The increasing demand for advanced electronics, including data and telecommunications equipment, consumer electronics, and wireless applications, has driven the demand for smaller, faster, more complex and less expensive semiconductor devices, or integrated circuits. According to the Semiconductor Industry Association, worldwide semiconductor sales totaled $166 billion in 2003 and are expected to grow to $220 billion in 2006. In response to these demands, semiconductor device manufacturers are requiring that OEMs improve current and develop new manufacturing process technologies to increase throughput, lower manufacturing costs, and produce more advanced devices. These market forces have created an increase in the demand for next generation semiconductor manufacturing equipment designed to meet the growing demands of today’s advanced applications. According to Gartner Dataquest, worldwide sales of atmospheric tool automation, which includes interfaces, robots, and modules, used in semiconductor manufacturing equipment totaled $301 million in 2003 and is expected to peak at approximately $558 million in 2006 before declining in the next industry down cycle to approximately $400 million in 2007.

The manufacturing process for semiconductors can generally be divided into two phases. The first phase, or front end, of the manufacturing process involves forming hundreds or thousands of integrated circuits by selectively depositing and removing layers of materials on the surface of a 200mm or 300mm silicon wafer in a tightly controlled environment called a process chamber. The second phase, or back end, of the manufacturing process involves testing, assembling and packaging the devices for their ultimate inclusion in electronic systems.

The Company collaborates with YEC on the design and development of automated wafer handling components for the semiconductor equipment market. The Company primarily offers Selective Compliant Assembly Robot Arm, or SCARA, robots. The Company’s robots typically have three to five axes of motion and are manufactured in Japan by YEC. They are designed for reliability and highly repeatable motion in horizontal planes. The Company offers a number of different SCARA type robots, including single- and dual-arm models, and several innovative models which feature two wafer-gripping end effectors attached to a single arm. The Company also can provide SCARA robots that are compatible with wet environments and are chemical resistant, and others that can be used to flip the wafer upside down for backside processing.

The Company’s robots can be mounted to linear tracks to allow them to rapidly move horizontally over distances longer than the reach of the robots themselves. The Company offers two types of linear tracks for use with its robots. The DX series tracks use ballscrew drive technology for short- to medium-stroke applications. The LX series tracks use YEC’s proprietary linear motor drive technology for long-stroke applications. LX series tracks are designed for increased speed, reliability, and reduced vibration and noise.

Aligners are devices that rotate a wafer about its center for the purpose of positioning identifying marks or features at specific angular positions. Some aligners are also used to find the true center of the wafer for improved placement by the robot. The Company offers several different application-specific YEC aligners. The Company offers aligners with vacuum gripping technology for both 200mm and 300mm wafers. The Company also offers a model that is capable of aligning both 200mm and 300mm wafers by making mechanical adjustments controlled with software.

End effectors are the part of the robot that holds the wafer. End effectors typically come in two types — vacuum-gripping and edge-gripping. The Company’s robots are compatible with both types, and it offers both types of end effectors to its customers. End effectors are often provided by YEC along with the robot.

The Company designs, manufactures and integrates equipment front-end modules, or EFEMs, that are sub-systems of semiconductor process equipment. The Company’s EFEMs may contain some or all of the following subcomponents: frame and panels, comprising a mini-environment enclosure; one or more robots; aligner; linear tracks; robot controller with firmware and software; one or more loadports; distribution sub-systems for gases, fluids, air, vacuum, and electricity; fan-filter unit; and chemical vapor filters.

Gross profit increased $1.3 million, or 214.9%, to $1.9 million for the three months ended May 31, 2004 from $0.6 million for the three months ended May 31, 2003.

Research and development costs were $0.7 million in the three months ended May 31, 2004 and $0.7 million in the three months ended May 31, 2003.

Interest expense was essentially unchanged during the three months ended May 31, 2004 compared to the three months ended May 31, 2003.

Net loss decreased $0.6 million, or 30.1%, to $1.4 million in the three months ended May 31, 2004 from $2.0 million in the three months ended May 31, 2003.