**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM10-Q**

 
| **ý**                                                                                                                                                                                                                                                                       | **QUARTERLY  REPORT PURSUANT TO SECTION 13 or 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**  |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                             |
| **For the quarterly period ended June 26, 2004**                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                             |
| **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 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)                            |

 

Indicateby check mark whether the Registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days

 

| Yes | ý | No | o |
|-----|--------|----|---|

 

Indicateby check mark whether the Registrant is an accelerated filer (as defined inRule 12b-2 of the Exchange Act).

 

| Yes | o | No | ý |
|-----|---|----|--------|

 

Thenumber of shares outstanding of the Registrant’s Common Stock, as ofAugust 6, 2004 was 25,123,757.

 

 

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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 |   |
|                                 |                             |   |   |
|                                 |                             | CERTIFICATIONS |   |

 

2

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**MICRO COMPONENT TECHNOLOGY, INC.**

FORM 10-Q

# PART I.  FINANCIAL INFORMATION

## ITEM 1.  FINANCIAL STATEMENTS

## CONSOLIDATEDBALANCE SHEETS

(In thousands, except share and per share data)

 
|                                                                                                 |   | **June 26,  2004** |   | **December 31,  2003** |   |
|------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|-----------------------------|--------|
|                                                                                                 |   | **(Unaudited)**         |   | **(Audited)**               |   |
| **Assets**                                                                                           |   |                    |   |                        |   |
| Current assets                                                                                       |   |                    |   |                        |   |
| Cash and cash equivalents                                                                            |   | $                       | 931    |                        | $      | 1,078 |   |
| Accounts receivable, less allowance for doubtful  accounts of  $271 and $303, respectively      |   | 2,722                   |   | 1,539                       |   |
| Inventories                                                                                          |   | 3,310                   |   | 3,413                       |   |
| Other                                                                                                |   | 365                     |   | 273                         |   |
| Total current assets                                                                                 |   | 7,328                   |   | 6,303                       |   |
|                                                                                                 |   |                    |   |                        |   |
| Property, plant and equipment, net                                                                   |   | 321                     |   | 336                         |   |
| Debt issuance costs, net                                                                             |   | 459                     |   | 499                         |   |
| Other assets                                                                                         |   | 59                      |   | 56                          |   |
|                                                                                                 |   |                    |   |                        |   |
| Total assets                                                                                         |   | $                       | 8,167  |                        | $      | 7,194 |   |
|                                                                                                 |   |                    |   |                        |   |
| **Liabilities and Stockholders’  Deficit**                                                      |   |                    |   |                        |   |
| Current liabilities:                                                                                 |   |                    |   |                        |   |
| Line of credit                                                                                       |   | $                       | 654    |                        | $      | 348 |   |
| Accounts payable                                                                                     |   | 1,502                   |   | 1,518                       |   |
| Accrued compensation                                                                                 |   | 507                     |   | 469                         |   |
| Accrued interest                                                                                     |   | 195                     |   | 370                         |   |
| Accrued warranty                                                                                     |   | 122                     |   | 181                         |   |
| Customer prepayments and unearned service revenue                                                    |   | 389                     |   | 1,410                       |   |
| Deferred revenue in excess of costs incurred                                                         |   | —                  |   | 16                          |   |
| Other accrued liabilities                                                                            |   | 149                     |   | 373                         |   |
| Total current liabilities                                                                            |   | 3,518                   |   | 4,685                       |   |
|                                                                                                 |   |                    |   |                        |   |
| Long-term portion of accounts payable                                                                |   | —                  |   | 195                         |   |
| Long-term convertible note                                                                           |   | 1,744                   |   | —                      |   |
| 10% senior subordinated convertible debt                                                             |   | 3,630                   |   | 7,340                       |   |
|                                                                                                 |   |                    |   |                        |   |
| Stockholders’ deficit:                                                                          |   |                    |   |                        |   |
| Preferred stock, $.01 par value, 1,000,000  authorized, none issued and outstanding                  |   | —                  |   | —                      |   |
| Common stock, $.01 par value, 40,000,000  authorized, 25,123,757 and 21,145,300 issued, respectively |   | 251                     |   | 212                         |   |
| Additional paid-in capital                                                                           |   | 96,745                  |   | 92,668                      |   |
| Cumulative other comprehensive loss                                                                  |   | (69                     | )      | (69                         | )      |
| Accumulated deficit                                                                                  |   | (97,652                 | )      | (97,837                     | )      |
| Total stockholders’ deficit                                                                     |   | (725                    | )      | (5,026                      | )      |
| Total liabilities and stockholders’ deficit                                                     |   | $                       | 8,167  |                        | $      | 7,194 |   |

 

See notes to unaudited condensed consolidated financial statements

 

3

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**MICRO COMPONENT TECHNOLOGY, INC.**

## CONSOLIDATEDSTATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 
|                                                        |   | **Three  Months Ended** |   | **Six  Months Ended**   |   |
|-------------------------------------------------------------|--------|-------------------------|--------|-------------------------|--------|
|                                                        |   | **June 26,  2004** |   | **June 28,  2003** |   | **June 26,  2004** |   | **June 28,  2003** |   |
|                                                        |   |                    |   |                    |   |   |   |   |   |
| Net  sales                                                  |   | $                       | 4,223  |                    | $      | 2,333 |   | $ | 8,491 |   | $ | 4,533 |   |
| Cost  of sales                                              |   | 2,015                   |   | 1,448                   |   | 3,990 |   | 2,924 |   |
|                                                        |   |                    |   |                    |   |   |   |   |   |
| Gross  profit                                               |   | 2,208                   |   | 885                     |   | 4,501 |   | 1,609 |   |
|                                                        |   |                    |   |                    |   |   |   |   |   |
| Operating  expenses:                                        |   |                    |   |                    |   |   |   |   |   |
| Selling, general and administrative                         |   | 1,337                   |   | 1,290                   |   | 2,610 |   | 2,622 |   |
| Research and development                                    |   | 673                     |   | 601                     |   | 1,322 |   | 1,334 |   |
| Restructuring charge                                        |   | —                  |   | 246                     |   | — |   | 266 |   |
|                                                        |   |                    |   |                    |   |   |   |   |   |
| Total  operating expenses                                   |   | 2,010                   |   | 2,137                   |   | 3,932 |   | 4,222 |   |
|                                                        |   |                    |   |                    |   |   |   |   |   |
| Income  (loss) from operations                              |   | 198                     |   | (1,252                  | )      | 569 |   | (2,613 | ) |
|                                                        |   |                    |   |                    |   |   |   |   |   |
| Interest income                                             |   | 1                       |   | 1                       |   | 2 |   | 2 |   |
| Gain (loss) on sale of assets                               |   | —                  |   | 60                      |   | (12 | ) | 213 |   |
| Interest expense and other, net                             |   | (190                    | )      | (317                    | )      | (374 | ) | (600 | ) |
|                                                        |   |                    |   |                    |   |   |   |   |   |
| Total  interest and other                                   |   | (189                    | )      | (256                    | )      | (384 | ) | (385 | ) |
|                                                        |   |                    |   |                    |   |   |   |   |   |
| Net  income (loss)                                          |   | $                       | 9      |                    | $      | (1,508 | ) | $ | 185 |   | $ | (2,998 | ) |
|                                                        |   |                    |   |                    |   |   |   |   |   |
| Net  income (loss) per share:                               |   |                    |   |                    |   |   |   |   |   |
|                                                        |   |                    |   |                    |   |   |   |   |   |
| Basic                                                       |   | $                       | 0.00   |                    | $      | (0.09 | ) | $ | 0.01 |   | $ | (0.19 | ) |
| Diluted                                                     |   | $                       | 0.00   |                    | $      | (0.09 | ) | $ | 0.01 |   | $ | (0.19 | ) |
|                                                        |   |                    |   |                    |   |   |   |   |   |
| Weighted  average common and equivalent shares outstanding: |   |                    |   |                    |   |   |   |   |   |
|                                                        |   |                    |   |                    |   |   |   |   |   |
| Basic                                                       |   | 25,120                  |   | 17,319                  |   | 24,737 |   | 16,105 |   |
| Diluted                                                     |   | 28,585                  |   | 17,319                  |   | 28,299 |   | 16,105 |   |

 

See notes to unaudited condensed consolidated financial statements

 

4

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**MICRO COMPONENT TECHNOLOGY, INC.**

## CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 
|                                                                         |   | **Six  Months Ended**   |   |
|------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                         |   | **June 26,  2004** |   | **June 28,  2003** |   |
|                                                                         |   |                    |   |   |   |
| Cash  flows from operating activities:                                       |   |                    |   |   |   |
| Net loss                                                                     |   | $                       | 185    |   | $ | (2,998 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |   |                    |   |   |   |
| Depreciation and amortization                                                |   | 337                     |   | 321 |   |
| (Gain) loss on sales and write-offs of property                              |   | 12                      |   | (172 | ) |
| Changes in assets and liabilities:                                           |   |                    |   |   |   |
| Accounts receivable                                                          |   | (1,183                  | )      | (1,972 | ) |
| Inventories                                                                  |   | (22                     | )      | 499 |   |
| Other assets                                                                 |   | (94                     | )      | (69 | ) |
| Accounts payable                                                             |   | (211                    | )      | 1,005 |   |
| Accrued restructuring costs                                                  |   | —                  |   | (144 | ) |
| Other accrued liabilities                                                    |   | (1,108                  | )      | 82 |   |
|                                                                         |   |                    |   |   |   |
| Net  cash used in operating activities                                       |   | (2,084                  | )      | (3,448 | ) |
|                                                                         |   |                    |   |   |   |
| Cash  flows from investing activities:                                       |   |                    |   |   |   |
| Additions to property, plant and equipment                                   |   | (97                     | )      | (93 | ) |
| Proceeds from disposition of property                                        |   |                    |   | 248 |   |
|                                                                         |   |                    |   |   |   |
| Net  cash provided by (used in) investing activities                         |   | (97                     | )      | 155 |   |
|                                                                         |   |                    |   |   |   |
| Cash  flows from financing activities:                                       |   |                    |   |   |   |
| Payments of long-term debt                                                   |   | —                  |   | (20 | ) |
| Repayment of bank line of credit                                             |   | (348                    | )      | — |   |
| Proceeds from bank line of credit                                            |   | —                  |   | 1,086 |   |
| Proceeds from institutional line of credit                                   |   | 750                     |   | — |   |
| Issuance of long-term convertible note, net of  debt issue costs             |   | 1,657                   |   | — |   |
| Proceeds from issuance of stock                                              |   | 16                      |   | 1,362 |   |
| Stock issuance costs                                                         |   | (41                     | )      | (241 | ) |
|                                                                         |   |                    |   |   |   |
| Net  cash provided by financing activities                                   |   | 2,034                   |   | 2,187 |   |
|                                                                         |   |                    |   |   |   |
| Net  decrease in cash and cash equivalents                                   |   | (147                    | )      | (1,106 | ) |
|                                                                         |   |                    |   |   |   |
| Cash  and cash equivalents at beginning of period                            |   | 1,078                   |   | 1,560 |   |
|                                                                         |   |                    |   |   |   |
| Cash  and cash equivalents at end of period                                  |   | $                       | 931    |   | $ | 454 |   |
|                                                                         |   |                    |   |   |   |
| Supplemental  cash flow information:                                         |   |                    |   |   |   |
|                                                                         |   |                    |   |   |   |
| Non-cash financing activities:                                               |   |                    |   |   |   |
| Stock issued in lieu of interest                                             |   | $                       | 349    |   | $ | — |   |
| Stock issued in conversion of 10% senior  subordinated convertible debt      |   | 3,710                   |   | — |   |
| Cash paid for interest                                                       |   | $                       | 92     |   | $ | 502 |   |

 

See notes to unaudited condensed consolidated financial statements

 

5

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**MICRO COMPONENT TECHNOLOGY, INC.**

FORM 10-Q

## NOTESTO UNAUDITED CONDENSED CONSOLIDATED FINANCIALSTATEMENTS

(Unaudited)

 

**1.****                         ****INTERIM FINANCIAL STATEMENTS**

 

*Basis of Presentation*

 

Theconsolidated financial statements include the accounts of the parent companyand our subsidiaries after elimination of all significant intercompany balancesand transactions.  All significantsubsidiaries are 100% owned.

 

Theunaudited consolidated financial statements included herein have been preparedin accordance with accounting principles generally accepted in the UnitedStates (generally accepted accounting principles) for interim financialinformation and with the instructions for Form 10-Q and Article 10 ofRegulation S-X.  Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with generally accepted accounting principles have been condensed oromitted pursuant to such rules and regulations.  In the opinion of management all adjustments, including normalrecurring adjustments, necessary for a fair presentation of the interim periodspresented have been included.  Theinterim results are not necessarily indicative of the operating resultsexpected for the full fiscal year ending on December 31, 2004.

 

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, 2003

 

**2.****                         ****EARNINGS PER SHARE**

 

Basicearnings per share are computed using the weighted average number of commonshares outstanding during each period. Diluted earnings per share include the dilutive effect of common sharespotentially issuable upon the exercise of stock options, and the 10% SeniorSubordinated Convertible Notes outstanding. The following table reconciles the denominators used in computing basicand diluted earnings per share:

 
|                                           |   | **Three  Months Ended**     |   | **Six  Months Ended**      |   |
|------------------------------------------------|--------|-----------------------------|--------|----------------------------|--------|
| **(in  thousands)**                            |   | **June 26,  2004 (1)** |   | **June 28,  2003(2)** |   | **June 26,  2004(1)** |   | **June 28,  2003(2)** |   |
| Weighted  average common shares outstanding    |   | 25,120                      |   | 17,319                     |   | 24,737 |   | 16,105 |   |
| Effect  of dilutive stock options and warrants |   | 3,465                       |   | —                     |   | 3,562 |   | — |   |
|                                           |   |                        |   |                       |   |   |   |   |   |
|                                           |   | 28,585                      |   | 17,319                     |   | 28,299 |   | 16,105 |   |

 

----

(1)                                  The total number of stock options, warrantsand 10% Senior Convertible Notes excluded from the calculation of potentiallydilutive securities due to the exercise price exceeding the average marketprice for the three months and six-months ended June 26, 2004, was3,921,900 and 3,825,000, respectively.

 

6

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(2)                                  We reported a loss for the periodindicated.  No adjustments were made forthe effect of stock options, which totaled 2,168,251 shares at June 28,2003 as the effect is antidilutive.

 

**3.****                         ****COMPREHENSIVE NET INCOME ORLOSS**

 

In1997, the Financial 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 whether they areconsidered to be results of operations of the period.  During the three and six-month periods ended June 28, 2003and June 29, 2002 total comprehensive loss equaled net loss as reported onthe Consolidated Statements of Operations.

 

**4.****                         ****BALANCE SHEET INFORMATION**

 

Majorcomponents of net inventories were as follows (in thousands):

 
|            |   | **June 26,  2004** |   | **December 31,  2003** |   |
|-----------------|--------|-------------------------|--------|-----------------------------|--------|
|            |   |                    |   |                        |   |
| Raw  materials  |   | $                       | 2,062  |                        | $      | 1,775 |   |
| Work-in-process |   | 751                     |   | 1,254                       |   |
| Finished  goods |   | 497                     |   | 384                         |   |
|            |   | $                       | 3,310  |                        | $      | 3,413 |   |

 

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 June 28, 2003 (in thousands):

 
| Accrued  warranty balance at December 31, 2003 |   | $      | 181    |   |
|-----------------------------------------------------|--------|--------|--------|--------|
|                                                |   |   |   |
| Provision                                           |   | — |   |
|                                                |   |   |   |
| Warranty  claims                                    |   | (59    | )      |
|                                                |   |   |   |
| Accrued  warranty balance at June 26, 2004     |   | $      | 122    |   |

 

**5.**                          **FINANCING TRANSACTIONS**

 

OnMarch 9, 2004 we completed a $5.0 million secured financing transactionwith an institutional lender.  Under theterms of the three-year agreement, we put in place a $3.0 million securedworking capital line of credit and a $2.0 long-term convertible note.  $750,000 of the secured working capital lineof credit can be converted to shares of our

 

7

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commonstock by the lender under certain market conditions and at a price of $1.92 pershare.  The $2.0 million long-termconvertible note is convertible to shares of our common stock at a price of$1.79.  In connection with the executionof this credit facility, we issued to the lender a seven-year warrant topurchase 400,000 shares of our common stock at exercise prices ranging from$2.30 to $2.88.  The fair value of thewarrants was determined using the Black-Scholes option pricing model.  This resulted in a value of $391,000, whichwas recorded as an increase to additional paid-in- capital and a discount tothe working capital line of credit and long-term convertible note.  This discount is amortized to interestexpense over the three-year agreement. Our existing secured lending relationship was terminated as a result ofthis transaction.  This credit facilityis secured by all the assets of the Company.

 

Duringthe period covered by this report, we issued 228,618 shares of our common stockto the holders of our 10% Senior Subordinated Convertible Notes (“the Notes”)in payment of interest due on December 31, 2003.  The issuance was exempt from registration under Rule 506 underthe Securities Act of 1933, because all of the noteholders were accredited,there was no general solicitation, and the shares were subject to restrictionson transfer.

 

Duringthe period covered by this report, we issued a total of 3,721,532 shares of ourcommon stock to holders of the Notes pursuant to conversion of their Notes at$1.00 per share including accrued interest due at the time of conversion.  The issuance was exempt from registrationunder Rule 506 under the Securities Act of 1933, because all of the noteholderswere accredited, there was no general solicitation, and the shares were subjectto restrictions on transfer.

 

**6.**                          **RESTRUCTURING CHARGES**

 

**2003 Restructuring Charges**

 

Duringthe first quarter, in response to the continued and prolonged downturn in thesemiconductor capital equipment industry, we reduced our workforce across allfunctional areas by approximately 24%, 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 of26 employees across all functional areas.

 

Duringthe second quarter, we completed the restructuring of our master lease for ourSt. Paul, MN facility resulting in a restructuring charge of $227,000, whichincluded write-offs of $41,000 related to leasehold improvements in the vacatedspace which provides no future economic benefit to us.  Additionally, we further reduced ourworkforce across all functional areas by approximately 4%, resulting in a restructuringcharge 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.

 

8

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

 

Weaccount for stock-based transactions under SFAS No. 123, *Accounting for Stock-Based Compensation*.  As permitted by SFAS No. 123, we haveelected to continue following the guidance of APB Opinion No. 25 (asinterpreted by FIN 44) for measurement and recognition of stock-basedtransactions with employees and non-employee directors.  Because stock options have been granted atexercise prices at least equal to fair market value of the stock at grant, nocompensation cost has been recognized for stock options issued to employees andnon-employee directors under stock option plans.  Stock-based transactions with non-employees are accounted for inaccordance with SFAS No. 123 and related interpretations.

 

Ifcompensation cost for our stock option and employee stock purchase plans hadbeen determined based on the fair value at the grant dates, consistent with themethod provided in SFAS No. 148 and SFAS No. 123, our net loss and net loss pershare would have been as follows:

 
|                                              |   | **Three  Months Ended** |   | **Six  Months Ended**   |   |
|---------------------------------------------------|--------|-------------------------|--------|-------------------------|--------|
|                                              |   | **June 26,  2004** |   | **June 28,  2003** |   | **June 28,  2003** |   | **June 28,  2003** |   |
| Net  income (loss):                               |   |                    |   |                    |   |   |   |   |   |
| As reported                                       |   | $                       | 9      |                    | $      | (1,508 | ) | $ | 185 |   | $ | (2,998 | ) |
| Fair value compensation expense                   |   | (219                    | )      | (224                    | )      | (438 | ) | (448 | ) |
| Pro forma                                         |   | $                       | (210   | )                       | $      | (1,732 | ) | $ | (253 | ) | $ | (3,446 | ) |
|                                              |   |                    |   |                    |   |   |   |   |   |
| Net  income (loss) per share - basic and diluted: |   |                    |   |                    |   |   |   |   |   |
| As reported                                       |   | $                       | — |                    | $      | (0.09 | ) | $ | 0.01 |   | $ | (0.19 | ) |
| Fair value compensation expense                   |   | (0.01                   | )      | (0.01                   | )      | (0.02 | ) | (0.02 | ) |
| Pro forma                                         |   | $                       | (0.01  | )                       | $      | (0.10 | ) | $ | (0.01 | ) | $ | (0.21 | ) |
|                                              |   |                    |   |                    |   |   |   |   |   |
| Stock  based compensation:                        |   |                    |   |                    |   |   |   |   |   |
| As reported                                       |   | $                       | — |                    | $      | — |   | $ | — |   | $ | — |   |
| Fair value compensation expense                   |   | (219                    | )      | (224                    | )      | (438 | ) | (448 | ) |
| Pro forma                                         |   | $                       | (219   | )                       | $      | (224 | ) | $ | (438 | ) | $ | (448 | ) |

 

Thefair value of options granted under the stock options for the three andsix-months ended June 26, 2004 and June 28, 2003 was estimated on thedate of grant using the Black-Scholes option pricing model with the followingweighted average assumptions.

 
|                                     |   | **Quarters  Ended**     |   | **Six  Months Ended**   |   |
|------------------------------------------|--------|-------------------------|--------|-------------------------|--------|
|                                     |   | **June 26,  2004** |   | **June 28,  2003** |   | **June 26,  2004** |   | **June 28,  2003** |   |
|                                     |   |                    |   |                    |   |   |   |   |   |
| Dividend  yield                          |   | 0.00                    | %      | 0.00                    | %      | 0.00 | % | 0.00 | % |
| Expected  volatility                     |   | 106.57                  | %      | 88.17                   | %      | 106.57 | % | 88.17 | % |
| Risk-free  interest rate                 |   | 3.12                    | %      | 3.87                    | %      | 3.12 | % | 3.87 | % |
| Expected  life of options                |   | 3.5 years               |   | 3.5 years               |   | 3.5 years |   | 3.5 years |   |
| Fair  value per share of options granted |   | $                       | 1.00   |                    | $      | 1.28 |   | $ | 1.00 |   | $ | 1.28 |   |
|                                          |        |                         |        |                         |        |  |  |  |  |  |  |  |  |

 

9

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**8.**                          **RECENT ACCOUNTINGPRONOUNCEMENTS**

 

***FASB Interpretation No. 46 -(RevisedDecember 2003), Consolidation of Variable Interest Entities, anInterpretation of ARB No. 51 (FIN 46R***).  InDecember 2003, the Financial Accounting Standards Board (FASB) issued FASBInterpretation No. 46 (Revised December 2003), *Consolidation of Variable Interest Entities, an Interpretation of ARBNo. 51 (FIN 46R)*. This standard replaces FIN 46, “*Consolidation of Variable Interest Entities*”that was issued on January 2003. FIN 46R modifies or clarifies various provisions of FIN 46. FIN 46Raddresses the consolidation of business enterprises of variable interestentities. (VIEs), as defined by FIN 46R. FIN 46R exempts certain entities from its requirements and provides forspecial effective dates for entities that have fully or partially applied FIN46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is required in financial statements ofpublic entities that have interest in structures commonly referred to asspecial purpose entities for periods ending after December 15, 2003.  FIN 46 had no effect on our financialstatements for the quarter and six months ended June 26, 2004, as we hadno interests in special purpose entities. Application by us for all other types of VIEs is required in financialstatements for periods ending no later than the quarter ended January 31,2005.  We do not expect the adoption ofFIN 46R to have a material effect on our financial statements.

 

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**MICRO COMPONENT TECHNOLOGY, INC.**

FORM 10-Q

## ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF

## RESULTSOF OPERATIONS AND FINANCIAL CONDITION

##  

*The following discussion of our results of operations andfinancial condition should be read together with the other financialinformation and condensed consolidated financial statements included in thisdocument.  This discussion containsforward-looking statements that involve risks and uncertainties.  Our actual results could differ materiallyfrom those anticipated in the forward-looking statements as a result of avariety of factors, including those discussed in “Risk Factors” and elsewherein this document.*

 

 

*Overview*

 

Weare a leading supplier of integrated automation solutions for the globalsemiconductor test and assembly industry. We offer complete and comprehensive equipment automation solutions forthe test, laser mark, mark inspect, singulation, sort, and packaging forshipment portions of the back-end of the semiconductor manufacturing processthat significantly improve our customers’ productivity, yield and throughput.  Our solutions include automated testhandlers, factory automation software and our new integrated Smart Solutionsproduct line.  We believe that ourproducts can significantly improve the productivity, yield and throughput ofthe back-end (post wafer) parts of the manufacturing process, includingassembling, packaging, testing and singulating of semiconductor devices.

 

Thedemand for our products and services is dependent upon growth in thesemiconductor industry and the increasing automation needs of semiconductormanufacturers and independent test and assembly facilities.  In the fourth quarter of 2000, thesemiconductor industry went into a sharp downturn, which intensified andcontinued through the first nine months of 2003, resulting in significantadverse impacts on our business including inventory revaluation charges, writedowns of impaired intangible assets and significant reductions in our employeebase.  In the fourth quarter of 2003worldwide semiconductor bookings began showing signs of stabilization; however,the continuance or strength of this stabilization cannot be predicted in theshort term.

 

Asdisclosed in our Form 10-K for the years ended December 31, 2002 andDecember 31, 2003 a continued or intensified market downturn might result insignificant losses, charges for inventory revaluation, asset impairment orrestructuring charges.  As a result ofthis downturn continuing throughout most of 2003, the following steps weretaken in 2003 and the first quarter of 2004 as part of a comprehensiverestructuring effort:

 

•                  We further reduced our workforce in the firstand second quarters of 2003 by 24% and 4% at the time, respectively, affectinga total of 30 employees across all functional areas.

 

•                  In the second quarter of 2003, we completedthe restructuring of our master lease agreement related to our St. Paulfacility resulting in the reduction of future lease commitment under thiscontract.

 

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•                  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.

 

•                  In July of 2003, we completednegotiations with the majority of our vendors to extend the payment terms ofthe total amounts owed to them at the time. This resulted in $1.2 million of our payables, or 67% of our totalaccounts payable at the time, being restructured with a total of 281vendors.  Under the terms of theextended payment plan, we have agreed to make four to eight equal paymentsbeginning on July 30, 2003 until the balances are satisfied.  The number of vendors agreeing to this planrepresented approximately 61% of our active vendors.

 

•                  On March 9, 2004 we completed a $5.0million secured financing transaction with an institutional lender.  Under the terms of the three-year agreement,we put in place a $3.0 million secured working capital line of credit and a$2.0 long-term convertible note. $750,000 of the secured working capital line of credit can be convertedto shares of our common stock by the lender under certain market conditions andat a price of $1.92 per share.  The $2.0million long-term convertible note is convertible to shares of our common stockat a price of $1.79.  In connection withthe execution of this credit facility, we issued to the lender a seven-yearwarrant to purchase 400,000 shares of our common stock at exercise pricesranging from $2.30 to $2.88.  Ourexisting secured lending relationship was terminated as a result of thistransaction.  This credit facility issecured by all the assets of the Company.

 

**Critical Accounting Policies**

 

*Revenue Recognition*

 

UnderStaff Accounting Bulletin 104 (“SAB 104”), we recognize revenue upon shipment,as our terms are FOB shipping point, for established equipment products thathave previously 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 customeracceptance.  As such, in periods ofincreasing shipments, revenues will be deferred if the shipments are for newcustomers, new products or the payment terms are tied to acceptancecriteria.  Consequently, if theseconditions exist, we may report revenue levels that are not reflective ofactual shipment growth rates. Conversely, in periods of decreasing shipments, we potentially couldrecognize revenues related to shipments made in prior periods.  If these conditions exist, we may reportrevenue levels that are greater than actual shipments.

 

*Allowance for Doubtful Accounts*

 

Werecord a provision for doubtful accounts based on specific identification ofour accounts 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

 

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ourcustomers.  There can be no assurancethat our estimates will match actual amounts ultimately written off.  During periods of downturn in the market forsemiconductor capital equipment or economic recession, a greater degree of riskexists concerning the ultimate collectability of our accounts receivable due tothe impact that these conditions might have on our customer 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.  We maintaina standard costing system for our inventories. Assumptions with respect to direct labor utilization, standard directand indirect cost rates, vendor pricing and utilization of factory capacitiesare formulated in the development of our standard costing system.  Sudden or continuing changes in thesemiconductor capital equipment market affecting our shipments can result insignificant production variances from our standard rates. These variancesdirectly impact our gross profit performance and may cause variability in grossprofits results from reporting period-to-reporting period.  Our labor and overhead rates are set forproduction 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 pricevariances are charged to costs of sales each quarter as incurred.

 

Provisionsto reduce inventories to the lower of cost or market are made based on a reviewof excess and obsolete inventories through an examination of historicalcomponent consumption, current market demands and shifting producttechnology.  Significant assumptionswith respect to market trends and customer product acceptance are utilized toformulate our provision methods.  Suddenor continuing downward changes in the semiconductor capital equipment marketmay cause us to record additional inventory revaluation charges in futureperiods.  No write-off provision wasmade to our inventories for the quarter and six-months ended June 26,2004.

 

*Accrued Warranty*

 

Weprovide a standard thirteen-month warranty program for our equipment products.We record provisions for warranty claims for these products based uponhistorical claim performance.  Thisapproach has been applied since the inception of the warranty program andinvolves a degree of subjectivity in that historical performance is used toestimate future warranty claims.  Therecan be no assurance that our estimates will match the actual amount of futurewarranty claims.

 

###### **Results ofOperations for the Three Months Ended June 26, 2004 and June 28, 2003**

######  

Netsales for the three months ended June 26, 2004, increased $1.9 million or81.0% to $4.2 million compared to $2.3 million for the three months endedJune 28, 2003.  Product acceptancerequirements related to product and customer mix resulted in a net decrease of$0.5 million to revenues over shipments in second quarter of 2003, while thesesame factors did not have any impact to second quarter 2004 shipments.  Current quarter product sales for our stripproduct offerings increased significantly over the prior year comparable periodand comprised

 

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approximately57% of total net sales compared to approximately 35% in the prior comparableperiod.

 

Grossprofit for the second quarter of 2004 increased by $1.3 million to $2.2million, or 52.3% of net sales, from $0.9 million, or 37.9% of net sales, forthe comparable period in the prior year. The increase in gross margin in the current year period primarilyresulted from the many restructuring efforts that we have completed during 2003coupled with the current stabilization in the semiconductor capital equipmentmarket.  This stabilization has directlyresulted in increased shipment activity for our products, resulting in fixedcosts being spread over a larger number of products also contributing to theoverall improvement in gross profit performance.

 

Selling,general and administrative expense in the second quarter of 2004 was $1.3million, or 31.7% of net sales, compared to $1.3 million, or 55.3% of net salesfor the second quarter of 2003.   Thedecrease in expense as a percentage of sales is a result of the cost reductionmeasures completed in 2003 coupled with the increase in sales.

 

Researchand development expense for the second quarter of 2004 was $0.7 million, or 15.9%of net sales compared to $0.6 million, or 25.8% of net sales in the secondquarter of 2003.  The decrease inexpense as a percentage of sales is a result of the cost reduction measurescompleted in 2003 coupled with the increase in sales.

 

Therestructuring charge in the prior year quarter totaled $246,000 or 10.5% of netsales.  This charge resulted fromreductions of our workforce across all functional areas in the second quarterof 2003.  This charge reflects severanceand other benefits costs paid in 2003 related to exit activities commenced in2002.  However, certain criterion underEITF 94-3 were not satisfied for these 2003 severance and benefit costs to beaccrued at December 31, 2002.   This workforce reduction affected 4 employees, across all functionalareas.  Included in this charge arerestructuring costs associated with our St. Paul facility for $227,000resulting from the restructuring of our master lease agreement related to thisfacility.

 

Interestincome for the second quarter of 2004 was $1,000 compared to $1,000 in thesecond quarter of 2003.    Interestexpense and other totaled $190,000 or 4.5% of net sales for the second quarterof 2004 compared to $317,000 or 13.6% of net revenue in the prior year’squarter.  The interest expense reductionresulted from the conversion of $6.4 million of our 10% Senior SubordinatedConvertible Notes into shares of our common stock during the last part of 2003and continuing through the first quarter of 2004.

 

 In connection with the transfer of our manufacturingoperations to Penang, we sold certain fixed and other assets from our St. Paul,Minnesota facility resulting in a gain on sale of $60,000 or 2.6% of netrevenue for the second quarter of 2003.

 

Netincome for the quarter ended June 26, 2004 was $9,000 or $0.00 per share,as compared to a net loss of $1.5 million, or $0.09 per share in the prior yearperiod.

 

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###### **Results ofOperations for the Six Months Ended June 26, 2004 and June 28, 2003**

######  

Netsales for the six months ended June 26, 2004, increased $4.0 million or87.3% to $8.5 million compared to $4.5 million for the six months endedJune 28, 2003.   Product acceptancerequirements related to product and customer mix resulted in a net decrease torevenues of $1.1 million for the six months ended June 28, 2003, whileshipments approximated revenue for the first six months of 2004.  Current quarter product sales for our stripproduct offering increased significantly over the prior year comparable periodand comprised approximately 61.8% of total sales compared to approximately37.6% in the prior comparable period.

 

Grossprofit for the first six months of 2004 increased by $2.9 million to $4.5million, or 53.0% of net sales, from $1.6 million, or 35.5% of net sales, forthe comparable period in the prior year. The increase in gross margin in the current year period primarilyresulted from the many restructuring efforts that we have completed during 2003coupled with the current stabilization in the semiconductor capital equipmentmarket.  This stabilization has directlyresulted in increased shipment activity for our products, resulting in fixedcosts being spread over a larger number of products also contributing to theoverall improvement in gross profit performance.

 

Selling,general and administrative expense for the first six months of 2004 was $2.6million, or 30.7% of net sales, compared to $2.6 million, or 57.8% of net salesfor the first six months of 2003.  Thedecrease in expense as a percentage of sales is a result of the cost reductionmeasures completed in 2003 coupled with the increase in sales.

 

Researchand development expense for the first six months of 2004 was $1.3 million, or15.6% of net sales, compared to $1.3 million, or 29.4% of net sales for thefirst six months of 2003.   The decreasein expense as a percentage of sales is a result of the cost reduction measurescompleted in 2003 coupled with the increase in sales.

 

  The restructuring charge in the prior yearperiod totaled $266,000 or 5.9% of net sales. 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 30employees, across all functional areas. Additionally included in this charge,are restructuring costs associated with our St. Paul facility for $227,000resulting from the restructuring of our master lease agreement related to thisfacility.

 

Interestincome for the first six months of 2003 was $2,000 compared to $2,000 for thecomparable in the prior year.  Interestexpense and other totaled $374,000 or 4.4% of net sales for the first sixmonths of 2004 compared to $600,000 or 13.2% of net revenue for the comparableperiod in the prior year.  The interestexpense reduction resulted from the conversion of $6.4 million of our 10%Senior Subordinated Convertible Notes into shares of our common stock duringthe last part of 2003 and continuing through the first quarter of 2004.

 

Weincurred a $12,000 loss or 0.1% of sales in the first six months of 2004 fromthe disposition of certain assets resulting from the restructuring of ourleases throughout 2003.  In connectionwith the transfer of our manufacturing operations to Penang, we sold certainfixed

 

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andother assets from our St. Paul, Minnesota facility resulting in a gain on saleof $213,000 or 4.7% of net revenue for the first six months of 2003.

 

Netincome for the six-month period ended June 26, 2004 was $185,000 millionor $0.01 per share, as compared to a net loss of $3.0 million, or $0.19 pershare in the prior year period.

 

**Liquidity and Capital Resources**

 

Theincrease in accounts receivable and reduction of other accrued liabilites werethe primary uses of cash in the first six months of 2004.  The net loss and increase in accountsreceivable were the primary uses of cash in the first six months of the prioryear.  Cash used in operations was $2.1million for the first six months of 2004 and $3.5 million in the comparableprior year period.

 

Capitalexpenditures were $97,000 for the first six months of 2004 compared to $93,000in the comparable prior year period. The spending in the current year periodwas primarily in the area of technology equipment and facility costs related toour Penang, Malaysia operations.

 

OnMarch 7, 2003 and March 26, 2003, pursuant to a private equityplacement with a group of accredited investors, we issued a total of 3,166,869shares of common stock, which resulted in net proceeds to us of approximately$1.1 million.  Stock issuance costsassociated with this offering totaled approximately $218,000.  As part of this offering, we also issuedwarrants to purchase 253,350 shares of common stock that have a term of fiveyears with an exercise price of $0.43 per share.

 

OnJune 30, 2003, we completed the restructuring of $9.29 million, or 92.9%,of our 10% Senior Subordinated Convertible Notes, wherein the participatingnoteholders agreed to accept stock in lieu of cash for the next four semi-annualinterest payment dates beginning June 30, 2003 through December 31,2004.  $10.0 million of the Notes wereoriginally issued in December 2002, resulting in proceeds to us of $9.2million.  As part of this restructuring,the Company amended the Notes of the participating noteholders to reduce theconversion price from $2.60 per share to $1.00 per share for the remainder ofthe term through December 2006. The agreement also included standard anti-dilution provisions, andrequired the company to register the shares with the Securities and ExchangeCommission. During the first quarter of 2004, $3.7 million of the Notes wereconverted to equity under this agreement resulting in the issuance of 3,710,000shares of our common stock to the noteholders.

 

Weestimate that we may need to raise additional capital through debt or equityofferings to support additional working capital requirements due to the recentincreases in our backlogs and the potential improvements in the semiconductorcapital equipment markets.  There is noassurance that additional financing, if needed, will be available on terms andconditions acceptable or favorable to us, if at all.  However, on March 9, 2004 we completed a $5.0 millionsecured financing transaction with an institutional lender. Under the terms ofthe three-year agreement, we put in place a $3.0 million secured workingcapital line of credit and a $2.0 long-term convertible note.  $750,000 of the secured working capital lineof credit can be converted to shares of our common stock by the lender undercertain market condition and at a price of $1.92 per share.  The $2.0 million long-term convertible noteis convertible to shares of our common stock at a price of $1.79.  In connection with the execution of thiscredit facility, we issued to the

 

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lendera seven-year warrant to purchase 400,000 shares of our common stock at exerciseprices ranging from $2.30 to $2.88.  Ourexisting secured lending relationship was terminated as a result of thistransaction.  This credit facility issecured by all the assets of the Company. We believe that this transaction in combination with our otherrestructuring efforts completed in 2003 will provide the cash necessary to meetour operating, working capital and capital resource obligations through all of2004.

 

**ITEM 3.****QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK**

 

Thevast majority 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 26, 2004, our 10% Senior Subordinated Convertiblelong-term debt carries interest at a fixed rate, whereas our long-termconvertible debt carries interest at the prime rate plus 1.75 percent.  There is no material interest rate riskrelating to our long-term debt.

 

**IMPACT OF ACCOUNTING STANDARDS**

 

InDecember of 2003 the Financial Accounting Standards Board (FASB) issued*******Interpretation No. 46 -(Revised December 2003),Consolidation of Variable Interest Entities, an****Interpretation of ARB No. 51 (FIN46R).*  This standard replaces FIN 46, “*Consolidation of Variable Interest Entities*”that was issued on January 2003. FIN 46R modifies or clarifies various provisions of FIN 46. FIN 46Raddresses the consolidation of business enterprises of variable interestentities. (VIEs), as defined by FIN 46R. FIN 46R exempts certain entities from its requirements and provides forspecial effective dates for entities that have fully or partially applied FIN46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is required in financial statements ofpublic entities that have interest in structures commonly referred to asspecial purpose entities for periods ending after December 15, 2003.  FIN 46 had no effect on our financialstatements for the quarter ended March 27, 2004, as we had no interests inspecial purpose entities.  Applicationby us for all other types of VIEs is required in financial statements forperiods ending no later than the quarter ended January 31, 2005.  We do not expect the adoption of FIN 46R tohave a material effect on our financial statements.

 

**RISK FACTORS**

 

Exceptfor the historical information contained herein, certain of the mattersdiscussed in this report are “forward-looking statements” as defined in thePrivate Securities Litigation Reform Act of 1995.  These “forward-looking statements” involve certain risks anduncertainties, including, but not limited to, the following: (1) a renewal of adownturn in the semiconductor market which often has a disproportionatelynegative impact on manufacturers of semiconductor capital equipment, and whichcould cause us to incur significant cash losses decreasing our cash

 

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andexpose us to potential further charges for restructuring, excess and obsoleteinventory and/or impairment of assets; (2) the market for our products ishighly competitive throughout the world, primarily from manufacturers in theUnited States, Europe and Asia, and many of our competitors are considerablylarger and have considerably greater financial resources than we do which mayallow them to develop superior or lower priced products; (3) rapid changes intechnology and in tester and handler products, which we must respond tosuccessfully in order for our products to avoid becoming noncompetitive orobsolete; (4) customer acceptance of our new products, including thestrip-based Tapestry handling systems and Smart Solutions products, and othersingulated device handler products in which we have invested significantamounts of inventory; (5) possible loss of any of our key customers, whoaccount for a substantial percentage of our business; (6) the possible adverseimpact of competition in markets which are highly competitive; (7) the possibleadverse impact of economic or political changes in markets we serve;  and (8) other factors detailed from time totime in our SEC reports, including but not limited to the discussion in theManagement’s Discussion & Analysis included in Form 10-K for the year endedDecember 31, 2003.

 

Allforecasts and projections in this report are “forward-looking statements,” andare based on our current expectations of our near-term results, based oncurrent information available pertaining to us, including risk factorsdiscussed above.  Actual results coulddiffer materially.

 

**ITEM 4.CONTROLS AND PROCEDURES**

 

Evaluationof disclosure controls and procedures.

 

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 andprocedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the endof period 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 are effective in timely alerting them to the material informationrelating to us (or our consolidated subsidiaries) required to be included inour periodic SEC filings.

 

Changesin internal controls.

 

Therewere no significant changes made in our internal controls or, to our knowledge,in other factors that could significantly affect these controls, subsequent tothe date of their evaluation.

 

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**MICRO COMPONENT TECHNOLOGY, INC.**

## FORM10-Q

# PART II.  OTHER INFORMATION

#  

### **Item2.  Changesin Securities and Use of Proceeds**

###  

During the period covered by this report, we issued228,618 shares of our common stock to the holders of our 10% SeniorSubordinated Convertible Notes (“the Notes”) in payment of interest due onDecember 31, 2003.  The issuancewas exempt from registration under Rule 506 under the Securities Act of 1933,because all of the noteholders were accredited, there was no general solicitation,and the shares were subject to restrictions on transfer.

 

During the period covered by this report, we issueda total of 3,721,532 shares of our common stock to holders of the Notespursuant to conversion of their Notes at $1.00 per share including accruedinterest due at the time of conversion. The issuance was exempt from registration under Rule 506 under theSecurities Act of 1933, because all of the noteholders were accredited, therewas no general solicitation, and the shares were subject to restrictions ontransfer.

 

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

###  

On June 24, 2004, the Company held its annual meeting ofshareholders.  At the meeting, thefollowing actions were taken:

 

Electionof Directors

 

Thefollowing persons were elected directors of the Company to serve for a term ofone year:

 

RogerGower

DavidM. Sugishita

Dr.Sheldon Buckler

D.James Guzy

DonaldR VanLuvanee

DonaldKramer

PatrickVerderico

 

Thevote summaries are as follows:

 
| **Director  Name**    |   | **Affirmed** |   | **Withheld** |   |
|-----------------------|--------|--------------|--------|--------------|--------|
| Roger  E. Gower       |   | 21,925,450   |   | 387,791      |   |
| D.  James Guzy        |   | 21,886,741   |   | 426,500      |   |
| Donald  J. Kramer     |   | 21,906,161   |   | 407,080      |   |
| David  M. Sugishita   |   | 22,053,450   |   | 259,791      |   |
| Donald  R. VanLuvanee |   | 21,912,261   |   | 400,980      |   |
| Patrick  Verderico    |   | 21,912,250   |   | 400,991      |   |
| Dr.  Sheldon Buckler  |   | 22,051,561   |   | 261,680      |   |

 

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Establishmentof the 2004 Incentive Stock Plan

 

Adoptionof the 2004 Incentive Stock Plan, and the reservation of 880,000 shares for thegrant of options and restricted stock under the Plan were approved by thefollowing vote:

 
| For              |   | 8,110,493  |   |
|------------------|--------|------------|--------|
| Against          |   | 1,367,951  |   |
| Abstain          |   | 147,661    |   |
| Broker  Non-Vote |   | 12,687,136 |   |

 

Amendmentto the Stock Option Plan for Outside Directors

 

Anamendment to the Stock Option Plan for Outside Directors to increase the numberof shares issuable under the plan from 450,000 shares to 570,000 shares wasapproved by the following vote:

 
| For              |   | 8,036,032  |   |
|------------------|--------|------------|--------|
| Against          |   | 1,430,129  |   |
| Abstain          |   | 159,944    |   |
| Broker  Non-Vote |   | 12,687,136 |   |

 

### **Item5.  OtherInformation**

 

On March 9, 2004 we completed a $5.0 millionsecured financing transaction with an institutional lender. Under the terms ofthe three-year agreement, we put in place a $3.0 million secured workingcapital line of credit and a $2.0 long-term convertible note.  $750,000 of the secured working capital lineof credit can be converted to shares of our common stock by the lender undercertain market condition and at a price of $1.92 per share.  The $2.0 million long-term convertible noteis convertible to shares of our common stock at a price of $1.79.  In connection with the execution of thiscredit facility, we issued to the lender a seven-year warrant to purchase400,000 shares of our common stock at exercise prices ranging from $2.30 to$2.88.  Our existing secured lendingrelationship was terminated as a result of this transaction.  This credit facility is secured by all theassets of the Company.

 

### **Item6.  Exhibits andReports on Form 8-K**

 

(a)          Reports on Form 8-K

 

OnApril 21, 2004, we issued a press release disclosing financial informationregarding the quarter ended March 27, 2004 for which a Form 8-K was filedon April 22, 2004.

 

(b)         Exhibit Index

 

10.0                           Resignation agreement and release betweenDennis Nelson and the Company

 

31.1                           Certification of Chief Executive Officer(filed herewith).

 

31.2                            Certification of Chief Financial Officer(filed herewith).

 

32                                    Section 1350 Certification (filedherewith).

 

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**MICRO COMPONENT TECHNOLOGY, INC.**

FORM 10-Q

## SIGNATURES

##  

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|                                    | Micro  Component Technology, Inc.                 |                           |
|-----------------------------------------|---------------------------------------------------|--------------------------------|
|                                    | Registrant                                        |
|                                    |                                              |
|                                    |                                              |
| Dated:   August 6, 2004  | By:                                               |  /s/  Roger E. Gower      |   |
|                                    | Roger  E. Gower                                   |
|                                    | President  and Chief Executive Officer            |
|                                    |                                              |
|                                    |                                              |
|                                    | And                                               |                           |
|                                    |                                              |
|                                    |                                              |
| Dated:   August  6, 2004 | By:                                               |  /s/  Thomas P. Maun |   |
|                                    | Thomas  P. Maun                                   |
|                                    | Chief  Financial Officer Chief Accounting Officer |
|                                         |                                                   |                                |  |  |  |

 

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