Semiconductors are essential components in a broad range of communications, computing and other electronic products. According to Gartner Dataquest, an independent market research firm, worldwide semiconductor sales totaled $177.5 billion in 2003 and are expected to grow to $305.0 billion in 2008, representing a compound annual growth rate of 11.4%. Many electronic products require increasingly complex semiconductors that are smaller and higher-performing, integrate more features and functions, and are less expensive to produce than previous generations of semiconductors. These requirements drive certain trends in semiconductor packaging and testing.

Historically, most semiconductor companies designed, fabricated, packaged and tested their own semiconductors. As the cost and skills required for designing and manufacturing complex semiconductors have increased, the semiconductor industry has disaggregated, with companies concentrating on one or more individual stages of the semiconductor development and production process. This trend has fueled the growth of “fabless” semiconductor companies that focus on semiconductor design and marketing and that outsource their fabrication, testing and packaging requirements to independent companies. Similarly, the availability of technologically advanced independent manufacturing services has encouraged IDMs that traditionally relied on in-house semiconductor manufacturing capacity to increasingly outsource their manufacturing requirements to independent semiconductor manufacturing companies.

Gartner Dataquest forecasts that the total worldwide semiconductor packaging and test market will grow from $29.6 billion in 2003 to $50.3 billion in 2008, representing a compound annual growth rate of 11.2%. Gartner Dataquest also forecasts that the outsourced semiconductor assembly and test services market will grow from $10.2 billion in 2003 to $24.8 billion in 2008, representing a compound annual growth rate of 19.4%, and, based on these estimates, forecasts that the percentage of semiconductor assembly and test services provided by outsource firms will increase from 34.5% of the total market in 2003 to 49.4% in 2008.

The Company is a leading independent provider of prototype and pre-production test services in the United States. These services, offered at the Company’s facilities in Santa Clara, California and Austin, Texas that are close to major U.S. centers for semiconductor design, are typically used by its customers during their semiconductor development phase. The Company works closely with its customers to develop customized test software that comprehensively tests the functionality, and compliance to specifications, of their semiconductors. The Company also converts test programs from one hardware platform to another. The Company tests wafers and packaged semiconductors to verify compliance with a variety of different operating specifications, including functionality, frequency, voltage, timing and temperature range. The Company’s main areas of test expertise are logic, mixed-signal and RF. Products that the Company tests for its customers include graphics semiconductors, network processors, RF baseband semiconductors, RF transceivers and wireless local area network, or LAN, products. The Company designs and manufactures burn-in ovens as part of its semiconductor support products and services.

The Company offers mass production assembly and test services at its Philippines facility. The Company assembles a variety of MCPs and small outline packages. The Company’s mass production assembly and test services division focuses on CSP and MCP assemblies, which are relatively high margin services.

The Company provides various semiconductor support products and services, including the design, manufacture and sale of burn-in boards and ovens used in reliability screening and stress testing procedures, quick-turn contract manufacturing, and PCB fabrication services. These products and services are offered at the Company’s facility in San Jose, California. The Company provides its customers with customized burn-in boards when they engage it to provide test services during the prototype and pre-production test phase. The Company also supplies burn-in boards and ovens to its clients when their products go into mass production, regardless of whether it subsequently provides the mass production test services. During the prototype stage, the Company provides small volumes of PCBs and application kits for testing purposes to ensure that customers’ products work prior to mass production.

Cost of revenues increased to $25.2 million in the six months ended June 30, 2004 from $21.7 million in the six months ended June 30, 2003, representing an increase of 16.0%.

Gross income increased to $5.8 million in the six months ended June 30, 2004 from $5.0 million in the six months ended June 30, 2003.

Operating income was unchanged at $0.5 million for the six months ended June 30, 2003 and 2004.

Net interest expense was $0.9 million for the six months ended June 30, 2003 and 2004.

Net loss decreased to $0.2 million in the six months ended June 30, 2004 from $0.4 million in the six months ended June 30, 2003.