**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

| **ý** |   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 or 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|--------|-----------------------------------------------------------------------------------------------|
|       |   |                                                                                          |
|       |   | **For the quarterly period ended June 28,  2003**                                             |
|       |   |                                                                                          |
|       |   | **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**                                                                                                                                                                               |

 

**MICRO COMPONENT TECHNOLOGY, INC.**(Exact name of registrant as specified in its charter)

 

| **Minnesota**                                                   |   | **41-0985960**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                            |
| **2340 West County Road C, St. Paul, MN  55113-2528**           |
| (Address of principal executive offices)                        |
|                                                            |
| **(651) 697-4000**                                              |
| (Registrant’s telephone number)                            |

 

Indicate by check mark whetherthe Registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the Registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days

 

Yes          ý                     No          o

 

Indicate by check mark whetherthe Registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).

 

Yes          o                     No          ý

 

The number of sharesoutstanding of the Registrant’s Common Stock, as of August 8, 2003 was18,255,874.

 

 

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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. | CHANGES IN SECURITIES AND USE OF PROCEEDS |
|                                 |   |   |
|                                 | ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS |
|                                 |   |   |
|                                 | ITEM 5. | OTHER INFORMATION |
|                                 |   |   |
|                                 | ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K |
|                                 |   |   |
|                                 | SIGNATURES |

 

2

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**MICRO COMPONENTTECHNOLOGY, INC.**FORM 10-QPART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS(In thousands, except share and per share data)(Unaudited)

 
|                                                                                                 |   | **June 28,  2003** |   | **December 31,  2002** |   |
|------------------------------------------------------------------------------------------------------|--------|--------------------|--------|------------------------|--------|
| **Assets**                                                                                           |   |               |   |                   |   |
| Current assets                                                                                       |   |               |   |                   |   |
| Cash and cash equivalents                                                                            |   | $                  | 454    |                   | $      | 1,560 |   |
| Accounts receivable, less allowance for  doubtful accounts of $324 and $319, respectively            |   | 2,758              |   | 786                    |   |
| Inventories                                                                                          |   | 3,289              |   | 3,850                  |   |
| Other                                                                                                |   | 291                |   | 212                    |   |
| Total current assets                                                                                 |   | 6,792              |   | 6,408                  |   |
|                                                                                                 |   |               |   |                   |   |
| Property, plant and equipment, net                                                                   |   | 446                |   | 605                    |   |
| Debt issuance costs, net                                                                             |   | 582                |   | 665                    |   |
| Other assets                                                                                         |   | 65                 |   | 75                     |   |
|                                                                                                 |   |               |   |                   |   |
| Total assets                                                                                         |   | $                  | 7,885  |                   | $      | 7,753 |   |
|                                                                                                 |   |               |   |                   |   |
| **Liabilities and Stockholders’ Deficit**                                                       |   |               |   |                   |   |
| Current liabilities:                                                                                 |   |               |   |                   |   |
| Current portion of long-term debt                                                                    |   | $                  | 9      |                   | $      | 29 |   |
| Bank line of credit                                                                                  |   | 1,086              |   | —                 |   |
| Accrued restructuring costs                                                                          |   | 50                 |   | 194                    |   |
| Accounts payable                                                                                     |   | 2,015              |   | 1,010                  |   |
| Accrued compensation                                                                                 |   | 490                |   | 419                    |   |
| Accrued interest                                                                                     |   | 503                |   | 500                    |   |
| Accrued warranty                                                                                     |   | 200                |   | 200                    |   |
| Customer prepayments and unearned service  revenue                                                   |   | 383                |   | 300                    |   |
| Deferred revenue in excess of costs  incurred                                                        |   | 366                |   | 48                     |   |
| Other accrued liabilities                                                                            |   | 454                |   | 847                    |   |
| Total current liabilities                                                                            |   | 5,556              |   | 3,547                  |   |
|                                                                                                 |   |               |   |                   |   |
| 10% senior subordinated convertible debt                                                             |   | 10,000             |   | 10,000                 |   |
|                                                                                                 |   |               |   |                   |   |
| Stockholders’ deficit:                                                                          |   |               |   |                   |   |
| Preferred stock, $.01 par value, 1,000,000  authorized, none issued and outstanding                  |   | —             |   | —                 |   |
| Common stock, $.01 par value, 40,000,000  authorized, 17,319,389 and 14,152,520 issued, respectively |   | 173                |   | 142                    |   |
| Additional paid-in capital                                                                           |   | 89,392             |   | 88,302                 |   |
| Cumulative other comprehensive loss                                                                  |   | (69                | )      | (69                    | )      |
| Accumulated deficit                                                                                  |   | (97,167            | )      | (94,169                | )      |
| Total stockholders’ deficit                                                                     |   | (7,671             | )      | (5,794                 | )      |
| Total liabilities and stockholders’ deficit                                                     |   | $                  | 7,885  |                   | $      | 7,753 |   |

 

See notes to unaudited condensed consolidated financial statements

 

3

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**MICRO COMPONENTTECHNOLOGY, INC.**CONSOLIDATEDSTATEMENTS OF OPERATIONS(In thousands, except per share data)(Unaudited)

 
|                                                        |   | **Three Months Ended** |   | **Six Months Ended** |   |
|-------------------------------------------------------------|--------|------------------------|--------|----------------------|--------|
|                                                        |   | **June 28,  2003**     |   | **June 29,  2002**   |   | **June 28,  2003** |   | **June 29,  2002** |   |
|                                                        |   |                   |   |                 |   |   |   |   |   |
| Net sales                                                   |   | $                      | 2,333  |                 | $      | 3,879 |   | $ | 4,533 |   | $ | 7,342 |   |
| Cost of sales                                               |   | 1,448                  |   | 2,454                |   | 2,924 |   | 4,641 |   |
|                                                        |   |                   |   |                 |   |   |   |   |   |
| Gross profit                                                |   | 885                    |   | 1,425                |   | 1,609 |   | 2,701 |   |
|                                                        |   |                   |   |                 |   |   |   |   |   |
| Operating expenses:                                         |   |                   |   |                 |   |   |   |   |   |
| Selling, general and administrative                         |   | 1,290                  |   | 2,438                |   | 2,622 |   | 4,704 |   |
| Research and development                                    |   | 601                    |   | 1,049                |   | 1,334 |   | 2,355 |   |
| Restructuring charge                                        |   | 246                    |   | (475                 | )      | 266 |   | (152 | ) |
|                                                        |   |                   |   |                 |   |   |   |   |   |
| Total operating expenses                                    |   | 2,137                  |   | 3,012                |   | 4,222 |   | 6,907 |   |
|                                                        |   |                   |   |                 |   |   |   |   |   |
| Loss from operations                                        |   | (1,252                 | )      | (1,587               | )      | (2,613 | ) | (4,206 | ) |
|                                                        |   |                   |   |                 |   |   |   |   |   |
| Interest income                                             |   | 1                      |   | 31                   |   | 2 |   | 76 |   |
| Gain (loss) on sale of assets                               |   | 60                     |   | —               |   | 213 |   | (4 | ) |
| Interest expense and other, net                             |   | (317                   | )      | (293                 | )      | (600 | ) | (582 | ) |
|                                                        |   |                   |   |                 |   |   |   |   |   |
| Total interest and other                                    |   | (256                   | )      | (262                 | )      | (385 | ) | (510 | ) |
|                                                        |   |                   |   |                 |   |   |   |   |   |
| Net loss                                                    |   | $                      | (1,508 | )                    | $      | (1,849 | ) | $ | (2,998 | ) | $ | (4,716 | ) |
|                                                        |   |                   |   |                 |   |   |   |   |   |
| Net loss per share, basic and diluted:                      |   |                   |   |                 |   |   |   |   |   |
|                                                        |   |                   |   |                 |   |   |   |   |   |
| Net loss                                                    |   | $                      | (0.09  | )                    | $      | (0.13 | ) | $ | (0.19 | ) | $ | (0.33 | ) |
|                                                        |   |                   |   |                 |   |   |   |   |   |
| Weighted average common and equivalent  shares outstanding: |   |                   |   |                 |   |   |   |   |   |
| Basic and diluted                                           |   | 17,319                 |   | 14,115               |   | 16,105 |   | 14,096 |   |

 

See notes to unaudited condensed consolidated financial statements

 

4

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**MICRO COMPONENTTECHNOLOGY, INC.**CONSOLIDATEDSTATEMENTS OF CASH FLOWS(In thousands)(Unaudited)

 
|                                                                         |   | **Six Months Ended** |   |
|------------------------------------------------------------------------------|--------|----------------------|--------|
|                                                                         |   | **June 28,  2003**   |   | **June 29,  2002** |   |
|                                                                         |   |                 |   |   |   |
| Cash flows from operating activities:                                        |   |                 |   |   |   |
| Net loss                                                                     |   | $                    | (2,998 | ) | $ | (4,716 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities: |   |                 |   |   |   |
| Depreciation                                                                 |   | 238                  |   | 240 |   |
| Amortization of debt issuance costs                                          |   | 83                   |   | 87 |   |
| (Gain) loss on sales and write-offs of property                              |   | (172                 | )      | 4 |   |
| Changes in assets and liabilities:                                           |   |                 |   |   |   |
| Accounts receivable                                                          |   | (1,972               | )      | (12 | ) |
| Inventories                                                                  |   | 499                  |   | 699 |   |
| Other assets                                                                 |   | (69                  | )      | (37 | ) |
| Accounts payable                                                             |   | 1,005                |   | 95 |   |
| Accrued restructuring costs                                                  |   | (144                 | )      | (766 | ) |
| Other accrued liabilities                                                    |   | 82                   |   | (459 | ) |
|                                                                         |   |                 |   |   |   |
| Net cash used in operating activities                                        |   | (3,448               | )      | (4,952 | ) |
|                                                                         |   |                 |   |   |   |
| Cash flows from investing activities:                                        |   |                 |   |   |   |
| Additions to property, plant and equipment                                   |   | (93                  | )      | (73 | ) |
| Proceeds from disposition of property                                        |   | 248                  |   | 37 |   |
|                                                                         |   |                 |   |   |   |
| Net cash provided by (used in) investing  activities                         |   | 155                  |   | (36 | ) |
|                                                                         |   |                 |   |   |   |
| Cash flows from financing activities:                                        |   |                 |   |   |   |
| Payments of long-term debt                                                   |   | (20                  | )      | (21 | ) |
| Proceeds from bank line of credit                                            |   | 1,086                |   | — |   |
| Proceeds from issuance of stock                                              |   | 1,362                |   | 159 |   |
| Stock issuance costs                                                         |   | (241                 | )      | — |   |
|                                                                         |   |                 |   |   |   |
| Net cash provided by financing activities                                    |   | 2,187                |   | 225 |   |
|                                                                         |   |                 |   |   |   |
| Net decrease in cash and cash equivalents                                    |   | (1,106               | )      | (4,763 | ) |
|                                                                         |   |                 |   |   |   |
| Cash and cash equivalents at beginning of  period                            |   | 1,560                |   | 11,086 |   |
|                                                                         |   |                 |   |   |   |
| Cash and cash equivalents at end of period                                   |   | $                    | 454    |   | $ | 6,323 |   |
|                                                                         |   |                 |   |   |   |
| Supplemental cash flow information:                                          |   |                 |   |   |   |
|                                                                         |   |                 |   |   |   |
| Cash paid for interest                                                       |   | $                    | 502    |   | $ | 500 |   |

 

See notes to unaudited condensed consolidated financial statements

 

5

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**MICRO COMPONENTTECHNOLOGY, INC.**FORM 10-QNOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

 

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

 

*Basis of Presentation*

 

Theconsolidated financial statements include the accounts of the parent companyand our subsidiaries (“the Company”) after elimination of all significantintercompany balances and transactions. All subsidiaries are 100% owned.

 

The unauditedconsolidated financial statements included herein have been prepared inaccordance with accounting principles generally accepted in the United States(generally accepted accounting principles) for interim financial informationand with the instructions for Form 10-Q and Article 10 of Regulation S-X.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance with generallyaccepted accounting principles have been condensed or omitted pursuant to suchrules and regulations.  In the opinionof management all adjustments, including normal recurring adjustments,necessary for 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, 2003.

 

Ourconsolidated financial statements have been prepared on the assumption that wewill continue as a going concern, which contemplates the realization of assetsand liquidation of liabilities in the normal course of business. The independentauditors’ report on the financial statements of the Company as of and for thefiscal year ended December 31, 2002 included in Form 10-K contained anexplanatory paragraph that expresses substantial doubt about our ability tocontinue as a going concern.   Thefinancial statements do not include any adjustments to reflect the possiblefuture effects on the recoverability and classification of assets or theamounts and classification of liabilities that may result from the outcome ofthis uncertainty.

 

As of June 28,2003, the Company had an accumulated deficit of $97.2 million and incurred anet loss of $1.5 million and $3.0 million for the three-month period ended June28, 2003 and the six-month period ended June 28, 2003, respectively.  As of June 28, 2003, the Company had cashand cash equivalents of $454,000, working capital of $1.2 million, a currentratio of 1.22, total assets of $7.9 million and total liabilities of $15.6million. We expect to incur operating losses at these net sales levels at leastthrough the second half of 2003 and our ability to generate cash and operatingincome is dependent on the realization of our restructuring efforts and ourresponsiveness to further negative impacts due to the continued downturn in thesemiconductor capital equipment market. During the first quarter of 2003, we completed the negotiation of thesub-letting of our St. Paul, Minnesota operations and will be exiting leases inseveral other of our facilities pursuant to those lease terms to further lowerour operating costs.

 

6

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As discussedin Note 5, in March 2003, we completed a private equity placement of our commonstock, which resulted in net proceeds to us of $1.1 million.  On June 9, 2003, we completed a secured $2.5million working capital line of credit with a bank.  Additionally, during the second quarter of 2003 we began arestructuring effort of our accounts payable which we expect to be completedearly in the third quarter of 2003. As discussed in Note 9, on June 30, 2003, we completed therestructuring of $9.29 million, or 92.9%, of our 10% Senior SubordinatedConvertible Notes, wherein the participating noteholders agreed to accept stockin lieu of cash for the next four semi-annual interest payment dates beginningJune 30, 2003 through December 31, 2004. It is possible that in addition to these efforts we will need toraise additional capital though additional debt or equity offerings; however,there is no assurance that additional financing will be available on terms andconditions acceptable or favorable to us, if at all.  If we are unsuccessful in obtaining additional financing, ifneeded, or restructuring accounts payable, our operations could be materiallynegatively impacted and we will be required to take actions that will harm ourbusiness, including potentially ceasing certain or all of our operations.

 

Interimunaudited financial results should be read in conjunction with the auditedfinancial statements included in the SEC Report on Form 10-K, for the periodended December 31, 2002.

 

**2.****                                     ****EARNINGS PERSHARE**

 

Earnings pershare are computed in accordance with Statement of Financial AccountingStandards (SFAS) No. 128, *Earnings per Share*.  Basic earnings per share are computed usingthe weighted average number of common shares outstanding during eachperiod.  Diluted earnings per shareinclude the dilutive effect of common shares potentially issuable upon theexercise of stock options outstanding. The following table reconciles the denominators used in computing basicand diluted earnings per share:

 
|                                           |   | **Three Months Ended** |   | **Six Months Ended**  |   |
|------------------------------------------------|--------|------------------------|--------|-----------------------|--------|
| **(in  thousands)**                            |   | **June 28,  2003 (1)** |   | **June 29,  2002(1)** |   | **June 28,  2003(1)** |   | **June 29,  2002(1)** |   |
| Weighted average common shares outstanding     |   | 17,319                 |   | 14,115                |   | 16,105 |   | 14,096 |   |
| Effect of dilutive stock options and  warrants |   | —                 |   | —                |   | — |   | — |   |
|                                           |   |                   |   |                  |   |   |   |   |   |
|                                           |   | 17,319                 |   | 14,115                |   | 16,105 |   | 14,096 |   |

 

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(1) Wereported a loss for the periods indicated. No adjustments were made for the effect of stock options, which totaled 2,168,251shares at June 28, 2003 and 2,479,827 shares at June 29, 2002, as the effect isantidiliutive.

 

**3.****                                     ****COMPREHENSIVENET INCOME OR LOSS**

 

In 1997, theFinancial Accounting Standards Board (FASB) issued SFAS, No. 130 *Reporting Comprehensive Income* whichestablishes standards for the reporting and display of comprehensive income(loss) and its components in a full set of general-purpose financialstatements.  Under this standard,certain revenues, expenses, gains, and losses recognized during the period areincluded in comprehensive income (loss), regardless of

 

7

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whether theyare considered to be results of operations of the period.  During the three and six-month periods endedJune 28, 2003 and June 29, 2002 total comprehensive loss equaled net loss asreported on the Consolidated Statements of Operations.

 

**4.****                                     ****BALANCESHEET INFORMATION**

 

Major components of inventories were as follows (in thousands):

 
|            |   | **June 28,  2003** |   | **December 31,  2002** |   |
|-----------------|--------|--------------------|--------|------------------------|--------|
|            |   |               |   |                   |   |
| Raw materials   |   | $                  | 1,410  |                   | $      | 2,541 |   |
| Work-in-process |   | 1,569              |   | 778                    |   |
| Finished goods  |   | 310                |   | 531                    |   |
|            |   | $                  | 3,289  |                   | $      | 3,850 |   |

 

We providea standard thirteen month warranty program for our equipment products. Werecord provisions for warranty claims for these products based upon historicalclaim performance.  The following tableprovides the expense recorded and charges against our reserves for the quarterended June 28, 2003 (in thousands):

 
| Accrued warranty balance at December 31,  2002 |   | $      | 200    |   |
|------------------------------------------------|--------|--------|--------|--------|
|                                           |   |   |   |
| Provision                                      |   | 26     |   |
|                                           |   |   |   |
| Warranty claims                                |   | (26    | )      |
|                                           |   |   |   |
| Accrued warranty balance at June 28, 2003      |   | $      | 200    |   |

 

**5.****                                     ****FINANCINGTRANSACTIONS**

 

On March7, 2003 and March 26, 2003, pursuant to a private equity placement with a groupof accredited investors, we issued a total of 3,166,869 shares of common stock,which resulted in net proceeds to us of approximately $1.1 million.  Stock issuance costs associated with thisoffering totaled approximately $241,000. As part of this offering, we also issued warrants to purchase 253,350shares of common stock that have a term of five years with an exercise price of$0.43 per share.

 

On June 9,2003, the company completed a one-year, $2.5 million secured working capitalline of credit agreement with a bank. Under the terms of the agreement, the company may borrow up to eightypercent (80%) of qualified receivables. Additionally, under this agreement the company granted a first securityinterest in all assets of the company. As of June 28, 2003, $1.1 million was outstanding under this agreement.

 

8

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**6.****                                     ****RESTRUCTURINGCHARGES**

 

**2003 Restructuring Charges**

 

During the first quarter, in response to thecontinued and prolonged downturn in the semiconductor capital equipmentindustry, we reduced our workforce across all functional areas by approximately24%, resulting in a restructuring charge of $19,000.  This charge reflected severance and other benefit costsassociated with this reduction.  Thisworkforce reduction affected a total of 26 employees across all functionalareas.

 

During the second quarter, we completed therestructuring of our master lease for our St. Paul, MN facility resulting in arestructuring charge of $227,000, which included write-offs of $41,000 relatedto leasehold improvements in the vacated space which provides no furtureeconomic benefit to us.  Additionally,we further reduced our workforce across all functional areas by approximately4%, resulting in a restructuring charge of $19,000.  This charge reflectedseverance and other benefit costs associated with this reduction.  This workforce reduction affected a total of4 employees across all functional areas.

 

**2002 Restructuring Charges**

 

In 2002, inresponse to the continued andprolonged downturn in the semiconductor capital equipment industry, we took thefollowing actions:

 

During thefirst quarter, we reduced ourworkforce across all functional areas by approximately 25% at the time,resulting in a restructuring charge of $323,000.  This charge reflected severance and other benefits costsassociated with this reduction.  Thisworkforce reduction affected 44 employees, principally in the areas ofmanufacturing, sales and marketing and engineering.

 

During thesecond quarter, we further reducedour workforce by an additional 7% at the time, resulting in a restructuringcharge of $199,000.  This chargereflected severance and other benefit costs associated with the reduction,which affected 9 employees across all functional areas.  We also completed a lease settlementagreement related to our Marlborough, Massachusetts’ facility.  This agreement required us to pay $450,000or approximately 35% of the outstanding lease obligation, which was to expirein April 2003.  As of December 31, 2002,the full amount of this settlement was paid. The settlement of this leaseresulted in a $674,000 recovery.

 

During thethird quarter, as a result of theon going transfer of our core manufacturing operations to our Penang, Malaysiafacility, we incurred a restructuring charge of $345,000, representingseverance and other benefit costs associated with further reductions to ourworkforce.  This reduction wasimplemented in the third and fourth quarters of 2002 and affected a total of 38employees or 30% of our workforce at the time, across all functional areas.

 

During thefourth quarter, we further reduced our workforce, resulting in a restructuringcharge of $14,000.  This chargereflected severance and other benefit costs associated with the reduction, which affected 9 employees or 8% ofour workforce at the time, principally in the area of sales and marketing.

 

9

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The followingtable summarizes these charges related to workforce and manufacturing costreductions (in thousands):

 
|                                                                 |   | **Employee  Separation  Costs** |   | **Idle Facility  Costs** |   | **Total** |   |
|----------------------------------------------------------------------|--------|---------------------------------|--------|--------------------------|--------|-----------|--------|
|                                                                 |   |                            |   |                     |   |      |   |
| Accrued restructuring costs at December 31,  2001                    |   | $                               | 66     |                     | $      | 890       |   | $ | 956 |   |
|                                                                 |   |                            |   |                     |   |      |   |
| Restructuring charge for the quarter ended  March 30, 2002           |   | 323                             |   | —                   |   | 323       |   |
|                                                                 |   |                            |   |                     |   |      |   |
| Utilization for the quarter ended March 30,  2002                    |   | (272                            | )      | (167                     | )      | (439      | )      |
|                                                                 |   |                            |   |                     |   |      |   |
| Restructuring charge (recovery) for the  quarter ended June 29, 2002 |   | 199                             |   | (674                     | )      | (475      | )      |
|                                                                 |   |                            |   |                     |   |      |   |
| Utilization for the quarter ended June 29,  2002                     |   | (126                            | )      | (49                      | )      | (175      | )      |
|                                                                 |   |                            |   |                     |   |      |   |
| Restructuring charge for the quarter ended  September 28, 2002       |   | 345                             |   | —                   |   | 345       |   |
|                                                                 |   |                            |   |                     |   |      |   |
| Utilization for the quarter ended September  28, 2002                |   | (119                            | )      | —                   |   | (119      | )      |
|                                                                 |   |                            |   |                     |   |      |   |
| Restructuring charge for the quarter ended  December 31, 2002        |   | 14                              |   | —                   |   | 14        |   |
|                                                                 |   |                            |   |                     |   |      |   |
| Utilization for the quarter ended December  31, 2002                 |   | (236                            | )      | —                   |   | (236      | )      |
|                                                                 |   |                            |   |                     |   |      |   |
| Restructuring charge for the quarter ended  March 29, 2003           |   | 19                              |   | —                   |   | 19        |   |
|                                                                 |   |                            |   |                     |   |      |   |
| Utilization for the quarter ended March 29,  2003                    |   | (114                            | )      | —                   |   | (114      | )      |
|                                                                 |   |                            |   |                     |   |      |   |
| Restructuring charge for the quarter ended  June 28, 2003            |   | 19                              |   | 227                      |   | 246       |   |
|                                                                 |   |                            |   |                     |   |      |   |
| Utilization for the quarter ended June 28,  2003                     |   | (102                            | )      | (193                     | )      | (295      | )      |
|                                                                 |   |                            |   |                     |   |      |   |
| Accrued restructuring costs at June 28,  2003                        |   | $                               | 16     |                     | $      | 34        |   | $ | 50 |   |

 

**7.**                                      **STOCK BASED COMPENSATION**

 

In October2002, the FASB issued SFAS No. 148 “Accounting for Stock-BasedCompensation-Transition and Disclosure”, (SFAS No. 148), providing alternativemethods of transition for a voluntary change to the fair value based method ofaccounting for stock-based employee compensation.  SFAS No. 148 also amends the disclosure requirement of

 

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SFAS No. 123,“Accounting for Stock-Based Compensation” to include prominent disclosures inannual and interim financial statements about the method of accounting forstock-based compensation and the effect of the method used on reportedresults.  The Company adopted thedisclosure provisions of SFAS No. 148 on December 31, 2002.

 

Had theCompany determined stock-based compensation costs based on the estimated fairvalue at the grant date for its stock options, the Company’s net loss per sharefor the three and six months ended June 28, 2003 and June 29, 2002,respectively, would have been as follows (in thousands, except per share data):

 
|                                         |   | **Three Months Ended** |   | **Six Months Ended** |   |
|----------------------------------------------|--------|------------------------|--------|----------------------|--------|
|                                         |   | **June 28,  2003**     |   | **June 29,  2002**   |   | **June 28,  2003** |   | **June 29,  2002** |   |
| Net loss:                                    |   |                   |   |                 |   |   |   |   |   |
| As reported                                  |   | $                      | (1,508 | )                    | $      | (1,849 | ) | $ | (2,998 | ) | $ | (4,716 | ) |
| Fair value compensation expense              |   | (224                   | )      | (287                 | )      | (448 | ) | (574 | ) |
| Pro forma                                    |   | $                      | (1,732 | )                    | $      | (2,136 | ) | $ | (3,446 | ) | $ | (5,290 | ) |
|                                         |   |                   |   |                 |   |   |   |   |   |
| Net loss per share – basic and diluted: |   |                   |   |                 |   |   |   |   |   |
| As reported                                  |   | $                      | (0.09  | )                    | $      | (0.13 | ) | $ | (0.19 | ) | $ | (0.33 | ) |
| Fair value compensation expense              |   | (0.01                  | )      | (0.02                | )      | (0.02 | ) | (0.04 | ) |
| Pro forma                                    |   | $                      | (0.10  | )                    | $      | (0.15 | ) | $ | (0.21 | ) | $ | (0.37 | ) |

 

The fair valueof options granted under the stock options for the three and six-monthsended  June 28, 2003 and June 29, 2002was estimated on the date of grant using the Black-Scholes option pricing modelwith the following weighted average assumptions.

 
|                                    |   | **Quarters Ended** |   | **Six Months Ended** |   |
|-----------------------------------------|--------|--------------------|--------|----------------------|--------|
|                                    |   | **June 28,  2003** |   | **June 29,  2002**   |   | **June 28,  2003** |   | **June 29,  2002** |   |
|                                    |   |               |   |                 |   |   |   |   |   |
| Dividend yield                          |   | 0.00               | %      | 0.00                 | %      | 0.00 | % | 0.00 | % |
| Expected volatility                     |   | 88.17              | %      | 102.51               | %      | 88.17 | % | 102.51 | % |
| Risk-free interest rate                 |   | 3.87               | %      | 4.62                 | %      | 3.87 | % | 4.62 | % |
| Expected life of options                |   | 3.5 years          |   | 3.5 years            |   | 3.5 years |   | 3.5 years |   |
| Fair value per share of options granted |   | $                  | 1.28   |                 | $      | 1.94 |   | $ | 1.28 |   | $ | 1.94 |   |
|                                         |        |                    |        |                      |        |  |  |  |  |  |  |  |  |

 

**8.**             **RECENT ACCOUNTING PRONOUNCEMENTS**

 

***EITF Issue No. 00-21– Revenue Arrangements with Multiple Deliverables.***  In November 2002, the Emerging Issues TaskForce (EITF) reached a consensus on Issue No. 00-21, *Revenue Arrangements with Multiple Deliverables*, whichprovides guidance on how to account for arrangements that involve the deliveryor performance of multiple products, services and/or right to use assets.  The provisions of EITF Issue No. 00-21 willapply to revenue arrangements entered into in fiscal periods beginning afterJune 15, 2003.  The adoption of EITFIssue No. 00-21 will not have a material effect on our results of operationsand financial condition.

 

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***SFAS No. 150 –Accounting for Certain Financial Instruments with Characteristics of Both******Liabilities and Equity***.  In May 2003, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 150, *Accountingfor Certain Financial Instruments with Characteristics of Both Liabilities andEquity.*  SFAS No. 150establishes standards for how and issuer classifies and measures certainfinancial instruments with characteristics of both liabilities and equity.  SFAS No. 150 requires that and issuerclassify a financial instrument that is within its scope as a liability (or anasset in some circumstances).  Thisrequirement of this statement apply to an issuer’s classification andmeasurement of free-standing financial instruments, including those thatcomprise more than one option or forward contract.  SFAS No. 150 is effective for financial instruments entered intoor modified after May 31, 2003, and otherwise is effective at the beginning ofthe first interim period beginning after June 15, 2003.  There will be no impact of adopting SFAS No.150 in our financial position and results of operations.

 

**9.****                                     ****SUBSEQUENTEVENTS**

 

On June 30, 2003, we completed the restructuring of $9.29 million, or92.9%, of our 10% Senior Subordinated Convertible Notes, wherein theparticipating noteholders agreed to accept stock in lieu of cash for the nextfour semi-annual interest payment dates beginning June 30, 2003 throughDecember 31, 2004.  As part of thisrestructuring, the company amended the notes of the participating noteholdersto reduce the conversion price from $2.60 per share to $1.00 per share for theremainder of the term through December 2006. The agreement also included standard anti-dilution provisions, andrequires the company to register the shares with the Securities and ExchangeCommission.

 

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**MICRO COMPONENTTECHNOLOGY, INC.**FORM 10-QITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFRESULTS OF OPERATIONS AND FINANCIAL CONDITION

 

*The following discussion of our results of operations and financialcondition should be read together with the other financial information andcondensed consolidated financial statements included in this document.  This discussion contains forward-lookingstatements that involve risks and uncertainties.  Our actual results could differ materially from those anticipatedin the forward-looking statements as a result of a variety of factors,including those discussed in “Risk Factors” and elsewhere in this document.*

 

Overview

 

We supplyautomation solutions for the global semiconductor test and assemblymanufacturing market.  Our solutionsinclude automated test handlers, factory automation software and our newintegrated Smart Solutions product line. We believe that our products can significantly improve the productivity,yield and throughput of the back-end (post wafer) parts of the manufacturingprocess, including assembling, packaging, testing and singulating semiconductordevices.

 

The demand forour products and services is dependent upon growth in the semiconductorindustry and the increasing automation needs of semiconductor manufacturers andindependent test and assembly facilities. In the fourth quarter of 2000, the semiconductor industry went into asharp downturn, which intensified and continued through the first quarter of 2003,resulting in significant adverse impacts on our business including inventoryrevaluations charges, write downs of impaired intangible assets and significantreductions in our employee base. Although worldwide semiconductor bookings are showing signs ofstabilization, the return to market growth cannot be predicted in the shortterm.  As disclosed in our Form 10-K forthe year ended December 31, 2002 a continued or intensified market downturnmight result in significant losses, charges for inventory revaluation, assetimpairment or restructuring charges. Consequently, as a result of this downturn, in addition to the actionstaken in 2002, we further reduced our workforce in the first and secondquarters of 2003 by 24% and 4%, respectively, affecting a total of 30 employeesacross all functional areas. In the second quarter of 2003, we completed therestructuring of our master lease agreement related to our St. Paul facilityresulting in the reduction of future lease commitment under this contract.

 

**CriticalAccounting Policies**

 

*Revenue Recognition*

 

Under StaffAccounting Bulletin 101 (“SAB 101”), we recognize revenue upon shipment, as ourterms are FOB shipping point, for established equipment products that havepreviously satisfied existing customer performance specifications and thatprovide for full payment tied to shipment. Revenue for products that have not previously satisfied customerperformance specifications or from sales where all or a portion of customerpayment is based upon acceptance are only recognized upon customer acceptance.  As such, in periods of increasing shipments,

 

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revenues will be deferred ifthe shipments are for new customers, new products or the payment terms are tiedto acceptance criteria.  Consequently,if these conditions exist, we may report revenue levels that are not reflectiveof actual shipment growth rates. Conversely, in periods of decreasing shipments, we potentially couldrecognize revenues related to shipments made in prior periods.  Consequently, if these conditions exist, wemay report revenue levels that are greater than actual shipments.

 

*Allowance for Doubtful Accounts*

 

We record aprovision for doubtful accounts based on specific identification of ouraccounts receivable. This involves a degree of judgment based on discussionwith our internal sales and marketing groups, our customer base and theexamination 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 for semiconductor capitalequipment  or economic recession, agreater degree of risk exists concerning the ultimate collectability of ouraccounts receivable due to the impact that these conditions might have on ourcustomer base.

 

*Valuation of Inventories*

 

Ourinventories are stated at the lower of cost or market.  Cost is determined by the first-in,first-out (“FIFO”) method.  Wemaintain a standard costing system for our inventories.  Assumptions with respect to direct laborutilization, standard direct and indirect cost rates, vendor pricing andutilization of factory capacities are formulated in the development of ourstandard costing system.  Sudden orcontinuing changes in the semiconductor capital equipment market affecting ourshipments can result in significant production variances from our standardrates. These variances directly impact our gross profit performance and maycause variability in gross profits results from reporting period-to-reportingperiod.  Our labor and overhead ratesare set for production rates that match typical market conditions.  Production variances are charged to cost ofsales each quarter as incurred. Material standards are based upon normalpurchase volumes.  Purchase price variancesare charged to costs of sales each quarter as incurred.

 

Provisions toreduce inventories to the lower of cost or market are made based on a review ofexcess and 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

 

*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 warranty

 

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claims.  There can be no assurance that our estimateswill match the actual amount of future warranty claims.

 

###### **Results ofOperations for the Three Months Ended June 28, 2003 and June 29, 2002**

###### ** **

Net sales forthe three months ended June 28, 2003, decreased $1.6 million or 39.9% to $2.3million compared to $3.9 million for the three months ended June 29, 2002.  Product acceptance requirements related toproduct and customer mix resulted in a net decrease of $0.5 million to revenuesover shipments in second quarter of 2003, while these same factors caused a$0.5 million increase to revenues over shipments in the second quarter2002.  Current quarter product salescontinue to be severely impacted by the continued downturn in the semiconductorcapital equipment market.  We expect netsales to continue to be adversely impacted by the market downturn.

 

Gross profitfor the second quarter of 2003 decreased by $0.5 million to $0.9 million, or37.9% of net sales, from $1.4 million, or 36.7% of net sales, for thecomparable period in the prior year. The improvement in gross margin in the current year period primarilyresulted from lower production costs associated with our Malaysia manufacturingfacility coupled with the restructuring activities that have been undertakenover the last twelve months.  We expectgross margins to continue to be adversely impacted by the market downturn,partially offset by the benefits of the restructuring steps we have initiated alongwith the cost benefits realized in our foreign manufacturing.

 

Selling,general and administrative expense in the second quarter of 2003 was $1.3million, or 55.3% of net sales, compared to $2.4 million, or 62.9% of net salesfor the second quarter of 2002.   Thedecrease in expense for the current year period is a result of the costreduction measures initiated in 2002 and the first quarter of 2003 and adecrease in direct selling costs related to the decrease in sales.

 

Research anddevelopment expense for the second quarter of 2003 was $0.6 million, or 25.8%of net sales compared to $1.0 million, or 27.0% of net sales in the secondquarter of 2002.  The decrease inexpense for the current year period is a result of the cost reduction measuresinitiated in 2002 and the first quarter of 2003.

 

Therestructuring charge totaled $246,000 or 10.5% of net sales.  This charge resulted from reductions of ourworkforce across all functional areas in the second quarter of 2003.  This charge reflects severance and otherbenefits costs paid in 2003 related to exit activities commenced in 2002.  However, certain criterion under EITF 94-3were not satisfied for these 2003 severance and benefit costs to be accrued atDecember 31, 2002.    This workforcereduction affected 4 employees, across all functional areas.  Included in this charge are restructuringcosts associated with our St. Paul facility for $227,000 resulting from therestructuring of our master lease agreement related to this facility.  The restructuring benefit for the quarterended June 29, 2002, totaled $0.5 million or 12.2% of net sales.  This net benefit resulted from a leasesettlement agreement which was reached during the second quarter of 2002.  This agreement allowed us to exit theexisting lease at our Marlborough, Massachusetts facility. As a result of thisagreement, the remaining idle facility charges of $674,000 related to thislease was eliminated.  This benefit waspatially offset by a $199,000 charge related to a 7% reduction

 

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of our workforce across allfunctional areas in the second quarter of 2002, reflecting severance and otherbenefits costs associated with this reduction. This workforce reduction affected 9 employees, principally in the areasof manufacturing, sales and marketing and engineering.

 

Interestincome for the second quarter of 2003 was $1,000 compared to $31,000 in thesecond quarter of 2002.  This decreaseresulted from the decrease in investment in interest-bearing cash and cashequivalents.  In connection with thetransfer of our manufacturing operations to Penang, we sold certain fixed andother assets from our St. Paul, Minnesota facility resulting in a gain on saleof $60,000 or 2.6% of net revenue for the second quarter of 2003.  Interest expense and other totaled $317,000or 13.6% of net revenue in the current year’s quarter, compared to $293,000 or7.6% of net revenue for the comparable period in the prior year.  The interest expense resulted from our 10%Senior Subordinated Convertible Notes, which were issued in December of 2001,the amortization of debt issuance costs associated with the note offering andinterest associated with our bank line of credit.

 

Net loss forthe quarter ended June 28, 2003 was $1.5 million or $0.09 per share, ascompared to a net loss of $1.8 million, or $0.13 per share in the prior yearperiod.

 

###### **Results ofOperations for the Six Months Ended June 28, 2003 and June 29, 2002**

 

Net sales forthe six months ended June 28, 2003, decreased $2.8 million or 38.3% to $4.5million compared to $7.3 million for the six months ended June 29, 2002.  Product acceptance requirements related toproduct and customer mix resulted in a net decrease to revenues of $1.1 millionover shipments for the 2003 six month period compared to a net increase to revenues of $2.1 million over shipmentsfor the comparable prior year period. Current quarter product sales continue to be severely impacted by thecontinued downturn in the semiconductor capital equipment market.  We expect net sales to continue to beadversely impacted by the market downturn.

 

Gross profitfor the first six months of 2003 decreased by $1.1 million to $1.6 million, or35.5% of net sales, from $2.7 million, or 36.8% of net sales, for thecomparable period in the prior year. The slight decrease in gross margin in the current year period primarilyresulted from unabsorbed excess production costs associated with the industrydownturn offset by the cost benefits associated with our transfer ofmanufacturing to our Malaysia facility. We expect gross margins to continue to be adversely impacted by themarket downturn, partially offset by the benefits of the restructuring steps wehave initiated along with the cost benefits realized in our foreignmanufacturing.

 

Selling,general and administrative expense for the first six months of 2002 was $4.7million, or 64.1% of net sales, compared to $6.2 million, or 36.8% of net salesfor the first six months of 2001. The decrease in expense for the current yearperiod is a result of the cost reduction measures initiated in 2001 and 2002,and a decrease in direct selling costs related to the decrease in sales. Theincrease in selling, general and administrative expense as a percentage of netsales in the current year is primarily attributed to the decreased sales basein the current year period.

 

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Research anddevelopment expense for the first six months of 2003 was $1.3 million, or 29.4%of net sales, compared to $2.4 million, or 32.1% of net sales for the first sixmonths of 2002.   The decrease inexpense for the current year period is a result of the cost reduction measuresinitiated in 2002 and the first quarter of 2003.

 

Therestructuring charge totaled $266,000 or 5.9% of net sales for the current yearperiod.  This charge resulted fromreductions of our workforce across all functional areas in the first and secondquarter of 2003.  This charge reflectsseverance and other benefits costs paid in 2003 related to exit activitiescommenced in 2002.  However, certaincriterion under EITF 94-3 were not satisfied for these 2003 severance andbenefit costs to be accrued at December 31, 2002.  This workforce reduction affected 30 employees, across allfunctional areas. Additionally included in this charge, are restructuring costsassociated with our St. Paul facility for $227,000 resulting from therestructuring of our master lease agreement related to this facility.  The restructuring benefit for the first sixmonths of 2002 totaled $0.2 million or 2.1% of net sales.  This net benefit resulted from a leasesettlement agreement which was reached during the second quarter of 2002.  This agreement allowed us to exit theexisting lease at our Marlborough, Massachusetts facility. As a result of thisagreement, the remaining idle facility charges related to this lease wereeliminated. This benefit was offset by a charge related to a 7% reduction ofour workforce across all functional areas in the second quarter of 2002 and a25% reduction of our workforce in the first quarter of 2002, reflectingseverance and other benefits costs associated with these reductions.  This workforce reduction affected 9employees in the second quarter of 2002 and 44 employees in the first quarter of2002, principally in the areas of manufacturing, sales and marketing andengineering.

 

Interestincome for the first six months of 2003 was $2,000 compared to $76,000 for thecomparable in the prior year.  Thisdecrease resulted from the decrease in investment in interest-bearing cash andcash equivalents.  In connection withthe transfer of our manufacturing operations to Penang, we sold certain fixedand other assets from our St. Paul, Minnesota facility resulting in a gain onsale of $213,000 or 4.7% of net revenue for the second quarter of 2003.  Interest expense and other totaled $600,000or 13.2% of net revenue in the current year, compared to $582,000 or 7.9% ofnet revenue for the comparable period in the prior year.  The interest expense resulted from our 10%Senior Subordinated Convertible Notes, which were issued in December of 2001,the amortization of debt issuance costs associated with the note offering andinterest associated with our bank line of credit.

 

Net loss forthe six-month period ended June 28, 2003 was $3.0 million or $0.19 per share,as compared to a net loss of $4.7 million, or $0.33 per share in the prior yearperiod.

 

**Liquidityand Capital Resources**

 

The Company’sconsolidated financial statements are prepared and presented on a going concernbasis.  As of June 28, 2003, the Companyhad an accumulated deficit of $97.2 million and incurred a net loss of $1.5million and $3.0 for the three-month and six-month periods ended June 28, 2003,respectively.  As of June 28, 2003, theCompany had cash and cash equivalents of $454,000, working capital of $1.2million, a current ratio of 1.22, total assets of $7.9 million and totalliablities of $15.6 million. At December 31, 2002, we had cash and cashequivalents of $1.6 million, a current ratio of 1.81 and working capital of $2.9million.

 

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The net lossand increase in accounts receivable were the primary uses of cash in the firstsix months of 2003.  The net loss anddecrease in accrued restructuring costs were the primary uses of cash in thefirst six months of the prior year. Cash used in operations was $3.4 million in the first six months of 2003and $5.0 million in the first six months of 2002.

 

Capitalexpenditures were $93,000 for the first six months of 2003 compared to 73,000for the first six months of 2002. The current year capital spending relates tothe establishment of our Malaysian manufacturing facility.

 

On March 7,2003 and March 26, 2003, pursuant to a private equity placement with a group ofaccredited investors, we issued a total of 3,166,869 shares of common stock,which resulted in net proceeds to us of approximately $1.1 million.  Stock issuance costs associated with thisoffering totaled approximately $241,000. As part of this offering, we also issued warrants to purchase 253,350shares of common stock that have a term of five years with an exercise price of$0.43 per share.

 

On June 9,2003, we completed a one-year, $2.5 million secured working capital line ofcredit agreement with a bank.  Under theterms of the agreement, we may borrow up to eighty percent (80%) of qualifiedreceivables.  Additionally, under thisagreement the company granted a first security interest in all assets of thecompany.  As of June 28, 2003, $1.1million was outstanding under this agreement.

 

We estimatethat we might need to raise additional capital through debt or equityofferings, or by selling assets of the Company.  We believe that our ability to fund our operations and capitalrequirements for 2003, and our ability to obtain financing, are dependent onthe success of our strip product technology in the currently depressedsemiconductor capital equipment market and the realization of the cost benefitsassociated with our restructuring efforts, coupled with the transfer of ourcore manufacturing to Penang, Malaysia. There is no assurance that additional financing, if needed, will beavailable on terms and conditions acceptable or favorable to us, if at all.Additionally, we are also seeking to restructure our accounts payable.  If we are unsuccessful in obtainingadditional financing, if needed, or restructuring our accounts payable, ouroperations could be materially negatively impacted and we will be required totake actions that will harm our business, including potentially ceasing certainor all of our operations.

 

**QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

 

The vastmajority of our transactions are denominated in U.S. dollars; as such,fluctuations in foreign currency exchange rates have historically had littleimpact on us.  Inflation has not been asignificant factor in our operations in any of the periods presented, and it isnot expected to affect operations in the future.  At June 28, 2003, all of our outstanding long-term debt carriesinterest at a fixed rate. There is no material interest rate risk relating toour long-term debt.

 

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**IMPACTOF ACCOUNTING STANDARDS**

 

In November2002, the EITF reached a consensus on Issue No. 00-21, *Revenue Arrangements with Multiple Deliverables*,which provides guidance on how to account for arrangements that involve thedelivery or performance of multiple products, services and/or right to useassets.  The provisions of EITF IssueNo. 00-21 will apply to revenue arrangements entered into in fiscal periodsbeginning after June 15, 2003.  Theadoption of EITF Issue No. 00-21 will not have a material effect on our resultsof operations and financial condition.

 

In May 2003, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 150,  *Accounting for CertainFinancial Instruments with Characteristics of Both Liabilities and Equity.*  SFAS No. 150 establishes standards for howand issuer classifies and measures certain financial instruments withcharacteristics of both liabilities and equity.  SFAS No. 150 requires that and issuer classify a financialinstrument that is within its scope as a liability (or an asset in somecircumstances).  This requirement ofthis statement apply to an issuer’s classification and measurement offree-standing financial instruments, including those that comprise more thanone option or forward contract.  SFASNo. 150 is effective for financial instruments entered into or modified afterMay 31, 2003, and otherwise is effective at the beginning of the first interimperiod beginning after June 15, 2003. There will be no impact of adopting SFAS No. 150 in our financialposition and results of operations.

 

**RISKFACTORS**

 

Except for thehistorical information contained herein, certain of the matters discussed inthis report are “forward-looking statements” as defined in the PrivateSecurities Litigation Reform Act of 1995. These “forward-looking statements” involve certain risks anduncertainties, including, but not limited to, the following: (1) the prolongedor intensified downturn in the semiconductor market which often has adisproportionately negative impact on manufacturers of semiconductor capitalequipment, and which could cause us to continue to incur significant cashlosses decreasing our cash and expose us to potential further charges forrestructuring, excess and obsolete inventory and/or impairment of assets; (2)the market for our products is highly competitive throughout the world,primarily from manufacturers in the United States, Europe and Asia, and many ofour competitors are considerably larger and have considerably greater financialresources than we do which may allow them to develop superior or lower pricedproducts; (3) rapid changes in technology and in tester and handler products,which we must respond to successfully in order for our products to avoidbecoming noncompetitive or obsolete; (4) customer acceptance of our newproducts, including the strip-based Tapestry handling systems and SmartSolutions products, and other singulated device handler products in which wehave invested significant amounts of inventory; (5) possible loss of any of ourkey customers, who account for a substantial percentage of our business; (6)the possible adverse impact of competition in markets which are highlycompetitive; (7) the possible adverse impact of economic or political changesin markets we serve;  and (8) otherfactors detailed from time to time in our SEC reports, including but notlimited to the discussion in the Management’s Discussion & Analysisincluded in Form 10-K for the year ended December 31, 2002.  Further, our consolidated financialstatements have been prepared on the assumption that we will continue as agoing concern, which contemplates the realization of assets and liquidation ofliabilities in the normal course of business. The independent auditors’ report on the financial 

 

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statements of the Company as ofand for the year ended December 31, 2002 included in Form 10-K contained anexplanatory paragraph that expresses substantial doubt about our ability tocontinue as a going concern.

 

We expectlosses to continue at least through the second half of 2003, which couldrequire us to obtain additional capital or pursue other strategic alternativesincluding the restructuring of our accounts payable.  It is uncertain whether we will be able to obtain a sufficientamount of additional capital, if needed, on acceptable terms, or at all.  Further, if future financing requirementsare satisfied through the issuance of equity or debt instruments, shareholdersmay experience additional dilution in terms of their percentage of ownership ofour securities.  If we are unsuccessfulin obtaining additional financing, if needed, or restructuring accounts payableour operations could be materially negatively impacted and we will be requiredto take actions that will harm our business, including potentially ceasingcertain or all of our operations.

 

All forecastsand projections in this report are “forward-looking statements,” and are basedon our current expectations of our near-term results, based on currentinformation available pertaining to us, including risk factors discussedabove.  Actual results could differmaterially.

 

 

**ITEM4. CONTROLS AND PROCEDURES**

 

(a)          Evaluationof disclosure controls and procedures.

 

Under thesupervision 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 andprocedures (as defined in Rule 13a-15(e) under the Exchange Act) as of theend of period covered by this report. Based upon that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that, as of the Evaluation Date, our disclosurecontrols and procedures are effective in timely alerting them to the materialinformation relating to us (or our consolidated subsidiaries) required to beincluded in our periodic SEC filings.

 

(b)         Changesin internal controls.

 

There were nosignificant changes made in our internal controls or, to our knowledge, inother factors that could significantly affect these controls, subsequent to thedate of their evaluation.

 

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**MICRO COMPONENTTECHNOLOGY, INC.**FORM 10-QPART II. OTHER INFORMATION

 

 

### **Item 2. Changes in Securities and Use of Proceeds**

 

On March 7,2003 and March 26, 2003, pursuant to a private equity placement with a group ofaccredited investors, we issued a total of 3,166,869 shares of common stock,which resulted in net proceeds to us of approximately $1.1 million.  Stock issuance costs associated with thisoffering totaled approximately $241,000. As part of this offering, we also issued warrants to purchase 253,350shares of common stock that have a term of five years with an exercise price of$0.43 per share.  The offering wasexempt from registration under Rule 506 under the Securities Act of 1933,because all of the purchasers were accredited, there was no generalsolicitation, and the shares are subject to restrictions on transfer.

 

 

### **Item 4. Submission Of Matters To A Vote Of Security Holders**

 

(a)          The Company’s annual meeting of stockholders was held on June 26, 2003.

 

(b)         The following persons were elected directors of the Company to serve fora term of one year:

 
| Roger Gower         |   | D. James Guzy       |   | Donald Kramer     |
|---------------------|--------|---------------------|--------|-------------------|
| David M. Sugishita  |   | Donald R VanLuvanee |   | Patrick Verderico |
| Dr. Sheldon Buckler |   |                |   |              |

 

The vote summaries are as follows:

 
| **Director Name**    |   | **Affirmed** |   | **Withheld** |
|----------------------|--------|--------------|--------|--------------|
| Roger E. Gower       |   | 13,278,844   |   | 1,533,357    |
| D. James Guzy        |   | 13,290,521   |   | 1,521,680    |
| Donald J. Kramer     |   | 13,290,321   |   | 1,521,880    |
| David M. Sugishita   |   | 13,306,607   |   | 1,505,594    |
| Donald R. VanLuvanee |   | 13,290,647   |   | 1,521,554    |
| Patrick Verderico    |   | 13,290,647   |   | 1,521,554    |
| Dr. Sheldon Buckler  |   | 13,306,321   |   | 1,505,880    |

 

The meeting has been adjourned to a future date to allow for thereceipt of additional proxies on approval of the 2003 Incentive Stock OptionPlan.

 

### **Item 5.  OtherInformation**

 

***Restructuring Charge.***  During the first quarter of 2003, inresponse to the continued and prolonged downturn in the semiconductor capitalequipment industry, we further reduced our workforce across all functionalareas by approximately 25%, resulting in a restructuring

 

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charge of$19,000.  This charge reflects severanceand other benefits costs associated with this reduction.  This workforce reduction affected anadditional 26 employees across all functional areas. During the second quarter,we completed the restructuring of our master lease agreement related to our St.Paul, MN facility, resulting in a restructuring charge of $227,000, whichincluded write-offs of $41,000 related to leasehold improvements.  Additionally, we further reduced ourworkforce across all functional areas by approximately 4%, resulting in arestructuring charge of  $19,000.  This charge reflected severance and otherbenefit costs associated with this reduction. This workforce reduction affected a total of 4 employees across allfunctional areas.

 

On June 9,2003, we completed a one-year, $2.5 million secured working capital line ofcredit agreement with a bank.  Under theterms of the agreement, the company may borrow up to eighty percent (80%) ofqualified receivables.  Additionally,under this agreement the company granted a first security interest in allassets of the company.  As of June 28,2003, $1.1 million was outstanding under this agreement.

 

On June 30,2003, we completed the restructuring of $9.29 million, or 92.9%, of our 10%Senior Subordinated Convertible Notes, wherein the participating noteholdersagreed to accept stock in lieu of cash for the next four semi-annual interestpayment dates beginning June 30, 2003 through December 31, 2004.  As part of this restructuring, the companyamended the notes of the participating noteholders to reduce the conversionprice from $2.60 per share to $1.00 per share for the remainder of the termthrough December 2006.  The negotiatedagreement also included standard anti-dilution provisions, and requires thecompany to register the shares with the Securities and Exchange Commission.

 

### **Item 6. Exhibits and Reports on Form 8-K**

 

(a)          Reportson Form 8-K

 

On April 30,2003, we issued a press release disclosing financial information regarding thequarter ended March 29, 2003 for which a Form 8-K was filed on May 1, 2003.

 

(b)         ExhibitIndex

 
| 10     |   | Agreement  for Payment of Interest with Stock, effective June 30, 2003 (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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**MICRO COMPONENTTECHNOLOGY, INC.**FORM 10-QSIGNATURES

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.

 
|                                      | Micro  Component Technology, Inc.                                  |
|-------------------------------------------|--------------------------------------------------------------------|
|                                      | Registrant                                                         |
|                                      |                                                               |
|                                      |                                                               |
| Dated:   August 11, 2003        | By:                                                                | /s/ Roger E.  Gower |   |
|                                      | Roger E.  Gower   President and Chief Executive Officer            |
|                                      |                                                               |
|                                      |                                                               |
|                                      | And                                                                |
|                                      |                                                               |
|                                      |                                                               |
| Dated:   August   11, 2003 | By:                                                                | /s/  Thomas P. Maun |   |
|                                      | Thomas P.  Maun  Chief Financial Officer  Chief Accounting Officer |

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