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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 March 29, 2003
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 May 9,
2003 was 15,391,669.
1
ADEPT TECHNOLOGY, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
March 29, 2003 and June 30, 2002............................................ 3
Condensed Consolidated Statements of Operations
Three and nine months ended March 29, 2003 and March 30, 2002............... 4
Condensed Consolidated Statements of Cash Flows
Nine months ended March 29, 2003 and March 30, 2002......................... 5
Notes to Condensed Consolidated Financial Statements........................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................18
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........44
Item 4. Controls and Procedures.............................................45
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................45
Item 2. Changes in Securities and Use of Proceeds..........................45
Item 6. Exhibits and Reports on Form 8-K....................................46
Signatures..................................................................47
Certifications..............................................................48
Index to Exhibits...........................................................50
2
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 29, June 30,
2003 2002
---- ----
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 1,739 $ 17,375
Short-term investments ..................................................... -- 4,306
Accounts receivable, less allowance for doubtful accounts of $910 at
March 29, 2003 and $832 at June 30, 2002 .............................. 13,073 12,500
Inventories ................................................................ 9,846 11,189
Prepaid assets and other current assets .................................... 1,767 854
--------- ---------
Total current assets ................................................... 26,425 46,224
Property and equipment at cost .................................................. 12,099 12,688
Less accumulated depreciation and amortization .................................. 8,380 6,965
--------- ---------
Property and equipment, net ..................................................... 3,719 5,723
Goodwill ........................................................................ 7,671 6,889
Other intangibles, net .......................................................... 1,371 1,124
Other assets .................................................................... 2,152 2,534
--------- ---------
Total assets ........................................................... $ 41,338 $ 62,494
========= =========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND SHAREHOLDERS' EQUITY
(DEFICIT) Current liabilities:
Accounts payable ........................................................... $ 8,978 $ 6,561
Accrued payroll and related expenses ....................................... 1,088 2,463
Accrued warranty ........................................................... 1,880 1,566
Deferred revenue ........................................................... 857 637
Accrued restructuring charges .............................................. 3,057 1,909
Accrued taxes .............................................................. 1,725 1,664
Accrued liabilities related to business acquisitions ....................... 347 2,730
Short term debt ............................................................ 339 --
Other accrued liabilities .................................................. 759 1,368
--------- ---------
Total current liabilities .............................................. 19,030 18,898
Long term liabilities:
Restructuring charges ...................................................... 444 1,450
Other long term liabilities ................................................ 2,100 1,242
Commitments and contingencies
Redeemable convertible preferred stock, no par value:
5,000 shares authorized, 100 shares issued and outstanding at
March 29, 2003 and June 30, 2002 (liquidation preference - $25,000) .......... 25,000 25,000
Shareholders' equity (deficit):
Preferred stock, no par value:
5,000 shares authorized, none issued and outstanding ...................... -- --
Common stock, no par value:
70,000 shares authorized, 15,128 and 14,051 shares issued and outstanding
at March 29, 2003 and June 30, 2002, respectively ......................... 108,824 107,384
Accumulated deficit ............................................................ (114,060) (91,480)
--------- ---------
Total shareholders' equity (deficit) ...................................... (5,236) 15,904
--------- ---------
Total liabilities, redeemable convertible preferred stock and shareholders'
equity (deficit) ........................................................ $ 41,338 $ 62,494
========= =========
See accompanying notes.
3
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
Three months ended Nine months ended
March 29, March 30, March 29, March 30,
2003 2002 2003 2002
-------- -------- -------- --------
Net revenues ........................................ $ 12,477 $ 14,588 $ 33,500 $ 42,404
Cost of revenues .................................... 9,000 9,856 25,029 27,765
-------- -------- -------- --------
Gross margin ........................................ 3,477 4,732 8,471 14,639
Operating expenses:
Research, development and engineering ......... 2,916 5,008 9,509 15,432
Selling, general and administrative ........... 5,092 7,192 18,015 22,025
Restructuring charges ......................... 2,020 5,323 3,156 17,659
Amortization of intangible assets ............. 185 216 533 575
-------- -------- -------- --------
Total operating expenses ............................ 10,213 17,739 31,213 55,691
-------- -------- -------- --------
Operating loss ...................................... (6,736) (13,007) (22,742) (41,052)
Interest income (expense), net ...................... (16) 123 193 344
-------- -------- -------- --------
Loss before income taxes and cumulative effect of
change in accounting principle .................... (6,752) (12,884) (22,549) (40,708)
Provision for (benefit from) income taxes .......... -- (2,935) 31 (2,789)
-------- -------- -------- --------
Net loss before cumulative effect of change in
accounting principle ............................. (6,752) (9,949) (22,580) (37,919)
Cumulative effect of change in accounting principle* -- -- -- (9,973)
-------- -------- -------- --------
Net loss ............................................ $ (6,752) $ (9,949) $(22,580) $(47,892)
======== ======== ======== ========
Basic and diluted net loss per share:
Before cumulative effect of change in accounting
principle ..................................... $ (0.44) $ (0.72) $ (1.53) $ (2.78)
======== ======== ======== ========
After cumulative effect of change in accounting
principle ..................................... $ (0.44) $ (0.72) $ (1.53) $ (3.51)
======== ======== ======== ========
Number of shares used in computing per share amounts:
Basic ......................................... 15,225 13,829 14,765 13,648
======== ======== ======== ========
Diluted ....................................... 15,225 13,829 14,765 13,648
======== ======== ======== ========
*The cumulative effect of change in accounting principle of $9,973 was
originally reported in our results of operations in the Form 10-Q for the fiscal
quarter ended March 30, 2002, when the amount of the impairment under SFAS 142
was determined. However, because the impairment relates to the effective date of
SFAS 142, or July 1, 2001 for Adept, the cumulative effect of change in
accounting principle is properly included in the first quarter of fiscal 2002
and is reflected in the nine-month period ended March 30, 2002 in the table
above.
See accompanying notes.
4
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Nine months ended
----------------------
March 29, March 30,
2003 2002
---- ----
Operating activities
Net loss ...................................................................... $(22,580) $(47,892)
Adjustments to reconcile net loss to net cash used in operating activities:
Cumulative effect of change in accounting principle ......................... -- 9,973
Depreciation ................................................................ 2,146 2,598
Amortization of intangibles ................................................. 533 575
Amortization of common stock warrants to interest expense ................... 21 --
Asset impairment charges .................................................... 268 9,167
Loss on disposal of property and equipment .................................. 9 246
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable ...................................................... (559) 8,904
Inventories .............................................................. 1,408 777
Prepaid expenses and other current assets ................................ (908) (1,846)
Other assets ............................................................. 381 2,123
Accounts payable ......................................................... 2,282 (3,102)
Other accrued liabilities ................................................ (3,651) (2,027)
Accrued restructuring charges ............................................ 142 4,285
Other long term liabilities .............................................. 858 (106)
-------- --------
Net cash used in operating activities ........................................ (19,650) (16,325)
-------- --------
Investing activities
Business acquisitions, net of cash acquired ................................... (198) (9,907)
Purchase of property and equipment, net ....................................... (247) (114)
Purchases of short-term available-for-sale investments ........................ (9,275) (20,950)
Sales of short-term available-for-sale investments ............................ 13,581 17,575
-------- --------
Net cash provided by (used in) investing activities ........................... 3,861 (13,396)
-------- --------
Financing activities
Proceeds from issuance of redeemable convertible preferred stock .............. -- 25,000
Proceeds from employee stock incentive program and employee
stock purchase plan, net of repurchases and cancellations ................. 153 2,489
-------- --------
Net cash provided by financing activities ..................................... 153 27,489
-------- --------
Decrease in cash and cash equivalents .......................................... (15,736) (2,232)
Cash and cash equivalents, beginning of period ................................. 17,375 18,700
-------- --------
Cash and cash equivalents, end of period ....................................... $ 1,739 $ 16,468
======== ========
Supplemental disclosure of non-cash financing activity:
Issuance of common stock pursuant to terms of HexaVision acquisition agreement $ -- $ 1,226
Issuance of common stock pursuant to terms of Meta acquisition agreement ..... $ 825 $ --
Issuance of common stock pursuant to terms of Chad acquisition agreement ..... $ 425 $ --
See accompanying note
5
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. General
The accompanying condensed consolidated financial statements have been prepared
in conformity with generally accepted accounting principles. However, certain
information or footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. The information furnished in this report reflects all
adjustments that, 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 in this quarterly report on Form 10-Q should be read in conjunction
with the audited financial statements and notes thereto for the fiscal year
ended June 30, 2002 included in the Adept Technology, Inc.'s ("Adept" or the
"Company") Form 10-K as filed with the Securities and Exchange Commission on
September 25, 2002, and amended by Form 10-K/A filed on September 27, 2002,
February 5, 2003 and March 19, 2003, as well as the Form 10-K/A filed under
cover of Form 8-K on February 5, 2003 which contains updated segment information
for the Company.
The results for such periods are not necessarily indicative of the results to be
expected for the full fiscal year or for any other future period.
The Company has significant lease obligations for its California facilities. The
Company is currently in discussions with certain of its landlords regarding
renegotiating certain of its lease obligations. The Company has moved out of its
San Jose facility and no longer pays rent for that facility, and is negotiating
a settlement of its lease obligations for that facility with the landlord. The
Company is also in discussions with the landlord of its Livermore facility
regarding restructuring its lease obligations, during which time the Company is
not paying rent through June 2003 with the understanding that no default will be
declared. The Company's cash usage for the third quarter of fiscal 2003 was
significantly impacted by its nonpayment of rent for these facilities while it
renegotiates these lease obligations. If the Company is not able to renegotiate
its lease obligations, the Company may immediately be required to pay the
deferred rent and unpaid lease obligations in full and it would not have
sufficient cash to meet these obligations otherwise due in fiscal 2003,
therefore the Company may be required to cease operations.
The Company continues to aggressively pursue additional outside sources of
financing to address future working capital requirements. The Company is seeking
various debt and equity financing alternatives to improve its cash position. If
the Company is not able to renegotiate its lease obligations, it will not have
sufficient cash to satisfy such obligations otherwise due in fiscal 2003,
therefore, the Company may be required to cease operations. Even if the Company
successfully renegotiates its lease obligations, the transactions may involve
the incurrence of debt or issuance of debt or equity securities of the Company,
which would dilute the Company's outstanding equity. If the Company's lease
obligations are renegotiated but the results of the Company's search for
additional outside sources of financing is that adequate funds are not available
on acceptable terms or at all, the Company may not be able to take advantage of
market opportunities, develop or enhance new products, pursue acquisitions that
would complement our existing product offerings or enhance our technical
capabilities, execute our business plan or otherwise respond to competitive
pressures or unanticipated requirements.
The preparation of condensed consolidated financial statements in conformity
with 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
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Net Loss per Share
Basic net loss per share is based on the weighted average number of shares of
common stock outstanding during the period, excluding restricted stock, while
diluted net loss per share is based on the weighted average number of shares of
common stock outstanding during the period and the dilutive effects of common
stock equivalents (mainly stock options and convertible preferred stock),
determined using the treasury stock method, outstanding during the period,
unless the effect of including the common stock equivalents is anti-dilutive.
There were no differences
6
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
between basic and diluted net loss per share for any periods presented.
Derivative Financial Instruments
A foreign currency hedging program was used to hedge the Company's exposure to
foreign currency exchange risk on international operational assets and
liabilities. Realized and unrealized gains and losses on forward currency
contracts that are effective as hedges of assets and liabilities are recognized
in income. Adept recognized losses of $142,000 and $271,000 for the three months
and nine months ended March 29, 2003, respectively and a gain of $14,000 and a
loss of $466,000 for the three months and nine months ended March 30, 2002,
respectively. As of March 2003, the Company determined that its 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,
the Company suspended its foreign currency hedging program in March 2003.
2. Financial Instruments
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Short-term investments
consist principally of commercial paper and tax exempt municipal bonds with
maturities between three and 12 months, 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. The Company held no investments at March 29, 2003.
3. Mergers and Acquisitions
On August 30, 2002, the Company completed the acquisition of a controlling
interest in Meta Control Technologies, Inc., or Meta, a Delaware corporation.
Meta develops, designs, manufactures and markets products that automate a wide
range of manufacturing processes requiring precise motion, accurate machine
vision and rapid process instrumentation. Some of the applications that make use
of the Company's technology include semiconductor and electronics assembly,
micro-mechanical and fiber optic assembly, laboratory automation and discrete
process automation. The acquisition of Meta extends the Company's controls
architecture to include two axis, low power controls in small packages allowing
remote placement of motion and sensor controls that directly plug into Adept's
new architecture using IEEE 1394 Firewire technology. In addition, Meta has a
line of programmable cameras that when combined with the low power controller
and Adept's HexSight software can be packaged as a very low cost, competitive
OEM product. The results of Meta's operations have been included in Adept's
consolidated financial statements since August 30, 2002.
Upon the closing of the acquisition transaction with Meta, the Company acquired
a 67% ownership interest in Meta, with the remaining 33% ownership interest in
Meta being held by one shareholder. The acquisition agreement provides that
Adept will acquire all of these remaining shares in return for the payment of
discounts to the shareholder and its affiliates as described in the paragraph
below but will, in any event and regardless of whether discounts are paid,
acquire 100% of the stock of Meta no later than August 2008.
Under the terms of the Meta acquisition agreement, the Company issued 730,000
shares of its common stock to the shareholders of Meta with a value of $825,000.
The value of the 730,000 shares was determined based on the average closing
price of the Company's stock on the period of three trading days ended September
3, 2002. Ten percent of the 730,000 shares of common stock have been placed into
escrow for the term of one year from the completion of the acquisition pending
certain contingencies pursuant to the terms of the acquisition agreement.
Additionally, the Company has agreed to provide up to $1.7 million of discounts
and royalties through August 2008 to a shareholder of Meta based upon future
sales to that shareholder or certain of its affiliates. Such amounts will be
charged to operations when incurred. As of March 29, 2003, the Company has not
incurred any expenses related to discounts and royalties. In connection with the
acquisition, the Company assumed a $500,000 line of credit with Meta's lender
terminating in September 2003 and bearing interest at 1% plus the prime rate
announced by the Wall Street Journal. On March 10, 2003, the Company terminated
the $500,000 line of credit with Paragon Commercial Bank and paid the
outstanding balance with the funds used to secure the line of credit in order to
reduce interest expense (See Note 7). Additionally, the Company entered into a
loan agreement for up to $800,000 with a former
7
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
shareholder of Meta and issued into escrow for the benefit of the lender 100,000
shares of the Company's common stock valued at $113,000, subject to certain
cancellation rights. On March 10, 2003, the Company and the former shareholder
terminated the $800,000 loan agreement and the Company cancelled the 100,000
shares issued. No amounts were borrowed under the agreement.
Adept's management is primarily responsible for determining purchase price
allocations. Adept considered a number of factors, including valuations, in
determining the purchase price of Meta, which was allocated to tangible assets,
goodwill and other intangible assets. Goodwill represents the excess of the
purchase price of the net tangible and intangible assets acquired over their
fair value.
Below is a table of the acquisition cost and purchase price allocation.
Acquisition Cost:
Stock issued at closing....................... $ 825
Long term debt assumed........................ 511
Transaction costs............................. 232
------
Total acquisition cost...................... $1,568
======
Purchase Price Allocation:
Net book value of assets acquired............. $ 6
Identified intangible assets.................. 780
Goodwill...................................... 782
------
Total....................................... $1,568
======
Pro forma results for the three and nine months ended March 29, 2002 and for the
period from July 1, 2002 through August 30, 2002 (date of acquisition) have been
omitted as such effects would not differ materially from the Company's actual
results.
4. 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).
The components of inventory are as follows:
March 29, June 30,
(in thousands) 2003 2002
---- ----
Raw materials....................... $ 4,182 $ 4,952
Work-in-process..................... 2,680 3,049
Finished goods...................... 2,984 3,188
-------- --------
$ 9,846 $ 11,189
======== ========
5. Warranties
The Company offers a 2 year parts and 1 year labor limited warranty for all of
its 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 product liability during the nine months ended March
29, 2003 are as follows:
8
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Balance at June 30, 2002 $ 1,566
Warranties issued 1,075
Additional warranty provision 97
Warranty claims (1,209)
Changes in liability for pre-existing
warranties including expirations 351
---------
Balance at March 29, 2003 $ 1,880
The Company's warranty liability is classified as accrued warranty in the
accompanying balance sheet.
6. Property and Equipment
Property and equipment are recorded at cost.
The components of property and equipment are summarized as follows:
March 29, June 30,
(in thousands) 2003 2002
---- ----
Cost:
Machinery and equipment..................... $ 3,209 $ 3,042
Computer equipment.......................... 5,903 5,806
Office furniture and equipment.............. 2,987 3,840
---------- ----------
12,099 12,688
Accumulated depreciation and amortization 8,380 6,965
---------- ---------
Net property and equipment.................. $ 3,719 $ 5,723
========== ==========
7. Credit Facilities
On August 30, 2002, upon the closing of the acquisition transaction with Meta,
the Company assumed a $500,000 revolving line of credit with Meta's lender,
Paragon Commercial Bank, terminating in September 2003 and bearing interest at
1% plus the prime rate announced by the Wall Street Journal. Of this line of
credit, $494,000 was outstanding at the time of acquisition. The credit facility
was secured by a $500,000 cash deposit with Paragon Commercial Bank. On March
10, 2003, the Company terminated the $500,000 line of credit with Paragon
Commercial Bank and paid the outstanding balance with the funds used to secure
the line of credit in order to reduce interest expense.
Pursuant to the terms of the CHAD acquisition agreement, the Company paid $2.6
million to the shareholders of CHAD on October 9, 2002. On December 13, 2002,
CHAD and Adept amended the second anniversary promissory note due to a former
shareholder of CHAD and the funds then held in escrow in the amount of the $1.6
million promissory note were released to Adept. The second anniversary
promissory note was paid in full in January 2003.
On March 21, 2003, the Company and Silicon Valley Bank ("SVB") entered into an
Accounts Receivable Purchase Agreement (the "Purchase Agreement"). Under the
Purchase Agreement, the Company may sell certain of its receivables to SVB on a
full recourse basis for an amount equal to 70% of the face amount of such
purchased receivables with the aggregate face amount of purchased receivables
not to exceed $2.5 million. In connection with the Purchase Agreement, the
Company granted to SVB a security interest in substantially all of its assets.
As of March 29, 2003, the Company had $339,000 outstanding under the Purchase
Agreement. The Purchase Agreement includes certain covenants with which the
Company must comply. The Company is required to pay a monthly finance charge
equal to 2% of the average daily gross amount of unpaid purchased receivables.
The Company cannot transfer or grant a security interest in its assets without
SVB's consent, except for certain ordinary course transactions, or make any
transfers to any of its subsidiaries of money or other assets with an aggregate
value in excess of $24.0 million in any fiscal quarter, net of any payments by
such subsidiaries to the Company. Certain of the Company's wholly-owned
subsidiaries were also required to execute a guaranty of all the Company's
9
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
obligations to SVB and such guaranties have been executed. Since the Company's
obligation to repay SVB is not conditioned on the collection of the related
accounts receivable balances, the Company has recorded the amounts due under
this agreement in current liabilities.
8. Restructuring Charges
Fiscal 2002
During the year ended June 30, 2002, Adept implemented a plan to restructure
certain of its operations across all three of its reportable business segments.
Adept adopted a restructuring plan during the three months ended September 30,
2001 and due to market conditions, was required to implement additional
restructuring measures during the third quarter of fiscal 2002. Significant
items comprising the September 30, 2001 restructuring plan included the
following: exit of non-strategic product lines including SILMA inspection
software sales and maintenance, factory automation consulting and Multi-bus
controller support; consolidation of excess manufacturing and support
facilities; consolidation of the Company's European operations; reductions in
force and other salary reduction measures. The major actions comprising the
third quarter of fiscal 2002 restructuring plan included the following:
suspending current efforts focused on fiberoptics; closure of the Company's
Tucson, Arizona facility; the exit from manufacturing lease commitments in
Europe; and additional reductions in force.
For fiscal 2002, the Company recorded total restructuring charges of $17.7
million related to the actions identified. Of the $17.7 million restructuring
charge, Adept recorded $5.3 million in the three months ended March 30, 2002 and
$12.4 million in the three months ended September 30, 2001.
The restructuring charges include employee severance costs, lease commitments
for idle facilities and asset impairment charges and are as follows:
Amounts Amounts Amounts Amounts
Utilized Utilized Utilized Utilized
Q1 Fiscal Q1 Fiscal Q2 Fiscal Q2 Fiscal
(in thousands) 2002 2002 2002 2002
Charges Cash Non Cash Cash Non Cash
----------- ----------- ----------- ----------- ----------
Employee severance costs $ 1,692 $ 555 $ -- $ 370 $ --
Lease commitments 6,800 88 98 94 --
Asset impairment charges 9,167 -- 5,601 -- --
----------- ----------- ----------- ----------- ----------
Total $ 17,659 $ 643 $ 5,699 $ 464 $ --
=========== =========== =========== =========== ===========
Amounts Amounts Amounts Amounts
Utilized Utilized Utilized Utilized
Q3 Fiscal Q3 Fiscal Q4 Fiscal Q4 Fiscal Balance
(in thousands) 2002 2002 2002 2002 June 30,
Cash Non Cash Cash Non Cash 2002
----------- ----------- ----------- ----------- ----------
Employee severance costs $ 187 $ -- $ 454 $ -- $ 126
Lease commitments 336 2,573 472 -- 3,139
Asset impairment charges -- 3,472 -- -- 94
----------- ----------- ----------- ----------- ----------
Total $ 523 $ 6,045 $ 926 $ -- $ 3,359
=========== =========== =========== ========== ===========
Employee severance costs of $1.7 million represent a reduction of approximately
114 employees in most functional areas across all the reportable business
segments, and at June 30, 2002, all of the affected employees had ceased
employment with the Company. The Company paid the remaining accrued severance
before September 30, 2002. Lease commitments of $6.8 million consist of $4.2
million in charges resulting from the consolidation of manufacturing facilities
in San Jose and Livermore,
10
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
California into Adept's technology center in Livermore, California, plus the
consolidation of certain support facilities in Europe. The remaining $2.6
million in lease commitments relates to a non-cash charge for excess production
facilities for which the Company exchanged a prepaid commitment fee in order to
settle future obligations on excess production facilities. The consolidation of
these facilities has resulted in operating lease commitments in excess of the
Company's current and projected needs for leased properties. At June 30, 2002,
the long term accrued restructuring charges related to future rent commitments
on non-cancelable lease agreements. Payments against these lease commitments are
expected to continue for 18 months to three years based on lease terms. Asset
impairment charges of $9.2 million consist of $6.6 million in abandoned assets
resulting from the exiting of certain non-strategic product lines, consolidation
of facilities, and goodwill and other intangible assets write-off of $2.6
million. The charge for abandoned assets include leasehold improvements and
computer and office equipment related to the exit of the SILMA inspection
software product line as well as leasehold improvements, machinery and
equipment, and computer and office equipment related to the consolidation of
manufacturing and support facilities. The abandoned assets also include the
write off of enterprise resource planning system software associated with the
closure of the Pensar-Tucson facility. The goodwill and other intangible assets
written off resulted from the Company's acquisition of Pensar-Tucson in April
2000, which no longer has value to the Company due to the closure of its Tucson,
Arizona operations in March 2002.
As described in Note 14, the Company's management reorganized how it currently
measures the Company's businesses into three new business segments: Components,
Solutions, and Services and Support. The full effect of fiscal 2002
restructuring activities on the three new business segments was as follows. The
Components segment experienced annualized reduction in salary, depreciation and
rent-related expenses of approximately $7.6 million over the previous year,
which was offset by a decline in revenues of $2.4 million over the previous
year. The Solutions segment experienced annualized expense reductions of $1.6
million over the previous year with no offsetting decline in revenues. The
Services and Support segment experienced annualized expense reductions of $1.6
million over the previous year with no offsetting decline in revenues.
Fiscal 2003
In response to continued weakness in customer demand, the Company implemented
additional restructuring measures during the first and third quarters of fiscal
2003. The Company recorded total restructuring charges of $3.2 million related
primarily to the continued consolidation of its domestic facilities and
reductions in workforce during the nine months ended March 29, 2003. Employee
severance costs of $1.8 million represent a reduction of 120 employees in most
functional areas across all the reportable business segments, and by March 29,
2003, all of the affected employees had ceased employment with the Company.
Lease commitments of $1.1 million resulted primarily from the closure of the
Company's San Jose facility as part of a continuing effort to consolidate
domestic operations and administration in the Company's Livermore facility.
Asset impairment charges of $268,000 represent write-offs of abandoned assets
primarily related to the Company's San Jose facility.
The following table summarizes the significant components of the Company's first
quarter fiscal 2003 restructuring at March 29, 2003:
Additional Additional Amounts Amounts
Balance Charges Charges Utilized Utilized
June 30, Q1 Fiscal Q3 Fiscal Q1 Fiscal Q1 Fiscal
(in thousands) 2002 2003 2003 2003 2003
---- ---- ---- ---- ----
Cash Non Cash
Employee severance costs $ 126 $ 1,026 $ 751 $ 815 $ --
Lease commitments 3,139 95 1,016 416 --
Asset impairment charges 94 15 253 -- 15
----------- ---------- ---------- ----------- -----------
Total $ 3,359 $ 1,136 $ 2,020 $ 1,231 $ 15
=========== ========== ========== =========== ===========
11
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Amounts Amounts Amounts Amounts
Utilized Utilized Utilized Utilized
Q2 Fiscal Q2 Fiscal Q3 Fiscal Q3 Fiscal Balance
(in thousands) 2003 2003 2003 2003 March 29,
Cash Non Cash Cash Non Cash 2003
----------- ----------- ---------- ----------- -----------
Employee severance costs $ 330 $ -- $ 524 $ -- $ 234
Lease commitments 416 -- 430 (185) 3,173
Asset impairment charges -- -- -- 253 94
----------- ----------- ---------- ----------- -----------
Total $ 746 $ -- $ 954 $ 68 $ 3,501
========== =========== ========== =========== ===========
In addition, the Company revised in March 2003 its estimate of the costs to
consolidate its French and German offices and as a result, the restructuring
charges in the three months ended March 29, 2003 includes a reversal of $185,000
in previously established amounts. At March 29, 2003, the restructuring accrual
balance of $3.5 million is comprised entirely of cash charges which are expected
to be paid over the next ten quarters, primarily against non-cancelable lease
commitments.
9. Redeemable Convertible Preferred Stock
On October 29, 2001, Adept completed a private placement with JDS Uniphase
Corporation of $25.0 million in its convertible preferred stock consisting of
78,000 shares of Series A Convertible Preferred Stock (the "Series A Preferred")
and 22,000 shares of Series B Convertible Preferred Stock (the "Series B
Preferred"), collectively (the "Preferred Stock"). Both the Series A Preferred
and the Series B Preferred are entitled to annual dividends at a rate of $15 per
share. Dividends are cumulative, and accrued and unpaid dividends are payable
only in the event of certain liquidity events as defined in the statement of
preferences of the Preferred Stock, such as a change of control or liquidation
or dissolution of Adept. No dividends on its common stock may be paid until
dividends for the fiscal year and any prior years on the Preferred Stock have
been paid or set apart, and the Preferred Stock will participate in any
dividends paid to the common stock on an as-converted basis. The Preferred Stock
may be converted into shares of the Company's common stock at any time, and in
the absence of a liquidity event or earlier conversion or redemption, will be
converted into common stock upon October 29, 2004 (the "Automatic Conversion
Date"). The Company has agreed to use its reasonable efforts to seek shareholder
approval to extend this Automatic Conversion Date for the Preferred Stock until
October 29, 2005. The Preferred Stock may be converted into shares of Adept's
common stock at a rate of the initial purchase price divided by a denominator
equal to the lesser of $8.18, or 75% of the 30 day average closing price of
Adept's common stock immediately preceding the conversion date ("Conversion Date
Price"). However, as a result of a waiver of events of default by the preferred
stockholder other than in connection with certain liquidity events that are not
approved by the Board of Directors of Adept, in no event shall the denominator
for the determination of the conversion rate with respect to the Series B
Preferred be less than $4.09 and with respect to the Series A Preferred be less
than $2.05, even if the Conversion Date Price is less than $4.09 and $2.05,
respectively. With respect to the Series A Preferred, the conversion price could
potentially be less than the fair value of the common stock at the date the
preferred stock was issued. The resulting beneficial conversion amount, if any,
would be recorded as a preferred stock dividend and shown as a reduction in net
income applicable to common shareholders. The Preferred Stock shall not be
convertible, in the aggregate, into 20% or more of our outstanding voting
securities and no holder of Preferred Stock may convert shares of Preferred
Stock if, after the conversion, the holder will hold 20% or more of the
outstanding voting securities of Adept. Shares not permitted to be converted
remain outstanding, unless redeemed, and become convertible when such holder
holds less than 20% of Adept's outstanding voting securities. The Preferred
Stock has voting rights equal to the number of shares into which the Preferred
Stock could be converted subject to the terms of the designation of preferences
assuming a conversion rate of $250.00 divided by $8.18.
Barring the occurrence of certain liquidity events that are not approved by the
Board of Directors of Adept, if the Conversion Date Price on the Automatic
Conversion Date is lower than $2.05, then the denominator for the calculation of
the conversion of the Preferred Stock described above will be $4.09 for the
Series B Preferred Stock and $2.05 for the Series A Preferred Stock. In
addition, because accrued and unpaid dividends are payable only in the event of
certain liquidity events as defined in the designation of preferences of the
Preferred Stock, as described above, barring the prior occurrence of such a
liquidity event, no cash dividends will be payable at the Automatic Conversion
Date.
12
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
The Company has the right, but not the obligation, to redeem shares of Series A
Preferred elected to be converted by the preferred stockholder which, upon
conversion would use the denominator of $2.05 for determination of the
conversion rate, and would result in the issuance of shares of common stock in
excess of the number of shares of common stock issuable upon conversion using a
denominator of $4.09 for determination of the conversion rate. The number of
shares of Series A Preferred that Adept may elect to redeem would be calculated
by subtracting (i) the number of shares of common stock that the shares of
Series A Preferred that have been elected to be converted would be convertible
into based on a denominator of $4.09 from (ii) the number of shares of common
stock that the shares of Series A Preferred that have been elected to be
converted would be convertible into based on a denominator of $2.05, and then
determining the number of shares of Series A Preferred that this number of
shares of common stock represents using a denominator of $4.09. The redemption
price is equal to the sum of the initial Preferred Stock price, plus all
cumulated and unpaid dividends. The redemption shall be paid in the form of a
senior unsecured promissory note bearing interest at a rate of 6% per annum,
maturing in two years from the date of issuance. If the Company redeems shares
of Preferred Stock using a promissory note, any indebtedness incurred while the
note is outstanding must be subordinated to the note, other than certain
ordinary course financings. In addition, the holders of the Preferred Stock are
entitled to receive, upon liquidation, the amount equal to $250.00 per share
(adjusted for any stock splits or stock dividends) plus any unpaid dividends.
The liquidation preference may be triggered by several events consisting of a
change in control of Adept, a sale of substantially all of Adept's assets,
shareholder approval of any plan of liquidation or dissolution or the direct or
indirect beneficial ownership of more than 50% of Adept's common stock by any
person or entity. Since such events may be outside of management's control and
would trigger the payment of the Preferred Stock liquidation preference, the
Preferred Stock is classified outside of shareholders' equity as redeemable
convertible preferred stock in the accompanying consolidated balance sheet.
In December 2002, Adept and JDS Uniphase agreed to terminate the supply,
development and license agreement entered into by them in October 2001. Under
this agreement, Adept was obligated to work with JDS Uniphase's internal
automation organization, OPA, to develop solutions for component and module
manufacturing processes for sub-micron tolerance assemblies. JDS Uniphase
retained sole rights for fiberoptic applications developed under this contract.
For non-fiberoptic applications of component and module manufacturing processes
developed by OPA, Adept was obligated to pay up to $1,000,000 each fiscal
quarter for the planned five-quarter effort. Due to changing economic and
business circumstances and the curtailment of development by JDS Uniphase and
shutdown of their OPA operations, both parties determined that these development
services were no longer in their mutual best interests. As part of the
termination, Adept executed a $1,000,000 promissory note in favor of JDS
Uniphase earning interest at a rate of 7% per year payable on or before
September 30, 2004. JDS Uniphase has the right to require Adept to apply any
additional financing received prior to maturity first to repayment of the
outstanding balance under the promissory note. In addition, in the event of
Adept's insolvency or inability to pay its debts when they become due, an event
of default occurs under the promissory note. An event of default will result in
the immediate acceleration of the promissory note and the unpaid balance and all
accrued interest will become immediately due and payable. The payments made
prior to termination plus the promissory note represent payment in full by Adept
for the development services performed by JDS Uniphase, and there are no
remaining payment obligations arising from the agreement. All licenses,
licensing rights and other rights and obligations arising from the development
work performed under the contract before termination survive its termination.
Adept also agreed to use its reasonable efforts to seek shareholder approval to
amend the date that the preferred stock held by JDS Uniphase automatically
converts into Adept's common stock from October 29, 2004 to October 29, 2005 to
allow JDS Uniphase an additional year to maintain its position as a preferred
stockholder or convert the Preferred Stock into shares of Adept's common stock.
The $1.0 million promissory note is included in other long-term liabilities on
the accompanying balance sheet.
10. Income Taxes
The Company typically provides for income taxes during interim reporting periods
based upon an estimate of its annual effective tax rate. The Company has ceased
to recognize the current tax benefit of its operating losses because realization
is not assured as required by SFAS No. 109. The Company recorded a tax provision
related to the operations of its French subsidiary in the first quarter of
fiscal 2003. The Company did not record a tax provision for its French
subsidiary in the second and third quarters of fiscal 2003 based on operating
results
13
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
projected for the remainder of fiscal 2003.
11. Goodwill and Intangible Assets
In accordance with SFAS 142, the following is a summary of the gross carrying
amount and accumulated amortization, aggregate amortization expense, and
estimated amortization expense for the next five succeeding fiscal years related
to the intangible assets subject to amortization.
(in thousands) As of March 29, 2003
---------------------------------------------------
Gross Carrying Accumulated Net Carrying
Amortized intangible assets Amount Amortization Amount
Developed technology $ 2,532 $ (1,272) $ 1,260
Non-compete agreements 380 (269) 111
----------- ------------- -----------
Total $ 2,912 $ (1,541) $ 1,371
=========== ============= ===========
The aggregate amortization expense for three and nine months ended March 29,
2003 totaled $185,000 and $533,000, respectively, and the estimated amortization
expense for the next five years are as follows:
(in thousands) Amount
-----------
Remaining for fiscal year ended 2003 $ 178
For fiscal year ended 2004 682
For fiscal year ended 2005 267
For fiscal year ended 2006 195
For fiscal year ended 2007 49
-----------
$ 1,371
===========
The changes in the carrying amount of goodwill for the nine months ended March
29, 2003 are as follows:
(in thousands) Components Solutions Totals
Balance at June 30, 2002 $ 2,394 $ 4,495 $ 6,889
Addition to goodwill for the acquisition of Meta (Note 3) 782 -- 782
----------- ---------- ----------
Balance at March 29, 2003 $ 3,176 $ 4,495 $ 7,671
========== ========== ==========
There is no goodwill related to the Services and Support segment.
12. Net Loss Per Share
Three months ended Nine months ended
--------------------------- -----------------------
(in thousands) March 29, March 30, March 29, March 30,
2003 2002 2003 2002
---- ---- ---- ----
Net loss before cumulative effect of change in
accounting principle ............................. $ (6,752) $ (9,949) $ (22,580) $(37,919)
Cumulative effect of change in accounting principle . -- -- -- (9,973)
--------- -------- --------- --------
Net loss after cumulative effect of change in
accounting principle ............................. $ (6,752) $ (9,949) $ (22,580) $(47,892)
========= ======== ========= ========
Basic and diluted shares outstanding ................ 15,225 13,829 14,765 13,648
========= ======== ========= ========
Basic and diluted loss per common share:
Before cumulative effect of change in accounting
principle ...................................... $ (0.44) $ (0.72) $ (1.53) $ (2.78)
========= ======== ========= ========
Cumulative effect of change in accounting principle $ -- $ -- $ -- $ (.73)
========= ======== ========= ========
Adjusted net loss ................................ $ (0.44) $ (0.72) $ (1.53) $ (3.51)
========= ======== ========= ========
14
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
13. Impact of Recently Issued Accounting Standards
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, " Consolidation of Variable Interest Entities" (FIN 46).
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provision of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. The Company is in the process of
assessing the impact of adopting FIN 46 on its financial position and results of
operations.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," which is effective for fiscal years
ending after December 15, 2002. SFAS 148 amends SFAS 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition to SFAS
123's fair value method of accounting for stock-based employee compensation.
SFAS 148 also amends the disclosure provisions of SFAS 123 and APB Opinion No.
28, "Interim Financial Reporting," to require disclosure in the summary of
significant accounting policies of the effect of an entity's accounting policy
with respect to stock-based employee compensation on reported net income and
earnings per share in annual and interim financial statements. The transition
methods of SFAS 148 are effective for the Company's June 30, 2003 Form 10-K. The
Company continues to use the intrinsic value method of accounting for
stock-based compensation. As a result, the transition provisions will not have
an effect on the Company's consolidated financial statements. The Company has
elected to adopt the interim disclosure requirements of SFAS 148 (See Note 14).
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness
of Others" (FIN 45). The Interpretation elaborates on the existing disclosure
requirements for most guarantees, including product warranties. The
Interpretation requires that at the time a company issues certain guarantees,
the company must recognize an initial liability for the fair value, or market
value, of the obligations it assumes under that guarantee and must disclose that
information in its interim and annual financial statements. The initial
recognition and initial measurement provisions of the Interpretation are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The Interpretation's disclosure requirements are effective
for financial statements of interim or annual periods ending after December 15,
2002 and are applicable to all guarantees issued by the guarantor subject to the
Interpretation's scope, including guarantees issued prior to the issuance of the
Interpretation. The Company adopted the Interpretation effective for the fiscal
quarter ended December 28, 2002. As the Company has not made any significant
financial guarantees other than product warranties, the adoption of FIN 45 did
not have a material impact on its financial position or results of operations.
In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with
Exit or Disposal Activities", which is effective for exit or disposal activities
that are initiated after December 31, 2002. SFAS 146, which nullifies EITF Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit and Activity (Including Certain Costs Incurred in a
Restructuring)," requires that a liability for a cost associated with an exit or
disposal activity be recognized and measured initially at fair value only when
the liability is incurred. The adoption of SFAS 146 did not have a material
impact on the Company's financial position or results of operations.
14. 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
15
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Company's pro forma net earnings, and net earnings per share would be as
follows:
Three months ended Nine months ended
------------------------------ ---------------------------
(in thousands) March 29, March 30, March 29, March 30,
2003 2002 2003 2002
------------- ------------- ------------- ----------
Net loss, as reported ............................. $ (6,752) $ (9,949) $ (22,580) $ (47,892)
Deduct: Total stock based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects ..... (108) (1,693) (1,950) (5,792)
------------- ------------- ------------- ----------
Pro forma net loss ................................ $ (6,860) $ (11,642) $ (24,530) $ (53,684)
============= ============= ============= ==========
Basic and diluted loss per common share:
Basic, as reported ............................. $ (0.44) $ (0.72) $ (1.53) $ (3.51)
============= ============= ============= ==========
Basic-pro forma ................................ $ (0.45) $ (0.84) $ (1.66) $ (3.93)
============= ============= ============= ==========
Diluted, as reported ........................... $ (0.44) $ (0.72) $ (1.53) $ (3.51)
============= ============= ============= ==========
Diluted-pro forma .............................. $ (0.45) $ (0.84) $ (1.66) $ (3.93)
============= ============= ============= ==========
15. Segment Information
The Company completed several acquisitions over the past few years. Evolution of
the business resulting partially from these acquisitions combined with the
changing business environment has rendered the Company's previously reported
business segments less meaningful. As such, effective July 1, 2002, the
previously reported segments, Assembly and Material Handling ("AMH"),
Semiconductor, and SILMA Software segments were reorganized into three new
business segments to reflect how management currently measures the Company's
businesses: Components, Solutions, and Services and Support. Of the previously
reported segments, Semiconductor's business was reorganized into separate
businesses that are now categorized in both Components and Solutions.
Additionally, the AMH and SILMA businesses are now categorized in the Components
segment. Service and support for all of our products are now categorized in the
Services and Support segment. Accordingly, segment information for the three and
nine months ended March 30, 2002 has been restated to conform to the current
presentation.
The Components segment provides intelligent automation software and hardware
component products externally and internally to the other two business segments
for support and integration into higher level assemblies.
The Solutions segment takes products purchased from the Components segment
together with raw materials from third parties, and produces an integrated
family of process ready platforms for the semiconductor, electronics and
photonics and other markets, which are driven towards standard offerings.
The Services and Support segment provides support services to our customers
including providing information on the use of our 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 for manufacturing engineers who design and
implement automation lines.
The Company evaluates performance and allocates resources based on segment
revenues and segment operating (loss) income. Segment operating (loss) income is
comprised of income before unallocated research and development expenses,
unallocated selling, general and administrative expenses, interest income, and
interest and other expenses.
Management does not fully allocate research and development 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.
Segment information for total assets and capital expenditures is not presented
as such information is not used in measuring segment performance or allocating
resources among segments.
16
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended Nine months ended
-------------------- --------------------
March 29, March 30, March 29, March 30,
(in thousands) 2003 2002 2003 2002
-------- -------- -------- --------
Revenue:
Component ................................ $ 6,475 $ 10,817 $ 18,358 $ 28,076
Solutions ................................ 2,954 2,021 5,260 5,151
Services and Support ..................... 3,048 1,750 9,882 9,177
-------- -------- -------- --------
Total revenue ............................ $ 12,477 $ 14,588 $ 33,500 $ 42,404
======== ======== ======== ========
Operating income (loss):
Components ............................... $ (1,432) $ (967) $ (5,681) $ (4,170)
Solutions ................................ (353) (2,016) (2,523) (3,899)
Services and Support ..................... 852 101 2,241 2,216
-------- -------- -------- --------
Segment loss ............................. (933) (2,882) (5,963) (5,853)
Unallocated research, development
and engineering and selling,
general and administrative ............ (3,783) (4,801) (15,643) (17,537)
Restructuring charges .................... (2,020) (5,323) (3,156) (17,659)
Interest income .......................... 13 123 236 344
Interest expense ......................... (29) (1) (43) (3)
-------- -------- -------- --------
Loss before income taxes and cumulative
effect of change in accounting principle $ (6,752) $(12,884) $(22,549) $(40,708)
======== ======== ======== ========
16. Comprehensive Loss
For the three and nine months ended March 29, 2003 and March 30, 2002, there
were no significant differences between Adept's comprehensive loss and its net
loss.
17. Reclassifications
Certain amounts presented in the financial statements for prior periods have
been reclassified to conform to the presentation for fiscal 2003.
18. Subsequent Events
During the second and third quarters of this fiscal year, the Company received
notifications from the Nasdaq Stock Market, or Nasdaq, indicating that our
securities were subject to delisting from the Nasdaq National Market as a result
of our failure to comply with certain quantitative requirements for continued
listing on the Nasdaq National Market and denying our application to transfer
the listing of our securities to the Nasdaq SmallCap Market. Our common stock
was delisted from the Nasdaq National Market effective on April 15, 2003. Our
common stock commenced trading on the OTC Bulletin Board on April 15, 2003.
On April 24, 2003, as a result of the delisting and the resulting additional
cost and administrative requirements of maintaining the Employee Stock Purchase
Plan, referred to as the ESPP, the Board of Directors approved an amendment to
the ESPP to suspend any future offering periods until a further determination is
made to recommence offering periods under the ESPP.
In April 2003, the Company implemented plans to reduce its headcount by an
additional 7% of total employees, which the Company expects to result in
approximately $0.5 million per quarter in cash savings when fully implemented in
the second quarter of fiscal 2004.
17
ADEPT TECHNOLOGY, INC.
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 our estimates regarding our capital requirements and our needs for
additional financing;
o our ability to successfully renegotiate certain of our facilities
lease obligations;
o plans for future products and services and for enhancements of
existing products and services;
o marketing and commercialization of our products under development;
o our ability to attract customers and market our products;
o sources of revenues and anticipated revenues, including the
contribution from the growth of new products and markets;
o our intellectual property;
o our ability to establish relationships with suppliers, systems
integrators and OEMs for the supply and distribution of our products;
and
o plans for future acquisitions and for the integration of recent
acquisitions.
In some cases, forward-looking statements can be identified 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 subject to risks and uncertainties. Given these uncertainties,
undue reliance should not be placed on these forward-looking statements. Also,
these forward-looking statements represent our estimates and assumptions only as
of the date of this report.
OVERVIEW
We provide intelligent production automation solutions to our customers in many
industries including the food, electronics/communications, automotive,
appliance, semiconductor, photonics, original equipment manufacturer, or OEM,
and life sciences industries. During the nine months ended March 29, 2003,
product revenue mix was comprised of the following: 23% in
electronics/communications, 20% in food and pharmaceuticals, 16% in
semiconductor, 12% in automotive, 12% in appliance, 9% in OEM, 4% in life
sciences, and 4% in all others. This mix varies considerably from period to
period due to a variety of market and economic factors. We utilize our
comprehensive product portfolio of high precision mechanical components and
application development software to deliver automation solutions that meet our
customer's increasingly complex manufacturing requirements. We offer our
customers a comprehensive and tailored automation solution that we call Rapid
Deployment Automation that reduces the time and cost to design, engineer and
launch products into high-volume production. Our products currently include
system design software, process knowledge software, real-time vision and motion
controls, machine vision systems, robot mechanisms, precision solutions and
other flexible automation equipment. 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 2002, we
introduced new systems products, including our IEEE 1394 FireWire technology
based distributed control architecture. As a result of our introduction and
marketing of these new systems, sales of systems in the Solutions segment may
increase relative to Component sales in future periods, causing a change in the
nature and composition of our revenues over time. Also, international sales
comprise between 30% and 60% of our total revenues for any given quarter.
This discussion summarizes the significant factors affecting our consolidated
operating results, financial condition, liquidity and cash flow during the nine
months ended March 29, 2003. Unless otherwise indicated, references to any
18
ADEPT TECHNOLOGY, INC.
quarter in this Management's Discussion and Analysis of Financial Condition and
Results of Operations refer to our fiscal quarter ended March 29, 2003. 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, 2002 included in the Company's Form 10-K as filed
with the Securities and Exchange Commission on September 25, 2002, and amended
by Form 10-K/A filed on September 27, 2002, February 5, 2003 and March 19, 2003,
as well as the Form 10-K/A filed under cover of Form 8-K on February 5, 2003
which contains updated segment information for the Company.
We have significant lease obligations for our California facilities. We are
currently in discussions with certain of our landlords regarding renegotiating
certain of our lease obligations. We have moved out of our San Jose facility and
no longer pay rent for that facility, and are negotiating a settlement of our
lease obligations for that facility with the landlord. We are also in
discussions with the landlord of our Livermore facility regarding restructuring
our lease obligations, during which time we are not paying rent through June
2003 with the understanding that no default will be declared. Our cash usage for
the third quarter of fiscal 2003 and our expectations of cash usage for the
fourth quarter of fiscal 2003 are significantly impacted by our nonpayment of
rent for these facilities while we renegotiate these lease obligations. If we
are not able to renegotiate our lease obligations, we may immediately be
required to pay the deferred rent and unpaid lease obligations in full and we
would not have sufficient cash to meet these obligations otherwise due in fiscal
2003, therefore, we may be required to cease operations.
We continue to aggressively pursue additional outside sources of financing to
address future working capital requirements. We are seeking various debt and
equity financing alternatives to improve our cash position. In the event that we
do not complete a financing in the fourth quarter of fiscal 2003, we expect our
cash ending balance to remain relatively unchanged from the third quarter ending
balance of $1.7 million. This cash forecast and our expectations of future
results are based on certain critical assumptions, including the our expectation
of no additional capital expenditures for the remainder of fiscal 2003,
continued cooperation from certain landlords with whom we are renegotiating
significant lease obligations, continued timely receipt of payment of
outstanding receivables and the absence of any unexpected significant cash
outlays during the quarter. If we are not able to renegotiate our lease
obligations, we will not have sufficient cash to satisfy such obligations
otherwise due in fiscal 2003, therefore, we may be required to cease operations.
Even if we successfully renegotiate our lease obligations, the transaction may
involve the incurrence of debt or issuance of debt or equity securities of
Adept, which would dilute our outstanding equity. If our lease obligations are
renegotiated but the results of our search for additional outside sources of
financing is that adequate funds are not available on acceptable terms or at
all, we may not be able to take advantage of market opportunities, develop or
enhance new products, pursue acquisitions that would complement our existing
product offerings or enhance our technical capabilities, execute our business
plan or otherwise respond to competitive pressures or unanticipated
requirements.
In March 2003, we moved out of our headquarters in San Jose and consolidated our
corporate headquarters to our Livermore building.
During the second and third quarters of this fiscal year, we received
notifications from the Nasdaq Stock Market, or Nasdaq, indicating that our
securities were subject to delisting from the Nasdaq National Market as a result
of our failure to comply with certain quantitative requirements for continued
listing on the Nasdaq National Market and denying our application to transfer
the listing of our securities to the Nasdaq SmallCap Market. At our request, a
hearing was held on March 13, 2003 before a Nasdaq Listing Qualifications Panel
to appeal the delisting decision. Our appeal was denied and our stock was
delisted effective April 15, 2003. The Panel based its decision on our inability
to meet the requirements for continued listing on Nasdaq. Our common stock
commenced trading on the OTC Bulletin Board on April 15, 2003.
On April 24, 2003, as a result of the delisting and the resulting additional
cost and administrative requirements of maintaining our Employee Stock Purchase
Plan, referred to as the ESPP, the Board of Directors approved an amendment to
the ESPP to suspend any future offering periods until a further determination is
made to recommence offering periods under the ESPP.
In April 2003, we implemented plans to reduce our headcount by an additional 7%
of total employees, which we expect to result in approximately $0.5 million per
quarter in cash savings when fully implemented in the second quarter of fiscal
2004.
19
ADEPT TECHNOLOGY, INC.
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 accounting principles generally accepted
in the United States. 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 including valuation and related reserves;
o warranty reserve;
o goodwill and other intangible assets;
o long-lived assets; and
o deferred tax valuation allowance.
Revenue Recognition. We recognize product revenue, in accordance with SAB 101,
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. In Japan,
we sell our products through a reseller and we have separate agreements with
this reseller for each of our product lines that it sells. For all RDA Real-Time
Control and RDA Mechanical Components with this reseller, we have a pass-through
arrangement, such that under this arrangement, we defer 100% of the revenue upon
shipment and the reseller is not obligated to remit payment to us until they
receive payment from the end user. When all other aspects of SAB 101 have been
satisfied, we recognize revenue upon payment from the end user. For all other
product lines, no pass through arrangement exists. For these products we follow
our normal revenue recognition policies.
We recognize software revenue, primarily related to our simulation software
products, in accordance with the American Institute of Certified Public
Accountants' Statement of Position 97-2 on Software Revenue Recognition, as
amended by Statement of Position 98-4. License revenue is recognized on shipment
of the product provided that no significant vendor or post-contract support
obligations remain and that collection of the resulting receivable is deemed
probable by management. Insignificant vendor and post-contract support
obligations are accrued upon shipment of the licensed product. For software that
is installed and integrated by the customer, revenue is recognized upon shipment
assuming functionality has already been proven in prior sales and there are no
customizations that would cause a substantial acceptance risk. For software that
is installed and integrated by Adept, revenue is recognized upon customer
signoff of a Final Product Acceptance or FPA form.
Service revenue includes training, consulting and customer support. Revenues
from training and consulting are recognized at the time the service is performed
and the customer has accepted the work.
20
ADEPT TECHNOLOGY, INC.
For long-term, fixed contracts, we recognize revenue and profit as work
progresses using the percentage-of-completion method, which relies on estimates
of total expected contract revenue and costs. We follow this method as
reasonably dependable estimates of the revenue and costs applicable to various
stages of a contract can be made. Revenues recognized but not yet billed to the
customer are classified as earnings in excess of billings, and consist primarily
of recoverable costs. For long-term contracts for which work is less than 75%
complete, revenue recognized equals costs incurred to date for a net margin of
zero. For long-term contracts for which work is more than 75% complete, revenue
and profit are recognized in proportion to costs incurred. Recognized revenues
and profit are subject to revisions as the contract progresses to completion.
Revisions in profit estimates are charged to income in the period in which the
facts that give rise to the revision become known.
Deferred revenue primarily relates to items deferred under SAB 101 or milestone
billings on long-term contracts.
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.
Specifically our policy is to record specific reserves against known doubtful
accounts. Additionally, a general reserve is calculated based on the greater of
0.5% of total consolidated accounts receivable or 20% of consolidated accounts
receivable more than 120 days past due. Specific reserves are netted out of the
respective receivable balances for purposes of calculating the general 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 or decrease, as appropriate the general reserve
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 net realizable 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 by management 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.
Warranty Reserve. 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. At the time Adept issues a warranty, it recognizes
an initial liability for the fair value or market value, of the obligations it
assumes under the warranty. 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. In November 2002, the FASB
issued Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Guarantees of Indebtedness of Others",
referred to as the Interpretation or FIN 45. The Interpretation elaborates on
the existing disclosure requirements for most guarantees, including product
warranties. We adopted the Interpretation effective for the fiscal quarter ended
December 28, 2002. As we have not made any significant financial guarantees
other than
21
ADEPT TECHNOLOGY, INC.
product warranties, the adoption of FIN 45 did not have a material impact on our
financial position or results of operations.
Goodwill and Other Intangible Assets. The purchase method of accounting for
acquisitions requires extensive use of accounting estimates and judgments to
allocate the excess of the purchase price over the fair value of identifiable
tangible net assets of acquired companies between other intangible assets and
goodwill. Other intangible assets primarily represent developed technology and
non-compete covenants. As of July 1, 2001, we no longer amortize goodwill in
accordance with SFAS 142. SFAS 142 requires that goodwill be evaluated for
impairment at least annually, and we have chosen April 1 as the date to conduct
this annual evaluation.
Long-Lived Assets. We evaluate long-lived assets used in operations, including
goodwill and purchased intangible assets. The allocation of the acquisition cost
to intangible assets and goodwill has a significant impact on our future
operating results as the allocation process requires the extensive use of
estimates and assumptions, including estimates of future cash flows expected to
be generated by the acquired assets. An impairment review is performed whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. Factors we consider important which could trigger an impairment
review include, but are not limited to, significant under-performance relative
to historical or projected future operating results, significant changes in the
manner of use of the acquired assets or the strategy for our overall business,
and significant industry or economic trends. When impairment indicators are
identified with respect to previously recorded intangible assets, the values of
the assets are determined using discounted future cash flow techniques using our
weighted average cost of capital. Significant management judgment is required in
the forecasting of future operating results which are used in the preparation of
the projected discounted cash flows and should different conditions prevail,
material write downs of net intangible assets and/or goodwill could occur.
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
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 the 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 and Nine Month Periods Ended March 29, 2003 and March 30, 2002.
Net revenues. Our net revenues decreased by 14.5% to $12.5 million for the three
months ended March 29, 2003 from $14.6 million for the three months ended March
30, 2002. Our net revenues decreased by 21.0% to $33.5 million for the nine
months ended March 29, 2003 from $42.4 million for the nine months ended March
30, 2002. One customer accounted for 18% of net revenues for the third quarter
ended March 29, 2003 due to revenues from a single large contract, while no
single customer accounted for more than 10% of revenues for the quarter ended
March 30, 2002. We do not expect any single customer to account for more than
10% of revenues in the next quarter. The decrease in net revenues is primarily
attributable to a broad decline in overall market conditions contributing to
excess in manufacturing capacity and an overall deterioration of our business,
as our customers reduced capital spending in an effort to deal with excess
manufacturing capacity. Revenues decreased in our Components segment while
revenues increased in our Solutions and Services and Support segments.
Components revenues decreased 40.1% to $6.5 million for the three months ended
March 29, 2003 from $10.8 million for the three months ended March 30, 2003.
Components revenues decreased 34.6% from $18.4 million for the nine months ended
March 29, 2003 from $28.1 million for the nine months ended March 30, 2002. The
decrease is primarily attributable to the decline in software revenues as a
result of our sale of the SILMA Inspection business. Additionally, the decline
is attributable to continued softness across all industries served by our
Components segment. Solutions revenues increased 46.2% to $3.0 million for the
three months ended March 29, 2003 from $2.0 million for the three months ended
March 30, 2002. Solutions revenues increased 2.1% to $5.3 million for the nine
months ended March 29, 2003 from $5.2 million for the nine months ended March
30, 2002. The increase is primarily attributable to increased sales to a single
customer, but also demonstrates a trend on the part of our customers towards a
preference for a more integrated product. Services and Support revenues
increased 74.2% to
22
ADEPT TECHNOLOGY, INC.
$3.0 million for the three months ended March 29, 3003 from $1.8 million for the
three months ended March 30, 2002. Services and Support revenues increased 7.7%
to $9.9 million for the nine months ended March 29, 2003 from $9.2 million for
the nine months ended March 30, 2002. The increase is primarily attributable to
redeployment of existing equipment as well as customers choosing to extend the
useful life of existing equipment rather than commit capital expenditures for
new equipment.
Our domestic sales increased 45.0% to $8.0 million for the three months ended
March 29, 2003 from $5.5 million for the three months ended March 30, 2002.
Domestic sales increased 21.6% to $21.8 million for the nine months ended March
29, 2003 from $18.0 million for the nine months ended March 30, 2002. Our
international sales decreased 50.6% to $4.5 million for the three months ended
March 29, 2003 from $9.1 million for the three months ended March 30, 2002.
International sales decreased 52.3% to $11.7 million for the nine months ended
March 29, 2003 from $24.4 million for the nine months ended March 30, 2002.
Domestic and international revenues between segments for the three and nine
month periods ended March 29, 2003 and March 30, 2002 are as follows:
Three months ended Nine months ended
March 29, March 30, March 29, March 30,
2003 2002 2003 2002
Domestic revenue:
Components $ 3,293 $ 3,086 $ 10,605 $ 9,162
Solutions 2,954 2,021 5,045 5,028
Services 1,752 409 6,187 3,771
----------- ----------- ---------- -----------
Total $ 7,999 $ 5,516 $ 21,837 $ 17,961
International revenue:
Components $ 3,182 $ 7,731 $ 7,753 $ 18,914
Solutions -- -- 215 123
Services 1,296 1,341 3,695 5,406
----------- ----------- ---------- -----------
Total $ 4,478 $ 9,072 $ 11,663 $ 24,443
Because we market and sell our products through resellers, we do not have full
visibility to identify the relevant industry in which the end-users of our
products operate. Our practice has been to collect end-user industry data for
our component product revenue where it can be determined, but our resellers
through whom a significant portion of our sales are made do not always provide
this information. We do not attempt to track this revenues-by-industry
information for segments other than our component products. We believe that the
data captured in our information systems provides a fair representation of
distribution of component product revenue by end-user industry and allows us to
identify industry percentage data for components revenue; however, the absolute
values may be inaccurate and as a result, we are unable to accurately track
changes and trends in domestic and international revenue by end-user customer
product line.
Gross margin. Gross margin as a percentage of net revenue was 27.9% for the
three months ended March 29, 2003 compared to 32.4% for the three months ended
March 30, 2002. Gross margin as a percentage of net revenue was 25.3% for the
nine months ended March 29, 2003 compared to 34.5% for the nine months ended
March 30, 2002. Throughout the first nine months of fiscal 2003, we continued to
experience pricing pressure across all product lines, carry excess fixed
capacity, and ship lower volumes as compared to the first nine months of fiscal
2002. These factors combined to produce lower standard margins and unfavorable
manufacturing variances resulting in lower gross margins as compared to the same
three and nine month periods of fiscal 2002.
Research, Development and Engineering Expenses. Research, development and
engineering (R&D) expenses decreased by 41.8% to $2.9 million, or 23.4% of net
revenues, for the three months ended March 29, 2003 from $5.0 million, or 34.3%
of net revenues, for the three months ended March 30, 2002. R&D decreased by
38.4% to $9.5 million, or 28.4% of net revenues, for the nine months ended March
29, 2003 from $15.4 million, or 36.4% of net revenues, for the nine months ended
March 30, 2002.
The decrease in expense for the three and nine months ended March 29, 2003 as
compared to the three and nine months ended March 30, 2002 was primarily
attributable to restructuring activities in fiscal 2002 and the first quarter of
fiscal 2003. Cost reduction measures implemented as part of restructuring
activities in fiscal 2002
23
ADEPT TECHNOLOGY, INC.
included significant reductions in headcount, consolidation of facilities, and
the suspension of efforts focused on the fiberoptics market. Salary and related
expenses were reduced by approximately $1.0 million for the three months ended
March 29, 2003 as compared to the three months ended March 30, 2002 as a result
of headcount reductions. Salary and related expenses were reduced by
approximately $3.1 million for the nine months ended March 29, 2003 as compared
to the nine months ended March 30, 2002. Additionally, research, development and
engineering expenses in the third quarter of fiscal 2002 included a $1.0 million
payment related to the JDS Uniphase joint development agreement, which we were
not obligated to pay in the third quarter of fiscal 2003 due to termination of
the agreement in the second quarter of fiscal 2003. As a result of the cost
reduction measures taken in fiscal 2002 and the first and third quarters of
fiscal 2003, we expect that research, development and engineering expenses will
continue to decrease or remain flat for the remainder of fiscal 2003.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 29.2% to $5.1 million, or 40.8% of net
revenues, for the three months ended March 29, 2003, as compared with $7.2
million, or 49.3% of net revenues, for the three months ended March 30, 2002.
Selling, general and administrative expenses decreased 18.2% to $18.0 million,
or 53.8% of net revenues, for the nine months ended March 29, 2003, as compared
with $22.0 million, or 51.9% of net revenues, for the nine months ended March
30, 2002.
The decrease in expense for the three and nine months ended March 29, 2003 as
compared to the three and nine months ended March 30, 2002 was primarily
attributable to restructuring activities in fiscal 2002 and the first quarter of
fiscal 2003. Cost reduction measures implemented as a result of restructuring
activities in fiscal 2002 included significant reductions in headcount,
consolidation of facilities, elimination of some excess capacity and the sale of
certain non-strategic assets. Salary and related expenses were reduced by
approximately $1.4 million for the three months ended March 29, 2003 as compared
to the three months ended March 30, 2002 as a result of headcount reductions.
The decrease is also attributable to a $0.6 million reduction in travel and
outside service expenses. Salary and related expenses were reduced by
approximately $4.7 million for the nine months ended March 29, 2003 as compared
to the nine months ended March 30, 2002. The decrease was partially offset by a
$0.7 million increase in facilities allocations. The increase in facilities
allocations reflects incremental expenses associated with an additional lease
commitment that we were obligated to assume in the fourth quarter of fiscal
2002. As a result of the cost reduction measures taken in fiscal 2002 and the
first and third quarters of fiscal 2003, we expect that selling, general and
administrative expenses will continue to decrease or remain flat for the
remainder of fiscal 2003.
Restructuring Charge. Restructuring charges for the three months ended March 29,
2003 were $2.0 million compared to restructuring charges of $5.3 million for the
three months ended March 30, 2002. Restructuring charges were $3.2 million and
$17.7 million for the nine months ended March 29, 2003 and March 30, 2002,
respectively. The restructuring charges of $3.2 million for the nine months
ended March 29, 2003 are attributable to severance costs related to a 40%
reduction in worldwide headcount, continuing consolidation of our domestic
facilities, related asset impairment charges and the consolidation of our France
office into our Germany office. The restructuring charges of $17.7 million for
the nine months ended March 30, 2002 relate to the exiting of certain
non-strategic product lines and the consolidation of certain manufacturing and
support facilities, including related headcount reductions.
Nine months ended, Nine months ended,
(in thousands) March 29, 2003 March 30, 2002
Employee severance costs............. $ 1,778 $ 1,692
Lease termination costs.............. 1,111 6,800
Asset impairment charges............. 267 9,167
-------------- -------------
Total.............................. $ 3,156 $ 17,659
============== =============
We anticipate that when the fiscal 2003 restructuring activities for the first
and third quarters take full effect, the Components segment is expected to
experience an annualized reduction in expenses of approximately $4.8 million as
compared to fiscal 2002 with no offsetting decline in revenues. We anticipate
that the Solutions segment is expected to experience an annualized reduction in
expenses of approximately $0.5 million as compared to fiscal 2002 with no
offsetting
24
ADEPT TECHNOLOGY, INC.
decline in revenues. The Services and Support segment is expected to experience
an annualized reduction in expenses of approximately $0.4 million as compared to
fiscal 2002 with no offsetting decline in revenues. Our assumptions that
revenues will not be impacted are based only on an analysis of the remaining
capacity available in manufacturing, sales and service to support such revenue
levels. Revenue levels could change for other reasons, however. We anticipate
that we will experience additional annualized savings of $2.4 million in
Research & Development and Selling, General and Administrative expenses that are
not allocated across our business segments as a result of restructuring
activities.
Amortization of Goodwill and Other Intangibles. We incurred non-cash expenses of
$0.2 million and $0.6 million in amortization of other intangibles for the three
and nine months ended March 29, 2003, respectively, as compared to non-cash
expenses of $0.2 million and $0.6 million in amortization of other intangibles
for the three and nine months ended March 30, 2002, respectively.
Interest Income (Expense), Net. Interest expense, net for the three months ended
March 29, 2003 was $16,000. Interest income, net for the three months ended
March 30, 2002 was $123,000. Interest income, net was $193,000 for the nine
months ended March 29, 2003 and $344,000 for the nine months ended March 30,
2002. The decrease was due to a combination of lower interest rates and a lower
average cash balance attributable to our decreased revenues. The increase in
interest expense in the three months ended March 29, 2003 reflects interest
charges on the $494,000 loan assumed in connection with the acquisition of Meta.
This loan amount was paid in full in March 2003 and the loan agreement was
terminated.
Provision for Income Taxes. Our effective tax rate was less than 1% for the
three and nine months ended March 29, 2003. We expect to be in a loss position
for U.S. tax purposes for the tax year ending June 30, 2003. In the first
quarter of fiscal 2003, we estimated that our French subsidiary would be in a
taxable position and recorded a provision for such taxes in the first quarter of
fiscal 2003, resulting in a 1% overall tax rate. We did not record a tax
provision for our French subsidiary in the second and third quarters of fiscal
2003 based on operating results projected for the remainder of fiscal 2003.
Derivative Financial Instruments. Our foreign currency hedging program is used
to hedge our exposure to foreign currency exchange risk on local international
operational assets and liabilities. Realized and unrealized gains and losses on
forward currency contracts that are effective as hedges of assets and
liabilities are recognized in income. We recognized losses of $142,000 and
$271,000 for the three and nine months ended March 29, 2003, respectively, and a
gain of $14,000 and a loss of $466,000 for the three and nine months ended March
30, 2002, respectively. 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.
Impact of Inflation
The effect of inflation on our business and financial position has not been
significant to date.
Liquidity and Capital Resources
As of March 29, 2003, we had working capital of approximately $7.4 million,
including $1.7 million in cash and cash equivalents.
Cash and cash equivalents decreased $15.6 million from June 30, 2002. Net cash
used in operating activities of $20.0 million was primarily attributable to the
net loss and decrease in other accrued liabilities offset in part by
depreciation charges, decrease in inventory and increase in accounts payable.
The decrease in other accrued liabilities is primarily attributable to payments
made as purchase price consideration related to the acquisition of CHAD. Cash
provided by investing activities during the nine months ended March 29, 3003 was
$3.9 million, due to the sale of short-term investments of $13.6 offset in part
by the purchase of short-term investments of $9.3 million, business acquisition
costs of $0.2 million in connection with the acquisition of Meta and property
and equipment purchases of $0.2 million. Cash provided by financing activities
of $0.2 million was related to proceeds from our employee stock incentive plan.
In August 2002 we engaged Broadview International to help Adept evaluate
strategic alternatives including possible merger candidates, debt and equity
financing alternatives and the restructuring activities necessary to ensure the
long
25
ADEPT TECHNOLOGY, INC.
term viability of Adept. We also took certain cost cutting measures in fiscal
2002 and fiscal 2003 as described above in "Results of Operations".
Subsequently, management has taken a number of steps to further reduce our cash
consumption.
On March 21, 2003, we entered into an Accounts Receivable Purchase Agreement, or
the Purchase Agreement, with Silicon Valley Bank, or SVB, pursuant to which we
may sell certain of our receivables to SVB on a full recourse basis for an
amount equal to 70% of the face amount of such purchased receivables with the
aggregate face amount of purchased receivables not to exceed $2.5 million. In
connection with the Purchase Agreement, we granted to SVB a security interest in
substantially all of our assets. We also issued SVB a warrant to purchase an
aggregate of 100,000 shares of our common stock at a price of $1.00 per share.
As of March 29, 2003, $339,000 was outstanding under the Purchase Agreement. The
Purchase Agreement includes certain covenants with which we must comply. We are
required to pay a monthly finance charge equal to 2% of the average daily gross
amount of unpaid purchased receivables. We cannot transfer or grant a security
interest in our assets without SVB's consent, except for certain ordinary course
transactions or make any transfers to any of our subsidiaries of money or other
assets with an aggregate value in excess of $24.0 million in any fiscal quarter,
net of any payments by such subsidiaries to us. Certain of our wholly-owned
subsidiaries were also required to execute a guaranty of all of our obligations
to SVB and all such guaranties have been executed.
During the quarter ended March 29, 2003, we reduced our headcount by an
additional 40 people, which we expect will result in approximately $1.2 million
per quarter in cash savings when fully implemented at the end of fiscal 2003.
Subsequent to March 29, 2003, we implemented plans to reduce our headcount by an
additional 7% of our total number of employees, which we expect will result in
approximately $0.5 million per quarter in cash savings when fully implemented.
Finally, we are accelerating the phase-in of newer generation products that we
expect will reduce the amount of inventory that Adept will need to maintain by
approximately $0.5 million per quarter.
We continue to aggressively pursue additional outside sources of financing to
address future working capital requirements. We are seeking various debt and
equity financing alternatives to improve our cash position. In the event that we
do not complete a financing in the fourth quarter of fiscal 2003, we expect our
cash ending balance to remain relatively unchanged from the third quarter ending
balance. This cash forecast and our expectations of future results are based on
certain critical assumptions, including the our expectation of no additional
capital expenditures for the remainder of fiscal 2003, continued cooperation
from certain landlords with whom we are renegotiating significant lease
obligations, continued timely receipt of payment of outstanding receivables and
the absence of any unexpected significant cash outlays during the quarter. If we
are not able to renegotiate our lease obligations, we will not have sufficient
cash to satisfy such obligations otherwise due in fiscal 2003, therefore, we may
be required to cease operations. Even if we successfully renegotiate our lease
obligations, the transaction may involve the incurrence of debt or issuance of
debt or equity securities of Adept, which would dilute the outstanding equity.
If our lease obligations are renegotiated but the results of our search for
additional outside sources of financing is that adequate funds are not available
on acceptable terms or at all, we may not be able to take advantage of market
opportunities, develop or enhance new products, pursue acquisitions that would
complement our existing product offerings or enhance our technical capabilities,
execute our business plan or otherwise respond to competitive pressures or
unanticipated requirements.
In addition, some of our primary suppliers have begun requesting accelerated
payment terms. Should our financial condition deteriorate further, other
suppliers may require accelerated payment terms or be reluctant to continue with
existing terms where those terms extend beyond customary industry averages.
On October 29, 2001, we completed a private placement with JDS Uniphase
Corporation of $25.0 million in our convertible preferred stock consisting of
78,000 shares of Series A Convertible Preferred Stock and 22,000 shares of
Series B Convertible Preferred Stock. Both the Series A Preferred and the Series
B Preferred are entitled to annual dividends at a rate of $15 per share.
Dividends are cumulative, and accrued and unpaid dividends are payable only in
the event of certain liquidity events as defined in the statement of preferences
of the Preferred Stock, such as a change of control or liquidation or
dissolution of Adept. No dividends on our common stock may be paid until
dividends for the fiscal year and any prior years on the Preferred Stock have
been paid or set apart, and the Preferred Stock will participate in any
dividends paid to the common stock on an as-converted basis. The Preferred Stock
may be converted into shares of our common stock at any time, and in the absence
of a liquidity event or earlier conversion or redemption, will be converted into
common stock upon October 29, 2004 (the "Automatic Conversion Date"). We have
agreed to use our reasonable commercial efforts to seek shareholder approval to
extend this Automatic Conversion Date for the Preferred Stock until October 29,
2005. The Preferred Stock may be converted
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ADEPT TECHNOLOGY, INC.
into shares of our common stock at a rate of the initial purchase price divided
by a denominator equal to the lesser of $8.18, or 75% of the 30 day average
closing price of our Common Stock immediately preceding the conversion date.
However, as a result of a waiver of events of default by the preferred
stockholder, other than in connection with certain liquidity events that are not
approved by the Board of Directors of Adept, in no event shall the denominator
for the determination of the conversion rate with respect to the Series B
Preferred be less than $4.09 and with respect to the Series A Preferred be less
than $2.05, even if the Conversion Date Price is less than $4.09 and $2.05,
respectively. With respect to the Series A Preferred, the conversion price could
potentially be less than the fair value of the common stock at the date the
preferred stock was issued. The resulting beneficial conversion amount, if any,
would be recorded as a preferred stock dividend and shown as a reduction in net
income applicable to common shareholders. The Preferred Stock shall not be
convertible, in the aggregate, into 20% or more of our outstanding voting
securities and no holder of Preferred Stock may convert shares of Preferred
Stock if, after the conversion, the holder will hold 20% or more of our
outstanding voting securities. Shares not permitted to be converted remain
outstanding, unless redeemed, and become convertible when such holder holds less
than 20% of our outstanding voting securities. The Preferred Stock has voting
rights equal to the number of shares into which the Preferred Stock could be
converted as determined in the designation of preferences assuming a conversion
rate of $250.00 divided by $8.18.
Barring the occurrence of certain liquidity events that are not approved by the
Board of Directors of Adept, if the Conversion Date Price on the Automatic
Conversion Date is lower than $2.05, then the denominator for the calculation of
the conversion of the Preferred Stock described above will be $4.09 for the
Series B Preferred Stock and $2.05 for the Series A Preferred Stock. In
addition, because accrued and unpaid dividends are payable only in the event of
certain liquidity events as defined in the designation of preferences of the
Preferred Stock, as described above, barring the prior occurrence of such a
liquidity event, no cash dividends will be payable at the Automatic Conversion
Date.
We have the right, but not the obligation, to redeem shares of the Series A
Preferred elected to be converted by the preferred stockholder which, upon
conversion would use the denominator of $2.05 for determination of the
conversion rate would result in the issuance of shares of common stock in excess
of the number of shares of common stock issuable upon conversion using a
denominator of $4.09 for determination of the conversion rate. The number of
shares of Series A Preferred that Adept may elect to redeem would be calculated
by subtracting (i) the number of shares of common stock that the shares of
Series A Preferred that have been elected to be converted would be convertible
into based on a denominator of $4.09 from (ii) the number of shares of common
stock that the shares of Series A Preferred that have been elected to be
converted would be convertible into based on a denominator of $2.05, and then
determining the number of shares of Series A Preferred that this number of
shares of common stock represents using a denominator of $4.09. The redemption
price is equal to the sum of the initial Preferred Stock price, plus all
cumulated and unpaid dividends. The redemption shall be paid in the form of a
senior unsecured promissory note bearing interest at a rate of 6% per annum,
maturing in two years. If we redeem shares of Preferred Stock using a promissory
note, any indebtedness incurred while the note is outstanding must be
subordinated to the note, other than certain ordinary course financings. In
addition, the holders of the Preferred Stock are entitled to receive, upon
liquidation, the amount equal to $250.00 per share (adjusted for any stock
splits or stock dividends) plus any unpaid dividends. The liquidation preference
may be triggered by several events consisting of a change in control of Adept, a
sale of substantially all of Adept's assets, shareholder approval of any plan of
liquidation or dissolution or the direct or indirect beneficial ownership of
more than 50% of Adept's common stock by any person or entity. Since such
changes may be outside of management's control and would trigger payment of the
Preferred Stock liquidation preference, the Preferred Stock is classified
outside of shareholders' equity as redeemable convertible preferred stock in the
accompanying consolidated balance sheet.
In December 2002, Adept and JDS Uniphase agreed to terminate the supply,
development and license agreement entered into by them in October 2001. Under
this agreement, we were obligated to work with JDS Uniphase's internal
automation organization, referred to as Optical Process Automation, or OPA, to
develop solutions for component and module manufacturing processes for
sub-micron tolerance assemblies. JDS Uniphase retained sole rights for
fiberoptic applications developed under this contract. For non-fiberoptic
applications of component and module manufacturing processes developed by OPA,
we were obligated to pay up to $1,000,000 each fiscal quarter for the planned
five-quarter effort. Due to changing economic and business circumstances and the
curtailment of development by JDS Uniphase and termination of their OPA
operations, both parties determined that these development services were no
longer in their mutual best interests. As part of the termination, Adept
executed a $1,000,000 promissory note in favor of JDS Uniphase earning interest
at a rate of 7% per year payable on or before
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ADEPT TECHNOLOGY, INC.
September 30, 2004. JDS Uniphase has the right to require Adept to apply any
additional financing received prior to maturity first to repayment of the
outstanding balance under the promissory note. In addition, in the event of
Adept's insolvency or inability to pay its debts when they become due, an event
of default occurs under the promissory note. An event of default will result in
the immediate acceleration of the promissory note and the unpaid balance and all
accrued interest will become immediately due and payable. The payments made
prior to termination plus the promissory note represent payment in full by Adept
for the development services performed by JDS Uniphase, and there are no
remaining payment obligations arising from the agreement. All licenses,
licensing rights and other rights and obligations arising from the development
work performed under the contract before termination survive its termination.
Adept also agreed to seek shareholder approval to amend the date that the
preferred stock held by JDS Uniphase automatically converts into Adept common
stock from October 29, 2004 to October 29, 2005 to allow JDS Uniphase an
additional year to maintain its position as a preferred stockholder or convert
the Preferred Stock into shares of Adept's common stock
Pursuant to the terms of the CHAD acquisition agreement, we paid $2.6 million to
the shareholders of CHAD on October 9, 2002. On December 13, 2002, CHAD and
Adept amended the second anniversary promissory note due to a former shareholder
of CHAD and the funds held in escrow to secure the promissory note were released
to Adept. The second anniversary promissory note was paid in full in January
2003.
Acquisitions
On August 30, 2002, we completed the acquisition of a controlling interest in
Meta Control Technologies, Inc., or Meta, a Delaware corporation. Meta develops,
designs, manufactures and markets products that automate a wide range of
manufacturing processes requiring precise motion, accurate machine vision and
rapid process instrumentation. Some of the applications that make use of our
technology include semiconductor and electronics assembly, micro-mechanical and
fiber optic assembly, laboratory automation and discrete process automation. The
acquisition of Meta extends our controls architecture to include two axis, low
power controls in small packages allowing remote placement of motion and sensor
controls that directly plug into our new architecture using IEEE 1394 Firewire
technology. In addition, Meta has a line of programmable cameras that when
combined with the low power controller and our HexSight software can be packaged
as a very low cost, competitive OEM product. The results of Meta's operations
have been included in our consolidated financial statements since August 30,
2002.
Under the terms of the acquisition agreement, we issued 730,000 shares of our
common stock to the shareholders of Meta with a value of $825,000. The value of
the 730,000 shares was determined based on the average closing price of Adept's
stock for the period of three trading days ended September 3, 2002. Ten percent
of the 730,000 shares of common stock have been place into escrow for one year
from the completion of the acquisition pending certain contingencies under the
terms of the acquisition agreement. Additionally, Adept has agreed to provide up
to $1.7 million of discounts and royalties through August 2008 to a shareholder
of Meta based upon future sales to that shareholder or certain of its
affiliates. Such amounts will be charged to operations when incurred. As of
March 29, 2003 we have not incurred any expenses related to the discounts and
royalties. In connection with the acquisition, we assumed a $500,000 line of
credit with Meta's lender, Paragon Commercial Bank, terminating in September
2003 and bearing interest at 1% plus the prime rate announced from time to time
by the Wall Street Journal. On March 10, 2003, we terminated the $500,000 line
of credit with Paragon Commercial Bank and paid the outstanding balance with the
funds used to secure the line of credit in order to reduce interest expense.
Additionally, we entered into a loan agreement for up to $800,000 with a former
shareholder of Meta and issued into escrow for the benefit of the lender 100,000
shares of the Company's common stock valued at $113,000, subject to certain
cancellation rights. On March 10, 2003, Adept and the former shareholder
terminated the $800,000 loan agreement, and we cancelled the 100,000 shares
previously issued. No amounts were borrowed under the agreement.
New Accounting Pronouncements.
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51" (FIN 46). FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the entity if
the equity investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective for all new variable interest
entities created or acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the provision of FIN 46
must be applied for the first interim or annual period beginning
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ADEPT TECHNOLOGY, INC.
after June 15, 2003. We are in the process of assessing the impact of adopting
FIN 46 on our financial position and results of operations.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," which is effective for fiscal years
ending after December 15, 2002. SFAS 148 amends SFAS 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition to SFAS
123's fair value method of accounting for stock-based employee compensation.
SFAS 148 also amends the disclosure provisions of SFAS 123 and APB Opinion No.
28, "Interim Financial Reporting," to require disclosure in the summary of
significant accounting policies of the effect of an entity's accounting policy
with respect to stock-based employee compensation on reported net income and
earnings per share in annual and interim financial statements. The transition
methods of SFAS 148 are effective for the Company's June 30, 2003 Form 10-K.
Adept continues to use the intrinsic value method of accounting for stock-based
compensation. As a result, the transition provisions will not have an effect on
our consolidated financial statements. We have adopted the interim disclosure
requirements of SFAS 148 (See Note 14).
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness
of Others" (FIN 45). The Interpretation elaborates on the existing disclosure
requirements for most guarantees, including product warranties. The
Interpretation requires that at the time a company issues certain guarantees,
the company must recognize an initial liability for the fair value, or market
value, of the obligations it assumes under that guarantee and must disclose that
information in its interim and annual financial statements. The initial
recognition and initial measurement provisions of the Interpretation are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The Interpretation's disclosure requirements are effective
for financial statements of interim or annual periods ending after December 15,
2002 and are applicable to all guarantees issued by the guarantor subject to the
Interpretation's scope, including guarantees issued prior to the issuance of the
Interpretation. We adopted the Interpretation effective for the fiscal quarter
ended December 28, 2002. As we have not made any significant financial
guarantees other than product warranties, the adoption of FIN 45 did not have a
material impact on our financial position or results of operations.
In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with
Exit or Disposal Activities", which is effective for exit or disposal activities
that are initiated after December 31, 2002. SFAS 146, which nullifies EITF Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit and Activity (Including Certain Costs Incurred in a
Restructuring)," requires that a liability for a cost associated with an exit or
disposal activity be recognized and measured initially at fair value only when
the liability is incurred. The adoption of SFAS 146 did not have a significant
effect on our financial position or results of operations.
FACTORS AFFECTING FUTURE OPERATING RESULTS
Risks Related to Our Business
If we are unable to renegotiate our significant lease obligations, we will not
be able to satisfy these lease obligations otherwise due in fiscal 2003 and we
may not be able to continue our operations.
We have significant lease obligations for our California facilities. We are
currently in discussions with certain of our landlords regarding renegotiating
certain of our lease obligations. We have moved out of our San Jose facility and
no longer pay rent for that facility, and are negotiating a settlement of our
lease obligations for that facility with the landlord. We are also in
discussions with the landlord of our Livermore facility regarding restructuring
our lease obligations, during which time we are not paying rent through June
2003 with the understanding that no default will be declared. If we are not able
to renegotiate our lease obligations, we may immediately be required to pay the
deferred rent and unpaid lease obligations in full, and we would not have
sufficient cash to meet these obligations otherwise due in fiscal 2003. As a
result we may be required to cease our operations.
We have limited cash resources, and our recurring operating losses and resulting
cash flow could limit our cash resources available for our operations. We are
attempting to raise additional capital, but we may not be able to obtain
adequate funds to continue our operations in the future.
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ADEPT TECHNOLOGY, INC.
As of March 29, 2003 our cash and cash equivalents totaled $1.7 million. We have
generated, and may continue to generate in the future, operating losses. and
negative cash flow. We cannot predict with any degree of certainty when, or if,
such operating and net losses will cease and we will begin to realize operating
and net profits.
We continue to aggressively pursue additional outside sources of financing to
address future working capital requirements. We are seeking various debt and
equity financing alternatives to improve our cash position. In the event that we
do not complete a financing in the fourth quarter of fiscal 2003, we expect our
cash ending balance to remain relatively unchanged from the third quarter ending
balance of $1.7 million. This cash forecast and our expectations of future
results are based on certain critical assumptions, including the our expectation
of no additional capital expenditures for the remainder of fiscal 2003,
continued cooperation from certain landlords with whom we are renegotiating
significant lease obligations, continued timely receipt of payment of
outstanding receivables and the absence of any unexpected significant cash
outlays during the quarter. If we are not able to renegotiate our lease
obligations, we will not have sufficient cash to satisfy such obligations
otherwise due in fiscal 2003, therefore, we may be required to cease operations.
Even if we successfully renegotiate our lease obligations, the transaction may
involve the incurrence of debt or issuance of debt or equity securities of
Adept, which would dilute the outstanding equity. If our lease obligations are
renegotiated but the results of our search for additional outside sources of
financing is that adequate funds are not available on acceptable terms or at
all, we may not be able to take advantage of market opportunities, develop or
enhance new products, pursue acquisitions that would complement our existing
product offerings or enhance our technical capabilities, execute our business
plan or otherwise respond to competitive pressures or unanticipated
requirements. If adequate funds are not available on acceptable terms or at all,
our business, results of operations, financial condition and continued viability
will be materially adversely affected and our stock may lose some or all of its
value.
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 we expect this to continue in the future. The
factors that may contribute to these fluctuations include:
o our ability to obtain additional sources of financing;
o the results of our attempts to renegotiate certain of our facilities
leases;
o the likelihood that our primary suppliers would begin requesting cash
in advance or at a minimum be reluctant to continue with existing
terms where those terms extend beyond customary industry averages if
our financial condition further deteriorates;
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 communications, semiconductor,
and electronics 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;
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ADEPT TECHNOLOGY, INC.
o changes in the mix of sales by distribution channels;
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.
Our operating results are also affected by general economic and other conditions
affecting the timing of customer orders and capital spending. For example, our
operations during the first three quarters of fiscal 1999, the first quarter of
fiscal 2000, all of fiscal 2001, 2002, and the first three quarters of fiscal
2003 were adversely affected by a continuing downturn in hardware purchases by
customers in the electronics industry, particularly disk-drive manufacturers and
to a lesser extent communication manufacturers. In addition, we have experienced
significantly reduced demand during fiscal 2002 and 2003 in our base industries,
especially the electronics and semiconductor industries, as our customers
reduced inventories as they adjusted their businesses from a period of high
growth to lower rates of growth or downsizing. We expect this downturn to
adversely affect our business for the remainder of fiscal 2003 and cannot
estimate when or if a sustained revival in these key hardware markets and the
semiconductor and electronics industries will occur.
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.
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 the
electronics and semiconductor industries, which may continue to adversely affect
our revenues.
Intelligent automation systems using our products can range in price from
$75,000 to several million dollars. Accordingly, our success is directly
dependent upon the capital expenditure budgets of our customers. Our future
operations may be subject to substantial fluctuations as a consequence of
domestic and foreign economic conditions, industry patterns and other factors
affecting capital spending. Although the majority of our international customers
are not in the Asia-Pacific region, we believe that any instability in the
Asia-Pacific economies could also have a material adverse effect on the results
of our operations as a result of a reduction in sales by our customers to those
markets. Domestic or international recessions or a downturn in one or more of
our major markets, such as the food, communications, automotive, electronic,
appliance, semiconductor, photonics and life sciences industries, and resulting
cutbacks in capital spending would have a direct, negative impact on our
business. Evidencing the weakness in the photonics industry, our supply and
development agreement with JDS Uniphase was terminated largely as a result of
the termination of JDS Uniphase's Optical Process Automation operations. We are
currently
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ADEPT TECHNOLOGY, INC.
experiencing reduced demand in most of the industries we serve including the
electronics and semiconductor industries and expect this reduced demand to
adversely affect our revenues for the remainder of fiscal 2003 or beyond. During
fiscal 2001 and 2002, and the first three quarters of fiscal 2003, we received
significantly fewer orders than expected, experienced delivery schedule
postponements on several existing orders and had some order cancellations. Such
changes in orders may adversely affect revenue for future quarters.
We sell some of our products to the semiconductor industry, which is subject to
sudden, extreme, cyclical variations in product supply and demand. The timing,
length and severity of these cycles are difficult to predict. In some cases,
these cycles have lasted more than a year. The industry is currently
experiencing a significant downturn due to decreased worldwide demand for
semiconductors. Semiconductor manufacturers may contribute to these cycles by
misinterpreting the conditions in the industry and over- or under-investing in
semiconductor manufacturing capacity and equipment. We may not be able to
respond effectively to these industry cycles.
Downturns in the semiconductor industry often occur in connection with, or
anticipation of, maturing product cycles for both semiconductor companies and
their customers and declines in general economic conditions. Industry downturns
have been characterized by reduced demand for semiconductor devices and
equipment, production over-capacity and accelerated decline in average selling
prices. During a period of declining demand, we must be able to quickly and
effectively reduce expenses and motivate and retain key employees. 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 further cost reductions in fiscal 2003 to further realign our
business. Despite this restructuring activity, our ability to reduce expenses in
response to any downturn in the semiconductor industry is limited by our need
for continued investment in engineering and research and development and
extensive ongoing customer service and support requirements. The long lead time
for production and delivery of some of our products creates a risk that we may
incur expenditures or purchase inventories for products that we cannot sell. We
believe our future performance will continue to be affected by the cyclical
nature of the semiconductor industry, and thus, any future downturn in the
semiconductor industry could therefore harm our revenues and gross margin if
demand drops or average selling prices decline.
Industry upturns have been characterized by abrupt increases in demand for
semiconductor devices and equipment and production under-capacity. During a
period of increasing demand and rapid growth, we must be able to quickly
increase manufacturing capacity to meet customer demand and hire and assimilate
a sufficient number of qualified personnel. Our inability to ramp-up in times of
increased demand could harm our reputation and cause some of our existing or
potential customers to place orders with our competitors.
Because our product sales are seasonal, we may not be able to maintain a steady
revenue stream.
Our product sales are seasonal. We have historically had higher bookings for our
products during the June quarter of each fiscal year and lower bookings during
the September quarter of each fiscal year, due primarily to the slowdown in
sales to European markets and summer vacations. In the event bookings for our
products in the June fiscal quarter are lower than anticipated and our backlog
at the end of the June fiscal quarter is insufficient to compensate for lower
bookings in the September fiscal quarter, our results of operations for the
September fiscal quarter and future quarters will suffer.
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.
Changes in delivery schedules and customer cancellations of orders constituting
our backlog may result in lower than expected revenues.
Backlog should not be relied on as a measure of anticipated demand for our
products or future revenues, because the orders constituting our backlog are
subject to changes in delivery schedules and in certain instances are subject to
cancellation without significant penalty to the customer. Increasingly, our
business is characterized by short-term order and shipment schedules. We have in
the past experienced changes in delivery schedules and customer
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ADEPT TECHNOLOGY, INC.
cancellations that resulted in our revenues in a given quarter being materially
less than would have been anticipated based on backlog at the beginning of the
quarter. We experienced greater customer delays and cancellations in fiscal 2002
and the first three quarters of fiscal 2003, compared to prior periods, and this
increase may continue in future periods. Similar delivery schedule changes and
order cancellations may adversely affect our operating results in the future.
Because we do not have long-term contracts with our customers, our future sales
are not guaranteed.
We generally do not have long-term contracts with our customers and existing
contracts may be cancelled. As a result, our agreements with our customers do
not provide any assurance of future sales. Accordingly our customers are not
required to make minimum purchases and may cease purchasing our products at any
time without penalty. Because our customers are free to purchase products from
our competitors, we are exposed to competitive price pressure on each order. Any
reductions, cancellations or deferrals in customer orders could have a negative
impact on our financial condition and results of operations.
Our new distributed controls architecture may not achieve customer acceptance.
We began to sell to customers our new distributed controls architecture based on
IEEE 1394 FireWire technology in fiscal 2002. IEEE 1394 is a standard defining a
high speed multimedia connection protocol that enables simple, low cost,
high-bandwidth, real-time data interfacing between computers and intelligent
devices. We are devoting, and expect to devote in the future significant
financial, engineering and management resources to expand our development,
marketing and sales of these products. Commercial success of these products
depends upon our ability to, among other things:
o accurately determine the features and functionality that our controls
customers require or prefer;
o successfully design and implement intelligent automation solutions
that include these features and functionality;
o enter into agreements with system integrators, manufacturers and
distributors; and
o achieve market acceptance for our design and approach.
Our distributed controls strategy may not achieve broad market acceptance for a
variety of reasons including:
o companies who use machine controls may continue to use their current
design and may not adopt our distributed architecture;
o companies may decide to adopt a different technology than IEEE 1394
FireWire for their distributed controls;
o companies may determine that the costs and resources required to
switch to our distributed architecture are unacceptable to them;
o system integrators, manufacturers, and OEMs may not enter into
agreements with us; and
o competition from traditional, well-established controls solutions.
If we do not achieve market acceptance of these products, our business and
operating results will suffer.
Some of our solution products have a fixed price which makes us vulnerable to
cost overruns.
We charge a fixed price for certain of our solutions products, including the
products that we have added as a result of our acquisitions. Our ability to
achieve a reasonably accurate estimate of the costs of these products will have
a direct impact on the profit we obtain from these products. If the costs we
incur in completing a customer order for
33
ADEPT TECHNOLOGY, INC.
these products exceed our expectations, we generally cannot pass those costs on
to our customer. Competitive price reductions generally characterize the
intelligent automation solutions business.
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 new 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
components resulting in excess inventory.
Because our significant fixed costs are not easily reduced, we may be unable to
adequately reduce expenditures to offset decreases in revenue to avoid operating
losses.
While we have reduced our absolute amount of expenses in all areas of our
operations in connection with our restructuring, 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, utilizing our relatively fixed capacity, which
could also cause fluctuations in our operating results.
We cannot control the procurement, sales or marketing efforts of the systems
integrators and OEMs who sell our products which may result in lower revenues 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 revenues from, system integrators or OEMs to which we
sell a significant amount of our product could negatively impact our business,
financial condition or results of operations.
As we enter new geographic and applications markets, we must locate 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
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.
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ADEPT TECHNOLOGY, INC.
In addition, a substantial portion of our sales is 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 revenues.
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
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 further,
prospective customers may be reluctant to purchase our products which would have
an adverse effect on our revenues.
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:
o loss of control over the manufacturing process;
o potential absence of adequate supplier capacity;
o potential inability to obtain an adequate supply of required
components, materials or mechanical subsystems; and
o reduced control over manufacturing yields, costs, timely delivery,
reliability and quality of components, materials and mechanical
subsystems.
We depend on Sanmina Corporation for the supply of our circuit boards, NSK
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, Samsung Electronics Co., Ltd. for the
supply of semiconductor robots, Hirata Corporation for the supply of our Adept
Cobra 600 robot mechanism 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.
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
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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
its product line. Problems of this nature with our suppliers may occur in the
future. In addition, some of our suppliers currently require accelerated payment
terms. Should our financial condition deteriorate further, it is highly likely
that additional primary suppliers may request cash in advance or at a minimum be
reluctant to continue with existing terms where those terms extend beyond
customary industry averages.
Disruption or termination of our supply sources could require us to seek
alternative sources of supply, and could delay our product shipments and damage
relationships with current and prospective customers, any of which could have a
material adverse effect on our business. If we incorrectly forecast product mix
for a particular period and we are unable to obtain sufficient supplies of any
components or mechanical subsystems on a timely basis due to long procurement
lead times, our business, financial condition and results of operations could be
substantially impaired. Moreover, if demand for a product for which we have
purchased a substantial amount of components fails to meet our expectations, we
would be required to write off the excess inventory. A prolonged inability to
obtain adequate timely deliveries of key components could have a material
adverse effect on our business, financial condition and results of operations.
If we cannot identify and make acquisitions, our ability to expand our
operations and increase our revenue may be impaired.
In the latter half of fiscal 2000, a significant portion of our growth was
attributable to acquisitions of other businesses and technologies. In October
2001, we acquired CHAD Industries, Inc., and in the first quarter of fiscal
2003, we acquired control of Meta Control Technologies, Inc. We expect that
acquisitions of complementary companies, products and technologies in the future
will play an important role in our ability to expand our operations and increase
our revenue. We are continually reviewing acquisition candidates as part of our
strategy to market intelligent automation solutions targeted at the precision
assembly industry. If we are unable to identify suitable targets for acquisition
or complete acquisitions on acceptable terms, our ability to expand our service
offerings and increase our revenue may be impaired. Even if we are able to
identify and acquire acquisition candidates, we may be unable to realize the
benefits anticipated as a result of these acquisitions.
Any acquisition we have made or make in the future could disrupt our business,
increase our expenses and adversely affect our financial condition or
operations.
During fiscal 2000, we acquired Pensar, NanoMotion and BYE/Oasis. In July 2000,
we acquired HexaVision. In October 2001, we acquired CHAD Industries and, in the
first quarter of fiscal 2003, we acquired control of Meta Control Technologies,
Inc. These acquisitions introduced us to industries and technologies in which we
have limited previous experience. In the future we may make material
acquisitions of, or large investments in, other businesses that offer products,
services, and technologies that management believes will further our strategic
objectives. We cannot be certain that we would successfully integrate any
businesses, technologies or personnel that we might acquire, and any
acquisitions might divert our management's attention away from our core
business. Any future acquisitions or investments we might make would present
risks commonly associated with these types of transactions, including:
o difficulty in combining the product offerings, operations, or work
force of an acquired business;
o potential loss of key personnel of an acquired business;
o adverse effects on existing relationships with suppliers and
customers;
o disruptions of our on-going businesses;
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ADEPT TECHNOLOGY, INC.
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 amortization
of goodwill, other intangible assets acquired or assumption of
anticipated liabilities;
o risks associated with entering markets in which we have limited
previous experience;
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.
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 were $4.5 million for the quarter ended March 29, 2003,
$31.8 million for the fiscal year ended June 30, 2002, $36.4 million for the
fiscal year ended June 30, 2001, and $44.9 million for the fiscal year ended
June 30, 2000. This represented 35.9%, 55.7%, 36.3%, and 45.2% of net revenues
for the respective periods. We also purchase some components and mechanical
subsystems from foreign suppliers. As a result, our operating results are
subject to the risks inherent in international sales and purchases, which
include the following:
o unexpected changes in regulatory requirements;
o political, military and economic changes and disruptions;
o transportation costs and delays;
o foreign currency fluctuations;
o export/import controls;
o tariff regulations and other trade barriers;
o higher freight rates;
o difficulties in staffing and managing foreign sales operations;
o greater difficulty in accounts receivable collection in foreign
jurisdictions; and
o potentially adverse tax consequences.
Foreign exchange fluctuations may render our products less competitive relative
to locally manufactured product offerings, or could result in foreign exchange
losses. In order to maintain a competitive price for our products in Europe, we
may have to provide discounts or otherwise effectively reduce our prices,
resulting in a lower margin on products sold in Europe. Continued change in the
values of European currencies or changes in the values of other foreign
currencies could have a negative impact on our business, financial condition and
results of operations.
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ADEPT TECHNOLOGY, INC.
We sell standard components for products to original equipment manufacturers, or
OEMs, who deliver products to Asian markets, such as Japan, Malaysia, Korea and
China.
Past turmoil in Asian financial markets and the deterioration of underlying
economic conditions in certain Asian countries may continue to impact our sales
to our OEM customers who deliver to, are located in, or whose projects are based
in, Asian countries due to the impact of restrictions on government spending
imposed by the International Monetary Fund on those countries receiving the
IMF's assistance. In addition, customers in those countries may face reduced
access to working capital to fund component purchases, such as our products, due
to higher interest rates, reduced bank lending due to contractions in the money
supply or the deterioration in the customer's or our bank's financial condition
or the inability to access local equity financing. 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.
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. We experienced losses on instruments that hedge our foreign
currency exposure in fiscal 2002 and the first three quarters of fiscal 2003. In
March 2003, we suspended our foreign currency hedging program because 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. Our current or any future currency exchange
strategy may not be successful in avoiding exchange-related losses. Any
exchange-related losses or exposure may negatively affect our business,
financial condition or results of operations.
If our hardware products do not comply with standards set forth by the European
Union, we will not be able to sell them in Europe.
Our hardware products are required to comply with European Union Low Voltage,
Electro-Magnetic Compatibility, and Machinery Safety Directives. The European
Union mandates that our products carry the CE mark denoting that these products
are manufactured in strict accordance to design guidelines in support of these
directives. These guidelines are subject to change and to varying
interpretation. New guidelines impacting machinery design go into effect each
year. To date, we have retained TUV Rheinland to help certify that our
controller-based products, including some of our robots, meet applicable
European Union directives and guidelines. Although our existing certified
products meet the requirements of the applicable European Union directives, we
cannot 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 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
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ADEPT TECHNOLOGY, INC.
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 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.
The success of our business depends on our key employees and without their
continued service to Adept, our business may suffer.
We are highly dependent upon the continuing contributions of our key management,
sales, and product development personnel. In particular, we would be adversely
affected if we were to lose the services of Brian Carlisle, Chief Executive
Officer and Chairman of the Board of Directors, who has provided significant
leadership to us since our inception, Bruce Shimano, Vice President, Research
and Development and a Director, who has guided our research and development
programs since inception or Michael Overby, Vice President of Finance and Chief
Financial Officer, who oversees the financial operations of our business. In
addition, the loss of the services of key senior technical or sales personnel
could impair our business, financial condition and results of operations. We do
not have employment contracts with any of our executive officers and do not
maintain key man life insurance on the lives of any of our key personnel.
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. Defending ourselves from these claims could divert the attention of our
management away from our operations.
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.
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ADEPT TECHNOLOGY, INC.
We have from time to time received communications from third parties asserting
that we are infringing certain patents and other intellectual property rights of
others or seeking indemnification against such alleged infringement. For
example, some end users of our products have notified us that they have received
a claim of patent infringement from the Jerome H. Lemelson Foundation, alleging
that their use of our machine vision products infringes certain patents issued
to Mr. Lemelson. In addition, we have been notified that other end users of our
AdeptVision VME line and the predecessor line of Multibus machine vision
products have received letters from the Lemelson Foundation which refer to Mr.
Lemelson's patent portfolio and offer the end user a license to the particular
patents. As claims arise, we evaluate their merits. Any claims of infringement
brought by third parties could result in protracted and costly litigation,
damages for infringement, and the necessity of obtaining a license relating to
one or more of our products or current or future technologies, which may not be
available on commercially reasonable terms or at all. Litigation, which could
result in substantial cost to us and diversion of our resources, may be
necessary to enforce our patents or other intellectual property rights or to
defend us against claimed infringement of the rights of others. Any intellectual
property litigation and the failure to obtain necessary licenses or other rights
could have a material adverse effect on our business, financial condition and
results of operations. Some of our end users have notified us that they may seek
indemnification from us for damages or expenses resulting from any claims made
by the Jerome H. Lemelson Foundation. We cannot predict the outcome of this or
any similar litigation which may arise in the future. Litigation of this kind
may have a material adverse effect on our business, financial condition or
results of operations.
Our future success depends on our continuing ability to attract, retain and
motivate highly-qualified managerial, technical and sales personnel.
Competition for qualified technical personnel in the intelligent automation
industry is intense. Our inability to recruit and train adequate numbers of
qualified personnel on a timely basis would adversely affect our ability to
design, manufacture, market and support our products.
Risks Related to Our Industry
Intense competition in the market for intelligent automation products will cause
our revenues 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; and
o product features such as flexibility, programmability and ease of use.
We compete with a number of robot companies, motion control companies, machine
vision companies and simulation software companies. Many of our competitors have
substantially greater financial, technical and marketing resources than us. In
addition, we may in the future face competition from new entrants in one or more
of our markets.
Many of our competitors in the robot market are integrated manufacturers of
products that produce robotics equipment internally for their own use and may
also compete with our products for sales to other customers. Some of these large
manufacturing companies have greater flexibility in pricing because they
generate substantial unit volumes of robots for internal demand and may have
access through their parent companies to large amounts of capital. Any of our
competitors may seek to expand their presence in other markets in which we
compete.
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ADEPT TECHNOLOGY, INC.
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
revenues will decline.
We market products for the food, communications, electronics, automotive,
appliance, semiconductor, photonics and life sciences industries. Because we
operate in multiple industries, we must work constantly to understand the needs,
standards and technical requirements of several 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
revenues and profits could decline, or we could experience operating losses. New
technology or product introductions by our competitors could also cause a
decline in sales or loss of market acceptance for our existing products or force
us to significantly reduce the prices of our existing products.
From time to time we have experienced delays in the introduction of, and certain
technical and manufacturing difficulties with, some of our products, and we may
experience technical and manufacturing difficulties and delays in future
introductions of new products and enhancements. Our failure to develop,
manufacture and sell new products in quantities sufficient to offset a decline
in revenues from existing products or to successfully manage product and related
inventory transitions could harm our business.
Our success in developing, introducing, selling and supporting new and enhanced
products depends upon a variety of factors, including timely and efficient
completion of hardware and software design and development, implementation of
manufacturing processes and effective sales, marketing and customer service.
Because of the complexity of our products, significant delays may occur between
a product's initial introduction and commencement of volume production.
The development and commercialization of new products involve many difficulties,
including:
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ADEPT TECHNOLOGY, INC.
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 will decline.
Over the past year, our total expenditures for research and development have
declined. We have limited resources to allocate to research and development and
must allocate our resources among a wide variety of projects. Because of intense
competition in our industry, the cost of failing to invest in strategic products
is high. If we fail to adequately invest in research and development, we may be
unable to compete effectively in the intelligent automation markets in which we
operate.
If we do not comply with environmental regulations, 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.
If we fail to obtain export licenses, we would be unable to sell any of our
software products overseas and our revenues 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.
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Risks Related to our Stock
Our common stock has been delisted from the Nasdaq Stock Market and trades on
the OTC Bulletin Board. The delisting of our common stock may have a negative
impact on the trading activity and price of our common stock and could make it
more difficult for us to generate additional financing.
During the second and third quarters of this fiscal year, we received
notification from the Nasdaq indicating that our securities were subject to
delisting from the Nasdaq National Market as a result of our failure to comply
with certain quantitative requirements for continued listing on the Nasdaq
National Market and denying our application to transfer the listing of our
securities to the Nasdaq SmallCap Market. At our request, a hearing was held on
March 13, 2003 before a Nasdaq Listing Qualifications Panel to appeal the
delisting decision. Our appeal was denied and our stock was delisted effective
April 15, 2003. The Panel based its decision on our inability to meet the
requirements for continued listing on Nasdaq. Our common stock commenced trading
on the OTC Bulletin Board on April 15, 2003. The OTC Bulletin Board is generally
considered less liquid and efficient than Nasdaq, and although trading in our
stock was relatively thin and sporadic before the delisting, the liquidity of
our common stock may decline further because smaller quantities of shares will
likely be bought and sold, transactions could be delayed and securities
analysts' and news media coverage of Adept will likely diminish. 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 generate additional funding. The delisting 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 and the availability of fewer business development and other
strategic opportunities.
The ability of our Board of Directors to issue preferred stock and our
outstanding 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 the
shareholders, up to 5,000,000 shares of preferred stock in one or more series
and to fix the price, rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting a series or the designation of such series, without any
further vote or action by Adept's shareholders. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of delaying, deferring or
preventing a change in control of 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 will have a dilutive effect on the holders of
common stock.
We have issued 100,000 shares of our convertible preferred stock for
consideration of $25.0 million with a liquidation preference of $25.0 million
that may be triggered by events such as a change of control of our common stock
or liquidation. The preferred stock may be converted into shares of Adept's
common stock at the per share rate equal to the initial preferred price, $250,
divided by the lower of $8.18 or 75% of the price of Adept's stock on the
conversion date, provided that the denominator in such conversion rate will
never be lower than $4.09 for the Series B preferred stock and $2.05 for the
Series A preferred stock, other than for certain liquidity events not approved
by the Board of Directors. The preferred stock shall not be convertible into 20%
or more of the outstanding voting securities of Adept and no holder of preferred
stock may convert shares of preferred stock if, after the conversion, the holder
will hold 20% or more of our outstanding voting securities. Shares not permitted
to be converted remain outstanding and become convertible when such holder holds
less than 20% of the Adept's outstanding voting securities. The liquidation
preference of the preferred stock or the ability of a preferred shareholder to
convert shares of preferred stock into common stock may affect the price an
acquirer or investor is willing to pay for our common stock and the trading
price of our common stock.
Our stock price has fluctuated and may continue to fluctuate widely.
The market price of our common stock has fluctuated substantially in the past.
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:
43
ADEPT TECHNOLOGY, INC.
o the business environment, including the operating results and stock
prices of companies in the industries we serve;
o the delisting of our common stock from the Nasdaq Stock Market and
trading on the OTC Bulletin Board;
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 quarterly fluctuations in operating results;
o general conditions in the intelligent automation industry; and
o perceived dilution from stock issuances for acquisitions, our
convertible preferred stock 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 actions 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 is
volatile, 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. Companies, like us, that are involved in rapidly changing technology
markets are particularly subject to this risk. 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.
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 designed to ensure
the safety and preservation of our invested funds by limiting default risk,
market risk and reinvestment risk. The table below presents principal amounts
and related weighted-average interest rates by year of maturity for our
investment portfolio.
Fiscal Fiscal Fiscal Fair
(in thousands) 2003 2004 2005 Total Value
-------------- ---- ---- ---- ----- -----
Cash equivalents
Fixed rate...................... $ 1,739 -- -- $ 1,739 $ 1,739
Average rate.................... 0.35% -- -- 0.35%
Total Investment Securities. $ 1,739 -- -- $ 1,739 $ 1,739
-------- -- -- -------- --------
Average rate.................... 0.35% -- -- 0.35%
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
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ADEPT TECHNOLOGY, INC.
includes only marketable securities with active secondary or resale markets to
ensure portfolio liquidity and maintains a prudent amount of diversification. We
conduct business on a global basis. 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.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the filing date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including the Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the
Chief Executive Officer and the Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to Adept (including our consolidated subsidiaries)
required to be included in our 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.
In addition, we reviewed our internal controls, and there have been no
significant changes in our internal controls or in other factors that could
significantly affect those controls subsequent to the date of their last
evaluation.
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 actions
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.
Some end users of our products have notified us that they have received a claim
of patent infringement from the Jerome H. Lemelson Foundation, alleging that
their use of our machine vision products infringes certain patents issued to Mr.
Lemelson. In addition, we have been notified that other end users of our
AdeptVision VME line and the predecessor line of Multibus machine vision
products have received letters from the Lemelson Foundation which refer to Mr.
Lemelson's patent portfolio and offer the end user a license to the particular
patents. Some of these end users have notified us that they may seek
indemnification from us for any damages or expenses resulting from this matter.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On March 21, 2003, in connection with the Accounts Receivable Purchase Agreement
entered into and with Silicon Valley Bank, we issued to Silicon Valley Bank a
warrant to purchase an aggregate of 100,000 shares of the our common stock at an
exercise price of $1.00 per share. The warrant becomes exercisable on September
21, 2003 and expires on March 21, 2008. The issuance of the warrant to SVB, an
accredited investor, was exempt from registration in reliance upon Regulation D,
as promulgated under the Securities Act of 1933, as amended.
45
ADEPT TECHNOLOGY, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) The following exhibits are filed as part of this report.
10.1 Accounts Receivable Purchase Agreement dated as of March 21, 2003 between
the Registrant and Silicon Valley Bank.
10.2 Intellectual Property Security Agreement dated as of March 21, 2003 between
the Registrant and Silicon Valley Bank.
10.3 Warrant to Purchase Stock dated as of March 21, 2003 between the Registrant
and Silicon Valley Bank.
99.1 Certification of the Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350 for the Registrant's Form 10-Q for the
fiscal quarter ended March 29, 2003.
b) Reports on Form 8-K.
On January 22, 2003, a Form 8-K was filed by Adept to announce that it entered
into an agreement to terminate the Supply, Development and License Agreement
with JDS Uniphase Corporation.
On January 22, 2003, a Form 8-K was filed by Adept announcing its financial
results for its second quarter ended December 28, 2002.
On February 4, 2003, a Form 8-K was filed by Adept announcing that it was
notified by The Nasdaq Stock Market, Inc. that its application to transfer the
listing of its common stock from the Nasdaq National Market to the Nasdaq
SmallCap Market was denied as a result of its failure to meet certain minimum
listing requirements and that its common stock was subject to delisting.
On February 5, 2003, a Form 8-K was filed by Adept to provide its amended annual
report on Form 10-K/A, conformed to reflect segment changes occurring in Adept's
reportable business segments in the first quarter of fiscal 2003.
On February 6, 2003, a Form 8-K was furnished by Adept announcing that pursuant
to Section 906 of the Sarbanes -Oxley Act of 2002, its Form 10-K/A for the
fiscal year ended June 30, 2002 and Form 10-Q/A for the first quarter ended
September 28, 2002 were accompanied by a certification of its CFO and CEO.
On February 14, 2003, a Form 8-K was furnished by Adept announcing that pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, its Form 10-Q for its second
quarter ended December 28, 2002 was accompanied by a certification of its CFO
and CEO.
On March 10, 2003, a Form 8-K was filed by Adept announcing that it received a
Nasdaq Staff Determination indicating that Nasdaq had not received Adept's
payment of the Nasdaq 2003 annual fee as required for continued listing.
On March 19, 2003, a Form 8-K was furnished by Adept announcing that pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, its Form 10-K/A for its fiscal
year ended June 30, 2002, Form 10-Q/A for its fiscal quarter ended September 28,
2002 and its Form 10-Q/A for its fiscal quarter ended December 28, 2002 were
accompanied by a certification of its CFO and CEO.
On March 28, 2003, a Form 8-K was filed by Adept announcing that Adept and
Silicon Valley Bank entered into an Accounts Receivable Purchase Agreement and
that Adept and a former shareholder of Meta Control Technologies terminated an
$800,000 line of credit.
46
ADEPT TECHNOLOGY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADEPT TECHNOLOGY, INC.
By: /s/ Michael W. Overby.
--------------------------
Michael W. Overby
Vice President, Finance and
Chief Financial Officer
By: /s/ Brian R. Carlisle..
---------------------------
Brian R. Carlisle
Chairman of the Board of Directors and
Chief Executive Officer
Date: May 13, 2003
47
ADEPT TECHNOLOGY, INC.
CERTIFICATIONS
I, Brian R. Carlisle, Chairman of the Board of Directors and Chief Executive
Officer of Adept Technology, Inc., certify that:
1 I have reviewed this quarterly report on Form 10-Q of Adept Technology,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
By: /s/ Brian R. Carlisle
----------------------
Brian R. Carlisle
Chairman of the Board of Directors and
Chief Executive Officer
(Principal Executive Officer)
48
ADEPT TECHNOLOGY, INC.
I, Michael W. Overby, Vice President of Finance and Chief Financial Officer of
Adept Technology, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Adept Technology,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
By: /s/ Michael W. Overby
----------------------
Michael W. Overby
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
49
ADEPT TECHNOLOGY, INC.
INDEX TO EXHIBITS
10.1 Accounts Receivable Purchase Agreement dated as of March 21, 2003
between the Registrant and Silicon Valley Bank.
10.2 Intellectual Property Security Agreement dated as of March 21, 2003
between the Registrant and Silicon Valley Bank.
10.3 Warrant to Purchase Stock dated as of March 21, 2003 between the
Registrant and Silicon Valley Bank.
99.1 Certification of the Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350 for the Registrant's Form
10-Q for the fiscal quarter ended March 29, 2003.
50