** **

**SECURITIESAND EXCHANGE COMMISSIONWashington, D.C. 20549**

**FORM 10-Q**

| **x**      |       | **QUARTERLY  REPORT PURSUANT TO SECTION 13 or 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                             |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** |       | ** **                                                                                                                                                                                                                |
| ** ** | ** ** | **For the  quarterly period ended September 30, 2006**                                                                                                                                                                    |
| ** ** |       | ** **                                                                                                                                                                                                                |
| ** ** | ** ** | **OR**                                                                                                                                                                                                                    |
| ** ** |       | ** **                                                                                                                                                                                                                |
| **o**      | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 or 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                            |
| ** ** |       | ** **                                                                                                                                                                                                                |
| ** ** | ** ** | **For the  transition period from                   to                ** |
| ** ** |       | ** **                                                                                                                                                                                                                |
| ** ** | ** ** | **Commission  File No. 0-22384**                                                                                                                                                                                          |

 

**MICROCOMPONENT TECHNOLOGY, INC.**

(Exact name ofregistrant as specified in its charter)

 

| **Minnesota**                    | ** ** | **41-0985960**       |
|----------------------------------|------------|----------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer     |
| incorporation or  organization)  |       | Identification  No.) |

 

**2340 WestCounty Road C, St. Paul, MN 55113-2528**

(Address of principal executive offices)

**(651)697-4000**

(Registrant’s telephone number)

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days
|  | Yes  x | No  o |
|--|------------------|-----------------|

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer.  Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act. (Check one):
| Large Accelerated Filer o |   | Accelerated Filer o |   | Non-Accelerated Filer x |
|---------------------------|--------|---------------------|--------|-------------------------|

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).    
|  | Yes  o | No  x |
|--|------------------|-----------------|

The number of shares outstanding of the Registrant’sCommon Stock, as of November 6, 2006 was 36,643,140.

 

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**MICRO COMPONENT TECHNOLOGY, INC**.

FORM 10-Q

TABLE OF CONTENTS
| **PART I - FINANCIAL  INFORMATION**                                                                  | ** ** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------|
| ** **                                                                                           | ** ** | ** ** |
| ITEM 1. FINANCIAL  STATEMENTS                                                                        | ** ** | ** ** |
|                                                                                                 | ** ** | ** ** |
| CONSOLIDATED BALANCE  SHEETS                                                                         |       |       |
|                                                                                                 |       |       |
| CONSOLIDATED  STATEMENTS OF OPERATIONS                                                               |       |       |
|                                                                                                 |       |       |
| CONSOLIDATED  STATEMENTS OF CASH FLOWS                                                               |       |       |
|                                                                                                 |       |       |
| NOTES TO  UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                      |       |       |
|                                                                                                 |       |       |
| ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS  AND FINANCIAL CONDITION | ** ** | ** ** |
|                                                                                                 | ** ** | ** ** |
| ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                  |       |       |
|                                                                                                 |       |       |
| ITEM 4. CONTROLS AND  PROCEDURES                                                                     |       |       |
|                                                                                                 |       |       |
| **PART II. OTHER  INFORMATION**                                                                      | ** ** | ** ** |
| ** **                                                                                           | ** ** | ** ** |
| ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                 |       |       |
|                                                                                                 |       |       |
| ITEM 6. EXHIBITS                                                                                     |       |       |
|                                                                                                 |       |       |
| SIGNATURES                                                                                           |       |       |

 

2

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**MICROCOMPONENT TECHNOLOGY, INC. AND SUBSIDIARIES**

FORM 10-Q

# PART I.  FINANCIAL INFORMATION

## ITEM 1.  FINANCIAL STATEMENTS

## CONSOLIDATED BALANCE SHEETS

(In thousands,except share and per share data)

(Unaudited)
| ** **                                                                                            | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                            | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| **Assets**                                                                                            |       |                   |       |                  |       |
| Current assets                                                                                        |       |                   |       |                  |       |
| Cash and cash  equivalents                                                                            |       | $                      | 171        |                  | $          | 77 |   |
| Accounts  receivable, less allowance for doubtful accounts of $127 and $148,  respectively            |       | 2,494                  |       | 1,661                 |       |
| Inventories                                                                                           |       | 2,385                  |       | 2,194                 |       |
| Other                                                                                                 |       | 209                    |       | 169                   |       |
| Total current  assets                                                                                 |       | 5,259                  |       | 4,101                 |       |
| Property, plant and  equipment, net                                                                   |       | 108                    |       | 148                   |       |
| Debt issuance costs,  net of accumulated amortization of $1,349 and $1,005, respectively              |       | 280                    |       | 276                   |       |
| Other assets                                                                                          |       | 18                     |       | 21                    |       |
| Total assets                                                                                          |       | $                      | 5,665      |                  | $          | 4,546 |   |
|                                                                                                  |       |                   |       |                  |       |
| **Liabilities and Stockholders’  Deficit**                                                       |       |                   |       |                  |       |
| Current liabilities:                                                                                  |       |                   |       |                  |       |
| Current portion  of long-term debt                                                                    |       | $                      | 2,162      |                  | $          | 133 |   |
| Bank line of  credit, net of discounts of $108 and $42, respectively                                  |       | 3,285                  |       | 2,630                 |       |
| Accounts payable                                                                                      |       | 350                    |       | 425                   |       |
| Accrued  compensation                                                                                 |       | 395                    |       | 382                   |       |
| Accrued interest                                                                                      |       | 112                    |       | 234                   |       |
| Accrued warranty                                                                                      |       | 125                    |       | 153                   |       |
| Customer  prepayments and unearned service revenue                                                    |       | 333                    |       | 152                   |       |
| Other accrued  liabilities                                                                            |       | 186                    |       | 180                   |       |
| Total current  liabilities                                                                            |       | 6,948                  |       | 4,289                 |       |
| Long-term debt, net of  discounts of $817 and 545, respectively                                       |       | 3,837                  |       | 3,683                 |       |
| 10% senior subordinated  convertible debt                                                             |       | —                 |       | 3,630                 |       |
| Total liabilities                                                                                     |       | 10,785                 |       | 11,602                |       |
|                                                                                                  |       |                   |       |                  |       |
| Stockholders’ deficit:                                                                           |       |                   |       |                  |       |
| Preferred stock,  $.01 par value, 1,000,000 authorized, none issued and outstanding                   |       | —                 |       | —                |       |
| Common stock,  $.01 par value, 55,000,000 authorized, 36,643,140 and 26,215,388 issued,  respectively |       | 367                    |       | 262                   |       |
| Additional  paid-in capital                                                                           |       | 102,456                |       | 97,670                |       |
| Accumulated  deficit                                                                                  |       | (107,943               | )          | (104,988              | )          |
| Total  stockholders’ deficit                                                                     |       | (5,120                 | )          | (7,056                | )          |
| Total liabilities and stockholders’ deficit                                                      |       | $                      | 5,665      |                  | $          | 4,546 |   |

 

See notes to unauditedcondensed consolidated financial statements

4

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**MICROCOMPONENT TECHNOLOGY, INC.**

## CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands,except per share data)

(Unaudited)
| ** **                                                  | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                  | ** ** | **Sep 30,**                 | ** ** | **Sep 24,**                | ** ** | **Sep 30,** | ** ** | **Sep 24,** | ** ** |
| ** **                                                  | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net sales                                                   |       | $                                | 3,279      |                            | $          | 1,758 |   | $ | 9,330 |   | $ | 5,040 |   |
| Cost of sales                                               |       | 1,770                            |       | 984                             |       | 4,570 |   | 2,910 |   |
|                                                        |       |                             |       |                            |       |   |   |   |   |
| Gross profit                                                |       | 1,509                            |       | 774                             |       | 4,760 |   | 2,130 |   |
|                                                        |       |                             |       |                            |       |   |   |   |   |
| Operating  expenses:                                        |       |                             |       |                            |       |   |   |   |   |
| Selling, general and administrative                         |       | 1,074                            |       | 945                             |       | 3,058 |   | 3,221 |   |
| Research and development                                    |       | 487                              |       | 435                             |       | 1,530 |   | 1,514 |   |
| Restructuring charge                                        |       | —                           |       | 40                              |       | — |   | 106 |   |
|                                                        |       |                             |       |                            |       |   |   |   |   |
| Total operating  expenses                                   |       | 1,561                            |       | 1,420                           |       | 4,588 |   | 4,841 |   |
|                                                        |       |                             |       |                            |       |   |   |   |   |
| Income (loss)  from operations                              |       | (52                              | )          | (646                            | )          | 172 |   | (2,711 | ) |
|                                                        |       |                             |       |                            |       |   |   |   |   |
| Interest income                                             |       | 3                                |       | 2                               |       | 8 |   | 10 |   |
| Interest expense and other, net                             |       | (1,830                           | )          | (348                            | )          | (3,121 | ) | (899 | ) |
|                                                        |       |                             |       |                            |       |   |   |   |   |
| Total interest  and other                                   |       | (1,827                           | )          | (346                            | )          | (3,113 | ) | (889 | ) |
|                                                        |       |                             |       |                            |       |   |   |   |   |
| Net loss before  income tax                                 |       | (1,879                           | )          | (992                            | )          | (2,941 | ) | (3,601 | ) |
|                                                        |       |                             |       |                            |       |   |   |   |   |
| Income tax expense                                          |       | —                           |       | —                          |       | (14 | ) | — |   |
|                                                        |       |                             |       |                            |       |   |   |   |   |
| Net loss                                                    |       | $                                | (1,879     | )                               | $          | (992 | ) | $ | (2,955 | ) | $ | (3,601 | ) |
|                                                        |       |                             |       |                            |       |   |   |   |   |
| Net loss per  share:                                        |       |                             |       |                            |       |   |   |   |   |
|                                                        |       |                             |       |                            |       |   |   |   |   |
| Basic                                                       |       | $                                | (0.06      | )                               | $          | (0.04 | ) | $ | (0.10 | ) | $ | (0.14 | ) |
| Diluted                                                     |       | $                                | (0.06      | )                               | $          | (0.04 | ) | $ | (0.10 | ) | $ | (0.14 | ) |
|                                                        |       |                             |       |                            |       |   |   |   |   |
| Weighted average  common and equivalent shares outstanding: |       |                             |       |                            |       |   |   |   |   |
|                                                        |       |                             |       |                            |       |   |   |   |   |
| Basic                                                       |       | 31,141                           |       | 26,187                          |       | 28,619 |   | 25,776 |   |
| Diluted                                                     |       | 31,141                           |       | 26,187                          |       | 28,619 |   | 25,776 |   |

 

See notes tounaudited condensed consolidated financial statements

5

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**MICROCOMPONENT TECHNOLOGY, INC.**

## CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)
| ** **                                                                   | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                   | ** ** | **Sep 30,**                | ** ** | **Sep 24,** | ** ** |
| ** **                                                                   | ** ** | **2006**                        | ** ** | **2005** | ** ** |
| Cash flows from  operating activities:                                       |       |                            |       |   |   |
| Net loss                                                                     |       | $                               | (2,955     | ) | $ | (3,601 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |                            |       |   |   |
| Depreciation and amortization                                                |       | 892                             |       | 470 |   |
| Changes in assets and liabilities:                                           |       |                            |       |   |   |
| Accounts receivable                                                          |       | (833                            | )          | 483 |   |
| Inventories                                                                  |       | (191                            | )          | 452 |   |
| Other assets                                                                 |       | (37                             | )          | 63 |   |
| Accounts payable                                                             |       | (75                             | )          | (233 | ) |
| Other accrued liabilities                                                    |       | 364                             |       | 76 |   |
| Net cash used in  operating activities                                       |       | (2,835                          | )          | (2,290 | ) |
|                                                                         |       |                            |       |   |   |
| Cash flows from  investing activities:                                       |       |                            |       |   |   |
| Purchases of property, plant, and equipment                                  |       | (27                             | )          | (12 | ) |
|                                                                         |       |                            |       |   |   |
| Net cash used in  investing activities                                       |       | (27                             | )          | (12 | ) |
|                                                                         |       |                            |       |   |   |
| Cash flows from  financing activities:                                       |       |                            |       |   |   |
| Repayment of long term note                                                  |       | (4000                           | )          | (67 | ) |
| Proceeds on long term note, net of discounts                                 |       | 4,922                           |       | — |   |
| Proceeds on institutional line of credit, net of  discounts                  |       | 613                             |       | 169 |   |
| Issuance of long-term convertible note, net of debt  issue costs             |       | 1,363                           |       | 2,396 |   |
| Proceeds from issuance of stock, net of issuance  costs                      |       | 58                              |       | (16 | ) |
|                                                                         |       |                            |       |   |   |
| Net cash  provided by financing activities                                   |       | 2,956                           |       | 2,482 |   |
|                                                                         |       |                            |       |   |   |
| Net increase in  cash and cash equivalents                                   |       | 94                              |       | 180 |   |
|                                                                         |       |                            |       |   |   |
| Cash and cash  equivalents at beginning of period                            |       | 77                              |       | 166 |   |
|                                                                         |       |                            |       |   |   |
| Cash and cash  equivalents at end of period                                  |       | $                               | 171        |   | $ | 346 |   |
|                                                                         |       |                            |       |   |   |
| Supplemental  cash flow information:                                         |       |                            |       |   |   |
|                                                                         |       |                            |       |   |   |
| Non-cash  financing activities:                                              |       |                            |       |   |   |
| Stock issued in lieu of interest                                             |       | $                               | 314        |   | $ | 146 |   |
| Stock issued in conversion of 10% senior  subordinated convertible debt      |       | 2,335                           |       | — |   |
| Cash paid for  interest                                                      |       | $                               | 721        |   | $ | 358 |   |

 

See notes to unauditedcondensed consolidated financial statements

6

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**MICROCOMPONENT TECHNOLOGY, INC.**

FORM 10-Q

## NOTES TOUNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

**1.****                          INTERIMFINANCIAL STATEMENTS**

*Basis of Presentation*

The consolidated financial statements include theaccounts of the parent company and our subsidiaries after elimination of allsignificant intercompany balances and transactions.  All significant subsidiaries are 100% owned.

The unaudited consolidated financial statementsincluded herein have been prepared in accordance with accounting principlesgenerally accepted in the United States (generally accepted accountingprinciples) for interim financial information and with the instructions forForm 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included infinancial statements prepared in accordance with generally accepted accountingprinciples have been condensed or omitted pursuant to such rules andregulations.  In the opinion ofmanagement all adjustments, including normal recurring adjustments, necessaryfor a fair presentation of the interim periods presented have beenincluded.  The interim results are notnecessarily indicative of the operating results expected for the full fiscalyear ending on December 31, 2006.

Our consolidated financial statements have beenprepared on the assumption that we will continue as a going concern, whichcontemplates the realization of assets and liquidation of liabilities in thenormal course of business. The Report of the Independent Registered PublicAccounting Firm on the financial statements of the Company as of and for thefiscal year ended December 31, 2005 included in Form 10-K contained anexplanatory paragraph that expresses substantial doubt about our ability tocontinue as a going concern.   The financialstatements do not include any adjustments to reflect the possible futureeffects on the recoverability and classification of assets or the amounts andclassification of liabilities that may result from the outcome of thisuncertainty.

As ofSeptember 30, 2006, the Company had an accumulated deficit of $107.9 millionand incurred a net loss of $3.0 million for the nine-month period endedSeptember 30, 2006.  As of September 30,2006, the Company had cash and cash equivalents of $171,000, working capital ofnegative $1.7 million, a current ratio of 0.76, total assets of $5.7 millionand total liabilities of $10.8 million. Our ability to generate cash and operating income is dependent onincreasing our customer base to expand the penetration of our producttechnology and the realization of our lower operating expense targets.

Asdiscussed in Note 4, on February 17, 2006, we restructured the financing with Laurus Master Fund, Ltd.(“Laurus”), and increased the total maximum secured indebtedness withLaurus to $9.25 million from $7.0 million.  The restructured financing nowincludes a $5.25 million term

7

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note.  Interest is payable monthly on the term note atthe prime rate plus 2.5%.  Beginning 360 days after closing, we arerequired to make monthly payments equal to 1/60th of the principal amount untilthree years after the closing, at which time the entire remaining principal andaccrued interest is due and payable in full.  The note isnon-convertible.  In addition to the $5.25 million note, the working capitalline of credit was increased from $3.0 million to $4.0 million, and madenon-convertible.  The note is payable in full on March 8, 2008. Interest is payable monthly on the note at the prime rate plus 2.5%.  Theexisting $1.2 million over-advance in excess of the borrowing base on theworking capital line of credit was extended until April 30, 2007. However, commencing on December 1, 2006, the over-advance is to be reduced by$200,000 each month.  The Company also issued Laurus a 10-year option topurchase 2,500,000 shares at an exercise price of $.01 per share.  Theshares issuable upon exercise of the option have standard registration rights.  As a result of the new financing with Laurus,the conversion price for all of the Noteholders who accepted the priorrestructuring agreements has been reduced to $0.56 per share.

On August 28, 2006, the Company sent theholders of the Company’s 10% Senior Subordinated Convertible Notes an Offer toReduce Note Conversion Price, in which the Company offered to reduce theconversion price of the Notes to $0.29 per share if the holders agreed toconvert their Notes by August 31, 2006. Effective August 31, 2006, holders of$2.1 million in principal amount of the Notes (62%) accepted the offer andagreed to convert their Notes. The Company issued 7,362,069 shares of commonstock to certain holders of our 10% Senior Subordinated Convertible Notes. TheCompany is continuing to pursue conversion of the remaining notes.  Any notes which are not converted will becomedue and payable in full on December 24, 2006.

Interim unauditedfinancial results should be read in conjunction with the audited financialstatements included in the SEC Report on Form 10-K, for the period endedDecember 31, 2005.

**2.****                          EARNINGSPER SHARE**

Basic earnings pershare are computed using the weighted average number of common sharesoutstanding during each period.  Dilutedearnings per share include the dilutive effect of common shares potentiallyissuable upon the exercise of stock options, warrants and the 10% SeniorSubordinated Convertible Notes outstanding. The following table reconciles the denominators used in computing basicand diluted earnings per share:
|                                               | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **Sep 30,**            | ** ** | **Sep 24,**           | ** ** | **Sep 30,** | ** ** | **Sep 24,** | ** ** |
| **(in  thousands)**                           | ** ** | **2006 (1)**           | ** ** | **2005 (1)**          | ** ** | **2006 (1)** | ** ** | **2005 (1)** | ** ** |
| Weighted average common shares outstanding    |       | 31,141                 |       | 26,187                |       | 28,619 |   | 25,776 |   |
| Effect of dilutive stock options and warrants |       | —                 |       | —                |       | — |   | — |   |
|                                          |       | 31,141                 |       | 26,187                |       | 28,619 |   | 25,776 |   |

 

----

(1)          We reported a loss forthe period indicated.  No adjustmentswere made for the effect of stock options and warrants, which represented5,959,898 and 5,359,398  shares atSeptember 30, 2006 and September 24, 2005, respectively, as the effect isantidilutive.

**3.****                          BALANCESHEET INFORMATION**

Major components ofinventories were as follows (in thousands):

8

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** **
|                 | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-----------------|------------|------------------------|------------|-----------------------|------------|
| ** **      | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| Raw materials   |       | $                      | 1,716      |                  | $          | 1,783 |   |
| Work-in-process |       | 524                    |       | 394                   |       |
| Finished goods  |       | 145                    |       | 17                    |       |
|            |       | $                      | 2,385      |                  | $          | 2,194 |   |

 

In accordance with accounting principles generallyaccepted in the United States of America, we value our inventories at the lowerof cost or market.

The following table provides the inventory reserves for thequarter ended September 30, 2006.
| Inventory reserve balance at  December 31, 2005 |   | $      | 7,401  |   |
|-------------------------------------------------|--------|--------|--------|--------|
| Release of inventory reserve on sale of goods   |   | — |   |
| Release of inventory reserve on scrap of goods  |   | (164   | )      |
| Additional inventory reserve                    |   | — |   |
| Inventory reserve balance at September 30, 2006 |   | $      | 7,237  |   |

 

Weprovide a standard thirteen month warranty program for our equipment products.We record provisions for warranty claims for these products based uponhistorical claim performance.  Thefollowing table provides the expense recorded and charges against our reservesfor the quarter ended September 30, 2006.
| Accrued warranty balance at  December 31, 2005 |   | $   | 153    |   |
|------------------------------------------------|--------|-----|--------|--------|
| Provision                                      |   | 43  |   |
| Warranty claims                                |   | (71 | )      |
| Accrued warranty balance at September 30, 2006 |   | $   | 125    |   |

 

**4.**                          **FINANCING TRANSACTIONS**

OnMarch 9, 2004, we completed a $5.0 million financing transaction with aninstitutional lender, Laurus Master Fund, Ltd. (“Laurus”), secured by all ofthe assets of the Company. The financing included a $3.0 million working capitalline of credit and a $2.0 million long-term note. The notes were partiallyconvertible into shares of our common stock. In connection with thetransaction, we issued to Laurus a seven-year warrant to purchase 400,000shares of common stock at exercise prices ranging from $2.30 to $2.88 pershare. The secured loan in existence at that time with a prior lender wasterminated.

OnJanuary 28, 2005, we completed an amendment to the financing agreement withLaurus to defer payments on the long-term convertible note. As part of thisamendment, the conversion prices on both notes were reduced. We also issuedLaurus at that time a seven-year warrant to purchase 150,000 shares of commonstock at $.67 per share.

OnApril 29, 2005, we completed another financing transaction with Laurus in whichwe borrowed an additional $2.5 million, and which was convertible into sharesof common stock. We also issued Laurus at that time an option to purchase2,556,651 shares of common stock at an

9

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exerciseprice of $.01 per share. We received net proceeds of approximately $2.4 millionat the closing.

On February 17, 2006, we restructured the financing withLaurus, and increased the total maximum secured indebtedness with Laurus to$9.25 million. The restructured financing now includes a $5.25 million termnote. Interest is payable monthly on the term note at the prime rate plus 2.5%.Beginning 360 days after closing, we are required to make monthly paymentsequal to 1/60th of the principal amount until three years after the closing, atwhich time the entire remaining principal and accrued interest is due andpayable in full. The note is non-convertible. In addition to the $5.25 millionnote, the working capital line of credit was increased from $3.0 million to$4.0 million, and made non-convertible. The note is payable in full on March 8,2008. Interest is payable monthly on the note at the prime rate plus 2.5%. Theexisting $1.2 million over-advance in excess of the borrowing base on theworking capital line of credit was extended until April 30, 2007. However,commencing on December 1, 2006, the over-advance is to be reduced by $200,000each month. The Company also issued Laurus a 10-year option to purchase2,500,000 shares at an exercise price of $.01 per share. The shares issuableupon exercise of the option have standard registration rights.  As a result of the new financing with Laurus,the conversion price for all of the Noteholders who accepted the priorrestructuring agreements has been reduced to $0.56 per share.

On August 28, 2006, the Company sent theholders of the Company’s 10% Senior Subordinated Convertible Notes an Offer toReduce Note Conversion Price, in which the Company offered to reduce theconversion price of the Notes to $0.29 per share if the holders agreed to converttheir Notes by August 31, 2006. Effective August 31, 2006, holders of $2.1million in principal amount of the Notes (62%) accepted the offer and agreed toconvert their Notes. The Company issued 7,362,069 shares of common stock tocertain holders of our 10% Senior Subordinated Convertible Notes. The Companyis continuing to pursue conversion of the remaining notes.  Any notes which are not converted will becomedue and payable in full on December 24, 2006.

**5.**        **STOCK BASEDCOMPENSATION**

The Company adopted Statement of Financial AccountingStandards (SFAS) No. 123R “Share-Based Payment”, on January 1, 2006.  This statement requires us to recognize thecost of employee and director services received in exchange for the stockoptions it has awarded.  Under SFAS 123R,we are required to recognize compensation expense over an award’s vestingperiod based on the award’s fair value at the date of grant.  We have elected to adopt SFAS 123R on amodified prospective basis; accordingly the financial statements for periodsprior to January 1, 2006 do not include stock-based compensation costscalculated under the fair value method. As a result of the adoption of SFAS 123R, we incurred a compensationexpense of $0 and $4,000 for the three months and nine months ended September30, 2006.

If compensation cost for our stock option and employeestock purchase plans had been accounted for in accordance with SFAS 123R, thethree and nine month periods ended September 24, 2005 would have been as follows:

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** **
|                                                       | ** ** | **Three**              | ** ** | **Nine**         | ** ** |
|-------------------------------------------------------|------------|------------------------|------------|------------------|------------|
| ** **                                            | ** ** | **Months Ended**       | ** ** | **Months Ended** | ** ** |
| ** **                                            | ** ** | ** Sep 24, 2005** | ** ** | **Sep 24, 2005** | ** ** |
| Net income (loss):                                    |       |                   |       |             |       |
| As reported                                           |       | $                      | (992       | )                | $          | (3,601 | ) |
| Fair value compensation  expense                      |       | —                 |       | (176             | )          |
| Pro forma                                             |       | $                      | (992       | )                | $          | (3,777 | ) |
|                                                  |       |                   |       |             |       |
| Net income (loss) per share – basic and diluted: |       |                   |       |             |       |
| As reported                                           |       | $                      | (0.04      | )                | $          | (0.14 | ) |
| Fair value compensation  expense                      |       | —                 |       | (0.01            | )          |
| Pro forma                                             |       | $                      | (0.04      | )                | $          | (0.11 | ) |
|                                                  |       |                   |       |             |       |
| Stock based compensation:                             |       |                   |       |             |       |
| As reported                                           |       | $                      | —     |             | $          | — |   |
| Fair value compensation  expense                      |       | —                 |       | (176             | )          |
| Pro forma                                             |       | $                      | —     |             | $          | (176 | ) |

 

The fair value of options granted under the stockoptions for the three months and nine months ended September 30, 2006 andSeptember 24, 2005 was estimated on the date of grant using the Black-Scholesoption pricing model with the following weighted average assumptions.
|                                         | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **Sep 30,**            | ** ** | **Sep 24,**           | ** ** | **Sep 30,** | ** ** | **Sep 24,** | ** ** |
| ** **                              | ** ** | **2006**               | ** ** | **2005**              | ** ** | **2006** | ** ** | **2005** | ** ** |
| Dividend yield                          |       | 0.00                   | %          | 0.00                  | %          | 0.00 | % | 0.00 | % |
| Expected volatility                     |       | 91.89                  | %          | 117.06                | %          | 91.89 | % | 94.31 | % |
| Risk-free interest rate                 |       | 4.99                   | %          | 3.93                  | %          | 4.99 | % | 3.89 | % |
| Expected life of options                |       | 3.5 years              |       | 3.5 years             |       | 3.5 years |   | 3.5 years |   |
| Fair value per share of options granted |       | $                      | 0.32       |                  | $          | 0.13 |   | $ | 0.32 |   | $ | 0.21 |   |
|                                         |            |                        |            |                       |            |  |  |  |  |  |  |  |  |

 

**6.**        **RECENTACCOUNTING PRONOUNCEMENTS**

***SFAS No. 154, Accounting Changes and ErrorCorrections. *** InJune 2005, FASB issued SFAS No. 154, “*AccountingChanges and Error Corrections*”,a replacement of APB Opinion No. 20 and FASB Statement No. 3. The statementapplies to all voluntary changes in accounting principle, and changes therequirements for accounting for and reporting of a change in accountingprinciple.  SFAS No. 154 requiresretrospective application to prior periods’ financial statements of a voluntarychange in accounting principle unless it is impracticable.  SFAS No. 154 is effective for accountingchanges and corrections of errors made in fiscal years beginning after December15, 2005.  Earlier application ispermitted for accounting changes and corrections of errors made occurring infiscal years beginning after June 1, 2005. The statement does not change the transition provisions of any existingaccounting pronouncements, including those that are in a transition phase as ofthe effective date of this statement.  The Company does not expect the adoptionof SFAS No. 154 to have a material effect on its financial statements.

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***SFAS No. 123 (revised 2004), Share-BasedPayment***.  In December 2004, FASB issued SFAS No.123 (revised 2004), *Share-Based Payment*,that focuses primarily on accounting for transactions in which an entityobtains employee services in share-based payment transactions.  Thisstatement replaces SFAS No. 123, *Accountingfor Stock-Based Compensation*, and supersedes APB Opinion No. 25, *Accounting for Stock Issued to Employees*.  As discussed in Note 5, we implemented SFASNo. 123R on January 1, 2006.  We do notexpect the adoption of SFAS No. 123R to have a material effect on our financialstatements.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF

## RESULTS OF OPERATIONS AND FINANCIAL CONDITION

*ThisReport on Form 10-Q contains forward-looking statements that have been madepursuant to the provisions of the Private Securities Litigation Reform Act of1995.  These forward-looking statementsare not historical facts, but rather are based on our current expectations,estimates and projections about the semiconductor capital equipment industry,and our beliefs and assumptions.   Weintend words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,”“estimates” and similar expressions to identify forward-looking statements.  These statements are not guarantees of futureperformance and are subject to certain risks, uncertainties and other factors,some of which are beyond our control and are difficult to predict.  These factors could cause actual results todiffer materially from those expressed or forecasted in the forward-lookingstatements.  These risks anduncertainties are described elsewhere in this report on Form 10-Q and ourreport on Form 10-K for the year ended December 31, 2005.  We caution you not to place undue reliance onthese forward-looking statements, which reflect our management’s view only asof the date of this Report on Form 10-Q. We are not obligated to update these statements or publicly release theresult of any revisions to them to reflect events or circumstances after thedate of this Report on Form 10-Q or to reflect the occurrence of unanticipatedevents.*

*Overview*

We supply equipment automation solutions for the globalsemiconductor test and assembly manufacturing market.  Our solutions include automated test handlers,factory automation software and our new integrated Smart Solutions equipmentproduct line.  We believe that ourproducts can significantly improve the productivity, yield and throughput ofthe back-end, or to the post-wafer manufacturing process, including assembling,packaging, testing and singulating semiconductor devices.

Beginningin 1999 and continuing into 2000, we broadened our strategy from that of a testhandler manufacturer to becoming a provider of comprehensive equipmentautomation solutions for the back-end of the semiconductor manufacturingprocess.  First, we developed andintroduced in February 1999 our Tapestry strip handler.  Tapestry combines strip handling capabilitywith robotics, machine vision technology and critical software, enabling thetesting and tracking of semiconductor devices in strip form and the generationof critical process data throughout the test process.  Second, in June 1999 we acquired the InfinitySystems division of Fico.  InfinitySystems has been involved in the development of factory automation software forthe semiconductor manufacturing industry. Infinity Systems’ software expertise was integral to the development ofour integrated Smart Solutions equipment product line, introduced in May2000.  Together with a third partytester, our Smart Solutions equipment products including our Tapestry handlerenable complete automation of the test, laser mark, mark inspect and other processesof the back end.

The demand for our products andservices is dependent upon growth in the semiconductor industry and theincreasing automation needs of semiconductor manufacturers and independent testand assembly facilities.  In the fourthquarter of 2000, the semiconductor industry went into a sharp downturn, whichcontinued through 2005, and began to improve in 2006.  However, the level of improvement and theability for the market to sustain an improvement continues to be uncertain.

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Therefore, we will continueto monitor the market and if required, examine opportunities to further reduceour costs through further consolidation of operations, limiting capitalexpenditures, monitoring inventory purchases and additional strategicrestructuring initiatives.  Certain ofthese types of actions have the potential for further charges in futureperiods.  The impact of a renewedcontraction of the semiconductor capital equipment market has the potential tohave a material adverse effect on our financial condition, results ofoperations, and cash flows.

**Critical Accounting Policies**

*Revenue Recognition*

UnderSAB 101, we recognize revenue upon shipment, as our terms are FOB shippingpoint, for established equipment products that have previously satisfiedexisting customer performance specifications and that provide for full paymenttied to shipment.  Revenue for productsthat have not previously satisfied customer performance specifications or fromsales where all or a portion of customer payment is based upon acceptance areonly recognized upon customer acceptance. As such, in periods of increasing shipments, revenues will be deferredif the shipments are for new customers, new products or the payment terms aretied to acceptance criteria. Consequently, if these conditions exist, we may report revenue levelsthat are not reflective of actual shipment growth rates.  Conversely, in periods of decreasingshipments, we potentially could recognize revenues related to shipments made inprior periods.  Consequently, if theseconditions exist, we may report revenue levels that are greater than actualshipments.  During the quarter endedSeptember 30, 2006, we have $33,000 deferred revenue in excess of costs underthe SAB 101 revenue recognition rule.

*Allowance forDoubtful Accounts*

We record a provision for doubtful accounts based on specificidentification of our accounts receivable. This involves a degree of judgmentbased on discussion with our internal sales and marketing groups, our customerbase and the examination of the financial stability of our customers.  There can be no assurance that our estimateswill match actual amounts ultimately written off.  During periods of downturn in the market forsemiconductor capital equipment  oreconomic recession, a greater degree of risk exists concerning the ultimatecollectability of our accounts receivable due to the impact that theseconditions might have on our customer base. No provisions were recorded for the quarter ended September 30, 2006.

*Valuation of Inventories*

Our inventories arestated at the lower of cost or market. Cost is determined by the first-in, first-out (“FIFO”)method.  We maintain a standard costingsystem for our inventories.  Assumptionswith respect to direct labor utilization, standard direct and indirect costrates, vendor pricing and utilization of factory capacities are formulated inthe development of our standard costing system. Sudden or continuing changes in the semiconductor capital equipmentmarket affecting our shipments can result in significant production variancesfrom our standard rates. These variances directly impact our gross profitperformance and may cause variability in gross profits results from reportingperiod-to-reporting period.  Our laborand overhead rates are set for production rates that match typical marketconditions.  Production variances arecharged to cost of sales each quarter as incurred. Material standards are basedupon normal purchase volumes.  Purchaseprice variances are charged to costs of sales each quarter as incurred.

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Provisions to reduceinventories to the lower of cost or market are made based on a review of excessand obsolete inventories through an examination of historical componentconsumption, current market demands and shifting product technology.  Significant assumptions with respect tomarket trends and customer product acceptance are utilized to formulate ourprovision methods.  Sudden or continuingdownward changes in the semiconductor capital equipment market may cause us torecord additional inventory revaluation charges in future periods.  No write-down of our inventories occurred forthe quarter ended September 30, 2006.

*Accrued Warranty*

We provide astandard thirteen month warranty program for our equipment products. We recordprovisions for warranty claims for these products based upon historical claimperformance.  This approach has beenapplied since the inception of the warranty program and involves a degree ofsubjectivity in that historical performance is used to estimate future warrantyclaims. There can be no assurance that our estimates will match the actualamount of future warranty claims.

###### **Resultsof Operations for the Three Months Ended September 30, 2006 and September 24,2005**

Netsales for the three months ended September 30, 2006 increased by $1.5 millionor 87% to $3.3 million compared to $1.8 million for the three months endedSeptember 24, 2005.  Sales have steadilyincreased due to a recent upturn in the capital equipment market.  The Strip Test and Mark product line enjoyedthe largest percentage increase.

Grossmargin for the three months ended September 30, 2006 increased by $0.7 millionto $1.5 million or 46% of net sales from $0.8 million or 44% of net sales forthe comparable period in the prior year. The increase in gross margin in the current year period is directlyattributable to the increase in sales resulting in fixed costs being spreadover a larger sales volume.

Totaloperating expense increased by $141,000 or 10% from $1.4 million to $1.6million.  Selling, general and administrativeexpenses for the three months ended September 30, 2006 were $1.1 million or 33%of net sales compared to $0.9 million or 54% of net sales for the three monthsended September 24, 2005.  Research anddevelopment expenses for the third quarter of 2006 were $487,000 or 15% of netsales compared to $435,000 or 25% of net sales in the third quarter of2005.  The expenses for the quarterincreased, as planned, as the Company increased its sales, marketing and engineeringservices to manage an expected increase in sales as the year progresses.

Thenet loss for the three months ended September 30, 2006 was $1.9 million or$0.06 per basic and fully-diluted share compared to net loss for the threemonths ended September 24, 2005 of $1.0 million or $0.04 per basic andfully-diluted share.  Included in thecurrent quarter’s net loss was a non-cash debt conversion expense of $1.4million associated with the conversion to stock of over $2.1 million ofconvertible debt from our 10% noteholders.

###### **Resultsof Operations for the Nine Months Ended September 30, 2006 and September 24,2005**

Net sales for the ninemonths ended September 30, 2006 increased $4.3 million or 85% to $9.3 million compared to $5.0 millionfor the nine months ended September 24, 2005. This increase is a result of an upturn in the capital equipmentmarket.  Sales increases were experiencedacross all of our product lines.

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Grossmargins for the nine months ended September 30, 2006 increased by $2.6 millionto $4.8 million, or 51% of net sales, from $2.1 million, or 42% of net sales,for the comparable period in the prior year. This increase is directly attributable to the increase in the net salesresulting in fixed cost being spread over higher volumes.

Totaloperating expense for the nine months ended September 30, 2006 declined by$253,000 or 5% from $4.8 million to $4.6 million.  Selling, general and administrative expensefor the nine months of 2006 was $3.1 million or 33% of net sales, compared to$3.2 million, or 64% of net sales for the nine months of 2005.  Research and development expense for the ninemonths of 2006 was $1.5 million, or 16% of net sales compared to $1.5 million,or 30% of net sales for the nine months of 2005.   The decrease in expense as a percentage ofsales is a result of the increase in net sales.

Thenet loss for the nine months ended September 30, 2006 was $3.0 million or $0.10per share compared to net loss of $3.6 million or $0.14 per share in thecomparable prior year period.  Includedin the nine months, net loss are non-cash expenses of $1.8 million of which$0.4 million relates to the Laurus refinancing of prior debt issuance expensethat occurred in February and $1.4 million of conversion expense relating toconversion from debt to equity of $2.1 million. Without these expenses, net loss for the nine months ended of 2006 wouldbe $1.2 million or $0.04 per share.

**Liquidityand Capital Resources**

Cashused in operations was $2.8 million in the nine months ended September 30, 2006as compared to $2.3 million in the nine months ended September 24,2005.  Accounts receivables increased from year-end to $2.5 million from $1.7million.  Inventory finished at $2.4million, which consists of $9.6 million of gross inventories and $7.2 millionof reserves.  Capital expenditures were$27,000 for the nine months ended September 30, 2006 compared to $12,000 in thenine months ended of September 24, 2005.

Weended the quarter with $171,000 in cash and cash equivalents up from $77,000 atthe end of 2005 year and cash availability from our credit line of$600,000.  Working capital finished at anegative $1.7 million compared to a negative $188,000 at the end of 2005year.  The negative working capital positionis due to the Laurus $5.25 million term note, the over-advance of $1.2 millionin the credit facility, and the 10% senior subordinated convertible debt cominginto the short term classification from the long term as this debt is duewithin the upcoming 12 months offset by $2.1 million of the 10% noteholdersthat converted to common stock.

On February 17, 2006, werestructured the financing with Laurus, and increased the total maximum securedindebtedness with Laurus to $9.25 million. The restructured financing nowincludes a $5.25 million term note. Interest is payable monthly on the termnote at the prime rate plus 2.5%. Beginning 360 days after closing, we arerequired to make monthly payments equal to 1/60th of the principal amount untilthree years after the closing, at which time the entire remaining principal andaccrued interest is due and payable in full. The note is non-convertible. Inaddition to the $5.25 million note, the working capital line of credit wasincreased from $3.0 million to $4.0 million, and made non-convertible. The noteis payable in full on March 8, 2008. Interest is payable monthly on the note atthe prime rate plus 2.5%. The existing $1.2 million over-advance in excess ofthe borrowing base on the working capital line of credit was extended untilApril 30, 2007. However, commencing on December

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1, 2006, the over-advanceis to be reduced by $200,000 each month. The Company also issued Laurus a10-year option to purchase 2,500,000 shares at an exercise price of $.01 pershare. The shares issuable upon exercise of the option have standardregistration rights.  As a result of thenew financing with Laurus, the conversion price for all of the Noteholders whoaccepted the prior restructuring agreements has been reduced to $0.56 pershare.

OnAugust 28, 2006, the Company sent the holders of the Company’s 10% SeniorSubordinated Convertible Notes an Offer to Reduce Note Conversion Price, inwhich the Company offered to reduce the conversion price of the Notes to $0.29per share if the holders agreed to convert their Notes by August 31, 2006.Effective August 31, 2006, holders of $2.1 million in principal amount of theNotes (62%) accepted the offer and agreed to convert their Notes. The Companyissued 7,362,069 shares of common stock to certain holders of our 10% SeniorSubordinated Convertible Notes.  TheCompany is continuing to pursue conversion of the remaining notes.  Any notes which are not converted will becomedue and payable in full on December 24, 2006.

**IMPACT OF ACCOUNTING STANDARDS**

***SFAS No. 154, Accounting Changes and ErrorCorrections. *** InJune 2005, FASB issued SFAS No. 154, “*AccountingChanges and Error Corrections*”,a replacement of APB Opinion No. 20 and FASB Statement No. 3. The statementapplies to all voluntary changes in accounting principle, and changes therequirements for accounting for and reporting of a change in accountingprinciple.  SFAS No. 154 requiresretrospective application to prior periods’ financial statements of a voluntarychange in accounting principle unless it is impracticable.  SFAS No. 154 is effective for accounting changesand corrections of errors made in fiscal years beginning after December 15,2005.  Earlier application is permittedfor accounting changes and corrections of errors made occurring in fiscal yearsbeginning after June 1, 2005.  Thestatement does not change the transition provisions of any existing accountingpronouncements, including those that are in a transition phase as of theeffective date of this statement.  The Company does not expect the adoptionof SFAS No. 154 to have a material effect on its financial statements.

***SFAS No. 123 (revised 2004), Share-BasedPayment***.  In December 2004, FASB issued SFAS No.123 (revised 2004), *Share-Based Payment*,that focuses primarily on accounting for transactions in which an entityobtains employee services in share-based payment transactions.  Thisstatement replaces SFAS No. 123, *Accountingfor Stock-Based**Compensation*,and supersedes APB Opinion No. 25, *Accountingfor Stock Issued to Employees*.   On January 1, 2006, weimplemented SFAS No. 123R.  We do not expectthe adoption of SFAS No. 123R to have a material effect on our financialstatements.

**ITEM 3.****QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

The vast majorityof our transactions are denominated in U.S. dollars; as such, fluctuations inforeign currency exchange rates have historically had little impact on us.  Inflation has not been a significant factorin our operations in any of the periods presented, and it is not expected toaffect operations in the future.  AtSeptember 30, 2006, our 10% senior subordinated convertible debt carriesinterest at a fixed rate of 10%. Our debt associated with both our line ofcredit and long-term convertible note carries interest at prime plus 2.5% or10.75% at September 30, 2006. There is no material market risk relating to ourlong-term debt.

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**ITEM4. CONTROLS AND PROCEDURES**

(a)                Evaluation of disclosure controls andprocedures.

Underthe supervision and with the participation of our management, including theCompany’s Chief Executive Officer and Chief Financial Officer, we evaluated theeffectiveness of the design and operation of our disclosure controls and procedures(as defined in Rule 13a-15(e) under the Exchange Act) as of the end of theperiod covered by this report.  Basedupon that evaluation, the Chief Executive Officer and Chief Financial Officerconcluded that, as of the evaluation date, our disclosure controls andprocedures were effective to ensure that the information required to bedisclosed by us in our periodic SEC filings is recorded, processed, summarized,and reported within the time periods specified in the Securities and ExchangeCommission’s rules and forms.

(b)         Changes in internal controls over financial reporting.

During the course of the audit of our consolidated financial statementsfor December 31, 2005, our independent registered public accounting firm,Virchow, Krause & Company, LLP (Virchow Krause), advised management and theAudit Committee that our internal controls had allowed an error in theinventory reserve calculation due to inconsistent treatment of work in processitems from 2004 to 2005.  Based onVirchow Krause’s recommendation, management decided that an increase in theinventory reserve of approximately $525,000 was required as of December 31,2005, to reflect a revaluation of excess inventory and adjustments to inventoryconsumption rates.  The inventory reserveerror had no effect on reported results for any of the individual quarters in2005.  As a result of this experience,during the first quarter, we revised and expanded our procedures for valuationsof excess inventory and estimates of inventory consumption rates, and therelated internal controls, to involve greater analysis of historical and projectedusage of inventory as well as other data.

Inaddition, Virchow Krause recommended changes to certain other of the Company’scontrols and procedures, none of which had any impact on the audited financialstatements for 2005 or prior years.  Asof the end of second quarter of 2006, management implemented changes to thesecontrols and procedures.  No additionalcontrols and procedures were made in the third quarter.

Therehave been no additional changes in our internal control over financial reportingduring the third quarter of 2006 that have materially affected, or arereasonably likely to affect, our internal control over financial reporting.

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## PART II.  OTHER INFORMATION

### **Item2.  Unregistered Sales Of EquitySecurities And Use Of Proceeds**

On August 28, 2006, theCompany sent the holders of the Company’s 10% Senior Subordinated ConvertibleNotes an Offer to Reduce Note Conversion Price, in which the Company offered toreduce the conversion price of the Notes to $0.29 per share if the holdersagreed to convert their Notes by August 31, 2006.  Effective August 31,2006, holders of $2.1 million in principal amount of the Notes (62%) acceptedthe offer and agreed to convert their Notes.  The Company issued 7,362,069 shares of common stock to certain holdersof our 10% Senior Subordinated Convertible Notes.  No funds were paid to the Company for theshares and no commissions were paid by the Company.  Issuance of theshares was exempt from registration under Rule 506 under the Securities Act of1933, because the purchasers are accredited investors, there was no generalsolicitation or advertising, and the shares are subject to limitations onresale.

On July 31, 2006, theCompany issued 1,200,000 shares of common stock to Laurus Master Fund, Ltd. (“Laurus”),pursuant to the exercise by Laurus of an option granted to Laurus on April 29,2005, in connection with a loan made by Laurus to the Company. Laurus paid theCompany a total of $12,000 for the shares. No commissions were paid by theCompany. Issuance of the shares was exempt from registration under Rule 506under the Securities Act of 1933, because there was only one purchaser, thepurchaser is an accredited investor, there was no general solicitation oradvertising, and the shares cannot be sold without registration.

### **Item6.  Exhibits**

10            Offer to Reduce NoteConversion Price (filed herewith).

31.1                            Certification of Chief Executive Officer(filed herewith).

31.2                            Certification of Chief Financial Officer(filed herewith).

32                                     Section 1350 Certification (filed herewith).

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SIGNATURES

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                               |   | Micro Component Technology, Inc.  Registrant          |
|-------------------------------|--------|-------------------------------------------------------|
|                          |   |                                                  |
|                          |   |                                                  |
| Dated:  November 6, 2006 |   | By:                                                   | /s/ Roger E. Gower |
|                          |   | Roger E. Gower  President and Chief Executive Officer |
|                          |   |                                                  |
|                          |   |                                                  |
|                          |   | And                                                   |
|                          |   |                                                  |
|                          |   |                                                  |
| Dated:  November 6, 2006 |   | By:                                                   | /s/ BachThuy T. Vo |
|                          |   | BachThuy T. Vo  Interim Chief Financial Officer       |
|                               |        |                                                       |  |  |

 

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