-----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, MYJF9r51uByh0TAtFpWedrD3jtAAfT8x1rYNEBKAjtHAUt13fMdfycM1xA83Ln/m /EZQLwwyUJwGXQaDAd1IIw== 0000898430-98-003417.txt : 19980929 0000898430-98-003417.hdr.sgml : 19980929 ACCESSION NUMBER: 0000898430-98-003417 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980626 FILED AS OF DATE: 19980928 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIO TECH INTERNATIONAL CENTRAL INDEX KEY: 0000732026 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 952086631 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-13914 FILM NUMBER: 98715857 BUSINESS ADDRESS: STREET 1: 355 PARKSIDE DR CITY: SAN FERNANDO STATE: CA ZIP: 91340 BUSINESS PHONE: 8183659200 MAIL ADDRESS: STREET 1: 355 PARKSIDE DRIVE CITY: SAN FERNANDO STATE: CA ZIP: 91340 10-K 1 FORM 10-K =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 26, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-13914 TRIO-TECH INTERNATIONAL (Exact name of Registrant as specified in its Charter) California 95-2086631 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 355 Parkside Drive San Fernando, California 91340 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number: 818-365-9200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Name of each exchange Title of each class on which registered Common Stock, no par value Nasdaq Small Cap Indicate by check mark whether the registrant (1) has filed all reports required to be filed with the Commission by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Based on the closing sales price on June 26, 1998, the aggregate market value of the voting stock held by nonaffiliates of the registrant was $4,781,435. Number of shares of common stock outstanding as of August 26, 1998 is 2,744,396 Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in the definitive proxy statement incorporated by reference in Part III of this Form 10-K. [_] DOCUMENTS INCORPORATED BY REFERENCE The number of pages in this filing is 35. The Exhibit Index begins on page 15. =============================================================================== -1- TRIO-TECH INTERNATIONAL INDEX TO CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE
PAGE ---------- FORM 10-K COVER 1 INDEX 2 Part I. 3 Item 1 Business 3 Item 2 Properties 9 Item 3 Legal Proceedings 10 Item 4 Submission of matters to a vote of security holders PART II 11 Item 5 Market for registrants common stock 11 Item 6 Selected financial data 12 Item 7 Management's discussion and analysis of financial condition and results of operations 13 Item 8 Financial statements and supplementary data 15 Item 9 Disagreements on accounting and financial disclosure 15 PART III 15 PART IV 15 Item 14 Exhibits, financial statement schedules and reports on form 8-k 15 SIGNATURE 18 EXHIBITS Independent Auditors' Report 19 Consolidated Balance Sheets as of June 26, 1998 and June 27, 1997 20 Consolidated Statements of Income for the Years Ended June 26, 1998, June 27, 1997 and June 28, 1996 21 Consolidated Statements of Shareholders' Equity for the Years Ended June 26, 1998, June 27, 1997 and June 28, 1996 22 Consolidated Statements of Cash Flows for the Years Ended June 26, 1998, June 27, 1997 and June 28, 1996 23 Notes to Condensed Consolidated Financial Statements 25
-2- PART I ITEM 1 - BUSINESS - ----------------- GENERAL - ------- Trio-Tech International designs, manufactures and sells equipment and systems used in the manufacture and testing of semiconductor devices and electronic components. In addition the Company operates test facilities in the United States, Europe and Southeast Asia which provide semiconductor testing services to component manufacturers and users. The Company's wet process equipment and temperature controlled chucks are used to manufacture and test semiconductor wafers and other microelectronic substrates in the "front-end" of the manufacturing process. The Company's centrifuges, leak detectors, HAST systems, burn-in systems and rate of turn tables are used primarily at the "back-end" of the semiconductor manufacturing process to test finished semiconductor devices and electronic components. Trio-Tech operates seven test facilities, one in the United States, one in Europe and five in Southeast Asia. These provide customers a comprehensive range of testing services, such as burn-in and life testing, for finished or packaged components. Many manufacturers of semiconductors find it cost effective to sub- contract these services to third parties. Trio-Tech operations in Europe and Southeast Asia have active distribution operations. These provide sales and support for Trio-Tech's equipment in these regions and also distribute and support additional products from other manufacturers. These products are complementary with the Company's products and are used by the semiconductor and electronics industries. Trio-Tech is actively pursuing a strategic plan for growth which is designed to increase the Company's addressable market by expanding its product offerings with equipment and services for the front-end of the manufacturing process to complement its traditional niche in the back-end. The Company plans to achieve this goal through a combination of new product development and acquisitions of complementary products and companies. The acquisition of Universal Systems, a leader in the design and manufacture of wet process equipment, in November 1997, was an important step in this direction. Another is the continuing development of Trio-Tech's temperature controlled chucks and the development of its COBIS-II burn-in systems. The terms "Trio-Tech" and "the Company" refer to Trio-Tech International and/or its subsidiaries. COMPANY HISTORY - --------------- 1958 Incorporated in California 1976 The Company formed Trio-Tech International Pte Ltd (TTIPte) in Singapore. 1984 The Company formed the European Electronic Test Center (EETC), a Cayman Islands subsidiary, to operate a test facility in Dublin, Ireland. 1985 The Company's Singapore subsidiary entered into a joint-venture agreement, Trio-Tech Malaysia, to operate a test facility in Penang. 1986 Trio-Tech International listed on the NASDAQ Small Cap market under the symbol TRTC. 1988 The Company acquired the Rotating Test Equipment Product Line of Genisco Technology Corporation. 1990 Trio-Tech International acquired Express Test Corporation in California. Trio-Tech Malaysia opened a new facility in Kuala Lumpur. 1992 Trio-Tech Singapore opened Trio-Tech Bangkok, Thailand 1994 Trio-Tech Malaysia started a new testing operation in Batang Kali. 1997 In November 1997, the Company acquired Universal Systems of Campbell, California.
-3- ANALYSIS OF SALES - ----------------- The following table sets forth the percentage of revenues derived from product sales, testing services and industry segments during the last three fiscal years and the breakdown of revenues derived from customers in the United States, Southeast Asia and Europe. The amounts represented in product sales and service include revenues derived from the test equipment distribution business in Singapore. See Note 12 to Consolidated Financial Statements, Business Segments, for a more detailed description.
Year Ended ---------------------------------------------------------------------------------------------- June 26, 1998 June 27, 1997 June 28, 1996 -------------- ------------- ------------- (Dollar amounts in thousands) Product and service sales by region: United States $ 4,095 19 % $ 2,409 11 % $ 2,466 11 % Southeast Asia 8,309 38 6,694 31 7,691 33 Europe 1,011 5 441 2 272 1 ----------- ----------- ----------- ----------- ---------- ----------- Total $ 13,415 62 % $ 9,544 44 % $ 10,429 45 % =========== =========== =========== =========== ========== =========== Testing services sales by region: United States $ 312 1 % $ 215 1 % $ 205 1 % Southeast Asia 7,586 35 11,305 53 11,642 50 Europe 539 2 484 2 909 4 ----------- ----------- ----------- ----------- ---------- ----------- Total $ 8,437 38 % $ 12,004 56 % $ 12,756 55 % =========== =========== =========== =========== ========== =========== Net sales: Manufacturing $ 6,335 29 % $ 6,334 29 % $ 6,069 26 % Testing 8,437 39 12,004 56 12,756 55 Distribution 7,080 32 3,210 15 4,360 19 ----------- ----------- ----------- ----------- ---------- ----------- Total net sales $ 21,852 100 % $ 21,548 100 % $ 23,185 100 % =========== =========== =========== =========== ========== ===========
BACKGROUND TECHNOLOGY - --------------------- Semiconductor devices are fundamental building blocks used in electronic equipment and systems. Each semiconductor device consists of an integrated circuit that performs electronic functions. Integrated circuits are manufactured through a series of complex steps on a wafer substrate, which is usually made of silicon and measures three to eight inches in diameter. A finished wafer consists of many integrated circuits, each referred to as a "device" or "die" , the number depending on the area of the circuits and the size of the wafer. Manufacturers have increasingly utilized larger diameter wafers, and the transition to 300mm (12 inch) wafers is currently underway throughout the industry. Wafers are typically sent through a series of 100 to 300 process steps. At many of the process steps the wafer is washed and dried using wet process stations. The finished wafer is put through a series of tests where each device on the wafer is tested for functionality. After testing, the wafer is diced and each die is encapsulated in packaging material, usually plastic or ceramic, with lead wires that allow mounting onto printed circuit boards. Finished devices are put through a series of screening processes, such as burn-in and electrical testing, to ensure they meet necessary performance and quality standards, before shipment to the customer. In 1997, the worldwide market for semiconductor devices was estimated at $140 billion. In addition to the growing demand for semiconductors, integrated circuits are continually becoming more complex, with greater capacity, versatility and smaller size. In order to fabricate these semiconductors, manufacturers must continually improve their fabrication, packaging and test facilities. In 1997, the world market for semiconductor manufacturing equipment was estimated at $30 billion. -4- The market for semiconductor manufacturing equipment can be divided into wafer fabrication (front-end) and assembly, packaging and test (back-end). The front- end equipment market is estimated to be approximately 70% of the total with back-end 20% and facilities 10% of the total. Trio-Tech's products and services are applicable at several stages of the manufacturing and test processes. Its wet process benches are used at many wafer fabrication stages. Its Artic temperature chucks are used to test semiconductor wafers at accurately controlled temperatures. Its component centrifuges, leak detectors, HAST equipment and burn-in systems are all used to test and screen finished semiconductor devices to ensure they meet the specifications required by the manufacturers and customers. Trio-Tech's test services are concentrated on the back-end screening and test of semiconductor devices. With the high concentration of semiconductor assembly and packaging facilities in Southeast Asia, a large demand exists for third party test services in this region. Customers use third party test services especially to accommodate fluctuations in output or to benefit from economies which can be offered by third party service providers. PRODUCTS - -------- The Company designs and manufactures equipment for the manufacture and test of semiconductor wafers, devices and other electronic components. Wet Process Benches Wet Process benches are used for cleaning, rinsing and drying semiconductor wafers, magnetic disks, flat panel displays and other microelectronic substrates. This product line, which is manufactured by the Company's subsidiary Universal Systems, includes manual and automated wet process stations, and features radial and linear robots, state-of-the art PC touch-screen controllers and sophisticated scheduling and control software. Temperature Controlled Wafer Chucks The Artic Temperature Controlled Chucks are used for test, characterization and failure analysis of semiconductor wafers and other components at accurately controlled hot and cold temperatures. Several models are available with temperature ranges from -65 degrees C to +400 degrees C and in diameters from 4 to 12 inch. These systems provide excellent performance to meet the most demanding customer applications. A unique mechanical design, for which patents are pending, provides excellent mechanical stability across the temperature ranges. Autoclaves and HAST ( Highly Accelerated Stress Test ) Equipment Trio-Tech manufactures a range of autoclaves and HAST systems and specialized test fixtures. Autoclaves provide pressurized, saturated vapor (100% relative humidity) test environments for fast and easy monitoring of integrated circuit manufacturing processes. HAST equipment, which provides a pressurized high temperature environment with variable humidity, is used to determine the moisture resistance of plastic encapsulated devices. HAST provides a fast and cost-effective alternative to conventional non-pressurized temperature and humidity testing. Burn-in Equipment and Boards Trio-Tech manufactures burn-in systems, burn-in boards and burn-in board test systems. Burn-in equipment is used to subject semiconductor devices to elevated temperatures while testing them electrically to identify early product failures ("infant mortalities") as well as to assure long-term reliability. Burn-in testing approximates, in a compressed time frame, the electrical and thermal conditions to which the device would be subjected during its normal life. During 1998 the Company developed and launched its new COBIS-II burn-in system which offers state-of-the-art dynamic burn-in capabilities and a Windows-based operating system with full data logging and networking features. The Company also offers burn-in boards for its COBIS burn-in systems and other brands of burn-in systems. Burn-in boards are used to mount devices during high temperature environmental stressing. Component Centrifuges and Leak Detection Equipment Component centrifuges and leak detection equipment are used to test the mechanical integrity of ceramic and other hermetically sealed semiconductor devices and electronic parts for high reliability and aerospace applications. The company's centrifuges are -5- used to identify mechanical weaknesses of devices by spinning them at a specified acceleration, creating a pressure of up to 30,000 g's (900,000 pounds per square inch). The Company's leak detection equipment is designed to detect leaks in hermetic packaging by first pressurizing the devices in a tracer gas or fluid and then visually scanning for bubble trails emanating from defective devices. Rate of Turn Tables The Company manufactures a range of rate-of turn tables which are used to subject test parts to accurately controlled angular velocities and g-forces. The systems are typically used to test accelerometers, gyroscopes, turn and bank indicators, inertial platforms and other motion sensors. Applications include automotive and aerospace markets. PRODUCT DEVELOPMENT - ------------------- Artic Temperature Controlled Chucks Trio-Tech is continuing to develop its Artic temperature controlled chucks. During 1998, the Company introduced two new models. The new high temperatures chucks operate between ambient and +400 degrees C. The Company also developed and delivered the first of the new 12 inch chucks for the latest 300mm wafer technologies. These chucks have many new features including the ability to hold the wafer under high probing forces with minimum mechanical deflection. Wet Process Benches The Company's subsidiary, Universal Systems, is actively developing its line of wet process equipment. During 1998 Universal developed and introduced its new fully automatic, PC/PLC-based workstation. This is designed for the new copper plating semiconductor processes currently being developed by the leading semiconductor manufacturers. Burn-in Equipment During 1998 the Trio-Tech developed and launched the new COBIS-II burn-in system which offers state-of-the-art dynamic burn-in capabilities, a Windows-based operating system with full data logging and networking features. The Company also offers burn-in boards for its COBIS burn-in systems and other brands of burn-in systems. TESTING SERVICES - ---------------- Trio-Tech owns and operates facilities that provide testing services for semiconductor devices and other electronic components to meet the requirements of military, aerospace, industrial and commercial applications. The Company uses its own proprietary equipment for certain burn-in, centrifugal and leak tests, and commercially available equipment for various other environmental tests. The Company conducts the majority of its testing operations in Southeast Asia with facilities in Singapore, Malaysia and Thailand. Several of these facilities have ISO 9002 certification. The Company also operates test facilities in San Fernando, California and Dublin, Ireland. The testing services are used by manufacturers and purchasers of semiconductors and other components who either do not have testing capabilities or whose in- house screening facilities are not sufficient to test devices to military or certain commercial specifications. In addition, Trio-Tech provides overflow testing and independent verification for companies with in-house capabilities. Trio-Tech's laboratories perform a variety of tests, including stabilization bake, thermal shock, temperature cycling, mechanical shock, constant acceleration, gross and fine leak tests, electrical testing, static and dynamic burn-in tests, and vibration testing. The laboratories also perform qualification testing, consisting of intense tests conducted on small samples of output from manufacturers who require qualification of their processes and devices. DISTRIBUTION ACTIVITIES - ----------------------- The Company's Singapore subsidiary continues to develop its international distribution division. The distribution operation markets, sells and supports Trio-Tech's products in Southeast Asia. In addition to Trio-Tech's own products, this operation also distributes other complementary products from other manufacturers in the United States, Europe and Japan. -6- The Singapore distribution operation now provides a wide range of products for its customers, including environmental chambers, parametric component testers, shakers and vibration systems, solderability testers and other manufacturing and test products. MARKETING, DISTRIBUTION AND SERVICES - ------------------------------------ The Company markets its products and services worldwide, both directly and through independent sales representatives. There are approximately 12 of these representatives that operate within the United States and 7 in various foreign countries. The Company's marketing efforts in the United States are coordinated from its headquarters in San Fernando, and its Far East and European marketing efforts are assigned to its subsidiaries in Singapore and Ireland, respectively. The Company advertises in trade journals and participates in trade shows. The Company's products and services are purchased by independent testing laboratories and by users and manufacturers of semiconductor devices, including, IBM, AMD, Motorola, National Semiconductor, SGS Thomson and Texas Instruments. During the year ended June 26, 1998, the Company had sales of $3,522,000 to Texas Instruments. BACKLOG - ------- The following table sets forth the Company's backlog at the dates indicated (amounts in thousands):
June 26, 1998 June 27, 1997 ------------------------- ---------------------- Manufacturing backlog $ 2,702 $ 1,980 Testing service backlog 2,202 2,339 Distribution backlog 1,732 1,543 ------------------------- ---------------------- $ 6,636 $ 5,862 ========================= ======================
Based upon past experience, the Company does not anticipate any significant cancellations. The purchase orders for equipment call for delivery within the next 12 months. Testing services backlog is scheduled to be performed within the next year. The Company does not anticipate any difficulties in meeting delivery schedules. MANUFACTURING AND SUPPLY - ------------------------ The Company's products are designed by its engineers and are assembled and tested at its facilities in San Fernando and Campbell, California, Singapore and Ireland. All parts and certain components are purchased from outside sources for assembly by the Company. Trio-Tech uses Fluorinert, a special indicator fluid sold by the 3M Company, in its gross leak equipment, and Krypton 85, sold by Amersham, in its Tracer-Flo. The Company has not experienced any difficulty in obtaining Fluorinert or Krypton 85 to date. There can be no assurance that the Trio-Tech will not experience difficulties or delays in obtaining Fluorinert or Krypton 85 in the future. The Company plans to discontinue the Tracer Flo product line in December 1998 and will have no requirement for Krypton 85 gas after that time. COMPETITION - ----------- The semiconductor equipment industry is highly competitive. The principal competitive factors in the industry are product performance, reliability, service and technical support, product improvements, price, established relationships with customers and product familiarity. The Company has competitors for its various products. However, the Company believes its products compete favorably with respect to each of these factors in the markets in which it operates. There can be no assurance that competition will not increase or that the Company's technological advantages may not be reduced or lost as a result of technological advances by competitors or changes in semiconductor processing technology. -7- There are numerous testing laboratories in the areas in which the Company operates that perform a range of testing services similar to those offered by the Company. Since the Company has sold and will continue to sell its products to competing laboratories and other test products are available from other manufacturers, the Company's competitors can offer the same testing capabilities. This equipment is also available to semiconductor manufacturers and users who might otherwise use outside testing laboratories, including the Company, to perform environmental testing. The existence of competing laboratories and the purchase of testing equipment by semiconductor manufacturers and users are potential threats to the Company's future revenues and earnings from testing. PATENTS - ------- Trio-Tech holds a United States Patent granted in 1987 in relation to its pressurization humidity testing equipment. The Company also holds a United States Patent granted in 1994 on certain aspects of its Artic temperature test systems. In 1996 Trio-Tech filed United States and European patent applications for certain aspects of its new Artic temperature chucks which are currently pending. GOVERNMENT REGULATION - --------------------- The Tracer-Flo process uses Krypton 85, an inert radioactive gas, the supply and handling of which are subject to regulation by the United States Nuclear Regulatory Commission (NRC) and the California Department of Health Physics. The Company must, therefore, train the Tracer-Flo operators, which are licensed by the State of California, and must maintain records and control its supplies of Krypton 85. The California agency conducts periodic site inspections, and the NRC monitors interstate shipments and can inspect the Company's shipping records. No security clearance is required to handle the gas, which has a low level of radioactivity. This product line has experienced declining sales for several years. The Company has decided to discontinue this product line in December 1998 and has already notified its customers. EMPLOYEES - --------- As of June 26, 1998, the Company had 43 employees in the United States, 202 in Singapore, 221 in Malaysia, 114 in Bangkok, and 19 in Ireland for a total of 599. None of the Company's employees is represented by a labor union. -8- ITEM 2 - PROPERTIES - ------------------- The following table sets forth information as to the location and general character of the principal manufacturing and testing facilities of the Registrant:
Owned (O) Approx. or Leased (L) Sq. Ft. Expiration Location Principal Use Occupied Date - ------------------------------------ --------------------------- ----------------- ----------------------- 355 Parkside Dr. Headquarters/ 21,000 (L) Jan. 1999 San Fernando, CA 9l340 Manufacturing/ Testing 1190 Dell Avenue, Unit L Manufacturing 6,000 (L) month to Campbell, Ca 95008 month Abbey Road Testing/Manufac- 18,400 (O) *1 Deansgrange Co. turing Dublin, Ireland No. 5, Kian Teck Road Manufacturing 30,000 (L) *2 Jurong Town, Singapore 1004, Toa Payoh North, Testing 6,833 (L) month to HEX 07-01/07, month Singapore Plot 1A, Phase 1 Testing 49,924 (L) Aug. 2030 Bayan Lepas Free Trade Zone 11900 Penang Lot No. 6. Lorong Testing 23,000 (L) June 1999 Enggang 37 Ulu Kelang Ampang Industrial Area. Ulu Kelang, Selangor, Kuala Lumpur 327, Chalongkrung Road, Testing 11,300 (O) *3 Lamplathew, Lat Krabang, Bangkok 10520, Thailand Lot No. B7, Kawasan MIEL Manufacturing 24,142 (O)*4 Batang Kali, Phase II, 43300 Batang Kali Selangor Darul Ehsan, Malaysia
*1 Purchased for 270,000 Irish Pounds, equivalent to approximately U.S. $261,000 based on the exchange rate as of June 28, 1985, of which approximately 30% was recovered by the Company as part of the grant monies received from the Industrial Development Authority of the Republic of Ireland. -9- *2 Purchased for S$1 million, equivalent to approximately U.S.$ 447,000 based on the exchange rate as of June 28,1985. This amount was completely repaid in fiscal year 1991. However, under Singapore law, this land may not be purchased outright. Accordingly, the term for this land lease will expire in December 2030. The Company has acquired the fullest ownership rights possible under Singapore law which includes an option to renew the lease at that time. *3 Purchased for Thai Baht 13,500,000, equivalent to approximately U.S.$533,000 based on the exchange rate as of June 25, 1993. The mortgage agreement commenced in October 1992 and will expire in September 1998. *4 Purchased for Malaysia Ringgit 1,000,000, equivalent to U.S.$387,000 based on the exchange rate as at June 24, 1994. ITEM 3 - LEGAL PROCEEDINGS - -------------------------- On August 24, 1995, the Company was served in a civil action brought by HM Holdings, Inc. (HM) against 106 defendants, including the Company. HM has paid $3,750,000 to the Federal Environmental Protection Agency to settle a proceeding alleging that HM's predecessor company caused soil and groundwater contamination of the North Hollywood (California) Superfund Site and may have additional liabilities. HM alleges that the 106 defendants caused or contributed to the contamination. An additional legal matter may arise in part out of a related suit by Lockheed Martin Corporation against HM and other defendants, possibly including the Company (which has not been served in this related suit), involving the nearby Burbank Superfund Site, which HM is seeking to settle and to assign its claim against the 106 defendants to Lockheed Martin. The Company vacated its Burbank location in 1987. The Company and its counsel have not yet had the opportunity to investigate the allegations. The Company believes its liability insurance should cover this claim, but its insurers have not yet made a decision regarding this matter. Management, based on its present information, believes that the outcome of this litigation will not materially affect the Company's consolidated financial position or results of operations. There are no material proceedings to which any director, officer or affiliate of the Registrant, any beneficial owner of more than five percent of the Registrant's common stock or any associate of such person is a party that is adverse to the Registrant or its properties. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ On December 8, 1997, the Company's Shareholders approved the Company's 1998 Stock Option Plan. The vote was 1,929,036 shares in favor, 20,850 shares against, 1,500 shares abstaining and 11,276 broker nonvotes. The purpose of the 1998 Stock Option Plan is to enable the Company to attract and retain top- quality employees, officers, directors and consultants and to provide them with an incentive to enhance stockholder return On December 8, 1997, the Company's Shareholders approved the Directors Stock Option Plan (the "Directors Plan). The vote was 1,933,711 shares in favor, 16,175 shares against, 1,500 shares abstaining and 11,276 broker nonvotes. The purpose of the Directors Plan is to give appropriate compensation to the Directors of the Company. -10- PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK - --------------------------------------------- The Registrant's common stock is traded on the Nasdaq Small Cap Market under the symbol "TRTC". The following table sets forth, for the periods indicated, the range of high and low sales prices of Trio-Tech International's Common Stock as quoted by Nasdaq. These prices do not include retail mark-ups, markdowns or commissions:
Quarter Ended High Low ------------------------------- ------------- ------------- Fiscal 1997 ------------------------------- September 27, 1996 5.75 3.75 December 27, 1996 6.50 5.25 March 28, 1997 7.88 6.00 June 27, 1997 8.13 7.38 Fiscal 1998 ------------------------------- September 26, 1997 8.83 4.92 December 26, 1997 11.67 4.13 March 27, 1998 6.50 4.41 June 26, 1998 5.25 4.00 ------------------------------- Fiscal 1999 ------------------------------- June 29 to September 10, 1998 4.63 2.75
The Registrant's common stock is held by approximately 625 shareholders of record as of August 26, 1998. 1,273,404 shares are held by Cede and Co., a clearinghouse that holds stock certificates in "street" name for an unknown number of shareholders. The Company has not declared any cash dividends on its common stock. Any future determinations as to cash dividends will depend upon the earnings and financial position of the Company at that time and such other factors as the Board of Directors may deem appropriate. It is anticipated that no dividends will be paid to holders of common stock in the foreseeable future. -11-
ITEM 6 - SELECTED FINANCIAL DATA (In thousands except per share data) June 26, June 27, June 28, June 30, June 24, 1998 1997 1996 1995 1994 ----------- ---------- ---------- ---------- ---------- Statement of Operations Net sales $ 21,852 $ 21,548 $ 23,185 $ 19,488 $ 15,165 Income from Operations 969 3,057 2,712 1,547 1,204 Net Income 831 1,002 806 570 2,040 Net income per share: Basic: Before Extraordinary items 0.34 0.54 0.45 0.31 0.17 Extraordinary items 1.01 ---------- ---------- ---------- ---------- ---------- Net income per share $ 0.34 $ 0.54 $ 0.45 $ 0.33 $ 1.18 ========== =========== ========== ========== ========= Weighted average common shares outstanding (Basic) 2,413,000 1,850,000 1,793,000 1,743,000 1,728,000 Balance Sheet Current assets $ 14,036 $ 13,843 $ 11,760 $ 6,848 $ 5,525 Current liabilities 7,439 7,039 8,169 5,159 5,014 Working capital 6,597 6,804 3,591 1,689 511 Total assets 19,331 18,528 17,416 12,646 11,298 Long-term debt and capitalized leases 426 723 688 597 939 Shareholders' equity $ 8,763 $ 6,463 $ 5,207 $ 4,419 $ 3,626
-12- ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------------- RESULTS OF OPERATIONS - --------------------- Year Ended June 26, 1998 ("1998") Compared to Year Ended June 27, 1997 ("1997") - ------------------------------------------------------------------------------- Net sales increased by $304,000 or 1.4% from $21,548,000 in 1997 to $21,852,000 in 1998 despite the general slowdown in the semiconductor industry and the poor economic conditions in Southeast Asia. Net sales for the Far East operations decreased $2,105,000 or 11.7% from $17,999,000 in 1997 to $15,894,000 in 1998 due mainly to lower testing volume in Malaysia and Singapore. Cost of sales increased $1,460,000 or 13.3% from $12,718,000 in 1997 to $14,178,000 in 1998. As a percentage of sales, it increased 5.9% from 59.0% in 1997 to 64.9% in 1998. This decline is primarily due to a shift in relative sales from high margin test services to lower margin equipment sales. Interest expense increased in 1998, from $110,000 in 1997 to $168,000 in 1998. This is a result of increased interest rates. Other income has increased significantly from $460,000 in 1997 to $504,000 in 1998 primarily due to interest income earned on certificates of deposit and service income earned by providing administrative services to a customer in Thailand. Net income decreased by $171,000 or 17.1% from $1,002,000 in 1997 to $831,000 in 1998 due mainly to lower testing volume in Malaysia. Minority interest profit allocation was significantly less in 1998 versus 1997 due to a decrease in profits of the 55% owned Trio-Tech Malaysia. Year Ended June 27 1997 ("1997") Compared to Year Ended June 28, 1996 ("1996") - ------------------------------------------------------------------------------ Net sales decreased by $1,637,000 or 7.1% from $23,185,000 in 1996 to $21,548,000 in 1997. This is attributable to the general slowdown in the semiconductor industry. Net sales for the Far East operations decreased $1,334,000 or 6.9% from $19,333,000 in 1996 to $17,999,000 in 1997 due partly to lower testing volume in Singapore and Malaysia. Cost of sales decreased $1,947,000 or 13.3% from $14,665,000 in 1996 to $12,718,000 in 1997. As a percentage of sales, it has decreased 4.3% from 63.3% in 1996 to 59.0% in 1997. This is a result of stringent cost controls and scale down of operations in the Far East region. Interest expense continued to decrease in 1997, from $141,000 in 1996 to $110,000 in 1997. This is a direct result of reduced interest rates and reduced average outstanding debt balances. Other income has increased significantly from $287,000 in 1996 to $460,000 in 1997 primarily due to interest income earned on certificates of deposit and service income earned by providing administrative services to a customer in Thailand. Net income has improved by $196,000 or 24.3% from $806,000 in 1996 to $1,002,000 in 1997. Liquidity and Capital Resources - ------------------------------- The Company's working capital decreased slightly from $6,804,000 as of June 27, 1997 to $6,597,000 as of June 26, 1998 due to capital expenditures of $1,648,000 and an unrealized currency translation loss of $2,164,000, reflecting a currency devaluation in Southeast Asia relative to the U.S. Dollar, offset in part by proceeds of $3,351,000 from a private placement of common stock and warrants. The Company's subsidiary, TTI Pte, has a secured credit agreement with a bank which provides for a total line of credit of $3,125,000. The agreement contains certain debt covenants including maintaining a minimum net worth of $2,400,000 at TTI Pte. Borrowings under the line were $481,000 and nil at the end of fiscal 1998 and 1997, respectively. The interest rate on borrowings is at the bank's prime rate (8.25% at June 26, 1998) plus 1.25%. Borrowings under this agreement are collateralized by substantially all of TTI Pte's assets. This line of credit expires March 1999. The Company's subsidiary, TTM has a secured credit agreement with a bank which provides for a total line of credit of $132,000. At June 26, 1998, there were no borrowings outstanding. The line of credit bears interest at the bank's reference rate (12.3% at June 26, 1998) plus 2.75%. This line of credit expires May 1999. -13- The Company's subsidiary, TTBK, has a line of credit which provides for borrowings of approximately $48,000. Interest on the line is at the bank's reference rate (15.75% at June 26, 1998) plus 1.0%. There were no borrowings against this line as of June 26, 1998. This line of credit does not have an expiration date. The Company's subsidiary, TT Ireland, has a credit agreement which provides for a mortgage loan of $400,000 Borrowings under the line amounted to $294,000 as of June 26, 1998. Interest is at the bank's prime rate (6.7% at June 26, 1998) plus 3.5%. The Company obtained a revolving line of credit of $150,000 from a bank bearing interest at 1.8% above the bank's reference rate (9.75% at June 26, 1998). Borrowings under the line amounted to $150,000 as of June 26, 1998. This line of credit expires February 1999. Year 2000 Compliance issue - -------------------------- The inability of computers, software and other equipment utilizing microprocessors to recognize and properly process data fields containing a 2- digit year is commonly referred to as the "Year 2000 Compliance" issue. As the year 2000 approaches, such systems may be unable to accurately process certain date-based information. The Company has reviewed all significant internal applications and is in the process of considering and implementing modifications necessary to ensure Year 2000 compliance. In addition, the Company is in the process of communicating with others with whom it does significant business, to determine their Year 2000 Compliance readiness and the extent to which the Company is vulnerable to any third party Year 2000 Compliance. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. The total cost to the Company of these Year 2000 Compliance activities has not been and is not anticipated to be material to its financial position or to its results of operations. These costs and the date on which the Company plans to complete the Year 2000 Compliance modification and testing processes are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ from those plans. Economic conditions in Southeast Asia - -------------------------------------- The Company's operations, balance sheet and cash flows have been affected by recent economic instability in portions of Southeast Asia, which accounted for approximately 73% of the Company's net sales in the year ended June 1998 and 83% for each of the years ending June 1997 and 1996. A recent currency devaluation in Thailand and continuing currency weaknesses in Thailand, Malaysia and Singapore have required downward accounting adjustments in the U.S. dollar value of net assets located in those countries. Unsettled economic conditions in those countries and elsewhere have had some effect on orders by semiconductor companies for Trio-Tech's testing services. Although the Company has continued to manage its operations profitably, extended economic instability could adversely affect the Company's financial condition, results of operations or cash flows. See note 1 about restricted currencies. Forward-Looking Statements - -------------------------- The discussions of the Company's business and activities set forth in this report and in other past and future reports and announcements by the Company may contain forward-looking statements and assumptions regarding future activities and results of operations of the Company. In light of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company hereby identifies the following factors which could cause actual results to differ materially from those reflected in any forward-looking statement made by or on behalf of the Company: market acceptance of Company products and services; changing business conditions or technologies in the semiconductor industry, which could affect demand for the Company's products and services; the impact of competition; problems with technology; product development schedules; delivery schedules; changes in military or commercial testing specifications which could affect the market for the Company's products and services; difficulties in profitability integrating acquired businesses, if any, into the Company; risks associated with conducting business internationally and especially in Southeast Asia, including currency fluctuations and devaluations, currency restrictions, local laws and restrictions and possible social, political and economic instability; general and economic conditions; and other economic, financial and regulatory factors beyond the Company's control. -14- ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- The information called for by this item is included in the Company's consolidated financial statements beginning on page 20 of this Annual Report on Form 10-K. ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ------------------------------------------------------------- None PART III The information required by Part III is hereby incorporated by reference from the Company's Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the end of fiscal 1998. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- (a) (1) FINANCIAL STATEMENTS: The following financial statements, including notes thereto and the independent auditors' report with respect thereto, are filed as part of this Annual Report on Form 10-K, starting on page 19 hereof: 1. Independent Auditors' Report 2. Consolidated Balance Sheets 3. Consolidated Statements of Income 4. Consolidated Statements of Shareholders' Equity 5. Consolidated Statements of Cash Flows 6. Notes to Consolidated Financial Statements (a) (2) FINANCIAL STATEMENT SCHEDULES: The following schedules are filed as part of this Annual Report on Form 10-K, starting on page 38 hereof: 1. Schedule VIII - Valuation and Qualifying Accounts and Reserves No other schedules have been included because they are not applicable, not required, or because information is included in the consolidated financial statements or notes thereto. (b) REPORTS ON FORM 8-K: The Company did not file any reports on form 8-K during the quarter ended June 26, 1998. (c) EXHIBITS: Number Description Page Number - ------ ----------- ----------- 3.1 Articles of Incorporation, as currently in effect. [Previously filed as Exhibit 3.1 to the Annual Report on Form 10-K for June 24, 1988.] _______ 3.2 Bylaws, as currently in effect. [Previously filed as Exhibit 3.2 to the Annual Report on Form 10-K for June 24, 1988.] _______ 10.1 Trio-Tech Stock Option Plan. [Previously filed as Exhibit 10.1 to the Registration Statement on Form S-8 (No. 2-87606).] _______ -15- Number Description Page Number - ------ ----------- ----------- 10.2 Real Estate Lease, dated September 29, 1987, between Stierlin Industrial Center and Registrant. [Previously filed as Exhibit 10.5 to the Registration Statement on Form S-1 (No. 2-87606).] _______ 10.3 Tenancy of Flatted Factory Unit, dated December 2, 1982, between Jurong Town Corporation and Registrant. [Previously filed as Exhibit 10.8 to the Registration Statement on Form S-1 (No. 2-87606).] _______ 10.4 Tenancy of Flatted Factory Unit, dated September 10, 1982, between Jurong Town Corporation and Registrant. [Previously filed as Exhibit 10.9 to the Registration Statement on Form S-1 (No. 2-8766).] _______ 10.5 Real Estate Lease, dated December 15, 1986, between San Fernando Associates and Registrant. [Previously filed as Exhibit 10.17 to the Annual Report on Form 10-K for June 28, 1987.] _______ 10.6 Deferred Compensation Agreement, dated March 1, 1986, between the Company and A. Charles Wilson. [Previously filed as Exhibit 10.16 to the Annual Report on Form 10-K for June 24, 1988.] _______ 10.7 Deferred Compensation Agreement, dated March 1, 1986, between the Company and John C. Guy. [Previously filed as Exhibit 10.17 to the Annual Report on Form 10-K for June 24, 1988.] _______ 10.9 Credit Facility Letter dated November 2, 1993, between Trio-Tech International Pte. Ltd. and Standard Chartered Bank. ------- 10.10 1998 Stock Option Plan. [Previously filed as Exhibit 1 to the Company's proxy statement filed under regulation 14A on October 27, 1997]. _______ 10.11 Directors Stock Option Plan. [Previously filed as Exhibit 2 to the Company's proxy statement filed under regulation 14A on October 27, 1997]. 22.1 Subsidiaries of the Registrant (100% owned by the Registrant except as otherwise stated): Trio-Tech International Pte. Ltd., a Singapore Corporation Trio-Tech Test Services Pte. Ltd., a Singapore Corporation Trio-Tech Reliability Services, a California Corporation Express Test Corporation, A California Corporation European Electronic Test Center, Ltd., A Cayman Islands Corporation -16- Number Description Page Number - ------ ----------- ----------- Trio-Tech Malaysia, a Malaysia Corporation (55% owned by the Registrant) Trio-Tech Kualala Lumpur, a Malaysia Corporation (100% owned by Trio-Tech Malaysia) Trio-Tech Bangkok, a Thailand Corporation Prestal Enterprise Sdn Bhd, a Malaysia Corporation (73% owned by the Registrant) KTS Incorporated, doing business as Universal Systems, a California Corporation 27.1 Financial Data Schedule -17- 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. TRIO-TECH INTERNATIONAL By: /s/ Victor H.M. Ting -------------------- Victor H.M. Ting Vice President and Chief Financial Officer Date: September 24, 1998 Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ A. Charles Wilson September 24, 1998 ------------------------------- A. Charles Wilson, Director Chairman of the Board /s/ S. W. Yong September 24, 1998 ------------------------------- S. W. Yong, Director President and Chief Executive Officer /s/ Victor H.M. Ting September 24, 1998 ------------------------------- Victor H.M. Ting Vice President, Chief Financial Officer and Principal Accounting Officer /s/ Jason T. Adelman September 24, 1998 ------------------------------- Jason T. Adelman, Director /s/ Frank S. Gavin September 24, 1998 ------------------------------- Frank S. Gavin, Director /s/ Richard C. Horowitz September 24, 1998 ------------------------------- Richard C. Horowitz, Director /s/ F.D. (Chuck) Rogers September 24, 1998 ------------------------------- F.D. (Chuck) Rogers, Director /s/ William L. Slover September 24, 1998 ------------------------------- William L. Slover, Director -18- INDEPENDENT AUDITORS' REPORT Board of Directors Trio-Tech International San Fernando, California: We have audited the accompanying consolidated balance sheets of Trio-Tech International and subsidiaries (the Company) as of June 26, 1998 and June 27, 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended June 26, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 Trio-Tech International and subsidiaries as of June 26, 1998 and June 27, 1997, and the results of their operations and their cash flows for each of the three years in the period ended June 26, 1998 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP /s/ DELOITTE & TOUCHE LLP Los Angeles, California September 4, 1998 -19-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------------------------------------------------------------ June 26, June 27, ASSETS Notes 1998 1997 --------- ------------------ ------------------ CURRENT ASSETS: Cash $ 3,305,000 $ 868,000 Cash deposits 3,947,000 7,104,000 Trade accounts receivable, less allowance for doubtful accounts of $468,000 in 1998 and $404,000 in 1997 4,124,000 3,646,000 Other receivables 299,000 161,000 Inventories 2 2,056,000 1,784,000 Prepaid expenses and other current assets 305,000 280,000 --------------- --------------- Total current assets 5,7 14,036,000 13,843,000 PROPERTY AND EQUIPMENT, Net 3,5,7 4,669,000 4,421,000 OTHER ASSETS 4 626,000 264,000 --------------- -------------- TOTAL ASSETS $ 19,331,000 $ 18,528,000 =============== =============== CURRENT LIABILITIES: Lines of credit 5 $ 631,000 $ 150,000 Accounts payable 2,126,000 1,121,000 Accrued expenses 6 3,804,000 3,605,000 Income taxes payable 690,000 1,965,000 Current portion of long-term debt and capitalized leases 7,9 188,000 198,000 --------------- -------------- Total current liabilities 7,439,000 7,039,000 --------------- --------------- LONG-TERM DEBT AND CAPITALIZED LEASES, net of current portion 7,9 426,000 723,000 --------------- -------------- DEFERRED INCOME TAXES 8 581,000 776,000 --------------- -------------- MINORITY INTEREST 2,122,000 3,527,000 --------------- -------------- COMMITMENTS AND CONTINGENCIES 9 SHAREHOLDERS' EQUITY: 10 Common stock; authorized, 15,000,000 shares; issued and outstanding, 2,747,586 shares (1998) and 1,936,596 shares (1997) stated at 8,708,000 5,075,000 Retained earnings (accumulated deficit) 497,000 (334,000) Cumulative currency translation (442,000) 1,722,000 --------------- -------------- Total shareholders' equity 8,763,000 6,463,000 --------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 19,331,000 $ 18,528,000 =============== ===============
See notes to consolidated financial statements. -20-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended -------------------------------------------------------------- June 26, June 27, June 28, Notes 1998 1997 1996 ----- --------- ---------- -------- NET SALES 12 $ 21,852,000 $ 21,548,000 $ 23,185,000 COST OF SALES 14,178,000 12,718,000 14,665,000 ------------- ------------- ------------- GROSS PROFIT 7,674,000 8,830,000 8,520,000 OPERATING EXPENSES: General and administrative 4,853,000 3,780,000 4,506,000 Selling 1,852,000 1,993,000 1,302,000 ------------- ------------- ------------- Total 6,705,000 5,773,000 5,808,000 ------------- ------------- ------------- INCOME FROM OPERATIONS 12 969,000 3,057,000 2,712,000 OTHER INCOME (EXPENSE) Interest expense 5,7 (168,000) (110,000) (141,000) Other income 504,000 460,000 287,000 ------------- ------------- ------------- Total 336,000 350,000 146,000 ------------- ------------- ------------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 1,305,000 3,407,000 2,858,000 INCOME TAXES 8 455,000 1,264,000 1,109,000 ------------- ------------- ------------- INCOME BEFORE MINORITY INTEREST 850,000 2,143,000 1,749,000 MINORITY INTEREST (19,000) (1,141,000) (943,000) ------------- ------------- ------------- NET INCOME $ 831,000 $ 1,002,000 $ 806,000 ============= ============= ============= EARNINGS PER SHARE: Basic $ 0.34 $ 0.54 $ 0.45 ============= ============= ============= Diluted $ 0.33 $ 0.51 $ 0.42 ============= ============= ============= WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON POTENTIAL SHARES OUTSTANDING Basic 2,413,000 1,850,000 1,793,000 Diluted 2,485,000 1,961,000 1,929,000
See notes to consolidated financial statements. -21-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock --------------------------------- Cumulative Number of Retained Earnings Currency Shares Amount (Accumulated Deficit) Translation Total ------------------- ------------ ---------------------- ----------------- ------------- Balance, June 30, 1995 1,771,503 $ 4,822,000 $ (2,142,000) $ 1,739,000 $ 4,419,000 Net income 806,000 806,000 Repurchase of common stock (668) (2,000) (2,000) Exercise of stock options (Note 10) 37,871 58,000 58,000 Foreign currency translation adjustment (74,000) (74,000) --------- ------------- ------------- ------------ ------------ Balance, June 28, 1996 1,808,706 $ 4,878,000 $ (1,336,000) $ 1,665,000 $ 5,207,000 Net income 1,002,000 1,002,000 Retirement of common stock (360) 0 Exercise of stock options (Note 10) 128,250 197,000 197,000 Foreign currency translation adjustment 57,000 57,000 --------- ------------- ------------- ------------ ------------ Balance, June 27, 1997 1,936,596 $ 5,075,000 $ (334,000) $ 1,722,000 $ 6,463,000 Net income 831,000 831,000 Issuance of common stock 723,216 3,488,000 3,488,000 Exercise of stock options (Note 10) 87,774 145,000 145,000 Foreign currency translation adjustment (2,164,000) (2,164,000) --------- ------------- ------------- ------------ ------------ Balance, June 26, 1998 2,747,586 $ 8,708,000 $ 497,000 $ (442,000) $ 8,763,000 ========= ============= ============= ============ ============
See notes to consolidated financial statements. -22- TRIO-TECH INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------- Year Ended ------------------------------------------- June 26, June 27, June 28, 1998 1997 1996 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 831,000 $ 1,002,000 $ 806,000 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 944,000 1,359,000 1,561,000 (Gain)/loss on sale of property and equipment (10,000) 67,000 82,000 Changes in assets and liabilities: Accounts receivable (344,000) 1,106,000 (654,000) Notes and other receivables (114,000) 18,000 7,000 Inventories (224,000) (363,000) (245,000) Prepaid expenses and other current assets (21,000) (144,000) (38,000) Other assets (428,000) 14,000 136,000 Accounts payable and accrued expenses (58,000) (772,000) 2,861,000 Deferred income taxes (195,000) 5,000 (99,000) ----------- ----------- ----------- Net cash provided by operating activities 331,000 2,292,000 4,417,000 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Certificates of deposit 3,157,000 (3,990,000) (2,561,000) Capital expenditures (2,574,000) (926,000) (1,821,000) Minority interest (109,000) 991,000 1,014,000 Proceeds from sale of property and equipment 104,000 131,000 256,000 ----------- ----------- ----------- Net cash provided by investing activities 578,000 (3,794,000) (3,112,000) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on lines of credit (120,000) (99,000) Borrowings under lines of credit 501,000 25,000 125,000 Principal payments of long-term obligations (327,000) (461,000) (379,000) Proceeds from long-term obligations 213,000 492,000 Issuance of common stock 3,669,000 197,000 58,000 Repurchase of common stock (36,000) (2,000) ----------- ----------- ----------- Net cash provided by (used in) financing activities 3,807,000 (146,000) 195,000 ----------- ----------- ----------- EFFECT OF EXCHANGE RATE ON CASH (2,279,000) 402,000 (60,000) NET INCREASE/(DECREASE) IN CASH 2,437,000 (1,246,000) 1,440,000 CASH, BEGINNING OF PERIOD 868,000 2,114,000 674,000 ----------- ----------- ----------- CASH, END OF PERIOD $ 3,305,000 $ 868,000 $ 2,114,000 =========== =========== ===========
continued See notes to consolidated financial statements. -23- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 254,000 $ 117,000 $ 144,000 Income taxes $ 1,190,000 $ 845,000 $ 225,000
The fair value of the net assets acquired in connection with the purchase of Universal Systems (see Note 1) is summarized as follows: Net assets $ 500,000 Acquisition costs 24,000 ----------- Purchase price $ 524,000 ===========
See notes to consolidated financial statements. -24- TRIO-TECH INTERNATIONAL AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 26, 1998 JUNE 27, 1997 AND JUNE 28, 1996 - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - Trio-Tech International and subsidiaries (the "Company" or "TTI") is a designer and manufacturer of equipment used to test the structural integrity of semiconductor devices that must meet high- reliability specifications. The Company also owns and operates testing facilities that perform structural and electronic testing of semiconductor devices and acts as a distributor of electronic testing equipment in Singapore and other Southeast Asian countries. The consolidated financial statements include the accounts of the Company and its principal subsidiaries: Trio-Tech International Pte Ltd (TTI Pte), Trio-Tech Test Services Pte Ltd (TTTS Pte), Express Test, European Electronic Test Centre (EETC), Trio-Tech Bangkok (TTBk), Trio-Tech Malaysia (TTM) (a 55% owned subsidiary of TTI Pte), Prestal Enterprise Sdn Bhd (PESB) (a 73% owned subsidiary of TTI Pte) and Universal Systems. All material intercompany transactions, profits and balances have been eliminated. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounting Period - The Company's fiscal reporting period coincides with the 52-53 week period ending on the last Friday in June. Cash and Cash Deposits - Cash and cash deposits consists of bank balances and amounts invested in interest earning instruments having a maturity of 12 months or less. Approximately $3,000,000 of cash is held in the Company's 55% owned Malaysian subsidiary. $1,300,000 of this cash is denominated in the currency of Malaysia. On September 1, 1998, the government of Malaysia announced its intention to limit the movement of certain cash balances denominated in Malaysian currency. Inventories- Inventories are stated at the lower of cost, using the first- in, first-out (FIFO) method, or market. Property and Equipment - Property and equipment and capitalized leases are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided over the estimated useful lives of the assets or the terms of the leases, whichever are shorter, using the straight-line method. Estimated useful lives range from 3 to 45 years. Capital grants from the Industrial Development Authority in Ireland are accounted for when claimed by reducing the cost of the related assets. The grants are amortized over the depreciable lives of those assets. Foreign Currency Translation - All assets and liabilities of operations outside the United States have been translated at the foreign exchange rates in effect at year-end. Revenues and expenses for the year are translated at average exchange rates in effect during the year. Unrealized translation gains and losses are not included in determining net income but are accumulated and reported as a separate component of shareholders' equity. Net realized gains and losses resulting from foreign currency transactions are credited or charged to income. 73% of the Company's revenues are earned in Singapore, Malaysia and Thailand. These countries have been significantly affected, and will continue to be affected, by currency volatility in the Southeast Asia Region. Other Assets - The excess of cost over net assets acquired is included in other assets and is being amortized over 5-10 years. The Company reviews the carrying value of all intangible assets on a regular basis, and if future cash flows are believed insufficient to recover the remaining carrying value of an intangible asset, the carrying value is written down in the period the impairment is identified to its estimated fair value. Taxes on Income - Deferred taxes are computed annually for differences between the financial statement basis and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized. -25- Retained earnings - It is the intention of the Company to reinvest earnings of its foreign subsidiaries in the operations of those subsidiaries. Accordingly, no provision has been made for U.S. income and foreign withholding taxes which would result if such earnings were repatriated. The amount of earnings retained in foreign subsidiaries is $6,231,000 at June 26, 1998. Research and Development Costs - The Company incurred research and development costs of $158,000 in 1998, $18,782 in 1997 and $46,000 in 1996 which were charged to cost of sales as incurred. Purchase of Universal Systems - In November 1997, The Company purchased Universal Systems, a manufacturer of wet-process stations in Campbell, California. Universal was purchased for $524,000 which consisted of cash of $250,000, common stock of $250,000 and acquisition expenses of $24,000. Stock Based Compensation - In October 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. The Company has determined that it will not change to the fair value method and will continue to use Accounting Principles Board Opinion No. 25 for measurement and recognition of employee stock-based transactions. Earnings per Share - The Company adopted the Statement of Financial Accounting Standards No. 128 ("SFAS"), "Earnings per Share". SFAS 128 replaces the presentation of primary and fully diluted earnings per share ("EPS") with a presentation of basic EPS based upon the weighted-average number of common shares and also requires dual presentation of basic and diluted EPS for companies with "complex capital structures". EPS for the current and prior periods has been presented in conformity with the provisions of SFAS 128. The following table is a reconciliation of the weighted-average shares used in the computation of basic and diluted EPS for the years presented herein:
June 26, June 27, June 28, 1998 1997 1996 ----------------- ----------------- ----------------- Net income used to compute basic and diluted earnings per share $ 831,000 $ 1,002,000 $ 806,000 ----------------- ----------------- ----------------- Weighted average number of common shares outstanding - basic 2,413,000 1,850,000 1,793,000 Dilutive effect of stock options and warrants 71,000 111,000 136,000 ----------------- ----------------- ----------------- Number of shares used to compute primary earnings per share - diluted 2,484,000 1,961,000 1,929,000 ================= ================= =================
New Accounting Pronouncements - In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. The Company anticipates adopting this standard for fiscal 1999. The Company is unable to determine whether the adoption will have a material impact on the financial position or results of operations of the Company. In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. The Company adopted this pronouncement for the year ended June 26, 1998. Reclassification - Certain reclassifications have been made to the previous year's financial statements to conform to current year presentation. Fair Values of Financial Instruments - The carrying value of trade accounts receivable, inventories, trade accounts payable and accrued expenses approximate the fair value due to their short-term maturities. The carrying value of the Company's lines of credit are considered to approximate their fair value because the interest rates are based on variable reference rates. The amount of long-term debt is not significant. Concentration of credit risk - Financial instruments that subject the Company to credit risk consists primarily of accounts receivables. Concentration of credit risk with respect to accounts receivable is generally diversified due to the number of entities composing the Company's customer base and their geographic dispersion. The Company had one major customer which accounted for 16% of the Company's sales during fiscal year 1998; this customer represented 9% of accounts receivable at June 26, 1998. Two major customers which accounted for 13% and 22% of the Company's sales during -26- fiscal year 1997 and represented 10% and 23% of accounts receivable at June 27, 1997. Two customers accounted for 14% and 20% of sales during fiscal year 1996 and represented 7% and 16% of accounts receivable at June 28, 1996.. The Company has no significant concentration of credit risks other than discussed above and performs ongoing credit evaluations of its customers and maintains an allowance for potential credit losses. The allowance for doubtful accounts is composed of:
June 26, June 27, June 28, 1998 1997 1996 ------------------ ------------------ ------------------ Beginning $ 404,000 $ 177,000 $ 10,000 Additions charged to cost and expenses 90,000 376,000 178,000 Actual write-offs (26,000) (149,000) (11,000) ------------------ ------------------ ------------------ Ending $ 468,000 $ 404,000 $ 177,000 ================== ================== ==================
2. INVENTORIES Inventories consist of the following:
June 26, June 27, 1998 1997 ------------------ ------------------ Raw materials $ 905,000 $ 551,000 Work in progress 696,000 526,000 Finished goods 455,000 707,000 ------------------ ------------------ $ 2,056,000 $ 1,784,000 ================== ==================
3. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
June 26, June 27, 1998 1997 ------------------ ------------------ Building and improvements $ 1,806,000 $ 2,308,000 Leasehold improvements 928,000 1,020,000 Machinery and equipment 9,525,000 10,084,000 Furniture and fixtures 1,713,000 1,853,000 Equipment under capital leases 797,000 1,328,000 ------------------ ------------------ 14,769,000 16,593,000 Less: Accumulated depreciation and amortization 9,427,000 11,080,000 Accumulated amortization on equipment under capital leases 673,000 1,092,000 ------------------ ------------------ Net property and equipment $ 4,669,000 $ 4,421,000 ================== ==================
-27- 4. OTHER ASSETS Other assets consist of the following:
June 26, June 27, 1998 1997 ------------------ ------------------ Cost in excess of net assets acquired, net of accumulated amortization of $526,000 (1998) and $459,000 (1997) $ 611,000 $ 178,000 Other 15,000 86,000 ------------------ ------------------ Total $ 626,000 $ 264,000 ================== ==================
5. LINES OF CREDIT The Company's subsidiary, TTI Pte, has a secured credit agreement with a bank which provides for a total line of credit of $3,125,000. The agreement contains certain debt covenants including maintaining a minimum net worth of $2,400,000 at TTI Pte. Borrowings under the line were $481,000 and nil at the end of fiscal 1998 and 1997, respectively. The interest rate on borrowings is at the bank's prime rate (8.25% at June 26, 1998) plus 1.25%. Borrowings under this agreement are collateralized by substantially all of TTI Pte's assets. This line of credit expires in March 1999. The Company's subsidiary, TTM has a secured credit agreement with a bank which provides for a total line of credit of $132,000. At June 26, 1998 and June 27, 1997, there were no borrowings outstanding. The line of credit bears interest at the bank's reference rate (12.3% at June 26, 1998) plus 2.75%. This line of credit expires in May 1999. The Company's subsidiary, TTBK, has a line of credit which provides for borrowings of approximately $48,000. Interest on the line is at the bank's reference rate (15.75% at June 26, 1998) plus 1.0%. There were no borrowings against this line as of June 26, 1998. This line of credit does not have an expiration date. The Company obtained a revolving line of credit of $150,000 from a bank bearing interest at 1.8% above the bank's reference rate (9.75% at June 26, 1998). Borrowings under the line amounted to $150,000 as of June 26, 1998 and June 27, 1997. This line of credit expires in February 1999. 6. ACCRUED EXPENSES Accrued expenses consist of the following:
June 26, June 27, 1998 1997 ------------------ ------------------ Payroll and related $ 1,280,000 $ 1,655,000 Other 2,524,000 1,950,000 ------------------ ------------------ Total $ 3,804,000 $ 3,605,000 ================== ==================
-28- 7. LONG-TERM DEBT AND CAPITALIZED LEASES Long-term debt and capitalized leases consist of the following:
June 26, June 27, 1998 1997 --------------- --------------- Capitalized lease obligations, due in various installments through 1998 bearing interest at approximately 8.0% and 9.75%, collateralized by leased assets (see Note 9) $ 197,000 $ 289,000 Mortgage loan, due in monthly installments through 2001, bearing interest at 9.9%. 294,000 338,000 Mortgage loan, due in monthly installments through 1998, bearing interest at 1.0% above bank reference rate (15.75% at June 26, 1998), collateralized by land and building in TTBk. 123,000 254,000 Note payable to officer and shareholder, bearing interest at 10%, due January 1, 1998, unsecured. 40,000 ------------------ ------------------ 614,000 921,000 Less current portion 188,000 198,000 ------------------ ------------------ $ 426,000 $ 723,000 ================== ==================
Maturities of long-term debt as of June 26, 1998 are as follows (exclusive of capital lease obligations):
Fiscal Year ---------- 1999 $ 103,000 2000 134,000 2001 140,000 2002 40,000 --------------- $ 417,000 ==============
8. TAXES ON INCOME The provision for income taxes consists of the following:
Year Ended ---------------------------------------------------------------- June 26, June 27, June 28, 1998 1997 1996 ----------------- ----------------- ----------------- Current: Domestic $ 24,000 $ (157,000) $ 1,000 Foreign 235,000 1,426,000 1,009,000 ----------------- ----------------- ----------------- 259,000 1,269,000 1,010,000 ----------------- ----------------- ----------------- Deferred: Domestic - - - Foreign 196,000 (5,000) 99,000 ----------------- ----------------- ----------------- $ 455,000 $ 1,264,000 $ 1,109,000 ================= ================= =================
-29- The pre-tax income (loss) before minority interest related to domestic and foreign operations is as follows:
Year Ended ------------------------------------------------------------- June 26, June 27, June 28, 1998 1997 1996 ------------- ----------------- -------------- Domestic $ (18,000) $ (137,000) $ 380,000 Foreign 1,323,000 3,544,000 2,478,000 ----------------- ----------------- ----------------- $ 1,305,000 $ 3,407,000 $ 2,858,000 ================= ================= =================
The reconciliation between the U.S. federal statutory tax rate and the effective income tax rate is as follows:
Year Ended ---------------------------------------------------------------------- June 26, June 27, June 28, 1998 1997 1996 -------------------- -------------------- -------------------- Statutory federal tax rate 35% 35% 35% Foreign income taxed at lower rates (11)% (24)% (22)% Deferred income tax asset valuation allowance 8% 26% 26% Other 3% -------------------- -------------------- -------------------- Effective rate 35% 37% 39% ==================== ==================== ====================
The Company files income tax returns in several countries. Income in one country is not offset by losses in another country. Accordingly, no benefit is provided for losses in countries except where the loss can be carried back against income recognized in previous years. Income taxes are provided in those countries where income is earned. The effect of providing tax against profits while not providing benefit for losses results in an effective tax rate which differs from the federal statutory rate. The components of deferred income tax assets (liabilities) are as follows:
June 26, June 27, 1998 1997 -------------------- -------------------- Deferred income tax assets: Net operating loss carry forward $ 1,245,000 $ 1,087,000 Provision for local tax 189,000 153,000 Provision for bad debts 181,000 100,000 Reserve for obsolescence 42,000 82,000 Other 28,000 58,000 -------------------- -------------------- Total deferred income tax assets 1,685,000 1,480,000 Deferred income tax liabilities: Depreciation (315,000) (367,000) Other (265,000) (409,000) -------------------- -------------------- Total income tax liabilities (580,000) (776,000) -------------------- -------------------- Subtotal 1,105,000 704,000 Valuation allowance (1,685,000) (1,480,000) -------------------- -------------------- Net deferred income tax liability $ (581,000) $ (776,000) ==================== ====================
At June 26, 1998 the Company has net operating loss carryforwards of approximately $2,870,000 available to offset future U.S. federal taxes, which expire as follows: $2,434,000 in 2005 and $436,000 in 2006. -30- 9. COMMITMENTS AND CONTINGENCIES The Company leases certain of its facilities and equipment under long-term agreements expiring at various dates through 2030. Certain of these leases require the Company to pay real estate taxes and insurance and provide for escalation of lease costs based on certain indices. Future minimum payments under capital leases and noncancellable operating leases as of June 26, 1998 are as follows:
Capital Rental Fiscal Year Leases Commitment ------------- -------------------- -------------------- 1999 $ 85,000 $ 344,000 2000 92,000 220,000 2001 20,000 104,000 2002 56,000 2003 56,000 Thereafter 2,082,000 -------------------- -------------------- Total minimum lease payments $ 197,000 $ 2,862,000 ==================== ====================
Total rental expense on all operating leases, both cancelable and noncancelable, amounted to $407,000 in 1998, $371,000 in 1997 and $768,000 in 1996. Total rental income under sublease was $70,000 in 1998, $138,000 in 1997 and $232,000 in 1996. On August 24, 1995, the Company was named in a civil action brought against 106 defendants alleging that they may have caused or contributed to soil and groundwater contamination that required the plaintiff to pay $3,750,000 to the Federal Environmental Protection Agency to settle. The Company has not yet had the opportunity to investigate the allegations. In the opinion of management, based on its present information, this matter should not have a material impact on the Company's consolidated financial statements. 10. STOCK OPTIONS The Company has three stock option plans under which officers, directors and employees are eligible to receive options to purchase shares of the Company's common stock. One of these plans, adopted in 1988, has been terminated except for outstanding options, which are still exercisable, to purchase an aggregate of 188,000 shares. Additionally, the Board of Directors issues non-qualified options at their discretion at a price not less than fair market value at the date of grant. On December 8, 1997, the Company's shareholders approved the Company's 1998 Stock Option Plan (the 1998 Plan) under which employees, officers, directors and consultants receive options to purchase the Company's common stock at a price that is not less than 100 percent of the fair market value at the date of grant. There are 300,000 shares authorized for grant under the 1998 Stock Option Plan. On December 8, 1997, the Company's shareholders approved the Directors Stock Option Plan (the "Directors Plan") under which duly elected non-employee Directors and the President (if he or she is a director of the Company) of the Company (currently seven individuals) receive options to purchase the Company's common stock at a price of 85% of the fair market value of the underlying shares on the date of grant. The shares are nonqualified and there are 150,000 shares authorized for grant under the Directors Plan. The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its Plan. Accordingly, no compensation expense has been recognized. Had compensation cost for the Company's Plan been determined based upon the fair value at the grant date for awards under this Plan consistent with the methodology prescribed under Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: -31-
Year Ended Year Ended June 26, 1998 June 27, 1997 ----------------- ----------------- Net Income: As Reported $ 831,000 $ 1,002,000 Pro forma $ (25,000) $ 440,000 Basic earnings per Share: As Reported $ 0.34 $ 0.51 Pro forma $ (0.01) $ 0.23
The fair value of the options granted during fiscal 1998 is $7.19 on the date of grant using the Black Scholes option-pricing model with the assumptions listed below.
Year Ended Year Ended June 26, 1998 June 27, 1997 ----------------- ----------------- Volatility 49.3% 41.7% Risk free interest rate 5.36-5.69% 6.1% Expected life (years) 3.9 2.1
The following tables summarize information concerning outstanding and exercisable options at June 26, 1998 and June 27, 1997.
Year Ended June 27, 1997 - ---------------------------------------------------------------------------------------------------------------------------- Options and Warrants Outstanding Options and Warrants Exercisable - -------------------------------------------------------------------------- ------------------------------------------ Number Weighted Average Weighted Number Weighted Outstanding Remaining Average Exercisable Average June 26, 1998 Contractual Life Exercise Price June 26, 1998 Exercise Price ---------------- -------------------- --------------------- ----------------- --------------------- 18,750 0.45 $ 1.60 18,750 $ 1.60 20,625 1.45 2.17 20,625 2.17 36,375 2.32 3.00 27,281 3.00 22,500 2.32 3.67 11,250 3.67 1,313 2.32 3.00 984 3.00 5,625 3.47 3.67 2,813 3.67 30,000 3.58 4.67 30,000 4.67 22,500 3.58 5.67 22,500 5.67 30,000 4.27 5.34 30,000 5.34 45,000 4.27 7.70 45,000 7.70 50,000 4.35 7.70 12,500 7.70 349,600 4.36 7.00 349,600 7.00 5,000 4.45 7.00 1,250 7.00 ---------------- -------------------- ----------------- ----------------- ----------------- 637,288 3.91 $ 6.17 572,553 $ 6.18 ================ ==================== ================= ================= =================
Included in the total option and warrants outstanding at June 26, 1998 were 444,600 warrants issued in fiscal 1998 which permit purchase of common stock at an average price of $7.15. -32- The following table summarizes the stock option activity for the three years ended June 26, 1998:
Number of Stock Options Shares ------------------------------------------------------------------------------ ------------- Balance at June 30, 1995 (weighted average price of $2.38 per share) 295,791 Granted at a weighted average price of $4.50 per share 45,750 Exercised at a weighted average price of $1.52 per share (37,871) Canceled at a weighted average price of $1.52 per share (1,875) Balance at June 28, 1996 (weighted average price of $1.78 per share) 301,796 Granted at a weighted average price of $5.50 per share 28,500 Exercised at a weighted average price of $2.30 per share (128,250) Canceled at a weighted average price of $1.52 per share (9,084) Balance at June 27, 1997 (weighted average price of $2.06 per share) 192,962 Granted at a weighted average price of $7.19 per share 87,500 Exercised at a weighted average price of $1.66 per share (87,774) Canceled at a weighted average price of $0.00 per share 0 ------------- Balance at June 26, 1998 (weighted average price of $4.77 per share) 192,688 ============= ------------- Options exercisable at June 26, 1998 139,553 =============
11. SHAREHOLDERS' EQUITY In July 1997, the Board of Directors approved a three-for-two stock split. The date of distribution was October 7, 1997. All figures presented in these financial statements give effect to this stock split. 12. BUSINESS SEGMENTS The Company operates principally in three industry segments, the designing and manufacturing of equipment that tests the structural integrity of integrated circuits and other products which measure the rate of turn, the testing service industry that performs structural and electronic tests of semiconductor devices and the distribution of various products from other manufacturers in Singapore and Southeast Asia. The allocation of the cost of equipment, the current year investment in new equipment and depreciation expense have been made on the basis of the primary purpose for which the equipment was acquired. The Company's wholly owned subsidiary, TTI Pte. in Singapore (including TTI Pte.'s wholly owned subsidiaries TTTS Pte and TTBk, 55% owned joint venture of Trio-Tech Malaysia, another subsidiary wholly owned by Trio-Tech Malaysia and 73% owned PESB), operates in the manufacturing, the testing service and the distribution industry segments. All intersegment sales are sales from the manufacturing segment to the testing and distribution segment. Corporate assets mainly consist of cash and prepaid expenses. Corporate expenses mainly consist of salaries, insurance, professional expenses and directors' fees.
1998 1997 1996 ------------------- ------------------- ------------------- Revenues: Manufacturing $ 6,335,000 $ 6,334,000 $ 6,069,000 Testing 8,437,000 12,004,000 12,756,000 Distribution 7,080,000 3,210,000 4,360,000 ------------------ ------------------ ------------------- Total revenues $ 21,852,000 $ 21,548,000 $ 23,185,000 ================== ================== ===================
-33-
Operating profit: Manufacturing $ (443,000) $ (881,000) $ (367,000) Testing 712,000 3,772,000 3,238,000 Distribution 643,000 20,000 (363,000) ----------- ----------- ----------- Total operating profit 912,000 2,911,000 2,508,000 ----------- ----------- ----------- Corporate income (expenses) 57,000 146,000 204,000 ----------- ----------- ----------- Total operating profit $ 969,000 $ 3,057,000 $ 2,712,000 =========== =========== =========== Depreciation and amortization: Manufacturing $ 237,000 $ 263,000 $ 206,000 Testing 579,000 1,074,000 1,316,000 Distribution 62,000 22,000 39,000 ----------- ----------- ----------- Total depreciation and amortization $ 878,000 $ 1,359,000 $ 1,561,000 =========== =========== =========== Capital expenditures: Manufacturing $ 804,000 $ 469,000 $ 234,000 Testing 1,741,000 452,000 1,050,000 Distribution 29,000 5,000 537,000 ----------- ----------- ----------- Total capital expenditures $ 2,574,000 $ 926,000 $ 1,821,000 =========== =========== =========== Identifiable assets: Manufacturing $ 7,345,000 $ 4,027,000 $ 3,650,000 Testing 6,589,000 10,667,000 9,562,000 Distribution 5,171,000 3,818,000 4,145,000 Corporate 226,000 16,000 59,000 ----------- ----------- ----------- Total assets $19,331,000 $18,528,000 $17,416,000 =========== =========== =========== Net sales into regions: United States $ 4,408,000 $ 2,624,000 $ 2,671,000 Southeast Asia 15,894,000 17,999,000 19,333,000 Ireland 1,550,000 925,000 1,181,000 ----------- ----------- ----------- Total net sales $21,852,000 $21,548,000 $23,185,000 =========== =========== =========== Operating (loss) profit: United States $ 35,000 $ (151,000) $ 176,000 Southeast Asia 891,000 3,077,000 2,311,000 Ireland (14,000) (15,000) 21,000 ----------- ----------- ----------- Total operating profit 912,000 2,911,000 2,508,000 ----------- ----------- ----------- Corporate income (expenses) 57,000 146,000 204,000 ----------- ----------- ----------- Total operating profit $ 969,000 $ 3,057,000 $ 2,712,000 =========== =========== =========== Assets: United States $ 5,926,000 $ 1,855,000 $ 2,143,000 Southeast Asia 12,545,000 15,951,000 14,422,000 Ireland 860,000 722,000 851,000 ----------- ----------- ----------- Total assets $19,331,000 $18,528,000 $17,416,000 =========== =========== ===========
-34- The Company exports a portion of its equipment. Export sales by geographic area are as follows:
June 26, June 27, June 28, 1998 1997 1996 ----------- ----------- ----------- Southeast Asia $ 836,000 $ 1,179,000 $ 957,000 Europe 558,000 153,000 646,000 All others 175,000 108,000 157,000 ----------- ----------- ----------- $ 1,569,000 $ 1,440,000 $ 1,760,000 =========== =========== ===========
13. QUARTERLY FINANCIAL DATA (UNAUDITED) The Company's summarized quarterly financial data are as follows:
Year ended June 27, 1997 SEP. 27, DEC. 27, MAR. 28, JUN. 27, ---------------- --------------- -------------- -------------- Revenues $ 5,616 $ 5,419 $ 5,031 $ 5,482 Expenses 4,647 4,692 4,348 4,454 ---------------- --------------- -------------- -------------- Income before income taxes and Minority interest 969 727 683 1,028 Income taxes 421 251 228 364 ---------------- --------------- -------------- -------------- Income before minority interest 548 476 455 664 Minority interest (379) (274) (157) (331) ---------------- --------------- -------------- -------------- Net income $ 169 $ 202 $ 298 $ 333 ================ =============== ============== ============== Net income per share: Basic $ 0.09 $ 0.11 $ 0.16 $ 0.18 ================ =============== ============== ============== Fully diluted $ 0.09 $ 0.10 $ 0.15 $ 0.17 ================ =============== ============== ==============
Year ended June 27, 1997 SEP. 26, DEC. 26, MAR. 27, JUN. 26, ---------------- --------------- -------------- -------------- Revenues $ 5,095 $ 4,811 $ 5,558 $ 6,388 Expenses 4,674 4,572 5,330 5,970 ---------------- --------------- -------------- -------------- Income before income taxes and Minority interest 421 239 228 418 Income taxes 162 95 149 49 ---------------- --------------- -------------- -------------- Income before minority interest 259 144 79 369 Minority interest (48) 37 127 (136) ---------------- --------------- -------------- -------------- Net income $ 211 $ 181 $ 206 $ 233 ================ =============== ============== ============== Net income per share: Basic $ 0.11 $ 0.08 $ 0.08 $ 0.08 ================ =============== ============== ============== Fully diluted $ 0.10 $ 0.08 $ 0.08 $ 0.08 ================ =============== ============== ==============
-35- EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JUN-26-1998 JUN-27-1997 JUN-26-1998 3,305 3,947 4,891 (468) 2,056 14,036 14,769 (10,000) 19,331 7,439 0 0 0 8,708 55 19,331 21,852 21,852 14,178 6,705 (485) 0 168 1,286 455 831 0 0 0 831 0.34 0.33
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