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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-13914
TRIO-TECH INTERNATIONAL
(Exact name of Registrant as specified in its Charter)
California 95-2086631
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
355 Parkside Drive
San Fernando, California 91340
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number: 818-365-9200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class 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 [X] No[_]
Based on the closing sales price on September 20, 2000, the aggregate
market value of the voting stock held by nonaffiliates of the registrant was
$16,487,842. Number of shares of common stock outstanding as of September 20,
2000 is 2,836,618.
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. [_]
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TRIO-TECH INTERNATIONAL
INDEX TO CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE
Page
----
FORM 10-K COVER 1
INDEX 2
Part I. 3
Item 1 Business 3
Item 2 Properties 9
Item 3 Legal Proceedings 10
Item 4 Submission of matters to a vote of security holders 10
Part II 11
Item 5 Market for registrant's common equity and related stockholder matters 11
Item 6 Selected financial data 12
Item 7 Management's discussion and analysis of financial condition and results of operations 13
Item 7A Quantitative and qualitative disclosures about market risk 15
Item 8 Financial statements and supplementary data 15
Item 9 Changes in and disagreements with accountants on accounting and financial disclosure 15
Part III 15
Part IV 15
Item 14 Exhibits, financial statement schedules and reports on Form 8-K 15
Signature 18
Exhibits
Independent Auditors' Report 19
Consolidated Balance Sheets as of June 30, 2000 and June 25, 1999 20
Consolidated Statements of Income and Comprehensive Income (Loss) for
the Years Ended June 30, 2000, June 25, 1999 and June 26, 1998 21
Consolidated Statements of Shareholders' Equity for the Years Ended
June 30, 2000, June 25, 1999 and June 26, 1998 22
Consolidated Statements of Cash Flows for the Years Ended June 30, 2000, June 25, 1999 and
June 26, 1998 23
Notes to Consolidated Financial Statements 25
-2-
NOTE CONCERNING FORWARD-LOOKING STATEMENTS
The discussions of the Company's business and activities set forth in this 10-K
and in other past and future reports and announcements by the Company may
contain forward-looking statements and assumptions regarding future activities
and results of operations of the Company. In light of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the Company
hereby identifies the following factors which could cause actual results to
differ materially from those reflected in any forward-looking statement made by
or on behalf of the Company: market acceptance of Company products and services;
changing business conditions or technologies in the semiconductor industry,
which could affect demand for the Company's products and services; the impact of
competition; problems with technology; product development schedules; delivery
schedules; changes in military or commercial testing specifications which could
affect the market for the Company's products and services; difficulties in
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.
PART I
ITEM 1 - BUSINESS
---------
General
- -------
Trio-Tech International designs, manufactures and sells equipment and systems
used in the manufacture and testing of semiconductor devices and electronic
components. In addition, the Company operates test facilities in the United
States, Europe and Southeast Asia that provide semiconductor testing services to
component manufacturers and users.
The Company's wet process equipment and temperature controlled chucks are used
to manufacture and test semiconductor wafers and other microelectronic
substrates in the "front-end" of the manufacturing process. The Company's
centrifuges, leak detectors, HAST systems, burn-in systems and rate of turn
tables are used primarily at the "back-end" of the semiconductor manufacturing
process to test finished semiconductor devices and electronic components.
Trio-Tech operates seven test facilities, one in the United States, one in
Europe and five in Southeast Asia. These provide customers a comprehensive range
of testing services, such as burn-in and life testing, for finished or packaged
components. Many manufacturers of semiconductors find it cost effective to sub-
contract these services to third parties.
Trio-Tech operations in Europe and Southeast Asia have active distribution
operations. These provide sales and support for Trio-Tech's equipment in these
regions and also distribute and support additional products from other
manufacturers. These products are complementary with the Company's products and
are used by the semiconductor and electronics industries.
Trio-Tech is actively pursuing a strategic plan for growth which is designed to
increase the Company's addressable market by expanding its product offerings
with equipment and services for the front-end of the manufacturing process to
complement its traditional niche in the back-end. The Company may achieve this
goal through new product development and/or, although no agreements have been
executed, the acquisition of complementary products and companies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Liquidity and Capital Resources." The acquisition of Universal
Systems, a leader in the design and manufacture of wet process equipment, in
November 1997, was an important step in this direction. Another is the
continuing development of Trio-Tech's temperature controlled chucks and the
development of its COBIS-II burn-in systems.
The terms "Trio-Tech" and "the Company" refer to Trio-Tech International and/or
its subsidiaries.
Company History
- ---------------
1958 Incorporated in California
1976 The Company formed Trio-Tech International Pte Ltd (TTIPte) in
Singapore.
1984 The Company formed the European Electronic Test Center (EETC), a Cayman
Islands subsidiary, to operate a test facility in Dublin, Ireland.
1985 The Company's Singapore subsidiary entered into a joint-venture
agreement, Trio-Tech Malaysia, to operate a test facility in Penang.
-3-
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 testing 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.
Analysis of Sales
- -----------------
The following table sets forth the percentage of revenues derived from product
sales, testing services and industry segments during the last three fiscal years
and the breakdown of revenues derived from customers in the United States,
Southeast Asia and Europe. The amounts represented in product sales and service
include revenues derived from the test equipment distribution business in
Singapore. Approximately 57% of the Company's revenues are earned in Singapore,
Malaysia and Thailand. See Note 11 to Consolidated Financial Statements,
Business Segments, for a more detailed description.
Year Ended
--------------------------------------------------------------------
June 30, 2000 June 25, 1999 June 26, 1998
------------- ------------- -------------
(Dollar amounts in thousands)
Product and service sales by region:
United States $ 10,324 39% $ 4,690 22% $ 4,095 19%
Southeast Asia 9,744 36 8,615 41 8,309 38
Europe 284 1 637 3 1,011 5
--------- ---- --------- ---- --------- ----
Total $ 20,352 76% $ 13,942 66% $ 13,415 62%
========= ==== ========= ==== ========= ====
Testing services sales by region:
United States $ 205 1% $ 249 1% $ 312 1%
Southeast Asia 5,716 21 6,430 30 7,586 35
Europe 670 2 560 3 539 2
--------- ---- --------- ---- --------- ----
Total $ 6,591 24% $ 7,239 34% $ 8,437 38%
========= ==== ========= ==== ========= ====
Net sales:
Manufacturing $ 13,384 49% $ 6,853 32% $ 6,335 29%
Testing 7,723 29 7,239 34 8,437 39
Distribution 5,836 22 7,089 34 7,080 32
--------- ---- --------- ---- --------- ----
Total net sales $ 26,943 100% $ 21,181 100% $ 21,852 100%
========= ==== ========= ==== ========= ====
-4-
Background Technology
- ---------------------
Semiconductor devices are fundamental building blocks used in electronic
equipment and systems. Each semiconductor device consists of an integrated
circuit that performs electronic functions. Integrated circuits are manufactured
through a series of complex steps on a wafer substrate, which is usually made of
silicon and measures three to eight inches in diameter. A finished wafer
consists of many integrated circuits; each referred to as a "device" or "die",
the number depending on the area of the circuits and the size of the wafer.
Manufacturers have increasingly utilized larger diameter wafers, and the
transition to 300mm (12 inch) wafers is currently underway throughout the
industry.
Wafers are typically sent through a series of 100 to 300 process steps. At many
of the process steps the wafer is washed and dried using wet process stations.
The finished wafer is put through a series of tests where each device on the
wafer is tested for functionality. After testing, the wafer is diced and each
die is encapsulated in packaging material, usually plastic or ceramic, with lead
wires that allow mounting onto printed circuit boards. Finished devices are put
through a series of screening processes, such as burn-in and electrical testing,
to ensure they meet necessary performance and quality standards, before shipment
to the customer. In 1999, the worldwide market for semiconductor devises was
estimated at $149 billion.
In addition to the growing demand for semiconductors, integrated circuits are
continually becoming more complex, with greater capacity, versatility and
smaller size. In order to fabricate these semiconductors, manufacturers must
continually improve their fabrication, packaging and test facilities. In 1999,
the world market for semiconductor manufacturing equipment was estimated at $30
billion, and expected to grow to $42 billion in 2000.
The market for semiconductor manufacturing equipment can be divided into wafer
fabrication (front-end) and assembly, packaging and test (back-end). The Company
estimates that the front-end equipment market is approximately 70%, with back-
end 20% and facilities 10% of the total market.
Trio-Tech's products and services are applicable at several stages of the
manufacturing and test processes. Its wet process benches are used at many wafer
fabrication stages. Its Artic temperature chucks are used to test semiconductor
wafers at accurately controlled temperatures. Its component centrifuges, leak
detectors, HAST equipment and burn-in systems are all used to test and screen
finished semiconductor devices to ensure they meet the specifications required
by the manufacturers and customers.
Trio-Tech's test services are concentrated on the back-end screening and test of
semiconductor devices. With the high concentration of semiconductor assembly and
packaging facilities in Southeast Asia, a large demand exists for third party
test services in this region. Customers use third party test services especially
to accommodate fluctuations in output or to benefit from economies that can be
offered by third party service providers.
Products
- --------
The Company designs and manufactures equipment for the manufacture and test of
semiconductor wafers, devices and other electronic components.
Wet Process 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 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(Degrees)C to +400(Degrees)C and in diameters from 4
to 12 inch. These systems provide excellent performance to meet the most
demanding customer applications. Several unique mechanical design features, for
which patents are pending, provide excellent mechanical stability under high
probing forces and across the temperature ranges.
Autoclaves and HAST (Highly Accelerated Stress Test) Equipment
Trio-Tech manufactures a range of autoclaves and HAST systems and specialized
test fixtures. Autoclaves provide pressurized, saturated vapor (100% relative
humidity) test environments for fast and easy monitoring of integrated circuit
manufacturing
-5-
processes. HAST equipment, which provides a pressurized high temperature
environment with variable humidity, is used to determine the moisture resistance
of plastic encapsulated devices. HAST provides a fast and cost-effective
alternative to conventional non-pressurized temperature and humidity testing.
Burn-in Equipment and Boards
Trio-Tech manufactures burn-in systems, burn-in boards and burn-in board test
systems. Burn-in equipment is used to subject semiconductor devices to elevated
temperatures while testing them electrically to identify early product failures
("infant mortalities") as well as to assure long-term reliability. Burn-in
testing approximates, in a compressed time frame, the electrical and thermal
conditions to which the device would be subjected during its normal life.
During 1998, the Company developed and launched its new COBIS-II burn-in system
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
also offers burn-in boards for its COBIS burn-in systems and other brands of
burn-in systems. Burn-in boards are used to mount devices during high
temperature environmental stressing.
Component Centrifuges and Leak Detection Equipment
Component centrifuges and leak detection equipment are used to test the
mechanical integrity of ceramic and other hermetically sealed semiconductor
devices and electronic parts for high reliability and aerospace applications.
The Company's centrifuges are used to identify mechanical weaknesses of devices
by spinning them at a specified acceleration, creating a pressure of up to
30,000 g's (900,000 pounds per square inch). The Company's leak detection
equipment is designed to detect leaks in hermetic packaging by first
pressurizing the devices in a tracer gas or fluid and then visually scanning for
bubble trails emanating from defective devices.
Rate of Turn Tables
The Company manufactures a range of rate-of turn tables that are used to subject
test parts to accurately controlled angular velocities and g-forces. The systems
are typically used to test accelerometers, gyroscopes, turn and bank indicators,
inertial platforms and other motion sensors. Applications include automotive and
aerospace markets.
Product Development
- -------------------
The Company incurred research and development costs of $205,000 in fiscal year
2000, $347,000 in fiscal 1999 and $158,000 in fiscal 1998.
Artic Temperature Controlled Wafer Chucks
Trio-Tech is continuing to develop its range of Artic temperature controlled
wafer chucks. In July 1999, the Company introduced its new range of TC3800
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. During fiscal year 2000, the Company expanded the range of chucks 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 12
inch chucks with the development of the TC31200 temperature chuck for the
emerging 12 inch or 300mm wafers.
Wet Process Stations
The Company's subsidiary, Universal Systems, is actively developing its line of
wet process equipment. During fiscal year 2000, Universal has developed and
refined its SMARTware software products that allow increasingly complex
automated operations in its wet process equipment.
In addition, the Company also produced several new systems that utilize ozone
injection systems for organic cleaning of silicon wafers. Use of ozone injection
eliminates the need for toxic chemicals.
Testing Services
- ----------------
Trio-Tech owns and operates facilities that provide testing services for
semiconductor devices and other electronic components to meet the requirements
of military, aerospace, industrial and commercial applications.
-6-
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. The
facilities in Penang and Bangkok have ISO 9002 certification whereas in
Singapore, the facilities are ISO 9001 certified. In addition, recently the
above facilities are QS 9000 certified. The Company also operates test
facilities in San Fernando, California and Dublin, Ireland.
The testing services are used by manufacturers and purchasers of semiconductors
and other components who either do not have testing capabilities or whose in-
house screening facilities are not sufficient to test devices to military or
certain commercial specifications. In addition, Trio-Tech provides overflow
testing and independent verification for companies with in-house capabilities.
Trio-Tech's laboratories perform a variety of tests, including stabilization
bake, thermal shock, temperature cycling, mechanical shock, constant
acceleration, gross and fine leak tests, electrical testing, static and dynamic
burn-in tests, and vibration testing. The laboratories also perform
qualification testing, consisting of intense tests conducted on small samples of
output from manufacturers who require qualification of their processes and
devices.
During fiscal year 2000, the Company leased with an option to purchase two burn-
in board loader/unloaders. The model LUBIB Series is an automated loading and
unloading system designed to offer burn-in boards applications precise placement
with high speed handling of various varieties of packages processed in trays. It
is available in dual or multi-heads configuration, which handles most Open Top
sockets. The LUBIB also has a simple conversion kit which allows the Company to
re-configure the equipment for different types of sockets and packages
combinations.
Distribution Activities
- -----------------------
The Company's Singapore subsidiary continues to develop its international
distribution division. The distribution operation markets, sells and supports
Trio-Tech's products in Southeast Asia. In addition to Trio-Tech's own products,
this operation also distributes other complementary products from other
manufacturers in the United States, Europe and Japan, including environmental
chambers, shakers and vibration systems, solderability testers and other
manufacturing and test products.
Marketing, Distribution and Services
- ------------------------------------
The Company markets its products and services worldwide, both directly and
through independent sales representatives. There are approximately 12
independent representatives that operate within the United States and
approximately 7 in various foreign countries. The Company's marketing efforts in
the United States are coordinated from its headquarters in San Fernando, and its
Southeast Asia and European marketing efforts are assigned to its subsidiaries
in Singapore and Ireland, respectively. The Company advertises in trade journals
and participates in trade shows.
The Company's products and services are purchased by independent testing
laboratories and by users and manufacturers of semiconductor devices, including
well known corporations. During the year ended June 30, 2000, the Company had
sales of $4,132,000 and $3,417,000 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, 2000 June 25, 1999
--------------- ---------------
Manufacturing backlog $ 6,455 $ 2,333
Testing service backlog 3,920 2,979
Distribution backlog 845 1,858
--------------- ---------------
$ 11,220 $ 7,170
=============== ===============
Based upon past experience, the Company does not anticipate any significant
cancellations. 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.
-7-
Manufacturing and Supply
- ------------------------
The Company's products are designed by its engineers and are assembled and
tested at its facilities in San Fernando and San Jose, California, Singapore and
Ireland. All parts and certain components are purchased from outside sources for
assembly by the Company.
Trio-Tech uses Fluorinert, a special indicator fluid sold by the 3M Company, in
its gross leak equipment. The Company has not experienced any difficulty in
obtaining Fluorinert to date. There can be no assurance that the Trio-Tech will
not experience difficulties or delays in obtaining Fluorinert in the future. In
December 1998, the Company discontinued its Tracer-Flo product line which
required Krypton 85 gas. The Company does not believe that it will have any
future requirement for Krypton 85 gas.
Competition
- -----------
The semiconductor equipment industry is highly competitive. The principal
competitive factors in the industry are product performance, reliability,
service and technical support, product improvements, price, established
relationships with customers and product familiarity. The Company has
competitors for its various products. However, the Company believes its products
compete favorably with respect to each of these factors in the markets in which
it operates. There can be no assurance that competition will not increase or
that the Company's technological advantages may not be reduced or lost as a
result of technological advances by competitors or changes in semiconductor
processing technology.
There are numerous testing laboratories in the areas in which the Company
operates that perform a range of testing services similar to those offered by
the Company. Since the Company has sold and will continue to sell its products
to competing laboratories and other test products are available from other
manufacturers, the Company's competitors can offer the same testing
capabilities. This equipment is also available to semiconductor manufacturers
and users who might otherwise use outside testing laboratories, including the
Company, to perform environmental testing. The existence of competing
laboratories and the purchase of testing equipment by semiconductor
manufacturers and users are potential threats to the Company's future revenues
and earnings from testing.
Patents
- -------
Trio-Tech holds a United States Patent granted in 1987 in relation to its
pressurization humidity testing equipment. The Company also holds a United
States Patent granted in 1994 on certain aspects of its Artic temperature test
systems. In fiscal year 2000, the Company filed a new United States patent
application for several aspects of its new range of Artic temperature chucks.
Government Regulation
- ---------------------
Up until December 1998, the Company supported the Tracer-Flo product line. The
Tracer-Flo process uses Krypton 85, an inert radioactive gas, the supply and
handling of which are subject to regulation by the United States Nuclear
Regulatory Commission (NRC) and the California Department of Health Physics. The
Company was obliged, therefore, to train the Tracer-Flo operators, which are
licensed by the State of California, and maintain records and control its
supplies of Krypton 85. The California agency conducts periodic site
inspections, and the NRC monitors interstate shipments and can inspect the
Company's shipping records. No security clearance is required to handle the gas,
which has a low level of radioactivity. This product line experienced declining
sales for several years. The Company discontinued manufacture and support of
this product line in December 1998.
Employees
- ---------
As of June 30, 2000, the Company had approximately 53 employees in the United
States, 286 in Singapore, 112 in Malaysia, 32 in Bangkok, and 17 in Ireland for
a total of approximately 500 employees. None of the Company's employees is
represented by a labor union.
-8-
ITEM 2 - PROPERTIES
- -------------------
The following table sets forth information as to the location and general
character of the principal manufacturing and testing facilities of the
Registrant:
Owned (O)
Approx. or Leased (L)
Sq. Ft. Expiration
Location Principal Use Occupied Date
- ----------------------------- ------------------------ ----------------- -----------------------
355 Parkside Dr. Headquarters/ 21,000 (L) Jan. 2001 *4
San Fernando, CA 9l340 Manufacturing/
Testing
6951-A Via Del Oro Manufacturing 15,000 (L) Feb. 2004
San Jose, CA 95119
Abbey Road Testing/Manufac- 18,400 (O) *1
Deansgrange Co. Turing
Dublin, Ireland
1004, Toa Payoh North, Singapore
HEX 07-01/07, Testing 6,833 (L) November 2000 *4
HEX 03-01/03 Testing/Manufacturing 2,959 (L) November 2000 *4
HEX 03-16/17 Testing 1,983 (L) July 2002
HEX 01-08/15 Manufacturing/Testing 6,865 (L) January 2003
1008, Toa Payoh North, Singapore
HEX 03-01/06 Testing 7,345 (L) March 2003
HEX 03-09/15 Logistics 4,435 (L) January 2003
HEX 03-16/18 Distribution 5,130 (L) January 2003
HEX 01-08 Power Substation 603 (L) January 2003
Plot 1A, Phase 1 Testing 49,924 (L) Aug. 2004
Bayan Lepas Free Trade Zone
11900 Penang, Malaysia
327, Chalongkrung Road, Testing 11,300 (O) *2
Lamplathew, Lat Krabang,
Bangkok 10520, Thailand
Lot No. B7, Kawasan MIEL Manufacturing 24,142 (O) *3
Batang Kali, Phase II,
43300 Batang Kali
Selangor Darul Ehsan, Malaysia
45, Jalan Tpp 1/1 Testing 8,420 (L) Feb. 2001 *4
Taman Perindustrian Puchong
47100 Kuala Lumpur, Malaysia
2 Moldes Apartment, Distribution 538 (L) April 2001
Las Vegas Street, Putatan
Muntinlupa City, Phillipines
-9-
1* Purchased for 270,000 Irish Pounds, equivalent to approximately
U.S. $261,000 based on the exchange rate as of June 28, 1985, of which
approximately 30% was recovered by the Company as part of the grant monies
received from the Industrial Development Authority of the Republic of
Ireland.
2* Purchased for Thai Baht 13,500,000, equivalent to approximately
U.S. $533,000 based on the exchange rate as of June 25, 1993.
3* Purchased for Malaysia Ringgit 1,000,000, equivalent to U.S. $387,000 based
on the exchange rate as at June 24, 1994. Accordingly, the term for this
land lease will expire in October 2052.
4* The above four leases are not long-term and therefore arrangements will
have to be made to extend same or move to other quarters. The Company
anticipates that similar terms will be offered and does not believe that
material expenses will be incurred.
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
On August 24, 1995, the Company was served in a civil action brought by HM
Holdings, Inc. (HM) against 106 defendants, including the Company. HM has
paid $3,750,000 to the Federal Environmental Protection Agency to settle a
proceeding alleging that HM's predecessor company caused soil and groundwater
contamination of the North Hollywood (California) Superfund Site and may have
additional liabilities. HM alleges that the 106 defendants caused or contributed
to the contamination. An additional legal matter may arise in part out of a
related suit by Lockheed Martin Corporation against HM and other defendants,
possibly including the Company (which has not been served in this related suit),
involving the nearby Burbank Superfund Site, which HM is seeking to settle and
to assign its claim against the 106 defendants to Lockheed Martin. The Company
vacated its Burbank location in 1987. The Company believes its liability
insurance should cover this claim, but its insurers have not yet made a decision
regarding this matter. Management, based on its present information, believes
that the outcome of this litigation will not materially affect the Company's
consolidated financial position or results of operations.
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.
-10-
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 Trio-Tech International's Common Stock as
quoted by AMEX. These prices do not include retail mark-ups, markdowns or
commissions:
Quarter Ended High Low
---------------------- ------ -----
Fiscal 1999
----------------------
September 25, 1998 4.75 2.63
December 25, 1998 3.25 2.13
March 26, 1999 3.69 2.63
June 25, 1999 3.67 2.75
Fiscal 2000
----------------------
September 24, 1999 4.88 2.75
December 31, 1999 4.25 3.00
March 31, 2000 7.00 3.63
June 30, 2000 8.00 3.63
----------------------
Fiscal 2001
----------------------
June 30, 2000 to 6.94 5.50
September 20, 2000
The Registrant's common stock is held by approximately 625 shareholders of
record as of September 20, 2000. Approximately 1,945,235 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.
In December 1999 the Company repriced certain outstanding warrants and options
covering an aggregate of 529,480 shares of the Companies common stock, the
exercise price under which exceeded $5.00 per share, to $5.00 per share.
In March 2000, the Company amended its outstanding redeemable Warrants covering
349,600 shares of Common Stock that were issued in 1997, are to expire in
November 2000 and are exercisable in full at $5.00 per share. That amendment
provided that, for each two Warrants exercised on or before May 10, 2000, the
Company would issue to the holder thereof a new redeemable warrant to purchase
one share of the Common Stock of this Corporation. In response to that
amendment, persons holding Warrants covering an aggregate of 73,740 shares of
Common Stock exercised their Warrants and received in connection with that
exercise new warrants covering a total of 36,870 shares of Common Stock. The new
warrants expire on May 6, 2002, have an exercise price of $8.00 per share and
may only be amended or modified by a written instrument signed by the holder or
the Company against whom enforcement of the amendment or modification is sought.
-11-
ITEM 6 - SELECTED FINANCIAL DATA
(In thousands except share and per share data)
June 30, June 25, June 26, June 27, June 30,
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
Statement of Operations
Net sales $ 26,943 $ 21,181 $ 21,852 $ 21,548 $ 23,185
Income (loss) from Operations 501 (207) 969 3,057 2,712
Net Income 1,034 195 831 1,002 806
Net income per share:
Basic $ 0.37 $ 0.07 $ 0.34 $ 0.54 $ 0.45
Diluted $ 0.36 $ 0.07 $ 0.33 $ 0.54 $ 0.45
Weighted average common
shares outstanding
Basic 2,759,000 2,745,000 2,413,000 1,850,000 1,793,000
Diluted 2,895,000 2,757,000 2,484,000 1,961,000 1,926,000
Balance Sheet
Current assets $ 17,279 $ 12,723 $ 14,036 $ 13,843 $ 11,760
Current liabilities 8,349 5,934 7,439 7,039 8,169
Working capital 8,930 6,789 6,597 6,804 3,591
Total assets 22,712 18,932 19,331 18,528 17,416
Long-term debt and
capitalized leases 586 962 426 723 688
Shareholders' equity $ 10,448 $ 9,051 $ 8,763 $ 6,463 $ 5,207
-12-
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
The following discussion should be read in conjunction with the Company's
Financial Statements, including the related notes thereto, and other financial
information included herein. The information in this 10-K includes
forward-looking statements. In addition, past operating results are not
necessarily indicative of the results to be expected in future periods. See
"Note Concerning Forward-Looking Statements" prior to "Part I - Item 1 -
Business" on page 3.
Year Ended June 30, 2000 ("2000") Compared to Year Ended June 25, 1999 ("1999")
- -------------------------------------------------------------------------------
Net sales increased by $5,762,000 or 27.2% from $21,181,000 in 1999 to
$26,943,000 in 2000 due to the world wide upturn in the semiconductor industry.
The increased in sales mostly derived from United States. Net sales for the
Southeast Asia operations increased $415,000 or 2.8% from $15,045,000 in 1999 to
$15,460,000 in 2000 due mainly to higher manufacturing volume in Singapore and
testing volume in Malaysia.
Cost of sales increased $4,343,000 or 28% from $15,504,000 in 1999 to
$19,847,000 in 2000. As a percentage of sales, it increased 0.5% from 73.2% in
1999 to 73.7% in 2000. The cost as a percentage of sales remained rather
constant despite the significant increase in sales.
Operating expenses increased by $711,000 or 12.1% from $5,884,000 in 1999
to $6,595,000 in 2000 in order to cope with the increased demand in sales and
provision for the downsizing of facility in Kuala Lumpur. In addition, the
Company's subsidiary, Universal Systems moved to a new facility in February
1999.
Research and development expenses decreased by $142,000 to $205,000 in 2000
from $347,000 in 1999 due to the maturity in the development of a range of Artic
Temperature Controlled Chucks.
Interest expense decreased in 2000 by $16,000 or 14.8%, from $108,000 in 1999
to $92,000 in 2000, due to decreases in lines of credit and mostly capitalized
leases.
Other income has decreased by $377,000 or 47.3% from $797,000 in 1999 to
$420,000 in 2000 primarily due to costs in 2000 associated with the closure of
the Company's Kuala Lumpur, Malaysia facility. The gain on sale of building
relates to one of the Company's Singapore facilities.
Year Ended June 25, 1999 ("1999") Compared to Year Ended June 26, 1998 ("1998")
- -------------------------------------------------------------------------------
Net sales decreased by $671,000 or 3.1% from $21,852,000 in 1998 to $21,181,000
in 1999 due to the general slowdown in the semiconductor industry and the poor
economic conditions in Southeast Asia. Net sales for the Southeast Asia
operations decreased $850,000 or 5.3% from $15,895,000 in 1998 to $15,045,000 in
1999 due mainly to lower testing volume in Malaysia and Singapore.
Cost of sales increased $1,484,000 or 10.6% from $14,020,000 in 1998 to
$15,504,000 in 1999. As a percentage of sales, it increased 9.0% from 64.2% in
1998 to 73.2% in 1999. This increase is primarily due to a shift in relative
sales from high margin test services to lower margin distribution sales.
Operating expenses decreased by $979,000 or 14.3% from $6,863,000 in 1998
to $5,884,000 in 1999 as a result of a series of implemented cost controls.
Research and development expenses increased by $189,000 to $347,000 in 1999
from $158,000 in 1998 due to the Company's commitment to the development of a
range of Artic Temperature Controlled Chucks.
Interest expense decreased in 1999 by $60,000 or 35.7%, from $168,000 in 1998
to $108,000 in 1999, due to decreases in lines of credit and mostly capitalized
leases.
Other income has increased by $293,000 or 58.1% from $504,000 in 1998 to
$797,000 in 1999 primarily due to disposal of marketable securities in Malaysia,
interest income earned on certificates of deposit, reduced provision of doubtful
debts in Thailand and service income earned by providing installation services
to a customer in Thailand.
-13-
Liquidity and Capital Resources
- -------------------------------
Net cash generated by operating activities during the year ended June 30, 2000
was $801,000 compared to $49,000 generated by operating activities during the
year ended June 25, 1999. The positive cash flow from operating activities in
2000 was comprised of $1,034,000 from net income, an increase in accounts
payable and accrued expenses of $2,437,000, an increase in income taxes payable
of $171,000, an increase in deferred income taxes of $138,000, an increase in
minority interest of $210,000 and $1,523,000 of non-cash depreciation and
amortization. These amounts were partially offset by positive cash flow
comprised of $809,000 of gain on sale of property and equipment, an increase in
accounts receivable of $1,643,000, an increase in other receivables of $563,000,
an increase in inventories of $957,000, prepaid expenses of $377,000 and other
assets of $363,000.
Net cash used by investing activities during 2000 was $186,000 compared
to $1,209,000 used by investing activities in the 1999 year. The net cash used
by investing activities was a result of increase in capital expenditures of
$1,327,000, an increase in cash deposits of $653,000 offset by proceeds from
sale of property and equipment of $1,794,000.
Net cash used by financing activities during 2000 was $138,000 compared
to $629,000 used by financing activities in the 1999 year. The cash outflow from
financing acitivities include $677,000 of payments on lines of credit, long term
obligations and capitalized leases, which was offset by a cash inflow of
$126,000 from additional borrowing under lines of credit and the issuance of
common stock in the Company of $413,000.
The Company's subsidiary, TTI Pte, has a secured credit agreement with a bank
that provides for a total line of credit of $4,052,000. Borrowings under the
line were $241,000 and $214,000 at the end of fiscal 2000 and 1999,
respectively. The interest rate on borrowings is at the bank's prime rate (6.25%
at June 30, 2000) plus 1.25%. Prior to year-end, borrowings under this agreement
were collateralized on substantially all of TTI Pte's assets. Subsquent to year
end, the line was increased to $5,789,000 is collateralized by cash in the
amount of $1,158,000. The agreement contains certain debt covenants including
maintaining a minimum net worth of $3,473,000 at TTI Pte. This line of credit
has no expiration date. The Company was in compliance with all debt covenants at
June 30, 2000.
The Company's subsidiary, TTM, has a secured credit agreement with a bank that
provides for a total line of credit of $40,000. At June 30, 2000, there were no
borrowings outstanding. The line of credit bears interest at the bank's
reference rate (6.8% at June 30, 2000) plus 2.5%. This line of credit has no
expiration date.
The Company's subsidiary, TTKL, has a secured credit agreement with a bank that
provides for a total line of credit of $132,000. At June 30, 2000, there were no
borrowings outstanding. The line of credit bears interest at the bank's
reference rate (6.8% at June 30, 2000) plus 2.5%. This line of credit has no
expiration date.
The Company's subsidiary, TTBK, has a line of credit that provides for
borrowings of approximately $51,000. Interest on the line is at the bank's
reference rate (8.5% at June 30, 2000) plus 1%. At June 30, 2000, there were no
borrowings outstanding. This line of credit does not have an expiration date.
The Company's subsidiary, TT Ireland, has a credit agreement that provides for a
mortgage loan of $394,000. Borrowings under the mortgage loan amounted to
$220,000 as of June 30, 2000. Interest is at the bank's prime rate (4.4% at June
30, 2000) plus 3.2%.
The Company had a revolving line of credit of $150,000 from a bank bearing
interest at 1.8% above the bank's reference rate (8.5% at June 30, 2000). The
Company has repaid the borrowing under the line of credit of $150,000 during the
year.
In March 2000, the Company executed a letter of intent to acquire all of the
issued and outstanding capital stock of Thermo Voltek Corp. (doing business as
KeyTek), an indirect, wholly owned subsidiary of Thermo Electron Corporation.
KeyTek is a leading supplier of test equipment used to certify that electronic
products meet ULL and CE standards for electromagnetic compatibility, as well as
equipment to test semiconductor devices and wafers for electrostatic discharge,
electrical overstress, electrical fast transients and related phenomena. The
proposed purchase price for the capital stock is $6,040,000 in cash, subject to
a post-closing adjustment based on net book value. Although the letter of intent
expired by its terms on August 31, 2000 and no definitive agreement has been
executed, the parties have not, as of the date hereof, determined to abandon the
proposed transaction.
The Company intends to finance the entire purchase price for the capital stock
of KeyTek. As previously disclosed, the Company initially intended to raise the
funds for the acquisition of KeyTek through the sale of certain convertible
notes and the issuance of warrants. However, management of the Company
subsequently determined that the proposed terms thereof were unfavorable to the
Company and its shareholders and determined not to proceed with such financing.
The Company is currently seeking other financing for the acquisition, which
financing may be in the form of third-party loans, convertible debt, a
promissory note to the stockholder of KeyTek or other forms of financing or a
combination of the foregoing. Unless and until a
-14-
commitment for sufficient financing on terms satisfactory to the Company has
been obtained, it is not anticipated that a definitive agreement for the
acquisition of KeyTek will be executed.
Any definitive agreement that may be signed will provide that the closing will
be subject to customary conditions (including due diligence, Board approvals and
the like) and the Company's receipt of satisfactory assurances that the key
employees of KeyTek will remain employees after the closing.
The foregoing information regarding the proposed KeyTek acquisition constitutes
forward looking information and is subject to the provisions of the Note
Concerning Forward-Looking Statements on page 3 of this Form 10-K. Additionally,
various other factors may affect the ability of the Company to consummate the
proposed transaction, many of which are beyond the control of the Company. There
is no assurance that the Company will be able to obtain any financing for the
proposed acquisition or financing on terms satisfactory to it. Even if
satisfactory financing is obtainable, until the financing is actually funded,
there is no assurance that the terms thereof will not be revised or the
financing terminated. Additionally, there is no assurance that the stockholder
of KeyTek will enter into a definitive agreement for the sale of KeyTek even if
satisfactory funding is obtainable. Even if a definitive agreement is executed,
there is no assurance that the conditions to closing will be able to be
satisfied or that the transaction will be consummated.
On September 1, 1998, the government of Malaysia announced its intention to
limit the movement of certain cash balances denominated in Malaysian currency.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
Not applicable.
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 19 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 2000.
PART IV
ITEM 14 - 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 18
hereof:
1. Independent Auditors' Report
2. Consolidated Balance Sheets
3. Consolidated Statements of Income and Comprehensive Income
(Loss)
4. Consolidated Statements of Shareholders' Equity
5. Consolidated Statements of Cash Flows
6. Notes to Consolidated Financial Statements
-15-
(b) REPORTS ON FORM 8-K:
The Company did not file any reports on Form 8-K during the quarter ended
June 30, 2000.
(c) EXHIBITS:
Number Description Page Number
- ------ ----------- -----------
3.1 Articles of Incorporation, as currently in effect.
[Previously filed as Exhibit 3.1 to the Annual
Report on Form 10-K for June 24, 1988.] --
3.2 Bylaws, as currently in effect. [Previously filed
as Exhibit 3.2 to the Annual Report on Form 10-K
for June 24, 1988.] --
4.1 Form of Redeemable Warrants to Purchase Common Stock
Issued in May 2000. --
10.2 Real Estate Lease, dated September 29, 1987,
between Stierlin Industrial Center and Registrant.
[Previously filed as Exhibit 10.5 to the
Registration Statement on Form S-1 (No. 2-87606).] --
10.3 Tenancy of Flatted Factory Unit, dated December 2,
1982, between Jurong Town Corporation and
Registrant. [Previously filed as Exhibit 10.8
to the Registration Statement on Form S-1
(No. 2-87606).] --
10.4 Tenancy of Flatted Factory Unit, dated September 10,
1982, between Jurong Town Corporation and
Registrant. [Previously filed as Exhibit 10.9
to the Registration Statement on Form S-1
(No. 2-8766).] --
10.5 Real Estate Lease, dated December 15, 1986, between San
Fernando Associates and Registrant. [Previously filed
as Exhibit 10.17 to the Annual Report on Form 10-K
for June 28, 1987.] --
10.9 Credit Facility Letter dated November 2, 1993,
between Trio-Tech International Pte. Ltd. and
Standard Chartered Bank. --
10.10 1998 Stock Option Plan. [Previously filed
as Exhibit 1 to the Company's proxy statement filed under
regulation 14A on October 27, 1997].
10.11 Directors Stock Option Plan. [Previously filed
as Exhibit 2 to the Company's proxy statement filed under
regulation 14A on October 27, 1997]. **
21.1 Subsidiaries of the Registrant (100% owned by the
Registrant except as otherwise stated):
Trio-Tech International Pte. Ltd., a Singapore Corporation
Trio-Tech Test Services Pte. Ltd., a Singapore Corporation
-16-
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
Prestal Enterprise Sdn Bhd, a Malaysia Corporation
(76% owned by the Registrant)
KTS Incorporated, doing business as Universal Systems, a California
Corporation
23.1 Independent Auditors' Consent *
27.1 Financial Data Schedule *
- --------------------------------------------------------------------------------
* Filed electronically herewith
** Indicates a management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Form 10-K.
-17-
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TRIO-TECH INTERNATIONAL
By: /s/ Victor H.M. Ting
--------------------------
VICTOR H.M. TING
Vice President and
Chief Financial Officer
Date: September 26, 2000
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ A. Charles Wilson September 26, 2000
------------------------------------
A. Charles Wilson, Director
Chairman of the Board
/s/ S. W. Yong September 26, 2000
------------------------------------
S. W. Yong, Director
President and Chief Executive
Officer
/s/ Victor H.M. Ting September 26, 2000
------------------------------------
Victor H.M. Ting
Vice President, Chief Financial Officer
and Principal Accounting Officer
/s/ Jason T. Adelman September 26, 2000
------------------------------------
Jason T. Adelman, Director
/s/ Richard M. Horowitz September 26, 2000
------------------------------------
Richard M. Horowitz, Director
/s/ F.D. (Chuck) Rogers September 26, 2000
------------------------------------
F.D. (Chuck) Rogers, Director
/s/ William L. Slover September 26, 2000
------------------------------------
William L. Slover, Director
-18-
INDEPENDENT AUDITORS' REPORT
Board of Directors
Trio-Tech International
San Fernando, California:
We have audited the accompanying consolidated balance sheets of Trio-Tech
International and subsidiaries (the "Company") as of June 30, 2000 and June 25,
1999, and the related consolidated statements of income and comprehensive income
(loss), shareholders' equity, and cash flows for each of the three years in the
period ended June 30, 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 audits.
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, 2000 and June 25, 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 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 20, 2000
-19-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
June 30, June 25,
ASSETS Notes 2000 1999
------- ------------- ---------------
CURRENT ASSETS:
Cash $ 1,956,000 $ 1,593,000
Cash deposits 5,152,000 4,499,000
Trade accounts receivable, less
allowance for doubtful
accounts of $221,000 in
2000 and $219,000 in 1999 6,103,000 4,460,000
Other receivables 845,000 282,000
Inventories 2 2,756,000 1,799,000
Prepaid expenses and other
current assets 467,000 90,000
------------ -------------
Total current assets 5 17,279,000 12,723,000
PROPERTY AND EQUIPMENT, Net 3,5,7 4,497,000 5,538,000
OTHER ASSETS, Net 4 936,000 671,000
------------ -------------
TOTAL ASSETS $ 22,712,000 $ 18,932,000
============ =============
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit 5 $ 241,000 $ 364,000
Accounts payable 4,128,000 1,989,000
Accrued expenses 6 3,303,000 3,005,000
Income taxes payable 242,000 71,000
Current portion of long-term debt
and capitalized leases 7,9 435,000 505,000
------------ -------------
Total current liabilities 8,349,000 5,934,000
------------ -------------
LONG-TERM DEBT AND
CAPITALIZED LEASES,
Net of current portion 7,9 586,000 962,000
------------ -------------
DEFERRED INCOME TAXES 8 720,000 582,000
------------ -------------
MINORITY INTEREST 2,609,000 2,403,000
------------ -------------
COMMITMENTS AND CONTINGENCIES 9
SHAREHOLDERS' EQUITY: 10
Common stock; authorized,
15,000,000 shares; issued and
outstanding, 2,836,618 shares
(2000) and 2,741,334 shares
(1999) stated at 9,067,000 8,654,000
Retained earnings 1,726,000 692,000
Accumulated other comprehensive loss (345,000) (295,000)
------------ -------------
Total shareholders' equity 10,448,000 9,051,000
------------ -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 22,712,000 $ 18,932,000
============ =============
See notes to consolidated financial statements.
-20-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
- --------------------------------------------------------------------------------
Year Ended
----------------------------------------------------
June 30, June 25, June 26,
Notes 2000 1999 1998
------- -------------- -------------- --------------
NET SALES 11 $ 26,943,000 $ 21,181,000 $ 21,852,000
COST OF SALES 19,847,000 15,504,000 14,020,000
-------------- -------------- --------------
GROSS PROFIT 7,096,000 5,677,000 7,832,000
OPERATING EXPENSES:
General and administrative 4,570,000 3,877,000 4,853,000
Selling 1,820,000 1,660,000 1,852,000
Research and development costs 205,000 347,000 158,000
-------------- -------------- --------------
Total 6,595,000 5,884,000 6,863,000
-------------- -------------- --------------
INCOME (LOSS) FROM OPERATIONS 11 501,000 (207,000) 969,000
OTHER INCOME (EXPENSES)
Interest expense 5,7 (92,000) (108,000) (168,000)
Other income 420,000 797,000 504,000
Gain on sale of building 696,000
-------------- -------------- --------------
Total 1,024,000 689,000 336,000
-------------- -------------- --------------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 1,525,000 482,000 1,305,000
INCOME TAXES 8 (106,000) (45,000) (455,000)
-------------- -------------- --------------
INCOME BEFORE MINORITY INTEREST 1,419,000 437,000 850,000
MINORITY INTEREST (385,000) (242,000) (19,000)
-------------- -------------- --------------
NET INCOME 1,034,000 195,000 831,000
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustment (50,000) 147,000 (2,164,000)
-------------- -------------- --------------
COMPREHENSIVE INCOME (LOSS) $ 984,000 $ 342,000 $ (1,333,000)
============== ============== ==============
EARNINGS PER SHARE:
Basic $ 0.37 $ 0.07 $ 0.34
============== ============== ==============
Diluted $ 0.36 $ 0.07 $ 0.33
============== ============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON POTENTIAL SHARES OUTSTANDING
Basic 2,759,000 2,745,000 2,413,000
Diluted 2,895,000 2,757,000 2,484,000
See notes to consolidated financial statements.
-21-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Common Stock Retained Accumulated
--------------------------
Earnings Other
Number of (Accumulated Comprensive
Shares Amount Deficit) Income (loss) Total
------------ ------------ -------------- -------------- -----------
Balance, June 27, 1997 1,936,596 $ 5,075,000 $ (334,000) $ 1,722,000 $ 6,463,000
Net income 831,000 831,000
Issuance of common stock 721,153 3,488,000 3,488,000
Exercise of stock options (Note 10) 89,837 145,000 145,000
Foreign currency translation adjustment (2,164,000) (2,164,000)
------------ ------------ -------------- -------------- -----------
Balance, June 26, 1998 2,747,586 8,708,000 497,000 (442,000) 8,763,000
Net income 195,000 195,000
Exercise of stock options (Note 10) 7,500 12,000 12,000
Repurchase of common stock (13,752) (66,000) (66,000)
Foreign currency translation adjustment 147,000 147,000
------------ ------------ -------------- -------------- -----------
Balance, June 25, 1999 2,741,334 8,654,000 692,000 (295,000) 9,051,000
Net income 1,034,000 1,034,000
Exercise of stock options (Note 10) 20,625 45,000 45,000
Issuance of common stock 74,659 368,000 368,000
Foreign currency translation adjustment (50,000) (50,000)
------------ ------------ -------------- -------------- -----------
Balance, June 30, 2000 2,836,618 $ 9,067,000 $ 1,726,000 $ (345,000) $10,448,000
============ ============ ============== ============== ===========
See notes to consolidated financial statements.
-22-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Year Ended
--------------------------------------------------
June 30, June 25, June 26,
2000 1999 1998
------------ ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,034,000 $ 195,000 $ 831,000
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation and amortization 1,523,000 1,222,000 944,000
(Gain)/loss on sale of property and equipment (809,000) 7,000 (10,000)
Deferred income taxes 138,000 1,000 (195,000)
Minority interest 210,000 149,000 (109,000)
Changes in assets and liabilities:
Accounts receivable (1,643,000) (336,000) (394,000)
Other receivables (563,000) 17,000 (114,000)
Inventories (957,000) 257,000 (224,000)
Prepaid expenses and other current assets (377,000) 215,000 (21,000)
Other assets (363,000) (123,000) (428,000)
Accounts payable and accrued expenses 2,437,000 (936,000) 1,217,000
Income taxes payable 171,000 (619,000) (1,275,000)
------------ ------------- ------------
Net cash provided by operating activities 801,000 49,000 222,000
------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash deposits (653,000) (552,000) 3,157,000
Capital expenditures (1,327,000) (703,000) (2,574,000)
Proceeds from sale of property and equipment 1,794,000 46,000 104,000
------------ ------------- ------------
Net cash (used in) provided by investing activities (186,000) (1,209,000) 687,000
------------ ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on lines of credit (246,000) (481,000)
Borrowings under lines of credit 126,000 214,000 501,000
Principal payments of long-term obligations
and capitalized leases (431,000) (308,000) (327,000)
Issuance of common stock 413,000 3,669,000
Repurchase of common stock (54,000) (36,000)
------------ ------------- ------------
Net cash (used in) provided by financing activities (138,000) (629,000) 3,807,000
------------ ------------- ------------
EFFECT OF EXCHANGE RATE ON CASH (114,000) 77,000 (2,279,000)
------------ ------------- ------------
NET INCREASE/(DECREASE) IN CASH 363,000 (1,712,000) 2,437,000
CASH, BEGINNING OF PERIOD 1,593,000 3,305,000 868,000
------------ ------------- ------------
CASH, END OF PERIOD $ 1,956,000 $ 1,593,000 $ 3,305,000
============ ============= ============
Continued
See notes to consolidated financial statements.
-23-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest $ 126,000 $ 104,000 $ 254,000
Income taxes $ 161,000 $ 786,000 $ 1,190,000
NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended June 25, 1999, the Company financed acquisitions of
equipment amounting to $1,161,000 under capital lease arrangements.
The fair value of the net assets acquired in connection with the purchase of
Universal Systems during fiscal year 1998 is summarized as follows:
Net assets $ 500,000
Acquisition costs 24,000
------------
Purchase price $ 524,000
============
Concluded
See notes to consolidated financial statements.
-24-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000, JUNE 25, 1999, AND JUNE 26, 1998
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - Trio-Tech International and subsidiaries (the
"Company" or "TTI") is a designer and manufacturer of equipment used to
test the structural integrity of semiconductor devices that must meet high-
reliability specifications. The Company also owns and operates testing
facilities that perform structural and electronic testing of semiconductor
devices and acts as a distributor of electronic testing equipment in
Singapore and other Southeast Asian countries. The consolidated financial
statements include the accounts of the Company and its principal
subsidiaries: Trio-Tech International Pte Ltd (TTI Pte), Trio-Tech Test
Services Pte Ltd (TTTS Pte), Express Test, European Electronic Test Centre
(EETC), Trio-Tech Bangkok (TTBk), Trio-Tech Malaysia (TTM) (a 55% owned
subsidiary of TTI Pte), Prestal Enterprise Sdn Bhd (PESB) (a 76% owned
subsidiary of TTI Pte) and Universal Systems. All material intercompany
transactions, profits and balances have been eliminated.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Accounting Period - The Company's fiscal reporting period coincides with
the 52-53 week period ending on the last Friday in June. Fiscal 2000 is a
53 week reporting period.
Cash and Cash Deposits - Cash and cash deposits consists of bank balances
and amounts invested in interest earning instruments having a maturity of
12 months or less. Approximately $2,800,000 of cash is held in the
Company's 55% owned Malaysian subsidiary. $2,200,000 of this cash is
denominated in the currency of Malaysia. On September 1, 1998, the
government of Malaysia announced its intention to limit the movement of
certain cash balances denominated in Malaysian currency.
Inventories - Inventories are stated at the lower of cost, using the first-
in, first-out (FIFO) method, or market.
Property and Equipment - Property and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization
are provided over the estimated useful lives of the assets or the terms of
the leases, whichever are shorter, using the straight-line method.
Estimated useful lives range from 3 to 45 years. Capital grants from the
Industrial Development Authority in Ireland are accounted for when claimed
by reducing the cost of the related assets. The grants are amortized over
the depreciable lives of those assets.
Foreign Currency Translation - All assets and liabilities of operations
outside the United States have been translated at the foreign exchange
rates in effect at year-end. Revenues and expenses for the year are
translated at average exchange rates in effect during the year. Unrealized
translation gains and losses are not included in determining net income but
are accumulated and reported as a separate component of shareholders'
equity entitled accumulated other comprehensive loss. Net realized gains
and losses resulting from foreign currency transactions are credited or
charged to income.
Other Assets - The excess of cost over net assets acquired is included in
other assets and is being amortized over 5-10 years. The Company reviews
the carrying value of all intangible assets on a regular basis, and if
future cash flows are believed insufficient to recover the remaining
carrying value of an intangible asset, the carrying value is written down
in the period the impairment is identified to its estimated fair value.
Taxes on Income - Deferred income taxes are computed annually for
differences between the financial statement basis and tax basis of assets
and liabilities that will result in taxable or deductible amounts in the
future. Such deferred income tax asset and liability computations are based
on enacted tax laws and rates applicable to periods in which the
differences are expected to reverse. Valuation allowances are established
when necessary to reduce deferred income tax assets to the amount expected
to be realized.
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
-25-
result if such earnings were repatriated. The amount of earnings retained
in foreign subsidiaries is $6,419,000 at June 30, 2000.
Revenue recognition - The Company recognizes revenue when products are
shipped to customers or upon the completion of services.
Research and Development Costs - The Company incurred research and
development costs of $205,000 in 2000, $347,000 in 1999 and $158,000 in
1998 that were charged to operating expenses as incurred.
Stock Based Compensation - In October 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation. The Company has
determined that it will not change to the fair value method and will
continue to use Accounting Principles Board Opinion No. 25 for measurement
and recognition of employee stock-based transactions.
Earnings per Share - The Company adopted SFAS No. 128, Earnings per Share.
SFAS 128 replaces the presentation of primary and fully diluted earnings
per share ("EPS") with a presentation of basic EPS based upon the weighted-
average number of common shares and also requires dual presentation of
basic and diluted EPS for companies with "complex capital structures." EPS
for the current and prior periods has been presented in conformity with the
provisions of SFAS 128. The following table is a reconciliation of the
weighted-average shares used in the computation of basic and diluted EPS
for the years presented herein:
June 30, June 25, June 26,
2000 1999 1998
------------- ------------ ------------
Net income used to compute basic
and diluted earnings per share $ 1,034,000 $ 195,000 $ 831,000
------------- ------------ ------------
Weighted average number of common
shares outstanding - basic 2,759,000 2,745,000 2,413,000
Dilutive effect of stock options and warrants 136,000 12,000 71,000
------------- ------------ ------------
Number of shares used to compute
diluted earnings per share 2,895,000 2,757,000 2,484,000
============= ============ ============
Stock options and warrants that are antidilutive amounted to approximately
36,870, 697,105 and 571,980 for the years ended June 30, 2000, June 25, 1999 and
June 26, 1998, respectively.
Recently Issued Accounting Pronouncements - In June 1998, the FASB issued SFAS
No. 133,Accounting for Derivative Instruments and Hedging Activities. This
statement requires all derivatives to be recorded on the balance sheet at fair
value and establishes accounting standards for hedging activities. In June 1999,
the FASB issued SFAS No. 137, which amends SFAS No. 133 by deferring its
effective date one year to fiscal years beginning after June 15, 2000. In June
2000, FASB issued SFAS No. 138, which amends certain accounting and reporting
standards of SFAS No. 133. The Company believes that the effects of SFAS No. 133
will not have a material impact on its consolidated financial position or
results of operations.
Reclassification - Certain reclassifications have been made to the previous
year's financial statements to conform to current year presentation.
Fair Values of Financial Instruments - The carrying value of trade accounts
receivable and accounts payable approximate the fair value due to their
short-term maturities. The carrying values of the Company's lines of credit are
considered to approximate their fair value because the interest rates are based
on variable reference rates. The amount of long-term debt is not significant.
Concentration of credit risk - Financial instruments that subject the Company to
credit risk consists primarily of accounts 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 had two major
-26-
customers who accounted for 15% and 13% of the Company's sales during fiscal
year 2000; these customers represented 18% and 8% of account receivable at June
30, 2000. Two major customers who accounted for 15% and 14% of the Company's net
sales during fiscal year 1999 and represented 19% and 8% of accounts receivable
at June 25, 1999. One major customer who accounted for 16% of the Company's net
sales during fiscal year 1998. The Company performs ongoing credit evaluations
of its customers and maintains an allowance for potential credit losses. The
allowance for doubtful accounts is composed of:
June 30, June 25, June 26,
2000 1999 1998
------------ ------------ ------------
Beginning $ 219,000 $ 468,000 $ 404,000
Additions charged to
cost and expenses 34,000 55,000 90,000
Recovered (32,000) (229,000) --
Actual write-offs -- (75,000) (26,000)
------------ ------------ ------------
Ending $ 221,000 $ 219,000 $ 468,000
============ ============ ============
2. INVENTORIES
Inventories consist of the following:
June 30, June 25,
2000 1999
------------ ------------
Raw materials $ 1,251,000 $ 839,000
Work in progress 1,160,000 383,000
Finished goods 345,000 577,000
------------ ------------
$ 2,756,000 $ 1,799,000
============ ============
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
June 30, June 25,
2000 1999
------------ ------------
Building and improvements $ 999,000 $ 1,634,000
Leasehold improvements 1,177,000 1,040,000
Machinery and equipment 5,033,000 5,351,000
Furniture and fixtures 793,000 753,000
Equipment under capital leases 1,666,000 1,736,000
------------ ------------
9,668,000 10,514,000
Less:
Accumulated depreciation and
amortization 4,204,000 4,135,000
Accumulated amortization on
equipment under capital leases 967,000 841,000
------------ ------------
Net property and equipment $ 4,497,000 $ 5,538,000
============ ============
-27-
4. OTHER ASSETS
Other assets consist of the following:
June 30, June 25,
2000 1999
------------ ------------
Cost in excess of net assets
acquired, net of accumulated
amortization of $734,000 (2000)
and $603,000 (1999) $ 571,000 $ 606,000
Other 365,000 65,000
------------ ------------
Total $ 936,000 $ 671,000
============ ============
5. LINES OF CREDIT
The Company's subsidiary, TTI Pte, has a secured credit agreement with a
bank that provides for a total line of credit of $4,052,000. Borrowings
under the line were $241,000 and $214,000 at the end of fiscal 2000 and
1999, respectively. The interest rate on borrowings is at the bank's prime
rate (6.25% at June 30, 2000) plus 1.25%. Prior to year-end, borrowings
under this agreement were collateralized on substantially all of TTI Pte's
assets. Subsquent to year end, the line was increased to $5,789,000 and is
collateralized by cash deposits in the amount of $1,158,000. The agreement
contains certain debt covenants including maintaining a minimum net worth.
This line of credit has no expiration date. The Company was in compliance
with all debt covenants at June 30, 2000.
The Company's subsidiary, TTM, has a secured credit agreement with a bank
that provides for a total line of credit of $40,000. At June 30, 2000 and
June 25, 1999, there were no borrowings outstanding. The line of credit
bears interest at the bank's reference rate (6.8% at June 30, 2000) plus
2.5%. This line of credit has no expiration date.
The Company's subsidiary, TTKL, has a secured credit agreement with a bank
that provides for a total line of credit of $132,000. At June 30, 2000 and
June 25, 1999, there were no borrowings outstanding. The line of credit
bears interest at the bank's reference rate (6.8% at June 30, 2000) plus
2.5%. This line of credit has no expiration date.
The Company's subsidiary, TTBK, has a line of credit that provides for
borrowings of approximately $51,000. Interest on the line is at the bank's
reference rate (8.5% at June 30, 2000) plus 1%. At June 30, 2000 and June
25, 1999, there were no borrowings outstanding. This line of credit has no
expiration date.
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
June 30, June 25,
2000 1999
------------ ------------
Payroll and related $ 912,000 $ 1,236,000
Other 2,391,000 1,769,000
------------ ------------
$ 3,303,000 $ 3,005,000
============ ============
-28-
7. LONG-TERM DEBT AND CAPITALIZED LEASES
Long-term debt and capitalized leases consist of the following:
June 30, June 25,
2000 1999
------------ ------------
Capitalized lease obligations, due in
various installments through 2004 bearing
interest at rates ranging from 3.5% to 9.00%,
collateralized by leased assets (see Note 9) $ 801,000 $ 1,204,000
Mortgage loan, due in monthly
installments through 2002, bearing
interest at 7.6%, collateralized by land and building 220,000 263,000
------------ ------------
1,021,000 1,467,000
Less current portion 435,000 505,000
------------ ------------
$ 586,000 $ 962,000
============ ============
Maturities of long-term debt as of June 30, 2000 are as follows (exclusive of
capitalized lease obligations):
Fiscal
Year
--------
2001 $ 87,000
2002 86,000
2003 47,000
------------
$ 220,000
============
8. TAXES ON INCOME
The provision (benefit) for income taxes consist of the following:
Year Ended
---------------------------------------------
June 30, June 25, June 26,
2000 1999 1998
----------- ----------- -----------
Current:
Domestic $ 73,000 $ -- $ 24,000
Foreign (105,000) 44,000 235,000
----------- ----------- -----------
(32,000) 44,000 259,000
----------- ----------- -----------
Deferred:
Domestic -- -- --
Foreign 138,000 1,000 196,000
----------- ----------- -----------
$ 106,000 $ 45,000 $ 455,000
=========== =========== ===========
The pre-tax income (loss) before minority interest related to domestic and
foreign operations is as follows:
Year Ended
---------------------------------------------
June 30, June 25, June 26,
2000 1999 1998
----------- ----------- -----------
Domestic $ 271,000 $ (500,000) $ (18,000)
Foreign 1,254,000 982,000 1,323,000
----------- ----------- -----------
$ 1,525,000 $ 482,000 $ 1,305,000
=========== =========== ===========
-29-
The reconciliation between the U.S. federal statutory tax rate and the effective
income tax rate is as follows:
Year Ended
---------------------------------------------
June 30, June 25, June 26,
2000 1999 1998
----------- ----------- -----------
Statutory federal tax rate 35 % 35 % 35 %
Foreign income taxed at lower rates (37)% (56)% (11)%
Deferred income tax asset valuation
allowance 36 % 8 %
Net operating loss utilization (6)%
Other 15 % (6)% 3 %
----------- ----------- -----------
Effective rate 7 % 9 % 35 %
=========== =========== ===========
The Company files income tax returns in several countries. Income in one country
is not offset by losses in another country. Accordingly, no benefit is provided
for losses in countries except where the loss can be carried back against income
recognized in previous years. Income taxes are provided in those countries where
income is earned. The effect of providing tax against profits while not
providing benefit for losses results in an effective tax rate that differs from
the federal statutory rate.
The components of deferred income tax assets (liabilities) are as follows:
June 30, June 25,
2000 1999
----------- -----------
Deferred income tax assets:
Net operating loss carry forward $ 1,353,000 $ 1,515,000
Provision for local tax 79,000 173,000
Provision for bad debts 66,000 170,000
Reserve for obsolescence 78,000 78,000
Other 30,000 38,000
----------- -----------
Total deferred income tax assets 1,606,000 1,974,000
Deferred income tax liabilities:
Depreciation 216,000 127,000
Other 504,000 455,000
----------- -----------
Total deferred income tax liabilities 720,000 582,000
----------- -----------
Subtotal 886,000 1,392,000
Valuation allowance (1,606,000) (1,974,000)
----------- -----------
Net deferred income tax liability $ (720,000) $ (582,000)
=========== ===========
At June 30, 2000, the Company has net operating loss carryforwards of
approximately$3,025,000 available to offset future U.S. federal taxes, which
expire as follows:$1,767,000 in 2004,$151,000 in 2005,$170,000 in 2006
and$937,000 in 2014.
-30-
9. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its facilities and equipment under long-term
agreements expiring at various dates through 2004. 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,
2000 are as follows:
Capital Rental
Fiscal Year Leases Commitment
------------------------------------------------------------ ----------- -----------
2001 $ 398,000 $ 770,000
2002 346,000 523,000
2003 93,000 414,000
2004 69,000 48,000
2005 2,000
----------- -----------
Total future minimum lease payments 908,000 $ 1,755,000
===========
Less amount representing interest (107,000)
-----------
Present value of net minimum lease payments 801,000
Less current portion of capitalized lease obligations (348,000)
-----------
Long-term obligations under capital leases $ 453,000
===========
Total rental expense on all operating leases, both cancelable and
noncancelable, amounted to$543,000 in 2000,$415,000 in 1999 and$407,000 in
1998. Total rental income under sublease was$169,000 in 2000,$59,000 in
1999 and$70,000 in 1998.
On August 24, 1995, the Company was named in a civil action brought against
106 defendants alleging that they may have caused or contributed to soil
and groundwater contamination that required the plaintiff to pay$3,750,000
to the Federal Environmental Protection Agency to settle. The Company
believes its liability insurance should cover this claim, but its insurers
have not yet made a decision regarding this matter. Management, based on
its present information, believes that the outcome of this litigation will
not materially affect the Company's consolidated financial position or
results of operations.
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.
In March 2000, the Company signed a letter of intent to acquire the
business of a U.S. semiconductor test equipment manufacturer for
approximately$6 million, subject to adjustment for actual net assets at
closing. This letter of intent has expired. The Company continues to pursue
this prospective acquisition which would be financed by newly issued debt
and will be accounted for using the purchase method.
10. STOCK OPTIONS
The Company has three stock option plans under which officers, directors
and employees are eligible to receive options to purchase shares of the
Company's common stock. One of these plans, adopted in 1988, has been
terminated except for outstanding options, which are still exercisable, to
purchase an aggregate of 65,813 shares. Additionally, the Board of
Directors issues non-qualified options at their discretion at a price not
less than fair market value at the date of grant.
On December 8, 1997, the Company's shareholders approved the Company's 1998
Stock Option Plan (the "1998 Plan") under which employees, officers,
directors and consultants receive options to purchase the Company's common
stock at a price that is not less than 100 percent of the fair market value
at the date of grant. There are 300,000 shares authorized for grant under
the 1998 Plan.
On December 8, 1997, the Company's shareholders approved the Directors
Stock Option Plan (the "Directors Plan") under which duly elected non-
employee Directors and the President (if he or she is a director of the
Company) of the Company (currently seven individuals) receive options to
purchase the Company's common stock at a price of 85% of the fair market
value of the underlying shares on the date of grant. The shares are
nonqualified and there are 150,000 shares authorized for grant under the
Directors Plan.
-31-
The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
Plan. Accordingly, no compensation expense has been recognized. Had compensation
cost for the Company's Plan been determined based upon the fair value at the
grant date for awards under this Plan consistent with the methodology prescribed
under 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 Year Ended Year Ended
June 30, 2000 June 25, 1999 June 26, 1998
------------- ------------- -------------
Net Income:
Reported $ 1,034,000 $ 195,000 $ 831,000
Pro forma $ 699,000 $ (204,000) $ (25,000)
Basic Earnings per Share:
As Reported $ 0.37 $ 0.07 $ 0.34
Pro forma $ 0.25 $ (0.07) $ (0.01)
The fair value of the options granted during fiscal 2000, 1999 and 1998 was
$5.38,$3.85 and $7.19, respectively, on the date of grant using the Black
Scholes option-pricing model with the assumptions listed below:
Year Ended Year Ended Year Ended
June 30, 2000 June 25, 1999 June 26, 1998
------------- ------------- -------------
Volatility 52.6 % 42.1 % 49.3%
Risk free interest rate 6.18 % 5.91 % 5.69%
Expected life (years) 2.93 2.65 3.90
The following tables summarize information concerning outstanding and
exercisable options at June 30, 2000:
Year Ended June 30, 2000
------------------------------------------------------------------------------------------
Options and Warrants Outstanding Options and Warrants Exercisable
------------------------------------------------------ ----------------------------------
Number Weighted Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
June 30, 2000 Contractual Life Exercise Price June 30, 2000 Exercise Price
--------------- ------------------ ----------------- --------------- -----------------
37,688 0.30 3.00 37,688 3.00
28,125 1.45 3.67 28,125 3.67
30,000 1.56 4.67 30,000 4.67
22,500 1.56 5.00 22,500 5.00
30,000 2.25 5.00 30,000 5.00
45,000 2.25 5.00 45,000 5.00
75,000 2.34 5.00 56,250 5.00
275,860 2.35 5.00 275,860 5.00
69,920 2.35 5.00 69,920 5.00
34,960 0.35 5.00 34,960 5.00
5,000 2.44 5.00 3,750 5.00
45,000 3.02 3.69 45,000 3.69
14,500 3.02 4.34 10,875 4.34
45,000 4.04 2.81 45,000 2.81
89,000 4.74 6.00 22,250 6.00
36,870 1.86 8.00 36,870 8.00
--------------- ------------------ ----------------- --------------- -----------------
$ 884,423 1.90 $ 4.90 794,048 $ 4.81
Included in the total options and warrants outstanding at June 30, 2000 were
500,110 warrants issued in fiscal 1997, 1998 and 2000 that permit purchase of
common stock of the Company at an average price of $5.20.
-32-
The following table summarizes the stock option activity for the three years
ended June 30, 2000:
Number of
Stock Options Shares
------------------------------------------------------------------------- ----------
Balance at June 27, 1997 (weighted average price of 2.06 per share) 192,962
Granted at a weighted average price of 7.19 per share 87,500
Exercised at a weighted average price of 1.66 per share (87,774)
----------
Balance at June 26, 1998 (weighted average price of 4.77 per share) 192,688
Granted at a weighted average price of 3.85 per share 59,500
Exercised at a weighted average price of 1.60 per share (7,500)
Canceled at a weighted average price of 1.60 per share (7,500)
----------
Balance at June 25, 1999 (weighted average price of 4.77 per share) 237,188
Granted at a weighted average price of 4.95 per share 167,750
Exercised at a weighted average price of 2.17 per share (20,625)
----------
Balance at June 30, 2000 (weighted average price of 5.89 per share) 384,313
==========
----------
Options exercisable at June 30, 2000 293,398
==========
-33-
11. BUSINESS SEGMENTS
The Company operates principally in three industry segments, the designing
and manufacturing of equipment (that tests the structural integrity of
integrated circuits and other products which measure the rate of turn), the
testing service industry (that performs structural and electronic tests of
semiconductor devices) and the distribution of various products from other
manufacturers in Singapore and Southeast Asia.
The allocation of the cost of equipment, the current year investment in new
equipment and depreciation expense have been made on the basis of the
primary purpose for which the equipment was acquired.
The Company's wholly owned subsidiary, TTI Pte. in Singapore (including TTI
Pte.'s wholly owned subsidiaries, TTTS Pte and TTBk, 55% owned joint
venture of Trio-Tech Malaysia, another subsidiary wholly owned by Trio-Tech
Malaysia and 76% owned Prestal Enterprise Sdn Bhd) operates in the
manufacturing, the testing service and the distribution industry segments.
All intersegment sales are sales from the manufacturing segment to the
testing and distribution segment. Corporate assets mainly consist of cash
and prepaid expenses. Corporate expenses mainly consist of salaries,
insurance, professional expenses and directors' fees.
2000 1999 1998
--------------- --------------- ---------------
Revenues:
Manufacturing $ 13,864,000 $ 7,923,000 $ 7,669,000
Testing 7,723,000 7,239,000 8,437,000
Distribution 5,859,000 7,111,000 6,661,000
--------------- --------------- ---------------
Total Revenues from reportable segments 27,446,000 22,273,000 22,767,000
Elimination of intersegment revenue (503,000) (1,092,000) (915,000)
--------------- --------------- ---------------
Total consolidated revenues $ 26,943,000 $ 21,181,000 $ 21,852,000
=============== =============== ===============
Operating profit (loss):
Manufacturing $ 118,000 $ (1,474,000) $ (443,000)
Testing 394,000 886,000 712,000
Distribution (322,000) 4,000 643,000
--------------- --------------- ---------------
Total operating profit 190,000 (584,000) 912,000
--------------- --------------- ---------------
Corporate income 311,000 377,000 57,000
--------------- --------------- ---------------
Total operating profit (loss) $ 501,000 $ (207,000) $ 969,000
=============== =============== ===============
Depreciation and amortization:
Manufacturing $ 450,000 $ 425,000 $ 301,000
Testing 924,000 731,000 585,000
Distribution 149,000 66,000 58,000
--------------- --------------- ---------------
Total depreciation and amortization $ 1,523,000 $ 1,222,000 $ 944,000
=============== =============== ===============
Capital expenditures:
Manufacturing $ 436,000 $ 657,000 $ 804,000
Testing 654,000 1,052,000 1,741,000
Distribution 237,000 154,000 29,000
--------------- --------------- ---------------
Total capital expenditures $ 1,327,000 $ 1,863,000 $ 2,574,000
=============== =============== ===============
Identifiable assets:
Manufacturing $ 9,020,000 $ 7,156,000 $ 7,345,000
Testing 11,553,000 9,131,000 6,589,000
Distribution 2,081,000 2,605,000 5,171,000
Corporate 58,000 40,000 226,000
--------------- --------------- ---------------
Total assets $ 22,712,000 $ 18,932,000 $ 19,331,000
=============== =============== ===============
-34-
Net sales into countries:
United States $ 13,951,000 $ 7,482,000 $ 5,143,000
Singapore 6,807,000 6,934,000 6,955,000
Malaysia 2,682,000 2,412,000 3,909,000
Thailand 632,000 2,156,000 3,280,000
Other foreign countries 2,871,000 2,197,000 2,565,000
--------------- --------------- ---------------
Total net sales into countries $ 26,943,000 $ 21,181,000 $ 21,852,000
=============== =============== ===============
Revenues are attributed to countries based on location of the customer.
Long-lived assets:
United States $ 1,588,000 $ 1,437,000 $ 1,127,000
Singapore 1,552,000 2,826,000 2,473,000
Malaysia 1,350,000 688,000 380,000
Thailand 684,000 959,000 995,000
Ireland 259,000 299,000 320,000
--------------- --------------- ---------------
Total long-lived assets $ 5,433,000 $ 6,209,000 $ 5,295,000
=============== =============== ===============
-35-
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's summarized quarterly financial data are as follows:
Year ended June 25, 1999 SEP. 25, DEC. 25, MAR. 26, JUN. 25,
------------- ------------- ------------- -------------
Revenues $ 5,186,000 $ 4,983,000 $ 4,950,000 $ 6,062,000
Expenses 5,015,000 4,814,000 4,848,000 6,022,000
------------- ------------- ------------- -------------
Income before income taxes and
minority interest 171,000 169,000 102,000 40,000
Income taxes (80,000) (104,000) (83,000) 222,000
------------- ------------- ------------- -------------
Income before minority interest 91,000 65,000 19,000 262.000
Minority interest 10,000 (36,000) 0 (216,000)
------------- ------------- ------------- -------------
Net income $ 101,000 $ 29,000 $ 19,000 $ 46,000
============= ============= ============= =============
Net income per share:
------------- ------------- ------------- -------------
Basic $ 0.04 $ 0.01 $ 0.01 $ 0.02
============= ============= ============= =============
Fully diluted $ 0.04 $ 0.01 $ 0.01 $ 0.02
============= ============= ============= =============
Year ended June 30, 2000 SEP. 24, DEC. 31, MAR. 31, JUN. 30,
------------- ------------- ------------- -------------
Revenues $ 5,556,000 $ 6,787,000 $ 5,925,000 $ 8,675,000
Expenses 5,493,000 6,189,000 5,719,000 8,017,000
------------- ------------- ------------- -------------
Income before income taxes and
minority interest 63,000 598,000 206,000 658,000
Income taxes 47,000 (111,000) (65,000) 23,000
------------- ------------- ------------- -------------
Income before minority interest 110,000 487,000 141,000 681,000
Minority interest (66,000) 18,000 (27,000) (310,000)
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Net income $ 44,000 $ 505,000 $ 114,000 $ 371,000
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Net income per share:
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Basic $ 0.02 $ 0.18 $ 0.04 $ 0.13
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Fully diluted $ 0.02 $ 0.18 $ 0.04 $ 0.12
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