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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 September 28, 1996
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 94-29000635
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
150 Rose Orchard Way
San Jose, California 95134
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(Address of Principal executive offices) (Zip Code)
(408) 432-0888
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and, (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
The number of shares of the Registrant's common stock outstanding as of
September 28, 1996 was 7,956,995.
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ADEPT TECHNOLOGY, INC.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
September 28, 1996 and June 30, 1996........................................................ 3
Condensed Consolidated Statements of Income
Three months ended September 28, 1996 and September 30, 1995................................ 4
Condensed Consolidated Statements of Cash Flows
Three months ended September 28, 1996 and September 30, 1995................................ 5
Notes to Condensed Consolidated Financial Statements.......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................................ 11
Signatures...................................................................................... 12
Index to Exhibits............................................................................... 13
2
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 28, June 30,
1996 1996 (1)
------------- ---------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 8,178 $ 8,075
Short term investments 3,900 2,900
Accounts receivable, less allowance for
doubtful accounts of $481 at September
28, 1996 and $465 at June 30, 1996 18,903 20,495
Inventories 15,003 14,808
Deferred tax assets and prepaid expenses 3,190 2,255
---------- ----------
Total current assets 49,174 48,533
Property and equipment at cost:
Computer equipment 4,081 3,312
Office furniture and equipment 1,808 1,767
Machinery and equipment 11,491 11,450
---------- ----------
17,380 16,529
Less accumulated depreciation and amortization 11,342 10,798
---------- ----------
Net property and equipment 6,038 5,731
Intangible assets related to acquisition of
Silma Incorporated, net of accumulated
amortization of $383 and $306 at September
28, 1996 and June 30, 1996, respectively 1,034 1,167
Other assets 962 921
---------- ----------
Total assets $ 57,208 $ 56,352
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,575 $ 6,894
Other accrued liabilities 7,287 6,521
Current portion of obligations under
capital leases 65 88
---------- ----------
Total current liabilities 13,927 13,503
Obligations under capital leases 14 26
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value:
5,000 shares authorized, none issued
and outstanding - -
Common stock, no par value:
25,000 shares authorized; 7,957 and
7,869 issued and outstanding
at September 28, 1996 and
June 30, 1996, respectively 45,581 45,383
Accumulated deficit (2,314) (2,560)
---------- ----------
Total shareholders' equity 43,267 42,823
---------- ----------
Total liabilities and shareholders' equity $ 57,208 $ 56,352
========== ==========
(1) Amounts derived from the Company's audited financial statements for the year
ended June 30, 1996.
See accompanying notes to condensed consolidated financial statements.
3
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(In thousands, except per share data)
Three months ended
-------------------------------
September 28, September 30,
1996 1995
------------- -------------
Net revenues $ 18,437 $ 19,671
Cost of revenues 11,059 11,358
------------- -------------
Gross margin 7,378 8,313
Operating expenses:
Research, development and engineering 1,976 1,946
Selling, general and administrative 5,152 4,801
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Total operating expenses 7,128 6,747
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Operating income 250 1,566
Interest income, net 134 101
------------- -------------
Income before provision for income taxes 384 1,667
Provision for income taxes 138 288
------------- -------------
Net income $ 246 $ 1,379
============= =============
Net income per share $ .03 $ .20
============= =============
Shares used in computing net income per share 8,370 6,925
============= =============
See accompanying notes to condensed consolidated financial statements.
4
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(IN THOUSANDS)
Three months ended
-----------------------------
September 28, September 30,
1996 1995
------------- -------------
Operating activities
Net income $ 246 $ 1,379
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 654 539
(Gain) Loss on disposal of property
and equipment - (6)
Tax benefit from stock plans 73 -
Changes in operating assets and liabilities:
Accounts receivable 1,592 (3,975)
Inventories (300) (2,639)
Deferred tax assets and prepaid expenses (935) (531)
Other assets (52) (144)
Accounts payable (319) 1,940
Accrued liabilities 817 1,053
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Total adjustments 1,530 (3,763)
------------- -------------
Net cash provided by (used in)
operating activities 1,776 (2,384)
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Investing activities
Purchase of property and equipment, net (763) (295)
Proceeds from the sale of property
and equipment - 18
Purchases of available for sale investments (2,000) (900)
Sales of available for sale investments 1,000 2,800
------------- -------------
Net cash provided by (used in)
investing activities (1,763) 1,623
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Financing activities
Principal payment for capital lease obligations (35) (74)
Proceeds from common stock issued under
employee stock incentive program, and
tax benefit of disqualifying dispositions,
cancellations, and payments of notes
receivable from shareholders 125 65
------------- -------------
Net cash provided by (used in)
financing activities 90 (9)
------------- -------------
Increase (decrease) in cash and cash equivalents 103 (770)
Cash and cash equivalents, beginning of period 8,075 5,912
------------- -------------
Cash and cash equivalents, end of period $ 8,178 $ 5,142
============= =============
Supplemental disclosure of noncash activities:
Inventory capitalized into property, equipment
and related tax $ 110 $ 141
Cash paid during the period for:
Interest $ 3 $ 9
Taxes $ 67 $ 111
See accompanying notes to condensed consolidated financial statements.
5
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands)
1. General
The accompanying condensed consolidated financial statements have been
prepared in conformity with generally accepted accounting principles.
However, certain information or footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The
information furnished in this report reflects all adjustments which, in
the opinion of management, are necessary for a fair statement of the
consolidated financial position, results of operations and cash flows
as of and for the interim periods. Such adjustments consist of items of
a normal recurring nature. The condensed consolidated financial
statements included herein should be read in conjunction with the
audited financial statements and notes thereto for the fiscal year
ended June 30, 1996 included in the Company's Form 10-K as filed with
the Securities and Exchange Commission on September 30, 1996. Results
of operations for interim periods are not necessarily indicative of the
results of operations that may be expected for the full fiscal year
ending June 30, 1997 or for any other future period.
2. Public Offerings
On December 20, 1995 the Company closed an initial public offering of
1,250,000 shares of its common stock. At that time, all issued and
outstanding shares of the Company's Series A, B, C and D convertible
preferred stock were converted into 4,067,422 shares of the Company's
common stock.
3. Financial Instruments
The Company determines the appropriate classification of its
investments in debt and equity securities at the time of purchase and
reevaluates such classification as of each balance sheet date. The
Company's short-term investments consist of U.S. government agency
securities and money market auction rate preferred stock with
maturities of one year or less. They are classified as available for
sale, and as such are carried at fair value. Fair value is based upon
quoted market prices on the last day of the fiscal period. The cost of
debt securities sold is based on the specific identification method.
The Company had no investments in equity securities at September 28,
1996 and June 30, 1996. During fiscal year 1996 and the three months
ended September 28, 1996, realized and unrealized gains and losses on
available for sale investments were not material.
4. Inventories
Inventories are summarized as follows:
September 28, June 30,
1996 1996
------------- ---------
Raw materials $ 9,125 $ 9,488
Work-in-process 3,755 3,069
Finished goods 2,123 2,251
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$ 15,003 $ 14,808
========= =========
6
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands)
5. Income taxes
The Company provides for income taxes during interim reporting periods
based upon an estimate of its annual effective tax rate. This estimate
reflects the benefits of federal and state net operating loss and tax
credit carryforwards and adjustments to the valuation allowance related
to the realizability of the Company's deferred tax assets, offset by
taxes on the Company's foreign operations.
6. Net income per share
Net income per share is computed using the weighted average number of
shares of common stock and dilutive common equivalent shares from
convertible preferred stock (using the if-converted method) and from
stock options and warrants (using the treasury stock method). Pursuant
to the Securities and Exchange Commission Staff Accounting Bulletins,
common stock and common equivalent shares issued by the Company at
prices below the assumed public offering price during the twelve-month
period prior to the initial public offering have been included in the
calculation through September 30, 1995 as if they were outstanding for
all periods presented regardless of whether they are dilutive (using
the treasury stock method at an assumed public offering price).
7. Contingencies
The Company has from time to time received communications from third
parties asserting that the Company is infringing certain patents and
other intellectual property rights of others or seeking indemnification
against such alleged infringement. There is presently no litigation
involving such claims, and the Company believes that the ultimate
resolution, if any, of these matters will not have a material adverse
effect on its financial position, results of operations or cash flows.
There can be no assurance that these or other future communications
will not result in protracted or costly litigation or can be settled on
commercially reasonable terms. While it may be necessary or desirable
in the future to obtain licenses relating to one or more of its
products, or relating to current or future technologies, there can be
no assurance that the Company will be able to do so on commercially
reasonable terms, or at all.
8. Reclassification
Certain amounts presented in the financial statements for fiscal 1996
have been reclassified to conform to the presentation for fiscal 1997.
7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Special Note Regarding Forward-Looking Statements
Certain statements in the following Management's Discussion and Analysis of
Financial Condition and Results of Operations constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things, the following: the potential fluctuations in the Company's
quarterly and annual results of operations; the cyclicality of capital spending
of the Company's customers; the Company's dependence on the continued growth of
the intelligent automation market; the risks associated with sole or single
sources of supply and lengthy procurement lead times; the Company's highly
competitive industry; rapid technological change within the Company's industry;
the lengthy sales cycles for the Company's products; the risks associated with
reliance on system integrators; the risks associated with international sales
and purchases; the risks associated with potential acquisitions and the need to
manage growth; the risks associated with new product development and the need to
manage product transitions, including any difficulties or delays in the
development, production, testing and marketing of the Company's new PC products
under development, and generally in the migration of Silma from the UNIX
platform to the PC platform or difficulties or delays in the development,
production, testing and marketing of the Company's other new products under
development; the Company's dependence on retention and attraction of key
employees; the risks associated with product defects; the Company's dependence
on third-party relationships; the uncertainty of patent and proprietary
technology protection and third party intellectual property claims; changes in,
or failure or inability to comply with, government regulations; general economic
and business conditions; the failure of any new products to be accepted in the
marketplace; decreased investment in robotics generally, and in the Company's
intelligent automation products particularly, as a result of general or specific
economic conditions or conditions affecting any of the Company's primary
markets; decreased acceptance of the Company's current products in the
marketplace, and the other factors referenced in this Management's Discussion
and Analysis of Financial Condition and Results of Operations and the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
OVERVIEW
The Company designs, manufactures and markets intelligent automation software
and hardware products for assembly, material handling and packaging
applications. The Company's products currently include machine controllers for
robot mechanisms and other flexible automation equipment, machine vision
systems, simulation software and a family of mechanisms including robots and
linear modules. In addition, the Company recently introduced a vision-based
flexible part feeder. The Company's net revenues have increased over time as its
robot product lines have grown, its advanced software and sensing technologies
have enabled robots to perform a wider range of functions and the Company has
expanded its channel of system integrators.
The Company sells its products through system integrators, its direct sales
force and OEMs. System integrators and OEMs add application-specific hardware
and software to the Company's products, thereby enabling the Company to provide
solutions to a diversified industry base, including the electronics,
telecommunications, appliances, pharmaceutical, food processing and automotive
components industries. Net revenues have increased in each of the Company's last
three fiscal years; however, there can be no assurance that the Company's net
revenues will continue to grow or that the Company will be profitable in future
periods. Accordingly, the Company's historical results of operations should not
be relied upon as an indication of future performance.
In June 1995 the Company purchased the assets and assumed the liabilities of
SILMA Incorporated ("Silma"), a developer of simulation software. The
acquisition was accounted for under the purchase method of accounting.
8
Results of Operations
Three Month Periods Ended September 28, 1996 and September 30, 1995
Net revenues. The Company's net revenues decreased by 6.3% to $18.4 million for
the three months ended September 28, 1996 from $19.7 million for the three
months ended September 30, 1995. The reduction in net revenues was primarily
attributable to decreased product sales, particularly sales of motion
controllers, in the Company's international markets, partially offset by an
increase in robot sales. International sales, including sales to Canada, were
$6.1 million or approximately 33.2% of net revenues for the three months ended
September 28, 1996 as compared with $7.6 million or 38.7% of net revenues for
three months ended September 30, 1995.
As the Company has previously indicated, the Company's industry has experienced
a slowdown in spending throughout international markets and with OEM customers
and, as a result, orders have been delayed. See "Significant Fluctuations in
Operating Results."
Gross margin. Gross margin percentage was 40.0% for the three months ended
September 28, 1996 and 42.3% for the three months ended September 30, 1995. The
decrease in gross margin was primarily attributable to the lower sales of higher
margin motion controller products and simulation software products from the
Company's Silma business. In addition, sales of lower margin mechanical
subsystems sourced from third parties increased quarter to quarter.
The Company expects that it will continue to experience quarterly fluctuations
in gross margin percentage due to changes in its sales and product mix.
Research, Development and Engineering. Research, development and engineering
expenses remained flat at $2.0 million for the three months ended September 28,
1996 and September 30, 1995. Research, development and engineering expenses for
the three months ended September 28, 1996 was partially offset by $227,000 of
third party development funding as compared with only $118,000 of third party
development funding for the three months ended September 30, 1995. The Company
expects that it will continue to receive third party development funding from
the federal and California state governments during fiscal 1997. There can be no
assurance that any funds budgeted by either government for the Company's
development projects will not be curtailed or eliminated at any time. As a
percentage of net revenues, research, development and engineering expenses
increased to 10.7% for the three months ended September 28, 1996 from 9.9% in
the three months ended September 30, 1995. Research, development and engineering
expenses as a percentage of net revenues increased because of the decline in net
revenues in the three months ended September 28, 1996.
Selling, General and Administrative. Selling, general and administrative
expenses increased 7.3% to $5.2 million or 27.9% of net revenues for the three
months ended September 28, 1996, as compared with $4.8 million or 24.4% of net
revenues for the three months ended September 30, 1995. This increased spending
was primarily attributable to increased headcount, investments in new product
launches and additional administrative expenses associated with being a public
company. The Company expects that selling, general and administrative expenses
will continue to increase in absolute dollars in future periods, although as a
percentage of net revenues, selling, general and administrative expenses may
fluctuate in future periods.
Interest Income (Expense), Net. Interest income, net for the three months ended
September 28, 1996 was $134,000, compared to $101,000 for the three months ended
September 30, 1995. The increase was due to additional interest income earned by
the investment of cash proceeds from the sale of common stock in the Company's
initial public offering in December 1995, partially offset by lower investment
yields in the three months ended September 28, 1996.
Provision for (Benefit from) Income Taxes. The Company's effective tax rate for
the three months ended September 28, 1996 was 36%, as compared with 17.3% for
the three months ended September 30, 1995. The Company's tax rate differs from
the statutory income tax rate primarily due to the utilization of tax credit
carryforwards and to a reduction in the valuation allowance for deferred tax
assets, partially offset by taxes on the Company's foreign operations.
9
Significant Fluctuations in Operating Results
The Company's operating results have historically been, and will continue to be,
subject to significant quarterly and annual fluctuations due to a number of
factors, including fluctuations in capital spending domestically and
internationally or in one or more industries to which the Company sells its
products, new product introductions by the Company or its competitors, changes
in product mix and pricing by the Company, its suppliers or its competitors,
availability of components and raw materials, failure to manufacture a
sufficient volume of products in a timely and cost-effective manner, failure to
introduce new products on a timely basis, failure to anticipate changing
customer product requirements, lack of market acceptance or shifts in the demand
for the Company's products, changes in the mix of sales by distribution channel,
changes in the spending patterns of the Company's customers, and extraordinary
events such as litigation or acquisitions. The Company's gross margins may vary
greatly depending on the mix of sales of lower margin hardware products,
particularly mechanical subsystems sourced from third parties, and higher margin
software products. The Company's operating results will also be affected by
general economic and other conditions affecting the timing of customer orders
and capital spending. The Company generally recognizes product revenue upon
shipment or, for certain international sales, upon receipt by the customer. The
Company's net revenues and results of operations for a fiscal period will
therefore be affected by the timing of orders received and orders shipped during
such period. A delay in shipments near the end of a fiscal period, due for
example to product development delays or to delays in obtaining materials, could
materially adversely affect the Company's business, financial condition and
results of operations for such period. Moreover, continued investments in
research and development, capital equipment and ongoing customer service and
support capabilities will result in significant fixed costs which the Company
will not be able to reduce rapidly and, therefore, if the Company's sales for a
particular fiscal period are below expected levels, the Company's business,
financial condition and results of operations for such fiscal period could be
materially adversely affected. In addition, while in some years revenue from
international sales has helped buffer the Company against slowdowns in U.S.
capital spending, in other years the higher costs associated with international
sales, combined with downturns in international markets, have adversely affected
the Company's results of operations. There can be no assurance that the Company
will be able to increase or sustain profitability on a quarterly or annual basis
in the future.
The Company has experienced and is expected to continue to experience
seasonality in product bookings. In the past the Company has had higher bookings
for its products during the June quarter of each fiscal year and lower bookings
during the September quarter of each fiscal year, due primarily to the slowdown
in sales to European markets. Historically, the Company has generally been able
to maintain revenue levels during the September fiscal quarter by utilizing
backlog from the June fiscal quarter, however, this was not the case for the
September quarter of fiscal 1997.
In the September quarter of fiscal 1997, sales to European and other
international markets decreased substantially, as several large orders were
delayed by customers. The decrease in product bookings resulted in decreased net
revenues for the September quarter of fiscal 1997 as described above under
"Results of Operations." The Company currently believes that a number of factors
will have an impact on revenues and earnings for fiscal 1997. These factors
include the overall moderation in the growth rate of the intelligent automation
industry, the slowdown in sales to European and other international markets, and
the increased investments in product development and marketing programs. The
Company currently expects that production shipments of certain new products
under development, including AdeptRAPID and CimStation Inspection on the PC, an
AdeptWindows PC interface for MV Controllers and the integrated MV Controller
with linear modules, will commence in the latter half of fiscal 1997. However,
there can be no assurance that these products will be timely developed or that
they will achieve acceptance in the marketplace. Moreover, because product
bookings were lower in the September quarter of fiscal 1997, the Company's
backlog is also down and inventories have increased. In the event product
bookings and net revenues for the December quarter of fiscal 1997 are
insufficient to compensate for the lower product bookings in the September
fiscal quarter, the Company's results of operations for the December quarter of
fiscal 1997 and future fiscal quarters could be materially adversely affected.
10
In addition, a significant percentage of the Company's product shipments occur
in the last month of each fiscal quarter. Historically this has been due to a
lack of component availability from sole or single source suppliers or, with
respect to components with long procurement lead times, due to inaccurate
forecasting of the level of demand for the Company's products or of the product
mix for a particular fiscal quarter. The Company has therefore from time to time
been required to utilize components and other materials for current shipments
which were scheduled to be incorporated into products to be shipped in
subsequent periods. If the Company were unable to obtain additional components
or mechanical subsystems to meet increased demand for its products, or to meet
demand for a product mix which differed from the forecasted product mix, or if
for any reason the Company failed to ship sufficient product prior to the end of
the fiscal quarter, the Company's business, financial condition and results of
operations could be materially adversely affected.
Liquidity and Capital Resources
The Company completed its initial public offering of common stock in December
1995, raising approximately $10.0 million net of offering expenses. Prior to
December 1995, the Company financed its operations through private sales of
equity securities, cash flow from operations, capital equipment leases, and bank
lines of credit. As of September 28, 1996, the Company had working capital of
approximately $35.2 million, including $8.2 million in cash and cash equivalents
and $3.9 million in short term investments.
The Company's operating activities provided cash of $1.8 million and used cash
of $2.2 million for the three months ended September 28, 1996 and September 30,
1995, respectively. The cash provided by operating activities in the three
months ended September 28, 1996 primarily related to the decrease in accounts
receivable arising from increased collection of prior quarter accounts
receivable.
Net cash used by investing activities was $1.8 million for the three months
ended September 28, 1996, due to net purchases of short-term investments of $1.0
million and purchases of property and equipment aggregating $763,000. The
Company currently anticipates capital expenditures of approximately $4.4 million
during fiscal 1997, including approximately $1.5 million for test fixtures,
tooling and other factory investments, approximately $1.3 million for MIS
equipment and approximately $1.6 million for laboratory and other equipment.
The Company believes that the existing cash and cash equivalent balances as well
as short term investments and anticipated cash flow from operations will be
sufficient to support the Company's working capital requirements for at least
the next twelve months.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The Exhibits listed on the accompanying index immediately
following the signature page are filed as part of this report.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Company during the quarter ended September 28, 1996.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADEPT TECHNOLOGY, INC.
Date: November 11, 1996 By: /s/ Brian R. Carlisle
----------------------------------
Brian R. Carlisle
Chairman of the Board and
Chief Executive Officer
Date: November 11, 1996 By: /s/ Betsy A. Lange
----------------------------------
Betsy A. Lange
Vice President of Finance
and Chief Financial Officer
12
INDEX TO EXHIBITS
SEQUENTIALLY
NUMBERED
EXHIBITS PAGE
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11.1 Statement of Computation of Net Income Per Share. 14
27.1 Financial Data Schedule. 15
13