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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 26, 1999
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 (651) 697-4000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
Indicate by check 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 2, 1999 (based upon the closing
price of those shares on the NASDAQ National Market System) was approximately
$20.4 million.
Number of shares outstanding of the Registrant's Common stock, as of September
2, 1999, is 7,476,922.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for the
annual meeting of stockholders (the "Proxy Statement"), and to be filed within
120 days after the Registrant's fiscal year ended June 26, 1999, are
incorporated by reference into Part III.
2
MICRO COMPONENT TECHNOLOGY, INC.
TABLE OF CONTENTS
PAGE
PART I
ITEM 1. Business.................................................................... 4
ITEM 2. Properties.................................................................. 11
ITEM 3. Legal Proceedings........................................................... 11
ITEM 4. Submission of Matters to a Vote of Security Holders......................... 11
PART II
ITEM 5. Market for Registrant's Common Stock and Related Stockholder Matters........ 11
ITEM 6. Selected Financial Data..................................................... 12
ITEM 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition................................................... 14
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
3
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 (651) 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.
On June 29, 1999, the Company acquired certain assets and assumed
certain liabilities of the Systems Integration unit of FICO America, Inc.,
forming the Infinity Systems Division of the Company to develop and implement
Manufacturing Execution Systems ("MES") and factory control systems to customers
in the semiconductor industry.
On September 18, 1999, the Company entered into a definitive merger
agreement to acquire Aseco Corporation, a Massachusetts based manufacturer of
handling equipment. The acquisition, currently valued at $16.3 million, subject
to adjustment under certain terms of the agreement, is structured as a stock for
stock purchase
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and is expected to close in December 1999. The agreement has been approved by
the Board of Directors of both companies and is subject to approval by the
shareholders of each company and regulatory agencies.
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 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.
TAPESTRY CHIP SCALE AND WAFER LEVEL HANDLER
The new MCT Tapestry Handling System Model PH-I is a versatile, high
throughput, and highly parallel test handling and thermal conditioning system,
for devices that are in panel or strip format. The system is capable of handling
fine pitch Chip Scale Packages (CSPs), (mu)BGA, Chip Array, Ball Grid Array
(BGA), and other over-molded devices on laminated panels or strips. The system
is also capable of handling leaded devices in strip format including TSOP,
TSSOP, SOIC, MSOP, SOTs and other packages in lead-frames. Using standard
industry interfaces, the system is designed to function as a stand-alone system,
or can be integrated into an in-line process with other equipment such as
lead/ball inspect, mark, mark inspect, singulation, and tape and reel. The
Company began delivering Tapestry Handling Systems to customers in the third
quarter of fiscal 1999.
The MCT Tapestry Handling System consists of a Multi-Cassette
Input Module, a Tri-Temp (-40(degree)C to +125(degree)C) Test Module, and a
Multi-Cassette Output Module. The system is controlled by a Pentium(R) PC system
running Windows(R) NT and C++. The system has been designed to meet safety and
ergonomic specifications for handling equipment including Semi S2-93A, S8-95,
and CE Mark, and is year 2000 compliant. The system has several available
options for factory automation and communication including GEM/SECS II
capability.
A wafer-handling version of the Tapestry Handling System, Model
WH-I, is available and targeted at handling Wafer Level Packages. New wafer
level packaging technology is emerging and may be the ultimate solution for
package miniaturization. The system is capable of handling larger profile
package formats including complete wafers and glass substrates. Like the
Tapestry PH-I system, the system is cassette based and can function as a
stand-alone system or be integrated with other in-process systems.
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MCT 5100 FINE PITCH SURFACE MOUNT DEVICE HANDLER
The MCT 5100 Handler is a 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 continued to represent a significant portion of equipment sales
in fiscal 1999.
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 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 QFP, TQFP, 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(Degree)C to +160(Degree)C. The handler has a
unique capability of being able to load and unload devices from carriers while
testing without interrupting system operation. This capability provides for very
high throughput and ease of use in a production environment. 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.
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.
6
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.
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 the market
leader position among U.S. based test handler companies. 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 offers an upgraded
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.
MARKETING AND SALES
The Company's marketing and sales efforts are organized around three
regional divisions: North America, 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
20 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
7
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 18 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.
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.
8
During fiscal 1999, one customer, Amkor Technology, Inc. accounted
for 27% of the Company's sales. In fiscal 1998 no single customer accounted for
10% of the Company's sales and in fiscal 1997 ST Microelectronics, Inc.
accounted for approximately 17% of the Company's sales. The Company expects that
Amkor will continue to be a significant customer in fiscal 2000.
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
At June 26, 1999, the Company's backlog of unfilled orders was $3.9
million, compared with $3.6 million as of June 27, 1998. A significant portion
of the backlog at June 26, 1999 is expected to be shipped in the first half of
fiscal year 2000. 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
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 1999, 1998 and 1997, the Company's expenses
relating to research and development were $2.8 million, $3.7 million, $3.9
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.
9
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 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 26, 1999, the Company had a total of 128 employees
including eleven contract people: 59 (or 46%) engaged in manufacturing, 33 (or
26%) in engineering and research and development, 18 (or 14%) in sales,
marketing and service, and 18 (or 14%) 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 are included in Note 10 of Notes to Consolidated
Financial Statements, included elsewhere herein.
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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
There are no material pending legal, governmental, administrative or
other proceedings to which the Company is a party.
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 26, 1999.
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 (Nasdaq: MCTI) 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 1999 Fiscal 1998
------------------- ----------------
High Low High Low
---- --- ---- ---
First Quarter $1 1/16 $15/32 $5 5/8 $3 1/4
Second Quarter $2 $7/16 $5 3/8 $1 1/2
Third Quarter $2 7/8 $1 5/32 $2 1/2 $1 3/8
Fourth Quarter $2 3/4 $1 27/32 $2 $1
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 September 2, 1999 was 244.
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. The Company's bank line of
credit prohibits the payment of cash dividends without the bank's consent.
During the past three fiscal years, the Company made the following
sales of unregistered securities:
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. 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 to solicit the
conversion.
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ITEM 6. SELECTED FINANCIAL DATA
MICRO COMPONENT TECHNOLOGY, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
June 26, June 27, June 28, June 29, June 24,
1999 1998 (1) 1997 1996 (2) 1995 (2)
---- -------- ---- -------- --------
STATEMENT OF OPERATIONS DATA - YEAR ENDED:
Net sales ................................... $ 15,171 $ 16,975 $ 16,129 $ 22,318 $ 23,635
Gross profit ................................ 7,632 7,380 9,219 12,999 10,739
Income (loss) from operations ............... (1,447) (4,202) (1,836) 2,330 1,923
Income (loss) from continuing operations .... (1,466) (3,879) (1,563) 2,568 1,566
Discontinued operations (3) ................. -- -- -- 652 (3,897)
Income (loss) before extraordinary item ..... (1,466) (3,879) (1,563) 3,220 (2,331)
Extraordinary item (4) ...................... -- -- -- -- 1,005
Net income (loss) ........................... (1,466) (3,879) (1,563) 3,220 (1,326)
Net income (loss) applicable to common
stock ....................................... $ (1,466) $ (3,879) $ (1,563) $ 3,220 $ (1,326)
Per Share Data - diluted:
Income (loss) from continuing operations .... $ (0.20) $ (0.54) $ (0.22) $ 0.35 $ 0.30
Discontinued operations ..................... -- -- -- 0.09 (0.74)
Extraordinary item (4) ...................... -- -- -- -- 0.19
Net income (loss) per share ................. $ (0.20) $ (0.54) $ (0.22) $ 0.44 $ (0.25)
Shares used to compute earnings (loss)
per share, diluted ........................ 7,396 7,248 7,030 7,246 5,240
Selected Balance Sheet Data:
Working capital ............................. $ 6,265 $ 7,385 $ 11,008 $ 12,638 $ 2,839
Net assets of discontinued operations (3) ... -- -- -- -- 977
Total assets ................................ 9,990 11,226 15,792 16,980 11,532
Current obligations under debt facilities and
financing obligations ....................... 51 50 300 352 363
Long-term debt and financing
obligations ................................. 33 83 133 183 41
Redeemable convertible preferred
stock .................................... -- -- 1,500 1,500 1,500
Total stockholders' equity (deficit) ........ $ 6,952 $ 8,400 $ 12,219 $ 13,709 $ 4,618
(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: 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.
12
(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 1999 AND 1998
The following table presents selected unaudited quarterly operating
results for the Company for the eight fiscal quarters ended June 26, 1999.
(in thousands, except per share data)
Three-Month Periods Ended
Fiscal 1999 Fiscal 1998
-------------------------------------------- -------------------------------------------
Sept. 26, Dec. 26, Mar. 27, June 26, Sept. 27, Dec. 27, Mar. 28, June 27,
1998 1998 1999 1999 1997 1997 1998 1998
------------------------------------------------------------------------------------------
Net sales.......................... $ 3,668 $ 3,020 $ 4,028 $ 4,455 $ 4,450 $ 4,522 $ 3,567 $ 4,436
Gross profit ...................... 1,733 1,449 1,996 2,454 2,970 2,475 1,784 151
Income (loss) from
operations ................... (824) (578) (129) 84 (104) (599) (804) (2,695)
Net income (loss).................. $ (819) $ (576) $ (125) $ 54 $ 16 $ (520) $ (773) $(2,602)
Per share data - basic
and diluted:
Net income (loss)............ $ (0.11) $ (0.08) $ (0.02) $ 0.01 $ 0.00 $ (0.07) $ (0.10) $ (0.35)
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF CONTINUING OPERATIONS
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 26, June 27, June 28,
1999 1998 1997
---- ---- ----
Net sales ............................... 100.0 % 100.0 % 100.0 %
Cost of sales ........................... 49.7 56.5 42.8
---- ---- ----
Gross margin ............................ 50.3 43.5 57.2
Operating expenses:
Selling, general and administrative 41.4 46.4 44.2
Research and development .......... 18.4 21.9 24.4
---- ---- ----
Total operating expenses .... 59.8 68.3 68.6
---- ---- ----
Loss from operations .................... (9.5) (24.8) (11.4)
Other income (expense), net ....... (0.2) 1.9 1.7
---- ---- ----
Loss before income taxes ................ (9.7) (22.9) (9.7)
Income tax provision .................... -- -- --
---- ---- ----
Net loss ................................ (9.7) % (22.9) % (9.7) %
==== ==== ====
GENERAL MARKET CONDITIONS
The Company operates exclusively in the semiconductor capital
equipment market, which went into a significant downturn beginning in early
fiscal 1998, and intensified throughout the remainder of fiscal year and
throughout most of fiscal year 1999. 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 1999 and 1998. Late in fiscal 1999,
the market began to stabilize and show signs of a gradual recovery, which
management believes will facilitate improved sales and operating results for the
Company in fiscal 2000.
FISCAL YEARS ENDED JUNE 26, 1999 AND JUNE 27, 1998
NET SALES. Net sales for fiscal year 1999 were $15.2 million, a decrease of
10.6% from $17.0 million in fiscal year 1998. Sales of the Company's newest
products, the 5100 handler, introduced in mid-fiscal 1997, and the 7632 and
Tapestry handlers, both of which first shipped to customers in fiscal 1999,
increased over the prior year, partially offsetting the sales decline of the
Company's more mature products.
As detailed in Note 10 of Notes to Consolidated Financial
Statements, sales increased year over year in the Far East, but decreased
comparatively in the United States and Europe. The increase in shipments to the
Far East resulted primarily from increased business with several key and new
customers in that region. The decrease in sales in the United States and Europe
was primarily the result of the depressed market conditions.
The Company expects sales to gradually improve with the anticipated
recovery of the semiconductor capital equipment market in fiscal year 2000;
however, no assurance can be made that a sales increase will occur. Continued
growth of the Company's newer products are expected to generate the majority of
the Company's sales increase as customers are anticipated to continue to migrate
to smaller devices and chip-scale packages, and transition testing processes to
strip, panel and wafer levels.
14
GROSS PROFIT. Gross profit in fiscal 1999 increased 3.4% or $0.2 million, to
$7.6 million from $7.4 million in fiscal 1998, and gross margin increased to
50.3% in fiscal 1999 from 43.5% in the previous year. In the prior year, the
Company recorded one-time charges of approximately $2.0 million for increased
reserves for excess and obsolete inventory as a result of the depressed and
changing market conditions. Prior to these charges, gross profit was $9.5
million and gross margin was 55.7%. The decrease in gross margin, prior to
one-time charges resulted from the shift in product mix from certain older,
higher margin products and the decreased overhead absorption on lower production
levels in the current year. The Company expects gross margins in the near future
to be consistent with the average levels for fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
("SG&A") expense decreased by $1.6 million or 20.2%, to $6.3 million in fiscal
1999 from $7.9 million in the prior year. As a percentage of net sales, SG&A
expense decreased to 41.4% in the current year versus 46.4% in fiscal year 1998.
This decrease resulted from cost reduction activities initiated by the Company
beginning in fiscal 1998, in response to the downturn in the semiconductor
capital equipment market.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development ("R&D") expense
decreased by $0.9 million, or 24.5%, to $2.8 million in the current year from
$3.7 million in fiscal year 1998. As a percentage of net sales, R&D expense
decreased to 18.4% from 21.9% for last year. The Company chose to maintain a
high level of R&D spending throughout the downturn in semiconductor capital
equipment market to ensure that it could support the launch of the newer
products and continue to fund other product development projects. These efforts
are allowing the Company to enter markets and attract customers not previously
served by the Company.
NET INTEREST INCOME /(EXPENSE). Net interest income decreased during the current
year due to decreased holdings of interest bearing cash equivalents throughout
the year.
INCOME TAX PROVISION. During fiscal years 1999 and 1998, 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 1999 was $1.5 million, or $0.20 per share.
FISCAL YEARS ENDED JUNE 27, 1998 AND JUNE 28, 1997
GENERAL COMMENTS. As a result of the market downturn that began in fiscal 1998,
the Company initiated cost reduction actions and adjusted its reserve
assumptions in fiscal 1998, recording inventory and other charges totaling $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,
primarily impacting operating expenses, related mainly to cost reduction
activities initiated by the Company.
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 and 4610 handlers
increased in fiscal 1998 while sales of older handler and tester products
decreased as compared to fiscal 1997. The product mix shift from older products
to newer products was precipitated by the downturn in the semiconductor capital
equipment market.
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.
15
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. SG&A expense increased by $0.8
million or 10.5%, to $7.9 million in fiscal 1998 from $7.1 million in the prior
year. 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 fiscal 1998
expenses resulted from increased investments in sales and marketing initiated in
fiscal 1997.
RESEARCH AND DEVELOPMENT EXPENSE. R&D expense decreased by $0.2 million, 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 products and continue to fund other product
development projects.
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.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations was $0.5 million, $3.5 million, and $0.7
million in fiscal years 1999, 1998 and 1997, respectively. The net loss was the
primary use of cash in fiscal 1999, while the net loss and inventory purchases
were the primary uses of cash in fiscal 1998 and 1997.
Capital expenditures totaled $0.1, $0.3 million and $0.5 million in
fiscal years 1999, 1998 and 1997, respectively. Capital purchases have been
primarily for production and computer equipment and leasehold improvements.
At June 26, 1999, the Company had cash and cash equivalents of $1.9
million, compared to $2.5 million at June 27, 1998. The current ratio was 3.1
and working capital was $6.3 million at June 26, 1999, compared to 3.7 and $7.4
million, respectively, at June 27, 1998.
The Company maintains a $5 million secured line of credit with a
bank, which was unused at June 26, 1999 and June 27, 1998. The amount available
for borrowing is calculated as a percentage of eligible accounts receivable and
inventory, and amounted to approximately $2.8 million at June 26, 1999.
The Company's anticipated capital needs for fiscal 2000, prior to
acquisitions, are expected to be comparable to current year levels and
concentrated in development of additional handler products and upgrading its
management information systems. The Company expects to use funds for the
business acquisitions described in Item I. Management believes that cash and
cash equivalents on hand at June 26, 1999, and funds available through its bank
line of credit are sufficient to finance such acquisitions and sustain the
Company's continuing operations at the projected level for the foreseeable
future. Management believes that it will be able to raise additional capital and
/ or negotiate an increase to its bank line of credit at terms acceptable to the
Company if required, but no assurance can be made that such financing will be
available if needed. The Company may acquire other companies, product lines or
technologies that are complementary to the Company's business and the Company's
working capital needs may change as a result of such acquisitions.
16
FEDERAL TAX MATTERS
The Company paid only nominal federal and state income taxes in
fiscal years 1999, 1998 and 1997. At June 26, 1999, the Company had federal net
operating loss carryforwards for tax reporting purposes of approximately $32.9
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. 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. The Company's bank
line of credit carries a variable interest rate. Though the line was unused at
June 26, 1999, an increase in the interest rate could expose the Company to
market risk in the event the Company is required to borrow under the line to
finance its operations in the future. At June 26, 1999, all of the Company's
outstanding long-term debt carries interest at a fixed rate. There is no
material market risk relating to the Company's long-term debt.
IMPACT OF ACCOUNTING STANDARDS
Effective fiscal 1999, the Company adopted Statement on Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS
No. 130 requires that changes in the amounts of certain items, including foreign
currency translation adjustments, be presented in the Company's financial
statements.
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
which was adopted by the Company in fiscal year 1999. The statement requires
disclosure of certain financial and descriptive information about operating
segments as redefined by SFAS No. 131. The Company operates in one business
segment.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" was issued. SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing accounting standards. SFAS No. 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. Management has not yet completed an
assessment of the impact of adopting the provisions of SFAS No. 133 on the
Company's financial statements. The standard is effective for the Company in
fiscal 2001.
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 completed a review of its internal information systems
and determined that most of the application software 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 contracted with the software
vendor and related hardware supplier to bring these systems year 2000 compliant.
The upgrade was completed in the second
17
quarter of fiscal 1999. All other significant application software, hardware and
internal information systems which were identified as not year 2000 compliant
have been upgraded or replaced. Total costs to upgrade the Company's internal
information systems, most of which have been paid, are not material to the
operations of the Company, and are expected to be less than $100,000.
The Company has completed an assessment of non-IT systems within the
Company to determine if they are year 2000 compliant. The Company has upgraded
or replaced all significant non-IT systems that were identified as not year 2000
compliant. 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 that third
parties suppliers and vendors 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, customers, 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. To date, the
Company is not aware of any such third parties with year 2000 issues that would
materially impact the Company's results of operations, liquidity or 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 Company's exposure to work slowdowns or
business disruptions and any adverse affects on the Company's results of
operations.
The Company completed an assessment and test of the software
components of its products for year 2000 compliance, and determined that no
significant modifications are required to products currently offered or actively
marketed within the past five years. 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, MCT 7632 and MCT
Tapestry 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
18
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.
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 26, 1999.
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 26, 1999, and June 27, 1998..... F-3
Consolidated Statements of Operations for the Years Ended June 26,
1999, June 27, 1998, and June 28, 1997........................... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended June 26, 1999, June 27, 1998, and June 28,
1997............................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended June
26, 1999, June 27, 1998, and June 28, 1997....................... 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 as amended through April 29,
1999. (filed herewith)
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)
10O. First Amendment to Credit and Security Agreement, dated October 22,
1998 between Norwest Business Credit, Inc. and Micro Component
-Technology, Inc. (13)
10P. First Amendment to Credit and Security Agreement, dated October 22,
1998 between Norwest Bank Minnesota, N.A. and Micro Component
Technology, Inc. (13)
20
10Q. Incentive Stock Option Plan as amended through April 29, 1999.
(filed herewith)
10R. Second Amendment to Credit and Security Agreement (Eximbank
Guaranteed Loan), dated February 16, 1999 between Norwest Bank
Minnesota N.A and Micro Component Technology, Inc. (15)
10S. Second Amendment to Credit and Security Agreement, dated May 6,
1999 between Wells Fargo Business Credit, Inc. and Micro Component
Technology, Inc. (15)
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.
(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.
(13) Incorporated by reference to the report on Form 10-Q filed by the
Company for the quarter ended September 26, 1998, file number
0-22384.
(14) Incorporated by reference to the report on Form 10-Q filed by the
Company for the quarter ended December 26, 1998, file number
0-22384.
(15) Incorporated by reference to the report on Form 10-Q filed by the
Company for the quarter ended March 27, 1999, file number 0-22384.
(b) REPORTS ON FORM 8-K
There was no Form 8-K filed during the fourth quarter of fiscal
1999.
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 26, 1999 and June 27, 1998.......... F-3
Consolidated Statements of Operations for the Years Ended June 26, 1999,
June 27, 1998, and June 28, 1997...................................... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended June 26, 1999, June 27, 1998, and June 28, 1997... F-5
Consolidated Statements of Cash Flows for the Years Ended June 26, 1999,
June 27, 1998, and June 28, 1997...................................... 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
26, 1999, and June 27, 1998, 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 26, 1999. 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
26, 1999, and June 27, 1998, and the results of their operations and their cash
flows for each of the three years in the period ended June 26, 1999, in
conformity with generally accepted accounting principles.
Minneapolis, Minnesota
August 17, 1999 (September 18, 1999 as to
the second paragraph of Note 11)
F-2
MICRO COMPONENT TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
June 26, June 27,
1999 1998
-------- --------
ASSETS
- ------------------------------------------------------------------
Current assets:
Cash and cash equivalents .................................. $ 1,927 $ 2,532
Accounts receivable, less allowance for doubtful accounts in
1999 and 1998 of $146 and $250, respectively .............. 3,596 3,614
Inventories ................................................ 3,616 3,830
Other ...................................................... 131 152
-------- --------
Total current assets ........................... 9,270 10,128
Property, plant and equipment, less accumulated depreciation ..... 673 1,047
Other assets ..................................................... 47 51
-------- --------
Total assets ..................................................... $ 9,990 $ 11,226
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------
Current Liabilities:
Current portion of long-term debt .......................... $ 51 $ 50
Accounts payable ........................................... 1,548 1,227
Accrued compensation ....................................... 666 729
Accrued warranty ........................................... 271 244
Customer prepayments and unearned service revenue .......... 224 180
Other accrued liabilities .................................. 245 313
-------- --------
Total current liabilities ............................... 3,005 2,743
Long-term Debt ................................................... 33 83
Commitments and Contingencies (Note 6)
Stockholders' Equity:
Common, $.01 par value, 20,000,000 authorized, 7,416,922 and
7,394,300 issued, respectively .......................... 74 74
Additional paid-in capital ................................. 44,035 44,012
Cumulative other comprehensive income ...................... (69) (64)
Accumulated deficit ........................................ (37,088) (35,622)
-------- --------
Total stockholders' equity .............................. 6,952 8,400
Total Liabilities and Stockholders' Equity ....................... $ 9,990 $ 11,226
======== ========
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 26, June 27, June 28,
1999 1998 1997
-------- -------- --------
Net sales ....................................................... $ 15,171 $ 16,975 $ 16,129
Cost of sales ................................................... 7,539 9,595 6,910
-------- -------- --------
Gross profit .................................................... 7,632 7,380 9,219
Operating expenses:
Selling, general and administrative ....................... 6,279 7,871 7,121
Research and development .................................. 2,800 3,711 3,934
-------- -------- --------
Total operating expenses ............................ 9,079 11,582 11,055
Loss from operations ............................................ (1,447) (4,202) (1,836)
Other income (expense):
Interest income (expense), net ............................ 67 116 329
Other income (expense) .................................... (86) 207 (56)
-------- -------- --------
Loss before income taxes ........................................ (1,466) (3,879) (1,563)
Income tax provision ............................................ -- -- --
-------- -------- --------
Net loss ........................................................ $ (1,466) $ (3,879) $ (1,563)
======== ======== ========
Net loss per share:
Basic .................................................. $ (0.20) $ (0.54) $ (0.22)
======== ======== ========
Diluted ................................................ $ (0.20) $ (0.54) $ (0.22)
======== ======== ========
Weighted average common and common
Equivalent shares outstanding:
Basic ................................................. 7,396 7,248 7,030
======== ======== ========
Diluted ............................................... 7,396 7,248 7,030
======== ======== ========
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
--------------- --------------------------- --------------
Cumulative
Additional Other
Par Paid-In Comprehensive Accum. Comprehensive Class A Common
Shares Value Shares Value Capital Income Deficit Income Shares Cost
Balance at June 29, 1996 315,789 $ 1,500 7,187,244 $72 $43,461 $(26,934) $(82) 176,074 $(4,308)
Net loss $(1,563) (1,563)
Shares issued on exercise
of options 20,000 40
Shares issued through
employee stock purchase
plan 15,932 33
-------
Comprehensive income $(1,563)
=======
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 (31,743) (82) -- --
Net loss $(3,879) (3,879)
Shares issued on exercise
of options 12,750 20
Shares issued through
employee stock purchase
plan 18,659 22
Translation adjustment 18 18
-------
Comprehensive income $(3,861)
=======
Shares issued through
conversion of preferred
stock (315,789) (1,500) 315,789 4 1,496
- ------------------------------------------------------------------------- -----------------------------------------
Balance at June 27, 1998 -- -- 7,394,300 74 44,012 (35,622) (64) -- --
Net loss $(1,466) (1,466)
Shares issued through
employee stock purchase
plan 22,622 23
Translation adjustment (5) (5)
-------
Comprehensive income $(1,471)
=======
- ------------------------------------------------------------------------- -----------------------------------------
Balance at June 26, 1999 -- $ -- 7,416,922 $74 $44,035 $(37,088) $(69) -- $ --
========================================================================= =========================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
MICRO COMPONENT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended
-------------------------------
June 26, June 27, June 28,
1999 1998 1997
------- ------- -------
Cash flows from operating activities:
Net income (loss) .................................... $(1,466) $(3,879) $(1,563)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation and amortization .............. 465 492 469
Non-cash charge related to inventory ....... -- 2,038 --
Other, net ................................. (1) -- (12)
Changes in assets and liabilities:
Accounts receivable ................... 18 414 143
Inventories ........................... 214 (2,274) (581)
Other assets .......................... 21 194 428
Accounts payable ...................... 321 (336) 519
Other accrued liabilities ............. (54) (111) (115)
------- ------- -------
Net cash used in operating activities .................... (482) (3,462) (712)
Cash flows from investing activities:
Additions to property, plant and equipment ........... (92) (295) (523)
Purchase of short-term investments ................... -- -- (1,169)
Maturity of short-term investments ................... -- 1,169 --
------- ------- -------
Net cash provided by (used in) investing activities ...... (92) 874 (1,692)
Cash flows from financing activities:
Payments of long-term debt ........................... (49) (300) (102)
Proceeds from issuance of stock ...................... 23 42 73
------- ------- -------
Net cash used in financing activities .................... (26) (258) (29)
Effects of exchange rate changes ........................... (5) 18 --
------- ------- -------
Net increase (decrease) in cash and cash equivalents ..... (605) (2,828) (2,433)
Cash and cash equivalents at beginning of period ........... 2,532 5,360 7,793
------- ------- -------
Cash and cash equivalents at end of period ................. $ 1,927 $ 2,532 $ 5,360
======= ======= =======
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 operates in one business
segment.
A network of offices and representatives supports the Company's
customers across North America, 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 AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with
original maturities of 90 days or less to be cash equivalents
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.
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.
F-7
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
provided 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 in cumulative other comprehensive income.
NEW ACCOUNTING STANDARDS
Effective fiscal 1999, the Company adopted Statement on Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS
No. 130 requires that changes in the amounts of certain items, including foreign
currency translation adjustments, be presented in the Company's financial
statements.
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
which was adopted by the Company in fiscal year 1999. The statement requires
disclosure of certain financial and descriptive information about operating
segments as redefined by SFAS No. 131. The Company operates in one business
segment.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" was issued. SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing accounting standards. SFAS No. 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. Management has not yet completed an
assessment of the impact of adopting the provisions of SFAS No. 133 on the
Company's financial statements. The standard is effective for the Company in
fiscal 2001.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for new product development are
charged to expense as incurred.
F-8
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 year 1997 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 26 June 27 June 28
(in thousands) 1999(1) 1998(1) 1997(1)
-----------------------------
Weighted average common
shares outstanding 7,396 7,248 7,030
Effect of dilutive stock options
and warrants -- -- --
Effect of dilutive redeemable
preferred stock (2) -- -- --
=============================
7,396 7,248 7,030
=============================
(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.
NOTE 3 - BALANCE SHEET INFORMATION
Valuation reserves for notes and accounts receivable are as follows
(in thousands):
1999 1998 1997
---- ---- ----
Beginning Balance......... $ 250 $ 238 $ 585
Additions................. 20 12 (344)
Deductions................ (124) -- (3)
------ ------ ------
Ending Balance............ $ 146 $ 250 $ 238
====== ====== ======
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):
1999 1998
------ ------
Raw materials........ $1,129 $ 878
Work-in-process...... 1,485 1,562
Finished goods....... 1,002 1,390
------ ------
$3,616 $3,830
====== ======
Inventory balances are shown net of inventory reserves of $4.0
million and $4.4 million at fiscal year end 1999 and 1998, respectively.
F-9
Property, plant and equipment consisted of the following (in thousands):
1999 1998
------- -------
Leasehold improvements............ $ 179 $ 185
Machinery and equipment........... 3,042 3,353
Furniture and fixtures............ 877 889
------- -------
4,098 4,427
Less accumulated depreciation..... (3,425) (3,380)
------- -------
$ 673 $ 1,047
======= =======
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. The
agreement prohibits the Company from paying cash dividends without the bank's
consent.
Borrowings bear interest at 1.5% over the bank's prime rate, which
was 7.75% at June 26, 1999. Though the Company had no borrowings on the line at
June 26, 1999, $2.8 million was available for borrowing under the line.
NOTE 5 - LONG-TERM DEBT
Long-term debt and financing obligations consist of the following
(in thousands):
1999 1998
----- -----
Equipment lease agreements............................ $ 84 $ 131
Other................................................. -- 2
----- -----
Total long-term debt and financing obligations..... 84 133
Less current obligations.............................. (51) (50)
----- -----
Total long-term debt.................................. $ 33 $ 83
===== =====
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 26, 1999 and June 27, 1998 were $234,000, and $234,000 and
accumulated depreciation was $154,000 and $102,000, respectively.
Cash paid for interest was $8,000, $23,000 and $33,000 for fiscal
years 1999, 1998 and 1997, respectively.
Payments due under debt obligations at June 26, 1999 are as follows:
2000 - $51,000; and, 2001 - $33, 000.
F-10
NOTE 6 - INCOME TAXES
The Company incurred losses in fiscal 1999, 1998 and 1997 and
recorded no provision for income taxes.
The reconciliation of income tax computed at the U.S. federal
statutory rate to income tax expense is as follows:
Year Ended June
----------------------
1999 1998 1997
---- ---- ----
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
Foreign loss carryforward benefit -- -- (0.6)
Adjustment to valuation allowance 34.0 34.0 23.3
State tax -- -- --
Other -- -- --
---- ---- ----
0.0% 0.0% 0.3%
==== ==== ====
As of June 26, 1999, the Company had federal and state NOLs
totaling approximately $32.9 million and tax credit carryforwards of
approximately $169,000 which can be used to reduce future taxable income. Tax
loss 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 NOLs, 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 $15.3 million and $14.8 million of deferred tax assets at June 26,
1999 and June 27, 1998, 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
F-11
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 $ 583,000, $767,000, and $1,149,000 in fiscal years 1999, 1998
and 1997, respectively.
The future minimum rental payments at June 26, 1999, due under
noncancelable operating leases, are as follows: 2000 - $571,000; 2001 -
$545,000; 2002 - $450,000; 2003 - $463,000; 2004 - $463,000; thereafter -
$1,311,000.
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.
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 to ten 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) ten 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.
During fiscal 1999, the Board of Directors voted to extend the life
of all outstanding options granted prior to 1997 from five to ten years.
The Company has also reserved 150,000 shares of Common stock for the
grant of non-qualified stock options for outside directors, consultants,
advisors and employees.
F-12
Shares subject to options under these plans during fiscal year 1997, 1998 and
1999 were as follows:
WEIGHTED
AVERAGE
EXERCISE PRICE PER
OPTIONS SHARES PRICE RANGE SHARE
------- ------ ----------- -----
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
Granted (valued at $0.68 per share) 461,500 $1.00 to $1.938 $1.17
Expired (347,000) $2.375 to $7.00 $4.78
-------
Outstanding June 26, 1999 1,322,500 $1.00 to $7.50 $2.00
Exercisable at June 26, 1999 694,750 $1.00 to $7.50 $2.43
Options outstanding at June 26, 1999 had exercise prices ranging
from $1.00 to $7.50 per share as summarized in the following table:
NUMBER WEIGHTED WEIGHTED NUMBER
RANGE OF OUTSTANDING AVERAGE AVERAGE EXERCISABLE
EXERCISE AT JUNE 26, REMAINING EXERCISE AT JUNE 26,
PRICES 1999 LIFE PRICE PER SHARE 1999
------ ---- ---- --------------- ----
$1.00 to $1.563 543,500 4.5 years $1.22 50,500
$1.938 to $2.625 556,000 5.5 years $2.07 478,500
$3.25 to $3.75 213,000 7.0 years $3.53 155,750
$7.50 10,000 6.5 years $7.50 10,000
--------- -------
$1.00 to $7.50 1,322,500 5.5 years $2.00 694,750
========= =======
In February 1996, the Board of Directors adopted the Employee Stock
Purchase Plan and reserved 300,000 shares of Common stock 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 1999, 22,622
shares were issued under the plan at prices ranging from $0.45 to $1.0625, a
weighted average price of $1.04 per share. During fiscal year 1998, 18,658
shares were issued under the plan at the price of $1.17 per share. Approximately
242,900 shares remain reserved for future issuance.
F-13
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 1999, 1998 or 1997.
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:
1999 1998 1997
Net income (loss), in thousands
As reported $ (1,466) $ (3,879) $ (1,563)
Pro forma $ (1,652) $ (4,077) $ (1,752)
Earnings (loss) per share - basic
As reported $ (0.20) $ (0.54) $ (0.22)
Pro forma $ (0.22) $ (0.56) $ (0.25)
Earnings (loss) per share - diluted
As reported $ (0.20) $ (0.54) $ (0.22)
Pro forma $ (0.22) $ (0.56) $ (0.25)
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:
1999 1998 1997
---- ---- ----
Dividend yield 0.00% 0.00% 0.00%
Expected volatility 88.48% 60.62% 46.25%
Risk-free interest rate 4.77% 6.0% 6.0%
Expected life of options 3.0 years 3.1 years 3.5 years
The following summarizes all warrants outstanding to purchase shares
of the Company's common stock at June 26, 1999:
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
F-14
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. Net sales to
customers located in the three geographic regions in which the Company operates
are summarized as follows (in thousands):
1999 1998 1997
-------- -------- --------
United States $ 5,379 $ 8,051 $ 6,842
Far East 9,205 7,091 8,528
Europe 587 1,833 759
-------- -------- --------
$ 15,171 $ 16,975 $ 16,129
======== ======== ========
The Company does not hold a material amount of long-lived assets
outside of the United States.
During fiscal year 1999, one customer accounted for 27% of net
sales. During fiscal year 1998, no single customer accounted for more than 10%
of net sales. During fiscal year 1997, one customer accounted for approximately
17% and another customer accounted for approximately 11% 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 - SUBSEQUENT EVENT
On June 29, 1999, the Company acquired certain assets and assumed
certain liabilities of the Systems Integration unit of FICO America, Inc.,
forming the Infinity Systems Division of the Company to develop and implement
Manufacturing Execution Systems ("MES") and factory control systems to customers
in the semiconductor industry. The acquisition was accounted for as a purchase,
and accordingly, the net assets acquired were recorded at their estimated fair
market value at the effective date of the acquisition. The purchase price and
the pro forma impact on fiscal 1999 or 1998 were not material to the Company.
On September 18, 1999, the Company entered into a definitive merger
agreement to acquire Aseco Corporation, a Massachusetts based manufacturer of
handling equipment. The acquisition, currently valued at $16.3 million, subject
to adjustment under certain terms of the agreement, is structured as a stock for
stock purchase and is expected to close in December 1999. The agreement has been
approved by the Board of Directors of both companies and is subject to approval
by the shareholders of each company and regulatory agencies.
F-15
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 22, 1999.
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 22, 1999.
Signature Capacity
--------- --------
President, Chief Executive Officer,
/s/ Roger E. Gower 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/ D. James Guzy Director
- ------------------------------------
D. James Guzy
/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 members of
the Board of Directors of the Company.
S-1
INDEX TO 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, as amended through April
29, 1999. (filed herewith)
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)
10O. First Amendment to Credit and Security Agreement, dated October 22,
1998 between Norwest Business Credit, Inc. and Micro Component
-Technology, Inc. (13)
10P. First Amendment to Credit and Security Agreement, dated October 22,
1998 between Norwest Bank Minnesota, N.A. and Micro Component
Technology, Inc. (13)
10Q. Incentive Stock Option Plan as amended through April 29, 1999.
(filed herewith)
10R. Second Amendment to Credit and Security Agreement (Eximbank
Guaranteed Loan), dated February 16, 1999 between Norwest Bank
Minnesota N.A and Micro Component Technology, Inc. (15)
10S. Second Amendment to Credit and Security Agreement , dated May 6,
1999 between Wells Fargo Business Credit, Inc. and Micro Component
Technology, Inc. (15)
21. Revised Listing of Subsidiaries of the Company. (7)
23. Consent of Deloitte & Touche LLP. (filed herewith)
27. Financial Data Schedule (filed herewith)
- --------------------------------------------------------------------------------
S-2
(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.
(13) Incorporated by reference to the report on Form 10-Q filed by the
Company for the quarter ended September 26, 1998, file number
0-22384.
(14) Incorporated by reference to the report on Form 10-Q filed by the
Company for the quarter ended December 26, 1998, file number
0-22384.
(15) Incorporated by reference to the report on Form 10-Q filed by the
Company for the quarter ended March 27, 1999, file number 0-22384.
S-3