**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM10-Q**

 
| **ý** | **QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                      |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                              |
| ** ** | **For the  quarterly period ended March 26, 2005**                                                                                                                                                                                                |
|       |                                                                                                                                                                                                                                              |
| ** ** | **OR**                                                                                                                                                                                                                                            |
|       |                                                                                                                                                                                                                                              |
| **o**      | **TRANSITION REPORT PURSUANT TO SECTION 13 or  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                     |
|       |                                                                                                                                                                                                                                              |
| ** ** | **For the  transition period from                 to                 ** |

 

**CommissionFile No. 0-22384**

 

**MICROCOMPONENT TECHNOLOGY, INC.**

(Exact name ofregistrant as specified in its charter)

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

 

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

(Address ofprincipal executive offices)

 

**(651)697-4000**

(Registrant’stelephone number)

 

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be 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 to suchfiling requirements for the past 90 days

 

Yes                            ý             No                             o

 

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

 

Yes                            o             No                             ý

 

The number of shares outstanding of the Registrant’s Common Stock, asof May 9, 2005 was 25,566,514.

 

 

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**MICRO COMPONENT TECHNOLOGY, INC**.

 

FORM 10-Q

 

TABLE OF CONTENTS

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

 

2

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**MICRO COMPONENT TECHNOLOGY, INC.**

FORM 10-Q

# PARTI.  FINANCIAL INFORMATION

## ITEM 1. FINANCIAL STATEMENTS

## CONSOLIDATEDBALANCE SHEETS

(In thousands, exceptshare and per share data)

(Unaudited)

 
| ** **                                                                                            | ** ** | **March 26,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|---------------|------------|------------------|------------|
| ** **                                                                                            | ** ** | **2005**      | ** ** | **2004**         | ** ** |
| **Assets**                                                                                            |       |          |       |             |       |
| Current assets                                                                                        |       |          |       |             |       |
| Cash and cash  equivalents                                                                            |       | $             | 194        |             | $          | 166 |   |
| Accounts  receivable, less allowance for doubtful accounts of $215 and $215,  respectively            |       | 1,866         |       | 2,035            |       |
| Inventories                                                                                           |       | 3,078         |       | 3,057            |       |
| Other                                                                                                 |       | 182           |       | 189              |       |
| Total current  assets                                                                                 |       | 5,320         |       | 5,447            |       |
|                                                                                                  |       |          |       |             |       |
| Property, plant  and equipment, net                                                                   |       | 240           |       | 270              |       |
|                                                                                                  |       |          |       |             |       |
| Debt issuance  costs, net                                                                             |       | 326           |       | 371              |       |
| Other assets                                                                                          |       | 35            |       | 34               |       |
|                                                                                                  |       |          |       |             |       |
| Total assets                                                                                          |       | $             | 5,921      |             | $          | 6,122 |   |
|                                                                                                  |       |          |       |             |       |
| **Liabilities  and Stockholders’ Deficit**                                                       |       |          |       |             |       |
| Current  liabilities:                                                                                 |       |          |       |             |       |
| Current portion  of long-term debt                                                                    |       | $             | 133        |             | $          | 67 |   |
| Line of credit                                                                                        |       | 2,404         |       | 1,583            |       |
| Accounts payable                                                                                      |       | 1,053         |       | 967              |       |
| Accrued  compensation                                                                                 |       | 493           |       | 430              |       |
| Accrued interest                                                                                      |       | 116           |       | 56               |       |
| Accrued warranty                                                                                      |       | 152           |       | 162              |       |
| Customer  prepayments and unearned service revenue                                                    |       | 175           |       | 237              |       |
| Other accrued  liabilities                                                                            |       | 150           |       | 208              |       |
| Total current  liabilities                                                                            |       | 4,676         |       | 3,710            |       |
|                                                                                                  |       |          |       |             |       |
| Long-term  convertible note                                                                           |       | 1,293         |       | 1,458            |       |
| 10% senior  subordinated convertible debt                                                             |       | 3,630         |       | 3,630            |       |
|                                                                                                  |       |          |       |             |       |
| Stockholders’  deficit:                                                                          |       |          |       |             |       |
| Preferred stock,  $.01 par value, 1,000,000 authorized, none issued and outstanding                   |       | —        |       | —           |       |
| Common stock,  $.01 par value, 40,000,000 authorized, 25,566,514 and 25,566,511 issued,  respectively |       | 256           |       | 256              |       |
| Additional  paid-in capital                                                                           |       | 97,073        |       | 97,022           |       |
| Cumulative other  comprehensive loss                                                                  |       | (69           | )          | (69              | )          |
| Accumulated  deficit                                                                                  |       | (100,938      | )          | (99,885          | )          |
| Total  stockholders’ deficit                                                                     |       | (3,678        | )          | (2,676           | )          |
| Total  liabilities and stockholders’ deficit                                                     |       | $             | 5,921      |             | $          | 6,122 |   |

 

See notes to unauditedcondensed consolidated financial statements

 

3

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**MICRO COMPONENT TECHNOLOGY, INC.**

## CONSOLIDATED STATEMENTS OFOPERATIONS

(In thousands, except pershare data)

(Unaudited)

 
| ** **                                                  | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                  | ** ** | **March 26,**          | ** ** | **March 27,** | ** ** |
| ** **                                                  | ** ** | **2005**               | ** ** | **2004** | ** ** |
| Net sales                                                   |       | $                      | 1,960      |   | $ | 4,268 |   |
| Cost of sales                                               |       | 1,057                  |       | 1,975 |   |
|                                                        |       |                   |       |   |   |
| Gross profit                                                |       | 903                    |       | 2,293 |   |
|                                                        |       |                   |       |   |   |
| Operating  expenses:                                        |       |                   |       |   |   |
| Selling, general  and administrative                        |       | 1,131                  |       | 1,273 |   |
| Research and  development                                   |       | 588                    |       | 649 |   |
| Restructuring  charge                                       |       | —                 |       | — |   |
|                                                        |       |                   |       |   |   |
| Total operating  expenses                                   |       | 1,719                  |       | 1,922 |   |
|                                                        |       |                   |       |   |   |
| Income (loss)  from operations                              |       | (816                   | )          | 371 |   |
|                                                        |       |                   |       |   |   |
| Interest income                                             |       | 1                      |       | 1 |   |
| Loss on disposition  of assets                              |       | —                 |       | (12 | ) |
| Interest expense  and other                                 |       | (238                   | )          | (184 | ) |
|                                                        |       |                   |       |   |   |
| Total interest  and other                                   |       | (237                   | )          | (195 | ) |
|                                                        |       |                   |       |   |   |
| Net income  (loss)                                          |       | $                      | (1,053     | ) | $ | 176 |   |
|                                                        |       |                   |       |   |   |
| Net income  (loss) per share:                               |       |                   |       |   |   |
|                                                        |       |                   |       |   |   |
| Basic                                                       |       | $                      | (0.04      | ) | $ | 0.01 |   |
| Diluted                                                     |       | $                      | (0.04      | ) | $ | 0.01 |   |
|                                                        |       |                   |       |   |   |
| Weighted average  common and equivalent shares outstanding: |       |                   |       |   |   |
|                                                        |       |                   |       |   |   |
| Basic                                                       |       | 25,567                 |       | 24,336 |   |
| Diluted                                                     |       | 25,567                 |       | 27,985 |   |

 

See notes tounaudited condensed consolidated financial statements

 

4

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**MICRO COMPONENT TECHNOLOGY, INC.**

## CONSOLIDATED STATEMENTSOF CASH FLOWS

(In thousands)

(Unaudited)

 
| ** **                                                                   | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                   | ** ** | **March 26,**          | ** ** | **March 29,** | ** ** |
| ** **                                                                   | ** ** | **2005**               | ** ** | **2004** | ** ** |
|                                                                         |       |                   |       |   |   |
| Cash flows from  operating activities:                                       |       |                   |       |   |   |
| Net income (loss)                                                            |       | $                      | (1,053     | ) | $ | 176 |   |
| Adjustments to  reconcile net loss to net cash used in operating Activities: |       |                   |       |   |   |
| Depreciation and  amortization                                               |       | 174                    |       | 147 |   |
| Gain on disposal  of property                                                |       | —                 |       | 12 |   |
| Changes in  assets and liabilities:                                          |       |                   |       |   |   |
| Accounts  receivable                                                         |       | 169                    |       | (1,638 | ) |
| Inventories                                                                  |       | (83                    | )          | 13 |   |
| Other current  assets                                                        |       | 9                      |       | (146 | ) |
| Accounts payable                                                             |       | 86                     |       | 112 |   |
| Other accrued  liabilities                                                   |       | (7                     | )          | (667 | ) |
|                                                                         |       |                   |       |   |   |
| Net cash used in  operating activities                                       |       | (705                   | )          | (1,991 | ) |
|                                                                         |       |                   |       |   |   |
| Cash flow from  investing activities:                                        |       |                   |       |   |   |
| Purchases of  property, plant and equipment                                  |       | (12                    | )          | (27 | ) |
| Proceeds from  disposition of property                                       |       | —                 |       | — |   |
|                                                                         |       |                   |       |   |   |
| Net cash (used  in) provided by investing activities                         |       | (12                    | )          | (27 | ) |
|                                                                         |       |                   |       |   |   |
| Cash flows from  financing activities:                                       |       |                   |       |   |   |
| Payments of  long-term debt                                                  |       | (67                    | )          | — |   |
| Repayment of  bank line of credit                                            |       | —                 |       | (348 | ) |
| Proceeds from  institutional line of credit                                  |       | 812                    |       | 750 |   |
| Issuance of  long-term convertible note, net of debt issue costs             |       | —                 |       | 1,657 |   |
| Proceeds from  issuance of stock                                             |       | —                 |       | 16 |   |
| Stock issuance  costs                                                        |       | —                 |       | (22 | ) |
|                                                                         |       |                   |       |   |   |
| Net cash  provided by financing activities                                   |       | 745                    |       | 2,053 |   |
|                                                                         |       |                   |       |   |   |
| Net increase in  cash and cash equivalents                                   |       | 28                     |       | 35 |   |
|                                                                         |       |                   |       |   |   |
| Cash and cash  equivalents at beginning of period                            |       | 166                    |       | 1,078 |   |
|                                                                         |       |                   |       |   |   |
| Cash and cash  equivalents at end of period                                  |       | $                      | 194        |   | $ | 1,113 |   |
|                                                                         |       |                   |       |   |   |
| Supplemental  cash flow information:                                         |       |                   |       |   |   |
| Non-cash  financing activities:                                              |       |                   |       |   |   |
| Stock issued in  lieu of interest                                            |       | $                      | —     |   | $ | 349 |   |
| Stock issued in  conversion of 10% senior subordinated convertible debt      |       | —                 |       | 3,710 |   |
| Cash paid for  interest                                                      |       | 101                    |       | 55 |   |

 

See notes to unauditedcondensed consolidated financial statements

 

5

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**MICRO COMPONENT TECHNOLOGY, INC.**

FORM 10-Q

## NOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS

(Unaudited)

 

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

 

*Basis of Presentation*

 

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 Regulation S-X.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance with generallyaccepted accounting principles have been condensed or omitted pursuant to suchrules and regulations.  In the opinion ofmanagement all adjustments, including normal recurring adjustments, necessaryfor a fair presentation of the interim periods presented have beenincluded.  The interim results are notnecessarily indicative of the operating results expected for the full fiscalyear ending on December 31, 2005.

 

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, 2004 included inForm 10-K contained an explanatory paragraph that expresses substantial doubtabout our ability to continue as a going concern.   The financial statements do not include anyadjustments to reflect the possible future effects on the recoverability andclassification of assets or the amounts and classification of liabilities thatmay result from the outcome of this uncertainty.

 

As of March 26, 2005, theCompany had an accumulated deficit of $100.9 million and incurred a net loss of$1.1 million for the three-month period ended March 26, 2005.  As of March 26, 2005, the Company had cashand cash equivalents of $194,000, working capital of $644,000, a current ratioof 1.14, total assets of $5.9 million and total liabilities of $9.6 million. Weexpect to expend cash and incur operating losses at these net sales levels atleast though the first half of 2005 and our ability to generate cash andoperating income is dependent on the realization of additional restructuring efforts,our responsiveness to further negative impacts due to the recent downturn inthe semiconductor capital equipment market and increasing our customer base toexpand the penetration of our product technology.

 

As discussed in Note 5,on January 28, 2005, we completed an amendment to the financing agreement withthe institutional lender whereby our payments under the long-term convertible

 

6

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notes have been deferredfor one year, resulting in $800,000 of principal payments being rescheduled tobegin on February 1, 2006.  Thesepayments were previously scheduled to be paid in 2005.  The maturity date of the long-tem convertiblenote has also been extended for one year from March 2007 to March 2008.  As part of this amendment, the fixedconversion prices related to both the $3.0 million secured working capital lineof credit and the $2.0 long-term convertible note were reduced to $0.60 and$0.56, respectively.  On February 25,2005, we completed a new restructuring agreement with our 10% SeniorConvertible Noteholders. Under the agreement, the Noteholders representing $2.9million in debt, or 80% of the debt existing as of December 31, 2004, haveagreed to continue to accept stock in lieu of cash for their interest paymentsfor the remaining term of the notes through December 2006.   As part of this agreement, the conversionprice of the underlying notes has been reduced from $1.00 per share to $0.85per share for the remaining term of the notes through December 2006.  Thisresults in approximately $290,000 of interest expense to be incurred in 2005 tobe satisfied through the issuance of shares of our common stock.

 

We estimate that we willneed to raise additional capital through debt or equity offerings, furthermodify our existing credit agreements, sell assets, make significant structuralcost reductions or take a combination of these actions.  We are actively pursing these activities;however, there is no assurance that we will be successful in any of theseactivities.  If we are unsuccessful inobtaining sufficient financing, restructuring our existing credit agreements,or completing further restructuring initiatives, our operations and financialcondition will be materially negatively impacted and we could be required totake actions that could harm our business, including potentially ceasingcertain or all of our operations.

 

However, on April 29,2005, we completed a financing transaction with Laurus Master Fund, Ltd.  in which we borrowed an additional $2,500,000from Laurus. The agreement provides for monthly interest payments at a rateequal to prime plus 1.75%.  Beginning sixmonths after the closing, we are required to make monthly payments equal to1/30th of the principal amount until three years after the closing, at whichtime the entire remaining principal and accrued interest is due and payable infull.  The loan is convertible intoshares of the Company’s common stock at a price of $.23 per share.  The Company also issued Laurus an option topurchase 2,556,651 shares of common stock for a exercise price of $.01 pershare.  The Company received net proceedsof approximately $2.4 million at the closing.

 

Interim unauditedfinancial results should be read in conjunction with the audited financial statementsincluded in the SEC Report on Form 10-K, for the period ended December 31,2004.

 

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

 

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

 

7

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| ** **                                            | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------|------------|------------------------|------------|
| ** **                                            | ** ** | **March 26,**          | ** ** | **March 27,** | ** ** |
| **(in thousands)**                                    | ** ** | **2005 (1)**           | ** ** | **2004 (2)** | ** ** |
| Weighted average  common shares outstanding           |       | 25,567                 |       | 24,336 |   |
| Effect of  dilutive stock options, warrants and notes |       | —                 |       | 3,649 |   |
|                                                  |       |                   |       |   |   |
|                                                  |       | 25,567                 |       | 27,985 |   |

 

----

| (1)    |   | We reported a loss for the period indicated. No  adjustments were made for the effect of stock options and warrants, which  represented 4,148,058 shares at March 27, 2005 as the effect is antidilutive.                                                                                                   |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                        |
| (2)    |   | The total number of shares represented by stock  options, warrants and 10% Senior Convertible Notes excluded from the  calculation of potentially dilutive securities due to the exercise price  exceeding the average market price of our stock for the three months ended  March 27, 2004, was 3,643,589. |

 

**3.****                          REPORTINGOF COMPREHENSIVE NET INCOME (LOSS)**

 

Certainrevenues, expenses, gains, and losses recognized during the period are includedin comprehensive loss, regardless of whether they are considered to be resultsof operations of the period.  During thethree-month periods ended March 26, 2005 and March 27, 2004, totalcomprehensive income (loss) equaled net income (loss) as reported on the ConsolidatedStatements of Operations.

 

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

 

Major components ofinventories were as follows (in thousands):

 
| ** **      | ** ** | **March 26,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------|------------|---------------------|------------|------------------------|------------|
|            |       |                |       |                   |       |
| Raw materials   |       | $                   | 2,057      |                   | $          | 2,079 |   |
| Work-in-process |       | 735                 |       | 765                    |       |
| Finished goods  |       | 286                 |       | 213                    |       |
|            |       | $                   | 3,078      |                   | $          | 3,057 |   |

 

We provide a standardthirteen-month warranty program for our equipment products. We recordprovisions for warranty claims for these products based upon historical claimperformance.  The following tableprovides the expense recorded and charges against our reserves for the quarterended March 26, 2005 (in thousands):

 
| Accrued warranty  balance at December 31, 2004 |   | $      | 162    |   |
|------------------------------------------------|--------|--------|--------|--------|
|                                           |   |   |   |
| Provision                                      |   | 12     |   |
|                                           |   |   |   |
| Warranty claims                                |   | (22    | )      |
|                                           |   |   |   |
| Accrued warranty  balance at March 26, 2005    |   | $      | 152    |   |

 

8

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

 

On March 9, 2004 wecompleted a $5.0 million secured financing transaction with an institutionallender.  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.  $750,000 of the secured working capital lineof credit can be converted to shares of our common stock by the lender undercertain market conditions and initially at a price of $1.92 per share.  The $2.0 million long-term convertible noteis convertible to shares of our common stock initially at a price of$1.79.  In connection with the executionof this credit 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.  The fair value of the warrant wasdetermined using the  Black-Scholesoption-pricing model.  This resulted in avalue of $391,000, which was recorded as an increase to additional paid-in- capitaland a discount to the working capital line of credit and long-term convertiblenote.  This discount is amortized tointerest expense over the three-year agreement. Our then existing secured lending relationship was terminated as aresult of this transaction.  This creditfacility is secured by all the assets of the Company.  On January 28, 2005, we completed anamendment to the financing agreement with the institutional lender whereby ourpayments under the long-term convertible note have been deferred for one year,resulting in $800,000 of principal payments being rescheduled to begin onFebruary 1, 2006.  These payments werepreviously scheduled to be paid in 2005. The maturity date of the long-term convertible note has also beenextended for one year from March 2007 to March 2008.  As a part of this amendment the fixedconversion prices related to both the $3.0 million secured working capital lineof credit and the $2.0 long-term convertible note were reduced to $0.60 and$0.56, respectively.  Additionally, weissued the lender a seven-year warrant to purchase 150,000 shares of commonstock at a price of $0.67.  The fairvalue of the warrant was determined using the Black-Scholes option-pricingmodel.  This resulted in a value of$51,000, which was recorded as in increase to additional paid-in-capital and adiscount to the long-term convertible note. The aforementioned restructuring amendment was not a troubled debtrestructuring under SFAS 15 (as interpreted by EITF 02-04) or a substantialmodification as defined by EITF 96-19, therefore no extinguishment gain or losswas recognized in our financial statements.

 

On February 25, 2005, wecompleted a second amendment to the agreement with the holders of our 10%Senior Subordinated Convertible Notes, wherein holders of 80% of the remainingNotes, representing $2.9 million, agreed to continue to accept stock in paymentof interest for the remaining four interest payments through December 24,2006.  As part of this amendment, weagreed to reduce the Note conversion price to $0.85 per share, and use our bestefforts to register the shares with the SEC. The aforementioned restructuring amendment was not a troubled debtrestructuring under SFAS 15 (as interpreted by EITF 02-04) or a substantialmodification as defined by EITF 96-19, therefore no extinguishment gain or losswas recognized in our financial statements.

 

During the first quarterof 2004, we issued 228,618 shares of our common stock to the holders of our 10%Senior Subordinated Convertible Notes (“the Notes”) in payment of interest dueon December 31, 2003.  The issuance wasexempt from registration under Rule 506 under the Securities Act of 1933,because all of the noteholders were accredited, there was no general solicitation,and the shares were subject to restrictions on transfer.

 

9

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During the first quarterof 2004, we issued a total of 3,721,532 shares of our common stock to holdersof the Notes pursuant to conversion of their Notes at $1.00 per share includingaccrued interest due at the time of conversion. The issuance was exempt from registration under Rule 506 under theSecurities Act of 1933, because all of the noteholders were accredited, therewas no general solicitation, and the shares were subject to restrictions ontransfer.

 

On April 29, we completedan additional financing transaction with the institutional lender as describedin Note 10 contained elsewhere herein.

 

**6.**                          **STOCK BASED COMPENSATION**

 

We account forstock-based transactions under SFAS No. 123*, Accounting forStock-Based Compensation*.  Aspermitted by SFAS No. 123, we have elected to continue following the guidanceof APB Opinion No. 25 (as interpreted by FIN 44) for measurement andrecognition of stock-based transactions with employees and non-employeedirectors.  Because stock options havebeen granted at exercise prices at least equal to the fair market value of thestock at the grant date, no compensation cost has been recognized for stockoptions issued to employees and non-employee directors under the stock optionplans.  Stock-based transactions withnon-employees are accounted for in accordance with SFAS No. 123 and relatedinterpretations.

 

In December 2002, theFinancial Accounting Standards Board (FASB) issued Statement of FinancialAccounting Standards (SFAS) No. 148, “Accounting for Stock-Based Compensation -Transition and Disclosure.”  SFAS No. 148 is an amendment to SFAS No. 123providing alternative methods of transition for a voluntary change to the fairvalue based method of accounting for stock-based employee compensation and alsoprovides required additional disclosures about the method of accounting forstock-based employee compensation. The Company adopted the annualdisclosure provision of SFAS No. 148 during the year ended December 31,2003.  The Company chose to not adopt the voluntary change to the fairvalue based method of accounting for stock-based employee compensation,pursuant to SFAS No. 148.

 

If compensation cost forour stock option and employee stock purchase plans had been determined based onthe fair value at the grant dates, consistent with the method provided in SFASNo. 148 and SFAS No. 123, our net loss and net loss per share would have beenas follows:

 
| ** **                                             | ** ** | **Quarters Ended** | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|
| ** **                                             | ** ** | **March 26,**      | ** ** | **March 27,** | ** ** |
| ** **                                             | ** ** | **2005**           | ** ** | **2004** | ** ** |
| Net income  (loss):                                    |       |               |       |   |   |
| As reported                                            |       | $                  | (1,053     | ) | $ | 176 |   |
| Fair value  compensation expense                       |       | (156               | )          | (219 | ) |
| Pro forma                                              |       | $                  | (1,209     | ) | $ | (43 | ) |
|                                                   |       |               |       |   |   |
| Net income  (loss) per share – basic and diluted: |       |               |       |   |   |
| As reported                                            |       | $                  | (0.04      | ) | $ | 0.01 |   |
| Fair value  compensation expense                       |       | (0.01              | )          | (0.01 | ) |
| Pro forma                                              |       | $                  | (0.05      | ) | $ | (0.00 | ) |
|                                                   |       |               |       |   |   |
| Stock Based  Compensation:                             |       |               |       |   |   |
| As reported                                            |       | $                  | —     |   | $ | — |   |
| Fair value  compensation expense                       |       | (156               | )          | (219 | ) |
| Pro forma                                              |       | $                  | (156       | ) | $ | (219 | ) |

 

10

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The fair value of options granted under the stockoptions for the quarters ended March 26, 2005 and March 27, 2004 was estimatedon the date of grant using the Black-Scholes option pricing model with thefollowing weighted average assumptions for the three months ended March 26,2005 and March 27, 2004.

** **
| ** **                               | ** ** | **Quarters ended** | ** ** |
|------------------------------------------|------------|--------------------|------------|
| ** **                               | ** ** | **March 26,**      | ** ** | **March 27,** | ** ** |
| ** **                               | ** ** | **2005**           | ** ** | **2004** | ** ** |
|                                     |       |               |       |   |   |
| Dividend yield                           |       | 0.00               | %          | 0.00 | % |
| Expected  volatility                     |       | 88.47              | %          | 112.26 | % |
| Risk-free  interest rate                 |       | 3.89               | %          | 3.02 | % |
| Expected life of  options                |       | 3.5 years          |       | 3.5 years |   |
| Fair value per  share of options granted |       | $                  | 0.22       |   | $ | 1.47 |   |
|                                          |            |                    |            |  |  |  |  |

 

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

 

***SFAS No. 153, Exchanges of NonmonetaryAssets.***  In December 2004, FASB issued SFAS No.153 *Exchanges of Nonmonetary Assets*amends APB Opinion No. 29, *Accounting forNonmonetary Transactions*. APB No. 29 is based on the principle thatexchanges of nonmonetary assets should be measured based on the fair value ofthe assets exchanged. The guidance in that Opinion, however, included certainexceptions to that principle. SFAS No. 153 amends APB No. 29 to eliminate theexception for nonmonetary exchanges of similar productive assets and replacesit with a general exception for exchanges of nonmonetary assets that do nothave commercial substance. A nonmonetary exchange has commercial substance ifthe future cash flows of the entity are expected to change significantly as aresult of the exchange.  SFAS No. 153 shall be effective for nonmonetaryasset exchanges occurring in fiscal periods beginning after June 15, 2005.Earlier application is permitted for nonmonetary asset exchanges occurring infiscal periods beginning after the date SFAS No. 153 was issued. SFAS No. 153shall be applied prospectively.  We do not expect the adoption of SFAS No.153 to have a material effect on our financial statements.

 

***SFAS No. 123 (revised 2004), Share-BasedPayment***.  In December 2004, FASB issued SFAS No.123 (revised 2004), *Share-Based Payment*,that focuses primarily on accounting for transactions in which an entityobtains employee services in share-based payment transactions.  Thisstatement replaces SFAS No. 123, *Accountingfor Stock-Based Compensation*, and supersedes APB Opinion No. 25, *Accounting for Stock Issued to Employees*.  Beginning with our quarterly period that begins January 1, 2006, we willbe 

 

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required to expense the fair value of employee stockoptions and similar awards.  As a public company, we are allowed to selectfrom two alternative transition methods, each having different reportingimplications.  We do not expect the adoption of SFAS No. 123R to have amaterial effect on our financial statements.

 

**NOTE 9 – CONTINGENCIES**

 

On April 11, 2005, judgment was entered against theCompany in Superior Court of California in the amount of $379,000 in a lawsuitbrought by a prior landlord.  As of March26, 2005, we have recorded $450,000 in accounts payable with respect to the settlementof this matter.

 

The Company is attempting to reach agreement with thelandlord that will allow the Company to pay the judgment over time.  If no such agreement can be reached, thelandlord could take action against the Company to collect the judgment, whichcould have a material adverse impact on the Company’s operations and financialcondition.  Also, unless the Company isable to obtain waivers from the holders of its 10% Subordinated ConvertibleNotes (the “Notes”), entry of this judgment will result in events of defaultunder the Notes, after expiration of the applicable 60 day cure period.  This would give these lenders the right todeclare the Company’s debts to them to be immediately due and payable, in thetotal amount of $3,600,000 as of March 26, 2005.  This would have an immediate and materialadverse impact upon the Company’s operations and financial condition.

 

The Company is currently in negotiations with theholders of the Notes, seeking to obtain default waivers.  There is no assurance that such waivers willbe obtained.

 

### **NOTE 10 – SUBSEQUENT EVENT**

 

On April 29, 2005, wecompleted a financing transaction with Laurus Master Fund, Ltd. in which weborrowed an additional $2,500,000 from Laurus. The agreement provides formonthly interest payments at a rate equal to prime plus 1.75%.  Beginning six months after the closing, weare required to make monthly payments equal to 1/30th of the principal amountuntil three years after the closing, at which time the entire remainingprincipal and accrued interest is due and payable in full.  The loan is convertible into shares of theCompany’s common stock at a price of $.23 per share.  The Company also issued Laurus an option topurchase 2,556,651 shares of common stock for a exercise price of $.01 pershare.  The Company received net proceedsof approximately $2.4 million at the closing.

 

The issuance of the note and option to Laurus wasexempt from registration under Rule 506 under the Securities Act of 1933,because Laurus is an accredited investor, there was no general solicitation, andthe securities are subject to restrictions on transfer.

 

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**MICRO COMPONENT TECHNOLOGY, INC.**

 

## ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OFRESULTS OF OPERATIONS AND FINANCIAL CONDITION

 

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

 

*Overview*

 

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

 

The demand for our products and services is dependentupon growth in the semiconductor industry and the increasing automation needsof semiconductor manufacturers and independent test and assemblyfacilities.  In the fourth quarter of2000, the semiconductor industry went into a sharp downturn, which intensifiedand continued through the majority of 2003, resulting in a significant adverseimpact on our business.  In late 2003,worldwide semiconductor bookings began showing signs of stabilization anddemand for our products increased during this period and continued through thefirst half of 2004.  However, in thethird quarter of 2004 the markets again retracted, impacting our financialresults through the end of 2004 and continuing into 2005. At this juncture, thereturn to sustained market growth cannot be predicted in the short term.  As we have disclosed in our Form 10-K for theyears ended December 31, 2004, 2003 and 2002, and each of our Forms 10-Q forthe years 2004 and 2003, a continued or renewed market downturn might result insignificant losses, charges for inventory revaluation, or asset impairment orrestructuring charges.  Consequently, inresponse to these changing market conditions, in addition to the actions takenprior to 2004, we took the following additional steps in 2004 and 2005:

 

•                  On March 9, 2004 we completed a $5.0million secured financing transaction with an institutional lender.  Under the terms of the three-year agreement,we put in place a $3.0 million secured working capital line of credit and a$2.0 long-term convertible note. $750,000 of the secured working capital line of credit can be convertedto shares of our common stock by the lender under certain market conditions andinitially at a price of $1.92 per share. The $2.0 million long-term convertible note is convertible to shares ofour common stock initially at a price of $1.79. In connection with the execution of this credit facility, we issued tothe lender a seven-year warrant to purchase 400,000 shares of our common stockat exercise prices ranging from $2.30 to $2.88. The secured lending relationship at the time was terminated as a resultof this transaction.  This creditfacility is secured by all the assets of the Company.  On January 28, 2005, we completed anamendment to the financing agreement with the institutional lender whereby ourpayments under the long-term convertible note have been deferred for one year,resulting in $800,000 of principal 

 

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payments beingrescheduled to begin on February 1, 2006. These payments were previously scheduled to be paid in 2005.  The maturity date of the long-termconvertible note has also been extended for one year from March 2007 to March2008.  As a part of this amendment thefixed conversion prices related to both the $3.0 million secured workingcapital line of credit and the $2.0 long-term convertible note were reduced to$0.60 and $0.56, respectively. Additionally, we issued the lender a seven-year warrant to purchase150,000 shares of common stock at a price of $0.67.  The fair value of the warrant was determinedusing the Black-Scholes option-pricing model. This resulted in a value of $51,000, which was recorded as in increaseto additional paid-in-capital and a discount to the long-term convertible note.

 

•                  During thefourth quarter of 2004, we reduced our manufacturing workforce by 11% at thetime, resulting in a restructuring charge of $35,000.  This charge reflected severance and otherbenefit costs associated with the reduction. This workforce reduction affected a total of 12 employees all within themanufacturing area.

 

•                  OnFebruary 25, 2005, we completed a second amendment to the agreement with theholders of our 10% Senior Subordinated Convertible Notes, wherein holders of80% of the remaining Notes, representing $2.9 million, agreed to continue toaccept stock in payment of interest for the remaining four interest paymentsthrough December 24, 2006.  As part ofthis amendment, we agreed to reduce the Note conversion price to $0.85 pershare, and use our best efforts to register the shares with the SEC.

 

Most industry forecastsare presently predicting that capacity-driven purchases of capital equipmentare expected to improve in the second half of 2005.  However, the level of improvement and theability for the market to sustain an improvement continues to beuncertain.  Therefore, we will continueto monitor the market and examine opportunities to further reduce our coststhrough further consolidation of operations, limiting capital expenditures,monitoring inventory purchases and additional strategic restructuringinitiatives.  Certain of these types ofactions have the potential for further charges in future periods.  The impact of a continuing contraction of thesemiconductor capital equipment market has the potential to have a materialadverse effect on our financial condition, results of operations, and cashflows.

 

**CriticalAccounting Policies**

 

*Revenue Recognition*

 

Under SAB 104, we recognizerevenue upon shipment, as our terms are FOB shipping point, for establishedequipment products that have previously satisfied existing customer performancespecifications and that provide for full payment tied to shipment.  Revenue for products that have not previouslysatisfied customer performance specifications or from sales where all or aportion of customer payment is based upon acceptance are only recognized uponcustomer acceptance.  As such, in periodsof increasing shipments, revenues will be deferred if the shipments are for newcustomers, new products or the payment terms are tied to acceptancecriteria.  Consequently, if theseconditions exist, we may report revenue levels that are not reflective ofactual shipment growth rates. Conversely, in periods of decreasing shipments, we potentially couldrecognize revenues related to shipments made in prior periods.  Consequently, if these conditions exist, wemay report revenue levels that are greater 

 

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than actual shipments.  During the quarter ended March 26, 2005,revenue recorded approximated shipments.

 

*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 March 26, 2005.

 

*Valuation of Inventories*

 

Our inventories arestated at the lower of cost or market. Cost is determined by the first-in, first-out (“FIFO”) method.  We maintain a standard costing system for ourinventories.  Assumptions with respect todirect labor utilization, standard direct and indirect cost rates, vendorpricing and utilization of factory capacities are formulated in the developmentof our standard costing system.  Suddenor continuing changes in the semiconductor capital equipment market affectingour shipments 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 costor market are made based on a review of excess and obsolete inventories throughan examination 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-offprovision was made to our inventories for the quarter ended March 26,2005.  Pursuant to SAB Topic 5-BB,inventory revaluations establish a new cost basis for inventory.  Included in our gross margins dollars for thequarters ended March 26, 2005 and March 27, 2004, were $61,000 and $523,000,respectively, resulting from sales of products that had been previously writtendown to lower of cost or market.

 

*Accrued Warranty*

 

Weprovide a standard thirteen month warranty program for our equipment products.We record provisions for warranty claims for these products based uponhistorical claim performance.  This approachhas been applied since the inception of the warranty program and involves adegree of subjectivity in that historical performance is used to estimatefuture warranty claims. There can be no assurance that our estimates will matchthe actual amount of future warranty claims.

 

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###### **Results ofOperations for the Three Months Ended March 26, 2005 and March 27, 2004**

###### ** **

Net sales for the three months ended March 26, 2005,decreased $2.3 million or 54.1% to $2.0 million compared to $4.3 million forthe three months ended March 27, 2004. Product acceptance requirements related to product and customer mixresulted in a net increase to revenues of $0.02 million over shipments for thequarter ended March 27, 2004, while there were no timing differences recordedin the first quarter of 2005. The decline in sales is directly attributable tothe recent retraction in the semiconductor capital equipment market.  This decline impacted our sales across all ofour product lines.

 

Gross profit for the first quarter of 2005 decreasedby $1.4 million to $0.9 million, or 46.1% of net sales, from $2.3 million, or53.7% of net sales, for the comparable period in the prior year.   The decrease in gross margin in the currentyear period is directly attributable to the decline in sales, resulting infixed costs being spread over smaller sales volumes. Additionally, for thequarter ended March 26, 2005, we benefited from approximately $0.06 million ingross margin dollars resulting from sales of products that had been previouslywritten down to lower of cost or market. We expect the continuing contraction of the market for semiconductorcapital equipment to continue to negatively impact our gross margincontribution in future periods as well as changes in sales mix.

 

Selling, general and administrative expense in thefirst quarter of 2005 was $1.1 million, or 57.7% of net sales, compared to $1.3million, or 29.8% of net sales for the first quarter of 2004. The increase inexpense as a percentage of sales is a result of the reduced net saleslevels.  The reduction in dollar spendingis a result of cost reduction measures completed in 2004 and the reduction ofcertain variable expenses related to sales.

 

Research and development expense for the first quarterof 2005 was $0.6 million, or 30.0% of net sales compared to $0.6 million, or15.2% of net sales in the first quarter of 2004.  The increase in expense as a percentage ofsales is a result of the reduction in net sales.

 

We incurred a $12,000 loss or 0.3% of sales in thefirst quarter of 2004 from the disposition of certain assets resulting from therestructuring of leases throughout 2003. Interest expense and other totaled $238,000 or 12.1% of net sales in thecurrent year’s quarter, compared to $184,000 or 4.3% of net sales for thecomparable period in the prior year.  Theinterest increase resulted from a higher average debt level throughout thequarter compared to the prior year.

 

Net loss for the quarter ended March 26, 2005 was $1.1million or $0.04 per basic and fully diluted share as compared to net incomefor the quarter ended March 27, 2004 of $176,000 or $0.01 per basic and fullydiluted share.

 

**Liquidity and Capital Resources**

 

The net loss was theprimary uses of cash in the first quarter of 2005.  The increase in accounts receivable andreduction of other accrued liabilites were the primary uses of cash in thefirst quarter of 

 

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theprior year.  Cash used in operations was$705,000 in the first quarter of 2005 and $2.0 million in the first quarter2004.

 

Capital expenditures were$12,000 for the first quarter of 2005 compared to $27,000 in the first quarterof 2004. The capital spending was primarily in the area of information technologyequipment.

 

On March 9, 2004 we completed a $5.0 million securedfinancing transaction with an institutional lender.  Under the terms of the three-year agreement,we put in place a $3.0 million secured working capital line of credit and a$2.0 long-term convertible note.  OnJanuary 28, 2005, we completed an amendment to the financing agreement with thelender whereby our payments under the long-term convertible notes have beendeferred for one year, resulting in $800,000 of principal payments beingrescheduled to begin on February 1, 2006. These payments were previously scheduled to be paid in 2005.  The maturity date of the long-tem convertiblenote has also been extended for one year from March 2007 to March 2008.  As a part of this amendment the fixedconversion prices related to both the $3.0 million secured working capital lineof credit and the $2.0 long-term convertible note were reduced to $0.60 and$0.56, respectively.

 

On February 25, 2005, we completed a new restructuringagreement with our 10% Senior Convertible Noteholders. Under the agreement, theNoteholders representing $2.9 million in debt, or 80% of the debt existing asof December 31, 2004, have agreed to continue to accept stock in lieu of cashfor their interest payments for the remaining term of the notes throughDecember 2006.   As part of thisagreement, the conversion price of the underlying notes has been reduced from$1.00 per share to $0.85 per share for the remaining term of the notes throughDecember 2006.  This results in approximately $145,000 of interest expense scheduled tobe paid in 2005 in cash to be satisfied through the issuance of shares of ourcommon stock.  During the firstquarter of 2004,  $3.7 million of theNotes were converted to equity under the prior agreement resulting in theissuance of 3,710,000 shares of our common stock to the noteholders.

 

On April 11, 2005, judgment was entered against theCompany in Superior Court of California in the amount of $379,000 in a lawsuitbrought by a prior landlord.  As of March26, 2005, we have recorded $450,000 in accounts payable with respect to thesettlement of this matter.

 

The Company is attempting to reach agreement with thelandlord that will allow the Company to pay the judgment over time.  If no such agreement can be reached, thelandlord could take action against the Company to collect the judgment, whichcould have a material adverse impact on the Company’s operations and financialcondition.  Also, unless the Company isable to obtain waivers from the holders of its 10% Subordinated ConvertibleNotes (the “Notes”), entry of this judgment will result in events of defaultunder the Notes, after expiration of the applicable 60 day cure period.  This would give these lenders the right todeclare the Company’s debts to them to be immediately due and payable, in thetotal amount of $3,600,000 as of March 26, 2005.  This would have an immediate and materialadverse impact upon the Company’s operations and financial condition.

 

The Company is currently in negotiations with theholders of the Notes, seeking to obtain default waivers.  There is no assurance that such waivers willbe obtained.

 

We estimate that we willneed to raise additional capital through debt or equity offerings, furthermodify our existing credit agreements, sell assets, make significant structuralcost reductions or take a combination of these actions.  We are actively pursing these activities;however, there is no 

 

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assurance that we will be successful in theseactivities.  If we are unsuccessful inobtaining sufficient financing, restructuring our existing credit agreements,or completing further restructuring initiatives, our operations and financialcondition could be materially negatively impacted and we could be required totake actions that will harm our business, including potentially ceasing certainor all of our operations.

 

However, on April 29,2005, we completed a financing transaction with Laurus Master Fund, Ltd.  in which we borrowed an additional $2,500,000from Laurus. The agreement provides for monthly interest payments at a rateequal to prime plus 1.75%.  Beginning sixmonths after the closing, we are required to make monthly payments equal to1/30th of the principal amount until three years after the closing, at whichtime the entire remaining principal and accrued interest is due and payable infull.  The loan is convertible intoshares of the Company’s common stock at a price of $.23 per share.  The Company also issued Laurus an option topurchase 2,556,651 shares of common stock for a exercise price of $.01 pershare.  The Company received net proceedsof approximately $2.4 million at the closing.

 

**QUANTITATIVEAND****QUALITATIVE DISCLOSURESABOUT MARKET RISK**

 

The vast majority of ourtransactions are denominated in U.S. dollars; as such, fluctuations in foreigncurrency exchange rates have historically had little impact on us.  Inflation has not been a significant factorin our operations in any of the periods presented, and it is not expected toaffect operations in the future.  AtMarch 26, 2005, our 10% senior subordinated convertible debt carries interestat a fixed rate of 10%. Our debt associated with both our bank line of creditand long-term convertible note carries interest at prime plus 1.75% or 7.50% atMarch 26, 2005. There is no material market risk relating to our long-termdebt.

 

**IMPACT OF ACCOUNTING STANDARDS**

 

In December 2004,FASB issued SFAS No. 153 *Exchanges ofNonmonetary Assets* amends APB Opinion No. 29, *Accounting for Nonmonetary Transactions*.APB No. 29 is based on the principle that exchanges of nonmonetary assetsshould be measured based on the fair value of the assets exchanged. Theguidance in that Opinion, however, included certain exceptions to that principle.SFAS No. 153 amends APB No. 29 to eliminate the exception for nonmonetaryexchanges of similar productive assets and replaces it with a general exceptionfor exchanges of nonmonetary assets that do not have commercial substance. Anonmonetary exchange has commercial substance if the future cash flows of theentity are expected to change significantly as a result of the exchange. SFAS No. 153 shall be effective for nonmonetary asset exchanges occurring infiscal periods beginning after June 15, 2005. Earlier application ispermitted for nonmonetary asset exchanges occurring in fiscal periods beginningafter the date SFAS No. 153 was issued. SFAS No. 153 shall be appliedprospectively.  We do not expect the adoption of SFAS No. 153 to have amaterial effect on our financial statements.

 

In December 2004, FASB issued SFAS No. 123(revised 2004), *Share-Based Payment*,that focuses primarily on accounting for transactions in which an entityobtains employee services in share-based payment transactions.  Thisstatement replaces SFAS No. 123, *Accountingfor Stock-Based**Compensation*,and supersedes APB Opinion No. 25, *Accountingfor Stock Issued to Employees*.   Beginning with our quarterlyperiod that begins January 1, 2006, we will be required to expense the fair 

 

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value of employee stock options and similar awards.  As a publiccompany, we are allowed to select from two alternative transition methods, eachhaving different reporting implications.  We do not expect the adoption ofSFAS No. 123R to have a material effect on our financial statements.

 

**RISK FACTORS**

 

Except for the historicalinformation contained herein, certain of the matters discussed in this reportare “forward-looking statements” as defined in the Private SecuritiesLitigation Reform Act of 1995.  These “forward-lookingstatements” involve certain risks and uncertainties, including, but not limitedto, the following: (1) our ability to continue as a “going concern” isuncertain.  The Report of the IndependentRegistered Public Accounting Firm on the financial statements of the Company asof and for the fiscal year ended December 31, 2004 included in Form 10-Kcontained an explanatory paragraph that expresses substantial doubt about ourability to continue as a going concern; (2) the continuing of the reneweddownturn in the semiconductor market which often has a disproportionatelynegative impact on manufacturers of semiconductor capital equipment, and whichcould cause us to incur significant cash losses decreasing our cash and exposeus to potential further charges for restructuring, excess and obsoleteinventory and/or impairment of assets; (3) the market for our products ishighly competitive throughout the world, primarily from manufacturers in theUnited States, Europe and Asia, and many of our competitors are considerablylarger and have considerably greater financial resources than we do which mayallow them to develop superior or lower priced products; (4) rapid changes intechnology and in tester and handler products, which we must respond tosuccessfully in order for our products to avoid becoming noncompetitive orobsolete; (5) customer acceptance of our new products, including thestrip-based Tapestry handling systems and Smart Solutions products, and othersingulated device handler products in which we have invested significantamounts of inventory; (6) possible loss of any of our key customers, whoaccount for a substantial percentage of our business; (7) the possible adverseimpact of competition in markets which are highly competitive; (8) the possibleadverse impact of economic or political changes in markets we serve; (9) thepossible material adverse effects from a judgment entered against the Companyin California, including the possible triggering of defaults under the Company’slending agreements; and (10) other factors detailed from time to time in ourSEC reports, including but not limited to the discussion in the Management’sDiscussion & Analysis included in Form 10-K for the year ended December 31,2004.

 

We expect losses and negative cash flows to continueat least through the first half of 2005, which will require us to obtainadditional capital or pursue other strategic alternatives including therestructuring of our existing line of credit and other certain internal expensereduction initiatives.  We are activelypursing these activities; however, there is no assurance that we will besuccessful in these activities.  Further,if future financing requirements are satisfied through the issuance of equityor debt instruments, shareholders may experience additional dilution in termsof their percentage of ownership of our securities.  In the event that the we are unable to obtainadditional capital, restructure our existing lines of credit and / orsuccessfully realize the benefits of our restructuring initiatives, ouroperations and financial condition could be materially negatively impacted andwe could be required to take actions that may harm our business, including potentiallyceasing certain or all of our operations.

 

All forecasts andprojections in this report are “forward-looking statements,” and are based onour current expectations of our near-term results, based on current informationavailable pertaining to us, including risk factors discussed above.  Actual results could differ materially.

 

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**ITEM4****. CONTROLS AND PROCEDURES**

 

Evaluation of disclosure controls and procedures.

 

Under the supervision and with the participation ofour management, including the Company’s Chief Executive Officer and ChiefFinancial Officer, we evaluated the effectiveness of the design and operationof our disclosure controls and procedures (as defined in Rule 13a-15(e)under the Exchange Act) as of the end of period covered by this report.  Based upon that evaluation, the ChiefExecutive Officer and Chief Financial Officer concluded that, as of theEvaluation Date,  the Company’sdisclosure controls and procedures are effective.

 

Changes in internal controls.

 

There have been no changes in internal control overfinancial reporting that occurred during the quarter covered by this reportthat have materially affected, or are reasonably likely to materially affect,the registrant’s internal control over financial reporting.

 

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# PARTII.  OTHER INFORMATION

 

**Item 1****.  Legal Proceedings**

 

On April 11, 2005, judgment was entered against theCompany in Superior Court of California in the amount of $379,000 in a lawsuitbrought by a prior landlord.  As of March26, 2005, we have recorded $450,000 in accounts payable with respect tosettlement of this matter.

 

The Company is attempting to reach agreement with thelandlord that will allow the Company to pay the judgment over time.  If no such agreement can be reached, thelandlord could take action against the Company to collect the judgment, whichcould have a material adverse impact on the Company’s operations and financialcondition.  Also, unless the Company isable to obtain waivers from the holders of its 10% Subordinated ConvertibleNotes (the “Notes”), entry of this judgment will result in events of defaultunder the Notes, after expiration of the applicable 60 day cure period.  This would give these lenders the right todeclare the Company’s debts to them to be immediately due and payable, in thetotal amount of $3,600,000 as of March 26, 2005.  This would have an immediate and materialadverse impact upon the Company’s operations and financial condition.

 

The Company is currently in negotiations with theholders of the Notes, seeking to obtain default waivers.  There is no assurance that such waivers willbe obtained.

 

### **Item6**.  Exhibits

 
| 31.1   |   | Certification of Chief Executive Officer (filed  herewith). |
|--------|--------|-------------------------------------------------------------|
|   |   |                                                        |
| 31.2   |   | Certification of Chief Financial Officer (filed  herewith). |
|   |   |                                                        |
| 32     |   | Section 1350 Certification (filed herewith).                |

 

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## SIGNATURES

 

 

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

 

 
|                            | Micro Component Technology, Inc.                                  |                      |
|---------------------------------|-------------------------------------------------------------------|---------------------------|
|                            | Registrant                                                        |
|                            |                                                              |
|                            |                                                              |
| Dated:   May  9, 2005 | By:                                                               | /s/ Roger E. Gower        |   |
|                            | Roger E. Gower  President and Chief Executive Officer             |
|                            |                                                              |
|                            |                                                              |
|                            | And                                                               |
|                            |                                                              |
|                            |                                                              |
| Dated:   May  9, 2005 | By:                                                               | /s/  Thomas P.  Maun |   |
|                            | Thomas P. Maun  Chief Financial Officer  Chief Accounting Officer |
|                                 |                                                                   |                           |  |  |

#  

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