**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10–Q/A**

 
| **ý** | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------|------------|-----------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                    |
| ** ** | ** ** | **For the quarterly period ended September 25,  2004**                                        |
| ** ** | ** ** | ** **                                                                                    |
| ** ** | ** ** | **OR**                                                                                        |
| ** ** | ** ** | ** **                                                                                    |
| **o**      | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from               to              **

 

**Commission File No. 0–22384**

 

**MICRO COMPONENT TECHNOLOGY, INC.**

(Exact name of registrant as specified in itscharter)

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

 

Indicate by check mark 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 December 15, 2004 was 25,266,109

 

 

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**EXPLANATORY NOTE**

 

This Form 10-Q/A is being filedby the Company for the purpose of amending the date headings in the Statementof Operations contained in Part I, Item I. The originally filed 10-Q inadvertently reversed the years 2003 and 2004for both the three month and nine month periods ended September 25, 2004.

 

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**MICRO COMPONENT TECHNOLOGY, INC.**

**FORM 10-Q/A**

 

TABLE OF CONTENTS

 
| **PART I - FINANCIAL  INFORMATION** | ** **                           |
|-------------------------------------|--------------------------------------|
| ** **                          | ** **                           | ** ** |
| ** **                          | **ITEM 1. FINANCIAL  STATEMENTS**    | ** ** |
| ** **                          | ** **                           | ** ** |
| ** **                          | ** **                           | **CONSOLIDATED BALANCE  SHEETS** | ** ** |
| ** **                          | ** **                           | ** ** | ** ** |
| ** **                          | ** **                           | **CONSOLIDATED STATEMENTS  OF OPERATIONS** | ** ** |
| ** **                          | ** **                           | ** ** | ** ** |
| ** **                          | ** **                           | **CONSOLIDATED  STATEMENTS OF CASH FLOWS** | ** ** |
| ** **                          | ** **                           | ** ** | ** ** |
| ** **                          | ** **                           | **NOTES  TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL  STATEMENTS** | ** ** |
| ** **                          | ** **                           | ** ** |
| ** **                          | ** **                           | ** ** |
| ** **                          | **ITEM  2.**                         | MANAGEMENT’S DISCUSSION AND ANALYSIS OF  RESULTS OF OPERATIONS AND FINANCIAL CONDITION | ** ** |
| ** **                          | ** **                           | ** ** |
| ** **                          | **ITEM  3.**                         | **QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK** | ** ** |
| ** **                          | ** **                           | ** ** |
| ** **                          | **ITEM 4. CONTROLS AND  PROCEDURES** | ** ** |
| ** **                          | ** **                           | ** ** |
| ** **                          | ** **                           | ** ** |
| **PART II. OTHER INFORMATION**      | ** **                           |
| ** **                          | ** **                           | ** ** |
|                                | ITEM  2.                             | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |   |
|                                |                                 |   |
|                                | ITEM 5.                              | OTHER INFORMATION |   |
|                                |                                 |   |
| ** **                          | **ITEM 6.**                          | **EXHIBITS AND  REPORTS ON FORM 8-K** | ** ** |
| ** **                          | ** **                           | ** ** |
| ** **                          | **SIGNATURES**                       | ** ** |

 

2

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**MICRO COMPONENT TECHNOLOGY, INC.**

FORM 10-Q

# PART I.  FINANCIAL INFORMATION

## ITEM 1. FINANCIAL STATEMENTS

## CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per sharedata)

(Unaudited)

 
| ** **                                                                                           | ** ** | **September  25, 2004** | ** ** | **December  31, 2003** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| **Assets**                                                                                           |       |                    |       |                   |       |
| Current assets                                                                                       |       |                    |       |                   |       |
| Cash and cash equivalents                                                                            |       | $                       | 420        |                   | $          | 1,078 |   |
| Accounts receivable, less allowance for  doubtful accounts of $271 and $303, respectively            |       | 3,084                   |       | 1,539                  |       |
| Inventories                                                                                          |       | 3,417                   |       | 3,413                  |       |
| Other                                                                                                |       | 372                     |       | 273                    |       |
| Total current assets                                                                                 |       | 7,293                   |       | 6,303                  |       |
|                                                                                                 |       |                    |       |                   |       |
| Property, plant and equipment, net                                                                   |       | 301                     |       | 336                    |       |
| Debt issuance costs, net                                                                             |       | 414                     |       | 499                    |       |
| Other assets                                                                                         |       | 60                      |       | 56                     |       |
|                                                                                                 |       |                    |       |                   |       |
| Total assets                                                                                         |       | $                       | 8,068      |                   | $          | 7,194 |   |
|                                                                                                 |       |                    |       |                   |       |
| **Liabilities  and Stockholders’ Deficit**                                                      |       |                    |       |                   |       |
| Current liabilities:                                                                                 |       |                    |       |                   |       |
| Line of credit                                                                                       |       | $                       | 1,084      |                   | $          | 348 |   |
| Current portion of long-term convertible  note                                                       |       | 800                     |       | —                 |       |
| Accounts payable                                                                                     |       | 1,497                   |       | 1,518                  |       |
| Accrued compensation                                                                                 |       | 571                     |       | 469                    |       |
| Accrued interest                                                                                     |       | 108                     |       | 370                    |       |
| Accrued warranty                                                                                     |       | 117                     |       | 181                    |       |
| Customer prepayments and unearned service  revenue                                                   |       | 359                     |       | 1,410                  |       |
| Deferred revenue in excess of costs  incurred                                                        |       | —                  |       | 16                     |       |
| Other accrued liabilities                                                                            |       | 72                      |       | 373                    |       |
| Total current liabilities                                                                            |       | 4,608                   |       | 4,685                  |       |
|                                                                                                 |       |                    |       |                   |       |
| Long-term portion of accounts payable                                                                |       | —                  |       | 195                    |       |
| Long-term convertible note                                                                           |       | 901                     |       | —                 |       |
| 10% senior subordinated convertible note                                                             |       | 3,630                   |       | 7,340                  |       |
|                                                                                                 |       |                    |       |                   |       |
| Stockholders’ deficit:                                                                          |       |                    |       |                   |       |
| Preferred stock, $.01 par value, 1,000,000  authorized, none issued and outstanding                  |       | —                  |       | —                 |       |
| Common stock, $.01 par value, 40,000,000  authorized, 25,258,609 and 21,145,300 issued, respectively |       | 253                     |       | 212                    |       |
| Additional paid-in capital                                                                           |       | 96,873                  |       | 92,668                 |       |
| Cumulative other comprehensive loss                                                                  |       | (69                     | )          | (69                    | )          |
| Accumulated deficit                                                                                  |       | (98,128                 | )          | (97,837                | )          |
| Total stockholders’ deficit                                                                     |       | (1,071                  | )          | (5,026                 | )          |
| Total liabilities and stockholders’ deficit                                                     |       | $                       | 8,068      |                   | $          | 7,194 |   |

 

See notes to unauditedcondensed consolidated financial statements

 

3

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**MICRO COMPONENT TECHNOLOGY, INC.**

## CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 
| ** **                                                  | ** ** | **Three  Months Ended** | ** ** | **Nine  Months Ended** | ** ** |
|-------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                  | ** ** | **Sept.  25, 2004**     |       | **Sept.  27, 2003**    |       | **Sept.  25, 2004** |   | **Sept.  27, 2003** |   |
|                                                        |       |                    |       |                   |       |   |   |   |   |
| Net sales                                                   |       | $                       | 3,859      |                   | $          | 2,852 |   | $ | 12,351 |   | $ | 7,385 |   |
| Cost of sales                                               |       | 1,902                   |       | 1,581                  |       | 5,892 |   | 4,505 |   |
|                                                        |       |                    |       |                   |       |   |   |   |   |
| Gross profit                                                |       | 1,957                   |       | 1,271                  |       | 6,459 |   | 2,880 |   |
| Operating expenses:                                         |       |                    |       |                   |       |   |   |   |   |
| Selling, general and administrative                         |       | 1,442                   |       | 1,178                  |       | 4,053 |   | 3,800 |   |
| Research and development                                    |       | 788                     |       | 464                    |       | 2,111 |   | 1,798 |   |
| Restructuring charge                                        |       | —                  |       | —                 |       | — |   | 266 |   |
|                                                        |       |                    |       |                   |       |   |   |   |   |
| Total operating expenses                                    |       | 2,230                   |       | 1,642                  |       | 6,164 |   | 5,864 |   |
|                                                        |       |                    |       |                   |       |   |   |   |   |
| Income (loss) from operations                               |       | (273                    | )          | (371                   | )          | 295 |   | (2,984 | ) |
|                                                        |       |                    |       |                   |       |   |   |   |   |
| Interest income                                             |       | 1                       |       | 2                      |       | 4 |   | 4 |   |
| Gain (loss) on sale of assets                               |       | —                  |       | —                 |       | (14 | ) | 213 |   |
| Interest expense and other, net                             |       | (204                    | )          | (332                   | )          | (576 | ) | (931 | ) |
|                                                        |       |                    |       |                   |       |   |   |   |   |
| Total interest and other                                    |       | (203                    | )          | (330                   | )          | (586 | ) | (714 | ) |
|                                                        |       |                    |       |                   |       |   |   |   |   |
| Net loss                                                    |       | $                       | (476       | )                      | $          | (701 | ) | $ | (291 | ) | $ | (3,698 | ) |
|                                                        |       |                    |       |                   |       |   |   |   |   |
| Net loss per share:                                         |       |                    |       |                   |       |   |   |   |   |
|                                                        |       |                    |       |                   |       |   |   |   |   |
| Basic                                                       |       | $                       | (0.02      | )                      | $          | (0.04 | ) | $ | (0.01 | ) | $ | (0.22 | ) |
| Diluted                                                     |       | $                       | (0.02      | )                      | $          | (0.04 | ) | $ | (0.01 | ) | $ | (0.22 | ) |
|                                                        |       |                    |       |                   |       |   |   |   |   |
| Weighted average common and equivalent  shares outstanding: |       |                    |       |                   |       |   |   |   |   |
|                                                        |       |                    |       |                   |       |   |   |   |   |
| Basic                                                       |       | 25,237                  |       | 17,964                 |       | 24,908 |   | 16,739 |   |
| Diluted                                                     |       | 25,237                  |       | 17,964                 |       | 24,908 |   | 16,739 |   |

 

See notes to unaudited condensed consolidatedfinancial statements

 

4

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** **

**MICRO COMPONENT TECHNOLOGY, INC.**

## CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 
| ** **                                                                   | ** ** | **Nine  Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                   | ** ** | **Sept.  25, 2004**    | ** ** | **Sept.  27, 2003** | ** ** |
| Cash flows from operating activities:                                        |       |                   |       |   |   |
| Net loss                                                                     |       | $                      | (291       | ) | $ | (3,698 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities: |       |                   |       |   |   |
| Depreciation and amortization                                                |       | 530                    |       | 490 |   |
| (Gain) loss on sales and write-offs of  property                             |       | 14                     |       | (213 | ) |
| Changes in assets and liabilities:                                           |       |                   |       |   |   |
| Accounts receivable                                                          |       | (1,545                 | )          | (1,407 | ) |
| Inventories                                                                  |       | (191                   | )          | 983 |   |
| Other assets                                                                 |       | (102                   | )          | 18 |   |
| Accounts payable                                                             |       | (216                   | )          | 740 |   |
| Accrued restructuring costs                                                  |       | —                 |       | (146 | ) |
| Other accrued liabilities                                                    |       | (1,096                 | )          | 343 |   |
|                                                                         |       |                   |       |   |   |
| Net cash used in operating activities                                        |       | (2,897                 | )          | (2,890 | ) |
|                                                                         |       |                   |       |   |   |
| Cash flows from investing activities:                                        |       |                   |       |   |   |
| Additions to property, plant and equipment                                   |       | (131                   | )          | (108 | ) |
| Proceeds from disposition of property                                        |       | —                 |       | 248 |   |
|                                                                         |       |                   |       |   |   |
| Net cash provided by (used in) investing  activities                         |       | (131                   | )          | 140 |   |
|                                                                         |       |                   |       |   |   |
| Cash flows from financing activities:                                        |       |                   |       |   |   |
| Payments of long-term debt                                                   |       | (67                    | )          | (27 | ) |
| Payoff of long-term prior financing                                          |       | (348                   | )          | — |   |
| Proceeds from bank line of credit                                            |       | —                 |       | 702 |   |
| Proceeds from institutional line of credit,  net of discounts                |       | 1,170                  |       | — |   |
| Issuance on long-term convertible note, net  of debt issue costs             |       | 1,657                  |       | — |   |
| Proceeds from issuance of stock                                              |       | 16                     |       | 1,366 |   |
| Stock issuance costs                                                         |       | (58                    | )          | (283 | ) |
|                                                                         |       |                   |       |   |   |
| Net cash provided by financing activities                                    |       | 2,370                  |       | 1,758 |   |
|                                                                         |       |                   |       |   |   |
| Net decrease in cash and cash equivalents                                    |       | (658                   | )          | (992 | ) |
|                                                                         |       |                   |       |   |   |
| Cash and cash equivalents at beginning of  period                            |       | 1,078                  |       | 1,560 |   |
|                                                                         |       |                   |       |   |   |
| Cash and cash equivalents at end of period                                   |       | $                      | 420        |   | $ | 568 |   |
|                                                                         |       |                   |       |   |   |
| Supplemental cash flow information:                                          |       |                   |       |   |   |
| Non-cash financing activities:                                               |       |                   |       |   |   |
| Stock issued in lieu of interest                                             |       | $                      | 496        |   | $ | 464 |   |
| Stock issued in conversion of 10% senior  subordinated convertible debt      |       | 3,710                  |       | 250 |   |
| Cash paid for interest                                                       |       | 82                     |       | 563 |   |

 

See notes to unauditedcondensed consolidated financial statements

 

5

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**MICRO COMPONENT TECHNOLOGY, INC.**

FORM 10-Q

## NOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

**1.****             INTERIM FINANCIALSTATEMENTS**

 

*Basis of Presentation*

 

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

 

The unaudited consolidatedfinancial statements included herein have been prepared in accordance withaccounting principles generally accepted in the United States (generallyaccepted accounting principles) for interim financial information and with theinstructions 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, 2004.

 

Interim unaudited financialresults should be read in conjunction with the audited financial statementsincluded in the SEC Report on Form 10-K, for the period ended December 31, 2003

 

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

 

Earnings per share are computed in accordance withStatement of Financial Accounting Standards (SFAS)No. 128, *Earnings per Share*.  Basic earnings per share are computed usingthe weighted average number of common shares outstanding during eachperiod.  Diluted earnings per shareinclude the dilutive effect of common shares potentially issuableupon the exercise of stock options and warrants outstanding.  The following table reconciles thedenominators used in computing basic and diluted earnings per share:

 
| **(in thousands)**                             | ** **            | **Three  Months Ended** | ** **             | **Nine  Months Ended** | ** **             |
|------------------------------------------------|-----------------------|-------------------------|------------------------|------------------------|------------------------|
| ** **                                     | **Sept. 25  2004(1)** | ** **              | **Sept.  27, 2003(1)** | ** **             | **Sept.  25, 2003(1)** | ** ** | **Sept.  27, 2004(1)** | ** ** |
| Weighted  average common shares outstanding    |                  | 25,237                  |                   | 17,964                 |                   | 24,908 |   | 16,739 |   |
| Effect of dilutive stock options and  warrants |                  | —                  |                   | —                 |                   | — |   | — |   |
|                                           |                  |                    |                   |                   |                   |   |   |   |   |
|                                           |                  | 25,237                  |                   | 17,964                 |                   | 24,908 |   | 16,739 |   |

 

----

(1)          Wereported a loss for the period indicated. No adjustments were made for the effect of stock options and warrants,which totaled 3,566,817 and3,112,265shares at September 25, 2004 and September 27, 2003, respectively as the effectis antidilutive.

 

6

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**3.****             COMPREHENSIVE NETINCOME OR LOSS**

 

In 1997, the Financial Accounting Standards Board (FASB) issued SFAS, No. 130 *Reporting Comprehensive Income* which establishes standardsfor the reporting and display of comprehensive income (loss) and its componentsin a full set of general-purpose financial statements.  Under this standard, certain revenues,expenses, gains, and losses recognized during the period are included incomprehensive income (loss), regardless of whether they are considered to beresults of operations of the period. During the three and nine-month periods ended September 25, 2004 andSeptember 27, 2003 total comprehensive loss equaled net loss as reported on theConsolidated Statements of Operations.

 

**4.****             BALANCE SHEETINFORMATION**

 

Major components of inventories were as follows (inthousands):

 
| ** **      | ** ** | **September  25, 2004** | ** ** | **December  31, 2003** | ** ** |
|-----------------|------------|-------------------------|------------|------------------------|------------|
| ** **      | ** ** | ** **              | ** ** | ** **             | ** ** |
| Raw materials   |       | $                       | 1,369      |                   | $          | 1,775 |   |
| Work-in-process |       | 1,488                   |       | 1,254                  |       |
| Finished goods  |       | 560                     |       | 384                    |       |
|            |       | $                       | 3,417      |                   | $          | 3,413 |   |

 

We provide a standard thirteen month warranty programfor our equipment products. We record provisions for warranty claims for theseproducts based upon historical claim performance. The following table providesthe expense recorded and charges against our reserves through the quarter endedSeptmber 25, 2004 (in thousands):

 
| Accrued warranty balance at December 31,  2003  |   | $      | 181    |   |
|-------------------------------------------------|--------|--------|--------|--------|
|                                            |   |   |   |
| Provision                                       |   | 22     |   |
|                                            |   |   |   |
| Warranty claims                                 |   | (86    | )      |
|                                            |   |   |   |
| Accrued warranty balance at September 25,  2004 |   | $      | 117    |   |

** **

**5.**             **FINANCINGTRANSACTIONS**

 

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.   In connectionwith the execution of this credit facility, we issued to the lender aseven-year warrant to purchase 400,000 shares of our common stock at exerciseprices ranging from $2.30 to $2.88.  Thefair value of the warrants was determined using the Black-Scholesoption pricing model.  This resulted in avalue of $391,000, which was recorded as an increase to additional paid-in-capital and a discount to the working capital line of credit 

 

7

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and long-term convertiblenote.  This discount is amortized tointerest expense over the three-year agreement. Our existing secured lending relationship was terminated as a result ofthis transaction.  This credit facilityis secured by all the assets of the Company.

 

During the period covered by this report, we issued228,618 and 113,708 shares of our common stock to the holders of our 10% SeniorSubordinated Convertible Notes (“the Notes”) in payment of interest due onDecember 31, 2003 and June 30, 2004, respectively.  The issuance was exempt from registrationunder Rule 506 under the Securities Act of 1933, because all of the noteholders were accredited, there was no generalsolicitation, and the shares were subject to restrictions on transfer.

 

During the period covered by this report, we issued atotal of 3,721,532 shares of our common stock to holders of the Notes pursuantto conversion of their Notes at $1.00 per share including accrued interest dueat the time of conversion.  The issuancewas exempt from registration under Rule 506 under the Securities Act of 1933,because all of the noteholders were accredited, therewas no general solicitation, and the shares were subject to restrictions ontransfer.

 

**6.****                                      CAPITALSTRUCTURE – CONTINGENTLY CONVERTIBLE SECURITIES**

 

In connection with our $5.0 million secured financingcompleted March 9, 2004, certain features of the agreement allow for theconversion of debt to shares of our common stock under certain marketconditions.

 

Under the $3.0 million revolving line of credit, thedebt outstanding can be converted by the lender at a price of $1.92 per share (“thefixed conversion price”) to shares of our common stock.  However, the lender is limited in the dollaramount of shares that they may purchase to twenty-five percent (25%) of theaggregate dollar trading volume of the Common Stock for the ten (10) daytrading period immediately preceding delivery of a Notice of Conversion.

 

Under the $2.0 million convertible note, the currentpayments due plus accrued interest can be converted by the lender in payment ofprincipal and interest at a conversion price of $1.79 per share (“fixedconversion price”) to shares of our common stock. .  However, the stock price must first trade atone hundred and fifteen percent (115%) of the fixed conversion price for threeconsecutive days immediately preceding a payment date in order for theconversion to be available.  The dollaramount of shares that the lender may purchase is limited to twenty-five percent(25%) of the aggregate dollar trading volume of the Common Stock for the ten(10) day trading period immediately preceding delivery of a Notice ofConversion.

 

For the three and nine-month period ended September25, 2004, there were no conversions of the Notes nor any dilutive effect as theconvertible contingencies were not met.

 

8

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**7.**             **RESTRUCTURINGCHARGES**

 

**2003****Restructuring Charges**

 

During the first quarter of 2003, in response to thecontinued and prolonged downturn in the semiconductor capital equipment industry,we reduced our workforce across all functional areas by approximately 24% atthe time, resulting in a restructuring charge of $19,000.  This charge reflected severance and other benefitcosts associated with this reduction. This workforce reduction affected a total of 26 employees across allfunctional areas.

 

During the second quarter of  2003, we completed the restructuringof our master lease for our St. Paul, MN facility resulting in a restructuringcharge of $227,000, which included write-offs of $41,000 related to leaseholdimprovements in the vacated space which provided no future economic benefit tous.  Additionally, we further reduced ourworkforce across all functional areas by approximately 4% at the time,resulting in a restructuring charge of  $19,000.  This charge reflected severance and otherbenefit costs associated with this reduction. This workforce reduction affected a total of 4 employees across all functionalareas.

 

**8.**             **STOCK BASEDCOMPENSATION**

 

In October 2002, the FASBissued SFAS No. 148 “Accounting for Stock-BasedCompensation-Transition and Disclosure”, providing alternative methods oftransition for a voluntary change to the fair value based method of accountingfor stock-based employee compensation.  SFAS No. 148 also amends the disclosure requirement of SFAS No. 123, “Accounting for Stock-Based Compensation” toinclude prominent disclosures in annual and interim financial statements aboutthe method of accounting for stock-based compensation and the effect of themethod used on reported results.  TheCompany adopted the disclosure provisions of SFAS No.148 on December 31, 2002.

 

Had the Company determined stock-based compensationcosts based on the estimated fair value at the grant date for its stockoptions, the Company’s net loss per share for the three and nine months endedSeptember 25, 2004 and September 27, 2003, respectively, would have been asfollows (in thousands, except per share data):

 
| ** **                                   | ** ** | **Three  Months Ended** | ** ** | **Nine  Months Ended** | ** ** |
|----------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                   | ** ** | **Sept.  25, 2004**     | ** ** | **Sept.  27, 2003**    | ** ** | **Sept.  25, 2004** | ** ** | **Sept.  27, 2003** | ** ** |
| Net loss:                                    |       |                    |       |                   |       |   |   |   |   |
| As reported                                  |       | $                       | (476       | )                      | $          | (701 | ) | $ | (291 | ) | $ | (3,698 | ) |
| Fair value compensation expense              |       | (219                    | )          | (346                   | )          | (658 | ) | (724 | ) |
| Pro forma                                    |       | $                       | (695       | )                      | $          | (1,047 | ) | $ | (949 | ) | (4,422 | ) |
|                                         |       |                    |       |                   |       |   |   |   |   |
| Net loss per share – basic and diluted: |       |                    |       |                   |       |   |   |   |   |
| As reported                                  |       | $                       | (0.02      | )                      | $          | (0.04 | ) | $ | (0.01 | ) | $ | (0.22 | ) |
| Fair value compensation expense              |       | (0.01                   | )          | (0.02                  | )          | (0.03 | ) | (0.04 | ) |
| Pro forma                                    |       | $                       | (0.03      | )                      | $          | (0.06 | ) | $ | (0.04 | ) | $ | (0.26 | ) |
|                                         |       |                    |       |                   |       |   |   |   |   |
| Stock based compensation:                    |       |                    |       |                   |       |   |   |   |   |
| As reported                                  |       | $                       | —     |                   | $          | — |   | $ | — |   | $ | — |   |
| Fair value compensation expense              |       | (219                    | )          | (346                   | )          | (658 | ) | (724 | ) |
| Pro forma                                    |       | $                       | (219       | )                      | $          | (346 | ) | $ | (658 | ) | $ | (724 | ) |

 

9

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The fair value of options granted under the stockoptions for the three and nine months ended September 25, 2004 and September27, 2003 was estimated on the date of grant using the Black-Scholesoption pricing model with the following weighted average assumptions.

 
| ** **                              | ** ** | **Quarters Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **Sept. 25, 2004** | ** ** | **Sept. 27, 2003**    | ** ** | **Sept. 25, 2004** | ** ** | **Sept 27, 2003** | ** ** |
|                                    |       |               |       |                  |       |   |   |   |   |
| Dividend yield                          |       | 0.00               | %          | 0.00                  | %          | 0.00 | % | 0.00 | % |
| Expected volatility                     |       | 93.53              | %          | 139.37                | %          | 93.53 | % | 139.37 | % |
| Risk-free interest rate                 |       | 3.41               | %          | 2.50                  | %          | 3.41 | % | 2.50 | % |
| Expected life of options                |       | 3.5 years          |       | 3.5 years             |       | 3.5 years |   | 3.5 years |   |
| Fair value per share of options granted |       | $                  | 0.87       |                  | $          | 0.73 |   | $ | 0.87 |   | $ | 0.73 |   |
|                                         |            |                    |            |                       |            |  |  |  |  |  |  |  |  |

 

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**9.**             **RECENTACCOUNTING PRONOUNCEMENTS**

 

***FASB******Interpretation No. 46 –(RevisedDecember 2003), Consolidation of Variable Interest Entities, an Interpretationof ARB No. 51 (FIN 46R***).  In December 2003, the Financial AccountingStandards Board (FASB) issued FASBInterpretation No. 46 (Revised December 2003), *Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46R)*. This standard replaces FIN 46, “*Consolidation of VariableInterest Entities*” that was issued on January 2003. FIN 46R modifies or clarifies various provisions of FIN 46. FIN 46Raddresses the consolidation of business enterprises of variable interestentities. (VIEs), as defined by FIN46R.  FIN 46R exempts certainentities from its requirements and provides for special effective dates forentities that have fully or partially applied FIN 46 prior to issuance of FIN46R.  Otherwise, application of FIN 46Ris required in financial statements of public entities that have interest instructures commonly referred to as special purpose entities for periods endingafter December 15, 2003.  FIN 46R had noeffect on our financial statements for the quarter and nine months endedSeptember 25, 2004, as we had no interests in special purpose entities.  Application by us for all other types of VIEs is required in financial statements for periods endingno later than the quarter ended in March of  2005. We do not expect the adoption of FIN 46R to have a material effect onour financial statements.

 

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

## RESULTS OF OPERATIONS ANDFINANCIAL CONDITION

##  

*The following discussion of our results of operations and financialcondition should be read together with the other financial information andcondensed consolidated financial statements included in this document.  This discussion contains forward-lookingstatements that involve risks and uncertainties.  Our actual results could differ 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 are a leading supplier of integrated automation solutions for theglobal semiconductor test and assembly industry.  We offer complete and comprehensive equipmentautomation solutions for the test, laser mark, mark inspect,singulation, sort, and packaging for shipmentportions of the back-end of the semiconductor manufacturing process thatsignificantly improve our customers’ productivity, yield and throughput.  Our solutions include automated testhandlers, factory automation software and our new integrated Smart Solutionsproduct line.  We believe that ourproducts can significantly improve the productivity, yield and throughput ofthe back-end (post wafer) parts of the manufacturing process, includingassembling, packaging, testing and singulating ofsemiconductor devices.

 

The demand for our products and services is dependent upongrowth in the semiconductor industry and the increasing automation needs ofsemiconductor manufacturers and independent test and assembly facilities.  In the fourth quarter of 2000, thesemiconductor industry went into a sharp downturn, which intensified and continuedthrough the first nine months of 2003, resulting in significant adverse impactson our business including inventory revaluation charges,write downs of impaired intangible assets and significant reductions in ouremployee base.  In the fourth quarter of2003 worldwide semiconductor bookings began showing signs of stabilization,which continued through the second quarter of 2004.  In the third quarter of 2004 worldwidesemiconductor bookings again began to contract.

 

As disclosed in our Form 10-K for the years ended December 31,2002 and December 31, 2003 a continued or intensified market downturn mightresult in significant losses, charges for inventory revaluation, assetimpairment or restructuring charges.  Asa result of this downturn continuing throughout most of 2003, the followingsteps were taken in 2003 and the first quarter of 2004 as part of acomprehensive restructuring effort:

 

•                  We further reduced our workforce in the first and secondquarters of 2003 by 24% and 4% at the time, respectively, affecting a total of30 employees across all functional areas.

 

•                  Inthe second quarter of 2003, we completed the restructuring of our master leaseagreement related to our St. Paul facility resulting in the reduction of futurelease commitment under this contract.

 

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•                  On June 30, 2003, we completed therestructuring of $9.29 million, or 92.9%, of our 10% Senior SubordinatedConvertible Notes, wherein the participating noteholders agreed to accept stockin lieu of cash for the next four semi-annual interest payment dates beginningJune 30, 2003 through December 31, 2004.

 

•                  In July of 2003, we completednegotiations with the majority of our vendors to extend the payment terms ofthe total amounts owed to them at the time. This resulted in $1.2 million of our payables, or 67% of our totalaccounts payable at the time,  beingrestructured with a total of 281 vendors. Under the terms of the extended payment plan, we have agreed to makefour to eight equal payments beginning on July 30, 2003 until the balances aresatisfied.  The number of vendorsagreeing to this plan represented approximately 61% of our active vendors.

 

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

 

In the third quarter of 2004, worldwide semiconductor bookingsagain began to contract.  A continuationof this contraction could result in an adverse impact on our business includingsignificant losses, charges for inventory revaluation, asset impairment orrestructuring charges.

 

**Critical Accounting Policies**

 

*RevenueRecognition*

 

Under StaffAccounting Bulletin 104 (“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 a portionof customer payment is based upon acceptance are only recognized upon customeracceptance.  As such, in periods ofincreasing shipments, revenues will be deferred if the shipments are for newcustomers, new products or the payment terms are tied to acceptancecriteria.  Consequently, if theseconditions exist, we may report revenue levels that are not reflective ofactual shipment growth rates. Conversely, in periods of decreasing shipments, we potentially couldrecognize revenues related to shipments made in prior periods.  If these conditions exist, we may report revenuelevels that are greater than actual shipments.

 

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*Allowancefor Doubtful Accounts*

 

We record aprovision for doubtful accounts based on specific identification of ouraccounts receivable. This involves a degree of judgment based on discussionwith our internal sales and marketing groups, our customer base and theexamination of the financial stability of our customers.  There can be no assurance that our estimateswill match actual amounts ultimately written off.  During periods of downturn in the market forsemiconductor capital equipment or economic recession, a greater degree of riskexists concerning the ultimate collectability of ouraccounts receivable due to the impact that these conditions might have on ourcustomer base.

 

*Valuationof Inventories*

 

Our inventoriesare stated 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 profit 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 toreduce inventories to the lower of cost or market are made based on a review ofexcess and obsolete inventories through an examination of historical componentconsumption, current market demands and shifting product technology.  Significant assumptions with respect tomarket trends and customer product acceptance are utilized to formulate ourprovision methods.  Sudden or continuingdownward changes in the semiconductor capital equipment market may cause us torecord additional inventory revaluation charges in future periods.  No write-off provision was made to ourinventories for the quarter and nine-months ended September 25, 2004.

 

*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 been appliedsince 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 thatour estimates will match the actual amount of future warranty claims.

 

###### **Resultsof Operations for the Three Months Ended September 25, 2004 and September 27,2003**

 

Net sales for thethree months ended September 25, 2004, increased $1.0 million or 35.3% to $3.9million compared to $2.9 million for the three months ended September 27,2003.  Product acceptance requirementsrelated to product and customer mix resulted in a net increase of $0.3 millionto revenues over shipments in third quarter of 2003, while these same factorsdid

 

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nothave any impact to the third quarter of 2004. Current quarter product sales for our strip product offerings comprisethe largest portion of our net sales mix at approximately 42% of total netsales.

 

Grossprofit for the third quarter of 2004 increased by $0.7 million to $2.0 million,or 50.7% of net sales, from $1.3 million, or 44.6% of net sales, for thecomparable period in the prior year.  The increase in gross margin in the currentyear period primarily resulted from the many restructuring efforts that we havecompleted during 2003 coupled with our lower cost of operations associated withour Penang, Malaysia facility and higher net saleslevels. This has resulted in lower fixed costs being spread over a largernumber of products contributing to the overall improvement in gross profitperformance.

 

Selling, general and administrative expense in the third quarter of2004 was $1.4 million, or 37.4% of net sales, compared to $1.2 million, or41.3% of net sales for the third quarter of 2003.   The slight increase in expense for thecurrent year period is a result of the variable costs associated with theincreases in net sales.  The lowerpercentage of net sales is a direct result of the higher net sales levels.

 

Research anddevelopment expense for the third quarter of 2004 was $0.8 million, or 20.4% ofnet sales compared to $0.5 million, or 16.3% of net sales in the third quarterof 2003.  This increase in both dollarsand as a percentage of sales is a direct result of certain ongoing productdevelopment activities.

 

Interest income for the second quarter of 2004 was $1,000 compared to$2,000 in the second quarter of 2003. Interest expense and other totaled $204,000 or 5.3% of net sales for thethird quarter of 2004 compared to $332,000 or 11.6% of net sales in the prioryear’s quarter.  The interest expensereduction resulted from the conversion of $6.4 million of our 10% SeniorSubordinated Convertible Notes into shares of our common stock during the lastpart of 2003 and continuing through the first quarter of 2004.

 

Net loss for the quarter ended September 25, 2004 was $0.5 million or$0.02 per share, as compared to a net loss of $0.7 million, or $0.04 per sharein the prior year period.

 

###### **Resultsof Operations for the Nine Months Ended September 25, 2004 and September 27,2003**

 

Net sales for thenine months ended September 25, 2004, increased $5.0 million or 67.2% to $12.4million compared to $7.4 million for the nine months ended September 27,2003.  Product acceptance requirementsrelated to product and customer mix resulted in a net increase to revenues overshipment of $21,000 for the 2004 nine month period compared to a net decreaseto revenues of $0.8 million over shipments for the comparable prior yearperiod. Product sales for our strip product offerings increased 118% for the2004 nine month period compared to the prior year period and comprisedapproximately 56% of total sales compared to approximately 43% in the prioryear period.

 

Gross profit forthe first nine months of 2004 increased by $3.6 million to $6.5 million, or52.3% of net sales, from $2.9 million, or 39.0% of net sales, for thecomparable period in the

 

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prioryear.  The increase in gross margin inthe current year period primarily resulted from the many restructuring effortsthat we have completed during 2003 coupled with our lower cost of operationsassociated with our Penang, Malaysia facility andhigher net sales levels. This has resulted in lower fixed costs being spreadover a larger number of products contributing to the overall improvement ingross profit performance.

 

Selling, general and administrative expense for the first nine monthsof 2004 was $4.1 million, or 32.8% of net sales, compared to $3.8 million, or51.7% of net sales for the first nine months of 2003.  The slight increase in expense for thecurrent year period is a result of the variable costs associated with theincreases in net sales.  The lowerpercentage of net sales is a direct result of the higher net sales levels.

 

Research anddevelopment expense for the first nine months of 2004 was $2.1 million, or17.1% of net sales, compared to $1.8 million, or 24.3% of net sales for thefirst nine months of 2003. This increase in expense is a direct result ofcertain ongoing product development activities whereas the decrease as apercentage of sales is a result of the increase in sales.

 

Therestructuring charge in the prior year period totaled $266,000 or 3.6% of netsales. This charge resulted from reductions of our workforce across allfunctional areas in the first and second quarters of 2003.  This charge reflects severance and other benefits costs paidin 2003 related to exit activities commenced in 2002.  However, certain criterionunder EITF 94-3 were not satisfied for these2003 severance and benefit costs to be accrued at December 31, 2002.  This workforce reduction affected 30employees, across all functional areas. Additionally included in this charge,are restructuring costs associated with our St. Paul facility for $227,000resulting from the restructuring of our master lease agreement related to thisfacility.

 

Interest income for the first nine months of 2004 was $4,000 comparedto $4,000 for the comparable period in the prior year.  Interest expense and other totaled $576,000or 4.7% of net sales for the first nine months of 2004 compared to $931,000 or12.6% of net sales for the comparable period in the prior year.  The interest expense reduction resulted fromthe conversion of $6.4 million of our 10% Senior Subordinated Convertible Notesinto shares of our common stock during the last part of 2003 and continuingthrough the first quarter of 2004.

 

We incurred a $14,000 loss or 0.1% of sales in the first nine months of2004 from the disposition of certain assets. In connection with the transfer of our manufacturing operations to Penang, we sold certain fixed and other assets from our St.Paul, Minnesota facility resulting in a gain on sale of $213,000 or 2.9% of netrevenue for the first nine months of 2003.

 

Net loss for the nine-month period ended September 25, 2004 was $0.3million or $0.01 per share, as compared to a net loss of $3.7 million, or $0.22per share in the prior year period.

 

**Liquidity and Capital Resources**

 

Theincrease in accounts receivable and reduction of other accrued liabilites werethe primary uses of cash in the first nine months of 2004.  The net loss and increase in accountsreceivable were the primary uses of cash in the first nine months of the prioryear.  Cash used in

 

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operationswas $2.9 million for the first nine months of 2004 and $2.9 million in thecomparable prior year period.

 

Capitalexpenditures were $131,000 for the first nine months of 2004 compared to$108,000 in the comparable prior year period. The spending in the current yearperiod was primarily in the area of technology equipment and facility costsrelated to our Penang, Malaysia operations.

 

On March 7, 2003and March 26, 2003, pursuant to a private equity placement with a group ofaccredited investors, we issued a total of 3,166,869 shares of common stock,which resulted in net proceeds to us of approximately $1.1 million.  Stock issuance costs associated with thisoffering totaled approximately $218,000. As part of this offering, we also issued warrants to purchase 253,350shares of common stock that have a term of five years with an exercise price of$0.43 per share.

 

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

 

We estimate that we may need to raise additional capitalthrough debt or equity offerings to support additional working capitalrequirements due to the recent downturn of the semi-conductor capital equipmentmarket.  There is no assurance thatadditional financing, if needed, will be available on terms and conditions acceptableor favorable to us, if at all.  However, on March 9, 2004 we completed a $5.0 millionsecured financing transaction with an institutional lender. Under the terms ofthe three-year agreement, we put in place a $3.0 million secured workingcapital line of credit and a $2.0 long-term convertible note.  $750,000 of the secured working capital lineof credit can be converted to shares of our common stock by the lender undercertain market condition and at a price of $1.92 per share.  The $2.0 million long-term convertible noteis convertible to shares of our common stock at a price of $1.79.  In connection with the execution ofthis 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.  Our existing secured lendingrelationship was terminated as a result of this transaction.  This credit facility is secured by all theassets of the Company.  We believe thatthis transaction in combination with our other restructuring efforts completedin 2003 will provide the cash necessary to meet our operating, working capitaland capital resource obligations through all of 2004.

 

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**ITEM 3.****QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

The vast majorityof our transactions are denominated in U.S. dollars; as such, fluctuations inforeign currency exchange rates have historically had little impact on us.  Inflation has not been a significant factorin our operations in any of the periods presented, and it is not expected toaffect operations in the future.  AtSeptember 25, 2004, our 10% Senior Subordinated Convertible long-term debtcarries interest at a fixed rate, whereas our long-term convertible debt carriesinterest at the prime rate plus 1.75 percent. There is no material interest rate risk relating to our long-term debt.

 

**IMPACT OF ACCOUNTING STANDARDS**

 

In December of 2003 theFinancial Accounting Standards Board (FASB) issued*******Interpretation No. 46 –(Revised December 2003), Consolidation of Variable InterestEntities, an********Interpretation of ARB No.51 (FIN46R).*  Thisstandard replaces FIN 46, “*Consolidation of VariableInterest Entities*” that was issued on January 2003. FIN 46R modifies or clarifies various provisions of FIN 46. FIN 46Raddresses the consolidation of business enterprises of variable interestentities. (VIEs), as defined by FIN46R.  FIN 46R exempts certainentities from its requirements and provides for special effective dates forentities that have fully or partially applied FIN 46 prior to issuance of FIN46R.  Otherwise, application of FIN 46Ris required in financial statements of public entities that have interest instructures commonly referred to as special purpose entities for periods endingafter December 15, 2003.  FIN 46R had noeffect on our financial statements for the quarter ended March 27, 2004, as wehad no interests in special purpose entities. Application by us for all other types of VIEsis required in financial statements for periods ending no later than the quarterended in March of  2005.  We do not expect the adoption of FIN 46R tohave a material effect on our financial statements.

 

**RISK FACTORS**

 

Except for thehistorical information contained herein, certain of the matters discussed inthis report are “forward-looking statements” as defined in the PrivateSecurities Litigation Reform Act of 1995. These “forward-looking statements” involve certain risks anduncertainties, including, but not limited to, the following: (1) a renewal of adownturn or flattening in the semiconductor market which often has adisproportionately negative impact on manufacturers of semiconductor capitalequipment, and which could cause us to incur significant cash losses decreasingour cash and expose us to potential further charges for restructuring, excessand obsolete inventory and/or impairment of assets; (2) the market for ourproducts is highly competitive throughout the world, primarily frommanufacturers in the United States, Europe and Asia, and many of ourcompetitors are considerably larger and have considerably greater financialresources than we do which may allow them to develop superior or lower pricedproducts; (3) rapid changes in technology and in tester and handler products,which we must respond to successfully in order for our products to avoidbecoming noncompetitive or obsolete; (4) customer acceptance of our newproducts, including the strip-based Tapestry handling systems and SmartSolutions products, and other singulated devicehandler products in which we have invested significant amounts of inventory;(5) possible loss of any of our key customers, who account for a substantialpercentage of our business; (6) the possible adverse impact of competition inmarkets which are highly competitive; (7) the possible adverse impact of

 

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economic or politicalchanges in markets we serve;  and (8)other factors detailed from time to time in our SEC reports, including but notlimited to the discussion in the Management’s Discussion & Analysisincluded in Form 10-K for the year ended December 31, 2003.

 

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.

 

**ITEM 4.****CONTROLS AND PROCEDURES**

 

Evaluation of disclosure controls and procedures.

 

Under the supervision and with the participation of our management,including the Company’s Chief Executive Officer and Chief Financial Officer, weevaluated the effectiveness of the design and operation of our disclosurecontrols and procedures (as defined in Rule 13a-15(e) under the ExchangeAct) 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, our disclosure controls and procedures are effective in timelyalerting them to the material information relating to us (or our consolidatedsubsidiaries) required to be included in our periodic SEC filings.

 

Changes in internal controls.

 

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

 

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# PART II.  OTHER INFORMATION

#  

### **Item2.**  Unregistered Sales OfEquity Securities And Use Of Proceeds

 

Duringthe period covered by this report, we issued 228,618 and 113,708 shares of ourcommon stock to the holders of our 10% Senior Subordinated Convertible Notes (“theNotes”) in payment of interest due on December 31, 2003 and June 30, 2004,respectively.  The issuance was exemptfrom registration under Rule 506 under the Securities Act of 1933, because allof the noteholders were accredited, there was nogeneral solicitation, and the shares were subject to restrictions on transfer.

 

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

 

### **Item 5.** Other Information

 

On March 9, 2004 we completed a $5.0 million securedfinancing transaction with an institutional lender. 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 condition and at a price of $1.92 per share.  The $2.0 million long-term convertible noteis convertible to shares of our common stock at a price of $1.79.  In connection with the execution ofthis 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.  Our existing secured lendingrelationship was terminated as a result of this transaction.  This credit facility is secured by all theassets of the Company.

 

### **Item6.**  Exhibits and Reports on Form 8-K

 

(a)          Reports on Form 8-K

 

On July 28, 2004,we issued a press release disclosing financial information regarding thequarter ended June 26, 2004 for which a Form 8-K was filed on July 29, 2004.

 

(b)         Exhibit Index

 

31.1         Certification ofChief Executive Officer (filed herewith).

 

31.2                            Certification of ChiefFinancial Officer (filed herewith).

 

32                                    Section 1350Certification (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: December 15, 2004 | By:                                               |  /s/ Roger E. Gower |
|                     | Roger E. Gower                                    |
|                     | President and Chief Executive Officer             |
|                     |                                              |
|                     |                                              |
|                     | And                                               |
|                     |                                              |
|                     |                                              |
| Dated: December 15, 2004 | By:                                               | /s/ Thomas P. Maun |
|                     | Thomas P. Maun                                    |
|                     | Chief Financial Officer  Chief Accounting Officer |

 

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