UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

|X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
    of 1934 for the fiscal year ended June 30, 2003 or

|_| Transition report pursuant to Section 13 of 15(d) of the Securities Exchange
    Act of 1934 for the transition period from ______________ to ______________.

Commission file number: 0-27122

                             ADEPT TECHNOLOGY, INC.
             (Exact name of registrant as specified in its charter)

          California                                            94-2900635
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                           Identification Number)

3011 Triad Drive, Livermore, California                           94551
(Address of principal executive office)                         (zip code)

       Registrant's telephone number, including area code: (925) 245-3400

           Securities registered pursuant to Section 12(b) of the Act:

                                             Name of each exchange
             Title of each class             on which registered
             -------------------             -------------------
                   None                                None

           Securities registered pursuant to Section 12(g) of the Act:
                           Common Stock, no par value
                                (Title of Class)

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                 |X| Yes |_| No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

Indicate  by check mark  whether  the  Registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934. |_| Yes |X| No

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates of the registrant computed by reference to the price at which the
common equity was last sold as of the last business day of the Registrant's most
recently  completed  second fiscal quarter  (December 27, 2002) was  $7,260,689.
Shares of common  stock held by each officer and director and by each person who
controls 5% or more of the outstanding  voting power of the registrant have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate  status is not  necessarily  a conclusive  determination  for other
purposes.

As of September 19, 2003,  approximately  15,409,833  shares of the registrant's
common stock, no par value, was outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  registrant's  definitive  proxy  statement  for the 2003 Annual
Meeting are incorporated by reference into Part III hereof.
<PAGE>

                             ADEPT TECHNOLOGY, INC.
                           ANNUAL REPORT ON FORM 10-K

                                TABLE OF CONTENTS

                                                                            Page

                                     PART I

          Special Note Regarding Forward-Looking Statements                    2
Item 1.   Business                                                             2
Item 2.   Properties                                                          13
Item 3.   Legal Proceedings                                                   14
Item 4.   Submission of Matters to a Vote of Security Holders                 15
          Executive Officers of the Registrant                                15

                                     PART II

Item 5.   Market for Registrant's Common Equity and Related
            Shareholder Matters                                               16
Item 6.   Selected Financial Data                                             17
Item 7.   Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                         20

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk          52
Item 8.   Financial Statements and Supplementary Data                         52
Item 9.   Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure                                          53
Item 9A.  Controls and Procedures                                             53

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant                  54
Item 11.  Executive Compensation                                              54
Item 12.  Security Ownership of Certain Beneficial Owners and Management      54
Item 13.  Certain Relationships and Related Transactions                      54

                                     PART IV

Item 15.  Exhibits, Financial Statement Schedules and Reports of Form 8-K     55
          Signatures                                                          59

<PAGE>

                                     PART I

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This  Annual   Report  on  Form  10-K   contains   forward-looking   statements.
Forward-looking  statements are contained  principally in the sections  entitled
"Business,"  "Factors  Affecting  Future  Operating  Results" and  "Management's
Discussion and Analysis of Financial Condition and Results of Operations." These
statements  involve  known and unknown  risks,  uncertainties  and other factors
which may cause our actual results, performance or achievements to be materially
different from any future results,  performances  or  achievements  expressed or
implied by the forward-looking  statements.  Forward-looking statements include,
but are not limited to, statements about:

      o     the current  economic  environment  affecting  us and the markets we
            serve;
      o     sources  of  revenues  and  anticipated   revenues,   including  the
            contribution from the growth of new products and markets;
      o     our  expectations  regarding our cash flows and liquidity  impact of
            the timing of receipts and disbursements;
      o     our estimates  regarding our capital  requirements and our needs for
            additional financing;
      o     marketing and commercialization of our products under development;
      o     our ability to attract  customers  and the market  acceptance of our
            products;
      o     our  ability to  establish  relationships  with  suppliers,  systems
            integrators  and  OEMs  for  the  supply  and  distribution  of  our
            products;
      o     plans for  future  acquisitions  and for the  integration  of recent
            acquisitions;
      o     plans for future  products  and  services  and for  enhancements  of
            existing products and services; and
      o     our intellectual property.

In some cases,  you can  identify  forward-looking  statements  by terms such as
"may,"  "intend,"   "might,"  "will,"  "should,"   "could,"  "would,"  "expect,"
"believe," "estimate,"  "predict,"  "potential," or the negative of these terms,
and similar expressions intended to identify forward-looking  statements.  These
statements reflect our current views with respect to future events and are based
on   assumptions   and   subject  to  risks  and   uncertainties.   Given  these
uncertainties,  you should not place  undue  reliance  on these  statements.  We
discuss many of these risks in this Annual Report on Form 10-K in greater detail
under the heading  "Factors  Affecting  Future  Operating  Results." Also, these
statements  represent our estimates and assumptions  only as of the date of this
Annual Report on Form 10-K, and we undertake no obligation to publicly update or
revise these forward-looking statements.

In this report, unless the context indicates otherwise, the terms "Adept," "we,"
"us," and "our" refer to Adept Technology,  Inc., a California corporation,  and
its subsidiaries.

This report  contains  trademarks and trade names of Adept and other  companies.
Adept has 182  trademarks of which 16 are registered  trademarks,  some of which
include the Adept Technology logo, HexSight, MetaControls, and FireBlox.

ITEM 1. BUSINESS

Our Company

We provide intelligent production automation solutions,  components and services
to    our    customers    in    many    industries     including    the    food,
electronics/communications,   automotive,  appliance,  semiconductor,   original
equipment  manufacturer,  or OEM, and life sciences  industries.  We utilize our
comprehensive product portfolio of high precision mechanical  components,  solid
state  controllers  and  application  development  software (not  generally sold
separately)   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. Other benefits of our RDA solution include
increased  manufacturing  flexibility  for  future  product  generations,   less
customized engineering and reduced dependence on production engineers. We intend
to continue to enhance our RDA capabilities by providing  differentiated,  value
added integrated  systems to further penetrate  selected  emerging markets.  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 2003, we introduced  Amps in Base (AIB) Cobra robots,  our
highest  volume Scara robots which are expected to have a  significant  positive
impact on our gross margins during fiscal 2004 and beyond.


                                       2
<PAGE>

We have experienced  declining revenues and incurred operating losses in each of
the  last  three  fiscal  years.  During  this  period,  we have  also  consumed
significant  cash and other  financial  resources,  and  presently  have minimal
liquidity.  In  response to these  conditions,  we reduced  operating  costs and
employee  headcount,  and restructured  certain  operating lease  commitments in
fiscal  2002 and  fiscal  2003.  During the fourth  quarter of fiscal  2003,  we
reduced our  headcount  by an  additional  7% of our total  employees,  which we
expect  to  fully  implement  by  the  second  quarter  of  fiscal  2004.  These
adjustments to our operations have  significantly  reduced our cash  consumption
and the  aggregate  revenue  levels  necessary to achieve  break-even  operating
results.  In addition,  we intend to seek an  expansion of our existing  working
capital receivables financing facility, or secure an alternative credit facility
to improve our near term liquidity.  Furthermore,  we continue to pursue outside
debt and equity  sources of financing  that can provide Adept with a longer term
source of  capital  and  generally  improve  its  balance  sheet  and  financial
stability.

We are in a very  precarious  cash position,  and because of certain  regulatory
restrictions  on our  ability to move  certain  cash  reserves  from our foreign
operations to our U.S.  operations,  we may have limited  access to a portion of
our  existing  cash  balances.  As of June 30, 2003,  we had an  aggregate  cash
balance of $3.3 million, and a short term receivables  financing credit facility
of $1.75 million net, of which $90,000 was outstanding and $1.7 million remained
available  under this  facility.  We currently  depend on funds  generated  from
operating  revenue  and the funds  available  through  our  accounts  receivable
financing  arrangement to meet our operating  requirements.  As a result, if our
assumptions are incorrect,  we may have  insufficient  cash resources to satisfy
our obligations in a timely manner during the next twelve months.  We expect our
cash ending balance to be  approximately  $1.8 million as of September 30, 2003.
The decrease in our expected cash balance from June 30, 2003 is primarily due to
increases in prepaid  expenses  related to insurance  premiums,  and an expected
loss on  operations  for the first  quarter of fiscal  2004.  Recently,  we have
managed to finance our operating  losses by converting  non-cash working capital
items such as accounts  receivable  and inventory,  to cash,  and  consequently,
these working capital components have been  significantly  reduced over the last
several quarters. If the company continues to generate a loss on operations,  it
will  become  increasingly   difficult  to  rely  on  funding  these  losses  by
liquidating  working capital.  Our ability to sustain  operations through fiscal
2004 is predicated  upon certain  critical  assumptions,  including (i) that our
restructuring  efforts do  effectively  reduce  operating  costs as estimated by
management and do not impair our ability to generate  revenue,  (ii) that we are
able to  favorably  settle  pending  litigation  related to our San Jose  lease,
including both the aggregate  amount and the timing of any settlement  payments,
(iv) that we will not incur additional  unplanned capital expenditures in fiscal
2004,  (v) that we will  continue to receive  funds under our existing  accounts
receivable  financing  arrangement or a new credit  facility,  (vi) that we will
receive continued timely receipt of payment of outstanding receivables,  and not
otherwise  experience  severe  cyclical  swings in our  receipts  resulting in a
shortfall of cash available for our disbursements  during any given quarter, and
(vii) that we will not incur  unexpected  significant  cash  outlays  during any
quarter.

Adept is  currently  litigating  with  the  landlord  of our San  Jose  facility
regarding our lease obligations for that facility. We have vacated and no longer
pay rent on this  facility.  We have  recorded  expenses  in the  amount of $2.3
million for the remaining  unpaid rent associated with this lease;  however,  we
have not reserved the cash associated  with such unpaid rent expenses.  Our cash
usage for the fourth quarter of fiscal 2003 and our  expectations for cash usage
for the first two  quarters  of fiscal  2004 are  significantly  impacted by our
nonpayment of rent for this facility.  If we receive a material adverse judgment
in the San Jose lease  litigation  and do not have  control of the timing of the
payments  of any  such  judgment,  we may not have  sufficient  cash to meet our
obligations  and  therefore,  we may be  required  to  cease  operations.  For a
description of this litigation, see "Legal Proceedings."

Even if we do not receive an adverse judgment in the San Jose lease  litigation,
if the results of our search for  additional  outside  sources of financing  are
unsuccessful,  or if adequate funds are not available on acceptable  terms or at
all and we are unable to achieve our projected revenues or if operating expenses
exceed current estimates, we will be forced to curtail our operations and 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


                                       3
<PAGE>

otherwise respond to competitive pressures or unanticipated  requirements.  Even
if we complete a financing,  the transaction is likely to involve the incurrence
of debt or issuance of debt or equity  securities  of Adept,  which would dilute
the outstanding equity.

The consolidated  financial  statements  accompanying this Annual Report on Form
10-K have been prepared  assuming  that Adept will continue as a going  concern.
However,  the  accompanying  Independent  Auditors'  Report  states that we have
incurred  recurring  operating  losses,  have a net capital  deficiency and have
experienced a declining cash balance which have adversely affected our liquidity
and that these conditions raise  substantial doubt about our ability to continue
as a going concern.  The financial  statements do not include any adjustments to
reflect the possible future effects on the  recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.

We  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 our 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 Adept'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.

The Components  segment provides  intelligent  automation  software and hardware
component  products  externally  to customers  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 products from third parties,  and produces an integrated family of
process-ready  platforms  for  the  semiconductor,   electronics  and  precision
assembly and other markets, which are driven towards standard offerings.

The Services and Support  segment  provides  support  services to our  customers
including providing  information  regarding the use of our automation equipment,
assistance 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.

We  market  and  sell our  products  worldwide  through  more  than  200  system
integrators,  our direct sales force and OEMs.  System  integrators and OEMs add
application-specific  hardware  and  software  to our  products,  enabling us to
provide  solutions  to  a  diversified   industry  base,   including  the  food,
communications,  electronics,  automotive,  appliance,  semiconductor,  and life
sciences industries. Due to a worldwide slowdown in the communications, consumer
electronics, semiconductor and precision assembly markets, our net revenues have
been at significantly  lower levels during this fiscal year compared to previous
years.

We were incorporated in California in 1983. Our principal  executive offices are
located at 3011 Triad Drive,  Livermore,  California 94551. Our telephone number
at that address is (925)  245-3400.  Our website address is  www.adept.com.  Our
annual  report on Form 10-K,  our  quarterly  reports on Form 10-Q,  our current
reports  on Form 8-K and any  amendments  to those  reports  filed or  furnished
pursuant to Section  13(a) or 15(d) of the  Securities  and Exchange Act of 1934
can be  accessed,  free  of  charge,  at  our  website  as  soon  as  reasonably
practicable  after  they  are  electronically  filed  with or  furnished  to the
Securities and Exchange Commission.

Recent Developments

On August 6, 2003, we completed a lease  restructuring  with  Tri-Valley  Campus
LLC, the landlord  for our  Livermore,  California  corporate  headquarters  and
facilities. Under the lease amendment, we were released of our lease obligations
for two  unoccupied  buildings in Livermore and received a rent reduction on the
occupied  building from $1.55 to $1.10 per square foot.  In addition,  the lease
amendment  carries  liquidated  damages  in the  event of  default  on the lease
payments  equivalent to 1 year of rent obligations on the original lease. In the
event of Adept's bankruptcy or a failure to make payments to the landlord of our
Livermore,  California  facilities within three days after a written notice from


                                       4
<PAGE>

the landlord,  a default would be triggered on the lease. In connection with the
lease   restructuring,   we  issued  a  three  year,  $3.0  million  convertible
subordinated  note due June 30, 2006 in favor of the landlord  bearing an annual
interest rate of 6.0%. Interest is payable at our option in shares of our common
stock.  The note is  convertible  at any time at the option of the  holder  into
common stock at a conversion  price of $1.00 per share and the resulting  shares
carry  certain  registration  and other  rights.  Payment under the note will be
accelerated in the event of a default, including the insolvency or bankruptcy of
Adept,  Adept's failure to pay its obligations  under the note when due, Adept's
default on certain  material  agreements,  including  the Livermore  lease,  the
occurrence  of a material  adverse  change with  respect to Adept's  business or
ability to pay its  obligations  under the note, or a change of control of Adept
without the landlord's  consent.  The note is recorded as long term Subordinated
Convertible Note in the accompanying balance sheet.

PRODUCTS AND TECHNOLOGY COMPRISING RAPID DEPLOYMENT AUTOMATION

Overview

Our  vision  of making  factory  automation  easy to  install  is  called  Rapid
Deployment  Automation,  or RDA. We have developed a product  strategy to enable
RDA. This product strategy  includes  simulation tools to help design automation
systems,   application   software  packages  that  contain   automation  process
knowledge,  very powerful software and hardware for real-time distributed motion
control  and  integrated  sensing,  and a  family  of  mechanisms  that  address
different applications.

RDA SYSTEM DESIGN

Production PILOT

Adept  employs  simulation  tools to help  system  integrators  and end users to
design automation  systems and evaluate product designs for ease of manufacture.
Adept's  simulation  products  allow machines to be modeled with 3D graphics and
then  animated  in  response to software  control  programs.  Mechanisms  can be
defined  graphically;  and the mathematics  necessary to animate them,  known as
kinematic models, are generated  automatically.  Dynamics of mechanisms can also
be  modeled,  which  enables  machine  cycle times to be  accurately  predicted.
Adept's  simulation  products can either create new computer  aided design (CAD)
geometry for simulations,  import CAD models from standard libraries of machines
and peripheral devices, or import models directly from common CAD systems.

Adept Digital Workcell

Adept  Digital  Workcell  allows  engineers  to program a workcell  with  actual
production  software without the physical robot or cell hardware.  Adept Digital
Workcell increases  productivity by allowing the user to anticipate cycle times,
logic errors,  location  errors,  collision errors and motor overload errors far
earlier in the development  process. In addition,  Adept Digital Workcell allows
users  to  quickly  generate  alternative  conceptual  layouts  and  cycle  time
estimates for project proposals.

RDA PROCESS KNOWLEDGE

Adept Assembly Information Manager (AIM)

Assembly  Information  Manager,  or AIM software,  simplifies  the  integration,
programming and operation of automation  workcells and lines.  AIM  accomplishes
this goal by  providing  a formal  method  for  capturing  application  specific
process   knowledge  and  then  allowing  users,  even  those  lacking  advanced
programming  expertise,  to use this embedded knowledge to accomplish a specific
task.

AIM  simplifies  the  implementation  of  intelligent  automation  workcells  by
combining  a point  and  click  graphical  user  interface  with  an  icon-based
programming method that does not require advanced computer  programming  skills.
This method combines  task-level  statements with a high performance,  real-time
database and a structure for representing process knowledge.


                                       5
<PAGE>

The AIM task  level  statements  allow the  developer  to specify at a very high
level what  operations  the workcell is to perform,  such as "insert a component
into a socket  using  vision to correct  for  irregularities."  This  command is
automatically  coupled  with  data  contained  in the  real-time  database  that
specifies the physical aspects of the workcell,  such as the location of a part.
The  information  contained in the databases can be created or downloaded from a
computer or simulation system at any time. Finally, the AIM system automatically
invokes the  routines  that  contain the process  knowledge  and dictate how the
specified  operation  will be  performed.  In this way, an AIM  workcell  can be
programmed by a person who understands as few as ten process actions rather than
hundreds of  programming  instructions  or  thousands  of lines of  conventional
software code.

We sell several  application  specific  versions of AIM,  including  MotionWare,
which  addresses  motion  applications  such as  those  requiring  sophisticated
conveyor  tracking,  and VisionWare,  which simplifies the use of vision in both
guidance and  inspection  applications,  as well as other packages which address
dispensing,  packaging, flexible part feeding,  semiconductor wafer handling and
precision  assembly  bonding  operations.  In  addition,  end users  and  system
integrators,  many of whom have  developed  their  own AIM  application-specific
packages,  can add process  knowledge.  AIM can be accessed  via the Windows 98,
2000, NT, and XP environments. AIM programs are written in the V+ language.

RDA REAL-TIME CONTROL

AdeptWindows

The  AdeptWindows  software  application  suite provides a PC user interface for
Adept   controllers  plus  additional   capabilities  that  allow  customers  to
effectively  integrate their Microsoft  Windows-based  PC with Adept's robots or
AdeptVision systems. In addition to the PC user interface, the suite of programs
includes a TFTP server for booting the controller over an ethernet network,  and
a DDE server  that  allows  customers  to  communicate  with  other  DDE-capable
applications such as Microsoft Excel.

Adept DeskTop

The Adept  DeskTop is a new  Microsoft  Windows  application  that  provides  an
easy-to-use software  development  environment for Adept controllers and further
enhances the ability to interface a PC to an Adept  controller.  The development
environment  is  built  on top of a  library  of  ActiveX  controls  that can be
accessed  directly by C, C++,  or Visual  Basic PC  applications  to monitor and
control an Adept robot, motion control, or vision system in real time.

Adept AWC Controllers

Our controller products are currently based on the VersaModule Eurocard, or VME,
bus  architecture   standard,   but  are  migrating  to  a  distributed  control
architecture  which depends on high-speed  networks such as IEEE 1394  FireWire,
Ethernet, and DeviceNet, to link processors and sensors which may be distributed
around a  workcell.  A large array of  controller  configurations  are  possible
depending on the features  selected by the  customer.  Our VME  controllers  are
configured in four, five, or ten slot chassis.  All controllers include a system
processor module. Additional functionality can be incorporated by adding printed
circuit boards and additional software. For example,  motion control is added by
inserting  a motion  control  board.  Printed  circuit  boards  can be added for
machine vision and additional  communication  inputs and outputs. The controller
products  are sold  independently  for  machine  control and  inspection  vision
applications and are also sold as a component of the robot systems. The heart of
our VME machine  controllers is the  AdeptWindows  Controller  board,  or AWC, a
single  slot  central   processing  unit  board  based  on  Motorola   68040/060
processors.  All AWC boards include solid-state,  mass storage,  direct ethernet
connectivity,  DeviceNet  industrial data network connectivity and international
safety circuitry.

Our  AWC  controller  offers  plug-and-play  integration  of  personal  computer
hardware and software for users of the Windows platform.  Specifically, this new
technology  allows  customers  to do  all  development  work,  including  vision
applications, on personal computers using Windows 98, NT, 2000, and XP operating
systems. This open architecture product allows customers to combine the features
of our AIM and V+ software products with other personal  computer-based software
products using industry  standard software tools such as Active X, Visual Basic,
and  Visual  C++.  Finally,  all of our  controller  products  support  the same
Windows-based  graphical  user  interface  and can execute the same  application
programs,  thereby  allowing  software  development  investments to be leveraged
across a number of applications.


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<PAGE>

The  controller  includes  a number  of  technologically  advanced  capabilities
designed  specifically  to address  the  intelligent  automation  market.  These
capabilities  include  special  application  specific  integrated  circuits  for
controlling  direct-drive motors,  reading encoders, or sensors, and controlling
power up sequencing of complex high power systems.  The controller also includes
safety  circuits  that  meet  domestic  and  international   specifications  and
technology to protect the controller from voltage spikes,  electrical  noise and
power brownouts.  Additionally,  the controller  features high wattage switching
power amplifiers, and networking circuitry for local area network and industrial
data networks.

Distributed Control Architecture

Adept invested heavily in developing an industrially  robust network technology.
We have implemented Adept SmartServo(TM),  a digital servo network for our robot
and  motion  control  products.  Adept  SmartServo  is  based  on the  IEEE-1394
standard,  also known as FireWire(R).  Initial products were introduced in 1999,
with the announcement of Adept SmartModules. The product line has since grown to
include a family of  controllers,  amplifiers,  motors  and  SmartServo  enabled
mechanisms  that replace most of the traditional  control and power  electronics
architecture with a digital servo network.

The impact to the product line has been sweeping. The traditional  panel-mounted
power  amplifiers and their  attendant rack chassis and power supply,  have been
replaced by SmartAmps.  These  self-contained  single channel power  amplifiers,
with an on-board digital signal processor (DSP), are mounted directly on (or in)
the mechanism.  The Adept  SmartServo  architecture is a distributed  processing
network  architecture,  where the controller's CPU runs the trajectory  planner,
while the servo loop is closed in the SmartAmp.  This processing scheme delivers
high performance and flexibility,  but also demands a highly  deterministic time
based network.

In traditional robot architecture,  there are heavy  multi-conductor  cables and
connections  between the  controller's  motion control board and the power amps,
and  between  the  power  amps and the robot  mechanism.  These  cables  and the
traditional  motion  control /  interface  board are now  replaced  by the Adept
SmartServo network and its twisted pair physical layer.

In addition,  the Adept SmartServo  digital servo network also becomes the means
to add  controller  features.  In a  traditional  architecture,  the  controller
included expansion slots and their attendant power supply capacity,  connectors,
rack space and increased  footprint.  Now,  additional  features such as digital
I/O, general purpose motion control and additional  SmartServo mechanisms can be
added by simply connecting the module directly to the network.

Adept SmartController

Our newest controller,  the Adept SmartController,  is designed to work with the
Adept SmartServo(TM)  distributed servo control network.  SmartControllers offer
reduced  costs,  the  smallest  form  factor  in the  industry,  and  simplified
installation,  wiring,  and support  costs  while  maintaining  compliance  with
domestic and international safety  specifications.  The Adept SmartController CS
is the first member of a new family of high performance  distributed  motion and
vision controllers. The SmartController's network control architecture leverages
Adept's SmartAmp  technology,  which increases system scalability and modularity
while dramatically  reducing  controller size and cabling up to 70% from Adept's
industry  leading  MV  controller  family.  The  SmartController's   distributed
processing  architecture  improves  performance  by  freeing  up 30% more of the
processor's  resources.  The Adept SmartController CS comes fully configured for
standard applications that do not require vision or conveyor belt tracking.  The
Adept  SmartController  CX  includes  an  expansion  slot for  AdeptVision  sAVI
together with additional communication ports, conveyor belt tracking support and
more  CPU  capacity.  All  Adept  SmartControllers  feature  several  high-speed
communication interfaces, including Fast Ethernet and SmartServo.  SmartServo is
Adept's  new IEEE  1394-FireWire  based  communication  interface,  which is the
backbone  of  Adept's  new   distributed   controls   architecture.   All  Adept
SmartControllers  offer known  scalability  and  support for Adept's  SmartServo
compatible digital I/O and general motion expansion modules.


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<PAGE>

Adept V+

Our V+ real-time  programming  language  allows  software  developers  to create
automation  software  systems  and  is  the  key  enabling  technology  for  our
intelligent  automation  approach.   This  programming  environment  provides  a
high-level  language  coupled with a multitasking  operating system and built-in
capability for integrating robots, machine vision, sensors, workcell control and
general   communications.   These   capabilities   enable  the   development  of
sophisticated  application  software  that  can  adaptively  control  mechanical
systems  based upon  real-time  sensory input while  simultaneously  maintaining
communication with other factory equipment.

V+ offers the user approximately 300 instructions for programming an intelligent
automation  workcell.  It includes a trajectory  generator and  continuous  path
planner,  which  compute the path of the robot's  tool in  real-time  based upon
predefined  data or  sensory  input.  V+  also  includes  a  number  of  network
communication  facilities  and  supports  a variety  of  standard  communication
protocols.  In addition, this software includes an operating system specifically
designed for factory automation and robot control.  This operating system allows
V+ to execute dozens of tasks  concurrently  and permits control to pass between
tasks in a  predictable  manner,  often several  times per  millisecond.  The V+
operating system also allows the installation of additional  processors into the
controller  and  automatically   reassigns  tasks  to  optimize  overall  system
performance, providing a key scalability feature not found in other controllers.
The primary development  environment for V+ is Windows 98, NT, 2000 and XP based
and allows the customer to utilize industry standard personal computers.

Adept Vision

AdeptVision  is a line of  machine  vision  products  that are  used  for  robot
guidance and inspection applications. For guidance applications,  AdeptVision is
added into the controller by inserting a printed  circuit board and enabling the
vision system  software.  The  integration  of our controller and vision systems
software enables high speed vision  applications  such as vision  servoing.  For
inspection  applications  such as  gauging  and  dimensioning,  the  AdeptVision
product  is  sold as an  integrated  inspection  vision  system  comprised  of a
controller with the vision board and software.

AdeptVision  features a unique  tool for robot and machine  guidance,  the Adept
ObjectFinder 2000.  ObjectFinder  quickly and robustly recognizes parts that are
randomly  positioned and have an unknown  orientation ranging up to 360 degrees.
Our vision  servoing  ability is critical for  precision  processes  such as the
assembly of electronic or fiber optic  components.  Our machine vision  software
can also measure part dimensions for inspection purposes.  Machine vision can be
used to acquire parts from stationary  locations or from conveyors.  Cameras can
be fixed in the workcell or attached to a robot.

We also offer  HexSight,  a  shrink-wrapped  library of machine vision  software
tools for OEMs and dedicated machine vision  integrators.  HexSight includes the
ObjectFinder locator tool in addition to other general purpose image enhancement
and analysis algorithms. These tools run directly in a PC environment and can be
adapted to run in an OEM's custom software solution.

RDA MECHANICAL COMPONENTS

We  provide  a large  number  of  automation  mechanisms  to  address  different
application  needs.  All of these  mechanisms are controlled by the software and
hardware control  architecture  described below.  This broad product line allows
system  integrators  and end  users to  develop  automation  solutions  for many
industries and applications.

Robot Mechanisms

We offer two floor standing Selective  Compliance  Assembly Robot Arm, or SCARA,
style robot  mechanisms  called the AdeptOne-XL and the  AdeptThree-XL.  We have
recently  introduced  two updated  table top robot  mechanisms  called the Adept
Cobra  s600 and  s800,  each of which is  designed  for  assembly  and  material
handling  tasks.  SCARA robots utilize a combination of rotary and linear joints
for high speed, high precision  material handling,  assembly and packaging.  The
Adept-XL robots use direct-drive technology.  Direct-drive technology eliminates
gears and linkages from the drive train of the mechanism,  thereby significantly
increasing  robot speed and precision  and  improving the robot's  product life,
reliability  and accuracy.  The Adept family of Cobra series robots  consists of
light-duty  SCARA  mechanisms  that can be table  mounted and offer an efficient
range of motions in limited space. The new versions of the sCobra robots feature
IEEE-1394  Firewire-based  MotionBlox  technology.   The  Motionblox  technology


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<PAGE>

packages  the  local  servo  control  capabilities,  digital  I/O  capabilities,
integrated DC Power with Safety,  and integrated high power amplifiers  together
on the back of the sCobra mechanism.  The result of combining a local controller
and I/O  integration  with the robot SCARA  mechanism is a degree of flexibility
that is not currently  available  from other  automation  suppliers.  The sCobra
robots can be connected to the SmartController for integration motion and Vision
or multi-mechanism configurations.  When the MotionBlox and sCobra mechanism are
configured  standalone,   this  configuration  is  called  the  SmartCobra.  The
SmartCobra   is  a   controller-less   mechanism   with  basic  pick  and  place
capabilities.

We also offer a family of linear modules called Adept SmartModules. These single
axis devices can be coupled  together by the user to form  application  specific
custom robot mechanisms ranging from 2 to 4 axes. Adept SmartModules are powered
by Adept  SmartAmps,  which  utilize the industry  standard  IEEE 1394  FireWire
protocol and Adept's  SmartServo  architecture to combine motion control signals
and input/output  signals for transmission over a single high-speed cable. Adept
SmartModules  lower  costs  and  installation  time  increasing  modularity  and
reducing the amount of software  programming and cabling required in a workcell,
or a robotic system that performs a specific automation  function.  SmartModules
are also offered in single-axis  standalone versions,  which can operate without
any additional controllers, saving cost and space for simple applications.

We also offer a line of semiconductor  wafer handling robots.  The newest member
of Adept's wafer  handling  robots is the AWARD robot.  This  mechanism has been
designed  to take  advantage  of the  SmartServo  architecture  and  shares  the
MotionBlox technology used on the sCobra mechanisms. The AWARD is a direct drive
robot and shares the same  benefits as the other Adept  direct  drive  robots in
terms of performance and reliability. Adept will offer the AWARD in both 3 and 4
axis configurations.  In working with OEM semiconductor tool manufacturers Adept
is  focused  on  providing  the  base   technology  to  provide  cost  effective
configurations as well as expandable features so that more custom configurations
can also be met. An AWARD mounted on a linear track is one example of these more
customizable  configurations.  SmartAmp  technology makes these types of product
configurations  quick to  configure  and is a  reliable  way to extend the AWARD
robots  functionality.  The AWARD  addresses  the needs for both 200mm and 300mm
tool wafer handling needs.

Adept continues to offer the AdeptVicron  series.  This is a VME-based mechanism
that is designed for semiconductor  wafer handling  applications and consists of
two models: the AdeptVicron 300S (single arm) and 310D (dual arm) models,  which
handle up to 300mm wafers.

Our robot  mechanisms  product  line  includes  a family  of 6 axis  articulated
mechanisms  manufactured  for us by Yaskawa  Corporation.  The AdeptSix 300 is a
tabletop  robot  well  suited  for  precision  assembly  and  material  handling
applications.  The  AdeptSix  600 is a larger  floor  mount  robot for  material
handling  and  packaging  applications.  Both of  these  mechanisms  run off the
SmartServo technology.  In fiscal 2003, we added a new clean room version of the
AdeptSix 300, the AdeptSix 300CR.  This mechanism  brings the  capabilities  and
flexibility of a 6 axis mechanism to the Semiconductor wafer handling market.

High Precision Micro Positioners

Adept  NanoStages are a series of advanced  nanometer  positioners for alignment
applications  in fiber optic  assembly  and other high  precision  applications.
These devices  increase the  resolution  of our  mechanisms by a factor of 1000,
from 25 microns for our standard  robots to 25 nanometers for our standard micro
positioners.  To  demonstrate  the  precision  of the  resolution  for our micro
positioners,  the period at the end of the preceding  sentence is  approximately
225 microns, or 225,000  nanometers,  in size. Our micro positioners are capable
of resolutions  nearly 9,000 times smaller than the size of that period.  Unlike
many micro positioners, which were developed for laboratory environments,  these
products are durable, rigid,  production-ready  devices intended for integration
into continuous production factory environments. We offer various configurations
of  Adept  NanoStages  ranging  from one to six axes of  motion  for disc  drive
assembly,  semiconductor OEM applications, fiber optic component assembly, fiber
alignment, and laser welding.

Programmable Parts Feeder

Part feeding has historically been accomplished by designing custom devices that
could only accommodate a single part or class of parts. The Adept FlexFeeder 250
can be rapidly  reconfigured  through software to accommodate new products and a


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<PAGE>

wide variety of parts ranging from simple rectangular  objects to complex molded
or machined parts, thus preserving the flexibility of the workcell or production
line. The Adept  FlexFeeder 250 integrates  machine vision,  software and motion
control  technology with a simple  mechanical  device for separating  parts from
bulk bins. The Adept  FlexFeeder 250  recirculates the parts and separates them,
relying on vision to identify individual parts.

RDA PRECISION SOLUTIONS

In response to end customer and system  integrator  needs, we now offer a family
of process ready platforms for the semiconductor and electronics markets.  These
platform  offerings  include Flexible Front End and Wafer Loader systems for the
semiconductor  tool market,  Adept NanoCell for the precision  assembly  market,
Adept ChadIQ for electronics assembly and Adept NanoBonder EBS for epoxy bonding
of precision  components.  These  platform  offerings  integrate all  automation
components  on a single  control  architecture,  with a unified  graphical  user
interface.  Typical  systems  include  a  material  handling  mechanism  such as
SmartModules   or  AdeptSix  robot,   AdeptWindows  or  Adept   SmartController,
AdeptVision,  AIM  software and an  integrated  PC user  interface.  Application
specific  components  range  from  NanoStage   positioner,   semiconductor  tool
loadports, and additional control and network interfaces.

We offer  semiconductor wafer handling solutions for both front-end and back-end
process OEMs. These offerings include both standard and customized  products for
contamination  control including robotics for wafer handling and transport.  The
Adept Flexible Front End Systems and the Adept Wafer Loader  Systems,  including
the Adept FFE 200 and the Adept FFE 300,  combine  wafer  sorting and  handling,
wafer cassette load ports,  wafer  aligners and mappers,  and wafer ID functions
into one compact integrated system; reducing cycle times, process complexity and
cost. Combining value-added wafer operations such as wafer orientation,  optical
character recognition sort and merge into a compact front-end system, eliminates
the need for wafer sorters in the factory.

Our OEMs, system  integrators and end users can quickly configure these standard
platforms to add specific manufacturing processes. Platform products represent a
further  extension of our RDA strategy.  For industries  where high volumes of a
similar basic machine are needed, an integrated platform eliminates the time and
cost of  designing  equipment  frames,  assembling  and  validating  control and
mechanism products and developing and debugging generic control software.

Financial  information regarding our three business segments is included in Note
13 of the Notes to  Consolidated  Financial  Statements  included in this Annual
Report on Form 10-K.

Customers

We sell our products to system integrators, end users and OEMs. End users of our
products  include  a  broad  range  of  manufacturing  companies  in  the  food,
communications,   automotive,   appliance,   semiconductor,  and  life  sciences
industries.  These  companies  use our  products  to  perform a wide  variety of
functions in assembly,  material  handling and precision  process  applications,
including  mechanical assembly,  printed circuit board assembly,  dispensing and
inspection.  No customer  accounted for more than 10% of our revenues for any of
the past three fiscal years.

SALES, DISTRIBUTION AND MARKETING

Sales and Distribution

We market our products  through system  integrators,  our direct sales force and
OEMs.

System Integrators. We ship a substantial portion of our products through system
integrators, and we view our relationships with these organizations as important
to  our  success.  We  have  established  relationships  with  over  200  system
integrators  worldwide that provide  expertise and process  knowledge for a wide
range  of  specific  applications.   In  the  United  States  and  Europe  these
relationships   are   generally   nonexclusive   and  not  limited  to  specific
geographical  territories.  In  certain  other  international  markets,  Adept's
integrator  relationships  may  include  limited  exclusive  arrangements  for a
limited  geographical  territory  in which the  integrator  markets and supports
Adept  functions  directly.  Generally a system  integrator  can  purchase  both
standard and  non-standard  Adept  solutions  and  components  as opposed to OEM
arrangements  where generally one standard component or solution is purchased in
higher volumes.


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<PAGE>

OEMs. Our OEM customers  typically purchase one standard product  configuration,
which the OEM integrates with  additional  hardware and software and sells under
the OEM's label to other resellers and end users.  Unlike our system  integrator
channel,  OEMs are responsible for all marketing,  sales,  customer  support and
maintaining the associated spare parts to service the end users of the product.

Direct  Sales  Force.  We employ a direct  sales force  which  directs its sales
efforts to end users to communicate the capabilities of our products and support
services and obtain up-to-date  information  regarding market requirements.  Our
sales force possesses expertise in automation solutions and advises end users on
alternative production line designs,  special application techniques,  equipment
sources and system  integrator  selection.  Our sales force works  closely  with
system  integrators  and OEMs to integrate our product line into their  systems,
provides  sales leads to certain  system  integrators  and  obtains  intelligent
automation  system quotes from system  integrators for end users. As of June 30,
2003, our North American direct sales force included 11 employees.  We have four
North  American  sales  and  customer  support  offices  located  in  Livermore,
California; Southbury,  Connecticut;  Cincinnati, Ohio; and Dallas, Texas. As of
June 30, 2003,  our  international  sales  organization  included  seven persons
covering Europe, Singapore, South Korea, China and Taiwan.

Some of our larger  manufacturing end user customers,  to whom we sell directly,
have in-house  engineering  departments  that are comparable to a captive system
integrator.   These  end  user  customers   establish  a  corporate   integrator
relationship  with  us  offering  benefits  similar  to  those  provided  to our
integrator  distribution  channel,  however we may in some cases form  strategic
alliances for certain potentially high volume market  opportunities with greater
benefits  and  restrictions  to the  customer  than  exist in system  integrator
arrangements.

Financial  information regarding revenue derived from domestic and international
customers  based upon  geographic  area is  included  in Note 13 of our Notes to
Consolidated Financial Statements included in this Annual Report on Form 10-K.

Marketing

Our marketing organization, which consisted of 10 employees as of June 30, 2003,
supports our system integrators,  direct sales force, OEM and end user customers
in a variety of ways. Our product management group works with end users,  system
integrators, corporate integrators and our sales engineers to continually gather
input on product  performance  and end user needs.  This  information is used to
enhance existing  products and to develop new products.  Our marketing  programs
group generates and qualifies new business through industry trade shows, various
direct  marketing  programs  such  as  direct  mail  and  telemarketing,  public
relations efforts,  internet marketing and advertising in industry  periodicals.
This marketing team is responsible for tracking  customers and prospects through
our marketing database. Our marketing group also publishes a document called the
MV Partner  catalog,  which lists software and hardware  components that we have
certified  as  compatible  with our product  line.  We also expend  considerable
effort on the development of thorough  technical  documentation and user manuals
for our product line, including online access. We view well-designed  manuals as
critical to simplifying the  installation,  programming,  use and maintenance of
our products.

Services and Support

Our service and support organization,  which consisted of 39 full-time employees
as of June 30, 2003, is designed to support our customers from the design of our
automation  line  through  ongoing  support  of  the  installed   system.   This
organization   includes   approximately   seven   consulting   and   application
engineers/programmers based in several of our sales and customer support offices
in the United States,  Europe and Asia. This team is experienced in applying our
product line to solve a wide array of application  issues and operates toll-free
telephone support lines to provide advice on issues such as software programming
structure,  layout  problems  and  system  installation.  End users  and  system
integrators  can also hire these  experts on a consulting  basis to help resolve
new or difficult application issues.

We also maintain product training personnel, consisting of two individuals as of
June 30, 2003, who develop and deliver training courses on subjects ranging from
basic system maintenance to advanced programming.  These courses are geared both


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<PAGE>

for  manufacturing  engineers who design and implement  automation lines and for
operators who operate and maintain  equipment once it is in production,  and are
taught in Adept offices and customer sites throughout the world.

Our field service organization,  which consisted of seven persons as of June 30,
2003, maintains and repairs our products at the end user's facilities. Personnel
based at our service  centers also  provide  advice to customers on spare parts,
product upgrades and preventative maintenance. In addition, we provide fee-based
service resources located inside some key customers'  facilities when the amount
of Adept product inside the customers production facility or the critical nature
of the process warrants the expense of a full-time service resource.

Backlog

Our product backlog at June 30, 2003 was approximately $8.8 million, as compared
with approximately $6.0 million at June 30, 2002.

Although  we  experienced  a decline in orders  during  fiscal  2003  reflecting
continued softness across most of the industries we serve,  orders in the fourth
quarter of fiscal 2003  increased  approximately  10% compared to orders for the
fourth  quarter of fiscal 2002.  In addition,  we deferred  the  recognition  of
revenue on several orders in our Solutions  business  segment pending receipt of
final  acceptance  from  customers,  which we anticipate  receiving in the first
quarter of fiscal  2004.  The deferral of Solutions  revenue  combined  with the
increased  order  activity in the fourth  quarter  contributed  to the change in
backlog at June 30, 2003 as compared to June 30, 2002.

Because  orders  constituting  our  current  backlog  are  subject to changes in
delivery  schedules  and in certain  instances  may be  subject to  cancellation
without significant penalty to the customer,  our backlog at any date may not be
indicative  of demand for our  products or actual net revenues for any period in
the future.

Research and Development

Our research and  development  efforts are focused on the design of  intelligent
automation  products,  which address the challenges of designing,  implementing,
installing,  operating and modifying  flexible  automated  production  lines. We
intend to focus our research and  development  efforts on the  development of an
integrated  product line,  which further  implements  our RDA approach and which
reduces  cost,  enhances  performance  and  improves  ease of use.  We carry out
primary research and development activities in four locations; Livermore, Orange
and Los Angeles,  California and Quebec, Canada. In addition, we utilize several
individuals  who work remotely to contribute to the  development of our software
for motion and vision control.

Research and  development  activities  at Livermore,  California  are focused on
design of our motion and vision control  boards and the mechanisms  that utilize
them.  We design and  develop  our  motion  control  software  at the Los Angles
facilities  and the vision  software is designed  and  developed  in our Quebec,
Canada facilities.  In addition,  we design and develop process and higher level
subassemblies for particular applications, such as semiconductor wafer handling,
at both our Livermore and Orange, California locations.

We have devoted,  and,  despite our expense  reductions  in connection  with our
restructuring,  intend to devote in the  future,  a  significant  portion of our
resources to research and development  programs.  As of June 30, 2003, we had 57
persons  engaged  in  research,   development  and  engineering.  Our  research,
development and engineering  expenses were approximately $11.7 million for 2003,
$20.4 million for 2002 and $22.7 million for 2001 and  represented  26.1% of net
revenues for 2003, 35.8% for 2002 and 22.7% for 2001.

Manufacturing

Adept's manufacturing operations, which are located in Livermore California, are
utilized for product assembly,  integration and test. Adept's operations include
manufacturing, test, materials, and manufacturing/test engineering departments.

We strategically outsource sub-components of our systems,  including electronics
assemblies  and  mechanical  mechanisms.   We  partner  with  key  suppliers  on
Adept-specific  designs and are continually moving the manufacturing  department


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<PAGE>

away from basic assembly and towards  mission-critical  system  integration  and
testing.   Our   manufacturing   engineering   organization   develops  detailed
instructions for all manufacturing and test operations.  These  instructions are
established  in  writing,  implemented  through  training  of the  manufacturing
workforce and monitored to assure  compliance.  In addition,  our  manufacturing
organization  works  closely with our  suppliers to develop  instructions,  test
methods and to remedy quality problems if they arise.

For quality  assurance  practices Adept is in transition from its prior ISO 9002
certification to the new ISO 9001-2000  standard.  The ISO 9002 standard focused
on  quality  system  requirements  for  a  company's  production,  delivery  and
servicing  of products  and  services  around the world.  The new ISO  9001-2000
standard focuses on the design and release process, all process efficiencies and
emphasizes  customer  satisfaction  in addition to the areas  focused by the ISO
9002 standard.  Adept also utilizes a Quality  Steering  Committee  comprised of
senior management from manufacturing, engineering, quality, customer service and
materials to  continually  review  internal  and external  quality and focus the
organization  on  continuous   improvement  and  effective   corrective   action
methodologies.

Employees

At June 30, 2003, we had 242 employees worldwide.  Of the total, 57 were engaged
in  research  and  development,  47 in sales and  marketing,  39 in service  and
support, 77 in operations, and 22 in finance and administration.

Competition

The market for intelligent automation products is highly competitive. We compete
with a number of robot companies,  motion control companies,  and machine vision
companies.   Many  of  our  competitors  in  the  robot  market  are  integrated
manufacturers of products that produce robotics  equipment  internally for their
own use and may also compete with our products for sales to other customers.

Our  principal  competitors  in the assembly  robot and linear  modules  markets
include   subsidiaries  of  Japanese  companies,   including  Fanuc  Ltd,  Epson
Corporation,  Yamaha Corporation, Denso Corporation and Intelligent Actuator. We
also compete with a narrow group of European companies, principally Robert Bosch
GmbH,  and some  divisions of Parker  Hannifin.  In the material  handling robot
market, we compete with the above companies,  as well as manufacturers of 6-axis
robots including Motoman, Kawasaki Robotics, Inc., Reis Robotics, Kuka Robotics,
Staubli Corporation and ABB Group.

Competition for certain products in the semiconductor atmospheric wafer handling
and  contamination  control  markets  comes from  Brooks-PRI  Automation,  Asyst
Technologies,  Inc,  Yaskawa  Electric  and  Kawasaki.  Brooks  has the  largest
installed  base of  Atmospheric  robots,  and Asyst is the  leader in  isolation
technology and 200 millimeter and 300 millimeter load ports.

Our  principal  competitors  in the  market for motion  control  system  include
Allen-Bradley Co., a subsidiary of Rockwell  International  Corporation,  in the
United  States,  and Siemens AG in Europe.  In addition,  we face motion control
competition  from three major suppliers of motion control  boards,  Galil Motion
Control,  Inc., Motion Engineering,  Inc. and Delta Tau Data Systems, Inc. OEM's
and end users who engineer  their own custom  motion  control  systems  purchase
these  motion  control  boards.  In  the  machine  vision  market,  our  primary
competition is from Cognex Corporation and DVT Corporation.

Intellectual Property

We  primarily  pursue  patent,   trademark  and  copyright  protection  for  our
technology  and  products.  We currently  hold 11 patents,  which  include eight
patents in the United  States and three  patents  outside of the United  States.
Additionally,  we have six pending  patent  applications  in the United  States.
There can be no assurance  that patents will be issued from any of these pending
applications  or that any claims in existing  patents,  or allowed  from pending
patent applications, will be sufficiently broad to protect our technology.

ITEM 2. PROPERTIES

Our  headquarters  are  located in a 75,000  square  foot  building  we lease in
Livermore,  California.  On August 6, 2003,  we completed a lease  restructuring


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with Tri-Valley Campus LLC, the landlord for our Livermore, California corporate
headquarters  and  facilities,  which is  expected to  significantly  reduce our
quarterly lease  expenses.  Under the lease  amendment,  we were released of our
lease obligations for two unoccupied  buildings in Livermore and received a rent
reduction  on the  occupied  building  from $1.55 to $1.10 per square  foot.  In
addition, the lease amendment carries liquidated damages in the event of default
on the lease payments  equivalent to 1 year of rent  obligations on the original
lease.  As  amended,  the lease  expires in May 2011 and  obligates  us to lease
payments of approximately $1.0 million in fiscal 2004 and increases at a rate of
4.0% annually on June 1st of each year. Until March 2003, we were  headquartered
in a leased 92,000 square foot building in San Jose, California.  In March 2003,
we  vacated  our  headquarters  in  San  Jose  and  consolidated  our  corporate
headquarters into our Livermore facilities.  We lease a facility in Los Angeles,
California for certain  research and  development  activities,  which expires in
2006 and  obligates us to payments of $130,000 in fiscal 2004. We lease a 10,500
square foot facility in Quebec City,  Canada for certain  machine  vision sales,
research and development activities.  The lease expires in 2009 and obligates us
to payments of  approximately  $94,000 in fiscal 2004. We also lease  facilities
for sales  and/or  customer  training  in  Southbury,  Connecticut;  Southfield,
Michigan;  Charlotte,  North Carolina;  Cincinnati,  Ohio; Dallas, Texas; Massy,
France; Dortmund, Germany; and Singapore. All of our properties are used by each
of our three reportable business segments.

Adept is  currently  litigating  with  the  landlord  of our San  Jose  facility
regarding  our  lease  obligations  for  that  facility.   See  "Item  3.  Legal
Proceedings."  As we have  vacated and no longer pay rent on this  facility,  we
have recorded  expenses in the amount of $2.3 million for the  remaining  unpaid
rent  associated  with  this  lease;  however,  we have not set  aside  the cash
associated  with such unpaid rent expenses,  thus in the event that we receive a
material  adverse  judgment  in the San Jose  lease  litigation  and do not have
control  of the  timing of the  payment  of any such  judgment,  we may not have
sufficient cash to meet such  obligations  and therefore,  we may be required to
cease operations.

ITEM 3. LEGAL PROCEEDINGS

In May 2003, DL Rose Orchard, L.P., owner of the property leased by Adept at 150
Rose  Orchard  Way and 180 Rose  Orchard Way in San Jose,  California,  filed an
action against Adept in Santa Clara Superior Court (NO.  CV817195) alleging that
Adept  breached the leases for the Rose Orchard Way  properties  by ceasing rent
payments and vacating the property.  The complaint makes a claim for unspecified
damages for unpaid rent through  April 2003,  the worth at the time of the award
of rent  through the balance of the leases,  an award of all costs  necessary to
ready the premises to be re-leased and payment of its costs and attorney's fees.
Adept  answered  the  complaint on July 15,  2003.  Since filing the  complaint,
plaintiff  has  disclosed  in court  filings  that it claims  estimated  damages
exceeding $2.9 million. Adept is vigorously defending the lawsuit.

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,  other  than the above  noted  legal  action,  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.

Some end users of our products  have notified us that they have received a claim
of patent  infringement  from the Jerome H. Lemelson  Foundation,  alleging that
their use of our machine vision products infringes certain patents issued to Mr.
Lemelson.  In  addition,  we have  been  notified  that  other  end users of our
AdeptVision  VME  line  and the  predecessor  line of  Multibus  machine  vision
products have received  letters from Mr. Lemelson which refer to Mr.  Lemelson's
patent  portfolio  and offer the end user a license to the  particular  patents.
Some of these end users have notified us that they may seek indemnification from
us for any damages or expenses resulting from this matter.

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
relating to alleged  infringement will not have a material adverse effect on our
financial position, results of operations or cash flows.


                                       14
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

Adept's executive officers currently include:

      Name           Age                        Position
      ----           ---                        --------

Brian R. Carlisle     52     Chairman of the Board of Directors and Chief
                             Executive Officer
Bruce E. Shimano      54     Vice President, Research and Development, Secretary
                             and Director
Michael W. Overby     46     Vice President, Finance and Chief Financial Officer

Brian R. Carlisle has served as Adept's Chief Executive  Officer and Chairman of
the Board of Directors since he co-founded Adept in June 1983. From June 1980 to
June 1983, he served as General Manager of the West Coast Division of Unimation,
Inc., a manufacturer  of industrial  robots,  where he was  responsible  for new
product  strategy and  development  for  Unimation's  electric  robots,  control
systems, sensing systems and other robotics applications.  Mr. Carlisle received
B.S. and M.S. degrees in Mechanical  Engineering from Stanford  University.  Mr.
Carlisle was  President of the U.S.  Robotic  Industries  Association  for three
years, served as General Chair in May 2000 for the IEEE International Conference
on Robotics and Automation,  is currently a member of the Board of Directors for
the National  Coalition for Manufacturing  Sciences,  and serves on the Board of
the National Coalition for Advanced  Manufacturing.  Mr. Carlisle was elected as
an IEEE Fellow in 2003 for his contributions in robotics.

Bruce E. Shimano has served as our Vice  President,  Research  and  Development,
Secretary and a director since he co-founded  Adept in June 1983.  Prior to that
time, he was Director of Software Development at Unimation. Mr. Shimano received
B.S., M.S. and Ph.D. degrees in Mechanical Engineering from Stanford University.

Michael W.  Overby has served as Adept's  Vice  President  of Finance  and Chief
Financial Officer since March 2000. From December 1999 to March 2000, Mr. Overby
held the position of Corporate  Controller of Adept. Prior to joining Adept, Mr.
Overby was the  financial  executive  for Digital  Generation  Systems,  Inc., a
provider of digital distribution services to the broadcast advertising industry.
From  1996 to 1998 he was  Corporate  Controller  and  Director  of  Information
Systems at Inprise  Corporation,  formerly Borland,  a publicly-traded  software
company.  Mr.  Overby holds a B.S. in Business  Administration  from  California
Polytechnic State University.


                                       15
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market for Registrant's Common Stock and Related Shareholder Matters

Prior to April 15, 2003, our common stock traded on the Nasdaq  National  Market
under the symbol "ADTK". During the second and third quarters of fiscal 2003, we
received  notifications  from  the  Nasdaq  Stock  Market  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 appeal of the
delisting decision was denied based upon a Nasdaq Listing Qualifications Panel's
view of our continued  inability to meet the requirements for continued  listing
on Nasdaq and our stock was delisted  effective April 15, 2003. Our common stock
commenced  trading on the OTC Bulletin  Board on April 15, 2003 under the symbol
"ADTK.OB".

The following table reflects the range of high and low sale prices for each full
quarterly period as reported for trading on the Nasdaq National Market from July
1, 2001 thru April 14,  2003 and on the OTC  Bulletin  Board from April 15, 2003
through June 30, 2003. The high and low price  information from the OTC Bulletin
Board  reflects  interdealer  prices,   without  retail  mark-up,   markdown  or
commission and may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
                                                   Three Months Ended
         Jun. 30,       Mar. 29,   Dec. 28,        Sep. 28,   Jun. 30,     Mar. 30,    Dec. 29,       Sep. 29,
          2003           2003        2002           2002        2002         2002        2001           2001
         -------       -------      ------        -------     -------      -------      ------        -------
<S>      <C>           <C>          <C>           <C>         <C>          <C>          <C>           <C>
High     $  0.49       $  0.70      $ 0.82        $  2.50     $  3.64      $  4.70      $ 5.40        $ 10.60
Low      $  0.14       $  0.23      $ 0.24        $  0.35     $  1.50      $  2.05      $ 3.05        $  2.85
</TABLE>

At September 19, 2003, there were approximately 421 shareholders of record.

To date,  we have  neither  declared  nor paid cash  dividends  on shares of our
common stock. Shares of our outstanding  Preferred Stock are entitled to payment
of dividends  prior to payment of any dividends on our common stock as described
under the heading  "Liquidity  and Capital  Resources."  We currently  intend to
retain all future  earnings for our business and do not  anticipate  paying cash
dividends on our common stock in the foreseeable future.

Recent Sales of Unregistered Securities

On August 6, 2003, in connection with the lease restructuring for our Livermore,
California corporate  headquarters and facilities,  we issued a three year, $3.0
million  convertible  subordinated  note  due  June  30,  2006 in  favor  of the
landlord,  Tri-Valley  Campus  LLC,  bearing  an annual  interest  rate of 6.0%.
Interest  is payable at our  option in shares of our common  stock.  The note is
convertible  at any time at the  option of the  holder  into  common  stock at a
conversion  price of $1.00 per  share and the  resulting  shares  carry  certain
registration  and  other  rights.  The  issuance  of the  note was  exempt  from
registration in reliance on Section 4(2) of the Securities Act of 1933.

Securities Authorized for Issuance under Equity Compensation Plans

The following table gives  information about our common stock that may be issued
upon  exercise  of  options  and  rights  under  all  of  our  existing   equity
compensation plans as of June 30, 2003,  including Adept's 1993 Stock Plan, 1995
Director  Plan,  and the 2001  Stock  Option  Plan and our 1998  Employee  Stock
Purchase Plan, referred to as the ESPP. Adept's 1993 Stock Plan expired in April
2003. Therefore,  no new options will be granted under the 1993 Plan. See Note 9
of our Notes to Consolidated Financial Statements included in this Annual Report
on Form 10-K.

In April 2003, as a result of the delisting  and the resulting  additional  cost
and administrative  requirements of maintaining the ESPP, the Board of Directors
suspended  future  offering  periods  until a further  determination  is made to
recommence offering periods under the ESPP in compliance with applicable law. In


                                       16
<PAGE>

August  2003,  Adept was granted a permit for the sale of  securities  under the
ESPP plan in  California.  In September  2003,  the Board of Directors  reopened
offerings under the ESPP to participation by employees  effective for a 12 month
offering  subject to compliance  with  applicable  federal and state  securities
laws, including the California state permit.

<TABLE>
<CAPTION>
                                                          Equity Compensation Plan Information
                                            ------------------------------------------------------------------
                                                   (a)                    (b)                        (c)
                                                                                            Number of securities
                                                Number of                                  remaining available for
                                             securities to be                               future issuance under
                                               issued upon          Weighted-average         equity compensation
                                               exercise of         exercise price of          plans (excluding
          Plan Category                        outstanding            outstanding          securities reflected in
                                            options and rights     options and rights            column (a))
<S>                                              <C>                   <C>                            <C>
Equity compensation plans approved
  by security holders (1)                        2,796,203             $     6.11                     51,000(3)
Equity compensation plans not
  approved by security holders (2)                 529,799                   3.22                  2,070,201
                                                ----------             ----------                -----------
Total                                            3,326,002             $     5.65                  2,121,201
                                                ==========             ==========                ===========
</TABLE>

(1) This  excludes  purchase  rights  accruing  under  our 1998  Employee  Stock
Purchase Plan, for which remaining  available rights are included in column (c).

(2) Issued under our 2001 Stock Option Plan, which does not require the approval
of  and  has  not  been  approved  by  Adept's  shareholders.  See  Note 9 for a
description of the material terms of the 2001 Stock Option Plan.

(3) This includes  825,671 shares available for issuance under the 1998 Employee
Stock  Purchase  Plan.  The  aggregate  number of shares of Adept  common  stock
available for issuance under the 1998 Employee Stock Purchase Plan is subject to
an annual increase as of the first day of Adept's fiscal year in an amount equal
to the lesser of, (i) 600,000 shares or (ii) 3% of the common stock  outstanding
on the last day of the prior fiscal year,  or a lesser  amount as  determined by
Adept's  board of directors.  At June 30, 2003, 3% of the Company's  outstanding
shares was equal to approximately 461,700 shares.

In April 2003,  as a result of the  delisting  of the  Company's  stock from the
Nasdaq  National  Market and the resulting  additional  cost and  administrative
requirements  of  maintaining  its 1998 ESPP,  the Board of Directors  suspended
offering periods until a further  determination  is made to recommence  offering
periods under the ESPP.

ITEM 6. SELECTED FINANCIAL DATA

The following  selected  financial data should be read in  conjunction  with the
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations"  included in this
Form 10-K.  The  historical  results are not  necessarily  indicative  of future
results.   On  July  16,  1999,  we  completed  the   acquisition  of  BYE/Oasis
Engineering,  Inc. in a pooling of interests transaction. The selected financial
data prior to June 30, 2000 has been restated to include the historical  results
of  BYE/Oasis  Engineering,  Inc.  Fiscal  2002 and  2001  results  include  the
financial   results  of   Pensar-Tucson,   NanoMotion   Inc.,   and   HexaVision
Technologies,  Inc.  subsequent to their acquisitions on April 28, 2000, May 31,
2000, and July 21, 2000,  respectively.  Fiscal 2002 also includes the financial
results for CHAD Industries,  Inc.,  subsequent to its acquisition on October 9,
2001.  Fiscal  2003  results  include  the  financial  results  of Meta  Control
Technologies, Inc., subsequent to its acquisition on August 30, 2002.


                                       17
<PAGE>

<TABLE>
<CAPTION>
(in thousands, except per share data)                                                      Years Ended June 30,
                                                                       -------------------------------------------------------------
                                                                         2003         2002         2001         2000         1999
                                                                       ---------    ---------    ---------    ---------    ---------
<S>                                                                    <C>          <C>          <C>          <C>          <C>
Results of Operations:
Net revenues .......................................................   $  44,816    $  57,039    $ 100,313    $  99,212    $  87,374
Cost of revenues ...................................................      34,076       37,868       65,303       56,173       47,902
                                                                       ---------    ---------    ---------    ---------    ---------
      Gross margin .................................................      10,740       19,171       35,010       43,039       39,472
                                                                       ---------    ---------    ---------    ---------    ---------
Operating expenses:
      Research, development and engineering ........................      11,719       20,398       22,727       14,629       11,591
      Selling, general and administrative ..........................      22,001       28,994       36,002       29,503       24,676
      Restructuring and other non-recurring charges ................       5,324       17,659           --           --           --
      Merger-related charges (1) ...................................          --           --           --          988           --
      Amortization of goodwill and other intangibles ...............         728          725        6,818          685           --
      Impairment of goodwill and other long-lived assets ...........          --        6,608           --           --           --
      Gain on sale of assets .......................................          --       (1,566)          --           --           --
                                                                       ---------    ---------    ---------    ---------    ---------
Total operating expenses ...........................................      39,772       72,818       65,547       45,805       36,267
                                                                       ---------    ---------    ---------    ---------    ---------
Operating income (loss) ............................................     (29,032)     (53,647)     (30,537)      (2,766)       3,205
Interest income, net ...............................................          91          438          733          746          926
                                                                       ---------    ---------    ---------    ---------    ---------
Income (loss) before taxes and cumulative
   effect of change in accounting principle ........................     (28,941)     (53,209)     (29,804)      (2,020)       4,131

Provision for (benefit from) income taxes ..........................          31       (3,358)       5,396         (593)       1,620
                                                                       ---------    ---------    ---------    ---------    ---------
Net income (loss) before cumulative effect of change in
    accounting principle ...........................................     (28,972)     (49,851)     (35,200)      (1,427)       2,511
Cumulative effect of change in accounting principle (2) ............          --       (9,973)          --           --           --
                                                                       ---------    ---------    ---------    ---------    ---------
Net income (loss) ..................................................   $ (28,972)   $ (59,824)   $ (35,200)   $  (1,427)   $   2,511
                                                                       =========    =========    =========    =========    =========
Net income (loss) per share:(3)
  Before cumulative effect of change in accounting principle:
     Basic .........................................................   $   (1.94)   $   (3.64)   $   (3.02)   $   (0.15)   $    0.27
                                                                       =========    =========    =========    =========    =========
     Diluted .......................................................   $   (1.94)   $   (3.64)   $   (3.02)   $   (0.15)   $    0.26
                                                                       =========    =========    =========    =========    =========
  After cumulative effect of change in accounting principle:
     Basic .........................................................   $   (1.94)   $   (4.37)   $   (3.02)   $   (0.15)   $    0.27
                                                                       =========    =========    =========    =========    =========
     Diluted .......................................................   $   (1.94)   $   (4.37)   $   (3.02)   $   (0.15)   $    0.26
                                                                       =========    =========    =========    =========    =========

Number of shares used in computing per share amounts:(3)
     Basic .........................................................      14,955       13,691       11,637        9,774        9,302
                                                                       =========    =========    =========    =========    =========
     Diluted .......................................................      14,955       13,691       11,637        9,774        9,484
                                                                       =========    =========    =========    =========    =========

Balance Sheet Data:
Cash, cash equivalents and short-term investments ..................   $   3,234    $  21,681    $  21,500    $  20,437    $  27,016
                                                                       =========    =========    =========    =========    =========
Working capital ....................................................       5,193       27,326       39,784       46,593       47,614
                                                                       =========    =========    =========    =========    =========
Total assets .......................................................      35,781       62,494       95,573       93,523       71,677
                                                                       =========    =========    =========    =========    =========
Long-term liabilities ..............................................       5,536        2,692        1,284        1,222           --
                                                                       =========    =========    =========    =========    =========
Redeemable convertible preferred stock .............................      25,000       25,000           --           --           --
                                                                       =========    =========    =========    =========    =========
Total shareholders' equity (deficit) ...............................     (11,583)      15,904       71,482       70,728       55,186
                                                                       =========    =========    =========    =========    =========
</TABLE>

(1) In July 1999, we incurred charges of $988,000 relating to the acquisition of
BYE/OASIS.

(2) See "Item 7. Management's  Discussion and Analysis" for a description of the
cumulative effect of change in accounting  principle.

(3) See  Notes 1 and 12 of  Notes to  Consolidated  Financial  Statements  for a
discussion of the computation of net income (loss) per share.

Quarterly Results of Operations (Unaudited)

In management's  opinion,  the unaudited quarterly data has been prepared on the
same basis as the audited  information and includes all adjustments  (consisting
only of normal recurring  adjustments)  necessary for a fair presentation of the
data for the periods  presented.  Adept's  results of operations have varied and
may continue to  fluctuate  significantly  from  quarter to quarter.  Results of
operations in any period  should not be considered  indicative of the results to
be expected  from any future  period.  We operate and report  financial  results
ending on the last  Saturday  of a 13-week  period  for each of our first  three
fiscal quarters and at June 30 for our fiscal year end. For convenience, we have
indicated  in this Annual  Report on Form 10-K our fiscal  quarters end on March
31, December 31 and September 30.


                                       18
<PAGE>

Fiscal 2003

<TABLE>
<CAPTION>
                                                                            Three Months Ended,
                                               -------------------------------------------------------------------------------------
                                                            (in thousands, except percentages and per share data)
                                                      Jun. 30,             Mar. 31,          Dec. 31,                 Sep. 30,
                                                       2003                  2003                2002                   2002
                                                       ----                  ----                ----                   ----
<S>                                            <C>         <C>       <C>         <C>       <C>         <C>       <C>         <C>
Net revenues ...............................   $ 11,316    100.0%    $ 12,477    100.0%    $ 10,748    100.0%    $ 10,275    100.0%
Cost of revenues ...........................      9,047     80.0        9,000     72.1        7,773     72.3        8,256     80.3
                                               --------    -----     --------    -----     --------    -----     --------    -----
Gross margin ...............................      2,269     20.0        3,477     27.9        2,975     27.7        2,019     19.7
                                               --------    -----     --------    -----     --------    -----     --------    -----
Operating expenses:
   Research, development and engineering ...      2,210     19.5        2,916     23.4        3,071     28.5        3,522     34.3
   Selling, general and administrative .....      3,986     35.2        5,092     40.8        6,477     60.3        6,445     62.7
   Restructuring expenses ..................      2,168     19.2        2,020     16.2           --       --        1,136     11.1
Amortization of intangibles ................        195      1.7          185      1.5          199      1.9          150      1.4
Amortization of intangibles ................        195      1.7          185      1.5          199      1.9          150      1.4
                                               --------    -----     --------    -----     --------    -----     --------    -----
Total operating expenses ...................      8,559     75.6       10,213     81.9        9,747     90.7       11,253    109.5
                                               --------    -----     --------    -----     --------    -----     --------    -----
Operating loss .............................     (6,290)   (55.6)      (6,736)   (54.0)      (6,772)   (63.0)      (9,234)   (89.8)
Interest income, net .......................       (102)    (0.9)         (16)    (0.1)          30      0.3          179      1.7
                                               --------    -----     --------    -----     --------    -----     --------    -----
Loss before income taxes ...................     (6,392)   (56.5)      (6,752)   (54.1)      (6,742)   (62.7)      (9,055)   (88.1)
Provision for (benefit from) income
  Taxes ....................................         --       --           --       --           --       --           31      0.3
                                               --------    -----     --------    -----     --------    -----     --------    -----
Net loss ...................................   $ (6,392)   (56.5)%   $ (6,752)   (54.1)%   $ (6,742)   (62.7)%   $ (9,086)   (88.4)%
                                               ========    =====     ========    =====     ========    =====     ========    =====

Basic and diluted net loss per share .......   $  (0.42)             $  (0.44)             $  (0.45)             $  (0.63)
                                               ========              ========              ========              ========

Basic and diluted number of shares
  used in computing per share amounts ......     15,304                15,225                15,074                14,327
                                               ========              ========              ========              ========
</TABLE>

Fiscal 2002

<TABLE>
<CAPTION>
                                                                             Three Months Ended,
                                              --------------------------------------------------------------------------------------
                                                            (in thousands, except percentages and per share data)
                                                    Jun. 30,             Mar. 31,              Dec. 31,              Sep. 30,
                                                      2002                 2002                  2001                  2001
                                                      ----                 ----                  ----                  ----
<S>                                           <C>         <C>       <C>         <C>       <C>         <C>       <C>         <C>
Net revenues ...............................  $ 14,635    100.0%    $ 14,588    100.0%    $ 14,431    100.0%    $ 13,385    100.0%
Cost of revenues ...........................    10,103     69.0        9,856     67.6        9,172     63.6        8,737     65.3
                                              --------    -----     --------    -----     --------    -----     --------    -----
Gross margin ...............................     4,532     31.0        4,732     32.4        5,259     36.4        4,648     34.7
                                              --------    -----     --------    -----     --------    -----     --------    -----
Operating expenses:
   Research, development and engineering ...     4,967     33.9        5,008     34.3        4,585     31.8        5,838     43.6
   Selling, general and administrative .....     6,971     47.6        7,192     49.3        7,117     49.3        7,714     57.6
   Restructuring expenses ..................        --       --        5,323     36.5           --       --       12,336     92.2
   Amortization of goodwill and other
      intangibles ..........................       149      1.0          216      1.5          180      1.2          180      1.3
   Impairment of goodwill ..................     6,608     45.2           --       --           --       --           --       --
   (Gain) loss on sale of assets ...........    (1,566)   (10.6)          --       --           --       --           --       --
                                              --------    -----     --------    -----     --------    -----     --------    -----
Total operating expenses ...................    17,129    117.1       17,739    121.6       11,882     82.3       26,068    194.7
                                              --------    -----     --------    -----     --------    -----     --------    -----
Operating loss .............................   (12,597)   (86.1)     (13,007)   (89.2)      (6,623)   (45.9)     (21,420)   (160.0)
Interest income, net .......................        95      0.6          123      0.9          137      1.0           83      0.6
                                              --------    -----     --------    -----     --------    -----     --------    -----
Loss before income taxes and cumulative
  effect  of change in accounting principle    (12,502)   (85.5)     (12,884)   (88.3)      (6,486)   (44.9)     (21,337)  (159.4)
Provision for (benefit from) income
  Taxes ....................................      (570)    (3.9)       2,935    (20.1)          66      0.5           81      0.6
                                              --------    -----     --------    -----     --------    -----     --------    -----
Net loss before cumulative effect of
   change in accounting principle ..........  $(11,932)   (81.6)    $ (9,949)   (68.2)    $ (6,552)   (45.4)    $(21,418)  (160.0)
Cumulative effect of change in accounting
   Principle ...............................  $     --       --     $     --       --     $     --       --     $ (9,973)   (74.5)
                                              --------    -----     --------    -----     --------    -----     --------    -----
Net loss ...................................  $(11,932)   (81.6)%   $ (9,949)   (68.2)%   $ (6,552)   (45.4)%   $(31,391)  (234.5)%
                                              ========    =====     ========    =====     ========    =====     ========    =====
Basic and diluted net loss per share:
   Before cumulative effect of change
      in accounting principle ..............  $  (0.85)             $  (0.72)             $  (0.48)             $  (1.63)
                                              ========              ========              ========              ========
   After cumulative effect of change in
     accounting principle ..................  $  (0.85)             $  (0.72)             $  (0.48)             $  (2.38)
                                              ========              ========              ========              ========
Basic and diluted number of shares
  used in computing per share amounts ......    13,976                13,829                13,567                13,169
                                              ========              ========              ========              ========
</TABLE>


                                       19
<PAGE>

The  cumulative  effect of change in  accounting  principle of $10.0 million 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 reflected in the fiscal quarter ended September
30, 2001 in the table above.

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Overview

We provide intelligent production automation solutions,  components and services
to    our    customers    in    many    industries     including    the    food,
electronics/communications,   automotive,  appliance,  semiconductor,   original
equipment manufacturer,  or OEM, and life sciences industries. During the fiscal
year ended June 30, 2003,  product  revenue mix was comprised of the  following:
23% in  electronics/communications,  21% in  food  and  pharmaceuticals,  16% in
semiconductor,  14% in  appliance,  12% in  automotive,  7% in  OEM,  4% in life
sciences,  and 3% in all  others.  During the fiscal  year ended June 30,  2002,
product   revenue  mix  was  comprised  of  the  following:   26%  in  food  and
pharmaceuticals,  21% in  electronics/communications,  14% in automotive, 13% in
appliance, 9% in semiconductor,  8% in OEM and 9% 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 2003, we introduced  Amps in Base (AIB) Cobra robots,  our
highest  volume Scara robots which are expected to have a  significant  positive
impact on our gross margins during fiscal 2004 and beyond.  The introduction and
marketing of these next generation Scara robots are expected to have the biggest
positive impact on our Components and Solutions segments.

International  sales comprise  between 30% and 60% of our total revenues for any
given quarter.

We have  significant  lease  obligations for our California  facilities.  We are
currently  litigating  with the landlord of our San Jose facility  regarding our
lease  obligations for that facility.  We have vacated and no longer pay rent on
this facility.  We have recorded  expenses in the amount of $2.3 million for the
remaining unpaid rent associated with this lease;  however, we have not reserved
the cash  associated  with such  unpaid  rent  expenses.  Our cash usage for the
fourth quarter of fiscal 2003 and our  expectations for cash usage for the first
two quarters of fiscal 2004 are significantly impacted by our nonpayment of rent
for this  facility.  If we receive a material  adverse  judgment in the San Jose
lease  litigation  and do not have  control of the timing of the payments of any
such  judgment,  we may not have  sufficient  cash to meet our  obligations  and
therefore, we may be required to cease operations.

On August 6, 2003, we completed a lease  restructuring  with  Tri-Valley  Campus
LLC, the landlord  for our  Livermore,  California  corporate  headquarters  and
facilities,  which is  expected  to  reduce  our  quarterly  lease  expenses  by
approximately  78%.  Under the lease  amendment,  we were  released of our lease
obligations  for two  unoccupied  buildings  in  Livermore  and  received a rent
reduction  on the  occupied  building  from $1.55 to $1.10 per square  foot.  In
addition, the lease amendment carries liquidated damages in the event of default
on the lease payments  equivalent to 1 year of rent  obligations on the original
lease.  In the event of Adept's  bankruptcy or a failure to make payments to the
landlord  of our  Livermore,  California  facilities  within  three days after a
written notice from the landlord,  a default would be triggered on the lease. In
connection  with the lease  restructuring,  we issued a three year, $3.0 million
convertible subordinated note due June 30, 2006 in favor of the landlord bearing
an annual interest rate of 6.0%.  Interest is payable at our option in shares of
our  common  stock.  The note is  convertible  at any time at the  option of the
holder in into our common stock at a conversion price of $1.00 per share and the
resulting shares carry certain registration and other rights. This liability was
recorded as long term Subordinated  Convertible Note in the accompanying balance
sheet  with a  corresponding  reduction  in  accrued  unpaid  rent on  Livermore
facilities  and an  additional  restructuring  charge for the excess of the note
amount over accrued unpaid rent on Livermore facilities.  Payment under the note


                                       20
<PAGE>

will be  accelerated  in the event of a default,  including  the  insolvency  or
bankruptcy of Adept,  Adept's failure to pay its obligations under the note when
due,  Adept's default on certain  material  agreements,  including the Livermore
lease,  the  occurrence  of a material  adverse  change with  respect to Adept's
business  or  ability  to pay its  obligations  under the  note,  or a change of
control of Adept without the landlord's consent.

 Our common stock was delisted from Nasdaq  effective April 15, 2003 as a result
of our failure to comply with certain  quantitative  listing  requirements.  Our
common stock commenced trading on the OTC Bulletin Board on April 15, 2003.

In April 2003, we implemented  plans to reduce our headcount by an additional 7%
of our total employees,  which we expect to result in approximately $0.5 million
per quarter in cash savings as compared to the quarter ended June 30, 2003, when
fully implemented in the second quarter of fiscal 2004.

We have experienced  declining revenues and incurred operating losses in each of
the  last  three  fiscal  years.  During  this  period,  we have  also  consumed
significant  cash and other  financial  resources,  and  presently  have minimal
liquidity.  In  response to these  conditions,  we reduced  operating  costs and
employee  headcount,  and restructured  certain  operating lease  commitments in
fiscal  2002 and  fiscal  2003.  During the fourth  quarter of fiscal  2003,  we
reduced our  headcount  by an  additional  7% of our total  employees,  which we
expect  to  fully  implement  by  the  second  quarter  of  fiscal  2004.  These
adjustments  to  our  operations  have  also  significantly   reduced  our  cash
consumption  and the aggregate  revenue levels  necessary to achieve  break-even
operating  results.  See "Management's  Discussion and Analysis - Liquidity." In
addition,  we  intend  to seek an  expansion  of our  existing  working  capital
receivables  financing  facility,  or secure an alternative  credit  facility to
improve our near term liquidity. Furthermore, we continue to pursue outside debt
and equity sources of financing that can provide Adept with a longer-term source
of capital and generally improve our balance sheet and financial stability.

Even if we do not receive a material adverse judgment in the litigation relating
to our San Jose  lease,  if the  results of our search  for  additional  outside
sources of financing are unsuccessful, or if adequate funds are not available on
acceptable  terms or at all and we are unable to achieve our projected  revenues
or if operating expenses exceed current estimates,  we will be forced to curtail
our operations and 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.  Even if we complete a  financing,  the  transaction  is likely to
involve  the  incurrence  of debt or issuance  of debt or equity  securities  of
Adept, which would dilute the outstanding equity.

The consolidated  financial  statements  accompanying this Annual Report on Form
10-K have been prepared  assuming  that Adept will continue as a going  concern.
However,  the  accompanying  Independent  Auditors'  Report  states that we have
incurred  recurring  operating  losses,  have a net capital  deficiency and have
experienced a declining cash balance which have adversely affected our liquidity
and that these conditions raise  substantial doubt about our ability to continue
as a going concern.  The financial  statements do not include any adjustments to
reflect the possible future effects on the  recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.

This discussion  summarizes the significant  factors  affecting our consolidated
operating  results,  financial  condition,  liquidity  and cash flow  during the
three-year  period ended June 30, 2003, each year therein  referred to as fiscal
2003, 2002, and 2001. Unless otherwise indicated, references to any year in this
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operation refer to our fiscal year ended June 30. This discussion should be read
with the consolidated  financial  statements and financial  statement  footnotes
included in this Annual Report on Form 10-K.

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


                                       21
<PAGE>

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 are
believed to be reasonable under the circumstances, the results of which form the
basis for making  estimates and judgments about the carrying value of assets and
liabilities  that are not readily  apparent from other  sources.  Estimates,  by
their nature, are based on judgment and available information. Therefore, actual
results could differ from those  estimates  and could have a material  impact on
our  consolidated  financial  statements,  and it is possible  that such changes
could occur in the near term.

We have identified the accounting  principles which we believe are most critical
to our reported financial status by considering accounting policies that involve
the most  complex or  subjective  decisions  or  assessments.  These  accounting
policies described below include:

o     revenue recognition;
o     allowance for doubtful accounts;
o     inventories;
o     warranty reserve;
o     goodwill and other intangible assets;
o     identified intangible assets; and
o     deferred tax valuation allowance.

For further discussion of our significant accounting policies,  refer to Note 1,
of the Notes to Consolidated Financial Statements in Item 8.

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  ("SOP  97-2") on  Software  Revenue
Recognition.  License revenue is recognized on shipment of the product  provided
that no significant vendor or post-contract  support obligations remain and that
collection  of the  resulting  receivable  is  deemed  probable  by  management.
Insignificant  vendor and  post-contract  support  obligations  are accrued upon
shipment 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 (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.

Deferred revenue primarily relates to items deferred under SAB 101.


                                       22
<PAGE>

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  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 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  market value based upon  assumptions  about
future demand and market conditions.  If actual demand and market conditions are
less  favorable  than  those  projected  by  management,   additional  inventory
write-downs may be required.

Manufacturing  inventory includes raw materials,  work-in-process,  and finished
goods. All work-in-process  inventories with work orders that are open in excess
of 180 days are fully written down. The remaining inventory valuation provisions
are based on an excess and obsolete systems report,  which captures all obsolete
parts and products and all other  inventory,  which have  quantities  on hand in
excess of one year's  projected  demand.  Individual  line item  exceptions  are
identified  for either  inclusion  or  exclusion  from the  inventory  valuation
provision.  The materials control group and cost accounting function monitor the
line item exceptions and make periodic adjustments as necessary.

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 activity monitoring and evaluating the quality
of our  components  suppliers,  our warranty  obligation  is affected by product
failure  rates,  material usage and service labor and delivery costs incurred in
correcting a product  failure.  Should actual product  failure  rates,  material
usage,  service labor or delivery costs differ from our estimates,  revisions to
the estimated warranty liability would be required.

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
net assets of acquired companies allocated to goodwill.  Other intangible assets
primarily represent developed technology and non-compete covenants.

Adept  accounts  for goodwill  under SFAS 142,  "Goodwill  and Other  Intangible
Assets,"  which  requires us to review for  impairment  of goodwill on an annual
basis,  and between  annual tests  whenever  events or changes in  circumstances
indicate that the carrying amount may not be recoverable. This impairment review
involves a two-step process.

      Step 1- Compare the fair value of the  reporting  units to their  carrying
      amounts.  If a unit's fair value exceeds its carrying  amount,  no further
      work  is  performed  and no  impairment  charge  is  necessary.  For  each
      reporting  unit where the carrying  amount  exceeds fair value,  step 2 is
      performed.

      Step 2-  Compare  the  implied  fair  value of the  reporting  unit to its
      carrying  amount.  If the carrying amount of the reporting unit's goodwill
      exceeds its implied fair value,  an impairment  loss will be recognized in
      an amount equal to that excess.


                                       23
<PAGE>

We performed our goodwill  impairment  tests upon adoption of SFAS 142 and again
during the fourth  quarters  of fiscal 2002 and 2003.  In the fourth  quarter of
fiscal  2002,  we  recorded a goodwill  impairment  charge of $6.6  million as a
result of the  annual  impairment  update.  Results of the  fiscal  2003  annual
impairment testing did not indicate an impairment of our then existing goodwill,
and  therefore  we were not required to record a goodwill  impairment  charge in
fiscal 2003.  Upon adoption of SFAS 142 on July 1, 2001, we ceased  amortization
of our existing net goodwill balance.

Identified Intangible Assets.  Acquisition-related intangibles include developed
technology and non-compete agreements and are amortized on a straight-line basis
over periods ranging from 2-4 years.  Identified intangible assets are regularly
reviewed to determine whether facts and circumstances  exist which indicate that
the useful life is shorter than  originally  estimated or the carrying amount of
assets may not be  recoverable.  The  company  assesses  the  recoverability  of
identified  intangible  assets by comparing the projected  undiscounted net cash
flows  associated with the related asset or group of assets over their remaining
lives against their respective carrying amounts. Impairment, if any, is based on
the excess of the carrying amount over the fair value of those assets.

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.

Acquisitions

During the three-year  period ended June 30, 2003, we acquired three  companies:
Meta  Control  Technologies,   Inc.,  CHAD  Industries,   Inc.,  and  HexaVision
Technologies, Inc. These acquisitions are described below.

Meta Control Technologies

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.

Upon the closing of the  acquisition  transaction  with Meta,  we 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  provision  of
discounts  and  royalty  payments  to the  shareholder  and  its  affiliates  as
described  in the  paragraph  below but will,  in any  event and  regardless  of
whether  discounts are incurred or royalties paid,  acquire 100% of the stock of
Meta no later than August 2008 for no additional consideration.

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 were placed into escrow for one year from
the completion of the acquisition pending certain  contingencies under the terms
of the acquisition  agreement.  All of the escrowed shares have been released to
the former Meta shareholders.  Additionally,  Adept 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


                                       24
<PAGE>

amounts will be charged to  operations  when  incurred.  As of June 30, 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 bearing  interest at 1% plus the prime
rate announced from time to time by the Wall Street  Journal.  In March 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 to reduce
interest expense  associated with the line of credit.  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.  In
March  2003,  Adept and the former  shareholder  terminated  the  $800,000  loan
agreement,  and we cancelled the 100,000  shares.  No amounts were ever borrowed
under the agreement.

CHAD Industries

On October 9, 2001,  Adept  completed  the  acquisition  of all the  outstanding
shares of CHAD Industries,  Inc. (CHAD), now named Adept Orange  Corporation,  a
design and manufacturing  company  specializing in precision assembly automation
based in Orange,  California.  The  acquisition  of CHAD was a strategic step in
Adept's ongoing precision assembly automation  strategy.  Adept leverages CHAD's
expertise in small part feeding,  precision tooling design, handling of odd-form
components to add capacity in precision assembly  automation.  Additionally,  we
support  CHAD's line of odd-form  component  assembly  machines.  The results of
CHAD's  operations  have  been  included  in  Adept's   consolidated   financial
statements since October 9, 2001.

Under terms of the  acquisition  agreement,  the purchase price of $10.1 million
includes an aggregate of $8.4 million in cash, $150,000 in transaction costs and
200,000  shares of Adept common stock valued at $1.6  million.  The value of the
200,000  shares  issued was  determined  based on the average  closing  price of
Adept's  stock over the period of five trading days prior to June 27, 2001,  the
date of entry into the definitive  agreement.  Of the $8.4 million in cash, $4.2
million was paid as of the closing date on October 9, 2001 $2.6 million was paid
on October 9, 2002 and on December  13,  2002,  CHAD and Adept  amended the $1.6
million second anniversary  promissory note and the funds then held in escrow in
the amount of the note were released to Adept. The second anniversary promissory
note was paid in full in February 2003. In addition,  the acquisition  agreement
provided  for  Adept to make cash  payments  of  $242,000  and  potential  stock
issuances  consisting  of 61,000 shares equal to  approximately  $467,000 over a
period of three years after the closing date to certain  specified  employees of
CHAD,  contingent on the continued employment of such employees.  As such, those
amounts have been  appropriately  excluded from the purchase price and are being
expensed as paid. As of June 30, 2003, 57,000 shares were issued and $167,000 in
cash was paid to certain specified  employees of CHAD. At June 30, 2003, $65,000
in contingent cash and no contingent shares remain to be paid by October 9, 2004
contingent on the  continued  employment of certain  specified  employees.  This
acquisition was accounted for under the purchase method of accounting.

HexaVision

On July 21, 2000, we completed the acquisition of HexaVision  Technologies Inc.,
now named Adept Technology Canada Co., a Canadian corporation.  HexaVision was a
machine vision research and development  company.  HexaVision's  core technology
incorporates  techniques  to  achieve  accuracies  up to 1/40th of a pixel  with
machine  vision  measurement  algorithms  that can increase our  performance  in
critical  and   demanding   applications   such  as  vision   servoing  for  the
microelectrical,  fiber optic,  semiconductor,  metrology and precision assembly
applications.  In connection with the acquisition, we paid $5.5 million in cash,
which  included  transaction  costs of $0.4  million,  and issued  shares of our
common stock to the shareholders of HexaVision with a value of $1.1 million.  We
have accounted for the acquisition  under the purchase method of accounting.  On
July 21, 2001, pursuant to the terms of the share purchase agreement relating to
the acquisition of HexaVision,  we made the first  anniversary  cash payment and
share issuance  consisting of 116,000 shares of our common stock with a value of
$1.1  million  and  released  $313,000  in cash  from an escrow  account  to the
employees and former  shareholders of HexaVision.  On July 21, 2002, we made the
second  anniversary  cash payment of $53,000 and  released  $1.4 million in cash
from an escrow account to the employees and former  shareholders  of HexaVision.
The  contingency  payments made and shares issued to the employees of HexaVision
were appropriately  recorded as operating expenses. The contingent payments made
and shares issued to the former  shareholders  of HexaVision  were  allocated to
goodwill and accounted for as additional purchase price.


                                       25
<PAGE>

For  further  discussion  of  these  acquisitions,  see  Note 2 to our  Notes to
Consolidated Financial Statements included in this Annual Report on Form 10-K.

Results of Operations

Comparison of Fiscal 2003 to 2002

Net Revenues.  Our net revenues decreased by 21.4% to $44.8 million in 2003 from
$57.0 million in 2002. The decrease in net revenues is primarily attributable to
reduced unit shipments and reduced average selling prices in most of our product
families. We believe this decline is consistent with a decline in overall market
conditions driven by excess manufacturing capacity and a response on the part of
our customers to reduce capital spending and operating  expenses in an effort to
deal  with  their  excess  manufacturing  capacity.  Revenues  decreased  in our
Components and Solutions  segments while revenues  increased in our Services and
Support segment.  Components  revenues  decreased 32.5% to $25.0 million for the
fiscal  year ended June 30,  2003 from $37.1  million  for the fiscal year ended
June 30, 2002.  The decline is  attributable  to continued  softness  across all
industries  served by our  Components  segment.  Additionally,  the  decrease is
attributable to the decline in software  revenues as a result of our sale of the
SILMA Inspection  business.  Solutions  revenues decreased 10.8% to $6.6 million
for the fiscal  year ended June 30,  2003 from $7.4  million for the fiscal year
ended June 30, 2002. The decrease reflects softness in the semiconductor  market
offset by  increased  demand in the data  storage  market.  Services and Support
revenues increased 5.1% to $13.2 million for the fiscal year ended June 30, 2003
from $12.6  million for the fiscal  year ended June 30,  2002.  The  increase is
primarily  attributable  to services  involved in the  redeployment  of existing
equipment  as well as  customers  choosing to extend the useful life of existing
equipment rather than commit capital expenditures to purchase new equipment.

Our domestic  sales were $27.8  million in fiscal 2002 compared to $25.2 million
in fiscal 2002, an increase of 10.0%. Our international sales were $17.1 million
in fiscal 2002  compared to $31.8  million in fiscal  2002, a decrease of 46.1%.
The decrease in international  sales is mainly attributable to a decrease in our
international Components revenue segment.

Gross  Margin.  Gross  margin as a  percentage  of net revenue was 24.0% in 2003
compared to 33.6% in 2002. We  experienced a downward trend over each quarter of
fiscal 2003  associated  with an  approximately  50%  decrease in  manufacturing
volume.  Much of our  labor  and  overhead  expense  is  relatively  fixed,  and
significant  declines in production volumes associated with the depressed demand
environment  combined  with only modest  reductions  in  manufacturing  overhead
expenditures  resulted  in  higher  unit  costs and  lower  corresponding  gross
margins.  We have taken steps to reduce our overhead while  preserving  critical
new product  introduction  capabilities  and sufficient  capacity to react to an
increase in demand. Additionally,  we experienced some additional costs normally
associated  with the  introduction  of our new products.  We have introduced and
continue to introduce these new products  despite the weak current demand levels
because they bring additional functionality for our customers as well as provide
cost  improvements  for us. We also  recorded  provisions  for excess  inventory
during the fiscal year as reduced demand forecasts  revealed  additional  excess
inventory  components.  We expect gross margins to improve in fiscal 2004 due to
the  reduction in fixed  overhead  costs and the  introduction  of higher margin
products, however, we expect to continue to experience weak demand in several of
the industries we serve and  fluctuations in our gross margin  percentage due to
changes in volume,  changes in  availability  of components,  changes in product
configuration  and  changes  in sales mix.  Our gross  margins  for fiscal  2003
reflect salary reductions for domestic  employees above certain pay ranges,  and
pay holidays for domestic  employees for all four quarters of Fiscal 2003. These
measures resulted in savings of approximately $466,000.

Research,  Development  and  Engineering  Expenses.  Research,  development  and
engineering  expenses  decreased  by  42.5% to  $11.7  million,  or 26.1% of net
revenues in 2003,  from $20.4  million,  or 35.8% of net  revenues in 2002.  The
decrease primarily reflects headcount  reductions and lower project expenses due
to extensive restructuring activities undertaken in fiscal 2002 and 2003. Salary
related expenses were reduced by approximately  $4.3 million for the fiscal year
ended June 30, 2003 as compared to the fiscal year ended June 30, 2002. Expenses
in 2002 also included two of five required quarterly  expenditures totaling $2.0
million,  which were part of commitments  under a joint  development  and supply
agreement  with JDS Uniphase  Corporation.  No expenses were incurred  under the
agreement in fiscal 2003,  which was  terminated in the second  quarter of 2003.
Despite the  reduction in expenses  during the year,  Adept was able to maintain
research,  development and engineering  efforts required to complete several key
initiatives  in product  development.  These  projects  were  deemed  crucial to
leveraging our position in the market,  reducing our product material costs, and
maintaining  our  technological  advantage  relative  to  our  competition.  Our


                                       26
<PAGE>

research,  development and  engineering  expenses for Fiscal 2003 reflect salary
reductions for domestic employees above certain pay ranges, and pay holidays for
domestic employees for all four quarters of Fiscal 2003. These measures resulted
in savings of approximately $862,000

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses  decreased  24.1%  to  $22.0  million  or  49.1% of net
revenues  in 2003 from  $29.0  million  or 50.8% of net  revenues  in 2002.  The
decrease  in expense  for the fiscal year ended June 30, 2003 as compared to the
fiscal  year ended June 30, 2002 was  primarily  attributable  to  restructuring
activities  in fiscal 2002 and 2003,  which  resulted in  significant  headcount
reductions.  Salary and related  expenses  were  reduced by  approximately  $4.4
million  for the fiscal  year ended June 30,  2003  compared  to the fiscal year
ended June 30, 2002 as a result of these headcount  reductions.  These decreases
were partially offset by a $0.7 million  increase  associated with an additional
lease  commitment  that we were  obligated  to assume in the  fourth  quarter of
fiscal 2002. Our selling,  general and  administrative  expenses for Fiscal 2003
reflect salary reductions for domestic  employees above certain pay ranges,  and
pay holidays for domestic  employees for all four quarters of Fiscal 2003. These
measures resulted in savings of approximately $1,271,000

                                            Fiscal 2003
                        ----------------------------------------------------
                                           (In thousands)
                             Q1           Q2            Q3            Q4
      Cost Savings      $      835    $       748   $    1,275    $    1,441

Restructuring  Charges.  We recorded $5.3 million in  restructuring  charges for
fiscal 2003.  The charges  consist of $1.9 million for  workforce  reduction and
severance costs,  $3.1 million in lease commitments for idle facilities and $0.3
million  for  leasehold  improvement  and other  fixed  assets  associated  with
restructured  facilities.  Workforce  reduction-related  costs  of $1.9  million
represent a reduction of  approximately  84 employees in most  functional  areas
across all three of our reportable  business  segments and at June 30, 2003, all
of the affected  employees had ceased  employment with Adept.  Lease commitments
for idle  facilities of $3.1 million  result from the further  consolidation  of
facilities and are primarily attributable to the exit from our San Jose facility
and the restructure of lease commitments  associated with excess capacity at our
Livermore facility.  Restructuring charges were $5.3 million for the fiscal year
ended June 30, 2003 compared to  restructuring  charges of $17.7 million for the
fiscal year ended June 30, 2002. The restructuring  charges of $17.7 million for
the  fiscal  year  ended  June  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.

                                     Fiscal Year ended,      Fiscal Year ended,
(in thousands)                         June 30, 2003            June 30, 2002
                                       -------------            -------------

Employee severance costs..........     $        1,872          $       1,692
Lease termination costs...........              3,134                  6,800
Asset impairment charges..........                318                  9,167
                                       --------------          -------------
  Total...........................     $        5,324          $      17,659
                                       ==============          =============

We  anticipate  that when the fiscal  2003  restructuring  activities  take full
effect,  the  Components  segment will  experience  an  annualized  reduction in
expenses of approximately $4.8 million in fiscal 2004 as compared to fiscal 2002
with no offsetting decline in revenues. We anticipate that the Solutions segment
will  experience  an  annualized  reduction  in expenses of  approximately  $0.5
million as compared to fiscal 2002 with no offsetting  decline in revenues.  The
Services and Support  segment is expected to experience an annualized  reduction
in expenses  of  approximately  $0.9  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;  however,
revenue  levels could change for other  reasons,  such as reduced demand for our
products.  These  restructuring  activities  are  expected  to  result  in lower
operating expenses in future periods.

Other Intangible Assets  Amortization.  Other intangibles  amortization was $0.7
million  for both  fiscal  2003 and  2002.  Goodwill  is no  longer  subject  to
amortization,  but instead is now subject to  impairment  testing at least on an
annual  basis,  as  discussed in Note 4 of our Notes to  Consolidated  Financial
Statements included in this Annual Report on Form 10-K.


                                       27
<PAGE>

Impairment of goodwill.  SFAS 142 requires at least annual impairment testing of
our goodwill.  The results of our April 2003 annual  impairment  testing did not
indicate an impairment of our then existing goodwill,  and therefore we were not
required to record a goodwill  impairment charge in fiscal 2003. In fiscal 2002,
we  recorded a  goodwill  impairment  charge of $6.6  million as a result of our
April 2002 annual  impairment  update.  See Note 4 of our Notes to  Consolidated
Financial  Statements  included in this  Annual  Report on Form 10-K for further
discussion.

Gain on Sale of  Assets.  Net gain on sale of assets  was $0 in fiscal  2003 and
$1.6 million in fiscal 2002.  In the fourth  quarter of 2002,  we completed  the
sale of certain  non-strategic assets of our SILMA business,  referred to as the
CimStation Inspection product line. The assets were sold for a purchase price of
$2.0 million of which $1.75 million was paid in cash and the remaining  $250,000
was  deposited in escrow  contingent  upon meeting  certain  CimStation  revenue
projections  for the period July 1, 2001 through June 30, 2002.  Actual  revenue
for the period fell short of projections and we released the remaining  $250,000
to the buyer of the SILMA business in October 2002 in accordance  with the terms
of the agreement.  In addition, we incurred $21,000 in transaction costs related
to the sale of the  CimStation  Inspection  assets  resulting in net proceeds of
$1.73  million.  The  gain on  sale  of the  Cimstation  Inspection  assets  was
partially offset by a loss on sale of other assets of $0.18 million.

Interest Income,  Net. Interest income, net, was $91,000 in fiscal 2003 compared
to $438,000 in fiscal 2002.  The decrease  was due in part to a  combination  of
lower  interest  rates and a lower  average  cash  balance  attributable  to our
decreased  revenues.  Additionally,  interest  expense  increased in 2003 due to
charges  incurred on advances  received  under the Silicon  Valley Bank accounts
receivable  purchase  facility and interest accrued on the JDSU promissory note.
We  expect  interest  expense  to  continue  to  increase  as a  result  of  the
convertible note issued in connection with the lease restructuring.

Provision for (Benefit From) Income Taxes.  Our effective tax rate was less than
1% for 2003 as compared to (6%) for 2002. Our tax rate for 2003 differs from the
federal  statutory  income tax rate of 34% because we  experienced  a pretax net
loss,  and under  rules  applicable  to  accounting  for  operating  loss  carry
forwards,  no benefit  may be taken  where the  utilization  of such  benefit is
dependent on the  generation of future  taxable  income.  In 2002,  our tax rate
differed from the federal  statutory rate of 34% primarily due to a $3.6 million
tax refund resulting from the carry back of our net operating loss from the year
ended June 30, 2001.  This refund  opportunity  arose as a result of a change in
applicable  law enacted on March 9, 2002,  which  extended the carry back period
from three to five tax years.

Cumulative  effect  of change  in  accounting  principle.  On July 1,  2001,  we
implemented  SFAS 142  which  requires  goodwill  and  intangible  assets  to be
evaluated for impairment at least annually for fiscals years  beginning in 2001.
We completed  the  measurement  of the  impairment  loss in the third quarter of
fiscal  2002,  and  recorded  an  aggregate  charge  of $16.6  million  for such
impairment.  Of this amount,  $10.0 million was deemed  attributable  to periods
prior to fiscal 2002,  and  accordingly  was recorded as a cumulative  effect of
change in accounting principle.

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  were  effective  as  hedges  of  assets  and
liabilities  were  recognized  in income as a component of selling,  general and
administrative  expenses.  We recognized  forward  currency  contract  losses of
$271,000  for the year ended June 30, 2003 and  $728,000 for the year ended June
30, 2002. 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 our decreased aggregate net 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.

Comparison of Fiscal 2002 to 2001

Net  Revenues.  Our net revenues  decreased by 43.2% to $57.0  million in fiscal
2002 from $100.3  million in fiscal 2001. The  significant  decrease in revenues
primarily  resulted  from  reduced  demand  for,  and  associated  reduced  unit
shipments  of most of our product  family.  We believe  that this  reduction  in
demand was reflected in the broader  marketplace as our customers  significantly


                                       28
<PAGE>

reduced   their  capital   expenditures   in  an  effort  to  deal  with  excess
manufacturing  capacity.  Following the significant  drop in our revenues in the
first quarter of Fiscal 2002, customers continued to experience  uncertainty and
cancelled  some orders and postponed  placing other orders,  which resulted in a
further decline in our revenues in subsequent quarters.

Our domestic  sales were $25.2  million in fiscal 2002 compared to $63.9 million
in fiscal 2001, a decrease of 60.5%. Our international  sales were $31.8 million
in fiscal 2002  compared to $36.4  million in fiscal  2001, a decrease of 12.6%.
Both our domestic and international  markets were significantly  impacted by the
uncertain and weak global economic conditions,  which caused a dramatic decrease
in capital spending by our customers, especially in the United States.

Gross  Margin.  Gross margin as a percentage  of net revenue was 33.6% in fiscal
2002 compared to 34.9% in fiscal 2001. We experienced a downward trend in fiscal
2002 compared to fiscal 2001 due to decreases in manufacturing  volume.  As less
labor and overhead expense is absorbed into inventory,  costs become higher on a
relative basis, which is reflected in our lower margins.

Research,  Development  and  Engineering  Expenses.  Research,  development  and
engineering expenses declined on an absolute basis in fiscal 2002, but increased
as a percentage of net revenues. Research,  development and engineering expenses
decreased  by 10.1% to $20.4  million,  or 35.8% of net revenues in fiscal 2002,
from $22.7 million,  or 22.7% of net revenues in fiscal 2001. Expenses in fiscal
2002  included  two of the  five  required  quarterly  expenditures  which  were
commitments under a joint development  agreement with JDS Uniphase  Corporation.
This development agreement was terminated in the second quarter of fiscal 2003.

Historically,  we have been  involved in several  federally-funded  consortiums,
which  partially  offset  some of our  research  and  development  expenses.  We
completed  the last of these funded  projects in early  fiscal 2001.  We did not
enter into any such consortiums in fiscal 2002.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses  decreased  19.5%  to  $29.0  million  or  50.8% of net
revenues  in 2002 from  $36.0  million  or 35.9% of net  revenues  in 2001.  The
decreased  level  of  expense  was  primarily   attributable  to   restructuring
activities and other cost reduction measures  implemented over three quarters of
fiscal 2002. Cost reduction measures included salary cuts ranging from 5% to 20%
and company-wide  vacation weeks in the first, second and third fiscal quarters,
which resulted in  approximately  $1.2 million of expense savings as compared to
the prior year.  Additional cost reduction  measures  implemented as a result of
restructuring   activities   included   significant   reductions  in  headcount,
consolidation of facilities, elimination of some excess capacity and the sale of
certain  non-strategic  assets.  Restructuring  activities are described in more
detail below.  Salary and related  expenses were reduced by  approximately  $3.3
million  from  fiscal  2001 as a result of  headcount  reductions.  Depreciation
expenses  were reduced by  approximately  $0.6 million from fiscal 2001 and rent
and related expenses were reduced by approximately $0.5 million from fiscal 2001
due to consolidation  of facilities.  Savings realized by quarter as a result of
the combined  restructuring and other cost reduction  measures during the fiscal
year were consistent with our projections and were as follows:

                                           Fiscal 2002
                       ----------------------------------------------------
                                          (In thousands)
                            Q1           Q2            Q3            Q4
      Cost Savings     $    1,083    $     1,438   $    1,496    $    1,573

Restructuring  Charges. In connection with our 2002  restructuring,  we recorded
$17.7 million in restructuring  charges.  The charges consist of $9.2 million in
restructuring   of  non-strategic   business  assets,   $6.8  million  in  lease
commitments  for idle  facilities,  and $1.7 million in workforce  reduction and
severance costs.  Workforce  reduction related costs of $1.7 million represent a
reduction of  approximately  114 employees in most  functional  areas across all
three of our reportable business segments. At June 30, 2002, all of the affected
employees  had  ceased  employment  with  Adept.   Lease  commitments  for  idle
facilities of $6.8 million  resulted  from the  consolidation  of  manufacturing
facilities in San Jose and Livermore,  California into our technology  center in
Livermore,  California,  plus the consolidation of certain support facilities in
Europe.  The  consolidation  of these  facilities  resulted in  operating  lease
commitments  in excess  of our then  current  and  projected  needs  for  leased
properties.  Asset impairment  charges of $9.2 million resulted from the exiting
of certain  non-strategic  product  lines of $6.6 million and goodwill and other


                                       29
<PAGE>

intangible  assets write-off of $2.6 million.  The goodwill and other intangible
assets written off resulted from our acquisition of Pensar-Tucson in April 2000,
which no longer  had value to Adept due to the  closure  of our  Tucson  Arizona
operations in March 2002. At June 30, 2002, the long term accrued  restructuring
charges  were  related  to  future  rent  commitments  on  non-cancelable  lease
agreements. We completed our fiscal 2002 restructuring plan in the third quarter
of fiscal 2002.

Goodwill and Other  Intangibles  Amortization.  Goodwill  and other  intangibles
amortization  in 2002  decreased to $0.7 million from $6.8 million in 2001.  The
decrease in goodwill and other  intangibles  amortization was a direct result of
the  adoption  of  SFAS  142,  effectively  discontinuing  the  amortization  of
goodwill.

Impairment of goodwill. We recorded a goodwill impairment charge of $6.6 million
as a result of our annual  impairment  update  conducted in the third quarter of
fiscal  2002  required  by SFAS  142.  See Note 4 of our  Notes to  Consolidated
Financial  Statements  included in this  Annual  Report on Form 10-K for further
discussion.

Gain on Sale of Assets.  Net gain on sale of assets was $1.6 million in 2002 due
to the sale of the CimStation  Inspection product line of our SILMA business, as
discussed above. In addition,  we incurred $21,000 in transactions costs related
to the sale of the  CimStation  Inspection  assets  resulting in net proceeds of
$1.73  million.  The  gain on  sale  of the  Cimstation  Inspection  assets  was
partially  offset by a loss on sale of other assets of $0.18 million.  There was
no gain on sale of assets in fiscal 2001.

Interest  and Other  Income,  Net.  Interest  income,  net, in 2002 was $438,000
compared to $733,000 in 2001, with higher average  invested cash balances offset
by lower average yields.

Provision for (Benefit  From) Income Taxes.  Our effective tax rate for 2002 was
(6%) as  compared  to 18% for  2001.  Our tax rate for  2002  differed  from the
federal  statutory  income tax rate of 34%  primarily  due to a $3.6 million tax
refund  resulting  from the carry back of our net  operating  loss from the year
ended June 30, 2001.  In 2001, our tax  rate differed from the federal statutory
rate of 34% primarily due to the increase in valuation allowance to fully offset
deferred tax assets.

Cumulative effect of change in accounting  principle.  We recorded $10.0 million
as a cumulative effect of change in accounting  principle in 2002 resulting from
our adoption of SFAS 142. We implemented  SFAS 142 on July 1, 2001 and completed
the measurement of the impairment loss in the third quarter of fiscal 2002.

Derivative Financial Instruments.  Our foreign currency hedging program was 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  were  effective  as  hedges  of  assets  and
liabilities  were  recognized  in income as a component of selling,  general and
administrative  expenses.  We recognized a loss on forward currency contracts of
$728,000  for the year ended June 30, 2002 and a gain of  $322,000  for the year
ended June 30, 2001.  Realized and  unrealized  gains and losses on  instruments
that hedge firm commitments were deferred and included in the measurement of the
subsequent  transaction;  however,  losses were  deferred  only to the extent of
expected  gains  on  the  future  commitment  at  June  30,  2002.  We  deferred
recognition  of a  transaction  loss relating to foreign  exchange  contracts of
$83,500 in fiscal 2002, and realized this  transaction loss in the first quarter
of 2003. 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.

Long-Lived Assets

Financial information regarding the geographic areas of our long-lived assets is
included in Note 13 of our Notes to Consolidated  Financial  Statements included
in this Annual Report on Form 10-K.


                                       30
<PAGE>

Liquidity and Capital Resources

We have experienced  declining revenues and incurred operating losses in each of
the  last  three  fiscal  years.  During  this  period,  we have  also  consumed
significant  cash and other  financial  resources,  and  presently  have minimal
liquidity.  In  response to these  conditions,  we reduced  operating  costs and
employee  headcount,  and restructured  certain  operating lease  commitments in
fiscal  2002 and  fiscal  2003.  During the fourth  quarter of fiscal  2003,  we
reduced our  headcount  by an  additional  7% of our total  employees,  which we
expect to fully implement the second quarter of fiscal 2004.  These  adjustments
to our  operations  have  significantly  reduced  our cash  consumption  and the
aggregate revenue levels necessary to achieve break-even  operating results.  In
addition,  we  intend  to seek an  expansion  of our  existing  working  capital
receivables  financing  facility,  or secure an alternative  credit  facility to
improve our near term liquidity. Furthermore, we continue to pursue outside debt
and equity sources of financing that can provide Adept with a longer term source
of capital and generally improve its balance sheet and financial stability.

We are in a very  precarious  cash position,  and because of certain  regulatory
restrictions  on our  ability to move  certain  cash  reserves  from our foreign
operations to our U.S.  operations,  we may have limited  access to a portion of
our  existing  cash  balances.  As of June 30, 2003,  we had an  aggregate  cash
balance of $3.3 million, and a short term receivables  financing credit facility
of $1.75  million net, of which $90 thousand was  outstanding  and $1.7 remained
available  under this  facility.  We currently  depend on funds  generated  from
operating  revenue  and the funds  available  through  our  accounts  receivable
financing  arrangement to meet our operating  requirements.  As a result, if our
assumptions are incorrect,  we may have  insufficient  cash resources to satisfy
our obligations in a timely manner during the next twelve months.  We expect our
cash ending balance to be  approximately  $1.8 million as of September 30, 2003.
The decrease in our expected cash balance from June 30, 2003 is primarily due to
increases in prepaid  expenses  related to insurance  premiums,  and an expected
loss on  operations  for the first  quarter of fiscal  2004.  Recently,  we have
managed to finance our operating  losses by converting  non-cash working capital
items such as accounts  receivable  and inventory,  to cash,  and  consequently,
these working capital components have been  significantly  reduced over the last
several quarters. If the company continues to generate a loss on operations,  it
will  become  increasingly   difficult  to  rely  on  funding  these  losses  by
liquidating  working capital.  Our ability to sustain  operations through fiscal
2004 is predicated  upon certain  critical  assumptions,  including (i) that our
restructuring  efforts do  effectively  reduce  operating  costs as estimated by
management and do not impair our ability to generate  revenue,  (ii) that we are
able to  favorably  settle  pending  litigation  related to our San Jose  lease,
including both the aggregate  amount and the timing of any settlement  payments,
(iv) that we will not incur additional  unplanned capital expenditures in fiscal
2004,  (v) that we will  continue to receive  funds under our existing  accounts
receivable  financing  arrangement or a new credit  facility,  (vi) that we will
receive continued timely receipt of payment of outstanding receivables,  and not
otherwise  experience  severe  cyclical  swings in our  receipts  resulting in a
shortfall of cash available for our disbursements  during any given quarter, and
(vii) that we will not incur  unexpected  significant  cash  outlays  during any
quarter.

Adept is  currently  litigating  with  the  landlord  of our San  Jose  facility
regarding our lease obligations for that facility. We have vacated and no longer
pay rent on this  facility.  We have  recorded  expenses  in the  amount of $2.3
million for the remaining  unpaid rent associated with this lease;  however,  we
have not reserved the cash associated  with such unpaid rent expenses.  Our cash
usage for the fourth quarter of fiscal 2003 and our  expectations for cash usage
for the first two  quarters  of fiscal  2004 are  significantly  impacted by our
nonpayment of rent for this facility.  If we receive a material adverse judgment
in the San Jose lease  litigation  and do not have  control of the timing of the
payments  of any  such  judgment,  we may not have  sufficient  cash to meet our
obligations  and  therefore,  we may be  required  to  cease  operations.  For a
description of this litigation, see "Legal Proceedings."

Even if we do not receive an adverse judgment in the San Jose lease  litigation,
if the results of our search for  additional  outside  sources of financing  are
unsuccessful,  or if adequate funds are not available on acceptable  terms or at
all and we are unable to achieve our projected revenues or if operating expenses
exceed current estimates, we will be forced to curtail our operations and 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.  Even
if we complete a financing,  the transaction is likely to involve the incurrence
of debt or issuance of debt or equity  securities  of Adept,  which would dilute
the outstanding equity.


                                       31
<PAGE>

The consolidated  financial  statements  accompanying this Annual Report on Form
10-K have been prepared  assuming  that Adept will continue as a going  concern.
However,  the  accompanying  Independent  Auditors'  Report  states that we have
incurred  recurring  operating  losses,  have a net capital  deficiency and have
experienced a declining cash balance which have adversely affected our liquidity
and that these conditions raise  substantial doubt about our ability to continue
as a going concern.  The financial  statements do not include any adjustments to
reflect the possible future effects on the  recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.

Cash and cash  equivalents  decreased $14.1 million from June 30, 2002. Net cash
used in operating activities of $18.1 million was primarily  attributable to the
net loss and a decrease in other accrued liabilities reduced by non cash charges
including depreciation and amortization,  provisions for inventory reserves, the
issuance  of a  subordinate  convertible  note  offset in part by a decrease  in
accounts receivable and a decrease in inventory.

The decrease in other accrued liabilities is primarily  attributable to payments
made as purchase  price  consideration  related to the  acquisition of CHAD. The
provision for inventory is primarily related to provisions for excess inventory.
The issuance of a convertible  subordinated note relates to the restructuring of
our lease commitment for our Livermore facilities (See Note 7).

Cash  provided by investing  activities  of $3.7 million is primarily due to the
sale of short-term  investments  of $13.6 million 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 $0.4 million.

Cash  provided by financing  activities  of $0.2 million was related to proceeds
from our employee stock purchase plan.

On March 21, 2003,  we entered into an Accounts  Receivable  Purchase  Agreement
(the "Purchase  Agreement") with Silicon Valley Bank ("SVB"),  pursuant to which
SVB may purchase  certain of our  receivables  on a full  recourse  basis for an
advance amount equal to 70% (such percentage may change at SVB's  discretion) of
the face amount of such purchased  receivables with the aggregate face amount of
purchased  receivables  not to  exceed  $2.5  million.  Upon  collection  of the
receivable and after deducting  interest charges and allowed fees SVB will remit
the balance of the  remaining  30% of the invoice to the Company.  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.
The warrant may be exercised on or after  September 21, 2003,  expires March 21,
2008 and was valued at $20,000 by the Company using the Black Scholes model.  As
of June 30, 2003,  $97,000 was  outstanding  under the Purchase  Agreement.  The
Purchase  Agreement  includes  certain  covenants  with  which  we must  comply,
including  but not  limited  to that we are  required  to pay a monthly  finance
charge  equal to 2% of the  average  daily  gross  amount  of  unpaid  purchased
receivables,  pay our employee  payroll and state and federal tax obligations as
and when due, provide SVB with certain financial and other specified information
on a periodic basis, and maintain our deposit and investment  accounts with SVB.
In  addition,  we cannot  transfer  or grant a security  interest  in our assets
without SVB's consent,  except for certain ordinary course transactions,  file a
voluntary  petition  for  bankruptcy  or have filed  against  us an  involuntary
petition for relief,  or make any transfers to any of our  subsidiaries of money
or other assets with an aggregate value in excess of $0.24 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. We will be deemed
to be in  default  under the  Purchase  Agreement  if we fail to timely  pay any
amount owed; in the event of our  bankruptcy or an assignment for the benefit of
creditors;  if we become insolvent or are generally not paying our debts as they
become due or we are left with  unreasonably  small capital;  if any involuntary
lien or attachment is issued against our assets that is not discharged within 10
days; if we  materially  breach any of our  representations  or if we breach any
covenant  or  agreement  under the  agreement  which is not cured  within  three
business days; if any event of default occurs under any agreement between us and
SVB, any guaranty or  subordination  agreement  executed in connection  with the
Purchase  Agreement  or any  agreement  between  us and  JDSU;  or if there is a
material  adverse change in our business,  operations or condition or a material
impairment of our ability to pay our  obligations  under the agreement or of the
value of SVB's security  interest in our assets. In the event of a default under
the  Purchase  Agreement,  SVB may cease  buying  our  receivables,  Adept  must
repurchase upon SVB's demand any outstanding receivables and pay any obligations
under the agreement,  including SVB's costs.  As of June 30, 2003,  Adept was in
compliance with the terms of the purchase agreement.


                                       32
<PAGE>

During fiscal 2003,  we reduced our headcount by an additional 84 people,  which
we expect will result in approximately  $1.5 million per quarter in cash savings
as compared to the quarter ended  September 30, 2002 when fully  implemented  in
the second quarter of fiscal 2004.  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 at
the product shipment level of the quarter ended June 30, 2003.

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 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.  As a
result, as the number of outstanding  shares of common stock of Adept increases,
including as the result of the exercise or  conversion  of options,  warrants or
convertible notes and as the number of shares held by the preferred  stockholder
decreases,  the  number  of  shares  into  which  the  Preferred  Stock  may  be
convertible  proportionately  increases.  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 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


                                       33
<PAGE>

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 $1.0 million 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 $1.0  million  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.  JDS Uniphase  waived this right in  connection  with our
receivables  purchase facility with Silicon Valley Bank and the convertible note
issued to the landlord of our Livermore,  California facilities. 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 February
2003.

In addition,  the acquisition agreement provides for Adept to make cash payments
of $242,000 and potential stock  issuances  consisting of 61,000 shares equal to
approximately  $467,000  over a period of three years after the closing  date to
certain  specified  employees of CHAD,  which are  contingent  on the  continued
employment of such employees. As of June 30, 2003, 57,000 shares were issued and
$167,000 in cash was paid to certain  specified  employees of CHAD.  At June 30,
2003,  $65,000 in contingent cash and no contingent  shares remain to be paid by
October 9, 2004,  contingent  on the continued  employment of certain  specified
employees.  This  acquisition  was  accounted  for under the purchase  method of
accounting.

On August 6, 2003, we completed a lease  restructuring  with  Tri-Valley  Campus
LLC, the landlord  for our  Livermore,  California  corporate  headquarters  and
facilities,  which is  expected  to  significantly  reduce our  quarterly  lease
expenses.  Under the lease amendment,  we were released of our lease obligations
for two  unoccupied  buildings in Livermore and received a rent reduction on the
occupied  building from $1.55 to $1.10 per square foot.  In addition,  the lease
amendment  carries  liquidated  damages  in the  event of  default  on the lease
payments  equivalent to 1 year of rent obligations on the original lease. In the
event of Adept's bankruptcy or a failure to make payments to the landlord of our


                                       34
<PAGE>

Livermore,  California  facilities within three days after a written notice from
the landlord,  a default would be triggered on the lease. In connection with the
lease   restructuring,   we  issued  a  three  year,  $3.0  million  convertible
subordinated  note due June 30, 2006 in favor of the landlord  bearing an annual
interest  rate of 6.0%  payable at our option in shares of our common stock at a
conversion  price of $1.00 per  share and the  resulting  shares  carry  certain
registration  and  other  rights.  This  liability  was  recorded  as long  term
Subordinated  Convertible  Note  in the  accompanying  balance  sheet  with  the
corresponding  reduction  to accrued  unpaid rent on  Livermore  facilities  and
additional  restructuring charges for the excess of the note amount over accrued
unpaid rent on Livermore facilities.  Payment under the note will be accelerated
in the event of a default,  including  the  insolvency  or  bankruptcy of Adept,
Adept's failure to pay its obligations  under the note when due, Adept's default
on certain material agreements, including the Livermore lease, the occurrence of
a material adverse change with respect to Adept's business or ability to pay its
obligations  under  the  note,  or a change  of  control  of Adept  without  the
landlord's consent.

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.

Upon the closing of the  acquisition  transaction  with Meta,  we 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  provision  of
discounts  and  royalty  payments  to the  shareholder  and  its  affiliates  as
described  in the  paragraph  below but will,  in any  event and  regardless  of
whether  discounts are incurred or royalties paid,  acquire 100% of the stock of
Meta no later than August 2008 for no additional consideration.

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 were placed into escrow for one year from
the completion of the acquisition pending certain  contingencies under the terms
of the  acquisition  agreement.  The escrow  shares were released in full to the
former  Meta  stockholders.  Additionally,  Adept  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 June 30, 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 bearing  interest at 1% plus the prime rate  announced
from time to time by the Wall Street  Journal.  In March 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 to reduce  interest
expense associated with the line of credit. 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. In March 2003,
Adept and the former shareholder terminated the $800,000 loan agreement,  and we
cancelled the 100,000 shares  previously  issued.  No amounts were ever borrowed
under the loan agreement.


                                       35
<PAGE>

New Accounting Pronouncements

In July of 2002, the FASB issued SFAS No. 146,  "Accounting for Costs Associated
with  Exit or  Disposal  Activities."  SFAS  No.  146  addresses  the  financial
accounting  and  reporting for  obligations  associated  with an exit  activity,
including  restructuring,   or  with  a  disposal  of  long-lived  assets.  Exit
activities  include,  but are not limited to  eliminating  or  reducing  product
lines,  terminating employees and contracts,  and relocating plant facilities or
personnel.  SFAS No. 146 specifies  that a company will record a liability for a
cost  associated  with an exit or disposal  activity only when that liability is
incurred and can be measured at fair value.  Therefore,  a commitment to an exit
plan or a plan of disposal  expresses  only our  intended  future  actions  and,
therefore,  does not meet the  requirement  for  recognizing a liability and the
related expense.  SFAS No. 146 is effective  prospectively  for exit or disposal
activities  initiated  after December 31, 2002. The adoption of SFAS No. 146 did
not have a material effect on our financial position or results of operations.

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  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 Adept'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  disclosure
requirements of SFAS 148 (See Note 1).

In November  2002,  the EITF  reached a consensus on Issue No.  00-21,  "Revenue
Arrangements with Multiple Deliverables." EITF Issue No. 00-21 provides guidance
on how to account for  arrangements  that involve the delivery or performance of
multiple products, services, and/or rights to use assets. The provisions of EITF
Issue No.  00-21  will  apply to  revenue  arrangements  entered  into in fiscal
periods  beginning  after June 15, 2003. We are currently  evaluating the effect
that the adoption of EITF Issue No. 00-21 will have on our  financial  condition
and results of operations.

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 after June 15,
2003.  The  adoption of FIN 46 did not have a material  impact on our  financial
position or results of operations.


                                       36
<PAGE>

FACTORS AFFECTING FUTURE OPERATING RESULTS

Risks Related to Our Business

We have limited cash resources,  and our recurring  operating  losses,  negative
cash flow and debt  obligations  could  exhaust  these  cash  resources.  We are
attempting  to  raise  additional  capital,  but we may not be  able  to  obtain
adequate funds to continue our operations in the future.

We have experienced  declining revenues and incurred operating losses in each of
the last three fiscal years.  At June 30, 2003, we had a net capital  deficiency
of $11.6 million. During this period, we have also consumed significant cash and
other financial resources,  and presently have minimal liquidity. In response to
these  conditions,  we  reduced  operating  costs and  employee  headcount,  and
restructured certain operating lease commitments in fiscal 2002 and fiscal 2003.
During the fourth  quarter  of fiscal  2003,  we  reduced  our  headcount  by an
additional 7% of our total employees,  which we expect to fully implement by the
second  quarter  of  fiscal  2004.  These  adjustments  to our  operations  have
significantly  reduced our cash  consumption  and the aggregate  revenue  levels
necessary to achieve  break-even  operating results.  In addition,  we intend to
seek  an  expansion  of  our  existing  working  capital  receivables  financing
facility,  or secure an  alternative  credit  facility  to improve our near term
liquidity. Furthermore, we continue to pursue outside debt and equity sources of
financing  that can  provide  Adept with a longer  term  source of  capital  and
generally improve its balance sheet and financial stability.

As of June 30,  2003,  we had working  capital of  approximately  $7.2  million,
including $3.2 million in cash and cash equivalents. We are in a very precarious
cash position, and because of certain regulatory  restrictions on our ability to
move certain cash reserves from our foreign  operations to our U.S.  operations,
we may have limited  access to a portion of our existing  cash  balances.  As of
June 30, 2003,  we had an aggregate  cash balance of $3.3  million,  and a short
term  receivables  financing  credit facility of $1.75 million net, of which $90
thousand was  outstanding and $1.7 remained  available  under this facility.  We
currently  depend  on funds  generated  from  operating  revenue  and the  funds
available  through our accounts  receivable  financing  arrangement  to meet our
operating  requirements.  We expect our cash ending balance to be  approximately
$1.8 million as of September 30, 2003. The decrease in our expected cash balance
from June 30, 2003 is primarily due to increases in prepaid  expenses related to
insurance premiums,  and an expected loss on operations for the first quarter of
fiscal  2004.  Recently,  we have  managed to finance  our  operating  losses by
converting  non-cash  working  capital  items such as  accounts  receivable  and
inventory, to cash, and consequently, these working capital components have been
significantly reduced over the last several quarters. If we continue to generate
a loss on operations,  it will become increasingly  difficult to rely on funding
these losses by liquidating  working capital.  Our ability to sustain operations
through fiscal 2004 is predicated upon certain critical  assumptions,  including
(i) that our  restructuring  efforts do effectively  reduce  operating  costs as
estimated by management and do not impair our ability to generate revenue,  (ii)
that we are able to favorably settle pending  litigation related to our San Jose
lease,  including  both the  aggregate  amount and the timing of any  settlement
payments,  (iv) that we will not incur additional unplanned capital expenditures
in fiscal 2004,  (v) that we will  continue to receive  funds under our existing
accounts receivable financing arrangement or a new credit facility, (vi) that we
will receive continued timely receipt of payment of outstanding receivables, and
not otherwise  experience severe cyclical swings in our receipts  resulting in a
shortfall of cash available for our disbursements  during any given quarter, and
(vii) that we will not incur  unexpected  significant  cash  outlays  during any
quarter.  In  addition,  a  significant  portion of or shipments  and  therefore
invoicing  occurs  during  the final  month of each  quarter,  this  causes  our
collections  to be uneven and places  constraints  on our ability to manage cash
flows  during  the  subsequent  quarter.  As a result,  if our  assumptions  are
incorrect, we may have insufficient cash resources to satisfy our obligations in
a timely manner during the next twelve months.


We are currently litigating with the landlord of our San Jose facility regarding
our lease obligations for that facility.  We have vacated and no longer pay rent
on this  facility.  We have recorded  expenses in the amount of $2.3 million for
the  remaining  unpaid rent  associated  with this lease;  however,  we have not
reserved the cash associated with such unpaid rent expenses.  Our cash usage for
the fourth  quarter of fiscal 2003 and our  expectations  for cash usage for the
first two quarters of fiscal 2004 are  significantly  impacted by our nonpayment
of rent for this facility.  If we receive a material adverse judgment in the San
Jose lease  litigation  and do not have control of the timing of the payments of
any such judgment,  we may not have  sufficient cash to meet our obligations and
therefore,  we may be required to cease  operations.  For a description  of this
litigation, see "Legal Proceedings."

Even if we do not receive an adverse judgment in the San Jose lease  litigation,
if the results of our search for  additional  outside  sources of financing  are
unsuccessful,  or if adequate funds are not available on acceptable  terms or at
all and we are unable to achieve our projected revenues or if operating expenses
exceed current estimates, we will be forced to curtail our operations and we may
not be able to take  advantage of market  opportunities,  develop or enhance new


                                       37
<PAGE>

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.  Even
if we complete a financing,  the transaction is likely to involve the incurrence
of debt or issuance of debt or equity  securities  of Adept,  which would dilute
the outstanding equity.

The consolidated  financial  statements  accompanying this Annual Report on Form
10-K have been prepared  assuming  that Adept will continue as a going  concern.
However,  the  accompanying  Independent  Auditors'  Report  states that we have
incurred  recurring  operating  losses,  have a net capital  deficiency and have
experienced a declining cash balance which have adversely affected our liquidity
and that these conditions raise  substantial doubt about our ability to continue
as a going concern.  The financial  statements do not include any adjustments to
reflect the possible future effects on the  recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.

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
cannot assure you that we will be able to raise additional financing to meet our
cash and operational needs or reduce our operating expenses or increase revenues
significantly to address our operating cash needs.

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  liquidity,  including  sources of
            financing;
      o     the  results  of our  litigation  concerning  one of our  facilities
            leases;
      o     the likelihood  that our primary  suppliers  would begin  requesting
            cash in advance or at 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     reductions  in demand due to customer  concerns  over our  financial
            situation and perceived future viability as a supplier;
      o     changes   or   reductions   in   demand   in   the   communications,
            semiconductor,  and  electronics  industries  and other  markets  we
            serve;
      o     timing of our revenue receipts and our required disbursements;
      o     a change in market  acceptance  of our products or a shift in demand
            for our products;
      o     new product introductions by us or by our competitors;
      o     changes in product  mix and  pricing  by us,  our  suppliers  or our
            competitors;
      o     pricing and related availability of components and raw materials for
            our products;
      o     our  failure to  manufacture  a  sufficient  volume of products in a
            timely and cost-effective manner;
      o     our failure to anticipate the changing  product  requirements of our
            customers;
      o     changes in the mix of sales by distribution 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.


                                       38
<PAGE>

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  quarter of fiscal  2000 and each of the last three
fiscal  years 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 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 an indefinite time 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 $8,500
to $500,000.  Accordingly,  our success is directly  dependent  upon the capital
expenditure  budgets of our customers.  Our future  operations may be subject to
substantial  fluctuations  as a  consequence  of domestic  and foreign  economic
conditions,  industry  patterns and other factors  affecting  capital  spending.
Although the majority of our international customers are not in the Asia-Pacific
region, we believe that any instability in the Asia-Pacific economies could also
have a material adverse effect on the results of our operations as a result of a
reduction in sales by our customers to those markets.  Domestic or international
recessions or a downturn in one or more of our major markets,  such as the food,
communications,  automotive,  electronic,  appliance,  semiconductor,  and  life
sciences  industries,  and resulting  cutbacks in capital  spending would have a
direct,  negative  impact  on  our  business.  Evidencing  the  weakness  in the
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 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 an
indefinite period. During fiscal 2001, 2002 and 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


                                       39
<PAGE>

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  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 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.


                                       40
<PAGE>

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, including integrating
            this  architecture  with a variety of robots  manufactured  by other
            companies;
      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 require us to commit contractually to a firm price
which makes us vulnerable to cost overruns.

We  contractually  commit to a firm price over a number of units 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 these
products exceed our expectations, we generally cannot pass those costs on to our
customer.

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.


                                       41
<PAGE>

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.

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.


                                       42
<PAGE>

We may not be able to effectively  implement our restructuring  activities,  may
need to implement  further  restructuring  activities and our  restructuring may
negatively impact our business.

The  intelligent   automation  industry  is  highly  competitive  and  currently
experiencing  reduced  demand.  We have responded to increased  competition  and
changes in the industry in which we compete by restructuring  our operations and
reducing  the size of our  workforce  while  attempting  to maintain  our market
presence in the face of increased competition.  Despite our efforts to structure
Adept and its businesses to meet  competitive  pressures and customer  needs, we
cannot assure you that we will be successful in implementing these restructuring
activities  or that the  reductions  in  workforce  will  not harm our  business
operations  and prospects.  Our inability to structure our  operations  based on
current market conditions could negatively  impact our business.  We also cannot
assure  you that we will not be  required  to  implement  further  restructuring
activities,  make additions or other changes to our management. or reductions in
workforce  based on changes in the markets and industry in which we compete.  We
cannot assure you that any future restructuring efforts will be successful.

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 Flash  Corporation  for the  supply of our  circuit  boards,  Wilco
Corporation for the supply of our cables,  NSK Corporation for the supply of our
linear modules,  which are mechanical  devices powered by an electric motor that
move in a straight  line,  and which can be combined as building  blocks to form
simple  robotic  systems,  Yaskawa  Electric  Corp. for the supply of our 6-axis
robots,  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.  We do not have contracts with
certain  of these  suppliers.  If any one of these  significant  sole or  single
source  suppliers  were  unable or  unwilling  to  manufacture  the  components,
materials or mechanical  subsystems we need in the volumes we require,  we would
have to identify and qualify acceptable replacements.  The process of qualifying
suppliers may be lengthy, and additional sources may not be available to us on a
timely basis, on acceptable  terms or at all. If sufficient  quantities of these
items were not available from our existing  suppliers and a relationship with an
alternative  vendor could not be developed in a timely manner,  shipments of our
products  could be  interrupted  and  reengineering  of these  products could be
required.  In the past, we have  experienced  quality  control or  specification
problems with certain key components provided by sole source suppliers, and have
had to design  around the  particular  flawed  item.  In  addition,  some of the
components  that we use in our  products  are in  short  supply.  We  have  also
experienced  delays in filling  customer  orders  due to the  failure of certain
suppliers to meet our volume and schedule  requirements.  Some of our  suppliers
have also ceased manufacturing  components that we require for our products, and
we have been required to purchase  sufficient supplies for the estimated life of
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


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<PAGE>

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,  businesses,  products and technologies
in the future may play an important role in our ability to expand our operations
and increase our revenue.  We continue to review acquisition  candidates as part
of our  strategy  to market  intelligent  automation  solutions  targeted at the
precision assembly  industry.  Our ability to make acquisitions is rendered more
difficult due to our cash constraints and the decline of our common stock price,
making  equity  consideration  more  expensive.  If we are  unable  to  identify
suitable targets for acquisition or complete  acquisitions on acceptable  terms,
our ability to expand our product  and/or  service  offerings  and  increase our
revenue may be impaired. Even if we are able to identify and acquire acquisition
candidates,  we may be unable to realize the benefits anticipated as a result of
these acquisitions.

Any  acquisition  we have  made or may  make in the  future  could  disrupt  our
business,  increase our expenses and adversely affect our financial condition or
operations.

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 acquisitions of, or
investments in, other businesses that offer products, services, and technologies
that  management  believes will further our strategic  objectives.  We cannot be
certain that we would  successfully  integrate any  businesses,  technologies or
personnel  that  we  might  acquire,  and  any  acquisitions  might  divert  our
management's  attention away from our core business.  Any future acquisitions or
investments  we might make would present risks  commonly  associated  with these
types of transactions, including:

      o     difficulty in combining the product offerings,  operations,  or work
            force of an acquired business;
      o     potential loss of key personnel of an acquired business;
      o     adverse  effects  on  existing   relationships  with  suppliers  and
            customers;
      o     disruptions of our on-going businesses;
      o     difficulties  in realizing  our  potential  financial  and strategic
            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.


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<PAGE>

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 $17.1 million for the fiscal year ended June 30, 2003,
$31.8 million for the fiscal year ended June 30, 2002, and $36.4 million for the
fiscal year ended June 30, 2001. This represented 38.2%, 55.7%, and 36.3% 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.  To maintain a competitive price for our products in Europe, we may have
to provide discounts or otherwise effectively reduce our prices,  resulting in a
lower  margin on  products  sold in  Europe.  Continued  change in the values of
European  currencies or changes in the values of other foreign  currencies could
have a negative  impact on our  business,  financial  condition  and  results of
operations.

We sell standard  components for products to OEMs, who deliver products to Asian
markets, such as Japan, Malaysia, Korea and China.

Past turmoil in Asian  financial  markets and 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.


                                       45
<PAGE>

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 damages,  damage  customer
relationships  and result in loss of market  share,  any of which could harm our
reputation and future business prospects. In addition, increased development and
warranty costs could reduce our operating profits and could result in losses.

The existence of any defects, errors or failures in our products could also lead
to product  liability  claims or lawsuits  against  us, our channel  partners or
against our  customers.  A successful  product  liability  claim could result in
substantial cost and divert  management's  attention and resources,  which could
have a negative  impact on our  business,  financial  condition  and  results of
operations.  Although we are not aware of any product  liability claims to date,
the sale and support of our products entail the risk of these claims.

If 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


                                       46
<PAGE>

may be challenged,  invalidated or circumvented.  Our rights granted under those
patents may not provide  competitive  advantages to us, and the claims under our
patent  applications  may not be allowed.  We may be subject to or may  initiate
interference proceedings in the United States Patent and Trademark Office, which
can demand  significant  financial  and  management  resources.  The  process of
seeking  patent  protection  can be time consuming and expensive and patents may
not be issued  from  currently  pending or future  applications.  Moreover,  our
existing  patents or any new patents that may be issued may not be sufficient in
scope or strength to provide meaningful  protection or any commercial  advantage
to us.

We may in the future  initiate  claims or  litigation  against third parties for
infringement  of our  proprietary  rights  in order to  determine  the scope and
validity of our proprietary rights or the proprietary rights of our competitors.
These  claims  could  result  in  costly  litigation  and the  diversion  of our
technical and management personnel.

We may face costly intellectual property infringement claims.

We have from time to time received  communications  from third parties asserting
that we are infringing certain patents and other intellectual property rights of
others  or  seeking  indemnification  against  such  alleged  infringement.  For
example, some end users of our products have notified us that they have received
a claim of patent infringement from the Jerome H. Lemelson Foundation,  alleging
that their use of our machine vision products  infringes  certain patents issued
to Mr. Lemelson.  In addition, we have been notified that other end users of our
AdeptVision  VME  line  and the  predecessor  line of  Multibus  machine  vision
products have received  letters from the Lemelson  Foundation which refer to Mr.
Lemelson's  patent  portfolio and offer the end user a license to the particular
patents.  As claims arise, we evaluate their merits.  Any claims of infringement
brought 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 and technical personnel.

Competition for qualified  personnel in the intelligent  automation  industry is
intense.  Our inability to recruit,  train and motivate qualified management and
technical  personnel  on a timely  basis would  adversely  affect our ability to
manage our operations, and design, manufacture, market and support our products.

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;  including  timeliness,  predictability and reliability of
            delivery commitment dates; and
      o     product  features such as flexibility,  programmability  and ease of
            use.

We compete with a number of robot 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.


                                       47
<PAGE>

Many of our  competitors  in the robot market are  integrated  manufacturers  of
products that produce  robotics  equipment  internally for their own use and may
also compete with our products for sales to other customers. Some of these large
manufacturing  companies  have  greater  flexibility  in  pricing  because  they
generate  substantial  unit volumes of robots for  internal  demand and may have
access  through their parent  companies to large amounts of capital.  Any of our
competitors  may seek to expand  their  presence  in other  markets  in which we
compete.

Our current or potential competitors may develop products comparable or superior
in terms of price and  performance  features to those  developed  by us or adapt
more quickly than we can to new or emerging technologies and changes in customer
requirements.  We may be required to make substantial  additional investments in
connection with our research, development,  engineering,  marketing and customer
service efforts in order to meet any competitive threat, so that we will be able
to  compete  successfully  in the  future.  We  expect  that  in the  event  the
intelligent  automation  market  expands,   competition  in  the  industry  will
intensify,  as additional  competitors enter our markets and current competitors
expand their product  lines.  Increased  competitive  pressure could result in a
loss of sales or market share, or cause us to lower prices for our products, any
of which could harm our business.

If we are unable to  effectively  support  the  distinct  needs of the  multiple
industries  of our  customers,  the demand for our products may decrease and our
revenues will decline.

We  market  products  for the  food,  communications,  electronics,  automotive,
appliance,  semiconductor,  and life sciences industries.  Because we operate in
multiple industries,  we must work constantly to understand the needs, standards
and technical  requirements  of numerous  different  industries  and must devote
significant resources to developing different products for these industries. Our
results of operations are also subject to the cyclicality and downturns in these
markets. Product development is costly and time consuming.  Many of our products
are used by our customers to develop,  manufacture  and test their own products.
As a result, we must anticipate trends in our customers'  industries and develop
products  before  our  customers'  products  are  commercialized.  If we do  not
accurately  predict our customers'  needs and future  activities,  we may invest
substantial  resources in  developing  products that do not achieve broad market
acceptance.  Our decision to continue to offer  products to a given market or to
penetrate new markets is based in part on our judgment of the size,  growth rate
and other factors that contribute to the  attractiveness of a particular market.
If our product  offerings in any  particular  market are not  competitive or our
analyses of a market are incorrect, our business and results of operations could
be harmed.

Our  business  will  decline  if we  cannot  keep  up  with  the  rapid  pace of
technological   change  and  new  product   development  that  characterize  the
intelligent automation industry.

The intelligent  automation  industry is  characterized  by rapid  technological
change and new product  introductions  and  enhancements.  Our ability to remain
competitive  depends greatly upon the technological  quality of our products and
processes  compared to those of our competitors and our ability both to continue
to  develop  new and  enhanced  products  and to  introduce  those  products  at
competitive  prices  and on a timely  and  cost-effective  basis.  We may not be
successful  in  selecting,  developing  and  manufacturing  new  products  or in
enhancing our existing products on a timely basis or at all. Our new or enhanced
products may not achieve market acceptance.  Our failure to successfully select,
develop and manufacture new products, or to timely enhance existing technologies
and  meet  customers'   technical   specifications   for  any  new  products  or
enhancements on a timely basis, or to  successfully  market new products,  could
harm our  business.  If we  cannot  successfully  develop  and  manufacture  new
products or meet  specifications,  our  products  could lose market  share,  our
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.


                                       48
<PAGE>

Our success in developing,  introducing, selling and supporting new and enhanced
products  depends  upon a variety of  factors,  including  timely and  efficient
completion of hardware and software design and  development,  implementation  of
manufacturing  processes and effective  sales,  marketing and customer  service.
Because of the complexity of our products,  significant delays may occur between
a product's initial introduction and commencement of volume production.

The development and commercialization of new products involve many difficulties,
including:

      o     the identification of new product opportunities;
      o     the retention  and hiring of  appropriate  research and  development
            personnel;
      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.

We  may  not  receive  significant   revenues  from  our  current  research  and
development efforts for several years, if at all.

Internally developing  intelligent  automation products is expensive,  and these
investments often require a long time to generate returns. Our strategy involves
significant   investments  in  research  and  development  and  related  product
opportunities. Although our total expenditures for research and development have
declined, we continue to believe that we must continue to dedicate a significant
amount of  resources to our  research  and  development  efforts to maintain our
competitive   position.   However,  we  cannot  predict  that  we  will  receive
significant revenues from these investments, if at all.

If we do not comply with  environmental  regulations,  we may incur  significant
costs causing our overall business to suffer.

We are subject to a variety of  environmental  regulations  relating to the use,
storage,  handling,  and disposal of certain  hazardous  substances  used in the
manufacturing and assembly of our products.  We believe that we are currently in
compliance  with all material  environmental  regulations in connection with our
manufacturing operations,  and that we have obtained all necessary environmental
permits to conduct our business.  However, our failure to comply with present or
future regulations could subject us to a variety of consequences that could harm
our business, including:

      o     the imposition of substantial fines;
      o     suspension of production; and
      o     alteration of manufacturing processes or cessation of operations.


                                       49
<PAGE>

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.

Proposed  regulations  related to equity compensation could adversely affect our
results of operation

The  Financial  Accounting  Standards  Board  (FASB),  among other  agencies and
entities,  is currently  considering  changes to generally  accepted  accounting
principles in the United States that, if implemented, would require us to record
a charge to compensation  expense for option grants.  As currently  permitted by
SFAS No. 123, we apply Accounting  Principles Board Opinion No. 25,  "Accounting
for  Stock  Issued  to  Employees",  (APB  25) and  related  interpretations  in
accounting for its stock option plans and stock purchase plan.  Accordingly,  we
do not  recognized  compensation  cost for stock options  granted at fair market
value. We cannot predict whether the proposed  regulations will be adopted,  but
if adopted  these  regulations  would have an adverse  affect on our  results of
operations.

Our  business  is  subject  to  the  risk  of  earthquakes   and  other  natural
catastrophic events.

Our corporate  headquarters  and  principal  offices,  including  certain of our
research and development operations and distribution facilities,  are located in
the San  Francisco Bay area of Northern  California,  which is a region known to
experience  seismic  activity,  flood plains and other  natural  phenomenon  not
within  our  control.   If  significant   seismic   activity  or  other  natural
catastrophes  affecting  this  region  were  to  occur,  our  operations  may be
interrupted,   which  would  adversely   impact  our  business  and  results  of
operations.

Acts of war or terrorism could adversely and materially affect our business.

Terrorist acts or military  engagement  anywhere in the world could cause damage
or disruption to us, our customers,  OEMs,  distributors or suppliers,  or could
create  political or economic  instability,  any of which could adversely effect
our business, financial condition or results of operations.  Furthermore, we are
uninsured for losses or interruptions caused by acts of war or terrorism.

Risks Related to our Stock

Our common  stock has been  delisted  from the Nasdaq Stock Market and trades on
the OTC Bulletin Board. The delisting of our common stock may negatively  impact
the  trading  activity  and price of our  common  stock  and could  make it more
difficult for us to generate additional financing.

During fiscal 2003, we received  notification  from 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 appeal of the
delisting  was denied  after a hearing of the matter and our stock was  delisted
effective  April 15, 2003.  The Nasdaq  Listing  Qualifications  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 has declined
and price volatility  increased because smaller  quantities of shares are 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 or otherwise use our equity as consideration for an


                                       50
<PAGE>

acquisition  or other  corporate  opportunity.  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,  other
strategic  opportunities and additional cost of compensating our employees using
cash and equity compensation.

Our existing outstanding preferred stock, as well as the ability of our Board of
Directors to issue additional  preferred stock could delay or impede a change of
control of our company and may adversely affect the price an acquirer is willing
to pay for our common stock.

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 not
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.  As a result, as the
number of  outstanding  shares of Adept  increases  (including  upon exercise of
options, warrants or conversion of convertible notes), the number of shares into
which the preferred  stock may be convertible  proportionately  increases or the
preferred  stockholder  reduces the shares of voting  stock it owns.  Shares not
permitted to be converted  remain  outstanding and become  convertible when such
holder  holds  less  than 20% of  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.

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,
financings  and other  corporate  purposes,  could have the effect of  delaying,
deferring or preventing a change in control of Adept without  further  action by
the  shareholders  and may adversely  affect the market price of, and the voting
and other rights of, the holders of common stock.  Additionally,  the conversion
of preferred  stock into common stock may have a dilutive  effect on the holders
of common stock.

Our stock price has fluctuated and may continue to fluctuate widely.

The market price of our common stock has fluctuated  substantially  in the past.
During  fiscal  2003,  our stock  price  ranged from a low of $0.14 to a high of
$2.50.  The market  price of our common  stock  will  continue  to be subject to
significant  fluctuations  in the future in  response  to a variety of  factors,
including:

      o     the business environment,  including the operating results and stock
            prices of companies in the industries we serve;
      o     our liquidity needs and constraints;
      o     the  delisting  of our common stock from the Nasdaq Stock Market and
            trading on the OTC Bulletin Board;
      o     fluctuations in operating results;
      o     future  announcements   concerning  our  business  or  that  of  our
            competitors or customers;
      o     the  introduction  of new  products  or changes  in product  pricing
            policies by us or our competitors;
      o     litigation regarding proprietary rights or other matters;
      o     change in analysts' earnings estimates;
      o     developments in the financial markets;
      o     general conditions in the intelligent automation industry; and
      o     perceived  dilution  from  stock  issuances  for  acquisitions,  our
            convertible   preferred  stock  and   convertible   note  and  other
            transactions.


                                       51
<PAGE>

Furthermore,  stock prices for many companies,  and high technology companies in
particular,  fluctuate  widely  for  reasons  that  may be  unrelated  to  their
operating results. Those fluctuations and general economic, political and market
conditions,  such  as  recessions,  terrorist  or  other  military  actions,  or
international  currency  fluctuations,  as well as public  perception  of equity
values of publicly-traded companies may adversely affect the market price of our
common stock.

We may be subject to  securities  class  action  litigation  if our stock  price
remains volatile,  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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest  rates relates  primarily to
our  investment  portfolio.  We maintain an  investment  policy,  which seeks to
ensure the safety and  preservation  of our invested  funds by limiting  default
risk, market risk and reinvestment risk. The table below presents principal cash
flow amounts and related weighted-average interest rates by year of maturity for
our investment portfolio.

                                                 Fiscal            Fair
                    (in thousands)                2003             Value
                    --------------                ----             -----
        Cash equivalents
         Fixed rate........................   $       3,234    $       3,234
         Average rate......................           0.03%

            Total Investment Securities....   $       3,234    $       3,234
                                              -------------    -------------
         Average rate......................           0.03%

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 of guarantor.  Our portfolio  includes
only  marketable  securities  with active  secondary or resale markets to ensure
portfolio liquidity and contains 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated  Financial  Statements and Financial Statement Schedules as of June
30, 2003 and 2002 and for each of the three  years in the period  ended June 30,
2003 are included in Items  15(a)(1)  and (2) included in this Annual  Report on
Form 10-K.

Supplementary Financial Data is included under Item 6 in this Form 10-K.


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<PAGE>

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

As of the end of the fiscal  year  ended June 30,  2003,  Adept  carried  out an
evaluation,  under the supervision and with the  participation of members of our
management,  including our Chief Executive Officer and Chief Financial  Officer,
of the effectiveness of the design and operation of Adept's disclosure  controls
and  procedures  pursuant to Rule  13a-15(b) of the  Securities  Exchange Act of
1934.  Based  upon  that  evaluation,  the  Chief  Executive  Officer  and Chief
Financial Officer have concluded that Adept's disclosure controls and procedures
are  effective  in  alerting  them in a timely  manner to  material  information
relating  to Adept  (including  its  consolidated  subsidiaries)  required to be
included in Adept's periodic SEC filings.  It should be noted that the design of
any  system of  controls  is based in part upon  certain  assumptions  about the
likelihood of future events,  and there can be no assurance that any design will
succeed in achieving  its stated goals under all  potential  future  conditions,
regardless of how remote.

During the most recent  fiscal  quarter,  there has not  occurred  any change in
Adept's internal control over financial reporting that has materially  affected,
or is reasonably  likely to materially  affect,  Adept's  internal  control over
financial reporting.


                                       53
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  information  required by this item concerning our directors is incorporated
by reference from the section captioned "Election of Directors" contained in our
Proxy  Statement  related to the 2003 Annual Meeting of Shareholders to be filed
by us with the Securities and Exchange  Commission within 120 days of the end of
our fiscal year pursuant to General  Instruction G(3) of Form 10-K,  referred to
as the  Proxy  Statement.  The  information  required  by this  item  concerning
executive  officers  is set  forth  in Part I of this  Report.  The  information
required by this item  concerning  compliance with Section 16(a) of the Exchange
Act is  incorporated  by reference  from the section  captioned  "Section  16(a)
Beneficial Ownership Reporting Compliance" contained in the Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The  information  required by this item is  incorporated  by reference  from the
section captioned  "Executive  Compensation and Other Matters"  contained in the
Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  information  required by this item is  incorporated  by reference  from the
section  captioned   "Security   Ownership  of  Certain  Beneficial  Owners  and
Management" contained in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required by this item is  incorporated  by reference  from the
sections captioned "Compensation Committee Interlocks and Insider Participation"
and "Certain Transactions" contained in the Proxy Statement.


                                       54
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)(1) Financial Statements

The financial  statements  (including  the Notes thereto  listed in the Index to
Consolidated  Financial  Statements (set forth in Item 8 of Part II of this Form
10-K) are filed as part of this Annual Report on Form 10-K.

(a)(2) Financial Statement Schedules

The following financial statement schedule is included herein:
Schedule II - Valuation and Qualifying  Accounts.  Additional  schedules are not
required  under the  related  schedule  instructions  or are  inapplicable,  and
therefore have been omitted.

(a)(3) Exhibits

            2.1         Share  Purchase  Agreement  among Marc  Tremblay,  Alain
                        Rivard, Eric St-Pierre,  Pierre Boivin, 9044-0108 Quebec
                        Inc., Societe Innovatech Quebec et Chaudiere-Appalaches,
                        Sofinov,  Societe Financiere d'Innovation Inc., Business
                        Development  Bank of Canada,  Christian  Labbe,  Patrick
                        Murphy and certain  other  shareholders  named  therein,
                        Adept  Technology  Canada  Holding Co., and  Registrant,
                        dated  July  21,  2000  (incorporated  by  reference  to
                        Exhibit 2.1 to the  Registrant's  Current Report on Form
                        8-K/A filed with the Securities and Exchange  Commission
                        on October 25, 2000).+

            3.1         Amended and Restated  Articles of  Incorporation  of the
                        Registrant  (incorporated by reference to Exhibit 3.1 to
                        the  Registrant's  Registration  Statement  on Form S- 1
                        (No. 33-98816) (the "1995 Form S-1")).

            3.2         Certificate of Amendment of Articles of Incorporation of
                        the  Registrant  filed  with the  Secretary  of State of
                        California  on  November  17,  2000   (incorporated   by
                        reference   to   Exhibit   3.2   to   the   Registrant's
                        Registration Statement on Form S-1 (No. 333-48638)).

            3.3         Bylaws   of  the   Registrant,   as   amended   to  date
                        (incorporated   by  reference  to  Exhibit  3.1  to  the
                        Registrant's  Quarterly  Report  on  Form  10-Q  for the
                        fiscal  quarter  ended  December  28,  2002)  (the "2003
                        Second Quarter 10-Q")).

            3.4         Statement  of  Preferences  of  Series  A and  Series  B
                        Preferred Stock  (incorporated  by references to Exhibit
                        3.1 to the Registrant's Form 10-Q for the fiscal quarter
                        ended  September  29,  2001  (the  "2002  First  Quarter
                        10-Q")).

            4.1         Form of Stock Certificate  (incorporated by reference to
                        Exhibit 4.2 to the 1995 Form S-1).

            4.2         Securities Purchase and Investor Rights Agreement, dated
                        October  22,  2001,   between  the  Registrant  and  JDS
                        Uniphase  Corporation   (incorporated  by  reference  to
                        Exhibit  4.1  to the  Registrant's  2002  First  Quarter
                        10-Q).  4.3 10.1 * 1993 Stock Plan as amended,  and form
                        of  agreement  thereto  (incorporated  by  reference  to
                        Exhibit 4.1 to the Registrant's  Registration  Statement
                        on Form S-8  filed  with  the  Securities  and  Exchange
                        Commission on November 20, 2000, No. 333-50292).

            10.1*       1993  Stock  Plan as  amended,  and  form  of  agreement
                        thereto (incorporated by reference to Exhibit 4.1 to the
                        Registrant's  Registration  Statement  on Form S-8 filed
                        with the Securities and Exchange  Commission on November
                        20, 2000, No. 333-50292).

            10.2*       1998 Employee Stock  Purchase Plan as amended,  and form
                        of  agreements  thereto  (incorporated  by  reference to
                        Exhibit  10.1  to the  Registrant's  Form  10-Q  for the
                        fiscal quarter ended September 28, 2002).

            10.3*       1995  Director  Option  Plan  as  amended,  and  form of
                        agreement thereto  (incorporated by reference to Exhibit
                        10.4 to the  Registrant's  Form 10-K for the fiscal year
                        ended June 30, 1997 (the "1997 Form 10-K")).


                                       55
<PAGE>

            10.4        Form of Indemnification Agreement between the Registrant
                        and  its  officers  and   directors   (incorporated   by
                        reference to Exhibit 10.5 to the 1995 Form S-1).

            10.5        Office  Building  Lease  between  Registrant  and Puente
                        Hills Business  Center II dated May 20, 1993, as amended
                        (incorporated by reference to Exhibit 10.6.2 to the 1995
                        Form S-1).

            10.6        Lease  Agreement  dated as of April 30, 1998 between the
                        Registrant and the Joseph and Eda Pell  Revocable  Trust
                        dated  August 18, 1989  (incorporated  by  reference  to
                        Exhibit 10.9 to the 1998 Form 10-K).

            10.7        Lease   Agreement   dated  June  1,  1998   between  the
                        Registrant and Technology  Centre Associates LLC for the
                        premises  located  at 180 Rose  Orchard  Way,  San Jose,
                        California  (incorporated  by reference to Exhibit 10.10
                        to the 1998 Form 10-K).

            10.8        First  Amendment to Lease  Agreement  dated June 1, 1998
                        between the Registrant and Technology  Centre Associates
                        LLC dated July 31, 1998  (incorporated  by  reference to
                        Exhibit 10.10.1 to the 1998 Form 10-K).

            10.9        Lease  Agreement  dated June 1, 1998 between  Registrant
                        and  Technology  Centre  Associates LLC for the premises
                        located at 150 Rose Orchard  Way,  San Jose,  California
                        (incorporated  by  reference  to  Exhibit  10.2  to  the
                        Registrant's  Form  10-Q for the  fiscal  quarter  ended
                        September   30,  2000  (the  "2001  First  Quarter  Form
                        10-Q")).

            10.10       Second Amendment to Lease Agreement dated March 31, 2000
                        between  Registrant and Technology Centre Associates LLC
                        dated  July  31,  1998  (incorporated  by  reference  to
                        Exhibit 10.10.3 to the 2000 Form 10-K).

            10.11       First Addendum to Lease  Agreement dated August 18, 1999
                        between  Registrant  and Joseph  and Eda Pell  Revocable
                        Trust dated August 18, 1989  (incorporated  by reference
                        to Exhibit 10.24 to the 2000 Form 10-K).

            10.12       Lease  Agreement  dated May 19, 2000 between  NanoMotion
                        Inc.  and United  Insurance  Co. of America for premises
                        located at Santa Barbara,  California  (incorporated  by
                        reference to Exhibit 10.10.6 to the 2000 Form 10-K).

            10.13**     Original   Equipment   Manufacturer   Agreement  between
                        Registrant and Hirata Corporation dated January 31, 1995
                        (incorporated  by reference to Exhibit 10.31 to the 2000
                        Form 10-K/A).

            10.14**     Original  Equipment   Manufacturing   Agreement  between
                        Registrant and Yaskawa  Electric Corp.  dated August 29,
                        2000  (incorporated by reference to Exhibit 10.34 to the
                        2000 Form 10-K/A).

            10.15       Industrial  R&D Lease  Agreement  dated October 31, 2000
                        between  Registrant  and  Tri-Valley  Campus  I, LLC for
                        premises located at Livermore,  California (incorporated
                        by reference  to Exhibit 10.1 to the 2001 First  Quarter
                        Form 10-Q).

            10.16       Amendment  No.  1 dated  September  9,  1997  to  Office
                        Building  Lease  between  Registrant  and  Puente  Hills
                        Business Center II dated May 20, 1993  (incorporated  by
                        reference to Exhibit 10.3 to the 2001 First Quarter Form
                        10-Q).

            10.17       Amendment  No. 2 dated June 17, 1998 to Office  Building
                        Lease  between  Registrant  and  Puente  Hills  Business
                        Center II dated May 20, 1993  (incorporated by reference
                        to Exhibit 10.4 to the 2001 First Quarter Form 10-Q).

            10.18**     Supply,  Development and License Agreement dated October
                        22,  2002,  between  the  Registrant  and  JDS  Uniphase
                        Corporation  (incorporated  by reference to Exhibit 10.1
                        to the 2002 First Quarter 10-Q).


                                       56
<PAGE>

            10.19*      2001 Stock  Option Plan  (incorporated  by  reference to
                        Exhibit 74.1 to the Registrant's  Registration Statement
                        on Form S-8  filed  with  the  Securities  and  Exchange
                        Commission on October 11, 2001 (No. 333-71374).

            10.20       Letter  Agreement and Note  effective as of November 30,
                        2002 between the Registrant and JDS Uniphase Corporation
                        (incorporated by reference to the Registrant's  Form 8-K
                        as filed with the Securities and Exchange  Commission on
                        January 22, 2003).

            10.21       Amended Second  Anniversary Note Agreement  effective as
                        of December  13, 2002  between  the  Registrant  and the
                        Holcomb  Family  Trust  (incorporated  by  reference  to
                        Exhibit 10.2 to the 2003 Second Quarter 10-Q).

            10.22       Accounts Receivable Purchase Agreement dated as of March
                        21, 2003 between the  Registrant and Silicon Valley Bank
                        (incorporated  by  reference  to  Exhibit  10.1  to  the
                        Registrant's  Quarterly  Report  on  Form  10-Q  for the
                        fiscal  quarter  ended  March 29,  2003 (the "2003 Third
                        Quarter 10-Q")).

            10.23       Intellectual  Property  Security  Agreement  dated as of
                        March 21, 2003 between the Registrant and Silicon Valley
                        Bank  (incorporated  by reference to Exhibit 10.2 to the
                        2003 Third Quarter 10-Q).

            10.24       Warrant to  Purchase  Stock  dated as of March 21,  2003
                        between  the   Registrant   and   Silicon   Valley  Bank
                        (incorporated  by  reference to Exhibit 10.2 to the 2003
                        Third Quarter 10-Q).

            10.25       Convertible  Subordinated  Note issued by  Registrant to
                        Tri-Valley    Campus,   LLC   dated   August   6,   2003
                        (incorporated   by  reference  to  Exhibit  4.1  to  the
                        Registrant's  Current  Report on Form 8-K filed with the
                        Securities and Exchange Commission on August 8, 2003).

            10.26       Lease  Amendment  dated as of August 6, 2003 between the
                        Registrant and Tri-Valley Campus LLC.

            21.1        Subsidiaries of the Registrant.

            23.1        Consent of Independent Auditors.

            24.1        Power  of  Attorney  (See  Signature  Page to this  Form
                        10-K).

            31.1        Certification by the Chief Executive Officer Pursuant to
                        Rule  13a-14(a)/15d-14(a)  under the Securities Exchange
                        Act of 1934 as adopted  pursuant  to Section  302 of the
                        Sarbanes-Oxley Act of 2002.

            31.2        Certification by the Chief Financial Officer Pursuant to
                        Rule  13a-14(a)/15d-14(a)  under the Securities Exchange
                        Act of 1934 as adopted  pursuant  to Section  302 of the
                        Sarbanes-Oxley Act of 2002.

            32.1        Certification  by the Chief  Executive  Officer  and the
                        Chief Financial  Officer  Pursuant to 18 U.S.C.  Section
                        1350,  as  adopted   pursuant  to  Section  906  of  the
                        Sarbanes-Oxley Act of 2002.

*     Management contract or compensatory plan or arrangement.
**    Confidential  treatment has been requested as to certain  portions of this
      exhibit.  An unredacted  version of this exhibit has been filed separately
      with the SEC.
+     Schedules have been omitted and will be provided to the SEC upon request.

(b) Reports on Form 8-K.

On April 14, 2003, a Form 8-K was filed by Adept  announcing  that, on April 11,
2003, it received a notice from Nasdaq  indicating that its securities  would be
delisted  from The Nasdaq  Stock  Market as of the open of  business on Tuesday,
April 15, 2003.


                                       57
<PAGE>

On April  23,  2003,  a Form 8-K was  filed by Adept  announcing  its  financial
results for its third fiscal quarter ended March 29, 2003.

On  August  6,  2003,  a Form  8-K was  filed by  Adept  announcing  that it had
restructured  its  lease   obligations  with  the  landlord  of  its  Livermore,
California  facilities  and  announcing  its  financial  results  for its fourth
quarter ended June 30, 2003.

(c) Exhibits. See Item 15(a)(3) above.

(d) Financial Statement Schedules. See Item 15(a)(2) above.


                                       58
<PAGE>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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: September 29, 2003


                                       59
<PAGE>

                                POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE  PRESENTS,  that each person whose  signature  appears
below  constitutes and appoints Brian R. Carlisle and Michael W. Overby and each
of them, his true and lawful  attorneys-in-fact and agents, each with full power
of  substitution  and  resubstitution,  to sign any and all  amendments  to this
Annual Report on Form 10-K and to file the same,  with all exhibits  thereto and
other  documents  in  connection  therewith,  with the  Securities  and Exchange
Commission,  granting unto said  attorneys-in-fact and agents, and each of them,
full  power  and  authority  to do and  perform  each and  every  act and  thing
requisite  and  necessary to be done in  connection  therewith,  as fully to all
intents and purposes as he or she might or could do in person,  hereby ratifying
and confirming all that said  attorneys-in-fact  and agents, or their substitute
or substitutes, or any of them, shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
           Signature                                Title                                 Date
           ---------                                -----                                 ----
<S>                              <C>                                                <C>
     /s/ Brian R. Carlisle       Chairman of the Board of Directors and Chief       September 29, 2003
     ---------------------       Executive Officer (Principal Executive Officer)
      (Brian R. Carlisle)

     /s/ Michael W. Overby       Vice President, Finance and Chief Financial        September 29, 2003
     ---------------------
      (Michael W. Overby)        Officer (Principal Financial and Accounting
                                 Officer)

     /s/ Bruce E. Shimano        Vice President, Research and Development,          September 29, 2003
     --------------------        Secretary and Director
      (Bruce E. Shimano)

     /s/ Ronald E. F. Codd       Director                                           September 29, 2003
     ---------------------
      (Ronald E. F. Codd)

     /s/ Michael P. Kelly        Director                                           September 29, 2003
     --------------------
      (Michael P. Kelly)

       /s/ Cary R. Mock          Director                                           September 29, 2003
       ----------------
        (Cary R. Mock)
</TABLE>


                                       60
<PAGE>

                   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                             ADEPT TECHNOLOGY, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Ernst & Young, LLP, Independent Auditors..........................  62

Consolidated Balance Sheets at June 30, 2003 and June 30, 2002..............  63

Consolidated Statements of Operations for each of the three years
 in the period ended June 30, 2003..........................................  64

Consolidated Statements of Cash Flows for each of the three years
 in the period ended June 30, 2003..........................................  65

Consolidated Statements of Shareholders' Equity (Deficit) for each of
 the three years in the period ended June 30, 2003..........................  66

Notes to Consolidated Financial Statements..................................  67


                                       61
<PAGE>

                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Shareholders and Board of Directors
Adept Technology, Inc.

We  have  audited  the  accompanying   consolidated   balance  sheets  of  Adept
Technology,  Inc.  as of June 30, 2003 and 2002,  and the  related  consolidated
statements of operations,  shareholders'  equity  (deficit),  and cash flows for
each of the three  years in the period  ended  June 30,  2003.  Our audits  also
included the financial  statement schedule listed in the Index as Item 15(a)(2).
These financial  statements and schedule are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of Adept
Technology,  Inc. at June 30, 2003 and 2002, and the consolidated results of its
operations  and its cash flows for each of the three  years in the period  ended
June 30, 2003, in conformity with accounting  principles  generally  accepted in
the United  States.  Also,  in our  opinion,  the  related  financial  statement
schedule,  when  considered in relation to the basic  financial  statements as a
whole,  presents  fairly in all  material  respects  the  information  set forth
therein.

The accompanying  consolidated  financial statements have been prepared assuming
that Adept  Technology,  Inc.  will continue as a going  concern.  As more fully
described in Note 1, the Company has incurred recurring  operating losses, has a
net capital  deficiency  and has  experienced  declining  cash  balances.  These
conditions raise  substantial doubt about the Company's ability to continue as a
going concern.  Management's plans in regard to these matters are also described
in Note 1. The financial  statements do not include any  adjustments  to reflect
the possible future effects on the  recoverability  and classification of assets
or the  amounts  and  classification  of  liabilities  that may result  from the
outcome of this uncertainty.

As  described  in Note 4, the  Company has changed on July 1, 2001 its method of
accounting  for goodwill  upon  adoption of  Statement  of Financial  Accounting
Standards No. 142, Goodwill and Other Intangible Assets.

                                                  /s/ Ernst & Young LLP

San Jose, California
August 4, 2003


                                       62
<PAGE>

                             ADEPT TECHNOLOGY, INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                         June 30,          June 30,
                                                                                                           2003              2002
                                                                                                           ----              ----
ASSETS                                                                                                         (in thousands)
<S>                                                                                                     <C>               <C>
Current assets:
     Cash and cash equivalents .................................................................        $   3,234         $  17,375
     Short-term investments ....................................................................               --             4,306
     Accounts receivable, less allowance for doubtful accounts of $1,124 in
          2003 and $832 in 2002 ................................................................           10,948            12,500
     Inventories ...............................................................................            7,122            11,189
     Deferred tax assets and other current assets ..............................................              717               854
                                                                                                        ---------         ---------
         Total current assets ..................................................................           22,021            46,224

Property and equipment at cost .................................................................           11,751            12,688
Less accumulated depreciation and amortization .................................................            8,591             6,965
                                                                                                        ---------         ---------
Property and equipment, net ....................................................................            3,160             5,723
Goodwill .......................................................................................            7,671             6,889
Other intangibles, net .........................................................................            1,176             1,124
Other assets ...................................................................................            1,753             2,534
                                                                                                        ---------         ---------
         Total assets ..........................................................................        $  35,781         $  62,494
                                                                                                        =========         =========

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
     Accounts payable ..........................................................................        $   6,094         $   6,561
     Accrued payroll and related expenses ......................................................            1,535             2,463
     Accrued warranty ..........................................................................            1,833             1,566
     Deferred revenue ..........................................................................            1,145               637
     Accrued restructuring charges .............................................................            3,122             1,909
     Accrued liabilities related to business acquisitions ......................................              135             2,730
     Short term debt ...........................................................................               97                --
     Other accrued liabilities .................................................................              879             1,368
                                                                                                        ---------         ---------
         Total current liabilities .............................................................           14,840            17,234

Long term liabilities:
     Restructuring charges .....................................................................              383             1,450
     Subordinated convertible note .............................................................            3,007                --
     Other long-term liabilities ...............................................................            4,134             2,906

Commitments and contingencies

Redeemable convertible preferred stock, no par value:
  5,000 shares authorized, 100 shares issued and outstanding at
  June 30, 2003 and 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, 15,392 shares issued
    and outstanding in 2003, and 14,051 shares in 2002 .........................................          108,869           107,384
 Accumulated deficit ...........................................................................         (120,452)          (91,480)
                                                                                                        ---------         ---------
         Total shareholders' equity (deficit) ..................................................          (11,583)           15,904
                                                                                                        ---------         ---------
         Total liabilities, redeemable convertible preferred stock and
shareholders'  equity (deficit) ................................................................        $  35,781         $  62,494
                                                                                                        =========         =========
</TABLE>


                                       63
<PAGE>

                             ADEPT TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                  Year Ended June 30,
                                                                                                  -------------------
                                                                                        2003              2002               2001
                                                                                      ---------         ---------         ---------
                                                                                         (in thousands, except per share data)
<S>                                                                                   <C>               <C>               <C>
Net revenues .................................................................        $  44,816         $  57,039         $ 100,313
Cost of revenues .............................................................           34,076            37,868            65,303
                                                                                      ---------         ---------         ---------
Gross margin .................................................................           10,740            19,171            35,010
Operating expenses:
      Research, development and engineering ..................................           11,719            20,398            22,727
      Selling, general and administrative ....................................           22,001            28,994            36,002
      Restructuring charges ..................................................            5,324            17,659                --
      Amortization of goodwill and other intangibles .........................              728               725             6,818
      Impairment of goodwill .................................................               --             6,608                --
      Gain on sale of assets .................................................               --            (1,566)               --
                                                                                      ---------         ---------         ---------
Total operating expenses .....................................................           39,772            72,818            65,547
                                                                                      ---------         ---------         ---------

Operating loss ...............................................................          (29,032)          (53,647)          (30,537)

Interest income ..............................................................              284               441               745
Interest expense .............................................................              193                 3                12
                                                                                      ---------         ---------         ---------

Loss before income taxes and cumulative effect of change in
  accounting principle .......................................................          (28,941)          (53,209)          (29,804)
Provision for (benefit from) income taxes ....................................               31            (3,358)            5,396
                                                                                      ---------         ---------         ---------
Loss before cumulative effect of change in accounting principle ..............          (28,972)          (49,851)          (35,200)
Cumulative effect of change in accounting principle ..........................               --            (9,973)               --
                                                                                      ---------         ---------         ---------
Net loss .....................................................................        $ (28,972)        $ (59,824)        $ (35,200)
                                                                                      =========         =========         =========

Basic and diluted net loss per share:

      Before cumulative effect of change in accounting principle .............        $   (1.94)        $   (3.64)        $   (3.02)
      Cumulative effect of change in accounting principle ....................               --             (0.73)               --
                                                                                      ---------         ---------         ---------
      After cumulative effect of change in accounting principle ..............        $   (1.94)        $   (4.37)        $   (3.02)
                                                                                      =========         =========         =========

Number of shares used in computing per share amounts:

      Basic ..................................................................           14,955            13,691            11,637
                                                                                      =========         =========         =========
      Diluted ................................................................           14,955            13,691            11,637
                                                                                      =========         =========         =========
</TABLE>

                             See accompanying notes.


                                       64
<PAGE>

                             ADEPT TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                      Year Ended June 30,
                                                                                                      -------------------
                                                                                                        (in thousands)
                                                                                               2003           2002           2001
                                                                                             --------       --------       --------
<S>                                                                                          <C>            <C>            <C>
Operating activities
 Net loss .............................................................................      $(28,972)      $(59,824)      $(35,200)
 Adjustments to reconcile net loss to net cash used in operating activities:
    Cumulative effect of change in accounting principle ...............................            --          9,973             --
    Depreciation ......................................................................         2,772          3,011          3,646
    Amortization of intangibles .......................................................           728            725          6,818
    Non-cash  interest expense ........................................................            20             --             --
    Asset impairment charges ..........................................................           318          9,167             --
    Goodwill impairment ...............................................................            --          6,608             --
    Provision for inventory ...........................................................         1,541             --          4,839
    Deferred income taxes .............................................................            18            134          4,971
Loss on disposal of property and equipment ............................................            16            461             37
    Gain on sale of assets ............................................................            --         (1,566)            --
    Changes in operating assets and liabilities, net of effects of acquisitions:
       Accounts receivable ............................................................         1,566          9,384          4,358
       Inventories ....................................................................         2,591          3,469         (7,436)
       Prepaid expenses and other current assets ......................................           124          1,247            303
       Other assets ...................................................................           781          1,986         (1,024)
       Accounts payable ...............................................................          (602)        (4,114)        (1,207)
       Other accrued liabilities ......................................................        (3,358)        (2,058)           (12)
       Accrued restructuring charges ..................................................           146          3,359             --
       Subordinated Convertible Note ..................................................         3,007             --             --
       Other long term liabilities ....................................................         1,228           (147)           589
                                                                                             --------       --------       --------
    Net cash used in operating activities .............................................       (18,076)       (18,185)       (19,318)
                                                                                             --------       --------       --------

Investing activities
    Business acquisitions .............................................................          (198)        (8,365)        (7,050)
    Purchase of property and equipment ................................................          (371)        (1,475)        (8,523)
    Proceeds from sale of assets ......................................................            --          1,729             --
    Purchases of short-term available-for-sale investments ............................        (9,275)       (35,906)       (36,500)
    Sales of short-term available-for-sale investments ................................        13,581         34,400         40,650
                                                                                             --------       --------       --------
    Net cash (used in) provided by investing activities ...............................         3,737         (9,617)       (11,423)
                                                                                             --------       --------       --------

Financing activities
    Proceeds from issuance of redeemable convertible preferred stock ..................            --         25,000             --
    Proceeds from issuance of common stock, net .......................................            --             --         32,424
    Proceeds from employee stock incentive program and employee
       stock purchase plan, net of repurchases and cancellations ......................           198          1,477          3,530
                                                                                             --------       --------       --------
    Net cash provided by financing activities .........................................           198         26,477         35,954
                                                                                             --------       --------       --------
Increase (decrease) in cash and cash equivalents ......................................       (14,141)        (1,325)         5,213
Cash and cash equivalents, beginning of period ........................................        17,375         18,700         13,487
                                                                                             --------       --------       --------
Cash and cash equivalents, end of period ..............................................      $  3,234       $ 17,375       $ 18,700
                                                                                             ========       ========       ========

Supplemental disclosure of non-cash activities:

Issuance of common stock pursuant to terms of Meta acquisition agreement ..............      $    825       $     --       $     --
Issuance of common stock pursuant to terms of HexaVision
 acquisition agreement ................................................................      $     --       $  1,213       $     --
Issuance of common stock pursuant to terms of CHAD acquisition agreement ..............      $    442       $  1,556       $     --
Cash paid during the period for:
 Interest .............................................................................      $    133       $      5       $     12
 Taxes paid (refunded) ................................................................      $     (7)      $ (2,903)      $   (264)
</TABLE>

                             See accompanying notes.


                                       65
<PAGE>

                             ADEPT TECHNOLOGY, INC.
            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                                                      Retained             Total
                                                                          Common Stock                Earnings/        Shareholders'
                                                                     ------------------------       (Accumulated          Equity
                                                                     Shares          Amount            Deficit)          (Deficit)
                                                                     ------         ---------         ---------          ---------
                                                                              (in thousands)
<S>                                                                  <C>            <C>               <C>                <C>
Balance at June 30, 2000 .................................           10,677         $  67,184         $   3,544          $  70,728

       Common stock issued under employee stock
          incentive program and employee stock
          purchase plan ..................................              488             3,530                --              3,530
       Common stock issued in conjunction with
          follow-on offering (less issuance
          costs of $1,056) ...............................            2,000            32,424                --             32,424
       Net loss and comprehensive loss ...................               --                --           (35,200)           (35,200)
                                                                  ---------         ---------         ---------          ---------

  Balance at June 30, 2001 ...............................           13,165         $ 103,138         $ (31,656)         $  71,482

       Common stock issued under employee stock
          incentive program and employee stock
          purchase plan ..................................              555             1,477                --              1,477
       Common stock issued in connection with
          acquisitions ...................................              331             2,769                --              2,769
       Net loss and comprehensive loss ...................               --                --           (59,824)           (59,824)
                                                                  ---------         ---------         ---------          ---------

  Balance at June 30, 2002 ...............................           14,051         $ 107,384         $ (91,480)         $  15,904

       Common stock issued under employee stock
          incentive program and employee stock
          purchase plan ..................................              554               198                --                198
       Common stock issued in connection with
          acquisitions ...................................              787             1,267                --              1,267
       Warrants issued in connection with
          financing arrangement ..........................               --                20                --                 20
       Net loss and comprehensive loss ...................               --                --           (28,972)           (28,972)
                                                                  ---------         ---------         ---------          ---------

  Balance at June 30, 2003 ...............................           15,392         $ 108,869         $(120,452)         $ (11,583)
                                                                  =========         =========         =========          =========
</TABLE>

                             See accompanying notes.


                                       66
<PAGE>

                             ADEPT TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Company and Summary of Significant Accounting Policies

Company

Adept  Technology,  Inc.  ("Adept" or the "Company") was incorporated  under the
laws of the  state  of  California  on  June  14,  1983.  The  Company  designs,
manufactures and sells factory  automation  components and systems for the food,
communications,   automotive,   appliance,   semiconductor   and  life  sciences
industries throughout the world.

The Company has experienced  declining revenues and incurred operating losses in
each of the last three fiscal  years.  During this period,  the Company has also
consumed  significant  cash and other  financial  resources,  and  presently has
minimal  liquidity.  The Company had a net capital  deficiency of $11.6 million.
During this period,  the Company has also  consumed  significant  cash and other
financial resources,  and presently has minimal liquidity.  In response to these
conditions,  the Company  reduced  operating costs and employee  headcount,  and
restructured certain operating lease commitments in fiscal 2002 and fiscal 2003.
During the fourth quarter of fiscal 2003,  the Company  reduced its headcount by
an additional 7% of its total employees,  which it expects to fully implement in
the second quarter of fiscal 2004. These adjustments to its operations have also
significantly reduced its cash consumption. Finally, the Company is accelerating
the phase-in of newer generation products that it expects will reduce the amount
of  inventory  that Adept will need to  maintain.  In  addition,  the Company is
seeking various debt and equity financing  alternatives to improve its near term
liquidity,  and continues to pursue  additional  outside sources of financing to
address future working capital requirements.

As of June 30,  2003,  the  Company had working  capital of  approximately  $7.2
million,  including  $3.2 million in cash and cash  equivalents.  The Company is
currently  litigating  with the landlord of its San Jose facility  regarding its
lease obligations for that facility.  The Company has vacated and no longer pays
rent on this facility.  The Company has recorded  expenses in the amount of $2.3
million for the remaining  unpaid rent associated with this lease;  however,  it
has not  reserved  the cash  associated  with such  unpaid  rent  expenses.  The
Company's cash usage for the fourth quarter of fiscal 2003 and its  expectations
for cash  usage for the  first two  quarters  of fiscal  2004 are  significantly
impacted by its nonpayment of rent for this facility.  If the Company receives a
material  adverse  judgment in the San Jose lease  litigation  and does not have
control  of the timing of the  payments  of any such  judgment,  it may not have
sufficient  cash to meet its  obligations  and therefore,  it may be required to
cease operations. For a description of this litigation, see "Legal Proceedings."

Even if the Company  does not receive an adverse  judgment in the San Jose lease
litigation,  if the  results  of its search for  additional  outside  sources of
financing is unsuccessful,  or if adequate funds are not available on acceptable
terms or at all and the Company is unable to achieve its  projected  revenues or
if operating  expenses exceed current  estimates,  the Company will be forced to
curtail its  operations  and the Company  may not be able to take  advantage  of
market opportunities,  develop or enhance new products, pursue acquisitions that
would  complement  its  existing  product  offerings  or enhance  its  technical
capabilities,  execute its  business  plan or otherwise  respond to  competitive
pressures  or  unanticipated  requirements.  Even  if  the  Company  complete  a
financing,  the  transaction  is likely to  involve  the  incurrence  of debt or
issuance  of  debt or  equity  securities  of  Adept,  which  would  dilute  the
outstanding equity.

The  consolidated  financial  statements have been prepared  assuming that Adept
will continue as a going  concern.  The financial  statements do not include any
adjustments  to reflect the possible  future effects on the  recoverability  and
classification  of assets or the amounts and  classification of liabilities that
may result from the outcome of this uncertainty.

Basis of Presentation

The accompanying  consolidated financial statements as of June 30, 2003 and 2002
and for each of the three years in the period ended June 30,  2003;  include the
accounts  of  Adept  and  its  wholly  owned   subsidiaries.   All   significant
intercompany transactions and balances are eliminated upon consolidation.


                                       67
<PAGE>

Unless  otherwise   indicated,   references  to  any  year  in  these  Notes  to
Consolidated  Financial Statements refer to the Company's fiscal year ended June
30.

Use of Estimates

The  preparation  of the  financial  statements in  conformity  with  accounting
principles  generally accepted in the United States requires  management to make
estimates and assumptions that affect reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Foreign Currency Translation

The Company applies Financial Accounting Standards Board Statement No. 52 ("SFAS
52"),  "Foreign  Currency   Translation,"  with  respect  to  its  international
operations,  which are sales and service entities.  The accounts  denominated in
non-U.S.  currencies  have  been  re-measured  using  the  U.S.  dollar  as  the
functional  currency.  All monetary assets and liabilities are remeasured at the
current  exchange  rate  at the  end  of  the  period,  nonmonetary  assets  and
liabilities  are  remeasured  at  historical  exchange  rates,  and revenues and
expenses are  remeasured at average  exchange rates in effect during the period.
Translation  gains (losses)  resulting  from the process of remeasuring  foreign
currency  financial  statements  into U.S.  dollars were  $26,000,  $191,000 and
($119,000) in 2003, 2002 and 2001,  respectively.  Foreign currency  transaction
gains (losses) were $495,000,  ($786,000) and ($326,000) in 2003, 2002 and 2001,
respectively.  Foreign currency  transaction and translation  gains (losses) are
recorded as a component of selling,  general and administrative  expenses in the
accompanying statement of operations.

Cash, Cash Equivalents and Short-term Investments

The Company considers all highly liquid  investments  purchased with an original
maturity of three months or less to be cash equivalents.  Short-term investments
in marketable securities consist principally of debt instruments with maturities
between three and 12 months.  Investments  are  classified as  held-to-maturity,
trading, or available-for-sale at the time of purchase.

At June 30, 2002, all of the Company's investments in marketable securities were
classified as  available-for-sale  and were carried at fair market value,  which
approximated  cost. The Company has no short-term  investments at June 30, 2003.
Fair market value is based on quoted  market prices on the last day of the year.
The cost of the securities is based upon the specific identification method.

                                                             June 30,
                                                             --------
                                                         2003         2002
                                                         ----         ----
                                                          (in thousands)
       Cash and cash equivalents
          Cash................................        $   3,196    $   6,709
          Money market funds..................               38       10,666
                                                      ---------    ---------
       Cash and cash equivalents..............        $   3,234    $  17,375
                                                      =========    =========

       Short-term investments
            Certificates of deposit...........        $      --    $       6
            Auction rate securities...........               --        4,300
                                                      ---------    ---------
       Short-term investments.................        $      --    $   4,306
                                                      =========    =========

Realized  gains or losses,  interest,  and  dividends  are  included in interest
income.   Realized  and  unrealized  gains  or  losses  from  available-for-sale
securities were not material in 2003, 2002 or 2001.


                                       68
<PAGE>

Fair Values of Financial Instruments

Fair values of cash equivalents approximate cost due to the short period of time
to maturity. The estimated fair value of the Company's short- and long-term debt
approximated  its carrying value.  The estimated fair value of the debt is based
primarily  on  quoted  market  prices,  as well  as  borrowing  rates  currently
available to the Company for bank loans with similar terms and maturities.

Comprehensive Income

For the  three-year  period  ended  June 30,  2003,  there  were no  significant
differences between the Company's comprehensive loss and its net loss.

Inventories

Inventories are stated at the lower of standard cost, which approximates  actual
(first-in,  first-out  method) or market (estimated net realizable  value).  The
components of inventories are as follows:

                                                                 June 30,
                                                                 --------
                                                             2003        2002
                                                             ----        ----
                                                              (in thousands)
        Raw materials................................     $   2,422   $   4,952
        Work-in-process..............................         1,858       3,049
        Finished goods...............................         2,842       3,188
                                                          ---------   ---------
                                                          $   7,122   $  11,189
                                                          =========   =========
Warranties

The Company offers a two year parts and one 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 fiscal 2003 are as follows:

                                                        (in thousands)
        Balance at June 30, 2002                        $        1,566
        Warranties issued                                        1,583
        Additional warranty provision                              246
        Warranty claims                                         (1,252)
        Changes in liability for pre-existing
          warranties including expirations                        (310)
                                                        --------------
        Balance at June 30, 2003                        $        1,833

Accounts Receivable and Allowance for Doubtful Accounts

The Company manufactures and sells its products to system integrators, end users
and original equipment  manufacturers,  or OEMs, in diversified industries.  The
Company  performs  ongoing  credit  evaluations  of its  customers  and does not
require collateral.  However, the Company may require customers to make payments
in advance of shipment or to provide a letter of credit.

Adept maintains  allowances for doubtful accounts for estimated losses resulting
from the inability of its  customers to make  required  payments and such losses
have been  within  management's  expectations.  Adept  assesses  the  customer's


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<PAGE>

ability  to pay based on a number of  factors,  including  its 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  Company's  customer  payment  terms  when  evaluating  the  adequacy  of the
allowances for doubtful  accounts.  Adept does not generally request  collateral
from  its  customers.  If the  financial  condition  of the  customers  were  to
deteriorate  in the future,  resulting in an impairment of their ability to make
payments,  additional  allowances may be required.  Amounts  charged to bad debt
expense  were  $367,000,   $319,000  and  $214,000  in  2003,  2002,  and  2001,
respectively.

Loans to Employees

Loans to employees,  which consist of amounts advanced to non-officer  employees
of the  Company in  connection  with  employee  relocation  and  retention,  are
summarized as follows:

                                                          June 30,
                                                          --------
                                                       2003       2002
                                                       ----       ----
                                                       (in thousands)
       Short-term loans to employees............     $    25     $    25
       Long-term loans to employees.............         122         162
                                                     -------     -------
                                                     $   147     $   187
                                                     =======     =======

Short-term  loans to employees are included in other current  assets.  Long-term
loans to employees are included in other assets.

Property and Equipment

Property and equipment are recorded at cost.

The components of property and equipment are summarized as follows:

                                                                June 30,
                                                                --------
                                                           2003          2002
                                                           ----          ----
                                                             (in thousands)
 Cost:
      Machinery and equipment.......................    $   3,023    $   3,042
      Computer equipment............................        5,865        5,806
      Office furniture and equipment................        2,863        3,840
                                                        ---------    ---------
                                                           11,751       12,688
      Accumulated depreciation and amortization.....        8,591        6,965
                                                        ---------    ---------
      Net property and equipment....................    $   3,160    $   5,723
                                                        =========    =========

Depreciation  is computed  using the  straight-line  method  over the  estimated
useful lives of the assets, which range from three to five years.

Acquired Intangible Assets and Goodwill

Acquired  intangible  assets  consist of purchased  technology  and  non-compete
agreements  related  to the  Company's  acquisitions  accounted  for  using  the
purchase  method.  Prior to July 1,  2001,  and the  adoption  of  Statement  of
Financial Accounting Standard No. 142, amortization of these acquired intangible
assets and goodwill was calculated on a  straight-line  basis over the following
estimated useful lives of the assets:

      Purchased technology                        2-4 years
      Non-compete agreements                        4 years
      Goodwill                                    2-4 years

Effective July 1, 2001, goodwill is no longer amortized but rather is subject to
annual impairment tests.


                                       70
<PAGE>

Long-Lived Assets

The Company  periodically  assesses the impairment of long-lived  assets used in
operations  in  accordance   with  the  provisions  of  Statement  of  Financial
Accounting  Standards  No. 144 (SFAS 144),  "Accounting  for the  Impairment  or
Disposal of  Long-Lived  Assets," An  impairment  review is  performed  whenever
events or changes in  circumstances  indicate that the carrying value may not be
recoverable.  Factors the Company  considers  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 the
Company's overall business,  and significant  industry or economic trends.  When
the Company  determines that the carrying value of the long-lived assets may not
be recoverable  based upon the existence of one or more of the above indicators,
the Company  measures  any  impairment  based on a  discounted  future cash flow
method using a discount rate  commensurate with the risk inherent in its current
business model.

Revenue Recognition

The Company  recognizes  product  revenue in  accordance  with Staff  Accounting
Bulletin  No. 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 the Company's
normal payment terms, which are 30 to 90 days from the invoice date, the Company
accounts for the price as not being fixed and  determinable.  In these cases, if
all of the other  conditions  referred to above are met, the Company  recognizes
revenue as the invoice  becomes  due. In Japan,  the Company  sells its products
through a reseller,  and has separate  agreements with this reseller for each of
Adept's  product  lines that it sells.  For all RDA  Real-Time  Control  and RDA
Mechanical  Components  with  this  reseller,  the  Company  has a  pass-through
arrangement,  such that under this  arrangement,  the Company defers 100% of the
revenue upon  shipment and the reseller is not obligated to remit payment to the
Company until they receive  payment from the end user. When all other aspects of
SAB 101 have been satisfied,  the Company  recognizes  revenue upon payment from
the end user. For all other product lines, no pass through  arrangement  exists.
For these products the Company follows its normal revenue recognition policies.

The Company  recognizes  software  revenue,  primarily related to its simulation
software products, in accordance with the American Institute of Certified Public
Accountants'  Statement  of  Position  97-2  ("SOP  97-2") on  Software  Revenue
Recognition.  License revenue is recognized on shipment of the product  provided
that no significant vendor or post-contract  support obligations remain and that
collection  of the  resulting  receivable  is  deemed  probable  by  management.
Insignificant  vendor and  post-contract  support  obligations  are accrued upon
shipment 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 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.  Deferred revenue  primarily  relates to
items deferred under SAB 101.

Concentration of Credit Risk

Financial  instruments that potentially subject the Company to concentrations of
credit risk consist  primarily of cash  equivalents and trade  receivables.  The
Company  places  its cash  equivalents  and  short-term  investments  with  high
credit-quality  financial  institutions.  The Company invests its excess cash in
commercial paper,  readily marketable debt instruments and collateralized  funds
of  U.S.,  state  and  municipal  government  entities.  Adept  has  established
guidelines relative to credit ratings,  diversification and maturities that seek
to maintain  safety and liquidity.  The Company is exposed to credit risk in the
event  of  default  by the  financial  institutions  holding  the  cash and cash
equivalents to the extent of the amount recorded on the balance sheets in excess
of insured limits.


                                       71
<PAGE>

Research, Development and Engineering Costs

Research,  development  and  engineering  costs,  other than purchased  computer
software  and capital  equipment,  are  charged to expense  when  incurred.  The
Company has in the past offset research, development and engineering expenses by
the third party funding as the Company retains the rights to any technology that
is developed. The Company did not receive any third party funding in fiscal 2003
or fiscal 2002.  Third party funding in fiscal 2001 was $49,000.  The Company is
not presently a party to any such research and development arrangements.

Advertising Costs

Advertising  costs are expensed in the period incurred.  Advertising  costs were
$58,000 in 2003,  $161,000 in 2002,  and $307,000 in 2001.  The Company does not
incur any direct response advertising costs.

Income Taxes

The liability  method is used to account for income  taxes.  Deferred tax assets
and  liabilities  are  determined  based on  differences  between the  financial
reporting  and tax bases of assets and  liabilities  and are measured  using the
enacted  tax rates and laws that  will be in  effect  when the  differences  are
expected to reverse.

Stock-Based Compensation

In accordance with the provisions of Statement of Financial Accounting Standards
No. 123 ("SFAS 123"),  "Accounting for Stock-Based  Compensation" and "Statement
of  Financial  Accounting  Standards  No.  148  ("SFAS  148"),  "Accounting  for
Stock-Based  Compensation - Transition and Disclosure," Adept applies Accounting
Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to  Employees"
("APB 25") and related  interpretations in accounting for its stock option plans
and  stock   purchase  plan.   Accordingly,   the  Company  does  not  recognize
compensation  cost for stock options granted at fair market value. Note 9 of the
Notes to the Consolidated  Financial  Statements describes the plans operated by
Adept.

If compensation expense for the Company's stock option plans had been determined
based  upon fair  values at the grant  dates for  awards  under  those  plans in
accordance  with SFAS 123, the  Company's  pro forma net loss,  and net loss per
share would be as follows:

<TABLE>
<CAPTION>
                                                                                June 30th
                                                            -------------------------------------------------
                                                                2003               2002              2001
                                                                ----               ----              ----
                                                                               (In thousands)
<S>                                                         <C>                 <C>               <C>
 Net loss, as reported..............................        $  (28,972)        $   (59,824)      $   (35,200)
 Deduct:  Total stock based employee compensation
    expense determined under fair value based method
    for all awards, net of related tax effects.......           (2,379)             (7,372)           (7,965)
                                                            -----------         -----------      -----------
 Pro forma net loss..................................       $  (31,351)        $   (67,196)      $   (43,165)
                                                            ===========         ===========      ===========

 Basic and diluted loss per common share:
    As reported......................................       $    (1.94)        $     (4.37)      $     (3.02)
                                                            ==========         ===========       ===========
    Pro forma........................................       $    (2.10)        $     (4.91)      $     (3.71)
                                                            ==========         ===========       ===========
</TABLE>

Because the method of accounting  prescribed by SFAS 123 has not been applied to
options  granted  prior to July 1, 1995 and future years will include the impact
of future stock option grants, the resulting pro forma compensation cost may not
be representative of that to be expected in future years. The fair value of each
option grant is estimated  on the date of grant using the  Black-Scholes  option
pricing model with the following weighted-average  assumptions for grants during
the years ended June 30, 2003, 2002 and 2001:  risk-free interest rates of 3.53%
for 2003,  4.10% for 2002,  and 3.83% for 2001;  a dividend  yield of 0% for all
three years; a weighted-average expected life of 9.79 years for 2003, 7.86 years
for 2002 and 8.6 years for 2001; and a volatility  factor of the expected market
price of the Company's common stock of 1.70 for 2003, 1.74 for 2002 and 1.54 for
2001.  The  weighted  average  grant date fair  value of  options  was $0.14 for
options granted in 2003, $3.53 in 2002 and $18.86 in 2001.

Compensation  cost is estimated  for the fair value of the  employees'  purchase
rights  under  the  ESPP  using  the  Black-Scholes  model  with  the  following
assumptions  for rights  granted in 2003,  2002 and 2001: a dividend yield of 0%
for all three  years;  expected  life of five  months in 2003 and six months for


                                       72
<PAGE>

2002 and 2001;  expected volatility of 1.70 for 2003, 2.17 for 2002 and 1.17 for
2001; and a risk-free interest rate of 4.6% for 2003, 4.6% for 2002 and 5.6% for
2001. The weighted-average  fair market value of the purchase rights granted was
$1.18 for rights granted in 2003, $4.38 in 2002 and $8.19 for 2001.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition, option models require the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
employee stock options have characteristics  significantly  different from those
of traded  options,  and  because  changes  in the  subjective  assumptions  can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.

Net Income (Loss) Per Share

SFAS No. 128,  "Earnings Per Share" ("EPS"),  requires the presentation of basic
and diluted  EPS.  Basic EPS  excludes  dilution and is computed by dividing net
income (loss) available to common shareholders by the weighted-average number of
common  shares  outstanding  for the period.  Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were  exercised  or  converted  into common stock or resulted in the issuance of
common stock that then  participates  in the  earnings of the Company.  Dilutive
common equivalent shares consist of stock options  calculated using the treasury
stock method.

New Accounting Pronouncements

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 adoption of FIN 46 did not
have a material impact on its financial position or 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.

In November of 2002,  the Emerging  Issues Task Force (EITF) reached a consensus
on Issue No. 00-21,  "Revenue  Arrangements  with Multiple  Deliverables."  EITF
Issue No.  00-21  provides  guidance  on how to account  for  arrangements  that
involve the  delivery or  performance  of multiple  products,  services,  and/or
rights to use  assets.  The  provisions  of EITF  Issue No.  00-21 will apply to
revenue  arrangements  entered into in fiscal periods  beginning  after June 15,
2003.  The Company is currently  evaluating the effect that the adoption of EITF
Issue No. 00-21 will have on the  Company's  financial  condition and results of
operations.

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


                                       73
<PAGE>

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 July of 2002, the FASB issued SFAS No. 146,  "Accounting for Costs Associated
with  Exit or  Disposal  Activities."  SFAS  No.  146  addresses  the  financial
accounting  and  reporting for  obligations  associated  with an exit  activity,
including  restructuring,   or  with  a  disposal  of  long-lived  assets.  Exit
activities  include,  but are not limited to  eliminating  or  reducing  product
lines,  terminating employees and contracts,  and relocating plant facilities or
personnel.  SFAS No. 146 specifies  that a company will record a liability for a
cost  associated  with an exit or disposal  activity only when that liability is
incurred and can be measured at fair value.  Therefore,  a commitment to an exit
plan or a plan of disposal  expresses only the Company's intended future actions
and,  therefore,  does not meet the  requirement for recognizing a liability and
the  related  expense.  SFAS  No.  146 is  effective  prospectively  for exit or
disposal activities  initiated after December 31, 2002. The adoption of SFAS No.
146 did not have a  material  effect  on the  Company's  financial  position  or
results of operations.

Reclassifications

Certain amounts  presented in the  Consolidated  Balance Sheets and Consolidated
Statement of Cash Flows for fiscal years 2001 and 2002 have been reclassified to
conform to the 2003 presentation.

2. Mergers and Acquisitions

During  the  three-year  period  ended  June 30,  2003,  Adept  completed  three
acquisitions:

      o     Meta Control Technologies, Inc.,
      o     CHAD Industries Inc., and
      o     HexaVision Technologies Inc.

These acquisitions are described below.

Meta Control Technologies, Inc.

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 in escrow for the  benefit of Meta.  The  acquisition  agreement
provides that Adept will acquire all of these remaining shares in return for the
provision  of  discounts  and  royalty  payments  to  the  shareholder  and  its
affiliates  as  described  in the  paragraph  below but  will,  in any event and
regardless of whether discounts are incurred or royalties paid,  acquire 100% of
the stock of Meta no later than August 2008 for no additional consideration.

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 were placed into


                                       74
<PAGE>

escrow  for one year from the  completion  of the  acquisition  pending  certain
contingencies  pursuant to the terms of the  acquisition  agreement.  The escrow
shares were released to the former Meta shareholders.  Additionally, the Company
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 June 30, 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 (See Note 6). Additionally,
the Company  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.  In March 2003,  the  Company  and the former  shareholder
terminated  the $800,000 loan  agreement  and the Company  cancelled the 100,000
shares. No amounts were ever borrowed under the loan 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  developed  technology.  Goodwill  represents  the  excess  of the
purchase  price of the net tangible and  intangible  assets  acquired over their
fair value.  Developed  technology for the Meta  acquisitions is being amortized
over four years.

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
   Developed technology..........................                780
   Goodwill......................................                782
                                                          ----------
     Total.......................................         $    1,568
                                                          ==========

Pro forma  results for fiscal 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.

CHAD Industries Inc.

On October 9, 2001,  Adept  completed the  acquisition of all of the outstanding
shares of CHAD Industries Inc.  (CHAD),  now named Adept Orange  Corporation,  a
design and manufacturing  company  specializing in precision assembly automation
based in Orange,  California.  The  acquisition  of CHAD was a strategic step in
Adept's precision assembly  strategy.  Adept leverages CHAD's expertise in small
part feeding,  precision tooling design, and the handling of odd-form components
to add capacity in precision assembly  automation.  In addition,  Adept supports
CHAD's  line of  odd-form  component  assembly  machines.  The results of CHAD's
operations have been included in Adept's consolidated financial statements since
October 9, 2001.

Under terms of the  acquisition  agreement,  the purchase price of $10.1 million
includes an aggregate of $8.4 million in cash, $150,000 in transaction costs and
200,000  shares of Adept common stock valued at $1.6  million.  The value of the
200,000  shares  issued was  determined  based on the average  closing  price of
Adept's  stock over the period of five trading days prior to June 27, 2001,  the
date of entry into the definitive  agreement.  Of the $8.4 million in cash, $4.2
million was paid as of the closing date on October 9, 2001 $2.6 million was paid
on October 9, 2002 and on December  13,  2002,  CHAD and Adept  amended the $1.6
million second  anniversary  promissory note and the funds held in escrow in the
amount of the note were  released to Adept.  The second  anniversary  promissory
note was paid in full in February 2003. In addition,  the acquisition  agreement
provided  for  Adept to make cash  payments  of  $242,000  and  potential  stock
issuances  consisting  of 61,000 shares equal to  approximately  $467,000 over a
period of three years after the closing date to certain  specified  employees of
CHAD,  contingent on the continued employment of such employees.  As such, those
amounts have been  appropriately  excluded from the purchase price and are being
expensed  as paid.  As of June  30,  2003,  $65,000  in  contingent  cash and no
contingent  shares  remain  to be paid by  October  9,  2004  contingent  on the


                                       75
<PAGE>

continued  employment  of certain  specified  employees.  This  acquisition  was
accounted for under the purchase method of accounting.

The purchase price of CHAD was allocated,  based on an independent valuation, to
tangible  assets,  goodwill and developed  technology.  Goodwill  represents the
excess of the purchase price of the net tangible and intangible  assets acquired
over their fair value.  Developed  technology for the CHAD  acquisition is being
amortized over three years.

For the CHAD acquisition,  below is a table of the acquisition cost and purchase
price allocation.

Acquisition Cost:
   Cash paid on closing..........................         $    4,150
   Cash paid after one year......................              2,592
   Cash paid after two years.....................              1,615
   Stock issued at closing.......................              1,556
   Transaction costs.............................                150
                                                          ----------
     Total acquisition cost......................         $   10,063
                                                          ==========

 Purchase Price Allocation:
   Net book value of assets acquired.............         $      553
   Developed technology..........................                430
   Goodwill......................................              9,080
                                                          ----------
     Total.......................................         $   10,063
                                                          ==========

The following  unaudited pro forma summary  results of operations  data has been
prepared assuming that the CHAD acquisition had occurred at the beginning of the
period presented. The consolidated results are not necessarily indicative of the
results of future  operations  nor of results  that would have  occurred had the
acquisitions been consummated as of the beginning of the period presented.

(in thousands, except per share amounts)              2002          2001
                                                      ----          ----
Net revenues.............................           $ 57,846     $ 106,113
Net loss.................................           $(60,179)    $ (35,755)
Basic and diluted net loss per share.....           $  (4.39)    $   (3.07)

HexaVision Technologies Inc.

On July 21, 2000, Adept acquired  HexaVision  Technologies Inc., now named Adept
Technology Canada Co. ("HexaVision"),  a Canadian corporation.  HexaVision was a
machine  vision  research and  development  company.  Adept  initially paid $5.5
million in cash, which included  transaction  costs of $0.4 million,  and issued
shares of its common stock to the  shareholders  of  HexaVision  with a value of
$1.1 million.  The  acquisition  of HexaVision  has been accounted for under the
purchase  method of accounting.  Adept has included the results of operations of
HexaVision in Adept's results of operations beginning July 21, 2000. On July 21,
2001,  pursuant  to the terms of the share  purchase  agreement  relating to the
acquisition of HexaVision,  Adept issued 116,000 shares of its common stock with
a value of $1.1 million to the employees and former  shareholders  of HexaVision
and released  $313,000 in cash from an escrow account.  On July 21, 2002,  Adept
made a second cash payment of $53,000 and released  $1.4 million in cash from an
escrow  account to the  employees and former  shareholders  of  HexaVision.  The
contingency  payments made and shares issued to the employees of HexaVision have
been appropriately recorded as operating expenses. The contingency payments made
and shares issued to the former  shareholders  of HexaVision have been allocated
to goodwill and accounted for as additional purchase price.

The  purchase  price  of  HexaVision  was  allocated,  based  on an  independent
valuation,  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.  Other  intangible  assets  primarily
represent developed technology and non-compete covenants.  The allocation of the
purchase  price  is  based  upon an  independent  valuation  of the  assets  and
liabilities of HexaVision.


                                       76
<PAGE>

For the HexaVision  acquisition,  below is a table of the  acquisition  cost and
purchase price allocation:

(in thousands)
Acquisition Cost:
   Cash...............................            $     5,085
   Transaction costs..................                    409
Contingency payments and share issuances:
    Common stock......................                    794
    Cash..............................                  1,267
                                                  -----------
     Total acquisition cost...........            $     7,555
                                                  ===========

Purchase Price Allocation
   Net liabilities assumed............            $      (629)
   Developed and core technology......                    201
   Goodwill...........................                  7,983
                                                  -----------
     Total............................            $     7,555
                                                  ===========

As the  acquisition  was  completed on July 21, 2000,  pro forma results for the
fiscal  year ended June 30,  2001  would not differ  materially  from the actual
results.

3. Restructuring Charges

Fiscal 2002

During  the  fiscal  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 workforce.

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:

<TABLE>
<CAPTION>
                                                                            Amounts        Amounts        Amounts         Amounts
                                                             Charges       Utilized       Utilized       Utilized        Utilized
                                                             -------       Q1 Fiscal      Q1 Fiscal      Q2 Fiscal       Q2 Fiscal
         (in thousands)                                                      2002           2002           2002             2002
                                                                            -------        -------        -------        -----------
                                                                              Cash         Non Cash         Cash           Non Cash
                                                                            -------        -------        -------        -----------
<S>                                                          <C>            <C>            <C>            <C>            <C>
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        $        --
                                                             =======        =======        =======        =======        ===========
</TABLE>


                                       77
<PAGE>

<TABLE>
<CAPTION>
                                                 Amounts        Amounts         Amounts         Amounts
                                                Utilized       Utilized        Utilized         Utilized          Balance
                                                Q3 Fiscal      Q3 Fiscal       Q4 Fiscal        Q4 Fiscal         June 30,
         (in thousands)                            2002           2002           2002              2002             2002
                                                  ------         ------         ------         -----------         ------
                                                   Cash         Non Cash         Cash            Non Cash
                                                  ------         ------         ------         -----------
<S>                                               <C>            <C>            <C>            <C>                 <C>
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
                                                  ======         ======         ======         ===========         ======
</TABLE>

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,  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 had value to the
Company due to the closure of its Tucson, Arizona operations in March 2002.

Fiscal 2003

In response to continued  weakness in customer demand,  the Company  implemented
additional restructuring measures during fiscal 2003. The Company recorded total
restructuring  charges  of  $5.3  million  related  primarily  to the  continued
consolidation  of its domestic  facilities and  reductions in workforce.  Of the
$5.3 million in  restructuring  charges,  $1.1 million was recorded in the first
quarter of fiscal 2003, $2.0 million was recorded in the third quarter of fiscal
2003 and $2.2  million  was  recorded  in the  fourth  quarter  of fiscal  2003.
Employee  severance costs of $1.9 million  represent a reduction of 84 employees
in most functional  areas across all the reportable  business  segments,  and by
June 30, 2003,  all of the affected  employees  had ceased  employment  with the
Company and all  severance  payments  are expected to be completed by the second
quarter of fiscal 2004.  Lease  commitments of $3.1 million  resulted  primarily
from the closure of the  Company's  San Jose,  California  facility as part of a
continuing effort to consolidate  domestic  operations and administration in the
Company's   Livermore,   California   facility  and  the  restructure  of  lease
commitments   associated  with  excess  capacity  at  the  Company's  Livermore,
California  facility.  Asset impairment charges of $318,000 represent write-offs
of abandoned assets primarily related to the Company's San Jose facility.


                                       78
<PAGE>

The  following  table  summarizes  the  significant  components of the Company's
fiscal 2003 restructuring at June 30, 2003:

<TABLE>
<CAPTION>
                                                                                 Amounts      Amounts      Amounts         Amounts
                                                        Balance    Additional    Utilized    Utilized     Utilized        Utilized
                                                        June 30,    Charges     Q1 Fiscal    Q1 Fiscal    Q2 Fiscal       Q2 Fiscal
        (in thousands)                                   2002     Fiscal 2003      2003         2003         2003            2003
                                                         ----     -----------      ----         ----         ----            ----
                                                                                   Cash       Non Cash       Cash          Non Cash
                                                                                   ----       --------       ----          --------
<S>                                                     <C>          <C>          <C>          <C>          <C>          <C>
Employee severance costs ........................       $  126       $1,872       $  815       $   --       $  330       $        --
Lease commitments ...............................        3,139        3,134          416           --          416                --
Asset impairment charges ........................           94          318           --           15           --                --
                                                        ------       ------       ------       ------       ------       -----------
  Total .........................................       $3,359       $5,324       $1,231       $   15       $  746       $        --
                                                        ======       ======       ======       ======       ======       ===========
</TABLE>

<TABLE>
<CAPTION>
                                                        Amounts         Amounts           Amounts         Amounts
                                                       Utilized        Utilized          Utilized         Utilized           Balance
                                                       Q3 Fiscal       Q3 Fiscal         Q4 Fiscal        Q4 Fiscal         June 30,
        (in thousands)                                   2003             2003              2003             2003             2003
                                                        ------           ------            ------           ------           ------
                                                         Cash           Non Cash            Cash           Non Cash
                                                         ----           --------            ----           --------
<S>                                                     <C>              <C>               <C>              <C>              <C>
Employee severance costs .....................          $  524           $   --            $  145           $   --           $  184
Lease commitments ............................             430             (185)            1,875               --            3,321
Asset impairment charges .....................              --              253                95               49               --
                                                        ------           ------            ------           ------           ------
  Total ......................................          $  954           $   68            $2,115           $   49           $3,505
                                                        ======           ======            ======           ======           ======
</TABLE>

In  addition,  in March 2003,  the Company  revised 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 June 30, 2003, the restructuring  accrual
balance of $3.5 million is comprised  entirely of cash charges that are expected
to be paid over the next ten quarters,  primarily against  non-cancelable  lease
commitments.

4. Goodwill and Other Intangible Assets

Under SFAS 142, goodwill (and intangible assets deemed to have indefinite lives)
are  longer  amortized  but  are  subject  to  annual  impairment  tests.  Other
intangible assets with finite lives are amortized over those useful lives. Adept
implemented  SFAS  142 on July 1,  2001 and  completed  the  measurement  of the
impairment loss in the third quarter of fiscal 2002. An impairment loss of $10.0
million  resulting  from the  adoption of SFAS 142 was  recorded as a cumulative
effect of a change in accounting principle as of July 1, 2001. SFAS 142 requires
goodwill and intangible  assets to be evaluated for impairment at least annually
and we have chosen  April 1, as the annual date to conduct this  evaluation.  In
the fourth  quarter of fiscal 2002,  Adept  recorded an impairment  loss of $6.6
million  as a  component  of  operating  expenses  as a  result  of  the  annual
impairment  update.  The results of the Company's fiscal 2003 annual  impairment
testing did not indicate  impairment of the Company's  goodwill.  The impairment
charges are determined  using a fair value  approach,  using the discounted cash
flow method.

Prior to the  adoption  of SFAS  142,  amortization  expense  was  recorded  for
goodwill and other intangible  assets. The following sets forth a reconciliation
of net loss and loss per share  information  for the fiscal years 2003,  2002and
2001 adjusted for the non-amortization provisions of SFAS 142.

<TABLE>
<CAPTION>
                                                                                               Fiscal year ended
                                                                              ----------------------------------------------------
              (in thousands)                                                  June 30, 2003      June 30, 2002       June 30, 2001
                                                                              -------------      -------------       -------------
<S>                                                                             <C>                 <C>                 <C>
Net loss before cumulative effect of change
   in accounting principle .............................................        $(28,972)           $(49,851)           $(35,200)
Add back goodwill amortization .........................................              --                  --               6,097
                                                                                --------            --------            --------
Adjusted net income ....................................................        $(28,972)           $(49,851)           $(29,103)
Cumulative effect of change in accounting principle ....................              --              (9,973)                 --
                                                                                --------            --------            --------
Net loss after cumulative effect of change
   In accounting principle .............................................        $(28,972)           $(59,824)           $(29,103)
Weighted average shares outstanding:
   Basic ...............................................................          14,955              13,691              11,637
                                                                                ========            ========            ========
   Diluted .............................................................          14,955              13,691              11,637
                                                                                ========            ========            ========
Basic and diluted earnings per common share:
Reported loss before cumulative effect of
  change in accounting principle .......................................        $  (1.94)           $  (3.64)           $  (3.02)
Add back goodwill amortization .........................................              --                  --                0.52
                                                                                --------            --------            --------
Adjusted loss before cumulative effect of
  change in accounting principle .......................................        $  (1.94)           $  (3.64)           $  (2.50)
Cumulative effect of change in accounting
  principle ............................................................              --               (0.73)                 --
                                                                                --------            --------            --------
Adjusted net loss ......................................................        $  (1.94)           $  (4.37)           $  (2.50)
                                                                                ========            ========            ========
</TABLE>


                                       79
<PAGE>

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.

<TABLE>
<CAPTION>
    (in thousands)                                   June 30, 2003                                     June 30, 2002
                                         ----------------------------------------         ----------------------------------------
                                          Gross                             Net            Gross                             Net
                                         Carrying      Accumulated        Carrying        Carrying      Accumulated        Carrying
Amortized intangible assets               Amount       Amortization        Amount          Amount       Amortization        Amount
                                         -------         -------          -------         -------         -------          -------
                                                                              (in thousands)
<S>                                      <C>             <C>              <C>             <C>             <C>              <C>
Developed technology .............       $ 2,532         $(1,443)         $ 1,089         $ 1,751         $  (809)         $   942
Non compete agreements ...........           380            (293)              87             380            (198)             182
                                         -------         -------          -------         -------         -------          -------
Total ............................       $ 2,912         $(1,736)         $ 1,176         $ 2,131         $(1,007)         $ 1,124
                                         =======         =======          =======         =======         =======          =======
</TABLE>

The aggregate  amortization expense totaled $728,000 for the year ended June 30,
2003  and  $725,000  for  the  year  ended  June  30,  2002  and  the  estimated
amortization expense for the next four years are as follows:

             (in thousands)                   Amount
                                             -------

          For fiscal year 2004                  682
          For fiscal year 2005                  267
          For fiscal year 2006                  195
          For fiscal year 2007                   32
                                             ------
                                             $1,176
                                             ======

The changes in the carrying  amount of goodwill for the year ended June 30, 2003
are as follows:

<TABLE>
<CAPTION>
                       (in thousands)                            Components        Solutions         Totals
                                                                 ----------        ---------         ------
<S>                                                              <C>              <C>              <C>
Balance at June 30, 2002                                         $    2,394       $    4,495       $    6,889
Addition to goodwill for the acquisition of Meta (Note 2)               782               --              782
                                                                -----------       ----------       ----------
Balance at June 30, 2003                                         $    3,176       $    4,495       $    7,671
                                                                 ==========       ==========       ==========
</TABLE>

There is no goodwill related to the Services and Support segment.

5. 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  were  effective  as  hedges  of  assets  and  liabilities  were
recognized  in income as a  component  of selling,  general  and  administrative
expenses.  The Company recognized losses of $271,000 for the year ended June 30,
2003 and  $728,000  for the year ended June 30, 2002 and a gain of $322,000  for
the year ended June 30, 2001. 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.


                                       80
<PAGE>

6. Financing Arrangements

On August 30, 2002, in connection with the Meta acquisition, the Company assumed
a $500,000 revolving line of credit with Meta's lender,  Paragon Commercial Bank
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.  Additionally,  the  Company  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. In March 2003,
the Company and the former  shareholder  terminated  the $800,000 loan agreement
and the Company  cancelled  the 100,000  shares.  No amounts were ever  borrowed
under the loan agreement.

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 February 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.
Additionally,  the  Company  issued  Silicon  Valley  Bank a warrant to purchase
100,000  shares  of  Adept's  common  stock at a price of $1.00 per  share.  The
warrant may be exercised on or after September 21, 2003,  expires March 21, 2008
and was valued at $20,000 by the Company  using the Black Scholes  model.  As of
June 30, 2003, the Company had $97,000 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 $0.24  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 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.  Adept is required to meet certain covenants as defined by
the Purchase Agreement.  Adept was in compliance with these covenants as of June
30, 2003.

On August 6, 2003,  upon completion of the Company's  lease  restructuring  with
Tri-Valley Campus LLC,  Tri-Valley and the Company amended the lease relating to
the Company's Livermore,  California facilities (See Note 7). In connection with
the  lease  restructuring,   the  Company  issued  a  three-year,  $3.0  million
convertible  subordinated  note  due June  30,  2006 in  favor of the  landlord,
bearing an annual  interest  rate of 6.0%.  Interest is payable at the Company's
option in shares of the Company's  common stock.  The note is convertible at any
time at the option of the holder into the Company's common stock at a conversion
price of $1.00 per share and the resulting shares carry certain registration and
other rights. This liability was recorded as long term Subordinated  Convertible
Note in the accompanying balance sheet with a corresponding reduction in accrued
unpaid rent on Livermore  facilities and an additional  restructuring charge for
the excess of the note amount over accrued unpaid rent on Livermore  facilities.
Payment under the note will be accelerated in the event of a default,  including
the  insolvency or bankruptcy of the Company,  the Company's  failure to pay its
obligations  under the note when due, the Company's  default on certain material
agreements,  including the Livermore lease, the occurrence of a material adverse
change with respect to the Company's  business or ability to pay its obligations
under the note, or a change of control of Adept without the landlord's consent.


                                       81
<PAGE>

7. Commitments and Contingencies

Commitments

Future  minimum lease  payments  under  non-cancelable  operating  leases are as
follows:

         (in thousands)                                        Leases
                                                               ------
         Fiscal Year
           2004......................................        $   1,903
           2005......................................            1,760
           2006......................................            1,640
           2007......................................            1,399
           2008......................................            1,298
           Thereafter................................            3,742
                                                             ---------
         Total minimum lease payments................        $  11,742
                                                             =========

Rent  expense  was $6.6  million in 2003.  Rent  expense in fiscal 2002 was $6.4
million.  The Company did not record any sublease  income  during fiscal 2003 or
2002. Rent expense, net of sublease income of $16,000, was $4.1 million in 2001.

Rent  payments for Livermore  facilities  increase at a rate of 4.0% annually on
June 1st of each year.

In connection with the restructuring of the Livermore  facility lease, the lease
amendment  carries  liquidated  damages  in the  event of  default  on the lease
payments  equivalent to 1 year of rent obligations on the original lease. In the
event of Adept's bankruptcy or a failure to make payments to the landlord of the
Livermore,  California  facilities within three days after a written notice from
the landlord, a default would be triggered on the lease.

The Company had significant lease obligations for its California facilities. The
Company is currently in litigation with the landlord of its San Jose, California
facility regarding its outstanding lease  obligations.  The Company moved out of
its San Jose facility in March 2003 and no longer pays rent for that facility.

Contingencies

In March 2003, Adept vacated its San Jose facility and ceased paying rent on the
lease. In May 2003, DL Rose Orchard, L.P., owner of the property leased by Adept
at 150 Rose Orchard Way and 180 Rose Orchard Way in San Jose, California,  filed
an action against Adept in Santa Clara Superior  Court (NO.  CV817195)  alleging
that Adept  breached the leases for the Rose Orchard Way  properties  by ceasing
rent  payments  and  vacating  the  property.  The  complaint  makes a claim for
unspecified damages for unpaid rent through April 2003, the worth at the time of
the award of rent  through  the  balance  of the  leases,  an award of all costs
necessary  to ready the  premises to be  re-leased  and payment of its costs and
attorney's fees. Adept answered the complaint on July 15, 2003 and is vigorously
defending the lawsuit. As the Company has vacated this facility, it has recorded
expense in the amount of $2.3 million for the remaining  unpaid rent  associated
with this lease; however, the Company has not set aside the cash associated with
such  unpaid  rent  expenses,  thus in the event that the  Company  receives  an
adverse  judgment in the San Jose lease litigation in excess of its cash balance
and does not have  control of the timing of the  payments,  the  Company may not
have sufficient cash to meet such  obligations  otherwise due and therefore,  it
may be required to cease operations.  Since filing the complaint,  plaintiff has
disclosed in court filings that its estimated  damages exceed $2.9 million.

Some end users of the  Company's  products  have  notified the Company that they
have  received  a claim of  patent  infringement  from the  Jerome  H.  Lemelson
Foundation,  alleging that their use of the Company's  machine  vision  products
infringes certain patents issued to Mr. Lemelson.  In addition,  the Company has
been notified that other end users of the Company's AdeptVision VME line and the
predecessor  line of Multibus machine vision products have received letters from
Mr. Lemelson which refer to Mr.  Lemelson's  patent  portfolio and offer the end
user a license to the  particular  patents.  Certain end users have notified the
Company  that they may seek  indemnification  from the  Company  for  damages or
expenses  resulting from this matter.  The Company cannot predict the outcome of
this or any  similar  litigation,  which may arise in the future.  However,  the
Company  believes  the  ultimate  resolution  of these  matters  will not have a
material adverse effect on its financial position, results of operations or cash
flows.

The Company has from time to time  received  communications  from third  parties
asserting that the Company is infringing  certain patents and other intellectual
property  rights  of  others,   or  seeking   indemnification   against  alleged
infringement. While it is not feasible to predict or determine the likelihood or


                                       82
<PAGE>

outcome of any actions  brought  against it, the Company  believes  the ultimate
resolution  of these  matters  will not have a  material  adverse  effect on its
financial position, results of operations or cash flows.

8. Redeemable Convertible Preferred Stock

On October 29,  2001,  Adept  completed a private  placement  with JDS  Uniphase
Corporation of $25.0 million of 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.  As a result, as
the number of outstanding shares of Adept increases,  including as the result of
the exercise or conversion of options,  warrants or convertible notes and as the
number of shares  held by the  preferred  stockholder  decreases,  the number of
shares  into  which  the  preferred  stock  may be  convertible  proportionately
increases.  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.

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


                                       83
<PAGE>

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 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 $1.0  million 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 $1.0  million  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.  This right was waived by JDS
Uniphase in  connection  with the Company's  line of credit with Silicon  Valley
Bank  and the  convertible  note  issued  by the  Company  to its  landlord.  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.

9. Shareholders' Equity (Deficit)

Preferred Stock

The Board of Directors has the authority to issue, without further action by the
shareholders,  up to 5.0 million shares of preferred stock in one or more series
and to fix the price, rights, preferences,  privileges and restrictions thereof,
including dividend rights,  dividend rates,  conversion  rights,  voting rights,
terms of redemption,  redemption prices,  liquidation preferences and the number
of shares  constituting a series or the designation of such series,  without any
further vote or action by the Company's shareholders.  The issuance of preferred
stock,  while  providing  desirable  flexibility  in  connection  with  possible
financings,  acquisitions and other corporate purposes, could have the effect of
delaying,  deferring or  preventing  a change in control of the Company  without
further action by the shareholders and may adversely affect the market price of,
and the voting and other rights of, the holders of common stock. This amount has
been  reduced by 100,000  shares,  which were issued as  redeemable  convertible
preferred  stock in connection  with a joint  development  agreement and related
investment of $25.0 million with an accredited investor, JDSU.


                                       84
<PAGE>

Common Stock

In August 2000, the Board of Directors  amended the Company's  Restated Articles
of  Incorporation,  approving an increase in the number of authorized  shares of
its common  stock from 25.0  million to 70.0 million  shares.  The  shareholders
approved this amendment on November 10, 2000.

The Company has reserved  shares of common stock for future issuance at June 30,
2003 as follows:

(in thousands)
Stock options outstanding.....................................        3,326
Stock options available for grant.............................        2,121
Conversion of redeemable convertible Preferred Stock .........        3,063
Conversion of SVB warrant.....................................          100
Employee stock purchase plan shares available for purchase....          826
                                                                      -----
                                                                      9,436
                                                                      =====

Follow-on offering

On February  18,  2001,  the Company  completed a public  offering of its common
stock. The Company sold a total of two million shares of common stock at a price
of $18.00 per share.  The  offering  resulted in net  proceeds to the Company of
approximately $32.4 million, net of an underwriting discount of $2.5 million and
offering expenses of $1.1 million.

Stock Option Plans

The  Company's  1993 Stock Plan (the  "1993  Plan") was  adopted by the Board of
Directors in April 1993 and approved by the  shareholders of the Company in June
1993. The 1993 Plan provides for grants of incentive  stock options to employees
(including  officers and employee  directors) and nonstatutory  stock options to
employees  (including  officers and employee  directors) and  consultants of the
Company.  In  general,  options  and common  stock  purchased  pursuant to stock
purchase rights granted under the 1993 Plan vest and become exercisable starting
one year after the date of grant,  with 25% of the shares  subject to the option
exercisable  at that time and an additional  1/48th of the shares subject to the
option  becoming  exercisable  each  month  thereafter.  Upon the  voluntary  or
involuntary  termination  of  employment  (including  as a  result  of  death or
disability)  by a holder  of  unvested  shares  of the  Company's  common  stock
purchased  pursuant to stock  purchase  rights  granted under the 1993 Plan, the
Company may exercise an option to repurchase such shares at their original issue
price.  The terms of the options  granted under the 1993 Plan  generally may not
exceed ten years.  The Board of Directors  determines  the exercise price of the
options,  which must be at least  equal to the fair  market  value of the common
stock on the date of grant.

On August 12, 1999, the Board of Directors authorized an increase of one million
shares issuable under the 1993 Plan,  which was approved by the  shareholders in
November  1999.  In  August  2000,  the 1993  Plan was  amended  by the Board of
Directors to increase  the number of shares  authorized  for issuance  under the
1993 Plan by an additional  one million  shares.  This amendment was approved by
the Company's  shareholders on November 10, 2000. The 1993 Plan expired in April
2003. Therefore, no new options will be granted under the 1993 Plan.

The Company's 1995 Director Option Plan (the "Director Plan") was adopted by the
Board of Directors  and approved by the  shareholders  of the Company in October
1995.   The  option   grants  under  the  Director   Plan  are   automatic   and
nondiscretionary,  and the  exercise  price of the options is at the fair market
value of the  Company's  common  stock on the date of grant.  A total of 150,000
shares of common stock has been reserved for issuance  under the Director  Plan.
During the year ended June 30, 2003,  9,000  options were granted and no options
were exercised. During each of the two years ended June 30, 2002, 12,000 options
were granted and no options were exercised.

The options may be  exercised  at the time or times  determined  by the Board of
Directors.

On August 9, 2001,  the Board of  Directors  adopted the 2001 Stock  Option Plan
(the "2001 Plan") and provided that 2,600,000 shares of common stock be reserved
for issuance under the 2001 Plan. Options under the 2001 Plan may be granted, as
complies  with  applicable  law,  to  employees  either from time to time at the
discretion  of  the  Compensation   Committee  of  the  Board  of  Directors  or
automatically  upon the  occurrence  of  specified  events,  including,  without


                                       85
<PAGE>

limitation,  reduction of at will  employees'  salaries and the  achievement  of
performance goals. The exercise price of the options is at the fair market value
of the Company's common stock on the date of the grant.  Options  generally vest
over a time period  specified by the  Compensation  Committee.  However,  at the
Compensation  Committee's  discretion,  options granted for reduction of at will
employees'  salaries  will  vest in equal  monthly  increments  over the  salary
reduction  period.  All  stock  options  granted  under  the 2001  Plan  have an
expiration date of 10 years from the date of the grant.

The following  table  summarizes  option  activities  under the Company's  stock
option plans:

<TABLE>
<CAPTION>
                                                                                    Options
                                                         ---------------------------------------------------------------
                                                         Available      No. of Shares      Aggregate    Weighted Average
                                                         for Grant       Outstanding         Price       Exercise Price
                                                         ---------       -----------         -----       --------------
                                                                      (in thousands, except per share data)
<S>                                                       <C>               <C>            <C>               <C>
Balance at June 30, 2000 .....................              966             1,744          $ 12,477          $ 7.15
                                                          =====             =====          ========
  Additional shares authorized ...............            1,000                --                --              --
  Granted ....................................             (844)              844            16,285           19.29
  Canceled ...................................              122              (122)           (2,584)          21.18
  Exercised ..................................               --              (252)           (1,370)           5.44
                                                          -----             -----          --------
Balance at June 30, 2001 .....................            1,244             2,214          $ 24,808          $11.21
                                                          =====             =====          ========
  Additional shares authorized ...............            2,600                --                --              --
  Granted ....................................           (1,619)            1,619             5,852            3.61
  Canceled ...................................              463              (463)           (4,594)           9.92
  Exercised ..................................               --               (32)             (120)           3.74
                                                          -----             -----          --------
Balance at June 30, 2002 .....................            2,688             3,338          $ 25,946          $ 7.77
                                                          =====             =====          ========
  Additional shares authorized ...............               --                --                --              --
  Granted ....................................             (974)              974               386            0.40
  Canceled ...................................              986              (986)           (7,574)           7.69
  Exercised ..................................               --                --                --              --
  Expired ....................................             (579)               --                --              --
                                                          -----             -----          --------
Balance at June 30, 2003 .....................            2,121             3,326          $ 18,758          $ 5.64
                                                          =====             =====          ========
</TABLE>

The  following  table   summarizes   information   concerning   outstanding  and
exercisable options at June 30, 2003:

<TABLE>
<CAPTION>
                                    Options Outstanding                   Options Exercisable
                         ----------------------------------------      ---------------------------
                                         Weighted
                                          Average        Weighted                       Weighted
                                         Remaining       Average                        Average
Range of Exercise          Options      Contractual      Exercise        Options        Exercise
     Prices              Outstanding       Life           Price        Exercisable       Price
     ------              -----------       ----           -----        -----------       -----
<S>                       <C>              <C>           <C>            <C>             <C>
$ 0.30  - $ 1.90           910,652         9.73          $  0.34          326,135       $   0.32
$ 2.79  - $ 2.84           348,352         8.84          $  2.79           93,445       $   2.79
$ 3.26  - $ 4.64           712,612         8.08          $  3.69          595,049       $   3.53
$ 5.56  - $ 7.00           703,637         5.35          $  6.53          644,677       $   6.49
$ 8.40  - $11.75           341,092         6.98          $  9.36          222,481       $   9.64
$13.25  - $23.75           284,707         7.00          $ 21.67          205,625       $  21.55
$13.25  - $49.75            24,950         7.08          $ 36.97           18,033       $  36.26
                         ---------                                      ---------

$ 0.30  - $49.75         3,326,002         7.82          $  5.65        2,105,445       $   6.59
                         =========                                      =========
</TABLE>

Employee Stock Purchase Plan

The 1998 Employee Stock Purchase Plan (the "1998 ESPP") has overlapping 12-month
offering periods that begin every six months,  starting on the first trading day
on or after September 1 and March 1 of each year. Each 12-month  offering period
is divided into two six-month  purchase  periods.  For every six-month  purchase
period,  the plan allows  eligible  employees,  through payroll  deductions,  to
purchase a maximum of 3000 shares of the  Company's  common stock at 85% of fair
market value on either the first day of the  offering  period or the last day of
the purchase period, whichever is lower.


                                       86
<PAGE>

In April 2003,  as a result of the  delisting  of the  Company's  stock from the
Nasdaq  National  Market and the resulting  additional  cost and  administrative
requirements  of  maintaining  its 1998 ESPP,  the Board of Directors  suspended
offering periods until a further  determination  is made to recommence  offering
periods under the ESPP.

10. Employee Savings and Investment Plan

The Company  maintains a 401(k) savings and investment  plan in which  employees
are  eligible  to  participate.   The  Company  suspended  its  401(k)  matching
contributions to reduce costs beginning in January 2002. The Company's  matching
contributions  were $0,  $255,000 and  $600,000 for fiscal years 2003,  2002 and
2001, respectively.

11. Income Taxes

The provision for (benefit from) income taxes consists of the following:

<TABLE>
<CAPTION>
(in thousands)                                                            Year Ended June 30,
                                                           --------------------------------------------------
                                                            2003                 2002                  2001
                                                           -------              -------               -------
<S>                                                        <C>                  <C>                   <C>
Current:
  Federal ........................................         $    --              $    --               $    --
  State ..........................................              25                   --                    --
  Foreign ........................................               6                  243                   425
                                                           -------              -------               -------
Total current ....................................              31                  243                   425
Deferred:
  Federal ........................................              --               (3,601)                4,033
  State ..........................................              --                   --                   938
                                                           -------              -------               -------
Total deferred ...................................              31               (3,601)                4,971
                                                           -------              -------               -------
Provision for (benefit from) income taxes ........         $    31              $(3,358)              $ 5,396
                                                           =======              =======               =======
</TABLE>

The  difference  between the provision  for (benefit  from) income taxes and the
amount  computed by applying  the  federal  statutory  income tax rate to (loss)
income before provision for (benefit from) income taxes is explained below:

<TABLE>
<CAPTION>
(in thousands)                                                                            Year Ended June 30,
                                                                             --------------------------------------------
                                                                               2003              2002              2001
                                                                             --------          --------          --------
<S>                                                                          <C>               <C>               <C>
Tax at federal statutory rate ........................................       $ (9,840)         $(21,487)         $(10,133)
State taxes, net of federal benefit ..................................           (557)           (1,248)           (1,387)

Expired operating net losses .........................................             94                --                --
Foreign taxes ........................................................            303               502               436
Tax credits ..........................................................         (1,282)              129            (1,082)

Goodwill impairment ..................................................             --             5,547             1,373
Non-deductible meals, entertainment and political contributions ......             21               124                65

Change in valuation allowance ........................................         11,423            13,025            16,179
Other ................................................................           (131)               50               (55)
                                                                             --------          --------          --------
Provision for (benefit from) income taxes ............................       $     31          $ (3,358)         $  5,396
                                                                             ========          ========          ========
</TABLE>


                                       87
<PAGE>

Significant  components of the Company's deferred tax assets and liabilities are
as follows:

<TABLE>
<CAPTION>
(in thousands)                                                                    June 30,
                                                                          -----------------------
                                                                            2003           2002
                                                                          --------       --------
<S>                                                                       <C>            <C>
Deferred tax assets:
    Net operating loss carryforwards .................................    $ 25,988       $ 16,318
    Tax credit carryforwards .........................................       6,229          4,910
    Inventory valuation accounts .....................................       2,005          2,337
    Warranty accruals ................................................         630            603
    Depreciation /amortization .......................................         498          2,031
    Other accruals not currently deductible for tax purposes .........       1,101          2,575
    Capitalized research and development expenses ....................       2,133          1,944
    Restructuring charges ............................................       4,901          1,338
    Other ............................................................         225            192
                                                                          --------       --------
    Total deferred tax assets ........................................      43,710         32,248
    Valuation allowance ..............................................     (43,242)       (31,819)
                                                                          --------       --------
    Net deferred tax assets ..........................................         468            429
                                                                          --------       --------

Deferred tax liabilities:
    Purchased intangibles ............................................         468           (429)
                                                                          --------       --------
    Net deferred tax liabilities .....................................         468           (429)
                                                                          --------       --------

Total net deferred tax assets ........................................    $     --       $     --
                                                                          ========       ========
</TABLE>

For financial  reporting  purposes,  the Company's deferred tax assets have been
fully offset by a valuation  allowance due to uncertainties  about the Company's
ability to generate future taxable income. The change in the valuation allowance
was a net increase of approximately  $11.4 million and $13.0 million in 2003 and
2002, respectively.

The  accumulated  tax benefits  associated with employee stock options provide a
deferred benefit of approximately  $933,000,  which has been fully offset by the
valuation allowance. The deferred tax benefit associated with the employee stock
options will be credited to additional paid-in capital when realized.

At June 30, 2003, the Company had net operating loss  carryforwards  for federal
income tax purposes of  approximately  $73.1 million,  which will expire in 2007
through 2023 if unused.  The Company had net operating  loss  carryforwards  for
state income tax purposes of approximately  $40.4 million,  which will expire in
2010 through 2013 if unused.

The Company  also had credit  carryforwards  of  approximately  $4.2 million for
federal  income tax purposes and $2 million for state income tax  purposes.  The
federal  tax credit and a portion  of the state tax credit  will  expire in 2008
through  2023 if  unused.  Approximately  $1.8 of the state tax  credit  carries
forward  indefinitely.  The utilization of the net operating loss  carryforwards
and tax credit carryforwards may be subject to IRC ss.382 limitation.

Pretax income (losses) from foreign  operations was approximately  ($806,000) in
2003, $452,000 in 2002, and ($754,000) in 2001.

12. Net Loss Per Share

Net loss per share is calculated as follows:

<TABLE>
<CAPTION>
                                                                                                    Year Ended June 30,
                                                                                         ------------------------------------------
                                                                                           2003             2002             2001
                                                                                         --------         --------         --------
                                                                                          (in thousands, except per share amounts)
<S>                                                                                      <C>              <C>              <C>
Net loss before cumulative effect of change in accounting principle .............        $(28,972)        $(49,851)        $(35,200)
 Cumulative effect of change in accounting principle ............................        $     --         $ (9,973)        $     --
                                                                                         --------         --------         --------
Net loss after cumulative effect of change in accounting principle ..............        $(28,972)        $(59,824)        $(35,200)
                                                                                         ========         ========         ========
 Weighted average shares outstanding:
     Basic ......................................................................          14,955           13,691           11,637
                                                                                         ========         ========         ========
     Diluted ....................................................................          14,955           13,691           11,637
                                                                                         ========         ========         ========

Basic and diluted loss per common share:
     Loss before cumulative effect of change in accounting principle ............        $  (1.94)        $  (3.64)        $  (3.02)
     Cumulative effect of change in accounting principle ........................              --            (0.73)              --
                                                                                         --------         --------         --------
     Adjusted net loss ..........................................................        $  (1.94)        $  (4.37)        $  (3.02)
                                                                                         ========         ========         ========
</TABLE>


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<PAGE>

If the Company had reported  net income for the years ended June 30, 2003,  2002
or 2001,  the  calculation  of diluted net income per share would have  included
additional  common  equivalent  shares of  approximately  230,000,  515,000  and
1,963,000,  respectively,  relating to  outstanding  employee  stock options not
included above (determined using the treasury stock method).

13. 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.

The Components  segment provides  intelligent  automation  software and hardware
component  products  externally  to customers  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 materials from third parties, and produces an integrated family of
process  ready  platforms  for  the  semiconductor,  electronics  and  precision
assembly and other markets, which are driven towards standard offerings.

The Services and Support  segment  provides  support  services to our  customers
including providing  information  regarding 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.

During fiscal 2003, the Company  restructured  the  underlying  processes in its
enterprise  resource  planning  system  to  support  the  Company's   functional
reorganization  as  described  above.  As  part  of this  process,  the  Company
considered  conforming prior year information to the current year  presentation,
but the Company has determined that it is impracticable  to restate  information
for the fiscal year 2001. As such, only segment  information for the fiscal year
ended  June  30,  2002  has  been  restated  to  conform  to  the  current  year
presentation  and  segment  information  for  fiscal  year  2001  has  not  been
presented.


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<PAGE>

                                                          Year ended June 30,
                                                       ------------------------
            (in thousands)                               2003            2002
                                                       --------        --------
Revenue:
Component ......................................       $ 25,000        $ 37,051
Solutions ......................................          6,602           7,418
Services and Support ...........................         13,214          12,570
                                                       --------        --------
Total revenue ..................................       $ 44,816        $ 57,039
                                                       ========        ========

Operating income (loss):
Components .....................................       $ (7,291)       $ (3,323)
Solutions ......................................         (2,762)         (5,702)
Services and Support ...........................          3,164           3,093
                                                       --------        --------
Segment loss ...................................         (6,889)         (5,932)
Unallocated research, development
   and engineering and selling,
   general and administrative ..................        (16,091)        (24,289)
Restructuring charges ..........................         (5,324)        (17,659)
Amortization of other intangibles ..............           (728)           (725)
Impairment of goodwill .........................             --          (6,608)
Gain on sale of assets .........................             --           1,566
Interest income (expense) ......................             91             438
                                                       --------        --------
Loss before income taxes and cumulative
  effect of change in accounting principle .....       $(28,941)       $(53,209)
                                                       ========        ========

Management  also assesses the Company's  performance,  operations  and assets by
geographic  areas, and therefore revenue and long-lived assets are summarized in
the following table:

(in thousands)                                         Year Ended June 30,
                                              ----------------------------------
                                                2003         2002         2001
                                              --------     --------     --------
Revenue:
      United States .....................     $ 27,692     $ 25,253     $ 63,896
      Germany ...........................        3,393        7,682       10,523
      France ............................        5,555       11,731       12,445
      Other European countries ..........        6,514        8,969       10,537
      All other countries ...............        1,662        3,404        2,912
                                              --------     --------     --------
                                              $ 44,816     $ 57,039     $100,313
                                              ========     ========     ========

Long-lived assets:
      United States .....................     $ 13,429     $ 15,812     $ 32,557
      All other countries ...............          331          458          426
                                              --------     --------     --------
           Total long-lived assets ......     $ 13,760     $ 16,270     $ 32,983
                                              ========     ========     ========

No single customer  accounted for more than 10% of the Company's net revenues in
fiscal 2003, 2002 or 2001.

14. Subsequent Events (unaudited)

In August 2003,  Adept was granted a permit for the sale of securities under the
1998 ESPP in California.  In September 2003, the Board of Directors reopened the
ESPP to participation by employees  effective for a 12 month offering subject to
compliance  with applicable  federal and state  securities  laws,  including the
California state permit.


                                       90
<PAGE>

SCHEDULE II

                             ADEPT TECHNOLOGY, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                    Balance       Additions
                                                       at         Charged to                              Balance
                                                   Beginning      Costs and                               at End
                Description                        of Period       Expenses        Deductions (1)       of Period
                -----------                        ---------       --------        --------------       ---------
<S>                                                 <C>            <C>                <C>                <C>
Year ended June 30, 2001:
 Allowance for doubtful accounts                    $  637         $  214             $(109)             $  742

Year ended June 30, 2002:
 Allowance for doubtful accounts                       742            319              (229)                832

Year ended June 30, 2003:
 Allowance for doubtful accounts                       832            367              (75)               1,124
</TABLE>

(1)   Includes write offs net of recoveries.


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