** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K /A**

 

**ý  ANNUAL REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the year ended December 31, 2000**

 

**OR**

 

**o  TRANSITION REPORT PURSUANT TO SECTION 13 OR15(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 | (I.R.S. Employer    |
| incorporation or organization)   | Identification No.) |

 

**2340 West County Road C, St. Paul,Minnesota 55113**

(Address ofprincipal executive offices)

Registrant’stelephone number, including area code**(651) 697-4000**

 

Securitiesregistered pursuant to Section 12(b) of the Act: None

Securitiesregistered pursuant to Section 12(g) of the Act:

**COMMON STOCK, $.01 PAR VALUE**

(Title of Class)

 

                Indicateby check mark whether the Registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months, and (2) has been subject to such filing requirements forthe past 90 days.  Yes ý  No o

 

                Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

 

                Theaggregate market value of the common stock held by non-affiliates of theRegistrant on March 1, 2001 (based upon the closing price of those shares onthe NASDAQ National Market System) was approximately $33.0 million.

 

Number of shares outstanding of the Registrant’sCommon stock, as of March 1, 2001, is 13,953,995.

 

DOCUMENTS INCORPORATED BYREFERENCE

 

                Portions of the Registrant’sDefinitive Proxy Statement for the annual meeting of stockholders (the “ProxyStatement”), and to be filed within 120 days after the Registrant’s fiscal yearended December 31, 2000, are incorporated by reference into Part III.

 

 

**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 Financial  Data |   |
|                                            |   |   |   |   |
|                                            | ITEM   | 7.  Management’s Discussion and Analysis of Results of Operations and Financial  Condition |   |
|                                            |   |   |   |   |
|                                            | ITEM   | 8.  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** |   |

 

 

**PART I**

 

This Form 10-Kcontains certain forward-looking statements. For this purpose, any statements contained in this Form 10-K that arenot statements 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 context otherwiserequires, 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 two wholly owned activesubsidiaries, Micro Component Technology Asia Pte. Ltd., “MCT Asia”, and AsecoCorporation, “Aseco”, which was acquired January 31, 2000.  Our principal executive offices are locatedat 2340 West County Road C, St. Paul, Minnesota 55113 and our telephone numberat that location is (651) 697-4000.

 

                Our trademarks used in this Form10-K are:  MCT, Infinity Systems, Aseco,Tapestry, Smart Solutions, SmartMark, SmartSort, SmartTrak, Isocut, Workstation2000, MCT 2000, MCT 3120, MCT 5115, MCT 5100, MCT 7632, S-170, S-130, MCT 4610,S-200, AV-1000, AI-1000, AL-1000, AS-1000 and RoadRunner.  All other trademarks or trade names referredto in this Form 10-K are the property of their respective owners.

 

**Background**

 

                On October 18, 1993 we completed an initial publicoffering of 2,200,000 shares of common stock resulting in net proceeds to us of$21.7 million.  Simultaneous with theclosing, all series of redeemable preferred stock, Class B non-voting commonstock and the outstanding subordinated debentures were exchanged or convertedinto shares of common stock.

 

                On November 22, 1994, wecompleted the sale of our 1149 tester product line to MegatestCorporation.  Concurrent with this sale,Megatest purchased 315,789 shares of our non-voting Class A preferredstock.  On November 24, 1997, weconverted 315,789 shares of Class A preferred stock to common stock on aone-for-one basis.

 

                On September 25, 1995, wecompleted the sale of our European subsidiary, Intertrade Scientific, Inc.,“ITS”.  We continue to distribute ourproducts in Europe through another distributor.

 

**               **OnJune 29, 1999, we acquired certain assets and assumed certain liabilities ofthe Systems Integration unit of FICO America, Inc., forming the InfinitySystems Division to develop and implement Manufacturing Execution Systems, andfactory control systems to customers in the semiconductor industry.

 

                On January 31, 2000, wecompleted our acquisition of Aseco Corporation, a Massachusetts basedmanufacturer of handling equipment.  Theacquisition was structured as a stock-for-stock purchase and was accounted forusing the purchase method of accounting. The purchase price totaled $24.0 million, consisting of 2.6 millionshares of MCT common stock valued at $22.5 million issued to former Asecoshareholders and $1.5 million of acquisition-related costs.

 

                On April 11, 2000, our Board of Directors elected tochange our fiscal year end to a year ending on December 31, effective December31, 1999.  Our interim thirteen-weekquarters each end on a Saturday.

 

                On August 16, 2000, we issued 3,000,000 shares ofcommon stock, and on September 18, 2000, we issued 290,000 shares of commonstock in a public stock offering. Proceeds from the offering totaled $19.7 million.

 

**Introduction**

 

We are a leading supplier of integrated automationsolutions for the global semiconductor test and assembly industry.  We offer complete and comprehensiveequipment automation solutions for the test, laser mark, mark inspect,singulation, sort, and packaging for shipment portions of the back-end of thesemiconductor manufacturing process that significantly improves our customers'productivity, yield and throughput.  Oursolutions include our series of integrated Smart Solutions, automated testhandlers, factory automation software and equipment integration services.  Our customers include many leadingsemiconductor companies such as AMD, Analog Devices, National Semiconductor,Lucent Technologies and ST Microelectronics and many of the leading back-endtest and assembly companies including Amkor and Acer Testing.  We believe we have one of the world'slargest installed bases of handlers used to test semiconductor devices.

 

Semiconductor devices are becoming more complex and arecharacterized by shrinking semiconductor device sizes, chip scale packaging,increased circuitry and larger wafer sizes. These trends have led manufacturers to seek new tools and new solutionsto meet their demanding requirements. We believe that our complete offering of equipment automation productsand services allows manufacturers to effectively address evolving processtechnologies and packaging formats, such as strips and chip-scale packaging.

 

Beginning in 1999, we broadened our strategy from thatof a test handler manufacturer to one of becoming a provider of comprehensiveequipment automation solutions for the back-end of the semiconductormanufacturing process. Consistent with this new strategy, we have recentlycompleted two acquisitions.  Ouracquisition of Infinity Systems in June 1999, a company involved in thedevelopment of factory automation software, was integral to the development ofour integrated equipment Smart Solutions product suite.  In January 2000, we completed ouracquisition of Aseco, which provided us with increased machine vision androbotics engineering technology critical to the handling of strips and wafers.

 

**IndustryOverview**

 

The semiconductor device industry has growntremendously over the last decade. This growth has been driven by traditionalsemiconductor markets like personal computers and data processing, and morerecently by the proliferation of semiconductor devices in telecommunications,wireless communications, and consumer electronics, as well as Internet infrastructureequipment.

 

The process of semiconductor manufacturing is one ofthe most complicated and logistically challenging manufacturing processes inthe world.  An advanced semiconductordevice can travel approximately ten miles and undergo as many as 500 productionsteps before completion.  Thesemiconductor device manufacturing process is traditionally divided into twoparts: the front-end, which includes wafer fabrication from bare substrate tofinished wafer; and the back-end which includes semiconductor device test,assembly and packaging.  Front-end andback-end manufacturing facilities are expected to run 24 hours a day, 7 days aweek to provide the productivity needed to meet the requirements of the market.

 

Initially, semiconductor manufacturers concentratedtheir efforts on improving the more expensive front-end wafer fabricationprocess.  They improved the front-end byfirst automating the individual production tools and more recently byintegrating the various production tools through factory automationsoftware.  Tool automation wassignificant because it replaced most human handling of the wafers withrobotics, resulting in dramatically increased yields.  Factory automation software is significantly improvingproductivity, yield and throughput in the front-end by utilizing powerfulproduction scheduling, materials handling and process tool control software.

 

Automation of back-end tools and facilities isseverely lagging the front-end.  Onlyrecently have manufacturers begun to seek automation solutions for the back-endproduction process.  This is because,historically, the cost of back-end assembly and test processes was only a smallportion of the total semiconductor device cost and traditional processes wereable to provide adequate throughput. Today the cost of back-end assembly and test per semiconductor deviceoften equals or exceeds the cost per semiconductor device from the front-endfacility. We believe that as manufacturers seek to raise the standards ofyield, productivity, throughput and cost reduction in the back-end, the growthrate of the newly developing back-end automation market will exceed that of theoverall automation market.

 

**TraditionalSemiconductor Manufacturing Process**

 

Semiconductor devices arrive for test in strip orwafer format, with each strip or wafer containing multiple individualdevices.  Until recently, mostsemiconductor manufacturers believed it was necessary to test individualsemiconductor devices after they were singulated, or cut from the strip orwafer, because singulation could result in damage or contamination to thesemiconductor 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 varioussemiconductor device size and chip-scale packaging technologies demanded bymanufacturers.  As a result, handlingtools designed for singulated processes have become a bottleneck to throughput.

 

Manufacturers are beginning to acknowledge thatpost-test singulation can be done without damage or contamination.  This understanding permits manufacturers toprocess, handle, and test multiple devices while still in strip or waferformat.  Strip handling increasesprocess flexibility by permitting the handling and testing of a variety ofpackages, substrates and semiconductor device sizes. In addition, striphandling significantly increases throughput by reducing the number of processsteps and by allowing the tester to test multiple strips and semiconductordevices in parallel.  We believe that asmanufacturers seek to increase productivity, yield and throughput, they willadopt 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 broader automation strategies in theback-end, manufacturers face other significant challenges besides thedevelopment of strip processing tools. For example, production tools in the back-end historically have notcommunicated 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 our customers comprehensiveequipment automation solutions for their test and assembly processes. Bydeploying our products and services, our customers are able to improve theirproduction yields, factory throughput, tool productivity and utilization whilereducing product cost.  The keycomponents of our solution are our:

• Tapestry seriesautomated strip handler;

• Smart Solutionsintegrated equipment product series;

• Infinity System factoryautomation software and equipment integration services; and

• Complete line of traditional test handlers forsingulated processes.

 

Our solution providesthe following benefits to our customers:

 

***Flexibility to address new form factors, including wafersand strips.***  Webelieve that our Tapestry handler is one of the first handlers capable ofprocessing semiconductor devices in strip or wafer formats.  Tapestry provides increased flexibility,permitting the handling and testing of a variety of packages, substrates andsemiconductor device sizes.  Dependingon the application, we believe that our Tapestry handler's throughput capabilityis three to ten times greater than existing singulated handling optionsavailable today.

 

***Ability to collect critical process data. ***Our Smart Solutionsequipment products utilize our factory automation software to provide both thehardware and software necessary to accurately track important yield events inthe test and assembly portion of the back-end process.  We use state-of-the-art machine visiontechnology to accurately track all semiconductor devices as they travel throughthe test and assembly processes.  Thistechnology is not only critical to the precise positioning of strips, but alsoenables our software to generate critical process data. This information,together with yield information obtained in the assembly process and thefront-end facility, can provide real-time data on the entire semiconductormanufacturing process for each wafer, giving manufacturers the information theyneed to improve their processes and increase their yields.

 

***Deployment of integrated, comprehensive solutions.***  Our suite of equipment automation tools,software products and services addresses the varied automation needs of individualback-end manufacturing facilities.  Ourfactory automation software has the ability to integrate production tools fromvarious manufacturers 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 supportengineering to our customers as part of the purchase of all of our products,which includes comprehensive installation support. As our products haveexpanded to offer greater functionality, we have provided applicationengineering support so that our customers can take advantage of these advancesto 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 automationsolutions for the test and assembly portion of the semiconductor manufacturingprocess, including test, laser mark, mark inspect, singulation, sort, andpackaging for shipment.  In addition, weare expanding our automation solutions to include equipment integrationsolutions compatible with products from a greater number of other equipmentmanufacturers.  We intend to enhance thesoftware component of our automation solutions by adding data analysis andreport generating capabilities to increase our customer's ability to improvetheir manufacturing process.  In thefuture we plan to expand the Smart Solution suite of products to handle otherprocesses within the semiconductor test and assembly area.

 

***Capitalizing on emerging chip scale packaging, or CSP,process development.*** Our Smart Solutions and Tapestry products already meet initial chipscale package process requirements through strip handling.  However, the vast number of new chip scalepackages recently introduced has imposed additional requirements onsemiconductor test and assembly processes. As a leader in providing equipmentautomation solutions that address chip scale packaging technologies, we areactively evaluating opportunities and beginning development of next-generationhandling and equipment automation solutions for advanced semiconductor devicepackaging.

 

***Strengthening key customer relationships.***  Our customers include many of the world'sleading providers of semiconductor devices as well as major third-party testand assembly companies.  We expect thatour customers will look to us to help resolve their process as well asautomation problems throughout the back-end. We plan to capitalize on our position as a solutions provider byexpanding our application engineering team. As we solve our customers' diverse needs, we will deepen our presentcustomer relationships and also build our knowledge base so that we can developsimilar relationships with others in the semiconductor manufacturing industry.

 

***Leveraging our strong sales and service capability.***  We predominantly sell our products throughour direct sales force and have established sales and service offices in theworld's major centers of semiconductor manufacturing.  We expect to utilize our existing serviceoffices to expand and continually train our sales force to support our newSmart Solutions suite of products. Also, we plan to expand both service and field application personnel forthe Smart Solution products.  We areplacing software engineers in several Asian locations to directly supportInfinity Systems' pursuit of factory automation software sales.

 

***Continuing to develop and support existing singulated testhandling solutions and products.***  We believe that we have one of the largestinstalled bases of traditional test handlers in the world.  We intend to support our customers who usesingulated test handling with new product introductions for specialtyapplications.  In addition, we aredeveloping new modules for our singulated handlers to provide additionalback-end processes such as mark and tape and reel.

 

# **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 newly introduced Smart Solutions product family offers semiconductormanufacturers greater flexibility, yield and throughput.  These products are designed to meet theback-end semiconductor manufacturer's demand for greater production efficiency,lower cost of test and manufacturing flexibility.  The following table sets forth our key automation product offeringsby category, date introduced 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 family was introduced tomeet the anticipated evolution of back-end manufacturing from singulatedhandling to strip processing through the final stages of assembly andelectrical 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, electronicstrip 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 inFebruary 1999, is the flagship of the Smart Solution product family.  Tapestry is a versatile, high volume,parallel test handling and thermal conditioning system for semiconductordevices that are in strip format. Thermal conditioning is required to ensure that a semiconductor devicecan operate normally in a wide range of temperatures.  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.  In addition, weoffer a wafer handling version of Tapestry capable of handling larger profilepackages including complete wafers and glass substrates.

 

                SmartSort,our new high-speed intelligent sorting system, allows customers to sort devicesfrom a strip according to the electronic strip map and place semiconductordevices in containers for shipment to customers.  This new capability is especially critical for smallsemiconductor devices such as chip scale packages due to their size anddifficulty in handling.  SmartSortutilizes an innovative multi-site device picking approach, which providesincreased throughput advantages as compared to existing sorting methods.  Off-load options for SmartSort include bulk,tray, tube or tape.  Other optionsinclude vision inspection and wash and dry.

 

                SmartMark, our new intelligent laser marking system,offers customers a method for marking individual semiconductor devices uniquelywithin a strip according 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 newlyintroduced Smart Solution equipment products includes additional modules toassist companies in automating the back-end of the semiconductor manufacturingprocess using the new strip format. These include the Isocut module for partial singulation of semiconductordevices in order to allow them to be tested in strip form.  We also have input/output devices for bothslotted and stacked magazines used with strips.

 

***Automation Software Division****. *Infinity Systems SoftwareSolutions provides highly sophisticated systems integration services to thesemiconductor test and assembly industry. Infinity Systems’ solutions assist customers in creating either newmanufacturing environments or implementing new methods and control systems inexisting ones.  These installationsallow previously isolated stand-alone equipment to exchange information withother equipment and provide for remote monitoring and control of thesesystems.  Our engineering experience,efficient software development process, strong project management and ourunderstanding of semiconductor handling systems allow us to assist customers inspecifying equipment behavior and software interfaces as a proactive componentof the design 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. |
|                             |   | S-200            |   | December 1994*  |   | Dual site test handler for  a wide variety of semiconductor devices, utilizing tray input and output.                                                                                       |
| Gravity Feed                     |   | 5115             |   | February 2000   |   | High-speed dual site test  handler with mark, machine, vision and inspection capabilities utilizing bulk  or tube input, and tape and reel or tube output.                                  |
|                             |   | 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.                                                                                                  |

----

* Products of Aseco which we acquired on January 31, 2000.

 

 

 

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 and 1998.

 

Our 5115 integrated gravity-feed handling solution istargeted at new chip scale packages. The 5115 features the same proven gravity-feed and pick and placetechnologies used on our 5100 handler and adds integrated capabilities forlaser mark, tape and reel output, final visual inspection, and a bowl feedinput option. The system offers a system throughput of over 8,000 units perhour in dual site mode, assuming no test. The system’s unique plunge-to-boardcapability allows the devices to be placed directly onto a tester load board orplunged into a socket designed specifically for high performance radiofrequency device performance testing.

 

**Other Products andServices**

 

*WaferHandling and Inspection Equipment*.  With our acquisition of Aseco in January 2000, we also acquiredseveral wafer handling and inspection products.  This equipment is used to automate the transfer and inspection ofwafers between semiconductor manufacturing process steps.  This equipment provides visual multi-lightwafer inspection, automatic microscope based wafer inspection, a loader for theautomatic wafer microscope and an automatic wafer sorter all of which providesafe handling, versatility and a clean environment for semiconductormanufacturing.

 

*Otherhandler, tester products and services. *Weprovide service and spare parts for all of our current and many of ourdiscontinued products. We have also done significant business in refurbishing asemiconductor device tester that is still widely used but that was lastmanufactured by us in 1993.

 

**Research and Development**

 

                Asan important element of our business strategy, we work closely with ourcustomers to develop new products and enhancements of existing products to meetthe evolving needs of the test and assembly market, particularly with respectto emerging semiconductor devices, while striving to provide the lowest cost oftest.  These efforts, historicallyfocused on test handler products, have resulted in the successful introductionof three new product platforms, the MCT5100, MCT7632 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.  These new products together contributed approximately 70% ofproduct shipments in the year ended December 31, 2000, excluding Asecoproducts, and approximately 37% of shipments inclusive of Aseco products.

 

                Although we rely primarily on our internalengineering capabilities to develop new products and enhance existing products,we also utilize contract services to enhance our technical capabilities ortemporarily expand our resources.  Inaddition, we work closely with several manufacturers of products that areincorporated into our products or are complementary to our products when webelieve a higher quality, lower cost product would result.

 

An ongoing goal of our research and developmentactivities is to reduce the time required to develop new products and bringthem to market.  As the back-end processbecomes increasingly automated and complex, the development of improvedsoftware for our products becomes increasingly important.  We currently develop all software in-houseand plan to expand our expertise in this area.

 

                Ourresearch and development expenses were $9.3 million in the year ended December31, 2000, $1.5 million in the six-month transition period ended December 31,1999,  $2.8 million in fiscal 1999 and$3.7 million in fiscal 1998.  Ourcombined resources totaled 94 employees and contractors in research and development,or approximately 31% of our entire workforce, at December 31, 2000.

 

**Customers**

 

Our customers include many of the leadingmanufacturers of semiconductor devices, as well as test and assembly companiesin the United States, Europe and Asia. In recent years, our significant customers have shifted from the majorsemiconductor manufacturers to test and assembly companies, corresponding tothe increased utilization of test and assembly companies by the majorsemiconductor manufacturers.  AmkorTechnology, Inc. accounted for 14% of our net sales in the year ended December31, 2000 and 27% of our net sales in fiscal 1999.  In the six-month transition period ended December 31, 1999,Lingsen Precision Industries, Ltd., accounted for 19% of our net sales.  In fiscal 1998, no single customer accountedfor more than 10% of our net sales.  Theacquisition of Aseco expanded our customer base and introduced us to severalnew customers.  One of Aseco's largestcustomers, Analog Devices, Inc., accounted for 13% of Aseco's net sales infiscal year 1999, and 23% in fiscal 1998. Motorola, Inc. accounted for 13% ofits net sales in fiscal 1999 and Maxim Integrated Products, Inc. accounted for16% of Aseco's net sales in fiscal 1998.

 

Our customers tend to limit the number of qualifiedequipment vendors they purchase from, to gain the efficiencies ofstandardization across their production process.  We therefore expend substantial efforts to maintain ourrelationships with our existing major customers to increase the likelihood thatthey will continue to select our products for their future generations ofsemiconductor devices.  However, when acustomer develops a new type of semiconductor device or the customer changesthe size or package for a semiconductor device, the customer is more willing toconsider purchasing test handling equipment and other automation equipment froma new source.

 

**Marketing,Sales and Worldwide Support**

 

We market our products primarily to semiconductormanufacturers and third party test and assembly companies through our own salesforce and in selected 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, we believe that theaverage order amount will be larger.

 

We augment our sales efforts with direct customersupport/service engineers 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 engineersinstall our equipment and train the customers' operators and maintenancetechnicians on the proper use and care of our equipment.  Our application engineers help identifyemerging markets for new products and are supported by our design center in St.Paul, Minnesota.

 

We established a presence in Asia more than 20 yearsago, where we operate through our subsidiaries with offices in Singapore andPenang, Malaysia.  To supplement theregion's sales and service coverage, we use sales representative companies anddistributors in the Philippines, Korea, Taiwan and China.  We have stationed service engineers in Singapore,Malaysia, Thailand and the Philippines for rapid response to customer needs inAsia. Through our foreign subsidiaries' distributors and sales representatives,we maintain customer support centers in 26 locations in the United States, Asiaand Europe, with over 25 direct employees.

 

**Manufacturingand Suppliers**

 

Our principal manufacturing operations consist offinal assembly, system integration and testing at our facilities in St. Paul,Minnesota, and Marlborough, Massachusetts. We combine proprietary software and components developed in ourfacilities with components and subassemblies obtained from outsidesuppliers.  We out-source themanufacture of most of our components to a number of different suppliers.  We obtain certain components and subassembliesnecessary for the manufacture of our systems from a sole supplier or limitedgroup of suppliers.  We do not maintainany long-term supply agreements with any of our key suppliers.  We maintain our own machine shops at eachmanufacturing facility for handling special materials and product development.

 

**Competition**

 

The semiconductor device testing and assemblyequipment industry is highly competitive, and the market for our automationproducts and services is expected to become more competitive.  We face substantial competition throughoutthe world primarily from manufacturers in the United States and Japan.  The only company that we are aware of thatcurrently offers a production grade strip handling solution comparable to ourTapestry product is Fico BV, whose product was introduced in approximately1995.  Fico's product line currently isused only for leaded semiconductor devices. However, we are aware that other companies are developing strip handlingsolutions, some have shipped beta versions to customers, and expect othercompanies will offer automation systems for the back-end when strip testingtechnology becomes more accepted.  Ourprimary competitors in the traditional handler market are AdvantestCorporation, Aetrium Incorporated, Cohu, Inc., Kuwano Electrical InstrumentsCo., Ltd., Multitest Electronics Systems GmbH, Rasco AG and Tesec Corporation.Many of these competitors are considerably larger and have considerably greaterfinancial resources than we do.

 

The principal elements of competition in our marketsinclude throughput capability, quality, reliability, price, productperformance, customer service and support, financial strength, versatility andthe ability to deliver on schedule. Although we believe that we compete favorably with respect to each ofthese factors, new product introductions by our competitors could cause adecline in sales or loss of market acceptance of our existing products.  If competitors introduce moretechnologically advanced products, the demand for our similar products wouldlikely be reduced.

 

**IntellectualProperty Rights**

 

We attempt to protect the proprietary aspects of ourproducts with patents, trademarks and copyrights, as well as contractual andother trade secret protection strategies. We have 9 patents issued and active, 4 patent applications pending inthe U.S, and 2 patent applications pending in Germany and South Korea.

 

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 todetermine which inventions will provide substantial differentiation between ourproducts and those of our competitors. In certain cases, we may also choose to keep an invention or process atrade secret.  Key employees arerequired to enter into nondisclosure and invention assignment agreements, andcustomers, vendors and other third parties also must agree to nondisclosurerestrictions prior to disclosure of our trade secrets or other confidential orproprietary information.

 

Theintellectual property 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 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, 2000 ourbacklog of unfilled orders was $10.6 million, compared with $4.0 million atDecember 31, 1999, which was prior to the acquisition of Aseco.  A significant portion of the backlog atDecember 31, 2000 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 willtypically be greater than backlog at quarter end.  We include in backlog only those orders to which a purchase ordernumber has been assigned by the customer and for which a delivery schedule hasbeen specified.  All orders are subjectto cancellation by the customer with limited charges.  Our backlog at a particular date is not necessarily indicative ofactual sales for that or any succeeding period and does not reflect the effectsof SAB 101 discussed elsewhere herein.

 

**Employees**

 

AtDecember 31, 2000, we had a total of 292 employees plus 7 contract personnel,in the following areas: 105 in manufacturing, 94 in engineering and researchand development, 69 in sales, marketing, application engineering and service,and 31 in administration.  Our workforcedeclined approximately 8% in the first quarter of 2001 due to reductions as aresult of a downturn in the semiconductor capital equipment market.  Many of our employees are highly skilled,and we believe our future success will depend in large part on our ability toattract and retain similar employees. None of our employees are covered by a collective bargaining agreement,and we have experienced no work stoppages. We consider our relationship with 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 geographicareas.  Summarized data for ouroperations are included in Note 11 of Notes to Consolidated FinancialStatements, included elsewhere herein.

 

**ITEM2.  Properties**

 

Weoccupy approximately 69,000 square feet of leased space in St. Paul, Minnesota,for our principal executive offices, research and development and manufacturingactivities.  In May 2000, we notifiedour landlord of our intent to exercise our one-time option to lease theremaining additional 11,000 square feet within the same building, beginningtwelve to twenty-four months later, at a date to be mutually determined.  This lease expires in 2006.   We also utilize approximately 61,000 squarefeet of space in Marlborough, Massachusetts, for research and development andmanufacturing activities, under a lease that expires in 2003.  In February 2001, we announced our plans totransfer manufacturing operations from our Marlborough facility to our St. Paulfacility.  As a result, we expect tosubstantially reduce the square feet utilized in Marlborough during 2001.  We operate our Infinity Systems division outof approximately 10,000 square feet of leased space in Tempe, Arizona, forsoftware and automation systems development. This lease expires in 2003.  Webelieve that our current and committed facilities are adequate to support ourgrowth for at least the next twelve months.

 

 

**ITEM3.  Legal Proceedings**

 

                There are no material pending legal, governmental,administrative or other proceedings to which we are a party.

 

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

 

                There were no matters submitted to a vote of securityholders during the quarter ended December 31, 2000.

 

**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, 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    |   |
|                                                 |   |     |   |    |   |
| Six-Month Transition  Period Ended December 31, 1999 |   |     |   |    |   |
| First Quarter                                        |   | $        | 5.56   |    | $      | 2.13 |   |
| Second Quarter                                       |   | 5.06     |   | 3.25    |   |
|                                                 |   |     |   |    |   |
| Fiscal Year ended June  26, 1999                     |   |     |   |    |   |
| First Quarter                                        |   | $        | 1.06   |    | $      | 0.50 |   |
| Second Quarter                                       |   | 1.88     |   | 0.44    |   |
| Third Quarter                                        |   | 2.69     |   | 1.31    |   |
| Fourth Quarter                                       |   | 2.59     |   | 1.84    |   |

 

 

                The approximate number ofholders of record of the common stock as of December 31, 2000 was 248.

 

                We have never declared or paidany cash dividends on our common stock and do not anticipate paying any cashdividends in the foreseeable future.  Wecurrently intend to retain future earnings to fund the development and growthof our business.  Our bank line ofcredit prohibits the payment of cash dividends without the bank’s consent.

 

**ITEM6.  Selected Financial Data**

 

**SELECTED CONSOLIDATED FINANCIAL DATA**

 
|                                            |   | **Year Ended** |    | **Twelve  Months Ended** |   | **Six Months  Ended**                      |   | **Fiscal  Years Ended** |   |
|-------------------------------------------------|--------|----------------|---------|--------------------------|--------|--------------------------------------------|--------|-------------------------|--------|
|                                            |   | **Dec. 31**    |    | **Dec. 31**              |   | **Dec. 31**                                |   | **Dec. 31**             |   | **June 26** |   | **June 27** |   | **June 28** |   | **June 26** |   |
|                                            |   | **2000(1)**    |    | **1999**                 |   | **1999**                                   |   | **1998**                |   | **1999** |   | **1998(2)** |   | **1997** |   | **1996(3)(4)** |   |
|                                            |   |           |    |                     |   | **(in  thousands, except per share data)** |   |
| **Consolidated  Statement of Operations Data:** |   |           |    |                     |   |                                       |   |                    |   |   |   |   |   |   |   |   |   |
| Net sales                                       |   | $              | 49,902  |                     | $      | 19,839                                     |   | $                       | 11,356 |   | $ | 6,688 |   | $ | 15,171 |   | $ | 16,975 |   | $ | 16,129 |   | $ | 22,318 |   |
| Cost of sales                                   |   | 30,884         |    | 9,485                    |   | 5,452                                      |   | 3,506                   |   | 7,539 |   | 9,595 |   | 6,910 |   | 9,319 |   |
| Gross profit                                    |   | 19,018         |    | 10,354                   |   | 5,904                                      |   | 3,182                   |   | 7,632 |   | 7,380 |   | 9,219 |   | 12,999 |   |
| Operating expenses:                             |   |           |    |                     |   |                                       |   |                    |   |   |   |   |   |   |   |   |   |
| Selling, general and administrative             |   | 16,177         |    | 7,423                    |   | 4,296                                      |   | 3,152                   |   | 6,279 |   | 7,871 |   | 7,121 |   | 7,933 |   |
| Research and development                        |   | 9,271          |    | 2,864                    |   | 1,496                                      |   | 1,432                   |   | 2,800 |   | 3,711 |   | 3,934 |   | 4,260 |   |
| Amortization of intangible assets               |   | 4,308          |    | 10                       |   | 10                                         |   | -                       |   | - |   | - |   | - |   | - |   |
| Write-down of impaired intangible assets        |   | 3,405          |    | -                        |   | -                                          |   | -                       |   | - |   | - |   | - |   | - |   |
| Income (loss) from operations                   |   | (14,143        | )       | 57                       |   | 102                                        |   | (1,402                  | )      | (1,447 | ) | (4,202 | ) | (1,836 | ) | 2,330 |   |
| Other income (expense)                          |   | (46            | )       | (7                       | )      | 19                                         |   | 7                       |   | (19 | ) | 323 |   | 273 |   | 246 |   |
| Income (loss) before income taxes               |   | (14,189        | )       | 50                       |   | 121                                        |   | (1,395                  | )      | (1,466 | ) | (3,879 | ) | (1,563 | ) | 2,576 |   |
| Income tax provision                            |   | -              |    | -                        |   | -                                          |   | -                       |   | - |   | - |   | - |   | 8 |   |
| Net income (loss) before cumulative adjustments |   | (14,189        | )       | 50                       |   | 121                                        |   | (1,395                  | )      | (1,466 | ) | (3,879 | ) | (1,563 | ) | 3,220 |   |
| Cumulative adjustment                           |   | (1,264         | )       | -                        |   | -                                          |   | -                       |   | - |   | - |   | - |   | - |   |
| Net income (loss)                               |   | $              | (15,453 | )                        | $      | 50                                         |   | $                       | 121    |   | $ | (1,395 | ) | $ | (1,466 | ) | $ | (3,879 | ) | $ | (1,563 | ) | $ | 3,220 |   |
| Basic earnings (loss) per share:                |   |           |    |                     |   |                                       |   |                    |   |   |   |   |   |   |   |   |   |
| Continuing operations                           |   | $              | (1.23   | )                        | $      | 0.01                                       |   | $                       | 0.02   |   | $ | (0.19 | ) | $ | (0.20 | ) | $ | (0.54 | ) | $ | (0.22 | ) | $ | 0.49 |   |
| Cumulative adjustment                           |   | (0.11          | )       | -                        |   | -                                          |   | -                       |   | - |   | - |   | - |   | - |   |
| Net income (loss)                               |   | $              | (1.34   | )                        | $      | 0.01                                       |   | $                       | 0.02   |   | $ | (0.19 | ) | $ | (0.20 | ) | $ | (0.54 | ) | $ | (0.22 | ) | $ | 0.49 |   |
| Diluted earnings (loss) per share:              |   |           |    |                     |   |                                       |   |                    |   |   |   |   |   |   |   |   |   |
| Continuing operations                           |   | $              | (1.23   | )                        | $      | 0.01                                       |   | $                       | 0.02   |   | $ | (0.19 | ) | $ | (0.20 | ) | $ | (0.54 | ) | $ | (0.22 | ) | $ | 0.49 |   |
| Cumulative adjustment                           |   | (0.11          | )       | -                        |   | -                                          |   | -                       |   | - |   | - |   | - |   | - |   |
| Net income (loss)                               |   | $              | (1.34   | )                        | $      | 0.01                                       |   | $                       | 0.02   |   | $ | (0.19 | ) | $ | (0.20 | ) | $ | (0.54 | ) | $ | (0.22 | ) | $ | 0.49 |   |
|                                            |   |           |    |                     |   |                                       |   |                    |   |   |   |   |   |   |   |   |   |
| Proforma net income (loss) (5)                  |   | $              | -       |                     | $      | (462                                       | )      | $                       | (563   | ) | $ | (1,309 | ) | $ | (1,316 | ) | $ | (4,002 | ) | $ | (1,739 | ) | $ | 2,789 |   |
|                                            |   |           |    |                     |   |                                       |   |                    |   |   |   |   |   |   |   |   |   |
| Profroma net income (loss) per share:           |   |           |    |                     |   |                                       |   |                    |   |   |   |   |   |   |   |   |   |
| Basic                                           |   | $              | -       |                     | $      | (0.06                                      | )      | $                       | (0.08  | ) | $ | (0.18 | ) | $ | (0.18 | ) | $ | (0.55 | ) | $ | (0.25 | ) | $ | 0.43 |   |
| Diluted                                         |   | $              | -       |                     | $      | (0.06                                      | )      | $                       | (0.08  | ) | $ | (0.18 | ) | $ | (0.18 | ) | $ | (0.55 | ) | $ | (0.25 | ) | $ | 0.38 |   |
| Weighted average shares outstanding:            |   |           |    |                     |   |                                       |   |                    |   |   |   |   |   |   |   |   |   |
| Basic                                           |   | 11,531         |    | 7,435                    |   | 7,474                                      |   | 7,394                   |   | 7,396 |   | 7,248 |   | 7,030 |   | 6,513 |   |
| Diluted                                         |   | 11,531         |    | 7,682                    |   | 8,144                                      |   | 7,394                   |   | 7,396 |   | 7,248 |   | 7,030 |   | 7,246 |   |
|                                            |   |           |    |                     |   |                                       |   |                    |   |   |   |   |   |   |   |   |   |
| **Selected Balance Sheet Data:**                |   |           |    |                     |   |                                       |   |                    |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                       |   | $              | 12,047  |                     | $      | 1,045                                      |   | $                       | 1,045  |   | $ | 2,260 |   | $ | 1,927 |   | $ | 2,532 |   | $ | 5,360 |   | $ | 7,793 |   |
| Working capital                                 |   | 22,347         |    | 6,386                    |   | 6,386                                      |   | 6,199                   |   | 6,265 |   | 7,385 |   | 11,008 |   | 12,638 |   |
| Total assets                                    |   | 51,023         |    | 10,304                   |   | 10,324                                     |   | 9,103                   |   | 9,900 |   | 11,226 |   | 15,792 |   | 16,980 |   |
| Long-term debt                                  |   | 37             |    | 70                       |   | 70                                         |   | 58                      |   | 33 |   | 83 |   | 133 |   | 183 |   |
| Redeemable convertible preferred stock          |   | -              |    | -                        |   | -                                          |   | -                       |   | - |   | - |   | 1,500 |   | 1,500 |   |
| Total stockholders’ equity                 |   | $              | 35,592  |                     | $      | 7,256                                      |   | $                       | 7,256  |   | $ | 7,005 |   | $ | 6,952 |   | $ | 8,400 |   | $ | 12,219 |   | $ | 13,709 |   |

----

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

 

(2)   Includes charges totaling $2.3 million,comprised of  $2.0 million charged tocost of sales, adjusting inventory to lower of cost or market, and $0.3 millionrelated primarily to cost reduction actions and operational adjustments relatedto the depressed semiconductor capital equipment market.

 

(3)   Includes $1.5 million gain on the resolutionof the escrow fund created from the sale of the 1149 tester product line.

 

(4)   In fiscal 1995, we initiated a formal plan tosell our European subsidiary.  Aprovision for the loss on the sale of approximately $3.0 million was recordedin the results of operations for the year ended June 24, 1995.  The net assets of this discontinuedoperation on the June 24, 1995 balance sheet totaled $1.0 million.  As a result of the final sales agreement, werealized a net gain of $0.7 million on the sale, which was completed in fiscal1996.

 

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

 

 

**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.*

 

                *In April2000, 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 reflects 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, which is oneweek longer than the comparable reporting period for the six-month period endedDecember 28, 1998.  Because we wereclosed during the week ended December 31, 1999, we believe the additionalweek in 1999 did not have a significant impact on the results for the period orcompared to the comparable period in the prior year.*

 

Overview

 

                We supply automation solutions for the globalsemiconductor test and assembly manufacturing market.  Our solutions include automated test handlers, factory automationsoftware and our new integrated Smart Solutions equipment product line.  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.

 

                The demand for our products and services is dependentupon growth in the semiconductor industry and the increasing equipmentautomation needs of semiconductor manufacturers and independent test andassembly facilities.  The semiconductorcapital equipment market went into a significant downturn that began in thefall of 1997 and intensified throughout 1998 and into 1999.  The downturn was accompanied by the economiccrisis in Asia, where approximately 60% to 65% of our products were sold duringfiscal year 1999 and the six-month transition period ended December 1999.  These industry and economic conditionsadversely affected our net sales and operating results in fiscal 1998 and1999.  Beginning mid-year calendar 1999,the industry began to stabilize and show signs of a gradual recovery.  This recovery continued into mid-2000,favorably impacting our net sales and operating results through the first threequarters of 2000.

 

                In the fourth quarter of 2000, the industry went intoa sharp downturn, resulting in a significant adverse impact on our fourthquarter and annual results for 2000.  Asa result of this downturn, we also recorded a $4.0 million charge to cost ofsales by adjusting our inventory to lower of cost or market. This provision forexcess inventory resulted from the significant decrease in forecasted revenueassociated with the market downturn and was calculated in accordance with ourpolicy, which is based on inventory levels in excess of anticipated demand foreach specific product type. Additionally, we recorded a $3.4 million charge to operations as aresult of impaired purchased intangible assets and goodwill measured as theamount by which carrying values exceeded the present value of the estimatedfuture cash flows for purchased intangible assets and goodwill.

 

                The downturn continued to intensify during the firstquarter of 2001, requiring us to take actions to consolidate our manufacturingoperations and reduce costs through reductions in headcount and other costcontrol measures in the first quarter of 2001. We may be required to take further cost control actions in 2001 if thedownturn continues to intensify or is prolonged.  The downturn is expected to have a significant adverse impact onour net sales, operating results and cash position in 2001.

 

                Beginning in 1999and continuing into 2000, we broadened our strategy from that of a test handlermanufacturer to becoming a provider of comprehensive equipment automationsolutions for the back-end of the semiconductor manufacturing process.  First, we developed and introduced inFebruary 1999 our Tapestry strip handler. Tapestry combines strip handling capability with robotics, machinevision technology and critical software, enabling the testing and tracking ofsemiconductor devices in strip form and the generation of critical process datathroughout the test process.  Second, inJune 1999 we acquired the Infinity Systems division of FICO.  Infinity Systems has been involved in thedevelopment of factory automation software for the semiconductor manufacturing industry.  Infinity System’s software expertise wasintegral to the development of our integrated Smart Solutions product line,introduced in May 2000.  Together with athird 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.

 

                ***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 ourcommonstock valued at $22.5 million issued to former Aseco shareholders and $1.5million of acquisition-related costs.

 

                The acquisition was accountedfor using the purchase method of accounting. The results of operations of Aseco are included in our consolidatedfinancial statements beginning January 31, 2000.  The purchase price has been allocated based on the estimated fairvalues of net assets acquired at the date of acquisition.  The excess of purchase price over net assetsacquired, amounting to $9.7 million, was allocated to goodwill, and is beingamortized using a straight-line method over the estimated useful life of fiveyears.  Other intangible assets,including established workforce, customer list, and core and developedtechnology, totaling $9.9 million, are being amortized using the straight-linemethod over the estimated useful lives of two to five years.  As a result of the industry downturn in thefourth quarter of 2000, we reduced the carrying values of goodwill by $2.5million and intangible assets by $0.9 million, due to impairment of theseassets. The $0.9 million intangible assets impairment was comprised of $0.3million related to the established workforce due to headcount reductions, and$0.6 million related to developed products measured as the amounts by whichcarrying values exceeded the present value of the estimated future cash flows.

 

                In each of the three quarters immediately prior tothe acquisition, 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 administrativeexpenses for Aseco ranged from approximately 29% to 34% of net sales, comparedto approximately 37% to 39% for us, and research and development expensesranged from approximately 15% to 18% of net sales, compared to approximately12% 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. In Aseco’s fiscal year ended March 29, 1998,Aseco reported net sales of $44.2 million and a net loss of $8.1 million.   The net loss included a $1.8 million inventoryvaluation charge, $6.1 million of acquired in-process research and developmentcosts, a $1.0 million write-down of goodwill and intangible assets andapproximately $0.5 million related to employee layoffs.

 

 

**Resultsof Operations**

 

**               **Thefollowing table sets forth, for the periods indicated, certain items in ourstatements of operations as a percentage of net sales:
|                                                 |   |         |   | **Twelve**   |   |                 |   |                   |   |         |   |         |   |
|------------------------------------------------------|--------|--------------|--------|--------------|--------|----------------------|--------|------------------------|--------|--------------|--------|--------------|--------|
|                                                 |   | **Year**     |   | **Months**   |   |                 |   |                   |   |         |   |         |   |
|                                                 |   | **Ended**    |   | **Ended**    |   | **Six Months Ended** |   | **Fiscal Years Ended** |   |
|                                                 |   | **Dec. 31,** |   | **Dec. 31,** |   | **Dec. 31,**         |   | **Dec. 26,**           |   | **June 26,** |   | **June 27,** |   |
|                                                 |   | **2000**     |   | **1999**     |   | **1999**             |   | **1998**               |   | **1999**     |   | **1998**     |   |
| Net Sales                                            |   | 100.0        | %      | 100.0        | %      | 100.0                | %      | 100.0                  | %      | 100.0        | %      | 100.0        | %      |
| Cost of sales                                        |   | 61.9         |   | 47.8         |   | 48.0                 |   | 52.4                   |   | 49.7         |   | 56.5         |   |
| Gross profit                                         |   | 38.1         |   | 52.2         |   | 52.0                 |   | 47.6                   |   | 50.3         |   | 43.5         |   |
| Operating expenses:                                  |   |         |   |         |   |                 |   |                   |   |         |   |         |   |
| Selling, general  and administrative                 |   | 32.4         |   | 37.4         |   | 37.9                 |   | 47.1                   |   | 41.4         |   | 46.4         |   |
| Research and  development                            |   | 18.6         |   | 14.4         |   | 13.2                 |   | 21.4                   |   | 18.4         |   | 21.9         |   |
| Amortization of  intangible assets                   |   | 8.6          |   | 0.1          |   | -                    |   | -                      |   | -            |   | -            |   |
| Write-down of  impaired intangible assets            |   | 6.8          |   | -            |   | -                    |   | -                      |   | -            |   | -            |   |
| Total operating  expenses                            |   | 66.4         |   | 51.9         |   | 51.1                 |   | 68.6                   |   | 59.8         |   | 68.3         |   |
| Income (loss)  from operations                       |   | (28.3        | )      | 0.3          |   | 0.9                  |   | (21.0                  | )      | (9.5         | )      | (24.8        | )      |
| Other income  (expense), net                         |   | (0.1         | )      | -            |   | 0.2                  |   | 0.1                    |   | (0.2         | )      | 1.9          |   |
| Cumulative  effect of change in accounting principle |   | (2.6         | )      | -            |   | -                    |   | -                      |   | -            |   | -            |   |
| Net income  (loss)                                   |   | (31.0        | )%     | 0.3          | %      | 1.1                  | %      | (20.9                  | )%     | (9.7         | )%     | (22.9        | )%     |
|                                                      |        |              |        |              |        |                      |        |                        |        |              |        |              |        |  |  |  |

 

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

 

*NetSales.*  Net sales forthe year ended December 31, 2000 increased $30.1 million or 152% to $49.9million, compared to net sales of $19.8 million for the prior year. Netshipments increased $36.1 million in 2000 to $55.9 million, or an increase of182% over the prior year.  Shipments ofAseco products contributed $26.0 million of the increase in shipments in 2000from the prior year.  Shipments of ournewer handler products, the MCT 5100, MCT 7632 and Tapestry handling system, aswell as our Smart Solutions automation products and automation softwarecombined to contribute $7.6 million of the increase in shipments over the prioryear.  Due to the inclusion of Asecoproducts 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 andrefurbishment of 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 profitincreased $8.6 million in 2000 to $19.0 million or 38.1% of net sales from$10.4 million or 52.2% of net sales in the prior year.  The decrease in gross margin, in the currentyear, resulted primarily from inclusion of the lower margin Aseco products, ashift in product mix to the newer automation products with higher productionramp costs, and a $4.0 million charge for the write-down of inventory to marketvalue, due to obsolescence and excess inventory on hand.

 

*Selling,General and Administrative Expense.*  Selling, general and administrative expense in 2000 was $16.2million, or 32.4% of net sales compared to $7.4 million, or 37.4% of net salesin the prior year.  The addition of theAseco operations accounted for approximately $5.5 million of the increase, withincreased direct selling costs related to increased sales revenues contributing$0.9 million of the increase.  Theremainder primarily related to increased personnel, travel and promotion coststo support the sales growth.  Thedecrease in selling, general and administrative expense as a percentage of netsales in the current year is primarily due to the increased net sales in thecurrent year period.

 

*Researchand Development Expense*. Research and development expense in 2000 was $9.3 million, or 18.6% ofnet sales compared to $2.9 million, or 14.4% of net sales in 1999.  The acquisition of Aseco accounted forapproximately $3.6 million of the increase in the current year.  The remainder of the increase, of which $1.0million was increased personnel and contract labor costs, resulted fromincreased spending requirements for research and development projects initiatedduring the current year.  Theseinitiatives resulted in the introductions of several new products in 2000.

 

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

 

*Write-downof Impaired Intangible Assets. *Asa result of the significant semiconductor industry downturn, which began in thefourth quarter of 2000, we reduced the carrying value certain intangible assetsby $0.9 million and goodwill by $2.5 million. This write-down was recorded in the fourth quarter of 2000.

 

*OtherIncome (Expense).* Interest income in 2000 was $356,000 compared to $28,000 in the prioryear.  This increase resulted from theinvestment in interest-bearing cash and cash equivalents of the net proceeds ofour public offering in 2000. Interest expense totaled $330,000 in 2000 comparedto $5000, in the prior year.  Theincrease in interest expense in 2000 is attributable to increased borrowingsunder the lines of credit during the current year, primarily to fund workingcapital requirements for growth.

 

                *Income TaxProvision.*  During both 2000and 1999, we incurred minimal tax liabilities. We have recorded valuation allowances against all benefits associatedwith net operating loss carry forwards due to uncertainty regarding theirultimate utilization.

 

*CumulativeEffect of Change In Accounting Principle.*  As a result of the adoption of SAB 101 inthe fourth quarter of 2000, and pursuant to APB No. 20, *Accounting Changes*, we recognizedthe cumulative effect of retroactive application of SAB 101, resulting in acharge to income of $1.3 million in 2000.

 

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

 

## ***Six-Month TransitionPeriod Ended December 31, 1999 and Six Months Ended December 26, 1998***

 

*NetSales.*  Net sales forthe six months ended December 31, 1999 increased $4.7 million, or 69.8%, to$11.4 million compared to net sales of $6.7 million for the comparable periodin the prior year.  The increase insales in 1999 was comprised of increased sales from our newer products, the MCT5100and MCT7632handlers 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 toapproximately 40% in the same period of 1998. Sales of our other products decreased by $0.6 million, or 14.8%, overthe same period a year ago.  Thebeginning of a general improvement in the semiconductor capital equipmentmarket in 1999, which was in a significant downturn in the prior year,contributed to the overall increase in 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-monthtransition period and approximately 44% in fiscal year 1999.  Net sales to Europe comprised approximately4% and 2% of net sales for these periods.

 

*GrossProfit.*  Gross profitincreased $2.7 million in the 1999 transition period to $5.9 million, or 52.0%of net sales, from $3.2 million, or 47.6% of net sales, in the comparableperiod of 1998.  The increase in grossmargin primarily resulted from increased efficiencies and utilization ofoverhead costs as well as a shift in product mix to higher margin products.

 

*Selling,General, and Administrative Expense.*  Selling, general and administrative expensewere $4.3 million, or 37.9% of net sales, in the six months ended December1999, compared to $3.2 million, or 47.1% of net sales, in same period in1998.  The increase in spending in the1999 transition period reflects increased direct selling costs of $0.4 millionrelated to increased net sales and increased commissions of $0.3 millionresulting from a shift in sales to customers served by commissioned independentsales representatives.  The remainderrelates to increased expenses, primarily personnel expenses, in supporting thesales growth.  The reduction as apercentage of sales is the result of increased sales during the period comparedto the prior year.

 

*                Research and DevelopmentExpense.*  Research anddevelopment expense was $1.5 million, or 13.2% of net sales, in the 1999transition period, compared to $1.4 million, or 21.4% of net sales, in thecomparable period in 1998.  Althoughspending was relatively flat for the comparable periods, the decrease as a percentageof sales is attributed to the higher level of net sales in the 1999 transitionperiod.

 

*                Other Income (Expense).*  We generated net interest income during the1999 transition period of $23,000 versus $43,000 in the comparable period ofthe prior year.  The reduction in netinterest income is due to decreased holdings of interest-bearing cash and cashequivalents.

 

*                Income Tax Provision.*  During both the 1999 and 1998 six-monthperiods, we incurred minimal tax liabilities primarily related to foreign taxes.  We have recorded valuation allowancesagainst all benefits associated with net operating loss carryforwards due touncertainty regarding their ultimate utilization.

 

*NetIncome (Loss)*.  Netincome for the six months ended December 31, 1999 was $121,000, or $0.01 perfully diluted share, compared to a net loss of $1.4 million, or $0.19 pershare, for the same period in 1998.

 

***Fiscal Years Ended June 26, 1999  and June 27, 1998***

 

*NetSales. *Fiscal year1999 net sales decreased 10.6% to $15.2 million, compared to $17.0 million infiscal year 1998.  Sales of our newestproducts, the MCT 5100 handler, introduced in mid-fiscal 1997, and the MCT 7632and Tapestry handlers, both of which first shipped to customers in fiscal 1999,increased over the prior year, partially offsetting the sales decline of ourmore mature products.

 

As detailed in Note 11 in Notes to ConsolidatedFinancial Statements, sales increased year-over-year in Asia, but decreasedcomparatively in the United States and Europe. Increased shipments to Asia resulted primarily from increased businesswith several key and new customers in that region.  The decrease in net sales in the United States and Europe wasprimarily the result of depressed market conditions.

 

*GrossProfit*.  Gross profitin fiscal 1999 increased 3.4%, or $0.2 million, to $7.6 million versus $7.4million in fiscal 1998, and gross margin increased to 50.3% in fiscal 1999compared to 43.5% in the prior year.  Inthe prior year, we recorded charges of approximately $2.0 million forwrite-downs of excess and obsolete inventory as a result of the depressed andchanging market conditions.  Prior tothese charges, gross profit was $9.5 million and gross margin was 55.7%.  The decrease in gross margin prior to thesecharges resulted from the shift in product mix from certain mature, highermargin products and the decreased overhead absorption on lower productionlevels in the 1999 fiscal year.

 

*Selling,General and Administrative Expense*.  Selling, general and administrative expense decreased by 20.2%,or $1.6 million, to $6.3 million in fiscal 1999 versus $7.9 million in theprior year.  As a percentage of netsales, selling, general and administrative expense decreased to 41.4% in fiscal1999 versus 46.4% in fiscal 1998.  Thisdecrease resulted from cost reduction activities initiated by us beginning infiscal 1998 in response to the downturn in the semiconductor capital equipmentmarket.

 

*Researchand Development Expense*. Research and development expense decreased by 24.5%, or $0.9 million, to$2.8 million in fiscal 1999 compared to $3.7 million in fiscal 1998.  As a percentage of net sales, research anddevelopment expense decreased to 18.4% from 21.9% for fiscal 1998.

 

*OtherIncome (Expense)*.  Netinterest income decreased during fiscal 1999 due to decreased holdings of interest-bearingcash and cash equivalents throughout the year.

 

*IncomeTax Provision*.  Duringfiscal 1999 and 1998, we incurred minimal tax liabilities primarily related toforeign taxes.  We have recordedvaluation allowances against all benefits associated with net operating losscarryforwards due to uncertainty regarding their ultimate utilization.

 

*NetLoss*.  Net loss forfiscal 1999 was $1.5 million, or $0.20 per share, compared to a net loss of$3.9 million, or $0.54 per share in fiscal 1998.

 

***Quarterly Results***

 

The following tables present selected unauditedquarterly operating results for the ten fiscal quarters ended December 31,2000, as well as the data expressed as a percentage of net sales.  We believe that all necessary adjustmentshave been included to present fairly the quarterly information when read inconjunction with our consolidated financial statements.  The operating results for any quarter arenot necessarily indicative of the results for any subsequent period.

 

(in thousands,except per share data)

 
|                                       | **Quarter  Ended** |       |         |
|--------------------------------------------|--------------------|------------|--------------|
|                                       | **Dec. 31**        |       | **Sept. 30** |   | **July 1** |   | **April 1** |   | **Dec. 31** |   | **Sept. 25** |   | **June 26** |   | **Mar. 27** |   | **Dec. 26** |   | **Sept. 26** |   |   |
|                                       | **2000**           |       | **2000**     |   | **2000** |   | **2000** |   | **1999** |   | **1999** |   | **1999** |   | **1999** |   | **1998** |   | **1998** |   |   |
|                                       |               | ** ** |         | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   |
| Net sales                                  | $                  | 12,949     |         | $ | 14,320 |   | $ | 14,413 |   | $ | 8,220 |   | $ | 5,611 |   | $ | 5,745 |   | $ | 4,455 |   | $ | 4,028 |   | $ | 3,020 |   | $ | 3,668 |   |   |
| Cost of sales                              | 11,509             |       | 7,923        |   | 7,569 |   | 3,882 |   | 2,620 |   | 2,832 |   | 2,001 |   | 2,032 |   | 1,571 |   | 1,935 |   |   |
| Gross profit                               | 1,440              |       | 6,397        |   | 6,844 |   | 4,338 |   | 2,991 |   | 2,913 |   | 2,454 |   | 1,996 |   | 1,449 |   | 1,733 |   |   |
| Operating expenses:                        |               |       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general and administrative        | 4,420              |       | 4,263        |   | 4,357 |   | 3,138 |   | 2,174 |   | 2,122 |   | 1,710 |   | 1,417 |   | 1,431 |   | 1,721 |   |   |
| Research and development                   | 2,613              |       | 2,545        |   | 2,243 |   | 1,870 |   | 821 |   | 675 |   | 660 |   | 708 |   | 596 |   | 836 |   |   |
| Amortization of intangible assets          | 1,175              |       | 1,175        |   | 1,174 |   | 784 |   | 5 |   | 5 |   | - |   | - |   | - |   | - |   |   |
| Write-down of impaired intangible assets   | 3,405              |       | -            |   | - |   | - |   | - |   | - |   | - |   | - |   | - |   | - |   |   |
| Income (loss) from operations              | (10,173            | )          | (1,586       | ) | (930 | ) | (1,454 | ) | (9 | ) | 111 |   | 84 |   | (129 | ) | (578 | ) | (824 | ) |   |
| Other income (expense)                     | 138                |       | (27          | ) | (119 | ) | (38 | ) | - |   | 19 |   | (30 | ) | 4 |   | 2 |   | 5 |   |   |
| Income (loss) before cumulative adjustment | (10,035            | )          | (1,613       | ) | (1,049 | ) | (1,492 | ) | (9 | ) | 130 |   | 54 |   | (125 | ) | (576 | ) | (819 | ) |   |
| Cumulative adjustment (1)                  | -                  |       | -            |   | - |   | (1,264 | ) | - |   | - |   | - |   | - |   | - |   | - |   |   |
| Net income (loss)                          | $                  | (10,035    | )            | $ | (1,613 | ) | $ | (1,049 | ) | $ | (2,756 | ) | $ | (9 | ) | $ | 130 |   | $ | 54 |   | $ | (125 | ) | $ | (576 | ) | $ | (819 | ) |   |
|                                       |               |       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings (loss) per share (2):       |               |       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing operations                      | $                  | (0.72      | )            | $ | (0.13 | ) | $ | (0.09 | ) | $ | (0.15 | ) | $ | - |   | $ | 0.02 |   | $ | 0.01 |   | $ | (0.02 | ) | $ | (0.08 | ) | $ | (0.11 | ) |   |
| Cumulative adjustment                      | -                  |       | -            |   | - |   | (0.13 | ) | - |   | - |   | - |   | - |   | - |   | - |   |   |
| Net income (loss)                          | $                  | (0.72      | )            | $ | (0.13 | ) | $ | (0.09 | ) | $ | (0.28 | ) | $ | - |   | $ | 0.02 |   | $ | 0.01 |   | $ | (0.02 | ) | $ | (0.08 | ) | $ | (0.11 | ) |   |
|                                       |               |       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted earnings (loss) per share (2):     |               |       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing operations                      | $                  | (0.72      | )            | $ | (0.13 | ) | $ | (0.09 | ) | $ | (0.15 | ) | $ | - |   | $ | 0.02 |   | $ | 0.01 |   | $ | (0.02 | ) | $ | (0.08 | ) | $ | (0.11 | ) |   |
| Cumulative adjustment                      | $                  | -          |         | $ | - |   | $ | - |   | $ | (0.13 | ) | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   |   |
| Net income (loss)                          | (0.72              | )          | $            | (0.13 | ) | $ | (0.09 | ) | $ | (0.28 | ) | $ | - |   | $ | 0.02 |   | $ | 0.01 |   | $ | (0.02 | ) | $ | (0.08 | ) | $ | (0.11 | ) |   |
|                                       |               |       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proforma net income (loss)(1)              |               |       |         |   |   |   |   |   |   |   |   |   |   | (1,589 | ) |   | $ | 1,026 |   | $ | (845 | ) | $ | 838 |   | $ | (30 | ) | $ | (1,279 | ) |
| Proforma net income (loss) per share:      |               |       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                      |               |       |         |   |   |   |   |   |   |   |   |   | $ | (0.21 | )  | $ | 0.14 | ) | $ | (0.11 | )  | $ | 0.11 |   | $ | - |   | (0.17 |   |   |
| Diluted                                    |               |       |         |   |   |   |   |   |   |   |   |   | $ | (0.21 |  ) | $ | (0.13 | ) | $ | (0.11 |  ) | $ | 0.11 |   | $ | - |   | (0.17 |   |   |
|                                       |               |       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average shares:                   |               |       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                      | 13,950             |       | 12,082       |   | 11,067 |   | 9,905 |   | 7,484 |   | 7,460 |   | 7,402 |   | 7,394 |   | 7,394 |   | 7,394 |   |   |
| Diluted                                    | 13,950             |       | 12,082       |   | 11,067 |   | 9,905 |   | 7,484 |   | 8,131 |   | 7,721 |   | 7,394 |   | 7,394 |   | 7,394 |   |   |
|                                            |                    |            |              |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

 

 
|                                           |   | **Quarter Ended** |       |         |
|------------------------------------------------|--------|-------------------|------------|--------------|
|                                           |   | **Dec. 31**       |       | **Sept. 30** |   | **July 1** |   | **April 1** |   | **Dec. 31** |   | **Sept. 25** |   | **June 26** |   | **Mar. 27** |   | **Dec. 26** |   | **Sept. 26** |   |
|                                           |   | **2000**          |       | **2000**     |   | **2000** |   | **2000** |   | **1999** |   | **1999** |   | **1999** |   | **1999** |   | **1998** |   | **1998** |   |
| **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                                  |   | 88.9              |       | 55.3         |   | 52.5 |   | 47.2 |   | 46.7 |   | 49.3 |   | 44.9 |   | 50.4 |   | 52.0 |   | 52.8 |   |
| Gross profit                                   |   | 11.1              |       | 44.7         |   | 47.5 |   | 52.8 |   | 53.3 |   | 50.7 |   | 55.1 |   | 49.6 |   | 48.0 |   | 47.2 |   |
| Operating expenses:                            |   |              |       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general and administrative            |   | 34.1              |       | 29.8         |   | 30.2 |   | 38.2 |   | 38.8 |   | 37.0 |   | 38.4 |   | 35.2 |   | 47.4 |   | 46.9 |   |
| Research and development                       |   | 20.2              |       | 17.8         |   | 15.6 |   | 22.8 |   | 14.7 |   | 11.7 |   | 14.8 |   | 17.6 |   | 19.7 |   | 22.8 |   |
| Amortization of intangible assets              |   | 9.1               |       | 8.2          |   | 8.2 |   | 9.5 |   | - |   | - |   | - |   | - |   | - |   | - |   |
| Write-down of impaired intangible assets       |   | 26.3              |       | -            |   | - |   | - |   | - |   | - |   | - |   | - |   | - |   | - |   |
| Income (loss) from operations                  |   | (78.6             | )          | (11.1        | ) | (6.5 | ) | (17.7 | ) | (0.2 | ) | 2.0 |   | 1.9 |   | (3.2 | ) | (19.1 | ) | (22.5 | ) |
| Other income (expense)                         |   | 1.1               |       | (0.2         | ) | (0.8 | ) | (0.5 | ) | - |   | 0.3 |   | (0.7 | ) | 0.1 |   | - |   | 0.2 |   |
| Net income (loss) before cumulative adjustment |   | (77.5             | )          | (11.3        | ) | (7.3 | ) | (18.2 | ) | (0.2 | ) | 2.3 |   | 1.2 |   | (3.1 | ) | (19.1 | ) | (22.3 | ) |
| Cumulative adjustment (1)                      |   | -                 |       | -            |   | - |   | (15.4 | ) | - |   | - |   | - |   | - |   | - |   | - |   |
| Net income (loss)                              |   | (77.5             | )%         | (11.3        | )% | (7.3 | )% | (33.5 | )% | (0.2 | )% | 2.3 | % | 1.2 | % | (3.1 | )% | (19.1 | )% | (22.3 | )% |

----

(1)   We adopted SAB 101 in the fourth quarter of theyear 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

 

(2)   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.

 

(in thousands, except per share data)

 
|                                      |   | **As**       |   |        |   | **As**       |   | **As**       |   |        |   | **As**       |   | **As**       |   |        |   | **As**       |   |
|-------------------------------------------|--------|--------------|--------|-------------|--------|--------------|--------|--------------|--------|-------------|--------|--------------|--------|--------------|--------|-------------|--------|--------------|--------|
|                                      |   | **Reported** |   |        |   | **Restated** |   | **Reported** |   |        |   | **Restated** |   | **Reported** |   |        |   | **Restated** |   |
|                                      |   | **Sept 30**  |   | **SAB 101** |   | **Sept 30**  |   | **July 1**   |   | **SAB 101** |   | **July 1**   |   | **April 1**  |   | **SAB 101** |   | **April 1**  |   |
|                                      |   | **2000**     |   | **Impact**  |   | **2000**     |   | **2000**     |   | **Impact**  |   | **2000**     |   | **2000**     |   | **Impact**  |   | **2000**     |   |
|                                      |   |         |   |        |   |         |   |         |   |        |   |         |   |         |   |        |   |         |   |
| 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 andadministrative        |   | 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 intangibleassets          |   | 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) beforecumulative 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) pershare :          |   |         |   |        |   |         |   |         |   |        |   |         |   |         |   |        |   |         |   |
| 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) pershare :        |   |         |   |        |   |         |   |         |   |        |   |         |   |         |   |        |   |         |   |
| 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 | ) |

 

 

***Liquidity andCapital Resources***

 

The net loss andincreases in accounts receivable and inventories to support increased net saleswere the primary uses of cash in 2000. Increases in accounts receivable and inventories to support theincreased net sales were the primary uses of cash in the six-month transitionperiod ended December 31, 1999.  The netloss in fiscal 1999 was the primary use of cash for that year.  The net loss and inventory purchases werethe primary uses of cash in fiscal year 1998. Cash used in operations was $6.8 million in 2000, $0.7 million in thesix-month transition period ended December 31, 1999, $0.5 million in fiscal1999 and $3.5 million in fiscal 1998.

 

                We record provisions for doubtful accounts receivablebased on specific identification of our accounts receivable. As a result ofthis examination, we recorded a $143,000 provision in the year ended December31, 2000.  No provision was recorded inthe sixth month transition period ended December 31, 1999. $20,000 was recordedin fiscal 1999 and $12,000 in fiscal 1998.

 

Capital expenditures totaled $0.5 million in 2000,$0.1 million in the six-month transition period ended December 31, 1999, $0.1million in fiscal 1999 and $0.3 million in fiscal 1998.  Capital purchases for all periods have beenprimarily for production 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.

 

We issued 3,290,000 shares of common stock in a publicoffering in 2000, providing $19.7 million of cash which was used to reduceexisting lines of credit totaling $1.8 million and for general working capitalneeds.  We issued approximately 0.5million shares of common stock through the exercise of employee stock optionsand our stock purchase plan, which provided approximately $0.9 million.  Cash provided by financing activities forthe six months ended December 31, 1999, primarily comprised of proceeds fromthe issuance of common stock upon the exercise of stock options and warrants,was $0.2 million.  Cash used infinancing activities, primarily for the repayment of debt, was $26,000 infiscal 1999 and  $0.3 million in fiscal1998.

 

At December 31, 2000 we had cash and cash equivalentsof $12.0 million, a current ratio of 2.5 and working capital of $22.3million.  At December 31, 1999 we hadcash and cash equivalents of $1.0 million, a current ratio of 3.1 and workingcapital of $6.4 million.  At June 26,1999, we had cash and cash equivalents of $1.9 million, a current ratio of 3.1and working capital of $6.3 million.

 

At December 31, 2000 and 1999 we maintained a $ 5.0million secured line of credit with a bank. Borrowings on the line, which was unused at December 31, 2000 and December31,1999, accrue interest at 1.5% over the bank’s prime rate, which was 9.5% atDecember 31, 2000 for a borrowing rate of 11%. The amount available for borrowing on the line is calculated as apercentage of our eligible accounts receivable and inventory, excludingAseco.  At December 31, 2000 we were indefault of certain financial covenants of the line of credit related to the netloss in the fourth quarter.  We allowedthe line of credit to expire in February 2001.

 

At December 31, 2000 we maintained an unused $1.0million secured line of credit with another bank.  Interest on the line, at our election, is based on either thebank’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.

 

Ouranticipated capital needs for 2001 are expected to be less than $1.0 millionand concentrated in development of additional products and upgrading ourmanagement information systems. We believe that cash and cash equivalents onhand at December 31, 2000 and funds available through our bank line of creditare sufficient to finance and sustain our continuing operations at theprojected level through at least 2001. However, the impact of the severe downturn in the semiconductor capitalequipment market, one or more additional business acquisitions or unforeseenchanges in market conditions could cause us to seek additional financing sooner.  We believe that we will be able to raiseadditional capital and/or negotiate an increase to our bank line of credit atterms acceptable to us if required, but no assurance can be made that suchfinancing will be available if needed. We may acquire other companies, product lines or technologies that arecomplementary to our business and our working capital needs may change as aresult of such acquisitions.

 

**FederalTax Matters**

 

                We paid only nominal federal and state income taxesin the year ended December 31, 2000, the six-month transition period endedDecember 31, 1999 and fiscal years 1999 and 1998.  At December 31, 2000, we had federal net operating losscarryforwards for tax reporting purposes of approximately $55.1 million, aportion of which is subject to annual limitation under Section 382 of theInternal Revenue Code.  See Note 6 inNotes to Consolidated Financial Statements, contained elsewhere 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.  Our bank lines of credit carryvariable interest rates.  At December31, 2000, we had no borrowings outstanding on our lines of credit, whichcarries an interest rate of prime plus 1.5% or 11.0% at December 31, 2000.  An increase in interest rates could exposeus to market risk in the event we need to borrow under the bank lines tofinance our operations in the future. At December 31, 2000, all of our outstanding long-term debt carriedinterest at a fixed rate.  There is nomaterial market risk relating to our bank lines or long-term debt.

 

**ImpactOf Accounting Standards**

 

***Statement of Financial Accounting Standard (SFAS) No.133—Accounting for Derivative Instruments and Hedging Activities***.  On January 1, 2001, we adopted Statement ofFinancial Accounting Standard (SFAS) No. 133 - *Accounting for Derivative Instrumentsand Hedging Activities*, as amended by SFAS No. 138 - *Accountingfor Certain Derivative Instruments and Certain Hedging Activities*.  SFAS No. 133 establishes accounting andreporting standards for derivative instruments and for hedging activities.  It requires that all derivatives, includingthose embedded in other contracts, be recognized as either assets orliabilities and that those financial instruments be measured at fairvalue.  The accounting for changes inthe fair value of derivatives depends on their intended use and designation.Management has reviewed the requirements of SFAS No. 133 and has determinedthat 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.

 

***Staff Accounting Bulletin (SAB) No. 101—Revenue Recognitionin Financial Statements.*** In December 1999, the Securities and Exchange Commission (“SEC”) staffissued SAB 101, which, among other things, establishes the SEC’s interpretationthat if uncertainty exists about customer acceptance of a product, revenueshould not be recognized until acceptance occurs. In SAB 101, the SEC statedthat customer acceptance provisions may be included in a contract to enforce acustomer’s right to (1) test the delivered product, (2) require the seller toperform additional services subsequent to delivery of an initial product orperformance of an initial service, such as a seller being required to installor activate delivered equipment, or, (3) identify other work necessary to bedone before accepting the product.  TheSEC presumes that such contractual customer acceptance provisions aresubstantive, bargained-for terms of an arrangement.  Accordingly, when such contractual customer acceptance provisionsexist, the SEC generally believes that the seller should not recognize revenueuntil customer acceptance occurs or the acceptance provisions lapse.

 

We adopted the provisions of SAB 101 in the fourthquarter of 2000.  The impact, ourrevenue recognition policy and disclosures related to this adoption arequantified and discussed in Note 2 in Notes to Consolidated FinancialStatements, contained elsewhere herein.

 

**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-looking statements.  These statements are not guarantees offuture performance and are subject to certain risks, uncertainties and otherfactors, some of which are beyond our control and are difficult to predict.  These factors could cause actual results todiffer materially from those expressed or forecasted in the forward-lookingstatements.  These risks anduncertainties are described 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.

 

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.  These products represented 11.9% ofshipments for the year ended December 31, 2000 and less than 10% of our netsales during the six months ended December 31, 1999.  Our new products are attractive to customers only if thecustomers can see the value of automating the test and assembly portions oftheir semiconductor manufacturing operations. Although semiconductor manufacturers have automated the waferfabrication portion of their operation, or the front-end of the semiconductormanufacturing process, very few semiconductor manufacturers have invested asignificant amount of capital to automate the test and assembly portions oftheir operations.  We are introducingnew products for technologies, which may not be accepted on a wide-scale basisby the industry.  If either the testingof semiconductor devices in strip form or wide-scale automation of the back-endis not accepted by the industry, our net sales likely will suffer.

 

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

 

Our business depends heavily upon capital expendituresby semiconductor manufacturers.  Thesemiconductor industry is highly cyclical, with periods of capacity shortageand periods of excess capacity.  Inperiods of excess capacity, the industry sharply cuts purchases of capitalequipment, such as our products.  Thus,a semiconductor industry downturn or slowdown substantially reduces ourrevenues and operating results and could hurt our financial condition.  In the fourth quarter of 2000, thesemiconductor capital equipment industry went into a severe downturn, which hasadversely impacted our revenues, operating results and financial position.  The downturn is expected to last well into2001.

 

**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 May 2000.  The sales from these operations make up lessthan 3% of our current revenue.  Ourfuture success is dependent upon being able to successfully market ourautomation 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 ourcustomers are not obligated by long-term contracts to purchase our products,our anticipated 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.

 

**We maynot realize the expected benefits of our merger with Aseco, which wouldincrease our costs and reduce our net income.**

 

Weacquired Aseco in January 2000 with the expectation of achieving certainbenefits in the combined company. During its last three fiscal years prior to the merger, Aseco incurrednet losses totaling $19.5 million.  InFebruary 2001, we announced our plans to consolidate manufacturing from ourMarlborough , Massachusetts facility to St. Paul, Minnesota, which will resultin a restructuring charge in the first quarter of 2001.  If we are not able to integrate ourtechnologies, operations and personnel in a timely and efficient manner andreduce redundant costs, we may not realize the benefits of the merger.  This would lead to increased costs andreduced net income. Difficulties involved in integrating the companies include:

 

          • distracting management and key personnel from ourbusiness;

          • maintaining existing customer relationships;

          • potential incompatibility of business cultures; and

          • an inability to retain and integrate key management,technical, sales and customer support personnel.

 

**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:

 

• the cyclical nature ofthe semiconductor industry; • delays in, or cancellation of, significant system purchases by customers; • delays in the development, introduction and production of our products; • changes in the mix of our products and their gross margins; • new product introductions by competitors and competitive pricing pressures; • the time required for us to adjust our operating expenses to respond tochanges in sales; • the timing of any future acquisitions and their effect on our financialresults:

• component shortagesresulting in manufacturing delays; and • pressure by customers to reduce prices, shorten delivery times and extendpayment 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 expectedfor any future 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.**

 

                Stockprices of companies in the semiconductor equipment industry, including ours,can swing dramatically with little relationship to operating performance.  Factors which could cause our stock price tochange include:

 

• changes in the market's view of the semiconductorindustry in general; • changes in our quarterly operating results for the reasons set out in theprevious risk factor or for other reasons; • changes in our reported financial results based on accounting pronouncements,such as Staff Accounting Bulletin No. 101-*Revenue Recognition in Financial Statements*or similar pronouncements; • changes in research analysts' expectations for us or our industry or ourfailure to meet research analysts' estimates; • changes in the general economic conditions or developments in thesemiconductor industry which affect investor confidence; and • announcements by us or our competitors of technological innovations or new orenhanced products.

 

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

 

Additional factors which may impact our resultsinclude:

 

• We depend upon a few customers for the majority ofour revenues and a reduction in their orders could adversely affect us.

• Our operating results would be harmed if one of ourkey suppliers fails to deliver components for our products.

• The loss of any of our key personnel could harm ourbusiness.

• Our markets are very competitive and demand for ourproducts may decrease if additional competitors enter our markets.

• Our dependence upon international sales involvessignificant risk.

 

**ITEM8.  Financial Statements andSupplementary Data**

 

                See Consolidated FinancialStatements included elsewhere in this Report on Form 10-K for the year endedDecember 31, 2000.  The financialinformation by quarter is included in Item 7 of this Report on Form 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 required by thisitem concerning directors and executive officers is incorporated by referencefrom the Proxy Statement to be filed no later than 120 days following our December31, 2000 year end.

 

**ITEM11.  Executive Compensation**

 

                The information required underthis item is hereby incorporated by reference from the Proxy Statement.

 

**ITEM 12. Security Ownership of Certain Beneficial Owners and Management**

 

                The information required under this item is herebyincorporated by reference from the Proxy Statement.

 

**ITEM13.  Certain Relationships and RelatedTransactions**

 

                The information required under this item is herebyincorporated by reference from the Proxy Statement.

 

**PART IV**

 

**ITEM 14.  Exhibits,Financial Statement Schedules 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, 2000, December 31, 1999 and June 26,1999                                                                                                                                     |   |
| Consolidated  Statements of Operations for the Year Ended December 31, 2000, the Six-Month  Transition Period Ended December 31, 1999, and the Fiscal Years Ended June  26, 1999 and June 27, 1998                           |   |
| Consolidated  Statements of Changes in Stockholders’ Equity for the Year Ended December 31,  2000, the Six-Month Transition Period Ended December 31, 1999, and the Fiscal  Years Ended June 26, 1999 and June 27, 1998 |   |
| Consolidated  Statements of Cash Flows for the Year Ended December 31, 2000, the Six- Month  Transition Period Ended December 31, 1999, and the Fiscal Years Ended June  26, 1999 and June 27, 1998                          |   |
| Notes  to Consolidated Financial Statements                                                                                                                                                                                  |   |

 

**(a)3. Exhibits**

 

3A.          Bylaws of MCT. (7)

3B.          Articles of Incorporation of MCT. (7)

4.             Specimen Certificate of Commonstock. (1)

10A.        Form of Non-Competition Agreementbetween MCT and certain senior executive officers. (1)

10B.        Stock Purchase Agreement and CommissionAgreement 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 Directorsas amended through April 29, 1999. (6)

10G.        Incentive Stock Option Plan as amendedthrough September 27, 1999. (13)

10H.        Former Aseco Corp. 1986 Incentive StockOption Plan. (13)

10I.          Former Aseco Corp. 1993 Omnibus StockPlan. (13)

10J.         Former Aseco Corp. 1993 Non-EmployeeDirector Stock Option Plan. (13)

10K.        Lease for MCT’s corporate headquartersdated October 16, 1996. (6)

10L.         Lease for space in Marlborough,Massachusetts dated April 13, 1993. (12)

10M.       Credit and Security Agreement, datedFebruary 17, 1998 between Norwest Business Credit, Inc. and Micro ComponentTechnology, Inc. (8)

10N.        Credit and Security Agreement, datedFebruary 17, 1998 between Norwest Bank Minnesota, N.A. and Micro ComponentTechnology, Inc. (8)

10O.        First Amendment to Credit and SecurityAgreement, dated October 22, 1998 between Norwest Business Credit, Inc. andMicro Component Technology, Inc. (9)

10P.         First Amendment to Credit and SecurityAgreement, dated October 22, 1998 between Norwest Bank Minnesota, N.A. andMicro Component Technology, Inc. (9)

10Q.        Second Amendment to Credit and SecurityAgreement (Eximbank Guaranteed Loan), dated February 16, 1999 between NorwestBank Minnesota N.A. and Micro Component Technology, Inc. (10)

10R.        Second Amendment to Credit and SecurityAgreement, dated May 6, 1999 between Wells Fargo Business Credit, Inc. andMicro Component Technology, Inc. (10)

10S.         Third Amendment to Credit and SecurityAgreement, dated 20, 2000 between Wells Fargo Business Credit, Inc. and MicroComponent Technology, Inc. (14)

10T.        Third Amendment to Credit and SecurityAgreement (Eximbank Guaranteed Loan), dated June 20, 2000, between Norwest BankMinnesota N.A. and Micro Component Technology, Inc. (14)

10U.        Warrant Purchase Agreement dated July11, 1992. (1)

10V.        Second Common Stock Warrant PurchaseAgreement dated August 10, 1993. (1)

10W.       Demand Loan Agreement dated December 21,2000 between Citizens Bank of Massachusetts and Micro Component Technology,Inc. (filed with original Form 10-K)

21.           Revised Listing of Subsidiaries ofMicro Component Technology, Inc. (14)

23.1         Consent of Deloitte & Touche LLP.(filed herewith)

----

(1)           Incorporated by reference to theexhibits 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 thereport on Form 10-Q filed by MCT for the quarter ended March 25, 1995, SEC FileNo. 0-22384.

(3)           Incorporated by reference to thereport on Form 10-Q filed by MCT for the quarter ended September 30, 1995, SECFile No. 0-22384.

(4)           Incorporated by reference to theexhibits to the Post-Effective Amendment to Registration Statement on Form S-8filed by MCT on July 15, 1996, as amended, SEC File No. 33-85766.

(5)           Incorporated by reference to theexhibits to the report on Form 10-K filed by MCT for the fiscal year ended June29, 1996, SEC File No. 0-22384.

(6)           Incorporated by reference to thereport on Form 10-Q filed by MCT for the quarter ended September 28, 1996, SECFile No. 0-22384.

(7)           Incorporated by reference to theexhibits to the Post-Effective Amendment No. 1 to the Registration Statement onForm S-1 filed by MCT on November 18, 1996, SEC File No 33-98940.

(8)           Incorporated by reference to thereport on Form 10-Q filed by MCT for the quarter ended March 28, 1998, SEC FileNo. 0-22384.

(9)           Incorporated by reference to thereport on Form 10-Q filed by MCT for the quarter ended September 26, 1998, SECFile No. 0-22384.

(10)         Incorporated by reference to the reporton Form 10-Q filed by MCT for the quarter ended March 27, 1999, SEC File No.0-22384.

(11)         Incorporated by reference to the reporton Form 10-K/A filed by MCT for the fiscal year ended June 26, 1999, SEC FileNo. 0-22384.

(12)         Incorporated by reference to theRegistration Statement on Form S-1, as amended, filed by Aseco Corporation onJanuary 29, 1993, SEC File No. 33-57644.

(13)         Incorporated by reference to theexhibits 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 reportof From 10-K filed by MCT for the transition period ended December 31, 1999filedby MCT on June 30, 2000, SEC File No. 0-22384.

 

**(b)           Reportson Form 8-K**

 

                There was no Form 8-K filed during the quarter endedDecember 31, 2000.

 

**MICROCOMPONENT TECHNOLOGY, INC.**

 

**Index to Consolidated FinancialStatements**

 

 
| **Index  to Consolidated Financial Statements**                                                                                                                                                                             |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Independent Auditors’ Report                                                                                                                                                                                           |   |
| ConsolidatedBalanceSheets  as of December 31,2000, December 31, 1999 and June 26, 1999                                                                                                                                      |   |
| Consolidated  Statements of Operations for the Year Ended December 31, 2000, the  Six-Month Transition Period Ended December 31, 1999, and the Fiscal Years  Ended June 26, 1999 and June 27, 1998                          |   |
| Consolidated  Statements of Changes in Stockholders’ Equity for the Year Ended December  31, 2000 the Six-Month Transition Period Ended December 31, 1999, and the  Fiscal Years Ended June 26, 1999 and June 27, 1998 |   |
| Consolidated  Statements of Cash Flows for the Year Ended December 31, 2000, the  Six-Month Transition Period Ended December 31, 1999, and the Fiscal Years  Ended June 26, 1999 and June 27, 1998                          |   |
| Notes to  Consolidated Financial Statements                                                                                                                                                                                 |   |

##### ** **

#####  

##### **INDEPENDENTAUDITORS’ REPORT**

##### ** **

##### **To the Stockholders and Board of Directors of MicroComponent Technology, Inc.**

 

                We have audited the accompanyingconsolidated balance sheets by Micro Component Technology, Inc.

and itsubsidiaries (the Company) as of December 31, 2000, December 31, 1999 and June26, 1999 and the related consolidated statements of operations, changes instockholders’ equity and cash flows for the year ended December 31, 2000, thesix-month transition period ended December 31, 1999 and the two years in theperiod ended June 26, 1999.  Theseconsolidated financial statements are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these consolidated financial statements based on ouraudits.

 

                We conducted our audits inaccordance with auditing standards generally accepted in the United States ofAmerica.  Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether theconsolidated financial statements are free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the consolidatedfinancial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that ouraudits provide a reasonable basis for our opinion.

 

                In our opinion, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of the Company at December 31, 2000, December 31, 1999, andJune 26, 1999 and the results of their operations  and their cash flows for the year ended December 31, 2000, thesix-month transition period ended December 31, 1999 and the two years in theperiod ended June 26, 1999, in the conformity with accounting principlesgenerally accepted in the United States of America.

 

 

 

/s/ Deloitte & ToucheLLP

 

 

Minneapolis, Minnesota

March 23, 2001

 

**MICROCOMPONENT TECHNOLOGY, INC.**

**CONSOLIDATED BALANCE SHEETS**

(in thousands, exceptshare and per share amounts)

 

 
|                                                                                                            |   | **December  31,** |       | **December  31,** |       | **June  26,** |       |
|-----------------------------------------------------------------------------------------------------------------|--------|-------------------|------------|-------------------|------------|---------------|------------|
|                                                                                                            |   | **2000**          |       | **1999**          |       | **1999**      |       |
| **Assets**                                                                                                      |   |              | ** ** |              | ** ** |          | ** ** |
| Current assets:                                                                                                 |   |              |       |              |       |          |       |
| Cash and cash  equivalents                                                                                      |   | $                 | 12,047     |              | $          | 1,045         |       | $ | 1,927 |   |
| Accounts  receivable, less allowance for doubtful accounts of $200, $136, and $146,  respectively               |   | 11,905            |       | 4,087             |       | 3,596         |       |
| Inventories                                                                                                     |   | 13,418            |       | 3,648             |       | 3,616         |       |
| Other                                                                                                           |   | 371               |       | 604               |       | 131           |       |
| Total current  assets                                                                                           |   | 37,741            |       | 9,384             |       | 9,270         |       |
|                                                                                                            |   |              |       |              |       |          |       |
| Property, plant  and equipment, net                                                                             |   | 1,286             |       | 865               |       | 673           |       |
| Goodwill and  other intangible assets, net                                                                      |   | 11,920            |       | 31                |       | -             |       |
| Other assets                                                                                                    |   | 76                |       | 44                |       | 47            |       |
|                                                                                                            |   |              |       |              |       |          |       |
| Total assets                                                                                                    |   | $                 | 51,023     |              | $          | 10,324        |       | $ | 9,990 |   |
|                                                                                                            |   |              |       |              |       |          |       |
| **Liabilities and Stockholders’  Equity**                                                                  |   |              |       |              |       |          |       |
| Current  liabilities:                                                                                           |   |              |       |              |       |          |       |
| Current portion  of long-term debt                                                                              |   | $                 | 31         |              | $          | 51            |       | $ | 51 |   |
| Accounts payable                                                                                                |   | 6,956             |       | 1,232             |       | 1,548         |       |
| Accrued  compensation                                                                                           |   | 1,133             |       | 686               |       | 666           |       |
| Accrued warranty                                                                                                |   | 777               |       | 245               |       | 271           |       |
| Customer  prepayments and unearned service revenue                                                              |   | 985               |       | 361               |       | 224           |       |
| Deferred revenue  in excess of cost incurred                                                                    |   | 3,333             |       | -                 |       | -             |       |
| Other accrued  liabilities                                                                                      |   | 2,179             |       | 423               |       | 245           |       |
| Total current  liabilities                                                                                      |   | 15,394            |       | 2,998             |       | 3,005         |       |
|                                                                                                            |   |              |       |              |       |          |       |
| Long-term debt                                                                                                  |   | 37                |       | 70                |       | 33            |       |
|                                                                                                            |   |              |       |              |       |          |       |
| 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, 13,949,974; 7,540,647 and 7,416,922  issued, respectively |   | 139               |       | 75                |       | 74            |       |
| Additional  paid-in capital                                                                                     |   | 87,942            |       | 44,217            |       | 44,035        |       |
| Cumulative other  comprehensive loss                                                                            |   | (69               | )          | (69               | )          | (69           | )          |
| Accumulated  deficit                                                                                            |   | (52,420           | )          | (36,967           | )          | (37,088       | )          |
| Total  stockholders’ equity                                                                                |   | 35,592            |       | 7,256             |       | 6,952         |       |
|                                                                                                            |   |              |       |              |       |          |       |
| Total liabilities  and stockholders’ equity                                                                |   | $                 | 51,023     |              | $          | 10,324        |       | $ | 9,990 |   |

 

See Notes to ConsolidatedFinancial Statements.

 

**MICROCOMPONENT TECHNOLOGY, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

(in thousands, except pershare data)

 
|                                                                      |   | **Year  Ended**   |       | **Six  Months Ended** |       | **Fiscal  Years Ended** |       |
|---------------------------------------------------------------------------|--------|-------------------|------------|-----------------------|------------|-------------------------|------------|
|                                                                      |   | **December  31,** |       | **December 31,**      |       | **June  26,**           |       | **June  27,** |   |
|                                                                      |   | **2000**          | ** ** | **1999**              | ** ** | **1999**                | ** ** | **1998** | ** ** |
|                                                                      |   |              |       |                  |       |                    |       |   |   |
| Net sales                                                                 |   | $                 | 49,902     |                  | $          | 11,356                  |       | $ | 15,171 |   | $ | 16,975 |   |
| Cost of sales                                                             |   | 30,884            |       | 5,452                 |       | 7,539                   |       | 9,595 |   |
| Gross profit                                                              |   | 19,018            |       | 5,904                 |       | 7,632                   |       | 7,380 |   |
|                                                                      |   |              |       |                  |       |                    |       |   |   |
| Operating  expenses:                                                      |   |              |       |                  |       |                    |       |   |   |
| Selling,  general, and administrative                                     |   | 16,177            |       | 4,296                 |       | 6,279                   |       | 7,871 |   |
| Research and  development                                                 |   | 9,271             |       | 1,496                 |       | 2,800                   |       | 3,711 |   |
| Amortization of  intangible assets                                        |   | 4,308             |       | 10                    |       | -                       |       | - |   |
| Write-down of  impaired intangible assets                                 |   | 3,405             |       | -                     |       | -                       |       | - |   |
| Total operating  expenses                                                 |   | 33,161            |       | 5,802                 |       | 9,079                   |       | 11,582 |   |
|                                                                      |   |              |       |                  |       |                    |       |   |   |
| Income  (loss) from operations                                       |   | (14,143           | )          | 102                   |       | (1,447                  | )          | (4,202 | ) |
|                                                                      |   |              |       |                  |       |                    |       |   |   |
| Other income  (expense):                                                  |   |              |       |                  |       |                    |       |   |   |
| Interest income                                                           |   | 356               |       | 28                    |       | 75                      |       | 139 |   |
| Interest expense                                                          |   | (330              | )          | (5                    | )          | (8                      | )          | (23 | ) |
| Other income  (expense)                                                   |   | (72               | )          | (4                    | )          | (86                     | )          | 207 |   |
|                                                                      |   |              |       |                  |       |                    |       |   |   |
| Income  (loss) before income taxes                                        |   | (14,189           | )          | 121                   |       | (1,466                  | )          | (3,879 | ) |
| Income tax  provision                                                     |   | -                 |       | -                     |       | -                       |       | - |   |
|                                                                      |   |              |       |                  |       |                    |       |   |   |
| Income  (loss) before cumulative effect of change in accounting principle |   | (14,189           | )          | 121                   |       | (1,466                  | )          | (3,879 | ) |
|                                                                      |   |              |       |                  |       |                    |       |   |   |
| Cumulative  effect of change in accounting principle                      |   | (1,264            | )          | -                     |       | -                       |       | - |   |
|                                                                      |   |              |       |                  |       |                    |       |   |   |
| Net income  (loss)                                                        |   | $                 | (15,453    | )                     | $          | 121                     |       | $ | (1,466 | ) | $ | (3,879 | ) |
|                                                                      |   |              |       |                  |       |                    |       |   |   |
| Net  income (loss) per share before cumulative adjustment:                |   |              |       |                  |       |                    |       |   |   |
| Basic                                                                     |   | $                 | (1.23      | )                     | $          | 0.02                    |       | $ | (0.20 | ) | $ | (0.54 | ) |
| Diluted                                                                   |   | $                 | (1.23      | )                     | $          | 0.01                    |       | $ | (0.20 | ) | $ | (0.54 | ) |
| Cumulative  adjustment                                                    |   | $                 | (0.11      | )                     | $          | -                       |       | $ | - |   | $ | - |   |
| Net  income (loss) per share:                                             |   |              |       |                  |       |                    |       |   |   |
| Basic                                                                     |   | $                 | (1.34      | )                     | $          | 0.02                    |       | $ | (0.20 | ) | $ | (0.54 | ) |
| Diluted                                                                   |   | $                 | (1.34      | )                     | $          | 0.01                    |       | $ | (0.20 | ) | $ | (0.54 | ) |
| Proforma  net loss (Note 2)                                               |   | $                 | -          |                  | $          |  (563              | )          | $ |  (1,316 | ) | $ |  (4,002 | ) |
| Weighted average  common and common equivalent shares outstanding         |   |              |       |                  |       |                    |       |   |   |
| Basic                                                                     |   | 11,531            |       | 7,474                 |       | 7,396                   |       | 7,248 |   |
| Diluted                                                                   |   | 11,531            |       | 8,144                 |       | 7,396                   |       | 7,248 |   |

 

 

See Notes toConsolidated Financial Statements.

**MICRO COMPONENT TECHNOLOGY, INC.**

**CONSOLIDATEDSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**

(in thousands,except share data)

 
|                                                |   |                |   |      |   | **Common  Stock** |       |        |   |              |   | **Cumulative**   |    |
|-----------------------------------------------------|--------|---------------------|--------|-----------|--------|-------------------|------------|-------------|--------|-------------------|--------|------------------|---------|
|                                                |   |                |   |      |   |              |       |        |   | **Additional**    |   |             |    |   |   | **Other** |   |
|                                                |   | **Preferred Stock** |   |      |   |              |       | **Paid-in** |   | **Comprehensive** |   | **Accumulated**  |    | **Comprehensive** |   |
|                                                |   | **Shares**          |   | **Value** |   | **Shares**        |       | **Value**   |   | **Capital**       |   | **Income(Loss)** |    | **Deficit** |   | **Income (Loss)** |   |
|                                                |   |                |   |      |   |              |       |        |   |              |   |             |    |   |   |   |   |   |   |   |   |   |
| Balance at June 28, 1997                            |   | 315,789             |   | $         | 1,500  |              | 7,047,102  |        | $      | 70                |   | $                | 42,474  |   |   |   | $ | (31,743 | ) | $ | (82 | ) |
| Net loss                                            |   |                |   |      |   |              |       |        |   |              |   | $                | (3,879  | ) | (3,879 | ) |   |   |
| Shares issued on exercise of options                |   |                |   |      |   | 12,750            |       |        |   | 20                |   |             |    |   |   |   |   |
| Shares issued through employee stock purchase plan  |   |                |   |      |   | 18,659            |       |        |   | 22                |   |             |    |   |   |   |   |
| Translation adjustment                              |   |                |   |      |   |              |       |        |   |              |   | 18               |    |   |   | 18 |   |
| Comprehensive income (loss)                         |   |                |   |      |   |              |       |        |   |              |   | $                | (3,861  | )  |   |   |   |   |
| Shares issued through conversion of preferred stock |   | (315,789            | )      | (1,500    | )      | 315,789           |       | 4           |   | 1,496             |   |             |    |   |   |   |   |
|                                                |   |                |   |      |   |              |       |        |   |              |   |             |    |   |   |   |   |
| 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 income (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 (loss)                         |   |                |   |      |   |              |       |        |   |              |   | $                | 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 income (loss)                         |   |                |   |      |   |              |       |        |   |              |   | $                | (15,453 | ) |   |   |   |   |
| Balance at December 31, 2000                        |   | -                   |   | $         | -      |              | 13,949,974 |        | $      | 139               |   | $                | 87,942  |   |   |   | $ | (52,420 | ) | $ | (69 | ) |

 

 

See Notes toConsolidated Financial Statements.

**MICROCOMPONENT TECHNOLOGY, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

(in thousands)

 
|                                                                                  |   | **Year**          |       | **Six  Months**   |       |                    |       |          |       |
|---------------------------------------------------------------------------------------|--------|-------------------|------------|-------------------|------------|-------------------------|------------|---------------|------------|
|                                                                                  |   | **Ended**         |       | **Ended**         |       | **Fiscal  Years Ended** |       |
|                                                                                  |   | **December  31,** |       | **December  31,** |       | **June  26,**           |       | **June  27,** |       |
|                                                                                  |   | **2000**          |       | **1999**          |       | **1999**                |       | **1998**      |       |
| Cash flows from operating activities:                                                 |   |              | ** ** |              | ** ** |                    | ** ** |          | ** ** |
| Net  income (loss)                                                                    |   | $                 | (15,453    | )                 | $          | 121                     |       | $             | (1,466     | ) | $ | (3,879 | ) |
| Adjustments  to reconcile net income (loss) to net cash used by operating activities: |   |              |       |              |       |                    |       |          |       |
| Depreciation  and amortization                                                        |   | 5,191             |       | 247               |       | 465                     |       | 492           |       |
| Write-down  of impaired intangible assets                                             |   | 3,405             |       | -                 |       | -                       |       | -             |       |
| Noncash  charge related to inventories                                                |   | 3,979             |       | -                 |       | -                       |       | 2,038         |       |
| Other,  net                                                                           |   | (19               | )          | -                 |       | (1                      | )          | -             |       |
| Changes  in operating assets and liabilities:                                         |   |              |       |              |       |                    |       |          |       |
| Accounts  receivable                                                                  |   | (3,495            | )          | (491              | )          | 18                      |       | 414           |       |
| Inventories                                                                           |   | (7,843            | )          | (32               | )          | 214                     |       | (2,274        | )          |
| Other  assets                                                                         |   | 365               |       | (470              | )          | 21                      |       | 194           |       |
| Accounts  payable                                                                     |   | 2,747             |       | (316              | )          | 321                     |       | (336          | )          |
| Other  accrued liabilities                                                            |   | 4,322             |       | 237               |       | (54                     | )          | (111          | )          |
| Net  cash provided by (used in) operating activities                                  |   | (6,801            | )          | (704              | )          | (482                    | )          | (3,462        | )          |
|                                                                                  |   |              |       |              |       |                    |       |          |       |
| Cash  flows from investing activities:                                                |   |              |       |              |       |                    |       |          |       |
| Additions  to property, plant and equipment                                           |   | (466              | )          | (67               | )          | (92                     | )          | (295          | )          |
| Payment  for acquisition, net of cash acquired                                        |   | (473              | )          | (261              | )          | -                       |       | -             |       |
| Maturity  of short-term investments                                                   |   | -                 |       | -                 |       | -                       |       | 1,169         |       |
| Net  cash provided by (used in) investing activities                                  |   | (939              | )          | (328              | )          | (92                     | )          | 874           |       |
|                                                                                  |   |              |       |              |       |                    |       |          |       |
| Cash  flows from financing activities:                                                |   |              |       |              |       |                    |       |          |       |
| Payments  of long-term debt                                                           |   | (53               | )          | (33               | )          | (49                     | )          | (300          | )          |
| Reduction  in working line of credit                                                  |   | (1,794            | )          | -                 |       | -                       |       | -             |       |
| Proceeds  from issuance of stock                                                      |   | 20,589            |       | 183               |       | 23                      |       | 42            |       |
| Net  cash provided by (used in) investing activities                                  |   | 18,742            |       | 150               |       | (26                     | )          | (258          | )          |
|                                                                                  |   |              |       |              |       |                    |       |          |       |
| Effects  of exchange rate changes                                                     |   | -                 |       | -                 |       | (5                      | )          | 18            |       |
|                                                                                  |   |              |       |              |       |                    |       |          |       |
| Net  increase (decrease) in cash and cash equivalents                                 |   | 11,002            |       | (882              | )          | (605                    | )          | (2,828        | )          |
|                                                                                  |   |              |       |              |       |                    |       |          |       |
| Cash  and cash equivalents at beginning of period                                     |   | 1,045             |       | 1,927             |       | 2,532                   |       | 5,360         |       |
|                                                                                  |   |              |       |              |       |                    |       |          |       |
| Cash  and cash equivalents at end of period                                           |   | $                 | 12,047     |              | $          | 1,045                   |       | $             | 1,927      |   | $ | 2,532 |   |
|                                                                                  |   |              |       |              |       |                    |       |          |       |
| Supplemental  disclosure- Noncash investing and financing activities:                 |   |              |       |              |       |                    |       |          |       |
| Equipment  acquired by capital lease                                                  |   | $                 | 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              | )          | -                       |       | -             |       |
| Stocked  issued for the acquisition of Aseco Corporation                              |   | 22,500            |       | -                 |       | -                       |       | -             |       |

 

 

See Notes toConsolidated Financial Statements.

**MICROCOMPONENT TECHNOLOGY, INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

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

 

*Business*

 

                We design, manufacture, market and service automatictest handling equipment for the semiconductor industry.  Our handlers are designed to handle mostsemiconductor or integrated circuit device packages currently inproduction.  We operate in one businesssegment.

 

                A network of offices and representatives supports ourcustomers across North America, Europe and Asia.  Our company was formed in 1972 and is headquartered in St. Paul,Minnesota.

 

*Consolidation*

 

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

 

*Useof Estimates*

 

                The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires that we make estimates and assumptions that affect amounts reportedtherein.  Due to the inherent uncertaintyinvolved in making estimates, actual results reported in future periods mightdiffer from those estimates.

 

*FiscalYear*

 

                Effective December 31, 1999 ourfiscal year is a calendar year, ending on December 31.  Prior to that time, our fiscal year ended onthe last Saturday of June.  Presented belowis unaudited condensed financial information for the six-month comparativetransition period ended December 26,1998 (in thousands, except per share 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*

 

                EffectiveJanuary 1, 2000, we changed our method of revenue recognition for certainsemiconductor equipment sales to comply with SEC Staff Accounting Bulletin No.101 (SAB 101) – *Revenue Recognition in**Financial Statements* (see Note2).  SAB 101 sets forth guidelines onthe timing of revenue recognition based upon factors such as passage of title,installation, payment and customer acceptance.

 

                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 wereassured of 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 hasbeen proven and accepted and therfore the return provision had lapsed. Revenues related to spare parts wasrecognized upon shipment. Service revenue was deferred and amortized to earningson a straight-line basis over the life of the service contract.

 

                Under SAB 101, our revenue policy haschanged. Revenue is recognized upon shipment, as our terms are FOB shippingpoint, for established products that have previously satisfied existingcustomer’s performance specifications and that provide for full payment tied toshipment.  Revenue for products thathave not previously satisfied customer performance specifications or from saleswhere all or a portion of customer payment is based upon acceptance are onlyrecognized upon customer acceptance. The related inventory costs are offset against the deferred revenue andreported as deferred revenue in excess of cost incurred in the consolidatedbalance sheet.  Product warranty andinstallation costs are accrued in the period sales are recognized.  Installation services are considered to beperfunctory as defined under SAB 101 and average less than 5% of the contractprice. 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*

 

                Researchand development expenses for new product development are charged to expense asincurred.

 

*Cashand Cash Equivalents*

 

*               *We considerall highly liquid investments purchased with original maturities of 90 days orless to be cash equivalents.

 

*Inventories*

 

                Inventories are stated at the lower of cost ormarket.  Cost is determined by the first–in,first–out (“FIFO”) method. Provision to reduce inventories to the lower of cost or market is madebased on a review of excess and obsolete inventories, estimates of future salesand the related value of component parts.

 

*Property,Plant and Equipment*

 

                Property, plant and equipment are stated atcost.  Depreciation is provided by thestraight–line method over the estimated useful lives of the assets forfinancial reporting and accelerated methods for tax purposes.  Estimated lives used in computing bookdepreciation 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.

 

*Goodwill*

 

Goodwill is 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.

 

*ProductWarranty*

 

                Estimated costs of warranty obligations to customersare charged to expense and a related accrual is established at the time theproduct is sold.

 

*IncomeTaxes*

 

                We account for income taxes in accordance with theprovisions of Statement on Financial Accounting Standards (SFAS) No. 109*, Accountingfor Income Taxes*.  Deferredincome taxes are recorded based on differences in the bases of assets andliabilities between the financial statements and the tax returns as well asfrom loss carryforwards.  The valuationallowance for deferred income tax benefits is determined by us based upon the expectationof whether the benefits are more likely than not to be realized.

 

*Stock-BasedCompensation*

 

*               *Weaccount for stock-based transactions under SFAS No. 123*, Accounting for Stock-BasedCompensation*. As permitted by SFAS No. 123, we have elected tocontinue following the guidance of APB Opinion No. 25 (as interpreted by FIN44) for measurement and recognition of stock-based transactions with employeesand non-employee directors.  Becausestock options have been granted at exercise prices at least equal to the fairmarket value of the stock at the grant date, no compensation cost has beenrecognized for stock options issued to employees and non-employee directorsunder the stock option plans. Stock-based transactions with non-employees are accounted for inaccordance with SFAS No. 123 and related interpretations.

 

*ForeignCurrency Translation*

 

                Assets and liabilities of theforeign subsidiary are translated to U.S. dollars at year–end rates, andthe statements of operations are translated at average exchange rates duringthe year.  Translation adjustmentsarising from the translation of the foreign affiliates' net assets into U.S.dollars are recorded in cumulative other comprehensive income until 1999.  During 1999, the foreign subsidiary’sfunctional currency changed to the U.S. dollar due principally to a significantshift in the amount of activity denominated in U.S. dollars versus the localcurrency.  All translation adjustmentsare now recorded in the consolidated statements of operations.

 

*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 Hedging Activities*.  SFAS No. 133 establishes accounting andreporting standards for derivative instruments and for hedging activities.  It requires that all derivatives, includingthose embedded in other contracts, be recognized as either assets orliabilities and that those financial instruments be measured at fairvalue.  The accounting for changes inthe fair value of derivatives depends on their intended use and designation.Management has reviewed the requirements of SFAS No. 133 and has determinedthat 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

 

**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 until customeracceptance occurs or the acceptance provisions lapse.

 

In the fourth quarter of 2000 we changed the method ofrecognizing revenue to comply with SAB 101. As a result of this change, wereported a change in accounting principle in accordance with APB Opinion No. 20(APB 20),*Accounting Changes*, by a cumulative effect adjustment.  Because we are a calendar year entity who isadopting SAB 101 in the fourth quarter, no cumulative effect of the change isincluded in 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 proformainformation presents a summary of the effects of SAB 101 on prior years’ resultsas if SAB 101 had been in effect for those periods presented.

 

 
|                                      |   | **Six  Months**   |   | **Six  Months**   |   |                    |   |        |   |
|-------------------------------------------|--------|-------------------|--------|-------------------|--------|-------------------------|--------|-------------|--------|
|                                      |   | **Ended**         |   | **Ended**         |   | **Fiscal  Years Ended** |   |
|                                      |   | **December  31,** |   | **December  26,** |   | **June  26,**           |   | **June27,** |   |
|                                      |   | **1999**          |   | **1998**          |   | **1999**                |   | **1998**    |   |
|                                      |   |              |   |              |   |                    |   |        |   |
| Net  income (loss), in thousands          |   |              |   |              |   |                    |   |        |   |
| As  reported                              |   | $                 | 121    |              | $      | (1,395                  | )      | $           | (1,466 | ) | $ | (3,879 | ) |
| Proforma                                  |   | $                 | (563   | )                 | $      | (1,891                  | )      | $           | (1,316 | ) | $ | (4,002 | ) |
|                                      |   |              |   |              |   |                    |   |        |   |
| Earnings  (loss) per share – basic   |   |              |   |              |   |                    |   |        |   |
| As  reported                              |   | $                 | 0.02   |              | $      | (0.19                   | )      | $           | (0.20  | ) | $ | (0.54 | ) |
| Proforma                                  |   | $                 | (0.08  | )                 | $      | (0.26                   | )      | $           | (0.18  | ) | $ | (0.55 | ) |
|                                      |   |              |   |              |   |                    |   |        |   |
| Earnings  (loss) per share – diluted |   |              |   |              |   |                    |   |        |   |
| As  reported                              |   | $                 | 0.01   |              | $      | (0.19                   | )      | $           | (0.20  | ) | $ | (0.54 | ) |
| Proforma                                  |   | $                 | (0.08  | )                 | $      | (0.26                   | )      | $           | (0.18  | ) | $ | (0.55 | ) |

 

 

 

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

 

                Earnings(loss) per share are 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 and warrants outstanding.  The following table reconciles the denominatorsused in computing basic and diluted earnings (loss) per share for the periodsreported (in thousands):

 
|                                           |   | **Year**          |       | **Six  Months**   |       | **Fiscal Years Ended** |       |
|------------------------------------------------|--------|-------------------|------------|-------------------|------------|------------------------|------------|
|                                           |   | **Ended**         |       | **Ended**         |       |                   |
|                                           |   | **December  31,** |       | **December  31,** |       | **June  26,**          |       | **June  27,** |   |
|                                           |   | **2000(1)**       |       | **1999**          |       | **1999(1)**            |       | **1998(1)** |   |
|                                           |   |              | ** ** |              | ** ** |                   | ** ** |   | ** ** |
| Weighted average  common shares outstanding    |   | 11,531            |       | 7,474             |       | 7,396                  |       | 7,248 |   |
| Effect of  dilutive stock options and warrants |   | -                 |       | 670               |       | -                      |       | - |   |
|                                           |   | 11,531            |       | 8,144             |       | 7,396                  |       | 7,248 |   |

 

----

(1)   We reported a loss for the period.  No adjustment was made for the effect ofstock options or warrants as the effect is anti-dilutive.  Stock options and warrants outstandingtotaled 2,145,316 shares at December 31, 2000; 1,452,009 shares at December 31,1999; 1,590,807 shares at June 26, 1999; and 1,476,307 shares at June 27, 1998.

 

**NOTE 4 –BALANCE SHEET INFORMATION**

 

Valuation reserves for notes and accounts receivablewere as follows (in thousands):

 
|               |   | **Year**          |       | **Six  Months**   |       | **Fiscal Years Ended** |       |
|--------------------|--------|-------------------|------------|-------------------|------------|------------------------|------------|
|               |   | ** Ended**   |       | **Ended**         |       |                   |
|               |   | **December  31,** |       | **December  31,** |       | **June  26,**          |       | **June  27,** |   |
|               |   | **2000**          |       | **1999**          |       | **1999**               |       | **1998** |   |
|               |   |              | ** ** |              | ** ** |                   | ** ** |   | ** ** |
| Beginning  balance |   | $                 | 136        |              | $          | 146                    |       | $ | 250 |   | $ | 238 |   |
| Additions          |   | 143               |       | -                 |       | 20                     |       | 12 |   |
| Deductions         |   | (79               | )          | (10               | )          | (124                   | )          | - |   |
| Ending balance     |   | $                 | 200        |              | $          | 136                    |       | $ | 146 |   | $ | 250 |   |

 

 

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

 

Major components ofinventories are as follows (in thousands):

 
|            |   | **December  31,** |       | **December  31,** |       | **June  26,** |       |
|-----------------|--------|-------------------|------------|-------------------|------------|---------------|------------|
|            |   | **2000**          |       | **1999**          |       | **1999**      |       |
|            |   |              | ** ** |              | ** ** |          | ** ** |
| Raw materials   |   | $                 | 5,229      |              | $          | 1,283         |       | $ | 1,129 |   |
| Work-in-process |   | 6,380             |       | 980               |       | 1,485         |       |
| Finished goods  |   | 1,809             |       | 1,385             |       | 1,002         |       |
|            |   | $                 | 13,418     |              | $          | 3,648         |       | $ | 3,616 |   |

 

Inaccordance with generally accepted accounting principles we value ourinventories at the lower of cost or market. In the fourth quarter of 2000, we recorded a charge of $4.0 million forexcess and obsolete inventory. This provision for excess inventory resultedfrom the significant decrease in forecasted demand associated with the marketdownturn and was calculated in accordance with our policy, which is based oninventory levels in excess of anticipated demand for each specific producttype.  This amount is included in costof sales for the fourth quarter and year ended December 31, 2000.

 

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

 

 
|                           |   | **December  31,** |       | **December  31,** |       | **June  26,** |       |
|--------------------------------|--------|-------------------|------------|-------------------|------------|---------------|------------|
|                           |   | **2000**          |       | **1999**          |       | **1999**      |       |
|                           |   |              | ** ** |              | ** ** |          | ** ** |
| Leasehold  improvements        |   | $                 | 207        |              | $          | 175           |       | $ | 179 |   |
| Machinery and  equipment       |   | 3,746             |       | 2,869             |       | 3,042         |       |
| Furniture and  fixtures        |   | 1,790             |       | 1,045             |       | 877           |       |
|                           |   | 5,743             |       | 4,089             |       | 4,098         |       |
| Less accumulated  depreciation |   | (4,457            | )          | (3,224            | )          | (3,425        | )          |
|                           |   | $                 | 1,286      |              | $          | 865           |       | $ | 673 |   |

 

 

 

Intangible assetsand goodwill consisted of the following ( in thousands):

 
|                           |   | **December 31,** |   | **December 31,** |   | **June 26,** |   | **Estimated**   |   |
|--------------------------------|--------|------------------|--------|------------------|--------|--------------|--------|-----------------|--------|
|                           |   | **2000(1)**      |   | **1999**         |   | **1999**     |   | **Useful Life** |   |
|                           |   |             |   |             |   |         |   |            |   |
| Intellectual  property         |   | $                | 42     |             | $      | 42           |   | $               | -      |   | 24 Months |   |
| Customer lists                 |   | 1,000            |   | -                |   | -            |   | 60 Months       |   |
| Established work  force        |   | 1,167            |   | -                |   | -            |   | 24 Months       |   |
| Developed  products (2)        |   | 1,820            |   | -                |   | -            |   | 36 Months       |   |
| Core products  (2)             |   | 5,000            |   | -                |   | -            |   | 60 Months       |   |
| Goodwill                       |   | 7,205            |   | -                |   | -            |   | 60 Months       |   |
|                           |   | 16,234           |   | 42               |   | -            |   |            |   |
| Less accumulated  amortization |   | (4,314           | )      | (11              | )      | -            |   |            |   |
|                           |   | $                | 11,920 |             | $      | 31           |   | $               | -      |   |   |   |

 

----

(1)   In accordance with generally acceptedaccounting principles, we evaluate our carrying values of long-lived assets andgoodwill based on the analysis of future cash flows relative to the remainingamortization periods.  As a result ofthe significant industry downturn, which began in the fourth quarter of 2000,we reduced the carrying value of the established workforce by $0.3 million, thedeveloped products by $0.6 million and goodwill by $2.5 million.  The $0.3 million workforce reductionaffected a total of 11 individuals, principally in the areas of manufacturingand engineering.

 

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

 

 

##### **NOTE 5 – INDEBTEDNESS**

 

                In February 1998, we establisheda secured revolving credit facility with a bank.  Under the facility, we may borrow up to $5.0 million asdetermined by the borrowing base of eligible trade accounts receivable andcertain inventory, conditioned upon meeting certain financial covenants,including maintaining certain levels of monthly and quarterly earnings andquarterly tangible net worth.   Thefacility is secured by most of our assets. The agreement prohibits us frompaying cash dividends without the bank’s consent.  Borrowings bear interest at 1.5% over the bank’s prime rate,which was 9.5% at December 31, 2000, for a borrowing rate of 11.0%.  We had no borrowings outstanding under thisline at December 31, 2000.  The bankline expired in February 2001.

 

**               **InDecember 2000, we established a secured revolving credit facility with anotherbank.  Under the facility, we may borrowup to $1.0 million as determined by the borrowing base of eligible Aseco tradeaccounts receivable.  Interest on theline, at our election, is based on either the bank’s prime rate (as defined) oreurodollar rate (as defined).  Thefacility is secured by a $1.0 million bank certificate of deposit.  We had no borrowings outstanding under thisline at December 31, 2000.

 

#### **NOTE 6 - LONG-TERM DEBT**

 

                Long-term debt and financingobligations consist of the following (in thousands):

 
|                        |   | **December  31,** |   | **December  31,** |   | **June  26,** |   |
|-----------------------------|--------|-------------------|--------|-------------------|--------|---------------|--------|
|                        |   | **2000**          |   | **1999**          |   | **1999**      |   |
|                        |   |              |   |              |   |          |   |
| Equipment  lease agreements |   | $                 | 68     |              | $      | 121           |   | $ | 84 |   |
| Less  current obligations   |   | (31               | )      | (51               | )      | (51           | )      |
| Total  long- term debt      |   | $                 | 37     |              | $      | 70            |   | $ | 33 |   |

 

 

                We have one equipment leaseagreement, bearing interest at approximately 7% for a Fadal Machining Centerused in our manufacturing process.  Inaddition, we have capital lease agreements bearing interest at approximately 8%for a telephone system and equipment in our Phoenix facility.  Capitalized lease amounts included inproperty, plant and equipment at December 31, 2000 were $217,000, atDecember 31, 1999  $303,000, and atJune 26, 1999 $234,000, with accumulated depreciation of $148,000, $184,000,and $154,000 for the same periods.

 

                Cash paid for interest was$354,000 $5,000, $8,000 and $23,000 for 2000, the six months ended December 31,1999, and fiscal years 1999 and 1998, respectively.

 

                Payments due under debtobligations at December 31, 2000 were as follows: 2001 - $31,000; 2002 -$26,000; 2003 - $25,000; and 2004 - $11,000.

 

**NOTE 7 -INCOME TAXES**

 

                The Company had income for thesix-month transition period ended December 31, 1999 and incurred losses for theyear ended December 31, 2000, fiscal 1999, and 1998 and recorded no provisionfor income taxes.

 

                The reconciliation of income taxcomputed at the U.S. federal statutory rate to income tax expense recorded inthe consolidated financial statements is as follows:
|                                |   | **Year**      |   | **Six Months** |   |                    |   |          |   |
|-------------------------------------|--------|---------------|--------|----------------|--------|-------------------------|--------|---------------|--------|
|                                |   | **Ended**     |   | **Ended**      |   | **Fiscal  Years Ended** |   |
|                                |   | **Dec.  31,** |   | **Dec.  31,**  |   | **June  26,**           |   | **June  27,** |   |
|                                |   | **2000**      |   | **1999**       |   | **1999**                |   | **1998**      |   |
|                                |   |          |   |           |   |                    |   |          |   |
| 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 |   | 17.0          |   | -              |   | -                       |   | -             |   |
| Adjustment to  valuation allowance  |   | 17.0          |   | (34.0          | )      | 34.0                    |   | 34.0          |   |
|                                |   | 0.0           | %      | 0.0            | %      | 0.0                     | %      | 0.0           | %      |
|                                     |        |               |        |                |        |                         |        |               |        |  |

 

 

                Asof December 31, 2000, we had federal and state net operating loss (NOL)carryforwards totaling approximately $55.1 million and tax credit carryforwardsof approximately $67,000 which can be used to reduce future taxableincome.  Such tax loss and tax creditcarryforwards 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 of the Companymay place limitations on losses incurred subsequent to the intial publicoffering.

 

                We have recorded a totalvaluation reserve on deferred tax assets due to uncertainity of their ultimaterealization as follows:

 
|                |   | **December  31** |   | **December  31** |   | **June  26** |   |
|---------------------|--------|------------------|--------|------------------|--------|--------------|--------|
|                |   | **2000**         |   | **1999**         |   | **1999**     |   |
|                |   |             |   |             |   |         |   |
| Net operating loss  |   | $                | 22,025 |             | $      | 13,135       |   | $ | 13,175 |   |
| Inventories         |   | 4,235            |   | 1,750            |   | 1,770        |   |
| Accrued expenses    |   | 570              |   | 190              |   | 245          |   |
| Deferred profit     |   | 1,330            |   | -                |   | -            |   |
| Other               |   | 200              |   | 165              |   | 180          |   |
| Valuation allowance |   | (28,360          | )      | (15,240          | )      | (15,370      | )      |
|                |   | $                | -      |             | $      | -            |   | $ | - |   |

 

 

 

**NOTE8 - PREFERRED STOCK**

 

In November 1997, we converted 315,789 shares ofNon-voting Series A Preferred Stock to common stock on a one-for-onebasis.  There were no dividends accruedor paid on the preferred stock.  We nolonger have shares of preferred stock outstanding.  The issuance of the shares of common stock was exempt fromregistration pursuant to section 3(a)(9) of the Securities Act of 1933.  No commission or other remuneration was paidto solicit the conversion.

 

**NOTE9 - COMMITMENTS AND CONTINGENCIES**

 

**               **We leasecertain 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 our landlord of our intent to exerciseour one-time option to lease the remaining additional 11,000 square feet withinthe same building, beginning twelve to twenty-four months later, at a date tobe mutually determined.

 

                Totalrent expense charged to operations, primarily for facilities and equipment was$1,376,000, for the year ended December 31, 2000, $316,000 in the six-monthtransition period ended December 31, 1999, $583,000 in fiscal 1998 and $767,000 in fiscal 1998.

 

                The future minimum rental payments at December 31,2000, due under noncancelable operating leases, are as follows: 2001 -$756,000; 2002 - $719,000; 2003 - $677,000; 2004 - $623,000; 2005 - $489,000;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.

 

 

**NOTE 10 -STOCK OPTION AND BONUS PLANS AND WARRANTS TO PURCHASE COMMON STOCK**

 

                In May 1995 and August 1995, our board ofdirectors amended the April 1993 Incentive Stock Option Plan for key employeesand reserved an additional 500,000 shares and 250,000 shares respectively for atotal of 1,250,000 shares of common stock for issuance under the Plan at fairmarket value at the date of grant.  InSeptember 1999, our board of directors reserved an additional 1,050,000 sharesfor a total of 2,300,000 shares of common stock for issuance under the Plan atfair market 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 board of directors and ourshareholders approved the Stock Option Plan for Outside Directors and reserved300,000 shares of common stock for issuance under the Plan.  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.

 

                OnJanuary 31, 2000, we converted 594,744 Aseco options into our option planpursuant to the merger agreement (see Note 12).

 

                We have also reserved 150,000 shares of common stockfor the grant of non-qualified stock options for outside directors,consultants, advisors and employees.

                Shares subject tooptions under these were as follows:

** **
|                                  |   |       |   |             |   | **Weighted**  |   |
|---------------------------------------|--------|------------|--------|------------------|--------|---------------|--------|
|                                  |   |       |   |             |   | **Average**   |   |
|                                  |   |       |   |             |   | **Exercise**  |   |
|                                  |   |       |   | **Exercise**     |   | **Price Per** |   |
| **Options**                           |   | **Shares** |   | **Price Range**  |   | **Share**     |   |
|                                  |   |       |   |             |   |          |   |
| Outstanding at  June 28, 1997         |   | 895,000    |   | $2.00 to $7.50   |   | $             | 2.89   |   |
|                                  |   |       |   |             |   |          |   |
| Granted (fair  value $1.27 per share) |   | 349,000    |   | $1.56 to $4.81   |   | $             | 3.62   |   |
| Exercised                             |   | (20,000    | )      | $2.00 to $3.63   |   | $             | 2.81   |   |
| Expired                               |   | (16,000    | )      | $2.63 to $3.00   |   | $             | 2.81   |   |
|                                  |   |       |   |             |   |          |   |
| 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              |   | 594,744    |   | $ 1.18 to $8.00  |   | $             | 1.54   |   |
| Exercised                             |   | (494,514   | )      | $ 1.12 to $8.00  |   | $             | 1.66   |   |
| Expired                               |   | (101,453   | )      | $ 1.18 to $9.00  |   | $             | 5.29   |   |
|                                  |   |       |   |             |   |          |   |
| Outstanding at  December 31, 2000     |   | 2,145,316  |   | $ 1.00 to $11.25 |   | $             | 3.66   |   |
|                                  |   |       |   |             |   |          |   |
| Exercisable at  December 31, 2000     |   | 1,064,699  |   | $ 1.00 to $7.50  |   | $             | 2.13   |   |

 

                Options outstanding at December31, 2000 had exercise prices ranging from $1.00 to $11.25 per share assummarized in the following table:

 
|          |           | **Number**      |      | **Weighted**  |      | **Weighted**        |   | **Number**      |   |
|---------------|----------------|-----------------|-----------|---------------|-----------|---------------------|--------|-----------------|--------|
| **Range  of** |           | **Outstanding** |      | **Average**   |      | **Average**         |   | **Exercisable** |   |
| **Exercise**  |           | **at Dec. 31,** |      | **Remaining** |      | **Exercise**        |   | **at Dec. 31,** |   |
| **Prices**    |           | **2000**        |      | **Life**      |      | **Price Per Share** |   | **2000**        |   |
|          |           |            |      |          |      |                |   |            |   |
| $             | 1.00 to $1.62  |            | 661,781   |          | 4.0 years |                | $      | 1.22            |   | 396,308 |   |
| $             | 1.94 to $2.63  |            | 476,250   |          | 4.5 years |                | $      | 2.07            |   | 447,375 |   |
| $             | 3.25 to $4.31  |            | 299,785   |          | 7.0 years |                | $      | 3.76            |   | 200,266 |   |
| $             | 5.44 to $8.00  |            | 650,500   |          | 9.5 years |                | $      | 6.71            |   | 20,750 |   |
| $             | 9.25 to $11.25 |            | 57,000    |          | 9.5 years |                | $      | 9.95            |   | - |   |
| $             | 1.00 to $11.25 |            | 2,145,316 |          | 6.5 years |                | $      | 3.66            |   | 1,064,699 |   |

 

                InFebruary 1996, the board of directors adopted the Employee Stock Purchase Planand reserved 300,000 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, 2000, 46,447shares were issued under the plan at prices ranging from $1.90 to $4.83, aweighted average price of $2.63.  Duringthe 1999 six-month transition period, no shares were issued under theplan.   During fiscal 1999, 22,622shares were issued under the plan at prices ranging from $0.45 to $1.06, aweighted average price of $1.04 per share. During fiscal 1998, 18,658 shares were issued under the plan at a priceof $1.17 per share.  Approximately196,300 shares remain reserved for future issuances.

 

                In fiscal 1997, we adopted SFAS No. 123, *Accountingfor Stock-Based Compensation*. As permitted by SFAS No. 123, we have elected to continue following theguidance of APB Opinion No. 25 for measurement and recognition of stock-basedtransactions with employees.  Becausestock options have been granted at exercise prices at least equal to the fairmarket value of the stock at the grant date, no compensation cost has beenrecognized for stock options issued to employees under the stock optionplans.  If compensation cost for ourstock option and employee stock purchase plans had been determined based on thefair value at the grant dates, consistent with the method provided in SFAS No.123, our net income (loss) and earnings (loss) per share would have been as follows:

 

|                                    |   |         |    | **Six**     |   |                    |   |         |   |
|-----------------------------------------|--------|--------------|---------|-------------|--------|-------------------------|--------|--------------|--------|
|                                    |   | **Year**     |    | **Months**  |   |                    |   |         |   |
|                                    |   | **Ended**    |    | **Ended**   |   | **Fiscal  Years Ended** |   |
|                                    |   | **Dec.  31** |    | **Dec. 31** |   | **June  26**            |   | **June  27** |   |
|                                    |   | **2000**     |    | **1999**    |   | **1999**                |   | **1998**     |   |
| Net  income (loss), in thousands        |   |         |    |        |   |                    |   |         |   |
| As  reported                            |   | $            | (15,453 | )           | $      | 121                     |   | $            | (1,466 | ) | $ | 3,879 |   |
| Proforma                                |   | $            | (16,740 | )           | $      | (153                    | )      | $            | (1,652 | ) | $ | (4,077 | ) |
|                                    |   |         |    |        |   |                    |   |         |   |
| Earnings  (loss) per share – basic |   |         |    |        |   |                    |   |         |   |
| As  reported                            |   | $            | (1.34   | )           | $      | 0.02                    |   | $            | (0.20  | ) | $ | (0.54 | ) |
| Proforma                                |   | $            | (1.45   | )           | $      | (0.02                   | )      | $            | (0.22  | ) | $ | (0.56 | ) |
|                                    |   |         |    |        |   |                    |   |         |   |
| Earnings  (loss) per share- diluted     |   |         |    |        |   |                    |   |         |   |
| As  reported                            |   | $            | (1.34   | )           | $      | 0.01                    |   | $            | (0.20  | ) | $ | (0.54 | ) |
| Proforma                                |   | $            | (1.45   | )           | $      | (0.02                   | )      | $            | (0.22  | ) | $ | (0.56 | ) |

 

                The fair value of options granted under the stockoption and employee stock purchase plans for the year ended December 31, 2000,and the six-month transition period ended December 31, 1999, and fiscal 1999and 1998 was estimated on the date of grant using the Black-Scholes optionpricing model with the following weighted average assumptions and results:

 

|                      |   | **Year**      |   | **Six  Months** |   |                    |   |          |   |
|---------------------------|--------|---------------|--------|-----------------|--------|-------------------------|--------|---------------|--------|
|                      |   | **Ended**     |   | **Ended**       |   | **Fiscal  Years Ended** |   |
|                      |   | **Dec.  31,** |   | **Dec.  31,**   |   | **June  26,**           |   | **June  27,** |   |
|                      |   | **2000**      |   | **1999**        |   | **1999**                |   | **1998**      |   |
| Dividend  yield           |   | 0.00          | %      | 0.00            | %      | 0.00                    | %      | 0.00          | %      |
| Expected  volatility      |   | 107.02        | %      | 118.84          | %      | 88.48                   | %      | 60.62         | %      |
| Risk-free  interest rate  |   | 6.31          | %      | 5.67            | %      | 4.77                    | %      | 6.00          | %      |
| Expected  life of options |   | 3.5  years    |   | 3.5  years      |   | 3.0  years              |   | 3.1  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 INFORMATIONAND CONCENTRATION OF CREDIT RISK**

                We operate in one industry segment supplyingautomated test handlers to the semiconductor industry.  Net sales to customers located in the threegeographic regions in which we operate are summarized as follows (in thousands):

 

|           |   | **Year**      |   | **Six  Months** |   |                    |   |          |   |
|----------------|--------|---------------|--------|-----------------|--------|-------------------------|--------|---------------|--------|
|           |   | **Ended**     |   | **Ended**       |   | **Fiscal  Years Ended** |   |
|           |   | **Dec.  31,** |   | **Dec.  31,**   |   | **June  26,**           |   | **June  27,** |   |
|           |   | **2000**      |   | **1999**        |   | **1999**                |   | **1998**      |   |
| United  States |   | $             | 22,123 |            | $      | 3,556                   |   | $             | 5,379  |   | $ | 8,051 |   |
| Asia           |   | 26,382        |   | 7,347           |   | 9,205                   |   | 7,091         |   |
| Europe         |   | 1,397         |   | 453             |   | 587                     |   | 1,833         |   |
|           |   | $             | 49,902 |            | $      | 11,356                  |   | $             | 15,171 |   | $ | 16,975 |   |

 

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

 

                During the year ended December 31, 2000, one customeraccounted for approximately 14% of net sales. During the six-month transition period ended December 31, 1999, onecustomer accounted for approximately 19% of net sales.  During fiscal 1999, one customer accountedfor 27% of net sales. During fiscal 1998, no single customer accounted for morethan 10% of net sales.

 

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 ourcommon stock valued at $22.5million issued to former Aseco shareholders and $1.5 million ofacquisition-related costs.

 

                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 is 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 are being amortized using the straight-line method overthe estimated useful lives of two to five years.

 

 

                The following unaudited pro forma informationpresents a 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 the financialcharacteristics of our combined company under one set of assumptions, does notattempt to predict or suggest future results (in thousands, except per sharedata):

 
|                                                       |   | **Six  Months** |   | **Fiscal  Year** |   |
|------------------------------------------------------------|--------|-----------------|--------|------------------|--------|
|                                                       |   | **Ended**       |   | **Ended**        |   |
|                                                       |   | **Dec.  31,**   |   | **June  26,**    |   |
|                                                       |   | **1999**        |   | **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           |   |

 

**NOTE 14 – SUBSEQUENT EVENT**

 

                On February 21, 2001, in response to the downturn inthe semiconductor capital equipment market, we announced plans to consolidatethe manufacturing and operation functions currently performed in ourMarlborough, Massachusetts facility to our St. Paul, Minnesota facility,resulting in reductions in headcount, as well as other cost reductioninitiatives which will result in a restructuring charge in the first quarter of2001.  The aggregate amount of thischarge has not yet been determined.

 

**SIGNATURE**

 

                Pursuant to the requirements of Section 13 or 15(d)of the Securities Exchange Act of 1934, the Registrant has duly caused thisreport to be signed on its behalf by the undersigned; thereunto dulyauthorized, in the City of St. Paul, State of Minnesota, on January 22, 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 the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant in the capacities indicated on January 22,2002.

 
| Signature                 |   | Capacity                                  |
|---------------------------|--------|-------------------------------------------|
|                      |   |                                      |
| /s/ Roger E. Gower        |   | President, Chief  Executive Officer       |
| Roger E. Gower            |   | Chairman of the Board  and Director       |
|                      |   |                                      |
| /s/ Jeffery S.  Mathiesen |   | Vice President of Finance/                |
| Jeffery S. Mathiesen      |   | Administration, Chief  Financial Officer, |
|                      |   | Treasurer                                 |