demand requirements, product lifecycle and product development plans, and quality issues. As a result of this assessment, we write down inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of the inventory and the estimated liquidation value based upon assumptions about future demand and market conditions. If actual demand and market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Manufacturing inventory includes raw materials, work-in-process, and finished goods. All work-in-process inventories with work orders that are open in excess of 180 days are fully written down. The remaining inventory valuation provisions are based on an excess and obsolete systems report, which captures all obsolete parts and products and all other inventory, which have quantities on hand in excess of one year’s projected demand. Individual line item exceptions are identified for either inclusion or exclusion from the inventory valuation provision. The materials control group and cost accounting function monitor the line item exceptions and make periodic adjustments as necessary.

Warranties. Our warranty policy is included in our Terms of Sale, generally as a two year parts and one year labor limited warranty on most hardware and component products, and states that there are no rights of return, and that a refund may be made at Adept’s discretion, and only if there is an identified fault in the product and the customer has complied with Adept’s approved maintenance schedules and procedures, and the product has not been subject to abuse. We provide for the estimated cost of product warranties at the time revenue is recognized. Factors that affect the Company’s warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and costs per claim for repair or replacement. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our components suppliers, our warranty obligation is affected by product failure rates, material usage and service labor and delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage, service labor or delivery costs differ from our estimates, revisions to the estimated warranty liability would be required.

Deferred Tax Valuation Allowance. We record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should we have a net deferred tax asset and determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax assets would be charged to income in the period that such determination was made.

Foreign Currency Exchange Gain (Loss). The Company applies Financial Accounting Standards Board Statement No. 52 (“SFAS 52”), “Foreign Currency Translation,” with respect to its international operations, which are primarily sales and service entities. The accounts denominated in non-U.S. currencies have been re-measured using the U.S. dollar as the functional currency. All monetary assets and liabilities are remeasured at the current exchange rate at the end of the period, nonmonetary assets and liabilities are remeasured at historical exchange rates, and revenues and expenses are remeasured at average exchange rates in effect during the period. The Company performs a detailed review of the underlying monetary and nonmonetary transactions each quarter to ensure these transactions are correctly evaluated based on FAS 52 pronouncement guidelines. Adept does not currently apply a hedging strategy against its currency positions as defined under FAS 133,Accounting for Derivative Instruments and Hedging Activities.

Goodwill. The carrying value of goodwill and other intangible assets are reviewed for possible impairment in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” The Company’s impairment review is based on a discounted cash flow approach that requires significant management judgment with respect to future sales and production volumes, revenue and expense growth rates, changes in working capital use, foreign exchange rates and selection of an appropriate discount rate. Impairment occurs when the carrying value of a reporting unit exceeds the fair value of that reporting unit. An impairment charge is recorded for the difference between the carrying value and the net present value of estimated future cash flows, which represents the estimated fair value of the reporting unit. The Company tests its intangible assets annually on April 1 unless there are indications during an interim period that such assets may have become impaired. The Company uses its judgment in assessing whether intangible assets may have become impaired between annual valuations. Indicators such as unexpected adverse economic factors, unanticipated technological change or competitive activities may signal that an intangible asset has become impaired.

Valuation of stock-based awards. We account for stock-based compensation in accordance with the fair value recognition provisions of SFAS No. 123R. Under SFAS No. 123R, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating the expected term of stock options, the expected volatility of our stock, and expected dividends. The computation of the expected volatility assumption used in the Black-Scholes calculation for option grants is based on historical volatility as options on our stock are not traded. When establishing the expected life assumption, we review annual historical employee exercise behavior of option grants with similar vesting periods. In addition, judgment is also required in estimating the amount of stock-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially affected.

Results of Operations

Three Months and Nine Months Ended April 1, 2006 as compared to Three and Nine Months Ended April 2, 2005

Revenues. Revenues increased by 15.7% to $15.1 million for the three months ended April 1, 2006 as compared to $13.0 million for the three months ended April 2, 2005. Revenues for the nine months ended April 1, 2006 were $42.7 million, an increase of 18.3% from revenues of $36.1 million for the nine months ended April 2, 2005. The third quarter revenue increases resulted from record sales of motion and vision controllers for both new and remanufactured Adept robots as well as robots of others, significant sales of the new Python linear modules in their first full quarter since introduction, and continued growth in Service spare parts and new products for the legacy and remanufactured robots segment. The nine month increases resulted primarily from increased sales in the Service and Support (“Service”) business segment. Robotics segment revenues increased modestly in the first nine months due to continuing sales of 4-axis Cobra robots and improving sales of the new linear modules and controllers; partially offset by reduced revenues from vision software. The Service segment benefited from very substantial growth in revenues compared to prior periods from the sale of remanufactured robots.

Specifically, Robotics revenues increased 6.1% to $9.3 million for the three months ended April 1, 2006 from $8.7 million for the three months ended April 2, 2005. For the nine months ended April 1, 2006, Robotics revenues increased 3.0% to $25.3 million, compared to $24.6 million for the nine months ended April 2, 2005. Services and Support revenues were $5.8 million for the three months ended April 1, 2006, compared to $4.3 million for the three months ended April 2, 2005, representing a 35% increase. Services and Support revenues were $17.3 million for the nine months ended April 1, 2006, a 51% increase compared to $11.5 million for the nine months ended April 2, 2005.

Our domestic sales were $5.8 million for the three months ended April 1, 2006 compared to $3.0 million for the three months ended April 2, 2005, a 95% increase. The increase in third quarter domestic sales occurred in both business segments and suggests that the U.S. market for factory automation is beginning to recover for Adept. For the nine months ended April 1, 2006, domestic sales were $14.1 million, a 33% increase as compared to $10.6 million for the nine months ended April 2, 2005, again with most of the growth in the Service segment. Our international sales were $9.2 million for the three months ended April 1, 2006, compared to $10.0 million for the comparable period in fiscal 2005, a decrease of 8.0%, with lower sales in Europe partially offset by significantly higher sales in Asia. International sales for the nine months ended April 1, 2006 were $28.6 million, a 12% increase compared to $25.5 million for the same period in fiscal 2005. The increase in nine month revenues from international sales is attributable to rapidly expanding sales in Asia, as European sales were essentially flat. We have strengthened our international presence with the introduction in fiscal 2005 of European-sourced manufacturing and are increasing our staffing levels in Asia. We expect that a substantial part of our revenues will continue to come from international sales and that we will continue to experience significant growth in Asia over the next several quarters.

Approximately 40 to 50% of our product sales to European customers are priced in euros. The mix of euro denominated business has historically enhanced the competitiveness of our prices, and has increased our revenues and gross margins when the euro has strengthened relative to the U.S. dollar, however, the euro has generally weakened in fiscal 2006, and future fluctuations in the rate of exchange between the dollar and the euro have the potential to significantly impact, either positively or adversely, our business and operating results.

Gross Margin. Gross margin as a percentage of revenues was 45.3% for the three months ended April 1, 2006 compared to 45.8% for three months ended April 2, 2005. Gross margin as a percentage of revenues was 47.3% for the nine months ended April 1, 2006, compared to 46.4% for the nine months ended April 2, 2005. The gross margin decline for the three month period resulted from Adept’s change in its overhead absorption methodology from one that was materials based only to a balanced methodology considering both labor and materials resulting in a one-time charge to cost of revenues of approximately $300,000. The gross margin improvement for the nine-month period resulted from a sales mix favoring higher margin products, notably the shift to MotionBlox controllers and imbedded software, as well as the new linear modules and remanufactured robots. Other factors contributing to increased margins include the increased volume throughput, improved robot component designs that achieve the same functionality at reduced cost, increased outsourcing of robot subassemblies. Over the past several years, we have aggressively sought to outsource those processes where we provide little or no additional manufacturing value. The improvements in production volumes combined with the lower fixed overhead expense resulted in lower unit

standard costs and higher corresponding gross margins. We could, however, experience significant fluctuations in our gross margin percentage due to changes in volume, changes in availability of components, changes in product configuration, increased price based competition, and/or changes in sales mix.

Research, Development and Engineering Expenses. Research, development and engineering expenses declined by 2.6% to $1.7 million, or 11.5% of revenues for the three months ended April 1, 2006, from $1.8 million, or 13.7% of revenues for three months ended April 2, 2005, with the decline attributable to the capitalization of a modest amount of software development work. Research, development and engineering expenses increased by 7.4% to $5.4 million, or 12.6% of revenues for the nine months ended April 1, 2006, from $5.0 million, or 13.9% of revenues for the nine months ended April 2, 2005. The growth in R&D outlays over the nine month period was the result primarily of increased expenditures for software development activities.

Research and development costs are expensed as incurred, except that software development costs incurred subsequent to establishing technological feasibility and up to the general release of the software products are capitalized. Technological feasibility is demonstrated by the completion of a working model. Capitalized costs are amortized on a straight-line basis over either two or three years, whichever term is the estimated life of the software product. Adept’s software capitalization, which commenced in the second quarter of fiscal 2006, now totals $243,000, and amortization has not yet begun.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $4.8 million, or 32% of revenues, for the three months ended April 1, 2006, an increase of $1.0 million from $3.8 million or 29% of revenues, for the three months ended April 2, 2005. Selling, general and administrative expenses were $14.8 million, or 35% of revenues, for the nine months ended April 1, 2006, an increase of $3.3 million from $11.5 million or 32% of revenues, for the nine months ended April 2, 2005. The increases are primarily due to new product launches, increased marketing activities and an expanded sales force, plus expenses related to the company’s reincorporation in Delaware, stock-based employee compensation charges, and re-listing of Adept’s common stock on the Nasdaq National Market.

Operating Income. Operating income (loss) was $213,000 and $(173,000) for the three and nine months ended April 1, 2006, respectively, as compared with operating income of $311,000 and $180,000 for the three and nine months ended April 2, 2005, respectively. Effective July 1, 2005, Adept adopted the provisions of FAS 123R, which requires the recognition of the fair value of stock-based employee compensation as an expense in the calculation of net income, and this had a significant impact on operating income. The fair value of stock-based employee compensation received only footnote disclosure in fiscal 2005 (see Note 2 to the Notes to Restated Condensed Consolidated Financial Statements).

Stock Compensation Expense. Adept adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share –Based Payment” (SFAS 123R), effective July 1, 2005. SFAS 123R requires the recognition of fair value of stock compensation as an expense in the calculation of net income. We recognize the stock compensation expense ratably over the vesting period of the individual equity instruments.

We elected the modified prospective transition method for adopting SFAS 123R. Under this method, the provisions of SFAS 123R apply to all stock-based awards granted or other awards granted that are subsequently reclassified into equity. The unrecognized expense of awards not yet vested as of July 1, 2005, the date of SFAS 123R adoption by Adept, is now being recognized as expense in the calculation of net income using the same valuation method (the Black-Scholes model) and assumptions disclosed prior to our adoption of SFAS 123R.

As of April 1, 2006, there was $660,000 of total unrecognized compensation cost related to nonvested stock options granted and outstanding. That cost is expected to be recognized through fiscal year 2010, with a weighted average remaining period of 1.4 years. In addition, as of April 1, 2006, there was $268,000 of unrecognized compensation cost related to nonvested restricted stock grants. That cost is expected to be recognized upon share vesting in the quarter ended June 30, 2006.

Interest Expense, Net. Interest expense, net of interest income, was $17,000 for the three months ended April 1,

2006 compared to $58,000 for the three months ended April 2, 2005. Interest expense, net of interest income, was $65,000 for the nine months ended April 1, 2006 compared to $133,000 for the nine months ended April 2, 2005. Interest expense, net declined for the three and nine months of fiscal 2006 compared with the same periods of the prior year primarily because the holder of Adept’s $3.0 million convertible note elected to convert the note at the end of February 2006.

Foreign Currency Exchange Gain (Loss). Foreign currency exchange gain (loss) was $(17,000) for the three months ended April 1, 2006 compared to a gain of $50,000 for the three months ended April 2, 2005. Foreign currency exchange gain (loss) was $(206,000) for the nine months ended April 1, 2006 compared to a gain of $374,000 for the nine months ended April 2, 2005. These foreign currency exchange gains and losses resulted primarily from our sales and operating activities in Europe and movements in the Euro versus the U.S. Dollar. The dollar has generally strengthened compared with the Euro during fiscal 2006, which led to the losses we experienced in the first three and nine months. By contrast, the dollar generally weakened compared with the Euro during fiscal 2005, resulting in the gains we recorded in the first three and nine months. In the past we included foreign currency exchange gains or losses in selling, general and administrative expenses, but beginning in the second quarter of fiscal 2005, we classified foreign currency gains or losses as a separate line item in the income statement.

Provision for Income Taxes. Adept typically provides for income taxes during interim reporting periods based upon an estimate of our annual effective tax rate. We also maintain a liability to cover the cost of additional tax exposure items on the filing of federal and state income tax returns as well as filings in foreign jurisdictions. Each of these filing jurisdictions may audit the tax returns filed and propose adjustments. Adjustments arise from a variety of factors, including different interpretations of statutes and regulations. We have net operating losses which are sufficient to offset most of our domestic and foreign tax obligations, and an analysis of our existing reserves for taxes led us to make a $2,000 provision for taxes since the beginning of fiscal 2006 and expect this provision to be modest for all of fiscal 2006.

Liquidity and Capital Resources

Cash and Cash Equivalents. The cash and short-term investment balance at April 1, 2006 was $2.5 million as compared with $5.3 million at June 30, 2005 and $3.0 million at January 1, 2006. Cash declined during the quarter for several reasons, among them the increased sales levels leading to increased receivables, the need to pay certain key suppliers earlier than past practice, and payment of accrued interest on a convertible note that the noteholder converted prior to its scheduled maturity date. Approximately two-thirds of our sales come from international sales. Collection times on international sales are longer because of longer delivery times, time required to clear customs, and generally slower payment patterns in some international markets. We are increasing our collection efforts and will be adding collection resources geographically closer to our customers to accelerate our international collections.

For the nine months ended April 1, 2006, net cash used in operating activities of $1,754,000 was attributable primarily to an increase in accounts receivable of $3,575,000, partially offset by decreases in inventory and prepaid expenses, net loss of approximately $446,000, depreciation and amortization of $828,000, and non-cash stock compensation charges of $641,000 relating to the fair value of stock option grants and share purchases under our employee stock purchase plan.

Cash used in investing activities of $1,440,000 reflects capital expenditures primarily for test equipment; test stations; capitalized software; and computer hardware and software.

Cash provided by financing activities of $316,000 reflects activity in our employee stock purchase program as well as stock option exercises.

We have limited cash resources, and because of certain regulatory restrictions impeding our ability to move certain cash reserves from our foreign operations to our U.S. operations, we may have limited access to a portion of our existing cash balances held outside the United States, although this portion is estimated to be less than $500,000. As of April 1, 2006, we had an aggregate cash balance of $2.5 million and a short term receivables financing credit facility of up to $5.0 million, with no outstanding balance at quarter-end. We currently depend on funds generated from operating activities, plus our cash and the funds available through our credit facility to meet our operating requirements. As a result, if any of our assumptions, some of which are described below, are incorrect, we may have difficulty satisfying our obligations in a timely manner. Our ability to effectively operate and grow our business is predicated upon certain assumptions, including (i) that we will receive continued timely payment of outstanding receivables and not otherwise experience severe cyclical swings in our billings and associated receipts resulting in a

shortfall of cash available for our disbursements during any given quarter, (ii) that we will not incur significant unplanned capital expenditures for the balance of fiscal 2006 and early fiscal 2007, and (iii) that funds remain available under our credit facility. We believe our sources of funds will be sufficient to finance our operations for at least the next twelve months, and if necessary we will take various actions to reduce our operating expenses in an effort to achieve that result.

We issued a $3.0 million convertible subordinated note to Tri-Valley Campus I, LLC in August 2003 maturing June 30, 2006 and bearing interest at 6% per annum. The note holder elected, at the end of February 2006, to convert all of the outstanding principal balance of $3,000,000 into 600,000 shares of Adept common stock at an exercise price of $5.00 per share. The resulting shares were subsequently sold by the note holder to other investors. Upon conversion, Adept paid the note holder the accrued interest of $463,000 in cash.

On June 15, 2005, Adept entered into an Amendment to Loan Documents (the “Amendment”) with Silicon Valley Bank (“SVB”), which effectively extended and increased Adept’s line of credit with SVB. The Amendment, which extended the facility for one year, provides that Adept may borrow amounts under the credit facility not to exceed the lesser of (i) $5.0 million (an increase of $1.0 million from the predecessor agreement) or (ii) the sum of 80% of Adept’s eligible accounts receivable plus any overadvance loans that may be granted by SVB from time to time in its sole and absolute discretion, plus foreign accounts, less the amount of all outstanding letters of credit and less the amount equal to 10% of outstanding FX Contracts. The aggregate of overadvance loans may not exceed the lesser of $1.0 million or 30% of Adept’s eligible accounts receivable. Foreign accounts represent an additional borrowing base under the Amendment, must meet the same eligibility requirements as domestic receivables except they may be located outside the U.S. and Canada, and are permitted up to a maximum of 25% of the total eligible accounts receivable, the latter being defined as the “Borrowing Base”.

As amended, the Loan and Security Agreement includes certain financial and other covenants with which Adept must comply. Financial covenants specify that Adept must maintain a tangible net worth of at least $10.8 million, plus 50% of all consideration received by Adept for equity securities and subordinated debt of Adept issued subsequent to the date of the Loan and Security Agreement, plus 50% of Adept’s net income in each fiscal quarter ending after the date of the agreement. Once an increase in the minimum tangible net worth of Adept takes effect, it remains in effect thereafter, and does not decrease. Other covenants with which Adept must comply, include, but are not limited to, the payment of Adept’s tax obligations as and when due and the maintenance of Adept’s primary operating deposit accounts with SVB. Adept cannot make any transfers to any of its subsidiaries of money or other assets with an aggregate value in excess of $300,000 in any fiscal quarter and is subject to customary default provisions. Silicon Valley Bank has waived any default arising from the convenant prohibiting payment of subordinated debt in connection with the repayment of accrued interest on Adept’s $3.0 million convertible subordinated note. In the event of default under the Loan and Security Agreement, SVB may, among other things, cease making loans to Adept; accelerate and declare all or any part of Adept’s obligations to be immediately due and payable, and enforce its security against the collateral. The Loan and Security Agreement expires on June 15, 2006, and Adept is in discussions with SVB about extending the facility. The Company expects that it will successfully complete the discussions with SVB or will enter into a similar credit facility with another institution.

Contractual Obligations

Total long term debt and operating lease obligations at April 1, 2006 were $7.9 million, which consists of $7.9 million in operating lease obligations. A summary of our contractual obligations, including short-term debt and operating lease obligations as of April 1, 2006 follows:


	Total		Less Than 1 Year		Years 2 and 3		Years 4 and 5		More than 5 Years
Operating lease obligations	$	7,878	$	1,808	$	3,135	$	2,633	$	302

Total obligations	$	7,878	$	1,808	$	3,135	$	2,633	$	302

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We maintain an investment policy, which seeks to ensure the safety and preservation of our invested funds by limiting default risk, market risk and reinvestment risk. The table below presents principal cash amounts and related weighted-average interest rates for our investment portfolio, all of which matures in less than 12 months.


(in thousands)	April 1, 2006 (as originally reported)			April 1, 2006 (as restated)			Fair Value (as originally reported)			Fair Value (as restated)
Cash and cash equivalents	$	2,146		$	2,456		$	2,146		$	2,456
Average rate		1.9	%		1.9	%		1.9	%		1.9	%

We mitigate default risk by investing in high credit quality securities and by positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. Our portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity and contains what management believes to be a prudent amount of diversification.

We conduct business on a global basis. Most of our sales are priced in U. S. dollars with the exception of a portion of our European sales, which are priced in euros. Our European facilities’ operating costs are in euros, which protects us from a portion of the currency fluctuation exposure there. Our U. S. facility’s costs are in dollars with the exception of certain purchased robot arms priced in Japanese yen. Consequently, we are to some extent exposed to adverse or beneficial movements in foreign currency exchange rates. We translate foreign currencies into U.S. dollars for reporting purposes; currency fluctuations can have an impact on our results. We have historically employed, but do not currently employ, a currency hedging strategy.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As previously disclosed in our Original Form 10-Q Filing, as of the end of the quarter ended April 1, 2006, Adept carried out an evaluation, under the supervision and with the participation of members of our management, including our Chief Executive Officer (CEO) and former Chief Financial Officer (CFO), of the effectiveness of the design and operation of Adept’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, Adept’s Chief Executive Officer and former Chief Financial Officer concluded that, as of April 1, 2006, Adept’s disclosure controls and procedures were effective. As further discussed below, Adept’s CEO and current CFO who joined Adept in June 2006, subsequently determined that Adept’s disclosure controls and procedures were not effective as of the end of the company’s quarter ended April 1, 2006.

Adept also disclosed that during and after the quarter ended April 1, 2006, the company made certain improvements to its internal controls, in part to remedy control deficiencies reported for prior periods. The material weaknesses disclosed for the quarter ended December 31, 2005, related to errors in the calculation of equity common stock equivalents and thereby earnings per share and in the calculation of stock-based compensation under FAS123R. We modified our controls during the third quarter to address these deficiencies which modifications included development of reliable FAS 123R stock option and ESPP reports by our outside equity valuations provider with Adept’s input and development of a policy and spreadsheet models implementing the treasury stock method for the computation of diluted shares for accurate reporting of diluted earnings per share. As a result of these measures, Adept management stated its belief that such matters had been remediated.

Adept also disclosed that for the quarter ended October 1, 2005, we disclosed a material weakness related to errors in the calculation of inventory reserves, for which it continued to develop a system-driven excess and obsolete (E&O) inventory report in our Enterprise Resource Planning System to be completed by fiscal year end. In the interim, the company required that several levels of finance and operational management review the E&O reserves spreadsheet and sign off on its accuracy, to prevent human errors arising from lack of multiple reviews which were the basis for this material weakness. Adept management stated its belief that such measures remedy the material

weakness relating to calculation of inventory reserves. Current Adept management did not identify a control deficiency with respect to calculation of inventory reserves in connection with its year end audit and related review of disclosure controls and procedures.

Subsequent to the issuance of the Adept’s consolidated financial statements for the period ended April 1, 2006, in connection with the annual consolidation, audit and preparation of Adept’s Annual Report on Form 10-K for the fiscal year ended June 30, 2006, Adept and its auditors identified errors in a number of accounts, primarily involving inter-company eliminations associated with its consolidation of international subsidiaries. Management initiated a comprehensive review of the company’s financial books and records, including those of all subsidiary companies, relating to the interim financial statements for each of the quarterly periods of fiscal 2006 and, where applicable, prior periods, to determine the nature and amount of the errors and the applicable periods to which they relate. Due to the volume of the consolidation adjustments and complexities involved in the consolidation process especially the consolidation of Adept’s international foreign currency-based subsidiaries, the company determined that it was necessary to essentially re-perform the consolidation of the financial statements for the interim periods of fiscal 2006. In October 2006, Adept concluded that the errors in its financial statements constituted material inaccuracies in the interim financial statements for the quarters ended October 1, 2005, December 31, 2005 and April 1, 2006 which would require restatement. We have restated our condensed consolidated balance sheet as of April 1, 2006, our condensed consolidated statements of operations for the three and nine months ended April 1, 2006, and our condensed consolidated statements of cash flows for the three and nine months ended April 1, 2006. Note 16 to the Notes to Restated Condensed Consolidated Financial Statements discuss the specific adjustments made for the periods ended April 1, 2006.

Specifically, adjustments were made to address the following items relating to the interim results for the periods ended April 1, 2006:

•

Improper elimination of the profit in inventory held by international subsidiaries which has been transferred from the U.S. resulting in overstatement of reported inventories and gross margins.

•

Improper identification and elimination of inter-company transactions and receivable/payable account balances between Adept subsidiaries.

•

Improper recording of foreign exchange transaction gains and losses.

•

Mistreatment or inconsistent re-measurement of balances denominated in foreign currencies or US dollar cash balance in foreign subsidiaries.

•

Erroneous consolidating entries for foreign subsidiaries created certain incorrect asset and liability balances within the consolidated financial statements.

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Failure to reconcile certain accrued liability accounts, AP received not invoiced accounts, or to reconcile foreign accounts receivable general ledger balances to the accounts receivable aging.

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Omission of intended closing/consolidation adjustments from the consolidated financial statements as certain accounts were not properly reconciled and/or reviewed in a timely manner, resulting in improper balances and incorrect period expenses.

•

Discrete clerical errors.

In its subsequent re-evaluation of internal controls in the course of its review of previously issued interim financial statements, Adept’s CEO and current CFO determined that the company did not have effective disclosure controls and procedures. Further, Adept’s independent auditors, in performing their audit of the company’s fiscal 2006 financial results identified certain control deficiencies that constitute material weaknesses. The following material weaknesses in the company’s controls resulting in the errors identified above have been identified by Adept’s management or its external auditors, in the course of their first audit of Adept:

Adept did not maintain effective controls over the accounting processes for its foreign subsidiaries as existing accounting information systems and related consolidation and review processes were inadequate to ensure adequate reporting of financial results.

Adept did not maintain a sufficient complement of personnel with an appropriate level of accounting knowledge, experience and training in the application of generally accepted accounting principles commensurate with the company’s operations and financial reporting requirements. Specifically, certain finance positions were staffed with individuals with insufficient strength in U.S. generally

accepted accounting principles or there were incompatible duties being performed by staff, in particular as to accounts and transactions relating to Adept’s foreign subsidiaries.

Adept failed to maintain effective controls over the completeness and accuracy of period-end financial reporting and close processes related to financial statement consolidations, inter-company eliminations and reconciliations of sub-ledger to general ledger balances.

Management did not have effective review and monitoring over the period-end financial reporting and close processes related to consolidations, inter-company eliminations and reconciliations of sub-ledger to general ledger balances, and the documentation supporting activities was inadequate.

Adept lacked standard procedures for the authorization and review of consolidation and post-closing journal entries.

Adept did not have an adequate process for the preparation (and review) of its consolidated financial statements to ensure all accounts were properly reconciled closing/consolidating entries were recorded in a timely manner, and balance sheet reclassifications of capital lease obligations were properly made.

Adept failed to properly track and document the results of its inventory cycle counting process.

Changes in Internal Control Over Financial Reporting.

Since the end of fiscal 2006, Adept has identified and is beginning to implement certain changes and procedures in an effort to further improve the effectiveness of its internal control over financial reporting, in part to remedy control deficiencies reported for prior periods and the restatement items discussed above, and is continuing to evaluate additional improvements which may be necessary. In general, these measures include enhancing documentation of policies and procedures, segregation of duties, controls surrounding the processing of critical spreadsheet applications and general information technology controls. More specifically, measures to strengthen internal control over financial reporting which the company has identified for implementation include:

•

Reorganizing the accounting function and active recruitment of additional personnel for the finance organization, in particular, individuals with expertise in international consolidations, U.S. GAAP accounting, and internal control over financial reporting matters;

•

Establishing a process for effective review and monitoring of inputs into the consolidation;

•

A review of the software tools utilized within the accounting, consolidation and reporting processes with the goal of standardizing tools and processes for each of the company’s subsidiaries;

•

Establishing a review process which includes mandatory sign-off, by both financial and non-financial personnel, of the financial statements for each subsidiary prior to consolidation;

•

Enhancing review and sign off procedures for month end journal entries as well as analyses used in the preparation of financial statements; and

•

Establishing an independent review of adjusting closing consolidation and inter-company elimination entries exceeding specified amounts, by the CFO and Corporate Controller.

The Company will continue to review its internal controls and may identify other measures for implementation in connection with the weaknesses identified above or otherwise. The process of designing and implementing effective controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to develop and maintain a system of internal control over financial reporting that is adequate to satisfy our reporting obligations as a public company. In our undertaking of this continuous effort, we may identify various control deficiencies. We will assess the significance of identified control deficiencies that come to our attention and determine the extent to which such deficiencies may be mitigated or require remediation.

PART II – OTHER INFORMATION

ITEM 6.

EXHIBITS

The following exhibits are filed as part of this report.



31.1		Certification by the Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification by the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification by the Chief Executive Officer and the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


		ADEPT TECHNOLOGY, INC.

Date: October 20, 2006	By:	/s/ Steven L. Moore
		Steven L. Moore
		Vice President, Finance and
		Chief Financial Officer



Date: October 20, 2006	By:	/s/ Robert H. Bucher
		Robert H. Bucher
		President and
		Chief Executive Officer

INDEX TO EXHIBITS



31.1 +	Certification by the Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	1

31.2 +	Certification by the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	2

32.1 +	Certification by the Chief Executive Officer and the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	3

+	Filed Herewith

Adept Technology (ADEP) Inactive 10-Q/A2006 Q3 Quarterly report (amended)

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