- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No. 0-27122
ADEPT TECHNOLOGY, INC.
----------------------
(Exact name of Registrant as specified in its charter)
California 94-2900635
- -------------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Rose Orchard Way
San Jose, California 95134
- -------------------------------------------- ------------------------
(Address of Principal executive offices) (Zip Code)
(408) 432-0888
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and, (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
The number of shares of the Registrant's common stock outstanding as of April 1,
2000 was 9,790,072.
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ADEPT TECHNOLOGY, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
April 1, 2000 and June 30, 1999............................................................. 3
Condensed Consolidated Statements of Operations
Three and nine months ended April 1, 2000 and March 27, 1999................................ 4
Condensed Consolidated Statements of Cash Flows
Nine months ended April 1, 2000 and March 27, 1999.......................................... 5
Notes to Condensed Consolidated Financial Statements.......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................................ 23
Signatures...................................................................................... 24
Index to Exhibits............................................................................... 25
2
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
April 1,
2000 June 30,
(unaudited) 1999*
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 11,576 $ 11,816
Short-term investments 12,350 15,200
Accounts receivable, less allowance for doubtful accounts of
$689 at April 1, 2000 and $716 at June 30, 1999 20,385 19,707
Inventories 13,311 11,781
Deferred tax assets and prepaid expenses 4,535 5,601
----------- -----------
Total current assets 62,157 64,105
Property and equipment at cost 25,473 24,822
Less accumulated depreciation and amortization 20,067 18,940
----------- -----------
Net property and equipment 5,406 5,882
Other assets 2,608 1,690
----------- -----------
Total assets $ 70,171 $ 71,677
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,550 $ 6,838
Other accrued liabilities 8,550 9,653
----------- -----------
Total current liabilities 15,100 16,491
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value:
5,000 shares authorized, none issued and outstanding - -
Common stock, no par value:
25,000 shares authorized; 9,790 and 9,459 issued and outstanding
at April 1, 2000 and June 30, 1999, respectively 51,778 50,215
Retained earnings 3,293 4,971
----------- -----------
Total shareholders' equity 55,071 55,186
----------- -----------
Total liabilities and shareholders' equity $ 70,171 $ 71,677
=========== ===========
<FN>
Amounts applicable to prior periods have been restated to reflect the company's merger with BYE/Oasis
Engineering, Inc., accounted for as a pooling of interests.
* Derived from unaudited financial statements.
See accompanying notes to condensed consolidated financial statements.
</FN>
3
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three months ended Nine months ended
------------------------ ------------------------
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Net revenues $ 26,253 $ 21,590 $ 71,154 $ 63,091
Cost of revenues 14,327 11,603 40,784 34,630
---------- ---------- ---------- ----------
Gross margin 11,926 9,987 30,370 28,461
Operating expenses:
Research, development and engineering 3,708 2,937 10,283 8,307
Selling, general and administrative 7,450 6,120 21,683 17,040
Nonrecurring merger-related expenses - - 988 -
---------- ---------- ---------- ----------
Total operating expenses 11,158 9,057 32,954 25,347
---------- ---------- ---------- ----------
Operating income (loss) 768 930 (2,584) 3,114
Other income (expense), net 80 230 215 (164)
---------- ---------- ---------- ----------
Income (loss) before provision for (benefit from) income taxes 848 1,160 (2,369) 2,950
Provision for (benefit from) income taxes 254 476 (691) 1,114
---------- ---------- ---------- ----------
Net income (loss) $ 594 $ 684 ($ 1,678) $ 1,836
========== ========== ========== ==========
Net income (loss) per share
Basic $ 0.06 $ 0.07 ($ 0.17) $ 0.20
========== ========== ========== ==========
Diluted $ 0.06 $ 0.07 ($ 0.17) $ 0.19
========== ========== ========== ==========
Shares used in computing per share amounts:
Basic 9,788 9,230 9,621 9,286
========== ========== ========== ==========
Diluted 10,460 9,438 9,621 9,448
========== ========== ========== ==========
<FN>
Amounts applicable to prior periods have been restated to reflect the company's merger with BYE/Oasis
Engineering, Inc., accounted for as a pooling of interests.
See accompanying notes to condensed consolidated financial statements.
</FN>
4
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended
-------------------------------
April 1, March 27,
2000 1999
--------- ---------
Operating activities
Net income (loss) $ (1,678) $ 1,836
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,451 2,369
(Gain)/ loss on disposal of property and equipment (29) (2)
Changes in operating assets and liabilities:
Accounts receivable (678) 1,679
Inventories (1,744) 3,914
Deferred tax assets and prepaid expenses 1,066 211
Other assets (1,024) (473)
Accounts payable (288) (953)
Accrued liabilities (1,116) (1,108)
--------- ---------
Total adjustments (1,362) 5,637
--------- ---------
Net cash provided by (used in) operating activities (3,040) 7,473
--------- ---------
Investing activities
Purchase of property and equipment, net (1,701) (2,005)
Proceeds from sale of property and equipment 88 59
Purchases of short-term available for sale investments (42,917) (17,006)
Sales of short-term available for sale investments 45,767 18,506
--------- ---------
Net cash provided by (used in) investing activities 1,237 (446)
--------- ---------
Financing activities
Proceeds from employee stock incentive program 1,563 989
Repurchase of common stock - (3,194)
Bank line of credit - (240)
--------- ---------
Net cash provided by (used in) financing activities 1,563 (2,445)
--------- ---------
Increase (decrease) in cash and cash equivalents (240) 4,582
Cash and cash equivalents, beginning of period 11,816 9,639
--------- ---------
Cash and cash equivalents, end of period $ 11,576 $ 14,221
========= =========
Supplemental disclosure of noncash activities:
Inventory capitalized into property and equipment
and related tax $ 226 $ 335
Cash paid during the period for:
Interest $ - $ 28
Taxes $ 582 $ 878
<FN>
Amounts applicable to prior periods have been restated to reflect the company's merger with BYE/Oasis
Engineering, Inc., accounted for as a pooling of interests.
See accompanying notes to condensed consolidated financial statements.
</FN>
5
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. General
The accompanying condensed consolidated financial statements have been
prepared in conformity with generally accepted accounting principles.
However, certain information or footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The
information furnished in this report reflects all adjustments which, in
the opinion of management, are necessary for a fair statement of the
consolidated financial position, results of operations and cash flows
as of and for the interim periods. Such adjustments consist of items of
a normal recurring nature. The condensed consolidated financial
statements included herein should be read in conjunction with the
audited financial statements and notes thereto for the fiscal year
ended June 30, 1999 included in the Company's Form 10-K as filed with
the Securities and Exchange Commission on September 28, 1999. Results
of operations for interim periods are not necessarily indicative of the
results of operations that may be expected for the fiscal year ending
June 30, 2000 or for any other future period.
Net Income (Loss) per Share
Basic net income (loss) per share is based on the weighted average
number of shares of common stock outstanding during the period,
excluding restricted stock, while diluted net income (loss) per share
is based on the weighted average number of shares of common stock
outstanding during the period and the dilutive effects of common stock
equivalents (mainly stock options), determined using the treasury stock
method, outstanding during the period, unless the effect of including
other shares is anti-dilutive.
Foreign Currency
Balance sheet accounts denominated in foreign currencies are translated
at exchange rates as of the date of the balance sheet. and income
statement accounts are translated at the spot rate on the date of
transaction. Translation gains and losses are recognized currently. The
Company has adopted US Dollar as the functional currencies for its
subsidiaries because their principal economic activities are most
closely tied to the US Dollar.
The Company may enter into foreign exchange contracts as a hedge
against foreign currency denominated receivables. It does not engage in
currency speculation. Market value gains and losses on contracts are
recognized currently, offsetting gains or losses on the associated
receivables. Foreign currency transaction gains and losses are included
in current earnings. Foreign exchange contracts totaled $1.9 million at
April 1, 2000. There were no foreign exchange contracts at June 30,
1999.
2. Acquisition of BYE/ Oasis Engineering, Inc.
- ---------------------------------------------------
On July 14, 1999, the Company acquired BYE/Oasis Engineering, Inc.
("BYE/Oasis") through the issuance of 720,008 shares of the Company's
common stock, which were exchanged for all of the outstanding capital
stock of BYE/Oasis. In addition, options to purchase an aggregate of
185,361 shares of the Company's common stock were assumed in the
acquisition. The Company accounted for the acquisition as a pooling of
interests. All financial information presented for the previous
period(s) have been restated to include the financial results of
BYE/Oasis.
6
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. Customer Receivables
The Company maintains reserves for potential credit losses. Such losses
have been minimal and within management's estimates. Receivables from
customers are generally unsecured.
Customer receivables consist of the following:
(in thousands) April 1, June 30,
2000 1999
------------ -----------
Customer receivables.................................... $ 21,074 $ 20,423
Less allowance for doubtful accounts.................... 689 716
------------ -----------
$ 20,385 $ 19,707
============ ===========
4. Financial Instruments
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Short-term investments consist principally of commercial paper and tax
exempt municipal bonds with maturities between three and twelve months,
market auction rate preferred stock and auction rate notes with
maturities of twelve months or less. Investments are classified as
held-to-maturity, trading, or available-for-sale at the time of
purchase.
At April 1, 2000 and June 30, 1999, all of the Company's investments in
marketable securities were classified as available-for-sale and were
carried at fair market value which approximated cost. Material
unrealized gains and losses, if any, would have been recorded in
shareholders' equity. Fair market value is based on quoted market
prices on the last day of the fiscal period. The cost of the securities
is based upon the specific identification method. Realized gains or
losses, interest, and dividends are included in interest income. During
fiscal year 1999 and the nine months ended April 1, 2000, realized and
unrealized gains and losses on available for sale investments were not
material.
5. Inventories
Inventories are stated at cost, determined on either a first-in,
first-out (FIFO) or average cost basis and do not exceed net realizable
value.
April 1, June 30,
2000 1999
------------ -----------
Raw materials........................................... $ 6,750 $ 6,854
Work-in-process......................................... 3,439 2,375
Finished goods.......................................... 6,748 5,001
Less reserves........................................... $ (3,626) $ 2,449
------------ -----------
$ 13,311 $ 11,781
============ ===========
7
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6. Property and Equipment
Property and equipment are recorded at historical cost.
The components of property and equipment are summarized as follows:
April 1, June 30,
2000 1999
------------ -----------
Cost:
Machinery and equipment................................. $ 13,836 $ 13,558
Computer equipment...................................... 8,561 8,153
Office furniture and equipment.......................... 3,076 3,111
------------ -----------
25,473 24,822
Accumulated depreciation and amortization................. 20,067 18,940
------------ -----------
Net property and equipment................................ $ 5,406 $ 5,882
============ ===========
7. Other Income (Expense)
Other income (expense) consists of the following:
Three months ended Nine months ended
---------------------- ----------------------
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
------- --------- --------- ---------
Interest income $ 317 $ 265 $ 868 $ 760
Interest expense -- (6) -- (36)
Exchange gains and losses (3) (1) (31) 6
Gain/loss on remeasurement (124) (36) (325) (245)
Other (110) 8 (297) (649)
-------- --------- -------- ---------
$ 80 $ 230 $ 215 $ (164)
======== ========= ========= =========
8. Merger-Related Expenses
In July 1999, the Company incurred a one-time charge of $988,000
relating to the acquisition of BYE/Oasis and the closure of BYE/Oasis
facilities in Texas. Merger related expenses were $558,000, expenses
relating to the closure of facilities in Texas were $ 195,000 and other
non-recurring expenses relating to the acquisition were $235,000.
9. Income Taxes
The Company provides for income taxes during interim reporting periods
based upon an estimate of its annual effective tax rate. This estimate
reflects the utilization of tax credits.
8
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
10. Net Income (Loss) per Share
Net income (loss) per share is calculated as follows:
Three months ended Nine months ended
---------------------- ----------------------
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
--------- --------- --------- ---------
Net income (loss) $ 594 $ 684 $ (1,678) $ 1,836
Basic:
Weighted average shares
of common stock outstanding 9,788 9,230 9,621 9,286
--------- --------- --------- ---------
Net income (loss) per share $ .06 $ .07 $ (.17) $ .20
========= ========= ========= =========
Diluted:
Weighted average shares
of common stock outstanding 9,788 9,230 9,621 9,286
Effect of dilutive securities
- employee stock options 672 208 N/A 162
--------- --------- --------- ---------
Adjusted weighted average shares outstanding 10,460 9,438 9,621 9,448
========== ========= ========= =========
Net income (loss) per share $ .06 $ .07 $ (.17) .19
========= ========= ========= =========
11. Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities: ("SFAS 133"). SFAS 133 provides a
comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. SFAS 133 was to be
effective for fiscal years beginning after June 15, 1999. However, in
July 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
FASB Statement No. 133" ("SFAS 137"). SFAS 137 defers for one year the
effective date of SFAS 133 which will now apply to all fiscal quarters
of all fiscal years beginning after June 15, 2000. We have not
concluded whether the adoption of SFAS 133 will have a material impact
on our consolidated financial position, results of operations or cash
flows.
12. Segment Information
The Company adopted Statement of Financial Accounting Standards No. 131
(SFAS 131), "Disclosures about Segments of an Enterprise and Related
Information," in fiscal 1999. SFAS 131 establishes standards for
reporting information about operating segments and related disclosures
about products, geographic information and major customers. The Company
conducts its business predominantly within one business segment,
namely, providing intelligent automation software and hardware products
for assembly, material handling and packaging applications. Management
assesses the Company's performance, measures the Company's operations
and assets on a single segment basis.
Although the Company operates in a single segment, revenues and
long-lived assets are tracked by geographic areas, and are summarized
in the following table:
9
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Three months ended Nine months ended
---------------------- ----------------------
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
--------- --------- --------- ---------
Revenue:
United States ............................... $ 13,506 $ 10,752 $ 38,674 $ 32,776
Germany...................................... 4,192 2,380 9,659 9,956
France....................................... 3,390 2,643 8,785 6,795
Other European countries..................... 4,138 4,190 10,576 9,962
All other countries.......................... 1,027 1,625 3,460 3,602
--------- --------- --------- ---------
$ 26,253 $ 21,590 $ 71,154 $ 63,091
========= ========= ========= =========
April 1, June 30,
2000 1999
-------- --------
Long-lived assets:
United States ............................... $ 5,194 $ 5,804
All other countries.......................... 501 473
-------- --------
$ 5,695 $ 6,277
======== ========
Total long-lived assets........................ $ 5,695 $ 6,277
Other assets, including current................ 64,476 65,400
-------- --------
Total consolidated assets $ 70,171 $ 71,677
======== ========
No single customer accounted for more than 10% of the Company's net
revenue in for the three months and nine months ended April 1, 2000 and
March 27, 1999 respectively.
13. Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income" in 1999. SFAS 130
establishes new rules for the reporting and display of comprehensive
income and its components. SFAS 130 requires unrealized gains or losses
on available-for-sale securities and foreign currency translation
adjustments to be included in comprehensive income (loss). The Company
has no significant items of other comprehensive income, and the
adoption of SFAS 130 did not have a significant impact.
14. Reclassification
Certain amounts presented in the financial statements for fiscal 1999
have been reclassified to conform to the presentation for fiscal 2000.
10
ADEPT TECHNOLOGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or anticipated results, including those set forth under
"Factors Affecting Future Results" under "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and elsewhere in, or
incorporated by reference, into, this report.
OVERVIEW
We design, manufacture and market intelligent automation software and
hardware products for assembly, material handling and packaging applications.
Our products currently include machine controllers for robot mechanisms and
other flexible automation equipment, machine vision systems, simulation software
and a family of mechanisms including robots, linear modules, vision-based
flexible part feeders, as well as a line of Cartesian scalable robots targeted
for the electronics and assembly applications markets. 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.
Last year we announced a new line of robots expressly designed for use in the
semiconductor fabrication industry. We have also expanded our channel of system
integrators and our international sales and marketing operations. As a result of
these developments, the nature and composition of our revenues have changed over
time.
In July 1999, we acquired BYE/Oasis Engineering, Inc. ("BYE/Oasis"), a
leading manufacturer of mini and microenvironment systems and Standard
Mechanical Interface ("SMIF") for the microelectronics industry. We acquired
BYE/Oasis through the issuance of 720,008 shares of our common stock which were
exchanged for all of the common stock of BYE/Oasis. In addition, options to
purchase an aggregate of 185,361 shares of our common stock were assumed in the
acquisition. We accounted for the acquisition as a pooling of interests.
We sell our products through system integrators, our direct sales force
and original equipment manufacturers ("OEMs"). System integrators and OEMs add
application-specific hardware and software to our products, thereby enabling us
to provide solutions to a diversified industry base, including the electronics,
telecommunications, semiconductor, appliances, pharmaceutical, food processing
and automotive components industries.
All financial information presented for the previous periods have been
restated to include the financial results of BYE/Oasis.
Results of Operations
Three Month and Nine Month Periods Ended April 1, 2000 and March 27, 1999
Net revenues. The Company's net revenues for the three- and
nine-month periods ended April 1, 2000, were $26.3 million and $71.2 million,
respectively, compared with $21.6 million and $63.1 million for the three- and
nine-month periods ended March 27, 1999. The increase over the third quarter of
1999 is primarily attributable to the electronic and consumer appliance,
semiconductor, and automotive, household, food & pharmaceutical industries, with
revenue growth to these industries of 20%, 198.9% and 66%, respectively, over
the prior year quarter. Partially offsetting these increases were declines in
revenues to the standalone controller and service and upgrade industries of
53.6% and 22.9%, respectively, versus the corresponding 1999 period. For the
nine-month period, we had growth in revenue to the electronic and consumer
appliance, semiconductor, and automotive, household, food & pharmaceutical
industries of 36.5%, 94.1% and 19%, respectively, over the prior year period
partially offset by declines in the disk drive industry of 34.0%, resulting in a
year to date revenue growth of 26.1% over the prior year.
11
ADEPT TECHNOLOGY, INC.
The Company's domestic sales totaled $13.5 million and $38.7 million
for the three- and nine-month periods ended April 1, 2000, compared with $10.8
million and $32.8 million for the three- and nine-month periods ended March 27,
1999, an increase of 25.0% and 18.0% versus the respective prior year periods.
The growth in domestic sales for the three-month period was attributable
principally to increases in sales to the consumer electronic communication and
general mechanism markets.
The Company's international sales totaled $12.8 million and $32.5
million for the three- and nine-month periods ended April 1, 2000, compared with
$10.8 million and $30.3 million for the corresponding prior year periods,
increases of 18.5% and 7.3%, respectively. The growth for the quarter and year
to date is primarily attributable to a significant increase in sales to
European-based OEM customers, telecommunications and consumer electronics
industries. The increase for the three-month period is due primarily to
significant sales increases in Germany, Korea and Singapore, while the increase
for the nine-month period is attributable primarily to sales increases in
Germany and Singapore of 47.1% and 100%, respectively.
Bookings by sector during the third quarter included electronics at
31% versus 27% a year ago; semiconductor was 20% versus 11%; automotive was 14%
versus 20%; household, food and pharmaceutical was 12 % versus 10%; appliance
and industrial was 11% versus 2%; OEM was 8% versus 35%; and other was 4% versus
9%.
Gross margin. Gross margin percentage was 45.4% for the three months
ended April 1, 2000 compared to 46.3% for the three months ended March 27, 1999.
Gross margin percentage was 42.7% for the nine months ended April 1, 2000
compared to 45.1% for the nine months ended March 27, 1999. The increase in the
gross margin for the three months ended April 1, 2000 was primarily the result
of increased software revenue and increased sales of mechanism systems with
upgrade options. The gross margin for the nine months ended April 1, 2000 as
compared to the same period in the prior year was slightly down due primarily to
product mix.
Research, Development and Engineering. Research, development and
engineering expenses increased by 26.3% to $3.7 million or 14.1% of net revenues
for the three months ended April 1, 2000 from $2.9 million or 13.6% of net
revenues for the three months ended March 27, 1999. Research, development and
engineering expenses increased by 23.8% to $10.3 million or 14.5% of net
revenues for the nine months ended April 1, 2000 from $8.3 million or 13.2% of
net revenues for the nine months ended March 27, 1999. The increase in both the
three and nine month periods was primarily due to increased headcount and
compensation related expenses and increases in project material spending and
depreciation on capital equipment. Research, development and engineering
expenses for the three months ended April 1, 2000 were partially offset by
$71,000 of third party development funding as compared with $206,000 of third
party development funding for the three months ended March 27, 1999. Research,
development and engineering expenses for the nine months ended April 1, 2000
were partially offset by $232,000 of third party development funding as compared
with $476,000 of third party development funding for the nine months ended March
27, 1999. For both the three and nine months ended April 1, 2000 third party
development funding was lower as a result of completion of existing contracts.
The Company expects that it will continue to receive third party development
funding from the government as well as other third parties during fiscal 2000.
There can be no assurance, however, that any funds budgeted by the government or
other third parties for the Company's development projects will not be curtailed
or eliminated at any time.
Selling, General and Administrative. Selling, general and
administrative expenses increased 21.7% to $7.4 million or 28.4% of net revenues
for the three months ended April 1, 2000, as compared with $6.1 million or 28.3%
of net revenues for the three months ended March 27, 1999. Selling, general and
administrative expenses increased 27.2% to $21.7 million or 30.5% of net
revenues for the nine months ended April 1, 2000, as compared with $17.0 million
or 27.0% of net revenues for the nine months ended March 27, 1999, exclusive of
nonrecurring charges associated with the acquisition of BYE/Oasis in the quarter
ended October 2, 1999. The increased level of spending for both the three and
nine months ended April 1, 2000 was primarily attributable to increased
headcount and compensation related expenses, including commissions, and to
recognition of translation losses associated with foreign currency fluctuations
on balance sheet remeasurement items. The increase in selling, general and
administrative expenses as a percentage of total revenue in the three and nine
month periods ended April 1, 2000 as compared to the same periods in the prior
year was due to the relative increase in expense from combining
12
ADEPT TECHNOLOGY, INC.
BYE/Oasis' operations at a lower expense to revenue ratio to Adept's. The
Company expects that selling, general and administrative expenses will continue
to fluctuate as a percentage of net revenues.
Merger Related Expenses. In the quarter ended October 2, 1999, the
Company incurred a one-time charge of $988,000 relating to the acquisition of
BYE/Oasis and the closure of BYE/Oasis facilities in Texas. Merger related
expenses were $558,000, expenses relating to the closure of facilities in Texas
were $195,000 and other non-recurring expenses relating to the acquisition were
$235,000.
Other Income. Interest income for the three months ended April 1, 2000
was $317,000 compared to $265,000 for the three months ended March 27, 1999.
Interest income for the nine months ended April 1, 2000 was $868,000 compared to
$760,000 for the nine months ended March 27, 1999. The increase was primarily as
a result of higher invested cash balances.
Provision for Income Taxes. Our effective tax rates on income were 30%
and 41% for the three months ended April 1, 2000 and March 27, 1999
respectively. The reduction was due primarily from the Company's ability to
utilize its foreign tax credits.
Derivative Financial Instruments. Our product sales are predominantly
denominated in U.S. dollars. However, certain international operating expenses
are predominately paid in their respective local currency. We generally do not
hedge our exposure to foreign currency exchange risk on local operational
expenses and revenues. Although we believe that unhedged risk associated with
foreign currency fluctuations for those transactions have not been material to
date, there can be no assurance that such risk will not become material in the
future or that we will not incur foreign exchange transaction losses which will
have an adverse effect on our results of operations. We make yen-denominated
purchases of certain components and mechanical subsystems from Japanese
suppliers. Based on the amount of such purchases, current exchange rate
fluctuations would not typically be expected to result in material unfavorable
foreign exchange transactions included in cost of revenues. From time to time,
we manage the currency risk associated with the yen-denominated purchases using
forward rate currency contracts.
Impact of Inflation
The effect of inflation on our business and financial position has not
been significant to date.
Liquidity and Capital Resources
As of April 1, 2000, we had working capital of approximately
$47.1million, including $11.6 million in cash and cash equivalents and $12.3
million in short-term investments.
Cash and cash equivalents decreased $0.2 million from June 30, 1999
primarily as a result of $1.7 million of cash used in operating activities and
$1.7 million used to purchase property and equipment offset by $2.9 million of
net proceeds from short-term investments and $1.6 million proceeds from the
employee stock incentive program. Net cash used in operating activities was
primarily attributable to the net loss adjusted by depreciation and
amortization, increased inventories and decreased accrued liabilities.
We believe that the existing cash and cash equivalent balances as well
as short-term investments and anticipated cash flow from operations will be
sufficient to support our working capital requirements for at least the next
twelve months.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities: ("SFAS 133"). SFAS 133 provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 was to be effective for fiscal
years beginning after June 15, 1999. However, in July 1999, the
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ADEPT TECHNOLOGY, INC.
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities
- - Deferral of the Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS
137 defers for one year the effective date of SFAS 133 which will now apply to
all fiscal quarters of all fiscal years beginning after June 15, 2000. We have
not concluded whether the adoption of SFAS 133 will have a material impact on
our consolidated financial position, results of operations or cash flows.
FACTORS AFFECTING FUTURE OPERATING RESULTS
You should not rely on our past results to predict our future performance
because our operating results may fluctuate.
Our historical operating results may not be accurate indicators of our
future performance. Our operating results have been subject to significant
quarterly and annual fluctuations in the past, and we expect this to continue in
the future. For example, in the quarter ended October 2, 1999, we experienced a
substantial shortfall in our revenues and a net loss. Our loss was attributable
to several factors, including an inability to close sales as originally
forecast, particularly sales of our higher-margin software products, and
component supply problems. During the quarter ended January 1, 2000 we
experienced stronger than originally forecasted sales of products with higher
gross margins combined with improvements in our component supply chain. These
factors along with stronger than originally forecasted sales from the BYE/Oasis
semiconductor division, resulted in revenue growth and positive earnings for the
quarter ended January 1, 2000. In order to sustain continued growth we will have
to invest in both personnel and capital equipment as well as rely on acceptance
of our products in the market. Therefore the current quarter's performance
should not be taken as an indication of future quarters results. Factors that
may contribute to these fluctuations in the future include:
o fluctuations in capital spending domestically and internationally in
one or more industries in which we sell our products;
o changes in product mix and pricing by us, our suppliers or our
competitors;
o availability of components and raw materials for our products;
o new product introductions by us or by our competitors;
o our failure to manufacture a sufficient volume of products in a timely
and cost-effective manner;
o our failure to anticipate the changing product requirements of our
customers;
o a lack of market acceptance of our products or a shift in demand for
our products;
o changes in the mix of sales by distribution channels;
o changes in the spending patters of our customers; and
o extraordinary events such as litigation or acquisitions.
Our operating results and gross margins vary from period to period depending on
capital spending cycles and the mix of sales of lower margin hardware products
and higher margin software products.
Our operating results may also be affected by general economic and
other conditions affecting the timing of customer orders and capital spending as
well as the mix of product sales. For example, our operations during the third
and fourth quarters of fiscal 1998 and the first three quarters of fiscal 1999
were adversely affected by a continuing downturn in hardware purchases by
customers in the electronics industry, particularly disk-drive and
telecommunication manufacturers. Although we experienced some improvements in
our markets in the third and fourth quarter of fiscal 1999, these improvements
were not sustained in the first quarter of fiscal 2000, in which our revenues
were materially less than anticipated, resulting in a net loss. We cannot
estimate when or if a sustained revival in these key hardware markets will
occur. In addition, we experienced an adverse product mix in the first quarter
of fiscal 2000 as reduced sales of higher margin software products reduced gross
margins and contributed to our net loss. If we are unable to increase sales of
our software products, our gross margins would continue to be adversely
affected.
We generally recognize product revenue upon shipment or, for certain
international sales, upon receipt by the customer. As a result, our net revenues
and results of operations for a fiscal period will be affected by the
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ADEPT TECHNOLOGY, INC.
timing of orders received and orders shipped during the period. Any delay in
shipments of our products, therefore, would have an adverse effect on our
revenues and profitability. We may experience such delays as a result of product
development delays, problems obtaining raw materials, inability to complete
transactions in our sales pipeline, or any of the other risks described in this
section. A delay in shipments near the end of a fiscal period, for example due
to product development delays or delays in obtaining materials, could materially
adversely affect our business, financial condition and operating results for the
period.
In addition, our continued investments in research and development,
capital equipment and ongoing customer service and support capabilities result
in significant fixed costs that we cannot reduce rapidly. As a result, if our
sales for a particular fiscal period are below expected levels, as occurred in
the first quarter of fiscal 2000, our operating results for the period could be
materially adversely affected, and we could experience a loss.
In the event that in some future fiscal quarter our net revenues or
operating results fall below the expectations of public market analysts and
investors, the price of our common stock may fall. We cannot assure you that we
will be able to increase or sustain our profitability on a quarterly or an
annual basis in the future.
Because our product sales are seasonal, we may not be able to maintain a steady
revenue stream.
Our product sales are seasonal. We have historically had higher
bookings for our products during the June quarter of each fiscal year and lower
bookings during the September quarter of each fiscal year, due primarily to the
slowdown in sales to European markets and summer vacations. In the past, we have
generally been able to maintain revenue levels during the September fiscal
quarter by filling backlog from the June fiscal quarter. If our backlog at the
end of the June fiscal quarter is reduced as a result of lower bookings in the
June quarter or is otherwise insufficient to compensate for lower bookings in
the September fiscal quarter, our revenues and operating results for the
September fiscal quarter and future quarters would be reduced. For example, as a
result of reduced product bookings in each of the three fiscal quarters prior to
the quarter ending March 27, 1999, net revenues fell in the quarters ended
September 26, 1998 and December 26, 1998. In addition, during fiscal 1999 as a
whole, our net revenues were adversely affected by a decline in orders from
customers in the disk-drive and telecommunications markets. Our revenues were
again below expectations in the quarter ended October 2, 1999, and we
experienced a loss as a result of problems associated with a failure to complete
sales, an adverse product mix, and component supply problems.
In addition, you should not rely on our backlog as a useful measure of
anticipated activity or future revenues. The orders constituting our backlog are
subject to changes in delivery schedules and in certain instances are subject to
cancellation without significant penalty by the customer. We have in the past
experienced changes in delivery schedules and customer cancellations that
resulted in our revenues in a given quarter being materially less than would
have been anticipated based on backlog at the beginning of the quarter. We
expect that these delivery changes and order cancellations may adversely affect
our revenues in future quarters.
A significant percentage of our product shipments occur in the last
month of each fiscal quarter. Historically, this has been due in part, at times,
to our inability to forecast the level of demand for our products or of the
product mix for a particular fiscal quarter. To address this problem we
periodically stock inventory levels of completed robots, machine controllers and
certain strategic components. If shipments of our products fail to meet
forecasted levels, our revenues would be decreased and we would have increased
our operating expenses in anticipation of unrealized increases in sales of our
products.
Sales of our products depend on the capital spending habits of our customers,
which tend to be cyclical.
Intelligent automation systems using our products can range in price
from $75,000 to several million dollars. Accordingly, purchases of our products
represent a substantial capital investment by our customers, and our success
depends directly on their capital expenditure budgets. Our future operations may
be subject to substantial fluctuations as a consequence of domestic and foreign
economic conditions, industry patterns and other factors affecting capital
spending. Although the majority of our international customers are not in the
Asian-Pacific region, we believe that recent instability in the Asian-Pacific
economies had a material adverse effect on our operations as a result of a
reduction in sales by our customers to those markets. We have continued to see a
weakness in our
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ADEPT TECHNOLOGY, INC.
markets and cannot predict when, or if, a sustained recovery will occur.
Domestic or international recessions or a downturn in one or more of our major
markets, such as the electronics, telecommunications, semiconductor, appliances,
pharmaceutical, food processing or automotive components industries, and
resulting cutbacks in capital spending would have a direct, material adverse
impact on our business.
Many of the key components and materials of our products come from single source
suppliers, and their procurement requires lengthy lead times.
We obtain many key components and materials and some significant
mechanical subsystems from sole or single source suppliers. We have no
guaranteed supply arrangements with these suppliers. In addition, some of our
sole or single sourced components and mechanical subsystems incorporated into
our products have long procurement lead times. Our reliance on sole or single
source suppliers involves several significant risks, including the following:
o loss of control over the manufacturing process;
o potential absence of adequate supplier capacity;
o potential inability to obtain an adequate supply of required
components, materials or mechanical subsystems; and
o reduced control over manufacturing yields, costs, timely delivery,
reliability and quality of components, materials and mechanical
subsystems.
If any significant sole or single source supplier were unable or
unwilling to manufacture our components, materials or mechanical subsystems we
need in the volumes we require, we would have to identify and qualify acceptable
replacements. The process of qualifying suppliers may be lengthy, and additional
sources may not be available to us on a timely basis, on acceptable terms, or at
all. If supplies of these items were not available from our existing suppliers
and a relationship with an alternative vendor could not be developed in a timely
manner, shipments of our products could be interrupted, and we could be required
to reengineer our products. In the past, we have experienced quality control or
specification problems with key components provided by sole source suppliers and
have had to design around the particular flawed item. We have also experienced
delays in filling customer orders due to the failure of certain suppliers to
meet our volume and schedule requirements. Some of our suppliers in the past
have also ceased manufacturing components that we require for our products, and
we have been required to purchase sufficient supplies for the estimated life of
our product line. Problems of this type with our supplies may occur in the
future.
Disruption or termination of our supply sources could require us to
seek alternative sources of supply and could delay our product shipments and
damage relationships with current and prospective customers. Any of these events
could result in an increase in our expenses and reduction in our revenues and
could result in a net loss. If we incorrectly forecast product mix for a
particular period and we are unable to obtain sufficient supplies of any
components or mechanical subsystems on a timely basis due to long procurement
lead times, our business, financial condition and results of operations would be
substantially impaired. Moreover, if demand for a product for which we have
purchased a substantial amount of components fails to meet our expectations, we
would be required to write off the excess inventory. A prolonged inability to
obtain adequate timely deliveries of key components would also impair our
business and results of operations.
Any problems we encounter integrating BYE/Oasis Engineering Inc. into our
business could increase our expenses and adversely affect our operating results.
In July, 1999 we completed the acquisition of BYE/Oasis Engineering
Inc. BYE/Oasis is a manufacturer of contamination control systems and standard
mechanical interfaces for semiconductor fabrication facilities, a business in
which we have no operational experience. This acquisition will require us to
integrate two geographically separated companies that previously operated
independently. We have limited experience with integrating acquired companies
and we may in the near future encounter difficulties as we continue to integrate
our product offerings and operations. In addition, we may not be able to
successfully market BYE/Oasis' products or develop any new products as a result
of the acquisition. Moreover, the consummation of the BYE/Oasis acquisition
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ADEPT TECHNOLOGY, INC.
could result in suppliers, distributors, or customers of BYE/Oasis canceling or
otherwise terminating their arrangements with BYE/Oasis. If we fail to achieve
the product, marketing, distribution, and other operational benefits and
efficiencies we originally anticipated in the merger, we will have overpaid for
the acquisition, and our shareholders will have experienced substantial dilution
without offsetting benefits. In addition, our future financial performance would
be impaired.
We face intense competition in the market for intelligent automation products.
The market for intelligent automation products is highly competitive.
We believe that the principal competitive factors affecting the market for our
products are:
o product functionality and reliability;
o customer service;
o price; and
o product features such as flexibility, programmability and ease of use.
We compete with a number of robot companies, motion control companies,
machine vision companies and simulation software companies. Many of our
competitors have substantially greater financial, technical, marketing and other
resources than we. In addition, we may in the future face competition from new
entrants in one or more of our markets.
Many of our competitors in the robot market are integrated
manufacturers of products that produce robotics equipment internally for their
own use and may also compete with our products for sales to other customers.
Some of these large manufacturing companies have greater flexibility in pricing
than we have because they generate substantial unit volumes of robots for
internal demand. They may have access through their parent companies to large
sources of capital. Any of our competitors may seek to expand their presence in
other markets in which we compete.
Our current or potential competitors may develop products comparable or
superior in terms of price and performance features to those developed by us.
They may also adapt more quickly than we can to new or emerging technologies and
changes in customer requirements. We may be required to make substantial
additional investments in connection with our research, development,
engineering, marketing and customer service efforts in order to meet any
competitive threat, and these investments may not prove successful. We expect
that in the event the intelligent automation market expands, competition in the
industry will intensify, as additional competitors enter our markets and current
competitors expand their product lines. Increased competitive pressure could
result in a loss of sales or market share, or cause us to lower prices for our
products, any of which could harm our business and operating results.
Our principal competitors in the U.S. robot market include U.S.
subsidiaries of the Japanese companies Fanuc Ltd., Seiko Instruments, Yamaha
Corporation, Sony Corporation, Sankyo Company Limited, and other Japanese robot
companies. In the European robot market, we principally compete with Robert
Bosch GmbH, which to date has sold most of its products in Germany, and with
Fanuc, Seiko, Yamaha, Sony, Sankyo, and other Japanese companies. In the
Japanese robot market, over a dozen robot companies compete with us, including
Fanuc, Nippon Denso, Panasonic Company, Sankyo, Seiko, Sony and Yamaha. Some of
these large manufacturing companies have greater flexibility in pricing than we
have because they generate substantial unit volumes of robots for internal
demand and may have access through their parent companies to large sources of
capital. In addressing the Japanese market, we are at a competitive disadvantage
as compared to Japanese suppliers, many of whom have long-standing collaborative
relationships with Japanese manufacturers. Because of this competitive
disadvantage, we closed our Japanese subsidiary in the fall of 1998 and now
operate through a joint venture in Japan. Although we expect to continue to
invest significant resources in the Japanese market in the future, we may not be
able to achieve significant sales growth in the Japanese intelligent automation
market.
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ADEPT TECHNOLOGY, INC.
Our principal competition in the semiconductor atmospheric wafer
handling market comes from Asyst Technologies, Inc. The majority of Asyst's
revenue comes from adaptive Standard Mechanical Interface, or SMIF, devices sold
to end users. They have been the leader in SMIF and isolation technology in the
semiconductor industry. Additional competitors in the semiconductor robot market
are Brooks Automation, Inc. and Equipe, a division of PRI Automation, Inc.
Our principal competitors in the market for motion control systems
include Allen-Bradley Co., a subsidiary of Rockwell International Corporation,
in the United States, and Siemens AG in Europe. In addition, we face motion
control competition from two major suppliers of motion control boards, Galil
Motion Control, Inc. and Delta Tau Data Systems, Inc. These motion control
boards are purchased by end users which engineer their own custom motion control
systems. In the simulation software market our competitors include Tecnomatix
Technologies, Inc., an Israeli company which sells principally to major
automotive manufacturers, and Deneb Robotics Inc., a subsidiary of Dassault
Systemes. In the machine vision market, we face competition from Cognex
Corporation, and Robotic Vision Systems Inc.
We may not be able to keep up with the rapid pace of technological change and
new product development that characterize the intelligent automation industry.
The intelligent automation industry is characterized by rapid
technological change and new product introductions and enhancements. Our ability
to remain competitive and our future success depend greatly upon the
technological quality of our products and processes relative to those of our
competitors. We must continue to develop new and enhanced products and to
introduce these new products at competitive prices and on a timely and
cost-effective basis. We may not be successful in selecting, developing and
manufacturing new products or in enhancing our existing products on a timely
basis or at all. Our new or enhanced products may not achieve market acceptance.
If we cannot successfully develop and manufacture new products, timely enhance
our existing technologies, or meet customers' technical specifications for any
new products, our products could lose market share, our revenues and profits
could decline, and we could experience operating losses. New technology or
product introductions by our competitors could also cause a decline in sales or
loss of market share for our existing products or force us to significantly
reduce the prices of our existing products.
From time to time, we have experienced and will likely continue to
experience delays in the introduction of new products. We have experienced and
may continue to experience technical and manufacturing difficulties with
introductions of new products and enhancements. Any failure by us to develop,
manufacture and sell new products in quantities sufficient to offset a decline
in revenues from existing products or to manage product and related inventory
transitions successfully could harm our business. Our success in developing,
introducing, selling and supporting new and enhanced products depends upon a
variety of factors, including timely and efficient completion of hardware and
software design and development, timely and efficient implementation of
manufacturing processes and effective sales, marketing and customer service.
Because of the complexity of our products, significant delays may occur between
a product's initial introduction and commencement of volume production.
The development and commercialization of new products involve many
difficulties, including the following:
o the identification of new product opportunities;
o the retention and hiring of appropriate research and development
personnel;
o the definition of the product's technical specifications;
o the successful completion of the development process;
o the successful marketing of the product, the risk of having customers
embrace new technological advances;
o the successful and timely release of software revisions;
o additional customer service costs associated with supporting new
product introductions; and
o additional customer service costs required for field upgrades.
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ADEPT TECHNOLOGY, INC.
For example, we are currently in the process of releasing our new
Digital Workcell, semiconductor robots and Production PILOT. These products
include significant new networking, communications, and hardware and software
technology. The development of these products may not be completed in a timely
manner and these products may not achieve acceptance in the market. The
development of these products has required, and will require, that we expend
significant financial and management resources. If we are unable to continue to
successfully develop these or other new products that respond to customer
requirements or technological changes, our business would be harmed, and
operating results would suffer.
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ADEPT TECHNOLOGY, INC.
Our software products may contain defects that could harm our reputation and
future business prospects.
New or existing software products or enhancements may contain errors or
performance problems when first introduced, when new versions or enhancements
are released or even after such products or enhancements have been used in the
marketplace for a period of time. Despite our testing, product defects may be
discovered only after a product has been installed and used by customers. Errors
and performance problems may be discovered in future shipments of our products.
These errors could result in expensive and time consuming design modifications
or large warranty charges, damage customer relationships and result in loss of
market share, any of which could harm our reputation and future business
prospects. In addition, increased development and warranty costs would reduce
our operating profits and could result in losses.
We rely on systems integrators to sell our products.
We believe that our ability to sell products to system integrators will
continue to be important to our success. A substantial portion of our sales are
to system integrators that specialize in designing and building production lines
for manufacturers. Many of these companies are small operations with limited
financial resources, and we have from time to time experienced difficulty in
collecting payments from certain of these companies. As a result, we perform
ongoing credit evaluations of our customers. From time to time, because we do
not require collateral, we may require customers to make payments in advance of
shipment or to provide a letter of credit. We provide reserves for potential
credit losses, and to date losses of this type have been within our
expectations. To the extent we are unable to mitigate this risk of collections
from system integrators, our results of operations may be materially adversely
affected.
Our relationships with system integrators are generally not exclusive,
and some of our system integrators may expend a significant amount of effort or
give higher priority to selling products of our competitors. In the future, any
of these system integrators may discontinue their relationships with us or form
additional competing arrangements with our competitors. Although to date none of
our system integrators has accounted for a material percentage of our net
revenues, the loss of, or a significant reduction in revenues from, system
integrators to which we sell a significant amount of our product could have a
material adverse effect on our results of operations.
As we enter new geographic and applications markets, we must locate
system integrators to assist us in building sales in those markets. We may not
be successful in obtaining effective new system integrators or in maintaining
sales relationships with them. If a number of our system integrators experience
financial problems, terminate their relationships with us or substantially
reduce the amount of our products they sell, or if we fail to build an effective
systems integrator channel in any new markets, our revenues and operating
results would be adversely affected.
Our presence in international markets exposes us to risk.
We anticipate that international sales will continue to account for a
significant portion of our net revenues; however, we cannot assure you that
international sales will increase or that the current level of international
sales will be sustained. In the first nine months of fiscal year 2000 and in
each of the fiscal years 1999, 1998 and 1997, our net revenues from
international sales accounted for approximately 45.6%, 47.2%, 40.5% and 35.8%,
respectively, of our net revenues. We also purchase some components and
mechanical subsystems from foreign suppliers. As a result, our operating results
are subject to the risks inherent in international sales and purchases, which
include the following:
o different regulatory requirements;
o political and economic changes and disruptions;
o transportation delays;
o foreign currency fluctuations;
o export/import controls;
o tariff regulations;
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ADEPT TECHNOLOGY, INC.
o higher freight rates;
o difficulties in staffing and managing foreign sales operations;
o greater difficulty in accounts receivable collection; and
o potentially adverse tax consequences.
In addition, duty, tariff and freight costs can materially increase the
cost of crucial components for our products. Foreign exchange fluctuations may
render our products less competitive relative to locally manufactured product
offerings, or could result in foreign exchange losses. Moreover, because
substantially all of our foreign sales are denominated in United States dollars,
increases in the value of the dollar relative to the local currency would
increase the price of our products in foreign markets and make our products
relatively more expensive and less price competitive than competitors' products
that are priced in local currencies. Any of these factors may result in a
reduction in our revenues and a decrease in our earnings, or in our incurring
operating or net losses.
We anticipate that recent turmoil in Asian financial markets and the
deterioration of the underlying economic conditions in certain Asian countries
will continue to have an impact on our sales to customers located in or whose
projects are based in those countries due to the impact of currency fluctuations
on the relative price of the our products and restrictions on government
spending imposed by the International Monetary Fund on those countries receiving
the International Monetary Fund's assistance. In addition, customers in those
countries may face reduced access to working capital to fund capital purchases,
such as our products, due to higher interest rates, reduced bank lending due to
contractions in the money supply or the deterioration in the customer's or our
bank's financial condition or the inability to access local equity financing.
We make yen-denominated purchases of certain components and mechanical
subsystems from Japanese suppliers. Depending on the amount of yen-denominated
purchases, we may engage in hedging transactions in the future. However,
notwithstanding these precautions, we remain subject to the transaction
exposures that arise from foreign exchange movements between the dates foreign
currency export sales or purchase transactions are recorded and the date cash is
received or payments are made in foreign currencies. We cannot assure you that
our current or any future currency exchange strategy will be successful in
avoiding exchange related losses or that any of the factors listed above will
not impair our business or operating results.
If our hardware products do not comply with standards set forth by the European
Union, we will not be able to sell them in Europe.
Our hardware products are required to comply with European Union Low
Voltage, Electro-Magnetic Compatibility, and Machinery Safety Directives in
certain European countries, including the United Kingdom, France, Germany and
Italy. The European Union mandates that our products carry the CE mark denoting
that these products are manufactured in strict accordance to design guidelines
in support of these directives. These guidelines can change and are subject to
varying interpretation. New guidelines impacting machinery design go into effect
each year. To date, we have retained TUV Rheinland to help certify that our VME
controller-based products, including some of our robots, meet applicable
European Union directives and guidelines. Although our existing certified
products meet the requirements of the applicable European Union directives, we
cannot assure you that future products can be designed, within market window
constraints, to meet the future requirements. In the event any of our robot
products or any other major hardware products do not meet the requirements of
the European Union directives, we would be unable to legally sell these products
in Europe. As a result, our business, financial condition, and operating results
could be impaired.
If we do not comply with environmental regulations, our business may be harmed.
We are subject to a variety of environmental regulations relating to
the use, storage, handling, and disposal of certain hazardous substances used in
the manufacturing and assembly of our products. We believe that we are currently
in compliance with all material environmental regulations in connection with our
manufacturing operations, and that we have obtained all necessary environmental
permits to conduct our business. However, our failure to comply with present or
future regulations could subject us to a variety of consequences that could harm
our business, including:
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ADEPT TECHNOLOGY, INC.
o the imposition of substantial fines;
o suspension of production; and
o alteration of manufacturing processes or cessation of operations.
Compliance with environmental regulations could require us to acquire
expensive remediation equipment or to incur substantial expenses. Our failure to
control the use, disposal, removal, or storage of, or to adequately restrict the
discharge of, or assist in the cleanup of, hazardous or toxic substances, could
subject us to significant liabilities, including joint and several liabilities
under certain statutes. The imposition of liabilities of this kind could harm
our financial condition.
We could lose revenues and incur significant costs if our systems, the systems
of our customers or third-party systems that we use are not Year 2000 compliant.
Although we have experienced none to date, we may experience
significant problems and costs associated with Year 2000 compliance that could
adversely affect our business, results of operations and financial condition.
Significant uncertainty exists in the software industry concerning the potential
effects associated with such compliance.
Before January 1, 2000, we reviewed the compliance status of the
software and systems used in our internal business processes, to obtain
appropriate assurances of compliance from the manufacturers of these products,
and to obtain an agreement to modify or replace all non-compliant products. We
contacted our critical suppliers and major customers to determine whether the
products obtained from such vendors or sold by the customer to third parties
were Year 2000 compliant. In addition, we implemented at our San Jose
headquarters a Year 2000 compliant enterprise resource planning system from a
third-party vendor and we converted certain of our other software and systems to
commercial products that were known to be Year 2000 compliant. Additionally, in
Europe, we upgraded our management information systems to be Year 2000
compliant.
In the ordinary course of our business, we test and evaluate our own
software products. We believe that our software products are generally Year 2000
compliant, meaning that the use or occurrence of dates on or after January 1,
2000 will not materially affect the performance of our software products with
respect to four digit date dependent data or the ability of these products to
correctly create, store, process and output information related to such date
data. To the extent our software products are not fully Year 2000 compliant, our
software products may not contain all necessary software routines and codes
necessary for the accurate calculation, display, storage and manipulation of
data involving dates. To the extent that our products are sold through system
integrators or other third parties, our products may experience Year 2000
problems as a result of the integration of our software with noncompliant Year
2000 products of such third party suppliers. In addition, in certain
circumstances, we have warranted that the use or occurrence of dates on or after
January 1, 2000 will not adversely affect the performance of the Company's
products with respect to four digit date dependent data or the ability to
create, store, process and output information related to such data. If any of
our licensees experience Year 2000 problems, these licensees could assert claims
for damages against us. To date we have incurred no Year 2000 related claims
from any of our customers.
We have incurred costs of approximately $3.3 million and expect to
incur in total, approximately $3.5 million in connection with our implementation
of a new enterprise resource planning software system and upgrades for other
systems at our San Jose headquarters and in our European offices, which is Year
2000 compliant. Additionally, we are currently in the process of developing a
contingency plan related to Year 2000. Our resources spent on investigating and
remedying Year 2000 compliance issues did not have a material adverse effect on
our business, financial condition and results of operations.
We may experience problems associated with the introduction of the Single
European Currency.
We are in the process of addressing the issues raised by the
introduction of the Single European Currency, or the Euro, as of January 1, 1999
and transition to full adoption as of January 1, 2002. Our internal systems that
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ADEPT TECHNOLOGY, INC.
are affected by the initial introduction of the Euro were Euro-capable as of
January 1, 1999. We do not presently expect that the introduction and use of the
Euro will materially affect our foreign exchange and hedging activities, or our
use of derivative instruments, or will result in any material increase in costs
to us. While we will continue to evaluate the impact of the Euro introduction
over time, based on currently available information, management does not believe
that the introduction of the Euro currency will have a material adverse impact
on our financial condition or overall trends in results of operations.
The success of our business depends on our key employees.
We are highly dependent upon the continuing contributions of our key
management, sales, and product development personnel. In particular, we would be
materially adversely affected if we were to lose the services of Brian Carlisle,
Chief Executive Officer and Chairman of the Board of Directors, who has provided
significant leadership to the Company since our inception, or Bruce Shimano,
Vice President, Research and Development and a Director, who has guided our
research and development programs since our inception. In addition, the loss of
the services of any of our senior managerial, technical or sales personnel could
materially adversely affect our business, financial condition, and results of
operations. We do not have employment contracts with any of our executive
officers and do not maintain key man life insurance on the lives of any of our
key personnel.
Our future success also heavily depends on our continuing ability, to
attract, retain, and motivate highly qualified managerial, technical and sales
personnel. Competition for qualified technical personnel in the intelligent
automation industry is intense. Our inability to recruit and train adequate
numbers of qualified personnel on a timely basis would adversely affect our
ability to design, manufacture, market and support our products.
We are subject to the risks associated with acquisitions.
From time to time, we may consider the acquisition of companies or
technologies that management believes may complement or extend our current
products, businesses, or technologies. In the last three years, we have made
some acquisitions of various sizes, including the recent acquisition of
BYE/Oasis. In the future we may make material acquisitions of, or large
investments in, other businesses that offer products, services, and technologies
that management believes will further our strategic objectives. Any future
acquisitions or investments we might make would present risks commonly
associated with these types of transactions, including:
o difficulty in combining the technology, operations, or work force of
the acquired business;
o disruptions of our on-going businesses;
o difficulties in realizing our potential financial and strategic
position through the successful integration of the acquired business;
o difficulty in maintaining uniform standards, controls, procedures, and
policies;
o potential negative impact in results of operations due to amortization
of goodwill or other intangible assets acquired; and
o the diversion of management attention.
The risks described above, either individually or in the aggregate,
could materially impair our business, operating results, and financial
condition. We expect that future acquisitions, if any, could provide for
consideration to be paid in cash, shares of our common stock, or a combination
of cash and common stock.
Our failure to protect our intellectual property and proprietary technology may
significantly impair our competitive advantage.
Third parties may infringe or misappropriate our copyrights, trademarks and
similar proprietary rights. We cannot be certain that the steps we have taken to
prevent the misappropriation of our intellectual property are adequate,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States. We rely on a combination of patent,
copyright and trade secret protection and nondisclosure agreements to protect
our proprietary rights. However, we cannot be certain that patent and copyright
law and trade secret protection will be adequate to deter misappropriation of
our technology, that any patents issued to Adept will
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ADEPT TECHNOLOGY, INC.
not be challenged, invalidated or circumvented, that the rights granted
thereunder will provide competitive advantages to us, or that the claims under
any patent application will be allowed. We may be subject to or may initiate
interference proceedings in the United States Patent and Trademark Office, which
can demand significant financial and management resources. The process of
seeking patent protection can be time consuming and expensive and there can be
no assurance that patents will issue from currently pending or future
applications or that our existing patents or any new patents that may be issued
will be sufficient in scope or strength to provide meaningful protection or any
commercial advantage to us.
We may in the future initiate claims or litigation against third
parties for infringement of our proprietary rights in order to determine the
scope and validity of our proprietary rights or the proprietary rights of our
competitors. These claims could result in costly litigation and the diversion of
our technical and management personnel.
We may face costly intellectual property infringement claims.
We have from time to time received communications from third parties
asserting that we are infringing certain patents and other intellectual property
rights of others or seeking indemnification against the alleged infringement. As
claims arise, we evaluate their merits. Any claims of infringement brought by
third parties could result in protracted and costly litigation, in our paying
damages for infringement, and in the need for us to obtain a license relating to
one or more of our products or current or future technologies. Such license may
not be available on commercially reasonable terms or at all. Litigation, which
could result in substantial cost to us and diversion of our resources, may be
necessary to enforce our patents or other intellectual property rights or to
defend us against claimed infringement of the rights of others. Any intellectual
property litigation and the failure to obtain necessary licenses or other rights
could have a material adverse effect on our business, financial condition and
results of operations.
For example, some end users of our products have notified us that they
have received a claim of patent infringement from the Jerome H. Lemelson
Foundation, alleging that their use of our machine vision products infringes
certain patents issued to Mr. Lemelson. In addition, we have been notified that
other end users of our AdeptVision VME line and the predecessor line of Multibus
machine vision products have received letters from the Lemelson Foundation which
refer to Mr. Lemelson's patent portfolio and offer the end user a license to the
particular patents. Some of our end users have notified us that they may seek
indemnification from us for damages or expenses resulting from this matter. We
cannot predict the outcome of this or any similar litigation which may arise in
the future. Litigation of this kind may have a material adverse effect on our
business, financial condition or results of operations.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) The Exhibits listed on the accompanying index immediately
following the signature page are filed as part of this report.
b) Reports on Form 8-K. A Form 8-K was filed by the Company on April
12, 2000 that included our news release announcing the signing of
a Letter of Intent to purchase Pensar Tucson, Inc. On May 1, 2000,
a Form 8-K was filed by the Company announcing the completion of
the acquisition of Pensar Tucson, Inc.
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ADEPT TECHNOLOGY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADEPT TECHNOLOGY, INC.
Date: May 16, 2000 By: /s/ Michael W. Overby
---------------------------
Michael W. Overby
Chief Financial Officer
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ADEPT TECHNOLOGY, INC.
INDEX TO EXHIBITS
SEQUENTIALLY
NUMBERED
EXHIBITS PAGE
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27.1 Financial Data Schedule. 27
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