** **

** **

**SECURITIES ANDEXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-K**

 

| **ý** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF****THE****SECURITIES  EXCHANGE ACT OF 1934** |
|------------|--------------------------------------------------------------------------------------------------|

 

**For the year ended December 31, 2001**

 

**OR**

 

| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------|

 

**Commission file number 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 West County Road C, St. Paul,  Minnesota 55113**                    |
| (Address of principal  executive offices)                                  |
|                                                                       |
| Registrant’s telephone  number, including area code**(651) 697-4000** |
|                                                                       |   |                                  |
| Securities registered  pursuant to Section 12(b) of the Act: None          |
|                                                                       |
| Securities registered  pursuant to Section 12(g) of the Act:               |

 

|   | **COMMON  STOCK, $.01 PAR VALUE** |   |
|--------|-----------------------------------|--------|
|   | (Title of Class)                  |   |

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Secuities Exchange Act of 1934 during the preceding12 months, and (2) has been subject to such filing requirements for the past 90days.  Yes  ý  No  o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K(§229.405 of this chapter) is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K.  ý

 

The aggregate marketvalue of the common stock held by non-affiliates of the Registrant on March 8,2002 (based upon the closing price of those shares on the NASDAQ NationalMarket System) was approximately $31.6 million.

 

Number of sharesoutstanding of the Registrant’s Common stock, as of March 8, 2002, is14,075,675.

 

DOCUMENTS INCORPORATED BYREFERENCE

 

Portions of theRegistrant’s Definitive Proxy Statement for the annual meeting of stockholders(the “Proxy Statement”) to be filed within 120 days after the Registrant’sfiscal year ended December 31, 2001, are incorporated by reference into PartIII.

 

 

 

**MICRO COMPONENT TECHNOLOGY, INC.**

 

**TABLE OF CONTENTS**

** **
| **PART I**                                      |
|-------------------------------------------------|
|                                            |   |   |
|                                            | ITEM | 1. Business |
|                                            |   |   |
|                                            | ITEM | 2. Properties |
|                                            |   |   |
|                                            | ITEM | 3. Legal Proceedings |
|                                            |   |   |
|                                            | ITEM | 4.  Submission of Matters to a Vote of Security Holders |
|                                            |   |   |
| **PART II**                                     |
|                                            |   |   |
|                                            | ITEM | 5.  Market for Registrant’s Common Stock and Related Stockholder Matters |
|                                            |   |   |
|                                            | ITEM | 6. Selected Consolidated  Financial Data |
|                                            |   |   |
|                                            | ITEM | 7.  Management’s Discussion and Analysis of Results of Operations and Financial  Condition |
|                                            |   |   |
|                                            | ITEM | 8.  Consolidated Financial Statements and Supplementary Data |
|                                            |   |   |
|                                            | ITEM | 9.  Changes in and Disagreements with Accountants on Accounting and Financial  Disclosure |
|                                            |   |   |
| **PART III**                                    |
|                                            |   |   |
|                                            | ITEM  | 10.  Directors and Executive Officers of the Registrant |
|                                            |   |   |
|                                            | ITEM | 11. Executive  Compensation |
|                                            |   |   |
|                                            | ITEM | 12.  Security Ownership of Certain Beneficial Owners and Management |
|                                            |   |   |
|                                            | ITEM | 13.  Certain Relationships and Related Transactions |
|                                            |   |   |
| **PART IV**                                     |
|                                            |   |   |
|                                            | ITEM | 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K |
|                                            |   |   |
| **Index to  Consolidated Financial Statements** |
|                                                 |  |  |  |

 

 

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**PART I**

 

This Form 10-K containscertain forward-looking statements.  Forthis purpose, any statements contained in this Form 10-K that are notstatements of historical fact may be deemed to be forward-lookingstatements.  Without limiting theforegoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,”“estimate” or “continue” or comparable terminology are intended to identifyforward-looking statements.  Thesestatements by their nature involve substantial risks and uncertainties, andactual results may differ materially depending on a variety of factors,including those set forth in the section below entitled “Risk Factors.”****

 

**ITEM1.  Business**

 

**General**

 

Unless the contextotherwise requires, references in this Report on Form 10-K to “MCT”, “ We”,“Us”, “Registrant” and the “Company” refer to Micro ComponentTechnology, Inc. and its consolidated subsidiaries. MCT was incorporatedin Minnesota on June 20, 1972, was reorganized as a Delaware corporationon June 28, 1983 and reorganized as a Minnesota corporation on November 6,1996.  MCT has four wholly owned activeoperating subsidiaries, Micro Component Technology Asia Pte. Ltd., “MCT Asia”,MCT Asia (Penang) Sdn. Bhd., “Penang”, MCT Philippines, Inc. and AsecoCorporation, “Aseco”.  Our principalexecutive offices are located at 2340 West County Road C, St. Paul, Minnesota55113 and our telephone number at that location is (651) 697-4000.

 

Our trademarks used inthis Form 10-K are:  MCT, InfinitySystems, Aseco, Tapestry, Smart Solutions, SmartMark, SmartSort, SmartTrak,Isocut, MCT 5100, MCT 7632, S-170 and S-130. All other trademarks or trade names referred to in this Form 10-K arethe property of their respective owners.

 

**Background**

 

On October 18, 1993 wecompleted an initial public offering of 2,200,000 shares of common stock resultingin net proceeds to us of $21.7 million.

 

On June 29, 1999, weacquired certain assets and assumed certain liabilities of the SystemsIntegration unit of FICO America, Inc., forming the Infinity Systems Divisionto develop and implement Manufacturing Execution Systems, and factory controlsystems to customers in the semiconductor industry.

 

On January 31, 2000, wecompleted our acquisition of Aseco Corporation, a Massachusetts based manufacturerof handling equipment.  The acquisitionwas structured as a stock-for-stock purchase and was accounted for using thepurchase method of accounting.  Thepurchase price totaled $24.0 million, consisting of 2.6 million shares of MCTcommon stock valued at $22.5 million issued to former Aseco shareholders and$1.5 million of acquisition-related costs.

 

On April 11, 2000, ourBoard of Directors elected to change our fiscal year end to a year ending on December31, effective December 31, 1999.  Ourinterim thirteen-week quarters each end on a Saturday.

 

On August 16, 2000, weissued 3,000,000 shares of common stock, and on September 18, 2000, we issued290,000 shares of common stock in a public stock offering.  Proceeds from the offering totaled $19.7 million.

 

On December 24, 2001, weissued $10.0 million of 10% Senior Subordinated Convertible Notes due in 2006to a group of accredited investors . These Notes are convertible into MCT common stock at a conversion priceequal to $2.60 per share.  The Notes areredeemable by MCT at any time after January 3, 2004 as long as the market priceof our common stock equals or exceeds $3.90 per share.  Proceeds of the Notes, net of debt issuance

 

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costs, totaled $9.2million.  Holders of the Notes havestandard registration rights if they convert the Notes to common stock.

 

**Introduction**

 

We are a leading supplierof integrated automation solutions for the global semiconductor test andassembly industry.  We offer completeand comprehensive equipment automation solutions for the test, laser mark, markinspect, singulation, sort, and packaging for shipment portions of the back-endof the semiconductor manufacturing process that significantly improve ourcustomers’ productivity, yield and throughput. Our solutions include our series of integrated Smart Solutions,automated test handlers, factory automation software and equipment integrationservices.  Our customers include manyleading semiconductor companies such as Analog Devices, National Semiconductor,Agere, Phillips Semiconductor, Cypress Semiconductor and ST Microelectronicsand many of the leading back-end contract test and assembly companies includingAmkor and NS Electronic Bangkok.  Webelieve we have one of the world’s largest installed bases of handlers used totest semiconductor devices.

 

Semiconductor devices arebecoming more complex and are characterized by shrinking semiconductor devicesizes, chip scale packaging, increased circuitry and larger wafer sizes.  These trends have led manufacturers to seeknew tools and new solutions to meet their demanding requirements.  We believe that our complete offering ofequipment automation products and services allows manufacturers to effectivelyaddress evolving process technologies and packaging formats, such as strips andchip-scale packaging.

 

Beginning in 1999, webroadened our strategy from that of a test handler manufacturer to one ofbecoming a provider of comprehensive equipment automation solutions for theback-end of the semiconductor manufacturing process.  Consistent with this new strategy, we completed twoacquisitions.  Our acquisition ofInfinity Systems in June 1999, a company involved in the development of factoryautomation software, was integral to the development of our integrated equipmentSmart Solutions product suite.  In January2000, we completed our acquisition of Aseco, which provided us with increasedmachine vision and robotics engineering technology critical to the handling ofstrips and wafers.

 

**IndustryOverview**

 

The semiconductor deviceindustry has grown tremendously over the last decade. This growth has beendriven by traditional semiconductor markets like personal computers and dataprocessing, and more recently by the proliferation of semiconductor devices intelecommunications, wireless communications, and consumer electronics, as wellas Internet infrastructure equipment.

 

The process ofsemiconductor manufacturing is one of the most complicated and logisticallychallenging manufacturing processes in the world.  An advanced semiconductor device can travel approximately tenmiles and undergo as many as 500 production steps before completion.  The semiconductor device manufacturingprocess is traditionally divided into two parts: the front-end, which includeswafer fabrication from bare substrate to finished wafer; and the back-end whichincludes semiconductor device test, assembly and packaging.  Front-end and back-end manufacturingfacilities are expected to run 24 hours a day, 7 days a week to provide theproductivity needed to meet the requirements of the market.

 

Initially, semiconductormanufacturers concentrated their efforts on improving the more expensivefront-end wafer fabrication process. They improved the front-end by first automating the individualproduction tools and more recently by integrating the various production toolsthrough factory automation software. Tool automation was significant because it replaced most human handlingof the wafers with robotics, resulting in dramatically increased yields.  Factory automation software is significantlyimproving productivity, yield and throughput in the front-end by utilizingpowerful production scheduling, materials handling and process tool control software.

 

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Automation of back-endtools and facilities is severely lagging the front-end.  Only recently have manufacturers begun toseek automation solutions for the back-end production process.  This is because, historically, the cost ofback-end assembly and test processes was only a small portion of the totalsemiconductor device cost and traditional processes were able to provideadequate throughput.  Today the cost ofback-end assembly and test per semiconductor device often equals or exceeds thecost per semiconductor device from the front-end facility. We believe that asmanufacturers seek to raise the standards of yield, productivity, throughputand cost reduction in the back-end, the growth rate of the newly developingback-end automation market will exceed that of the overall automation market.

 

**TraditionalSemiconductor Manufacturing Process**

 

Semiconductor devicesarrive for test in strip or wafer format, with each strip or wafer containingmultiple individual devices.  Untilrecently, most semiconductor manufacturers believed it was necessary to testindividual semiconductor devices after they were singulated, or cut from thestrip or wafer, because singulation could result in damage or contamination tothe semiconductor devices.  However, assemiconductor device and package sizes have shrunk, they have become extremelydifficult to handle individually.  Forexample, manufacturers’ chip scale packages, or CSPs, are nearly the same sizeas the die they package.  Traditionalhandling tools do not have the flexibility to adequately address the various semiconductordevice size and chip-scale packaging technologies demanded bymanufacturers.  As a result, handlingtools designed for singulated processes have become a bottleneck to throughput.

 

Manufacturers arebeginning to acknowledge that post-test singulation can be done without damageor contamination.  This understandingpermits manufacturers to process, handle, and test multiple devices while stillin strip or wafer format.  Striphandling increases process flexibility by permitting the handling and testingof a variety of packages, substrates and semiconductor device sizes. Inaddition, strip handling significantly increases throughput by reducing thenumber of process steps and by allowing the tester to test multiple strips andsemiconductor devices in parallel.  We believethat as manufacturers seek to increase productivity, yield and throughput, theywill adopt strip processing throughout assembly and testing.  Consequently, we believe strip processingtechnology will be critical to any back-end automation strategy.  This change will require new tools andtechnologies than those currently in place.

 

In implementing broaderautomation strategies in the back-end, manufacturers face other significant challengesbesides the development of strip processing tools.  For example, production tools in the back-end historically havenot communicated well with one another, if at all, and the transitions betweenproduction steps have not been integrated. This lack of communication and integration has prevented back-endmanufacturers from realizing many of the benefits of factory automation and hasprevented the collection of critical process data.

 

**OurSolution**

 

We seek to provide ourcustomers comprehensive equipment automation solutions for their test and assemblyprocesses. By deploying our products and services, our customers are able toimprove their production yields, factory throughput, tool productivity andutilization while reducing product cost. The key components of our solution are our:

•Tapestry series automated strip handler;

•Smart Solutions integrated equipment product series;

•Infinity System factory automation software and equipment integration services;and

• Complete line of traditional testhandlers for singulated processes.

 

Our solution providesthe following benefits to our customers:

 

***Flexibility to address new form factors, including wafersand strips.***  We believe that our Tapestry handler is oneof the first handlers capable of processing semiconductor devices in strip orwafer formats.  Tapestry providesincreased flexibility, permitting the handling and testing of a variety ofpackages, substrates and semi-

 

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conductor device sizes.  Depending on the application, we believe that our Tapestryhandler’s throughput capability is three to ten times greater than existingsingulated handling options available today.

 

***Ability to collect critical process data. ***Our Smart Solutions equipment products utilize ourfactory automation software to provide both the hardware and software necessaryto accurately track important yield events in the test and assembly portion ofthe back-end process.  We usestate-of-the-art machine vision technology to accurately track allsemiconductor devices as they travel through the test and assemblyprocesses.  This technology is not onlycritical to the precise positioning of strips, but also enables our software togenerate critical process data. This information, together with yieldinformation obtained in the assembly process and the front-end facility, canprovide real-time data on the entire semiconductor manufacturing process foreach wafer, giving manufacturers the information they need to improve theirprocesses and increase their yields.

 

***Deployment of integrated, comprehensive solutions.*** Our suite of equipment automation tools, software products and servicesaddresses the varied automation needs of individual back-end manufacturingfacilities.  Our factory automationsoftware has the ability to integrate production tools from variousmanufacturers into one total solution. This allows our customers to fulfill a significant portion of their testand assembly automation needs through a single supplier, thereby simplifyingtraining, maintenance, capacity expansion and supplier accountability.

 

***Worldwide service and support engineering.*** We provide worldwide service and support engineering to our customers aspart of the purchase of all of our products, which includes comprehensiveinstallation support. As our products have expanded to offer greaterfunctionality, we have provided application engineering support so that ourcustomers can take advantage of these advances to improve their processes.

 

**Strategy**

 

Our objective is to bethe leading supplier for the newly developing market of automated solutions forthe semiconductor test and assembly market. Key elements of our strategy include:

 

***Providing comprehensive automated solutions.*** Today, we provide equipment automation solutions for the test andassembly portion of the semiconductor manufacturing process, including test,laser mark, mark inspect, singulation, sort, and packaging for shipment.  In addition, we are expanding our automationsolutions to include equipment integration solutions compatible with productsfrom a greater number of other equipment manufacturers.  We have enhanced the software component ofour automation solutions by adding data analysis and report generatingcapabilities to increase our customer’s ability to improve their manufacturingprocess.  In the future we plan toexpand the Smart Solution suite of products to handle other processes withinthe semiconductor test and assembly area.

 

***Capitalizing on emerging chip scale packaging, or CSP,process development.***  Our Smart Solutions and Tapestryproducts already meet initial chip scale package process requirements throughstrip handling.  However, the vastnumber of new chip scale packages recently introduced has imposed additionalrequirements on semiconductor test and assembly processes. As a leader inproviding equipment automation solutions that address chip scale packagingtechnologies, we are continuing development of next-generation handling andequipment automation solutions for advanced semiconductor device packaging.

 

***Strengthening key customer relationships.*** Our customers include many of the world’s leading providers ofsemiconductor devices as well as major third-party test and assemblycompanies.  We expect that our customerswill look to us to help resolve their process as well as automation problemsthroughout the back-end.   As we solveour customers’ diverse needs, we will deepen our present customer relationshipsand also build our knowledge base so that we can develop similar relationshipswith others in the semiconductor manufacturing industry.

 

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***Leveraging our strong sales and service capability.*** We predominantly sell our products through our direct sales force andhave established sales and service offices in the world’s major centers ofsemiconductor manufacturing.  We expectto utilize our existing service offices to continually train our sales force tosupport our new Smart Solutions suite of products.  We have placed software engineers in several Asian locations to directlysupport Infinity Systems’ pursuit of factory automation software sales.

 

***Continuing to develop and support existing singulated testhandling solutions and products.***  We believethat we have one of the largest installed bases of traditional test handlers inthe world.  We intend to support ourcustomers who use singulated test handling with new product introductions forspecialty applications.

** **

**Products**

** **

***Automation Products***

 

Our Smart Solutionsequipment suite of products, once integrated with a tester, are designed toautomate the entire test process from the point where the semiconductor deviceshave been packaged, through test, laser mark, inspection, singulation and sort,to the point of shipment to the customer. Our Smart Solutions product family offers semiconductor manufacturersgreater flexibility, yield and throughput. These products are designed to meet the back-end semiconductormanufacturer’s demand for greater production efficiency, lower cost of test andmanufacturing flexibility.  The followingtable sets forth our key automation product offerings by category, dateintroduced and application.

 
| **Automation  Product Category** |   | **Product  Name**                   |   | **Introduced**        |   | **Applications**                                                                                                                                                                           |
|----------------------------------|--------|-------------------------------------|--------|-----------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  

Smart Solutions          |   |  

Tapestry                    |   |  

February 1999 |   |  

A next generation handling system for semiconductor  devices that are in strip or wafer package formats.                                                                           |
|                             |   | Isocut                              |   | May 2000              |   | Automated system to partially singulate chip scale  packages in strip format, electrically isolating the semiconductor devices to  accommodate test.                                       |
|                             |   | SmartMark                           |   | May 2000              |   | An automated high speed laser marker for integration  with strip handling                                                                                                                  |
|                             |   | SmartSort                           |   | May 2000              |   | A high speed sorter for offloading chip scale  packages including a post-test singulation function.                                                                                        |
|                             |   | SmartTrak                           |   | May 2000              |   | Software management system providing a map with  information about each semiconductor device in the strip.                                                                                 |
|                             |   | Input/Output Module (Slotted)       |   | February 1999         |   | Automatic loading and unloading module of strips  contained in a slotted magazine assembly.                                                                                                |
|                             |   | Input/Output Module (Stacked)       |   | May 2000              |   | Automated loading and unloading of strips contained  in a stacked magazine assembly.                                                                                                       |
| Automation Software              |   | Infinity Systems Software Solutions |   | Acquired in June 1999 |   | Manufacturing software control systems for  semiconductor assembly and test plants including equipment integration  through overall factory and corporate information systems integration. |

 

***Smart Solutions****.*  Our Smart Solutions equipment product familywas introduced to meet the anticipated evolution of back-end manufacturing fromsingulated handling to strip processing through the final stages of assemblyand electrical test.  Additionally, ourSmart Solutions products are designed with electronic strip mapping capabilityas a cornerstone.  As high-densitysemiconductor strips with tiny chip scale packages become the standard,electronic strip mapping addresses the problem of manually tracking individualsemiconductor devices within the strip. The new Smart Solutions systems provide customers enhanced performancein either stand-alone or integrated assembly lines.  The current average selling price for Smart Solutions productsvary from $300,000 for a single module to approximately $1.5 million for asystem that includes all of the components.

 

Tapestry, our strip handling system introduced in February 1999, is theflagship of the Smart Solution product family. Tapestry is a versatile, high volume, parallel test handling and thermalconditioning system for 

 

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semiconductor devices that are in strip format.  Thermal conditioning is required to ensurethat a semiconductor device can operate normally in a wide range oftemperatures.  Tapestry can condition devices at temperatures ranging from –40degrees centigrade to +130 degrees centigrade. The system is capable of handling fine pitch chip scale packages as wellas traditional leaded semiconductor devices in strip format.  Using standard industry interfaces, thesystem is designed to function as a stand-alone system, or can be integratedinto an in-line process with our other Smart Solution products or equipment ofother manufacturers.

 

SmartSort, our high-speed intelligent sorting system, allows customersto sort devices from a strip according to the electronic strip map and placesemiconductor devices in containers for shipment to customers.  This new capability is especially criticalfor small semiconductor devices such as chip scale packages dueto their size and difficulty in handling. SmartSort utilizes an innovative multi-site device picking approach,which provides increased throughput advantages as compared to existing sortingmethods.  Off-load options for SmartSortinclude bulk, tray, tube or tape.  Otheroptions include vision inspection and wash and dry.

 

SmartMark, our intelligent laser marking system, offers customers amethod for marking individual semiconductor devices uniquely within a stripaccording to their corresponding electronic strip map.  SmartMark is utilized with a commerciallaser system and two-dimensional reader. We also provide an optional vision system for post-mark inspection.

 

Our suite of SmartSolution equipment products includes additional modules to assist companies inautomating the back-end of the semiconductor manufacturing process using thenew strip format.  These include theIsocut module for partial singulation of semiconductor devices in order toallow them to be tested in strip form. We also have input/output devices for both slotted and stacked magazinesused with strips.

 

***AutomationSoftware. **** *Infinity Systems Software Solutionsprovide highly sophisticated systems integration services to the semiconductortest and assembly industry.  InfinitySystems’ solutions assist customers in creating either new manufacturingenvironments or implementing new methods and control systems in existingones.  These installations allowpreviously isolated stand-alone equipment to exchange information with otherequipment and provide for remote monitoring and control of these systems.  Our engineering experience, efficientsoftware development process, strong project management and our understandingof semiconductor handling systems allow us to assist customers in specifyingequipment behavior and software interfaces as a proactive component of thedesign and procurement process.

** **

***Singulated Handling Products***

 

We also provide more traditional singulated handlingproducts utilizing both pick-and-place and gravity-feed technology.

 
| **Singulated  Handling Products** |   | **Product  Name** |   | **Introduced** |   | **Applications**                                                                                                                                                                           |
|-----------------------------------|--------|-------------------|--------|----------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Pick and Place                    |   | 7632              |   | May 1997       |   | Multiple site test handler for a wide variety of  semiconductor devices, able to present up to 32 semiconductor devices for  test simultaneously, utilizing tray or tube input and output. |
| Gravity Feed                      |   | 5100              |   | December 1996  |   | High-speed dual site test handler for small outline  surface-mount packages, utilizing tube input and output.                                                                              |
|                              |   | S-170             |   | September 1997 |   | Single site test handler for large surface-mount packages,  utilizing tray input and output.                                                                                               |
|                              |   | S-130             |   | January 1987   |   | Single site test handler for small outline surface-mount  packages, utilizing tube input and output.                                                                                       |
|                              |   | 4610              |   | April 1985     |   | Dual site test handler for large surface-mount packages,  utilizing tube input and output.                                                                                                 |

 

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Our pick-and-placehandling products can accommodate a large variety of package types.  An example is our 7632 handler whichtransfers semiconductor devices from carriers, moves them to the test site andthen moves them to the appropriate bin after testing.  It can test from 1 to 32 semiconductor devices in parallel attemperatures ranging from –60 degrees centigrade to +160 degreescentigrade.  Our 7632 handler is capableof loading and unloading semiconductor devices from carriers while testingwithout interrupting system operation. It is controlled by high-speed computers that monitor all functions ofthe handler and are capable of producing reports describing test efficiency,handler uptime, test yield, operator identification, lot statistics and othercustomer defined data.

 

Our gravity-feedhandling products are designed for test handling of surface mount semiconductordevices that are transported in bulk or in plastic tubes.  Our handlers rely on gravity to moveuntested semiconductor devices from the top of the handler, where thetemperature of the semiconductor device is modified to temperatures rangingfrom –55 degrees centigrade to +155 degrees centigrade, depending on thehandler, to the test site and then to the output bins based on the quality ofthe semiconductor device.

 

Our 5100 gravity feedhandler is capable of testing one or two devices in parallel with throughput ofup to 14,400 devices per hour with an index time of only 0.5 seconds.  It can be configured to handle a variety ofdevices with several different kits for varying customer requirements.  We began shipping 5100 handlers in 1997 andit represented a significant portion of our equipment sales in 2000, thesix-month transition period ended December 31, 1999, and fiscal 1999.

 

**Other Products and Services**

 

***Wafer Handling and Inspection Equipment*****.** With our acquisition of Aseco in January 2000, we also acquired severalwafer handling and inspection products. This equipment is used to automate the transfer and inspection of wafersbetween semiconductor manufacturing process steps.  This equipment provides visual multi-light wafer inspection,automatic microscope based wafer inspection, a loader for the automatic wafermicroscope and an automatic wafer sorter all of which provide safe handling,versatility and a clean environment for semiconductor manufacturing.

*** ***

***Other handler, tester products and services.**** *We provide service and spare parts forall of our current and many of our discontinued products. We have also donesignificant business in support services for a semiconductor device tester thatis still widely used but that was last manufactured by us in 1993.

 

**Research and Development**

 

As an important element of our business strategy, we work closely withour customers to develop new products and enhancements of existing products tomeet the evolving needs of the test and assembly market, particularly with respectto emerging semiconductor devices, while striving to provide the lowest cost oftest.  These efforts, historically focusedon test handler products, have resulted in the successful introduction of threenew product platforms, the MCT****5100, MCT****7632 and Tapestry handlingsystems, from fiscal 1997 through fiscal 1999. In May 2000, we launched our SmartSort and SmartMark products, which areaimed at the automation of a number of the back-end processes and expand ourcapabilities beyond the core test handler markets.

 

Although we relyprimarily on our internal engineering capabilities to develop new products andenhance existing products, we also utilize contract services to enhance ourtechnical capabilities or temporarily expand our resources.  In addition, we work closely with severalmanufacturers of products that are incorporated into our products or are complementaryto our products when we believe a higher quality, lower cost product wouldresult.

 

An ongoing goal of our research and development activities is to reducethe time required to develop new products and bring them to market.  As the back-end process becomes increasinglyautomated and complex, the development of improved software for our productsbecomes increasingly important.

 

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Our research and development expenses were $ 7.9million in the year ended December 31, 2001, $9.3 million in the year endedDecember 31, 2000, $1.5 million in the six-month transition period endedDecember 31, 1999, and $2.8 million in fiscal 1999.  Ourcombined resources totaled 41 employees and contractors in research anddevelopment, or approximately 24% of our entire workforce, at December 31,2001.

 

**Customers**

 

Our customers include many of the leading manufacturers ofsemiconductor devices, as well as test and assembly companies in the UnitedStates, Europe and Asia.  In recentyears, our significant customers have shifted from the major semiconductormanufacturers to test and assembly companies, corresponding to the increasedutilization of test and assembly companies by the major semiconductormanufacturers.  Amkor Technology, Inc. accounted for 17%, Analog Devices 13% and PhillipsSemiconductor 11% of our net sales in the year ended December 31, 2001,respectively.  Amkor Technology, Inc.accounted for 14% of our net sales in the year ended December 31, 2000 and 27%of our net sales in fiscal 1999.  In thesix-month transition period ended December 31, 1999, Lingsen PrecisionIndustries, Ltd. accounted for 19% of our net sales.  The acquisition of Aseco expanded our customer base andintroduced us to several new customers. Analog Devices, Inc. and Motorola, Inc. each accounted for 13% ofAseco’s net sales in fiscal year 1999.

 

Our customers tend to limit the number of qualified equipment vendorsthey purchase from in order to gain the efficiencies of standardization across their production process.  We therefore expend substantial efforts tomaintain our relationships with our existing major customers to increase thelikelihood that they will continue to select our products for their futuregenerations of semiconductor devices. However, when a customer develops a new type of semiconductor device orthe customer changes the size or package for a semiconductor device, the customeris more willing to consider purchasing test handling equipment and otherautomation equipment from a new source.

 

**Marketing,Sales and Worldwide Support**

 

We market our products primarily to semiconductor manufacturers andthird party test and assembly companies through our own sales force and inselected markets through independent sales representatives anddistributors.  Our automation solutions,however, are marketed directly by our employees to the key personnel atcustomers and potential customers who are in charge of capital equipment forthe entire back-end.  These salesfrequently involve major decisions by the customer as to the configuration andoperation of its entire back-end operation. Although in some situations the sales cycle for Smart Solutions productsmay be longer than for our traditional handler products, the average orderamount is generally larger.

 

We augment our sales efforts with direct customer support/serviceengineers and application engineers based in the field.  These engineers are specialists in ourproduct portfolio and partner with our customers to help determine productrequirements.  Our service engineers install our equipment and train thecustomers’ operators and maintenance technicians on the proper use and care ofour equipment.  Our applicationengineers help identify emerging markets for new products.

 

We established a presence in Asia more than 20 years ago, where weoperate through our subsidiaries with offices in Singapore and Penang,Malaysia.  To supplement the region’ssales and service coverage, we use sales representative companies and distributorsin Korea, Taiwan and China.  We also establishedan office in the Philippines to provide better sales and service support andthe establishment of a software development group.  We have stationed service engineers inSingapore, Malaysia, Thailand and the Philippines for rapid response to customerneeds in Asia. Through our foreign subsidiaries’ distributors and salesrepresentatives, we maintain customer support centers in 26 locations in theUnited States, Asia and Europe, with over 28 direct employees.

 

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**Manufacturingand Suppliers**

 

Our principalmanufacturing operations consist of final assembly, system integration andtesting at our facilities in St. Paul, Minnesota, and Penang, Malaysia.  We combine proprietary software andcomponents developed in our facilities with components and subassembliesobtained from outside suppliers.  Weout-source the manufacture of most of our components to a number of differentsuppliers.  We obtain certain componentsand subassemblies necessary for the manufacture of our systems from a solesupplier or limited group of suppliers. We do not maintain any long-term supply agreements with any of our keysuppliers.  We maintain our own machineshops at each manufacturing facility for handling special materials and productdevelopment.

 

**Competition**

 

The semiconductor device testing and assembly equipment industry ishighly competitive, and the market for our automation products and services isexpected to become more competitive.  Weface substantial competition throughout the world primarily from manufacturersin the United States and Japan.  Theonly companies that we are aware of that currently offer a production gradestrip handling solution comparable to our Tapestry product is Fico BV and ASMInternational, whose products were introduced in approximately 1995 and 2001,respectively.  Fico’s product linecurrently is used only for leaded semiconductor devices.  However, we are aware that other companiesare developing strip handling solutions, some have shipped beta versions tocustomers, and we expect other companies will offer automation systems for theback-end when strip testing technology becomes more accepted.  Our primary competitors in the traditionalhandler market are Advantest Corporation, Aetrium Incorporated, Cohu, Inc.,Kuwano Electrical Instruments Co., Ltd., Multitest Electronics Systems GmbH,Rasco AG and Tesec Corporation. Many of these competitors are considerablylarger and have considerably greater financial resources than we do.

 

The principal elements of competition in our markets include throughputcapability, quality, reliability, price, product performance, customer serviceand support, financial strength, versatility and the ability to deliver onschedule.  Although we believe that wecompete favorably with respect to each of these factors, new productintroductions by our competitors could cause a decline in sales or loss ofmarket acceptance of our existing products. If competitors introduce more technologically advanced products, thedemand for our similar products would likely be reduced.

 

**IntellectualProperty Rights**

 

We attempt to protect the proprietary aspects of our products withpatents, trademarks and copyrights, as well as contractual and other tradesecret protection strategies.  We havefive patents issued and active, two patent applications pending in the U.S.,and four patent applications pending in Germany, South Korea and Taiwan.

 

We have developed and are using a number oftrademarks, slogans and other commercial symbols to advertise and sell ourproducts.  We own one federallyregistered trademark, and have a number of trademark applications pending inthe U.S. Patent and Trademark Office. Our proprietary computer programs are protected under federal copyrightlaw as unpublished original works.  Wealso maintain the secrecy of our software source codes through licensing andother restrictions.

 

We frequently review our inventions and attempt to determine whichinventions will provide substantial differentiation between our products andthose of our competitors.  In certaincases, we may also choose to keep an invention or process a trade secret.  Key employees are required to enter intonondisclosure and invention assignment agreements, and customers, vendors andother third parties also must agree to nondisclosure restrictions prior todisclosure of our trade secrets or other confidential or proprietary information.

 

The intellectualproperty position of any manufacturer, including us, is subject touncertainties and may involve complex legal and factual issues.  Allowed claims for our existing or futurepatents issued may be challenged, invalidated or circumvented, and any rightsgranted by those patents may not provide us with adequate protection.  Additionally, it may be possible forcompetitors or customers to copy aspects of our products or to

 

11

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obtaininformation that we may regard as a trade secret.  Litigation may be necessary in the future to enforce our patentsand other intellectual property rights or to defend us against claims ofinfringement.

 

**Backlog**

 

At December 31, 2001 ourbacklog of unfilled orders for which a purchase order number has been assignedby the customer and for which a delivery schedule has been specified was $1.7million.  An additional $4.9 millionremains outstanding as a purchase order from a customer for which no deliverydate has yet been specified.  Ourbacklog of unfulfilled orders was $10.6 million at December 31, 2000.  A significant portion of the backlog atDecember 31, 2001 is expected to be shipped in the next two quarters.  Since a large majority of the shipments madein a given quarter are usually made during the latter part of the quarter, andsince a significant portion of shipments in a given quarter are booked duringthat same quarter, backlog as of a date in the middle of the quarter will typicallybe greater than backlog at quarter end. All orders are subject to cancellation by the customer with limitedcharges.  Our backlog at a particulardate is not necessarily indicative of actual sales for that or any succeedingperiod and does not reflect the effects of the SEC’s Staff Accounting BulletinNo. 101 (SAB101) discussed in our revenue recognition policy in Note 1 of Notesto Consolidated Financial Statements included elsewhere herein.

 

**Employees**

 

At December 31, 2001, wehad a total of 172 employees plus 3 contract personnel, in the following areas:54 in manufacturing, 41 in engineering and research and development, 49 insales, marketing, application engineering and service, and 28 in administration.  Our workforce declined approximately 25% and17% in the first and third quarter, respectively, of 2001 due to staffreductions as a result of a downturn in the semiconductor capital equipmentmarket.  These reductions were acrossall functional areas.  Many of ouremployees are highly skilled, and we believe our future success will depend inlarge part on our ability to attract and retain similar employees.  None of our employees are covered by acollective bargaining agreement, and we have experienced no workstoppages.  We consider our relationshipwith our employees to be good.

 

**Seasonalityin Quarterly Operating Results**

 

During each quarter, wecustomarily sell a relatively small number of systems that carry a high averageselling price.  Although we believe oursales are not seasonal in nature, a small change in the number of productsordered and/or shipped and accepted in a quarter can have a significant impacton results of operations for that particular quarter.  Moreover, production difficulties could delay shipments.  Accordingly, our operating results may varysignificantly from quarter to quarter and could be adversely affected for aparticular quarter if shipments and customer acceptances for that quarter werelower than anticipated.  Our quarterlyoperating results may also be affected by, among other factors, the timing ofnew product introductions, fluctuations in the semiconductor market and theactions of competitors.

 

**FinancialInformation about Foreign and Domestic Operations and Export Sales**

 

We operate in three geographic areas. Summarized data for our operations are included in Note 11 of Notes toConsolidated Financial Statements, included elsewhere herein.

** **

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**ITEM 2.  Properties**

** **

We occupy approximately69,000 square feet of leased space in St. Paul, Minnesota, for our principalexecutive offices, research and development, and manufacturing activities.  In May 2000, we notified our landlord of ourintent to exercise our one-time option to lease the remaining additional 11,000square feet within the same building, beginning twelve to twenty-four monthslater, at a date to be mutually determined. This lease expires in 2007.   Wealso utilize approximately 61,000 square feet of space in Marlborough,Massachusetts, for research and development and manufacturing activities, undera lease that expires in 2003.  InFebruary 2001, we announced our plans to transfer manufacturing operations fromour Marlborough facility to our St. Paul facility which was later modified totransfer this activity to our operations in Penang, Malaysia.  As a result, we substantially reduced thesquare feet utilized in Marlborough during 2001.  We operate our Infinity Systems division out of approximately10,000 square feet of leased space in Tempe, Arizona, for software andequipment automation systems development. This lease expires in 2003.  Weoccupy approximately 12,000 square feet of leased space in Penang, Malaysia,which is utilized as a manufacturing center for certain of our singulatedproducts.  The lease expires in April2004. We believe that our current and committed facilities are adequate tosupport our growth for at least the next twelve months.

 

**ITEM3.  Legal Proceedings**

 

There are no materialpending legal, governmental, administrative or other proceedings to which weare a party.

 

**ITEM4.  Submission of Matters to a Vote ofSecurity Holders**

 

There were no matterssubmitted to a vote of security holders during the quarter ended December 31,2001.

 

13

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**PART II**

** **

**ITEM5.  Market for Registrant’s Common Stockand Related Stockholder Matters**

 

Our common stock istraded on the NASDAQ National Market under the symbol MCTI.  The following table sets forth, for theperiods indicated, the high and low closing sale prices per share of our commonstock, as reported by the NASDAQ National Market.

 
|                                 |   | **High** |   | **Low** |   |
|--------------------------------------|--------|----------|--------|---------|--------|
| Fiscal Year ended  December 31, 2001 |   |     |   |    |   |
| First Quarter                        |   | $        | 5.25   |    | $      | 2.37 |   |
| Second Quarter                       |   | 4.40     |   | 2.12    |   |
| Third Quarter                        |   | 2.99     |   | 1.46    |   |
| Fourth Quarter                       |   | 2.98     |   | 1.50    |   |
|                                 |   |     |   |    |   |
| Fiscal Year ended  December 31, 2000 |   |     |   |    |   |
| First Quarter                        |   | $        | 12.63  |    | $      | 4.75 |   |
| Second Quarter                       |   | 9.94     |   | 4.63    |   |
| Third Quarter                        |   | 9.38     |   | 6.50    |   |
| Fourth Quarter                       |   | 7.88     |   | 2.19    |   |

 

The approximate numberof holders of record of our common stock as of December 31, 2001 was 253.

 

We have never declaredor paid any cash dividends on our common stock and do not anticipate paying anycash dividends in the foreseeable future. We currently intend to retain future earnings to fund the developmentand growth of our business.  Our bankline of credit, which expired in January 2002, prohibited the payment of cash dividends without the bank’s consent.

 

Under the Note PurchaseAgreement  associated with the issuanceof the 10% Senior Subordinated Convertiable Notes (discussed in Note 7 in Notesto Consolidated Financial Statements contained elsewhere herein)  we are prohibited from paying dividends.

 

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** **

**ITEM6.  Selected Financial Data**

 

**SELECTED CONSOLIDATED FINANCIAL DATA**

 
|                                                 |   | **Years  Ended**                           |       | **Six Months  Ended** |       | **Fiscal  Years Ended** |
|------------------------------------------------------|--------|--------------------------------------------|------------|-----------------------|------------|-------------------------|
|                                                 |   | **Dec. 31  2001**                          |       | **Dec. 31  2000**     |       | **Dec. 31  1999**       |   | **Dec. 31  1999** |   | **Dec. 31  1998** |   | **June 26  1999** |   | **June 27  1998(1)** |   | **June 28  1997** |   |
|                                                 |   | **(in  thousands, except per share data)** |       |                  |
| **Consolidated Statement of  Operations Data**:      |   |                                       |       |                  |       |                    |   |   |   |   |   |   |   |   |   |   |   |
| Net sales                                            |   | $                                          | 25,406     |                  | $          | 49,902                  |   | $ | 19,839 |   | $ | 11,356 |   | $ | 6,688 |   | $ | 15,171 |   | $ | 16,975 |   | $ | 16,129 |   |
| Cost of sales:                                       |   |                                       |       |                  |       |                    |   |   |   |   |   |   |   |   |   |   |   |
| Product                                              |   | 15,832                                     |       | 26,905                |       | 9,485                   |   | 5,452 |   | 3,506 |   | 5,539 |   | 9,595 |   | 6,910 |   |
| Inventory  revaluation                               |   | 8,092                                      |       | 3,979                 |       | —                  |   | — |   | — |   | 2,000 |   | — |   | — |   |
| Total cost of  sales                                 |   | 23,924                                     |       | 30,884                |       | 9,485                   |   | 5,452 |   | 3,506 |   | 7,539 |   | 9,595 |   | 6,910 |   |
| Gross profit                                         |   | 1,482                                      |       | 19,018                |       | 10,354                  |   | 5,904 |   | 3,182 |   | 7,632 |   | 7,380 |   | 9,219 |   |
| Operating expenses:                                  |   |                                       |       |                  |       |                    |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general  and administrative                 |   | 10,864                                     |       | 16,177                |       | 7,423                   |   | 4,296 |   | 3,152 |   | 6,279 |   | 7,871 |   | 7,121 |   |
| Research and  development                            |   |  

7,859                              |       | 9,271                 |       | 2,864                   |   | 1,496 |   | 1,432 |   | 2,800 |   | 3,711 |   | 3,934 |   |
| Amortization of  intangible assets                   |   | 2,632                                      |       | 4,308                 |       | 10                      |   | 10 |   | — |   | — |   | — |   | — |   |
| Write-down of  impaired intangible assets            |   | 9,298                                      |       | 3,405                 |       | —                  |   | — |   | — |   | — |   | — |   | — |   |
| Restructuring  charge                                |   | 2,444                                      |       | —                |       | —                  |   | — |   | — |   | — |   | — |   | — |   |
| Income (loss)  from operations                       |   | (31,615                                    | )          | (14,143               | )          | 57                      |   | 102 |   | (1,402 | ) | (1,447 | ) | (4,202 | ) | (1,836 | ) |
| Other income  (expense)                              |   | 196                                        |       | (46                   | )          | (7                      | ) | 19 |   | 7 |   | (19 | ) | 323 |   | 273 |   |
| Income (loss)  before income taxes                   |   | (31,419                                    | )          | (14,189               | )          | 50                      |   | 121 |   | (1,395 | ) | (1,466 | ) | (3,879 | ) | (1,563 | ) |
| Income tax  provision                                |   | —                                     |       | —                |       | —                  |   | — |   | — |   | — |   | — |   | — |   |
| Net income  (loss) before cumulative effect          |   |                                       |       | (14,189               | )          | 50                      |   | 121 |   | (1,395 | ) | (1,466 | ) | (3,879 | ) | (1,563 | ) |
| Cumulative  effect of change in accounting principle |   | —                                     |       | (1,264                | )          | —                  |   | — |   | — |   | — |   | — |   | — |   |
| Net income  (loss)                                   |   | $                                          | (31,419    | )                     | $          | (15,453                 | ) | $ | 50 |   | $ | 121 |   | $ | (1,395 | ) | $ | (1,466 | ) | $ | (3,879 | ) | $ | (1,563 | ) |
| Basic earnings  (loss) per share:                    |   |                                       |       |                  |       |                    |   |   |   |   |   |   |   |   |   |   |   |
| Continuing  operations                               |   | $                                          | (2.24      | )                     | $          | (1.23                   | ) | $ | 0.01 |   | $ | 0.02 |   | $ | (0.19 | ) | $ | (0.20 | ) | $ | (0.54 | ) | $ | (0.22 | ) |
| Cumulative  adjustment                               |   | —                                     |       | (0.11                 | )          | —                  |   | — |   | — |   | — |   | — |   | — |   |
| Net income  (loss)                                   |   | $                                          | (2.24      | )                     | $          | (1.34                   | ) | $ | 0.01 |   | $ | 0.02 |   | $ | (0.19 | ) | $ | (0.20 | ) | $ | (0.54 | ) | $ | (0.22 | ) |
|                                                 |   |                                       |       |                  |       |                    |   |   |   |   |   |   |   |   |   |   |   |
| Diluted earnings  (loss) per share:                  |   |                                       |       |                  |       |                    |   |   |   |   |   |   |   |   |   |   |   |
| Continuing  operations                               |   | $                                          | (2.24      | )                     | $          | (1.23                   | ) | $ | 0.01 |   | $ | 0.02 |   | $ | (0.19 | ) | $ | (0.20 | ) | $ | (0.54 | ) | $ | (0.22 | ) |
| Cumulative  adjustment                               |   | —                                     |       | (0.11                 | )          | —                  |   | — |   | — |   | — |   | — |   | — |   |
| Net  income (loss)                                   |   | $                                          | (2.24      | )                     | $          | (1.34                   | ) | $ | 0.01 |   | $ | 0.02 |   | $ | (0.19 | ) | $ | (0.20 | ) | $ | (0.54 | ) | $ | (0.22 | ) |
|                                                 |   |                                       |       |                  |       |                    |   |   |   |   |   |   |   |   |   |   |   |
| Proforma net  income (loss) (2)                      |   |                                       |       |                  |       | $                       | (462 | ) | $ | (563 | ) | $ | (1,309 | ) | $ | (1,316 | ) | $ | (4,002 | ) | $ | (1,739 | ) |
|                                                 |   |                                       |       |                  |       |                    |   |   |   |   |   |   |   |   |   |   |   |
| Proforma net  income (loss) per share:               |   |                                       |       |                  |       |                    |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                |   |                                       |       |                  |       | $                       | (0.06 | ) | $ | (0.08 | ) | $ | (0.18 | ) | $ | (0.18 | ) | $ | (0.55 | ) | $ | (0.25 | ) |
| Diluted                                              |   |                                       |       |                  |       | $                       | (0.06 | ) | $ | (0.08 | ) | $ | (0.18 | ) | $ | (0.18 | ) | $ | (0.55 | ) | $ | (0.25 | ) |
|                                                 |   |                                       |       |                  |       |                    |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average  shares outstanding:                |   |                                       |       |                  |       |                    |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                |   | 14,027                                     |       | 11,531                |       | 7,435                   |   | 7,474 |   | 7,394 |   | 7,396 |   | 7,248 |   | 7,030 |   |
| Diluted                                              |   | 14,027                                     |       | 11,531                |       | 7,682                   |   | 8,144 |   | 7,394 |   | 7,396 |   | 7,248 |   | 7,030 |   |
|                                                 |   |                                       |       |                  |       |                    |   |   |   |   |   |   |   |   |   |   |   |
| **Selected  Balance Sheet Data:**                    |   |                                       | ** ** |                  | ** ** |                    | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Cash and cash  equivalents                           |   | $                                          | 11,086     |                  | $          | 12,047                  |   | $ | 1,045 |   | $ | 1,045 |   | $ | 2,260 |   | $ | 1,927 |   | $ | 2,532 |   | $ | 5,360 |   |
| Working  capital                                     |   | 12,907                                     |       | 22,347                |       | 6,386                   |   | 6,386 |   | 6,199 |   | 6,265 |   | 7,385 |   | 11,008 |   |
| Total  assets                                        |   | 21,341                                     |       | 51,023                |       | 10,324                  |   | 10,324 |   | 9,103 |   | 9,900 |   | 11,226 |   | 15,792 |   |
| Long-term  debt                                      |   | 33                                         |       | 37                    |       | 70                      |   | 70 |   | 58 |   | 33 |   | 83 |   | 133 |   |
| Convertible  notes                                   |   | 10,000                                     |       | —                |       | —                  |   | — |   | — |   | — |   | — |   | — |   |
| Redeemable  convertible preferred stock              |   | —                                     |       | —                |       | —                  |   | — |   | — |   | — |   | — |   | 1,500 |   |
| Total  stockholders’ equity                     |   | $                                          | 4,377      |                  | $          | 35,592                  |   | $ | 7,256 |   | $ | 7,256 |   | $ | 7,005 |   | $ | 6,952 |   | $ | 8,400 |   | $ | 12,219 |   |
|                                                      |        |                                            |            |                       |            |                         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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Notes:

 

(1)     Includes charges of $0.3 million relatedprimarily to cost reduction actions and operational adjustments related to thedepressed semiconductor capital equipment market.

 

(2)     Proforma amounts reflect the impact of theadoption of SAB 101, which is discussed in Note 2 in Notes to ConsolidatedFinancial   Statements, includedelsewhere herein.

 

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**ITEM 7.  Management’sDiscussion and Analysis of Results of Operations and Financial Condition**

 

*Thefollowing discussion of our results of operations and financial conditionshould be read together with the other financial information and consolidatedfinancial statements included in this document.  This discussion contains forward-looking statements that involverisks and uncertainties.  Our actualresults could differ materially from those anticipated in the forward-lookingstatements as a result of a variety of factors, including those discussed in“Risk Factors” and elsewhere in this document.*

 

*InApril 2000, we changed our fiscal year to December 31, effectiveDecember 31, 1999, resulting in a six-month transition period endedDecember 31, 1999.  Our year endedDecember 31, 2000 reflected our first full year of activity as a calendar yearend entity. Our 1999 fiscal year ended on June 26, 1999, the last Saturdayin June.  This change resulted in atwenty-seven week reporting period ended December 31, 1999.*

 

Overview

 

We supply equipment automation solutions for the global semiconductortest and assembly manufacturing market. Our solutions include automated test handlers, factoryautomation software and our new integrated Smart Solutions equipment productline.  We believe that our products cansignificantly improve the productivity, yield and throughput of the back-end,or to the post-wafer manufacturing process, including assembling, packaging,testing and singulating semiconductor devices.

 

Beginning in 1999 and continuing into 2000, we broadened our strategyfrom that of a test handler manufacturer to becoming a provider ofcomprehensive equipment automation solutions for the back-end of thesemiconductor manufacturing process. First, we developed and introduced in February 1999 our Tapestry striphandler.  Tapestry combines striphandling capability with robotics, machine vision technology and criticalsoftware, enabling the testing and tracking of semiconductor devices in stripform and the generation of critical process data throughout the test process.  Second, in June 1999 we acquired theInfinity Systems division of FICO. Infinity Systems has been involved in the development of factoryautomation software for the semiconductor manufacturing industry.  Infinity Systems’ software expertise wasintegral to the development of our integrated Smart Solutions equipment productline, introduced in May 2000.  Togetherwith a third party tester, our Smart Solutions equipment products including ourTapestry handler enable complete automation of the test, laser mark, markinspect, singulation, sort-and-tape and reel processes.

 

The demand for ourproducts and services is dependent upon growth in the semiconductor industryand the increasing automation needs of semiconductor manufacturers andindependent test and assembly facilities.  In the fourth quarter of 2000, the semiconductor industry wentinto a sharp downturn, which has intensified and continued throughout all of2001, resulting in a significant adverse impact on our business.  Although worldwide semiconductor bookingsare showing signs of stabilization, the return to market growth is not expectedin the near term.  As disclosed in ourForm 10-K for the year ended December 31, 2000 and each of our Forms 10-Q forthe first three quarters of 2001, a continued or intensified market downturnmight result in significant losses, charges for inventory revaluation, or assetimpairment or restructuring charges. Consequently, as a result of this downturn, we have examined ouroperations and taken the following actions during 2001.

 

*Workforce**and Manufacturing Cost Reductions*

 

In February 2001,in response to the downturn in the semiconductor capital equipment industry, weannounced plans to consolidate the manufacturing and operation functionsperformed in our Marlborough, Massachusetts facility to our St. Paul, Minnesotafacility, resulting in reductions in headcount, as well as other reductioninitiatives which would result in a restructuring charge in the first quarterof 2001.  This plan was later adjustedto transfer the manufacturing functions to our Penang, Malaysia facility.

 

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The restructuringcharge resulting from the consolidation of operations and cost reductionmeasures initiated in the first quarter of 2001 totaled approximately $2.3million.  This charge principallyrepresents employee separation costs and costs related to idle facilities overthe remaining lease term, which runs through April 2003.  This restructuring affected approximately25% of our workforce comprising a total of 73 employees principally in theareas of manufacturing and administration. Idle facility costs included in the charge represent a percentage of theremaining rent payments, utilities and insurance costs ($1.28 million) and theimpairment of certain leasehold improvements ($0.04 million).

 

During the third quarter of 2001, due to the continued and prolongeddownturn in the semiconductor capital equipment market, we reduced ourworkforce across all functional areas by approximately 17%, resulting in a restructuringcharge of $113,000.  This chargereflects severance and other benefit costs associated with this reduction.  This workforce reduction affected anadditional 31 employees, principally in the areas of manufacturing andengineering.  All of these costs wereincurred and paid during the quarter ended September 29, 2001.

 

*Impairmentof Goodwill and Other Intangible Assets*

 

Due to the deepand protracted downturn in the semiconductor capital equipment industry, wehave shifted product strategy and focused our resources on profit contributionin high growth markets. These high contribution markets directly relate to ournew strip testing technology and suite ofautomated equipment solutions.  We willcontinue to market and manufacture certain of our older singulated products.However, the financial contribution of these products will continue torepresent a lower percentage of our overall results.  As a result, we recorded a charge of approximately $9.3 millionin the third quarter of 2001, related to the impairment of goodwill andpurchased intangible assets, associated primarily with our singulated products,measured as the amount by which the carrying values exceeded the present valueof the estimated future cash flows. These impairments fully relate to the January  2000 Aseco Corporation acquisition and reduced the carrying valueof goodwill and purchased intangibles to zero as of December 31, 2001.

 

*InventoryRevaluation*

 

We recorded aprovision for inventory totaling approximately $8.1 million in the thirdquarter of 2001, of which approximately $1.9 million represents discontinuedproducts and approximately $0.6 million represents obsolete componentsresulting from a shift in product focus. The remaining charge of approximately $5.6 million relates to excessinventory, principally in our older singulated products, due to the protracteddownturn in the semiconductor capital equipment industry and our change inproduct strategy.  This additionalexcess inventory charge was due to a prolonged and significant decrease in forecastedrevenue and was calculated in accordance with our policy, which is based oninventory levels in excess of anticipated 12-month demand for each specificproduct type.  We will  physically dispose of all inventory that isconsidered to be obsolete.

 

Most industry forecasts do not predict capacity-drivenpurchases of capital equipment to recover before late 2002 or early 2003.  Therefore, we will continue to examineopportunities to further reduce our costs through the consolidation ofoperations, limiting capital expenditures, monitoring inventory purchases oradditional strategic restructuring initiatives.  Certain of these types of actions have the potential for furthercharges in future periods.

 

***Acquisition of Aseco Corporation*****.**  On January 31, 2000, we completed theacquisition of Aseco Corporation, a Massachusetts-based manufacturer ofsingulated handling equipment for the back-end of the semiconductormanufacturing process.  The acquisitionwas structured as a stock-for-stock purchase and Aseco is now a wholly ownedsubsidiary of MCT.  The purchase pricetotaled $24.0 million, consisting of 2.6 million shares of our****commonstock valued at $22.5 million issued to former Aseco shareholders and $1.5million of acquisition-related costs.

 

17

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The acquisition was accounted for using the purchasemethod of accounting.  The results ofoperations of Aseco are included in our consolidated financial statementsbeginning January 31, 2000.  Thepurchase price has been allocated based on the estimated fair values of netassets acquired at the date of acquisition. The excess of purchase price over net assets acquired, amounting to $9.7million, was allocated to goodwill, and was being amortized using astraight-line method over the estimated useful life of five years.  Other intangible assets, includingestablished workforce, customer list, and core and developed technology,totaling $9.9 million, were being amortized using the straight-line method overthe estimated useful lives of two to five years.

 

As a result of theindustry downturn in the fourth quarter of 2000, we reduced the carrying valuesof goodwill by $2.5 million and purchased intangible assets by $0.9 million,due to impairment of these assets.  Inthe third quarter of 2001, due to the continuing industry downturn and a shiftin product strategy from singulated products to strip testing, we reduced the remainingcarrying values of goodwill and purchased intangible assets by $4.4 million and$4.9 million, respectively.  Thisimpairment charge reduced all amounts of goodwill and purchased intangibleassets associated with the Aseco acquisition to zero as of December 31, 2001.

 

In each of the three quarters immediately prior to theacquisition, Aseco reported net sales comparable to ours, ranging from $4.7million to $5.7 million.  Their grossmargins ranged from approximately 40% to 43%, compared to approximately 45% to49% for us. Selling, general and administrative expenses for Aseco ranged fromapproximately 29% to 34% of net sales, compared to approximately 37% to 39% forus, and research and development expenses ranged from approximately 15% to 18%of net sales, compared to approximately 12% to 15% for us.

 

In Aseco’s fiscal year ended March 28, 1999, Asecoreported net sales of $19.2 million and a net loss of $13.7 million.  The net loss included $2.2 million incharges related to the closing of its operations based in England and thediscontinuation of several mature product models, a $5.0 million write-down ofinventory to lower of cost or market and approximately $1.2 million of variousrestructuring related charges.

 

**CriticalAccounting Policies**

 

RevenueRecognition

 

In December 1999, the Securities and ExchangeCommission (SEC) staff issued Staff Accounting Bulletin No. 101 (SAB 101) — *Revenue Recognition in Financial Statements. *  SAB 101 establishes the SEC’s interpretation that if uncertaintyexists about customer acceptance of a product, revenue should not be recognizeduntil acceptance occurs.  In SAB 101,the SEC stated that customer acceptance provisions may be included in acontract to enforce a customer’s right to (1) test the delivered product, (2)require the seller to perform additional services subsequent to delivery of aninitial product or performance of an initial service, such as a seller isrequired to install or activate delivered equipment, or (3) identify other worknecessary to be done before accepting the product.  The SEC presumes that such contractual customer acceptanceprovisions are substantive, bargained-for terms of an arrangement.  Accordingly, when such contractual customeracceptance provisions exist, the SEC generally believes that the seller shouldnot recognize revenue until customer acceptance occurs or the acceptance provisionslapse.

 

We adopted SAB 101 in the fourth quarter of 2000 (seeNote 2 in Notes to Consolidated Financial Statements included elsewhereherein).  Under SAB 101, we recognize revenue upon shipment, as our terms are FOBshipping point, for established equipment products that have previouslysatisfied existing customer’s performance specifications and that provide forfull payment tied to shipment.  Revenue for products that have notpreviously satisfied customer performance specifications or from sales whereall or a portion of customer payment is based upon acceptance are onlyrecognized upon customer acceptance.  Assuch, in periods of increasing shipments, revenues will be deferred if theshipments are for new customers, new products or the payment terms are tied toacceptance criteria.  Consequently, ifthese conditions exist, we may report revenue levels that are not reflective ofactual shipment growth rates. Conversely, in periods of decreasing shipments, we potentially couldrecognize

 

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revenues related to shipments made in priorperiods.  Consequently, if theseconditions exist, we may report revenue levels that are greater than actual shipments.

 

Allowance for Doubtful Accounts

 

We record a provision for doubtful accounts based onspecific identification of our accounts receivable. This involves a degree ofjudgement based on discussion with our internal sales and marketing groups, ourcustomer base and the examination of the financial stability of ourcustomers.  There can be no assurancethat our estimates will match actual amounts ultimately written off.  During periods of downturn in the market forsemiconductor capital equipment  oreconomic recession, a greater degree of risk exists concerning the ultimatecollectability of our accounts receivable due to the impact that theseconditions might have on our customer base.

 

Valuation of Inventories

 

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

 

Provisions to reduce inventories to the lower of costor market are made based on a review of excess and obsolete inventories,estimates of future sales and the related value of component parts, which isbased on inventory levels in excess of anticipated 12-month demand for eachspecific product type.  Significantassumptions with respect to market trends and customer product acceptance areutilized to formulate our 12-month demand schedule.  Sudden or continuing downward changes in the semiconductorcapital equipment market may cause us to record additional inventory revaluationcharges in future periods.

 

Accrued Warranties

 

We provide a standard thirteen month warranty programfor our equipment products. We record provisions for warranty claims for theseproducts based upon historical claim performance.  This approach has been applied since the inception of thewarranty program and involves a degree of subjectivity in that historicalperformance is used to estimate future warranty claims.  Therefore, there can be no assurance thatour estimates will match the actual amount of future claims.

 

**Resultsof Operations**

 

The following table sets forth, for the periodsindicated, certain items in our statements of operations as a percentage of netsales:

 

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|                                                 |   | **Years Ended**    |   | **Six Months  Ended** |   | **Fiscal Year  Ended** |   |
|------------------------------------------------------|--------|--------------------|--------|-----------------------|--------|------------------------|--------|
|                                                 |   | **Dec. 31,  2001** |   | **Dec. 31,  2000**    |   | **Dec. 31,  1999**     |   | **Dec. 31,  1999** |   | **Dec. 31,  1998** |   | **June 26,  1999** | ** ** |
| Net sales                                            |   | 100.0              | %      | 100.0                 | %      | 100.0                  | %      | 100.0 | % | 100.0 | % | 100.0 | % |
| Cost of sales                                        |   | 94.2               |   | 61.9                  |   | 47.8                   |   | 48.0 |   | 52.4 |   | 49.7 |   |
| Gross profit                                         |   | 5.8                |   | 38.1                  |   | 52.2                   |   | 52.0 |   | 47.6 |   | 50.3 |   |
| Operating expenses:                                  |   |               |   |                  |   |                   |   |   |   |   |   |   |   |
| Selling, general and  adminstrative                  |   | 42.8               |   | 32.4                  |   | 37.4                   |   | 37.9 |   | 47.1 |   | 41.4 |   |
| Research and  development                            |   | 30.9               |   | 18.6                  |   | 14.4                   |   | 13.2 |   | 21.4 |   | 18.4 |   |
| Amortization of  intangible assests                  |   | 10.4               |   | 8.6                   |   | 0.1                    |   | — |   | — |   | — |   |
| Write-down of impaired  intangible assests           |   | 36.6               |   | 6.8                   |   | —                 |   | — |   | — |   | — |   |
| Restructure charges                                  |   | 9.6                |   | —                |   | —                 |   | — |   | — |   | — |   |
| Total operating  expenses                            |   | 130.3              |   | 66.4                  |   | 51.9                   |   | 51.1 |   | 68.5 |   | 59.8 |   |
| Income (loss) from  operations                       |   | (124.5             | )      | (28.3                 | )      | 0.3                    |   | 0.9 |   | (20.9 | ) | (9.5 | ) |
| Other income  (expense), net                         |   | 0.8                |   | (0.1                  | )      | —                 |   | 0.2 |   | 0.1 |   | (0.2 | ) |
| Cumulative effect of  change in accounting principle |   | —             |   | (2.6                  | )      | —                 |   | — |   | — |   | — |   |
| Net income (loss)                                    |   | (123.7             | )%     | (31.0                 | )%     | 0.3                    | %      | 1.1 | % | (20.8 | )% | (9.7 | )% |

 

***Year Ended December 31, 2001 versus YearEnded December 31, 2000***

 

*NetSales.*  Net sales for the year ended December 31,2001 decreased  $24.5 million or 49.1%to $25.4 million, compared to net sales of $49.9 million for the prioryear.  Product acceptance requirementsrelated to product and customer mix resulted in a net increase to revenues of$6.7 million over shipments for the year ended December 31, 2001, while thesesame factors caused $6.0 million of revenue from shipments in the year 2000 tobe deferred into future periods. Current year product sales, especially capacity-related singulateddevice handler products, continue to be severely impacted by the continueddownturn in the semiconductor capital equipment market.  Sales of our Tapestry and Smart Solutionsstrip-based products increased $4.3 million or 90.6% over the prior yearperiod, while sales of singulated device handler products decreased $25.1million or 65.4% from the comparable prior year period.  We expect net sales to continue to beadversely impacted by the market downturn.

 

As detailed in Note 11 in Notes to ConsolidatedFinancial Statements, net sales to Asia comprised approximately 48% of our netsales for the year ended December 31, 2001. Sales to customers in the United States represented approximately 46%and net sales to customers in Europe represented approximately 6% for yearended December 31, 2001.  Comparatively,net sales to Asia comprised approximately 53% of our net sales for the year endedDecember 31, 2000.  Sales to customersin the United States represented approximately 44% and net sales to customersin Europe represented approximately 3% for year ended December 31, 2000.

 

*GrossProfit.*  Gross profit, inclusive of the inventoryrevaluation charge, decreased by $17.5 million to $1.5 million or 5.8% of netsales from $19.0 million or 38.1% of net sales in the prior year.  Exclusive of the inventory revaluationcharge, gross profit decreased by $13.4 million to $9.6 million or 37.7% of netsales from $23.0 million or 46.1% of net sales in the prior year.  The decrease in gross margin in the currentyear period primarily resulted from the continued unabsorbed excess productioncosts associated with the industry downturn and, in particular, excessproduction costs related to our singulated products.  Gross margin contribution improved on our Tapestry and SmartSolutions products as a result of their increased sales levels over the prioryear period.  We expect overall grossmargins to continue to be adversely impacted by the market downturn, partiallyoffset by the benefits of the consolidation of manufacturing operations and workforcereductions occurring in the first and third quarters of 2001.

 

*Selling,General  and Administrative Expense.* Selling, general and administrative expense in 2001 was $10.9 million,or 42.8% of net sales compared to $16.2 million, or 32.4% of net sales in theprior year.  The decrease in expense forthe current year is a result of the cost reduction measures initiated in thefirst and third 

 

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quarter of 2001 and a decrease in direct selling costs related to thedecrease in sales.  The increase inselling, general and administrative expense as a percentage of net sales in thecurrent year is primarily attributed to the decreased sales base.

 

*Researchand Development Expense*.  Research and developmentexpense in 2001 was $7.9 million, or 30.9% of net sales compared to $9.3million, or 18.6% of net sales in 2000. The decrease in expense for the current year is a result of the costreduction measures initiated in the first and third quarter of 2001.  The increase in research and developmentexpense as a percentage of net sales in the current year is primarily attributedto the decreased sales base.

 

*Amortizationof Intangible Assets*.   Amortization expense totaled $2.6 million,or 10.4% of net sales for the year ended December 31, 2001, versus $4.3 millionor 8.6% of net sales in the prior year. The decrease of amortization expense in the current year is directlyattributed to the write-downs of impaired goodwill and other intangible assetsthat were recorded in the fourth quarter of 2000 and the third quarter of 2001.

 

*Write-downof Impaired Intangible Assets. *As a result of the significantsemiconductor industry downturn, which began in the fourth quarter of 2000 andhas continued through 2001, we reduced the carrying value of certain intangibleassets by $4.9 million and goodwill by $4.4 million.  This write-down was recorded in the third quarter of 2001.  In the fourth quarter of 2000, also as aresult of the industry downturn, we reduced the carrying value of certainintangible assets by $0.9 million and goodwill by $2.5 million.  These charges represent 36.6% and 6.8% ofnet sales for 2001 and 2000, respectively.

 

*RestructuringCharge. *In the first quarter of 2001, we enacted a plan toconsolidate our operations and initiated other cost reduction measures, whichresulted in a charge of $2.3 million. This charge principally represented employee separation costs and costsrelated to idle facilities over the remaining lease term of the facility, whichruns through April 2003.  In the thirdquarter of 2001, we further reduced our workforce resulting in a charge of $0.1million for a total restructuring charge in 2001 of $2.4 million or 9.6% of netsales.

 

*OtherIncome (Expense).*  Interest income in 2001 was $227,000compared to $356,000 in the prior year. This decrease resulted from the decrease in interest-bearing cash andcash equivalents.  Interest expensetotaled $26,000 in 2001 compared to $330,000 in 2000.  The decrease in interest expense is attributable to decreased borrowingsunder our lines of credit during 2001.

 

*IncomeTax Provision.*  During both 2001 and 2000, we incurredminimal tax liabilities.  We haverecorded valuation allowances against all benefits associated with netoperating loss carry forwards due to uncertainty regarding their ultimateutilization.

 

*CumulativeEffect of Change in Accounting Principle.*  As a resultof the adoption of SAB 101 in the fourth quarter of 2000, and pursuant to APBNo. 20, *AccountingChanges*, we recognized the cumulative effect of retroactiveapplication of SAB 101, resulting in a charge to income of $1.3 million in2000.

 

*NetLoss.*  Net loss for the year ended December 31,2001 was $31.4 million, or $2.24 per diluted share, as compared to net loss of$15.5 million, or $1.34 per  dilutedshare for the comparable prior year period.

 

***Year Ended December 31, 2000 versus TwelveMonths Ended December 31, 1999***

 

*NetSales.*  Net sales for the year ended December 31,2000 increased $30.1 million or 152% to $49.9 million, compared to net sales of$19.8 million for the prior year. Net shipments increased $36.1 million in 2000to $55.9 million, or an increase of 182% over the prior year.  Shipments of Aseco products contributed$26.0 million of the increase in shipments in 2000 from the prior year.  Shipments of our newer handler products, theMCT 5100, MCT 7632 and Tapestry handling system, as well as our Smart Solutionsautomation products and automation software combined to contribute $7.6 millionof the increase in shipments over the prior year.  

 

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Due to the inclusion ofAseco products for the first time, shipments of these products representedapproximately 37% of total shipments in 2000 compared to approximately 66% inthe same period last year.  Theremaining increase in net sales was derived from increased shipments and refurbishmentof our more mature products.

 

As detailed in Note 11 in Notes to ConsolidatedFinancial Statements, net sales to Asia comprised approximately 53% of our netsales for the year ended December 31, 2000. Sales to customers in the United States represented approximately 44%and net sales to customers in Europe represented approximately 3% for yearended December 31, 2000.

 

*GrossProfit.*  Gross profit increased $8.6 million in 2000to $19.0 million or 38.1% of net sales from $10.4 million or 52.2% of net salesin the prior year.  The decrease ingross margin in 2000 resulted primarily from inclusion of the lower marginAseco products, a shift in product mix to the newer automation products withhigher production ramp costs, and a $4.0 million charge for the write-down ofinventory to market value, due to obsolescence and excess inventory on hand.

 

*Selling,General and Administrative Expense.*  Selling,general and administrative expense in 2000 was $16.2 million, or 32.4% of netsales compared to $7.4 million, or 37.4% of net sales in the prior year.  The addition of the Aseco operationsaccounted for approximately $5.5 million of the increase, with increased directselling costs related to increased sales revenues contributing $0.9 million ofthe increase.  The remainder primarilyrelated to increased personnel, travel and promotion costs to support the salesgrowth.  The decrease in selling,general and administrative expense as a percentage of net sales in 2000 isprimarily due to the increased net sales.

 

*Researchand Development Expense*.  Research and developmentexpense in 2000 was $9.3 million, or 18.6% of net sales compared to $2.9million, or 14.4% of net sales in 1999. The acquisition of Aseco accounted for approximately $3.6 million of theincrease in 2000.  The remainder of theincrease, of which $1.0 million was increased personnel and contract laborcosts, resulted from increased spending requirements for research anddevelopment projects initiated during 2000. These initiatives resulted in the introductions of several new productsin 2000.

 

*Amortizationof Intangible Assets*.   Amortization expense totaled $4.3 million,or 8.6% of net sales for the year ended December 31, 2000, versus $10,000 inthe prior year, and is attributable to the intangible assets and goodwillgenerated by our acquisitions.

 

*Write-downof Impaired Intangible Assets. *As a result of the significantsemiconductor industry downturn, which began in the fourth quarter of 2000, wereduced the carrying value of certain intangible assets by $0.9 million and goodwillby $2.5 million.  This write-down wasrecorded in the fourth quarter of 2000.

 

*OtherIncome (Expense).*  Interest income in 2000 was $356,000compared to $28,000 in 1999.  Thisincrease resulted from the investment in interest-bearing cash and cashequivalents of the net proceeds of our public offering in 2000. Interestexpense totaled $330,000 in 2000 compared to $5000 in 1999.  The increase in interest expense in 2000 isattributable to increased borrowings under our lines of credit during2000,primarily to fund working capital requirements.

 

*IncomeTax Provision.*  During both 2000 and 1999, we incurredminimal tax liabilities.  We haverecorded valuation allowances against all benefits associated with net operatingloss carry forwards due to uncertainty regarding their ultimate utilization.

 

*CumulativeEffect of Change in Accounting Principle.*  As a resultof the adoption of SAB 101 in the fourth quarter of 2000, and pursuant to APBNo. 20, *AccountingChanges*, we recognized the cumulative effect of retroactiveapplication of SAB 101, resulting in a charge to income of $1.3 million in2000.

 

 

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*NetIncome (Loss).*  Net loss for the year ended December 31,2000 was $15.5 million, or $1.34 per diluted share, as compared to net incomeof $50,000, or $0.01 per diluted share, for the comparable prior year period.

 

***Six-MonthTransition Period Ended December 31, 1999 versus Six Months Ended December 26,1998***

 

*NetSales.*  Net sales for the six months ended December31, 1999 increased $4.7 million, or 69.8%, to $11.4 million compared to netsales of $6.7 million for the comparable prior year period.  The increase in sales in 1999 was comprisedof increased sales from our newer products, the MCT****5100 and MCT****7632handlers and the introduction of our Tapestry handling system and automationsoftware, which increased $5.2 million or 193.6% over the comparable period inthe prior year.  Sales of these productsrepresented approximately 70% of total net sales in 1999 compared to approximately40% in the same period of 1998.  Salesof our other products decreased by $0.6 million, or 14.8%, over the same perioda year ago.  The beginning of a generalimprovement in the semiconductor capital equipment market in 1999, which was ina significant downturn in the prior year, contributed to the overall increasein demand for our products.

 

As detailed in Note 11to Consolidated Financial Statements, net sales to Asia comprised approximately65% of our net sales during the six-month transition period ended December1999, compared to approximately 54% in the comparable period of the prioryear.  Sales to customers in the UnitedStates comprised approximately 31% of net sales in the 1999 six-month transitionperiod and approximately 44% in fiscal year 1999.  Net sales to Europe comprised approximately 4% and 2% of netsales for these periods.

 

*GrossProfit.*  Gross profit increased $2.7 million in the1999 transition period to $5.9 million, or 52.0% of net sales, from $3.2million, or 47.6% of net sales, in the comparable period of 1998.  The increase in gross margin primarilyresulted from increased efficiencies and utilization of overhead costs as wellas a shift in product mix to higher margin products.

 

*Selling,General, and Administrative Expense.*  Selling,general and administrative expense was $4.3 million, or 37.9% of net sales, inthe six months ended December 1999, compared to $3.2 million, or 47.1% of netsales, in same period in 1998.  The increasein spending in the 1999 transition period reflects increased direct sellingcosts of $0.4 million related to increased net sales and increased commissionsof $0.3 million resulting from a shift in sales to customers served bycommissioned independent sales representatives.  The remainder relates to increased expenses, primarily personnelexpenses, in supporting the sales growth. The reduction as a percentage of sales is the result of increased salesduring the period compared to the prior year.

 

*Researchand Development Expense.*  Research and developmentexpense was $1.5 million, or 13.2% of net sales, in the 1999 transition period,compared to $1.4 million, or 21.4% of net sales, in the comparable period in1998.  Although spending was relativelyflat for the comparable periods, the decrease as a percentage of sales isattributed to the higher level of net sales in the 1999 transition period.

 

*Other Income (Expense).*  We generatednet interest income during the 1999 transition period of $23,000 versus $43,000in the comparable period of the prior year. The reduction in net interest income is due to decreased holdings ofinterest-bearing cash and cash equivalents.

 

*Income Tax Provision.*  During boththe 1999 and 1998 six-month periods, we incurred minimal tax liabilitiesprimarily related to foreign taxes.  Wehave recorded valuation allowances against all benefits associated with netoperating loss carryforwards due to uncertainty regarding their ultimateutilization.

 

*NetIncome (Loss)*.  Net income for the six months ended December31, 1999 was $121,000, or $0.01 per fully diluted share, compared to a net lossof $1.4 million, or $0.19 per share, for the same period in 1998.

 

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***Quarterly Results***

 

The following tablespresent selected unaudited quarterly operating results for the ten fiscalquarters ended December 31, 2001, as well as the data expressed as a percentageof net sales.  We believe that allnecessary adjustments have been included to present fairly the quarterlyinformation when read in conjunction with our consolidated financialstatements.  The operating results forany quarter are not necessarily indicative of the results for any subsequentperiod.

 

(in thousands, except per share data)

 
|                                        |   | **Quarter  Ended** |   |
|---------------------------------------------|--------|--------------------|--------|
|                                        |   | **Dec. 31  2001**  |   | **Sept. 29  2001(1)** |   | **June 30  2001** |   | **Mar. 31  2001** |   | **Dec. 31  2000(2)** |   | **Sept. 30  2000** |   | **July 1  2000** |   | **April 1  2000** |   | **Dec. 31  1999** |   | **Sept. 25  1999** |   |
| Net sales                                   |   | $                  | 4,287  |   | $ | 4,386 |   | $ | 7,404 |   | $ | 9,329 |   | $ | 12,949 |   | $ | 14,320 |   | $ | 14,413 |   | $ | 8,220 |   | $ | 5,611 |   | $ | 5,745 |   |
| Cost of sales                               |   | 2,929              |   | 11,105 |   | 4,220 |   | 5,670 |   | 11,509 |   | 7,923 |   | 7,569 |   | 3,882 |   | 2,620 |   | 2,832 |   |
| Gross profit                                |   | 1,358              |   | (6,719 | ) | 3,184 |   | 3,659 |   | 1,440 |   | 6,397 |   | 6,844 |   | 4,338 |   | 2,991 |   | 2,913 |   |
| Operating expenses:                         |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general  and administrative        |   | 2,360              |   | 2,347 |   | 2,863 |   | 3,294 |   | 4,420 |   | 4,263 |   | 4,357 |   | 3,138 |   | 2,174 |   | 2,122 |   |
| Research and  development                   |   | 1,497              |   | 1,459 |   | 2,015 |   | 2,888 |   | 2,613 |   | 2,545 |   | 2,243 |   | 1,870 |   | 821 |   | 675 |   |
| Amortization of intangible  assets          |   | —             |   | 874 |   | 879 |   | 879 |   | 1,175 |   | 1,175 |   | 1,174 |   | 784 |   | 5 |   | 5 |   |
| Write-down of  impaired intangible assets   |   | —             |   | 9,298 |   | — |   | — |   | 3,405 |   | — |   | — |   | — |   | — |   | — |   |
| Restructuring  charge                       |   | —             |   | 113 |   | — |   | 2,331 |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Income (loss) from  operations              |   | (2,499             | )      | (20,810 | ) | (2,573 | ) | (5,733 | ) | (10,173 | ) | (1,586 | ) | (930 | ) | (1,454 | ) | (9 | ) | 111 |   |
| Other income  (expense)                     |   | 50                 |   | 10 |   | 37 |   | 99 |   | 138 |   | (27 | ) | (119 | ) | (38 | ) | — |   | 19 |   |
| Income (loss)  before cumulative adjustment |   | (2,449             | )      | (20,800 | ) | (2,536 | ) | (5,634 | ) | (10,035 | ) | (1,613 | ) | (1,049 | ) | (1,492 | ) | (9 | ) | 130 |   |
| Cumulative  adjustment (3)                  |   | —             |   | — |   | — |   | — |   | — |   | — |   | — |   | (1,264 | ) | — |   | — |   |
| Net income  (loss)                          |   | $                  | (2,449 | ) | $ | (20,800 | ) | $ | (2,536 | ) | $ | (5,634 | ) | $ | (10,035 | ) | $ | (1,613 | ) | $ | (1,049 | ) | $ | (2,756 | ) | $ | (9 | ) | $ | 130 |   |
|                                        |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings  (loss) per share (4)        |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing  operations                      |   | $                  | (0.17  | ) | $ | (1.48 | ) | $ | (0.18 | ) | $ | (0.40 | ) | $ | (0.72 | ) | $ | (0.13 | ) | $ | (0.09 | ) | $ | (0.15 | ) | $ | — |   | $ | 0.02 |   |
| Cumulative adjustment                       |   | —             |   | — |   | — |   | — |   | — |   | — |   | — |   | (0.13 | ) | — |   |   |   |
| Net income  (loss)                          |   | $                  | (0.17  | ) | $ | (1.48 | ) | $ | (0.18 | ) | $ | (0.40 | ) | $ | (0.72 | ) | $ | (0.13 | ) | $ | (0.09 | ) | $ | (0.28 | ) | $ | — |   | $ | 0.02 |   |
|                                        |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted earnings  (loss) per share (4):     |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing operations                       |   | $                  | (0.17  | ) | $ | (1.48 | ) | $ | (0.18 | ) | $ | (0.40 | ) | $ | (0.72 | ) | $ | (0.13 | ) | $ | (0.09 | ) | $ | (0.15 | ) | $ | — |   | $ | 0.02 |   |
| Cumulative adjustment                       |   | —             |   | — |   | — |   | — |   | — |   | — |   | — |   | (0.13 | ) | — |   | — |   |
| Net income  (loss)                          |   | $                  | (0.17  | ) | $ | (1.48 | ) | $ | (0.18 | ) | $ | (0.40 | ) | $ | (0.72 | ) | $ | (0.13 | ) | $ | (0.09 | ) | $ | (0.28 | ) | $ | — |   | $ | 0.02 |   |
|                                        |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proforma net  income (loss)                 |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | (1,589 | ) | $ | 1,026 |   |
| Proforma net  income (loss) per share:      |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                       |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | (0.21 | ) | $ | 0.14 |   |
| Diluted                                     |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | (0.21 | ) | $ | 0.13 |   |
|                                        |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average  shares:                   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                       |   | 14,074             |   | 14,062 |   | 14,018 |   | 13,952 |   | 13,950 |   | 12,082 |   | 11,067 |   | 9,905 |   | 7,484 |   | 7,460 |   |
| Diluted                                     |   | 14,074             |   | 14,062 |   | 14,018 |   | 13,952 |   | 13,950 |   | 12,082 |   | 11,067 |   | 9,905 |   | 7,484 |   | 8,131 |   |

 

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|                                            |   | **Quarter  Ended** |   |
|-------------------------------------------------|--------|--------------------|--------|
|                                            |   | **Dec. 31  2001**  |   | **Sept. 29  2001** |   | **June 30  2001** |   | **Mar. 31  2001** |   | **Dec. 31  2000** |   | **Sept. 30   2000** |   | **July1  2000** |   | **April 1  2000** |   | **Dec. 31  1999** |   | **Sept. 25  1999** |   |
| **Percentage of  Net Sales:**              |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net sales                                       |   | 100.0              | %      | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
| Cost of sales                                   |   | 68.3               |   | 253.2 |   | 57.0 |   | 60.8 |   | 88.9 |   | 55.3 |   | 52.5 |   | 47.2 |   | 46.7 |   | 49.3 |   |
| Gross  profit                                   |   | 31.7               |   | (153.2 | ) | 43.0 |   | 39.2 |   | 11.1 |   | 44.7 |   | 47.5 |   | 52.8 |   | 53.3 |   | 50.7 |   |
| Operating  expenses:                       |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,  general and administrative            |   | 55.1               |   | 53.5 |   | 38.7 |   | 35.3 |   | 34.1 |   | 29.8 |   | 30.2 |   | 38.2 |   | 38.8 |   | 37.0 |   |
| Research  and development                       |   | 34.9               |   | 33.3 |   | 27.2 |   | 31.0 |   | 20.2 |   | 17.8 |   | 15.6 |   | 22.8 |   | 14.7 |   | 11.7 |   |
| Amortization  of intangible assets              |   | —             |   | 19.9 |   | 11.9 |   | 9.4 |   | 9.1 |   | 8.2 |   | 8.2 |   | 9.5 |   | — |   | — |   |
| Write-down  of impaired intangible assets       |   | —             |   | 212.0 |   | — |   | — |   | 26.3 |   | — |   | — |   | — |   | — |   | — |   |
| Restructuring  charge                           |   | —             |   | 2.6 |   | — |   | 25.0 |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Income (loss)  from operations                  |   | (58.3              | )      | (474.5 | ) | (34.8 | ) | (61.5 | ) | (78.6 | ) | (11.1 | ) | (6.5 | ) | (17.7 | ) | (0.2 | ) | 2.0 |   |
| Other income (expense)                          |   | 1.2                |   | 0.2 |   | 0.5 |   | 1.1 |   | 1.1 |   | (0.2 | ) | (0.8 | ) | (0.5 | ) | — |   | 0.3 |   |
| Net income  (loss) before cumulative adjustment |   | (57.1              | )      | (474.3 | ) | (34.3 | ) | (60.4 | ) | (77.5 | ) | (11.3 | ) | (7.3 | ) | (18.2 | ) | (0.2 | ) | 2.3 |   |
| Cumulative  adjustment(3)                       |   | —             |   | — |   | — |   | — |   | — |   | — |   | — |   | (15.4 | ) | — |   | — |   |
| Net  income (loss)                              |   | (57.1              | )%     | (474.3 | )% | (34.3 | )% | (60.4 | )% | (77.5 | )% | (11.3 | )% | (7.3 | )% | (33.6 | )% | (0.2 | )% | 2.3 | % |

 

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(1)   Includes charges totaling $8.1 million tocost of sales, adjusting inventories to lower cost of market.

 

(2)   Includes charges totaling $4.0 million tocost of sales, adjusting inventories to lower cost of market.

 

(3)   We adopted SAB 101 in the fourth quarter ofthe year ended December 31, 2000.  As aresult of this adoption, we recognized a cumulative effect adjustment as aresult of a change in accounting principle. The cumulative effect is recognized as if it occurred at the beginningof the year, or January 1, 2000. Proforma amounts reflect the impact of theadoption of SAB 101 on results prior to the recognition of the cumulativeadjustment, which is discussed in Note 2 in Notes to Consolidated FinancialStatements, contained elsewhere herein. The table below reconciles thepreviously reported amounts for the first three quarters of 2000 to therestated values pursuant to the adoption of SAB 101.

 

(4)   The sum of earnings (loss) per share for thefiscal quarters may differ from the annual earnings (loss) per share due to therequired method of computing weighted average number of shares in therespective periods.

 

25

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** **
|                                         |   | **As  Restated  Sept 30  2000**            |   | **SAB 101  Impact** |   | **As  Restated  Sept 30  2000** |   | **As  Restated  July 1  2000** |   | **SAB 101  Impact** |   | **As  Restated  July 1  2000** |   | **As  Restated  April 1  2000** |   | **SAB 101  Impact** |   | **As  Restated  April 1  2000** |   |
|----------------------------------------------|--------|--------------------------------------------|--------|---------------------|--------|---------------------------------|--------|--------------------------------|--------|---------------------|--------|--------------------------------|--------|---------------------------------|--------|---------------------|--------|---------------------------------|--------|
|                                         |   | **(in thousands,  except per share data)** |   |
| Net sales                                    |   | $                                          | 16,617 |                | $      | (2,297                          | )      | $                              | 14,320 |                | $      | 14,806                         |   | $                               | (393   | )                   | $      | 14,413                          |   | $ | 12,161 |   | $ | (3,941 | ) | $ | 8,220 |   |
| Cost of sales                                |   | 9,111                                      |   | (1,188              | )      | 7,923                           |   | 7,873                          |   | (304                | )      | 7,569                          |   | 6,249                           |   | (2,367              | )      | 3,882                           |   |
| Gross profit                                 |   | 7,506                                      |   | (1,109              | )      | 6,397                           |   | 6,933                          |   | (89                 | )      | 6,844                          |   | 5,912                           |   | (1,574              | )      | 4,388                           |   |
| Operating 

expenses:                        |   |                                       |   |                |   |                            |   |                           |   |                |   |                           |   |                            |   |                |   |                            |   |
| Selling, general  and administrative         |   | 4,142                                      |   | 121                 |   | 4,263                           |   | 4,358                          |   | (1                  | )      | 4,357                          |   | 3,486                           |   | (348                | )      | 3,138                           |   |
| Research and  development                    |   | 2,545                                      |   | —              |   | 2,545                           |   | 2,243                          |   | —              |   | 2,243                          |   | 1,870                           |   | —              |   | 1,870                           |   |
| Amortization of  intangible assets           |   | 1,175                                      |   | —              |   | 1,175                           |   | 1,174                          |   | —              |   | 1,174                          |   | 784                             |   | —              |   | 784                             |   |
| Loss from  operations                        |   | (356                                       | )      | (1,230              | )      | (1,586                          | )      | (842                           | )      | (88                 | )      | (930                           | )      | (228                            | )      | (1,226              | )      | (1,454                          | )      |
| Other income  (expense)                      |   | (27                                        | )      | —              |   | (27                             | )      | (119                           | )      | —              |   | (119                           | )      | (38                             | )      | —              |   | (38                             | )      |
| Income (loss)  before cu-mulative adjustment |   | (383                                       | )      | (1,230              | )      | (1,613                          | )      | (961                           | )      | (88                 | )      | (1,049                         | )      | (266                            | )      | (1,226              | )      | (1,492                          | )      |
| Cumulative  adjustment                       |   | —                                     |   | —              |   | —                          |   | —                         |   | —              |   | —                         |   | —                          |   | (1,264              | )      | (1,264                          | )      |
| Net income  (loss)                           |   | $                                          | (383   | )                   | $      | (1,230                          | )      | $                              | (1,613 | )                   | $      | (961                           | )      | $                               | (88    | )                   | $      | (1,049                          | )      | $ | (266 | ) | $ | (2,490 | ) | $ | (2,756 | ) |
| Basic earnings  (loss) per share:            |   |                                       |   |                |   |                            |   |                           |   |                |   |                           |   |                            |   |                |   |                            |   |
| Continuing operations                        |   | $                                          | (0.03  | )                   | $      | (0.10                           | )      | $                              | (0.13  | )                   | $      | (0.09                          | )      | $                               | — |                | $      | (0.09                           | )      | $ | (0.03 | ) | $ | (0.12 | ) | $ | (0.15 | ) |
| Cumulative adjustment                        |   | —                                     |   | —              |   | —                          |   | —                         |   | —              |   | —                         |   | —                          |   | (0.13               | )      | (0.13                           | )      |
| Net income  (loss)                           |   | $                                          | (0.03  | )                   | $      | (0.10                           | )      | $                              | (0.13  | )                   | $      | (0.09                          | )      | $                               | — |                | $      | (0.09                           | )      | $ | (0.03 | ) | $ | (0.25 | ) | $ | (0.28 | ) |
|                                         |   |                                       |   |                |   |                            |   |                           |   |                |   |                           |   |                            |   |                |   |                            |   |
| Diluted earnings  (loss) per share:          |   |                                       |   |                |   |                            |   |                           |   |                |   |                           |   |                            |   |                |   |                            |   |
| Continuing operations                        |   | $                                          | (0.03  | )                   | $      | (0.10                           | )      | $                              | (0.13  | )                   | $      | (0.09                          | )      | $                               | — |                | $      | (0.09                           | )      | $ | (0.03 | ) | $ | (0.12 | ) | $ | (0.15 | ) |
| Cumulative adjustment                        |   | —                                     |   | —              |   | —                          |   | —                         |   | —              |   | —                         |   | —                          |   | (0.13               | )      | (0.13                           | )      |
| Net income  (loss)                           |   | $                                          | (0.03  | )                   | $      | (0.10                           | )      | $                              | (0.13  | )                   | $      | (0.09                          | )      | $                               | — |                | $      | (0.09                           | )      | $ | (0.03 | ) | $ | (0.25 | ) | $ | (0.28 | ) |
|                                              |        |                                            |        |                     |        |                                 |        |                                |        |                     |        |                                |        |                                 |        |                     |        |                                 |        |  |  |  |  |  |  |  |  |  |  |  |

 

26

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***Liquidity andCapital Resources***

 

The net loss anddecrease in accounts payable were the primary uses of cash in 2001.  The net loss and increases in acountsreceivable and inventories to support increased net sales were the primary usesof cash in 2000.  Increases in accountsreceivable and inventories to support the increased net sales were the primaryuses of cash in the six-month transition period ended December 31, 1999.  The net loss in fiscal 1999 was the primaryuse of cash for that year.  Cash used inoperations was $10.0 million and $6.8 million in 2001 and 2000,respectively,  $0.7 million in thesix-month transition period ended December 31, 1999 and $0.5 million in fiscal1999.

 

Werecord provisions for doubtful accounts based on specific identification of ouraccounts receivable.  As a result ofthis examination, we recorded a $225,000 and $143,000 provision for the yearsended December 31, 2001 and December 31, 2000, respectively.  No provision was recorded in the six monthtransition period ended December 31, 1999 and $20,000 was recorded in fiscal1999.

 

Capital expenditures totaled $0.3 million in 2001,$0.5 million in 2000, $0.1 million in the six-month transition period endedDecember 31, 1999 and $0.1 million in fiscal 1999.  Capital purchases for all periods have been primarily forproduction and computer equipment and for leasehold improvements.

 

Cash used in the acquisition of Aseco Corporation was$0.5 million in 2000.  Cash used toacquire certain fixed and intangible assets related to our Infinity Systemsdivision was $0.3 million in the six-month transition period ended December 31,1999.

 

On December 24, 2001, we issued $10.0 million of 10%Senior Subordinated Convertible Notes due in 2006 to a group of accredited investors.  These Notes are convertible into MCT commonstock at a conversion price equal to $2.60 per share.  The Notes are redeemable by MCT at any time after January 3, 2004as long as the market price of our common stock equals or exceeds $3.90 pershare.  Proceeds of the Notes, net ofdebt issuance costs, totaled $9.2 million. Holders of the Notes have standard registration rights if they convertthe Notes to common stock.  For the yearended December 31, 2001 we issued approximately 0.1 million shares of commonstock though the exercise of employee stock options and our stock purchaseplan, which provided approximately $0.2 million.  We issued approximately 3.3 million shares of common stock in apublic offering in 2000, providing $19.7 million of cash, which was used toreduce existing lines of credit totaling $1.8 million, and for general workingcapital needs.    In 2000, we issuedapproximately 0.5 million shares of common stock through the exercise ofemployee stock options and our stock purchase plan, which provided approximately$0.9 million.  Cash provided byfinancing activities for the six months ended December 31, 1999, primarilycomprised of proceeds from the issuance of common stock upon the exercise ofstock options and warrants, was $0.2 million. Cash used in financing activities, primarily for the repayment of debt,was $26,000 in fiscal 1999.

 

At December 31, 2001 we had cash and cash equivalentsof $11.1 million, a current ratio of 2.9 and working capital of $12.9million.  At December 31, 2000 we hadcash and cash equivalents of $12.0 million, a current 

 

27

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ratio of 2.5 and working capital of $22.3 million.  At December 31, 1999 we had cash and cashequivalents of $1.0 million, a current ratio of 3.1 and working capital of $6.4million.

 

At December 31, 2001 and 2000 we maintained an unused$1.0 million secured line of credit with another bank.  Interest on the line, at our election, isbased on either the bank’s prime rate (as defined) or Eurodollar rate (as defined).  The amount available for borrowing iscalculated as a percentage of eligible accounts receivable of Aseco, and borrowingsare secured by a certificate of deposit with the bank.  This borrowing facility expired in January2002.

 

Ouranticipated capital expenditure needs for 2002 are expected to be less than$1.0 million and concentrated in development of additional products andupgrading our management information systems. We believe that cash and cash equivalents on hand at December 31, 2001are sufficient to finance and sustain our continuing operations at theprojected level through at least 2002. However, the impact of the continuation of the severe downturn in thesemiconductor capital equipment market, one or more additional businessacquisitions, or unforeseen changes in market conditions could cause us to seekadditional financing sooner.  We believethat we will be able to raise additional capital and/or negotiate a workingcapital line of credit at terms acceptable to us if required, but no assurancecan be made that such financing will be available if needed.  We may acquire other companies, productlines or technologies that are complementary to our business and our workingcapital needs may change as a result of such acquisitions.

 

**FederalTax Matters**

 

Wepaid only nominal federal and state income taxes in the years ended December31, 2001 and 2000, the six-month transition period ended December 31, 1999, andfiscal 1999.  At December 31, 2001, wehad federal net operating loss carryforwards for tax reporting purposes ofapproximately $71.1 million, a portion of which is subject to annual limitationunder Section 382 of the Internal Revenue Code.  See Note 8 in Notes to Consolidated Financial Statements, containedelsewhere herein.

 

**QuantitativeAnd Qualitative Disclosures About Market Risk**

 

The vast majority of our transactions are denominatedin U.S. dollars; as such, fluctuations in foreign currency exchange rates havehistorically had little impact on us. Inflation has not been a significant factor in our operations in any ofthe periods presented, and it is not expected to affect operations in thefuture.  At December 31, 2001 our bankline of credit carried a variable interest rate.  At December 31, 2001, we had no borrowings outstanding on ourlines of credit.  An increase ininterest rates would not expose us to market risk in that our bank line ofcredit expired in January 2002.  AtDecember 31, 2001, all of our outstanding long-term debt carried interest at afixed rate.  There is no material marketrisk relating to our long-term debt.

 

**ImpactOf New Accounting Standards**

 

***Statement of Financial Accounting Standards(SFAS) No. 141 — Business Combinations and SFAS******No. 142 — Goodwill and OtherIntangible Assets.*** In June 2001, the Financial AccountingStandards Board  (FASB) issued Statementof Financial Accounting Standards (SFAS) No. 141, *Business Combinations*, and SFAS No. 142, *Goodwill and Other Intangible Assets*.  SFAS No. 141 eliminated thepooling-of-interests method of accounting for business combinations after June30, 2001.  SFAS No. 142 establishes newstandards for accounting for goodwill and intangible assets and will be adoptedon January 1, 2002.  As a result ofreducing all goodwill and purchased intangible assets to zero during the thirdquarter of 2001 (see Note 5 in Notes to Consolidated Financial Statementscontained elsewhere herein), there is no impact to our financial position orresults of operations due to the adoption of SFAS No. 142.

 

28

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***Statement of Financial Accounting Standards (SFAS) No. 143 — Accounting for Asset Retirement Obligations***.  In June 2001, the FASB issued SFAS No. 143, *Accounting for Asset Retirement Obligations*.  SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs.  SFAS No. 143 applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees.  SFAS No. 143 amends SFAS No. 19, *Financial Accounting and Reporting by Oil and Gas Producing Companies*.  SFAS is effective for us on January 1, 2003.  We are currently assessing what impact, if any, SFAS No. 143 will have on our financial position or results of operations.

 

***Statement of Financial Accounting Standards (SFAS) No. 144 — Accounting for the Impairment or******Disposal of Long-Lived Assets***.  In August 2001, the FASB issued SFAS No. 144, *Accounting for the Impairment or Disposal of Long-Lived Assets*.  SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, *Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,* and the accounting and reporting provisions of APB Opinion No. 30, *Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,* for the disposal of a segment of a business (as previously defined in that Opinion).  SFAS No. 144 also amends ARB No. 51, *Consolidated Financial Statements,* to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary.  SFAS No. 144 was effective for us on January 1, 2002.  We do not expect this statement to have a material effect on our financial position or results of operations.

 

**RiskFactors**

 

*CautionaryNote Regarding Forward-Looking Statements*

 

*ThisReport on Form 10-K contains forward-looking statements that have been madepursuant to the provisions of the Private Securities Litigation Reform Act of1995.  These forward-looking statementsare not historical facts, but rather are based on our current expectations,estimates and projections about the semiconductor capital equipment industry,and our beliefs and assumptions.   Weintend words such as “anticipates,” “expects,” “intends,” “plans,” “believes,”“seeks,” “estimates” and similar expressions to identify forward-lookingstatements.  These statements are notguarantees of future performance and are subject to certain risks, uncertaintiesand other factors, some of which are beyond our control and are difficult topredict.  These factors could causeactual results to differ materially from those expressed or forecasted in theforward-looking statements.  These risksand uncertainties are described in  thefollowing risk factors and elsewhere in the this Report on Form 10-K. Wecaution you not to place undue reliance on these forward-looking statements,which reflect our management’s view only as of the date of this Report on Form10-K. We are not obligated to update these statements or publicly release theresult of any revisions to them to reflect events or circumstances after thedate of this Report on Form 10-K or to reflect the occurrence of unanticipatedevents.*

 

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

 

Several of our new products, including our Tapestrystrip handler and other Smart Solutions products, are used to test and processsemiconductor devices in strip form. Assembly of semiconductor devices in strip form is the standard industrypractice.  However, we cannot assure youthat testing of semiconductor devices in strip form will become widely acceptedby the industry.  Until recently, mostsemiconductor manufacturers believed it was necessary to test semiconductorsafter they were cut from the strips because they believed the act of cuttingthe strips containing the semiconductor devices, referred to as singulation,could result in damage or contamination to the semiconductor devices and, as aconsequence, make the prior test results unreliable.

 

29

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We introduced our Tapestry handling system in February1999.  In May 2000, we introduced otherSmart Solutions products, which provide additional process capability forhandling and testing semiconductor devices in strip form.  Our new products are attractive to customersonly if the customers can see the value of automating the test and assemblyportions of their semiconductor manufacturing operations.  Although semiconductor manufacturers haveautomated the wafer fabrication portion of their operation, or the front-end ofthe semiconductor manufacturing process, very few semiconductor manufacturershave invested a significant amount of capital to automate the test and assemblyportions of their operations.  We areintroducing new products for technologies, which may not be accepted on awide-scale basis by the industry.  Ifeither the testing of semiconductor devices in strip form or wide-scaleautomation of the back-end is not accepted by the industry, our net saleslikely will suffer.

 

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

 

Our business dependsheavily upon capital expenditures by semiconductor manufacturers.  The semiconductor industry is highly cyclical,with periods of capacity shortage and periods of excess capacity.  In periods of excess capacity, the industrysharply cuts purchases of capital equipment, such as our products.  Thus, a semiconductor industry downturn orslowdown substantially reduces our revenues and operating results and couldhurt our financial condition.  In thefourth quarter of 2000, the semiconductor capital equipment industry went intoa severe downturn.  This downturn hasintensified and continued throughout 2001, which has adversely impacted our revenues,operating results and financial position. The downturn is expected to last well into 2002 and possibly into 2003.

 

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

 

We offer equipment automation solutions and softwaredevelopment services.  These solutionsand services require different marketing techniques and involve a moreextensive decision-making process by customers than for our traditional handlerproducts.  We need to successfullymarket our automation products using different sales methods than we havepreviously used.

 

We acquired an automation software business in June1999 and introduced our first suite of products to provide an automationsolution for the testing portion of semiconductor manufacturing in May2000.  The sales from these operationsmake up less than 6% of our current revenue. Our future success is dependent upon being able to successfully marketour automation products.  If we are notsuccessful in effectively marketing ourselves as an equipment automationsolutions provider to the semiconductor industry, our results of operations andfinancial condition will suffer.

 

**Weinvest heavily in research and development efforts and our financial resultsdepend upon the success of these efforts.**

 

We have spent, and expect to continue to spend, asignificant amount of time and resources developing new products and refiningexisting products and systems.  In lightof the long product development cycles inherent in our industry, theseexpenditures will be made well in advance of the prospect of deriving revenuefrom the sale of new systems.

 

Our ability to introduce and market new productssuccessfully is subject to a wide variety of challenges during this developmentcycle, such as design defects, that could delay introduction of thesesystems.  In addition, since our customersare not obligated by long-term contracts to purchase our products, ouranticipated product orders may not materialize, or orders that do materializemay be canceled.  As a result, if we donot achieve market acceptance of new products, we may not be able to realizesufficient sales needed to recoup our research and development expenditures.

 

30

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

 

Our quarterly and annualoperating results are affected by a wide variety of factors that couldadversely affect sales or operating results or lead to significant variabilityin our operating results.  A variety offactors could cause this variability, including the following:

 

• thecyclical nature of the semiconductor industry; • delays in, orcancellation of, significant system purchases by customers; • delays in thedevelopment, introduction and production of our products; • changes in the mixof our products and their gross margins; • new productintroductions by competitors and competitive pricing pressures; • the time requiredfor us to adjust our operating expenses to respond to changes in sales; • the timing of anyfuture acquisitions and their effect on our financial results:

•component shortages resulting in manufacturing delays; and • pressure bycustomers to reduce prices, shorten delivery times and extend payment terms.

 

We cannot predict the impact of these and otherfactors on our sales or operating results in any future period.  Results of operations in any period, therefore,should not be considered indicative of the results to be expected for anyfuture period.  Because of thisdifficulty in predicting future performance, our operating results may fallbelow expectations of security analysts or investors in some futureperiods.  Our failure to meet theseexpectations would likely adversely affect the market price of our commonstock.

 

**Ourstock price is volatile and it may drop unexpectedly.**

 

Stock prices of companies in the semiconductor equipment industry,including ours, can swing dramatically with little relationship to operatingperformance.  Factors, which could causeour stock price to change, include:

 

•changes in the market’s view of the semiconductor industry in general; • changes in ourquarterly operating results for the reasons set out in the previous risk factoror for other reasons; • changes in ourreported financial results based on accounting pronouncements; • changes in researchanalysts’ expectations for us or our industry or our failure to meet researchanalysts’ estimates; • changes in thegeneral economic conditions or developments in the semiconductor industry whichaffect investor confidence; and • announcements by usor our competitors of technological innovations or new or enhanced products.

 

Fluctuations or decreasesin the trading price of our common stock may adversely affect the ability totrade your shares.  In addition, thesefluctuations could adversely affect our ability to raise capital through futureequity financing.

 

Additional factors, which may impact our results,include:

 

• We depend upon a few customers for themajority of our revenues and a reduction in their orders could adversely affectus.

• Our operating results would be harmed ifone of our key suppliers fails to deliver components for our products.

• The loss of any of our key personnelcould harm our business.

• Our markets are very competitive anddemand for our products may decrease if additional competitors enter ourmarkets.

• Our dependence upon international salesinvolves significant risk.

 

31

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**ITEM8.  Consolidated Financial Statementsand Supplementary Data**

 

See ConsolidatedFinancial Statements included elsewhere in this Annual Report on Form 10-K forthe year ended December 31, 2001.  Thefinancial information by quarter is included in Item 7 of this Annual Report onForm 10-K.

 

**ITEM9.  Changes in and Disagreements withAccountants on Accounting  and FinancialDisclosure**

 

Thisitem is not applicable.

 

**PARTIII**

 

**ITEM10.  Directors and Executive Officers ofthe Registrant**

 

The information requiredby this item concerning directors and executive officers is incorporated by referencefrom the Proxy Statement to be filed no later than 120 days following ourDecember 31, 2001 year end.

 

**ITEM11.  Executive Compensation**

 

The informationrequired under this item is hereby incorporated by reference from the ProxyStatement.

 

**ITEM12.  Security Ownership of CertainBeneficial Owners and Management**

** **

Theinformation required under this item is hereby incorporated by reference fromthe Proxy Statement.

 

**ITEM13.  Certain Relationships and RelatedTransactions**

 

The information requiredunder this item is hereby incorporated by reference from the Proxy Statement.

 

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**PA****RT IV**

 

**ITEM14.  Exhibits Financial StatementSchedules and Reports on Form 8-K**

 
| **(a)1.  Consolidated Financial Statements**                                                                                                                                                                             |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Index to  Consolidated Financial Statements                                                                                                                                                                                   |
| Independent Auditors’  Report                                                                                                                                                                                            |
| Consolidated Balance Sheets  as of December 31, 2001, December 31, 2000, and December 31, 1999                                                                                                                                |
| Consolidated  Statements of Operations for the Years Ended December 31, 2001, December 31,  2000, the Six-Month Transition Period Ended December 31, 1999, and the Fiscal  Year Ended June 26, 1999                           |
| Consolidated  Statements of Changes in Stockholders’ Equity for the Years Ended December  31, 2001, December 31, 2000, the Six-Month Transition Period Ended December  31, 1999, and the Fiscal Year Ended June 26, 1999 |
| Consolidated  Statements of Cash Flows for the Years Ended December 31, 2001, December 31,  2000, the Six-Month Transition Period Ended December 31, 1999, and the Fiscal  Year Ended June 26, 1999                           |
| Notes to  Consolidated Financial Statements                                                                                                                                                                                   |

 

**(a)3.Exhibits**

 
| 3A.  |   | Bylaws of MCT. (7)                                                                                                                                                                    |
|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3B.  |   | Articles of Incorporation of MCT. (7)                                                                                                                                                 |
| 3C.  |   | Articles of Amendment dated March 14, 2002 (filed  herewith).                                                                                                                         |
| 4.   |   | Specimen Certificate of Common stock. (1)                                                                                                                                             |
| 10A. |   | Form of Non-Competition Agreement between MCT and  certain senior executive officers. (1)                                                                                             |
| 10B. |   | Stock Purchase Agreement and Commission Agreement  between MCT and Cardine & Levy, dated September 25, 1995. (3)                                                                  |
| 10C. |   | Employment Agreement with Roger E. Grower dated  March 28, 1995. (2)                                                                                                                  |
| 10D. |   | Employment Agreement with Dennis L. Nelson dated May  30, 1996. (5)                                                                                                                   |
| 10E. |   | Employee Stock Purchase Plan. (4)                                                                                                                                                     |
| 10F. |   | Stock Option Plan for Outside Directors as amended  through April 10, 2001. (15)                                                                                                      |
| 10G. |   | Incentive Stock Option Plan as amended through April  10, 2001. (15)                                                                                                                  |
| 10H. |   | Former Aseco Corp. 1986 Incentive Stock Option Plan.  (13)                                                                                                                            |
| 10I. |   | Former Aseco Corp. 1993 Omnibus Stock Plan. (13)                                                                                                                                      |
| 10J. |   | Former Aseco Corp. 1993 Non-Employee Director Stock  Option Plan. (13)                                                                                                                |
| 10K. |   | Lease for MCT’s corporate headquarters dated October  16, 1996. (6)                                                                                                              |
| 10L. |   | Lease for space in Marlborough, Massachusetts dated  April 13, 1993. (12)                                                                                                             |
| 10M. |   | Credit and Security Agreement, dated February 17,  1998 between Norwest Business Credit, Inc. and Micro Component Technology,  Inc. (8)                                               |
| 10N. |   | Credit and Security Agreement, dated February 17,  1998 between Norwest Bank Minnesota, N.A. and Micro Component Technology,  Inc. (8)                                                |
| 10O. |   | First Amendment to Credit and Security Agreement,  dated October 22, 1998 between Norwest Business Credit, Inc. and Micro  Component Technology, Inc. (9)                             |
| 10P. |   | First Amendment to Credit and Security Agreement,  dated October 22, 1998 between Norwest Bank Minnesota, N.A. and Micro  Component Technology, Inc. (9)                              |
| 10Q. |   | Second Amendment to Credit and Security Agreement  (Eximbank Guaranteed Loan), dated February 16, 1999 between Norwest Bank  Minnesota N.A. and Micro Component Technology, Inc. (10) |
| 10R. |   | Second Amendment to Credit and Security Agreement,  dated May 6, 1999 between Wells Fargo Business Credit, Inc. and Micro  Component Technology, Inc. (10)                            |
| 10S. |   | Third Amendment to Credit and Security Agreement,  dated June 20, 2000 between Wells Fargo Business Credit, Inc. and Micro  Component Technology, Inc. (14)                           |

 

33

----

 
| 10T. |   | Third Amendment to Credit and Security Agreement  (Eximbank Guaranteed Loan), dated June 20, 2000, between Norwest Bank  Minnesota N.A. and Micro Component Technology, Inc. (14) |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10U. |   | Warrant Purchase Agreement dated July 11, 1992. (1)                                                                                                                               |
| 10V. |   | Second Common Stock Warrant Purchase Agreement dated  August 10, 1993. (1)                                                                                                        |
| 10W. |   | Form of 10% Senior Subordinated Convertible Note.  (filed herewith)                                                                                                               |
| 21.  |   | Revised Listing of Subsidiaries of Micro Component  Technology, Inc. (filed herewith)                                                                                             |
| 23   |   | Consent of Deloitte & Touche LLP. (filed  herewith)                                                                                                                           |

 

----

| (1)     |   | Incorporated by reference to the exhibits to the  registration statement on Form S-1 filed by MCT on August 24, 1993, as  amended, SEC File Number 33-67846.                          |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                  |
| (2)     |   | Incorporated by reference to the report on Form 10-Q  filed by MCT for the quarter ended March 25, 1995, SEC File No. 0-22384.                                                        |
|    |   |                                                                                                                                                                                  |
| (3)     |   | Incorporated by reference to the report on Form 10-Q  filed by MCT for the quarter ended September 30, 1995, SEC File No. 0-22384.                                                    |
|    |   |                                                                                                                                                                                  |
| (4)     |   | Incorporated by reference to the exhibits to the  Post-Effective Amendment to Registration Statement on Form S-8 filed by MCT  on July 15, 1996, as amended, SEC File No. 33-85766.   |
|    |   |                                                                                                                                                                                  |
| (5)     |   | Incorporated by reference to the exhibits to the  report on Form 10-K filed by MCT for the fiscal year ended June 29, 1996, SEC  File No. 0-22384.                                    |
|    |   |                                                                                                                                                                                  |
| (6)     |   | Incorporated by reference to the report on Form 10-Q  filed by MCT for the quarter ended September 28, 1996, SEC File No. 0-22384.                                                    |
|    |   |                                                                                                                                                                                  |
| (7)     |   | Incorporated by reference to the exhibits to the  Post-Effective Amendment No. 1 to the Registration Statement on Form S-1  filed by MCT on November 18, 1996, SEC File No. 33-98940. |
|    |   |                                                                                                                                                                                  |
| (8)     |   | Incorporated by reference to the report on Form 10-Q  filed by MCT for the quarter ended March 28, 1998, SEC File No. 0-22384.                                                        |
|    |   |                                                                                                                                                                                  |
| (9)     |   | Incorporated by reference to the report on Form 10-Q  filed by MCT for the quarter ended September 26, 1998, SEC File No. 0-22384.                                                    |
|    |   |                                                                                                                                                                                  |
| (10)    |   | Incorporated by reference to the report on Form 10-Q  filed by MCT for the quarter ended March 27, 1999, SEC File No. 0-22384.                                                        |
|    |   |                                                                                                                                                                                  |
| (11)    |   | Incorporated by reference to the report on Form  10-K/A filed by MCT for the fiscal year ended June 26, 1999, SEC File No.  0-22384.                                                  |
|    |   |                                                                                                                                                                                  |
| (12)    |   | Incorporated by reference to the Registration  Statement on Form S-1, as amended, filed by Aseco Corporation on January 29,  1993, SEC File No. 33-57644.                             |
|    |   |                                                                                                                                                                                  |
| (13)    |   | Incorporated by reference to the exhibits to the  Registration Statement on Form S-8 filed by MCT on January 31, 2000, SEC File  No. 333-95765.                                       |
|    |   |                                                                                                                                                                                  |
| (14)    |   | Incorporated by reference to the report of Form 10-K  filed by MCT for the transition period ended December 31, 1999 filed by MCT  on June 30, 2000, SEC File No. 0-22384.            |
|    |   |                                                                                                                                                                                  |
| (15)    |   | Incorporated by  reference to the definitive proxy materials for the 2001 Annual Stockholders  Meeting, filed April 30, 2001.                                                         |
|    |   |                                                                                                                                                                                  |
| **(b)** |   | **Reports on Form 8-K**                                                                                                                                                               |
|    |   |                                                                                                                                                                                  |
|    |   | There was no Form 8-K  filed during the quarter ended December 31, 2001.                                                                                                              |

 

34

----

 

**MICRO COMPONENT TECHNOLOGY, INC.**

 

**Index to Consolidated FinancialStatements**

 
| Index to  Consolidated Financial Statements                                                                                                                                                                        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Independent Auditors’  Report                                                                                                                                                                                 |
| Consolidated Balance Sheets  as of December 31, 2001, December 31, 2000, and December 31, 1999                                                                                                                     |
| Consolidated  Statements of Operations for the Years Ended December 31, 2001, December 31,  2000, the Six-Month Transition Period Ended December 31, 1999, and the Fiscal  Year Ended June 26, 1999                |
| Consolidated  Statements of Stockholders’ Equity for the Years Ended December 31, 2001,  December 31, 2000, the Six-Month Transition Period Ended December 31, 1999,  and the Fiscal Year Ended June 26, 1999 |
| Consolidated  Statements of Cash Flows for the Years Ended December 31, 2001, December 31,  2000, the Six-Month Transition Period Ended December 31, 1999, and the Fiscal  Year Ended June 26, 1999                |
| Notes to  Consolidated Financial Statements                                                                                                                                                                        |

 

F-1

----

 

 

##### **INDEPENDENTAUDITORS’ REPORT**

##### ** **

##### **To the Stockholders and Board of Directors of**

##### ** Micro ComponentTechnology, Inc.**

 

We have auditedthe accompanying consolidated balance sheets of Micro Component Technology,Inc. and subsidiaries (the Company) as of December 31, 2001, 2000, and1999 andthe related consolidated statements of operations, stockholders’ equity andcash flows for the years ended December, 31, 2001 and 2000, the six-monthtransition period ended December 31, 1999 and the fiscal year ended June 26,1999.  These consolidated financialstatements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.

 

We conducted ouraudits in accordance with auditing standards generally accepted in the UnitedStates of America.  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the consolidated financial statements are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe consolidated financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

In our opinion,such consolidated financial statements present fairly, in all materialrespects, the financial position of the Company at December 31, 2001, 2000, and1999, and the results of its operations and its cash flows for the years endedDecember 31, 2001 and 2000, the six-month transition period ended December 31,1999 and the fiscal year ended June 26, 1999, in conformity with accountingprinciples generally accepted in the United States of America.

 
| /s/ Deloitte & Touche LLP |   |
|-------------------------------|--------|
|                          |
| Minneapolis, Minnesota        |
| February 18, 2002             |

 

F-2

----

 

**MICRO COMPONENT TECHNOLOGY, INC.**

**CONSOLIDATEDBALANCE SHEETS**

(in thousands, exceptshare and per share amounts)

 
|                                                                                                              |   | **December  31,  2001** |       | **December  31,  2000** |       | **December  31,  1999** |       |
|-------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|-------------------------|------------|-------------------------|------------|
|                                                                                                              |   |                    |       |                    |
| **Assets**                                                                                                        |   |                    | ** ** |                    | ** ** |                    | ** ** |
| Current assets:                                                                                                   |   |                    |       |                    |       |                    |       |
| Cash and cash  equivalents                                                                                        |   | $                       | 11,086     |                    | $          | 12,047                  |       | $ | 1,045 |   |
| Accounts  receivable, less allowance for doubtful accounts of $425, $200, and $136,  respectively                 |   | 3,136                   |       | 11,905                  |       | 4,087                   |       |
| Inventories                                                                                                       |   | 5,084                   |       | 13,418                  |       | 3,648                   |       |
| Other                                                                                                             |   | 254                     |       | 371                     |       | 604                     |       |
| Total current  assets                                                                                             |   | 19,560                  |       | 37,741                  |       | 9,384                   |       |
|                                                                                                              |   |                    |       |                    |       |                    |       |
| Property, plant  and equipment, net                                                                               |   | 878                     |       | 1,286                   |       | 865                     |       |
| Goodwill and  other intangible assets, net                                                                        |   | —                  |       | 11,920                  |       | 31                      |       |
| Debt issuance  costs, net                                                                                         |   | 836                     |       | —                  |       | —                  |       |
| Other assets                                                                                                      |   | 67                      |       | 76                      |       | 44                      |       |
|                                                                                                              |   |                    |       |                    |       |                    |       |
| Total assets                                                                                                      |   | $                       | 21,341     |                    | $          | 51,023                  |       | $ | 10,324 |   |
|                                                                                                              |   |                    |       |                    |       |                    |       |
| **Liabilities and Stockholders’  Equity**                                                                    |   |                    |       |                    |       |                    |       |
| Current  liabilities:                                                                                             |   |                    |       |                    |       |                    |       |
| Current portion  of long-term debt                                                                                |   | $                       | 42         |                    | $          | 31                      |       | $ | 51 |   |
| Current portion  of accrued restructuring costs                                                                   |   | 678                     |       | —                  |       | —                  |       |
| Accounts payable                                                                                                  |   | 1,536                   |       | 6,956                   |       | 1,232                   |       |
| Accrued  compensation                                                                                             |   | 420                     |       | 1,133                   |       | 686                     |       |
| Accrued warranty                                                                                                  |   | 400                     |       | 777                     |       | 245                     |       |
| Customer  prepayments and unearned service revenue                                                                |   | 688                     |       | 985                     |       | 361                     |       |
| Deferred revenue  in excess of costs incurred                                                                     |   | 1,133                   |       | 3,333                   |       | —                  |       |
| Other accrued  liabilities                                                                                        |   | 1,756                   |       | 2,179                   |       | 423                     |       |
| Total current  liabilities                                                                                        |   | 6,653                   |       | 15,394                  |       | 2,998                   |       |
|                                                                                                              |   |                    |       |                    |       |                    |       |
| Long-term debt                                                                                                    |   | 33                      |       | 37                      |       | 70                      |       |
| Long-term  portion of accrued restructuring costs                                                                 |   | 278                     |       | —                  |       | —                  |       |
| 10% senior  subordinated convertible debt                                                                         |   | 10,000                  |       | —                  |       | —                  |       |
|                                                                                                              |   |                    |       |                    |       |                    |       |
| Commitments and  contingencies (Note 9)                                                                           |   |                    |       |                    |       |                    |       |
|                                                                                                              |   |                    |       |                    |       |                    |       |
| Stockholders’  equity:                                                                                       |   |                    |       |                    |       |                    |       |
| Preferred stock,  $.01 par value, 1,000,000 authorized, none issued and outstanding                               |   |                    |       |                    |       |                    |       |
| Common stock,  $.01 par value, 20,000,000 authorized, 14,074,365, 13,949,974, and 7,540,647  issued, respectively |   | 141                     |       | 139                     |       | 75                      |       |
| Additional  paid-in capital                                                                                       |   | 88,144                  |       | 87,942                  |       | 44,217                  |       |
| Cumulative other  comprehensive loss                                                                              |   | (69                     | )          | (69                     | )          | (69                     | )          |
| Accumulated  deficit                                                                                              |   | (83,839                 | )          | (52,420                 | )          | (36,967                 | )          |
| Total  stockholders’ equity                                                                                  |   | 4,377                   |       | 35,592                  |       | 7,256                   |       |
|                                                                                                              |   |                    |       |                    |       |                    |       |
| Total  liabilities and stockholders’ equity                                                                  |   | $                       | 21,341     |                    | $          | 51,023                  |       | $ | 10,324 |   |

 

See Notes toConsolidated Financial Statements.

 

F-3

----

 

**MICRO COMPONENT TECHNOLOGY, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

(in thousands,except per share data)

 
|                                                                      |   | **Years  Ended**       |       | **Six  Months  Ended** |       | **Fiscal  Year  Ended** |       |
|---------------------------------------------------------------------------|--------|------------------------|------------|------------------------|------------|-------------------------|------------|
|                                                                      |   |                   |       |                   |
|                                                                      |   | **December 31,  2001** | ** ** | **December 31,  2000** | ** ** | **December 31,  1999**  | ** ** | **June 26,  1999** |   |
| Net sales                                                                 |   | $                      | 25,406     |                   | $          | 49,902                  |       | $ | 11,356 |   | $ | 15,171 |   |
| Cost of sales:                                                            |   |                   |       |                   |       |                    |       |   |   |
| Product                                                                   |   | 15,832                 |       | 26,905                 |       | 5,452                   |       | 5,539 |   |
| Inventory  revaluation                                                    |   | 8,092                  |       | 3,979                  |       | —                  |       | 2,000 |   |
| Total cost of  sales                                                      |   | 23,924                 |       | 30,884                 |       | 5,452                   |       | 7,539 |   |
| Gross profit                                                              |   | 1,482                  |       | 19,018                 |       | 5,904                   |       | 7,632 |   |
|                                                                      |   |                   |       |                   |       |                    |       |   |   |
| Operating  expenses:                                                      |   |                   |       |                   |       |                    |       |   |   |
| Selling,  general, and administrative                                     |   | 10,864                 |       | 16,177                 |       | 4,296                   |       | 6,279 |   |
| Research and  development                                                 |   | 7,859                  |       | 9,271                  |       | 1,496                   |       | 2,800 |   |
| Amortization of  intangible assets                                        |   | 2,632                  |       | 4,308                  |       | 10                      |       | — |   |
| Write-down of  impaired intangible assets                                 |   | 9,298                  |       | 3,405                  |       | —                  |       | — |   |
| Restructuring  charge                                                     |   | 2,444                  |       | —                 |       | —                  |       | — |   |
| Total operating  expenses                                                 |   | 33,097                 |       | 33,161                 |       | 5,802                   |       | 9,079 |   |
|                                                                      |   |                   |       |                   |       |                    |       |   |   |
| Income  (loss) from operations                                       |   | (31,615                | )          | (14,143                | )          | 102                     |       | (1,447 | ) |
|                                                                      |   |                   |       |                   |       |                    |       |   |   |
| Other  income (expense):                                                  |   |                   |       |                   |       |                    |       |   |   |
| Interest  income                                                          |   | 227                    |       | 356                    |       | 28                      |       | 75 |   |
| Interest  expense                                                         |   | (26                    | )          | (330                   | )          | (5                      | )          | (8 | ) |
| Other  expense                                                            |   | (5                     | )          | (72                    | )          | (4                      | )          | (86 | ) |
|                                                                      |   |                   |       |                   |       |                    |       |   |   |
| Income  (loss) before income taxes                                        |   | (31,419                | )          | (14,189                | )          | 121                     |       | (1,466 | ) |
| Income  tax provision                                                     |   | —                 |       | —                 |       | —                  |       | — |   |
|                                                                      |   |                   |       |                   |       |                    |       |   |   |
| Income  (loss) before cumulative effect of change in accounting principle |   | (31,419                | )          | (14,189                | )          | 121                     |       | (1,466 | ) |
|                                                                      |   |                   |       |                   |       |                    |       |   |   |
| Cumulative  effect of change in accounting principle                      |   | —                 |       | (1,264                 | )          | —                  |       | — |   |
|                                                                      |   |                   |       |                   |       |                    |       |   |   |
| Net  income (loss)                                                        |   | $                      | (31,419    | )                      | $          | (15,453                 | )          | $ | 121 |   | $ | (1,466 | ) |
|                                                                      |   |                   |       |                   |       |                    |       |   |   |
| Net  income (loss) per share before cumulative adjustment:                |   |                   |       |                   |       |                    |       |   |   |
| Basic                                                                     |   | $                      | (2.24      | )                      | $          | (1.23                   | )          | $ | 0.02 |   | $ | (0.20 | ) |
| Diluted                                                                   |   | $                      | (2.24      | )                      | $          | (1.23                   | )          | $ | 0.01 |   | $ | (0.20 | ) |
|                                                                      |   |                   |       |                   |       |                    |       |   |   |
| Cumulative  adjustment                                                    |   | $                      | —     |                   | $          | (0.11                   | )          | $ | — |   | $ | — |   |
|                                                                      |   |                   |       |                   |       |                    |       |   |   |
| Net  income (loss) per share:                                             |   |                   |       |                   |       |                    |       |   |   |
| Basic                                                                     |   | $                      | (2.24      | )                      | $          | (1.34                   | )          | $ | 0.02 |   | $ | (0.20 | ) |
| Diluted                                                                   |   | $                      | (2.24      | )                      | $          | (1.34                   | )          | $ | 0.01 |   | $ | (0.20 | ) |
|                                                                      |   |                   |       |                   |       |                    |       |   |   |
| Proforma  net loss (Note 2)                                               |   | $                      | —     |                   | $          | —                  |       | $ | (563 | ) | $ | (1,316 | ) |
|                                                                      |   |                   |       |                   |       |                    |       |   |   |
| Weighted  average common and common equivalent shares outstanding:        |   |                   |       |                   |       |                    |       |   |   |
|                                                                      |   |                   |       |                   |       |                    |       |   |   |
| Basic                                                                     |   | 14,027                 |       | 11,531                 |       | 7,474                   |       | 7.396 |   |
| Diluted                                                                   |   | 14,027                 |       | 11,531                 |       | 8,144                   |       | 7,396 |   |

 

See Notes toConsolidated Financial Statements.

 

F-4

----

**MICRO COMPONENT TECHNOLOGY, INC.**

**CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**

(in thousands, except share data)

 
|                                                |   | **Common Stock** |   |            |   |                                    |   |                            |    |
|-----------------------------------------------------|--------|------------------|--------|-----------------|--------|-----------------------------------------|--------|---------------------------------|---------|
|                                                |   | **Shares**       |   | **Par   Value** |   | **Additional  Paid — in  Capital** |   | **Comprehensive Income (Loss)** |    | **Accumulated  Deficit** |   | **Cumulative  Other  Comprehensive  Income (Loss)** |   |
| Balance at June  27, 1998                           |   | 7,394,300        |   | $               | 74     |                                    | $      | 44,012                          |    |   |   | $ | (35,622 | ) | $ | (64 | ) |
| Net loss                                            |   |             |   |            |   |                                    |   | $                               | (1,466  | ) | (1,466 | ) |   |   |
| Shares issued  through employee stock purchase plan |   | 22,622           |   |            |   | 23                                      |   |                            |    |   |   |   |   |
| Translation  adjustment                             |   |             |   |            |   |                                    |   | (5                              | )       |   |   | (5 | ) |
| Comprehensive  loss                                 |   |             |   |            |   |                                    |   | $                               | (1,471  | ) |   |   |   |   |
|                                                |   |             |   |            |   |                                    |   |                            |    |   |   |   |   |
| Balance at June  26, 1999                           |   | 7,416,922        |   | $               | 74     |                                    | $      | 44,035                          |    |   |   | $ | (37,088 | ) | $ | (69 | ) |
| Net income                                          |   |             |   |            |   |                                    |   | $                               | 121     |   | 121 |   |   |   |
| Shares issued on  exercise of options, net          |   | 67,391           |   | 1               |   | 146                                     |   |                            |    |   |   |   |   |
| Shares issued on  conversion of warrants, net       |   | 56,334           |   |            |   | 36                                      |   |                            |    |   |   |   |   |
| Comprehensive  income                               |   |             |   |            |   |                                    |   | $                               | 121     |   |   |   |   |   |
|                                                |   |             |   |            |   |                                    |   |                            |    |   |   |   |   |
| Balance at December  31, 1999                       |   | 7,540,647        |   | $               | 75     |                                    | $      | 44,217                          |    |   |   | $ | (36,967 | ) | $ | (69 | ) |
| Net loss                                            |   |             |   |            |   |                                    |   | $                               | (15,453 | ) | (15,453 | ) |   |   |
| Shares issued on  exercise of options, net          |   | 494,514          |   | 5               |   | 814                                     |   |                            |    |   |   |   |   |
| Shares issued  for acquisition                      |   | 2,578,366        |   | 26              |   | 23,174                                  |   |                            |    |   |   |   |   |
| Proceeds from  issuance of stock, net               |   | 3,290,000        |   | 33              |   | 19,615                                  |   |                            |    |   |   |   |   |
| Shares issued  through employee stock purchase plan |   | 46,447           |   | —          |   | 122                                     |   |                            |    |   |   |   |   |
| Comprehensive  loss                                 |   |             |   |            |   |                                    |   | $                               | (15,453 | ) |   |   |   |   |
|                                                |   |             |   |            |   |                                    |   |                            |    |   |   |   |   |
| Balance at December  31, 2000                       |   | 13,949,974       |   | $               | 139    |                                    | $      | 87,942                          |    |   |   | $ | (52,420 | ) | $ | (69 | ) |
| Net loss                                            |   |             |   |            |   |                                    |   | $                               | (31,419 | ) | (31,419 | ) |   |   |
| Shares issued on  exercise of options, net          |   | 87,510           |   | 1               |   | 96                                      |   |                            |    |   |   |   |   |
| Shares issued  through employee stock purchase plan |   | 36,881           |   | 1               |   | 106                                     |   |                            |    |   |   |   |   |
| Comprehensive  loss                                 |   |             |   |            |   |                                    |   | $                               | (31,419 | ) |   |   |   |   |
| Balance at December  31, 2001                       |   | 14,074,365       |   | $               | 141    |                                    | $      | 88,144                          |    |   |   | $ | (83,839 | ) | $ | (69 | ) |

 

See Notes to ConsolidatedFinancial Statements.

F-5

----

 

**MICROCOMPONENT TECHNOLOGY, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

(in thousands)

 
|                                                                                         |   | **Years  Ended**       |    | **Six Months  Ended**  |       | **Fiscal  Year  Ended** |       |
|----------------------------------------------------------------------------------------------|--------|------------------------|---------|------------------------|------------|-------------------------|------------|
|                                                                                         |   |                   |    |                   |
|                                                                                         |   | **December  31, 2001** |    | **December  31, 2000** | ** ** | **December  31, 1999**  | ** ** | **June 26,   1999** |   |
| Cash flows from  operating activities:                                                       |   |                   |    |                   |       |                    |       |   |   |
| Net income  (loss)                                                                           |   | $                      | (31,419 | )                      | $          | (15,453                 | )          | $ | 121 |   | $ | (1,466 | ) |
| Adjustments to  reconcile net income (loss) to net cash used in operating activities:        |   |                   |    |                   |       |                    |       |   |   |
| Depreciation                                                                                 |   | 734                    |    | 883                    |       | 247                     |       | 465 |   |
| Amortization                                                                                 |   | 2,632                  |    | 4,308                  |       | —                  |       | — |   |
| Write-down of  impaired intangible assets                                                    |   | 9,298                  |    | 3,405                  |       | —                  |       | — |   |
| Inventory  revaluation                                                                       |   | 8,092                  |    | 3,979                  |       | —                  |       | 2,000 |   |
| Other, net                                                                                   |   | (41                    | )       | (19                    | )          | —                  |       | (1 | ) |
| Changes in  operating assets and liabilities:                                                |   |                   |    |                   |       |                    |       |   |   |
| Accounts  receivable                                                                         |   | 8,769                  |    | (3,495                 | )          | (491                    | )          | 18 |   |
| Inventories                                                                                  |   | 242                    |    | (7,843                 | )          | (32                     | )          | (1,786 | )  |
| Other assets                                                                                 |   | 116                    |    | 365                    |       | (470                    | )          | 21 |   |
| Accounts payable                                                                             |   | (5,420                 | )       | 2,747                  |       | (316                    | )          | 321 |   |
| Accrued  restructuring costs                                                                 |   | 996                    |    |                   |       |                    |       |   |   |
| Other accrued  liabilities                                                                   |   | (4,010                 | )       | 4,322                  |       | 237                     |       | (54 | ) |
| Net cash used in  operating activities                                                       |   | (10,011                | )       | (6,801                 | )          | (704                    | )          | (482 | ) |
|                                                                                         |   |                   |    |                   |       |                    |       |   |   |
| Cash  flows from investing activities:                                                       |   |                   |    |                   |       |                    |       |   |   |
| Additions  to property, plant and equipment, net                                             |   | (325                   | )       | (466                   | )          | (67                     | )          | (92 | ) |
| Payment  for acquisition, net of cash acquired                                               |   | —                 |    | (473                   | )          | (261                    | )          | — |   |
| Net  cash used in investing activities                                                       |   | (325                   | )       | (939                   | )          | (328                    | )          | (92 | ) |
|                                                                                         |   |                   |    |                   |       |                    |       |   |   |
| Cash  flows from financing activities:                                                       |   |                   |    |                   |       |                    |       |   |   |
| Increase  in long-term debt                                                                  |   | 41                     |    | —                 |       | —                  |       | — |   |
| Payments  on long-term debt                                                                  |   | (34                    | )       | (53                    | )          | (33                     | )          | (49 | ) |
| Proceeds  from issuance of senior subordinated convertible debt, net of debt issuance  costs |   | 9,164                  |    | —                 |       | —                  |       | — |   |
| Reduction  in working line of credit                                                         |   | —                 |    | (1,794                 | )          | —                  |       | — |   |
| Proceeds  from issuance of stock                                                             |   | 204                    |    | 20,589                 |       | 183                     |       | 23 |   |
| Net  cash provided by (used in) investing activities                                         |   | 9,375                  |    | 18,742                 |       | 150                     |       | (26 | ) |
|                                                                                         |   |                   |    |                   |       |                    |       |   |   |
| Effects  of exchange rate changes                                                            |   | —                 |    | —                 |       | —                  |       | (5 | ) |
|                                                                                         |   |                   |    |                   |       |                    |       |   |   |
| Net  increase (decrease) in cash and cash equivalents                                        |   | (961                   | )       | 11,002                 |       | (882                    | )          | (605 | ) |
|                                                                                         |   |                   |    |                   |       |                    |       |   |   |
| Cash  and cash equivalents at beginning of period                                            |   | 12,047                 |    | 1,045                  |       | 1,927                   |       | 2,532 |   |
|                                                                                         |   |                   |    |                   |       |                    |       |   |   |
| Cash  and cash equivalents at end of period                                                  |   | $                      | 11,086  |                   | $          | 12,047                  |       | $ | 1,045 |   | $ | 1,927 |   |
|                                                                                         |   |                   |    |                   |       |                    |       |   |   |
| Supplemental  disclosure-                                                                    |   |                   |    |                   |       |                    |       |   |   |
| Non-cash  investing and financing activities:                                                |   |                   |    |                   |       |                    |       |   |   |
| Equipment  acquired by capital lease                                                         |   | $                      | 41      |                   | $          | 14                      |       | $ | 70 |   | $ | — |   |
| Notes  payable for acquisition                                                               |   | —                 |    | —                 |       | 72                      |       | — |   |
| Stock  issued in cashless option and warrant exercises                                       |   | —                 |    | —                 |       | 627                     |       | — |   |
| Stock  redeemed in cashless option and warrant exercises                                     |   | —                 |    | —                 |       | (627                    | )          | — |   |
| Stock  issued for the acquisition of Aseco Corporation                                       |   | —                 |    | 22,500                 |       | —                  |       | — |   |

 

See Notes to ConsolidatedFinancial Statements.

 

F-6

----

 

**MICRO COMPONENT TECHNOLOGY, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**NOTE 1— DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES**

 

*Business*

 

Wedesign, manufacture, market and service automatic test handling equipment forthe semiconductor industry.  Ourhandlers are designed to handle most semiconductor or integrated circuit devicepackages currently in production.  Weoperate in one business segment.

 

Anetwork of offices and representatives supports our customers across NorthAmerica, Europe and Asia.  Our companywas formed in 1972 and is headquartered in St. Paul, Minnesota.

 

*Consolidation*

 

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

 

*Useof Estimates*

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires that we makeestimates and assumptions that affect amounts reported therein.  Due to the inherent uncertainty involved inmaking estimates, actual results reported in future periods might differ fromthose estimates.

 

*FiscalYear*

 

Effective December 31,1999 our fiscal year is a calendar year, ending on December 31.  Prior to that time, our fiscal year ended onthe last Saturday of June.  Presentedbelow is unaudited condensed financial information for the six-monthcomparative transition period ended December 26, 1998 (in thousands, except pershare data):

 
| Net sales                                    |   | $      | 6,688  |   |
|----------------------------------------------|--------|--------|--------|--------|
| Cost of sales                                |   | 3,506  |   |
| Gross profit                                 |   | 3,182  |   |
| Operating expenses                           |   | 4,584  |   |
| Loss from operations                         |   | (1,402 | )      |
| Other income                                 |   | 7      |   |
| Net loss                                     |   | $      | (1,395 | )      |
|                                         |   |   |   |
| Net loss per share —  basic and diluted |   | $      | (0.19  | )      |

 

*RevenueRecognition*

 

Effective January 1, 2000, we changed our method ofrevenue recognition for certain semiconductor equipment sales to comply withSEC Staff Accounting Bulletin No. 101 (SAB 101) — *Revenue Recognition in**FinancialStatements* (see Note 2).  SAB101 sets forth guidelines on the timing of revenue recognition based uponfactors such as passage of title, installation, payment and customeracceptance.

 

F-7

----

 

Under our old policy (prior to SAB 101), we recognizedrevenue for product sales upon shipment, as our terms were free on board (FOB)shipping point, if all conditions precedent to the sale had been met or were assuredof being met.  Ifwe had rights of return within a contract due to significant technologicalissues (primarily on new first build products placed for the first time at acustomer), we would not recognize revenue until technological feasability hadbeen proven and accepted and, therefore the return provision had lapsed. Revenues related to spare parts wererecognized upon shipment. Service revenue was deferred and amortized toearnings on a straight-line basis over the life of the service contract.

 

Under SAB 101, our revenuepolicy has changed. Revenue is recognized upon shipment, as our terms are FOBshipping point, for established products that have previously satisfiedexisting customer’s performance specifications and that provide for fullpayment tied to shipment.  Revenue forproducts that have not previously satisfied customer performance specificationsor from sales where all or a portion of customer payment is based uponacceptance are only recognized upon customer acceptance.  The related inventory costs are offsetagainst the deferred revenue and reported as “deferred revenue in excess ofcosts incurred” in the consolidated balance sheet.  Product warranty and installation costs are accrued in the periodsales are recognized.  Installationservices are considered to be perfunctory as defined under SAB 101 and averageless than 5% of the contract price. Revenue related to spare parts is recognized upon shipment.  Revenue related to maintenance and servicecontracts are deferred and amortized to earnings on a straight–line basisover the life of the service contract. Custom integration software revenue is recognized on a project basiswith milestone acceptance provisions.

 

*Researchand Development Expenses*

 

Research and developmentexpenses for new product development are charged to expense as incurred.

 

*Cashand Cash Equivalents*

 

We consider all highlyliquid investments purchased with original maturities of 90 days or less to becash equivalents.

 

*Inventories*

 

Inventories are stated atthe lower of cost or market.  Cost isdetermined by the first–in, first–out (“FIFO”) method.  Provision to reduce inventories to the lowerof cost or market is made based on a review of excess and obsolete inventories,estimates of future sales and the related value of component parts.

 

*Property,Plant and Equipment*

 

Property, plant andequipment are stated at cost. Depreciation is provided by the straight–line method over theestimated useful lives of the assets for financial reporting and acceleratedmethods for tax purposes.  Estimatedlives used in computing book depreciation are as follows:

 

| Leasehold improvements  |   | 3 to 10 years |
|-------------------------|--------|---------------|
| Machinery and equipment |   | 2 to 7        |
| Furniture and fixtures  |   | 3 to 5        |

 

*Impairmentof Long-Lived Assets*

 

We periodically evaluate the carrying value oflong-lived assets for potential impairment. We consider projected future operating results, cash flows, trends, andother circumstances in making such estimates and evaluations.  When the carrying value of any long-livedasset exceeds its projected undiscounted cash flows, an impairment isrecognized to reduce the carrying value to its fair market value.

 

F-8

----

 

*Goodwill*

 

Goodwill was amortized on a straight-line basis overfive years.  The carrying value ofgoodwill is reviewed if the facts and circumstances suggest that it may beimpaired.  If this review indicates thatgoodwill will not be recoverable, as determined based on the undiscounted cashflows of the entity acquired over the remaining amortization period, thecarrying value of the goodwill is reduced by the estimated shortfall of cashflows. In the third quarter of 2001 and the fourth quarter of 2000, we recordedimpairment charges related to goodwill (see Note 5).

 

*ProductWarranty*

 

Estimated costs ofwarranty obligations to customers are charged to expense and a related accrualis established at the time the product is sold.

 

*IncomeTaxes*

 

We account for incometaxes in accordance with the provisions of Statement of Financial AccountingStandards (SFAS) No. 109*, Accounting for Income Taxes*.  Deferred income taxes are recorded based ondifferences in the bases of assets and liabilities between the financialstatements and the tax returns as well as from loss carryforwards.  The valuation allowance for deferred incometax benefits is determined by us based upon the expectation of whether thebenefits are more likely than not to be realized.

 

*Stock-BasedCompensation*

 

We account forstock-based transactions under SFAS No. 123*, Accounting for Stock-Based Compensation*.As permitted by SFAS No. 123, we have elected to continue following theguidance of 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.

 

*ForeignCurrency Translation*

 

Assetsand liabilities of the foreign subsidiary are translated to U.S. dollars atyear–end rates, and the statements of operations are translated ataverage exchange rates during the year. Translation adjustments arising from the translation of the foreignaffiliates’ net assets into U.S. dollars are recorded in cumulative other comprehensiveincome until 1999.  During 1999, theforeign subsidiary’s functional currency changed to the U.S. dollar dueprincipally to a significant shift in the amount of activity denominated inU.S. dollars versus the local currency. All translation adjustments are now recorded in the consolidatedstatements of operations.

 

*Reclassifications*

 

Certain reclassifications have been made to prioryears’ consolidated financial statements in order to conform to the 2001presentation. Such reclassifications had no effect on total shareholders’equity, net income (loss), or earnings (loss) per share as previously reported.

 

F-9

----

 

*NewAccounting Standards*

 

On January 1, 2001, we adopted SFAS No. 133, *Accountingfor Derivative Instruments and Hedging Activities*, as amended bySFAS No. 138, *Accounting for Certain Derivative Instruments and Certain HedgingActivities*.  SFAS No. 133establishes accounting and reporting standards for derivative instruments andfor hedging activities.  It requiresthat all derivatives, including those embedded in other contracts, berecognized as either assets or liabilities and that those financial instrumentsbe measured at fair value.  Theaccounting for changes in the fair value of derivatives depends on theirintended use and designation. Management has reviewed the requirements of SFAS No. 133 and hasdetermined that we have no free-standing or embedded derivatives.  All contracts that contain provisionsmeeting the definition of a derivative also meet the requirements of, and havebeen designated as, normal purchases or sales. Our policy is to not use free-standing derivatives and to not enter intocontracts with terms that cannot be designated as normal purchases or sales.

 

In June 2001, the FinancialAccounting Standards Board issued SFAS No. 141, *Business Combinations*, and SFAS No. 142, *Goodwill and Other Intangible Assets*.  SFAS No. 141 eliminated thepooling-of-interests method of accounting for business combinations after June30, 2001.  SFAS No. 142 establishes newstandards for accounting for goodwill and intangible assets and will be adoptedon January 1, 2002.  As a result ofreducing all goodwill and purchased intangible assets to zero during the thirdquarter of 2001 (see Note 5), there is noimpact to our financial position or results of operations due to the adoptionof  SFAS No. 142.

 

In June 2001, the FASB issued SFAS No. 143, *Accounting for Asset Retirement Obligations*.  SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs.  SFAS No. 143 applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees.  SFAS No. 143 amends SFAS No. 19, *Financial Accounting and Reporting by Oil and Gas Producing Companies*.  SFAS No. 143 is effective for us on January 1, 2003.  We are currently assessing what impact, if any, SFAS No. 143 will have on our financial position or results of operations.

 

In August 2001, the FASB issued SFAS No. 144,  *Accounting for the Impairment or Disposal of Long-Lived Assets*.  SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, *Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,* and the accounting and reporting provisions of APB Opinion No. 30, *Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,* for the disposal of a segment of a business (as previously defined in that Opinion).  SFAS No. 144 also amends ARB No. 51, *Consolidated Financial Statements,* to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary.  SFAS No. 144 was effective for us on January 1, 2002.  We do not expect this statement to have a material effect on our financial position or results of operations.

 

**NOTE2  — CUMULATIVE EFFECT OF CHANGE INACCOUNTING PRINCIPLE**

 

In December 1999, the Securities and ExchangeCommission staff issued SAB 101, which, among other things, establishes theSEC’s interpretation that if uncertainty exists about customer acceptance of aproduct, revenue should not be recognized until acceptance occurs.  In SAB 101, the SEC stated that customeracceptance provisions may be included in a contract to enforce a customer’sright to (1) test the delivered product, (2) require the seller to performadditional services subsequent to delivery of an initial product or performanceof an initial service, such as a seller is required to install or activatedelivered equipment, or (3) identify other work necessary to be done beforeaccepting the product.  The SEC presumesthat such contractual customer acceptance provisions are substantive,bargained-for terms of an arrangement. Accordingly, when such contractual customer acceptance provisions exist,the SEC generally believes that the seller should not recognize revenue untilcustomer acceptance occurs or the acceptance provisions lapse.

 

F-10

----

 

In the fourth quarter of 2000, we changed our methodof recognizing revenue to comply with SAB 101. As a result of this change, we reported a change in accounting principlein accordance with APB Opinion No. 20 (APB 20),*Accounting Changes*, by acumulative effect adjustment.  Becausewe are a calendar year entity who adopted SAB 101 in the fourth quarter of theyear ended December 31, 2000, no cumulative effect of the change was includedin net income of the fourth quarter. Instead, APB 20 requires that the change be made as of the beginning ofthe year (January 1, 2000) and that financial information for pre-changeinterim periods, in this case the first three quarters of 2000, be restated byapplying SAB 101 to those periods.  Forthe year ended December 31, 2000, we recognized $3.3 million of revenue, whichwas included in our cumulative effect adjustment pursuant to the adoption ofSAB 101.  This represented 100% of therevenue contained in the cumulative effect adjustment.

 

The following proforma information presents a summaryof the effects of SAB 101 on prior years’ results as if SAB 101 had been in effectfor those periods presented.

 
|                                      |   | **Six  Months  Ended** |   | **Six  Months  Ended** |       | **Fiscal  Year  Ended** |   |
|-------------------------------------------|--------|------------------------|--------|------------------------|------------|-------------------------|--------|
|                                      |   |                   |   |                   |
|                                      |   | **December 31,  1999** |   | **December 26,  1998** | ** ** | **June 26,  1999**      |   |
|                                      |   |                   |   |                   |
| Net  income (loss), in thousands          |   |                   |   |                   |       |                    |   |
| As  reported                              |   | $                      | 121    |                   | $          | (1,395                  | )      | $ | (1,466 | ) |
| Proforma                                  |   | $                      | (563   | )                      | $          | (1,891                  | )      | $ | (1,316 | ) |
|                                      |   |                   |   |                   |       |                    |   |
| Earnings  (loss) per share — basic   |   |                   |   |                   |       |                    |   |
| As  reported                              |   | $                      | 0.02   |                   | $          | (0.19                   | )      | $ | (0.20 | ) |
| Proforma                                  |   | $                      | (0.08  | )                      | $          | (0.26                   | )      | $ | (0.18 | ) |
|                                      |   |                   |   |                   |       |                    |   |
| Earnings  (loss) per share — diluted |   |                   |   |                   |       |                    |   |
| As  reported                              |   | $                      | 0.01   |                   | $          | (0.19                   | )      | $ | (0.20 | ) |
| Proforma                                  |   | $                      | (0.08  | )                      | $          | (0.26                   | )      | $ | (0.18 | ) |

 

**NOTE 3 — EARNINGS (LOSS) PER SHARE**

 

Earnings(loss) per share is computed in accordance with SFAS No. 128, *Earnings PerShare*.  Basic earnings pershare are computed using the weighted average number of common sharesoutstanding during each period.  Dilutedearnings per share include the dilutive effect of common shares potentiallyissuable upon the exercise of stock options, warrants outstanding and theconversion of convertible debt.  Thefollowing table reconciles the denominators used in computing basic and dilutedearnings (loss) per share for the periods reported (in thousands):

 
|                                           |   | **Years Ended**             |   | **Six  Months  Ended**      |       | **Fiscal  Year  Ended**  |       |
|------------------------------------------------|--------|-----------------------------|--------|-----------------------------|------------|--------------------------|------------|
|                                           |   |                        |   |                        |
|                                           |   | **December  31,   2001(1)** |   | **December  31,   2000(1)** | ** ** | **December  31,   1999** | ** ** | **June 26,   1999(1)** | ** ** |
| Weighted  average common shares outstanding    |   | 14,027                      |   | 11,531                      |       | 7,474                    |       | 7,396 |   |
| Effect  of dilutive stock options and warrants |   | —                      |   | —                      |       | 670                      |       | — |   |
| Effect  of convertible debt                    |   | —                      |   | —                      |       | —                   |       | — |   |
|                                           |   | 14,027                      |   | 11,531                      |       | 8,144                    |       | 7,396 |   |

 

----

(1)   We reported a loss for the period.  No adjustment was made for the effect ofstock options, warrants or convertible debt as the effect isanti-dilutive.  Stock options and warrantsoutstanding totaled  2,349,915 shares atDecember 31, 2001; 2,157,598 shares at December 31, 2000; 1,452,009 shares atDecember 31, 1999; and 1,590,807 shares at June 26, 1999.

 

F-11

----

 

**NOTE 4 —RESTRUCTURING CHARGES**

 

In February 2001, in response to the downturn in the semiconductor capital equipmentindustry, we announced plans to consolidate the manufacturing and operationfunctions performed in our Marlborough, Massachusetts facility to our St. Paul,Minnesota facility, resulting in reductions in headcount, as well as other reductioninitiatives which would result in a restructuring charge in the first quarterof 2001.  This plan was later adjustedto transfer the manufacturing functions to our Penang, Malaysia facility.

 

The restructuring charge resulting from theconsolidation of operations and cost reduction measures initiated in the firstquarter of 2001 totaled approximately $2.3 million.  This charge principally represents employee separation costs andcosts related to idle facilities over the remaining lease term, which runsthrough April  2003.  This restructuring affected approximately25% of our workforce comprising a total of 73 employees principally in theareas of manufacturing and administration. Idle facility costs included in the charge represent a percentage of theremaining rent payments, utilities and insurance costs ($1.28 million) and theimpairment of certain leasehold improvements ($0.04 million).

 

During the third quarter of2001, due to the continued and prolonged downturn in the semiconductor capitalequipment market, we reduced our workforce across all functional areas byapproximately 17%, resulting in a restructuring charge of $113,000.  This charge reflects severance and otherbenefit costs associated with this reduction. This workforce reduction affectedan additional 31 employees, principally in the areas of manufacturing andengineering.  All of these costs wereincurred and paid during the quarter ended September 29, 2001.   The following table summarizes the charges related to workforceand manufacturing cost reductions for the year ended December 31, 2001 (inthousands):

 

 
|                                                                 |   | **Employee**

**Separation  Costs** |       | **Idle  Facility  Costs** |   | **Total** |   |
|----------------------------------------------------------------------|--------|-------------------------------------|------------|---------------------------|--------|-----------|--------|
|                                                                 |   | ** **                          | ** ** | ** **                |
|                                                                 |   |                                | ** ** | ** **                |
| Restructuring  charges incurred for the year ended December 31, 2001 |   | $                                   | 1,124      |                      | $      | 1,320     |   | $ | 2,444 |   |
|                                                                 |   |                                |       |                      |   |      |   |
| Utilization for  the year ended December 31, 2001                    |   | (1,058                              | )          | (430                      | )      | (1,488    | )      |
|                                                                 |   |                                |       |                      |   |      |   |
| Accrued  restructuring costs at December 31, 2001                    |   | $                                   | 66         |                      | $      | 890       |   | $ | 956 |   |

 

F-12

----

 

**NOTE5 — BALANCE SHEET INFORMATION**

 

Valuation reserves fornotes and accounts receivable were as follows (in thousands):

 
|               |   | **Years  Ended**        |       | **Six Months  Ended**   |       | **Fiscal  Year  Ended** |       |
|--------------------|--------|-------------------------|------------|-------------------------|------------|-------------------------|------------|
|               |   |                    |       |                    |
|               |   |                    | ** ** |                    |
|               |   | **December  31,  2001** |       | **December  31,  2000** | ** ** | **December  31,  1999** | ** ** | **June 26,  1999** |   |
|               |   |                    | ** ** | ** **              |       |
| Beginning  balance |   | $                       | 200        |                    | $          | 136                     |       | $ | 146 |   | $ | 250 |   |
| Additions          |   | 225                     |       | 143                     |       | —                  |       | 20 |   |
| Deductions         |   | —                  |       | (79                     | )          | (10                     | )          | (124 | ) |
| Ending  balance    |   | $                       | 425        |                    | $          | 200                     |       | $ | 136 |   | $ | 146 |   |

 

Additionsto the reserves are charged to selling, general and administrativeexpense.  Deductions representuncollectible accounts written off.

 

Major components ofinventories were as follows (in thousands):

 
|            |   | **December  31,  2001** |   | **December  31,  2000** |   | **December  31,  1999** |   |
|-----------------|--------|-------------------------|--------|-------------------------|--------|-------------------------|--------|
|            |   |                    |   |                    |
| Raw materials   |   | $                       | 3,602  |                    | $      | 5,229                   |   | $ | 1,283 |   |
| Work-in-process |   | 825                     |   | 6,380                   |   | 980                     |   |
| Finished goods  |   | 657                     |   | 1,809                   |   | 1,385                   |   |
|            |   | $                       | 5,084  |                    | $      | 13,418                  |   | $ | 3,648 |   |

 

Inaccordance with generally accepted accounting principles, we value ourinventories at the lower of cost or market. In the third quarter of 2001, we recorded a charge of $8.1 million forexcess and obsolete inventory. Approximately $1.9 million of this charge represents discontinued productsand approximately $0.6 million represents obsolete components resulting from ashift in product focus.  The remainingcharge of approximately $5.6 million relates to excess inventory, principallyin our older singulated products, due to the protracted downturn in thesemiconductor capital equipment industry and our change in product strategy. Inthe fourth quarter of 2000, we recorded a charge of $4.0 million for excessinventory due to the initial downturn in the market.  These provisions for excess inventory resulted from the significantdecrease in forecasted demand associated with the market downturn and werecalculated in accordance with our policy, which considers, among other factors,inventory levels in excess of anticipated 12-month demand for each specific producttype.  These amounts are included incost of sales for the third quarter of 2001 and the year ended December 31,2001, and the fourth quarter of 2000 and the year ended December 31, 2000.  We will physically dispose of all inventorythat is considered to be obsolete.

 

F-13

----

 

Property, plant andequipment were as follows (in thousands):

 
|                           |   | **December  31,  2001** |   | **December  31,  2000** |   | **December  31,  1999** |   |
|--------------------------------|--------|-------------------------|--------|-------------------------|--------|-------------------------|--------|
|                           |   |                    |   |                    |
| Leasehold  improvements        |   | $                       | 554    |                    | $      | 496                     |   | $ | 175 |   |
| Machinery  and equipment       |   | 2,411                   |   | 2,475                   |   | 2,869                   |   |
| Furniture  and fixtures        |   | 2,874                   |   | 2,772                   |   | 1,045                   |   |
|                           |   | 5,839                   |   | 5,743                   |   | 4,089                   |   |
| Less  accumulated depreciation |   | (4,961                  | )      | (4,457                  | )      | (3,224                  | )      |
|                           |   | $                       | 878    |                    | $      | 1,286                   |   | $ | 865 |   |

 

Intangible assets andgoodwill were as follows: (in thousands):

 
|                           |   | **December  31,  2001 (2)** |   | **December  31,  2000(2)** |   | **December  31,  1999** |   | **Estimated  Useful Life** |   |
|--------------------------------|--------|-----------------------------|--------|----------------------------|--------|-------------------------|--------|----------------------------|--------|
|                           |   |                        |   |                       |   |
| Intellectual  property         |   | $                           | 42     |                       | $      | 42                      |   | $                          | 42     |   | 24 months |   |
| Customer lists                 |   | 333                         |   | 1,000                      |   | —                  |   | 60 months                  |   |
| Established work  force        |   | 1,019                       |   | 1,167                      |   | —                  |   | 24 months                  |   |
| Developed  products (1)        |   | 1,125                       |   | 1,820                      |   | —                  |   | 36 months                  |   |
| Core products  (1)             |   | 1,667                       |   | 5,000                      |   | —                  |   | 60 months                  |   |
| Goodwill                       |   | 2,760                       |   | 7,205                      |   | —                  |   | 60 months                  |   |
|                           |   | 6,946                       |   | 16,234                     |   | 42                      |   |                       |   |
| Less accumulated  amortization |   | (6,946                      | )      | (4,314                     | )      | (11                     | )      |                       |   |
|                           |   | $                           | — |                       | $      | 11,920                  |   | $                          | 31     |   |   |   |

 

----

(1)   Original assignment of values was based onthe specific products assigned to each product group and discounting theforecasted net future cash flows of those products.

 

(2)   Due to the deep and protracted downturn inthe semiconductor capital equipment industry, we have shifted product strategyand focused our resources on profit contribution in high growth markets.  These high contribution markets directlyrelate to the company’s new strip testing technology and suite of automatedequipment solutions.  We will continue tomarket and manufacture certain of our older singulated products; however, thefinancial contribution of these products will continue to represent a lowerpercentage of our overall results.  Inaccordance with generally accepted accounting principles, we evaluate ourcarrying values of long-lived assets (purchased intangibles) and goodwill basedon the analysis by which the carrying values exceed the present value of theestimated future cash flows for purchased intangible assets and goodwill.  Therefore, as a result of the significantindustry downturn, which began in the fourth quarter of 2000 and has continuedthrough 2001, we reduced the carrying value of the purchased intangible assetsand goodwill as follows:

 

F-14

----

 
|                       |   | **For  the years  ended**  |   |
|----------------------------|--------|----------------------------|--------|
|                       |   |                       |
|                       |   | **December  31,  2001(b)** |   | **December  31,****2000 (b)** |   |
| Intellectual property      |   | $                          | — |   | $ | — |   |
| Customer list              |   | 667                        |   | — |   |
| Established workforce  (a) |   | 148                        |   | 300 |   |
| Developed products         |   | 695                        |   | 600 |   |
| Core products              |   | 3,333                      |   | — |   |
| Goodwill                   |   | 4,440                      |   | 2,505 |   |
| Other                      |   | 15                         |   | — |   |
| Total impairment charge    |   | $                          | 9,298  |   | $ | 3,405 |   |

 

----

(a)   The reduction of the carrying values for theestablished workforce of $0.1 million and $0.3 million affected a total of 6and 11 individuals, respectively, principally in the areas of manufacturing andengineering.

 

(b)   These impairments fully relate to the January30, 2000 Aseco Corporation acquisition and reduced the carrying value ofpurchased intangible assets and goodwill to zero, as of December 31, 2001.

 

**NOTE 6 — INDEBTEDNESS**

 

In February 1998, we established asecured revolving credit facility with a bank. Under the facility, we could borrow up to $5.0 million as determined bythe borrowing base of eligible trade accounts receivable and certain inventory,conditioned upon meeting certain financial covenants, including maintainingcertain levels of monthly and quarterly earnings and quarterly tangible networth.   The facility was secured bymost of our assets. The agreement prohibits us from paying cash dividendswithout the bank’s consent.  Borrowingsbear interest at 1.5% over the bank’s prime rate.  The bank line expired in February 2001.

 

In December 2000, we established asecured revolving credit facility with another bank.  Under the facility, we could borrow up to $1.0 million asdetermined by the borrowing base of eligible Aseco trade accountsreceivable.  Interest on the line, atour election, was based on either the bank’s prime rate (as defined) oreurodollar rate (as defined).  Thefacility was secured by a $1.0 million bank certificate of deposit.  We had no borrowings outstanding under thisline at December 31, 2001.  The bankline expired in January 2002.

 

**NOTE 7 — LONG-TERM DEBT**

 

Long-term debt and financing obligationswere as follows: (in thousands):

 
|                                       |   | **December 31,  2001** |   | **December 31,  2000** |   | **December 31,  1999** |   |
|--------------------------------------------|--------|------------------------|--------|------------------------|--------|------------------------|--------|
|                                       |   |                   |   |                   |
| Equipment and software  lease agreements   |   | $                      | 75     |                   | $      | 68                     |   | $ | 121 |   |
| Less current  obligations                  |   | (42                    | )      | (31                    | )      | (51                    | )      |
| Total long-term debt                       |   | $                      | 33     |                   | $      | 37                     |   | $ | 70 |   |
|                                       |   |                   |   |                   |   |                   |   |
| 10% senior subordinated  convertible notes |   | $                      | 10,000 |                   | $      | —                 |   | $ | — |   |

 

In December 2001, we issued $10.0 million of 10% Senior Subordinated ConvertibleNotes due in 2006 to a group of accredited investors.  These Notes are convertible into MCT common stock at a conversionprice equal to $2.60 per share.  TheNotes are redeemable by MCT at any time after January 3, 2004 as long as the 

 

F-15

----

 

market price of our common stock equals or exceeds $3.90 pershare.  Proceeds from the Notes, net ofdebt issuance costs, totaled $9.2 million. Holders of the Notes have standard registration rights if they convertthe Notes to common stock.  The Note PurchaseAgreement between us and the holders of the Notes contains certain affirmativeand negative covenants.  Among otherthings, these covenants prohibit us from paying dividends to our shareholdersor incurring more than $5.0 million of indebtedness that is senior to, or ranksthe same as the Notes.  The covenantsalso require us to comply with applicable laws and regulations, maintain ourNASDAQ listing, and provide the Note holders with copies of our SEC reports andcertain other information.

 

We have manufacturing,phone and software equipment lease agreements utilized in several of our facilities.  Capitalized lease amounts included inproperty, plant and equipment at December 31, 2001 were  $137,000, $217,000 at December 31, 2000, and$303,00 at December 31, 1999  withaccumulated depreciation of $49,000, $148,000 and $184,000, for the sameperiods, respectively.

 

Cash paid for interestwas $210,000, $354,000 $5,000, and $8,000 for the years ended December 31, 2001and 2000, the six months ended December 31, 1999, and fiscal year ended June26, 1999, respectively.

 

Payments due underdebt obligations at December 31, 2001 are as follows: 2002 - $46,000; 2003- $29,000; 2004 - $0; 2005 - $0; and thereafter $10.0 million.

 

**NOTE 8 — INCOME TAXES**

 

TheCompany had income for the six-month transition period ended December 31, 1999and incurred losses for the years ended December 31, 2001, December 31, 2000,and fiscal 1999, and recorded no provision for income taxes.

 

The reconciliation of income tax computedat the U.S. federal statutory rate to income tax expense recorded in the consolidatedfinancial statements was as follows:

 
|                                |   | **Years  Ended**   |   | **Six Months  Ended** |       | **Fiscal  Year  Ended** |       |
|-------------------------------------|--------|--------------------|--------|-----------------------|------------|-------------------------|------------|
|                                |   |               |   |                  |
|                                |   | **Dec. 31,  2001** |   | **Dec. 31,  2000**    | ** ** | **Dec. 31,  1999**      | ** ** | **June 26,  1999** |   |
|                                |   |               |   |                  |       |
| Tax (benefit) at  statutory rate    |   | (35.0              | )%     | (35.0                 | )%         | 35.0                    | %          | (35.0 | )% |
| Effect of  graduated tax rates      |   | 1.0                |   | 1.0                   |       | (1.0                    | )          | 1.0 |   |
| State taxes                         |   | —             |   | —                |       | —                  |       | — |   |
| Nondeductible  item – goodwill |   | 13.0               |   | 17.0                  |       | —                  |       | — |   |
| Adjustment to  valuation            |   | 21.0               |   | 17.0                  |       | (34.0                   | )          | 34.0 |   |
|                                |   | 0.0                | %      | 0.0                   | %          | 0.0                     | %          | 0.0 | % |

 

As of December 31, 2001,we had federal net operating loss (NOL) carryforwards totaling approximately$71.1 million and tax credit carryforwards of approximately $121,500 which canbe used to reduce future taxable income. Such tax loss and tax credit carryforwards begin to expire in 2004.

 

Webelieve that our initial public offering in October 1993, combined with priorevents, resulted in an “ownership change” of our company as defined in Section382 of the Internal Revenue Code and the Regulations issued thereunder (Section382).  Pursuant to Section 382, ourability to use our NOLs originating prior to the initial public offering,accounting for approximately $7.8 million of the NOLs, is subject to certainrestrictions including an annual limitation of approximately $0.9 million.  Future changes in ownership may placelimitations on losses incurred subsequent to the intial public offering.

 

F-16

----

 

Wehave recorded a total valuation reserve on deferred tax assets due touncertainity of their ultimate realization as follows:

 
| ** **          |   | **December 31  2001** | ** ** | **December 31  2000** | ** ** | **December 31  1999** |   |
|---------------------|--------|-----------------------|------------|-----------------------|------------|-----------------------|--------|
| Net operating loss  |   | $                     | 26,841     |                  | $          | 22,025                |   | $ | 13,135 |   |
| Inventories         |   | 6,187                 |       | 4,235                 |       | 1,750                 |   |
| Accrued expenses    |   | 1,041                 |       | 570                   |       | 190                   |   |
| Deferred profit     |   | 901                   |       | 1,330                 |       | —                |   |
| Other               |   | 703                   |       | 200                   |       | 165                   |   |
| Valuation allowance |   | (35,673               | )          | (28,360               | )          | (15,240               | )      |
|                |   | $                     | —     |                  | $          | —                |   | $ | — |   |

 

**NOTE9 — COMMITMENTS AND CONTINGENCIES**

 

Welease certain facilities and equipment under various operating leases.  Effective April 1997, we entered into anoperating lease agreement and relocated our headquarters to a new facility inSt. Paul, Minnesota, coinciding with the expiration of the operating lease atour previous headquarters facility. Under the terms of the new agreement, which extends through April 2006,we are responsible for base rent and all operating expenses associated with theportion of the facility that we occupy. The agreement provides us with a one-time option to cancel the leaseafter seven years, at which time we would only be responsible for certainunamortized build-out costs incurred by the landlord.  In May 2000, we notified ourlandlord of our intent to exercise our one-time option to lease the remainingadditional 11,000 square feet within the same building, beginning twelve totwenty-four months later, at a date to be mutually determined.

 

Total rent expensecharged to operations, primarily for facilities and equipment, was $826,000 forthe year ended December 31, 2001, $1,376,000 for the year ended December 31,2000, $316,000 in the six-month transition period ended December 31, 1999, and$583,000 in fiscal 1999.

 

Thefuture minimum rental payments at December 31, 2001, due under noncancelableoperating leases, were as follows: 2002 - $864,000; 2003 - $797,000; 2004 -$684,000; 2005 - $519,000; 2006 - $468,000; thereafter -$617,000.

 

Wehave an employment agreement with our Chief Executive Officer that may beterminated upon 60 days written notice by either party.  If we terminate the agreement, we shallcontinue to pay his salary in effect at date of termination for 12 monthsthereafter.  We also have an agreementwith one other officer that provides for severance pay and other remunerationif his employment is terminated without cause or if he should resign followinga change of control.

 

**NOTE10 — STOCK OPTION AND BONUS PLANS AND WARRANTS TO PURCHASE COMMON STOCK**

 

In May 1995 andAugust 1995, our Board of Directors amended the April 1993 Incentive StockOption Plan, (the Plan) for key employees and reserved an additional 500,000shares and 250,000 shares, respectively, for a total of 1,250,000 shares ofcommon stock for issuance under the Plan at fair market value at the date ofgrant.  In September 1999, our Board ofDirectors reserved an additional 1,050,000 shares for a total of 2,300,000shares of common stock for issuance under the Plan at fair market at the dateof grant.  In April 2001, our Board of 

 

F-17

----

 

Directors reserved an additional 300,000 shares for atotal of 2,600,000 shares of common stock for issuance under the Plan at fairmarket at the date of grant.  Theshareholders have approved all of these amendments.  The options expire five to ten years from the date of grant andgenerally vest over a two-year or four-year period.  If an individual ceases employment, he/she has one month toexercise vested options granted prior to June 8, 1994 or 90 days for optionsgranted on or after June 8, 1994. Options granted in excess of the $100,000 annual IRS limitations becomenon-qualified.

 

In fiscal 1996, our Boardof Directors and our shareholders approved the Stock Option Plan for outsidedirectors and reserved 300,000 shares of common stock for issuance under thePlan.  In April 2001, our board of directorsreserved an additional 150,000 shares for a total of 450,000 shares of commonstock for issuance under the Plan, which was approved by our shareholders.  Each person who becomes an outside directorwill automatically be granted an option to purchase 10,000 shares.  In addition, each outside director will alsoautomatically be granted an option to purchase 10,000 shares immediately uponeach reelection as a director, or on the anniversary of the prior year’s grantin any year in which there is no meeting of the stockholders at which directorsare elected.  The period within which anoption must be exercised will be the earlier of (1) ten years from the date ofthe grant, or (2) the date which is one year after the director ceases to be adirector for any reason, provided that if a director voluntarily declines tostand for re-election after the age of 60, he shall not be required to exercisehis options within one year after he ceases to be a director and shall continueto vest in his options after he ceases to be a director.  The exercise price for each option will bethe fair market value of the stock on the date of grant, and each option willgenerally vest over a two-year period at 50 percent per year.

 

On January 31, 2000, weconverted 594,744 Aseco options into our option plan pursuant to the mergeragreement (see Note 12).

 

Wehave also reserved a total of 3,846,153 shares of common stock for issuanceupon conversion of the Notes described in Note 7.

 

We have also reserved150,000 shares of common stock for the grant of non-qualified stock options foroutside directors, consultants, advisors and employees.

 

F-18

----

 

Shares subject to optionsunder these were as follows:

** **
| **Options**                                 |       | **Shares** |       | **Exercise**

**Price  Range** |   | **Weighted  Average  Exercise  Price Per  Share** |   |
|---------------------------------------------|------------|------------|------------|--------------------------------|--------|---------------------------------------------------|--------|
|                                        |       |       |       |
|                                        | ** ** | ** ** | ** ** |
|                                        | ** ** | ** ** | ** ** |
|                                        |       | ** ** | ** ** |
|  

Outstanding at  June 27, 1998       |       | 1,208,000  |       | $****1.56  to $  7.50     |   | $                                                 | 3.11   |   |
|                                        |       |       |       |                           |   |                                              |   |
| Granted (fair  value $0.68 per share)       |       | 461,500    |       | $ 1.00 to $  1.94         |   | $                                                 | 1.17   |   |
| Expired                                     |       | (347,000   | )          | $ 2.38 to $  7.00         |   | $                                                 | 4.78   |   |
|                                        |       |       |       |                           |   |                                              |   |
| Outstanding at  June 26, 1999               |       | 1,322,500  |       | $ 1.00 to $  7.50         |   | $                                                 | 2.00   |   |
|                                        |       |       |       |                           |   |                                              |   |
| Granted (fair  value $2.99 per share)       |       | 200,500    |       | $ 2.25 to $  5.44         |   | $                                                 | 4.26   |   |
| Exercised                                   |       | (69,991    | )          | $ 1.22 to $  3.31         |   | $                                                 | 2.26   |   |
| Expired                                     |       | (1,000     | )          | $  3.56                   |   | $                                                 | 3.56   |   |
|                                        |       |       |       |                           |   |                                              |   |
| Outstanding at  December 31, 1999           |       | 1,452,009  |       | $ 1.00 to $  7.50         |   | $                                                 | 2.30   |   |
|                                        |       |       |       |                           |   |                                              |   |
| Granted (fair  value $5.98 per share)       |       | 694,500    |       | $ 6.06 to $11.25               |   | $                                                 | 7.14   |   |
| Aseco converted  options                    |       | 594,774    |       | $ 1.18 to $  8.00         |   | $                                                 | 1.54   |   |
| Exercised                                   |       | (494,514   | )          | $ 1.12 to $  8.00         |   | $                                                 | 1.66   |   |
| Expired                                     |       | (89,171    | )          | $ 1.18 to $  9.00         |   | $                                                 | 5.29   |   |
|                                        |       |       |       |                           |   |                                              |   |
| Outstanding at  December 31, 2000           |       | 2,157,598  |       | $ 1.00 to $11.25               |   | $                                                 | 3.66   |   |
|                                        |       |       |       |                           |   |                                              |   |
| Granted (fair  value $1.94  per share) |       | 432,500    |       | $ 2.55 to $  3.38         |   | $                                                 | 2.93   |   |
| Exercised                                   |       | (87,510    | )          | $ 1.00 to $  1.94         |   | $                                                 | 1.20   |   |
| Expired                                     |       | (152,673   | )          | $ 1.13 to $11.25               |   | $                                                 | 6.04   |   |
|                                        |       |       |       |                           |   |                                              |   |
| Outstanding at  December 31, 2001           |       | 2,349,915  |       | $ 1.00 to $11.25               |   | $                                                 | 3.44   |   |
|                                        |       |       |       |                           |   |                                              |   |
| Exercisable at  December 31, 2001           |       | 1,257,953  |       | $ 1.00 to $  7.50         |   | $                                                 | 2.83   |   |

 

Optionsoutstanding at December 31, 2001 had exercise prices ranging from $1.00 to$11.25 per share as summarized in he following table:

 
| **Range of  Exercise  Prices** |   | **Number  Outstanding  at Dec. 31,  2001** |   | **Weighted  Average  Remaining  Life** |   | **Weighted  Average  Exercise  Price Per Share** |       | **Number   Exercisable  at Dec. 31,  2001** |
|--------------------------------|--------|--------------------------------------------|--------|----------------------------------------|--------|--------------------------------------------------|------------|---------------------------------------------|
| $1.00 to $   1.56         |   | 573,149                                    |   | 2.5 years                              |   | $                                                |  1.22 |                                        | 385,787 |
| $1.94 to $   2.95         |   | 752,000                                    |   | 6.0 years                              |   | $                                                |  2.32 |                                        | 454,000 |
| $3.25 to $   4.31         |   | 418,766                                    |   | 7.0 years                              |   | $                                                |  3.61 |                                        | 229,291 |
| $5.44 to $  7.75          |   | 554,000                                    |   | 8.5 years                              |   | $                                                |  6.57 |                                        | 169,625 |
| $9.25 to $11.25                |   | 52,000                                     |   | 8.5 years                              |   | $                                                |  9.83 |                                        | 19,250 |
| $1.00 to $11.25                |   | 2,349,915                                  |   | 6.0 years                              |   | $                                                |  3.45 |                                        | 1,257,953 |

 

F-19

----

 

In February 1996, theBoard of Directors adopted the Employee Stock Purchase Plan and reserved300,000 shares of common stock for issuance under the Plan.  Eligible employees can elect under the Planto contribute between two percent and ten percent of their base pay each planyear (June 1 - May 31) to purchase shares of common stock at a price per shareequal to 85 percent of market value on the first day of the plan year or thelast day of the plan year, whichever is lower. Employee contributions are deducted from their regular salary orwages.  The maximum number of sharesthat can be purchased by an employee in any plan year is 1,000 shares.  For the year ended December 31, 2001, 36,881shares were issued under the plan at prices ranging from $2.50 to $2.91, at aweighted average price of $2.89.  Duringthe year ended December 31, 2000, 46,447 shares were issued under the plan atprices ranging from $1.90 to $4.83, at a weighted average price of $2.63.  During the 1999 six-month transition period,no shares were issued under the plan.  During fiscal 1999, 22,622 shares were issued under the plan at pricesranging from $0.45 to $1.06, at a weighted average price of $1.04 per share.  Approximately 159,400 shares remain reservedfor future issuances.

 

Aspermitted by SFAS No. 123, *Accounting for Stock-Based Compensation*,we have elected to continue following the guidance of APB Opinion No. 25 formeasurement and recognition of stock-based transactions with employees.  Because stock options have been granted atexercise prices at least equal to the fair market value of the stock at thegrant date, no compensation cost has been recognized for stock options issuedto employees under the stock option plans. If compensation cost for our stock option and employee stock purchaseplans had been determined based on the fair value at the grant dates,consistent with the method provided in SFAS No. 123, our net income (loss) andearnings (loss) per share would have been as follows:

 
|                                      |   | **Years  Ended**  |       | **Six  Months  Ended** |       | **Fiscal  Year  Ended** |       |
|-------------------------------------------|--------|-------------------|------------|------------------------|------------|-------------------------|------------|
|                                      |   |              |       |                   |
|                                      |   |              |       |                   |
|                                      |   | **Dec. 31  2001** | ** ** | **Dec. 31  2000**      | ** ** | **Dec. 31  1999**       | ** ** | **June 26  1999** |   |
|                                      |   |              | ** ** | ** **             |       |
| Net  income (loss), in thousands          |   |              |       |                   |       |                    |       |   |   |
| As  reported                              |   | $                 | (31,419    | )                      | $          | (15,453                 | )          | $ | 121 |   | $ | (1,466 | ) |
| Proforma                                  |   | $                 | (32,659    | )                      | $          | (16,740                 | )          | $ | (153 | ) | $ | (1,652 | ) |
|                                      |   |              |       |                   |       |                    |       |   |   |
| Earnings  (loss) per share — basic   |   |              |       |                   |       |                    |       |   |   |
| As  reported                              |   | $                 | (2.24      | )                      | $          | (1.34                   | )          | $ | 0.02 |   | $ | (0.20 | ) |
| Proforma                                  |   | $                 | (2.33      | )                      | $          | (1.45                   | )          | $ | (0.02 | ) | $ | (0.22 | ) |
|                                      |   |              |       |                   |       |                    |       |   |   |
| Earnings  (loss) per share — diluted |   |              |       |                   |       |                    |       |   |   |
| As reported                               |   | $                 | (2.24      | )                      | $          | (1.34                   | )          | $ | 0.01 |   | $ | (0.20 | ) |
| Proforma                                  |   | $                 | (2.33      | )                      | $          | (1.45                   | )          | $ | (0.02 | ) | $ | (0.22 | ) |

 

Thefair value of options granted under the stock option and employee stockpurchase plans for the years ended December 31, 2001, December 31, 2000, and thesix-month transition period ended December 31, 1999, and fiscal 1999 wasestimated on the date of grant using the Black-Scholes option pricing modelwith the following weighted average assumptions and results:

 

F-20

----

 
|                      |   | **Years Ended**    |       | **Six Months  Ended** |       | **Fiscal  Year Ended** |       |
|---------------------------|--------|--------------------|------------|-----------------------|------------|------------------------|------------|
|                      |   |               | ** ** |                  |
|                      |   | **Dec. 31,  2001** |       | **Dec. 31,  2000**    | ** ** | **Dec. 31,  1999**     | ** ** | **June 26,  1999** |   |
|                      |   |               | ** ** | ** **            |       |
| Dividend  yield           |   | 0.00               | %          | 0.00                  | %          | 0.00                   | %          | 0.00 | % |
| Expected  volatility      |   | 102.51             | %          | 107.02                | %          | 118.84                 | %          | 88.48 | % |
| Risk-free  interest       |   | 4.62               | %          | 6.31                  | %          | 5.67                   | %          | 4.77 | % |
| Expected  life of options |   | 3.5  years         |       | 3.5  years            |       | 3.5  years             |       | 3.0  years |   |

 

In November 1999, we issued 9,991 shares of commonstock for the exercise of options to purchase 9,991 shares of common stock andreceived in exchange 2,600 shares previously owned by the option holder to fundthe exercise.  Accordingly, there wereno cash proceeds from this transaction.

 

InDecember 1999, we issued 16,638 shares of common stock pursuant to the netexercise of 50,942 warrants and we issued 30,696 shares of common stockpursuant to the net exercise of 139,865 warrants.  There were no cash proceeds from the conversion of the warrantsto common stock as the transactions were cashless conversions in which theexercise was funded by shares surrendered, as provided for in the terms of thewarrant agreements.

 

**NOTE 11— SEGMENT, GEOGRAPHIC, CUSTOMER INFORMATION AND CONCENTRATION OF CREDIT RISK**

 

Weoperate in one industry segment supplying automated equipment test handlers tothe semiconductor industry.  Net salesto customers located in the three geographic regions in which we operate aresummarized as follows (in thousands):

 
|          |   | **Years  Ended**   |       | **Six Months  Ended** |       | **Fiscal  Year Ended** |       |
|---------------|--------|--------------------|------------|-----------------------|------------|------------------------|------------|
|          |   | ** **         | ** ** |                  |
|          |   | **Dec. 31,  2001** |       | **Dec. 31,  2000**    | ** ** | **Dec. 31,  1999**     | ** ** | **June 26,  1999** |   |
|          |   |               |       |                  |       |
| United States |   | $                  | 11,628     |                  | $          | 22,123                 |       | $ | 3,556 |   | $ | 5,379 |   |
| Asia          |   | 12,080             |       | 26,382                |       | 7,347                  |       | $ | 9,205 |   |
| Europe        |   | 1,698              |       | 1,397                 |       | 453                    |       | 587 |   |
|          |   | $                  | 25,406     |                  | $          | 49,902                 |       | $ | 11,356 |   | $ | 15,171 |   |

 

We do not hold a material amount of long-lived assetsoutside of the United States.

 

During the year ended December 31,2001,  three customers accounted forapproximately 41% of net sales.  Duringthe year ended December 31, 2000, one customer accounted for approximately 14%of net sales.  During the six-monthtransition period ended December 31, 1999, one customer accounted for approximately19% of net sales.  During fiscal 1999,one customer accounted for 27% of net sales.

 

F-21

----

 

##### **NOTE 12 — ACQUISITION**

 

On January 31, 2000, we completed the acquisition ofAseco Corporation, a Massachusetts-based manufacturer of singulated handlingequipment for the back-end of the semiconductor manufacturing process.  The acquisition was structured as astock-for-stock purchase and Aseco is now a wholly-owned subsidiary ofMCT.  The purchase price totaled $24.0million, consisting of 2.6 million shares of our****common stock valued at $22.5million issued to former Aseco shareholders and $1.5 million of acquisition-relatedcosts.

 

The acquisition was accounted for using the purchasemethod of accounting.  The results ofoperations of Aseco are included in our consolidated financial statementsbeginning January 31, 2000.  Thepurchase price has been allocated based on the estimated fair values of netassets acquired at the date of acquisition. The excess of purchase price over net assets acquired, amounting to $9.7million, has been allocated to goodwill, and was being amortized using astraight line method over the estimated useful life of five years.  Other intangible assets, includingestablished workforce, customer list, and core and developed technology,totaling $9.9 million were being amortized using the straight-line method overthe estimated useful lives of two to five years.

 

As a result of theindustry downturn in the fourth quarter of 2000, we reduced the carrying valuesof goodwill by $2.5 million and purchased intangible assets by $0.9 million,due to impairment of these assets. In the third quarter of 2001, due to thecontinuing industry downturn and a shift in product strategy from singulatedproducts to strip testing, we reduced the remaining carrying values of goodwilland purchased intangible assets by $4.4 million and $4.9 million, respectively.  This impairment charge reduced all amountsof goodwill and purchased intangible assets associated with the Asecoacquisition to zero at December 31, 2001.

 

The following unaudited pro forma information presentsa summary of combined results of operations of MCT and Aseco as if theacquisition had occurred on June 28, 1998, along with certain pro formaadjustments to give effect to amortization of goodwill and other intangibleassets.  The pro forma results forfiscal year ended June 26, 1999 were derived using Aseco’s audited results forits fiscal year ended March 28, 1999. The pro forma information also does not attempt to show how we wouldactually have performed on a combined basis had the companies been combinedthroughout these periods.  The followingpro forma information, therefore, although helpful in illustrating thefinancial characteristics of our combined company under one set of assumptions,does not attempt to predict or suggest future results (in thousands, except pershare data):

 
|                                                       |   | **Six Months  Ended  Dec. 31,  1999** |   | **Fiscal  Year   Ended  June 26,  1999** |   |
|------------------------------------------------------------|--------|---------------------------------------|--------|------------------------------------------|--------|
|                                                       |   |                                  |   |
|                                                       |   |                                  |   |
|                                                       |   | ** **                            |   |
| **Net  sales**                                             |   | $                                     | 22,564 |                                     | $      | 33,476 | ** ** |
| **Net  loss**                                              |   | $                                     | (3,266 | )                                        | $      | (19,247 | **)** |
| Net  loss per share — basic and diluted               |   | $                                     | (0.31  | )                                        | $      | (1.86 | ) |
|                                                       |   |                                  |   |                                     |   |
| Weighted average  common shares — basic & diluted |   | 10,404                                |   | 10,326                                   |   |

** **

**NOTE13 — SUBSEQUENT EVENT**

 

InJanuary 2002, in response to the continuing downturn in the semiconductorcapital equipment market, we further reduced our staffing levels by 22% or 38positions across all functional areas resulting in a restructuring chargeof  approximatly $277,000.  Thischarge reflects severance and other benefit costs associated with thisreduction.  This charge will bereflected in our first quarter 2002 results.

 

F-22

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**SIGNATURE**

 

Pursuant to the requirements of Section13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned; thereuntoduly authorized, in the City of St. Paul, State of Minnesota, on March 25,2002.

 
|   | MICRO COMPONENT  TECHNOLOGY, INC.    |
|--------|--------------------------------------|
|   |                                 |
|   | By:                                  | /s/ Roger E. Gower |
|   | Roger E. Gower                       |
|   | President, Chief  Executive Officer, |
|   | Chairman of the Board  and Director  |
|        |                                      |  |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant in thecapacities indicated on March 25, 2002.

 
| Signature               |   | Capacity                                 |
|-------------------------|--------|------------------------------------------|
|                    |   |                                     |   |
| /s/Roger E. Gower       |   |                                     | President, Chief Executive Officer, |
| Roger E. Gower          |   | Chairman of the Board and Director       |
|                    |   |                                     |   |
| /s/Jeffrey S. Mathiesen |   |                                     | Vice President of Finance/ |
| Jeffrey S. Mathiesen    |   | Administration, Chief Financial Officer, |
|                    |   |                                     | Treasurer |
|                    |   |                                     |   |
| /s/Donald J. Kramer     |   |                                     | Director |
| Donald J. Kramer        |   |                                     |
|                    |   |                                     |   |
| /s/David M. Sugishita   |   |                                     | Director |
| David M. Sugishita      |   |                                     |
|                    |   |                                     |   |
| /s/Donald R. VanLuvanee |   |                                     | Director |
| Donald R. VanLuvanee    |   |                                     |
|                    |   |                                     |   |
| /s/Patrick Verderico    |   |                                     | Director |
| Patrick Verderico       |   |                                     |
|                    |   |                                     |   |
| /s/Dr. Sheldon Buckler  |   |                                     | Director |
| Dr. Sheldon Buckler     |   |                                     |
|                         |        |                                          |  |  |

 

F-23

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