-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VDkRDcF4pMwk+WiyECwqaXWicUeVxy/Y2R8zmL9c4PTXbKTCXxEia0MqYpYFUmgb ZlM5USdCOH3jefY0QX6AUQ== 0000897101-99-001202.txt : 19991230 0000897101-99-001202.hdr.sgml : 19991230 ACCESSION NUMBER: 0000897101-99-001202 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990626 FILED AS OF DATE: 19991229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICRO COMPONENT TECHNOLOGY INC CENTRAL INDEX KEY: 0000911149 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 410985960 STATE OF INCORPORATION: MN FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-22384 FILM NUMBER: 99783242 BUSINESS ADDRESS: STREET 1: 2340 W COUNTY RD C CITY: ST PAUL STATE: MN ZIP: 55113-2528 BUSINESS PHONE: 6124825100 MAIL ADDRESS: STREET 1: 2340 W COUNTY RD C CITY: ST PAUL STATE: MN ZIP: 55113-2528 10-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A AMENDMENT NO. 2 --------------- [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.......................................... 13 ITEM 7. Management's Discussion and Analysis of Results of Operations and Financial Condition...................................... 15 ITEM 8. Financial Statements and Supplementary Data...................... 20 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................................... 20 PART III ITEM 10. Directors and Executive Officers of the Registrant.............. 20 ITEM 11. Executive Compensation.......................................... 20 ITEM 12. Security Ownership of Certain Beneficial Owners and Management................................................... 21 ITEM 13. Certain Relationships and Related Transactions.................. 21 PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................................................... 21 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 4 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. 5 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 through frequent visits to customers and service support 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 since manufacturers tend to standardize their production 8 processes through consistency in production equipment used, and are reluctant to change equipment suppliers once they have made their initial equipment selection. 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 9 Company's personnel, the rapid development of new products, frequent product enhancements, the Company's name recognition and ongoing reliable product maintenance and support. The Company has a number of patents, none of which it considers material to its business. The Company has not maintained patent protection outside of the United States on all of its current patents. The Company has filed a patent application concerning the temperature control aspects of certain of its handlers for which the Company may pursue protection under the patent laws of certain foreign countries. 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. 10 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. 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 11 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. 12 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. 13 (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)
14 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 $3.2 million or 66% over the prior year. Sales of these new products represent 53% of total net sales in the current year compared to 29% in the prior year. The Company's older, more mature products declined by $5.0 million or 42% compared to the prior year. The mature products are made up of the 4610 handler, Workstation 2000 and other handler and test products. As detailed in Note 10 of Notes to Consolidated Financial Statements, sales increased year over year in the Far East ($2.1 million), but decreased comparatively in the United States ($2.7 million) and Europe ($1.2 million). 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 15 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. 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 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 unusual 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. The cost reduction initiatives primarily included a planned decrease in the Company's headcount and a change in some customer sales coverage areas from independent sales representatives to the Company's direct sales employees, reducing sales commissions by approximately $0.6 million. 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. During fiscal 1999 the majority of the Company's R&D projects moved into the advanced stages of development, requiring less material and labor. Compared to fiscal 1998, personnel related costs decreased $0.6 million and material costs decreased $0.2 million. 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. The cost reduction initiatives, implemented beginning in the fourth quarter of fiscal 1998 and targeted to achieve approximately $0.5 million in quarterly savings beginning in fiscal 1999, primarily included a reduction in the Company's headcount, changes in some customer sales coverage areas from independent sales representatives to the Company's direct sales employees - resulting in reduced sales commissions, consolidation of service office locations, and changes to travel and discretionary spending practices. 16 Of the $2.3 charges, $2.0 million represented a provision for excess and obsolete inventory, reflected in cost of sales, comprised of approximately $1.5 million for excess 7632 product , $0.2 million for the 8000 and 3800 products, with the balance related to obsolete and excess kit inventory across the remaining product lines. After applying these charges, the net carrying value of the 7632 product line was approximately $0.6 million and the net carrying value of the 8000 and 3800 products was $0. The Company initiated marketing activities to identify alternative customer applications and markets for the 7632 product, and conducts periodic reviews of excess and obsolete inventory for disposal. The remainder of the charges, primarily impacting operating expenses, related mainly to cost reduction activities initiated by the Company, as described above. 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. 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. 17 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. Borrowings bear interest at 1.5% over the bank's prime rate of 7.75% at June 26, 1999. 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 at least the next twelve months. Beyond fiscal year 2000, management believes that these resources, supplemented by anticipated cash flows from operations will continue to sustain the Company's continuing operations through fiscal year 2002, the period covered by the Company's current strategic plan, but that one or more additional business acquisitions or unforseen changes in market conditions could require the Company to seek additional financing. 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. 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 18 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 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 19 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 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. 20 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. 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, 19967................................. 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) 21 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) - -------------------------------------------------------------------------------- (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. 22 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 Compre- Other Par Paid-In hensive 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. STOCK-BASED COMPENSATION In fiscal 1997, the Company adopted Statement on Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." As permitted by SFAS No. 123, the Company has elected to F-7 continue following the guidance of APB No. 25 for measurement and recognition of stock-based transactions with employees and non-employee directors. 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. Stock-based transactions with non-employees are accounted for in accordance with SFAS No. 123. 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 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 as well as from loss carryforwards. The valuation allowance for deferred income tax benefits is determined by the Company based upon the expectation of whether the benefits are more likely than not to be realized. 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 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 F-8 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. 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 ======== ======== F-9 Inventory balances are shown net of inventory reserves of $4.0 million and $4.4 million at fiscal year end 1999 and 1998, respectively. 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. 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: F-10 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 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. F-11 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. Shares subject to options under these plans during fiscal year 1997, 1998 and 1999 were as follows: F-12 WEIGHTED AVERAGE EXERCISE PRICE PER OPTIONS SHARES PRICE RANGE SHARE ------- ------ ----------- ----- Outstanding June 29, 1996 850,500 $2.00 to $7.50 $3.00 Granted (fair value $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 (fair value $1.27 per share) 349,000 $1.563 to $4.813 $3.62 Exercised (1) (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 (fair value $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 (1) Of the 20,000 shares exercised, 7,250 shares were surrendered in a cashless exercise as provided for in the terms of the option grant. 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 Shares Issue Date Price Expiration Date ------- -------------- -------- ----------------- 169,807 July 22, 1992 $3.125 December 31, 1999 30,000 March 5, 1993 $4.00 December 31, 1999 18,500 June 1, 1993 $5.00 December 31, 1999 10,000 July 9, 1993 $5.00 December 31, 1999 10,000 August 1, 1993 $5.00 December 31, 1999 30,000 July 14, 1994 $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 SIGNATURE 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 December 28, 1999. MICRO COMPONENT TECHNOLOGY, INC. By: /s/ Jeffrey S. Mathiesen ---------------------------------------- Jeffrey S. Mathiesen Vice President of Finance/ Administration, Chief Financial Officer, Treasurer 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 with original Form 10-K) 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 with original Form 10-K) 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. S-2 (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 EX-23 2 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No.'s 33-85766, 33-93100 and 33-37641 of Micro Component Technology, Inc. of our report dated August 17, 1999 (September 18, 1999 as to the second paragraph of Note 11), on the consolidated financial statements of Micro Component Technology, Inc. appearing in this Annual Report on Form 10-K/A of Micro Component Technology, Inc. for the year ended June 26, 1999. December 28, 1999 Minneapolis, Minnesota EX-27 3 FINANCIAL DATA SCHEDULE
5 12-MOS JUN-26-1999 JUN-26-1999 1,927 0 3,596 (146) 3,616 9,270 3,709 (3,036) 9,990 3,005 0 0 0 74 6,878 9,990 15,171 15,171 7,539 7,539 9,079 0 (67) (1,466) 0 (1,466) 0 0 0 (1,466) (0.20) (0.20)
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