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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED JUNE 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 0-22384
MICRO COMPONENT TECHNOLOGY, INC.
(Exact name of registrant 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 of principal executive offices)
Registrant's telephone number, including area code (612) 697-4000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the common stock held by non-affiliates
of the Registrant on September 16, 1998 (based upon the closing price of those
shares on the NASDAQ National Market System) was approximately $4.3 million.
Number of shares outstanding of the Registrant's Common stock, as of September
16, 1998, is 7,394,300.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for the annual
meeting of stockholders to be held on November 4, 1998 (the "Proxy Statement"),
and to be filed within 120 days after the Registrant's fiscal year ended June
27, 1998, are incorporated by reference into Part III.
MICRO COMPONENT TECHNOLOGY, INC.
TABLE OF CONTENTS
PAGE
----
PART I
ITEM 1. Business................................................................... 3
ITEM 2. Properties................................................................. 9
ITEM 3. Legal Proceedings.......................................................... 9
ITEM 4. Submission of Matters to a Vote of Security Holders........................ 9
PART II
ITEM 5. Market for Registrant's Common Stock and Related Stockholder Matters....... 10
ITEM 6. Selected Financial Data.................................................... 11
ITEM 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition................................................. 12
ITEM 8. Financial Statements and Supplementary Data................................ 19
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................ 19
PART III
ITEM 10. Directors and Executive Officers of the Registrant......................... 19
ITEM 11. Executive Compensation..................................................... 19
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.......................................................... 19
ITEM 13. Certain Relationships and Related Transactions............................. 19
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K............................................................ 20
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................................ F-1
2
PART I
This Form 10-K contains certain forward-looking statements. For this
purpose, any statements contained in this Form 10-K that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"estimate" or "continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, and actual results may differ materially depending on a
variety of factors, including those set forth in the section below entitled
"Risk Factors."
THE COMPANY
ITEM 1. BUSINESS
GENERAL
Unless the context otherwise requires, references in this Annual Report
on Form 10-K to "MCT", "Registrant" and the "Company" refer to Micro Component
Technology, Inc. and its consolidated subsidiaries. MCT was incorporated in
Minnesota on June 20, 1972, was reorganized as a Delaware corporation on June
28, 1983 and reorganized as a Minnesota corporation on November 6, 1996. MCT has
one wholly owned active subsidiary, Micro Component Technology Asia Pte. Ltd.
("MCT Asia"). The Company's principal executive offices are located at 2340 West
County Road C, St. Paul, Minnesota 55113 and its telephone number at that
location is (612) 697-4000.
The Company designs, manufactures, markets, services and distributes
automatic test equipment ("ATE") consisting of both handling and testing
equipment for integrated circuit ("IC") devices manufactured by the
semiconductor industry. Today, IC devices are found in a rapidly increasing
number of items as varied as clock radios, telecommunication products (i.e.,
phones and pagers), automotive electronics and computers.
BACKGROUND
On October 18, 1993 the Company completed an initial public offering of
2,200,000 shares of its Common stock resulting in net proceeds to the Company of
$21.7 million. Simultaneous with the closing, all series of Redeemable Preferred
Stock, Class B Non-voting Common stock, and the outstanding Subordinated
Debentures were exchanged or converted into shares of Common stock.
On November 22, 1994, the Company completed the sale of its 1149 tester
product line to Megatest Corporation. Concurrent with this sale, Megatest
purchased 315,789 shares of the Company's Non-Voting Series A Preferred Stock.
On November 24, 1997, the Company converted 315,789 shares of Class A preferred
stock to common stock on a one-for-one basis.
On September 25, 1995, the Company completed the sale of its European
subsidiary, Intertrade Scientific, Inc. ("ITS"). The Company continues to
distribute its products in Europe through another distributor.
The Company's fiscal year ends on the last Saturday of June.
PRODUCTS
HANDLING EQUIPMENT
Handlers are electro-mechanical systems that are connected to a tester
in order to automate the IC testing process. The handlers thermally condition
the IC devices, provide electrical contact between the IC and the tester, and
then sort the IC's based upon the results of the testing. Handlers should
present IC devices to the tester efficiently to ensure maximum utilization of
the tester and should handle the IC devices without causing damage
3
that would render them unusable. Handlers are often operated 24 hours a day,
seven days a week. As handlers are comprised of many moving parts, high
reliability and ease of maintenance are essential. Although the most effective
handler designs reduce the amount of complex mechanisms, the industry is
characterized by a wide variety of handling techniques, many of which are
extremely complex.
Handler architecture also needs to offer flexibility. While many
manufacturers currently dedicate handlers to a single IC device package over a
long production run, manufacturers want to be able to modify the handlers to
process different types of IC devices to preserve the value of their investment
in handling equipment.
Furthermore, handler designers must consider the contact set, which is
the critical mechanical and electrical interface between the tester and the IC
device under test. While not all handler manufacturers offer contact sets,
higher test performance can be anticipated from those handlers in which contact
sets are fully integrated into the handler design. Additionally, those
manufacturers not providing contact sets require that the customers bear the
burden of integrating testers, contact sets, and handlers.
MCT 4610 SURFACE MOUNT DEVICE HANDLERS
The MCT 4610 Handlers are designed for test handling of surface mount
devices that are transported in tubes. These handlers rely on gravity to move
untested IC devices from the top of the handler, where the temperature of the IC
device is modified, to the test site and out to the output bins. The MCT 4610
Handlers are convertible for use with new types of IC devices through the
purchase of package conversion kits which are available for approximately 20% of
the cost of a new handler. There are currently over 50 different package
conversion kits available. Although it can process certain surface mount IC
devices, the MCT 4610 Handler is not designed to accommodate surface mount IC
devices with package widths of 150/1000 inch or narrower, although such packages
constitute a significant portion of the surface mount IC device market.
High throughput is achieved on the MCT 4610 Handlers through short
intervals between tests, a lower device jam rate and, in the case of the 4610
DUAL Handler, the utilization of two test sites. Dual test sites allow devices
to be tested in parallel or in alternation, which maximizes tester usage by
testing one IC device while another IC device is being moved to the test site.
The comprehensive lead protection system in MCT 4610 Handlers minimizes
device-to-device impact without limiting the throughput of the handler. The
output tracks may be equipped with optional output adapters specific to the
customer's tubes being used to transport devices. This prevents the leads from
being damaged by incorrect tube placement.
MCT 5100 FINE PITCH SURFACE MOUNT DEVICE HANDLER
The MCT 5100 Handler is a new high-speed handler for handling small
outline integrated circuits ("SOIC"). The new fine pitch SOIC packages are very
light and are difficult to handle in traditional gravity feed handlers. These
devices range from 0.110 inches wide to 0.300 inches wide and have lead pitch
down to 0.012 inches. The MCT 5100 Handler uses a combination of gravity feed
and pick and place technology to reliably move parts through the handler. The
MCT 5100 Handler is capable of testing one or two devices in parallel with
throughput of 14,400 units per hour with an index time of only .500 seconds.
This makes the MCT 5100 Handler one of the fastest handlers available in the
market today. The system is controlled by a high speed computer that monitors
all functions of the handler and is capable of producing reports to operators
and management describing test efficiency, handler uptime, test yield, operator
identification, lot statistics and other customer defined data. The handler can
be configured with several different kits for varying customer requirements. The
Company began shipping this product in volume in the last half of fiscal 1997,
and this product represented a significant portion of equipment sales in fiscal
1998.
4
MCT 5200 TRI-TEMPERATURE HANDLER
Extending the product family for fine pitch surface mount device
handling, MCT recently introduced its 5200 Tri-temperature handler. The MCT 5200
Handler provides all the high speed features and automation options of the MCT
5100 Handler and provides the ability to operate over the full temperature range
of -55(Degree)C to +125(Degree)C without the additional cost of liquid nitrogen
(LN2). The unique temperature control of the MCT 5200 Handler utilizes
conduction principles in place of the conventional convection temperature
systems. The innovative change in temperature technology provides significant
cost savings in the operation of tri-temperature device handling systems.
MCT 7632 FINE PITCH PICK AND PLACE HANDLER
The MCT 7632 Handler is a new handler for high volume manufacturing of
memory and other semiconductor devices. The MCT 7632 Handler can accommodate a
large variety of package types including the traditional PLCC, LCC and PGA
packages and the more difficult to handle SOIC, TSOP, TSSOP, and (mu)BGA
packages. The handler uses pick and place technology to pick up devices from
carriers, move them to the test site, and then move them to the appropriate bin
after test. The MCT 7632 Handler can test from 1 to 32 devices in parallel at
temperatures ranging from -60 degrees Centigrade to +160 degrees Centigrade. The
handler has a unique capability of being able to load and unload devices from
carriers while testing without interrupting system operation. This capability,
called HotSwapa, provides for very high throughput and ease of use in a
production environment. Like the MCT 5100 Handler, the MCT 7632 Handler is
controlled by a high speed computer that monitors all functions of the handler
and is capable of producing reports to operators and management describing test
efficiency, handler uptime, test yield, operator identification, lot statistics
and other customer defined data.
OTHER HANDLER PRODUCTS
The Company also sells the MCT 3600 Handler and MCT 8000 Handler. These
handlers are dedicated to transporting a variety of dual in-line pin package
("DIP") devices.
TESTING EQUIPMENT
Testers are specialized, computer-controlled electronic systems that
are programmed by a user to perform electrical evaluation of IC devices
including proper functionality, voltage and current characteristics, and
critical timing parameters. During the design and engineering phase of the
development of an IC device, testers serve as precision engineering tools for
design verification, characterization (the process of determining the range and
nature of a device's operating variables) and failure analysis. During
manufacturing, IC devices are tested several times to segregate functional from
nonfunctional devices ("functional test") and to measure the variable parametric
or performance characteristics of the devices ("performance test").
During fiscal 1995, the Company sold its 1149 product line to Megatest
Corporation, allowing the Company to focus upon recapturing its market position
as THE handler company. The Company did retain its mature tester product line,
the MCT 2000 series. The Company performs board repair and maintenance
contracts, refurbishes units and provides spare parts and additional pincards as
a means of supporting the large installed base of equipment.
In addition to the ongoing support, the Company has developed a new
workstation for controlling these test systems. The MCT Workstation 2000 is a
Pentium PC based workstation that provides much greater throughput by reducing
test times up to 60% on certain device types. The Workstation 2000 can be
installed in the field on existing test systems, significantly increasing test
capacity of the installed test systems. Sales of the Workstation 2000 began in
fiscal year 1996.
See Management's Discussion and Analysis of Results of Operations and
Financial Condition for a discussion of certain risk factors related to the sale
of these new products.
5
MARKETING AND SALES
The Company's marketing and sales efforts are organized around three
regional divisions: the United States and Canada, Asia, and Europe. The Company
markets its products primarily to IC device manufacturers through its own sales
force and, in selected geographical areas, through independent sales
representatives and distributors.
The Company augments its sales efforts with direct customer
support/service engineers based in the field. These engineers are specialists in
the Company's product portfolio and work with the customers to help determine
product requirements, install the Company's equipment, and train the customers'
operators and maintenance technicians on the proper use and care of the
Company's equipment. These engineers also help identify emerging markets for new
products and are supported by the Company's design center at St. Paul,
Minnesota.
MCT ASIA
As semiconductor manufacturers move responsibility for ATE purchasing
to the factory level, the Company's operations in the Pacific Rim region have
become increasingly important. With a presence established more than 15 years
ago, the Company operates MCT Asia Pte., Ltd., and its wholly owned subsidiary,
MCT Asia (Penang) Sdn. Bhd., with offices in Singapore and Penang, Malaysia
respectively. MCT Asia, the regional headquarters, also controls 85% of a
company, MCT Beijing, in a partnership with the Institute for Integrated Circuit
Testing in Beijing, PROC. To supplement the region's sales and service coverage,
MCT Asia uses sales representative companies and distributors in the
Philippines, Korea, Taiwan and China.
The Company has stationed service engineer personnel in Singapore,
Malaysia, Thailand and the Philippines for rapid response to any customer
problem in the Far East. Additionally, a complete board-repair facility in
Penang, Malaysia provides the Company's Asian customers with local board service
and repair capabilities.
WORLDWIDE SUPPORT
Through its foreign subsidiary and sales representative companies and
distributors, the Company maintains customer support centers in 19 offices
worldwide, located in the U.S., the Far East, and Europe. The Company believes
that its direct sales, service and applications personnel add significant value
to its products, thereby enhancing their marketability and fostering long-term
customer loyalty. The sales staff encourages "partnering" relationships in which
the Company's sales and engineering personnel are assigned to work closely with
the Company's major customers to determine the most cost-effective solutions for
their ATE needs. As a result, the customer gains detailed insight into the
benefits of the Company's product offerings and the Company has an opportunity
to demonstrate its products as optimized for that customer.
The Company offers initial applications development and comprehensive
installation support at no additional charge, thereby eliminating a portion of
the customer's overhead associated with installing a piece of capital equipment.
Additionally, when the Company's engineers install equipment, they are able to
verify that the overall performance of the customer's system is optimized by (1)
mechanically adjusting all handler mechanisms to the positions enabling the
smoothest operation, and by (2) properly calibrating the handler temperature
systems to ensure accurate temperature control. The Company's engineers then run
a test of the customer's IC devices and analyze the results to verify that the
handler meets all performance specifications. The Company typically provides a
one-year warranty against defects for its handlers and related system
components.
As with pre-sale support, continuing maintenance and service enhance
customer satisfaction by ensuring maximum uptime, yield and tester utilization.
These support services also generate additional revenues for the Company.
6
SEASONALITY IN QUARTERLY OPERATING RESULTS
During each quarter, the Company customarily sells a relatively small
number of systems that carry a high average selling price. The majority of
shipments in a quarter are typically booked during the same quarter. Although
the Company believes its sales are not seasonal in nature, a small change in the
number of products ordered and/or shipped in a quarter can have a significant
impact on results of operations for that particular quarter. Moreover,
production difficulties could delay shipments. Accordingly, the Company's
operating results may vary significantly from quarter to quarter and could be
adversely affected for a particular quarter if shipments for that quarter were
lower than anticipated. The Company's quarterly operating results may also be
affected by, among other factors, the timing of new product introductions,
fluctuations in the semiconductor market and the actions of competitors.
CUSTOMERS
The Company expends substantial efforts to maintain its relationships
with its existing major customers in order to increase the likelihood that these
manufacturers will continue to select the Company's testers and/or handlers for
their future generations of IC devices. However, it is difficult to obtain
significant new ATE customers.
During fiscal 1998, no single customer accounted for 10% of the
Company's sales. ST Micro Electronics, Inc. accounted for approximately 17%, and
24% of the Company's sales in 1997 and 1996, respectively. As noted in the prior
year, the Company expects that ST Micro Electronics, Inc. will continue to be a
large customer, but expects that sales to this customer will decrease as a
percentage of its net sales as the Company's product mix shifts to the newer
products.
The loss of a major customer or any reduction in orders by such a
customer, including reductions due to market or competitive conditions in the
semiconductor industry, would have an adverse effect on the Company's results of
operations. In addition, the Company's ability to increase its net sales will
depend in part upon its ability to obtain orders from new customers. No
assurance can be given that the Company will be able to do so.
BACKLOG
As of June 27, 1998, the Company's backlog of unfilled orders was $3.6
million, compared with $2.6 million as of June 28, 1997. A significant portion
of the backlog as of June 27, 1998 is expected to be shipped in the first half
of fiscal year 1999. Since a large majority of the shipments made in a given
quarter are usually made during the latter part of the quarter, and since a
significant portion of shipments in a given quarter are booked during that same
quarter, backlog as of a date in the middle of the quarter will typically be
greater than backlog at quarter end. The Company includes in backlog only those
orders to which a purchase order number has been assigned by the customer and
for which a delivery schedule has been specified. All orders are subject to
cancellation by the customer with limited charges. The Company's backlog at a
particular date is not necessarily indicative of actual sales for any succeeding
period.
RESEARCH AND DEVELOPMENT
As an important element of its business strategy, the Company works
closely with its customers to develop new products and enhancements of existing
products to meet the evolving needs of the ATE market, particularly with respect
to emerging IC devices, while providing the lowest cost of test. The Company
relies primarily on its internal engineering capabilities to develop new
products and existing product enhancements. The Company may participate in
joint-development arrangements when it believes a higher quality, lower cost
product would result. An ongoing goal of the Company's research and development
activities is to reduce the time required to develop new products and bring them
to market. As handlers become increasingly complex, the development of improved
7
software for the Company's products becomes increasingly important. The Company
currently develops all software in-house and plans to expand its expertise in
this area subject to the availability of financial and personnel resources.
For fiscal years 1998, 1997 and 1996, the Company's expenses relating
to research and development were $3.7 million, $3.9 million, $4.3 million,
respectively.
PATENTS
The Company attempts to protect the proprietary aspects of its products
with patents and copyrights, and through trade secret laws and internal
nondisclosure safeguards. The source code for all software contained in the
Company's products is protected as a trade secret and as unpublished copyrighted
work. In addition, the Company has entered into nondisclosure and invention
assignment agreements with each of its key employees. Despite these
restrictions, it may be possible for competitors or customers to copy aspects of
the Company's products or to obtain information which the Company regards as a
trade secret. Moreover, because of the rapid pace of technological changes in
the ATE industry, the Company believes that patent, trade secret and copyright
protections are less significant to its competitive position than factors such
as the technical competence and creative skills of the Company's personnel, the
rapid development of new products, frequent product enhancements, the Company's
name recognition and ongoing reliable product maintenance and support.
Other companies and inventors may receive patents that contain claims
applicable to the Company's products. The sale of the Company's products covered
by such patents could require licenses that may not be available on acceptable
terms.
MANUFACTURING AND SUPPLY
The Company's principal manufacturing activities consist of assembly
and final test. The Company's components, selected subassemblies and machine
parts are manufactured by third parties in the United States. However, the
Company maintains its own machine shop, primarily for handling special materials
and product development.
COMPETITION
The IC device ATE industry is highly competitive. The Company faces
substantial competition throughout the world, primarily from ATE manufacturers
in the United States and Japan. The Company's primary competitors in the handler
market are Advantest, ASECO Corporation, Aetrium Incorporated (including its
Sym-Tek Systems, Inc. and FSA subsidiaries), Cohu, Inc., Kuwano, Multi-Test
GmbH, Rasco and Tesec. Many of these competitors are considerably larger and
have considerably greater financial resources than the Company.
From time to time, the Company's older generation handlers are sold as
used equipment at prices substantially below the prices of new handlers sold by
the Company. This may materially and adversely affect the Company's sales of new
handlers. Used equipment is sold by original owners of the equipment and by a
number of used equipment dealers. It is also sold as refurbished equipment with
a limited warranty by the Company's Singapore office, MCT Asia.
The principal elements of competition in the Company's markets include
versatility, price, product performance and throughput capability, quality and
reliability, customer service and support and the ability to deliver on
schedule. Although the Company believes that it competes favorably with respect
to each of these factors, new product introductions by the Company's competitors
could cause a decline in sales or loss of market acceptance of the Company's
existing products. In addition, increased competitive pressure could lead to
intensified price-based competition, resulting in lower prices and adversely
affecting the Company's operating results. In
8
particular, at the end of a product life cycle and as competitors introduce more
technologically advanced products, pricing pressure for that product typically
becomes more intense.
EMPLOYEES
As of June 27, 1998, the Company had a total of 127 employees and one
contract person, including 59 (or 46%) engaged in manufacturing, 32 (or 25%) in
engineering and research and development, 18 (or 14%) in sales, marketing and
service, and 19 (or 15%) in administration. Many of the Company's employees are
highly skilled, and the Company believes its future success will depend in large
part on its ability to attract and retain such employees. None of the Company's
employees is covered by a collective bargaining agreement, and the Company has
experienced no work stoppages. The Company considers its employee relations to
be good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The Company operates in three geographic areas. Summarized data for the
Company's operations is included in Note 10 of Notes to Consolidated Financial
Statements, included elsewhere herein.
ITEM 2. PROPERTIES
The Company's principal executive and administrative offices as well as
its manufacturing operations utilize approximately 69,000 square feet in a
facility in St. Paul, Minnesota. This facility is leased through April 2007.
ITEM 3. LEGAL PROCEEDINGS
The Securities and Exchange Commission is conducting an investigation
with respect to certain financial reporting discrepancies announced by the
Company in April 1994 dating back to fiscal 1993 and the first two quarters of
fiscal 1994. The Company has submitted documents to the Commission pursuant to
requests from the Commission, and certain former officers and certain current
and former employees of the Company have been interviewed by the Commission as
part of the investigation. In September 1998, the Company reached a preliminary
resolution of this matter with the staff, which is subject to approval by the
Securities and Exchange Commission. The terms of the preliminary resolution do
not have a significant financial impact on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the quarter ended June 27, 1998.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
From October 18, 1993 until September 15, 1994, the Company's common
stock was traded on NASDAQ's National Market System. From September 15, 1994
until October 23, 1995 it was traded on the OTC Bulletin Board. From October 23,
1995 until June 19, 1996 the stock was traded on the NASDAQ Small Cap Market.
The stock resumed trading on the NASDAQ National Market System on June 19, 1996.
The following table sets forth the high and low prices for the
Company's common stock as reported by NASDAQ for the periods indicated:
Fiscal 1998 Fiscal 1997
------------------- -------------------
High Low High Low
---- --- ---- ---
First Quarter $5 5/8 $3 1/4 $3 1/2 $1 7/8
Second Quarter $5 3/8 $1 1/2 $3 $1 3/4
Third Quarter $2 1/2 $1 3/8 $3 3/4 $2 3/8
Fourth Quarter $2 $1 $3 7/8 $2 1/4
The above prices reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
The approximate number of holders of record of the common stock as of August 18,
1998 was 251.
On September 4, 1998, the Company was notified by The Nasdaq Stock
Market that its Common stock did not comply with Nasdaq's $1.00 minimum bid
price requirement and that the Company had ninety (90) days to demonstrate
compliance with such requirement. Accordingly, unless the closing bid price of
the Company's Common stock is equal to or greater than $1.00 for ten (10)
consecutive trading days ending on or prior to December 3, 1998, the Company's
Common stock will be delisted at the opening of business on December 7, 1998. In
addition, the market float of the Company's stock is below Nasdaq's $5 million
maintenance level. The Company may request a hearing to extend the compliance
period or request a waiver. The Company is currently reviewing alternatives
availble for maintaing listing eligibilty with Nasdaq.
The Company has never declared or paid any cash dividends on its common
stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain future earnings to fund the
development and growth of its business.
During the past three fiscal years, the Company made the following
sales of unregistered securities:
On August 17, 1995, the Company sold 1,500,000 shares of common stock,
for $3.125 per share, to a group of accredited investors. The sale was exempt
from registration under Rules 505 and 506 of Regulation D under the Securities
Act of 1933, and met all of the requirements for sales under those rules.
Between September 26, 1995, and November 3, 1995, Hambrecht & Quist
Guaranty Finance, L.P. and its affiliates surrendered a total of 301,177
warrants in exchange for 165,102 shares of common stock pursuant to a "cashless
exercise" provision in the warrants. The sales were exempt from registration
under Section 4(2) of the Securities Act.
On December 29, 1995, the Company issued 200,000 shares of common
stock, with a total value of $1,100,000, pursuant to settlement of a
shareholders' lawsuit. The issuance was exempt from registration pursuant to
Section 3(a)(10) of the Securities Act because it was pursuant to a
court-approved settlement of claims.
On February 1, 1996, the Company sold 160,000 shares of common stock to
Hambrecht & Quist Guaranty Finance, L.P. and its affiliates for $3.125 per share
pursuant to the terms of a warrant agreement. The sale was exempt from
registration under Section 4(2) of the Securities Act.
On November 24, 1997, the Company converted 315,789 shares of Class A
preferred stock to common stock on a one-for-one basis. There were no dividends
accrued or paid on the preferred stock.
10
The Company no longer has shares of preferred stock outstanding. The issuance of
the shares of common stock was exempt from registration pursuant to section
3(a)(9) of the Securities Act of 1933.
The Company paid no discounts or commissions on any of the above sales.
All sales made pursuant to the exemption under Section 4(2) of the Securities
Act were made to a limited number of sophisticated investors, who had access to
current information about the Company, who were purchasing for investment, and
whose certificates contained legends referring to applicable restrictions on
transfer.
ITEM 6. SELECTED FINANCIAL DATA
MICRO COMPONENT TECHNOLOGY, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
June 27, June 28, June 29, June 24, June 25,
1998(1) 1997 1996 (2) 1995 (2) 1994 (2)
--------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA - YEAR ENDED:
Net sales......................................... $ 16,975 $ 16,129 $ 22,318 $ 23,635 $ 31,324
Gross profit ..................................... 7,380 9,219 12,999 10,739 14,328
Income (loss) from operations..................... (4,202) (1,836) 2,330 1,923 (12,203)
Income (loss) from continuing operations.......... (3,879) (1,563) 2,568 1,566 (13,639)
Discontinued operations (3)....................... -- -- 652 (3,897) (1,750)
Income (loss) before extraordinary item........... (3,879) (1,563) 3,220 (2,331) (15,389)
Extraordinary item (4)............................ -- -- -- 1,005 --
Net income (loss)................................. (3,879) (1,563) 3,220 (1,326) (15,389)
Dividends on preferred stock...................... -- -- -- -- 158
Net income (loss) applicable to common
stock............................................. $ (3,879) $ (1,563) $ 3,220 $ (1,326) $ (15,547)
Per Share Data - diluted:
Income (loss) from continuing operations.......... $ (0.54) $ (0.22) $ 0.35 $ 0.30 $ (3.34)
Discontinued operations........................... -- -- 0.09 (0.74) (0.43)
Extraordinary item (4)............................ -- -- -- 0.19 --
Net income (loss) per share ...................... $ (0.54) $ (0.22) $ 0.44 $ (0.25) $ (3.80)
Shares used to compute earnings (loss)
per share, diluted.............................. 7,249 7,030 7,246 5,240 4,087
Selected Balance Sheet Data:
Working capital (deficit)......................... $ 7,385 $ 11,008 $ 12,638 $ 2,839 $ (6,599)
Net assets of discontinued operations (3)......... -- -- -- 977 2,764
Total assets...................................... 11,226 15,792 16,980 11,532 31,796
Current obligations under debt facilities and
financing obligations............................. 50 300 352 363 10,146
Long-term debt and financing
obligations....................................... 83 133 183 41 25
Redeemable convertible preferred
stock.......................................... -- 1,500 1,500 1,500 --
Total stockholders' equity........................ $ 8,400 $ 12,219 $ 13,709 $ 4,618 $ 3,898
11
(1) Includes charges totaling $2.3 million, comprised of a $2.0 million
provision for excess and obsolete inventory, and $0.3 million related
primarily to cost reduction actions and operational adjustments related to
the depressed semiconductor capital equipment market.
(2) Includes unusual and non-recurring items primarily comprised of: 1994 -
$4.0 million of costs incurred in the proposed acquisition of Sym-Tek
Systems, Inc. and $1.2 million provision for settlement of shareholder
lawsuit; 1995 - $5.2 million gain on the sale of the 1149 tester product
line, $1.9 million gain on the settlement with Sym-Tek Systems, $0.8
million charge for severance costs for the Company's former Chief
Executive Officer, and a $0.2 million charge for closing a Japanese
facility; 1996 - $1.5 million gain on the resolution of the escrow fund
created from the sale of the 1149 tester product line.
(3) In fiscal year 1995, the Company initiated a formal plan to sell the
Company's European subsidiary, Intertrade Scientific, Inc. (ITS). A
provision for the loss on the sale of approximately $3.0 million was
recorded in the results of operations for the year ended June 24, 1995.
The net assets of ITS are reflected as "net assets of discontinued
operations" on the June 24, 1995 balance sheet and are primarily cash,
accounts receivable, inventory, property, plant and equipment, accounts
payable, and accrued liabilities. As a result of the final sales
agreement, the Company realized a net gain of $0.7 million on the
disposal of ITS, which was completed in fiscal 1996.
(4) In fiscal year 1995, the Company used $3.5 million of the proceeds from
the sale of the 1149 tester product line in settlement of approximately
$4.5 million of outstanding trade payables, not including the payables
assumed by Megatest as part of the sale transaction. The difference
between the trade payables and the cash used resulted in an extraordinary
gain of approximately $1.0 million, net of $21,000 provision for taxes.
QUARTERLY RESULTS, FISCAL 1998 AND 1997
The following table presents selected unaudited quarterly operating
results for the Company for the eight fiscal quarters ended June 27, 1998.
(in thousands, except per share data)
Three-Month Periods Ended
Fiscal 1998 Fiscal 1997
------------------------------------------------ -----------------------------------------------
Sept. 27, Dec. 27, Mar. 28, June 27, Sept. 28, Dec. 28, Mar. 29, June 28,
1997 1997 1998 1998 1996 1996 1997 1997
--------- --------- --------- --------- --------- --------- --------- ---------
Net sales ........... $ 4,450 $ 4,522 $ 3,567 $ 4,436 $ 2,631 $ 3,972 $ 4,706 $ 4,820
Gross profit ........ 2,970 2,475 1,784 151 1,411 2,078 2,755 2,975
Income (loss) from
operations ...... (104) (599) (804) (2,695) (1,207) (766) 70 67
Net income (loss) ... $ 16 $ (520) $ (773) $ (2,602) $ (1,128) $ (679) $ 92 $ 152
Per share data - diluted:
Net income (loss)
per share ..... $ 0.00 $ (0.07) $ (0.10) $ (0.35) $ (0.15) $ (0.09) $ 0.01 $ 0.02
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF CONTINUING OPERATIONS
As previously discussed in this report, the Company sold its European
subsidiary, ITS, on September 25, 1995. The following discussion and analysis of
continuing operations excludes the results of ITS, which are reported as
discontinued operations.
12
The following table sets forth, for the periods indicated, certain
items in the Company's statements of operations as a percentage of net sales:
Year Ended
----------
June 27, June 28, June 29,
1998 1997 1996
------- ------- -------
Net sales ................................ 100.0 % 100.0 % 100.0 %
Cost of sales ............................ 56.5 42.8 41.8
------ ------ ------
Gross margin ............................. 43.5 57.2 58.2
Operating expenses:
Selling, general and administrative . 46.4 44.2 35.5
Research and development ............ 21.9 24.4 19.1
Unusual and non-recurring items ..... -- -- (6.8)
------ ------ ------
Total operating expenses ....... 68.3 68.6 47.8
------ ------ ------
Income (loss) from operations ............ (24.8) (11.4) 10.4
Other income (expense), net ......... 1.9 1.7 (1.1)
------ ------ ------
Income (loss) before income taxes ........ (22.9) (9.7) 11.5
Income tax provision ..................... -- -- --
------ ------ ------
Income (loss) from continuing operations . (22.9) (9.7) 11.5
Income (loss) from discontinued operations -- -- 2.9
------ ------ ------
Net income (loss) ........................ (22.9)% (9.7)% 14.4 %
====== ====== ======
GENERAL MARKET CONDITIONS
The Company operates exclusively in the semiconductor capital equipment
market, which went into a downturn beginning in early fiscal 1998, and
intensified throughout the remainder of the fiscal year. The downturn was
provoked by the economic crisis in Southeast Asia, where much of the Company's
equipment is sold and used. These market and economic conditions have adversely
impacted the Company's net sales and operating results for fiscal 1998, and are
expected to continue to have an adverse impact on the Company's sales and
operating results until the market conditions improve significantly.
As a result of the current and projected market downturn, the Company
initiated cost reduction actions and adjusted its reserve assumptions in the
fourth quarter of fiscal 1998, recording inventory and other charges of $2.3
million. Of these charges, $2.0 million represented a provision for excess and
obsolete inventory, reflected in cost of sales. The remainder of the charges,
reflected mainly in operating expenses, primarily related to cost reduction
activities initiated by the Company and other related adjustments in
assumptions.
FISCAL YEARS ENDED JUNE 27, 1998 AND JUNE 28, 1997
NET SALES. Net sales for fiscal year 1998 were $17.0 million, an increase of
5.2% over $16.1 million in fiscal year 1997. Sales of the 5100 handler,
introduced in mid-fiscal 1997, and the 4610 handler increased in the current
year while sales of older handler and tester products decreased in the current
year as compared to fiscal 1997. The product mix shift from older products to
newer products has been precipitated by the current downturn in the
semiconductor capital equipment market.
As detailed in Note 10 of Notes to Consolidated Financial Statements,
sales increased year to year in the U.S. and Europe, but decreased in the Far
East. The increase in sales in the U.S. and Europe resulted from an increased
customer base in these areas. The decline in sales in the Far East resulted from
the deterioration in the economic conditions in the Southeast Asian countries
where the Company's products are sold.
13
The Company expects sales to continue to be adversely affected by the
downturn in the semiconductor capital equipment market, most notably in older
products, well into fiscal 1999. In addition, the Company expects that the
current market conditions will lead to increased competition, putting pressure
on pricing and sales terms.
GROSS PROFIT. Gross profit in fiscal 1998 decreased 19.9% or $1.8
million to $7.4 million from $9.2 million in fiscal 1997, and gross margin
decreased to 43.5% in fiscal 1998 from 57.2% in the previous year, primarily as
a result the previously discussed inventory and other charges in fiscal 1998.
Prior to these charges, fiscal 1998 gross profit was $9.5 million and gross
margin was 55.7%, reflecting slightly higher sales offset by product mix shift
to lower margin products. Quarterly gross margins decreased during fiscal 1998
to approximately 50% in the third and fourth quarters, prior to inventory and
other charges, as a result of a shift in product mix away from some of the
older, higher margin products to lower margin products. The Company expects
gross margins in the near future to be consistent with the levels experienced
near the end of fiscal 1998. In addition, the Company anticipates that pricing
pressure will intensify in the current market conditions, which may further
adversely affect gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
("SG&A") expense increased by $0.8 million or 10.5%, to $7.9 million from $7.1
million in the prior. As a percentage of net sales, the SG&A expense increased
to 46.4% in the current year versus 44.2% in fiscal year 1997. The increase in
current year expenses resulted from increased investments in sales and marketing
initiated in fiscal 1997.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development ("R&D") expense
decreased by $223,000, or 5.7%, to $3.7 million in the current year from $3.9
million in fiscal year 1997. As a percentage of net sales, R&D expense decreased
to 21.9% from 24.4% for last year. The Company chose to maintain a high level of
R&D spending during the downturn in semiconductor capital equipment market to
ensure that it could support the launch of the newer handlers and continue to
fund other product development projects. These efforts are allowing the Company
to enter market segments and attract customers not previously served by the
Company. However, the success of the new products, such as the 5100, 5200 and
7632 products, as well as any potential product offering in the future, is
subject to various risks and uncertainties, including customer acceptance,
fluctuations in the semiconductor market, technology changes and the possible
adverse impact of competition.
NET INTEREST INCOME /(EXPENSE). Net interest income decreased during the current
year due to decreased holdings of interest bearing cash equivalents and
short-term investments throughout the year.
INCOME TAX PROVISION. During fiscal years 1998 and 1997, the Company incurred
minimal tax liabilities primarily related to foreign taxes. The Company has
recorded valuation allowances against all benefits associated with net operating
loss carryforwards due to uncertainty regarding their ultimate realization.
NET INCOME. Net loss for fiscal year 1998 was $3.9 million, or $0.54 per share.
FISCAL YEARS ENDED JUNE 28, 1997 AND JUNE 29, 1996
NET SALES. Net sales for fiscal year 1997 were $16.1 million, down $6.2 million
or 27.8%, compared to $22.3 million in fiscal year 1996. The weakness in the
semiconductor capital equipment market during the first half of fiscal 1997 was
the primary factor in the decrease in sales from the previous year. In addition,
sales of the newer generation 5100 handler did not begin to contribute
significant revenues until the third quarter of fiscal 1997. Thus, the Company
was mainly relying on sales of older generation products during the first two
quarters of that year.
As detailed in Note 10 of Notes to Consolidated Financial Statements,
sales decreased year to year across all three primary geographic regions in
which the Company operates. Sales decreased to a lesser extent in the Far East,
where the Company has strong sales and service presence and a broad customer
base. Sales decreased most notably in Europe, where one customer represented a
significant portion of the Company's sales in that region.
14
GROSS PROFIT. Gross profit in fiscal year 1997 decreased 29.1% or $3.8 million
to $9.2 million from $13.0 million in fiscal year 1996, primarily as a result of
the decrease in revenues. As a percentage of net sales, gross margin decreased
to 57.2% in fiscal 1997 from 58.2% in the previous year. The decrease in gross
margin occurred from unabsorbed overhead costs early in the year and product mix
differences, and was partially offset by lower charges for inventory
obsolescence.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
("SG&A") expense in fiscal year 1997 decreased by $0.8 million or 10.2%, to $7.1
million from $7.9 million in the prior. As a percentage of net sales, the SG&A
expense increased to 44.2% in fiscal 1997 versus 35.5% in fiscal 1996. The
decrease in fiscal 1997 expenses resulted primarily from lower direct selling
expenses corresponding to the lower sales levels.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development ("R&D") expense
decreased by $326,000, or 7.6%, to $3.9 million in fiscal 1997 from $4.3 million
in fiscal 1996. As a percentage of net sales, R&D expense increased to 24.4%
from 19.1% for last year. The Company chose to maintain its level of R&D
spending during the downturn in business to ensure that it could bring the newer
generation 5100 and 7632 handlers to market, as well as continue to fund other
product development projects.
UNUSUAL AND NON-RECURRING INCOME. In fiscal year 1996, the Company received
approximately $1.5 million from the resolution of disputes concerning the $2.0
million escrow fund created to cover certain contingencies in connection with
the November 1994 sale of the 1149 tester product line to Megatest Corporation.
Under the terms of the settlement, all disputes between the parties have been
resolved. The Company classified this amount as an unusual and non-recurring
gain in the results of operations for fiscal year 1996.
NET INTEREST INCOME /(EXPENSE). Net interest income increased during the current
year due to increased holdings of interest bearing cash equivalents and
short-term investments throughout the year.
INCOME TAX PROVISION. During fiscal years 1997 and 1996, the Company incurred
minimal tax liabilities primarily related to foreign taxes. The Company has
recorded valuation allowances against all benefits associated with net operating
loss carryforwards due to uncertainty regarding their ultimate realization.
INCOME (LOSS) FROM CONTINUING OPERATIONS. Income from continuing operations for
fiscal year 1996 was $2.6 million, inclusive of an unusual and non-recurring
gain of $1.5 million.
DISCONTINUED OPERATIONS. Upon consummation of the disposal of the Company's ITS
subsidiary in fiscal year 1996, the Company recorded $0.7 million of income,
representing the residual from the $3.3 million loss booked in the previous year
at the time of management's decision to dispose of ITS.
NET INCOME. Net loss attributable to common stock for fiscal year 1997 was $1.6
million, a $4.8 million decrease from the prior year net income of $3.2 million.
Fiscal year 1996 included income for discontinued operations and unusual and
non-recurring gains of $.07 million and $1.5 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
In August of 1995 the Company completed a private placement offering of
1,500,000 shares of Common stock resulting in net proceeds of $4.6 million from
several accredited investors. In December of 1995, the Company received $1.5
million in settlement of the escrow agreement established with Megatest
Corporation in connection with the sale of the 1149 tester product line that
occurred in November of 1994. In February of 1996, the Company received $500,000
from Hambrecht & Quist Guaranty Finance L.P. ("H&Q") pursuant to its exercise of
stock purchase warrants for 160,000 shares of the Company's common stock. H&Q
had earned these warrants under a previous financing agreement it had entered
into with the Company. The proceeds are being used for
15
working capital and the unused portion is currently held in interest bearing
cash equivalents and short-term investments.
Cash used in operations was $3.5 million, $0.7 million and $0.3 million
in fiscal years 1998, 1997 and 1996, respectively. The net loss and inventory
purchases were the primary uses of cash in fiscal 1998 and 1997. Payments of
accounts payable and accrued liabilities were the primary uses of cash in fiscal
1996.
Capital expenditures totaled $0.3, $0.5 million and $0.6 million in
fiscal years 1998, 1997 and 1996, respectively. Capital purchases have been
primarily for production and computer equipment and leasehold improvements.
At June 27, 1998, the Company had cash and cash equivalents of $2.5
million, compared to $5.4 million of cash and cash equivalents and $1.2 million
of short-term investments, at June 28, 1997. The current ratio was 3.7 and
working capital was $7.4 million at June 27, 1998, compared to $4.2 and $11.0
million, respectively, at June 28, 1997.
The Company maintains a $5 million secured line of credit with a bank,
which was unused throughout fiscal 1998 and at June 27, 1998. Although the
Company was in default on certain financial covenants at June 27, 1998, the
Company has since received a covenant waiver, and amended the financial
covenants to levels that are consistent with the Company's operating plan for
the next twelve months.
Management believes that cash and cash equivalents on hand at June 27,
1998, and funds available through its bank line of credit will sustain the
Company's continuing operations at their current level for at least the next
twelve months. The Company's anticipated capital needs for fiscal 1999 are
expected to be comparable to current year levels and concentrated in development
of additional handler products and upgrading its management information systems.
FEDERAL TAX MATTERS
The Company paid only nominal federal and state income taxes in fiscal
years 1998, 1997 and 1996. At June 27, 1998, the Company had federal net
operating loss carryforwards for tax reporting purposes of approximately $30.9
million, a portion of which is subject to annual limitation under Section 382 of
the Internal Revenue Code. See Note 6 of Notes to Consolidated Financial
Statements.
FOREIGN CURRENCY EFFECTS
The vast majority of the Company's transactions are denominated in U.S.
dollars; as such, fluctuations in foreign currency exchange rates have
historically had little impact on the Company.
EFFECTS OF INFLATION
Inflation has not been a significant factor in the Company's operations
over the last three fiscal years, and it is not expected to affect operations in
the future.
IMPACT OF ACCOUNTING STANDARDS
In July 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" which establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
Under this standard, certain revenues, expenses, gains and losses recognized
during the period are included in comprehensive income, regardless of whether
they are considered to be results of operations of the period. SFAS
16
130, which becomes effective for the Company in the first quarter of fiscal
1999, is not expected to have a material impact on the consolidated financial
statements of the Company. Presently, the only additional item to be included in
comprehensive income is the Company's cumulative translation adjustment.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information" which
is required to be adopted for the fiscal year beginning June 28, 1998. At that
time, the Company will be required to disclose certain financial and descriptive
information about its operating segments as redefined by SFAS No. 131. The
Company is in the process of assessing the impact of SFAS No. 131 on its
footnote disclosures.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. SFAS 133 establishes a new model for accounting
for derivatives and hedging activities and supercedes and amends a number of
existing accounting standards. SFAS 133 requires that all derivatives be
recognized in the balance sheet at their fair market value, and the
corresponding derivative gains or losses be either reported in the statement of
operations or as a deferred item depending on the type of hedge relationship
that exists with respect to such derivative. Adopting the provisions of SFAS 133
are not expected to have a material effect on the Company's financial
statements. The standard is effective for the Company in fiscal 2000.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
coded to accept only two-digit entries in the date code field. When year 2000
begins, these computers may interpret "00" as the year 1900 and could either
stop processing date related computations or could process them incorrectly.
Beginning in the year 2000, these date code fields will need to accept
four-digit entries to distinguish 21st century dates from 20th century dates to
be year 2000 compliant.
The Company has completed an initial assessment of its internal
information systems and has determined that most of the application software and
and internal information systems, other than the Company's primary manufacturing
and accounting system: (1) are year 2000 compliant; (2) can be upgraded to be
year 2000 compliant without significant cost or effort; or, (3) do not pose a
significant issue to the Company if left uncorrected. With regard to the
Company's primary manufacturing and accounting system, the Company has
contracted with the software vendor and related hardware supplier to bring these
systems compliant prior to the end of fiscal 1999. The upgrade process began in
the 4th quarter of fiscal 1998, and approximately 40% of the up-front costs have
been paid to date. Total costs to upgrade the Company's internal information
systems are not material to the operations of the Company, and are expected to
be less than $100,000.
The Company is in the process of assessing non-IT systems within the
Company to determine if they are year 2000 compliant. The Company expects to
have the assesment completed by the end of 1998. Although the Company is not
aware of any material operational issues or costs associated with preparing its
internal systems for the year 2000, there can be no assurance that the Company
will not experience serious unanticipated negative consequences and/or material
costs caused by undetected errors or defects in the technology used in its
internal operating systems, which are composed predominately of third party
software and hardware technology.
The Company is in the process of determining the impact those parties
that are not year 2000 compliant may have on the operations of the Company.
Non-compliance by any of the Company's major distributors, suppliers, customer,
vendors, or financial organizations could result in business disruptions that
could have a material adverse affect on the Company's results of operations,
liquidity and financial condition. The Company plans on developing a contingency
plan once it has completed its assessment of significant party compliance. The
contingency plan will be developed to minimize the
17
Company's exposure to work slowdowns or business disruptions and any adverse
affects on the Company's results of operations. The contingency plan should be
completed by the end of 1998.
The Company is currently in the process of assessing and testing the
software components of its products for year 2000 compliance. The Company does
not believe that its products contain undetected errors or defects associated
with year 2000 date functions that may result in material costs to the Company,
including repair costs and costs incurred in litigation due to any such defects;
however, there can be no assurance that such errors or defects do not exist.
Many commentators have stated that a significant amount of litigation will arise
out of year 2000 compliance issues. Because of the unprecedented nature of such
litigation, there can be no assurance that the Company will not be materially
adversely affected by claims related to year 2000 compliance.
RISK FACTORS
Except for the historical information contained herein, certain of the
matters discussed in this report are "forward-looking statements" as defined in
the Private Securities Litigation Reform Act of 1995. These "forward-looking
statements" involve certain risks and uncertainties, including, but not limited
to, the following: (1) fluctuations and periodic downturns in the semiconductor
market, as currently being experienced, which often have had a
disproportionately negative effect on manufacturers of semiconductor capital
equipment; (2) rapid changes in technology and in tester and handler products,
which the Company must respond to successfully in order for its products to
avoid becoming noncompetitive or obsolete; (3) customer acceptance of the
Company's new products, including the MCT 5100, MCT 5200 and MCT 7632 handlers,
in which the Company has invested significant amounts of inventory; (4) possible
loss of any of the Company's key customers, who account for a substantial
percentage of the Company's business; (5) the possible adverse impact of
competition in markets which are highly competitive, including increased
pressure on pricing and payment terms which may adversely affect net sales and
gross margins and increase the Company's exposure to credit risk; (6) the
possible adverse impact of economic or political changes in markets the Company
serves, including the uncertain economic situation currently facing Southeast
Asia; (7) the possible adverse impact on the Company's operations or material
costs which may be incurred by the Company due to undetected errors or defects
in preparing its internal operating systems for the year 2000; and, (8) the
possible adverse impact on the Company's operations or material costs which may
be incurred by the Company arising from year 2000 related repair costs or
litigation due to undetected errors or defects in its products which use
software. All forecasts and projections in this report are "forward-looking
statements," and are based on management's current expectations of the Company's
near-term results, based on current information available pertaining to the
Company, including risk factors discussed above. Actual results could differ
materially.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Consolidated Financial Statements included elsewhere in this Annual
Report on Form 10-K. The financial information by Quarter is included in Item 6
of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
This Item is not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item concerning the Company's
directors and executive officers is incorporated by reference from the Company's
Proxy Statement to be filed no later than 120 days following the close of the
fiscal year ended June 27, 1998.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is hereby incorporated by
reference from the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item is hereby incorporated by
reference from the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item is hereby incorporated by
reference from the Company's Proxy Statement.
19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. CONSOLIDATED FINANCIAL STATEMENTS PAGE
Index to Consolidated Financial Statements................................. F-1
Independent Accountants' Report............................................ F-2
Consolidated Balance Sheets as of June 27, 1998, and June 28, 1997......... F-3
Consolidated Statements of Operations for the Years Ended June 27,
1998, June 28, 1997, and June 29, 1996................................ F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended June 27, 1998, June 28, 1997, and June 29,
1996.................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended June
27, 1998, June 28, 1997, and June 29, 1996............................ F-6
Notes to Consolidated Financial Statements................................. F-7
(a)3. EXHIBITS
3A Bylaws of the Company. (11)
3B Articles of Incorporation of the Company. (11)
4 Specimen Certificate of Common stock. (1)
10A Agreements between the Company and Hambrecht & Quist Guaranty Finance.
10A.i. Warrant Purchase Agreement dated July 22, 1992. (1)
10A.ii. Second Common stock Warrant Purchase Agreement dated August
10, 1993. (1)
10A.iii. First Amendment to Restated Financing Agreement dated August
24, 1994, with attached Amendment to Warrant Purchase
Agreement and Warrants. (2)
10A.iv. Warrant Amendment Agreement dated October 31, 1995. (7)
10B. Incentive Stock Option Plan as amended through June 27, 1996. (9)
10C. Incentive Bonus Plan adopted by the Board of Directors of the Company
on May 26, 1993. (1)
10D. Form of Non-Competition Agreement between the Company and certain
senior executive officers. (1)
10E. Asset Purchase Agreement and Preferred Stock Purchase Agreement between
the Company and Megatest Corporation dated November 22, 1994. (3)
10F. Stock Purchase Agreement and Commission Agreement entered into between
the Company and Cardine & Levy, dated September 25, 1995. (6)
10G. Employment Agreement with Roger E. Gower dated March 28, 1995. (4)
10H. Stock Option Agreement between the Company and Bentley Hall & Company
dated April 19, 1994. (5)
10I. Employment Agreement with Dennis Nelson dated May 30, 1996. (9)
10J. Employee Stock Purchase Plan. (8)
10K. Stock Option Plan for Outside Directors. (8)
10L. Lease for the Company's corporate headquarters dated October 16, 1996.
(10)
10M. Credit and Security Agreement, dated February 17, 1998 between Norwest
Business Credit, Inc. and Micro Component Technology, Inc. (12)
10N. Credit and Security Agreement, dated February 17, 1998 between Norwest
Bank Minnesota, N.A. and Micro Component Technology, Inc. (12)
21. Revised Listing of Subsidiaries of the Company. (7)
23. Consent of Deloitte & Touche LLP. (filed herewith)
27. Financial Data Schedule (filed herewith)
- --------------------------------------------------------------------------------
20
(1) Incorporated by reference to the exhibits to the registration statement
on Form S-1 filed by the Company on August 24, 1993, as amended, SEC
File Number 33-67846.
(2) Incorporated by reference to the exhibits to the report on Form 10-K
filed by the Company for the fiscal year ended June 25, 1994, file
number 0-22384.
(3) Incorporated by reference to the report on Form 8-K filed by the
Company on December 8, 1994, file number 0-22384.
(4) Incorporated by reference to the report on Form 10-Q filed by the
Company for the quarter ended March 25, 1995, file number 0-22384.
(5) Incorporated by reference to the report on Form 10-K filed by the
Company for the fiscal year ended June 24, 1995, file number 0-22384.
(6) Incorporated by reference to the report on Form 10-Q filed by the
Company for the quarter ended September 30, 1995, file number 0-22384.
(7) Incorporated by reference to the exhibits to the Registration Statement
on Form S-1 filed by the Company on November 2, 1995, as amended, SEC
File Number 33-98940.
(8) Incorporated by reference to the exhibits to the Registration Statement
on Form S-8 filed by the Company on October 31, 1994, as amended, SEC
File Number 33-85766.
(9) Incorporated by reference to the exhibits to the report on Form 10-K
filed by the Company for the fiscal year ended June 29, 1996, file
number 0-22384.
(10) Incorporated by reference to the report on Form 10-Q filed by the
Company for the quarter ended September 28, 1996, file number 0-22384.
(11) Incorporated by reference to the exhibits to the post-effective
amendment #1 to the Registration Statement on Form S-1 filed by the
Company on November 18, 1996, file number 33-98940.
(12) Incorporated by reference to the report on Form 10-Q filed by the
Company for the quarter ended March 28, 1998, file number 0-22384.
(b) REPORTS ON FORM 8-K
There was no Form 8-K filed during the fourth quarter of fiscal 1998.
21
MICRO COMPONENT TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
a.) CONSOLIDATED FINANCIAL STATEMENTS PAGE
----
Independent Accountants' Report ............................................ F-2
Consolidated Balance Sheets as of June 27, 1998 and June 28, 1997........... F-3
Consolidated Statements of Operations for the Years Ended June 27, 1998,
June 28, 1997, and June 29, 1996....................................... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended June 27, 1998, June 28, 1997, and June 29, 1996.... F-5
Consolidated Statements of Cash Flows for the Years Ended June 27, 1998,
June 28, 1997, and June 29, 1996....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
F-1
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholders and Board of Directors of Micro Component Technology, Inc.
We have audited the accompanying consolidated balance sheets of Micro
Component Technology, Inc. and its subsidiaries (the Company) as of June 27,
1998, and June 28, 1997, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the three years in
the period ended June 27, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company at June 27,
1998, and June 28, 1997, and the results of their operations and their cash
flows for each of the three years in the period ended June 27, 1998, in
conformity with generally accepted accounting principles.
Minneapolis, Minnesota
August 18, 1998, except as to the first paragraph of Note 4
and the fifth paragraph of Note 8 as to which the date is
September 22, 1998
F-2
MICRO COMPONENT TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
June 27, June 28,
1998 1997
---------- ----------
ASSETS
- ----------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents ................................................... $ 2,532 $ 5,360
Short-term investments ...................................................... -- 1,169
Accounts receivable, less allowance for doubtful accounts in
1998 and 1997 of $250 and $109, respectively ............................... 3,614 4,028
Inventories ................................................................. 3,830 3,594
Other ....................................................................... 152 297
---------- ----------
Total current assets ............................................... 10,128 14,448
Property, plant and equipment, less accumulated depreciation ..................... 1,047 1,244
Other assets ..................................................................... 51 100
---------- ----------
Total assets ..................................................................... $ 11,226 $ 15,792
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------
Current Liabilities:
Current portion of long-term debt ........................................... $ 50 $ 300
Accounts payable ............................................................ 1,227 1,563
Accrued compensation ........................................................ 729 714
Accrued warranty ............................................................ 244 116
Customer prepayments and unearned service revenue ........................... 180 249
Other accrued liabilities ................................................... 313 498
---------- ----------
Total current liabilities ................................................. 2,743 3,440
Long-term Debt ................................................................... 83 133
Commitments and Contingencies (Note 6)
Stockholders' Equity:
Common, $.01 par value, 20,000,000 authorized, 7,394,300 and
7,047,102 issued, respectively ............................................ 74 70
Redeemable convertible preferred stock, $.01 par value, 1,000,000 authorized,
0 and 315,789 issued (liquidation value $4.75 per share), respectively .... -- 1,500
Additional paid-in capital .................................................. 44,012 42,474
Cumulative translation adjustment ........................................... (64) (82)
Accumulated deficit ......................................................... (35,622) (31,743)
---------- ----------
Total stockholders' equity ................................................ 8,400 12,219
Total Liabilities and Stockholders' Equity ....................................... $ 11,226 $ 15,792
========== ==========
See Notes to Consolidated Financial Statements.
F-3
MICRO COMPONENT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended
----------------------------------------
June 27, June 28, June 29,
1998 1997 1996
---------- ---------- ----------
Net sales ............................................. $ 16,975 $ 16,129 $ 22,318
Cost of sales ......................................... 9,595 6,910 9,319
---------- ---------- ----------
Gross profit .......................................... 7,380 9,219 12,999
Operating expenses:
Selling, general and administrative .............. 7,871 7,121 7,933
Research and development ......................... 3,711 3,934 4,260
Unusual and non-recurring items .................. -- -- (1,524)
---------- ---------- ----------
Total operating expenses ................... 11,582 11,055 10,669
Income (loss) from operations ......................... (4,202) (1,836) 2,330
Other income (expense):
Interest income (expense), net ................... 116 329 246
Other expense .................................... 207 (56) --
---------- ---------- ----------
Income (loss) before income taxes ..................... (3,879) (1,563) 2,576
Income tax provision .................................. -- -- 8
---------- ---------- ----------
Income (loss) from continuing operations .............. (3,879) (1,563) 2,568
Discontinued operations (Note 13):
Income (loss) on disposal of ITS ................. -- -- 652
---------- ---------- ----------
Net income (loss) ..................................... $ (3,879) $ (1,563) $ 3,220
========== ========== ==========
Per Share Data - Basic:
Income (loss) from continuing operations ......... $ (0.54) $ (0.22) $ 0.39
Discontinued operations .......................... -- -- 0.10
---------- ---------- ----------
Net income (loss) per share ...................... $ (0.54) $ (0.22) $ 0.49
========== ========== ==========
Weighted average shares used in computing earnings
(loss) per share ................................. 7,248 7,030 6,513
========== ========== ==========
Per Share Data - Diluted:
Income (loss) from continuing operations ......... $ (0.54) $ (0.22) $ 0.35
Discontinued operations .......................... -- -- 0.09
---------- ---------- ----------
Net income (loss) per share ...................... $ (0.54) $ (0.22) $ 0.44
========== ========== ==========
Weighted average shares used in computing earnings
(loss) per share ............................ 7,248 7,030 7,246
========== ========== ==========
See Notes to Consolidated Financial Statements.
F-4
MICRO COMPONENT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share data)
Preferred Stock Common Stock Treasury Stock
------------------ -------------------------------- ------------------
Add'l Cum. Accum-
Par Paid-In Transl. ulated Class A Common
Shares Value Shares Value Capital Adj. Deficit Shares Cost
------- -------- --------- ------- --------- ------- --------- ------- --------
Balance at June 24, 1995 .... 315,789 $ 1,500 5,126,142 $ 51 $ 37,250 $ 279 $ (30,154) 176,074 $ (4,308)
Net income .............. 3,220
Common stock issued ..... 1,700,000 17 5,618
Shares issued on exercise
of options ............ 36,000 1 97
Shares issued on exercise
of warrants ........... 325,102 3 496
Translation adjustment .. (361)
-----------------------------------------------------------------------------------------------------
Balance at June 29, 1996 .... 315,789 1,500 7,187,244 72 43,461 (82) (26,934) 176,074 (4,308)
Net loss ................ (1,563)
Shares issued on exercise
of options ............ 20,000 40
Shares issued through
employee stock
purchase plan ......... 15,932 33
Retirement of treasury
shares ................ (176,074) (2) (1,060) (3,246) (176,074) 4,308
-----------------------------------------------------------------------------------------------------
Balance at June 28, 1997 .... 315,789 1,500 7,047,102 70 42,474 (82) (31,743) -- --
Net loss .................... (3,879)
Shares issued on exercise
of options ............ 12,750 20
Shares issued through
employee stock
purchase plan ......... 18,659 22
Translation adjustment ...... 18
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 $ (64) $ (35,622) -- $ --
=====================================================================================================
See Notes to Consolidated Financial Statements.
F-5
MICRO COMPONENT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended
-------------------------------------
June 27, June 28, June 29,
1998 1997 1996
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) .................................... $ (3,879) $ (1,563) $ 3,220
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation and amortization .............. 492 469 463
Non cash charge related to inventory........ 2,038 -- --
Unusual and non-recurring .................. -- -- (1,524)
Other, net ................................. -- (12) (4)
Changes in assets and liabilities:
Accounts receivable ................... 414 143 (170)
Inventories ........................... (2,274) (581) 19
Other assets .......................... 194 428 927
Accounts payable ...................... (336) 519 (747)
Other accrued liabilities ............. (111) (115) (1,927)
Discontinued operations ............... -- -- (595)
--------- --------- ---------
Net cash used in operating activities ................... (3,462) (712) (338)
Cash flows from investing activities:
Additions to property, plant and equipment ........... (295) (523) (619)
Proceeds from sale of product line ................... -- -- 1,524
Purchase of short-term investments ................... -- (1,169) --
Maturity of short-term investments ................... 1,169 -- --
Discontinued operations .............................. -- -- 1,401
--------- --------- ---------
Net cash provided by (used in) investing activities ..... 874 (1,692) 2,306
Cash flows from financing activities:
Payments of long-term debt ........................... (300) (102) (102)
Proceeds from issuance of stock ...................... 42 73 5,132
--------- --------- ---------
Net cash provided by (used in) financing activities .. (258) (29) 5,030
Effects of exchange rate changes .......................... 18 -- (361)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents .... (2,828) (2,433) 6,637
Cash and cash equivalents at beginning of period .......... 5,360 7,793 1,156
--------- --------- ---------
Cash and cash equivalents at end of period ................ $ 2,532 $ 5,360 $ 7,793
========= ========= =========
See Notes to Consolidated Financial Statements.
F-6
MICRO COMPONENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Company designs, manufactures, markets and services automatic test
equipment consisting of both handling and testing equipment for the
semiconductor industry. The Company's handlers are designed to handle most
integrated circuit ("IC") device packages currently in production. The Company's
testers are used to test logic, mixed signal, microprocessor, microperipheral
and application-specific IC devices. The Company's major customers include
SGS-Thomson Micro Electronics, Inc., Philips Semiconductors, Intel, Advanced
Micro Devices and Motorola Incorporated.
A network of offices and representatives supports the Company's
customers across the United States, Europe, and the Far East. The Company was
formed in 1972 and is headquartered in St. Paul, Minnesota.
CONSOLIDATION
The consolidated financial statements include the accounts of the
parent company and its subsidiary after elimination of all significant
intercompany balances and transactions. The significant subsidiary is 100%
owned.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Due to the inherent
uncertainty involved in making estimates, actual results reported in future
periods might differ from those estimates.
FISCAL YEAR
The Company's fiscal year is 52 or 53 weeks, ending on the last
Saturday in June.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments purchased with
original maturities of 90 days or less to be cash equivalents, and investments
with original maturities of greater than 90 days to be short-term investments.
As of June 28, 1997, the Company had short-term investments primarily comprised
of investment grade commercial debt of $1.6 million, all of which have been
classified as available for sale and have contractual maturities of less than
one year. These investments are stated at fair market value. Unrealized gains
and losses were immaterial at June 28, 1997.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out ("FIFO") method. Provision for
obsolescence is made based on estimates of future sales and the related value of
component parts.
F-7
REVENUE RECOGNITION
Revenue for product sales is recognized upon shipment if all conditions
precedent to the sale have been met or are assured of being met. If significant
conditions regarding acceptance and right of return exist, revenue is not
recognized until such conditions are met. Service revenue is deferred and
amortized to earnings on a straight-line basis over the life of the service
contract.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
provided primarily by the straight-line method over the estimated useful lives
of the assets for financial reporting and accelerated methods for tax purposes.
Estimated lives used in computing depreciation are as follows:
Leasehold improvements................................ 3 to 10 years
Machinery and equipment............................... 2 to 5
Furniture and fixtures................................ 3 to 5
PRODUCT WARRANTY
Estimated costs of warranty obligations to customers are charged to
expense and a related accrual is established at the time the product is sold.
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for
Income Taxes." Deferred income tax benefits and deferred income taxes are
recorded based on differences in the bases of assets and liabilities between the
financial statements and the tax returns.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the foreign subsidiary are translated to U.S.
dollars at year-end rates, and the statements of operations are translated at
average exchange rates during the year. Translation adjustments arising from the
translation of the foreign affiliates' net assets into U.S. dollars are recorded
as a separate component of stockholders' equity.
NEW ACCOUNTING STANDARDS
In July 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" which establishes standards for reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. Under this standard, certain revenues,
expenses, gains and losses recognized during the period are included in
comprehensive income, regardless of whether they are considered to be results of
operations of the period. SFAS 130, which becomes effective for the Company in
the first quarter of fiscal
F-8
1999, is not expected to have a material impact on the consolidated financial
statements of the Company. Presently, the only additional item to be included in
comprehensive income is the Company's cumulative translation adjustment.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information" which
is required to be adopted for the fiscal year beginning June 28, 1998. At that
time, the Company will be required to disclose certain financial and descriptive
information about its operating segments as redefined by SFAS No. 131. The
Company is in the process of assessing the impact of SFAS No. 131 on its
footnote disclosures.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. SFAS 133 establishes a new model for accounting
for derivatives and hedging activities and supercedes and amends a number of
existing accounting standards. SFAS 133 requires that all derivatives be
recognized in the balance sheet at their fair market value, and the
corresponding derivative gains or losses be either reported in the statement of
operations or as a deferred item depending on the type of hedge relationship
that exists with respect to such derivative. Adopting the provisions of SFAS 133
are not expected to have a material effect on the Company's financial
statements. The standard is effective for the Company in fiscal 2000.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for new product development are
charged to expense as incurred.
RECLASSIFICATIONS
Certain prior year balance sheet amounts have been reclassified to
conform to the current year presentation.
NOTE 2 - EARNINGS (LOSS) PER SHARE
Earnings per share are computed in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share."
Basic earnings per share are computed using the weighted average number
of common shares outstanding during each period. Diluted earnings per
share include the dilutive effect of common shares potentially issuable
upon the exercise of stock options and warrants outstanding, and the
dilutive effect of the assumed conversion of outstanding Class A
preferred stock to common stock. Earnings (loss) per share data for
fiscal years 1997 and 1996 have been restated to conform to the
provisions of SFAS No. 128. The following table reconciles the
denominators used in computing basic and diluted earnings (loss) per
share for the periods reported:
Fiscal year ended
June 27 June 28 June 29
(in thousands) 1998(1) 1997(1) 1996
-------------------------------
Weighted average common
shares outstanding 7,248 7,030 6,513
Effect of dilutive stock options
and warrants -- -- 417
Effect of dilutive redeemable
preferred stock (2) -- -- 316
-------------------------------
7,248 7,030 7,246
===============================
(1) The Company reported a loss for the period. No adjustment made for
the effect of stock options, warrants or redeemable preferred stock,
as effect is anti-dilutive.
(2) Preferred stock converted to common stock in November, 1997.
F-9
NOTE 3 - BALANCE SHEET INFORMATION
Valuation reserves for notes and accounts receivable are as follows (in
thousands):
1998 1997 1996
---- ---- ----
Beginning Balance............. $ 238 $ 585 $ 100
Additions..................... 142 (344) 485
Deductions.................... (130) (3) --
------ ------ ------
Ending Balance................ $ 250 $ 238 $ 585
====== ====== ======
Additions to the reserves are charged to selling, general and
administrative expense. Deductions represent uncollectible accounts written off.
Major components of inventories are as follows (in thousands):
1998 1997
------- -------
Raw materials................ $ 878 $ 1,110
Work-in-process.............. 1,562 1,420
Finished goods............... 1,390 1,064
------- -------
$ 3,830 $ 3,594
======= =======
Inventory balances are shown net of inventory reserves of $4.4 million
and $2.7 million at fiscal year end 1998 and 1997, respectively. Additions to
inventory reserves of approximately $2.0 million, $0 million and $0.8 million
are included in cost of sales for fiscal years 1998, 1997 and 1996,
respectively. The addition to the reserves in fiscal 1998 related primarily to
inventory levels in excess of projected demand over the next twelve months.
Inventory written off against the reserve amounted to $0.3 million, $2.3 million
and $0.5 million for fiscal years 1998, 1997 and 1996, respectively.
Property, plant and equipment consisted of the following:
1998 1997
-------- -------
Leasehold improvements......... $ 185 $ 129
Machinery and equipment........ 3,353 3,356
Furniture and fixtures......... 889 862
-------- -------
4,427 4,347
Less accumulated depreciation.. 3,379 3,103
-------- -------
$ 1,047 $ 1,244
======== =======
NOTE 4 - INDEBTEDNESS
In February 1998, the Company established a secured revolving credit
facility with a bank, which expires in February 2001. Under the facility, the
Company may borrow up to $5 million as determined by the borrowing base of
eligible trade accounts receivable and certain inventory, conditioned upon
meeting certain financial covenants, including maintaining certain levels of
monthly and quarterly earnings and and quarterly tangible net worth. At June 27,
1998, the Company was in default on these financial covenants of the credit
facility, but in September 1998, received a covenant waiver from the bank and
amended the financial covenants to levels which are consistent with the
Company's operating plan for the next twelve months.
Borrowings bear interest at 0.5% over the bank's prime rate, which was
8.5% at June 27, 1998. The Company had no borrowings and paid no interest on the
credit line in fiscal 1998.
F-10
NOTE 5 - LONG-TERM DEBT
Long-term debt and financing obligations consist of the following (in
thousands):
1998 1997
------- -------
Notes payable ....................................... $ -- $ 252
Equipment lease agreements (a)....................... 131 175
Other ............................................... 2 6
------- -------
Total long-term debt and financing obligations.... 133 433
Less current obligations............................. 50 300
------- -------
Total long-term debt................................. $ 83 $ 133
======= =======
(a) The Company has two equipment lease agreements, bearing interest at
approximately 7% for two Fadal Machining Centers used in the Company's
manufacturing process. Capitalized lease amounts included in Property,
Plant and Equipment at June 27, 1998 and June 28, 1997 were $131,000 and
$173,000, respectively, net of accumulated depreciation of $102,000 and
$60,000, respectively.
Cash paid for interest was $23,000, $33,000 and $30,000 for fiscal years
1998, 1997 and 1996, respectively.
Payments due under debt obligations at June 27, 1998 are as follows:
1999 - $50,000; 2000 - $51,000; and, 2001 - $32,000.
NOTE 6 - INCOME TAXES
The Company incurred operating losses in fiscal 1998 and 1997 and
recorded no provision for income taxes. In 1996, the Company reported operating
income and recorded a provision of $8,000 for foreign income taxes, but recorded
no provision for federal and state income taxes, through reversal of a portion
of the valuation allowance caused by utilization of operating loss carryforwards
("NOL's") from previous years.
The reconciliation of income tax computed at the U.S. federal statutory
rate to income tax expense is as follows:
Year Ended June
-----------------------------
1998 1997 1996
------ ------ ------
Tax (benefit) at statutory rate (35.0)% (35.0)% 35.0 %
Effect of graduated tax rates 1.0 1.0 (1.0)
Foreign subsidiary losses with no tax benefit -- 11.3 11.9
Foreign loss carryforward benefit -- (0.6) (4.7)
Adjustment to valuation allowance 34.0 23.3 (41.9)
State tax -- -- 1.2
Other -- -- (0.2)
------ ------ ------
0.0 % 0.0 % 0.3 %
====== ====== ======
As of June 27, 1998, the Company had federal and state NOL's totaling
approximately $30.9 million and tax credit carryforwards of approximately
$108,000 which can be used to reduce future taxable income. Tax loss
F-11
carryforwards of certain foreign operations in the aggregate of $1.3 million are
available for tax and financial reporting purposes. Such tax loss carryforwards
begin to expire in the year 2004.
The Company believes that its initial public offering, combined with
prior events, resulted in an "ownership change" of the Company as defined in
Section 382 of the Internal Revenue Code and the Regulations issued thereunder
(Section 382). Pursuant to Section 382, the Company's ability to use its NOLs
originating prior to the initial public offering, accounting for approximately
$9.6 million of the NOL's, is subject to certain restrictions including an
annual limitation of approximately $918,000. Losses incurred subsequent to the
initial public offering are available without annual limitation to offset future
income.
The Company has recorded a total valuation reserve against
approximately $14.8 million and $12.5 million of deferred tax assets at June 27,
1998 and June 28, 1997, respectively, related primarily to operating loss
carryforwards, due to the uncertainty of their ultimate realization.
NOTE 7 - REDEEMABLE CONVERTIBLE PREFERRED STOCK
In November 1997, the Company converted 315,789 shares of Non-voting
Series A Preferred stock to Common stock on a one-for-one basis. There were no
dividends accrued or paid on the Preferred stock. The Company no longer has
shares of Preferred stock outstanding. The issuance of the shares of Common
stock was exempt from registration pursuant to section 3(a)(9) of the Securities
Act of 1933. No commission or other remuneration was paid to solicit the
conversion.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company leases certain facilities and equipment under various
operating leases. Effective April 1997, the Company entered into an operating
lease agreement and relocated its headquarters to a new facility in St. Paul,
Minnesota, coinciding with the expiration of the operating lease at its previous
headquarters facility. Under the terms of the new agreement, which extends
through April 2007, the Company is responsible for base rent and all operating
expenses associated with the portion of the facility that it occupies. The
agreement provides the Company with a one-time option to cancel the lease after
seven years, at which time the Company would only be responsible for certain
unamortized build-out costs incurred by the landlord.
Total rent expense charged to operations, primarily for facilities and
equipment was $767,000, $1,149,000, and $1,014,000 in fiscal years 1998, 1997
and 1996, respectively.
The future minimum rental payments at June 27, 1998, due under
noncancelable operating leases, are as follows: 1999 - $648,000; 2000 -
$640,000; 2001 - $564,000; 2002 - $448,000; 2003 - $463,000; thereafter -
$1,773,000.
F-12
The Company has an employment agreement with its Chief Executive
Officer that may be terminated upon 60 days written notice by either party. If
the Company terminates the agreement, the Company shall continue to pay the
officer's salary in effect at date of termination for 12 months thereafter. The
Company also has an agreement with one other officer that provides for severance
pay and other remuneration if employment is terminated without cause or if the
individual should resign following a change of control.
CONTINGENCIES
The Securities and Exchange Commission is conducting an investigation
with respect to certain financial reporting discrepancies announced by the
Company in April 1994 dating back to fiscal 1993 and the first two quarters of
fiscal 1994. The Company has submitted documents to the Commission pursuant to
requests from the Commission, and certain former officers and certain current
and former employees of the Company have been interviewed by the Commission as
part of the investigation. In September 1998, the Company reached a preliminary
resolution of this matter with the staff, which is subject to approval by the
Securities and Exchange Commission. The terms of the preliminary resolution do
not have a significant financial impact on the Company.
NOTE 9 - STOCK OPTION AND BONUS PLANS AND WARRANTS TO PURCHASE COMMON STOCK
In May 1995 and August 1995, the Board of Directors amended the April
1993 Incentive Stock Option Plan for key employees and reserved an additional
500,000 shares and 250,000 shares respectively for a total of 1,250,000 shares
of Common stock for issuance under the Plan at fair market value at the date of
grant. The shareholders have approved these amendments. The options expire five
years from the date of grant and generally vest over a two-year or four-year
period. If an individual ceases employment, he/she has one month to exercise
vested options granted prior to June 8, 1994 or 90 days for options granted on
or after June 8, 1994. Options granted in excess of the $100,000 annual IRS
limitations become non-qualified.
In fiscal 1996, the Board of Directors and the shareholders approved
the Stock Option Plan for Outside Directors and reserved 300,000 shares of
Common stock for issuance under the Plan. Each person who becomes an outside
director will automatically be granted an option to purchase 10,000 shares. In
addition, each outside director will also automatically be granted an option to
purchase 10,000 shares immediately upon each reelection as a director, or on the
anniversary of the prior year's grant in any year in which there is no meeting
of the stockholders at which directors are elected. The period within which an
option must be exercised will be the earlier of (1) five years from the date of
the grant, or (2) the date which is one year after the director ceases to be a
director for any reason. The exercise price for each option will be the fair
market value of the stock on the date of grant, and each option will generally
vest over a two-year period at 50 percent per year. The Company also has
reserved 150,000 shares of Common stock for the grant of non-qualified stock
options for outside directors, consultants and advisors.
F-13
Shares subject to option under these plans during fiscal year 1996,
1997 and 1998 were as follows:
WEIGHTED
AVERAGE
EXERCISE PRICE PER
OPTIONS SHARES PRICE RANGE SHARE
------- ------- ----------- -----
Outstanding, June 24, 1995 1,001,000 $2.00 to $7.00 $2.73
Granted (valued at $1.54 per share) 180,000 $3.375 to $7.50 $3.86
Exercised (36,000) $2.00 to $4.25 $2.74
Expired (294,500) $2.00 to $4.25 $2.47
---------
Outstanding June 29, 1996 850,500 $2.00 to $7.50 $3.00
Granted (valued at $0.98 per share) 232,000 $2.0625 to $3.3125 $2.48
Exercised (20,000) $2.00 $2.00
Expired (167,500) $2.00 to $4.25 $2.97
---------
Outstanding June 28, 1997 895,000 $2.00 to $7.50 $2.89
Granted (valued at $1.27 per share) 349,000 $1.563 to $4.813 $3.62
Exercised (20,000) $2.00 to $3.625 $2.81
Expired (16,000) $2.625 to $3.00 $2.81
---------
Outstanding June 27, 1998 1,208,000 $1.563 to $7.50 $3.11
Exercisable at June 27, 1998 658,500 $2.00 to $7.50 $2.95
Options outstanding at June 27, 1998 had exercise prices ranging from
$1.563 to $7.50 per share as summarized in the following table:
Number Weighted Weighted Number
Range of Outstanding Average Average Exercisable
Exercise At June 28, Remaining Exercise at June 28,
Prices 1997 Life Price Per Share 1997
------ ---- ---- --------------- ----
$1.563 to $2.625 655,000 2.5 years $2.01 433,500
$3.25 to $3.75 273,000 3.5 years $3.53 130,000
$4.813 to $5.00 225,000 0.5 years $4.85 40,000
$7.00 to $7.50 55,000 1.5 years $7.09 50,000
--------- --------
$1.563 to $7.50 1,208,000 2.0 years $3.11 658,500
========= ========
In February 1996, the Board of Directors adopted the Employee Stock
Purchase Plan and reserved 300,000 shares for issuance under the Plan. Eligible
employees can elect under the Plan to contribute between two percent and ten
percent of their base pay each plan year (June 1 - May 31) to purchase shares of
Common stock at a price per share equal to 85 percent of market value on the
first day of the plan year or the last day of the plan year, whichever is lower.
Employee contributions are deducted from their regular salary or wages. The
maximum number of shares that can be purchased by an employee in any plan year
is 1,000 shares. During fiscal year 1998, 18,658 shares were issued under the
plan at the price of $1.17 per share. During fiscal year 1997, 15,932 shares
were issued under the plan at prices ranging from $1.59 to $2.34, at a weighted
average price of $2.25 per share. Approximately 265,000 shares remain reserved
for future issuance.
F-14
In May 1993, the Board of Directors approved an Incentive Bonus Plan
commencing in fiscal year 1994 which provides for payment of discretionary
annual bonuses to employees of up to 5% of the Company's pretax income. Eighty
percent of the bonus is to be paid in cash and twenty percent to the Company's
qualified 401(k) retirement plan. No bonus payments were made under the Plan in
fiscal years 1998, 1997 or 1996.
In fiscal 1997, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." As permitted by SFAS No. 123, the Company has elected
to continue following the guidance of APB No. 25 for measurement and recognition
of stock-based transactions with employees. Because stock options have been
granted at exercise prices at least equal to the fair market value of the stock
at the grant date, no compensation cost has been recognized for stock options
issued to employees under the stock option plans. If compensation cost for the
Company's stock option and employee stock purchase plans had been determined
based on the fair value at the grant dates, consistent with the method provided
in SFAS No. 123, the Company's net income (loss) and earnings (loss) per share
would have been as follows:
1998 1997 1996
Net income (loss), in thousands
As reported $ (3,879) $ (1,563) $ 3,220
Pro forma $ (4,077) $ (1,752) $ 3,116
Earnings (loss) per share - basic
As reported $ (0.54) $ (0.22) $ 0.49
Pro forma $ (0.56) $ (0.25) $ 0.48
Earnings (loss) per share - diluted
As reported $ (0.54) $ (0.22) $ 0.44
Pro forma $ (0.56) $ (0.25) $ 0.43
The fair value of options granted under the stock option and employee
stock purchase plans during fiscal 1996 and 1997 was estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions and results:
1998 1997 1996
---- ---- ----
Dividend yield 0% 0% 0%
Expected volatility 60.62% 46.25% 46.25%
Risk-free interest rate 6.0% 6.0% 6.0%
Expected life of options 3.1 years 3.5 years 3.5 years
The following summarizes all warrants outstanding to purchase shares of
the Company's common stock at June 27, 1998:
Exercise Expiration
Shares Price Date
------ --------- ----------
169,807 $3.125 December 31, 1999
30,000 $4.00 December 31, 1999
68,500 $5.00 December 31, 1999
NOTE 10 - SEGMENT, GEOGRAPHIC, CUSTOMER INFORMATION AND CONCENTRATION OF CREDIT
RISK
The Company operates in one industry segment supplying integrated
circuit handlers and testers to the semiconductor industry.
F-15
The Company operates in three geographic areas. Summarized data for the
Company's continuing operations by geographic area are as follows (in
thousands):
U.S. EUROPE FAR EAST CONSOLIDATED
---- ------ -------- ------------
1998
- ----
Sales to unaffiliated customers................ $8,051 $1,833 $ 7,091 $16,975
Inter-area sales to affiliates................. 1,008 -- 66 1,074
Operating profit (loss)........................ (3,041) -- (1,161) (4,202)
Identifiable assets............................ 10,234 -- 992 11,226
Export Sales: United States.................... -- -- 66 66
1997
- ----
Sales to unaffiliated customers................ $ 6,842 $ 759 $ 8,528 $16,129
Inter-area sales to affiliates................. 5,100 -- 100 5,200
Operating profit (loss)........................ (1,374) -- (462) (1,836)
Identifiable assets............................ 12,569 -- 3,223 15,792
Export Sales: United States.................... -- -- 100 100
1996
- ----
Sales to unaffiliated customers................ $ 9,494 $ 3,764 $ 9,060 $22,318
Inter-area sales to affiliates................. 7,448 -- 927 8,375
Operating profit (loss)........................ 2,790 -- (460) 2,330
Identifiable assets............................ 13,587 -- 3,393 16,980
Export Sales: United States.................... -- -- 927 927
During fiscal year 1998, no single customer accounted for more than 10%
of net sales. During fiscal years 1997 and 1996, one customer accounted for
approximately 17% and 24% of net sales, respectively. During fiscal year 1997,
one other customer accounted for approximately 11% of net sales and during
fiscal 1996; two other customers accounted for approximately 11% and 10% of net
sales.
The Company's sales and accounts receivable balances are concentrated
in one industry, the integrated circuit manufacturers. The Company's historical
credit losses have not been significant.
NOTE 11 - NONCASH TRANSACTIONS
Between September 26, 1995 and November 3, 1995, Hambrecht & Quist
Guaranty Finance L.P. ("H&Q") and its affiliates surrendered a total of 301,177
warrants in exchange for 165,102 shares of common stock pursuant to a "cashless
exercise" provision in the warrants. This provision allows the warrant holders
to surrender the warrants and receive in exchange a number of shares equal to
the percentage determined by dividing (a) the difference between the current
market price of the common stock and the warrant exercise price by (b) the
current market price of the common stock.
In December 1995, the Company issued 200,000 shares of common stock
with a value of $1.1 million in accordance with the settlement agreement for the
shareholders' lawsuit.
NOTE 12 - UNUSUAL AND NON-RECURRING ITEMS
In December 1995, the Company received approximately $1.5 million from
the resolution of disputes concerning a $2.0 million escrow fund related to the
Company's November 1994 sale of its 1149 tester line to Megatest Corporation
("Megatest"). Under the terms of the settlement, all disputes between the
parties have been
F-16
resolved. The Company has classified this amount as an unusual
and non-recurring gain in the results of operations for fiscal year 1996.
NOTE 13 - DISCONTINUED OPERATIONS
On May 31, 1995, the Board of Directors initiated a formal plan to sell
the Company's European subsidiary, Intertrade Scientific, Inc. ("ITS"). A
provision for the loss on the sale of $3.0 million was recorded in the results
of operations for the year ended June 24, 1995. In August 1995, the Company
received a letter of intent to purchase all of the outstanding shares of ITS
stock. As a result of the final signed sales agreement, the Company realized a
net gain of $0.7 million on the disposal of ITS. The completion of the sale
occurred during the first quarter of fiscal 1996. This subsidiary has been
reflected as a discontinued operation for fiscal year 1996.
F-17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned; thereunto duly authorized, in the City of St.
Paul, State of Minnesota, on September 24, 1998.
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 Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on September 24, 1998.
Signature Capacity
--------- --------
/s/ Roger E. Gower President, Chief Executive Officer,
- ---------------------------------- Chairman of the Board and Director
Roger E. Gower
/s/ Jeffrey S. Mathiesen Vice President of Finance/
- ---------------------------------- Administration, Chief Financial
Jeffrey S. Mathiesen Officer, Treasurer
/s/ Donald J. Kramer Director
- ----------------------------------
Donald J. Kramer
/s/ David M. Sugishita Director
- ----------------------------------
David M. Sugishita
/s/ Donald R. VanLuvanee Director
- ----------------------------------
Donald R. VanLuvanee
/s/ Patrick Verderico Director
- ----------------------------------
Patrick Verderico
The above listed directors constitute a majority of the Board of Directors of
the Company.
S-1
INDEX TO EXHIBITS Page Numbers
------------
3A. Bylaws of the Company. (11)
3B. Articles of Incorporation of the Company. (11)
4. Specimen Certificate of Common stock. (1)
10A. Agreements between the Company and Hambrecht & Quist
Guaranty Finance.
10A.i. Warrant Purchase Agreement dated July 22, 1992.
(1)
10A.ii. Second Common stock Warrant Purchase Agreement
dated August 10, 1993. (1)
10A.iii. First Amendment to Restated Financing Agreement
dated August 24, 1994, with attached Amendment to
Warrant Purchase Agreement and Warrants. (2)
10A.iv. Warrant Amendment Agreement dated October 31,
1995. (7)
10B. Incentive Stock Option Plan as amended through June 27,
1996. (9)
10C. Incentive Bonus Plan adopted by the Board of Directors of
the Company on May 26, 1993. (1)
10D. Form of Non-Competition Agreement between the Company and
certain senior executive officers. (1)
10E. Asset Purchase Agreement and Preferred Stock Purchase
Agreement between the Company and Megatest Corporation
dated November 22, 1994. (3)
10F. Stock Purchase Agreement and Commission Agreement entered
into between the Company and Cardine & Levy, dated
September 25, 1995. (6)
10G. Employment Agreement with Roger E. Gower dated March 28,
1995. (4)
10H. Stock Option Agreement between the Company and Bentley Hall
& Company dated April 19, 1994. (5)
10I. Employment Agreement with Dennis Nelson dated May 30, 1996.
(9)
10J. Employee Stock Purchase Plan. (8)
10K. Stock Option Plan for Outside Directors. (8)
10L. Lease for the Company's corporate headquarters dated
October 16, 1996. (10)
10M. Credit and Security Agreement, dated February 17, 1998
between Norwest Business Credit, Inc. and Micro Component
Technology, Inc. (12)
10N. Credit and Security Agreement, dated February 17, 1998
between Norwest Bank Minnesota, N.A. and Micro Component
Technology, Inc. (12)
21. Revised Listing of Subsidiaries of the Company. (7)
23. Consent of Deloitte & Touche LLP. (filed herewith)
27. Financial Data Schedule (filed herewith)
- --------------------------------------------------------------------------------
(1) Incorporated by reference to the exhibits to the registration statement
on Form S-1 filed by the Company on August 24, 1993, as amended, SEC
File Number 33-67846.
(2) Incorporated by reference to the exhibits to the report on Form 10-K
filed by the Company for the fiscal year ended June 25, 1994, file
number 0-22384.
(3) Incorporated by reference to the report on Form 8-K filed by the
Company on December 8, 1994, file number 0-22384.
(4) Incorporated by reference to the report on Form 10-Q filed by the
Company for the quarter ended March 25, 1995, file number 0-22384.
(5) Incorporated by reference to the report on Form 10-K filed by the
Company for the fiscal year ended June 24, 1995, file number 0-22384.
E-1
(6) Incorporated by reference to the report on Form 10-Q filed by the
Company for the quarter ended September 30, 1995, file number 0-22384.
(7) Incorporated by reference to the exhibits to the Registration Statement
on Form S-1 filed by the Company on November 2, 1995, as amended, SEC
File Number 33-98940.
(8) Incorporated by reference to the exhibits to the Registration Statement
on Form S-8 filed by the Company on October 31, 1994, as amended, SEC
File Number 33-85766.
(9) Incorporated by reference to the exhibits to the report on Form 10-K
filed by the Company for the fiscal year ended June 29, 1996, file
number 0-22384.
(10) Incorporated by reference to the report on Form 10-Q filed by the
Company for the quarter ended September 28, 1996, file number 0-22384.
(11) Incorporated by reference to the exhibits to the post-effective
amendment #1 to the Registration Statement on Form S-1 filed by the
Company on November 18, 1996, file number 33-98940.
(12) Incorporated by reference to the report on Form 10-Q filed by the
Company for the quarter ended March 28, 1998, file number 0-22384.
E-2