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