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**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **x**                                                  | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 or 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|
|                                                   |       |                                                                                                |
| **For the quarterly period ended June 28,  2008** |
|                                                   |       |                                                                                                |
| **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 ofincorporation or organization) |       | (I.R.S. EmployerIdentification 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 tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days

 

Yes    x   No    o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act. (Check one):

 
| Large  Accelerated Filer o |   | Accelerated  Filer o |   | Non-Accelerated  Filer x |   | Smaller  Reporting Company o |
|----------------------------|--------|----------------------|--------|--------------------------|--------|------------------------------|

 

Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).     Yes  o   No  x

 

Thenumber of shares outstanding of the Registrant’s Common Stock, as ofAugust 12, 2008 was 37,876,889.

 

 

 

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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**                                                                    | **3** |
| ** **                              | ** **                                                                                          | ** ** |
| ** **                              | **CONSOLIDATED  STATEMENTS OF OPERATIONS**                                                          | **4** |
| ** **                              | ** **                                                                                          | ** ** |
| ** **                              | **CONSOLIDATED  STATEMENTS OF CASH FLOWS**                                                          | **5** |
| ** **                              | ** **                                                                                          | ** ** |
| ** **                              | **NOTES  TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**                                 | **6** |
| ** **                              | ** **                                                                                          | ** ** |
| **ITEM 2.**                             | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF****RESULTS  OF OPERATIONS AND FINANCIAL CONDITION** | **12** |
| ** **                              | ** **                                                                                          | ** ** |
| ITEM  3.                                | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                         | 17 |
|                                    |                                                                                                |   |
| ITEM 4.                                 | CONTROLS AND PROCEDURES                                                                             | 18 |
|                                    |                                                                                                |
| **PART II.  OTHER INFORMATION**    | ** **                                                                                          |
| ** **                              | ** **                                                                                          |
| ITEM 1A.                                | RISK FACTORS                                                                                        | 19 |
|                                    |                                                                                                |   |
| ITEM  4.                                | SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS                                                | 25 |
|                                    |                                                                                                |   |
| **ITEM 6.**                             | **EXHIBITS**                                                                                        | **26** |
| ** **                              | ** **                                                                                          | ** ** |
| ** **                              | **SIGNATURES**                                                                                      | **28** |

 

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**MICROCOMPONENT TECHNOLOGY, INC. AND SUBSIDIARIES**

FORM 10-Q

# PART I.  FINANCIAL INFORMATION

## ITEM 1. FINANCIAL STATEMENTS

## CONSOLIDATED BALANCE SHEETS

(In thousands,except share and per share data)

(Unaudited)

 
| ** **                                                                                             | ** ** | **June 28,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                             | ** ** | **2008**          | ** ** | **2007**              | ** ** |
| **Assets**                                                                                             |       |              |       |                  |       |
| Current assets                                                                                         |       |              |       |                  |       |
| Cash and cash  equivalents                                                                             |       | $                 | 392        |                  | $          | 373 |   |
| Accounts  receivable, less allowance for doubtful accounts of $121 and $121,  respectively             |       | 2,418             |       | 3,044                 |       |
| Inventories                                                                                            |       | 1,538             |       | 1.671                 |       |
| Other                                                                                                  |       | 165               |       | 108                   |       |
| Total current  assets                                                                                  |       | 4,513             |       | 5,196                 |       |
|                                                                                                   |       |              |       |                  |       |
| Property, plant  and equipment, net                                                                    |       | 96                |       | 114                   |       |
|                                                                                                   |       |              |       |                  |       |
| Debt issuance  costs, net of accumulated amortization of $1,566 and $1,518, respectively               |       | 120               |       | 167                   |       |
| Other assets                                                                                           |       | 32                |       | 32                    |       |
|                                                                                                   |       |              |       |                  |       |
| Total assets                                                                                           |       | $                 | 4,761      |                  | $          | 5,509 |   |
|                                                                                                   |       |              |       |                  |       |
| **Liabilities  and Stockholders’ Deficit**                                                        |       |              |       |                  |       |
| Current  liabilities:                                                                                  |       |              |       |                  |       |
| Current portion  of long-term debt                                                                     |       | $                 | 233        |                  | $          | — |   |
| Accounts payable                                                                                       |       | 974               |       | 698                   |       |
| Accrued  compensation                                                                                  |       | 517               |       | 481                   |       |
| Accrued interest                                                                                       |       | 150               |       | 158                   |       |
| Accrued warranty                                                                                       |       | 94                |       | 114                   |       |
| Customer  prepayments and unearned service revenue                                                     |       | 218               |       | 229                   |       |
| Other accrued  liabilities                                                                             |       | 225               |       | 158                   |       |
| Total current  liabilities                                                                             |       | 2,411             |       | 1,838                 |       |
|                                                                                                   |       |              |       |                  |       |
| Long-term debt,  net of discounts of $1,258 and $1,804, respectively                                   |       | 9,629             |       | 9,320                 |       |
| Total  liabilities                                                                                     |       | 12,040            |       | 11,158                |       |
|                                                                                                   |       |              |       |                  |       |
| Stockholders’  Deficit:                                                                           |       |              |       |                  |       |
| Preferred stock,  $.01 par value, 1,000,000 authorized, none issued and outstanding                    |       | —            |       | —                |       |
| Common stock,  $.01 par value, 100,000,000 authorized, 37,876,889 and 37,876,889 issued,  respectively |       | 379               |       | 379                   |       |
| Additional  paid-in capital                                                                            |       | 104,378           |       | 104,207               |       |
| Accumulated  deficit                                                                                   |       | (112,036          | )          | (110,235              | )          |
| Total stockholders’  deficit                                                                      |       | (7,279            | )          | (5,649                | )          |
| Total  liabilities and stockholders’ deficit                                                      |       | $                 | 4,761      |                  | $          | 5,509 |   |

 

See notes to unauditedcondensed consolidated financial statements

 

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**MICROCOMPONENT TECHNOLOGY, INC.**

## CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands,except per share data)

(Unaudited)

 
| ** **                                                                      | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                      | ** ** | **June 28,**                | ** ** | **June 30,**              | ** ** | **June 28,** | ** ** | **June 30,** | ** ** |
| ** **                                                                      | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                            |       |                             |       |                           |       |   |   |   |   |
| Net sales                                                                       |       | $                                | 2,963      |                           | $          | 3,960 |   | $ | 5,161 |   | $ | 7,337 |   |
| Cost of sales                                                                   |       | 1,531                            |       | 1,875                          |       | 2,664 |   | 3,479 |   |
|                                                                            |       |                             |       |                           |       |   |   |   |   |
| Gross profit                                                                    |       | 1,432                            |       | 2,085                          |       | 2,497 |   | 3,858 |   |
|                                                                            |       |                             |       |                           |       |   |   |   |   |
| Operating  expenses:                                                            |       |                             |       |                           |       |   |   |   |   |
| Selling, general  and administrative                                            |       | 1,054                            |       | 1,121                          |       | 2,216 |   | 2,226 |   |
| Research and  development                                                       |       | 432                              |       | 484                            |       | 896 |   | 984 |   |
| Restructuring  charge                                                           |       | 78                               |       | 137                            |       | 78 |   | 137 |   |
|                                                                            |       |                             |       |                           |       |   |   |   |   |
| Total operating  expenses                                                       |       | 1,564                            |       | 1,742                          |       | 3,190 |   | 3,347 |   |
|                                                                            |       |                             |       |                           |       |   |   |   |   |
| Income (loss) from  operations                                                  |       | (132                             | )          | 343                            |       | (693 | ) | 511 |   |
|                                                                            |       |                             |       |                           |       |   |   |   |   |
| Interest income                                                                 |       | 4                                |       | 2                              |       | 6 |   | 5 |   |
| Interest expense                                                                |       | (275                             | )          | (289                           | )          | (526 | ) | (563 | ) |
| Interest expense  – amortization of warrant discounts and debt issue costs |       | (282                             | )          | (306                           | )          | (563 | ) | (451 | ) |
| Other income (expense)                                                          |       | —                           |       | (30                            | )          | (25 | ) | 59 |   |
|                                                                            |       |                             |       |                           |       |   |   |   |   |
| Total interest  and other                                                       |       | (553                             | )          | (623                           | )          | (1,108 | ) | (950 | ) |
|                                                                            |       |                             |       |                           |       |   |   |   |   |
| Net income                                                                      |       | $                                | (685       | )                              | $          | (280 | ) | $ | (1,801 | ) | $ | (439 | ) |
|                                                                            |       |                             |       |                           |       |   |   |   |   |
| Net income per  share:                                                          |       |                             |       |                           |       |   |   |   |   |
|                                                                            |       |                             |       |                           |       |   |   |   |   |
| Basic                                                                           |       | $                                | (0.02      | )                              | $          | (0.01 | ) | $ | (0.05 | ) | $ | (0.01 | ) |
| Diluted                                                                         |       | $                                | (0.02      | )                              | $          | (0.01 | ) | $ | (0.05 | ) | $ | (0.01 | ) |
|                                                                            |       |                             |       |                           |       |   |   |   |   |
| Weighted average  common and equivalent shares outstanding:                     |       |                             |       |                           |       |   |   |   |   |
|                                                                            |       |                             |       |                           |       |   |   |   |   |
| Basic                                                                           |       | 37,877                           |       | 36,665                         |       | 37,877 |   | 36,665 |   |
| Diluted                                                                         |       | 37,877                           |       | 36,665                         |       | 37,877 |   | 36,665 |   |

 

See notes to unauditedcondensed consolidated financial statements

 

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**MICROCOMPONENT TECHNOLOGY, INC.**

## CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 
| ** **                                                                   | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                   | ** ** | **June 28,**              | ** ** | **June 30,** | ** ** |
| ** **                                                                   | ** ** | **2008**                       | ** ** | **2007** | ** ** |
|                                                                         |       |                           |       |   |   |
| Cash flows from  operating activities:                                       |       |                           |       |   |   |
| Net loss                                                                     |       | $                              | (1,801     | ) | $ | (439 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                           |       |   |   |
| Depreciation                                                                 |       | 31                             |       | 46 |   |
| Amortization                                                                 |       | 562                            |       | 451 |   |
| Share-base  compensation expense                                             |       | 171                            |       | 10 |   |
| Changes in  assets and liabilities:                                          |       |                           |       |   |   |
| Accounts  receivable                                                         |       | 626                            |       | 61 |   |
| Inventories                                                                  |       | 133                            |       | (1,122 | ) |
| Other assets                                                                 |       | (57                            | )          | (7 | ) |
| Accounts payable                                                             |       | 276                            |       | 872 |   |
| Other accrued  liabilities                                                   |       | 64                             |       | 83 |   |
| Net cash  provided (used) in operating activities                            |       | 5                              |       | (45 | ) |
|                                                                         |       |                           |       |   |   |
| Cash flows from  investing activities:                                       |       |                           |       |   |   |
| Purchases of  property, plant, and equipment                                 |       | (13                            | )          | (50 | ) |
|                                                                         |       |                           |       |   |   |
| Net cash used in  investing activities                                       |       | (13                            | )          | (50 | ) |
|                                                                         |       |                           |       |   |   |
| Cash flows from  financing activities:                                       |       |                           |       |   |   |
| Proceeds  (payments) on line of credit                                       |       | (280                           | )          | 47 |   |
| Proceeds on long  term note, net of discounts                                |       | 307                            |       | 297 |   |
| Stock  Registration Fees                                                     |       | —                         |       | (14 | ) |
|                                                                         |       |                           |       |   |   |
| Net cash provided  by financing activities                                   |       | 27                             |       | 330 |   |
|                                                                         |       |                           |       |   |   |
| Net increase in  cash and cash equivalents                                   |       | 19                             |       | 235 |   |
|                                                                         |       |                           |       |   |   |
| Cash and cash  equivalents at beginning of period                            |       | 373                            |       | 200 |   |
|                                                                         |       |                           |       |   |   |
| Cash and cash  equivalents at end of period                                  |       | $                              | 392        |   | $ | 435 |   |
|                                                                         |       |                           |       |   |   |
| Supplemental  cash flow information:                                         |       |                           |       |   |   |
| Cash paid for  interest                                                      |       | $                              | 534        |   | $ | 545 |   |

 

See notes to unauditedcondensed consolidated financial statements

 

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**MICROCOMPONENT TECHNOLOGY, INC.**

FORM 10-Q

## NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIALSTATEMENTS

(Unaudited)

 

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

 

*Basis ofPresentation*

 

The consolidatedfinancial statements include the accounts of the parent company and oursubsidiaries after elimination of all significant intercompany balances andtransactions.  All significantsubsidiaries 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 RegulationS-X.  Certain information and footnotedisclosures normally included in financial statements prepared in accordancewith generally accepted accounting principles have been condensed or omittedpursuant to such rules and regulations. In the opinion of management all adjustments, including normal recurringadjustments, necessary for a fair presentation of the interim periods presentedhave been included.  The interim resultsare not necessarily indicative of the operating results expected for the fullfiscal year ending on December 31, 2008.

 

Our consolidatedfinancial statements have been prepared on the assumption that we will continueas a going concern, which contemplates the realization of assets andliquidation of liabilities in the normal course of business. The Report of theIndependent Registered Public Accounting Firm on the financial statements ofthe Company as of and for the fiscal year ended December 31, 2007 includedin Form 10-K contained an explanatory paragraph that expresses substantialdoubt about our ability to continue as a going concern.   The financial statements do not include anyadjustments to reflect the possible future effects on therecoverability and classification of assets or the amounts and classificationof liabilities that may result from the outcome of this uncertainty.

 

As of June 28, 2008, the Company hadan accumulated deficit of $112.0 million and incurred a net loss of $1.8million for the six-month period ended June 28, 2008.  As of June 28, 2008, the Company hadcash and cash equivalents of $392,000, working capital of $2.1 million, acurrent ratio of 1.87, total assets of $4.8 million and total liabilities of$12.0 million.  Our ability to generatecash and operating income is dependent on increasing our customer base toexpand the penetration of our product technology and the realization of ourlower operating expense targets.

 

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Interimunaudited financial results should be read in conjunction with the auditedfinancial statements included in the SEC Report on Form 10-K, for theperiod ended December 31, 2007.

 

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

 

Basic earnings per shareare computed using the weighted average number of common shares outstandingduring each period.  Diluted earnings pershare include the dilutive effect of common shares potentially issuable uponthe exercise of stock options, warrants and the convertible term noteoutstanding.  The following tablereconciles the denominators used in computing basic and diluted earnings pershare:

 
| ** **                                     | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                     | ** ** | **June 28,**                | ** ** | **June 30,**              | ** ** | **June 28,** | ** ** | **June 30,** | ** ** |
| **(in thousands)**                             | ** ** | **2008 (1)**                | ** ** | **2007 (1)**              | ** ** | **2008 (1)** | ** ** | **2007 (1)** | ** ** |
| Weighted average  common shares outstanding    |       | 37,877                           |       | 36,665                         |       | 37,877 |   | 36,665 |   |
| Effect of  dilutive stock options and warrants |       | —                           |       | —                         |       | — |   | — |   |
|                                           |       | 37,877                           |       | 36,665                         |       | 37,877 |   | 36,665 |   |

 

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(1)         Wereported a loss for the period indicated. No adjustments were made for the effect of stock options and warrants,which represented 22,116,796 and 11,935,398         sharesat June 28, 2008 and June 30 2007, respectively, as the effect is antidilutive.

 

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

 

Major components of inventories were as follows (inthousands):

 
| ** **      | ** ** | **June 28,** | ** ** | **December 31,** | ** ** |
|-----------------|------------|-------------------|------------|-----------------------|------------|
| ** **      | ** ** | **2008**          | ** ** | **2007**              | ** ** |
|            |       |              |       |                  |       |
| Raw materials   |       | $                 | 942        |                  | $          | 1,149 |   |
| Work-in-process |       | 590               |       | 280                   |       |
| Finished goods  |       | 6                 |       | 242                   |       |
|            |       | $                 | 1,538      |                  | $          | 1,671 |   |

 

In accordance withaccounting principles generally accepted in the United States, we value ourinventories at the lower of cost or market.

 

The following tableprovides the inventory reserves for the quarter ended June 28, 2008.

 
| Inventory reserve  balance at December 31, 2007 |   | $   | 4,328  |   |
|------------------------------------------------------|--------|-----|--------|--------|
| Additional  inventory reserve                        |   | 37  |   |
| Release of  inventory reserve on scrap of goods      |   | (62 | )      |
| Inventory  reserve balance at June 28, 2008     |   | $   | 4,303  |   |

 

We provide a standard thirteen month warranty program for our equipmentproducts. We record provisions for warranty claims for these products basedupon historical claim 

 

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performance.  Thefollowing table provides the expense recorded and charges against our reservesfor the quarter ended June 28, 2008.

 
| Accrued warranty  balance at December 31, 2007 |   | $   | 114    |   |
|-----------------------------------------------------|--------|-----|--------|--------|
| Provision                                           |   | 4   |   |
| Warranty claims                                     |   | (24 | )      |
| Accrued warranty  balance at June 28, 2008     |   | $   | 94     |   |

 

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

 

On March 9, 2004, wecompleted a $5.0 million secured financing transaction with an institutionallender, Laurus Master Fund, Ltd. (referred to herein, together with its affiliates,as “Laurus”).  Under the terms of thethree-year agreement, we put in place a $3.0 million secured working capitalline of credit and a $2.0 long-term convertible note.  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.

 

OnJanuary 28, 2005, we completed an amendment to the financing agreementwith Laurus to defer payments on the long-term convertible note.  As partof this amendment, the conversion prices on both notes were reduced.  Wealso issued Laurus at that time a seven-year warrant to purchase 150,000 sharesof common stock at $.67 per share.

 

OnApril 29, 2005, we completed another financing transaction with Laurus inwhich we borrowed an additional $2.5 million, and which was convertible intoshares of common stock.  We also issued Laurus at that time an option topurchase 2,556,651 shares of common stock at an exercise price of $.01 pershare.  We received net proceeds of approximately $2.4 million at theclosing.

 

OnFebruary 17, 2006, we restructured the financing with Laurus, andincreased the total maximum secured indebtedness with Laurus to $9.25 million.The Company also issued Laurus a 10-year option to purchase 2,500,000 shares atan exercise price of $.01 per share.

 

On December 27,2006, Laurus acquired a 10% convertible note from another note holder with aprincipal amount of $1.2 million. The Note has a conversion price of $.50 pershare, and is due and payable in full on September 30, 2009.

 

On March 29, 2007,we restructured the financing with Laurus, and increased the total securedindebtedness to $10.25 million.  Therestructured financing includes a $5.25 million term note.  Interest ischarged on the term note at the prime rate plus 2.5%.  The note is non-convertibleand payable in full on September 30, 2009. In addition to the $5.25 million note, there is a $4.0 million workingcapital line of credit, which is payable in full on September 30,2009.  Interest is charged on the line at the prime rate plus 2.5%. As of June 28, 2008, there was a $443,000 over-advance in excess of theborrowing base on the 

 

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working capital line ofcredit.  The restructured financing alsoincludes an additional $1.0 million term note. The proceeds from the $1.0 million term note, net of fees and expensesfrom the 2007 refinancing, are required to be held in a restricted account at abank, and will only be released by the bank to the Company, upon approval ofLaurus in its discretion, for the manufacture of demo equipment.  As of June 28, 2008 the outstandingbalance on this note was $964,000. Interest is charged on this note at the prime rate plus 2.0% and theprincipal is payable in full on September 30, 2009.  As part of the 2007 restructuring, theCompany issued Laurus a 10-year option to purchase 5,000,000 shares at anexercise price of $0.01 per share.

 

On December 6,2007, the Company entered into an agreement with Laurus to extend the maturitydates for all of the notes issued by the Company to Laurus, from dates startingin February 2008 to September 30, 2009.  These notes had an aggregate principal amountof $11,151,000 as of June 28, 2008. The agreement also extends to January 1, 2009 the commencement datefor principal payments under the $5,250,000 term-note, and reduces the monthlyprincipal payments prior to the maturity date from $87,500 per month to $44,000per month.  In consideration for the extension by Laurus of the notematurity dates, the Company granted Laurus a ten-year warrant to purchase3,500,000 shares of common stock with an exercise price of $.01 pershare.  Laurus has agreed in the transaction documents that it will notsell any shares acquired by it under the 3,500,000 share warrant, or under the5,000,000 share warrant granted to it as part of the March 2007refinancing, prior to January 1, 2009.  Laurus has also agreed thatsales by it of Company common stock underlying the 2007 warrants on any tradingday after January 1, 2009 will not exceed 20% of the aggregate number ofshares of Company common stock sold on that day.

 

On July 31, 2008, theCompany entered into another loan transaction with Laurus.  The Company borrowed an additional $3,500,000pursuant to a secured note.  The notebears interest at the rate of twelve (12%) percent per annum, and is secured byall of the assets of the Company and its subsidiaries.  As part of this transaction, the Companygranted to Laurus a ten-year warrant to purchase 31,000,000 shares of theCompany’s common stock at $0.01 per share. The new loan matures on November 30, 2008.  Also as part of this transaction, the allowedover-advance on the Company’s revolving line of credit with Laurus wasincreased to $1,000,000 until November 30, 2008.  The maturity date of this new loan, and ofall of the Company’s debt with Laurus (including the over- advance), will beextended to July 31, 2010 if, no later than November 30, 2008, theCompany holds a shareholders’ meeting to increase its number of authorizedshares, and grants to Laurus an additional ten-year warrant to purchase146,143,792 shares of the Company’s common stock at $0.01 per share.

 

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The table below details the warrants and options issued to Laurus inconnection with prior financing transactions, excluding the July 31, 2008transaction:

 
| **Grant Date**                   | ** ** | **December  2007** | ** ** | **March  2007** | ** ** | **February  2006** | ** ** | **April  2005** | ** ** | **January  2005** | ** ** | **March  2004** | ** ** |
|---------------------------------------|------------|--------------------|------------|-----------------|------------|--------------------|------------|-----------------|------------|-------------------|------------|-----------------|------------|
|                                  |       |               |       |            |       |               |       |            |       |              |       |            |       |
| Number of shares                      |       | 3,500,000          |       | 5,000,000       |       | 2,500,000          |       | 2,556,651       |       | 150,000           |       | 400,000         |       |
| Exercise Price                        |       | $                  | 0.01       |            | $          | 0.01               |       | $               | 0.01       |              | $          | 0.01            |       | $ | 0.67 |   | $2.30 - $2.88 |   |
| Dividend yield                        |       | 0.00               | %          | 0.00            | %          | 0.00               | %          | 0.00            | %          | 0.00              | %          | 0.00            | %          |
| Expected  volatility                  |       | 98.61              | %          | 88.63           | %          | 122.09             | %          | 95.33           | %          | 93.13             | %          | 98.51           | %          |
| Risk-free  interest rate              |       | 3.53               | %          | 4.54            | %          | 4.62               | %          | 3.90            | %          | 3.71              | %          | 2.98            | %          |
| Expected life of  options             |       | 10.0 years         |       | 10.0 years      |       | 10.0 years         |       | 7.0 years       |       | 3.5 years         |       | 3.0 years       |       |
| Discount on  long-term debt           |       | $                  | 620,000    |            | $          | 1,131,000          |       | $               | 821,000    |              | $          | 473,000         |       | $ | 51,000 |   | $ | 391,000 |   |
| Debt Issue Costs                      |       | $                  | 0          |            | $          | 56,000             |       | $               | 347,000    |              | $          | 104,000         |       | $ | 0 |   | $ | 343,000 |   |
| Unexercised as  of June 28, 2008 |       | 3,500,000          |       | 5,000,000       |       | 1,860,000          |       | 785,084         |       | 150,000           |       | 400,000         |       |

 

**5.**         **STOCK BASED COMPENSATION**

 

The Companyadopted Statement of Financial Accounting Standards (SFAS) No. 123R “Share-BasedPayment”, on January 1, 2006.  Thisstatement requires us to recognize the cost of employee and director servicesreceived in exchange for the stock options it has awarded.  Under SFAS 123R, we are required to recognizecompensation expense over an award’s vesting period based on the award’s fairvalue at the date of grant.  We haveelected to adopt SFAS 123R on a modified prospective basis; accordingly thefinancial statements for periods prior to January 1, 2006 do not includestock-based compensation costs calculated under the fair value method.

 

The fair value ofoptions granted under the stock options for the three months and six monthsended June 28, 2008 and June 30, 2007, was estimated on the date ofgrant using the Black-Scholes option pricing model with the following weightedaverage assumptions.

 
| ** **                               | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                               | ** ** | **June 28,**                | ** ** | **June 30,**              | ** ** | **June 28,** | ** ** | **June 30,** | ** ** |
| ** **                               | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                     |       |                             |       |                           |       |   |   |   |   |
| Dividend yield                           |       | 0.00                             | %          | 0.00                           | %          | 0.00 | % | 0.00 | % |
| Expected  volatility                     |       | 90.03                            | %          | 93.45                          | %          | 90.03 | % | 88.54 | % |
| Risk-free  interest rate                 |       | 3.65                             | %          | 4.84                           | %          | 3.65 | % | 4.54 | % |
| Expected life of  options                |       | 3.5 years                        |       | 3.5 years                      |       | 3.5 years |   | 3.5 years |   |
| Fair value per  share of options granted |       | $                                | 0.07       |                           | $          | 0.18 |   | $ | 0.07 |   | $ | 0.16 |   |
|                                          |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |

 

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**6.**         **RECENT ACCOUNTINGPRONOUNCEMENTS**

 

In September 2006,the FASB issued SFAS No. 157, “*Fair Value Measurements*”(“SFAS No. 157”), which is effective for interim and annual reportingperiods beginning after November 15, 2007. This statement provides a definition of fair value, establishes aframework for measuring fair value, and expands disclosures about fair valuemeasurements for future transactions. This statement is effective for us on January 1, 2008, the firstday of our 2008 fiscal year.  Theadoption of this pronouncement does not have a material impact on our financialposition or results of operations.

 

In February 2007,the FASB issued Statement of Financial Accounting Standards No. 159, “*The Fair Value Option for Financial Assets and Financial Liabilities*”(“SFAS 159”).  The Statement permitsentities to choose to measure many financial instruments and certain otheritems at fair value that are not currently required to be measured at fairvalue.  The objective is to improvefinancial reporting by providing entities with the opportunity to mitigatevolatility in reported earnings caused by measuring related assets andliabilities differently without having to apply complex hedge accountingprovisions.  SFAS 159 will be effectivefor the first fiscal year that begins after November 15, 2007.  The adoption of this pronouncement does nothave a material impact on our financial position or results of operations.

 

May 2008, the FASB issued SFAS No. 162“The Hierarchy of Generally Accepted Accounting Principles,” which has beenestablished by the FASB as a framework for entities to identify the sources ofaccounting principles and the framework for selecting the principles to be usedin the preparation of financial statements of nongovernmental entities that arepresented in conformity with US GAAP. SFAS No. 162 is notexpected to result in a change in current practices. SFAS No. 162 iseffective 60 days following the Securities and Exchange Commission’s (“SEC”)approval of the Public Company Accounting Oversight Board’s (“PCAOB”)amendments to AU Section 411, “The Meaning of Present Fairly in ConformityWith Generally Accepted Accounting Principles.” Accordingly, the Company willadopt SFAS No. 162 within the required period.

 

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**MICROCOMPONENT TECHNOLOGY, INC.**

FORM 10-Q

## ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS ANDFINANCIAL CONDITION

##  

*ThisReport on Form 10-Q contains forward-looking statements that have beenmade pursuant to the provisions of the Private Securities Litigation Reform Actof 1995.  These forward-lookingstatements are not historical facts, but rather are based on our currentexpectations, estimates and projections about the semiconductor capitalequipment industry, and our beliefs and assumptions.   We intend words such as “anticipates,” “expects,”“intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions toidentify forward-looking statements. These statements are not guarantees of future performance and aresubject to certain risks, uncertainties and other factors, some of which arebeyond our control and are difficult to predict.  These factors could cause actual results todiffer materially from those expressed or forecasted in the forward-lookingstatements.  These risks anduncertainties are described elsewhere in this report on Form 10-Q and ourreport on Form 10-K for the year ended December 31, 2007.  We caution you not to place undue reliance onthese forward-looking statements, which reflect our management’s view only asof the date of this Report on Form 10-Q. We are not obligated to update these statements or publicly release theresult of any revisions to them to reflect events or circumstances after thedate of this Report on Form 10-Q or to reflect the occurrence ofunanticipated events.*

** **

*Overview*

 

We supply equipment automationsolutions for the global semiconductor test and assembly manufacturingmarket.  Our solutions include automatedtest handlers, factory automation software and our new integrated SmartSolutions equipment product line.  Webelieve that our products can significantly improve the productivity, yield andthroughput of the back-end, or to the post-wafer manufacturing process,including assembling, packaging, testing and singulating semiconductor devices.

 

Beginningin 1999 and continuing into 2000, we broadened our strategy from that of a testhandler manufacturer to becoming a provider of comprehensive equipmentautomation solutions for the back-end of the semiconductor manufacturingprocess.  First, we developed andintroduced in February 1999 our Tapestry strip handler.  Tapestry combines strip handling capabilitywith robotics, machine vision technology and critical software, enabling thetesting and tracking of semiconductor devices in strip form and the generationof critical process data throughout the test process.  Second, in June 1999 we acquired theInfinity Systems division of Fico. Infinity Systems has been involved in the development of factoryautomation software for the semiconductor manufacturing industry.  Infinity Systems’ software expertise wasintegral to the development of our integrated Smart Solutions equipment productline, introduced in May 2000. Together with a third party tester, our Smart Solutions equipmentproducts including our Tapestry handler enable complete automation of the test,laser mark, mark inspect and other processes of the back end.

 

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Sales of our productsand services are dependent upon demand by semiconductor manufacturers andindependent test and assembly facilities, and their increasing automation needs.  The semiconductor capital equipment markethas been marked by recent periods of contraction and weakness which, ifcontinued, could have the potential to have a material adverse effect on ourfinancial condition, results of operations, and cash flows.

 

**Critical Accounting Policies**

 

                *Revenue Recognition*

 

UnderSAB 104, we recognize revenue upon shipment, as our terms are FOB shippingpoint, for established equipment products that have previously satisfiedexisting customer performance specifications and that provide for full paymenttied to shipment.  Revenue for productsthat have not previously satisfied customer performance specifications or fromsales where all or a portion of customer payment is based upon acceptance areonly recognized upon customer acceptance. As such, in periods of increasing shipments, revenues will be deferredif the shipments are for new customers or new products, or the payment termsare tied to acceptance criteria.  Ifthese conditions 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.  Consequently, if these conditions exist, wemay report revenue levels that are greater than actual shipments.  During the quarter ended June 28, 2008,$22,000 of revenue was deferred under SAB 104.

 

*Allowance forDoubtful 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 our customers.  There can be no assurance that our estimateswill match actual amounts ultimately written off.  During periods of downturn in the market forsemiconductor capital equipment 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.  No provisions were recorded for the quarterended June 28, 2008.

 

*                Valuationof Inventories*

 

Our inventories arestated at the lower of cost or market. Cost is determined by the first-in, first-out (“FIFO”) method.  We maintain a standard costing system for ourinventories.  Assumptions with respect todirect labor utilization, standard direct and indirect cost rates, 

 

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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 rates areset 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 pricevariances are charged to costs of sales each quarter as incurred.

 

Provisions to reduce inventories to the lower of cost ormarket are made based on a review of excess and obsolete inventories through anexamination of historical component consumption, current market demands andshifting product technology.  Significantassumptions with respect to market trends and customer product acceptance areutilized to formulate our provision methods. Sudden or continuing downward changes in the semiconductor capitalequipment market may cause us to record additional inventory revaluationcharges in future periods.  No write-downof our inventories occurred for the quarter ended June 28, 2008.

 

*                AccruedWarranty*

 

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

 

###### **Resultsof Operations for the Three Months Ended June 28, 2008 and June 30,2007**

 

Netsales for the three months ended June 28, 2008 decreased by $997,000 or25% to $3.0 million compared to $4.0 million for the three months ended June 30,2007.  This decline was due in part toreduced purchases by semiconductor manufacturers and general economicconditions.

 

Grossmargin for the three months ended June 28, 2008 was $1.4 million or 48% ofnet sales compared to $2.1 million or 53% of net sales for the comparableperiod in the prior year.   The marginpercent decrease is a result of changes in product and customer mix.

 

Total operating expense for the quarterdecreased by $178,000 or 10% from $1.7 million to $1.6 million over the prioryear.  Selling, general and administrativeexpenses for the three months ended June 28, 2008 were $1.1 million or 36%of net sales compared to $1.1 million or 28% of net sales for the three monthsended June 30, 2007.  Selling,general and administrative expenses for the three months included $9,000 ofshare-based compensation expense. Research and development expenses for the second quarter of 2008 were$432,000 

 

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or 15% of net sales compared to $484,000or 12% of net sales in the second quarter of 2007.   On June 18, 2008, we initiated anemployee restructuring.  A restructuringcharge of $78,000 for the second quarter of 2008 was recorded for future cashexpenditures for termination benefits and related costs. Cash payments areexpected to be completed by third quarter 2008.

 

Thenet loss for the three months ended June 28, 2008 was $685,000 or $0.02per basic and fully-diluted share compared to net loss for the three monthsended June 30, 2007 of $280,000 or $0.01 per basic and fully-dilutedshare.

 

###### **Resultsof Operations for the Six Months Ended June 28, 2008 and June 30,2007**

 

Net sales for the sixmonths ended June 28, 2008 decreased $2.1 million or 29% to $5.2 million compared to $7.3 millionfor the six months ended June 30, 2007. This decline is due in part to reduced purchases by semiconductormanufacturers and general economic conditions.

 

Grossmargins for the first six months of 2008 decreased by $1.4 million to $2.5million, or 48% of net sales, from $3.9 million, or 53% of net sales, for thecomparable period in the prior year.  Themargin percent decrease is a result of changes in product and customer mix.

 

Total operating expense for the first sixmonths of 2008 decreased by $157,000 or 5% from $3.3 million to $3.2 million inthe first six months of 2007.  Selling,general and administrative expense for the first six months of 2008 was $2.2million or 43% of net sales, compared to $2.2 million, or 30% of net sales forthe first six months of 2007.  Selling,general and administrative expenses for the six months included $171,000 ofshare-based compensation expense. Research and development expense for the first six months of 2008 was$896,000, or 17% of net sales compared to $984,000, or 13% of net sales for thefirst six months of 2007.  On June 18,2008, we initiated an employee restructuring. A restructuring charge of $78,000 for the second quarter of 2008 wasrecorded for future cash expenditures for termination benefits and relatedcosts. Cash payments are expected to be completed by third quarter 2008.

 

Although there has been an increase inexpenses as a percentage of sales resulting from the decrease in net sales, thedollar amount of operating expenses has been reduced by $270,000, excludingrestructuring charges and share-based compensation expense.

 

Thenet loss for the first six months of 2008 was $1.8 million or $0.05 per sharecompared to net loss of $439,000 or $0.01 per share in the comparable prioryear period.  The net loss included$563,000 of amortization and $171,000 of share based compensation expenses.

 

**Liquidityand Capital Resources**

 

Cashprovided by operations was $5,000 in the six months ended June 28, 2008 ascompared to cash used in operations of $55,000 in the six months ended June 30,2007.  Accounts receivable decreased$626,000 from December 31, 2007 due to a higher level of collections. 

 

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Accounts payable increased $276,000 fromyear-end primarily due to inventory purchases. Inventory finished at $1.5 million, which consists of $5.8 million ofgross inventories and $4.3 million of reserves. Capital expenditures were $13,000 for the first six months of 2008compared to $50,000 in the first six months of 2007.  $307,000 was borrowed during the first sixmonths of 2008, while borrowings against the line of credit were reduced by$280,000.

 

Weended the quarter with $392,000 in cash and cash equivalents up slightly from$373,000 at the end of 2007.  Workingcapital finished at a $2.1 million compared to $3.4 million at the end of 2007.  Working capital is positive as of June 28,2008, primarily due to the classification of substantially all debt aslong-term.

 

As of June 28, 2008,$443,000 of an over-advance in excess of the borrowing base on the workingcapital line of credit was utilized.  Asa result of a loan transaction with Laurus, on July 31, 2008 (describedbelow), the over-advance was increased to $1.0 million until November 30,2008.

 

OnJuly 31, 2008, the Company entered into another loan transaction withLaurus.  The Company borrowed anadditional $3,500,000 pursuant to a secured note.  The note bears interest at the rate of twelve(12%) percent per annum, and is secured by all of the assets of the Company andits subsidiaries.  As part of thistransaction, the Company granted to Laurus a ten-year warrant to purchase31,000,000 shares of the Company’s common stock at $0.01 per share.  The new loan matures on November 30,2008.  Also, as part of this transaction,the allowed over-advance on the Company’s revolving line of credit with Lauruswas increased to $1,000,000 until November 30, 2008.  The maturity date of this new loan, and ofall of the Company’s debt with Laurus (including the over-advance), will beextended to July 31, 2010 if, no later than November 30, 2008, theCompany holds a shareholders’ meeting to increase its number of authorizedshares, and grants to Laurus an additional ten-year warrant to purchase146,143,792 shares of the Company’s common stock at $0.01 per share.   If the maturity date of the Company’s debtis not extended to July 31, 2010, starting in January 2009,monthly principal payments of $44,000 become due and payable to Laurus.

 

As of August 12,2008, $12.2 million of principal is owed to Laurus.  Monthly interest payments are added to theCompany’s working capital line of credit. On September 30, 2009, all remaining principal and interest duefrom the Company to Laurus on the existing financing agreements becomes due andpayable.  In the event that we are unableto repay, extend or refinance our debt payments in 2008 and 2009, Laurus couldpotentially take a number of actions as secured creditor which would have amaterial negative impact on the Company and its shareholders, includingforeclosure, a forced sale of all or part of the Company, and/or liquidation.Further, if future financing requirements are satisfied through the issuance ofequity or debt instruments, shareholders may experience additional dilution interms of their percentage of ownership of our securities.

 

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**IMPACT OFACCOUNTING STANDARDS**

 

In September 2006,the FASB issued SFAS No. 157, “*Fair Value Measurements*”(“SFAS No. 157”), which effective for interim and annual reporting periodsbeginning after November 15, 2007. This statement provides a definition of fair value, establishes aframework for measuring fair value, and expands disclosures about fair valuemeasurements for future transactions.  Wedo not expect the adoption of this pronouncement to have a material impact onour financial position or results of operations.

 

In February 2007,the FASB issued Statement of Financial Accounting Standards No. 159, “*The Fair Value Option for Financial Assets and Financial Liabilities*”(“SFAS 159”).  The Statement permitsentities to choose to measure many financial instruments and certain otheritems at fair value that are not currently required to be measured at fairvalue.  The objective is to improvefinancial reporting by providing entities with the opportunity to mitigatevolatility in reported earnings caused by measuring related assets andliabilities differently without having to apply complex hedge accountingprovisions.  SFAS 159 will be effectivefor the first fiscal year that begins after November 15, 2007. We do notexpect the adoption of this pronouncement to have a material impact on ourfinancial position or results of operations.

 

May 2008, theFASB issued SFAS No. 162 “The Hierarchy of Generally AcceptedAccounting Principles,” which has been established by the FASB as a frameworkfor entities to identify the sources of accounting principles and the frameworkfor selecting the principles to be used in the preparation of financialstatements of nongovernmental entities that are presented in conformity withUS GAAP. SFAS No. 162 is not expected to result in a change incurrent practices. SFAS No. 162 is effective 60 days followingthe Securities and Exchange Commission’s (“SEC”) approval of the Public CompanyAccounting Oversight Board’s (“PCAOB”) amendments to AU Section 411, “TheMeaning of Present Fairly in Conformity With Generally Accepted AccountingPrinciples.” Accordingly, the Company will adopt SFAS No. 162 withinthe required period.

 

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

 

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.  A 1% increase in interest rates wouldincrease our interest expense by approximately $100,000 per year.  Our short term revolving line of credit andlong-term convertible debt carried interest at the prime rate plus 2.5%.  There is no material market risk relating toour long-term debt.

 

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**ITEM 4. CONTROLS AND PROCEDURES**

 

(a)   Evaluation of disclosure controls andprocedures.

 

The Company’s management carried out an evaluation,under the supervision and with the participation of the Company’s ChiefExecutive Officer and the Company’s Chief Financial Officer (principalfinancial officer), of the effectiveness of the design and operation of theCompany’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended) as of June 28,2008, pursuant to Exchange Act Rule 13a-15.  Based upon that evaluation, the Company’sChief Executive Officer and the Company’s Chief Financial Officer (principalfinancial officer) concluded that the Company’s disclosure controls andprocedures as of June 28, 2008 were effective to ensure that informationrequired to be disclosed by us in the reports that we file or submit under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified in the rules and forms of the SEC, and are designed toensure that information required to be disclosed by us in these reports isaccumulated and communicated to our management, as appropriate to allow timelydecisions regarding disclosures.

 

We will consider furtheractions and continue to evaluate the effectiveness of our disclosure controlsand internal controls and procedures on an ongoing basis, taking correctiveaction as appropriate.  Management doesnot expect that disclosure controls and procedures or internal controls canprevent all errors and all fraud.  Acontrol system, not matter how well conceived and operated, can provide onlyreasonable and not absolute assurance that the objectives of the control systemare met.  Further, the design of acontrol system must reflect the fact that there are resource constraints, andthe benefits of controls must be considered relative to their costs.  While management believes that its disclosurecontrols and procedures provide reasonable assurance that fraud can be detectedand prevented, because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, have been detected.

 

(b)   Changes in internal controls over financialreporting.

 

Nochanges in the Company’s internal control over financial reporting occurredduring the second quarter of 2008 that have materially affected, or arereasonably likely to affect, our internal control over financial reporting.

 

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**MICROCOMPONENT TECHNOLOGY, INC.**

## FORM 10-Q

# PART II. OTHER INFORMATION

 

### **Item1A. Risk Factors**

 

Set forth below is adiscussion of the significant risk factors applicable to the Company.  Additional risk factors may develop in thefuture.

 

**Ourability to continue as a “going concern” is uncertain.**

 

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 Company has suffered recurring losses from operations andhas a stockholders’ deficit.  Thesefactors raise substantial doubt about the Company’s ability to continue as agoing concern

 

As of June 28, 2008, we hadcash and cash equivalents of $392,000, assets totaling $4.8 million,liabilities totaling $12.0 million, and incurred losses from continuingoperations of $685,000 for the quarter then ended.  We expect to continue to expend cash andincur operating losses in 2008.  Certainoperating expenses are expected to decline from 2007 levels, however, ourability to generate cash and operating income is dependent on increasing ourcustomer base to expand the penetration of our product technology and therealization of our lower operating expense targets.

 

As of June 28, 2008,$443,000 of an over-advance in excess of the borrowing base on the workingcapital line of credit was utilized.  Asa result of a loan transaction with Laurus, on July 31, 2008 (describedbelow), the over-advance was increased to $1.0 million until November 30,2008.

 

OnJuly 31, 2008, the Company entered into another loan transaction withLaurus.  The Company borrowed an additional$3,500,000 pursuant to a secured note. The note bears interest at the rate of twelve (12%) percent per annum,and is secured by all of the assets of the Company and its subsidiaries.  As part of this transaction, the Companygranted to Laurus a ten-year warrant to purchase 31,000,000 shares of theCompany’s common stock at $0.01 per share. The new loan matures on November 30, 2008.  Also as part of this transaction, the allowedover-advance on the Company’s revolving line of credit with Laurus was increasedto $1,000,000 until November 30, 2008. The maturity date of this new loan, and of all of the Company’s debtwith Laurus (including the over-advance), will be extended to July 31,2010 if, no later than November 30, 2008, the Company holds a shareholders’meeting to increase its number of authorized shares, and grants to Laurus anadditional ten-year warrant to purchase 146,143,792 shares of the Company’scommon stock at $0.01 per share.   If thematurity date of the Company’s debt is not extended to July 31, 2010, startingin January 2009, monthly principal payments of $44,000 become due andpayable to Laurus.

 

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As of August 12,2008, $12.2 million of principal is owed to Laurus.  Monthly interest payments are added to theCompany’s working capital line of credit. On September 30, 2009, all remaining principal and interest duefrom the Company to Laurus on the existing financing agreements becomes due andpayable.  In the event that we are unableto repay, extend or refinance our debt payments in 2008 and 2009, Laurus couldpotentially take a number of actions as secured creditor which would have amaterial negative impact on the Company and its shareholders, includingforeclosure, a forced sale of all or part of the Company, and/or liquidation.Further, if future financing requirements are satisfied through the issuance ofequity or debt instruments, shareholders may experience additional dilution interms of their percentage of ownership of our securities.

 

**Thesuccess of our new products depends upon customer acceptance of both thetesting of semiconductor devices in strip form and the automation of theback-end of the semiconductor manufacturing process.**

 

Several of our newproducts, including our Tapestry strip handler and other Smart Solutionsproducts, are used to test and process semiconductor devices in stripform.  Assembly of semiconductor devicesin strip form is the standard industry practice.  However, we cannot assure you that testing ofsemiconductor devices in strip form will become widely accepted by theindustry.  Until recently, mostsemiconductor manufacturers believed it was necessary to test semiconductorsafter they were cut from the strips because they believed the act of cuttingthe strips containing the semiconductor devices, referred to as singulation,could result in damage or contamination to the semiconductor devices and, as a consequence,make the prior test results unreliable.

 

We introduced ourTapestry handling system in February 1999. In May 2000, we introduced other Smart Solutions products, whichprovide additional process capability for handling and testing semiconductordevices in strip form.  In July of2003, we introduced our Tapestry SC, a second-generation system.  In September of 2004 we introduced ourTapestry SC SmartMark, a second-generation system, while in May 2006 weintroduced Tapestry SC Tri-Temp and in July 2007 we introduced theFilmframe. Our new products are attractive to customers only if the customerscan see the value of automating the test and assembly portions of theirsemiconductor manufacturing operations. Although semiconductor manufacturers have automated the waferfabrication portion of their operation, or the front-end of the semiconductormanufacturing process, very few semiconductor manufacturers have invested asignificant amount of capital to automate the test and assembly portions oftheir operations.  We are introducing newproducts for technologies, which may not be accepted on a wide-scale basis bythe industry.  If either the testing ofsemiconductor devices in strip form or wide-scale automation of the back-end isnot accepted by the industry, our net sales likely will suffer.

 

**Downturnsin semiconductor industry business cycles could have a negative impact on ouroperating results.**

 

Our businessdepends heavily upon capital expenditures by semiconductor manufacturers.  The semiconductor industry is highlycyclical, with periods of capacity shortage and periods 

 

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of excesscapacity.  In periods of excess capacity,the industry sharply cuts purchases of capital equipment, such as ourproducts.  Thus, a semiconductor industrydownturn or slowdown substantially reduces our revenues and operating resultsand could hurt our financial condition. In the fourth quarter of 2000, the semiconductor capital equipmentindustry went into a severe downturn and continued through 2005.  In 2006 and 2007, there was a slight upturnin the market, but the depressed market over the prior six years has negativelyaffected our operations and financial condition.

 

**We haveoffered automation solutions and, unless we effectively market our company as aprovider of automation solutions, our expected financial results will suffer.**

 

We offer equipment automationsolutions and software development services. These solutions and services require different marketing techniques andinvolve a more extensive decision-making process by customers than for ourtraditional handler products.  We need tosuccessfully market our automation products using different sales methods thanwe have previously used.

 

Our future success isdependent upon being able to successfully market our automation products.  If we are not successful in effectivelymarketing ourselves as an equipment automation solutions provider to thesemiconductor industry, our results of operations and financial condition willsuffer.

 

**Weare exposed to the risks of operating a global business.**

 

We are a globalcorporation with offices and subsidiaries in certain foreign locations tosupport our sales and services to the global semiconductor industry and, assuch, we face risks in doing business abroad that we do not facedomestically.  Certain aspects inherentin transacting business internationally could negatively impact our operatingresults, including:

 

·                  costs and difficulties in staffingand managing international operations;

 

·                  unexpected changes in regulatoryrequirements;

 

·                  difficulties in enforcing contractualand intellectual property rights;

 

·                  longer payment cycles;

 

·                  local political and economicconditions;

 

·                  potentiallyadverse tax consequences, including restrictions on repatriating earnings andthe threat of “double taxation”; and

 

·                  fluctuations in currency exchangerates, which can effect demand and increase costs.

 

Additionally, managinggeographically dispersed operations presents difficult challenges associatedwith organizational alignment and infrastructure, communications andinformation technology, inventory control, customer relationship management,terrorist threats and related 

 

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security matters andcultural diversities.  If we areunsuccessful in managing such operations effectively, our business and resultsof operations will be adversely affected.

 

**Failure of critical suppliers to deliver sufficient quantities of partsin a timely and cost-effective manner could adversely impact our operations.**

** **

We use numerous vendors to supply parts, componentsand subassemblies for the manufacture of our products.  It is not always possible to maintainmultiple qualified suppliers for all of our parts, components andsubassemblies. As a result, certain key parts may be available only from asingle supplier or a limited number of suppliers.  In addition, suppliers may ceasemanufacturing certain components that are difficult to replace withoutsignificant reengineering of our products. On occasion, we have experienced problems in obtaining adequate andreliable quantities of various parts and components from certain keysuppliers.  Our results of operations maybe materially and adversely impacted if we do not receive sufficient parts tomeet our requirements in a timely and cost effective manner.

 

**We investheavily in research and development efforts and our financial results dependupon the success of these efforts.**

 

We have spent, and expectto continue to spend, a significant amount of time and resources developing newproducts and refining existing products and systems.  In light of the long product developmentcycles inherent in our industry, these expenditures will be made well inadvance of the prospect of deriving revenue from the sale of new systems.

 

Our ability to introduceand market new products successfully is subject to a wide variety of challengesduring this development cycle, such as design defects or changing marketrequirements that could delay introduction of these systems.  In addition, since our customers are notobligated by long-term contracts to purchase our products, our anticipated productorders may not materialize, or orders that do materialize may be canceled.  As a result, if we do not achieve marketacceptance of new products, we may not be able to realize sufficient sales neededto recoup our research and development expenditures.

 

**Theloss of key personnel could adversely impact our business.**

 

Certain key personnel arecritical to our business.  Our futureoperating results depend substantially upon the continued service of our keypersonnel, many of whom are not bound by employment or non-competitionagreements. Our future operating results also depend in significant part uponour ability to attract and retain qualified management, manufacturing,technical, engineering, marketing, sales and support personnel.  Competition for qualified personnel,particularly those with technical skills, is intense, and we cannot ensuresuccess in attracting or retaining qualified personnel. Our business, financialcondition and results of operations could be materially adversely affected bythe loss of any of our key employees, by the failure of any key employee toperform in his or her current position, or by our inability to attract andretain skilled employees.  Employeerestructuring announced on June 18, 2008 has the risk of further dilutingour key personnel.

 

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**Recentlyenacted and future changes in securities laws and regulations have increasedour costs.**

 

Changing laws,regulations and standards relating to corporate governance and publicdisclosure, including the Sarbanes-Oxley Act of 2002 and new SEC regulations,are creating challenges for publicly-held companies. We are committed tomaintaining high standards of corporate governance and public disclosure. As aresult, our efforts to comply with evolving laws, regulations and standardshave resulted in, and are likely to continue to result in, increased generaland administrative expenses and a diversion of management time and attentionfrom revenue-generating activities to compliance activities. In particular, ourefforts to maintain compliance with Section 404 of the Sarbanes-Oxley Actof 2002 and the related regulations regarding our required assessment of ourinternal controls over financial reporting and our external auditors’ audit ofthat assessment has required the commitment of significant financial andmanagerial resources. We expect these efforts to require the continuedcommitment of significant resources. Further, our board members, chiefexecutive officer and chief financial officer could face an increased risk ofpersonal liability in connection with the performance of their duties. As aresult, we may have difficulty attracting and retaining qualified board membersand executive officers, which could harm our business.

 

**Ouroperating results often have large changes from period to period, which mayresult in a decrease in our stock price.**

 

Our quarterly and annual operating results are affected by awide variety of factors that could adversely affect sales or operating resultsor lead to significant variability in our operating results.  A variety of factors could cause this variability,including the following:

 

·      thecyclical nature of the semiconductor industry;

 

·      delaysin, or cancellation of, significant system purchases by customers;

 

·      delaysin the development, introduction and production of our products;

 

·      changesin the mix of our products and their gross margins;

 

·      newproduct introductions by competitors and competitive pricing pressures;

 

·                  the time required for us to adjust our operatingexpenses to respond to changes in sales and market conditions;

 

·      thetiming of any future acquisitions and their effect on our financial results;

 

·      componentshortages resulting in manufacturing delays; and

 

·                  pressure by customers to reduce prices, shortendelivery times and extend payment terms.

 

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We cannot predict theimpact of these and other factors on our sales or operating results in anyfuture period.  Results of operations inany period, therefore, should not be considered indicative of the results to beexpected for any future period.  Becauseof this difficulty in predicting future performance, our operating results mayfall below expectations of security analysts or investors in some futureperiods.  Our failure to meet theseexpectations would likely adversely affect the market price of our commonstock.

 

**Our stockprice is volatile and it may drop unexpectedly.**

 

Stock prices of companiesin the semiconductor equipment industry, including ours, can swing dramaticallywith little relationship to operating performance.  Factors, which could cause our stock price tochange, include:

 

·                  changes in themarket’s view of the semiconductor industry in general;

 

·                  changes in ourquarterly operating results for the reasons set out in the previous riskfactors for other reasons;

 

·                  changes in ourreported financial results based on accounting pronouncements;

 

·                  changes inresearch analysts’ expectations for us or our industry or failure to meetresearch analysts’ estimates;

 

·                  changes in thegeneral economic conditions or developments in the semiconductor industry whichaffect investors confidence;

 

·                  continuing dilution of shares outstanding asa result of obtaining required future financing;

 

·                  announcements byus or our competitors of technological innovations or new or enhanced productsand;

 

Additionalfactors, which may impact our results, include:

 

·                  we depend upon afew customers for the majority of our revenues and a reduction in their orderscould adversely affect us;

 

·                  our operatingresults would be harmed if one of our key suppliers fails to deliver componentsfor our products;

 

·                  the loss of anyof our key personnel could harm our business;

 

·                  our markets arevery competitive and demand for our products may decrease if additionalcompetitors enter our markets;

 

·                  our dependenceupon international sales involves significant risk;

 

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·      the possible adverse impact of economic orpolitical changes in the market we serve;

 

·      our inability to obtain financing to fundcontinuing or expanding operations;

 

Fluctuations ordecreases in the trading price of our common stock may adversely affect theability to trade our shares.  Inaddition, these fluctuations could adversely affect our ability to raise capitalthrough future equity financing.

 

### **Item 4. Submission Of Matters To A Vote Of SecurityHolders**

 

On June 19,2008, the Company held its annual meeting of shareholders.  At the meeting, the following actions weretaken:

 

Election of Directors

 

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

 
| Roger  E. Gower       |   |   |
|-----------------------|--------|--------|
| Donald  R.VanLuvanee  |   |   |
| David  M. Sugishita   |   |   |
| Richard  E. Struthers |   |   |

 

Thevote summaries are as follows:

 
| **Director Name** | ** ** | **Affirmed** | ** ** | **Withheld** | ** ** |
|------------------------|------------|--------------|------------|--------------|------------|
| Roger E. Gower         |       | 33,820,762   |       | 397,463      |       |
| David M. Sugishita     |       | 33,818,042   |       | 400,183      |       |
| Donald R. VanLuvanee   |       | 33,820,030   |       | 398,195      |       |
| Richard E. Struthers   |       | 33,820,262   |       | 397,963      |       |

 

Appointment of Olsen Thielen & Co. Ltd. as the independentregistered public accounting firm

 

To appoint Olsen Thielen & Co. Ltd. as the independentregistered public accounting firm for the current year.

 
| For     |   | 31,680,811 |   |
|---------|--------|------------|--------|
| Against |   | 76,364     |   |
| Abstain |   | 2,461,050  |   |

 

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### **Item6.  Exhibits**

 
| 10.1   |   | Consulting Agreement  between the Company and LMWH Management Partners, LLC, dated May 8, 2008  (filed herewith).                                                                                                 |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                   |
| 10.2   |   | Stock Option Agreement  between the Company and LMWH Management Partners, LLC, dated May 8,  2008.  (filed herewith).                                                                                             |
|   |   |                                                                                                                                                                                                                   |
| 10.3   |   | Consulting  Agreement between the Company and IT Carrier, Inc., dated June 4,  2008 (filed herewith).                                                                                                        |
|   |   |                                                                                                                                                                                                                   |
| 10.4   |   | Stock  Option Agreement between the Company and IT Carrier, Inc., dated  June 19, 2008 (filed herewith).                                                                                                     |
|   |   |                                                                                                                                                                                                                   |
| 10.5   |   | Stock  Pledge Agreement with LV Administrative Services, Inc., dated  July 31, 2008 (filed herewith).                                                                                                        |
|   |   |                                                                                                                                                                                                                   |
| 10.6   |   | Funds  Escrow Agreement with Valens U.S. SPV I, LLC, Valens Offshore SPV I, Ltd.,  and Loeb & Loeb LLP, dated July 31, 2008 (filed herewith).                                                            |
|   |   |                                                                                                                                                                                                                   |
| 10.7   |   | Master  Security Agreement with LV Administrative Services, Inc., dated  July 31, 2008 (filed herewith).                                                                                                     |
|   |   |                                                                                                                                                                                                                   |
| 10.8   |   | Restricted  Account Agreement with Capital One, N.A. and LV Administrative  Services, Inc., dated July 31, 2008 (filed herewith).                                                                            |
|   |   |                                                                                                                                                                                                                   |
| 10.9   |   | Restricted  Account Side Letter with LV Administrative Services, Inc., dated  July 31, 2008 (filed herewith).                                                                                                |
|   |   |                                                                                                                                                                                                                   |
| 10.10  |   | Secured  Term Note with Valens Offshore SPV I, Ltd., dated July 31, 2008 (filed  herewith).                                                                                                                       |
|   |   |                                                                                                                                                                                                                   |
| 10.11  |   | Secured  Term Note with Valens U.S. SPV I, LLC., dated July 31, 2008 (filed  herewith).                                                                                                                           |
|   |   |                                                                                                                                                                                                                   |
| 10.12  |   | Securities  Purchase Agreement with LV Administrative Services, Inc., dated  July 31, 2008 (filed herewith).                                                                                                 |
|   |   |                                                                                                                                                                                                                   |
| 10.13  |   | Side  letter regarding Extension of Maturity Dates with Laurus Master Fund, Ltd.,  Valens Offshore SPV I, Ltd., Valens U.S. SPV I, LLC., and Psource Structured  Debt Ltd., dated July 31, 2008 (filed herewith). |
|   |   |                                                                                                                                                                                                                   |
| 10.14  |   | Subsidiary  Guaranty with LV Administrative Services, Inc., dated July 31, 2008  (filed herewith).                                                                                                           |

 

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| 10.15  |   | Common  Stock Purchase Warrant with Valens Offshore SPV I, Ltd., dated July 31,  2008 (filed herewith).               |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                       |
| 10.16  |   | Common  Stock Purchase Warrant with Valens U.S. SPV I, LLC., dated July 31, 2008  (filed herewith).                   |
|   |   |                                                                                                                       |
| 10.17  |   | Fourth  Amended and Restated Overadvance Letter with Laurus Master Fund, Ltd., dated  July 31, 2008 (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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**MICROCOMPONENT TECHNOLOGY, INC.**

FORM 10-Q

## SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|                                   | Micro Component  Technology, Inc.  Registrant    |
|----------------------------------------|-------------------------------------------------------|
|                                   |                                                  |
|                                   |                                                  |
| Dated  August 12,  2008 | By:                                                   | /s/ Roger E. Gower |
|                                   | Roger E. Gower  President and Chief Executive Officer |
|                                   |                                                  |
|                                   |                                                  |
|                                   | And                                                   |
|                                   |                                                  |
|                                   |                                                  |
| Dated  August 12,  2008 | By:                                                   | /s/ Bruce Ficks |
|                                   | Bruce Ficks  Chief Financial Officer                  |

 

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