SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

 

MICRO COMPONENT TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)

 

 

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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days

 

Yes         ý            No           o

 

The number of shares outstanding of the Registrant’s Common Stock, as of August 13, 2002 was 14,152,092.

 

 

MICRO COMPONENT TECHNOLOGY, INC.

 

FORM 10-Q

 

TABLE OF CONTENTS

 

 

PART I - FINANCIAL INFORMATION
	ITEM 1.		FINANCIAL STATEMENTS
			CONSOLIDATED BALANCE SHEETS
			CONSOLIDATED STATEMENTS OF OPERATIONS
			CONSOLIDATED STATEMENTS OF CASH FLOWS
			NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
PART II.  OTHER INFORMATION
		ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
		ITEM 5.	OTHER INFORMATION
		ITEM 6.	REPORTS ON FORM 8-K
		SIGNATURES
		CERTIFICATION

 

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MICRO COMPONENT TECHNOLOGY, INC.

FORM 10-Q

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

		June 29, 2002			December 31, 2001
Assets
Current assets
Cash and cash equivalents		$	6,323		$	11,086
Accounts receivable, less allowance for doubtful accounts of $321 and $425, respectively		3,148			3,136
Inventories		4,385			5,084
Other		272			254
Total current assets		14,128			19,560
Property, plant and equipment, net		670			878
Debt issuance costs, net		749			836
Other assets		86			67
Total assets		$	15,633		$	21,341
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt		$	42		$	42
Current portion of accrued restructuring charge		190			678
Accounts payable		1,631			1,536
Accrued warranty		360			400
Deferred revenue in excess of costs incurred		320			1,133
Other accrued liabilities		3,258			2,864
Total current liabilities		5,801			6,653
Long-term debt		12			33
Long-term portion of accrued restructuring costs		—			278
10% senior subordinated convertible debt		10,000			10,000
Stockholders’ (deficit) equity:
Preferred stock, $.01 par value, 1,000,000 authorized, none issued and outstanding		—			—
Common stock, $.01 par value, 40,000,000 authorized, 14,152,092 and 14,074,365 issued, respectively		142			141
Additional paid-in capital		88,302			88,144
Cumulative other comprehensive loss		(69		)	(69		)
Accumulated deficit		(88,555		)	(83,839		)
Total stockholders’ (deficit) equity		(180		)	4,377
Total liabilities and stockholders’ (deficit) equity		$	15,633		$	21,341

 

See notes to unaudited condensed consolidated financial statements

 

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MICRO COMPONENT TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

		Three Months Ended						Six Months Ended
		June 29, 2002			June 30, 2001			June 29, 2002			June 30, 2001
Net sales		$	3,879		$	7,404		$	7,342		$	16,733
Cost of sales		2,454			4,220			4,641			9,890
Gross profit		1,425			3,184			2,701			6,843
Operating expenses:
Selling, general and administrative		2,438			2,863			4,704			6,157
Research and development		1,049			2,015			2,355			4,903
Amortization of intangible assets		—			879			—			1,758
Restructuring charge		(475		)	—			(152		)	2,331
Total operating expenses		3,012			5,757			6,907			15,149
Loss from operations		(1,587		)	(2,573		)	(4,206		)	(8,306		)
Interest income		31			41			76			153
Interest expense and other, net		(293		)	(4		)	(586		)	(17		)
Total interest and other		(262		)	37			(510		)	136
Net loss		$	(1,849	)	$	(2,536	)	$	(4,716	)	$	(8,170	)
Net loss per share, basic and diluted:
Net loss		$	(0.13	)	$	(0.18	)	$	(0.33	)	$	(0.58	)
Weighted average common and equivalent shares outstanding:
Basic and diluted		14,115			14,018			14,096			13,985

 

See notes to unaudited condensed consolidated financial statements

 

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MICRO COMPONENT TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

		Six Months Ended
		June 29, 2002			June 30, 2001
Cash flows from operating activities:
Net loss		$	(4,716	)	$	(8,170	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		240			405
Amortization		—			1,758
Loss on disposal of property		4			—
Changes in assets and liabilities:
Accounts receivable		(12		)	4,730
Inventories		699			(1,913		)
Other assets		(37		)	(146		)
Accounts payable		95			(5,401		)
Accrued restructuring costs		(766		)	1,381
Other accrued liabilities		(459		)	(2,383		)
Net cash used in operating activities		(4,952		)	(9,739		)
Cash flows from investing activities:
Additions to property, plant and equipment		(73		)	(134		)
Proceeds from disposition of property		37			—
Net cash used in investing activities		(36		)	(134		)
Cash flows from financing activities:
Payments of long-term debt		(21		)	(13		)
Amortization of debt issuance costs		87			—
Proceeds from issuance of stock, net		159			183
Net cash provided by financing activities		225			170
Net decrease in cash and cash equivalents		(4,763		)	(9,703		)
Cash and cash equivalents at beginning of period		11,086			12,047
Cash and cash equivalents at end of period		$	6,323		$	2,344

 

See notes to unaudited condensed consolidated financial statements

 

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MICRO COMPONENT TECHNOLOGY, INC.

FORM 10-Q

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.                              INTERIM FINANCIAL STATEMENTS

 

The accompanying unaudited condensed consolidated financial statements for the three and six months ended June 29, 2002 have been prepared in accordance with the instructions for SEC Form 10-Q and, accordingly, do not include all disclosures required by generally accepted accounting principles for complete financial statements.  In our opinion, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included.

 

Interim unaudited financial results should be read in conjunction with the audited financial statements included in the SEC Report on Form 10-K, for the period ended December 31, 2001.

 

The results of operations for the three and six month period ended June 29, 2002 are not necessarily indicative of the operating results to be expected for the full year.

 

2.                              EARNINGS 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 outstanding.  The following table reconciles the denominators used in computing basic and diluted earnings per share:

 

(in thousands)		Three Months Ended				Six Months Ended
		June 29, 2002 (1)		June 30, 2001(1)		June 29, 2002(1)		June 30, 2001(1)
Weighted average common shares outstanding		14,115		14,018		14,096		13,985
Effect of dilutive stock options and warrants		—		—		—		—
		14,115		14,018		14,096		13,985

 

(1)          We reported a loss for the periods indicated.  No adjustments were made for the effect of stock options, which totaled 2,479,827 shares at June 29, 2002 and 2,149,761 shares at June 30, 2001, as the effect is antidiliutive.

 

3.                              REPORTING OF COMPREHENSIVE NET INCOME OR (LOSS)

 

In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS), No. 130 Reporting Comprehensive Income which establishes standards for the reporting and display of comprehensive income (loss) and its

 

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components in a full set of general-purpose financial statements.  Under this standard, certain revenues, expenses, gains, and losses recognized during the period are included in comprehensive income (loss), regardless of whether they are considered to be results of operations of the period.  During the three and six-month periods ended June 29, 2002 and June 30, 2001 total comprehensive loss equaled net loss as reported on the Consolidated Statements of Operations.

 

4.                              RESTRUCTURING CHARGES

 

2001 Restructuring Charges

 

In 2001, in response to the continued and prolonged downturn in the semiconductor capital equipment industry, we took the following actions:

 

During the first quarter, we announced plans to consolidate the manufacturing and operation functions performed in our Marlborough, Massachusetts facility to our St. Paul, Minnesota facility, resulting in reductions in headcount, as well as other reduction initiatives which would result in a restructuring charge in the first quarter of 2001.  This plan was later adjusted to transfer the manufacturing functions to our Penang, Malaysia facility.

 

The restructuring charge resulting from the consolidation of operations and cost reduction measures initiated in the first quarter of 2001 totaled approximately $2.3 million.  This charge principally represents employee separation costs and costs related to idle facilities over the remaining lease term, which runs through April  2003.  This restructuring affected approximately 25% of our workforce comprising a total of 73 employees principally in the areas of manufacturing and administration.  Idle facility costs included in the charge represent a percentage of the remaining rent payments, utilities and insurance costs ($1.28 million) and the impairment of certain leasehold improvements ($0.04 million).

 

During the third quarter we reduced our workforce across all functional areas by approximately 17%, resulting in a restructuring charge of $113,000.  This charge reflects severance and other benefit costs associated with this reduction. This workforce reduction affected an additional 31 employees, principally in the areas of manufacturing and engineering.  All of these costs were incurred and paid during the quarter ended September 29, 2001.

 

2002 Restructuring Charges

 

During the first quarter of 2002, we further reduced our workforce across all functional areas by approximately 25%, resulting in a restructuring charge of $323,000.  This charge reflects severance and other benefits costs associated with this reduction.  This workforce reduction affected an additional 44 employees, principally in the areas of manufacturing, sales and marketing and engineering.

 

In the second quarter of 2002, in continuing response to the downturn in the semiconductor capital equipment industry, we further reduced our workforce by 7%, resulting in a

 

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restructuring charge of $199,000.  This charge reflects severance and other benefit costs associated with the reduction, which affected 9 employees across all functional areas.

 

During the second quarter of 2002, we completed a lease settlement agreement related to our Marlborough, Massachusetts’ facility.  This agreement requires us to pay $450,000 or approximately 35% of the outstanding lease obligation, which was to run through April of 2003.  As of June 29, 2002, $350,000 remains due, which is required to be paid in full by December 15, 2002 and is included in other accrued liabilities.  As a result of this settlement, the remaining idle facility charge of  $674,000 was eliminated in the quarter ended June 29, 2002.

 

The following table summarizes these charges related to workforce and manufacturing cost reductions (in thousands):

 

		Employee Separation Costs			Idle Facility Costs			Total
Accrued restructuring costs at December 31, 2001		$	66		$	890		$	956
Restructuring charge for the quarter ended March 30, 2002		323			—			323
Utilization for the quarter ended March 30, 2002		(272		)	(167		)	(439		)
Restructuring charge for the quarter ended June 29, 2002		199			(674		)	(475		)
Utilization for the quarter ended June 29, 2002		(126		)	(49		)	(175		)
Accrued restructuring costs at June 29, 2002		$	190		$	—		$	190

 

5.                              RECENT ACCOUNTING PRONOUNCEMENTS

 

Statement of Financial Accounting Standards (SFAS) No. 141 – Business Combinations and SFAS No. 142 – Goodwill and Other Intangible Assets. In June 2001, the Financial Accounting Standards Board  (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.  SFAS No. 141 eliminated the pooling-of-interests method of accounting for business combinations after June 30, 2001.  SFAS No. 142 establishes new standards for accounting for goodwill and intangible assets.  We adopted SFAS NO. 142 on January 1, 2002 and there was no impact to our financial position or results of operations due to this adoption.

 

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

 

Statement of Financial Accounting Standards (SFAS) No. 144 – Accounting for the Impairment or Disposal of Long-Lived Assets.  In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.  SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business (as previously defined in that Opinion).  SFAS No. 144 also amends ARB No. 51, Consolidated Financial Statements, to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary.  SFAS No. 144 was effective for us on January 1, 2002 and did not have a material effect on our financial position or results of operations for the six month period ended June 29, 2002.

 

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MICRO COMPONENT TECHNOLOGY, INC.

FORM 10-Q

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF

RESULTS OF OPERATIONS AND FINANCIAL CONDITION

 

The following discussion of our results of operations and financial condition should be read together with the other financial information and condensed consolidated financial statements included in this document.  This discussion contains forward-looking statements that involve risks and uncertainties.  Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors, including those discussed in “Risk Factors” and elsewhere in this document.

 

Overview

 

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

 

The demand for our products and services is dependent upon growth in the semiconductor industry and the increasing automation needs of semiconductor manufacturers and independent test and assembly facilities.  In the fourth quarter of 2000, the semiconductor industry went into a sharp downturn, which intensified and continued throughout all of 2001 and has continued into 2002, resulting in a significant adverse impact on our business.  Although worldwide semiconductor bookings are beginning to show signs of stabilization, the return to market growth is not expected in the near term.  As disclosed in our Form 10-K for the year ended December 31, 2001, a continued or intensified market downturn might result in significant losses, charges for inventory revaluation, or asset impairment or restructuring charges.  Consequently, as a result of this downturn, in the first and second quarters of 2002, we further reduced our workforces across all functional areas.  This reduction affected approximately 25% of our workforce in the first quarter of 2002 and 7% of our workforce in the second quarter of 2002.  These actions resulted in restructuring charges of $323,000 in the first quarter of 2002 and $199,000 in the second quarter of 2002.  These charges reflect severance and other benefits costs associated with this reduction.  This workforce reduction affected  44 employees in the first quarter and 9 employees in the second quarter, principally in the areas of manufacturing, sales and marketing and engineering.

 

Critical Accounting Policies

 

Revenue Recognition

 

In December 1999, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 101 (SAB 101) – Revenue Recognition in Financial Statements.  SAB 101 establishes the SEC’s interpretation that if uncertainty exists about customer acceptance of a product, revenue should not be recognized until acceptance occurs.  In SAB 101, the SEC stated that customer acceptance provisions may be included in a contract to enforce a customer’s right to (1) test the delivered product, (2) require the seller to perform additional services subsequent to delivery of an initial product or performance of an initial service, such as a seller is required to

 

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install or activate delivered equipment, or (3) identify other work necessary to be done before accepting the product.  The SEC presumes that such contractual customer acceptance provisions are substantive, bargained-for terms of an arrangement.  Accordingly, when such contractual customer acceptance provisions exist, the SEC generally believes that the seller should not recognize revenue until customer acceptance occurs or the acceptance provisions lapse.

 

We adopted SAB 101 in the fourth quarter of 2000.  Under SAB 101, we recognize revenue upon shipment, as our terms are FOB shipping point, for established equipment products that have previously satisfied existing customer’s performance specifications and that provide for full payment tied to shipment.  Revenue for products that have not previously satisfied customer performance specifications or from sales where all or a portion of customer payment is based upon acceptance are only recognized upon customer acceptance.  As such, in periods of increasing shipments, revenues will be deferred if the shipments are for new customers, new products or the payment terms are tied to acceptance criteria.  Consequently, if these conditions exist, we may report revenue levels that are not reflective of actual shipment growth rates.  Conversely, in periods of decreasing shipments, we potentially could recognize revenues related to shipments made in prior periods.  Consequently, if these conditions exist, we may report revenue levels that are greater than actual shipments.

 

Allowance for Doubtful Accounts

 

We record a provision for doubtful accounts based on specific identification of our accounts receivable. This involves a degree of judgement based on discussion with our internal sales and marketing groups, our customer base and the examination of the financial stability of our customers.  There can be no assurance that our estimates will match actual amounts ultimately written off.  During periods of downturn in the market for semiconductor capital equipment  or economic recession, a greater degree of risk exists concerning the ultimate collectability of our accounts receivable due to the impact that these conditions might have on our customer base.

 

Valuation of Inventories

 

Our inventories are stated at the lower of cost or market.  Cost is determined by the first-in, first-out (“FIFO”) method.  We maintain a standard costing system for our inventories.  Assumptions with respect to direct labor utilization, standard direct and indirect cost rates, vendor pricing and utilization of factory capacities are formulated in the development of our standard costing system.  Sudden or continuing changes in the semiconductor capital equipment market affecting our shipments can result in significant production variances from our standard rates. These variances directly impact our gross profit performance and may cause variability in gross profits results from reporting period to reporting period.  Our labor and overhead rates are set for production rates that match typical market conditions.  Production variances are charged to cost of sales each quarter as incurred. Material standards are based upon normal purchase volumes.  Purchase price variances are charged to costs of sales each quarter as incurred.

 

Provisions to reduce inventories to the lower of cost or market are made based on a review of excess and obsolete inventories, estimates of future sales and the related value of component

 

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parts, which is based on inventory levels in excess of anticipated 12-month demand for each specific product type.  Significant assumptions with respect to market trends and customer product acceptance are utilized to formulate our 12-month demand schedule.  Sudden or continuing downward changes in the semiconductor capital equipment market may cause us to record additional inventory revaluation charges in future periods.

 

Accrued Warranties

 

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

 

Results of Operations for the Three Months Ended June 29, 2002 and June 30, 2001

 

Net sales for the three months ended June 29, 2002, decreased $3.5 million or 47.6% to $3.9 million compared to $7.4 million for the three months ended June 30, 2001.  Product acceptance requirements related to product and customer mix resulted in a minor net decrease to revenues over shipments in second quarter of 2002, while these same factors caused a $3.7 million increase to revenues over shipments in the second quarter 2001.  Current year product revenues, especially capacity related singulated device handler products, were severely impacted by the downturn in the semiconductor capital equipment market. Sales of our Tapestry and Smart Solutions strip-based products increased  9% or $0.2 million over the prior year period, while sales of singulated device handler products decreased $4.4 million. We expect net sales to continue to be adversely impacted by the market downturn into the foreseeable future.

 

Gross profit for the second quarter of 2002 decreased by $1.8 million to $1.4 million, or 36.7% of net sales, from $3.2 million, or 43.0% of net sales, for the comparable period in the prior year.  The decrease in gross margin in the current year period primarily resulted from unabsorbed excess production costs associated with the industry downturn, and, in particular, excess production costs related to our singulated products.  We expect gross margins to continue to be adversely impacted by the market downturn, partially offset by the benefits of the restructuring steps we initiated in the first quarter of 2001 and continuing into the first and second quarters of 2002.

 

Selling, general and administrative expense in the second quarter of 2002 was $2.4 million, or 62.9% of net sales, compared to $2.9 million, or 38.7% of net sales for the second quarter of 2001. The decrease in expense for the current year period is a result of the cost reduction measures initiated in 2001 and 2002, and a decrease in direct selling costs related to the decrease in sales. The increase in selling, general and administrative expense as a percentage of net sales in the current year is primarily attributed to the decreased sales base in the current year period.

 

Research and development expense for the second quarter of 2002 was $1.0 million, or 27.0% of net sales compared to $2.0 million, or 27.2% of net sales in the second quarter of 2001.  The

 

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decrease in expense for the current year period is a result of the cost reduction measures initiated in 2001and 2002.

 

Amortization expense totaled $0.9 million, or 11.9% of net sales for the three months ended June 30, 2001, versus $0.0 million for the second quarter of 2002.  This decrease of amortization expense in the current year quarter is directly attributable to the write-off of impaired goodwill and other intangible assets, which were recorded in the third quarter of 2001.

 

The restructuring benefit totaled $0.5 million or 12.2% of net sales.  This net benefit resulted from a lease settlement agreement which was reached during the second quarter of 2002.  This agreement allows us to exit the existing lease at our Marlborough, Massachusetts facility. As a result of this agreement, the remaining idle facility charges of $674,000 related to this lease have been eliminated.  This benefit was patially offset by a $199,000 charge related to a 7% reduction of our workforce across all functional areas in the second quarter of 2002, reflecting severance and other benefits costs associated with this reduction.  This workforce reduction affected 9 employees, principally in the areas of manufacturing, sales and marketing and engineering.

 

Interest income for the first quarter of 2002 was $31,000 compared to $41,000 in the first quarter of 2001.  This decrease resulted from the decrease in investment in interest-bearing cash and equivalents.  Interest expense and other totaled $293,000 in the current year’s quarter, compared to ($4,000) for the comparable period in the prior year.  The increase in interest expense resulted from the coupon rate associated with our 10% Senior Subordinated Notes, which were issued in December of 2001, and the amortization of debt issuance costs associated with the note offering.

 

Net loss for the quarter ended June 29, 2002 was $1.8 million or $0.13 per share, as compared to a net loss of $2.5 million, or $0.18 per share in the prior year period.

 

Results of Operations for the Six Months Ended June 29, 2002 and June 30, 2001

 

Net sales for the six months ended June 29, 2002, decreased $9.4 million or 56.1% to $7.3 million compared to $16.7 million for the six months ended June 30, 2001.  Product acceptance requirements related to product and customer mix resulted in a net increase to revenues of $2.1 million over shipments for the 2002 six month period  compared to a net increase to revenues of $4.9 million over shipments for the comparable prior year period.  Current year product revenues, especially capacity related singulated device handler products, were severely impacted by the downturn in the semiconductor capital equipment market.  We expect net sales to continue to be adversely impacted by the market downturn into the foreseeable future

 

Gross profit for the first six months of 2002 decreased by $4.1 million to $2.7 million, or 36.8% of net sales, from $6.8 million, or 40.9% of net sales, for the comparable period in the prior year.  The decrease in gross margin in the current year period primarily resulted from unabsorbed excess production costs associated with the industry downturn, and, in particular, excess production costs related to our singulated products.  We expect gross margins to continue to be adversely impacted by the market downturn, partially offset by the benefits of the restructuring steps we initiated in the first quarter of 2001 and continuing into the first and second quarters of 2002.

 

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Selling, general and administrative expense for the first six months of 2002 was $4.7 million, or 64.1% of net sales, compared to $6.2 million, or 36.8% of net sales for the first six months of 2001. The decrease in expense for the current year period is a result of the cost reduction measures initiated in 2001 and 2002, and a decrease in direct selling costs related to the decrease in sales. The increase in selling, general and administrative expense as a percentage of net sales in the current year is primarily attributed to the decreased sales base in the current year period.

 

Research and development expense for the first six months of 2002 was $2.4 million, or 32.1% of net sales, compared to $4.9 million, or 29.3% of net sales for the first six months of 2001.   The decrease in expense for the current year period is a result of the cost reduction measures initiated in 2001and 2002.

 

Amortization expense totaled $1.8 million, or 10.5% of net sales for the six months ended June 30, 2001, versus $0.0 million for the first six months of 2002.  This decrease of amortization expense for the first six months of 2002 is directly attributable to the write-downs of impaired goodwill and other intangible assets, which were recorded in the third quarter of 2001.

 

The restructuring benefit totaled $0.2 million or 2.1% of net sales.  This net benefit resulted from a lease settlement agreement which was reached during the second quarter of 2002.  This agreement allows us to exit the existing lease at our Marlborough, Massachusetts facility. As a result of this agreement, the remaining idle facility charges related to this lease, have been eliminated. This benefit was offset by a charge related to a 7% reduction of our workforce across all functional areas in the second quarter of 2002 and a 25% reduction of our workforce in the first quarter of 2002, reflecting severance and other benefits costs associated with these reductions.  This workforce reduction affected 9 employees in the second quarter of 2002 and 44 employees in the first quarter of 2002, principally in the areas of manufacturing, sales and marketing and engineering.

 

Interest income for the first six months of 2002 was $76,000 compared to $153,000 for the comparable in the  prior year.  This decrease resulted from the decrease in investment in interest-bearing cash and equivalents.  Interest expense and other totaled $586,000 in the current year’s quarter, compared to ($17,000) for the comparable period in the prior year.  The increase in interest expense resulted from the coupon rate associated with our 10% Senior Subordinated Notes, which were issued in December of 2001, and the amortization of debt issuance costs associated with the note offering.

 

Net loss for the six-month period ended June 29, 2002 was $4.7 million or $0.33 per share, as compared to a net loss of $8.2 million, or $0.58 per share in the prior year period.

 

Liquidity and Capital Resources

 

The net loss and reductions in other accrued liabilities were the primary uses of cash for the six month period ended June 29, 2002.  The net loss and reductions in accounts payable and other accrued liabilities were the primary uses of cash in first six months of the prior year.  Cash used in operations was $5.0 million for the six month period ended June 29, 2002 and $9.7 million in the comparable prior year period.

 

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We record provisions for doubtful accounts based on specific identification of our accounts receivable.  We did not record any provisions for doubtful accounts in the second quarters of 2001 or 2002.

 

Capital expenditures totaled $73,000 in the six months ended June 29, 2002, versus $134,000 in the comparable period of 2001.  Capital purchases were for primarily for software and computer equipment in both the current and prior year periods.

 

At June 29, 2002, we had cash and cash equivalents of $6.3 million, a current ratio of 2.4 and working capital of $8.3 million.  At December 31, 2001, we had cash and cash equivalents of $11.1 million, a current ratio of 2.9 and working capital of $12.9 million.

 

Our anticipated capital expenditure needs for the remainder of 2002 are expected to be less than $0.5 million and concentrated in development of additional products and upgrading our management information systems.  We believe that cash and cash equivalents on hand at June 29, 2002 are sufficient to finance and sustain our continuing operations at the projected level through at least 2002.  However, the impact of the continuation of the severe downturn in the semiconductor capital equipment market, one or more additional business acquisitions, or unforeseen changes in market conditions could cause us to seek additional financing sooner.  We believe that we will be able to raise additional capital and/or negotiate a working capital line of credit at terms acceptable to us if required, but no assurance can be made that such financing will be available if needed.  We may acquire other companies, product lines or technologies that are complementary to our business, and our working capital needs may change as a result of such acquisitions.

 

On May 20, 2002, the Company was notified by Nasdaq that it failed to meet the standards for continued listing of the Company’s Common Stock on the Nasdaq National Market.  On August 8, 2002, the Company had a hearing before Nasdaq at which it presented a plan to meet those standards, and requested Nasdaq to suspend its action to give the Company time to complete its plan.  Nasdaq is considering the request and is expected to respond in approximately two weeks after the hearing.  If the Common Stock loses its National Market designation, Nasdaq can designate the Common Stock for trading on the SmallCap Market or the Common Stock will  trade on the OTC Bulletin Board.  The Note Purchase Agreement between the Company and the purchasers of the Company’s 10% Senior Subordinated Convertible Notes, which was filed as Exhibit 10W to the Company’s 2001 Form 10-K, contains a covenant requiring the Company to take all action necessary to continue the listing of the Common Stock on the Nasdaq National Market or any relevant market or system.  Regardless of the action taken by Nasdaq, management believes that the Company will remain in compliance with this covenant.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The vast majority of our transactions are denominated in U.S. dollars; as such, fluctuations in foreign currency exchange rates have historically had little impact on us.  Inflation has not been a significant factor in our operations in any of the periods presented, and it is not expected to affect operations in the future.  At June 29, 2002, all of our outstanding long-term debt carries interest at a fixed rate. There is no material market risk relating to our long-term debt.

 

IMPACT OF ACCOUNTING STANDARDS

 

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.  SFAS No. 141 eliminated the pooling-of-interests method of accounting for business combinations after June 30, 2001.  SFAS No. 142 establishes new standards for accounting for goodwill and intangible assets.  We adopted SFAS No. 142 on January 1, 2002 and there was no impact to our financial position or results of operations due to this adoption.

 

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations.  SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs.  SFAS No. 143 applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except

 

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for certain obligations of lessees.  SFAS No. 143 amends SFAS No. 19, Financial Accounting and Reporting by Oil and Gas Producing Companies.  SFAS No. 143 is effective for us on January 1, 2003.  We are currently assessing what impact, if any, SFAS No. 143 will have on our financial position or results of operations.

 

In August 2001, the FASB issued SFAS No. 144,  Accounting for the Impairment or Disposal of Long-Lived Assets.  SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business (as previously defined in that Opinion).  SFAS No. 144 also amends ARB No. 51, Consolidated Financial Statements, to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary.  SFAS No. 144 was effective for us on January 1, 2002 and did not have a material effect on our financial position or results of operations for the six month period ended June 29, 2002.

 

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) the prolonged or intensified downturn in the semiconductor market which often has a disproportionately negative impact on manufacturers of semiconductor capital equipment, and which could cause us to continue to incur significant cash losses decreasing our cash and expose us to potential further charges for restructuring, excess and obsolete inventory and/or impairment of assets; (2) the market for our products is highly competitive throughout the world, primarily from manufacturers in the United States, Europe and Asia, and many of our competitors are considerably larger and have considerably greater financial resources than we do which may allow them to develop superior or lower priced products; (3) rapid changes in technology and in tester and handler products, which we must respond to successfully in order for our products to avoid becoming noncompetitive or obsolete; (4) customer acceptance of our new products, including the strip-based Tapestry handling systems and Smart Solutions products, and other singulated device handler products in which we have invested significant amounts of inventory; (5) possible loss of any of our key customers, who account for a substantial percentage of our business; (6) the possible adverse impact of competition in markets which are highly competitive; (7) the possible adverse impact of economic or political changes in markets we serve;  and (8) other factors detailed from time to time in our SEC reports, including but not limited to the discussion in the Management’s Discussion & Analysis included in Form 10-K for the year ended December 31, 2001.  All forecasts and projections in this report are “forward-looking statements,” and are based on our current expectations of our near-term results, based on current information available pertaining to us, including risk factors discussed above.  Actual results could differ materially.

 

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MICRO COMPONENT TECHNOLOGY, INC.

FORM 10-Q

PART II.  OTHER INFORMATION

 

Item 4.  Submission Of Matters To A Vote Of Security Holders

 

(a)     The Company’s annual meeting of stockholders was held on June 27, 2002.

 

(b)     The following persons were elected directors of the Company to serve for a term of one year:

 

Roger Gower	D. James Guzy	Donald Kramer
David M. Sugishita	Donald R VanLuvanee	Patrick Verderico
Dr. Sheldon Buckler

 

Item 5.  Other Information

 

Restructuring Charges

 

During the first quarter of 2002, in response to the continued and prolonged downturn in the semiconductor capital equipment industry, we reduced our workforce across all functional areas by approximately 25%, resulting in a restructuring charge of $323,000.  This charge reflects severance and other benefits costs associated with this reduction.  This workforce reduction affected 44 employees, principally in the areas of manufacturing, sales and marketing and engineering.

 

During the second quarter of 2002, we further reduced our workforce by 9 positions or 7% across all functional areas resulting in a restructuring charge of $199,000.  This charge reflects severance and other benefits costs associated with this reduction.

 

During the second quarter of 2002, we completed a lease settlement agreement related to our Marlborough, Massachusetts’s facility.  This agreement requires us to pay $450,000 or approximately 35% of the outstanding lease obligation, which was to run through April of 2003.  As of June 29, 2002, $350,000 remains due, which is required to be paid in full by December 15, 2002 and is included in other accrued liabilities.  As a result of this settlement, the remaining idle facility charge of  $674,000 was eliminated in the quarter ended June 29, 2002.

 

 

Item 6.  Exhibits and Reports on Form 8-K

 

(a)          Reports on Form 8-K

 

No reports on Form 8-K were filed during the quarter ended June 29, 2002.

 

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MICRO COMPONENT TECHNOLOGY, INC.

FORM 10-Q

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

	Micro Component Technology, Inc.
	Registrant
Dated:   August 13, 2002	By:	/s/ Roger E. Gower
	Roger E. Gower
	President and Chief Executive Officer
	And
Dated:   August 13, 2002	By:		/s/ Thomas P. Maun
	Thomas P. Maun
	Chief Financial Officer
	Chief Accounting Officer

 

CERTIFICATION

 

The undersigned hereby certify that this report complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and that the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated:   August 13, 2002	By:	/s/ Roger E. Gower
	Roger E. Gower
	President and Chief Executive Officer
	And
Dated:   August 13, 2002	By:	/s/ Thomas P. Maun
	Thomas P. Maun
	Chief Financial Officer
	Chief Accounting Officer

 

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