UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No. 0-27122
ADEPT TECHNOLOGY, INC.
(Exact name of Registrant as Specified in its Charter)
California 94-2900635
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3011 Triad Drive, Livermore, California 94550
(Address of Principal Executive Offices) (Zip Code)
(925) 245-3400
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.)
YES [_] NO [X]
The number of shares of the Registrant's common stock outstanding as of November
12, 2004 was 30,510,316.
1
ADEPT TECHNOLOGY, INC.
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
October 2, 2004 and June 30, 2004 ......................................... 3
Condensed Consolidated Statements of Operations
Three months ended October 2, 2004 and September 27, 2003 ................. 4
Condensed Consolidated Statements of Cash Flows
Three months ended October 2, 2004 and September 27, 2003 ................. 5
Notes to Condensed Consolidated Financial Statements ...................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ..................................................... 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk ........ 33
Item 4. Controls and Procedures ........................................... 33
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ................................................. 35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ...... 35
Item 3. Defaults upon Senior Securities .................................. 35
Item 4. Submission of Matters to a Vote of Security Holders .............. 35
Item 5. Other Information ................................................ 35
Item 6. Exhibits .......................................................... 36
Signatures ................................................................ 37
Index to Exhibits ......................................................... 38
2
ADEPT TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
October 2, June 30,
2004 2004
--------- ---------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ............................................................... $ 5,222 $ 4,957
Accounts receivable, less allowance for doubtful accounts of $1,538 at
October 2, 2004 and 1,269 at June 30, 2004 ......................................... 10,325 13,385
Inventories ............................................................................. 7,492 6,233
Other current assets .................................................................... 1,051 656
--------- ---------
Total current assets ................................................................ 24,090 25,231
Property and equipment at cost ............................................................... 9,562 9,372
Less accumulated depreciation and amortization ............................................... 8,171 7,924
--------- ---------
Property and equipment, net .................................................................. 1,391 1,448
Goodwill ..................................................................................... 3,176 3,176
Other intangibles, net ....................................................................... 374 423
Other assets ................................................................................. 1,294 1,293
--------- ---------
Total assets ........................................................................ $ 30,325 $ 31,571
========= =========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................................ $ 4,643 $ 5,689
Accrued payroll and related expenses .................................................... 1,377 1,486
Accrued warranty expenses ............................................................... 1,966 2,111
Deferred revenue ........................................................................ 1,506 1,589
Accrued restructuring expenses .......................................................... 50 191
Other accrued liabilities ............................................................... 523 455
--------- ---------
Total current liabilities ........................................................... 10,065 11,521
Long term liabilities:
Subordinated convertible note ........................................................... 3,000 3,000
Other long-term liabilities ............................................................. 1,446 1,422
Commitments and contingencies
Redeemable convertible preferred stock, no par value:
5,000 shares authorized, no shares issued and outstanding at
October 2, 2004 and June 30, 2004 ....................................................... -- --
Shareholders' equity:
Preferred stock, no par value: 5,000 shares authorized, none issued and
outstanding ............................................................................. -- --
Common stock, no par value: 70,000 shares authorized, 30,088 and 29,910
shares issued and outstanding at October 2, 2004 and June 30,2004, ...................... 143,550 143,405
respectively
Accumulated deficit: ....................................................................... (127,736) (127,777)
--------- ---------
Total shareholders' equity .......................................................... 15,814 15,628
Total liabilities, redeemable convertible preferred stock and shareholders'
equity ............................................................................ $ 30,325 $ 31,571
========= =========
<FN>
See accompanying notes
</FN>
3
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three months ended
---------------------------
October 2, September 27,
2004 2003
-------- --------
(unaudited) (unaudited)
Net revenues ..................................................................................... $ 11,293 $ 10,647
Cost of revenues ................................................................................. 5,827 6,818
-------- --------
Gross margin ..................................................................................... 5,466 3,829
Operating expenses:
Research, development and engineering ...................................................... 1,661 1,766
Selling, general and administrative ........................................................ 3,710 3,147
Restructuring charge (reversal), net ....................................................... (43) --
Amortization of other intangible assets .................................................... 49 178
-------- --------
Total operating expenses ......................................................................... 5,377 5,091
-------- --------
Operating income (loss) .......................................................................... 89 (1,262)
Interest expense, net ............................................................................ 37 132
-------- --------
Income (loss) from continuing operations before income taxes ..................................... 52 (1,394)
Provision for income taxes ....................................................................... 12 13
-------- --------
Income (loss) from continuing operations ......................................................... 40 (1,407)
Income from discontinued operations .............................................................. -- 147
-------- --------
Net income (loss) ................................................................................ $ 40 $ (1,260)
======== ========
Basic income (loss) per share:
Continuing operations ...................................................................... $ 0.00 $ (0.09)
Discontinued operations .................................................................... 0.00 0.01
Basic income (loss) per share .............................................................. 0.00 (0.08)
Diluted income (loss) per share:
Continuing operations ...................................................................... $ 0.00 $ (0.09)
Discontinued operations .................................................................... 0.00 0.01
Diluted income (loss) per share ............................................................ 0.00 (0.08)
Basic number of shares used in computing per share amounts from:
Continuing operations ...................................................................... 29,903 15,395
Discontinued operations .................................................................... 29,903 15,395
Diluted number of shares used in computing per share amounts from:
Continuing operations ...................................................................... 30,355 15,395
Discontinued operations .................................................................... 30,355 15,395
<FN>
See accompanying notes
</FN>
4
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three months ended
--------------------------
October 2, September 27,
2004 2003
------- -------
(unaudited) (unaudited)
Operating activities
Net income (loss) from continuing operations .................................................... $ 40 $(1,260)
Non-cash adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation ................................................................................ 247 543
Amortization of intangibles ................................................................. 49 178
Loss on disposal of property and equipment .................................................. -- 21
Changes in operating assets and liabilities:
Accounts receivable, net .................................................................. 3,060 (1,155)
Inventories, net .......................................................................... (1,258) (76)
Prepaid expenses and other current assets ................................................. (395) (324)
Other assets .............................................................................. (1) 91
Accounts payable .......................................................................... (1,047) 1,518
Other accrued liabilities ................................................................. (269) 156
Accrued restructuring charges ............................................................. (141) (191)
Other long term liabilities ............................................................... 23 (62)
------- -------
Net cash provided by (used in) operating activities from continuing operations .............. 308 (561)
------- -------
Net cash used in discontinued operations .................................................... -- --
------- -------
Net cash provided by (used in) operating activities ......................................... 308 (561)
------- -------
Investing activities
Purchase of property and equipment .......................................................... (189) (36)
------- -------
Net cash provided by (used in) provided by investing activities ............................. (189) (36)
------- -------
Financing activities
Net proceeds from employee stock incentive program and employee .............................
stock purchase plan, net of repurchases and cancellations ................................. 146 6
------- -------
Net cash provided by financing activities ................................................... 146 6
------- -------
Increase (decrease) in cash and cash equivalents ................................................. 265 (591)
Cash and cash equivalents, beginning of period ................................................... 4,957 3,234
------- -------
Cash and cash equivalents, end of period ......................................................... $ 5,222 $ 2,643
======= =======
Cash paid during the period for:
Interest .................................................................................... $ 46 $ 30
Taxes ....................................................................................... $ 19 $ 22
<FN>
See accompanying notes.
</FN>
5
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying condensed consolidated financial statements have been prepared
in conformity with U.S. generally accepted accounting principles. However,
certain information or footnote disclosures normally included in financial
statements prepared in accordance with U.S. generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. The information furnished in this
report reflects all adjustments that, in the opinion of management, are
necessary for a fair presentation of the consolidated financial position,
results of operations and cash flows as of and for the interim periods. The
results for such periods are not necessarily indicative of the results to be
expected for the full fiscal year or for any other future period. Such
adjustments consist of items of a normal recurring nature. The condensed
consolidated financial statements included in this quarterly report on Form 10-Q
should be read in conjunction with the audited consolidated financial statements
and notes thereto for the fiscal year ended June 30, 2004 included in Adept
Technology, Inc.'s ("Adept" or the "Company") Annual Report on Form 10-K as
filed with the Securities and Exchange Commission on September 27, 2004.
The preparation of condensed consolidated financial statements in conformity
with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the condensed consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Income (loss) per Share
Basic income (loss) per share is based on the weighted average number of shares
of common stock outstanding during the period, excluding restricted stock, while
diluted income (loss) per share is based on the weighted average number of
shares of common stock outstanding during the period and the dilutive effects of
common stock equivalents (primarily stock options, warrants and a convertible
note), determined using the treasury stock method, outstanding during the
period, unless the effect of including the common stock equivalents is
anti-dilutive.
2. Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Short-term investments
typically consist of commercial paper and tax exempt municipal bonds with
maturities between three and 12 months, as well as market auction rate preferred
stock and auction rate notes with maturities of 12 months or less. Investments
are classified as held-to-maturity, trading, or available-for-sale at the time
of purchase. At October 2, 2004, the Company held no short-term investments.
3. Inventories
Inventories are stated at the lower of standard cost, which approximates actual
(first-in, first-out method) or market (estimated net realizable value). The
components of inventory are as follows:
October 2, June 30,
(in thousands) 2004 2004
---- ----
Raw materials....................... $ 2,492 $ 1,694
Work-in-process..................... 2,060 2,005
Finished goods...................... 2,940 2,534
-------- --------
$ 7,492 $ 6,233
======== ========
6
4. Warranties
The Company offers a two year parts and one year labor limited warranty for all
of its hardware component products. The specific terms and conditions of those
warranties are set forth in the Company's "Terms and Conditions of Sale", which
is published in sales catalogs and on each sales order acknowledgement. The
Company estimates the costs that may be incurred under its limited warranty, and
records a liability at the time product revenue is recognized. Factors that
affect the Company's warranty liability include the number of installed units,
historical and anticipated rates of warranty claims, and costs per claim. The
Company periodically assesses the adequacy of its recorded warranty liabilities
and adjusts the amounts as necessary.
Changes in the Company's warranty liability during the first quarter are as
follows:
Three months ended
--------------------------
(in thousands) October 2, September 27,
2004 2003
------- -------
Balance at beginning of period .......... $ 2,111 $ 1,833
Warranties issued ....................... 237 323
Change in estimated warranty provision .. (91) --
Warranty claims ......................... (291) (150)
------- -------
Balance at end of period ................ $ 1,966 $ 2,006
======= =======
5. Property and Equipment
Property and equipment are recorded at cost.
The components of property and equipment are summarized as follows:
October 2, June 30,
(in thousands) 2004 2004
------- -------
Machinery and equipment .................... $ 2,444 $ 2,306
Computer equipment ......................... 5,071 5,020
Office furniture and equipment ............. 2,047 2,046
------- -------
9,562 9,372
Accumulated depreciation and amortization .. (8,171) (7,924)
------- -------
Net property and equipment ................. $ 1,391 $ 1,448
======= =======
6. Accrued Restructuring Expenses
The following table summarizes the Company's accrued restructuring expenses at
October 2, 2004:
Additional
Charges/ Amounts
Balance (Reversals) Utilized Balance
June 30, Q1 Fiscal Q1 Fiscal October 2,
(in thousands) 2004 2005 2005 2004
---- ---- ---- ----
Employee severance costs .... $ 69 $ 7 $ 76 $ 0
Lease commitments ........... 122 (50) 22 50
---- ---- ---- ----
Total ..................... $191 $(43) $ 98 $ 50
==== ==== ==== ====
During the quarter ended October 2, 2004, the Company reversed $50,000 of
previously accrued restructuring expenses, as the Company successfully subleased
7
an unused field sales office. This reversal was partially offset by a $7,000
charge for severance related employee benefits not previously accrued. The
accrued restructuring expense balance at quarter end is comprised entirely of
cash charges that are expected to be paid over the next four quarters against
non-cancelable lease commitments.
7. Discontinued Operations
During the third quarter of fiscal 2004, Adept adopted a formal plan to dispose
of and completed the disposition of its Solutions business segment for no cash
consideration. Adept fully disposed of the Solutions business segment and has no
continuing interest and accordingly, the Solutions business segment was
accounted for as a discontinued operation. The results of operations of the
Solutions business segment have been removed from Adept's continuing operations
for all periods presented and presented as a separate line item in the
accompanying consolidated statements of operations as discontinued operations.
8. Legal Proceedings
From time to time, the Company is party to various legal proceedings or claims,
either asserted or unasserted, which arise in the ordinary course of its
business. The Company has reviewed pending legal matters and believes that the
resolution of these matters will not have a material adverse effect on its
business, financial condition or results of operations.
Adept has in the past received communications from third parties asserting that
it has infringed certain patents and other intellectual property rights of
others, or seeking indemnification against alleged infringement. While it is not
feasible to predict or determine the likelihood or outcome of any actual or
potential actions from such assertions against the Company, it believes the
ultimate resolution of these matters will not have a material adverse effect on
its financial position, results of operations or cash flows.
9. Income Taxes
The Company provides for income taxes during interim reporting periods based
upon an estimate of its annual effective tax rate. The Company also maintains a
liability to cover the cost of additional tax exposure items on the filing of
federal and state income tax returns as well as filings in foreign
jurisdictions. Each of these filing jurisdictions may audit the tax returns
filed and propose adjustments. Adjustments arise from a variety of factors,
including different interpretations of statutes and regulations. For the three
months ended October 2, 2004, the Company recorded a provision for income taxes
from continuing operations of $12,000 for domestic and international tax
liabilities.
10. Intangible Assets
The following is a summary of the gross carrying amount and accumulated
amortization, aggregate amortization expense, and estimated amortization expense
for the next five successive fiscal years related to the intangible assets
subject to amortization.
As of October 2, 2004
--------------------------------------------
Gross Carrying Accumulated Net Carrying
Amortized intangible assets Amount Amortization Amount
--------------------------- ------ ------------ ------
Developed technology ................ $ 2,389 $(2,015) $ 374
Non-compete agreements .............. 380 (380) --
------- ------- -------
Total ............................ $ 2,769 $(2,395) $ 374
======= ======= =======
The aggregate amortization expense for the three months ended October 2, 2004
totaled $49,000, and the estimated amortization expense for the next five years
is as follows:
(in thousands) Amount
-------
Remaining for fiscal year 2005 .................. $146
For fiscal year 2006 ............................ 195
For fiscal year 2007 ............................ 33
----
$374
====
8
11. Income (loss) per Share
Basic income (loss) per share is computed by dividing net income (loss), the
numerator, by the weighted average number of shares of common stock outstanding,
the denominator, during the period. Diluted income (loss) per share gives effect
to equity instruments considered to be potential common shares, if dilutive,
computed using the treasury stock method of accounting. During the three months
ended September 27, 2003, dilutive net loss per share was computed without the
effect of equity instruments considered to be potential common shares as the
impact would be anti-dilutive to the net loss.
Three months ended,
-------------------------
October 2, September 27,
(in thousands) 2004 2003
---------- ----------
Income (loss) from continuing operations ................ $ 40 $ (1,407)
Income from discontinued operations ..................... $ -- $ 147
---------- -----------
Net Income (loss) ....................................... $ 40 $ (1,260)
Basic:
Number of shares used in computing per share amounts
from continuing and discontinued operations: ....... 29,903 15,395
========== ==========
Income (loss) per share from:
continuing operations .......................... $ 0.00 $ (0.09)
========== ==========
discontinued operations ........................ $ 0.00 $ 0.01
========== ==========
Basic net income (loss) per share ..................... $ 0.00 $ (0.08)
========== ==========
Diluted:
Weighted average common shares used in computing
basic net income (loss) per
share from continuing
and discontinued operations: ..................... 29,903 15,395
========== ==========
Add: Weighted average dilutive potential common
stock ..................................... 452 --
========== ==========
Weighted average common shares used in computing
diluted net loss per share from continuing and
discontinued operations: ..................... 30,355 15,395
========== ==========
Income (loss) per share from:
continuing operations .............................. $ 0.00 $ (0.09)
========== ==========
discontinued operations ............................ $ 0.00 $ 0.01
========== ==========
Diluted net income (loss) per share ................... $ 0.00 $ (0.08)
========== ==========
12. Impact of Recently Issued Accounting Standards
On March 31, 2004, the FASB issued an Exposure Draft, "Share-Based Payment - An
Amendment of FASB Statements No.123 and 95" (proposed FAS 123R). The proposed
FAS 123R addresses the accounting for transactions in which an enterprise
receives employee services in exchange for (a) equity instruments of the
enterprise or (b) liabilities that are based on the fair value of the
enterprise's equity instruments or that may be settled by the issuance of such
equity instruments. The proposed FAS 123R would eliminate the ability to account
for share-based compensation transactions using APB 25 and generally would
require instead that such transactions be accounted for using a fair-value based
method. As proposed, companies would be required to recognize an expense for
compensation cost related to share-based payment arrangements including stock
options and employee stock purchase plans. We would be required to implement the
proposed standard no later than the quarter that begins July 1, 2005. The
cumulative effect of adoption, if any, applied on a modified prospective basis,
would be measured and recognized on July 1, 2005. We are currently evaluating
option valuation methodologies and assumptions in light of the proposed FAS 123R
related to employee stock options. Current estimates of option values using the
Black-Scholes method may not be indicative of results from valuation
9
methodologies ultimately adopted in the final rules. It is expected that the
final statement will be issued before December 31, 2004.
13. Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in APB Opinion 25 whereby options are granted at market price,
and therefore no compensation costs are recognized. The Company has elected to
retain its current method of accounting as described above and has adopted the
disclosure requirements of SFAS 123 and SFAS 148. If compensation expense for
the Company's stock option plans had been determined based upon fair values at
the grant dates for awards under those plans in accordance with SFAS 123, the
Company's pro forma net income (loss) and net income (loss) per share would be
as follows:
Three months ended,
--------------------------
October 2, September 27,
(in thousands) 2004 2003
------- -------
Net income (loss), as reported ............................. $ 40 $(1,260)
Add: Stock-based employee compensation expense
included in the determination of net income (loss),
as reported ............................................. -- --
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects .............. (231) (518)
------- -------
Pro forma net loss ......................................... $ (191) $(1,778)
======= =======
Basic and diluted loss per common share:
As reported ............................................. $ 0.00 $ (0.08)
======= =======
Pro forma ............................................... $ (0.01) $ (0.12)
======= =======
14. Segment Information
Adept's business is focused towards delivering intelligent flexible production
automation components for assembly and material handling ("AMH") applications
under two categories: (1) Components and (2) Services and Support.
The Components segment provides intelligent production automation software and
hardware component products externally to customers and internally to the other
business segment for support of existing customer installations.
The Services and Support segment provides support services to customers
including providing information regarding the use of the Company's automation
equipment, assisting with the ongoing support of installed systems, consulting
services for applications, and training courses ranging from system operation
and maintenance to advanced programming geared towards manufacturing engineers
who design and implement automation lines.
The Company evaluates performance and allocates resources based on segment
revenue and segment operating income (loss). Segment operating income (loss) is
comprised of income before unallocated research, development and engineering
expenses, unallocated selling, general and administrative expenses, interest
income, and interest and other expenses.
Management does not fully allocate research, development and engineering
expenses and selling, general and administrative expenses when making capital
spending and expense funding decisions or assessing segment performance. There
is no inter-segment revenue recognized. Transfers between segments are recorded
at cost.
10
Segment information for total assets and capital expenditures is not presented
as such information is not used in measuring segment performance or allocating
resources between segments.
Three months ended
---------------------------
October 2, September 27,
(in thousands) 2004 2003
-------- --------
Revenue:
Components ...................................... $ 7,925 $ 6,384
Services and Support ............................ 3,368 4,263
-------- --------
Total revenue ................................... $ 11,293 $ 10,647
======== ========
Operating income (loss):
Components ...................................... $ 926 $ (201)
Services and Support ............................ 873 1,412
-------- --------
Segment profit (loss) ........................... 1,799 1,211
Unallocated research, development
and engineering and selling,
general and administrative ................... (1,704) (2,295)
Restructuring charges (reversal), net ........... (43) --
Amortization of Intangibles ..................... (49) (178)
Interest income ................................. 9 19
Interest expense ................................ (46) (151)
-------- --------
Income (loss) from continuing operations
before income taxes ........................... $ 52 $ (1,394)
======== ========
15. Comprehensive Income
For the three months ended October 2, 2004 and September 27, 2003, there were no
significant differences between the Company's comprehensive income or loss and
its net income or loss.
16. Equity
During the three months ended October 2, 2004, 61,798 shares of common stock
were issued upon the exercise of options under the Company's stock option plans,
and 116,473 shares of common stock were issued under the Company's employee
stock purchase plan (ESPP). Shares are issued semi-annually under the ESPP, in
February and August.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report contains forward-looking statements. These statements involve known
and unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from any future
results, performances or achievements expressed or implied by the
forward-looking statements. Forward-looking statements include, but are not
limited to, statements about:
o the economic environment affecting us and the markets we serve;
o sources of revenues and anticipated revenues, including the
contribution from the growth of new products and markets;
o our expectations regarding our cash flows and the impact of the timing
of receipts and disbursements;
o our estimates regarding our liquidity and capital requirements, and our
needs for additional financing;
o marketing and commercialization of our products under development;
o our ability to attract customers and the market acceptance of our
products;
o our ability to establish relationships with suppliers, systems
integrators and OEMs for the supply and distribution of our products;
o plans for future products and services and for enhancements of existing
products and services;
o plans for future acquisitions; and
o our intellectual property.
In some cases, you can identify forward-looking statements by terms such as
"may," "intend," "might," "will," "should," "could," "would," "expect,"
"believe," "estimate," "predict," "potential," or the negative of these terms,
and similar expressions intended to identify forward-looking statements. These
statements reflect our current views with respect to future events and are based
on assumptions and subject to risks and uncertainties. Given these
uncertainties, you should not place undue reliance on these statements. We
discuss many of these risks in this quarterly report on Form 10-Q in greater
detail under the heading "Factors Affecting Future Operating Results." Also,
these statements represent our estimates and assumptions only as of the date of
this report.
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.
Adept has 139 trademarks of which 14 are registered trademarks, some of which
include the Adept Technology logo, AIM(R), FireBlox(R), HexSight(R),
MetaControls(R), Adept Cobra 600(TM), Adept Cobra 800(TM), Adept SmartAmp(TM),
Adept SmartModule(TM), Adept SmartServo(TM), AdeptOne(TM), and AdeptSix(TM).
OVERVIEW
We provide intelligent production automation products, components and services
to our customers in many industries including the electronics/communications,
automotive, appliance, food and pharmaceuticals, semiconductor, original
equipment manufacturer, or OEM, and life sciences industries. This mix varies
considerably from period to period due to a variety of market and economic
factors. We utilize our comprehensive portfolio of high reliability mechanisms,
high-performance motion controllers and application development software to
deliver automation products that meet our customers' increasingly complex
manufacturing requirements. We offer our customers comprehensive and tailored
automation products that reduce the time and cost to design, engineer and launch
products into high-volume production. The benefits of Adept automation products
include increased manufacturing flexibility for future product generations, less
customized engineering and reduced dependence on production engineers. Our
product range currently includes system design software, process knowledge
software, integrated real-time vision and multi-axis motion controls, machine
vision systems and software, industrial robots, and other flexible automation
equipment. Our software has not generally been sold or licensed separately,
though we intend to market and sell software licenses on a standalone basis in
the foreseeable future. In recent years, we have expanded our robot product
lines and developed advanced software and sensing technologies that have enabled
robots to perform a wider range of functions. In fiscal 2004, we introduced the
Adept i-series robots, the only self-contained SCARA (Selective Compliance
Assembly Robot Arm) robot with the controller built inside the robot arm. These
12
robots are designed for a broad range of basic applications that are currently
utilizing dedicated automation or manual labor. We believe this technology will
have a significant positive impact on our gross margins during fiscal 2005 and
beyond.
International sales generally comprise between 45% and 75% of our total revenues
for any given quarter, and represented approximately 71% of our total revenues
for the quarter ended October 2, 2004.
This discussion summarizes the significant factors affecting our consolidated
operating results, financial condition, liquidity and cash flow during the
quarter ended October 2, 2004. Unless otherwise indicated, references to any
quarter in this Management's Discussion and Analysis of Financial Condition and
Results of Operations refer to our fiscal quarter ended October 2, 2004. This
discussion should be read with the consolidated financial statements and
financial statement footnotes included in this Quarterly Report on Form 10-Q and
in conjunction with the audited financial statements and notes thereto for the
fiscal year ended June 30, 2004 included in the Company's Annual Report on Form
10-K as filed with the Securities and Exchange Commission on September 27, 2004.
Critical Accounting Policies
Management's discussion and analysis of Adept's financial condition and results
of operations are based upon Adept's consolidated financial statements which
have been prepared in conformity with U.S. generally accepted accounting
principles. The preparation of these financial statements requires management to
make estimates, judgments and assumptions that affect reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, we evaluate our estimates,
including those related to fixed price contracts, product returns, warranty
obligations, bad debt, inventories, cancellation costs associated with long-term
commitments, investments, intangible assets, income taxes, restructuring,
service contracts, contingencies and litigation. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making estimates and judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Estimates, by
their nature, are based on judgment and available information. Therefore, actual
results could differ from those estimates and could have a material impact on
our consolidated financial statements, and it is possible that such changes
could occur in the near term.
We have identified the accounting principles which we believe are most critical
to our reported financial status by considering accounting policies that involve
the most complex or subjective decisions or assessments. These accounting
policies described below include:
o revenue recognition;
o allowance for doubtful accounts;
o inventories;
o warranties; and
o deferred tax valuation allowance.
Revenue Recognition. We recognize product revenue in accordance with Staff
Accounting Bulletin 104, ("SAB 104"), when persuasive evidence of a
non-cancelable arrangement exists, delivery has occurred and/or services have
been rendered, the price is fixed or determinable, collectibility is reasonably
assured, legal title and economic risk is transferred to the customer, and when
an economic exchange has taken place. If a significant portion of the price is
due after our normal payment terms, which are 30 to 90 days from the invoice
date, we account for the price as not being fixed and determinable. In these
cases, if all of the other conditions referred to above are met, we recognize
the revenue as the invoice becomes due. Generally, the Company does not have
multi-element arrangements.
We recognize software revenue in accordance with the American Institute of
Certified Public Accountants' Statement of Position 97-2 ("SOP 97-2") on
Software Revenue Recognition as amended by SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition With Respect to Certain Transactions. Under SOP
97-2, revenue attributable to an element in a customer arrangement is recognized
when (i) persuasive evidence of an arrangement exists, (ii) delivery has
occurred, (iii) the fee is fixed or determinable, (iv) collectibility is
probable and (v) the arrangement does not require services that are essential to
the functionality of the software. License revenue is recognized on shipment of
the product provided that no significant vendor or post-contract support
13
obligations remain and that collection of the resulting receivable is deemed
probable by management. Insignificant vendor and post-contract support
obligations are accrued upon shipment of the licensed product. For software that
is installed and integrated by the customer, revenue is recognized upon shipment
assuming functionality has already been proven in prior sales and there are no
customizations that would cause a substantial acceptance risk.
Service revenue includes training, consulting and customer support, the latter
of which includes all field service activities; i.e., maintenance, repairs,
system modifications or upgrades, and sales of remanufactured products. Revenues
from training and consulting are recognized at the time the service is performed
and the customer has accepted the work. These revenues are not essential to the
product functionality and therefore do not bear on revenue recognition policy
for the products.
Deferred revenues represent payments received from customers in advance of the
delivery of products and/or services, or before satisfaction of all revenue
recognition requirements enumerated above, as well as cases in which we have
invoiced the customer but cannot yet recognize the revenue for the same reasons
discussed above.
Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts
for estimated losses resulting from the inability of our customers to make
required payments. We assess the customer's ability to pay based on a number of
factors, including our past transaction history with the customer and credit
worthiness of the customer. Management specifically analyzes accounts receivable
and historical bad debts, customer concentrations, customer credit-worthiness,
current economic trends and changes in our customer payment terms when
evaluating the adequacy of the allowances for doubtful accounts. We do not
generally request collateral from our customers. If the financial condition of
our customers were to deteriorate in the future, resulting in an impairment of
their ability to make payments, additional allowances may be required.
Our policy is to record specific allowances against known doubtful accounts. An
additional allowance is also calculated based on the greater of 0.5% of
consolidated accounts receivable or 20% of consolidated accounts receivable more
than 120 days past due. Specific allowances are netted out of the respective
receivable balances for purposes of calculating this additional reserve. On an
ongoing basis, we evaluate the credit worthiness of our customers and, should
the default rate change or the financial positions of our customers change, we
may increase this additional allowance percentage.
Inventories. Inventories are stated at the lower of standard cost, which
approximates actual cost (first-in, first-out method) or market (estimated net
realizable value). We perform a detailed assessment of inventory at each balance
sheet date, which includes, among other factors, a review of component demand
requirements, product lifecycle and product development plans, and quality
issues. As a result of this assessment, we write down inventory for estimated
obsolescence or unmarketable inventory equal to the difference between the cost
of the inventory and the estimated liquidation value based upon assumptions
about future demand and market conditions. If actual demand and market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required.
Manufacturing inventory includes raw materials, work-in-process, and finished
goods. All work-in-process inventories with work orders that are open in excess
of 180 days are fully written down. The remaining inventory valuation provisions
are based on an excess and obsolete systems report, which captures all obsolete
parts and products and all other inventory, which have quantities on hand in
excess of one year's projected demand. Individual line item exceptions are
identified for either inclusion or exclusion from the inventory valuation
provision. The materials control group and cost accounting function monitor the
line item exceptions and make periodic adjustments as necessary.
Warranties. We provide for the estimated cost of product warranties at the time
revenue is recognized. While we engage in extensive product quality programs and
processes, including actively monitoring and evaluating the quality of our
components suppliers, our warranty obligation is affected by product failure
rates, material usage and service labor and delivery costs incurred in
correcting a product failure. Should actual product failure rates, material
usage, service labor or delivery costs differ from our estimates, revisions to
the estimated warranty liability would be required.
Deferred Tax Valuation Allowance. We record a valuation allowance to reduce
deferred tax assets to the amount that is most likely to be realized. While we
14
have considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance, in the
event we were to determine that we would be able to realize deferred tax assets
in the future in excess of our net recorded amount, an adjustment to the
deferred tax asset would increase income in the period such determination was
made. Likewise, should we have a net deferred tax asset and determine that we
would not be able to realize all or part of our net deferred tax asset in the
future, an adjustment to the deferred tax assets would be charged to income in
the period that such determination was made.
Results of Operations
Three Months Ended October 2, 2004 as compared to Three Months Ended September
27, 2003.
Net revenues. Net revenues increased by 6.1% to $11.3 million for three months
ended October 2, 2004 as compared to $10.6 million for three months ended
September 27, 2003. The increase in revenue was attributable to an increase in
sales by our components segment, which was partially offset by a reduction in
our services and support segment. Components revenues increased 24.1% to $7.9
million for the three months ended October 2, 2004 from $6.4 million for the
three months ended September 27, 2003. The increase is attributable to the sale
of a vision software license for $1.1 million and increased unit sales of our
advanced line of Cobra robots, in particular the Adept i-series robots with the
controller built into the robot arm, partially offset by a decrease in revenue
realized from fewer unit sales of our linear modules. Services and Support
revenues decreased 21% to $3.4 million for the three months ended October 2,
2004 from $4.3 million for the three months ended September 27, 2003. The
decrease was primarily attributable to the slowdown in domestic demand for
services involved in the redeployment and refurbishing of existing customer
equipment. We believe this reflects a general slowdown in U.S. manufacturing
activity over the past two quarters, as reflected by several manufacturing
economic indicators.
Our domestic sales were $3.2 million for the three months ended October 2, 2004
compared to $5.6 million for the three months ended September 27, 2003, a
decrease of 43%. Our international sales from continuing operations were $8.1
million for the three months ended October 2, 2004 compared to $5.0 million for
the comparable period in fiscal 2003, an increase of 62%. The increase in
revenue from international sales is primarily attributable to strong sales to
automotive and consumer electronics applications, aided in part by the favorable
exchange rate between the Euro and the U.S. Dollar.
Our product sales are seasonal. We have historically had higher bookings and
shipments for our products during the fourth quarter of each fiscal year and
lower bookings and shipments during the first quarter of the succeeding fiscal
year, due primarily to the slowdown in sales to European markets and summer
vacations. This seasonal trend continued in the first quarter of fiscal 2005.
Gross Margin. Gross margin from continuing operations as a percentage of net
revenue was 48.4% for the three months ended October 2, 2004 compared to 36% for
three months ended September 27, 2003. The improvement in gross margin reflects
the lower cost structure and improved competitive positioning of our advanced
line of Adept Cobra robots and smart amp based products as well as the positive
impact of the aforementioned vision software license sale, which had minimal
associated cost of revenues. We also benefited from improved utilization of our
manufacturing capacity and improvements in our inventory and materials
management. We have aggressively outsourced those processes where we provide
little or no manufacturing value add. The improvements in production volumes
combined with the lower fixed overhead expense resulted in lower unit standard
costs and higher corresponding gross margins. We expect gross margins to be in
the mid-40% range through the remainder of fiscal 2005 due to the reduction in
fixed overhead costs, the completion of continuing cost improvement programs
including further subassembly outsourcing, and the introduction of higher margin
products. We could, however, experience significant fluctuations in our gross
margin percentage due to changes in volume, changes in availability of
components, changes in product configuration, increased price based competition,
and/or changes in sales mix, particularly with respect to any software license
sales.
Research, Development and Engineering Expenses. Research, development and
engineering expenses associated with continuing operations decreased by 5.9% to
$1.7 million, or 14.7% of net revenues for the three months ended October 2,
2004, from $1.8 million, or 16.6% of net revenues for three months ended
September 27, 2003. The decrease is primarily the result of reduced headcount
and decreased project spending resulting from completion of previously
implemented cost-cutting measures.
15
Selling, General and Administrative Expenses. Selling, general and
administrative expenses associated with continuing operations for three months
ended October 2, 2004 increased 17.9%, or $0.6 million, over the three months
ended September 27, 2003. The increase was primarily attributable to increases
in sales and marketing expenses for sales development activities, higher
expenses for audit work and legal review related to corporate governance
developments as well as the company's SEC public reporting requirements,
combined with an increase in bad debt allowances based on an analysis of
customer accounts.
Restructuring Charges. The accrued restructuring balance at quarter end is
comprised entirely of expenses that are expected to be paid over the next four
quarters against non-cancelable lease commitments.
Amounts utilized or
Balance released during Balance
(in thousands) June 30, 2004 Q1 Fiscal 2005 October 2, 2004
------------- -------------- ---------------
Employee severance costs ................ $ 69 $ 69 $ 0
Lease termination costs ................. 122 72 50
---- ---- ----
Total ................................. $191 $141 $ 50
==== ==== ====
Other Intangible Assets Amortization. Other intangibles amortization was $49,000
for three months ended October 2, 2004, and $178,000 for three months ended
September 27, 2003. The amortization has declined because certain of the other
intangible assets have now been fully amortized.
Interest Expense, Net. Interest expense, net of interest income, was $37,000 for
three months ended October 2, 2004 compared to $132,000 for the three months
ended September 27, 2003. The decrease in interest expense for the three months
ended October 2, 2004 reflects our improved cash position over the same period
in the prior year, which reduced the need to borrow funds. Interest expense for
both of the three month periods ended October 2, 2004 and September 27, 2003
included interest expense accrued on a $3.0 million convertible note, which
bears a 6% fixed interest rate.
Provision for Income Taxes. Our effective tax rate was 22% for the three months
ended October 2, 2004 as compared to the effective tax rate of less than 1% for
the three months ended September 27, 2003. In fiscal 2004, our tax rate differed
from the federal statutory income tax rate of 34% because a one-time benefit was
recorded for the reversal of previously accrued taxes. For the three months
ended October 2, 2004 we recorded a tax provision related to our state franchise
tax and Singapore subsidiary tax that resulted in the 22% effective tax rate. We
do not expect that the 22% effective tax rate is indicative of the effective tax
rate for the balance of fiscal 2005, as we have net operating loss and credit
carryforwards for federal and state income tax purposes.
Cash and Cash Equivalents. Cash and cash equivalents increased $265,000 from
June 30, 2004. Net cash provided by operating activities of $308,000 was
attributable to a decrease in net accounts receivable of $3.1 million, partially
offset by an increase in inventory of approximately $1.3 million, and a decrease
in accounts payable of $1.0 million. Other items affecting the operating cash
flows were net income of $40,000 and non-cash charges including depreciation and
amortization, partially offset by $410,000 used to pay for other accrued
liabilities.
Cash used in investing activities of $189,000 reflects a minimum level of
capital expenditures primarily for computer hardware and software acquisitions.
Cash provided by financing activities of $146,000 reflects activity in our
employee stock purchase program and stock option exercises.
Liquidity and Capital Resources
We have limited cash resources, and because of certain regulatory restrictions
on our ability to move certain cash reserves from our foreign operations to our
U.S. operations, we may have limited access to a portion of our existing cash
balances held outside the United States, although this portion is estimated to
be less than $500,000. As of October 2, 2004, we had an aggregate cash balance
of $5.2 million, and a short term receivables financing credit facility of up to
$4.0 million, with no outstanding balance at quarter-end. We currently depend on
funds generated from operating revenue plus our cash and the funds available
through our credit facility to meet our operating requirements. As a result, if
16
any of our assumptions, some of which are described below, are incorrect, we may
have difficulty satisfying our obligations in a timely manner. We expect our
cash balance to be between $3.0 and $5.0 million as of January 2, 2005. Our
ability to effectively operate and grow our business is predicated upon certain
assumptions, including (i) that we will receive continued timely payment of
outstanding receivables, and not otherwise experience severe cyclical swings in
our receipts resulting in a shortfall of cash available for our disbursements
during any given quarter, (ii) that we will not incur unplanned capital
expenditures in fiscal 2005, and (iii) that funds remain available under our
existing credit facility or a new credit facility. We believe our sources of
funds will be sufficient to finance our operations for at least fiscal 2005, and
if necessary we will take various actions to reduce our operating expenses in an
effort to achieve that result.
On April 22, 2004, we executed the Amendment to Loan Documents with Silicon
Valley Bank ("SVB") pursuant to which we entered into a loan and security
agreement with SVB (the "Loan and Security Agreement") that amends and restates
our prior Accounts Receivable Purchase Agreement with SVB. Under the terms of
the Loan and Security Agreement, we may borrow amounts under the credit facility
not to exceed the lesser of $4.0 million or the sum of 80% of our eligible
accounts receivable plus any over advance loans that may be granted by SVB from
time to time in its sole and absolute discretion. The aggregate of over advance
loans may not exceed the lesser of $0.5 million or 30% of the amount of our
eligible accounts receivable. In connection with the Loan and Security
Agreement, we granted to SVB a security interest in substantially all of our
assets. Interest is payable on loans at a rate equal to the prime rate announced
from time to time by SVB ("Prime Rate"), plus 1.75% per annum, and adjusts on
each date there is a change in the Prime Rate, provided that the rate in effect
on any given date will not be less than 5.75% per annum. We paid a one-time loan
fee of $30,000 upon entering the Loan and Security Agreement, and must make
quarterly payments for any unused available loan amounts at a rate of 0.25% per
annum.
The Loan and Security Agreement includes certain financial and other covenants
with which we must comply. Financial covenants specify that Adept must maintain
a tangible net worth of at least $9.5 million, plus 50% of all consideration we
may receive for any equity securities and subordinated debt we issued subsequent
to the date of the Loan and Security Agreement, plus 50% of our net income in
each fiscal quarter ending after the date of the agreement. Once an increase in
our minimum tangible net worth takes effect, it remains in effect thereafter,
and does not decrease. We were in compliance with the tangible net worth and
other covenants of the Loan and Security Agreement at October 2, 2005. The Loan
and Security Agreement will expire on April 22, 2005.
Total long term debt and operating lease obligations at October 2, 2004 were
$13.5 million, which consists of $10.5 million in operating lease obligations
and $3.0 million in long-term debt in the form of a convertible subordinated
note.
A summary of our long-term debt and operating lease obligations as of October 2,
2004 follows:
Less Than More than
Total 1 Year 1-3 Years 3-5 Years 5 Years
------------ ------------ ------------ ------------ ------------
Operating lease obligations........ $ 10,456 $ 2,008 $ 3,354 $ 2,651 $ 2,443
Long-term debt..................... 3,000 - 3,000 - -
------------ ------------ ------------ ------------ ------------
Total long-term debt and
Operating lease obligations..... $ 13,456 $ 2,008 $ 6,354 $ 2,651 $ 2,443
=========== =========== =========== =========== ===========
17
New Accounting Pronouncements
On March 31, 2004, the FASB issued an Exposure Draft, "Share-Based Payment - An
Amendment of FASB Statements No.123 and 95" (proposed FAS 123R). The proposed
FAS 123R addresses the accounting for transactions in which an enterprise
receives employee services in exchange for (a) equity instruments of the
enterprise or (b) liabilities that are based on the fair value of the
enterprise's equity instruments or that may be settled by the issuance of such
equity instruments. The proposed FAS 123R would eliminate the ability to account
for share-based compensation transactions using APB 25 and generally would
require instead that such transactions be accounted for using a fair-value based
method. As proposed, companies would be required to recognize an expense for
compensation cost related to share-based payment arrangements including stock
options and employee stock purchase plans. We would be required to implement the
proposed standard no later than the quarter that begins July 1, 2005. The
cumulative effect of adoption, if any, applied on a modified prospective basis,
would be measured and recognized on July 1, 2005. We are currently evaluating
option valuation methodologies and assumptions in light of the proposed FAS 123R
related to employee stock options. Current estimates of option values using the
Black-Scholes method may not be indicative of results from valuation
methodologies ultimately adopted in the final rules. It is expected that the
final statement will be issued before December 31, 2004.
18
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, are often out of our control and which can be extremely volatile.
Our past revenues and other operating results may not be accurate indicators of
our future performance. Our operating results have been subject to significant
fluctuations in the past, and could be subject to fluctuations in the future.
The factors that may contribute to these fluctuations include:
o our limited cash resources;
o our ability to manage our working capital;
o fluctuations in aggregate capital spending, cyclicality and other
economic conditions domestically and internationally in one or more
industries in which we sell our products;
o changes or reductions in demand in the electronics/communications,
automotive, food, or semiconductor industries and other markets we
serve;
o a change in market acceptance of our products or a shift in demand for
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 pricing and related 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 changes in the mix of sales by distribution channel;
o exchange rate fluctuations;
o extraordinary events such as litigation or acquisitions;
o decline or slower than expected growth in those industries requiring
precision assembly automation; and
o slower than expected adoption of distributed controls architecture or
the adoption of alternative automated technologies.
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, volume variances driven by substantially lower production volumes, and
higher margin software products.
We generally recognize product revenue upon shipment or, for certain
international sales, upon receipt and acceptance 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 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.
The long sales cycles and implementation periods of our products may increase
costs of obtaining orders and reduce 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
19
to another quarter or be cancelled with little advance notice 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 in the near term and therefore may delay or prevent the generation of
revenue. In addition, should our financial condition deteriorate, prospective
customers may be reluctant to purchase our products, which would have an adverse
effect on our revenue.
Sales of our products depend on the capital spending patterns of our customers,
which tend to be cyclical; we are currently experiencing reduced demand in some
of the industries in which we operate, which may continue to adversely affect
our revenue.
Intelligent automation systems using our products can range in price from $8,500
to $500,000. 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
electronic/communications and food/pharmaceuticals industries, and resulting
cutbacks in capital spending would have a direct, negative impact on our
business.
Downturns in the industries we serve often occur in connection with, or
anticipation of, maturing product cycles for both companies and their customers
and declines in general economic conditions. Industry downturns have been
characterized by reduced demand for 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. We implemented a worldwide restructuring
program in fiscal 2002 to realign our businesses to the changes in our industry
and our customers' decrease in capital spending. We made additional cost
reductions in fiscal 2003 and 2004 to further realign our business. Despite this
restructuring activity, our ability to reduce expenses in response to any
downturn in any of these industries 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 that we cannot sell. We believe our future
performance will continue to be affected by the cyclical nature of these
industries, and thus, any future downturn in these industries could therefore
harm our revenue and gross margin if demand drops or average selling prices
decline.
Industry upturns have been characterized by abrupt increases in demand for
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.
Our reliance on single source suppliers with lengthy lead procurement times or
limited supplies for our key components and materials may render us unable to
meet product demand and we may lose customers and suffer decreased revenue.
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:
20
o loss of control over the manufacturing process;
o potential absence of adequate supplier capacity;
o potential for significant price increases in the components and
mechanical subsystems;
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 Flash Corporation for the supply of our circuit boards, Wilco
Corporation for the supply of our cables, NSK Corporation for the supply of our
linear modules, which are mechanical devices powered by an electric motor that
move in a straight line and which can be combined as building blocks to form
simple robotic systems, Yaskawa Electric Corp. for the supply of our 6-axis
robots, Hirata Corporation for the supply of our Adept Cobra 600 and Adept Cobra
800 robot mechanisms and Matrox Electronic Systems Ltd. for the supply of our
computer vision processors, which are used to digitize images from a camera and
perform measurements and analysis. We do not have contracts with certain of
these suppliers. If any one of these significant sole or single source suppliers
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 sufficient quantities of these items were not
available from our existing suppliers and a relationship with an alternative
vendor could not be developed in a timely manner, shipments of our products
could be interrupted and reengineering of these products could be required. In
the past, we have experienced quality control or specification problems with
certain key components provided by sole source suppliers, and have had to design
around the particular flawed item. In addition, some of the components that we
use in our products are in short supply. 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 such product
line. Problems of this nature with our suppliers may occur in the future.
Disruption, significant price increases, or termination of our supply sources
could require us to seek alternative sources of supply, could delay our product
shipments and damage relationships with current and prospective customers,
require us to absorb a significant price increase or risk pricing ourselves out
of the market, or prevent us from taking other business opportunities, 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 and
cost effective 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, or due to component price increases
causes us to be priced out of the market, we would be required to write off the
excess inventory. A prolonged inability to obtain adequate timely deliveries of
key components or obtain components at prices within our business model 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 fourth quarter of each fiscal year and lower bookings during
the first quarter of each succeeding fiscal year, due primarily to the slowdown
in sales to European markets and summer vacations. In the event bookings for our
products in the fourth fiscal quarter are lower than anticipated and our backlog
at the end of the fourth fiscal quarter is insufficient to compensate for lower
bookings in the succeeding first fiscal quarter, our results of operations for
the first fiscal quarter and future quarters will suffer.
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 and
substantially impact our liquidity.
21
Our gross margins can vary significantly from quarter to quarter based on
factors which are not always in our control.
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 including changes in the
average discounts offered;
o the costs to manufacture, service and support our products and
enhancements;
o the costs to customize our systems;
o the volume of products produced;
o our efforts to enter new markets; and
o certain inventory-related costs including obsolescence of products and
component demand changes resulting in excess inventory.
Because we have significant fixed costs that are not easily reduced, we may be
unable to adequately reduce expenditures to offset decreases in revenue and
therefore avoid operating losses in the short term.
We have reduced our absolute amount of expenses in all areas of our operations
in connection with our restructuring activities in fiscal 2002, 2003 and 2004.
We have also reduced additional fixed costs in connection with the disposal of
the Solutions business segment. However, 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, and utilizing our relatively fixed capacity, which could
also cause fluctuations in our operating results.
We have limited cash resources, and the possibility of future operating losses,
negative cash flow and debt obligations could impair our operations and
revenue-generating activities and adversely affect our results of operations.
We have limited cash resources, and because of certain regulatory restrictions
on our ability to move certain cash reserves from our foreign operations to our
U.S. operations, we may have limited access to a portion of our existing cash
balances, although this portion is estimated at less than $500,000. As of
October 2, 2004, we had an aggregate cash balance of $5.2 million, and a short
term receivables financing credit facility of up to $4.0 million, under which no
amounts were outstanding at October 2, 2004. We currently depend on funds
generated from operating revenue plus our cash and the funds available through
our credit facility to meet our operating requirements. As a result, if any of
our assumptions, some of which are described below, are incorrect, we may have
difficulty satisfying our obligations in a timely manner. We expect our cash
ending balance to be between approximately $3.0 and $5.0 million at January 2,
2005. Our ability to effectively operate and grow our business is predicated
upon certain assumptions, including (i) that we will receive continued timely
receipt of payment of outstanding receivables, and not otherwise experience
severe cyclical swings in our receipts resulting in a shortfall of cash
available for our disbursements during any given quarter, (ii) that we will not
incur additional unplanned capital expenditures in fiscal 2005, (iii) that funds
remain available under our existing credit facility or a new credit facility.
If our projected revenue falls below current estimates or if operating expenses
exceed current estimates beyond our available cash resources, we may be forced
to curtail our operations, or, at a minimum, we may not be able to take
advantage of market opportunities, develop or enhance new products to an extent
desirable to execute our strategic growth plan, pursue acquisitions that would
complement our existing product offerings or enhance our technical capabilities
to fully execute our business plan or otherwise adequately respond to
competitive pressures or unanticipated requirements. Any of these actions would
adversely impact our business and results of operations.
Because we do not have long-term contracts with our customers, our future sales
are not guaranteed.
We generally do not have long-term contracts with our customers and existing
contracts and purchase commitments may, under certain circumstances, be
cancelled. As a result, our agreements with our customers do not provide
22
meaningful assurance of future sales. Furthermore, our customers are not
required to make minimum purchases and may cease purchasing our products at any
time without penalty. Backlog should not be relied on as a measure of
anticipated demand for our products or future revenue, 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. 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 completed a management reorganization and have hired additional critical
management team personnel, and we may not successfully retain these personnel or
realize the expected benefits of the changes.
We hired our Chief Executive Officer, Mr. Robert Bucher, in November 2003. In
December 2003, our employment relationships with our former Chief Executive
Officer and Vice President, Research and Development, were terminated. We have
made and are continuing to make other changes in the management team, including
the elimination of some positions and the replacement of certain other
personnel. In March 2004, we promoted Matt Murphy to Vice President of
Operations and Product Development. In May and June 2004, we recruited a new
Vice President of Business Development, Vice President of Service and Support,
and a Chief Financial Officer. To achieve benefits from these personnel changes,
we must retain the services of Mr. Bucher, Mr. Strickland, our CFO, and other
key managerial personnel. In connection with this effort, we must minimize any
business interruption or distraction of personnel as a result of these changes
and our reorganization efforts. We cannot guarantee that we will be successful
in doing so, or that such management and personnel changes will result in, or
contribute to, improved operating results.
We may not be able to effectively implement our restructuring activities, may
need to implement further restructuring activities and our restructuring may
negatively impact our business.
The intelligent automation industry is highly competitive. We have responded to
increased competition and changes in the industry in which we compete by
restructuring our operations and reducing the size of our workforce while
attempting to maintain our market presence in the face of increased competition.
Despite our efforts to structure Adept and our businesses to meet competitive
pressures and customer needs, we cannot assure that we will be successful in
implementing these restructuring activities or that the reductions in workforce
and other cost-cutting measures will not harm our business operations and
prospects. We hired a new Chief Executive Officer in late 2003 and a new Chief
Financial Officer in mid-2004 to lead our further evolution to a more profitable
business model, but we cannot guarantee that their efforts will be successful.
Our inability to structure our operations based on evolving market conditions
could negatively impact our business. We also cannot assure that we will not be
required to implement further restructuring activities, make additions or other
changes to our management or reductions in workforce based on other cost
reduction measures or changes in the markets and industry in which we compete.
We cannot assure that any future restructuring efforts will be successful.
We cannot control the procurement, sales or marketing efforts of the systems
integrators and OEMs who sell our products, which may result in lower revenue if
they do not successfully market and sell our products or choose instead to
promote competing products.
We believe that our ability to sell products to system integrators and OEMs will
continue to be important to our success. Our relationships with system
integrators and OEMs are generally not exclusive, and some of our system
integrators and OEMs may expend a significant amount of effort or give higher
priority to selling products of our competitors. In the future, any of our
system integrators or our OEMs may discontinue their relationships with us or
form additional competing arrangements with our competitors. The loss of, or a
significant reduction in revenue 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 and
establish relationships with system integrators and OEMs to assist us in
building sales in those markets. It can take an extended period of time and
significant resources to establish a profitable relationship with a system
integrator or OEM because of product integration expenses, training in product
and technologies and sales training. 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
23
substantially reduce the amount of our products they sell, or in the event we
fail to build or maintain an effective systems integrator or OEM channel in any
existing or new markets, our business, financial condition and results of
operations could be adversely affected.
We may incur credit risk related losses because many of the system integrators
we sell to are small operations with limited financial resources.
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. In addition, due to
their limited financial resources, during extended market downturns the
viability of some system integrators may be in question, which would also result
in a reduction in our revenue or credit losses.
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. 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 risk management
strategy may not be successful in avoiding exchange-related losses. Any
exchange-related losses or exposure may negatively affect our business,
financial condition or results of operations.
Our international operations and sales subject us to divergent regulatory
requirements and other financial and operating risks outside of our control that
may harm our operating results.
International sales from continuing operations were $8.1 million for the 3
months ended October 2, 2004, $22.7 million for the fiscal year ended June 30,
2004, $17.1 million for the fiscal year ended June 30, 2003, and $31.8 million
for the fiscal year ended June 30, 2002. This represented 71.5%, 46.1%, 44.8%,
and 64.1% of net revenue for the respective periods. We also purchase some
critical 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, military and economic changes and disruptions, including
terrorist activity;
o transportation costs and delays;
o foreign currency fluctuations;
o export/import controls;
o tariff regulations and other trade barriers;
o higher freight rates;
o difficulties in staffing and managing foreign sales operations;
o greater difficulty in accounts receivable collection in foreign
jurisdictions; and
o potentially adverse tax consequences.
Foreign exchange fluctuations may render our products less competitive relative
to locally manufactured product offerings, or could result in foreign exchange
losses. 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.
We sell standard components for products to OEMs who deliver products to Asian
markets such as Japan, Malaysia, Korea, and China. Past turmoil in Asian
financial markets and weakness in underlying economic conditions in certain
Asian countries may continue to impact our sales to OEM customers who deliver
to, are located in, or whose projects are based in those Asian countries. 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
24
the deterioration in the customer's or our bank's financial condition or the
inability to access local equity financing. In the past, as a result of this
lack of working capital and higher interest rates, we have experienced a
significant decline in sales to OEMs serving the Asian market.
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 offerings and revenue.
Our future success depends on our continuing ability to attract, integrate,
retain and motivate highly-qualified managerial and technical personnel.
Competition for qualified personnel in the intelligent automation industry is
intense. Our inability to recruit, train and motivate qualified management and
technical personnel on a timely basis would adversely affect our ability to
manage our operations and design, manufacture, market, and support our products.
We have also reduced headcount in connection with our restructurings and
recently made changes in other senior personnel including the recent promotion
of our Vice President of Operations and Product Development and the hiring of a
Vice President of Business Development, and Vice President, Service Operations,
which changes may lead to employee questions regarding future actions by Adept
leading to additional retention difficulties. Other than the CEO's offer letter,
and offer letters with certain of our officers that include only basic
compensation terms, we have no employment agreements with our senior management.
If we become subject to unfair hiring claims, we could be prevented from hiring
needed personnel, incur liability for damages and incur substantial costs in
defending ourselves.
Companies in our industry whose employees accept positions with competitors
frequently claim that these competitors have engaged in unfair hiring practices
or that the employment of these persons would involve the disclosure or use of
trade secrets. These claims could prevent us from hiring personnel or cause us
to incur liability for damages. We could also incur substantial costs in
defending ourselves or our employees against these claims, regardless of their
merits. Although to date we have not experienced any material claims, defending
ourselves from these claims could divert the attention of our management away
from our operations.
Our hardware and software products may contain defects that could increase our
expenses and exposure to liabilities and or harm our reputation and future
business prospects.
Our hardware and software products are complex and, despite extensive testing,
our new or existing products or enhancements may contain defects, errors or
performance problems when first introduced, when new versions or enhancements
are released, or even after these products or enhancements have been used in the
marketplace for a period of time. We may discover product defects only after a
product has been installed and used by customers. We may discover defects,
errors, or performance problems in future shipments of our products. These
problems could result in expensive and time consuming design modifications or
large warranty charges, expose us to liability for damages, damage customer
relationships, and result in loss of market share, any of which could harm our
reputation and future business prospects. In addition, increased development and
warranty costs could reduce our operating profits and could result in losses.
The existence of any defects, errors, or failures in our products could also
lead to product liability claims or lawsuits against us, our channel partners,
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.
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
25
European Union directives and guidelines. Although our existing certified
products meet the requirements of the applicable European Union directives, we
cannot provide any assurance 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. Such directives and guidelines could change in the future,
forcing us to redesign or withdraw from the market one or more of our existing
products that may have been originally approved for sale.
Our failure to protect our intellectual property and proprietary technology may
significantly impair our competitive advantage.
Our success and ability to compete depend in large part upon protecting our
proprietary technology. We rely on a combination of patent, trademark and trade
secret protection, and nondisclosure agreements to protect our proprietary
rights. The steps we have taken may not be sufficient to prevent the
misappropriation of our intellectual property, particularly in foreign countries
where the laws may not protect our proprietary rights as fully as in the United
States. The patent and trademark law and trade secret protection may not be
adequate to deter third party infringement or misappropriation of our patents,
trademarks, and similar proprietary rights. In addition, patents issued to Adept
may be challenged, invalidated, or circumvented. Our rights granted under those
patents may not provide competitive advantages to us, and the claims under our
patent applications may not be allowed. We may be subject to or may initiate
interference proceedings in the United States Patent and Trademark Office, which
can demand significant financial and management resources. The process of
seeking patent protection can be time consuming and expensive, and patents may
not be issued from currently pending or future applications. Moreover, our
existing patents or any new patents that may be issued may not be sufficient in
scope or strength to provide meaningful protection or any commercial advantage
to us.
We may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights in order to determine the scope and
validity of our proprietary rights or the proprietary rights of our competitors.
These claims could result in costly litigation and the diversion of our
technical and management personnel.
We may face costly intellectual property infringement claims.
We have received in the past, and may receive in the future, 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. The asserted claims and/or initiated litigation could
include claims against us or our manufacturers, suppliers, or customers,
alleging infringement of their proprietary rights with respect to our existing
or future products or components of those products. There are numerous patents
in the automation components industry. It is not always practicable to determine
in advance whether a product or any of its components infringes the intellectual
property rights of others. As a result, from time to time, we may be forced to
respond to intellectual property infringement claims to protect our rights or
defend a customer's rights. These claims, regardless of merit, could consume
valuable management time, result in costly litigation, or cause product shipment
delays, all of which could seriously harm our business, operating results and
financial condition. In settling these claims, we may be required to enter into
royalty or licensing agreements with the third parties claiming infringement.
These royalty or licensing agreements, if available, may not have terms
favorable to us. Being forced to enter into a license agreement with unfavorable
terms could seriously harm our business, operating results and financial
condition. Any potential intellectual property litigation could force us to do
one or more of the following:
o Pay damages, license fees or royalties to the party claiming
infringement;
o Stop selling products or providing services that use the challenged
intellectual property;
o Obtain a license from the owner of the infringed intellectual property
to sell or use the relevant technology, which license may not be
available on reasonable terms, or at all; or
o Redesign the challenged technology, which could be time-consuming and
costly.
If we were forced to take any of these actions, our business and results of
operations may suffer.
If we cannot identify and make acquisitions, our ability to expand our
operations and increase our revenue may be impaired.
26
In the past, a significant portion of our growth has been attributable to
acquisitions of other businesses and technologies. We expect that acquisitions
of complementary companies, businesses, products and technologies in the future
may play an important role in our ability to expand our operations and increase
our revenue. Our ability to make acquisitions is rendered more difficult due to
our cash constraints and the decline of our common stock price, making equity
consideration more expensive. If we are unable to identify suitable targets for
acquisition or complete acquisitions on acceptable terms, our ability to expand
our product and/or 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 acquisition we have made or may make in the future could disrupt our
business, increase our expenses and adversely affect our financial condition or
operations.
In the future we may make acquisitions of, or 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 workforce
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
objectives 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 operations due to goodwill
impairment write-offs, amortization of intangible assets other than
goodwill, or assumption of anticipated liabilities;
o risks associated with entering markets in which we have limited
previous experience;
o potential negative impact of unanticipated liabilities or litigation;
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 acquisitions on terms that are
acceptable to us.
Risks Related to Our Industry
Intense competition in the market for intelligent automation products will cause
our revenue and business to suffer if our products are not seen as more
attractive by customers than other products in the marketplace.
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 price;
o customer service;
o delivery, including timeliness, predictability, and reliability of
delivery commitment dates; and
o product features such as flexibility, programmability, and ease of use.
We compete with a number of robot, motion control, machine vision, and
simulation software companies. Many of our competitors have substantially
greater financial, technical, and marketing resources than we do. In addition,
we may in the future face competition from new entrants in one or more of our
markets.
27
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.
If we are unable to effectively support the distinct needs of the multiple
industries of our customers, the demand for our products may decrease and our
revenue may decline.
We market products for the electronic/communications, automotive, appliance,
food, semiconductor, and life sciences industries. Because we operate in
multiple industries, we must work constantly to understand the needs, standards,
and technical requirements of numerous different industries and must devote
significant resources to developing different products for these industries. Our
results of operations are also subject to the cyclicality and downturns in these
markets. Product development is costly and time consuming. Many of our products
are used by our customers to develop, manufacture, and test their own products.
As a result, we must anticipate trends in our customers' industries and develop
products before our customers' products are commercialized. If we do not
accurately predict our customers' needs and future activities, we may invest
substantial resources in developing products that do not achieve broad market
acceptance. Our decision to continue to offer products to a given market or to
penetrate new markets is based in part on our judgment of the size, growth rate,
and other factors that contribute to the attractiveness of a particular market.
If our product offerings in any particular market are not competitive or our
analyses of a market are incorrect, our business and results of operations could
be harmed.
Our business will decline if we cannot 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
revenue 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 revenue 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
28
manufacturing processes, and effective sales, marketing, and customer service.
Because of the complexity of our products, significant delays may occur between
a product's initial introduction and commencement of volume production.
The development and commercialization of new products involve many difficulties,
including:
o the identification of new product opportunities;
o the retention and hiring of appropriate research and development
personnel;
o the determination of the product's technical specifications;
o the successful completion of the development process;
o the successful marketing of the product and the risk of having
customers embrace new technological advances; and
o additional customer service costs associated with supporting new
product introductions and/or effecting subsequent potential field
upgrades.
The development of new products may not be completed in a timely manner, and
these products may not achieve acceptance in the market. The development of new
products has required, and will require, that we expend significant financial
and management resources. If we are unable to continue to successfully develop
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 and sales of our products may decline.
Over the past three years, our total expenditures for research and development
have declined significantly. 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.
We may not receive significant revenue from our current research and development
efforts for several years, if at all.
Internally developing intelligent automation products is expensive, and these
investments often require a long time to generate returns. Our strategy involves
significant investments in research and development and related product
opportunities. Although our total expenditures for research and development have
declined, we believe that we must continue to dedicate a significant amount of
resources to our research and development efforts to maintain our competitive
position. However, we cannot predict that we will receive significant revenue
from these investments, if at all.
If we do not comply with environmental regulations, we may incur significant
costs causing our overall business to suffer.
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.
29
If we fail to obtain export licenses, we would be unable to sell any of our
software products overseas and our revenue would decline.
We must comply with U.S. Department of Commerce regulations in shipping our
software products and other technologies outside the United States. Any
significant future difficulty in complying could harm our business, financial
condition and results of operations.
Proposed regulations related to equity compensation could adversely affect our
results of operations.
On March 31, 2004, the Financial Accounting Standards Board (FASB), consistent
with recent actions of other accounting agencies and entities, issued a proposed
statement "Share Based Payment, an Amendment of FASB Statements No. 123 and 95"
(proposed FAS 123R) that, if implemented, would require us to record a charge to
compensation expense for all option grants. As currently permitted by SFAS No.
123, we apply Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", (APB 25) and related interpretations in accounting for our
stock option plans and stock purchase plan. Accordingly, we do not recognize
compensation cost for stock options granted at fair market value. The FASB's
proposal would eliminate our ability to account for stock-based awards using the
intrinsic value method prescribed by APB 25 and would instead require that such
awards be accounted for using a fair-value based method which would require us
to measure the compensation expense for all such awards, including option
grants, at fair value at the grant date. The effective date of the proposed
statement is for periods beginning after June 15, 2005. It is expected that the
final statement will be issued before December 31, 2004. We cannot predict
whether the proposed regulations will be adopted, but if adopted these
regulations could have an adverse affect on our results of operations.
Our business is subject to the risk of earthquakes and other natural
catastrophic events.
Our corporate headquarters and principal offices, including certain of our
research and development operations and distribution facilities, are located in
the San Francisco Bay area of Northern California, which is a region known to
experience seismic activity, flood plains and other natural phenomenon not
within our control. If significant seismic activity or other natural
catastrophes affecting this region were to occur, our operations may be
interrupted, which would adversely impact our business and results of
operations.
Acts of war or terrorism could adversely and materially affect our business.
Terrorist acts or military engagement anywhere in the world could cause damage
or disruption to us, our customers, OEMs, distributors or suppliers, or could
create political or economic instability, any of which could adversely affect
our business, financial condition or results of operations. Furthermore, we are
uninsured for losses or interruptions caused by acts of war or terrorism.
Risks Related to our Stock
Our common stock was delisted from the Nasdaq Stock Market and trades on the OTC
Bulletin Board, which may negatively impact the trading activity and price of
our common stock.
In April 2003, our common stock was delisted from the Nasdaq National Market as
a result of our failure to comply with certain quantitative requirements for
continued listing. Our common stock trades on the OTC Bulletin Board, which is
generally considered less liquid and efficient than Nasdaq. Although trading in
our stock was relatively thin and sporadic before the delisting, the liquidity
of our common stock has declined and price volatility increased because smaller
quantities of shares are bought and sold, transactions may be delayed, and
securities analysts' and news media coverage of Adept has diminished. These
factors could result in lower prices and larger spreads in the bid and ask
prices for our common stock. Reduced liquidity may reduce the value of our
common stock and our ability to use our equity as consideration for an
acquisition or other corporate opportunity. The delisting and OTC trading could
result in a number of other negative implications, including the potential loss
of confidence by suppliers, customers, and employees, the loss of institutional
investor interest, the availability of fewer business development and other
strategic opportunities, and the additional cost of compensating our employees
using cash and equity compensation.
30
The sale of a substantial amount of our common stock, including shares issued
upon exercise of outstanding options, warrants, or our convertible note in the
public market could adversely affect the prevailing market price of our common
stock.
We had an aggregate of 30,510,316 shares of common stock outstanding as of
November 12, 2004. In November 2003, we completed a private placement of an
aggregate of approximately 11.1 million shares of common stock to several
accredited investors. Investors in the 2003 financing also received warrants to
purchase an aggregate of approximately 5.6 million shares of common stock at an
exercise price of $1.25 per share, with certain proportionate anti-dilution
protections. We also entered into registration rights agreements with the
investors in the 2003 financing under which we agreed to register for resale by
the investors the shares of common stock issued and issuable upon exercise of
the warrants issued in the 2003 financing, with such number of shares subject to
adjustment as described above.
Simultaneous with the completion of the 2003 financing, pursuant to an agreement
we had with JDS Uniphase Corporation, or JDSU, JDSU converted its shares of
Adept preferred stock (which JDSU had acquired pursuant to an October, 2001
private placement of our Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock) to acquire 3,074,135 shares of our common stock,
equal to approximately 19.9% of our outstanding common stock prior to the 2003
financing, and surrendered its remaining shares of preferred stock to us. The
JDSU Agreement provides that JDSU is entitled to certain rights, including
piggyback registration rights. In August 2003, we also issued a three-year, $3.0
million subordinated note due June 30, 2006 in favor of our landlord,
convertible at any time at the option of the holder into our common stock at a
conversion price of $1.00 per share. The resulting shares carry certain other
rights, including piggyback registration rights, participation rights and
co-sale rights in certain equity sales by us or our management.
We registered with the SEC for resale to the public the shares of common stock
sold and the shares of common stock underlying the warrants granted in the 2003
financing, issued to JDSU, and underlying the Tri-Valley convertible note under
the Securities Act. Selling security holders included in the registration
statement are offering up to an aggregate of 22,740,816 shares of our common
stock, 8,555,560 shares of which are not currently outstanding and are subject
to warrants or our convertible note.
Additionally, at November 12, 2004, options to purchase approximately 3,093,787
shares of our common stock were outstanding under our stock option plans, and an
aggregate of 7,465,597 shares of common stock were issued or reserved for
issuance under our stock option plans and employee stock purchase plan. Shares
of common stock issued under these plans will be freely tradable in the public
market, subject to the Rule 144 limitations applicable to our affiliates. SVB
also holds a warrant to purchase 100,000 shares of our common stock, with an
exercise price of $1.00 per share. The sale of a substantial amount of our
common stock, including shares issued upon exercise of these outstanding options
or issuable upon exercise of our warrants, convertible notes, or future options
in the public market could adversely affect the prevailing market price of our
common stock.
The ability of our Board of Directors to issue additional preferred stock could
delay or impede a change of control of our company and may adversely affect the
price an acquirer is willing to pay for our common stock.
The Board of Directors has the authority to issue, without further action by our
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. The issuance
of preferred stock, while providing desirable flexibility in connection with
possible acquisitions, financings, and other corporate purposes, could have the
effect of delaying, deferring, or preventing a change in control of Adept
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.
Additionally, the conversion of preferred stock into common stock may have a
dilutive effect on the holders of common stock.
31
Our stock price has fluctuated and may continue to fluctuate widely.
The market price of our common stock has fluctuated substantially in the past.
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 fluctuations in operating results;
o our liquidity needs and constraints;
o our restructuring activities and changes in management and other
personnel;
o the trading of our common stock on the OTC Bulletin Board;
o the business environment, including the operating results and stock
prices of companies in the industries we serve;
o future announcements concerning our business or that of our competitors
or customers;
o the introduction of new products or changes in product pricing policies
by us or our competitors;
o litigation regarding proprietary rights or other matters;
o change in analysts' earnings estimates;
o developments in the financial markets;
o general conditions in the intelligent automation industry; and
o perceived dilution from stock issuances for acquisitions, our 2003
equity financing, the convertible note conversion, the SVB financing
warrant, and other transactions.
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, terrorist or other military actions, or
international currency fluctuations, as well as public perception of equity
values of publicly-traded companies may adversely affect the market price of our
common stock.
We may be subject to securities class action litigation if our stock price
remains volatile or operating results suffer, which could result in substantial
costs, distract management, and damage our reputation.
In the past, securities class action litigation has often been brought against
companies following periods of volatility in the market price of their
securities or where operating results suffer. Companies like us, that are
involved in rapidly changing technology markets are particularly subject to this
risk. In addition, we have incurred net operating losses for the last few fiscal
years. We may be the target of litigation of this kind in the future. Any
securities litigation could result in substantial costs, divert management's
attention and resources from our operations, and negatively affect our public
image and reputation.
Recent legislation, higher liability insurance costs and other increased costs
of being public are likely to impact our future consolidated financial position
and results of operations.
Recently there have been significant regulatory changes, including the
Sarbanes-Oxley Act of 2002 and rules and regulations promulgated as a result of
the Sarbanes-Oxley Act, and there may be new accounting pronouncements or
regulatory rulings that will have an impact on our future financial position and
results of operations. The Sarbanes-Oxley Act of 2002 and other rule changes and
proposed legislative initiatives following several highly publicized corporate
accounting and corporate governance failures are likely to increase general and
administrative costs. In addition, insurance companies significantly increased
insurance rates as a result of higher claims over the past year, and our rates
for our various insurance policies increased as well. These and other potential
changes could materially increase the expenses we report under generally
accepted accounting principles and adversely affect our consolidated operating
results.
32
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily to
our investment portfolio. We maintain an investment policy, which seeks to
ensure the safety and preservation of our invested funds by limiting default
risk, market risk and reinvestment risk. The table below presents principal cash
amounts and related weighted-average interest rates for our investment
portfolio, all of which matures in less than twelve months.
October 2, Fair
(in thousands) 2004 Value
---------- ---------
Cash and cash equivalents $ 5,222 $ 5,222
Average rate.................... 0.91%
---------- ---------
Total Investment Securities..... $ 5,222 $ 5,222
Average rate.................... 0.91%
We mitigate default risk by investing in high credit quality securities and by
positioning our portfolio to respond appropriately to a significant reduction in
a credit rating of any investment issuer or guarantor. Our portfolio includes
only marketable securities with active secondary or resale markets to ensure
portfolio liquidity and contains what management believes to be a prudent amount
of diversification.
We conduct business on a global basis. Consequently, we are exposed to adverse
or beneficial movements in foreign currency exchange rates.
In the past, we have previously used a foreign currency-hedging program to hedge
our exposure to foreign currency exchange risk on local international
operational assets and liabilities. We entered into foreign currency forward
contracts to minimize the impact of exchange rate fluctuations on certain
foreign currency commitments and balance sheet positions. In March 2003, we
determined that our international activities held or conducted in foreign
currency did not warrant the cost associated with a hedging program due to
decreased exposure of foreign currency exchange risk on international
operational assets and liabilities. As a result, we suspended our foreign
currency hedging program in March 2003 and we have not resumed the foreign
currency hedging program.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the fiscal quarter ended October 2, 2004, Adept carried out an
evaluation, under the supervision and with the participation of members of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of Adept's disclosure controls
and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of
1934. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that Adept's disclosure controls and procedures
are effective in alerting them in a timely manner to material information
relating to Adept (including its consolidated subsidiaries) required to be
included in Adept's periodic SEC filings. It should be noted that the design of
any system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions,
regardless of how remote. The overall goals of these evaluation activities are
to monitor our disclosure and internal controls and to make modifications as
necessary. We intend to maintain these controls, modifying them as circumstances
warrant.
During the most recent fiscal quarter, there has not occurred any change in
Adept's internal control over financial reporting that has materially affected,
or is reasonably likely to materially affect, Adept's internal control over
financial reporting.
33
As a result of Adept's retention of a new Chief Executive Officer and new Chief
Financial Officer, and other changes in its accounting staff, Adept, under the
supervision of our CEO and CFO, is currently performing further ongoing
evaluations of the activities of past management and company processes, policies
and procedures regarding the accuracy of financial information and our financial
systems. While we have not identified any material weaknesses in our internal
controls that would cause us to deem such internal controls to be ineffective,
the company has determined that it had a significant deficiency as of October 2,
2004 insofar as we lacked the expertise to account for standalone software
licensing, a new business activity for the Company in the quarter. Accordingly,
we are making, and expect to make certain changes in our internal controls,
including among other things, actively recruiting additional personnel in our
accounting and financial reporting function and potentially upgrading our
financial systems. As a result, in future quarters, we may make disclosures
regarding changes in internal controls over financial reporting.
34
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are party to various legal proceedings or claims, either
asserted or unasserted, which arise in the ordinary course of our business. We
have reviewed pending legal matters and believe that the resolution of these
matters will not have a material adverse effect on our business, financial
condition or results of operations.
Adept has in the past received communications from third parties asserting that
we have infringed certain patents and other intellectual property rights of
others, or seeking indemnification against alleged infringement. While it is not
feasible to predict or determine the likelihood or outcome of any actual or
potential actions from such assertions against us, we believe the ultimate
resolution of these matters will not have a material adverse effect on our
financial position, results of operations or cash flows.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
We held our Annual Meeting of Shareholders on November 4, 2004. All five of the
proposals on the ballot at the meeting were approved by the shareholders. The
five proposals were as follows:
a) Election of the following five (5) directors to serve until the next Annual
Meeting of Shareholders or until their successors are duly elected and
qualified;
Robert H. Bucher
Ronald E.F. Codd
Michael P. Kelly
Robert J. Majteles
Cary R. Mock
b) Approval of an amendment to our 2003 Stock Option Plan to authorize an
additional 1,500,000 shares of common stock for the issuance thereunder on
a pre-reverse split basis;
c) Approval of the 2004 Director Option Plan;
d) Approval of Amendment to the Articles of Incorporation to effect a reverse
stock split (to be effective on or before February 28, 2005), at a ratio to
be determined by the Board of Directors, within a range from one-for-four
to one-for-seven, to reduce the aggregate number of shares of common stock
outstanding; and
e) Ratification of the appointment of Ernst & Young LLP as our independent
auditors for the fiscal year ending June 30, 2005.
35
ITEM 6. EXHIBITS
The following exhibits are filed as part of this report.
10.1 2003 Stock Option Plan, as amended (incorporated by reference to
Appendix A to Adept's Schedule 14A definitive proxy statement
filed on October 8, 2004.
10.2 Director Stock Option Plan (incorporated by reference to Appendix
B to adept's Schedule 14A definitive proxy statement filed on
October 8, 2004).
10.3 Termination letter from Adept Technology, Inc. to Michael Overby,
dated October 19, 2004 (incorporated by reference to Exhibit 99.1
to Current Report on Form 8-K filed on October 27, 2004).
31.1 Certification by the Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934 as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification by the Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934 as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification by the Chief Executive Officer and the Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADEPT TECHNOLOGY, INC.
By: /s/ Robert R. Strickland
----------------------------------------
Robert R. Strickland
Vice President, Finance and
Chief Financial Officer
By: /s/ Robert H. Bucher
----------------------------------------
Robert H. Bucher
Chairman of the Board of Directors and
Chief Executive Officer
Date: November 16, 2004
37
INDEX TO EXHIBITS
10.1 2003 Stock Option Plan, as amended (incorporated by reference to
Appendix A to Adept's Schedule 14A definitive proxy statement
filed on October 8, 2004.
10.2 Director Stock Option Plan (incorporated by reference to Appendix
B to adept's Schedule 14A definitive proxy statement filed on
October 8, 2004).
10.3 Termination letter from Adept Technology, Inc. to Michael Overby,
dated October 19, 2004 (incorporated by reference to Exhibit 99.1
to Current Report on Form 8-K filed on October 27, 2004).
31.1 Certification by the Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934 as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification by the Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934 as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification by the Chief Executive Officer and the Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
38