10-K 1 d10k.htm FORM 10-K Form 10-K
Table of Contents
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 

 
FORM 10-K
 
 
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended June 30, 2002
 
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)
14731 Califa Street
   
Van Nuys, California
 
91411
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s Telephone Number: 818-787-7000
 

 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class

 
Name of each exchange
On which registered

Common Stock, no par value
 
AMEX
 
Securities registered pursuant to Section 12(g) of the Act:
None
 

 
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  þ  No ¨
 
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.  þ
 
The aggregate market value of voting stock held by non-affiliates of Registrant, as of September 6, 2002, was approximately $4 million (based upon the last sales price for shares of Registrant’s Common Stock as reported by the AMEX on September 6, 2002). Shares of Common Stock held by each officer, director and holder of 5% or more of the outstanding Common Stock (including shares with respect to which a holder has the right to acquire beneficial ownership within 60 days) have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
 
The number of shares of common stock outstanding as of September 6, 2002 was 2,927,551.
 


Table of Contents
 
TRIO-TECH INTERNATIONAL
 
INDEX
 
         
Page

    
Part I
    
Item 1
     
3
Item 2
     
9
Item 3
     
10
Item 4
     
10
    
Part II
    
Item 5
     
11
Item 6
     
12
Item 7
     
13
Item 7A
     
24
Item 8
     
26
Item 9
     
26
    
Part III
    
Item 10
     
26
Item 11
     
26
Item 12
     
26
Item 13
     
26
Item 14
     
26
    
Part IV
    
Item 15
     
26
  
29
  
30
Exhibits
    
       
31
       
32
       
33
       
34
       
35
       
36
       
37
 

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TRIO-TECH INTERNATIONAL
PART I
 
NOTE CONCERNING FORWARD-LOOKING STATEMENTS
 
The discussions of Trio-Tech International’s (the “Company”) business and activities set forth in this Form 10-K and in other past and future reports and announcements by the Company may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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 following factors, among others, 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 and volatility 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 profitably integrating acquired businesses, if any, into the Company; risks associated with conducting business internationally and especially in Southeast Asia, including currency fluctuations and devaluation, currency restrictions, local laws and restrictions and possible social, political and economic instability; and other economic, financial and regulatory factors beyond the Company’s control. See the discussions elsewhere in this Form 10-K, including under the heading “Certain Risks That May Affect Our Future Results”, for more information. In some cases, you can identify forward-looking statements by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” “believes,” “can impact,” “continue,” or the negative thereof or other comparable terminology.
 
We undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events.
 
ITEM 1— BUSINESS
 
Trio-Tech International was incorporated in 1958 under the laws of the State of California. As used herein, the term “Trio-Tech” or “Company” or “we” or “us” or “Registrant” includes Trio-Tech International and its subsidiaries unless the context otherwise indicates. Our mailing address and executive offices are located at 14731 Califa Street, Van Nuys, California 91411, and our telephone number is (818) 787-7000.
 
With more than 44 years dedicated to the semiconductor and related industries, we have applied our expertise to our global customer base in test services, design, engineering, manufacturing, and distribution.
 
General
 
Founded in 1958, Trio-Tech International provides third-party semiconductor testing and burn-in services primarily through its laboratories in Southeast Asia. The Company also designs, manufactures and markets equipment and systems used in the testing and production of semiconductors at its facilities in California and Southeast Asia, and distributes semiconductor processing and testing equipment manufactured by others.
 
The Company operates in three industry segments: Testing Services, Manufacturing and Distribution.
 
Our core business, Testing Services, is expected to show growth in the coming year and has changed the direction of our strategic growth plan. We currently operate five test facilities, one in the United States, one in Europe and three in Southeast Asia. These facilities provide customers a comprehensive range of testing services, such as burn-in and product life testing for finished or packaged components.
 
We manufacture “wet” processing and cleaning stations used in the manufacture of semiconductor circuits and temperature controlled chucks that are used to manufacture and test silicon wafers and other microelectronic substrates in what is commonly called the “front-end”, or creation of semiconductor circuits. Additionally, we also manufacture centrifuges, leak detectors, HAST (Highly Accelerated Stress Test) systems and “burn-in” systems that are used primarily in the “back-end” of the semiconductor manufacturing process to test finished semiconductor devices and electronic components.

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Our business in Southeast Asia has an active distribution operation. Additionally, the Southeast Asia business markets and supports distribution of their own manufactured equipment in addition to distributing complementary products from other manufacturers that are used by the Company’s customers and other semiconductor and electronics manufacturers.
 
Company History
 
1958
  
Incorporated in California
1976
  
The Company formed Trio-Tech International Pte. Ltd. (TTI Pte) in Singapore.
1984
  
The Company formed the European Electronic Test Center (EETC), a Cayman Islands domiciled 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.
Trio-Tech Singapore achieved ISO 9002 certification.
1994
  
Trio-Tech Malaysia started a new components assembly operation in Batang Kali.
1995
  
Trio-Tech Singapore achieved ISO 9001 certification.
1997
  
In November 1997, the Company acquired Universal Systems of Campbell, California.
1998
  
In September 1998, the Company listed on AMEX under the symbol TRT.
2000
  
Trio-Tech Singapore achieved QS 9000 certification.
Trio-Tech Malaysia closed its facility in Batang Kali.
2001
  
The Company divested the Rotating Test Equipment Product Line.
Trio-Tech Malaysia closed its facility in Kuala Lumpur.
 
Analysis of Sales
 
Complete Business Segment and Geographic Area Information is set forth under Note 15 to the Consolidated Financial Statements for the years ended June 30, 2002, 2001 and 2000 and is included as part of this Form 10-K.
 
Background Technology
 
In 2001, the worldwide market for semiconductor devices was estimated at $138 billion, approximately 32% less than the year 2000, with shipments of $204 billion. Most forecasters see an industry turnaround during fiscal 2003 with shipments growing in the future. The Semiconductor Industry Association (SIA) expects the growth rate to accelerate to 23.2% in 2003 and 20.9% in 2004 with wireless and digital consumer products leading the growth of semiconductor sales.
 
In addition to the growing demand for semiconductors, integrated circuits (IC’s) are continually shrinking in size while increasing in capacity, complexity, and versatility. In order to fabricate these semiconductors, manufacturers must continually improve their equipment, packaging and test facilities. Semiconductor Equipment and Materials International (SEMI) reported recently that worldwide sales of semiconductor manufacturing equipment totaled $28 billion in 2001, a 41% year-over-year decline, the worst drop in sales on record. SEMI has projected that worldwide semiconductor equipment sales will decline by 3% in 2002, but the chip-making tool market will rebound and increase by 29% in 2003 and 23% in 2004

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The market for semiconductor manufacturing equipment can be divided into “front-end” applications, including wafer fabrication and assembly, and “back-end” applications, comprised of packaging and testing. SIA estimates that the semiconductor equipment market is approximately 70% front-end equipment, 20% back-end equipment and 10% facilities.
 
“Back-End”
 
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 that can be offered by third party service providers.
 
Finished devices are put through a series of tests, such as burn-in and electrical testing, to ensure they meet the necessary performance and quality standards, before shipment to the customer. Our component centrifuges, leak detectors, HAST equipment and COBIS burn-in systems are all used to test and screen finished semiconductor devices to ensure that they meet the specifications required by the manufacturers and customers.
 
“Front-End”
 
Semiconductor devices are fundamental building blocks used in electronic equipment and systems. Each semiconductor device consists of an integrated circuit designed to perform a specific electronic function. Integrated circuits are manufactured through a series of complex steps on a wafer substrate, etching or depositing the circuit pattern on a surface, typically a circular silicon wafer, measuring three to eight inches in diameter. Multiple integrated circuit patterns are transferred to the wafer, and each completed integrated circuit is called a device or die. The number of devices or dies depends on the size of the circuit and the size of the wafer. Manufacturers can significantly increase the number of devices or dies per wafer by shrinking the circuit size or by expanding the wafer size. The transition to increased wafer size, from 200mm (8 inch) to 300mm (12 inch) wafers, is currently underway throughout the industry.
 
After etching or deposition of integrated circuits, wafers are typically sent through a series of 100 to 300 additional processing steps. At many of these process steps, the wafer is washed and dried using wet process stations, which we manufacture.
 
The finished wafer is then put through a series of tests where each separate integrated device on the wafer is tested for functionality. Our Artic temperature chucks are used with a wafer prober to test semiconductor wafers at accurately controlled temperatures. After testing, the wafer is “diced” or cut up, and each die is then placed into a packaging material, usually plastic or ceramic, with lead wires to permit mounting onto printed circuit boards.
 
Testing Services
 
We own and operate facilities that provide testing services for semiconductor devices and other electronic components to meet the requirements of military, aerospace, industrial and commercial applications. Testing services represented approximately 46%, 31% and 29% of sales for the years ended June 30, 2002, 2001 and 2000 respectively.
 
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. All of the facilities in Southeast Asia are ISO 9002 as well as QS 9000 certified. The Company also operates test facilities in Ireland.
 
The testing services are used by manufacturers and purchasers of semiconductors and other components who either lack testing capabilities or whose in-house screening facilities are insufficient for testing devices to military or certain commercial specifications. For those customers with adequate in-house capabilities, we offer testing services for their “overflow” requirements and also provide independent testing verification services.
 
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.
 
Products
 
The Company designs, develops, manufactures and markets equipment for the manufacture and test of semiconductor wafers, devices and other electronic components. Revenue from the sale of products manufactured represented approximately 26%, 51% and 50% of sales for the years ended June 30, 2002, 2001 and 2000 respectively.

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Front-End Products
 
Wet Process Stations
 
Wet process benches are used for cleaning, rinsing and drying semiconductor wafers, magnetic disks, flat panel displays and other microelectronic substrates. The wet process bench product line, which is manufactured by the Company’s subsidiary Universal Systems, includes manual, semi-automated 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.
 
Artic 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°C to +400°C and in diameters from 4 to 12 inch. These systems provide excellent performance to meet the most demanding customer applications. Several unique mechanical design features, for which patents are pending, provide excellent mechanical stability under high probing forces and across the temperature ranges.
 
Back-End Products
 
Autoclaves and HAST (Highly Accelerated Stress Test) Equipment
 
We manufacture 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
 
We manufacture 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 and 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.
 
The Company manufactures the COBIS II burn-in system that offers state-of-the-art dynamic burn-in capabilities and a Windows-based operating system with full data logging and networking features. The Company developed, and now offers, a new Power Line Conditioner for the COBIS II, which reduces all varieties of electrical interruptions. The Company also offers burn-in boards for its BISIC, COBIS and COBIS II burn-in systems and other brands of burn-in systems. Burn-in boards are used to mount devices during high temperature environmental stressing. The Burn-in Board Tester is an extremely accurate software programmable burn-in board tester, which can be programmed to check up to 1024 sockets’ pins.
 
During 2000 through 2002, the Company developed several new products to complement the burn-in processes including semi-automatic (LUBIBM) and automatic burn-in board loaders & unloaders (LUBIB) designed to perform precise, high-speed transfer of IC packages from semiconductor holding tray to the burn-in board, or vice-versa while maintaining the integrity of the IC’s leads. Additional features have been further integrated into the LUBIB to improve productivity and minimize human handling including the integration of automatic burn-in boards handling systems and the automatic electrical board check station. We have improvised the LUBIBM with built-in test functions for a major microprocessor company to study device characteristics and to weed out device failures. Burn-in-board cleaning systems (CUBIB) are designed to perform wet or dry cleaning for burn-in boards and other modular boards. Recently, we jointly developed a fully automatic CUBIB with one of our major customers. We also recently developed and introduced a new innovation, the burn-in socket contact conditioners (SCC), which removes fragments of solder residue from the contact pins of an IC Socket, improving the productivity of the test process and reducing contact failure on socket pins.
 
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 spin these devices and parts at specific acceleration rates, creating gravitational-forces (g’s) up to 30,000 g’s (900,000 pounds per square inch), thereby indicating any mechanical weakness in the devices. Leak detection equipment is designed to detect

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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. Applications include automotive and aerospace markets.
 
Distribution Activities
 
The Company’s Singapore subsidiary continues to develop its international distribution division. The distribution operation markets, sells and supports our products in Southeast Asia. In addition to our own products, this operation also distributes other complementary products from other manufacturers based in the United States, Europe, Japan and other countries. These products are widely used by high quality and volume production manufacturers in the semiconductor and electronic industries. The products include environmental chambers, shaker systems, handlers, interface systems, vibration systems, solderability testers and other manufacturing products. Revenue from distribution activities represented approximately 29%, 18% and 22% of sales for the years ended June 30, 2002, 2001 and 2000, respectively.
 
Product Research and Development
 
We continue to invest in research and development to improve our products and services. Our previous efforts have been concentrated in products for the “Front End” and in developing new testing technology that allows us to offer more advanced processes. The Company incurred research and development costs of $331,000 in fiscal 2002, $216,000 in fiscal 2001 and $205,000 in fiscal 2000.
 
Testing Services
 
During 2000 through 2002, the Company developed new equipment and facilities to participate in a new generation of burn-in technology known as HBI (Hybrid Burn-in) and SBI (Smart Burn-in). This technology has been developed to meet the unique test requirements of the latest microprocessor products. The HBI and SBI Test Systems are multiple positions, independently programmable systems that can economically run long test times at unique burn-in conditions. We developed significant facilities, including a power sub-station and improved environmental controls, to house the HBI and SBI technology.
 
Artic Temperature Controlled Wafer Chucks
 
We continue to develop our range of Artic temperature controlled wafer chucks. In July 1999, the Company introduced its new range of TC3000 series chucks for production wafer probing applications. These new chucks offer high levels of mechanical stability under high probing loads. A triaxial guarding option is available which enables very precise electrical measurements on the wafer. This new generation of chucks has been expanded for use in all major production wafer probers and for new applications such as high power device testing. The Company has also applied this new technology to 300 mm chucks in the new TC31200 temperature chuck for the emerging 12 inch or 300mm wafers.
 
Wet Process Stations and Chemical Management Equipment
 
The Company is actively developing its line of wet process equipment. During 2001, we completed development of our Chemical Dispense Units (CDUs), which allows us to offer a complete wet process and chemical supply system. Chemical management equipment provides automatic dispensing and control of process chemicals for our own wet process equipment as well as other brands of wet stations.
 
In addition, the Company also produced several new systems that allow photo resist stripping, rinsing and drying, all in a single process chamber. Other tools under development include a sophisticated plating tool and an advanced chemical dispensing tool that utilizes ozone injection systems for organic cleaning of silicon wafers. Use of ozone injection eliminates the need for toxic chemicals.
 
Marketing, Distribution and Services
 
The Company markets its products and services worldwide, directly and through independent sales representatives. Additionally we have approximately 16 independent sales representatives operating in the United States and another 25 in various foreign countries. Of the 41 sales representatives, 5 represent the Distribution Segment and the balance represent the Manufacturing Segment. Trio-Tech’s United States marketing efforts are coordinated from its California locations. Southeast Asia and European marketing efforts are assigned to its subsidiaries in Singapore and Ireland, respectively. The Company advertises its products in trade journals and participates in trade shows.
 
Independent testing laboratories, users, assemblers and manufacturers of semiconductor devices, including many large well-known corporations, purchase the Company’s products and services. These industries depend on the current and anticipated market demand for integrated circuits and products utilizing semiconductor devices. In fiscal 2002, 2001, and 2000, sales of

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equipment and services to our two largest customers (Catalyst Semiconductor and AMD) accounted for approximately 55%, 40%, and 28%, respectively, of our net revenues. Our ability to maintain close, satisfactory relationships with our customers is essential to our stability and growth. The loss of or reduction or delay in orders from our significant customers, or delays in collecting accounts receivable from our significant customers, could adversely affect our financial condition and results of operations. During the year ended June 30, 2002, the Company had sales of $4,640,000 (24%) and $6,079,000 (31%) to Catalyst Semiconductor and AMD, respectively.
 
Backlog
 
The following table sets forth the Company’s backlog at the dates indicated (amounts in thousands):
 
    
June 30, 2002

  
June 30, 2001

Manufacturing backlog
  
$
785
  
$
2,076
Testing service backlog
  
 
6,615
  
 
5,863
Distribution backlog
  
 
537
  
 
509
    

  

    
$
7,937
  
$
8,448
    

  

 
Based upon past experience, the Company does not anticipate any significant cancellations or renegotiation of sales. The purchase orders for manufacturing, testing and distribution require delivery within the next 12 months. The Company does not anticipate any difficulties in meeting delivery schedules. Our current backlog, as of September 6, 2002 is $1,192, $5,174 and $251 for manufacturing, testing and distribution, respectively and totals $6,617.
 
Manufacturing and Supply
 
The Company’s products are designed by its engineers and are assembled and tested at its facilities in California, Singapore and Ireland. We purchase all parts, and certain components, from outside sources for assembly by the Company. We have no written contracts with any of our key suppliers.
 
Competition
 
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. However, recent severe competition and attrition in the Asian test and burn-in services industry has reduced the total number of the Company’s competitors. Since the Company has sold and will continue to sell its products to competing laboratories and other test products are available from many 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 testing services revenues and earnings. Although these laboratories, and new competitors, may challenge the Company at any time, the Company believes that other factors, including its’ reputation, long service history and strong customer relationships are more important than pricing factors in determining the Company’s position in the market.
 
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.
 
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 2000, the Company filed, and was granted in 2001, a new United States patent (20 years) for several aspects of its new range of Artic temperature chucks. The capitalized cost of the patents was written off because of the impairment assessed by our management in fiscal 2002.
 
In the semiconductor industry it is typical for companies to receive notices from time to time alleging infringement of patents or other intellectual property rights of others. We can provide no assurance that we will not receive notices alleging infringement.

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Moreover, the cost of litigation of any claim or damages resulting from infringement of patents or other intellectual property could materially and adversely affect our business, financial condition and results of operations.
 
Employees
 
As of June 30, 2002, the Company had approximately 36 employees in the United States, 351 in Southeast Asia and 10 in Ireland for a total of approximately 397 employees. None of the Company’s employees are represented by a labor union. There are approximately 311 employees in the testing segment, 66 employees in the manufacturing segment and 20 in the distribution segment. Currently, as of September 6, 2002, there are approximately 391 employees.
 
ITEM 2— PROPERTIES
 
The Company believes that its existing facilities are adequate and suitable to meet the Company’s needs for the foreseeable future. From time to time contractual agreements arise and the Company believes that it has anticipated future needs.
 
The following table sets forth information as to the location and general character of the principal manufacturing and testing facilities of the Registrant:
 
Location

  
Principal Use/Segment

  
Approx.
Sq. Ft.
Occupied

  
Owned (O) or Leased (L) Expiration Date

14731 Califa Street
  
Headquarters/
  
10,000
  
(L) Jan. 2005
Van Nuys, CA 9l411
  
Testing/Manufacturing
         
6951-A Via Del Oro
  
Manufacturing
  
15,000
  
(L) Feb. 2004
San Jose, CA 95119
              
Abbey Road
  
Testing
  
18,400
  
(O)
Deansgrange Co.
              
Dublin, Ireland
              
1004, Toa Payoh North, Singapore
              
HEX 07-01/07,
  
Testing
  
6,833
  
(L) Sept. 2003
HEX 03-01/03,
  
Testing/Manufacturing
  
2,959
  
(L) Sept. 2003
HEX 03-16/17,
  
Testing
  
1,983
  
(L) Jul. 2002 *2
HEX 01-08/15
  
Testing/Manufacturing
  
6,865
  
(L) Jan. 2003 *2
HEX 01-16/17
  
Testing
  
1,983
  
(L) Feb. 2004
HEX 02-08/10,
  
Testing
  
2,959
  
(L) Aug. 2005
HEX 02-11/15
  
Testing
  
3,905
  
(L) Apr. 2005
1008, Toa Payoh North, Singapore
              
HEX 03-01/06,
  
Testing
  
7,345
  
(L) Feb. 2003 *2
HEX 03-09/15,
  
Logistics
  
4,435
  
(L) Jan. 2003 *2
HEX 03-16/18,
  
Distribution
  
5,130
  
(L) Jan. 2003 *2
HEX 01-08,
  
Power Substation
  
603
  
(L) Jun. 2003 *1
HEX 07-17/18,
  
Testing
  
4,315
  
(L) Nov. 2003
HEX 07-01,
  
Testing
  
3,466
  
(L) Jan. 2004
Plot 1A, Phase 1
  
Testing
  
49,924
  
(O)
Bayan Lepas Free Trade Zone
              
11900 Penang
              
327, Chalongkrung Road,
  
Testing
  
11,300
  
(O)
Lamplathew, Lat Krabang,
              
Bangkok 10520, Thailand
              

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Lot No. B7, Kawasan MIEL
  
Manufacturing
  
24,142
  
(O)
Batang Kali, Phase II,
              
43300 Batang Kali
              
Selangor Darul Ehsan, Malaysia
              

*1
 
The Company built and owns a Power Substation building, which building is situated on property that the Company leases. Although the lease expires in June 2003, the Company anticipates that the landlord will offer similar terms on such lease at renewal and does not believe that material expenses will be incurred.
 
*2
 
With respect to the various leases that expire during FY 2003, the Company anticipates that the landlord will offer similar terms on each such lease at renewal and does not believe that material expenses will be incurred.
 
ITEM 3—LEGAL PROCEEDINGS
 
The Company is, from time to time, the subject of litigation claims and assessments arising out of matters occurring in its normal business operations. In the opinion of management, resolution of these matters will not have a material adverse effect on the Company’s financial statements.
 
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
 
None.

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PART II
 
ITEM 5—MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
The Registrant’s common stock is traded on the American Stock Exchange under the symbol “TRT”. The following table sets forth, for the periods indicated, the range of high and low sales prices of our common stock as quoted by AMEX:
 
Quarter Ended

  
High

  
Low

Fiscal 2001
         
September 30, 2000
  
7.00
  
5.50
December 31, 2000
  
6.25
  
3.00
March 31, 2001
  
4.50
  
3.13
June 30, 2001
  
3.70
  
3.00
Fiscal 2002
         
September 30, 2001
  
4.02
  
2.96
December 31, 2001
  
3.26
  
2.48
March 31, 2002
  
3.25
  
2.50
June 30, 2002
  
3.06
  
2.65
Fiscal 2003
         
July 1, 2002 to
         
September 6, 2002
  
2.65
  
1.90
 
There were approximately 609 shareholders of record of our common stock as of September 6, 2002. Approximately 2,115,528 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 never 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.
 
EQUITY COMPENSATION PLAN INFORMATION
 
Plan Category

    
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)

    
Weighted-average exercise price of outstanding options, warrants and rights (b)

    
Number of securities remaining available for future issuance under equity compensation plans
(excluding securities
reflected in column (a) (c)

Equity compensation plans approved by security holders (1) Company's 1988 Stock Option Plan
    
27,000
    
$3.6670
    
-0-
(2) Company's 1998 Stock Option Plan
    
250,500
    
$4.5215
    
49,500
(3) Directors Stock Option Plan
    
197,000
    
$4.0253
    
103,000
Equity compensation plans not approved by security holders options granted outside of plan:
    
0
    
$0.0000
    
0
      
    
    
Total
    
474,500
    
$4.2668
    
152,500
      
    
    

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Table of Contents
 
ITEM 6—SELECTED FINANCIAL DATA
 
    
June 30, 2002

    
June 30, 2001

  
June 30, 2000

  
June 30, 1999

    
June 30, 1998

    
(In thousands except share and per share amounts)
Consolidated Statements of Income
                                      
Net sales
  
$
19,617
 
  
$
36,133
  
$
26,943
  
$
21,181
 
  
$
21,852
Income (loss) from Operations
  
 
(3,609
)
  
 
1,072
  
 
1,310
  
 
(207
)
  
 
969
Net (Loss) Income
  
 
(3,547
)
  
 
1,163
  
 
1,034
  
 
195
 
  
 
831
Net income per share :
                                      
Basic
  
 
(1.21
)
  
 
0.40
  
 
0.37
  
 
0.07
 
  
 
0.34
Diluted
  
 
(1.21
)
  
 
0.39
  
 
0.36
  
 
0.07
 
  
 
0.33
Weighted average common shares outstanding
                                      
Basic
  
 
2,928
 
  
 
2,884
  
 
2,759
  
 
2,745
 
  
 
2,413
Diluted
  
 
2,928
 
  
 
3,006
  
 
2,895
  
 
2,757
 
  
 
2,484
Consolidated Balance Sheets
                                      
Current assets
  
$
13,405
 
  
$
15,501
  
$
17,279
  
$
12,723
 
  
$
14,036
Current liabilities
  
 
6,486
 
  
 
7,599
  
 
8,349
  
 
5,934
 
  
 
7,439
Working capital
  
 
6,919
 
  
 
7,902
  
 
8,930
  
 
6,789
 
  
 
6,597
Total assets
  
 
19,075
 
  
 
24,150
  
 
22,712
  
 
18,932
 
  
 
19,331
Long-term debt and capitalized leases
  
 
986
 
  
 
1,745
  
 
586
  
 
962
 
  
 
426
Shareholders' equity
  
$
8,618
 
  
$
11,609
  
$
10,448
  
$
9,051
 
  
$
8,763

12


Table of Contents
ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
 
The following discussion should be read in conjunction with the Company’s Consolidated Financial Statements, including the related notes thereto, and other financial information included herein. In addition, in order to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we hereby notify our readers that the factors set forth in “Note Concerning Forward-Looking Statements” prior to “Part I—Item 1—Business” on page 3 hereof and “Certain Factors that May Affect Our Future Results” as set forth below in this Item 7, as well as other factors, in the past have affected and in the future could affect our actual results, and could cause our results for future periods to differ materially from those expressed in any forward looking statements made by or on our behalf, including without limitation those made in this report. In addition, past operating results are not necessarily indicative of the results to be expected in future periods.
 
Overview
 
Founded in 1958, Trio-Tech International provides third-party semiconductor testing and burn-in services primarily through its laboratories in Southeast Asia. The Company also designs, manufactures and markets equipment and systems used in the testing and production of semiconductors at its facilities in California and Southeast Asia, and distributes semiconductor processing and testing equipment manufactured by others. The following table set forth our revenue components for the past three years
 
Revenue Components
 
      
Year Ended

 
      
June 30, 2002

      
June 30, 2001

      
June 30, 2000

 
Net Sales:
                          
Testing
    
45.58
%
    
30.75
%
    
28.66
%
Manufacturing
    
25.60
 
    
51.11
 
    
49.68
 
Distribution
    
28.82
 
    
18.14
 
    
21.66
 
      

    

    

Total
    
100.00
%
    
100.00
%
    
100.00
%
      

    

    

 
Geographically, we operate in the U.S., Singapore, Malaysia, Thailand, and Ireland. Our customers are mainly concentrated in Southeast Asia and they are either semiconductor chip manufacturers or testing facilities (who purchase our testing equipment.). Our revenue is heavily concentrated on two major customers (See Business section and Note 13 to the financial statements for reference).
 
Our cost of sales is made up of the cost of materials used, obsolescence costs, labor, depreciation, utilities (which is our major part of consumption for testing services), and overhead relating to manufacturing, testing and distribution.
 
Our expenses can be classified into three general categories: selling expense, general and administrative expense, and research and development expense. Selling expenses include expenses for payroll and payroll taxes for employees working in the selling department, advertising, insurance, utilities and other expenses directly related to selling activities. General and administrative expenses include management payroll, property taxes, rental expense, depreciation of fixed assets used by the management function, utilities, employee fringe benefits, office supplies, travel and entertainment, professional expense, outside services and other expenses related to management and administration processes. Research and development expense includes payroll and payroll tax, travel, and any other expenses that are directly related to the research activities.
 
Critical Accounting Policies
 
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements
 
Use of Estimates
 
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and judgments that significantly affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The Company regularly evaluates these estimates, including those related to inventory valuation, revenue recognition and income taxes. These estimates are based on historical experience and on assumptions that are believed by management to be reasonable under the circumstances. Actual results may differ materially from these estimates, which may impact the carrying values of assets and liabilities.

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Table of Contents
Inventory Valuation
 
We value our inventories at the lower of cost or market. We write down inventories for unsalable, excess or obsolete raw materials, work-in-process and finished goods by charging such write-downs to cost of sales. In addition to write downs based on newly introduced parts, statistical and judgmental assessments are calculated for the remaining inventory based on salability and obsolescence.
 
Revenue Recognition
 
Revenue from product sales made to customers is recognized when the risk of loss for the product sold passes to the customer and any right of return can be quantified, which is generally when goods are shipped or upon the completion of services. The Company estimates an allowance for sales returns based on historical experience with product returns. Testing revenue is recognized when the services are provided.
 
Income Tax
 
We account for income taxes in accordance with Statement of Financial Accounting Standards No 109, “Accounting for Income Taxes” (“SFAS No. 109”). SFAS No. 109 requires an entity to recognize deferred tax liabilities and assets. Deferred tax assets and liabilities are recognized for the future tax consequence attributable to the difference between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are measured using the enacted tax rate expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date.
 
Our foreign subsidiaries are subject to income taxes in the regions where they operate. Because of the different income tax jurisdictions, the taxable income generated in foreign countries will not offset the net loss generated in the U.S. Therefore, we always incur certain income tax expenses in any fiscal year.
 
For US income tax purposes, no provision has been made for US taxes on undistributed earnings of overseas subsidiaries, with which the Company intends to continue to reinvest. It is not practicable to estimate the amount of additional tax that might be payable on the foreign earnings if they were remitted as dividends, were lent to the Company, or if the Company should sell its stock in the subsidiary. However, the Company believes that US foreign tax credits and net operating losses available would substantially eliminate any additional tax effects.
 
Impairment of Long-Lived Assets
 
The Company reviews long-lived assets such as goodwill and fixed assets for possible impairment whenever, in managements’ estimate, circumstances indicate that the carrying amount may not be recoverable, in terms of SFAS No. 121. To the extent the carrying value of the asset exceeds its fair value, which is determined using undiscounted cash flows, a write down to fair value is made and a charge is recorded against operations.
 
Year Ended June 30, 2002 (“2002”) Compared to Year Ended June 30, 2001 (“2001”)
 
Sales
 
Net sales decreased by $16,516 or 45.7% from $36,133 in 2001 to $19,617 in 2002, due to the global downturn in the semiconductor industry and world economic conditions. However, we believe our backlog by quarter in 2002 indicates signs of possible recovery in the first half of our 2003 fiscal year.
 
LOGO
 
Geographically, net sales into and within the United States decreased $3,170 or 28.2% from $11,253 in 2001 to $8,083 in 2002. The decrease was attributable to a downturn in sales of burn-in-boards, Artic Temperature Controlled Chucks and wet process benches. Net sales within Southeast Asia decreased $8,396 or 44.4% from $18,489 in 2001 to $10,093 in 2002 mainly due to lower manufacturing and distribution volumes. Net sales for Europe decreased $5,282 or 78.1% from $6,761 in 2001 to $1,479

14


Table of Contents
in 2002. This decrease was due primarily to a decline in demand for testing services, which occurred when several large customers moved from Europe to Southeast Asia. We have managed to recapture some of this business in Southeast Asia, due to the fact that our testing services were already established in regions to where the customers relocated.
 
The Manufacturing Segment sales decreased $13,446 or 72.8% from $18,468 in 2001 to $5,022 in 2002 due to conservative capital spending by OEM’s for the Artic Temperature Controlled Chunks, wet process benches and the COBIS-II Burn-in Board Systems. The Testing Services Segment sales, Company-wide, decreased $2,170 or 19.5% from $11,112 in 2001 to $8,942 in 2002 due to the further downturn in global economic conditions which has created a tough and competitive environment. However, even in this environment our Testing Segment was able to secure contracts for its newly developed Hybrid Burn-in (HBI) and Smart-Burn-In (SBI) technology in its new facilities in Singapore. The Distribution Segment decreased $900 or 13.7% from $6,553 in 2001 to $5,653 in 2002. This segment is dependent on the capital expenditure plans of our customers, which remains weak.
 
Cost of Sales
 
The Company’s cost of sales varies depending on the mix of sector and geographic sales and deceased $10,823 or 40.5% from $26,749 in 2001 to $15,926 in 2002. As a percentage of sales, the cost of sales increased 7.2% from 74% in 2001 to 81.2% in 2002. This increase in cost of sales, as a percentage of sales, was mainly due to an inventory write down of $511 and certain costs that remained fixed. The increase was also due to the decline in sales and change in the sales and product mix.
 
Operating Expenses
 
Operating expenses decreased by $1,012 or 12.2% from $8,312 in fiscal 2001 to $7,300 in fiscal 2002. As a percentage of total revenue, our operating expenses in fiscal 2002 increased from 23% in fiscal 2001 to 37% in fiscal 2002, due mainly to the decrease in our total revenue and recording of impairment losses relating to fixed assets and intangible assets.
 
General and Administrative
 
General and Administrative (“G&A”) expenses decreased by $1,998 or 32.6% from $6,136 in 2001 to $4,138 primarily due to the implementation of cost cutting measures and a reduction in amortization of intangibles through asset impairment. These cost-cutting measures consisted of (1) reducing headcount and related expenses such as payroll and payroll-related costs such as bonuses which has been accomplished through layoffs, reduction in management, shortened work weeks, salary reductions and periodical closures (2) reducing plant capacity by moving to smaller facilities and (4) reducing insurance, travel and other miscellaneous expenses. As a percentage of sales, G&A increased by 4.1% from 17% in 2001 to 21.1% in 2002 due to certain expenses that are fixed and thus do not decrease even though sales decreased.
 
Selling Expenses
 
Selling expenses decreased by $678 or 35.5% from $1,911 in 2001 to $1,233 in 2002 due to reduction in volume-related expenses such as commissions. As a percentage of sales, selling expenses increased 1% from 5.3% in 2001 to 6.3% in 2002 due to certain fixed cost elements included in selling expenses.
 
Research and Development
 
Research and Development increased by $115 or 53.2% from $216 in 2001 to $331 in 2002. This increase is primarily due to management’s decision to invest in research and development to improve its Automated Wet Benches. The Company produced several new systems that allow photo resist stripping, rinsing and drying, all in a single process chamber. Other tools under development include a sophisticated plating tool and an advanced chemical dispensing tool that utilizes ozone injection systems for organic cleaning of silicon wafers.
 
Impairment loss
 
In 2002, the Company recorded an impairment loss of approximately $1,631 based on its examination of estimated undiscounted future cash flows, which are generated by the subsidiaries where certain long-lived assets (goodwill and certain fixed assets) were used. The impairment of $1,631 consisted of (1) $393 in goodwill, related to the Company’s acquisition of manufacturing product lines in the United States; (2) $121 in intangibles, used in its manufacturing segment (within the United States); and $1,117 of fixed assets, consisting of machinery and equipment, furniture and fixtures, leasehold improvements, and demonstration (54% pertaining to the Southeast Asia Testing Segment and 46% pertaining to the United States Manufacturing Segment). The Testing Segment incurred a one time impairment of $603, of which $534 of impairment was a write down because of obsolescence due to a new generation of burn-in technology known as HBI (Hybrid Burn-in) and SBI (Smart Burn-in).

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Table of Contents
 
Gain/(Loss) on Sale of Property, Plant and Equipment
 
The gain on sale of property, plant and equipment increased by $82 from a loss of $49 in 2001 to income of $33 in 2002 due to a gain on disposal of assets, mainly in Malaysia.
 
Income (Loss) from Operations
 
For segment reporting purposes, the loss from operations in our manufacturing segment increased by $3,887 from a loss of $197 in fiscal 2001 to a loss of $4,084 in fiscal 2002, due to eroding margins and a decrease in sales of the Artic Temperature Controlled Chunks, Semi-automatic Wet Process Benches and the COBIS-II Burn-in Board. The Manufacturing Segment also included a one-time impairment charge of $1,028 to write down intangible assets and fixed assets based on the estimated undiscounted cash flow generated through where these intangible assets and fixed assets were used.
 
Income from operations in our Testing Services Segment increased by $28 or 3.8% from $743 in fiscal 2001 to $771 in 2002 due to the rapid implementation of cost saving measures during a decline in demand. The Testing segment also incurred a one-time impairment charge of $534 related to a write-down in fixed assets due to a new generation of burn-in technology.
 
Income (loss) from operations in our distribution segment decreased by $445 from income of $390 in 2001 to a loss of $55 in 2002 due to the tough and competitive environment, which reduced our sales and changed our product mix.
 
Corporate operating income was reduced from operating income of $136 in 2001 to an operating loss of $241 in 2002 due to the amount of overhead being charged on lower sales volumes.
 
Interest Expenses
 
Interest expense increased by $8 or 4%, from $199 in 2001 to $207 in 2002, due to increases in lines of credit, capitalized leases and financing activity for capital expenditures.
 
Other Income (Expense)
 
Other income decreased by $419 or 55.5% from $755 in 2001 to $336 in 2002. Other income during 2002 was made up mainly of (1) interest income of $182, (2) rental income of $90, (3) royalties from sale of RTE product line of $25 and, (4) miscellaneous income for $39. The decrease in other income from 2001 to 2002 was due to lower interest, lower rental income and the Company’s reversal of an accrual of $295 during 2001 for the settlement of a civil action.
 
Income Tax
 
Current income tax expense for fiscal 2002 was approximately $33, a decrease of $393 compared to the current income tax expense of $426 for fiscal 2001. The decrease in current income tax expense for fiscal 2002 was due mainly to the net loss of $3,611 generated in the U.S. compared to the net loss of $154 in fiscal 2001 in the U.S., representing a significant increase in the loss of $3,457. Minor operating losses of $102 were incurred in Thailand and Ireland for fiscal 2002, whereas the income before income taxes of $283 in Singapore and Malaysia was offset by the loss of $50 resulting in income before income taxes of $131 generated by operations conducted in foreign countries, compared to the income before income taxes of $1,782 for fiscal 2001, representing a decrease of $1,651, a significant decrease in income before income taxes generated in foreign countries.
 
Regarding the deferred portion of income tax expense, we incurred a deferred income tax expense of $20 in Singapore for fiscal 2002 compared to a deferred income tax benefit of $71 available in Singapore for fiscal 2001. The deferred income tax expense in 2002 arose as a result of the timing differences related to the recording of depreciation expense for book and tax purposes.
 
Because the net loss incurred in the U.S did not offset the taxable income in Singapore and Malaysia, we still incurred a total income tax expense of $53 for fiscal 2002 including changes in deferred income tax assets and liabilities, comparing to a total income tax expense of $355 for fiscal 2001, a decrease of $302 or 85.1%. Due to the fact that we paid foreign income taxes and had a full valuation against our deferred tax assets, our effective tax rate decreased from 22% for fiscal 2001 to approximately 2% for fiscal 2002.
 
Net Loss

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Table of Contents
 
As a result of all of the factors analyzed above, the net loss attributable to common shares for the fiscal year ended June 30, 2002 was approximately $3,547, which represented a decrease of $4,710 from net income of approximately $1,163 attributed to common shares for fiscal 2001, a 405% change. Consequently, basic loss per share for fiscal 2002 decreased to a loss of $1.21 per share, from basic earnings per share of $0.40 in fiscal 2001, which represented a change of $1.61 from net income to net loss, a 405% change. Diluted loss per share for fiscal 2002 was $1.21 per share, a decrease of $1.60 per share from diluted earnings per share of $0.39 for fiscal 2001.
 
Year Ended June 30, 2001 (“2001”) Compared to Year Ended June 30, 2000 (“2000”)
 
Sales
 
Net sales increased by $9,190 or 34.1% from $26,943 in 2000 to $36,133 in 2001, as we were able to stay ahead of the current downturn in the semiconductor cycle due to our established customer base.
 
Geographically, net sales in the United States decreased $3,179 or 22.0% from $14,432 in 2000 to $11,253 in 2001. The decrease was attributable to Wet Benches that were exported to Europe. Net sales for the Southeast Asia operations increased $8,368 or 82.7% from $10,121 in 2000 to $18,489 in 2001 due mainly to higher manufacturing and testing volumes. Net sales for Europe increased $3,868 or 133.7% from $2,893 in 2000 to $6,761 in 2001. The increase was due primarily (1) to an increase of $321 in testing and (2) an increase in Wet Bench exports.
 
The Manufacturing Segment sales increased $5,107 or 38.2% from $13,361 in 2000 to $18,468 in 2001 due to higher volumes of the Artic Temperature Controlled Chucks and the COBIS-II Burn-in Board Systems. The Testing Services Segment sales increased $3,389 or 43.9% from $7,723 in 2000 to $11,112 in 2001 due to the introduction of the new HBI technology and the achievement of the QS 9000 certification. The Distribution Segment increased $694 or 11.8% from $5,859 in 2000 to $6,553 in 2001 due to a slight increase in demand for test equipment and a change in selling emphasis between existing products.
 
Cost of Sales
 
The Company’s cost of sales varies depending on the mix of sector and geographic sales and increased $6,902 or 34.8% from $19,847 in 2000 to $26,749 in 2001. As a percentage of sales, it increased 0.3% from 73.7% in 2000 to 74% in 2001. The cost as a percentage of sales remained rather constant despite the significant increase in sales and change in the product mix. Various other factors including unit volumes, yield issues associated with production at factories, ramp of new technologies, variations in inventory valuation and mix of shipments will continue to affect the amount of cost of sales and the variability of gross margin percentages in future quarters.
 
Operating Expenses
 
Operating expenses increased by $2,526 or 43.7% from $5,786 in 2000 to $8,312 in 2001. This increase is consistent with the increase in our total revenue for fiscal 2001. As a percentage of revenue, our operating expense increased by 1.5% from 21.5% in 2000 to 23.0% in 2001 due to the increase on our total revenue in fiscal 2001.
 
General and Administrative
 
General and Administrative (“G&A”) expenses increased by $1,566 or 34.3% from $4,570 in 2000 to $6,136 primarily due to increases in headcount and related expenses such as payroll and payroll related costs, bonuses, travel and entertainment, insurance and increased depreciation on office equipment and vehicles. Other increases included the plant expansion in Southeast Asia and the relocation expenses related thereto. As a percentage of sales, G&A was consistent at 17% for fiscal 2001 and fiscal 2000.
 
Selling Expenses
 
Selling expenses increased by $91 or 5% from $1,820 in 2000 to $1,911 in 2001 due to increases in commissions along with the increase in our total revenue. As a percentage of total revenue, selling expenses decreased 1.5% from 6.8% in 2000 to 5.3% in 2001 due to the increase in total revenue.
 
Research and Development

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Table of Contents
Research and Development increased by $11 or 5.4% from $205 in fiscal 2000 to $216 in fiscal 2001. This increase is primarily due to increased payroll and payroll related costs and supplies offset by decreased travel to Original Equipment Manufacturers (OEM’s).
 
(Gain)/Loss on Disposal of Property, Plant and Equipment
 
The net loss on disposal of property, plant and equipment during fiscal 2001 was $49 and related to the sale of one of the Company’s Singapore facilities. The loss was immaterial compared to the net gain of $809 realized in fiscal 2000.
 
Income from Operations
 
For segment reporting purposes, income from operations from the manufacturing segment decreased by $315 or 266.9% from a profit of $118 in fiscal 2000 to a loss of $197 in fiscal 2001 due to a change in the product mix.
 
Income from operations in the testing services segment decreased $460 or 38.2% from $1,203 in fiscal 2000 to $743 in fiscal 2001 due to the closure of the testing facility in Kuala Lumpur.
 
Income from operations in the distribution segment increased by $712 or 221.1% from a loss of $322 in fiscal 2000 to income of $390 in fiscal 2001 due to a change in sales mix from lower margin equipment to more profitable new technology products.
 
Corporate operating profit was reduced by $175 or 56.3% from $311 in fiscal 2000 to $136 in fiscal 2001 due to reductions in overhead charged through to divisions and subsidiaries in order to afford divisions and all subsidiaries greater control locally.
 
Interest Expense
 
Interest expense increased in 2001 by $107 or 116.3%, from $92 in fiscal 2000 to $199 in fiscal 2001, due to increases in lines of credit, capitalized leases and financing activity for capital expenditures.
 
Other Income
 
Other income has increased by $448 or 145.9% from $307 in fiscal 2000 to $755 in fiscal 2001 primarily due to costs in 2000 associated with the closure of our Kuala Lumpur facility. The Company also reversed an accrued liability of $295 during 2001 that was held for the settlement of the civil action, in which the Company was named along with 106 other defendants that alleged that they may have caused or contributed to soil and underground contamination, which was subsequently dismissed
 
Income Tax
 
Current income tax expense for fiscal 2001 was approximately $426, an increase of $458 compared to the current income tax benefit of $32 for fiscal 2000. The increase in current income tax expense for fiscal 2001 was due mainly to the income before income taxes of $1,782 generated by foreign operations, compared to income before income tax of $1,254 generated by foreign operations in fiscal 2000 , representing a significant increase in the income before income taxes generated by foreign operations of $528. The operating loss of $154 incurred in the U.S. for fiscal 2001 decreased from income before income taxes of $271 in fiscal 2000 in the U.S., resulting in a decrease in income of $425, a significant decrease in income generated in the U.S.
 
Regarding the deferred portion of income tax expense, we reported a deferred income tax benefit of $71 in Singapore for fiscal 2001 compared to a deferred income tax expense of $138 incurred in Singapore for fiscal 2000 because the deferred income tax liability in Singapore was over-accrued in fiscal 2000 and reversed in fiscal 2001.
 
Because the net loss incurred in the U.S did not offset the taxable income in foreign countries, we still incurred a total income tax expense of $355 for fiscal 2001 including changes in deferred income tax assets and liabilities, comparing to a total income tax expense of $106 for fiscal 2000, an increase in the expense of $249 or 235%. Due to the fact that we paid foreign income taxes and had a full valuation against our deferred tax assets, our effective tax rate increased from 7% for fiscal 2000 to approximately 22% for fiscal 2001.
 
Net Income
 
As a result of all of the factors analyzed above, the net income attributable to common shares for fiscal 2001 was approximately $1,163, which represented an increase of $129 from net income of approximately $1,034 attributable to common shares for fiscal 2000, an 11% change. Consequently, basic earnings per share of $0.37 for fiscal 2000 increased to $0.40 for fiscal 2001, which represented an increase of $0.03, a 8% change. Diluted earnings per share increased by $0.03 or 8% from $0.36 per share for fiscal 2000 to $0.39 per share in fiscal 2001.

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Table of Contents
Liquidity and Capital Resources
 
We had working capital (defined as current assets minus current liabilities) of approximately $6,919 as of June 30, 2002, which represented a decrease of approximately $983 compared with working capital of $7,902 as of June 30, 2001, a 12.4% decrease. Historically, the Company had positive working capital for the eight fiscal years prior to the fiscal year ended June 30, 2002. We believe that the Company has the ability to maintain positive working capital in the near future.
 
The Company’s credit rating provides ready and ample access to funds in global capital markets. At June 30, 2002, the Company had available short-term lines of credit totaling $7,668 of which $6,441 was unused.
 
Entity with Facility

  
Type of facility

  
Interest Rates

    
Credit Limit

  
Unused portion

Trio-Tech Malaysia
  
Line of Credit
  
6.80
%
  
$
40
  
$
40
Trio-Tech Kuala Lumpur
  
Line of Credit
  
6.80
%
  
 
50
  
 
50
Trio-Tech Singapore
  
Line of Credit
  
7.00
%
  
 
2,548
  
 
2,407
Trio-Tech Singapore
  
Line of Credit
  
6.25
%
  
 
4,530
  
 
3,819
Trio-Tech International
  
Line of Credit
  
5.75
%
  
 
500
  
 
125
                

  

                
$
7,668
  
$
6,441
                

  

 
The above line of credit ($500 used and $125 unused at June 30, 2002) available to Trio-Tech International in the U.S. expired in December 2001. We applied to renew this line of credit with a commercial bank and the bank is still in the document processing stage as of the reporting date.
 
Even though the Company suffered a significant net loss in the fiscal year ended June 30, 2002, management of the Company still believes that the Company has the economic wherewithal to satisfy its cash needs for the next twelve months plus one day as a going concern business. Management’s belief is based, in part, on the following: (1) we have a fixed cash deposit of approximately $5.9 million (of which approximately $4.7 million is available immediately); (2) we had backlog of $7.9 million as of June 30, 2002 (current backlog of $6,617 at September 6, 2002); (3) our accounts receivable turnover ratio is approximately 4.6 times per year (78 days of sales in accounts receivable) in fiscal 2002; (4) our financing facilities available as of June 30, 2002 were approximately $6.3 million upon which we are able to draw at any time; and (5) our efforts in fiscal 2002 to cut costs and expenses were effective. These cost cutting measures consisted of (1) reducing headcount and related expenses such as payroll and payroll-related costs such as bonuses which has been accomplished through layoffs, reduction in management, shortened work weeks, salary reductions and periodical closures (2) reducing plant capacity by moving to smaller facilities and (4) reducing insurance, travel and other miscellaneous expenses. We anticipate that the costs and expenses in fiscal 2003 will be lower than those in fiscal 2002 and, accordingly, cash disbursement needs should be lower also. However, we cannot provide any assurance that costs and expenses in fiscal 2003 or thereafter will not be higher than those in fiscal 2002.
 
The following contractual obligations servicing table describes our overall future cash obligations based on various contracts in the next five years:
 
    
Payments Due by Period

    
Total

  
Less than 1 Year

  
1 - 3 Years

  
4 - 5 Years

  
After 5 Years

Lines of Credit
  
$
1,227
  
$
1,227
  
$
0
  
$
0
  
$
0
Notes Payable
  
 
1,426
  
 
785
  
 
567
  
 
65
  
 
9
Capital Leases
  
 
784
  
 
429
  
 
262
  
 
93
  
 
0
Operating leases
  
 
1,092
  
 
622
  
 
466
  
 
4
  
 
0
    

  

  

  

  

    
$
4,529
  
$
3,063
  
$
1,295
  
$
162
  
$
9
    

  

  

  

  

 
Fiscal 2002
 
Net cash used in operating activities during the year ended June 30, 2002 was $1,718 compared to net cash of $5,062 provided by operating activities during the year ended June 30, 2001. The downward change of approximately $6,780 or 133.9% reflects the fact that our operating cash flow was significantly affected by the economic downturn and decrease in capital investment demand from semiconductor industry. The $1,718 of net cash used in operating activities in fiscal 2002 was primarily attributable to net loss of $3,547 and a decrease of $2,396 in accounts payable and accrued liabilities, respectively. The cash flow from our accounts receivable in fiscal 2002 was only $275 compared to $1,611 in fiscal 2001, a change of 82.9% reflecting

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the fact that our total revenue in fiscal 2002 decreased and accounts receivable turnover times decreased. The cash flow from our inventory was only $409 compared $804 in fiscal 2001 reflecting the fact that our inventory turnover times decreased. In fiscal 2002, the larger item for one-time non-cash item was attributed to impairment loss of $1,631, which did not incur in fiscal 2001.
 
Net cash provided by investing activities during fiscal 2002 was $1,106 compared to $7,202 used by investing activities in fiscal 2001. The change was a swing of $8,308, or 115.4%. The net cash provided by investing activities was due mainly to the decrease of $2,002 in short-term deposits, compared to the increase in short-term deposits of $2,541 in fiscal 2001, reflecting a swing of $4,543 or a change of 178.8%. In fiscal 2002, our capital expenditures were $919 which related to the investment in testing segment covering Southeast Asia, Ireland, and the U.S. Compared to the capital expenditure of $4,451 in fiscal 2001, we reduced our investment by $3,532 or by 79.4% as a result of economic downturn. We increased our investment in marketable securities by $120 in fiscal 2002 comparing to $0 in fiscal 2001.
 
Net cash provided by financing activities during fiscal 2002 was $371, reflecting a decrease of $1,145 or 75.5% compared to $1,516 provided by financing activities during fiscal 2001. The cash outflow in financing activities included $1,976 of payments on lines of credit, long-term debts and capital lease obligations which was offset by a cash inflow of $2,347 from additional borrowing under lines of credit and long term debt. In fiscal 2001 proceeds under long-term debt borrowings and the lines of credit were $2,858 compared to payments on lines of credit, long-term debt and capitalized lease obligations of $1,698 Additionally, $356 was received in fiscal 2001 from the issuance of common stock, of which there were no common stock issuances in fiscal 2002.
 
Approximately $3,090 of cash deposits are held in the Company’s 55% owned Malaysian subsidiary. $488 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. The $488 is currently available for movement, as the Central Bank of Malaysia has authorized $1,800 for movement and the Company has previously utilized $358 of this authorization. During 2001, limits on the movement of cash balances were removed. In addition, approximately $3,161 is available as dividend (after making deductions for income tax) pursuant to Malaysian regulations in force from July 1, 2000. There is an additional amount of $2,083 that is used as collateral for the Singapore credit facility.
 
Fiscal 2001
 
Net cash provided by operating activities during the year ended June 30, 2001 was $5,062 compared to $1,164 provided by operating activities during the year ended June 30, 2000. The change was an increase of $3,898 and 334.9%. The cash flow provide by operating activities in fiscal 2001 was mainly related to net income of $1,163 and a decrease of $1,611 in accounts receivables, $804 in inventories and $683 in other receivables, respectively. Comparing to cash decrease of $1,677 in fiscal 2000, cash collection of $1,611 in accounts receivable in fiscal 2001 was much better reflecting a swing of $3,288 or a change of 196.1%. We built up our inventory in fiscal 2000 by an increase of $943 in the ending inventory whereas we reduced our inventory in fiscal 2001 by $804, reflecting a swing of $1,747 or a change of 185.3%. We reduced our other receivable by $683 in fiscal 2001 comparing to an increase of $563 in other receivable in fiscal 2000, reflecting a swing of $1,246 or a change of 213.7%. However, the largest cash outflow in fiscal 2001 was $1,096 in accounts receivable and accrued liabilities comparing to an increase of $2,437 in accounts payable and accrued liabilities in fiscal 2000, which indicated that we paid all accounts payable and liabilities in fiscal 2001 by using the ample cash inflow analyzed above.
 
Net cash used in investing activities during fiscal 2001 was $7,202 compared to $549 used in investing activities during fiscal 2000. The net cash used in investing activities was due mainly to two reasons: (1) capital expenditures of $4,451 which included a Power Sub-station and enhanced air conditioning for its new HBI Test facilities in Southeast Asia coupled with investment in the European Operations Test Equipment and U.S. Operations for Manufacturing equipment, and (2) an increase in cash deposits of $2,541. Comparing to capital expenditure of $1,327 in fiscal 2000, the capital expenditure of $4,451 in fiscal 2001, representing an increase of $3,124 or 235.4%, reflected the belief that management anticipated the increase in demand from semiconductor industry. The increase in short-term deposit in fiscal 2001 just presented that we had extra cash in hand, which would be used in fiscal 2002.
 
Net cash provided by financing activities during fiscal 2001 was $1,516 compared to $138 used in financing activities in fiscal 2000. The change was a swing of $1,654 or 1,198.6%. The cash outflow from financing activities included $1,698 of payments on lines of credit, long-term debts and capital lease obligations, and was offset by a cash inflow of $2,858 from additional borrowing under lines of credit and long-term debts compared to payments of $677 in fiscal 2000 and additional borrowings of $126 in fiscal 2001. In addition, certain option holders exercised their options in fiscal 2001. Consequently, we received proceeds of $356 in fiscal 2001 comparing to proceeds of $413 in fiscal 2000. Issuing shares of common stock provided us with additional cash sources in both fiscal 2001 and 2000.
 
Recently Issued Accounting Pronouncements

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In July 2001, the Financial Standards Board (“FASB”) issued Financial Accounting Standards (“SFAS”), No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 replaces Accounting Principles Board Opinion No. 16 (APB No. 16), “Business Combination,” and eliminates pooling-of-interests accounting prospectively. It also provides guidance on purchase accounting related to the recognition of intangible assets and accounting for negative goodwill. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Under SFAS No. 142, goodwill will be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired. Upon adoption of SFAS No. 142, amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 ceased, and intangible assets acquired prior to July 1, 2001 that did not meet the criteria for recognition under SFAS No. 141 were required to be reclassified to goodwill. Companies are required to adopt SFAS No. 142 for fiscal years beginning after December 15, 2001. In connection with the adoption of SFAS No. 142, companies will be required to perform a transitional goodwill impairment assessment. The Company adopted SFAS No. 142 for the fiscal year commencing July 1, 2002. During the year ended June 30, 2002, the Company wrote off all of the outstanding balance of approximately $393 of goodwill. During the years ended June 30, 2002 and 2001, goodwill amortization totaled approximately $NIL and $34.
 
In June 2001, Financial Accounting Standard Board issued Statement of Financial Accounting Standards, No. 143, “Accounting for Asset Retirement Obligations,” (“SFAS No. 143”). FAS No. 143 is effective for fiscal years beginning after June 15, 2002. SFAS No. 143 requires that any legal obligation related to the retirement of long-lived assets be quantified and recorded as a liability with the associated asset retirement cost capitalized on the balance sheet in the period it is incurred when a reasonable estimate of the fair value of the liability can be made. The Company believes the adoption of this statement will have no material impact on its consolidated financial statements.
 
In August 2001, Financial Accounting Standard Board issued Statement of Financial Accounting Standards, No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (“SFAS No. 144”). SFAS No. 144 supersedes SFAS No. 121 and is effective for fiscal years beginning after December 15, 2001. SFAS No. 144 provides a single, comprehensive accounting model for impairment and disposal of long-lived assets and discontinued operations. The Company does not expect that the adoption of SFAS No. 144 will have significant impact on its consolidated financial statements.
 
In April 2002, Financial Accounting Standard Board issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. This statement eliminates the current requirement that gains and losses on debt extinguishment must be classified as extraordinary items in the income statement. Instead, such gains and losses will be classified as extraordinary items only if they are deemed to be unusual and infrequent, in accordance with the current GAAP criteria for extraordinary classification. In addition, SFAS 145 eliminates an inconsistency in lease accounting by requiring that modifications of capital leases that result in reclassification as operating leases be accounted for consistent with sale-leaseback accounting rules. The statement also contains other nonsubstantive corrections to authoritative accounting literature. The changes related to debt extinguishment will be effective for fiscal years beginning after May 15, 2002, and the changes related to lease accounting will be effective for transactions occurring after May 15, 2002. Adoption of this standard will not have any immediate effect on the Company’s consolidated financial statements. The Company will apply this guidance prospectively.
 
In June 2002, Financial Accounting Standard Board issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of a companys commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amount recognized. The provisions of SFAS 146 are to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not expect that the adoption of this standard will have any immediate effect on its consolidated financial statements.
 
CERTAIN RISKS THAT MAY AFFECT OUR FUTURE RESULTS
 
We hereby caution stockholders, prospective investors in Trio-Tech International and other readers that the following important factors, among others, in some cases have affected, and in the future could affect, our stock price or cause our actual results for the fiscal year ending June 30, 2002 and future fiscal years and quarters to differ materially from those expressed in any forward-looking statements, oral or written, made by or on behalf of us.
 
Our operating results are affected by a variety of factors

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Our operating results are affected by a wide variety of factors that could materially affect revenues and profitability or lead to significant variability of quarterly or annual operating results. These factors include, among others, factors relating to:
 
 
 
economic and market conditions in the semiconductor industry;
 
 
 
market acceptance of our products and services;
 
 
 
changes in technologies in the semiconductor industry, which could affect demand for our products and services;
 
 
 
changes in testing processes;
 
 
 
the impact of competition;
 
 
 
the lack of long-term purchase or supply agreements with customers and vendors;
 
 
 
changes in military or commercial testing specifications, which could affect the market for our products and services;
 
 
 
difficulties in profitably integrating acquired businesses, if any, into the Company;
 
 
 
the loss of key personnel or the shortage of available skilled employees;
 
 
 
international political or economic events;
 
 
 
currency fluctuations; and
 
 
 
other technological, economic, financial and regulatory factors beyond our control.
 
Unfavorable changes in these or other factors could materially and adversely affect our financial condition or results of operations. We may not be able to generate revenue growth and any revenue growth that is achieved may not be sustained. Our business, results of operations and financial condition would be materially adversely affected if operating expenses increase and are not subsequently followed by increased revenues. Although through the fourth quarter of 2001 we had reported profits for twenty-eight consecutive quarters, we were not be able to sustain such profitability for the past four quarters.
 
The semiconductor industry cycles have a large effect on our business
 
Our business depends primarily upon the capital expenditures of semiconductor manufacturers, assemblers and other testing companies worldwide. These industries depend on the current and anticipated market demand for integrated circuits and products utilizing semiconductor devices. The global semiconductor industry generally, and the semiconductor testing equipment industry in particular, are volatile and cyclical, with periodic capacity shortages and excess capacity. In periods of excess capacity, the industry sharply cuts its purchases of capital equipment, including our distributed products, and reduces testing volumes, including our testing services. Excess capacity also causes downward pressure on the selling prices for our products and services.
 
Our operating results have been adversely affected by past downturns and slowdowns. There is no assurance that there will not be downturns or slowdowns in the future that may adversely affect our financial condition or operating results. In addition, if one or more of our primary customers reduces its or their purchases or use of our products or testing services, our financial results could be materially and adversely affected. We anticipate that we will continue to be primarily dependent on the semiconductor industry for the foreseeable future.
 
Rapid technological changes may make our products obsolete or result in decreased prices or increased expenses
 
Technology changes rapidly in the semiconductor industry and may make our services or products obsolete. Advances in technology may lead to significant price erosion for products tested with our older testing technologies. Our success will depend in part on our ability to develop and offer more advanced testing technologies and processes in the future, to anticipate both future demand and the technology to supply that demand, to enhance our current products and services, to provide those products and services at competitive prices on a timely and cost-effective basis and to achieve market acceptance of those products and services. To accomplish these goals, we may be required to incur significant engineering expenses. As new products or services are introduced, we may experience warranty claims or product returns. We may not be able to accomplish these goals correctly or timely enough. If we fail in our efforts, our products and services may become obsolete or less competitive.

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Our dependence on international sales involves significant risk
 
Sales and services to customers outside the United States accounted for approximately 59%, 69% and 46% of our net revenues for fiscal 2002, 2001 and 2000, respectively. Approximately 51%, 51% and 38% of our net revenues in fiscal 2002, 2001 and 2000, respectively, were generated from business in Southeast Asia. We expect that our non-U.S. sales and services will continue to generate the major part of our future revenues. Testing services in Southeast Asia were performed primarily for American companies, and to a lesser extent German companies, selling products and doing business in that region. International business operations may be adversely affected by many factors including fluctuations in exchange rates, imposition of government controls, trade restrictions, political, economic and business events and social and cultural differences.
 
We may incur losses due to foreign currency fluctuations
 
Significant portions of our revenues are denominated in Singapore Dollars, Malaysian Ringitt and other currencies. Consequently, a portion of our costs, revenues and operating margins may be affected by fluctuations in exchange rates, primarily between the U.S. Dollar and such foreign currencies. We are also affected by fluctuations in exchange rates if there is a mismatch between our foreign currency denominated assets and liabilities. Foreign currency adjustments resulted in an increase of $262 to shareholders’ equity for fiscal 2002, a decrease of $358 to shareholders’ equity for fiscal 2001 and a decrease of $50 to shareholders’ equity for fiscal 2000.
 
We try to reduce our risk of foreign currency fluctuations by purchasing certain equipment and supplies in U.S. Dollars and seeking payment, when possible, in U.S. Dollars. However, we may not be successful in our attempts to mitigate our exposure to exchange rate fluctuations. Those fluctuations could have a material adverse effect on the Company’s financial results.
 
We do not rely on patents to protect our products or technology
 
We hold U.S. patents relating to our pressurization humidity testing equipment and certain aspects of our Arctic temperature test systems. Additionally, in 2001, we were granted patents for certain aspects of our new ranges of Arctic temperature chucks. However, generally we do not rely on patent or trade secret protection for our products or technology. Competitors may be able to copy and replicate our technology and designs. Competitors may develop technologies similar to or more advanced than ours. We cannot assure you that our current or future products will not be copied or will not infringe on the patents of others.
 
Intense competition can adversely affect our operating results
 
The semiconductor equipment and testing industries are intensely competitive. Significant competitive factors include price, technical capabilities, quality, automation, reliability, product availability and customer service. We face competition from established and potential new competitors, many of whom have greater financial, engineering, manufacturing and marketing resources than our Company’s resources. New products or testing facilities offered by our competitors could cause a decline in our revenues or a loss of market acceptance of our existing products and services. Increased competitive pressure could also lead to intensified price-based competition. Price-based competition may result in lower prices, adversely affecting our operating results.
 
Loss, reduction or delay from significant customers could adversely affect our financial condition
 
The semiconductor manufacturing industry is highly concentrated, with a relatively small number of large manufacturers and assemblers accounting for a substantial portion of our revenues from product sales and testing revenues. Our experience has been that sales to particular customers may fluctuate significantly from quarter to quarter and year to year. In fiscal 2002, 2001, and 2000, sales of equipment and services to our two largest customers accounted for approximately 55%, 40%, and 28%, respectively, of our net revenues. Our ability to maintain close, satisfactory relationships with our customers is essential to our stability and growth. The loss of or reduction or delay in orders from our significant customers, or delays in collecting accounts receivable from our significant customers, could adversely affect our financial condition and results of operations.
 
There is a limited market for certain of our products and services
 
If our competitors or we sell testing equipment to semiconductor manufacturers and assemblers, the likelihood that they will make further purchases of such equipment, or that they will contract for testing services by our laboratories, may be affected. Although military or other specifications require certain testing to be done by independent laboratories, over time other current customers may have less need for our testing services We believe that there is a growing trend toward outsourcing of the integrated circuit test process. As a result, we anticipate continued growth in the test laboratory business. However, in an attempt to diversify our sales mix, we may seek to develop and introduce new or advanced products, and to acquire other companies in the semiconductor equipment manufacturing business.

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Acquisition and integration of new businesses could disrupt our ongoing business, distract management and employees, increase our expenses and adversely affect our business
 
A portion of any future growth may be accomplished through the acquisition of other entities. The success of those acquisitions will depend, in part, on our ability to integrate the acquired personnel, operations, products, services and technologies into our organization, to retain and motivate key personnel of the acquired entities and to retain the customers of those entities. We may not be able to identify suitable acquisition opportunities, obtain financing on acceptable terms to bring the acquisition to fruition or to integrate such personnel, operations, products or services. The process of identifying and closing acquisition opportunities and integrating acquisitions into our operations may distract our management and employees, disrupt our ongoing business, increase our expenses and materially and adversely affect our operations. We may also be subject to certain other risks if we acquire other entities, such as the assumption of additional liabilities. We may issue additional equity securities or incur debt to pay for future acquisition
 
We are not dependent on key suppliers
 
We have no written contracts with any of our suppliers. Our suppliers may terminate their relationships with us at any time without notice. We cannot assure you that we will be able to find satisfactory replacement suppliers or that new suppliers would not be more expensive than the current suppliers if any of our suppliers were to terminate their relationship with us.
 
We are highly dependent on key personnel
 
Our success has depended, and, to a large extent will depend, on the continued services of S.W. Yong, our Chief Executive Officer and President, Victor H. M. Ting, our Vice President and Chief Financial Officer, and our other key senior executives and engineering, marketing, sales, productions and other personnel. We do not have an employment agreement with Mr. Yong or Mr. Ting, but we are the beneficiary of “key man” life insurance in the amount of $6 million on Mr. Yong and $2 million on Mr. Ting. The loss of these key personnel, who would be difficult to replace, could harm our business and operating results. Competition for management in our industry is intense and we may be unsuccessful in attracting and retaining the executive management and other key personnel that we require.
 
Our management has significant influence over corporate decisions
 
Currently our officers and directors and their affiliates beneficially own 36.05% of the outstanding shares of common stock, including options held by them that are exercisable within 60 days of the date of this 10-K. As a result, they may be able to significantly influence matters requiring approval of the shareholders, including the election of directors, and may be able to delay or prevent a change in control of the Company.
 
We have not paid cash dividends
 
We have never paid any cash dividends on our common stock. We anticipate that the future earnings, if any, will be retained for use in the business or for other corporate purposes. We do not expect to pay cash dividends on our common stock in the future.
 
Possible dilutive effect of outstanding options and warrants
 
As of June 30, 2002, there were 656,165 shares of common stock reserved for issuance upon exercise of outstanding stock options and warrants. The outstanding options and warrants are currently exercisable at exercise prices ranging from $2.72 to $8.00 per share. We anticipate that the trading price of our common stock at the time of exercise of any such outstanding options or warrants will exceed the exercise price under those options and warrants. Thus such exercise will have a dilutive effect on our shareholders.
 
The market price for our common stock is subject to fluctuation
 
The trading price of our common stock has from time to time fluctuated widely. The trading price may similarly fluctuate in the future in response to quarter-to-quarter variations in our operating results, announcements of innovations or new products by us or our competitors, general conditions in the semiconductor industry and other events or factors. In addition, in recent years, broad stock market indices in general, and the securities of technology companies in particular, have experienced substantial price fluctuations on a daily basis. Fluctuations in the trading price of our common stock may adversely affect our liquidity.
 
ITEM 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Interest Rate Risk.    We do not use derivative financial instruments in our investment portfolio. Our investment portfolio is generally comprised of cash deposits. Our policy is to place these investments in instruments that meet high credit quality

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standards. These securities are subject to interest rate risk, and could decline in value if interest rates fluctuate and thus subject us to market risk due to those fluctuations. Due to the short duration and conservative nature of our investment portfolio, we do not expect any material loss with respect to our investment portfolio.
 
The outstanding aggregate principal balance on loans to us and on our lines of credit range from 5.75% to 7.25% per annum. As of June 30, 2002, the outstanding principal balance on these loans was approximately $2,653. These interest rates are subject to change and we cannot predict any increase or decrease in rates, if any.
 
Period ending June 30,

  
2003

    
2004

    
2005

    
2006

    
2007

    
There
-after

    
Total

  
Fair Value

Loans:
                                                                   
denominated by Singapore Dollars
  
$
541
 
  
$
191
 
                                      
$
732
  
$
732
Interest rate (fixed)
  
 
6.50
%
  
 
6.50
%
                                                 
denominated by Singapore Dollars
  
$
203
 
  
$
188
 
  
$
125
 
                             
$
516
  
$
516
Interest rate (variable)
  
 
7.25
%
  
 
7.25
%
  
 
7.25
%
                                        
denominated Irish Pound
  
$
14
 
  
$
20
 
  
$
22
 
  
$
24
 
  
$
17
 
  
$
2
 
  
$
99
  
$
99
Interest rate (variable)
  
 
6.94
%
  
 
6.94
%
  
 
6.94
%
  
 
6.94
%
  
 
6.94
%
  
 
6.94
%
             
denominated Irish Pound
  
$
27
 
  
$
10
 
  
$
11
 
  
$
12
 
  
$
12
 
  
$
7
 
  
$
79
  
$
79
Interest rate (variable)
  
 
6.44
%
  
 
6.44
%
  
 
6.44
%
  
 
6.44
%
  
 
6.44
%
  
 
6.44
%
             
Line of credit:
                                                                   
denominated by Singapore Dollars
  
$
141
 
                                               
$
141
  
$
141
Interest rate (variable)
  
 
7.00
%
                                                          
denominated by Singapore Dollars
  
$
711
 
                                               
$
711
  
$
711
Interest rate (variable)
  
 
6.25
%
                                                          
denominated by U.S. Dollars
  
$
375
 
                                               
$
375
  
$
375
Interest rate (variable)
  
 
5.75
%
                                                          
    


  


  


  


  


  


  

  

Total
  
$
2,012
 
  
$
409
 
  
$
158
 
  
$
36
 
  
$
29
 
  
$
9
 
  
$
2,653
  
$
2,653
    


  


  


  


  


  


  

  

 
Foreign Currency Exchange Rate Risk.    Although the majority of our sales, cost of manufacturing and marketing are transacted in U.S. dollars, significant portions of our revenues are denominated in Singapore, Malaysian and other currencies. Consequently, a portion of our costs, revenues and operating margins may be affected by fluctuations in exchange rates, primarily between the U.S. Dollar and such foreign currencies. We are also affected by fluctuations in exchange rates if there is a mismatch between our foreign currency denominated assets and liabilities. Foreign currency adjustments resulted in an increase of $262 to shareholders’ equity for fiscal 2002, a decrease of $358 to shareholders’ equity for fiscal 2001 and $50 to shareholders’ equity for fiscal 2000.
 
We try to reduce our risk of foreign currency fluctuations by purchasing certain equipment and supplies in U.S. Dollars and seeking payment, when possible, in U.S. Dollars. However, we may not be successful in our attempts to mitigate our exposure to exchange rate fluctuations. Those fluctuations could have a material adverse effect on the Company’s financial results.

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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 28 of this Annual Report on Form 10-K.
 
ITEM 9—CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL                   DISCLOSURE
 
None
 
PART III
 
The information required by Items 10 through 13 of Part III of this Form 10-K 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 2002.
 
ITEM 14—CONTROLS AND PROCEDURES
 
Not applicable
 
PART IV
 
ITEM 15—EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
(a) (1 and 2)  FINANCIAL STATEMENTS AND SCHEDULES:
 
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 28 hereof:
 
1.  Independent Auditors’ Report
 
2.  Consolidated Balance Sheets
 
3.  Consolidated Statements of Income and Comprehensive Income
 
4.  Consolidated Statements of Shareholders’ Equity
 
5.  Consolidated Statements of Cash Flows
 
6.  Notes to Consolidated Financial Statements
 
(b)  REPORTS ON FORM 8-K:
 
The Company did not file any reports on Form 8-K during the quarter ended June 30, 2002.
 
(c)  EXHIBITS:
 
Number

  
Description

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 30, 1988.]
3.2
  
Bylaws, as currently in effect. [Previously filed as Exhibit 3.2 to the Annual Report on Form 10-K for June 30, 1988.]
4.1
  
Form of Redeemable Warrants to purchase Common Stock issued in May 2000.*
10.1
  
Credit Facility Letter dated January 4, 2001, between Trio-Tech International Pte. Ltd. and Standard Chartered Bank. [Previously filed as Exhibit 10.9 to the Annual Report on Form 10-K for June 30, 2001.]
10.2
  
1998 Stock Option Plan. [Previously filed as Exhibit 1 to the Company’s proxy statement filed under regulation 14A on October 27, 1997]. **
10.3
  
Directors Stock Option Plan. [Previously filed as Exhibit 2 to the Company’s proxy statement filed under regulation 14A on October 27, 1997]. **

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10.4
  
Real Estate Lease dated February 1, 1999 between Martinvale Development Company and Universal Systems. [Previously filed as Exhibit 10.12 to the Annual Report on Form 10-K for June 30, 1999.]
10.5
  
Real Estate Lease dated February 16, 2001 between JTC Corporation and Trio-Tech International PTE for Block 1004 Toa Payoh North #07-01/07 and #03-01/03. [Previously filed as Exhibit 10.13 to the Annual Report on Form 10-K for June 30, 2001.]
10.6
  
Real Estate Lease dated May 13, 1999 between JTC Corporation and Trio-Tech International PTE for Block 1004 Toa Payoh North #03-16/17. [Previously filed as Exhibit 10.14 to the Annual Report on Form 10-K for June 30, 2001.]
10.7
  
Real Estate Lease dated October 13, 1999 between JTC Corporation and Trio-Tech International PTE for Block 1004 Toa Payoh North #01-08/15. [Previously filed as Exhibit 10.15 to the Annual Report on Form 10-K for June 30, 2001.]
10.8
  
Real Estate Lease dated December 7, 2000 between JTC Corporation and Trio-Tech International PTE for Block 1004 Toa Payoh North #01-16/7. [Previously filed as Exhibit 10.16 to the Annual Report on Form 10-K for June 30, 2001.]
10.9
  
Real Estate Lease dated January 3, 2000 between JTC Corporation and Trio-Tech International PTE for Block 1008 Toa Payoh North #03-01/06. [Previously filed as Exhibit 10.17 to the Annual Report on Form 10-K for June 30, 2001.]
10.10
  
Real Estate Lease dated October 13, 1999 between JTC Corporation and Trio-Tech International PTE for Block 1008 Toa Payoh North #03-09/15 and #03-16/18. [Previously filed as Exhibit 10.18 to the Annual Report on Form 10-K for June 30, 2001.]
10.11
  
Real Estate Lease dated May 2, 2000 between JTC Corporation and Trio-Tech International PTE for Block 1008 Toa Payoh North #01-08. [Previously filed as Exhibit 10.19 to the Annual Report on Form 10-K for June 30, 2001.]
10.12
  
Real Estate Lease dated September 12, 2000 between JTC Corporation and Trio-Tech International PTE for Block 1008 Toa Payoh North #07-17/18. [Previously filed as Exhibit 10.20 to the Annual Report on Form 10-K for June 30, 2001.]
10.13
  
Real Estate Lease dated October 30, 2000 between JTC Corporation and Trio-Tech International PTE for Block 1008 Toa Payoh North #07-01. [Previously filed as Exhibit 10.21 to the Annual Report on Form 10-K for June 30, 2001.]
10.14
  
Real Estate Lease dated February 26, 2002 between JTC Corporation and Trio-Tech International PTE for Block 1004 Toa Payoh North #02-11/15. *
10.15
  
Real Estate Lease dated June 10, 2002 between JTC Corporation and Trio-Tech International PTE for Block 1004 Toa Payoh North #02-08/10. *
10.16
  
Credit Facility Letter dated November 16, 2001 and June 24, 2002, between Trio-Tech International Pte. Ltd. and Standard Chartered Bank. *
10.17
  
Credit Facility Letter dated July 24, 2002, between Trio-Tech International Pte. Ltd. and OCBC Bank. *
10.18
  
Credit Facility Letter dated May 21, 2002, between Trio-Tech (M) Sdn Bhd and HSBC Bank Malaysia Berhad *
10.19
  
Credit Facility Letter dated January 22, 2002, between Trio-Tech (KL) Sdn Bhd and Public Bank Berhad. *
10.20
  
Real Estate Lease dated November 8, 2001 between Elbar Investments, L.P. and Trio-Tech International for 14731 Califa Street, Van Nuys *
10.21
  
Amendment to the Directors Stock Option Plan * **
21.1
  
Subsidiaries of the Registrant (100% owned by the Registrant except as otherwise stated):
    
Trio-Tech International Pte. Ltd., a Singapore Corporation

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Table of Contents
 
    
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
    
Trio-Tech Malaysia, a Malaysia Corporation (55% owned by the Registrant)
    
Trio-Tech Kuala Lumpur, a Malaysia Corporation (100% owned by Trio-Tech Malaysia)
    
Trio-Tech Bangkok, a Thailand Corporation
    
Trio-Tech Thailand, a Thailand Corporation
    
Prestal Enterprise Sdn. Bhd., a Malaysia Corporation (76% owned by the Registrant)
    
KTS Incorporated, dba Universal Systems, a California Corporation
23.1
  
Independent Auditors’ Consent (BDO International) *
23.2
  
Independent Auditors’ Consent (Deloitte & Touche LLP) *
99.1
  
Section 906 Certification. *

*
 
Filed electronically herewith
**
 
Indicates management contracts or compensatory plans or arrangements required to be filed as an exhibit to this report.

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Table of Contents
 
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 Executive Officer        
Date:  October 8, 2002
 
Pursuant to the requirement of the Securities Exchange Act of 1934, the following persons on behalf of the Registrant and in the capacities and as of the dates indicated have signed this report below.
 
/S/    A. CHARLES WILSON         

A. Charles Wilson
  
Director
Chairman of the Board
 
October 8, 2002
/S/    S. W. YONG        

S. W. Yong
  
Director
Chief Executive Officer and President
 
October 8, 2002
/S/    VICTOR H.M. TING        

Victor H.M. Ting
  
Vice President, Chief Financial Officer and Principal Accounting Officer
 
October 8, 2002
/S/    JASON T. ADELMAN        

Jason T. Adelman
  
Director
 
October 8, 2002
/S/    RICHARD M. HOROWITZ        

Richard M. Horowitz
  
Director
 
October 8, 2002
/S/    WILLIAM L. SLOVER        

William L. Slover
  
Director
 
October 8, 2002

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Table of Contents
 
CERTIFICATIONS
 
I, S. W. Yong, certify that:
 
1.  I have reviewed this annual report on Form 10-K of Trio-Tech International;
 
2.  Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a  material fact necessary to make the statements made, in light of the circumstances under which such statements were made,  not misleading with respect to the period covered by this annual report; and
 
3.  Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly  present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,  the periods presented in this annual report.
 
Date:  October 8, 2002
 
   
S/    S. W. YONG        

   
S. W. Yong,        
Chief Executive Officer        
and President        
 
I, Victor H.M. Ting, certify that:
 
1.  I have reviewed this annual report on Form 10-K of Trio-Tech International;
 
2.  Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a  material fact necessary to make the statements made, in light of the circumstances under which such statements were made,  not misleading with respect to the period covered by this annual report; and
 
3.  Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly  present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,  the periods presented in this annual report.
 
Date:  October 8, 2002
 
   
S/    VICTOR H.M. TING        

   
Victor H.M. Ting, Chief Financial Officer
(Principal Financial Officer)

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Table of Contents
 
INDEPENDENT AUDITORS’ REPORT
 
Board of Directors
Trio-Tech International
Van Nuys, California:
 
We have audited the accompanying consolidated balance sheet of Trio-Tech International and subsidiaries (the “Company”) as of June 30, 2002, and the related consolidated statements of operations and comprehensive (loss) income, shareholders’ equity, and cash flows for the year ended June 30, 2002. 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 audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides 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 30, 2002, and the results of their operations and their cash flows for the year ended June 30, 2002 in conformity with accounting principles generally accepted in the United States of America.
 
 
   
BDO INTERNATIONAL
   
/s/    BDO INTERNATIONAL      

   
Singapore
September 6, 2002
 

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INDEPENDENT AUDITORS’ REPORT
 
Board of Directors
Trio-Tech International
Van Nuys, California:
 
We have audited the accompanying consolidated balance sheet of Trio-Tech International and subsidiaries (the “Company”) as of June 30, 2001 and the related consolidated statements of operations and comprehensive (loss) income, shareholders’ equity, and cash flows for the years ended June 30, 2001 and 2000. 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 audit.
 
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 30, 2001 and the results of their operations and their cash flows the years ended June 30, 2001 and 2000 in conformity with accounting principles generally accepted in the United States of America.
 
DELOITTE & TOUCHE LLP
/s/    DELOITTE & TOUCHE LLP        
 
Los Angeles, California
September 7, 2001

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Table of Contents
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
 
    
Note

  
June 30, 2002

    
June 30, 2001

 
ASSETS
                      
CURRENT ASSETS:
                      
Cash
  
2
  
$
1,128
 
  
$
1,149
 
Short term deposits
  
2
  
 
5,906
 
  
 
7,693
 
Investments in marketable securities
  
2
  
 
554
 
        
Trade accounts receivable, less allowance for doubtful accounts of $174 in 2002 and 2001 respectively
  
2
  
 
4,148
 
  
 
4,432
 
Other receivables
       
 
527
 
  
 
162
 
Inventories, less provision for obsolete stock of $716 and $205 in 2002 and 2001 respectively
  
3
  
 
1,014
 
  
 
1,918
 
Prepaid expenses and other current assets
       
 
128
 
  
 
147
 
         


  


Total current assets
       
 
13,405
 
  
 
15,501
 
PROPERTY, PLANT AND EQUIPMENT, Net
  
4
  
 
5,593
 
  
 
7,534
 
INTANGIBLE ASSETS
  
5
  
 
—  
 
  
 
526
 
OTHER ASSETS
       
 
77
 
  
 
589
 
         


  


TOTAL ASSETS
       
$
19,075
 
  
$
24,150
 
         


  


LIABILITIES AND SHAREHOLDERS’ EQUITY
                      
CURRENT LIABILITIES:
                      
Lines of credit
  
6
  
$
1,227
 
  
 
—  
 
Accounts payable
       
 
1,717
 
  
 
2,646
 
Accrued expenses
  
7
  
 
2,315
 
  
 
3,689
 
Income taxes payable
  
9
  
 
106
 
  
 
168
 
Current portion of notes payable
  
8
  
 
785
 
  
 
698
 
Current portion of capitalized leases
  
10
  
 
336
 
  
 
398
 
         


  


Total current liabilities
       
 
6,486
 
  
 
7,599
 
         


  


NOTES PAYABLE, net of current portion
  
8
  
 
641
 
  
 
1,265
 
CAPITALIZED LEASES, net of current portion
  
10
  
 
345
 
  
 
480
 
DEFERRED INCOME TAXES
  
9
  
 
669
 
  
 
649
 
         


  


TOTAL LIABILITIES
       
 
8,141
 
  
 
9,993
 
         


  


COMMITMENTS AND CONTINGENCIES
  
10
                 
MINORITY INTEREST
       
 
2,316
 
  
 
2,548
 
SHAREHOLDERS’ EQUITY:
                      
Common stock; no par value, authorized, 15,000,000 shares; issued and outstanding 2,927,551 shares and 2,927,596 (2002 and 2001) respectively
  
11
  
 
9,423
 
  
 
9,423
 
Additional paid-in capital
  
11
  
 
270
 
        
(Accumulated deficit ) retained earnings
  
11
  
 
(658
)
  
 
2,889
 
Accumulated other comprehensive income-marketable securities
  
11
  
 
24
 
        
Accumulated other comprehensive loss-foreign currency
  
11
  
 
(441
)
  
 
(703
)
         


  


Total shareholders’ equity
       
 
8,618
 
  
 
11,609
 
         


  


TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
       
$
19,075
 
  
$
24,150
 
         


  


 
See notes to consolidated financial statements.

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Table of Contents
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(In thousands, except per share amounts)
 
    
Year Ended

 
    
June 30, 2002

    
June 30, 2001

    
June 30, 2000

 
NET SALES
  
$
19,617
 
  
$
36,133
 
  
$
26,943
 
COST OF SALES
  
 
15,926
 
  
 
26,749
 
  
 
19,847
 
    


  


  


GROSS PROFIT
  
 
3,691
 
  
 
9,384
 
  
 
7,096
 
OPERATING EXPENSES:
                          
General and administrative
  
 
4,138
 
  
 
6,136
 
  
 
4,570
 
Selling
  
 
1,233
 
  
 
1,911
 
  
 
1,820
 
Research and development
  
 
331
 
  
 
216
 
  
 
205
 
Impairment loss
  
 
1,631
 
  
 
—  
 
  
 
—  
 
(Gain)/loss on disposal of property, plant and equipment
  
 
(33
)
  
 
49
 
  
 
(809
)
    


  


  


Total
  
 
7,300
 
  
 
8,312
 
  
 
5,786
 
    


  


  


(LOSS) INCOME FROM OPERATIONS
  
 
(3,609
)
  
 
1,072
 
  
 
1,310
 
OTHER INCOME (EXPENSE)
                          
Interest expense
  
 
(207
)
  
 
(199
)
  
 
(92
)
Other income (expense)
  
 
336
 
  
 
755
 
  
 
307
 
    


  


  


Total
  
 
129
 
  
 
556
 
  
 
215
 
    


  


  


(LOSS) INCOME BEFORE INCOME TAXES AND MINORITY INTEREST
  
 
(3,480
)
  
 
1,628
 
  
 
1,525
 
INCOME TAXES
  
 
53
 
  
 
355
 
  
 
106
 
    


  


  


(LOSS) INCOME BEFORE MINORITY INTEREST
  
 
(3,533
)
  
 
1,273
 
  
 
1,419
 
MINORITY INTEREST
  
 
14
 
  
 
110
 
  
 
385
 
    


  


  


NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHARES
  
 
(3,547
)
  
 
1,163
 
  
 
1,034
 
    


  


  


OTHER COMPREHENSIVE INCOME (LOSS):
                          
Unrealized gain on investment
  
 
24
 
  
 
—  
 
  
 
—  
 
Foreign currency translation adjustment
  
 
262
 
  
 
(358
)
  
 
(50
)
    


  


  


COMPREHENSIVE (LOSS) INCOME
  
$
(3,261
)
  
$
805
 
  
$
984
 
    


  


  


(LOSS) EARNINGS PER SHARE
                          
Basic
  
$
(1.21
)
  
$
0.40
 
  
$
0.37
 
    


  


  


Diluted
  
$
(1.21
)
  
$
0.39
 
  
$
0.36
 
    


  


  


WEIGHTED AVERAGE NUMBER OF COMMON AND POTENTIAL COMMON SHARES OUTSTANDING
                          
Basic
  
 
2,928
 
  
 
2,884
 
  
 
2,759
 
Diluted
  
 
2,928
 
  
 
3,006
 
  
 
2,895
 
 
See notes to consolidated financial statements.

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Table of Contents
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (IN THOUSANDS)
 
    
Common Stock

                           
    
Number of Shares

  
Amount

  
Additional Paid-in Capital

  
Retained Earnings/ Accumulated Deficit

      
Accumulated Other Comprehensive (Loss)

    
Total

 
Balance, July 1, 1999
  
2,741
  
$
8,654
  
$
0
  
$
692
 
    
$
(295
)
  
$
9,051
 
Exercise of stock options
  
21
  
 
45
                             
 
45
 
Exercise of stock warrants
  
74
  
 
368
                             
 
368
 
Net income
                     
 
1,034
 
             
 
1,034
 
Translation adjustment
                                
 
(50
)
  
 
(50
)
    
  

  

  


    


  


Balance, June 30, 2000
  
2,836
  
 
9,067
  
 
0
  
 
1,726
 
    
 
(345
)
  
 
10,448
 
Exercise of stock warrants
  
43
  
 
214
                             
 
214
 
Exercise of stock options
  
48
  
 
142
                             
 
142
 
Net income
                     
 
1,163
 
             
 
1,163
 
Translation adjustment
                                
 
(358
)
  
 
(358
)
    
  

  

  


    


  


Balance, June 30, 2001
  
2,927
  
 
9,423
  
 
0
  
 
2,889
 
    
 
(703
)
  
 
11,609
 
Stock compensation due to issuance of options
              
 
24
                      
 
24
 
Other
              
 
246
                      
 
246
 
Net loss
                     
 
(3,547
)
             
 
(3,547
)
Unrealized gain on investment (net of tax)
                           
 
24
 
  
 
24
 
Translation adjustment
                                
 
262
 
  
 
262
 
    
  

  

  


    


  


Balance, June 30, 2002
  
2,927
  
$
9,423
  
$
270
  
$
(658
)
    
$
(417
)
  
$
8,618
 
    
  

  

  


    


  


 
See notes to consolidated financial statements.

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Table of Contents
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
    
Year Ended

    
June 30, 2002

  
June 30, 2001

  
June 30, 2000

CASH FLOWS FROM OPERATING ACTIVITIES:
                    
Net (loss) income
  
$
(3,547)
  
$
1,163
  
$
1,034
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
                    
Depreciation and amortization
  
 
1,705
  
 
1,632
  
 
1,523
Bad debt expense
  
 
66
  
 
60
  
 
34
Inventory provision
  
 
511
  
 
34
  
 
(14)
Impairment loss
  
 
1,631
  
 
—  
  
 
—  
Stock compensation
  
 
24
  
 
—  
  
 
—  
(Gain)/loss on sale of property and equipment
  
 
(33)
  
 
49
  
 
(809)
Deferred income taxes
  
 
20
  
 
(71)
  
 
138
Minority interest, net
  
 
14
  
 
(53)
  
 
210
Changes in operating assets and liabilities:
                    
Accounts receivable, net
  
 
275
  
 
1,611
  
 
(1,677)
Other receivables
  
 
(310)
  
 
683
  
 
(563)
Inventories
  
 
409
  
 
804
  
 
(943)
Prepaid expenses and other current assets
  
 
(25)
  
 
320
  
 
(377)
Accounts payable and accrued expenses
  
 
(2,396)
  
 
(1,096)
  
 
2,437
Income taxes payable
  
 
(62)
  
 
(74)
  
 
171
    

  

  

Net cash (used in) provided by operating activities
  
 
(1,718)
  
 
5,062
  
 
1,164
    

  

  

CASH FLOWS FROM INVESTING ACTIVITIES:
                    
Short term deposits
  
 
2,002
  
 
(2,541)
  
 
(653)
Marketable securities
  
 
(120)
             
Capital expenditures
  
 
(919)
  
 
(4,451)
  
 
(1,327)
Other assets
  
 
80
  
 
(263)
  
 
(363)
Proceeds from sale of property and equipment
  
 
63
  
 
53
  
 
1,794
    

  

  

Net cash provided by (used in) investing activities
  
 
1,106
  
 
(7,202)
  
 
(549)
    

  

  

CASH FLOWS FROM FINANCING ACTIVITIES:
                    
Payments on lines of credit
  
 
(783)
  
 
(806)
  
 
(246)
Borrowings under lines of credit
  
 
2,275
  
 
565
  
 
126
Principal payments of debt and capitalized leases
  
 
(1,193)
  
 
(892)
  
 
(431)
Proceeds from long-term debt
  
 
72
  
 
2,293
      
Issuance of common stock
  
 
—  
  
 
356
  
 
413
    

  

  

Net cash provided by (used in) financing activities
  
 
371
  
 
1,516
  
 
(138)
    

  

  

EFFECT OF EXCHANGE RATE CHANGES ON CASH
  
 
220
  
 
(183)
  
 
(114)
NET (DECREASE)/INCREASE IN CASH
  
 
(21)
  
 
(807)
  
 
363
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
  
 
1,149
  
 
1,956
  
 
1,593
    

  

  

CASH AND CASH EQUIVALENTS, END OF YEAR
  
$
1,128
  
$
1,149
  
$
1,956
    

  

  

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
                    
Cash paid during the year for:
                    
Interest
  
$
200
  
$
184
  
$
126
Income taxes
  
$
95
  
$
134
  
$
161
 
See notes to consolidated financial statements.

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Table of Contents
 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 2002, 2001 and 2000
(In thousands, except per share and share amounts)
 
1.    ORGANIZATION AND BASIS OF PRESENTATION
 
Trio-Tech International (“the Company” or “TTI” thereafter) was incorporated in 1958 under the laws of the State of California. TTI provides third-party semiconductor testing and burn-in services primarily through its Laboratories in Southeast Asia; in addition, TTI operates test facilities in the United States and Europe. The Company also designs, develops, manufactures and markets a broad range of equipment and systems used in the manufacture and testing of semiconductor devices and electronic components. TTI conducts business in three industry segments: Testing Services, Manufacturing and Distribution. TTI has subsidiaries in the U.S., Singapore, Malaysia, Thailand, and Ireland as follows:
 
      
Ownership

    
Location

Express Test Corporation
    
100
%
  
Van Nuys, California
Trio-Tech Reliability Services
    
100
%
  
Van Nuys, California
KTS Incorporated, dba Universal Systems
    
100
%
  
San Jose, California
European Electronic Test Centre. Ltd.
    
100
%
  
Dublin, Ireland
Trio-Tech International Pte. Ltd.
    
100
%
  
Singapore
Trio-Tech Test Services Pte. Ltd.
    
100
%
  
Singapore
Trio-Tech Thailand
    
100
%
  
Bangkok, Thailand
Trio-Tech Bangkok
    
100
%
  
Bangkok, Thailand
Trio-Tech Malaysia
    
55
%
  
Penang, Malaysia
Trio-Tech Kuala Lumpur—100% owned by Trio-Tech Malaysia
    
55
%
  
Selangor, Malaysia
Prestal Enterprise Sdn. Bhd.
    
76
%
  
Selangor, Malaysia
 
2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Principles of Consolidation—The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements are presented in U.S. dollars.
 
Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Among the more significant estimates included in these financial statements are the estimated accounts receivable allowance for doubtful accounts, reserve for obsolete inventory, and the deferred income tax asset allowance. Actual results could materially 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. Fiscal 2002, 2001 and 2000 are a 52, 53 and 52-week reporting period, respectively. For simplicity purposes the Company refers to its fiscal year end as June 30.
 
Revenue RecognitionRevenue from product sales made to customers is recognized when the risk of loss for the product sold passes to the customer and any right of return can be quantified, which is generally when goods are shipped or upon the completion of services. The Company estimates an allowance for sales returns based on historical experience with product returns. Testing revenue is recognized when the services are provided.
 
Cash and Cash Equivalents—The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash.
 
Short Term DepositsShort Term deposits consist of bank balances and amounts invested in interest earning instruments having maturity of 3 to12 months. Approximately $3,090 of cash deposits are held in the Company’s 55% owned Malaysian subsidiary. $488 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

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Table of Contents
Malaysian currency. The $488 is currently available for movement, as the Central Bank of Malaysia has authorized $1,800 for movement and the Company has previously utilized $358 of this authorization. During 2001, limits on the movement of cash balances were removed. In addition, approximately $3,161 is available as dividend (after making deductions for income tax) pursuant to Malaysian regulations in force from July 1, 2000. There is an additional amount of $2,083 that is used as collateral for the Singapore credit facility.
 
Investments in Marketable Securities—Investments in marketable securities are accounted for under Statements of Financial Accounting Standards (SFAS) No. 115. Marketable equity securities are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in a separate component of shareholders’ equity. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are included in investment income. Management has determined that all securities in the investment portfolio are classified appropriately as available-for-sale. During the fiscal years ended June 30, 2002, 2001, and 2000 the Company recognized comprehensive income (net of tax) of $24, $0 and $0, respectively, based on its proportionate interest in the subsidiary where the marketable securities are recorded.
 
Inventories—Inventories consist principally of raw materials, work in progress, and finished goods and are stated at the lower of cost, using the first-in, first-out (FIFO) method, or market value.
 
Property, Plant and Equipment—Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is provided for over the estimated useful lives of the assets, using the straight-line method. Amortization of leasehold improvements is provided for over the term of the leases or the estimated useful lives of the assets, whichever is the shorter, using the straight-line method. 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. The Company reviews the carrying value of its fixed assets for possible impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. Impairment losses are charged to operations when recognized. During the year ended June 30, 2002, the Company recorded an impairment loss against the carrying value of fixed assets in the amount of $1,117.
 
Maintenance, repairs and minor renewals are charged directly to expense as incurred. Additions and betterments to property and equipment are capitalized. When assets are disposed of, the related cost and accumulated depreciation thereon are removed from the accounts and any resulting gain or loss is included in statement of operations.
 
Intangible Assets—Goodwill, which represents the excess of purchase price over the fair value of net-assets acquired, is amortized on a straight-line basis over the expected period to be benefited and ranged from 20 to 25 years. Patents and certifications are expenses that are amortized over the expected period to be benefited and range between 7 years (for certifications) and 18 years (for patents). The Company assesses the recoverability of intangible assets by determining whether the amortization over the remaining life can be recovered through undiscounted future net cash flows of the acquired assets. In fiscal 2002 the Company assessed that the remaining goodwill of $393 and patents and certifications of $121 could not be recovered from undiscounted future net cash flows of the acquired assets, and as a result, the Company recorded an impairment charge of $514 on intangible assets.
 
Comprehensive Income (loss)—The Company adopted Statement of Financial Accounting Standard No. 130, “Reporting Comprehensive Income,” (“SFAS No. 130”) issued by the FASB. SFAS No. 130 establishes standards for reporting and presentation of comprehensive income (loss) and its components in a full set of general-purpose financial statements. The Company has chosen to report comprehensive income (loss) in the statements of operations and comprehensive income (loss). Comprehensive income is comprised of net income and all changes to shareholders’ equity except those due to investments by owners and distributions to owners.
 
Foreign Currency Translation and Transactions—Transaction gains and losses result from a change in exchange rates between the functional currency and the currency in which a foreign currency transaction is denominated. They represent an increase or decrease in (a) the actual functional current cash flows realized upon settlement of foreign currency transactions and (b) the expected functional currency cash flows on unsettled foreign currency transactions. All transaction gains and losses are included in other income or expense.
 
Assets and liabilities of the Company’s subsidiaries outside the U.S. are translated into the US dollar at the prevailing exchange rate in effect at each period end. Revenue and expenses are translated into the US dollar at the average exchange rate during the reporting period. Any difference resulting from using the current rate and average rate in determination of retained earnings is accounted for as a translation adjustment and reported as part of comprehensive income or loss in the equity section.

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Impairment of Long-lived Assets—Statement of the Financial Accounting Standards No. 121 “Accounting for the Impairment of Long-Lived Assets and for the Long-Lived Assets to be disposed of” (SFAS No. 121) establishes guidelines regarding when impairment losses on long-lived assets, which include plant and equipment, and certain identifiable intangible assets, should be recognized and how impairment losses should be measured. The Company reviews such assets for possible impairment whenever circumstances indicate that the carrying amount may not be recoverable. To the extent the carrying value of the asset exceeds its fair value, which is determined using undiscounted cash flows, a write down to fair value is made. In the fiscal year ended June 30, 2002, the Company recorded an impairment loss of approximately $1,631 based on its examination of future cash flows, which are generated by the subsidiaries where certain long-lived assets (goodwill, patent, and certain fixed assets) were used.
 
The impairment of $1,631 consisted of (1) $393 in goodwill, related to the Company’s acquisition of manufacturing product lines in the United States; (2) $121 in patents and certifications which were used in its manufacturing segment (within the United States); and $1,117 of fixed assets, consisting of machinery and equipment, furniture and fixtures, leasehold improvements, and demonstration (54% pertaining to Southeast Asia and 46% pertaining to the United States). The Testing Segment incurred a one-time impairment of $603, of which $534 of impairment was a write down because of obsolescence due to a new generation of burn-in technology known as HBI (Hybrid Burn-in) and SBI (Smart Burn-in). Impairment of $519 was recorded primarily as a result of the decline in the technology industry in the United States.
 
Income Taxes—The Company accounts for income taxes using the liability method in accordance with Statement of Financial Accounting Standards No 109, “Accounting for Income Taxes” (“SFAS No. 109”). SFAS No. 109 requires an entity to recognize deferred tax liabilities and assets. Deferred taxes assets and liabilities are recognized for the future tax consequence attributable to the difference between the tax bases of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in future years. Further, the effects of enacted tax laws or rate changes are included as part of deferred tax expenses or benefits in the period that covers the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized.
 
For US income tax purposes, no provision has been made for US taxes on undistributed earnings of oversea subsidiaries, with which the Company intends to continue to reinvest. It is not practicable to estimate the amount of additional tax that might be payable on the foreign earnings if they were remitted as dividends, or lent to the Company, or if the Company should sell its stock in the subsidiary. However, the Company believes that US foreign tax credits and net operating losses available would substantially eliminate any additional tax effects.
 
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 that would result if such earnings were repatriated. These taxes are undeterminable at this time. The amount of earnings retained in subsidiaries was $9,267 at June 30, 2002.
 
Research and Development Costs—The Company incurred research and development costs of $331 in 2002, $216 in 2001 and $205 in 2000 that were charged to operating expenses as incurred.
Stock Based Compensation—Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), establishes a fair value method of accounting for stock-based compensation plans and for transactions in which a company acquires goods or services from employees and non-employees in exchange for equity instruments. SFAS No. 123 also gives the option, with respect to employees only, to account for stock-based compensation, utilizing the intrinsic method, in accordance with Accounting Principles Board Opinion No. 25 (APB No. 25), “Accounting for Stock issued to Employees”. The Company adopts APB No. 25 and FIN 44 for measurement and recognition of employee stock-based compensation.
 
Earnings per Share—The Company adopted SFAS No. 128, Earnings per Share (“EPS”). Basic Earnings Per Share is computed by dividing net income available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during a period. In computing diluted EPS, the average price for the period is used in determining the number of shares assumed to be purchased from exercise of stock options and warrants.

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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:
 
    
Year Ended

    
June 30, 2002

    
June 30, 2001

  
June 30, 2000

Net (loss) income used to compute basic and diluted earnings per share
  
$
(3,301
)
  
$
1,163
  
$
1,034
    


  

  

Weighted average number of common shares outstanding—basic
  
 
2,928,000
 
  
 
2,884,000
  
 
2,759,000
Dilutive effect of stock options and warrants
           
 
122,000
  
 
136,000
    


  

  

Number of shares used to compute earnings per share—diluted
  
 
2,928,000
 
  
 
3,006,000
  
 
2,895,000
    


  

  

 
Stock options and warrants to purchase 656,165 shares at prices ranging from $2.72 to $8.00 per share were outstanding during 2002 and were excluded in the computation of diluted EPS because their effect would have been antidilutive.
 
Stock options and warrants to purchase 612,165 shares at prices ranging from $3.67 to $8.00 per share were outstanding during 2001 and were excluded in the computation of diluted EPS because their effect would have been antidilutive. Stock options and warrants to purchase 36,870 shares at a price of $8.00 per share were outstanding during 2000 and were excluded in the computation of diluted EPS because their effect would have been antidilutive.
 
Fair Values of Financial Instruments—The carrying value of trade accounts receivable and accounts payable approximate their fair value due to their short-term maturities. The carrying values of the Company’s lines of credit and long-term debt are considered to approximate their fair value because the interest rates are subject to change with the market interest rates.
 
Concentration of credit riskFinancial instruments that subject the Company to credit risk consists primarily of accounts receivable. 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 performs ongoing credit evaluations of its customers for potential credit losses. The Company generally does not require collateral.The Company believes its credit policies do not result in significant adverse risk and historically has not experienced significant credit related losses.
 
 
    
Year Ended

 
    
June 30,
    
June 30,
    
June 30,
 
    
2002

    
2001

    
2000

 
Beginning
  
$
174
 
  
$
221
 
  
$
219
 
Additions charged to cost and expenses
  
 
66
 
  
 
60
 
  
 
34
 
Recovered
  
 
(25
)
  
 
(85
)
  
 
(32
)
Actual write-offs
  
 
(41
)
  
 
(22
)
  
 
—  
 
    


  


  


Ending
  
$
174
 
  
$
174
 
  
$
221
 
    


  


  


 
Recently Issued Accounting Pronouncements—In July 2001, the Financial Standards Board (“FASB”) issued Financial Accounting Standards (“SFAS”), No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 replaces Accounting Principles Board Opinion No. 16 (APB No. 16), “Business Combination,” and eliminates pooling-of-interests accounting prospectively. It also provides guidance on purchase accounting related to the recognition of intangible assets and accounting for negative goodwill. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Under SFAS No. 142, goodwill will be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired. Upon adoption of SFAS No. 142, amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 ceased, and intangible assets acquired prior to July 1, 2001 that did not meet the criteria for recognition under SFAS No. 141 were required to be reclassified to goodwill. Companies are required to adopt SFAS No. 142 for fiscal years beginning after December 15, 2001. In connection with the adoption of SFAS No. 142, companies will be

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required to perform a transitional goodwill impairment assessment. The Company adopted SFAS No. 142 for the fiscal year commencing July 1, 2002. During the year ended June 30, 2002, the Company wrote off all of the outstanding balance of approximately $393 of goodwill. During the years ended June 30, 2002 and 2001, goodwill amortization totaled approximately $NIL and $34.
 
In June 2001, Financial Accounting Standard Board issued Statement of Financial Accounting Standards, No. 143, “Accounting for Asset Retirement Obligations,” (“SFAS No. 143”). FAS No. 143 is effective for fiscal years beginning after June 15, 2002. SFAS No. 143 requires that any legal obligation related to the retirement of long-lived assets be quantified and recorded as a liability with the associated asset retirement cost capitalized on the balance sheet in the period it is incurred when a reasonable estimate of the fair value of the liability can be made. The Company believes the adoption of this statement will have no material impact on its financial statements.
 
In August 2001, Financial Accounting Standard Board issued Statement of Financial Accounting Standards, No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (“SFAS No. 144”). SFAS No. 144 supersedes SFAS No. 121 and is effective for fiscal years beginning after December 15, 2001. SFAS No. 144 provides a single, comprehensive accounting model for impairment and disposal of long-lived assets and discontinued operations. The Company does not expect that the adoption of SFAS No. 144 will have significant impact on its consolidated financial statements.
 
In April 2002, Financial Accounting Standard Board issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. This statement eliminates the current requirement that gains and losses on debt extinguishment must be classified as extraordinary items in the income statement. Instead, such gains and losses will be classified as extraordinary items only if they are deemed to be unusual and infrequent, in accordance with the current GAAP criteria for extraordinary classification. In addition, SFAS 145 eliminates an inconsistency in lease accounting by requiring that modifications of capital leases that result in reclassification as operating leases be accounted for consistent with sale-leaseback accounting rules. The statement also contains other nonsubstantive corrections to authoritative accounting literature. The changes related to debt extinguishment will be effective for fiscal years beginning after May 15, 2002, and the changes related to lease accounting will be effective for transactions occurring after May 15, 2002. Adoption of this standard will not have any immediate effect on the Company’s consolidated financial statements. The Company will apply this guidance prospectively.
 
In June 2002, Financial Accounting Standard Board issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of a companys commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amount recognized. The provisions of SFAS 146 are to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not expect that the adoption of this standard will have any immediate effect on its consolidated financial statements.
 
Reclassification—Certain reclassifications have been made to the previous year’s financial statements to conform to current year presentation, with no effect on previously reported net income.
 
3.    INVENTORIES
 
Inventories consist of the following:
 
    
June 30, 2002

    
June 30, 2001

 
Raw materials
  
$
938
 
  
$
1,369
 
Work in progress
  
 
287
 
  
 
327
 
Finished goods
  
 
505
 
  
 
427
 
Less: provision for obsolete inventory
  
 
(716
)
  
 
(205
)
    


  


    
$
1,014
 
  
$
1,918
 
    


  


 
4.    PROPERTY, PLANT AND EQUIPMENT

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Property, plant and equipment consist of the following:
 
      
Useful Life in years

  
June 30,
2002

  
June 30, 2001

Building and improvements
    
3-20
  
$
847
  
$
1,059
Leasehold improvements
    
3-27
  
 
1,677
  
 
2,524
Machinery and equipment
    
3-7
  
 
4,872
  
 
7,113
Furniture and fixtures
    
3-5
  
 
367
  
 
766
Equipment under capital leases
    
3-5
  
 
1,807
  
 
2,003
           

  

           
 
9,570
  
 
13,465
Less:
                    
Accumulated depreciation and amortization
         
 
3,402
  
 
4,825
Accumulated amortization on equipment under capital leases
         
 
575
  
 
1,106
           

  

           
$
5,593
  
$
7,534
           

  

 
Depreciation and amortization expense during fiscal year ended June 30, 2002, 2001 and 2000 was $1,685, $1,548 and $1,443 respectively.
 
5.    INTANGIBLE ASSETS
 
Intangible assets consist of the following:
 
    
June 30,
2002

  
June 30,
2001

Goodwill, net of accumulated amortization of  $0 (2002) and $730 (2001)
  
$
—  
  
$
393
Patent net of accumulated amortization of $0 (2002) and $86 (2001)
  
 
—  
  
 
133
    

  

Total
  
$
0
  
$
526
    

  

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Table of Contents
 
6.    LINES OF CREDIT
 
    
June 30, 2002

  
June 30, 2001

Revolving line of credit denominated by Singapore dollars payable to a commercial bank for working capital purposes, to borrow up to $2,548 with an interest rate at the bank's prime rate (5.75% at June 30, 2002) plus 1.25%. The line of credit is renewable in June 2003 and is collateralized by a registered charge over fixed deposits, corporate gaurantee andregistered fixed charge over power sub-station.
  
$
141
  
$
 
Revolving line of credit denominated by Singapore dollars payable to a commercial bank for working capital purposes, to borrow up to $4,530 with an interest rate at the bank's prime rate (5.25% at June 30, 2002) plus 1.00%. The line of credit is renewable annually at fiscal year end and collaterilized by Trio-Tech International Pte. Ltd. accounts receivable.
  
 
711
      
Revolving line of credit denominated by United States dollars, payable to a commercial bank for working capital purposes, to borrow up to $500 with an interest rate at the bank's prime rate (4.0% at June 30, 2002) plus 1.75%. The line of credit expired in December 2001 and the bank is still under the document processing stage at September 6, 2002. The line is collateralized by Trio-Tech Intenternational accounts receivable and inventories.
  
 
375
      
    

  

Lines of credit
  
$
1,227
  
$
0
    

  

 
The
 
lines of credit have various financial covenants. The Company was in compliance with all such debt covenants at June 30, 2002.
 
7.    ACCRUED EXPENSES
 
Accrued expenses consist of the following:
 
    
June 30, 2002

  
June 30, 2001

Payroll and related
  
$
948
  
$
1,751
Commissions
  
 
205
  
 
338
Customer deposits
  
 
41
  
 
215
Legal and audit
  
 
235
  
 
150
Sales tax
  
 
311
  
 
27
Utilities
  
 
95
  
 
473
Warranty
  
 
305
  
 
262
Other accrued expenses
  
 
175
  
 
473
    

  

Total
  
$
2,315
  
$
3,689
    

  

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Table of Contents
 
8.    NOTES PAYABLE
 
Notes payable consist of the following:
 
    
June 30,
2,002

  
June 30,
2,001

Note payable denominated by Singapore Dollars to a commercial bank for purchasing certain equipment, maturing in September 2003, bearing interest at 6.5% per annum, payable in monthly installments of $43 through September 2003, collateralized by the relevant equipment.
  
$
732
  
 
1,186
Note payable denominated by Singapore Dollars to a commercial bank for purchasing certain equipment, maturing in February 2005, bearing interest at the bank's prime rate (5.75% and 6.25% at June 30, 2002 and 2001) plus 1.5% per annum, payable in monthly installments of $17 through February 2005, collateralized by the relevant equipment, a fixed deposit and a corporate guarantee.
  
 
516
  
 
601
Mortgage note payable denominated by Irish Pounds to the Industrial Credit Corporation for purchasing a building, maturing in July 2007, bearing interest at the bank's prime rate (3.44% and 4.88% at June 30, 2002 and 2001) plus 3.5% per annum, payable in monthly installments of $2.2 through July 2007, collateralized by the relevant building.
  
 
99
  
 
112
Mortgage note payable denominated by Irish Pounds to the Industrial Credit Corporation for purchasing a building, maturing in May 2008, bearing interest at the bank's prime rate (3.44% and 4.88% at June 30, 2002 and 2001) plus 3% per annum, payable in monthly installments of $1.2 through May 2008, collateralized by the relevant building.
  
 
79
  
 
64
    

  

    
 
1,426
  
 
1,963
Less current portion
  
 
785
  
 
698
    

  

Notes payable
  
$
641
  
$
1,265
    

  

 
Maturities of notes payable as of June 30, 2002 are as follows
 
Year
Ending
June 30,

      
Amount

2003
      
$  785
2004
      
    409
2005
      
    158
2006
      
      36
2007
      
      29
Thereafter
      
        9
        
        
$1,426
        

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Table of Contents
 
9.    INCOME TAXES
 
The Company generates taxable income and loss in the U.S., Singapore, Thailand, Malaysia, and Ireland, respectively, and files income tax returns in these countries. The summarized income or loss before income taxes in the U.S. and foreign countries for the fiscal years ended June 30, 2002, 2001 and 2000 are as follows:
 
    
June 30,
2002

    
June 30,
2001

    
June 30,
2000

Domestic
  
$
(3,611
)
  
$
(154
)
  
$
271
Foreign
  
 
131
 
  
 
1,782
 
  
 
1,254
    
$
(3,480
)
  
$
1,628
 
  
$
1,525
    


  


  

 
On a consolidated basis, the Company’s net income tax provision (benefits) are as follows:
 
    
June 30,
2002

  
June 30,
2001

    
June 30,
2000

 
Current:
                        
Federal
  
$
—  
  
$
1
 
  
$
73
 
State
  
 
3
                 
Foreign
  
 
30
  
 
425
 
  
 
(105
)
    

  


  


    
 
33
  
 
426
 
  
 
(32
)
    

  


  


Deferred:
                        
Federal
                        
State
                        
Foreign
  
 
20
  
 
(71
)
  
 
138
 
    
$
53
  
$
355
 
  
$
106
 
    

  


  


 
The reconciliation between the U.S. federal statutory tax rate and the effective income tax rate is as follows:
 
    
June 30,
2002

    
June 30,
2001

    
June 30,
2000

 
Statutory federal tax rate
  
(34
)%
  
34
%
  
34
%
State taxes, net of federal benefit
  
(6
)
  
6
 
  
6
 
Foreign tax rate reduction
  
13
 
  
(8
)
  
(12
)
Other
  
2
 
  
4
 
  
4
 
Change in valuation allowance
  
27
 
  
(14
)
  
(25
)
    

  

  

Effective rate
  
2
%
  
22
%
  
7
%
    

  

  

 
The Company has net operating loss carry forwards of approximately $4.3 million for federal income tax purposes (which will expire through 2021) and $1.7 million for state income tax purposes (which will expire through 2005) at June 30, 2002. Management of the Company is uncertain whether it is more likely than not these future benefits will be realized. Accordingly, a full valuation allowance has been established.

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The components of deferred income tax assets (liabilities) are as follows:
 
    
June 30,
2002

    
June 30,
2001

 
Deferred tax assets:
                 
Net operating loss carry forward
  
$
1,375
 
  
$
809
 
Fixed asset impairment
  
 
206
 
        
Inventory valuation
  
 
174
 
        
Depreciation
  
 
14
 
  
 
6
 
Provision for bad debts
  
 
5
 
  
 
61
 
Reserve for obsolescence
  
 
65
 
  
 
72
 
Accrued vacation
  
 
15
 
        
Accrued expenses
  
 
46
 
        
Other
           
 
17
 
    


  


Total deferred tax assets
  
 
1,900
 
  
 
965
 
Deferred tax liabilities:
                 
Depreciation
  
 
432
 
  
 
415
 
Other
  
 
237
 
  
 
234
 
    


  


Total deferred income tax liabilities
  
 
669
 
  
 
649
 
    


  


Subtotal
  
 
1,231
 
  
 
316
 
Valuation allowance
  
 
(1,900
)
  
 
(965
)
    


  


Net deferred tax liability
  
$
(669
)
  
$
(649
)
    


  


 
The valuation allowance increased (decreased) by $935, ($234) and ($391) in fiscal 2002, 2001 and 2000 respectively.
 
10.    COMMITMENTS AND CONTINGENCIES
 
The Company leases certain of its facilities and equipment under long-term agreements expiring at various dates through 2007. 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 30, 2002 are as follows:
 
Year ending June 30,

  
Capital
Leases

      
Rental Commitments

2003
  
$
429
 
    
$
622
2004
  
 
163
 
    
 
362
2005
  
 
99
 
    
 
104
2006
  
 
48
 
    
 
4
2007
  
 
45
 
    
 
—  
Thereafter
  
 
—  
 
    
 
—  
    


    

Total future minimum lease payments
  
 
784
 
    
$
1,092
               

Less amount representing interest
  
 
(103
)
        
    


        
Present value of net minimum lease payments
  
 
681
 
        
Less current portion of capital lease obligations
  
 
(336
)
        
    


        
Long-term obligations under capital leases
  
$
345
 
        
    


        
 
 
Total rental expense on all operating leases, both cancelable and noncancellable, amounted to $705 in 2002, $765 in 2001 and $543 in 2000. Total rental income under sublease agreements was $90 in 2002, $118 in 2001, and $169 in 2000.
 
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 defendants to pay $3,750 to the Federal Environmental Protection Agency to settle. On April 6, 2001, the Company was dismissed from this action.
 
The Company is, from time to time, the subject of litigation claims and assessments arising out of matters occurring in its normal business operations. In the opinion of management, resolution of these matters will not have a material adverse effect on the Company’s financial statements.

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11. TRANSACTIONS IN SHAREHOLDERS’ EQUITY
 
Fiscal 2002
 
On October 16, 2001, the Board of Directors granted 50,000 options to all directors with an exercise price of $2.72 per share, $0.48 lower than the market price of $3.20 at the grant date. These options have a five-year contractual life and vested immediately. Consequently, the Company recognized $24 of stock compensation expense in fiscal 2002.
 
On October 16, 2001, the Board of Directors granted options under the 1998 Plan, as defined in note 12 below, covering 116,000 shares of common stock to 55 employees with an exercise price equal to the market price at the grant date. These options have a five-year contractual life and will vest 25% on the grant date and then 25% on each anniversary date. According to APB No. 25, no stock compensation was recognized for these 116,000 options. In addition, the Board of Directors extended the life of 27,000 existing options for one year. On the measurement date, there was no intrinsic value on these options; therefore, no stock compensation was recognized for this transaction during fiscal 2002.
 
Based on variable accounting method, the Company determined that no additional stock compensation expense was recognized in fiscal 2002 for the repricing transactions related to 45,000 options, which occurred in fiscal 2000.
 
Approximately $3,090 of cash deposits are held in the Company’s 55% owned Malaysian subsidiary. $488 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. The $488 is currently available for movement, as the Central Bank of Malaysia has authorized $1,800 for movement and the Company has previously utilized $358 of this authorization. During 2001, limits on the movement of cash balances were removed. In addition, approximately $3,161 is available as dividend (after making deductions for income tax) pursuant to Malaysian regulations in force from July 1, 2000. There is an additional amount of $2,083 that is used as collateral for the Singapore credit facility.
 
Fiscal 2001
 
The option holders, under the Directors Plan, exercised 10,000 options with an exercise price of $2.82 per share. Consequently, the Company issued 10,000 shares of common stock in exchange for aggregate proceeds of $28.
 
The option holders, under the 1998 Plan, exercised 38,000 options with an exercise price of $3.00 per share. Consequently, the Company issued 38,000 shares of common stock in exchange for proceeds of $114.
 
The warrant holders exercised 43,000 warrants at $5.00 per share. Consequently the Company issued 43,000 shares of common stock in exchange for proceeds of $214.
 
Based on variable accounting method, the Company determined that no additional stock compensation expense was recognized in fiscal 2001 for the repricing transactions related to 45,000 options, which occurred in fiscal 2000.
 
Fiscal 2000
 
The option holders exercised 21,000 options with an exercise price of $2.17 per share. Consequently, the Company issued 21,000 shares of common stock in exchange for proceeds of $45.
 
The warrant holders exercised 73,740 warrants at $5.00 per share. Consequently the Company issued 73,740 shares of common stock in exchange for proceeds of $368.
 
On December 7, 1999, the Company changed the exercise price of 45,000 options granted on September 30, 1997 from original exercise price of $7.00 per share to $5.00 per share. The Company adopted FASB Interpretation No. 44 (FIN 44) and accounted for this repricing transaction by using variable accounting method. No additional stock compensation expense was recognized for the fiscal year ended June 30, 2000.
 
12. STOCK OPTIONS AND WARRANTS
 
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 27,000 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.

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Table of Contents
 
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. Options under the 1998 Plan have a five-year contractual life and vest at the rate of 25% at the grant date and 25% at each anniversary after the granting date. There are 300,000 shares authorized for grant under the 1998 Plan, and 250,500 options have been granted as of June 30, 2002.
 
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 six 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. Each option granted under Plan shall have a five-year contractual life and be exercisable immediately commencing as of the date of grant. There are 300,000 shares authorized for grant under the Directors Plan and 197,000 options have been granted as of June 30, 2002.
 
The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its Plans. Accordingly, stock compensation based on the intrinsic value of these options granted 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 SFAS No. 123, the Company’s net income and earnings per share would have been reduced to the pro forma amounts indicated below:
 
    
Year Ended

    
June 30,
2002

    
June 30,
2001

  
June 30,
2000

Net (Loss) Income:
                      
As Reported
  
$
(3,547
)
  
$
1,163
  
$
1,034
Pro forma
  
$
(3,733
)
  
$
822
  
$
699
Basic Earnings per Share:
                      
As Reported
  
$
(1.21
)
  
$
0.40
  
$
0.37
Pro forma
  
$
(1.27
)
  
$
0.29
  
$
0.25
Diluted Earnings per Share:
                      
As Reported
  
$
(1.21
)
  
$
0.39
  
$
0.36
Pro forma
  
$
(1.27
)
  
$
0.27
  
$
0.24
 
 
The fair value of options granted during fiscal 2002, 2001, and 2000 was $0.94, $5.40, and $4.95 per share and aggregate $186, $341, and $335 for total options granted by using the Black-Scholes option pricing model with the assumptions listed below:
 
    
Year Ended

 
    
June 30,
2002

    
June 30,
2001

    
June 30,
2000

 
Volatility
  
45.9
%
  
56.7
%
  
52.6
%
Risk free interest rate
  
3.16
%
  
4.97
%
  
6.18
%
Expected life (years)
  
2.17
 
  
2.54
 
  
2.93
 
 
The following tables summarize the stock option and warrant activities for the three years ended June 30, 2002:

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Table of Contents
    
Number of
Options

    
Weighted Average Price

  
Number
of
Options Exercisable

  
Weighted Average Exercise Price

Outstanding Options
                         
Beginning outstanding options at June 30, 1999
  
269,813
 
  
$
4.77
           
Granted
  
134,000
 
  
 
4.95
           
Exercised
  
(20,625
)
  
 
2.17
           
    

         
      
Total outstanding options at June 30, 2000
  
383,188
 
  
 
5.89
  
307,938
  
$
4.32
    

         
      
Granted
  
86,000
 
  
 
5.40
           
Exercised
  
(47,688
)
  
 
3.33
           
Canceled
  
(13,500
)
  
 
5.41
           
    

         
      
Total outstanding options at June 30, 2001
  
408,000
 
  
 
4.83
  
334,000
  
 
4.66
    

         
      
Granted
  
166,000
 
  
 
2.84
           
Exercised
  
0
 
                  
Canceled
  
(99,500
)
  
 
4.93
           
    

         
      
Total outstanding options at June 30, 2002
  
474,500
 
  
$
4.27
  
347,750
  
$
4.36
    

         
      
    
Number of Warrants

    
Weighted Average Price

  
Number
of
Warrants Exercisable

  
Weighted Average Exercise Price

Outstanding Warrants
                         
Beginning outstanding warrants at June 30, 1999
  
536,980
 
  
$
7.15
           
Granted
  
36,870
 
  
 
8.00
           
Exercised
  
(73,740
)
  
 
5.00
           
    

         
      
Total outstanding warrants at June 30, 2000
  
500,110
 
  
 
5.20
  
500,110
  
$
5.20
    

         
      
Granted
  
9,915
 
  
 
8.00
           
Exercised
  
(42,830
)
  
 
5.00
           
Canceled
  
(233,030
)
  
 
5.00
           
    

         
      
Total outstanding warrants at June 30, 2001
  
234,165
 
  
 
5.56
  
234,165
  
 
5.56
    

         
      
Canceled
  
(52,500
)
  
 
4.81
           
    

         
      
Total outstanding warrants at June 30, 2002
  
181,665
 
  
$
5.77
  
181,665
  
$
5.77
    

         
      
 
The following tables summarize information concerning outstanding and exercisable options and warrants at June 30, 2002:
 
June 30, 2002

Options Outstanding

 
Options Exercisable

Grant
Price Range

  
Number
Outstanding

  
Remaining
Contractual Life

 
Weighted Average Exercise Price

 
Number
Exercisable

 
Exercise Price

$2.70–$3.69
  
263,000
  
1.76
 
$3.2874
 
176,000
 
$3.3306
$3.70–$4.69
  
14,500
  
0.03
 
4.3400
 
14,500
 
4.3400
$4.70–$5.69
  
126,000
  
0.57
 
5.3270
 
104,000
 
5.2600
$5.70–$6.69
  
71,000
  
0.30
 
6.0000
 
53,250
 
6.0000
    
          
   
    
474,500
  
2.65
 
$4.2700
 
347,750
 
$4.3600
    
          
   
 
June 30, 2002

Warrants Outstanding

 
Warrants Exercisable

Grant
Price Range

  
Number
Outstanding

  
Remaining
Contractual Life

 
Weighted Average Exercise Price

 
Number
Exercisable

 
Exercise Price

$4.70–$5.69
  
134,880
  
0.34
 
$5.0000
 
134,880
 
$5.0000
$5.70–$8.00
  
46,785
  
0.34
 
8.0000
 
46,785
 
8.0000
    
          
   
    
181,665
  
0.34
 
$5.7700
 
181,665
 
$5.7700
    
          
   

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Table of Contents
 
13.    CONCENTRATION OF CUSTOMERS
 
The Company had two major customers that accounted for the following accounts receivable and sales during the periods ended:
 
Years ended June 30,

  
2002

    
2001

    
2000

 
Sales
                    
—Customer A
  
24
%
  
15
%
  
15
%
—Customer B
  
31
%
  
25
%
  
13
%
Accounts Receivable
                    
—Customer A
  
24
%
  
16
%
      
—Customer B
  
24
%
  
25
%
      
 
14.    UNUSED FINANCING FACILITIES
 
The Company has various credit facilities available to it. The following table summarizes the credit facilities available to the Company and the unutilized portion of the facilities at June 30, 2002:
 
Entity with Facility

  
Type of facility

  
Interest Rates

    
Credit Limit

  
Unused portion

Trio-Tech Malaysia
  
Line of Credit
  
6.80
%
  
$
40
  
$
40
Trio-Tech Kuala Lumpur
  
Line of Credit
  
6.80
%
  
 
50
  
 
50
Trio-Tech Singapore
  
Line of Credit
  
7.00
%
  
 
2,548
  
 
2,407
Trio-Tech Singapore
  
Line of Credit
  
6.25
%
  
 
4,530
  
 
3,819
Trio-Tech International
  
Line of Credit
  
5.75
%
  
 
500
  
 
125
                

  

                
$
7,668
  
$
6,441
                

  

 
15.    BUSINESS SEGMENTS
 
The Company operates principally in three industry segments, the testing service industry (that performs structural and electronic tests of semiconductor devices), the designing and manufacturing of equipment (that tests the structural integrity of integrated circuits and other products), and the distribution of various products from other manufacturers in Singapore and Southeast Asia. The following net sales were based on customer location rather than subsidiary location.
 
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.
All intersegment sales are sales from the manufacturing segment to the testing and distribution segment. Total intersegment sales were $38 in 2002, $370 in 2001, and $503 in 2000. Corporate assets mainly consist of cash and prepaid expenses. Corporate expenses mainly consist of salaries, insurance, professional expenses and directors’ fees.

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Table of Contents
Business Segment Information:
         
Net Sales

  
Operating Income (loss)

    
Assets

  
Depr. and Amort.

  
Capital Expenditures

Manufacturing
  
2002
  
$
5,022
  
$
(4,084
)
  
$
2,932
  
$
410
  
$
217
    
2001
  
$
18,468
  
$
(197
)
  
$
6,898
  
$
488
  
$
163
    
2000
  
$
13,361
  
$
118
 
  
$
9,020
  
$
450
  
$
436
Testing Services
  
2002
  
 
8,942
  
 
771
 
  
 
15,654
  
 
1,187
  
 
474
    
2001
  
 
11,112
  
 
743
 
  
 
16,563
  
 
1,051
  
 
3,806
    
2000
  
 
7,723
  
 
1,203
 
  
 
11,553
  
 
924
  
 
654
Distribution
  
2002
  
 
5,653
  
 
(55
)
  
 
399
  
 
104
  
 
18
    
2001
  
 
6,553
  
 
390
 
  
 
350
  
 
92
  
 
478
    
2000
  
 
5,859
  
 
(322
)
  
 
2,081
  
 
149
  
 
237
Corporate and
  
2002
         
 
(241
)
  
 
90
  
 
4
  
 
15
unallocated
  
2001
         
 
136
 
  
 
339
  
 
1
  
 
4
    
2000
         
 
311
 
  
 
58
             
Total Company
  
2002
  
$
19,617
  
$
(3,609
)
  
$
19,075
  
$
1,705
  
$
724
    
2001
  
$
36,133
  
$
1,072
 
  
$
24,150
  
$
1,632
  
$
4,451
    
2000
  
$
26,943
  
$
1,310
 
  
$
22,712
  
$
1,523
  
$
1,327
 
Geographic Area Information:
 
         
United States

    
Europe

    
Southeast Asia

    
Eliminations and Other

    
Total Company

 
Net sales to
  
2002
  
$
8,083
 
  
1,479
 
  
10,093
    
(38
)
  
$
19,617
 
customers
  
2001
  
$
11,253
 
  
6,761
 
  
18,489
    
(370
)
  
$
36,133
 
    
2000
  
$
14,432
 
  
2,893
 
  
10,121
    
(503
)
  
$
26,943
 
Operating
  
2002
  
$
(3,428
)
  
(153
)
  
213
    
(241
)
  
$
(3,609
)
Income (loss)
  
2001
  
$
(484
)
  
64
 
  
1,356
    
136
 
  
$
1,072
 
    
2000
  
$
132
 
  
27
 
  
840
    
311
 
  
$
1,310
 
Property, plant
  
2002
  
$
160
 
  
463
 
  
5,010
    
(40
)
  
$
5,593
 
and equipment—  
  
2001
  
$
869
 
  
424
 
  
6,241
           
$
7,534
 
net
  
2000
  
$
996
 
  
259
 
  
3,242
           
$
4,497
 

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Table of Contents
16.    QUARTERLY FINANCIAL DATA (UNAUDITED)
 
The Company’s summarized quarterly financial data are as follows:
 
Year ended June 30, 2001

  
Sep. 30,

    
Dec. 31,

    
Mar. 31,

    
Jun. 30,

 
Net Sales
  
$
9,158
 
  
$
12,035
 
  
$
7,877
 
  
$
7,063
 
Expenses
  
 
8,875
 
  
 
11,133
 
  
 
7,797
 
  
 
6,700
 
    


  


  


  


Income before income taxes and minority interest
  
 
283
 
  
 
902
 
  
 
80
 
  
 
363
 
Income taxes
  
 
(68
)
  
 
(211
)
  
 
35
 
  
 
(111
)
    


  


  


  


Income before minority interest
  
 
215
 
  
 
691
 
  
 
115
 
  
 
252
 
Minority interest
  
 
(31
)
  
 
(53
)
  
 
(2
)
  
 
(24
)
    


  


  


  


Net Income
  
$
184
 
  
$
638
 
  
$
113
 
  
$
228
 
    


  


  


  


Net income per share:
                                   
Basic
  
$
0.06
 
  
$
0.22
 
  
$
0.04
 
  
$
0.08
 
Diluted
  
$
0.06
 
  
$
0.22
 
  
$
0.04
 
  
$
0.08
 
 
Year ended June 30, 2002

  
Sep. 30,

    
Dec. 31,

    
Mar. 31,

    
Jun. 30,

 
Net Sales
  
$
5,136
 
  
$
4,812
 
  
$
4,657
 
  
$
5,012
 
Expenses
  
 
5,509
 
  
 
5,616
 
  
 
4,973
 
  
 
6,999
 
    


  


  


  


Loss before income taxes and minority interest
  
 
(373
)
  
 
(804
)
  
 
(316
)
  
 
(1,987
)
Income taxes
  
 
(42
)
  
 
(26
)
  
 
—  
 
  
 
15
 
    


  


  


  


Loss before minority interest
  
 
(415
)
  
 
(830
)
  
 
(316
)
  
 
(1,972
)
Minority interest
  
 
15
 
  
 
38
 
  
 
4
 
  
 
(71
)
    


  


  


  


Net Loss
  
$
(400
)
  
$
(792
)
  
$
(312
)
  
$
(2,043
)
    


  


  


  


Net loss per share:
                                   
Basic
  
$
(0.14
)
  
$
(0.27
)
  
$
(0.11
)
  
$
(0.70
)
Diluted
  
$
(0.14
)
  
$
(0.27
)
  
$
(0.11
)
  
$
(0.70
)

52