SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended June 30, 2000 or
[ ] Transition report pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________________ to
__________________.
Commission file number: 0-27122
ADEPT TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
California 94-2900635
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
150 Rose Orchard Way, San Jose, California 95134
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code: (408) 432-0888
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------------- -------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -----------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based upon the closing sale price of the common stock on
September 15, 2000 as reported on the Nasdaq National Market, was approximately
$356,213,894. Shares of common stock held by each officer and director and by
each person who owns 5% or more of the outstanding common stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of September 15, 2000, registrant had outstanding 10,804,127 shares
of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 2000 Annual Meeting
to be held on November 10, 2000 are incorporated by reference into Part III
hereof.
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements.
The forward-looking statements are contained principally in the sections
entitled "Business," "Factors Affecting Future Operating Results" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." These statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements to
be materially different from any future results, performances or achievements
expressed or implied by the forward-looking statements. Forward-looking
statements include, but are not limited to, statements about:
o marketing and commercialization of our products under development;
o our estimates regarding our capital requirements and our needs for
additional financing;
o plans for future products and services and for enhancements of
existing products and services;
o our ability to attract customers and the market acceptance of our
products;
o our intellectual property;
o our ability to establish relationships with suppliers, systems
integrators and OEMs for the supply and distribution of our
products;
o plans for future acquisitions and for the integration of recent
acquisitions; and
o sources of revenues and anticipated revenues, including the
contribution from the growth of new products and markets.
In some cases, 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 and are based
on assumptions and subject to risks and uncertainties. Given these
uncertainties, you should not place undue reliance on these forward-looking
statements. We discuss many of these risks in this prospectus in greater detail
under the heading "Factors Affecting Future Operating Results." Also, these
forward-looking statements represent our estimates and assumptions only as of
the date of this prospectus.
In this report, unless the context indicates otherwise, the terms "
Adept," "we," "us," and "our" refer to Adept Technology, Inc., a California
corporation, and its subsidiaries.
This report contains trademarks and trade names of Adept and other
companies.
ITEM 1. BUSINESS
Our Company
We provide intelligent production automation solutions to our customers
in many industries including the semiconductor, communications, photonics, food,
automotive, life sciences and electronics industries. We utilize our
comprehensive portfolio of high precision mechanical components and application
development software to deliver automation solutions that meet our customers'
increasingly complex manufacturing requirements.
We offer our customers a comprehensive and tailored automation solution
that we call Rapid Deployment Automation, or RDA, that reduces the time and cost
to design, engineer and launch products into high-volume production. Other
benefits of our RDA solution include increased manufacturing flexibility for
future product generations, less customized engineering and reduced dependence
on production engineers. We intend to continue to enhance our RDA capabilities
by providing differentiated, value added integrated solutions to further
penetrate high growth markets.
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We market and sell our products worldwide through more than 300 system
integrators, our direct sales force and original equipment manufacturers, or
OEMs. This global presence, when combined with our extensive service and support
infrastructure, enables us to effectively understand our customers, as well as
current and future technological automation requirements.
We were incorporated in California in 1983. Our principal executive
offices are located at 150 Rose Orchard Way, San Jose, California 95134. Our
telephone number at that address is (408) 432-0888.
Recent Developments
On July 16, 1999, Adept completed the acquisition of BYE/OASIS
Engineering, Inc., a Texas corporation. BYE/OASIS is a manufacturer of
mini-environment systems and Standard Mechanical Interfaces (SMIF) for the
microelectronics industry. In connection with the acquisition, we issued 720,008
shares of our common stock to the shareholders of BYE/OASIS. In addition, we
assumed outstanding options to acquire BYE/OASIS shares, which were converted
into options to acquire 185,361 shares of our common stock. The acquisition
constituted a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986. The acquisition was accounted for using the pooling of
interests method, and, accordingly, all prior period consolidated financial
statements have been restated to include the combined results of operations,
financial position and cash flows of BYE/OASIS. Prior to the merger, BYE/OASIS's
fiscal year ended on September 30. In recording the business combination,
BYE/OASIS's prior period financial statements have been restated to conform to
our fiscal year. We believe this acquisition will broaden our factory automation
offerings in the wafer and microelectronic manufacturing industry and enhance
our experience and marketing and service infrastructure.
On April 28, 2000, we completed the acquisition of Pensar Tucson, Inc.,
an Arizona corporation. Pensar is a precision automation integrator of standard
work cells. In connection with the acquisition, we issued 100,000 shares of our
common stock to the shareholders of Pensar valued at $11.75 per share, which was
the fair market value of our common stock at April 28, 2000. In addition, we
paid $3,000,000 in cash, resulting in a total purchase price of $4.2 million.
The acquisition was accounted for as a purchase. We believe that our acquisition
of Pensar will enhance our ability to offer standard platform solutions for
microelectrical, fiber optic and photonic assembly automation.
On May 31, 2000, we completed the acquisition of NanoMotion
Incorporated, a California corporation. NanoMotion is manufacturer of ultra-high
precision positioning and alignment stages and devices. In connection with the
acquisition, we issued 600,000 shares of our common stock to the shareholders of
NanoMotion valued at $21 per share which was the fair market value of our common
stock at May 31, 2000. The acquisition was accounted for as a purchase. We
believe that our acquisition of NanoMotion will enhance our ability to offer
intelligent automation solutions to the microelectrical, fiber optic,
semiconductor, metrology and photonics industries.
On July 21, 2000, we completed the acquisition of HexaVision
Technologies, Inc., a Canadian corporation. HexaVision is a machine vision
research and development company. In connection with the acquisition, we paid
$5.1 million in cash and will be issuing shares of our common stock to the
shareholders of HexaVision with a value of $1.2 million subject to certain
conditions. In addition, the terms of the acquisition provide that we will make
two payments totaling approximately $1.6 million in cash, subject to certain
conditions contingent upon the achievement of certain operational milestones by
HexaVision. We intend to account for the acquisition under the purchase method.
We believe the acquisition of HexaVision will enhance our machine vision
products for all markets and facilitate our entry into the PC-based machine
vision market. HexaVision's core technology incorporates techniques to achieve
accuracies up to 1/40th of a pixel with guidance vision algorithms that can
increase our performance in critical and demanding applications such as vision
servoing for the micro electrical, fiber optic, semiconductory, metrology and
photonics industry.
Products and Technology Comprising Rapid Deployment Automation
Overview
Our vision of making automation easy to install is called Rapid
Deployment Automation. We have developed a product strategy to enable Rapid
Deployment Automation. This product strategy includes simulation tools to help
design automation systems, application software packages which contain
automation process knowledge, very powerful software and hardware for real-time
motion control and integrated sensing, and a family of mechanisms for different
applications.
3
[Chart illustrating our technology with respect
to the four levels of RDA Approach]
Mechanical Components
We provide a large number of automation mechanisms to address different
application needs. All of these mechanisms are controlled by the software and
hardware control architecture described below. This broad product line of
mechanisms allows system integrators and end users to develop automation
solutions for many industries and applications.
Robot Mechanisms
We offer two floor standing Selective Compliance Assembly Robot Arm, or
SCARA, style robot mechanisms called the AdeptOne-XL and the AdeptThree-XL, as
well as two table top robot mechanisms called the Adept Cobra 600 and 800, all
of which are designed for assembly and material handling tasks. The links and
joints of a SCARA robot are somewhat analogous to the shoulder, elbow and wrist
of a human. This configuration is well suited to a large number of assembly and
material handling tasks. Of the floor standing models, the AdeptOne-XL is the
faster model, while the Adept Three-XL offers a larger work envelope and handles
a larger payload. Each of these robots uses direct-drive motor technology.
Direct-drive technology eliminates gears and linkages from the drive train of
the mechanism, thereby significantly increasing robot speed and precision and
improving the robot's product life, reliability and accuracy. The Adept Cobra
series robots are light-duty SCARA mechanisms that can be table mounted and
offer an efficient work envelope when space is limited.
We also offer a line of linear modules, called AdeptModules, which we
purchase from NSK Ltd. These single axis devices can be coupled together by the
user to form a custom robot mechanism for applications requiring a robot with
fewer than four axes. In addition, we offer these linear modules in combination
with our own Z-Theta module to provide customers with a line of configurable
Cartesian robots.
During fiscal 2000, we introduced SmartModules, which is a new family
of precision linear modules utilizing Adept SmartAmps. Adept SmartAmps utilize
the industry standard IEEE 1394 Firewire protocol to multiplex motion control
signals, video signals from cameras, and I/O signals over a single high-speed
cable. Adept SmartModules reduce the amount of cabling required in a workcell,
and also reduce costs, installation time and the module's footprint.
SmartModules also come in single-axis standalone versions, which can operate
without any additional controller, saving cost and space for simple
applications.
We also offer a line of flat panel and semiconductor wafer handling
robots. The mechanisms are sourced from Samsung Corporation. The AdeptAtlas
series is designed for flat panel display transfer applications and consists of
two models: the Adept Atlas 720S (single arm) and 720D (dual arm) are designed
to handle large-scale substrates up to 600 by 720 mm. The AdeptVicron series is
designed for semiconductor wafer handling applications and consists of two
models: the AdeptVicron 300S (single arm) and 300D (dual arm) models handle up
to 300mm wafers.
High Precision Microstages
With the acquisition of NanoMotion in the fourth quarter of fiscal
2000, we gained the ability to design and manufacture advanced nanometer and
sub-nanometer positioning and alignment systems. Recently the NanoLine L3 series
of precision microstages was introduced for applications in fiber optic
assembly, and other high precision applications. These devices increase the
resolution of our mechanisms by a factor of 1000, from 25 microns for our
standard robots to 25 nanometers for our standard microstages. Unlike many
microstages which were developed for a relatively benign laboratory environment,
these are rugged, production-ready devices intended for integration into
continuous production factory environments.
Versions of these microstages are under development for fiber optic
component assembly, fiber alignment, laser welding, and semiconductor OEM
applications.
Vision-Based Flexible Feeder
Part feeding has historically been accomplished by designing custom
devices that could only accommodate a single part or class of parts. We recently
developed the Adept Flex Feeder 250 that can be rapidly reconfigured through
software to accommodate new products and a wide variety of parts ranging from
simple rectangular objects to complex molded or machined parts, thus preserving
the flexibility of the workcell or production line. The Adept Flex Feeder 250
integrates machine vision, software and motion control technology with a simple
mechanical device for separating parts from bulk. The Adept Flex Feeder 250
recirculates the parts and separates them, relying on vision to identify
individual parts.
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Environmental Control Products
We offer both standard and customized products for contamination
control in both mini and micro environments, Standard Mechanical Interfaces, or
SMIF, and Front Opening Unified Pods, or FOUP openers, and integration and front
end wafer handling solutions for both semiconductor OEMs and end users.
The Adept Flexible Front End Systems, including the Adept FFE 200 and
the Adept FFE 300, combine wafer sorting and SMIF load functions into one
compact tool integrated front-end system; reducing cycle times, process
complexity and cost. The Adept FFE 200/300 units combine wafer value added
operations such as wafer orientation, optical character reader, or OCR, sort and
merge into a compact front-end system, eliminating the need for wafer sorters in
the factory.
Real Time Control Products
Machine Control Software
Our V+ real-time programming language allows software developers to
create automation software systems and is the key enabling technology for our
intelligent automation approach. This automation programming environment
provides a high-level language coupled with a multitasking operating system and
built-in capability for integrating robots, machine vision, sensors, workcell
control and general communications. These capabilities enable the development of
sophisticated application software that can adaptively control mechanical
systems based upon real-time sensory input while simultaneously maintaining
communication with other factory equipment.
V+ offers the user approximately 300 instructions for programming an
intelligent automation workcell. It includes a trajectory generator and
continuous path planner, which compute the path of the robot's tool in real-time
based upon predefined data or sensory input. V+ also includes a number of
network communication facilities and supports a variety of standard
communication protocols. In addition, this software includes a multitasking,
multiprocessor, time-sliced, deterministic, real-time operating system. This
operating system allows V+ to execute dozens of tasks concurrently and permits
control to pass between tasks in a predictable manner, often several times per
millisecond. The V+ operating system also allows the installation of additional
processors into the controller and automatically reassigns tasks to optimize
overall system performance, providing a key scalability feature not found in
other controllers. The development environment for V+ is Windows 95, 98 and NT
based and allows the customer to utilize industry standard personal computers.
Servo software
The most basic level of our software architecture is the servo software
which directs individual motors to follow motion commands generated from the
higher V+ software level. This software has been designed to provide closed-loop
control for our robots as well as other vendors' robots. The servo software
layer includes algorithms for adaptive feed-forward control, direct-drive motor
control, force control, position control and a number of safety and diagnostic
features.
Guidance and Inspection Vision Products
AdeptVision is a line of machine vision products that are used for
robot guidance and inspection applications. For the guidance applications,
AdeptVision is added into the controller by inserting a printed circuit board
and enabling the vision system software. For inspection applications such as
gauging and dimensioning, the AdeptVision product is sold as an integrated
inspection vision system comprised of a controller with the vision board and
software.
AdeptVision quickly recognizes parts that are randomly positioned and
have an unknown orientation ranging up to 360 degrees, as compared with other
solutions which simply locate translated images with very limited rotation. The
ability to precisely locate random parts and guide the robot in a closed loop
fashion is critical for precision processes such as the assembly of electronic
or fiber optic components. Our machine vision software can also measure part
dimensions for inspection purposes. Machine vision can be used to acquire parts
from stationary locations or from conveyors. Cameras can be fixed in the
workcell or attached to a robot.
With the addition of HexaVision products, we now offer a shrink-wrapped
library of machine vision software tools for OEM's. These tools run directly in
a PC environment or can be adapted to run on OEM's custom vision hardware.
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Machine Controllers
Our controller products are currently based on the VME bus architecture
standard, but are migrating to a distributed control architecture which depends
on high-speed networks such as Firewire (IEEE 1394), Ethernet, and DeviceNet, to
link processors and sensors which may be distributed around a workcell. A large
array of controller configurations are possible depending on the features
selected by the customer. Our VME controllers are configured in four, five, or
ten slot chassis. All controllers include a system processor module. Additional
functionality can be incorporated by adding printed circuit boards and
additional software. For example, motion control is added by inserting a motion
control board. Printed circuit boards can be added for machine vision, graphical
user interface capability and additional communication inputs and outputs. The
controller products are sold independently for machine control and inspection
vision applications and are also sold as a component of the robot systems. The
heart of our machine controllers is the AdeptWindows Controller board, or AWC, a
single slot central processing unit board based on Motorola 68040/060
processors. All AWC boards include solid-state, mass storage, direct ethernet
connectivity, DeviceNet fieldbus connectivity and international safety
circuitry.
Our AWC controller offers plug-and-play integration of personal
computer hardware and software for users of the Windows platform. Specifically,
this new technology allows customers to do all development work, including
vision applications, on personal computers using Windows 95, 98 and NT operating
systems. This open architecture product allows customers to combine the features
of our AIM and V+ software products with other personal computer-based software
products using industry standard software tools such as Active X, Visual Basic,
and Visual C++. Finally, all of our controller products support the same Windows
NT-based graphical user interface and can execute the same application programs,
thereby allowing software development investments to be leveraged across a
number of applications.
The controller includes a number of technologically advanced
capabilities designed specifically to address the intelligent automation market,
including: special ASICs for controlling direct-drive motors, reading encoders
and controlling power up sequencing of complex high power systems; safety
circuits that meet domestic and international specifications; technology to
protect the controller from voltage spikes, electrical noise and power
brownouts; high wattage (6000 watt) switching power amplifiers; and networking
circuitry for local area network and field buses.
Process Knowledge Products
Our AIM software simplifies the integration, programming and operation
of automation workcells and lines. AIM accomplishes this goal by providing a
formal method for capturing application specific process knowledge and then
allowing users lacking advanced programming expertise to use this embedded
knowledge to accomplish a specific task.
AIM simplifies the implementation of intelligent automation work cells
by combining a point and click graphical user interface with an icon-based
programming method that does not require advanced computer programming skills.
This method combines task-level statements with a high performance, real-time
database and a structure for representing process knowledge.
The AIM task level statements allow the developer to specify at a very
high level what operations the workcell is to perform, such as "insert a
component into a socket using vision to correct for part irregularities." This
command is automatically coupled with data contained in the real-time database
that specifies the physical aspects of the workcell, such as the location of a
part. The information contained in the databases can be created or downloaded
from a computer or simulation system at any time. Finally, the AIM system
automatically invokes the routines that contain the process knowledge and
dictate how the specified operation will be performed. In this way, an AIM
workcell can be "programmed" by a person who understands as few as ten process
actions rather than hundreds of programming instructions or thousands of lines
of conventional code.
6
We sell several application specific versions of AIM, including
MotionWare, which addresses motion applications such as those requiring
sophisticated conveyor tracking, and VisionWare, which simplifies the use of
vision in both guidance and inspection applications, as well as other packages
which address dispensing, packaging, flexible part feeding, and semiconductor
wafer handling. In addition, end users and system integrators, many of whom have
developed their own AIM application-specific packages, can add process
knowledge. AIM can be accessed via the Windows 95, 98 and NT enviroments. AIM
programs are written in the V+ language.
System Design Software
Adept provides simulation tools to help system integrators and end
users both design automation systems and evaluate product designs for ease of
manufacture. These tools are developed by our SILMA division, a developer of
simulation software. SILMA's products allow machines to be modeled with 3D
graphics and then animated in response to software control programs. Mechanisms
can be defined graphically and the mathematics necessary to animate them, known
as kinematic models, are generated automatically. Dynamics of mechanisms can
also be modeled, which enables machine cycle times to be accurately predicted.
SILMA products can either create new computer aided design,or CAD, geometry for
simulations, import CAD models from standard libraries of machines and
peripheral devices, or import models directly from common CAD systems. SILMA
products are available on both PC and several workstation platforms.
SILMA's newest product, Production PILOT, consists of three modules for
assembly automation process design, simulation, and analysis, built into an
easy-to-use, yet powerful, 3-D graphical simulation environment.
PILOT Yield allows assembly sequences to be analyzed for interferences
and to be scored for ease of automation. On April 17, 2000, we announced an
agreement with Sony Corporation to embed their design for assembly/disassembly
capability, or DAC, product in PILOT Yield. DAC is an assembly/disassembly and
cost-effectiveness rating methodology or scoring system used by designers to
measure and analyze the effectiveness of their factory assembly designs. It
includes a scoring system that rates product designs for ease of assembly.
PILOT Cell supercedes an earlier SILMA product called AdeptRapid. This
module allows the detailed animation of a workcell, checks for collisions, and
predicts actual production cycle times to an accuracy better than 5%. End user
programs can be developed at a high level of abstraction in PILOT Cell using our
AIM software and later optimized at a detailed level using Adept Digital
Workcell.
PILOT Line allows multiple cells on an assembly line to be linked
together and provides discrete event simulation tools for analyzing how material
flows through the line based on the cycle times of individual workcells. This
allows production lines to be balanced to optimize throughput and eliminate
bottlenecks. We have found that balancing lines which have not been optimized
can increase throughput by 20% to 30%, increasing return on investment by this
amount.
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The CimStation Inspection product simulates the operation of Coordinate
Measurement Machines, or CMM, and generates programs that would be tedious to
program manually given the complex inspection tasks CMMs perform.
Adept Digital Workcell allows engineers to program a workcell with
actual production software without the physical robot or cell hardware. Adept
Digital Workcell increases productivity by allowing the user to anticipate cycle
times, program logic errors, location errors, collision errors and motor
saturation errors far earlier in the development process. In addition, Adept
Digital Workcell allows users to quickly generate alternative conceptual layouts
and cycletime estimates for project proposals.
Platforms
In response to end customer and integrator needs, we acquired Pensar in
the fourth quarter of fiscal 2000. We believe Pensar's experience in delivering
standard high precision automated platforms, combined with our automation
component products, we can deliver a more unified offering in selected markets.
We currently are developing manufacturing automation platforms for the
semiconductor and photonics markets. In the photonics/fiber optic assembly
market we are in the process of building a unified product, consisting of
SmartModules, MV Controller, AdeptVision VXL, Adept Nanostages, a machine base
and AIM software. We also are pursuing a similar strategy in the semiconductor
front-end market, where we are combining robots, SMIF's, contamination control,
machine vision and control software into a standard wafer handling platform.
OEMs, integrators, end users, and as well as ourselves can then quickly
configure these standard platforms to add specific manufacturing processes.
Platform products represent a further extension of our Rapid Deployment
Automation strategy. For industries where high volumes of a similar basic
machine are needed, an integrated platform eliminates the time and cost of
designing equipment frames, assembling control and mechanism products, and
developing generic control software.
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Customers and Applications
We sell our products to system integrators, end users and OEMs. End
users of our products include a broad range of manufacturing companies in the
electronics, communications, semiconductor, automotive components, appliances,
pharmaceutical, food processing and fiber optics industries. These companies use
our products to perform a wide variety of functions in assembly, material
handling and precision process applications, including mechanical assembly,
printed circuit board assembly, dispensing and inspection. No customer accounted
for more than 10% of our revenues in any of the past three years.
Sales, Distribution and Marketing
Sales and Distribution
We market our products through system integrators, our direct sales
force and OEMs.
System Integrators. We ship a substantial portion of our products
through system integrators, and we view our relationships with these
organizations as important to our success. We have established relationships
with over 300 system integrators worldwide that provide expertise and process
knowledge for a wide range of specific applications. These relationships are
generally not regional and are mutually nonexclusive. In certain international
markets, the system integrators perform marketing and support functions
directly.
Direct Sales Force. We employ a direct sales force which directs its
sales efforts to end users to communicate the capabilities of our products and
support services and obtain up-to-date information regarding market
requirements. Our sales force possesses specific expertise in automation
solutions and advises end users on alternative production line designs, special
application techniques, equipment sources and system integrator selection. Our
sales force works closely with system integrators and OEMs to integrate our
product line into their systems, provide sales leads to certain system
integrators and obtain intelligent automation system quotes from system
integrators for end users. As of June 30, 2000, our North American sales
organization included approximately 26 individuals. We have four North American
sales and customer support offices located in San Jose, California; Southbury,
Connecticut; Southfield, Michigan; and Cincinnati, Ohio. As of June 30, 2000,
our international sales organization included approximately 11 persons covering
Europe, Singapore, and South Korea. We have eight international sales and
customer support offices located in Europe and the Pacific Rim.
Some of our larger manufacturing end user customers have in-house
engineering departments that are comparable to a captive system integrator.
These captive engineering groups can establish a corporate integrator
relationship with us that offers benefits similar to those provided to our
system integrators.
OEMs. Our OEM customers typically purchase one standard product
configuration, which the OEM integrates with additional hardware and software
and sells under the OEM's label to other resellers and end users.
Marketing. Our marketing organization, which consisted of 46 persons as
of June 30, 2000, supports our system integrators, direct sales force and OEM
customers in a variety of ways. Our product management group works with end
users, system integrators, corporate integrators and our sales engineers to
continually gather input on product performance and end user needs. This
information is used to enhance existing products and to develop new products.
Our marketing programs group generates and qualifies new business through
industrial trade shows, various direct marketing programs such as direct mail
and telemarketing, public relations efforts, internet marketing and advertising
in industry periodicals. This marketing team is responsible for tracking
customers and prospects through our marketing database. Our marketing group also
publishes a document called the MV Partner catalog, which lists software and
hardware components that we have certified as compatible with our product line.
We also expend considerable effort on the development of thorough technical
documentation and user manuals for our product line, and we view well-designed
manuals as critical to simplifying the installation, programming, use and
maintenance of our products.
Backlog
Our product backlog at June 30, 2000 was approximately $20.9 million,
as compared with approximately $21.2 million at June 30, 1999.
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Our business is characterized by short-term order and shipment
schedules. Because orders constituting our current backlog are subject to
changes in delivery schedules and in certain instances may be subject to
cancellation without significant penalty to the customer, our backlog at any
date may not be indicative of demand for our products or actual net revenues for
any period in the future. Backlog should not be relied on as a measure of
anticipated activity or future revenues because the orders constituting our
backlog are subject to changes in delivery schedules and in certain instances
are subject to cancellation without significant penalty to the customer. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," including the section titled "Factors Affecting Future Operating
Results."
Services and Support
Our service and support organization, which consisted of approximately
99 full-time employees as of June 30, 2000, is designed to support the customer
from the design of the automation line through ongoing support of the installed
system. This organization included approximately 51 RDA and application
engineers/programmers based in a number of our sales offices in the U.S., Europe
and Asia. This team is experienced in applying our product line to solve a wide
array of application issues and operates toll-free telephone support lines to
provide advice on issues such as software programming structure, layout problems
and system installation. End users and system integrators can also hire these
experts on a consulting basis to help resolve new or difficult application
issues.
We also maintain a team of instructors, consisting of eight instructors
as of June 30, 2000, who develop training courses on subjects ranging from basic
system maintenance to advanced programming. These courses are geared both for
manufacturing engineers who design and implement automation lines and for
operators who operate and maintain equipment once it is in production, and are
taught in Adept offices and customer sites throughout the world.
Our field service organization, which consisted of 53 persons as of
June 30, 2000, is based in eight service centers located in San Jose,
California; Cincinnati, Ohio; Massy, France; Dortmund, Germany; Arezzo, Italy;
Kobe, Japan; Seoul, South Korea and Singapore. In addition, we have service
resources located inside some key customers' facilities. Our field-based service
engineers maintain and repair our products at the end user's facilities.
Personnel based at these service centers also provide advice to customers on
spare parts, product upgrades, and preventative maintenance.
Research and Development
Our research and development efforts are focused on the design of
intelligent automation products, which address the challenges of designing,
implementing, installing, operating and modifying automated production lines. We
intend to focus our research and development efforts on the development of an
integrated product line which further implements our RDA approach and which
reduces cost, enhances performance and improves ease of use.
We have devoted, and intend to devote in the future, a significant
portion of our resources to research and development programs. As of June 30,
2000, we had 114 persons, including 11 temporary or contract personnel, engaged
in research, development and engineering. Our research, development and
engineering expenses were approximately $14.6 million for 2000, $11.6 million
for 1999 and $11.8 million for 1998 and represented 14.7% of net revenues for
2000, 13.3% for 1999 and 11.2% for 1998.
Manufacturing
Our manufacturing activities include the assembly, testing and
configuration of our products. We believe that by performing these operations,
we can better ensure the quality and performance of our products. We outsource
low value-added manufacturing operations, including standard and build-to-print
fabricated parts such as machinery, sheet metal fabrication and assembled
printed circuit boards. We also outsource some robot mechanisms. The purchased
robot mechanisms are tested to meet defined quality standards and then
configured into complete products which are tested again before shipment to the
customer. This strategy enables us to leverage product development,
manufacturing and management resources while retaining greater control over
product delivery, final product configuration and the timing of new product
introductions, all of which are critical to meeting customer expectations.
Our manufacturing organization has expertise in mechanical, electrical,
and software assembly and testing. Because outstanding quality and reliability
over the life of our products are key to customer satisfaction and
10
customers' repeat purchases of automation products, we believe our quality plans
and organization are a key part of our business strategy. Our manufacturing
engineering organization develops detailed instructions for all manufacturing
and test operations. These instructions are established in writing, implemented
through training of the manufacturing work force and monitored to assure
compliance. In addition, our manufacturing organization works closely with
vendors to develop instructions and to remedy quality problems if they arise.
In February 2000, we were awarded ISO 9002 certification for our
corporate San Jose location from TUV Rheinland of North America, Inc. The ISO
9000 series standards are internationally recognized quality management
standards developed by the International Organization for Standardization (ISO).
ISO 9002 registration focuses on quality system requirements for a company's
production, delivery and servicing of products and services around the world.
Competition
The market for intelligent automation products is highly competitive.
We compete with a number of robot companies, motion control companies, machine
vision companies and simulation software companies. 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. 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.
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.
Our principal competition in the semiconductor atmospheric wafer
handling and contamination control market comes from Asyst Technologies, Inc.
The majority of Asyst's revenue comes from adaptive 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 Israel-based company which sells mostly 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.
ITEM 2. PROPERTIES
11
Our headquarters and principal research and development and
manufacturing facilities are located in a 92,000 square foot building we lease
in San Jose, California. The lease expires in December 2003 and provides for
annual lease payments of approximately $1.2 million in calendar year 2000 and
$2.0 million in calendar year 2001. We lease an additional 31,000 square feet in
an adjacent building in San Jose for our SILMA division. The lease expires in
December 2003 and provides for annual lease payments of approximately $320,000
in calendar year 2000 and $224,000 in calendar year 2001. We lease a 12,000
square foot facility in Santa Barbara, California for our NanoMotion operations,
which commenced on June 1, 2000. The lease expires in June 2004 and provides for
annual lease payments of approximately $121,000 in calendar year 2000 and
$211,000 in calendar year 2001. We lease a 17,000 square foot facility in
Tucson, Arizona, which commenced in April 28, 2000. The lease expires in April
2005 and provides for annual lease payments of approximately $93,000 in calendar
year 2000. We lease a 5,000 square foot facility in City of Industry, California
at which our software development group is based. The lease expires in September
2001 and provides for annual lease payments of approximately $115,000 in
calendar year 2000 and $89,000 in calendar year 2001. We also lease a facility
in Livermore, California consisting of 13,000 square feet that houses certain
research and development activities and exercised our option to lease an
additional 13,000 square feet adjacent to the current facility in January 2000.
This lease expires in October 2003 and provides for annual lease payments of
approximately $290,000 in calendar year 2000 and $306,000 in calendar year 2001.
We also lease facilities for sales and customer training in Southbury,
Connecticut; Southfield, Michigan; Cincinnati, Ohio; Massy, France; Dortmund and
Munich, Germany; Arezzo, Italy; Kobe, Japan (through our joint venture);
Kenilworth, the United Kingdom; Seoul, South Korea; and Singapore.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are party to various legal proceedings or claims,
either asserted or unasserted, which arise in the ordinary course of our
business. Management has reviewed pending legal matters and believes that the
resolution of such matters will not have a material adverse effect on our
business, financial condition, or results of operations.
Some end users of our products have notified us that they have received
a claim of patent infringement from the Jerome H. Lemelson Foundation, alleging
that their use of our machine vision products infringes certain patents issued
to Mr. Lemelson. In addition, we have been notified that other end users of our
AdeptVision VME line and the predecessor line of Multibus machine vision
products have received letters from Mr. Lemelson which refer to Mr. Lemelson's
patent portfolio and offer the end user a license to the particular patents.
Certain end users have notified us that they may seek indemnification from us
for any damages or expenses resulting from this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Adept's executive officers are:
Name Age Position
---- --- --------
Brian R. Carlisle....... 49 Chairman of the Board of Directors and Chief
Executive Officer
Bruce E. Shimano........ 51 Vice President, Research and Development, Secretary
and Director
Marcy R. Alstott........ 43 Vice President, Operations
Richard J. Casler, Jr... 48 Vice President, Engineering
Michael W. Overby....... 43 Vice President, Finance and Chief Financial Officer
Brian R. Carlisle has served as Adept's Chief Executive Officer and
Chairman of the Board of Directors since he co-founded Adept in June 1983. From
June 1980 to June 1983, he served as General Manager of the West Coast Division
of Unimation, Inc., where he was responsible for new product strategy and
development for Unimation's
12
electric robots, control systems, sensing systems and other robotics
applications. Mr. Carlisle received B.S. and M.S. degrees in Mechanical
Engineering from Stanford University.
Bruce E. Shimano has served as our Vice President, Research and
Development, Secretary and a director since he co-founded Adept in June 1983.
Prior to that time, he was Director of Software Development at Unimation. Mr.
Shimano received B.S., M.S. and Ph.D. degrees in Mechanical Engineering from
Stanford University.
Marcy R. Alstott joined Adept in March 1998 as Vice President of
Operations. From August 1995 to March 1998, Ms. Alstott served as Program
Director responsible for switching product development at 3Com Corporation, a
networking company. Ms. Alstott has a B.S. in Mechanical Engineering from Purdue
University, an M.S. in Mechanical Engineering from Stanford University and an
M.B.A. from the University of Santa Clara.
Richard J. Casler, Jr. has served as our Vice President of Engineering
since April 1993 and from October 1992 to March 1993 served as our Director of
Robot Interface Development. In October 1986, Mr. Casler co-founded Genesis
Automation, Inc., a developer of robots and automation for the service industry,
and served as its president until October 1992. Mr. Casler received B.S. and
M.S. degrees in Mechanical Engineering from the Massachusetts Institute of
Technology.
Michael W. Overby has served as Adept's Vice President of Finance and
Chief Financial Officer since March 2000. From December 1999 to March 2000, Mr.
Overby held the position of Corporate Controller at Adept. Prior to joining
Adept, Mr. Overby was the financial executive for DG Systems, a leading provider
of digital distribution services to the broadcast advertising industry. From
1996 to 1998 he was Corporate Controller and Director of Information Systems at
Inprise Corporation formerly Borland, a public software company. Mr. Overby
holds a B.S. in business administration from California Polytechnic State
University and is a Certified Public Accountant.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market for Registrant's Common Stock and Related Shareholder Matters
Our common stock is traded on the Nasdaq National Market under the
symbol "ADTK". The following table reflects the range of high and low sale prices
as reported on the Nasdaq National Market for the quarters identified below:
Three Months Ended
Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30,
2000 2000 1999 1999 1999 1999 1998 1998
---- ---- ---- ---- ---- ---- ---- ----
High $ 47.50 $ 16.69 $ 7.97 $ 11.25 $ 10.50 $ 8.50 $ 8.50 $ 8.00
Low $ 8.75 $ 6.00 $ 5.44 $ 6.13 $ 6.00 $ 6.00 $ 4.25 $ 4.75
At June 30, 2000, there were approximately 316 shareholders of record.
To date, we have neither declared nor paid cash dividends on shares of
our common stock. We currently intend to retain all future earnings for our
business and do not anticipate paying cash dividends on our common stock in the
foreseeable future.
Recent Sales of Unregistered Securities
On April 28, 2000, we completed the acquisition of Pensar Tucson, Inc.,
an Arizona corporation, in a stock for stock transaction. In connection with the
acquisition, we issued 100,000 shares of our common stock to the shareholders of
Pensar valued at $11.75 per share which was the fair market value of our common
stock at April 28, 2000. In addition, we paid $3,000,000 in cash, resulting in a
total purchase price of $4.2 million. The shares were issued pursuant to
exemptions by reason of Section 4 (2) of the Securities Act of 1933. These sales
were made in private transactions without general solicitation or advertising.
On May 31, 2000, we completed the acquisition of NanoMotion
Incorporated, a California corporation, in a stock for stock transaction. In
connection with the acquisition, we issued 600,000 shares of our common stock to
the shareholders of NanoMotion valued at $21 per share which was the fair market
value of our common stock at May 31, 2000. The shares were issued pursuant to
exemptions by reason of Section 4 (2) of, and Regulation D of the Securities Act
of 1933. These sales were made in private transactions without general
solicitation or advertising.
14
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in this Form 10-K. The historical results are not necessarily
indicative of future results. On July 16, 1999, we completed the acquisition of
BYE/Oasis Engineering, Inc. in a pooling of interests transaction. The selected
financial data prior to June 30, 2000 has been restated to include the
historical results of BYE/Oasis Engineering, Inc. Fiscal 2000 results also
include the financial results of Pensar and NanoMotion subsequent to their
acquisitions on April 28, 2000 and May 31, 2000, respectively.
(in thousands, except per share data) Years Ended June 30,
-----------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------
Results of Operations:
Net revenues $ 99,212 $ 87,374 $105,440 $ 88,511 $ 85,098
Cost of revenues 56,173 47,902 60,841 52,017 48,938
-------- -------- -------- -------- --------
Gross margin 43,039 39,472 44,599 36,494 36,160
-------- -------- -------- -------- --------
Operating expenses:
Research, development and engineering 14,629 11,591 11,844 9,738 8,495
Selling, general and administrative 29,503 24,676 26,890 22,758 20,821
Merger-related charges (1) 988 -- -- -- --
Restructuring and other non-recurring charges -- -- 2,756 -- --
Amortization of goodwill and other intangibles 685 -- -- -- --
-------- -------- -------- -------- --------
Total operating expenses 45,805 36,267 41,490 32,496 29,316
-------- -------- -------- -------- --------
Operating income (loss) (2,766) 3,205 3,109 3,998 6,844
Interest income, net 746 926 971 693 490
-------- -------- -------- -------- --------
Income (loss) before provision for (benefit from) income (2,020) 4,131 4,080 4,691 7,344
taxes
Provision for (benefit from) income taxes (593) 1,620 1,819 1,534 1,304
-------- -------- -------- -------- --------
Net income (loss) $ (1,427) $ 2,511 $ 2,261 $ 3,157 $ 6,030
======== ======== ======== ======== ========
Net income (loss) per share:(2)
Basic $ (0.15) $ 0.27 $ 0.25 $ 0.36 $ 0.79
======== ======== ======== ======== ========
Diluted $ (0.15) $ 0.26 $ 0.23 $ 0.34 $ 0.72
======== ======== ======== ======== ========
Number of shares used in computing per share amounts:(2)
Basic 9,774 9,302 9,154 8,739 7,659
======== ======== ======== ======== ========
Diluted 9,774 9,484 9,689 9,159 8,404
======== ======== ======== ======== ========
(in thousands) As of June 30,
-----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Balance Sheet Data:
Cash, cash equivalents and short-term investments $ 20,437 $ 27,016 $ 20,939 $ 18,642 $ 11,141
======== ======== ======== ======== ========
Working capital 46,593 47,614 45,928 39,703 35,477
======== ======== ======== ======== ========
Total assets 93,523 71,677 70,310 61,480 57,599
======== ======== ======== ======== ========
Long-term liabilities 1,222 -- 78 109 79
======== ======== ======== ======== ========
Total shareholders' equity 70,728 55,186 53,399 48,114 43,225
======== ======== ======== ======== ========
<FN>
- ---------------------
(1) In July 1999, we incurred charges of $988,000 relating to the acquisition of BYE/OASIS.
(2) See Notes 1 and 8 of Notes to Consolidated Financial Statements for a discussion of the computation of net
(loss) income per share.
</FN>
15
Quarterly Results of Operations (Unaudited)
We operate and report financial results ending on the last Saturday of a 13
week period for each of our first three fiscal quarters and at June 30 for our
fiscal year end. For convenience, we have indicated in this annual report on
Form 10K our fiscal quarters end on March 31, December 31 and September 30.
Three Months Ended, (1)
--------------------------------------------------------------------------------
Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30,
2000 2000 1999 1999 1999 1999 1998 1998
-------- -------- -------- -------- -------- -------- -------- --------
(in thousands, except per share data)
Net revenues .................................... $ 28,058 $ 26,253 $ 24,267 $ 20,634 $ 24,283 $ 21,590 $ 20,508 $ 20,993
Cost of revenues ................................ 15,389 14,327 13,710 12,747 13,273 11,603 11,083 11,943
-------- -------- -------- -------- -------- -------- -------- --------
Gross margin .................................... 12,669 11,926 10,557 7,887 11,010 9,987 9,425 9,050
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Research, development and engineering ........ 4,346 3,708 3,116 3,459 3,284 2,937 2,786 2,584
Selling, general and administrative .......... 7,405 7,450 7,391 7,257 6,815 6,120 5,680 6,061
Merger-related charges (2) ................... -- -- -- 988 -- -- -- --
Amortization of goodwill and other
intangibles ................................ 685 -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses ........................ 12,436 11,158 10,507 11,704 10,099 9,057 8,466 8,645
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss) ......................... 233 768 50 (3,817) 911 930 959 405
Interest income, net ............................ 115 80 242 309 268 230 224 204
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before provision for income taxes . 348 848 292 (3,508) 1,179 1,160 1,183 609
Provision for (benefit from) income taxes ....... 98 254 117 (1,062) 506 476 437 201
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) ............................... $ 250 $ 594 $ 175 $ (2,446) $ 673 $ 684 $ 746 $ 408
======== ======== ======== ======== ======== ======== ======== ========
Net income (loss) per share:
Basic ........................................ $ .02 $ .06 $ .02 $ (.26) $ .07 $ .07 $ .08 $ 04
======== ======== ======== ======== ======== ======== ======== ========
Diluted ...................................... $ .02 $ .06 $ .02 $ (.26) $ .07 $ .07 $ .08 $ .04
======== ======== ======== ======== ======== ======== ======== ========
Number of shares used in computing
per share amounts:
Basic ........................................ 10,677 9,788 9,583 9,491 9,352 9,230 9,266 9,360
======== ======== ======== ======== ======== ======== ======== ========
Diluted ...................................... 11,395 10,460 9,752 9,491 9,594 9,438 9,421 9,484
======== ======== ======== ======== ======== ======== ======== ========
As a percentage of net revenues:
Net revenues .................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues ................................ 54.8 54.6 56.5 61.8 54.7 53.7 54.0 56.9
-------- -------- -------- -------- -------- -------- -------- --------
Gross margin .................................... 45.2 45.4 43.5 38.2 45.3 46.3 46.0 43.1
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Research, development and engineering ........ 15.5 14.1 12.8 16.7 13.5 13.6 13.6 12.3
Selling, general and administrative .......... 26.4 28.4 30.5 35.2 28.1 28.4 27.7 28.9
Merger-related charges (2) ................... -- -- -- 4.8 -- -- -- --
Amortization of goodwill and other intangibles 2.5 -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses ........................ 44.4 42.5 43.3 56.7 41.6 42.0 41.3 41.2
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss) ......................... .8 2.9 .2 (18.5) 3.8 4.3 4.7 1.9
Interest income, net ............................ .4 .3 1.0 1.5 1.1 1.1 1.1 1.0
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before provision for income taxes . 1.2 3.2 1.2 (17.0) 4.9 5.4 5.8 2.9
Provision for (benefit from) income taxes ....... .3 .9 .5 (5.1) 2.1 2.2 2.1 1.0
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) ............................... .9% 2.3% .7% (11.9)% 2.8% 3.2% 3.7% 1.9%
======== ======== ======== ======== ======== ======== ======== ========
<FN>
(1) Amounts for the fiscal quarters ended September 30, 1998, December 31,
1998, March 31, 1999 and June 30, 1999 have been restated to reflect the
acquisition of BYE/OASIS which was accounted for as a pooling of interests.
(2) In July 1999, we incurred charges of $988,000 relating to the acquisition
of BYE/OASIS.
</FN>
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We provide intelligent production automation solutions to our customers
in many industries including the semiconductor, communications, photonics, food,
automotive, life sciences and electronics industries. We utilize our
comprehensive portfolio of high precision mechanical components and application
development software to deliver automation solutions that meet our customer's
increasingly complex manufacturing requirements. We offer our customers a
comprehensive and tailored automation solution that we call Rapid Deployment
Automation, or RDA, that reduces the time and cost to design, engineer and
launch products into high-volume production. Our products currently include
simulation software, machine vision systems, machine controllers for robot
mechanisms and other flexible automation equipment, 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. Most recently, 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. Specifically,
software license and service revenues, although still relatively insignificant,
have increased as a percentage of total revenues in recent periods, and
international sales comprise approximately between 30%-40% of revenues on any
given quarter. We expect that this trend will continue.
We market and sell our products worldwide through more than 300 system
integrators, our direct sales force and OEMs. System integrators and OEMs add
application-specific hardware and software to our products, enabling us to
provide solutions to a diversified industry base, including the electronics,
communications, semiconductor, appliances, pharmaceutical, food processing and
automotive components industries. Due to a worldwide slowdown in disk drive
markets and to a lesser extent the communications and semiconductor markets, our
net revenues have declined in four of the last six fiscal quarters. For example,
our net revenues decreased as a result of reduced product bookings in each of
the three previous fiscal quarters ending March 1999. In addition, during the
fiscal quarter ending September fiscal 2000 our revenue declined for similar
reasons. As a whole, our revenues were adversely affected by a decline in orders
from customers primarily in the disk-drive industry during fiscal 2000 and
fiscal 1999 and to a lesser extent the communications markets in fiscal 1999.
Although our revenues increased in the last quarter of fisca1 2000, this
increase may not be indicative of increased future revenues or a sustainable
recovery in our product markets.
This discussion summarizes the significant factors affecting our
consolidated operating results, financial condition, liquidity and cash flow
during the three-year period ended June 30, 2000, referred to as fiscal 2000,
1999, and 1998. Unless otherwise indicated, references to any year in this
Management's Discussion and Analysis of Financial Condition and Results of
Operation refer to our fiscal year ended June 30. This discussion should be read
with the consolidated financial statements and financial statement footnotes
included in this Annual Report on Form 10-K.
During the three-year period ended June 30, 2000, Adept acquired four
companies, as described below. Adept's acquisitions of NanoMotion and Pensar
completed during 2000 have been accounted for as purchases, with the excess of
the purchase price over the estimated fair value of the net assets acquired
recorded as goodwill. The Company's mergers with BYE/OASIS in 1999 and
RoboElektronik in 1998 have been accounted for as a pooling of interests.
NanoMotion
On May 31, 2000, we completed the acquisition of NanoMotion
Incorporated, a California corporation. NanoMotion is a manufacturer of
ultra-high precision positioning and alignment stages and devices. In connection
with the acquisition, we issued 600,000 shares of our common stock to the
shareholders of NanoMotion valued at $21 per share, which was the fair market
value of our common stock at May 31, 2000.
17
Pensar
On April 28, 2000, we completed the acquisition of Pensar Tucson, Inc.,
an Arizona corporation. Pensar is a precision automation integrator of standard
work cells. In connection with the acquisition, we issued 100,000 shares of our
common stock to the shareholders of Pensar valued at $11.75 per share, which was
the fair market value of our common stock at April 28, 2000. In addition, we
paid $3,000,000 in cash, resulting in a total purchase price of $4.2 million.
BYE/OASIS
On July 16, 1999, we completed the acquisition of BYE/OASIS Engineering
Inc., a Texas corporation. BYE/OASIS is a manufacturer of mini-environment
systems and SMIF for the microelectronics industry. In connection with the
acquisition, we issued 720,008 shares of our common stock to the shareholders of
BYE/OASIS. In addition, we assumed outstanding options to acquire BYE/OASIS
shares, which were converted into options to acquire 185,361 shares of our
common stock. The acquisition constituted a tax-free reorganization under
Section 368(a) of the Internal Revenue Code of 1986. The acquisition was
accounted for using the pooling of interests method, and, accordingly, all prior
period consolidated financial statements have been restated to include the
combined results of operations, financial position and cash flows of BYE/OASIS.
Prior to the merger, BYE/OASIS's fiscal year ended on September 30. In recording
the business combination, BYE/OASIS's prior period financial statements have
been restated to conform to our fiscal year. Prior to the merger, BYE/OASIS's
fiscal year ended on September 30. BYE/OASIS's prior period financial statements
have been restated to conform to Adept's year-end.
RoboElektronik
On February 13, 1998, we completed the acquisition of RoboElektronik
GmbH ("RoboElektronik") through the issuance of 24,562 shares of the Company's
common stock, which were exchanged for all of the outstanding capital stock of
RoboElektronik. RoboElektronik GmbH was renamed Adept Technology, GmbH on June
26, 1998. The results of operations of RoboElektronik have been consolidated
with Adept's financial statements since the acquisition.
Results of Operations
Comparison of 2000 to 1999
Net Revenues. Our net revenues increased by 13.5% to $99.2 million in
2000 from $87.4 million in 1999. The increase in net revenues for 2000 over 1999
was primarily due to strong demand in the semiconductor and electronic
industries. Although we experienced some improvement in our targeted markets in
fiscal 2000, we cannot predict if this improvement will continue in the market
we currently serve. International sales, including sales to Canada and export
sales, were $44.9 million or 45.2% of net revenues in 2000 as compared with
$41.2 million, or 47.2% of net revenues, in 1999. International revenue as a
percentage of total net revenues decreased due to the addition of our
semiconductor business whose revenue was derived primarily from domestic sources
in 2000. Domestic semiconductor revenue was greater than our international
semiconductor revenue causing the total international revenue as a percent of
total revenue to decline.
Gross Margin. Gross margin as a percentage of net revenue was 43.4% in
2000 compared to 45.2% in 1999. The decrease in gross margin percentage was
primarily attributable to the increase in operational and manufacturing overhead
expenses related to supplier changes during the first quarter of fiscal 2000 and
general increases in component costs. We expect to continue to experience
fluctuations in our gross margin percentage due to changes in availability of
components, changes in product configuration and changes in sales mix.
Research, Development and Engineering Expenses. Research, development
and engineering expenses increased by 26.2% to $14.6 million, or 14.7% of net
revenues in 2000, from $11.6 million, or 13.3% of net revenues in 1999. The
absolute dollar increase in expenses in 2000 was primarily due to increases in
payroll and related expenses of $2.0 million, increases in project and operating
expenses which were $1.1 million, partially offset by decreased spending in
outside services. Research, development and engineering expenses in 2000 were
partially offset by approximately $309,000 of third party development funding as
compared with $681,000 of third party development funding in 1999. We expect
18
to continue to receive third party development funding from the federal
government as well as other third parties during 2001 but anticipate a decrease
in this funding as compared to funding received in 2000. There can be no
assurance that any funds budgeted by the government or other third parties for
our development projects will not be curtailed or eliminated at any time.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 20.7% to $29.5 million or 29.7% of net
revenues in 2000 from $24.7 million or 28.2% of net revenues in 1999. The
increased level of spending was primarily attributable to increases in corporate
administration expenses of $1.6 million related to the opening of new sales
offices, increases in payroll and related expenses of $4.0 million due to
increased headcount from acquisition activity, and increases in travel expenses
of $446,000 associated with increased sales activity. The increases were
partially offset by decreased spending in outside services of $162,000, and
reduced spending in project supplies.
Merger Related Charges. Merger related charges were $988,000 in 2000
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.
Interest Income, Net. Interest income, net in 2000 was $746,000
compared to $926,000 in 1999. The decrease was primarily as a result of a lower
interest yield rate on investments in 2000 compared to 1999.
Provision for (benefit from) Income Taxes. Our effective tax rate for
2000 was 29% as compared to 39% for 1999. Our tax rate for 2000 differs from the
federal statutory income tax rate of 34% primarily due to the utilization of
foreign tax and other federal and state credits in 2000. In 1999, our tax rate
differed from the federal statutory rate of 34% primarily due to future foreign
losses not utilized for U.S. federal and state tax purposes and foreign taxes,
partially offset by the benefits of federal and state 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. During 2000, we began
a foreign currency hedging program to hedge our exposure to foreign currency
exchange risk on local international operational expenses and revenues. Realized
and unrealized gains and losses on forward currency contracts that are effective
as hedges of assets and liabilities, are recognized in income. We recognized
losses of $50,000 for the year ended June 30, 2000.
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.
Comparison of 1999 to 1998
Net Revenues. Our net revenues decreased by 17.1% to $87.4 million in
1999 from $105.4 million in 1998. The decrease in net revenues for 1999 over
1998 was primarily due to decreased product sales, including robot and motion
controller sales, decreased service and upgrade revenues, offset in part by
increased software revenue, primarily from our SILMA products. Revenue growth
slowed substantially starting in the second half of 1998 as a result of lower
sales to the customers in the computer disk-drive, communications, semiconductor
and electronics industries. Additionally, while our direct sales into the
Asia-Pacific region have been relatively insignificant to date, the widely
reported economic instability in that region has affected certain domestic and
OEM customers who have experienced a decline in their Asia-Pacific revenues. The
revenue decline continued into fiscal 1999 and was seen throughout the markets
and industries we serve. International sales, including sales to Canada and
export sales, were $41.2 million, or 47.2% of net revenues, in 1999, as compared
with $39.8 million, or 37.8% of net revenues, in 1998. International sales as a
percentage of total net revenues increased due to the greater relative decline
in our domestic sales in fiscal 1999 as compared to the prior year. Because
international revenues constitute a significant portion of our net revenues,
adverse economic conditions or instability in foreign markets where we operate
directly can be expected to have an adverse effect on our revenues and results
of operations. In addition, fluctuations in economic conditions internationally
can also affect our revenues and operating results indirectly to the extent
significant customers (or industry segments on which we are significantly
dependent) are affected by such international fluctuations.
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Gross Margin. Gross margin as a percentage of net revenue was 45.2% in
1999 compared to 42.3% in 1998. The increase in gross margin percentage was
primarily attributable to reduced sales of lower margin hardware products, and
to a lesser extent, to relatively higher margin software revenue and cost
reductions on our products. We expect that we will continue to experience
fluctuations in gross margin percentage due to changes in our sales and product
mix.
Research, Development and Engineering Expenses. Research, development
and engineering expenses decreased by 2.1% to $11.6 million or 13.3% of net
revenues in 1999 from $11.8 million or 11.2% of net revenues, in 1998. The
absolute dollar decrease in expenses in 1999 was primarily due to decreased
project material spending, and travel expenses. Research, development and
engineering expenses in 1999 were partially offset by $681,000 of third party
development funding as compared with $629,000 in 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 8.2% to $24.7 million, or 28.2% of net
revenues, in 1999 from $26.9 million, or 25.5% of net revenues, in 1998. The
decreased level of spending was primarily attributable to the closure of our
Japanese office, lower compensation related expenses, including commissions of
$256,000, and to a lesser extent, to lower travel expenses of $108,000, reduced
foreign currency losses on balance sheet remeasurement of $230,000, partially
offset by an increase in outside consulting services of $410,000. The increase
in selling, general and administrative expenses as a percentage of total net
revenues was due to the relative decline in the level of net revenues.
Restructuring and Other Nonrecurring Charges. We did not incur any
restructuring or other nonrecurring charges in 1999. During 1998, we recorded
restructuring charges of approximately $1.0 million and other nonrecurring
charges of approximately $1.7 million. The restructuring charges of $1.0 million
included a write-off of certain assets and excess facilities equal to $651,000
in connection with the closing of our branch in Japan . We now operate in Japan
through a joint venture in which we have a minority interest. The remaining
$362,000 relates to severance for the termination of certain employees.
The nonrecurring charges of approximately $1.7 million included
$675,000 for non-cash compensation expenses related to our employee stock
purchase plan (see Note 1 of Notes to Consolidated Financial Statements) and
$383,000 related to the write off of certain information system hardware and
software which had become obsolete. Additionally, $413,000 was related to the
write off of the remaining balance of capitalized purchased software associated
with the acquisition of SILMA. Due to technological changes in 1998 related to
the SILMA operating platform, we determined the net realizable value of the
purchased software was impaired.
We reported the charge of $675,000 in the second quarter of fiscal 1998
for compensation expense related to the Emerging Issues Task Force ("EITF")
Issue No. 97-12, "Accounting for Increased Share Authorizations in an IRS
Section 423 Employee Stock Purchase Plan under APB Opinion No. 25, Accounting
for Stock Issued to Employees" which was approved by the EITF in September 1997.
This nonrecurring, non-cash charge represented the difference between 85% of the
fair market value of common stock on the date of the beginning of the offering
period and the fair market value of common stock on the date the shareholders
approved the increase in shares authorized for issuance, multiplied by the
number of shares in the 1995 Employee Stock Purchase Plan, or 1995 ESPP, that
had been subscribed for purchase by employees, but not authorized by the
shareholders, prior to our 1998 Annual Meeting of Shareholders. Shareholder
approval was granted to make available for issuance an additional 500,000 shares
under the 1995 ESPP on October 31, 1997.
Interest Income, Net. Interest income, net in 1999 was $926,000
compared to $971,000 in 1998. The decrease was due to a higher concentration of
tax advantaged investments yielding lower gross interest income.
Provision for Income Taxes. Our effective tax rate for 1999 was 39% as
compared to 45% in 1998. Our tax rates for 1999 and 1998 differed from the
federal statutory rate of 34%, due to foreign losses not utilized for U.S.
federal and state tax purposes and foreign taxes, partially offset by the
benefits of federal and state tax credits.
Impact of Inflation
The effect of inflation on our business and financial position has not
been significant to date.
20
Liquidity and Capital Resources
As of June 30, 2000, we had working capital of approximately $46.6
million, including $13.5 million in cash and cash equivalents and $7.0 million
in short-term investments.
During the year ended June 30, 2000, cash and short term investments
decreased by approximately $6.6 million. These funds were primarily used to
acquire Pensar and NanoMotion (see Note 2 of the Notes to Consolidated Financial
Statements). Additionally, we made investments in inventories for safety stock
related to components with long lead times. Generally other cash requirements
during the year ended June 30, 2000 were met primarily through cash provided by
investing activities and financing activities partially offset by cash used in
operating activities. Specifically, cash and cash equivalents increased $1.7
million from June 30, 1999 primarily as a result of $2.7 million provided by
investing activities and $2.6 million provided by financing activities offset by
$3.6 million used in operations.
Net cash used by operating activities was primarily attributable to the
net loss adjusted by depreciation and amortization and the increase in inventory
and accounts receivable. Cash provided by financing activities consisted of
proceeds from employee stock options and stock purchase plans. Cash provided by
investing activities was primarily attributable to the net sales of short term
investments offset by business acquisitions and the purchase of property and
equipment.
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 12
months.
We currently anticipate capital expenditures of approximately $15.0
million in fiscal 2001.
New Accounting Pronouncements
Staff Accounting Bulletin No. 101 - Revenue Recognition
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" or SAB 101. SAB 101 provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements. In recent actions, the SEC has further delayed the required
implementation date which, for us, will be the fourth quarter of fiscal 2001,
retroactive to the beginning of the fiscal year. The SEC has indicated that
additional implementation guidance will be forthcoming in the form of
"Frequently Asked Questions", however, such guidance has not been issued to
date. We cannot fully assess the impact of SAB 101 until the additional guidance
from the SEC is issued. Accordingly we are still in the process of assessing the
impact of SAB 101 on our consolidated results of operations, financial position,
and cash flows based upon the most current information.
Statement of Financial Accounting Standards No. 133 - Accounting for Derivative
Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133, as amended by SFAS No. 137 and
138, establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. We will be required to implement SFAS No. 133 as of the beginning of
our fiscal year 2001. Our foreign currency exchange rate hedging activities have
been insignificant to date and we do not believe that SFAS No. 133 will have a
material impact on our financial position, results of operations or cash flows.
Reclassification
Certain amounts presented in the financial statements of prior years
have been reclassified to conform to the current presentation for 2000.
Acquisitions
21
To expand our capabilities in the manufacturing and marketing of
precision robotics, simulation and motion control products for production
environments, automated material handling and assembly, and to strengthen our
core business, we completed the following acquisitions during the three year
period ended June 30, 2000:
May 31, 2000 Acquisition of NanoMotion Incorporated, a developer
and manufacturer of advanced nanometer and
sub-nanometer positioning and alignment systems. We
believe this acquisition will facilitate expansion of
our leadership role in precision robotics by adding
NanoMotion's rugged, production-ready micro and nano
positioning mechanisms to Adept's product offerings.
April 28, 2000 Acquisition of Pensar Tucson Inc., a
design/engineering automation company specializing in
advanced material handling and assembly processes. We
believe this acquisition will expand our high
precision and fiber optic assembly offerings.
July 16, 1999 Acquisition of BYE/OASIS Engineering Incorporated, a
manufacturer of mini-environment/microenvironment
systems and SMIF interfaces for the microelectronics
industry. We believe this acquisition will broaden
our factory automation offerings in the wafer and
microelectronic manufacturing industry experience and
marketing and service infrastructure.
February 13, 1998 Acquisition of RoboElectronik, an automation
consulting business based in Munich, Germany. We
believe this acquisition will enhance Adept's ability
to provide systems integrators and OEMs throughout
Europe with customized consulting services.
FACTORS AFFECTING FUTURE OPERATING RESULTS
Risks Related to Our Business
You should not rely on our past results to predict our future performance
because our operating results fluctuate due to factors which are difficult to
forecast.
Our past revenue growth and other operating results may not be accurate
indicators of our future performance. Our quarterly operating results have been
subject to significant fluctuations in the past, and we expect this to continue
in the future. The factors that may contribute to these fluctuations include:
o fluctuations in capital spending, cyclicality and other
economic conditions domestically and internationally in one or
more industries in which we sell our products;
o new product introductions by us or by our competitors;
o changes in product mix and pricing by us, our suppliers or our
competitors;
o availability of components and raw materials for our products;
o our failure to manufacture a sufficient volume of products in
a timely and cost-effective manner;
o our failure to anticipate the changing product requirements of
our customers;
o a change in market acceptance of our products or a shift in
demand for our products;
o changes in the mix of sales by distribution channels;
o exchange rate fluctuations; and
o extraordinary events such as litigation or acquisitions.
Our gross margins may vary greatly depending on the mix of sales of
lower margin hardware products, particularly mechanical subsystems purchased
from third party vendors, and higher margin software products.
Our operating results may also be affected by general economic and
other conditions affecting the timing of customer orders and capital spending.
For example, our operations during the third and fourth quarters of fiscal 1998,
the first three quarters of fiscal 1999 and the first quarter of fiscal 2000
were adversely affected by a continuing
22
downturn in hardware purchases by customers in the electronics industry,
particularly disk-drive manufacturers and to a lesser extent communication
manufacturers. We cannot estimate when or if a sustained revival in these key
hardware markets will occur.
We generally recognize product revenue upon shipment or, for certain
international sales, upon receipt by the customers. As a result, our net
revenues and results of operations for a fiscal period will be affected by the
timing of orders received and orders shipped during the period. A delay in
shipments near the end of a fiscal period, for example, due to product
development delays or delays in obtaining materials may cause sales to fall
below expectations and harm our operating results for the period.
In addition, our continued investments in research and development,
capital equipment and ongoing customer service and support capabilities result
in significant fixed costs that we cannot reduce rapidly. As a result, if our
sales for a particular fiscal period are below expected levels, our operating
results for the period could be materially adversely affected.
In the event that in some future fiscal quarter our net revenues or
operating results fall below the expectations of public market analysts and
investors, the price of our common stock may fall. We may not be able to
increase or sustain our profitability on a quarterly or annual basis in the
future.
Sales of our products depend on the capital spending habits of our customers,
which tend to be cyclical.
Intelligent automation systems using our products can range in price
from $75,000 to several million dollars. Accordingly, our success is directly
dependent upon the capital expenditure budgets of our customers. Our future
operations may be subject to substantial fluctuations as a consequence of
domestic and foreign economic conditions, industry patterns and other factors
affecting capital spending. Although the majority of our international customers
are not in the Asia-Pacific region, we believe that any instability in the
Asia-Pacific economies could also have a material adverse effect on the results
of our operations as a result of a reduction in sales by our customers to those
markets. Domestic or international recessions or a downturn in one or more of
our major markets, such as the electronics, communications, semiconductor,
appliances, pharmaceutical, food processing or automotive components industries,
and resulting cutbacks in capital spending would have a direct, negative impact
on our business.
We sell some of our products to the semiconductor industry, which is
subject to sudden, extreme, cyclical variations in product supply and demand.
The timing, length and severity of these cycles are difficult to predict. In
some cases, these cycles have lasted more than a year. Semiconductor
manufacturers may contribute to these cycles by misinterpreting the conditions
in the industry and over- or under-investing in semiconductor manufacturing
capacity and equipment. We may not be able to respond effectively to these
industry cycles.
Downturns in the semiconductor industry often occur in connection with,
or anticipation of, maturing product cycles for both semiconductor companies and
their customers and declines in general economic conditions. Industry downturns
have been characterized by reduced demand for semiconductor devices and
equipment, production over-capacity and accelerated decline in average selling
prices. During a period of declining demand, we must be able to quickly and
effectively reduce expenses and motivate and retain key employees. Our ability
to reduce expenses in response to any downturn in the semiconductor industry is
limited by our need for continued investment in engineering and research and
development and extensive ongoing customer service and support requirements. The
long lead time for production and delivery of some of our products creates a
risk that we may incur expenditures or purchase inventories for products which
we cannot sell. A downturn in the semiconductor industry could therefore harm
our revenues and gross margin if demand drops or average selling prices decline.
Industry upturns have been characterized by abrupt increases in demand
for semiconductor devices and equipment and production under-capacity. During a
period of increasing demand and rapid growth, we must be able to quickly
increase manufacturing capacity to meet customer demand and hire and assimilate
a sufficient number of qualified personnel. Our inability to ramp-up in times of
increased demand could harm our reputation and cause some of our existing or
potential customers to place orders with our competitors.
Many of the key components and materials of our products come from single source
suppliers and their procurement requires lengthy lead times.
23
We obtain many key components and materials and some significant
mechanical subsystems from sole or single source suppliers with whom we have no
guaranteed supply arrangements. In addition, some of our sole or single sourced
components and mechanical subsystems incorporated into our products have long
procurement lead times. Our reliance on sole or single source suppliers involves
certain significant risks including:
o loss of control over the manufacturing process;
o potential absence of adequate supplier capacity;
o potential inability to obtain an adequate supply of required
components, materials or mechanical subsystems; and
o reduced control over manufacturing yields, costs, timely
delivery, reliability and quality of components, materials and
mechanical subsystems.
We depend on Sanmina Corporation for the supply of our circuit boards,
NSK P.P.D., Inc. for the supply of our linear modules, Yaskawa for the supply of
our 6-axis robots, Samsung for the supply of semiconductor robots, Hirata
Corporation for the supply of our Adept Cobra 600 and Adept Cobra 800 robot
mechanisms and ITI/Matrox for the supply of our vision boards. If any one of
these significant sole or single source supplier were unable or unwilling to
manufacture the components, materials or mechanical subsystems we need in the
volumes we require, we would have to identify and qualify acceptable
replacements. The process of qualifying suppliers may be lengthy, and additional
sources may not be available to us on a timely basis, on acceptable terms or at
all. If supplies of these items were not available from our existing suppliers
and a relationship with an alternative vendor could not be developed in a timely
manner, shipments of our products could be interrupted and reengineering of such
products could be required. In the past, we have experienced quality control or
specification problems with certain key components provided by sole source
suppliers, and have had to design around the particular flawed item. We have
also experienced delays in filling customer orders due to the failure of certain
suppliers to meet our volume and schedule requirements. Some of our suppliers
have also ceased manufacturing components that we require for our products, and
we have been required to purchase sufficient supplies for the estimated life of
its product line. Problems of this nature with our suppliers may occur in the
future.
Disruption or termination of our supply sources could require us to
seek alternative sources of supply, and could delay our product shipments and
damage relationships with current and prospective customers, any of which could
have a material adverse effect on our business. If we incorrectly forecast
product mix for a particular period and we are unable to obtain sufficient
supplies of any components or mechanical subsystems on a timely basis due to
long procurement lead times, our business, financial condition and results of
operations could be substantially impaired. Moreover, if demand for a product
for which we have purchased a substantial amount of components fails to meet our
expectations, we would be required to write off the excess inventory. A
prolonged inability to obtain adequate timely deliveries of key components could
have a material adverse effect on our business, financial condition and results
of operations.
Because our product sales are seasonal, we may not be able to maintain a steady
revenue stream.
Our product sales are seasonal. We have historically had higher
bookings for our products during the June quarter of each fiscal year and lower
bookings during the September quarter of each fiscal year, due primarily to the
slowdown in sales to European markets and summer vacations. In the event
bookings for our products in the June fiscal quarter are lower than anticipated
and our backlog at the end of the June fiscal quarter is insufficient to
compensate for lower bookings in the September fiscal quarter, our results of
operations for the September fiscal quarter and future quarters will suffer. For
example, with the exception of the quarter ending March 1999, our net revenues
decreased as a result of reduced product bookings in each of the two previous
fiscal quarters ending December 1999. In addition, during the quarter ending
September 1999 our revenue declined for similar reasons. As a whole, our
revenues were adversely affected by a decline in orders from customers primarily
in the disk-drive industry during fiscal 2000 and fiscal 1999 and to a lesser
extent the communications markets in fiscal 1999.
A significant percentage of our product shipments occur in the last
month of each fiscal quarter. Historically, this has been due in part, at times,
to our inability to forecast the level of demand for our products or of the
product mix for a particular fiscal quarter. To address this problem we
periodically stock inventory levels of completed robots, machine controllers and
certain strategic components. If shipments of our products fail to meet
forecasted levels, the increased inventory levels and increased operating
expenses in anticipation of sales that do not materialize could adversely affect
our business.
24
Orders constituting our backlog are subject to changes in delivery schedules and
customer cancellations resulting in lower than expected revenues
Backlog should not be relied on as a measure of anticipated activity or
future revenues, because the orders constituting our backlog are subject to
changes in delivery schedules and in certain instances are subject to
cancellation without significant penalty to the customer. We have in the past
experienced changes in delivery schedules and customer cancellations that
resulted in our revenues in a given quarter being materially less than would
have been anticipated based on backlog at the beginning of the quarter. Similar
delivery schedule changes and order cancellations may adversely affect our
operating results in the future.
Because we do not have long-term contracts with our customers, they may
cease purchasing our products at any time.
We generally do not have long-term contracts with our customers. As a
result, our agreements with our customers do not provide any assurance of future
sales. Accordingly our customers are not required to make minimum purchases and
may cease purchasing our products at any time without penalty. Because our
customers are free to purchase products from our competitors, we are exposed to
competitive price pressure on each order. Any reductions, cancellations or
deferrals in customer orders could have a negative impact on our financial
condition and results of operations.
We have begun development of intelligent automation solutions for the photonics
industry, and our entry into this industry will require us to develop
significant new capabilities and may not be successful.
We have begun development of intelligent automation solutions targeted at the
photonics industry. We expect to devote significant financial, engineering and
management resources to develop and market these solutions. Our success in the
photonics industry depends upon our ability to, among other things:
o accurately determine the features and functionality that our photonics
customers require or prefer;
o successfully design and implement intelligent automation solutions that
include these features and functionality;
o enter into agreements with system integrators, manufacturers and
distributors; and
o achieve market acceptance for our photonics solutions.
Our photonics solutions may not achieve broad market acceptance for a variety of
reasons including:
o photonics companies may continue their current production methods and may
not adopt our intelligent automation solutions;
o photonics companies may determine that the costs and resources required to
switch to our intelligent automation solutions are unacceptable to them;
o system integrators, manufacturers, and OEMs may not enter into agreements
with us; and
o competition from traditional, well-established photonics manufacturing
methods.
We have limited experience in developing and marketing products for the
photonics industry. If we do not successfully develop and achieve market
acceptance of products for the photonics industry, our ability to increase our
revenue may be limited and our business and our results of operations will
suffer.
We charge a fixed price for a certain products which may make us vulnerable to
cost overruns.
Our operating results fluctuate when our gross margins vary. Our gross
margins vary for a number of reasons, including:
o the mix of products we sell;
o the average selling prices of products we sell;
o the costs to manufacture, market, service and support our new
products and enhancements;
o the costs to customize our systems; and
o our efforts to enter new markets.
We charge a fixed price for certain of our products, including the
products that we added as a result of our acquisition of Pensar. If the costs we
incur in completing a customer order for these products exceed our expectations,
we generally cannot pass those costs on to our customer.
We have significant fixed costs which are not easily reduced during a downturn.
We continue to invest in research and development, capital equipment
and extensive ongoing customer service and support capability worldwide. These
investments create significant fixed costs that we may be unable to reduce
rapidly if we do not meet our sales goals. Moreover, if we fail to obtain a
significant volume of customer orders for an extended period of time, we may
have difficulty planning our future production and inventory levels, which could
also cause fluctuations in our operating results.
If our targeted photonics market develops more slowly than we expect, our
revenue will not grow as fast as anticipated, if at all.
Segments of the photonics market that we target as an element of our
growth strategy are either emerging or rapidly changing and the potential size
of these market segments and the timing of their development are difficult to
predict. If our targeted segments of this market develop more slowly than we
expect, our ability to increase our revenue may be limited. We depend, in part,
upon the broad acceptance by photonic manufacturers of our material handling and
component assembly solutions, as well as our simulation software and robot
vision and motion control technology.
We rely on systems integrators and OEMs to sell our products.
25
We believe that our ability to sell products to system integrators and
OEMs will continue to be important to our success. Our relationships with system
integrators and OEMs are generally not exclusive, and some of our system
integrators and OEMs may expend a significant amount of effort or give higher
priority to selling products of our competitors. In the future, any of our
system integrators or our OEMs may discontinue their relationships with us or
form additional competing arrangements with our competitors. The loss of, or a
significant reduction in revenues from, system integrators or OEMs to which we
sell a significant amount of our product could negatively impact our business,
financial condition or results of operations.
As we enter new geographic and applications markets, we must locate
system integrators and OEMs to assist us in building sales in those markets. We
may not be successful in obtaining effective new system integrators or OEMs or
in maintaining sales relationships with them. In the event a number of our
system integrators and/or OEMs experience financial problems, terminate their
relationships with us or substantially reduce the amount of our products they
sell, or in the event we fail to build an effective systems integrator or OEM
channel in any new markets, our business, financial condition and results of
operations could be adversely affected.
In addition, a substantial portion of our sales are to system
integrators that specialize in designing and building production lines for
manufacturers. Many of these companies are small operations with limited
financial resources, and we have from time to time experienced difficulty in
collecting payments from certain of these companies. As a result, we perform
ongoing credit evaluations of our customers. To the extent we are unable to
mitigate this risk of collections from system integrators, our results of
operations may be harmed.
Our products generally have long sales cycles and implementation periods, which
increase our costs in obtaining orders and reduces the predictability of our
earnings.
Our products are technologically complex. Prospective customers
generally must commit significant resources to test and evaluate our products
and to install and integrate them into larger systems. Orders expected in one
quarter may shift to another quarter or be cancelled as a result of the
customers' budgetary constraints, internal acceptance reviews, and other factors
affecting the timing of customers' purchase decisions. In addition, customers
often require a significant number of product presentations and demonstrations,
in some instances evaluating equipment on site, before reaching a sufficient
level of confidence in the product's performance and compatibility with the
customer's requirements to place an order. As a result, our sales process is
often subject to delays associated with lengthy approval processes that
typically accompany the design and testing of new products. The sales cycles of
our products often last for many months or even years. In addition, the time
required for our customers to incorporate our products into their systems can
vary significantly with the needs of our customers and generally exceeds several
months, which further complicates our planning processes and reduces the
predictability of our operating results. Longer sales cycles require us to
invest significant resources in attempting to make sales, which may not be
realized and delay the generation of revenue.
Our international operations may subject us to divergent regulatory requirements
and other risks that may harm our operating results.
International sales were $44.9 million for the fiscal year ended June
30, 2000, $41.2 million for the fiscal year ended June 30, 1999 and $39.8
million for the fiscal year ended June 30, 1998. This represented 45.2%, 47.2%,
and 37.8% of net revenues for the respective periods. We also purchase some
components and mechanical subsystems from foreign suppliers. As a result, our
operating results are subject to the risks inherent in international sales and
purchases, which include the following:
o unexpected changes in regulatory requirements;
o political and economic changes and disruptions;
o transportation costs and delays;
o foreign currency fluctuations;
o export/import controls;
o tariff regulations and other trade barriers;
o higher freight rates;
o difficulties in staffing and managing foreign sales operations;
o greater difficulty in accounts receivable collection in foreign
jurisdictions; and
o potentially adverse tax consequences.
26
Foreign exchange fluctuations may render our products less competitive
relative to locally manufactured product offerings, or could result in foreign
exchange losses. In calendar 2000, the value of major European currencies has
dropped against the U.S. dollar. To date, we have not reflected that change in
currency value in our selling prices. In order to maintain a competitive price
for our products in Europe, we may have to provide discounts or otherwise
effectively reduce our prices, resulting in a lower margin on products sold in
Europe. Continued change in the values of European currencies or changes in the
values of other foreign currencies could have a negative impact on our business,
financial condition and results of operations.
In addition, duty, tariff and freight costs can materially increase the
cost of crucial components for our products. We anticipate that past turmoil in
Asian financial markets and the deterioration of the underlying economic
conditions in certain Asian countries may continue to have an impact on our
sales to customers located in or whose projects are based in those countries due
to the impact of restrictions on government spending imposed by the
International Monetary Fund on those countries receiving the International
Monetary Fund's assistance. In addition, customers in those countries may face
reduced access to working capital to fund component purchases, such as our
products, due to higher interest rates, reduced bank lending due to contractions
in the money supply or the deterioration in the customer's or our bank's
financial condition or the inability to access local equity financing.
Maintaining operations in different countries requires us to expend
significant resources to keep our operations coordinated and subjects us to
differing laws and regulatory regimes that may affect our service offerings and
revenue.
We may incur currency exchange related losses in connection with our reliance on
our single or sole source foreign suppliers.
We make yen-denominated purchases of certain components and mechanical
subsystems from certain of our sole or single source Japanese suppliers.
Depending on the amount of yen-denominated purchases, we may engage in hedging
transactions in the future. However, notwithstanding these precautions, we
remain subject to the transaction exposures that arise from foreign exchange
movements between the dates foreign currency export sales or purchase
transactions are recorded and the dates cash is received or payments are made in
foreign currencies. Our current or any future currency exchange strategy may not
be successful in avoiding exchange related losses. Any exchange related losses
or exposure may negatively effect our business, financial condition or results
of operations.
If our hardware products do not comply with standards set forth by the European
Union, we will not be able to sell them in Europe.
Our hardware products are required to comply with European Union Low
Voltage, Electro-Magnetic Compatibility, and Machinery Safety Directives. The
European Union mandates that our products carry the CE mark denoting that these
products are manufactured in strict accordance to design guidelines in support
of these directives. These guidelines are subject to change and to varying
interpretation. New guidelines impacting machinery design go into effect each
year. To date, we have retained TUV Rheinland to help certify that our
controller-based products, including some of our robots, meet applicable
European Union directives and guidelines. Although our existing certified
products meet the requirements of the applicable European Union directives, we
cannot assure that future products can be designed, within market window
constraints, to meet the future requirements. If any of our robot products or
any other major hardware products do not meet the requirements of the European
Union directives, we would be unable to legally sell these products in Europe.
Thus, our business, financial condition and results of operations could be
harmed.
Our hardware and software products may contain defects that could increase our
expenses exposure to liabilities and harm our reputation and future business
prospects.
Our hardware and software products are complex and, despite extensive
testing, our new or existing products or enhancements may contain defects,
errors or performance problems when first introduced, when new versions or
enhancements are released or even after such products or enhancements have been
used in the marketplace for a period of time. We may discover product defects
only after a product has been installed and used by customers. We may discover
defects, errors or performance problems in future shipments of our products.
These problems could result in expensive and time consuming design modifications
or large warranty charges, expose us to liability for damages, damage customer
relationships and result
27
in loss of market share, any of which could harm our reputation and future
business prospects. In addition, increased development and warranty costs could
reduce our operating profits and could result in losses.
The existence of any defects, errors or failures in our products could
also lead to product liability claims or lawsuits against us or against our
customers. A successful product liability claim could result in substantial cost
and divert management's attention and resources, which could have a negative
impact on our business, financial condition and results of operations. Although
we are not aware of any product liability claims to date, the sale and support
of our products entail the risk of these claims.
Our internal systems may experience difficulties responding to 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
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. However, we cannot assure that all issues related to the euro conversion
have been identified and that any additional issues would not materially hurt
our results of operations or financial condition. For example, the conversion to
the euro may have competitive implications on our pricing and marketing
strategies and we may be at risk to the extent its principal European suppliers
and customers are unable to deal effectively with the impact of the euro
conversion. We have not yet completed our evaluation of the impact of the euro
conversion on our currency and hedging activities.
The success of our business depends on our key employees.
We are highly dependent upon the continuing contributions of our key
management, sales, and product development personnel. In particular, we would be
adversely affected if we were to lose the services of Brian Carlisle, Chief
Executive Officer and Chairman of the Board of Directors, who has provided
significant leadership to us since our inception, or Bruce Shimano, Vice
President, Research and Development and a Director, who has guided our research
and development programs since inception. In addition, the loss of the services
of any of our senior managerial, technical or sales personnel could impair our
business, financial condition, and results of operations. We do not have
employment contracts with any of our executive officers and do not maintain key
man life insurance on the lives of any of our key personnel.
Our future success depends on our continuing ability to attract, retain and
motivate highly-qualified managerial, technical and sales personnel.
Competition for qualified technical personnel in the intelligent
automation industry is intense. Our inability to recruit and train adequate
numbers of qualified personnel on a timely basis would adversely affect our
ability to design, manufacture, market and support our products.
In addition, our success will depend on our ability to hire additional
experienced engineers, senior management and sales and marketing personnel. The
robust economy and opportunities available in other high technology companies
has made and could continue to make recruiting and retaining employees,
especially design engineers, more difficult for us. Competition for these
personnel is intense, particularly in geographic areas recognized as high
technology centers such as the Silicon Valley area, where our principal offices
are located, and other locations where we maintain design sites. To attract and
retain individuals with the requisite expertise, we may be required to grant
large option or other stock-based incentive awards, which may be dilutive to
shareholders. We may also be required to pay significant base salaries and cash
bonuses, which could harm our operating results. If we do not succeed in hiring
and retaining candidates with appropriate qualifications, we will not be able to
grow our business and our operation results will be harmed.
If we become subject to unfair hiring claims, we could be prevented from hiring
needed personnel, incur liability for damages and incur substantial costs in
defending ourselves.
28
Companies in our industry whose employees accept positions with
competitors frequently claim that these competitors have engaged in unfair
hiring practices or that the employment of these persons would involve the
disclosure or use of trade secrets. These claims could prevent us from hiring
personnel or cause us to incur liability for damages. We could also incur
substantial costs in defending ourselves or our employees against these claims,
regardless of their merits. Defending ourselves from these claims could divert
the attention of our management away from our operations.
If we are unable to identify and make acquisitions, our ability to expand our
operations and increase our revenue may suffer.
In the latter half of fiscal 2000, a significant portion of our growth
has been attributable to acquisitions of other businesses and technologies.
Although we have no specific commitments or understandings with respect to any
acquisitions currently, we expect that acquisitions of complementary companies,
products and technologies in the future will play an important role in our
ability to expand our operations, hire additional personnel and increase our
revenue. If we are unable to identify suitable targets for acquisition or
complete acquisitions on acceptable terms, our ability to expand our service
offerings and increase our revenue may be impaired. Even if we are able to
identify and acquire acquisition candidates, we may be unable to realize the
benefits anticipated as a result of these acquisitions.
Any acquisitions we make could disrupt our business, increase our expenses and
adversely affect our financial condition or operations.
During fiscal 2000, we acquired Pensar and NanoMotion. In July 2000, we
acquired HexaVision. These acquisitions introduced us to industries and
technologies in which we have limited previous experience. In the future we may
make material acquisitions of, or large investments in, other businesses that
offer products, services, and technologies that management believes will further
our strategic objectives. We cannot be certain that we would successfully
integrate any businesses, technologies or personnel that we might acquire, and
any acquisitions might divert our management's attention away from our core
business. Any future acquisitions or investments we might make would present
risks commonly associated with these types of transactions, including:
o difficulty in combining the product offerings, operations, or
work force of an acquired business;
o potential loss of key personnel of an acquired business;
o adverse effects on existing relationships with suppliers and
customers;
o disruptions of our on-going businesses;
o difficulties in realizing our potential financial and strategic
position through the successful integration of the acquired
business;
o difficulty in maintaining uniform standards, controls,
procedures, and policies;
o potential negative impact on results of operation due to
amortization of goodwill, other intangible assets acquired or
assumption of anticipated liabilities;
o risks associated with entering markets in which we have limited
previous experience; and
o the diversion of management attention.
The risks described above, either individually or in the aggregate,
could significantly harm our business, financial condition and results of
operations. We expect that future acquisitions, if any, could provide for
consideration to be paid in cash, shares of our common stock, or a combination
of cash and common stock. In addition, we may issue additional equity in
connection with future acquisitions, which could result in dilution of our
shareholders' equity interest. Fluctuations in our stock price may make
acquisitions more expensive or prevent us from being able to complete on terms
that are acceptable to us.
Our failure to protect our intellectual property and proprietary technology may
significantly impair our competitive advantage.
Our success and ability to compete depend in large part upon protecting
our proprietary technology. We rely on a combination of patent, copyright and
trade secret protection and nondisclosure agreements to protect our proprietary
rights. The steps we have taken may not be sufficient to prevent the
misappropriation of our intellectual property, particularly in foreign countries
where the laws may not protect our proprietary rights as fully as in the United
States. The patent and copyright law and trade secret protection may not be
adequate to deter third party infringement or
29
misappropriation of our copyrights, trademarks and similar proprietary rights.
In addition, patents issued to Adept may be challenged, invalidated or
circumvented. Our rights granted under those patents may not provide competitive
advantages to us, and the claims under our patent applications may not be
allowed. We may be subject to or may initiate interference proceedings in the
United States Patent and Trademark Office, which can demand significant
financial and management resources. The process of seeking patent protection can
be time consuming and expensive and patents may not be issued from currently
pending or future applications. Moreover, our existing patents or any new
patents that may be issued may not be sufficient in scope or strength to provide
meaningful protection or any commercial advantage to us.
We may in the future initiate claims or litigation against third
parties for infringement of our proprietary rights in order to determine the
scope and validity of our proprietary rights or the proprietary rights of our
competitors. These claims could result in costly litigation and the diversion of
our technical and management personnel.
We may face costly intellectual property infringement claims.
We have from time to time received communications from third parties
asserting that we are infringing certain patents and other intellectual property
rights of others or seeking indemnification against such alleged infringement.
For example, some end users of our products have notified us that they have
received a claim of patent infringement from the Jerome H. Lemelson Foundation,
alleging that their use of our machine vision products infringes certain patents
issued to Mr. Lemelson. In addition, we have been notified that other end users
of our AdeptVision VME line and the predecessor line of Multibus machine vision
products have received letters from the Lemelson Foundation which refer to Mr.
Lemelson's patent portfolio and offer the end user a license to the particular
patents. As claims arise, we evaluate their merits. Any claims of infringement
brought of third parties could result in protracted and costly litigation, that
damages for infringement, and the necessity of obtaining a license relating to
one or more of our products or current or future technologies, which may not be
available on commercially reasonable terms or at all. Litigation, which could
result in substantial cost to us and diversion of our resources, may be
necessary to enforce our patents or other intellectual property rights or to
defend us against claimed infringement of the rights of others. Any intellectual
property litigation and the failure to obtain necessary licenses or other rights
could have a material adverse effect on our business, financial condition and
results of operations. Some of our end users have notified us that they may seek
indemnification from us for damages or expenses resulting from any claims make
by the Jerome H. Lemelson Foundation. We cannot predict the outcome of this or
any similar litigation which may arise in the future. Litigation of this kind
may have a material adverse effect on our business, financial condition or
results of operations.
New accounting guidance could result in delayed recognition of our revenues.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" or SAB 101. SAB 101 provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements. In recent actions, the SEC has further delayed the required
implementation date which, for us, will be the fourth quarter of fiscal 2001,
retroactive to the beginning of the fiscal year. The SEC has indicated that
additional implementation guidance will be forthcoming in the form of
"Frequently Asked Questions", however, such guidance has not been issued to
date. We cannot fully assess the impact of SAB 101 until the additional guidance
from the SEC is issued. Accordingly we are still in the process of assessing the
impact of SAB 101 on our consolidated results of operations, financial position,
and cash flows based upon the most current information. In certain situations,
application of the new accounting could delay the recognition of revenue that
might otherwise have been recognized in earlier periods. As a result, our
reported revenue may fluctuate more widely among fiscal periods in the future,
and reported revenue for a particular fiscal period may not meet expectations.
Risks Related to Our Industry
We face intense competition in the market for intelligent automation products.
The market for intelligent automation products is highly competitive.
We believe that the principal competitive factors affecting the market for our
products are:
o product functionality and reliability;
o customer service;
30
o price;
o delivery; and
o product features such as flexibility, programmability and ease of
use.
We compete with a number of robot companies, motion control companies,
machine vision companies and simulation software companies. Many of our
competitors have substantially greater financial, technical and marketing
resources than us. In addition, we may in the future face competition from new
entrants in one or more of our markets.
Many of our competitors in the robot market are integrated
manufacturers of products that produce robotics equipment internally for their
own use and may also compete with our products for sales to other customers.
Some of these large manufacturing companies have greater flexibility in pricing
because they generate substantial unit volumes of robots for internal demand and
may have access through their parent companies to large amounts of capital. Any
of our competitors may seek to expand their presence in other markets in which
we compete.
Our current or potential competitors may develop products comparable or
superior in terms of price and performance features to those developed by us or
adapt more quickly than we can to new or emerging technologies and changes in
customer requirements. We may be required to make substantial additional
investments in connection with our research, development, engineering, marketing
and customer service efforts in order to meet any competitive threat, so that we
will be able to compete successfully in the future. We expect that in the event
the intelligent automation market expands, competition in the industry will
intensify, as additional competitors enter our markets and current competitors
expand their product lines. Increased competitive pressure could result in a
loss of sales or market share, or cause us to lower prices for our products, any
of which could harm our business.
We may not be able to keep up with the rapid pace of technological change and
new product development that characterize the intelligent automation industry.
The intelligent automation industry is characterized by rapid
technological change and new product introductions and enhancements. Our ability
to remain competitive depends greatly upon the technological quality of our
products and processes compared to those of our competitors and our ability both
to continue to develop new and enhanced products and to introduce those products
at competitive prices and on a timely and cost-effective basis. We may not be
successful in selecting, developing and manufacturing new products or in
enhancing our existing products on a timely basis or at all. Our new or enhanced
products may not achieve market acceptance. Our failure to successfully select,
develop and manufacture new products, or to timely enhance existing technologies
and meet customers' technical specifications for any new products or
enhancements on a timely basis, or to successfully market new products, could
harm our business. If we cannot successfully develop and manufacture new
products or meet specifications, our products could lose market share, our
revenues and profits could decline, or we could experience operating losses. New
technology or product introductions by our competitors could also cause a
decline in sales or loss of market acceptance for our existing products or force
us to significantly reduce the prices of our existing products.
From time to time we have experienced delays in the introduction of,
and certain technical and manufacturing difficulties with, some of our products,
and we may experience technical and manufacturing difficulties and delays in
future introductions of new products and enhancements. Our failure to develop,
manufacture and sell new products in quantities sufficient to offset a decline
in revenues from existing products or to successfully manage product and related
inventory transitions could harm our business.
Our success in developing, introducing, selling and supporting new and
enhanced products depends upon a variety of factors, including timely and
efficient completion of hardware and software design and development,
implementation of manufacturing processes and effective sales, marketing and
customer service. Because of the complexity of our products, significant delays
may occur between a product's initial introduction and commencement of volume
production.
The development and commercialization of new products involve many
difficulties, including:
o the identification of new product opportunities;
o the retention and hiring of appropriate research and development
personnel;
31
o the determination of the product's technical specifications;
o the successful completion of the development process;
o the successful marketing of the product and the risk of having
customers embrace new technological advances; and
o additional customer service costs associated with supporting new
product introductions or required for field upgrades.
For example, we are currently in the process of releasing our new micro
and nano positioning mechanisms, NanoMotion process modules, Smart Modules,
Standard Platforms and Semiconductor front-ends. These products include
significant new networking, hardware and software technology. The development of
these products may not be completed in a timely manner, and these products may
not achieve acceptance in the market. The development of these products has
required, and will require, that we expend significant financial and management
resources. If we are unable to continue to successfully develop these or other
new products in response to customer requirements or technological changes, our
business may be harmed.
If we fail to adequately invest in research and development, we may be unable to
compete effectively.
We have limited resources to allocate to research and development and
must allocate our resources among a wide variety of projects. Because of intense
competition in our industry, the cost of failing to invest in strategic products
is high. If we fail to adequately invest in research and development, we may be
unable to compete effectively in the intelligent automation markets in which we
operate.
If we do not comply with environmental regulations, our business may be harmed.
We are subject to a variety of environmental regulations relating to
the use, storage, handling, and disposal of certain hazardous substances used in
the manufacturing and assembly of our products. We believe that we are currently
in compliance with all material environmental regulations in connection with our
manufacturing operations, and that we have obtained all necessary environmental
permits to conduct our business. However, our failure to comply with present or
future regulations could subject us to a variety of consequences that could harm
our business, including:
o the imposition of substantial fines;
o suspension of production; and
o alteration of manufacturing processes or cessation of operations.
Compliance with environmental regulations could require us to acquire
expensive remediation equipment or to incur substantial expenses. Our failure to
control the use, disposal, removal, storage, or to adequately restrict the
discharge of, or assist in the cleanup of, hazardous or toxic substances, could
subject us to significant liabilities, including joint and several liability
under certain statutes. The imposition of liabilities of this kind could harm
our financial condition.
Failure to obtain export licenses could harm our business.
We must comply with U.S. Department of Commerce regulations in shipping
its software products and other technologies outside the U.S. Any significant
future difficulty in complying could harm our business, financial condition and
results of operations.
Risks Related to our Stock
Our stock price has fluctuated and may continue to fluctuate widely.
The market price of our common stock has fluctuated substantially in
the past. Between June 30, 1999 and June 30, 2000, the sales price of our common
shares, as reported on the Nasdaq National Market, has ranged from a low of
$5.44 to a high of $47.50. The market price of our common stock will continue to
be subject to significant fluctuations in the future in response to a variety of
factors, including:
o future announcements concerning our business or that of our
competitors or customers;
32
o the introduction of new products or changes in product pricing
policies by us or our competitors;
o litigation regarding proprietary rights or other matters;
o change in analysts' earnings estimates;
o developments in the financial markets;
o quarterly fluctuations in operating results; or
o general conditions in the intelligent automation industry.
Furthermore, stock prices for many companies, and high technology
companies in particular, fluctuate widely for reasons that may be unrelated to
their operating results. Those fluctuations and general economic, political and
market conditions, such as recessions or international currency fluctuations,
may adversely affect the market price of our common stock.
33
ITEM 7A. 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
ensures the safety and preservation of our invested funds by limiting default
risk, market risk and reinvestment risk. The table below presents principal cash
flow amounts and related weighted-average interest rates by year of maturity for
our investment portfolio.
Fair
(in thousands) 2000 2001 2002 Total Value
---- ---- ---- ----- -----
Cash equivalents
Fixed rate ..................... $ 13,487 -- -- $ 13,487 $13,487
Average rate ................... 3.90% -- -- 3.90%
Auction rate securities
Fixed rate ..................... $ 3,500 -- -- $ 3,500 $ 3,500
Average rate ................... 4.49% -- -- 4.49%
Auction rate preferred
Variable rate .................. $ 3,450 -- -- $ 3,450 $ 3,450
Average rate ................... 4.64% -- -- 4.64%
---------- ------ ------ -------- -------
Total Investment Securities . $ 20,437 -- -- $ 20,437 $20,437
---------- ------ ------ -------- -------
Average rate ................... 4.13% -- -- 4.13%
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 maintains a prudent amount of
diversification.
We conduct business on a global basis. As such, we are exposed to
adverse or beneficial movements in foreign currency exchange rates. We may enter
into foreign currency forward contracts to minimize the impact of exchange rate
fluctuations on certain foreign currency committments and balance sheet
positions. The realized gains and losses on these contracts are deferred and
offset against realized and unrealized gains and losses when the transaction
occurs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements and Financial Statement Schedules as
of June 30, 2000 and 1999 and for each of the three years in the period ended
June 30, 2000 are included in Items 14(a)(1) and (2) included in this Annual
Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item concerning our directors is
incorporated by reference from the section captioned "Election of Directors"
contained in our Proxy Statement related to the Annual Meeting of Shareholders
to be held on November 10, 2000 to be filed by us with the Securities and
Exchange Commission within 120 days of the end of our fiscal year pursuant to
General Instruction G(3) of Form 10-K, referred to as the Proxy Statement. The
information required by this item concerning executive officers is set forth in
Part I of this Report. The information required by this item concerning
compliance with Section 16(a) of the Exchange Act is incorporated by reference
from the section captioned "Section 16(a) Beneficial Ownership Reporting
Compliance" contained in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the section captioned "Executive Compensation and Other Matters" contained in
the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the sections captioned "Compensation Committee Interlocks and Insider
Participation" and "Certain Transactions" contained in the Proxy Statement.
35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
The financial statements (including the Notes thereto
listed in the Index to Consolidated Financial Statements (set
forth in Item 8 of Part II of this Form 10-K) are filed as
part of this Annual Report on Form 10-K.
(a)(2) Financial Statement Schedules
The following financial statement schedule is
included herein:
Schedule II - Valuation and Qualifying Accounts
Additional schedules are not required under the
related schedule instructions or are inapplicable,
and therefore have been omitted.
(a)(3) Exhibits
3.1 Amended and Restated Articles of Incorporation of
the Registrant (incorporated by reference to
Exhibit 3.1 to the Registrant's Registration
Statement on Form S- 1 (No. 33-98816) (the "1995
Form S-1")).
3.2 Bylaws of the Registrant, as amended to date .
10.1 ***** 1983 Stock Incentive Program, and form of
agreements thereto (incorporated by reference to
Exhibit 10.1 to the 1995 Form S-1).
10.2 ***** 1993 Stock Plan as amended, and form of agreement
thereto (incorporated by reference to Exhibit
10.2 to the Registrant's Form 10-K for the fiscal
year ended June 30, 1997 (the "1997 Form 10-K")).
10.3 ***** 1998 Employee Stock Purchase Plan as amended, and
form of agreements thereto (incorporated by
reference to Exhibit 10.3 to the Registrant's
Form 10-K for the fiscal year ended June 30, 1999
(the "1999 Form 10-K")).
10.4 ***** 1995 Director Option Plan as amended, and form of
agreement thereto (incorporated by reference to
Exhibit 10.4 to the 1997 Form 10-K).
10.5 Form of Indemnification Agreement between the
Registrant and its officers and directors
(incorporated by reference to Exhibit 10.5 to the
1995 Form S-1).
10.6.1 Lease Agreement between the Registrant and
Technology Associates I dated July 18, 1986, as
amended (incorporated by reference to Exhibit
10.6.1 to the 1995 Form S-1).
10.6.2 Office Building Lease between Registrant and
Puente Hills Business Center II dated May 20,
1993, as amended (incorporated by reference to
Exhibit 10.6.2 to the 1995 Form S-1).
10.6.3 Standard Office Lease - Gross between SILMA
Incorporated and South Bay/Copley Joint Venture
dated November 11, 1992 (incorporated by
reference to Exhibit 10.6.3 to the 1995 Form
S-1).
10.6.4 Fifth Amendment to Lease between Registrant and
Metropolitan Life Insurance Company dated as of
December 5, 1996 (incorporated by reference to
Exhibit 10.6.4 to the 1997 Form 10-K).
10.7 ***** Loan Payoff Plan dated August 3, 1993 between
Registrant and Charles Duncheon (incorporated by
reference to Exhibit 10.7 to the 1995 Form S-1).
10.7.1 ***** Promissory Note between Registrant and Charles
Duncheon dated August 20, 1998 (incorporated by
reference to Exhibit 10.7.1 to the 1999 Form
10-K).
10.7.2 ***** Promissory Note between Registrant and Richard
Casler dated April 16, 1999 (incorporated by
reference to Exhibit 10.7.2 to the 1999 Form
10-K).
10.7.3 ***** Promissory Note between Registrant and Brian
Carlisle dated May 7, 1999 (incorporated by
reference to Exhibit 10.7.3 to the 1999 Form
10-K).
36
10.7.4 ***** Promissory Note between Registrant and Bruce
Shimano dated May 7, 1999 (incorporated by
reference to Exhibit 10.7.4 to the 1999 Form
10-K).
10.8 ***** Offer Letter between the Registrant and Marcy
Alstott dated February 19, 1998, as amended
(incorporated by reference to Exhibit 10.8 to the
Registrant's Form 10-K for the fiscal year ended
June 30, 1998 (the "1998 Form 10-K")).
10.8.1 ***** Promissory Note between Registrant and Marcy
Alstott dated April 27, 1998 (incorporated by
reference to Exhibit 10.8.1 to the 1998 Form
10-K).
10.8.2 ***** Offer Letter between the Registrant and Kathleen
Fisher dated July 16, 1999 (incorporated by
reference to Exhibit 10.8.2 to the 1999 Form
10-K).
10.8.3 ***** Promissory Note between Registrant and Kathleen
Fisher dated August 2, 1999 (incorporated by
reference to Exhibit 10.8.3 to the 1999 Form
10-K).
10.9 Lease Agreement dated as of April 30, 1998
between the Registrant and the Joseph and Eda
Pell Revocable Trust dated August 18, 1989
(incorporated by reference to Exhibit 10.9 to the
1998 Form 10-K).
10.10 Lease Agreement dated June 1, 1998 between the
Registrant and Technology Centre Associates LLC
for the premises located at 180 Rose Orchard Way,
San Jose, California (incorporated by reference
to Exhibit 10.10 to the 1998 Form 10-K).
10.10.1 First Amendment to Lease Agreement dated June 1,
1998 between the Registrant and Technology Centre
Associates LLC dated July 31, 1998 (incorporated
by reference to Exhibit 10.10.1 to the 1998 Form
10-K).
10.10.2 Sublease between the Registrant and Ascent Logic
Corporation dated as of July 31, 1998
(incorporated by reference to Exhibit 10.10.2 to
the 1998 Form 10-K).
10.10.3 Second Amendment to Lease Agreement dated March
31, 2000 between Registrant and Technology Centre
Associates LLC dated July 31, 1998.
10.10.4 First Addendum to Lease Agreement dated August
18, 1999 between Registrant and Joseph and Eda
Pell Revocable Trust dated August 18, 1989.
10.10.5 Lease Agreement dated April 28, 2000 between
Registrant and Michael and Diane Edwards for
premises located in Tucson, Arizona.
10.10.6 Lease Agreement dated May 19, 2000 between
NanoMotion Inc. and United Insurance Co. of
America for premises located at Santa Barbara,
California.
13.1 Portions of Registrant's Annual Report to
Shareholders for the fiscal year ended June 30,
2000.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent
Auditors.
24.1 Power of Attorney (See Signature Page to this
Annual Report on Form 10-K).
27.1 Financial Data Schedule.
- ------------------
***** Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
On July 28, 1999, we filed a Form 8-K to announce the acquisition
of BYE/Oasis Engineering, Inc.
On October 27, 1999, we filed a Form 8-K to announce first quarter
earnings for fiscal year 2000.
On April 12, 2000, we filed a Form 8-K relating to the signing of
a letter of intent with Pensar Tucson, Inc., and we filed a Form
8-K on May 1, 2000 announcing the acquisition of Pensar.
On June 1, 2000, a Form 8-K was filed announcing the acquisition
of NanoMotion Incorporated.
On July 24, 2000, we filed a Form 8-K to report the acquisition of
HexaVision Technologies, Inc.
(c) Exhibits. See Item 14(a)(3) above.
(d) Financial Statement Schedules. See Item 14(a)(2) above.
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ADEPT TECHNOLOGY, INC.
By: /s/ Michael W. Overby
----------------------------
Michael W. Overby
Vice President, Finance
and Chief Financial Officer
Date: September 28, 2000
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Brian R. Carlisle and Michael W. Overby
and each of them, his or her true and lawful attorneys-in-fact and agents, each
with full power of substitution and resubstitution, to sign any and all
amendments (including post-effective amendments) to this Annual Report on Form
10-K and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, or any of
them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
- ------------------------------- -------------------------------------------------- -------------------------
Signature Title Date
--------- ----- ----
/s/ Brian R. Carlisle Chairman of the Board of Directors and Chief September 28, 2000
- ----------------------------- Executive Officer (Principal Executive Officer)
(Brian R. Carlisle)
/s/ Michael W. Overby Vice President, Finance and Chief Financial September 28, 2000
- ----------------------------- Officer (Principal Financial and Accounting
(Michael W. Overby) Officer)
/s/ Bruce E. Shimano Vice President, Research and Development, September 28, 2000
- ----------------------------- Secretary and Director
(Bruce E. Shimano)
38
- ------------------------------- -------------------------------------------------- -------------------------
Signature Title Date
--------- ----- ----
/s/ Ronald E. F. Codd Director September 28, 2000
- -----------------------------
(Ronald E. F. Codd)
/s/ Michael P. Kelly Director September 28, 2000
- -----------------------------
(Michael P. Kelly)
/s/ Cary R. Mock Director September 28, 2000
- -----------------------------
(Cary R. Mock)
/s/ John E. Pomeroy Director September 28, 2000
- -----------------------------
(John E. Pomeroy)
39
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ADEPT TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young, LLP, Independent Auditors........................................................ F-1
Consolidated Balance Sheets at June 30, 2000 and June 30, 1999............................................ F-2
Consolidated Statements of Operations for each of the three years in the period
ended June 30, 2000.................................................................................. F-3
Consolidated Statements of Cash Flows for each of the three years in the period
ended June 30, 2000.................................................................................. F-4
Consolidated Statements of Shareholders' Equity for each of the three years in the period
ended June 30, 2000.................................................................................. F-5
Notes to Consolidated Financial Statements................................................................ F-6
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Shareholders and Board of Directors
Adept Technology, Inc.
We have audited the accompanying consolidated balance sheets of Adept
Technology, Inc. as of June 30, 2000 and 1999, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended June 30, 2000. Our audits also included the
financial statement schedule listed in the Index as Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Adept Technology, Inc. at June 30, 2000 and 1999, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended June 30, 2000, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements as a
whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
San Jose, California
August 2, 2000
F-1
ADEPT TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, June 30,
2000 1999
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 13,487 $ 11,816
Short-term investments 6,950 15,200
Accounts receivable, less allowance for doubtful accounts of
$637 in 2000 and $716 in 1999 25,527 19,707
Inventories 15,153 11,781
Deferred tax and other current assets 7,049 5,601
-------------- --------------
Total current assets 68,166 64,105
Property and equipment at cost 25,675 24,822
Less accumulated depreciation and amortization 20,092 18,940
-------------- --------------
Property and equipment, net 5,583 5,882
Goodwill and other intangibles, net 16,963 -
Other assets 2,811 1,690
-------------- --------------
Total assets $ 93,523 $ 71,677
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,841 $ 6,838
Accrued payroll and related expenses 4,727 3,336
Accrued warranty 1,915 1,408
Deferred revenue 1,511 1,274
Taxes payable and other accrued liabilities 2,579 3,635
-------------- --------------
Total current liabilities 21,573 16,491
Long term liabilities:
Deferred income tax 1,222 -
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value:
5,000 shares authorized, none issued and outstanding - -
Common stock, no par value:
25,000 shares authorized, 10,677 shares issued
and outstanding in 2000, and 9,459 shares in 1999 67,184 50,215
Retained earnings 3,544 4,971
-------------- --------------
Total shareholders' equity 70,728 55,186
-------------- --------------
Total liabilities and shareholders' equity $ 93,523 $ 71,677
============== ==============
<FN>
See accompanying notes.
</FN>
F-2
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended June 30,
-------------------------------------------------
2000 1999 1998
-------------- -------------- -------------
Net revenues $ 99,212 $ 87,374 $ 105,440
Cost of revenues 56,173 47,902 60,841
-------------- -------------- -------------
Gross margin 43,039 39,472 44,599
Operating expenses:
Research, development and engineering 14,629 11,591 11,844
Selling, general and administrative 29,503 24,676 26,890
Merger-related charges 988 - -
Restructuring and other nonrecurring charges - - 2,756
Amortization of goodwill and other intangibles 685 - -
-------------- -------------- -------------
Total operating expenses 45,805 36,267 41,490
-------------- -------------- -------------
Operating (loss) income (2,766) 3,205 3,109
Interest income 1,031 967 998
Interest and other expense 285 41 27
-------------- -------------- -------------
(Loss) income before (benefit from) provision for income taxes (2,020) 4,131 4,080
(Benefit from) provision for income taxes (593) 1,620 1,819
-------------- -------------- -------------
Net (loss) income $ (1,427) $ 2,511 $ 2,261
============== ============== =============
Net (loss) income per share:
Basic $ (0.15) $ 0.27 $ 0.25
============== ============== =============
Diluted $ (0.15) $ 0.26 $ 0.23
============== ============== =============
Number of shares used in computing per share amounts:
Basic 9,774 9,302 9,154
============== ============== =============
Diluted 9,774 9,484 9,689
============== ============== =============
<FN>
See accompanying notes.
</FN>
F-3
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Year Ended June 30,
--------------------------------------------
2000 1999 1998
------------- -------------- -------------
Operating activities
Net (loss) income $ (1,427) $ 2,511 $ 2,261
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 3,140 3,154 2,832
Amortization 843 79 277
Deferred taxes (834) 300 (1,844)
Gain on disposal of property and equipment (50) (37) (278)
Compensation expense related to employee stock purchase plan - - 675
Write-off of certain assets relating to restructuring and nonrecurring
charges - - 1,062
Tax benefit from stock plans 591 164 544
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable (5,581) 1,668 (2,692)
Inventories (3,590) 3,307 (2,771)
Other current assets (152) (1,106) (405)
Other assets (1,279) (404) (172)
Accounts payable 3,695 762 1,421
Accrued expenses 2,071 (710) 1,360
Accrued restructuring and nonrecurring charges - (1,019) 1,019
Taxes payable and other accrued liabilities (1,068) 1,048 (1,247)
------------- -------------- -------------
Total adjustments (2,214) 7,206 (219)
------------- -------------- -------------
Net cash (used in) provided by operating activities (3,641) 9,717 2,042
------------- -------------- -------------
Investing activities
Business acquisitions (3,250) - -
Purchase of property and equipment (2,406) (2,469) (3,100)
Proceeds from the sale of property and equipment 116 187 470
Sales of long-term available-for-sale investments - - 1,000
Purchases of short-term available-for-sale investments (44,117) (31,206) (21,003)
Sales of short-term available-for-sale investments 52,367 27,306 17,069
------------- -------------- -------------
Net cash provided by (used in) investing activities 2,710 (6,182) (5,564)
------------- -------------- -------------
Financing activities
Proceeds from employee stock incentive program and employee
stock purchase plan, net of repurchases and cancellations 2,602 2,306 1,995
Revolving bank line of credit - (470) (109)
Repurchase of common stock - (3,194) -
------------- -------------- -------------
Net cash provided by (used in) financing activities 2,602 (1,358) 1,886
------------- -------------- -------------
Increase (decrease) in cash and cash equivalents 1,671 2,177 (1,636)
Cash and cash equivalents, beginning of period 11,816 9,639 11,275
------------- -------------- -------------
Cash and cash equivalents, end of period $ 13,487 $ 11,816 $ 9,639
============= ============== =============
Supplemental disclosure of noncash activities:
Inventory capitalized into property and equipment including related tax $ 228 $ 561 $ 863
Addition to capital lease obligation $ - $ - $ 13
Cash paid during the period for:
Interest $ - $ 41 $ 54
Taxes paid (refunded) $ 1,373 $ (189) $ 3,894
<FN>
See accompanying notes.
</FN>
F-4
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
Total
Common Stock Retained Shareholders'
Shares Amount Earnings Equity
--------------------------------------------------------------
Balance at June 30, 1997 8,960 $ 46,951 $ 1,163 $ 48,114
Common stock issued under employee stock
incentive program and employee
stock purchase plan 458 1,995 - 1,995
Tax benefit from stock plans - 544 - 544
Compensation charge - 675 - 675
Acquisition of RoboElektronik 25 114 (304) (190)
Net income - - 2,261 2,261
------------- -------------- --------------- ----------------
Balance at June 30, 1998 9,443 50,279 3,120 53,399
Common stock issued under employee stock
incentive program and employee
stock purchase plan 466 2,306 - 2,306
Repurchase of shares (450) (2,534) (660) (3,194)
Tax benefit from stock plans - 164 - 164
Net income - - 2,511 2,511
------------- -------------- --------------- ----------------
Balance at June 30, 1999 9,459 50,215 4,971 55,186
Common stock issued under employee stock
incentive program and employee
stock purchase plan 518 2,602 - 2,602
Tax benefit from stock plans - 591 - 591
Common stock issued for acquisitions 700 13,776 - 13,776
Net loss - - (1,427) (1,427)
------------- -------------- --------------- ----------------
Balance at June 30, 2000 10,677 $ 67,184 $ 3,544 $ 70,728
============= ============== =============== ================
<FN>
See accompanying notes.
</FN>
F-5
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization
Adept Technology, Inc. ("Adept" or the "Company") was incorporated
under the laws of the state of California on June 14, 1983. The Company designs,
manufactures and sells factory automation components and systems for the fiber
optic, telecommunications and semiconductor industries throughout the world.
Basis of Presentation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries, Adept Technology GmbH
(formerly known as RoboElektronik GmbH, "RoboElectronik"), acquired by the
Company on February 13, 1998 (see Note 2), and SILMA Incorporated ("SILMA"),
acquired by the Company on June 28, 1995. All material intercompany accounts and
transactions have been eliminated.
As more fully described in Note 2, the Company merged with BYE/OASIS in
July 1999 in a pooling of interests transaction. The Company's consolidated
financial statements for prior periods have been restated to include the
financial position, results of operations and cash flows of BYE/OASIS. On April
28, 2000 and on May 31, 2000, respectively, the Company completed the
acquisitions of Pensar Tucson, Inc. and NanoMotion Incorporated. Both
acquisitions were accounted for under the purchase method of accounting. The
financial results of these two companies are included in the financial results
of Adept subsequent to the acquisition date.
The notes to the Company's consolidated financial statements are for
the three year period ended June 30, 2000. Unless otherwise indicated,
references to any year in these Notes to Consolidated Financial Statements refer
to the Company's fiscal year ended June 30.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Foreign Currency Translation
The Company applies Financial Accounting Standards Board Statement No.
52 ("SFAS 52"), "Foreign Currency Translation," with respect to its
international operations, which are sales and service entities. 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. Translation losses resulting from the process
of remeasuring foreign currency financial statements into U.S. dollars were
$394,000 in 2000, $87,000 in 1999 and $376,000 in 1998. Transaction losses were
$17,000 in 2000 and $52,000 in 1999. Transaction gains were $6,000 in 1998.
Cash, Cash Equivalents and Short-term Investments
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Short-term
investments in marketable securities consist principally of debt instruments
with maturities between three and 12 months. Investments are classified as
held-to-maturity, trading, or available-for-sale at the time of purchase.
F-6
At June 30, 2000 and 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. Fair market value is based on quoted
market prices on the last day of the year. The cost of the securities is based
upon the specific identification method.
(in thousands) June 30,
---------------------------
2000 1999
--------- ---------
Cash and cash equivalents
Cash....................................................................... $ 9,096 $ 2,209
Money market funds......................................................... 1,166 1,653
Commercial paper............................................................ - 2,554
Municipal notes and bonds ................................................. 3,225 5,400
--------- ---------
Cash and cash equivalents.................................................... $ 13,487 $ 11,816
========= =========
Short-term investments
Auction rate securities.................................................... $ 3,500 $ 9,400
Market auction preferred stock............................................. 3,450 5,800
--------- ---------
Short-term investments....................................................... $ 6,950 $ 15,200
========= =========
Realized gains or losses, interest, and dividends are included in
interest income. Realized and unrealized gains or losses from available-for-sale
securities were not material in 2000, 1999 or 1998.
Comprehensive Income
For the three years in the period ended June 30, 2000, there were no
significant differences between the Company's comprehensive (loss) income and
its net (loss) income.
Loans to Employees
Loans to employees are summarized as follows:
(in thousands) June 30,
-----------------------------
2000 1999
----------- -----------
Short-term loans to employees............................................. $ 856 $ 904
Long-term loans to employees.............................................. 617 342
----------- -----------
$ 1,473 $ 1,246
=========== ===========
Short-term loans to employees are included in other current assets.
Long-term loans to employees are included in other assets.
F-7
Inventories
Inventories are stated at the lower of standard cost, which
approximates actual (first-in, first-out method) or market (estimated net
realizable value). The components of inventories are as follows:
(in thousands) June 30,
-----------------------------
2000 1999
----------- -----------
Raw materials............................................................. $ 6,097 $ 5,617
Work-in-process........................................................... 3,036 2,059
Finished goods............................................................ 6,020 4,105
----------- -----------
$15,153 $11,781
=========== ===========
Property and Equipment
Property and equipment are recorded at cost.
The components of property and equipment are summarized as follows:
(in thousands) June 30,
-----------------------------
2000 1999
----------- -----------
Cost:
Machinery and equipment................................................. $ 13,303 $ 13,558
Computer equipment...................................................... 8,975 8,153
Office furniture and equipment.......................................... 3,397 3,111
----------- -----------
25,675 24,822
Accumulated depreciation and amortization............................... 20,092 18,940
----------- -----------
Net property and equipment.............................................. $ 5,583 $ 5,882
=========== ===========
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which range from three to five years.
Revenue Recognition
The Company generally recognizes revenue on products at the time of
shipment. For certain international sales where title and risk of loss are
transferred at the customer's site, revenue is recognized upon receipt of
product by the customer. A provision for the estimated cost to repair or replace
products under warranty at the time of sale are recorded in the same period as
the related revenues.
The Company recognizes software revenue, primarily related to its
simulation software products, in accordance with the American Institute of
Certified Public Accountants' Statement of Position 97-2 ("SOP 97-2") on
Software Revenue Recognition. 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. Service revenue includes training, consulting and
customer support. Revenues from training and consulting are recognized at the
time the service is performed.
Deferred revenue primarily relates to software support contracts sold.
The term of the software support contract is generally one year, and the Company
recognizes the associated revenue on a pro rata basis over the life of the
contract.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, auction
rate securities and trade receivables. The Company places its cash equivalents
and short-term investments with high credit-quality financial institutions. The
Company invests its excess cash in commercial paper, readily marketable debt
instruments and collateralized funds of U.S., state and municipal
F-8
government entities. Adept has established guidelines relative to credit
ratings, diversification and maturities that seek to maintain safety and
liquidity.
The Company manufactures and sells its products to system integrators,
end users and OEMs in diversified industries. The Company performs ongoing
credit evaluations of its customers and does not require collateral. However,
the Company may require customers to make payments in advance of shipment or to
provide a letter of credit. The Company provides reserves for potential credit
losses, and such losses have been within management's expectations.
Amounts charged to bad debt expense were $516,000, $389,000 and
$346,000 in 2000, 1999 and 1998, respectively.
Research, Development and Engineering Costs
Research, development and engineering costs, other than purchased
computer software, are charged to expense when incurred. The Company has
received third party funding of $309,000 in 2000, $681,000 in 1999, and $629,000
in 1998. The Company has offset research, development and engineering expenses
by the third party funding as the Company retains the rights to any technology
that is developed.
Goodwill and Other Intangible Assets
The excess of the purchase price over the fair value of identifiable
net assets of acquired companies is allocated to goodwill and amortized over
three to four years. Other intangible assets primarily represent developed
technology and assembled workforce. Goodwill and other intangible assets totaled
$16.9 million and $0 at June 30, 2000 and June 30, 1999, and is presented net of
accumulated amortization of $0.7 million and $0 at June 30, 2000 and June 30,
1999. The recoverability of goodwill and other intangible assets has been
evaluated to determine whether current events or circumstances warrant
adjustments to the carrying value. Management believes that no significant
impairment of goodwill and other intangible assets was indicated.
Software Development Costs
The Company capitalizes software development costs incurred subsequent
to the time the product reaches technical feasibility. All capitalized
internally-developed software costs and purchased software costs are amortized
to the cost of revenues on a straight-line basis based on the estimated useful
lives of the products or the ratio of current revenue to the total of current
and anticipated future revenue, whichever is greater. Capitalized
internally-developed software and purchased software are stated at the lower of
amortized cost or net realizable value.
There are no unamortized software development and purchased software
costs at June 30, 2000 or 1999. In 1998, $359,000 of purchased software costs
were written off and included in the nonrecurring charges. Software amortization
was $180,000 in 1998. There were no software amortization costs for 2000 and
1999. See "Restructuring and Other Nonrecurring Charges."
Advertising Costs
Advertising costs are expensed in the period incurred. Advertising
costs were $224,000 in 2000, $143,000 in 1999, and $212,000, 1998. The Company
does not incur any direct response advertising costs.
Income Taxes
The liability method is used to account for income taxes. Deferred tax
assets and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
F-9
Stock-Based Compensation
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation", which provides an alternative to APB Opinion No. 25 ("Opinion
25"), "Accounting for Stock Issued to Employees", in accounting for stock issued
to employees. The Company has elected to account for stock-based compensation to
employees in accordance with Opinion 25, providing only proforma disclosure
required by SFAS 123.
Net Income (Loss) Per Share
SFAS No. 128, "Earnings Per Share" ("EPS"), requires the presentation
of basic and diluted EPS. Basic EPS excludes dilution and is computed by
dividing net income (loss) available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then participates in the earnings
of the Company. Dilutive common equivalent shares consist of stock options
calculated using the treasury stock method.
Merger-Related Charges
In July 1999, the Company incurred charges 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 expenses relating to the
acquisition were $235,000.
Restructuring and Other Nonrecurring Charges
During 1998, the Company recorded restructuring charges of
approximately $1.0 million and other nonrecurring charges of approximately $1.7
million. The restructuring charges of $1.0 million included $651,000 for
relinquishing control of the Company's Japan branch, which resulted in the
write-off of certain assets and excess facilities. The remaining $362,000
relates to severance for the termination of certain employees.
The nonrecurring charges of approximately $1.7 million included
$675,000 for compensation expenses related to the Company's employee 1998 stock
purchase plan (see Note 5) and $383,000 related to the write-off of certain
information system hardware and software which had become obsolete as a result
of decisions related to the Company's information system implementation and
upgrade made in the fourth quarter of 1998. Additionally $413,000 related to the
write-off of the remaining balance of capitalized purchased software associated
with the acquisition of SILMA. Due to technological changes in 1998 related to
the SILMA operating platform, the Company determined that the net realizable
value of the purchased software was impaired.
F-10
The following table summarizes the Company's restructuring and other
nonrecurring charges and accrual activity for the years ended June 30, 2000,
1999 and 1998:
Restructuring Charges
Intangible and
Severance Fixed Assets
and Japan and Other
(in thousands) Benefits Operations Charges Total
-------------- -------- ---------- ------- -----
Restructuring charges in 1998 $ 362 $ 651 $ - $ 1,013
Non-cash charges in 1998 - (266) - (266)
---------------- -------------- ---------------- --------------
Amounts included in accrued liabilities as of
June 30, 1998 362 385 - 747
================ ============== ================ ==============
Cash paid during 1999 (362) (385) - (747)
---------------- -------------- ---------------- --------------
Amounts included in accrued liabilities as of
June 30, 1999 and June 30, 2000 - - - -
================ ============== ================ ==============
Nonrecurring Charges
Intangible and
Fixed Assets
Compensation and Other
(in thousands) Expense Charges Total
-------------- ------- ------- -----
Nonrecurring charges in 1998 $ 675 $ 1,068 $ 1,743
Non-cash charges in 1998 (675) (796) (1,471)
----------------- ---------------- --------------
Accrued liabilities as of June 30, 1998 - 272 272
----------------- ---------------- --------------
Cash paid or non-cash charges during 1999 - (272) (272)
----------------- ---------------- --------------
Accrued liabilities as of June 30, 1999
and June 30, 2000 - - -
================= ================ ==============
F-11
New Accounting Pronouncements
Staff Accounting Bulletin No. 101 - Revenue Recognition
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" or SAB 101. SAB 101 provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements. In recent actions, the SEC has further delayed the required
implementation date which, for us, will be the fourth quarter of fiscal 2001,
retroactive to the beginning of the fiscal year. The SEC has indicated that
additional implementation guidance will be forthcoming in the form of
"Frequently Asked Questions", however, such guidance has not been issued to
date. We cannot fully assess the impact of SAB 101 until the additional guidance
from the SEC is issued. Accordingly, we are still in the process of assessing
the impact of SAB 101 on our consolidated results of operations, financial
position, and cash flows based upon the most current information.
Statement of Financial Accounting Standards No. 133 - Accounting for Derivative
Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133, as amended by SFAS No. 137 and
138, establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. We will be required to implement SFAS No. 133 as of the beginning of
our fiscal year 2001. Our foreign currency exchange rate hedging activities have
been insignificant to date and we do not believe that SFAS No. 133 will have a
material impact on our financial position, results of operations or cash flows.
Reclassification
Certain amounts presented in the financial statements of prior years
have been reclassified to conform to the current presentation for 2000.
2. Mergers and Acquisitions
During the three-year period ended June 30, 2000, Adept acquired four
companies, as described below. Adept's acquisitions of NanoMotion and Pensar
completed during 2000 have been accounted for as purchases, with the excess of
the purchase price over the estimated fair value of the net assets acquired
recorded as goodwill. The Company's mergers with BYE/OASIS in 1999 and
RoboElektronik in 1998 have been accounted for as a pooling of interests.
NanoMotion
On May 31, 2000, we completed the acquisition of NanoMotion
Incorporated, a California corporation. NanoMotion is a manufacturer of
ultra-high precision positioning and alignment stages and devices for
nanometer-scale movement, positioning and alignment for the fiber optic,
semiconductor and metrology markets. In connection with the acquisition, the
Company issued 600,000 shares of its common stock valued at $21 per share to the
shareholders of NanoMotion which was the fair market value of Adept's common
stock at May 31, 2000 and cash of $250,000. The financial results of NanoMotion
have been included in Adept's financial results since May 31, 2000.
Pensar
On April 28, 2000, we completed the acquisition of Pensar Tucson, Inc.,
an Arizona corporation. Pensar is a precision automation integrator of standard
work cells. In connection with the acquisition, the Company issued 100,000
shares of its common stock valued at $11.75 per share to the shareholders of
Pensar Tucson which was the fair market value of Adept's common stock at April
28, 2000. In addition, the Company paid $3,000,000 in cash. The financial
results of Pensar have been included in Adept's financial results since April
28, 2000.
The purchase price of NanoMotion and Pensar was allocated, based on an
independent valuation, to goodwill and other intangible assets. Goodwill
represents the excess of the purchase price of the net tangible
F-12
and intangible assets acquired over their estimated fair value. Other intangible
assets primarily represent developed technology and assembled workforce.
For the NanoMotion and Pensar acquisitions below is a table of the
acquisition cost, purchase price allocation and annual amortization of the
intangible assets acquired, in thousands:
Annual
Amortization Amortization
Acquisition Cost Life of Intangibles
----------------------------------------------------------------------
Common stock $ 13,776
Cash 3,250
Transaction costs 83
----------
Total acquisition cost $ 17,109
==========
Purchase Price Allocation
Net tangible assets $ 230
Developed and core technology 1,120 4 years $ 280
Non-compete covenant 380 4 years 95
Assembled workforce 480 3-4 years 131
Goodwill 15,658 3-4 years 4,474
Deferred tax liability (759)
--------- --------
Total $ 17,109 $ 4,980
========== ========
BYE/OASIS
On July 16, 1999, the Company completed the acquisition of BYE/OASIS
Engineering, Inc., a leading manufacturer of mini-environment systems and
Standard Mechanical Interfaces ("SMIF") for the microelectronics industry. In
connection with the acquisition, the Company issued 720,008 shares of its common
stock to the shareholders of BYE/OASIS. In addition, the Company assumed
outstanding options to acquire BYE/OASIS shares, which were converted into
options to acquire 185,361 shares of Adept's common stock. The acquisition was
intended to constitute a tax-free reorganization under Section 368(a) of the
Internal Revenue Code of 1986. The acquisition was accounted for using the
pooling of interests method and accordingly all prior period consolidated
financial statements have been restated to include the combined results of
operations, financial position and cash flows of BYE/OASIS.
Prior to the merger, BYE/OASIS's fiscal year ended on September 30.
BYE/OASIS's prior period financial statements have been restated to conform to
Adept's year-end.
F-13
The following information presents certain income statement data of the
separate companies for the periods preceding the merger:
1999 1998
----------- ----------
Net sales
Adept $ 82,027 $ 98,394
BYE/OASIS 5,347 7,046
----------- ----------
Total sales $ 87,374 $ 105,440
=========== ==========
Net income (loss)
Adept $ 2,622 $ 2,551
BYE/OASIS (111) (290)
----------- ----------
Total net income (loss) $ 2,511 $ 2,261
=========== ==========
Revenue generated for the period from July 1, 1999 through July 16,
1999 (date of acquisition) was not significant.
RoboElektronik
On February 13, 1998, the Company acquired RoboElektronik GmbH
("RoboElektronik") through the issuance of 24,562 shares of the Company's common
stock, which were exchanged for all of the outstanding capital stock of
RoboElektronik. The acquisition was accounted for as a pooling of interests.
RoboElektronik GmbH was renamed Adept Technology, GmbH on June 26, 1998. The
results of operations of RoboElektronik have been consolidated with Adept's
financial statements since the acquisition.
3. Derivative Financial Instruments
From time to time, the Company may enter into forward foreign exchange
contracts primarily to hedge against the short-term impact of foreign currency
fluctuations of purchase commitments denominated in yen. The maturities of the
forward exchange contracts are short term in nature, generally 90 days. Because
the impact of movements in currency exchange rates on forward foreign exchange
contracts offsets the related impact on the underlying items being hedged, these
financial instruments do not subject the Company to speculative risk that would
otherwise result from changes in currency exchange rates. Realized and
unrealized gains and losses on instruments that hedge firm commitments are
deferred and included in the measurement of the subsequent transaction; however,
losses are deferred only to the extent of expected gains on the future
commitment at June 30, 2000. The Company has deferred recognition of transaction
gains of $76,000, relating to foreign exchange contracts treated as accounting
hedges. The Company expects to realize these transaction gains in the first
quarter of 2001.
F-14
4. Commitments and Contingencies
Commitments
The Company's lease on its major facility will expire in December 2003.
Future minimum lease payments under non-cancelable operating leases are as
follows:
(in thousands)
Fiscal Year Leases
------
2001.................................... $ 3,386
2002.................................... 3,387
2003.................................... 3,283
2004.................................... 1,809
2005.................................... 85
Later years............................. 14
--------
Total minimum lease payments................ $ 11,964
========
Rent expense net of sublease income of $18,480, $312,000 and $0 was
$3,019,000 in 2000, $2,507,000 in 1999 and $2,024,000 in 1998.
Contingencies
Some end users of our products have notified us that they have received
a claim of patent infringement from the Jerome H. Lemelson Foundation, alleging
that their use of our machine vision products infringes certain patents issued
to Mr. Lemelson. In addition, we have been notified that other end users of our
AdeptVision VME line and the predecessor line of Multibus machine vision
products have received letters from Mr. Lemelson which refer to Mr. Lemelson's
patent portfolio and offer the end user a license to the particular patents.
Certain 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.
However, the Company believes the ultimate resolution of these matters will not
have a material adverse effect on its financial position, results of operations
or cash flows.
The Company has from time to time received communications from third
parties asserting that the Company is infringing certain patents and other
intellectual property rights of others, or seeking indemnification against such
alleged infringement. While it is not feasible to predict or determine the
outcome of the actions brought against it, the Company believes the ultimate
resolution of these matters will not have a material adverse effect on its
financial position, results of operations or cash flows.
5. Shareholders' Equity
Preferred Stock
The Board of Directors has the authority to issue, without further
action by the shareholders, up to 5,000,000 shares of preferred stock in one or
more series and to fix the price, rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting a series or the designation of
such series, without any further vote or action by the Company's shareholders.
The issuance of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of delaying, deferring or preventing a change in control of the
Company without further action by the shareholders and may adversely affect the
market price of, and the voting and other rights of, the holders of common
stock.
F-15
Stock Option Plans
The Company's 1983 Employee Stock Incentive Program (the "1983 Plan")
was adopted by the Board of Directors in August 1983. The 1983 Plan provided for
the grant of incentive stock options to employees (including officers and
employee directors) and nonstatutory stock options to employees (including
officers and employee directors) and consultants of the Company. In general,
options and common stock purchased pursuant to stock purchase rights granted
under the 1983 Plan vest and become exercisable starting one year after the date
of grant, with 25% of the shares subject to the option exercisable at that time
and an additional 1/48th of the shares subject to the option becoming
exercisable each month thereafter. Upon the voluntary or involuntary termination
of employment (including as a result of death or disability) by a holder of
unvested shares of the Company's common stock purchased pursuant to stock
purchase rights granted under the 1983 Plan, the Company may exercise an option
to repurchase such shares at their original issue price. The Board of Directors
determines the exercise price which must be at least equal to the fair market
value of shares on the date of grant. The 1983 Plan expired according to its
terms in August 1993. Currently outstanding options under the 1983 Plan and
common stock purchased pursuant to stock purchase rights granted under the 1983
Plan continue to be governed by the terms of the 1983 Plan and the respective
option and stock purchase and stock restriction agreements between the Company
and the holders thereof.
The Company's 1993 Stock Plan (the "1993 Plan") was adopted by the
Board of Directors in April 1993 and approved by the shareholders of the Company
in June 1993. The 1993 Plan provides for grants of incentive stock options to
employees (including officers and employee directors) and nonstatutory stock
options to employees (including officers and employee directors) and consultants
of the Company. The terms of the 1993 Plan are similar to the 1983 Plan, and the
terms of the options granted under the 1993 Plan generally may not exceed ten
years. The Board of Directors determines the exercise price of the options which
must be at least equal to the fair market value of the common stock on the date
of grant.
On August 12, 1999, the Board of Directors authorized the issuance of
1,000,000 additional shares to the 1993 Plan. In August 2000, the 1993 Plan was
amended by the Board of Directors, subject to shareholder approval, to increase
the number of shares authorized for issuance under the 1993 Plan by an
additional 1,000,000 shares.
The Company's 1995 Director Option Plan (the "Director Plan") was
adopted by the Board of Directors and approved by the shareholders of the
Company in October 1995. The option grants under the Director Plan are automatic
and nondiscretionary, and the exercise price of the options is at the fair
market value of the Company's common stock on the date of grant. A total of
150,000 shares of common stock has been reserved for issuance under the Director
Plan. During the year ended June 30, 2000 and 1999, 99,000 and 87,000 options,
respectively were granted and no options were exercised.
The options may be exercised at the time or times determined by the
Board of Directors.
In August 1998, the Company offered all employees holding options the
opportunity to exchange their outstanding options for options with exercise
prices equal to the then fair market value of the company's common stock. Under
the August 1998 offer, options to purchase 367,827 shares with exercise prices
exceeding $7.00 per share were exchanged for similar options exercisable at
$7.00 per share. The vesting schedule of all exchanged options was delayed by 12
months and the expiration date of the exchanged options will be August 2008. The
effect of the exchange has been included in the table in 1999 activity for
options granted and canceled.
F-16
The following table summarizes option activities under the Company's
stock option plans:
Options
-----------------------------------------------------------------
(in thousands, except per share data Available No. of Shares Aggregate Weighted Average
for Grant Outstanding Price Exercise Price
------------ ----------------- ------------ ---------------------
Balance at June 30, 1997................ 443 1,096 $ 6,378 $ 5.82
Additional shares authorized....... 1,000 -- -- --
Granted............................ (413) 413 4,908 11.87
Canceled........................... 47 (47) (484) 10.27
Shares Expired..................... (1) -- -- --
Exercised.......................... -- (270) (706) 2.61
---------- --------- ---------
Balance at June 30, 1998................ 1,076 1,192 10,096 8.47
Granted............................ (913) 913 5,757 6.31
Canceled........................... 451 (451) (5,156) 11.43
Exercised.......................... -- (250) (1,199) 4.80
---------- ---------- ----------
Balance at June 30, 1999................ 614 1,404 9,498 6.76
Additional shares authorized....... 1,000 -- -- --
Granted............................ (845) 845 5,765 6.83
Canceled........................... 197 (197) (1,268) 6.45
Exercised.......................... -- (308) (1,518) 4.92
---------- --------- ---------
Balance at June 30, 2000................ 966 1,744 $ 12,477 $ 7.15
========== ========== ==========
The following table summarizes information concerning outstanding and
exercisable options at June 30, 2000. Approximately 540,000 stock options were
exercisable at June 30, 1999:
(shares in thousands) Options Outstanding Options Exercisable
------------------------------------------------ ------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Options Contractual Exercise Options Exercise
Prices Outstanding Life Price Exercisable Price
------ ----------- ---- ----- ----------- -----
$ 0.16 - $ 5.56 396 8.48 $ 4.01 122 $ 2.66
$ 5.56 - $ 6.50 441 7.18 $ 6.20 288 $ 6.34
$ 6.63 - $ 6.63 104 8.15 $ 6.63 46 $ 6.63
$ 7.00 - $ 7.00 368 8.30 $ 7.00 133 $ 7.00
$ 7.03 - $ 24.00 435 8.65 $ 11.24 128 $ 9.98
------------------- ----------------
$ 0.16 - $ 24.00 1,744 8.14 $ 7.15 717 $ 6.50
=================== ================
Employee Stock Purchase Plan
The 1998 Employee Stock Purchase Plan (the "1998 ESPP") has overlapping
12-month offering periods that begin every six months, starting on the first
trading day on or after May 1 and November 1 of each year. Each 12-month
offering period is divided into two six-month purchase periods. The plan allows
eligible employees, through payroll deductions, to purchase shares of the
Company's common stock at 85% of fair market value on either the first day of
the offering period or the last day of the purchase period, whichever is lower.
The plan includes a provision for an annual automatic increase in the number of
shares reserved for issuance by the lesser of (i) 300,000, (ii) 3% of common
stock outstanding on the last day of the prior fiscal year, or (iii) such amount
as may be determined by the Board of Directors.
F-17
In May 2000, the Board approved an amendment to the 1998 ESPP for
24-month offering periods including four, six-month purchase periods, effective
May 1, 2001 and, subject to shareholder approval, approved an amendment to the
1998 ESPP to provide for an annual automatic increase in the number of shares
reserved for issuance by the lesser of (i) 600,000, (ii) 3% of common stock
outstanding on the last day of the prior fiscal year, or (iii) such amount as
may be determined by the Board of Directors.
As of June 30, 2000, 300,000 shares of the Company's common stock were
issued under the 1998 ESPP and 562,000 shares remain unissued under the 1998
ESPP.
Repurchase of Company's Stock
In August 1998, the Board of Directors authorized the Company to
repurchase up to 450,000 shares of the Company's common stock on the open market
or in privately negotiated transactions at prices not to exceed $8.50 per share
and a total purchase price not to exceed $3,825,000. During 1999, the Company
repurchased 450,000 shares at an average purchase price of $7.10 per share.
There were no repurchases of the Company's stock during 2000.
Stock Based Compensation
At June 30, 2000, the Company had three stock-based compensation plans
as described above. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its compensation plans. Accordingly, no
compensation cost has been recognized for its fixed stock option plans and its
ESPP. If compensation cost for the Company's stock-based compensation plans had
been determined consistent with Statement of Financial Accounting Standards No.
123 ("SFAS 123"), the Company's net income (loss) and net income (loss) per
share would have been adjusted to the pro forma amounts indicated below:
(in thousands, except per share data)
June 30,
--------------------------------------------
2000 1999 1998
--------- --------- ---------
Net (loss) income As reported............... ($ 1,427) $ 2,511 $ 2,261
Pro forma ................ ($ 5,532) $ 190 $ 289
Basic net (loss) income per share As reported............... ($ .15) $ .27 $ .25
Pro forma................. ($ .57) $ .02 $ .03
Diluted net (loss) income per share As reported............... ($ .15) $ .26 $ .23
Pro forma................. ($ .57) $ .02 $ .03
Because the method of accounting prescribed by SFAS 123 has not been
applied to options granted prior to July 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions for grants during the years ended June 30, 2000, 1999 and 1998,
risk-free interest rates of 6.04% for 2000, 4.84% for 1999, and 5.77% for 1998;
a dividend yield of 0% for all three years; a weighted-average expected life of
3.1 years for 2000, 3.5 years for 1999 and 3.4 years for 1998; and a volatility
factor of the expected market price of the Company's common stock of 1.02 for
2000, .99 for 1999 and .65 for 1998. The weighted average grant date fair value
of options was $6.65 for options granted in 2000, $3.83 in 1999 and $5.86 in
1998.
Compensation cost is estimated for the fair value of the employees'
purchase rights using the Black-Scholes model with the following assumptions for
rights granted in 2000, 1999 and 1998; a dividend yield of 0% for all three
years; expected life of 6 months for all three years; expected volatility of
1.02 for 2000, .99 for 1999 and .65 for 1998; and a risk-free interest rate of
5.81% for 2000, 4.78% for 1999 and 5.59% for 1998. The weighted average fair
market value of the purchase rights granted was $3.35 for rights granted in
2000, $3.11 for 1999 and $2.90 for 1998.
F-18
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
6. Employee Savings and Investment Plan
In May 1988, the Company adopted a 401(k) savings and investment plan
in which employees are eligible to participate. During 1999, the Company's
matching contributions were suspended for part of the year to reduce costs. The
Company's matching contributions were $274,000 in 2000, $125,000 in 1999 and
$252,000 in 1998.
7. Income Taxes
The (benefit from) provision for income taxes consists of the
following:
(in thousands) Year Ended June 30,
--------------------------------------------
2000 1999 1998
--------- --------- ---------
Current:
Federal.............................................. $ 161 $ 285 $ 2,970
State................................................ (86) 184 363
Foreign.............................................. 166 851 330
--------- --------- ---------
Total current............................................. 241 1,320 3,663
Deferred:
Federal.............................................. (515) 389 (1,580)
State................................................ (319) (89) (264)
---------- ---------- ----------
Total deferred............................................ (834) 300 (1,844)
---------- --------- ----------
(Benefit from) provision for income taxes................. ($ 593) $ 1,620 $ 1,819
========= ========= =========
The difference between the (benefit from) provision for income taxes
and the amount computed by applying the federal statutory income tax rate to
(loss) income before (benefit from) provision for income taxes is explained
below:
(in thousands) Year Ended June 30,
--------------------------------------------
2000 1999 1998
--------- --------- ---------
Tax at federal statutory rate............................. ($ 687) $ 1,404 $ 1,387
State taxes, net of federal benefit....................... (33) 63 33
Foreign taxes............................................. 441 562 218
Tax credits............................................... (791) (350) (180)
Merger and acquisition related expenses................... 255 - -
Non-deductible meals, entertainment and exchange losses... 125 81 185
Other..................................................... 97 (140) 176
--------- --------- ---------
(Benefit from) provision for income taxes................. ($ 593) $ 1,620 $ 1,819
========= ========= =========
F-19
Significant components of the Company's deferred tax assets and
liabilities are as follows:
(in thousands) June 30,
---------------------------
2000 1999
--------- ---------
Deferred tax assets:
Net operating loss carryforwards........................................... $ 367 $ 459
Tax credit carryforwards................................................... 1,626 553
Inventory valuation accounts............................................... 1,238 1,146
Warranty reserves.......................................................... 734 785
Other accruals and reserves not currently deductible for tax purposes...... 2,880 2,239
Other...................................................................... 237 202
--------- ---------
Total deferred tax assets.................................................. 7,082 5,384
Valuation allowance........................................................ (888) (836)
---------- ----------
Net deferred tax assets.................................................... 6,194 4,548
--------- ---------
Deferred tax liabilities:
Purchased intangibles...................................................... (759) -
Foreign earnings........................................................... (463) (410)
---------- ----------
Net deferred tax liabilities............................................... (1,222) (410)
---------- ----------
Total net deferred tax assets................................................ $ 4,972 $ 4,138
========= =========
The change in the valuation allowance was a net increase of
approximately $52,000 for 2000 and a net decrease of approximately $91,000 for
1999.
At June 30, 2000, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $1.0 million which will begin to
expire in 2001 if unused. The Company also had credit carryforwards of
approximately $1.6 million which will begin to expire in 2000 if unused.
Utilization of the net operating loss carryforwards and a portion of the tax
credit carryforwards is limited to approximately $300,000 per year.
For financial reporting purposes, a valuation allowance of $888,000 has
been established primarily to offset the deferred tax assets related to certain
tax credits and net operating loss carryforwards.
Pretax income (losses) from foreign operations was approximately
$267,000 in 2000, $1.5 million in 1999, and ($605,000) in 1998.
8. Net Income (Loss) Per Share
Net (loss) income per share is calculated as follows:
(in thousands, except per share amounts) Year Ended June 30,
--------------------------------------------
2000 1999 1998
--------- --------- ---------
Net (loss) income $ (1,427) $ 2,511 $ 2,261
========== ========= =========
Basic:
Weighted-average shares outstanding 9,774 9,302 9,154
========= ========= =========
Net (loss) income per share $ (0.15) $ 0.27 $ 0.25
========= ========= ========
Diluted:
Weighted-average shares outstanding 9,774 9,302 9,154
Effect of dilutive securities:
Stock options - 182 535
--------- --------- ---------
Weighted-average shares outstanding 9,774 9,484 9,689
========= ========= =========
Net (loss) income per share $ (0.15) $ 0.26 $ 0.23
========= ========= =========
F-20
Stock options to purchase 160,480 and 463,054 shares of common stock
were outstanding during the years ended June 30, 1999 and 1998, respectively,
but were not included in the calculations of diluted EPS because the option's
exercise price was greater than the average market price of the Company's common
stock during those years. If the Company had reported net income for the year
ended June 30, 2000, the calculation of diluted net income per share would have
included approximately 1,658,000 additional common equivalent shares relating to
outstanding employee stock options not included above (determined using the
treasury stock method).
9. Segment Information
The Company adopted Statement of Financial Accounting Standards No. 131
(SFAS 131), "Disclosures about Segments of an Enterprise and Related
Information," in 1999. SFAS 131 establishes standards for reporting information
about operating segments and related disclosures about products, geographic
information and major customers. The Company has three reportable business
segments, the Assembly and Material Handling ("AMH") operations segment, the
Semiconductor operations segment and the SILMA Software operations segment. The
AMH operations segment provides intelligent automation software and hardware
products for assembly, material handling and packaging applications.
The Semiconductor operations segment provides semiconductor
contamination control products, such as, standard and customized products for
contamination control (mini and micro environments), Standard Mechanical
Interfaces ("SMIF") integration and front-end wafer handling solutions for
semiconductor OEMs. In addition, the segment provides end users guidance and
inspection vision products and robots to end users.
The SILMA Software ("SILMA") operations segment provides 3-D graphical
simulation tools for assembly process design, simulation and analysis.
The reportable segments are each managed separately because they
manufacture and distribute distinct products with different production
processes.
The Company evaluates performance and allocates resources based on
segment revenues and segment operating income (loss). Segment operating income
(loss) comprises income before unallocated research and development expenses,
unallocated selling, general and administrative expenses, amortization of
intangibles, interest income, interest and other expenses and income taxes.
Management does not fully allocate research and development expenses
and selling, general and administrative expenses when making capital spending
decisions, expense funding decisions or assessing segment performance. There
were no intersegment sales or transfers between segments.
Segment information for total assets and capital expenditures is not
presented as such information is not used in measuring segment performance or
allocating resources among segments.
(in thousands) Year Ended June 30,
--------------------------------------------
2000 1999 1998
--------- --------- ---------
Revenue:
Assembly and Material Handling operations .............. $ 81,454 $ 74,858 $ 94,308
Semiconductor operations................................ 12,438 5,347 7,046
SILMA Software operations............................... 5,320 7,169 4,086
--------- --------- ---------
Total revenue $ 99,212 $ 87,374 $ 105,440
========= ========= =========
Operating (loss) income:
Assembly and Material Handling operations............... $ 19,378 $ 18,803 $ 24,962
Semiconductor operations................................ 1,674 ( 207) ( 145)
SILMA Software operations............................... ( 548) 2,372 ( 501)
--------- --------- ---------
Segment profit (loss) 20,504 20,968 24,316
F-21
Unallocated research, development and engineering
and selling, general and administrative.............. ( 23,270) ( 17,763) ( 21,207)
Interest income......................................... 1,031 967 998
Interest expense........................................ (285) (41) (27)
--------- --------- ---------
(Loss) income before provision for (benefit from)
income taxes $ (2,020) $ 4,131 $ 4,080
========= ========= =========
Management also assesses the Company's performance, operations and
assets by geographic areas, and therefore revenue and long-lived assets are
summarized in the following table:
(in thousands) Year Ended June 30,
--------------------------------------------
2000 1999 1998
--------- --------- ---------
Revenue:
United States........................................... $ 54,320 $ 46,119 $ 65,630
Germany................................................. 12,865 12,701 10,088
France.................................................. 12,665 10,991 11,834
Other European countries................................ 13,575 12,955 12,815
All other countries..................................... 5,787 4,608 5,073
--------- --------- ---------
$ 99,212 $ 87,374 $ 105,440
========= ========= =========
Long-lived assets:
United States........................................... $ 24,888 $ 7,099 $ 7,112
All other countries..................................... 469 473 508
--------- --------- ---------
Total long-lived assets $ 25,357 $ 7,572 $ 7,620
========= ========= =========
Total long-lived assets................................... $ 25,357 $ 7,572 $ 7,620
Other assets including current............................ 68,166 64,105 62,690
--------- --------- ---------
Total consolidated assets $ 93,523 $ 71,677 $ 70,310
========= ========= ---------
No single customer accounted for more than 10% of the Company's net
revenue in 2000, 1999 and 1998.
10. Subsequent event
On July 21, 2000, the Company acquired HexaVision Technologies, Inc.
("HexaVision"), a Canadian corporation. HexaVision is a machine vision research
and development company. Under the terms of the purchase agreement, the Company
paid $ 5.1 million in cash and will be issuing shares of its common stock to the
shareholders of HexaVision with a value of $1.1 million subject to certain
conditions. In addition, two payments totaling approximately $1.6 million in
cash are contingent upon the achievement of certain operational milestones by
HexaVision. The Company intends to account for the acquisition under the
purchase method and will include the results of operations of HexaVision in
Adept's results of operations beginning July 21, 2000.
F-22
SCHEDULE II
ADEPT TECHNOLOGY, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance Additions
at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions (1) of Period
- -------------------------------------------- ------------ -------------- ----------------- ------------
Year ended June 30, 1998:
Allowance for doubtful accounts $ 459 $ 346 $ 343 $ 462
Year ended June 30, 1999:
Allowance for doubtful accounts 462 389 135 716
Year ended June 30, 2000:
Allowance for doubtful accounts 716 516 595 637
<FN>
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(1) Includes write offs net of recoveries.
</FN>
(a)(3) Exhibits
3.1 Amended and Restated Articles of Incorporation of
the Registrant (incorporated by reference to
Exhibit 3.1 to the Registrant's Registration
Statement on Form S- 1 (No. 33-98816) (the "1995
Form S-1")).
3.2 Bylaws of the Registrant, as amended to date .
10.1 ***** 1983 Stock Incentive Program, and form of
agreements thereto (incorporated by reference to
Exhibit 10.1 to the 1995 Form S-1).
10.2 ***** 1993 Stock Plan as amended, and form of agreement
thereto (incorporated by reference to Exhibit
10.2 to the Registrant's Form 10-K for the fiscal
year ended June 30, 1997 (the "1997 Form 10-K")).
10.3 ***** 1998 Employee Stock Purchase Plan as amended, and
form of agreements thereto (incorporated by
reference to Exhibit 10.3 to the Registrant's
Form 10-K for the fiscal year ended June 30, 1999
(the "1999 Form 10-K")).
10.4 ***** 1995 Director Option Plan as amended, and form of
agreement thereto (incorporated by reference to
Exhibit 10.4 to the 1997 Form 10-K).
10.5 Form of Indemnification Agreement between the
Registrant and its officers and directors
(incorporated by reference to Exhibit 10.5 to the
1995 Form S-1).
10.6.1 Lease Agreement between the Registrant and
Technology Associates I dated July 18, 1986, as
amended (incorporated by reference to Exhibit
10.6.1 to the 1995 Form S-1).
10.6.2 Office Building Lease between Registrant and
Puente Hills Business Center II dated May 20,
1993, as amended (incorporated by reference to
Exhibit 10.6.2 to the 1995 Form S-1).
10.6.3 Standard Office Lease - Gross between SILMA
Incorporated and South Bay/Copley Joint Venture
dated November 11, 1992 (incorporated by
reference to Exhibit 10.6.3 to the 1995 Form
S-1).
10.6.4 Fifth Amendment to Lease between Registrant and
Metropolitan Life Insurance Company dated as of
December 5, 1996 (incorporated by reference to
Exhibit 10.6.4 to the 1997 Form 10-K).
10.7 ***** Loan Payoff Plan dated August 3, 1993 between
Registrant and Charles Duncheon (incorporated by
reference to Exhibit 10.7 to the 1995 Form S-1).
10.7.1 ***** Promissory Note between Registrant and Charles
Duncheon dated August 20, 1998 (incorporated by
reference to Exhibit 10.7.1 to the 1999 Form
10-K).
10.7.2 ***** Promissory Note between Registrant and Richard
Casler dated April 16, 1999 (incorporated by
reference to Exhibit 10.7.2 to the 1999 Form
10-K).
10.7.3 ***** Promissory Note between Registrant and Brian
Carlisle dated May 7, 1999 (incorporated by
reference to Exhibit 10.7.3 to the 1999 Form
10-K).
10.7.4 ***** Promissory Note between Registrant and Bruce
Shimano dated May 7, 1999 (incorporated by
reference to Exhibit 10.7.4 to the 1999 Form
10-K).
10.8 ***** Offer Letter between the Registrant and Marcy
Alstott dated February 19, 1998, as amended
(incorporated by reference to Exhibit 10.8 to the
Registrant's Form 10-K for the fiscal year ended
June 30, 1998 (the "1998 Form 10-K")).
10.8.1 ***** Promissory Note between Registrant and Marcy
Alstott dated April 27, 1998 (incorporated by
reference to Exhibit 10.8.1 to the 1998 Form
10-K).
10.8.2 ***** Offer Letter between the Registrant and Kathleen
Fisher dated July 16, 1999 (incorporated by
reference to Exhibit 10.8.2 to the 1999 Form
10-K).
10.8.3 ***** Promissory Note between Registrant and Kathleen
Fisher dated August 2, 1999 (incorporated by
reference to Exhibit 10.8.3 to the 1999 Form
10-K).
10.9 Lease Agreement dated as of April 30, 1998
between the Registrant and the Joseph and Eda
Pell Revocable Trust dated August 18, 1989
(incorporated by reference to Exhibit 10.9 to the
1998 Form 10-K).
10.10 Lease Agreement dated June 1, 1998 between the
Registrant and Technology Centre Associates LLC
for the premises located at 180 Rose Orchard Way,
San Jose, California (incorporated by reference
to Exhibit 10.10 to the 1998 Form 10-K).
10.10.1 First Amendment to Lease Agreement dated June 1,
1998 between the Registrant and Technology Centre
Associates LLC dated July 31, 1998 (incorporated
by reference to Exhibit 10.10.1 to the 1998 Form
10-K).
10.10.2 Sublease between the Registrant and Ascent Logic
Corporation dated as of July 31, 1998
(incorporated by reference to Exhibit 10.10.2 to
the 1998 Form 10-K).
10.10.3 Second Amendment to Lease Agreement dated March
31, 2000 between Registrant and Technology Centre
Associates LLC dated July 31, 1998.
10.10.4 First Addendum to Lease Agreement dated August
18, 1999 between Registrant and Joseph and Eda
Pell Revocable Trust dated August 18, 1989.
10.10.5 Lease Agreement dated April 28, 2000 between
Registrant and Michael and Diane Edwards for
premises located in Tucson, Arizona.
10.10.6 Lease Agreement dated May 19, 2000 between
NanoMotion Inc. and United Insurance Co. of
America for premises located at Santa Barbara,
California.
13.1 Portions of Registrant's Annual Report to
Shareholders for the fiscal year ended June 30,
2000.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent
Auditors.
24.1 Power of Attorney (See Signature Page to this
Annual Report on Form 10-K).
27.1 Financial Data Schedule.
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***** Management contract or compensatory plan or arrangement.