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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 25, 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 principle executive offices) (Zip Code)
Registrant's Telephone Number: 818-365-9200
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 [_]
Number of shares of common stock outstanding as of October 24, 1998 is 2,738,685
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1
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TRIO-TECH INTERNATIONAL
INDEX TO CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE
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PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION..................................................................................... 3
Item 1. Consolidated Financial Statements......................................................................... 3
Condensed Consolidated Balance Sheets as of September 25, 1998 and June 26, 1998.......................... 3
Condensed Consolidated Statements of Income for the Three Months Ended September 25, 1998
and September 26, 1997................................................................................... 4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 25, 1998
and September 26, 1997................................................................................... 5
Notes to Condensed Consolidated Financial Statements....................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 8
PART II. OTHER INFORMATION.......................................................................................... 10
Item 1. Legal Proceedings.......................................................................................... 10
Changes in Securities...................................................................................... 10
Defaults upon Senior Securities............................................................................ 10
Submission of Matters to Vote of Security Holders.......................................................... 10
Other Information.......................................................................................... 10
Exhibits and Reports on Form 8-K........................................................................... 10
SIGNATURE ........................................................................................................... 10
</TABLE>
2
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TRIO-TECH INTERNATIONAL
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPT. 25, JUN. 26,
1998 1998 (a)
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 3,205 $ 3,234
Cash deposits 3,724 3,947
Accounts receivable - net 3,935 4,124
Notes and other receivables 317 370
Inventories 2,106 2,056
Prepaid expenses and other current assets 389 305
------- -------
Total current assets 13,676 14,036
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PROPERTY, EQUIPMENT AND CAPITALIZED LEASES, net 5,435 4,669
OTHER ASSETS 604 626
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TOTAL ASSETS $19,715 $19,331
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 150 $ 631
Accounts payable 2,317 2,126
Accrued expenses 3,980 3,804
Income taxes payable 707 690
Current portion of long-term debt and capitalized leases 242 188
------- -------
Total current liabilities 7,396 7,439
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LONG-TERM DEBT AND CAPITALIZED LEASES,
net of current portion 485 426
DEFERRED TAXES 586 581
MINORITY INTEREST 2,245 2,122
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TOTAL LIABILITIES 10,712 10,568
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SHAREHOLDERS' EQUITY:
Common stock; authorized, 15,000,000 shares; issued and
outstanding, 2,744,185 shares at September 25, 1998,
and 2,755,285 shares at June 26, 1998 8,669 8,708
Retained earnings 598 497
Cumulative currency translation (264) (442)
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Total shareholders' equity 9,003 8,763
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $19,715 $19,331
======= =======
</TABLE>
(a) DERIVED FROM AUDITED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE FORM
10K FOR THE FISCAL YEAR ENDED JUNE 26, 1998. SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
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TRIO-TECH INTERNATIONAL
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
SEPT. 25, SEPT. 26,
1998 1997
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<S> <C> <C>
NET SALES $5,186 $5,095
COST OF SALES 3,584 3,314
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GROSS PROFIT 1,602 1,781
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OPERATING EXPENSES
Selling, general and administrative expenses 1,481 1,449
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INCOME FROM OPERATIONS 122 332
------ ------
OTHER INCOME (EXPENSE)
Interest expense (52) (24)
Other income 102 113
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Total 50 89
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INCOME BEFORE INCOME TAXES AND 171 421
MINORITY INTEREST
INCOME TAXES 80 162
------ ------
INCOME BEFORE MINORITY INTEREST 91 259
MINORITY INTEREST (10) 48
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NET INCOME $ 101 $ 211
====== ======
EARNINGS PER SHARE:
Basic $ 0.04 $ 0.11
Diluted $ 0.04 $ 0.10
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Basic 2,754 1,937
Diluted 2,769 2,046
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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TRIO-TECH INTERNATIONAL
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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SEPT.25, SEPT. 26,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 101 $ 211
Adjustments to reconcile net income to
Net cash provided by operations:
Depreciation and amortization 265 294
Loss on disposal of property and equipment 78 0
Changes in assets and liabilities:
Accounts receivable, net 189 387
Notes and other receivables 53 (529)
Inventories (50) 156
Prepaid expenses and other current assets (84) (93)
Other assets (1) 87
Accounts payable and accrued expenses 384 (327)
Deferred income taxes 5 (53)
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Net cash (used in) provided by operating activities 940 133
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CASH FLOWS FROM INVESTING ACTIVITIES:
Certificates of deposit 223 559
Capital expenditures (898) (484)
Minority interest (35) 30
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Net cash provided by (used in) investing activities (710) 105
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on lines of credit (481) 0
Borrowings under lines of credit 0 100
Proceeds from long-term obligations and capitalized leases 143 0
Repayment of long-term obligations and capitalized leases (30) (118)
Repurchase of common stock (39) 0
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Net cash provided by (used in) financing activities (407) (18)
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EFFECT OF EXCHANGE RATE ON CASH 148 (485)
NET INCREASE (DECREASE) IN CASH (29) (265)
CASH, BEGINNING OF THE PERIOD 3,234 868
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CASH , END OF THE PERIOD $3,205 $ 603
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 12 $ 24
Income taxes $ 121 $ 0
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
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TRIO-TECH INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The interim condensed consolidated financial statements as of September 25, 1998
and as of September 26, 1997, respectively, and for the three-months ended
September 25, 1998 and as of September 26, 1997, respectively, are unaudited.
In management's opinion, unaudited consolidated financial statements include all
adjustments necessary, consisting of normal recurring accruals, for a fair
presentation of such information. Certain reclassifications of prior year
amounts have been made to conform to the current year financial statement
presentation.
The interim condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's Annual Report for fiscal year ended June 26, 1998.
The consolidated results of operations for the three-month periods ending
September 25, 1998 and September 26, 1997, are not necessarily indicative of the
results expected for a full year.
NOTE 2. INVENTORIES
The composition of inventories is as follows (in thousands):
<TABLE>
<CAPTION>
SEPT. 25 JUNE, 26
1998 1998
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<S> <C> <C>
Raw materials $ 805 $ 905
Work in process 745 696
Finished goods 556 455
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$2,106 $2,056
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</TABLE>
NOTE 3. SHAREHOLDERS' EQUITY
On September 30, 1997, the Board of Directors approved a three-for-two stock
split. The date of distribution of the stock split was October 7, 1997. The
earnings per share amounts show, for all periods presented, the effect of the
stock split.
NOTE 4. STOCK OPTIONS
The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
Stock Option 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:
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<CAPTION>
QUARTER ENDED
SEPT. 25, 1998 SEPT. 26, 1997
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<S> <C> <C>
Net Income (Loss):
(in thousands)
As Reported $ 101 $ 211
Pro forma ($ 3) ($313)
Earnings (Loss) per Share:
As Reported $ 0.04 $ 0.11
Pro forma $ 0.00 ($ 0.15)
</TABLE>
6
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Using the Black Scholes option-pricing model with the assumptions listed
below.
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<CAPTION>
QUARTER ENDED
Sept. 25, 1998 SEPT. 26, 1997
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<S> <C> <C>
Volatility 49.45% 40.50%
Expected Life (years) 3.74 2.00
Discount rate 5.36% 6.10%
</TABLE>
NOTE 5. EARNINGS PER SHARE
The Company adopted 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 period 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 periods presented herein:
<TABLE>
<CAPTION>
Sept. 25, Sept. 26,
1998 1997
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<S> <C> <C>
Net income used to compute basic
and diluted earnings per share $ 101,000 $ 211,000
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Weighted average number of common
shares outstanding - basic 2,754,000 1,937,000
Dilutive effect of stock options and warrants 15,000 110,000
Number of shares used to compute
-------------- --------------
diluted earnings per share 2,769,000 2,047,000
============== ==============
</TABLE>
The following options and warrants were outstanding during the quarter ended
September 25, 1998 but were not included in the computation of diluted earnings
per share because the exercise price was greater than the average market price
of the common shares:
<TABLE>
<CAPTION>
TYPE SHARES PRICE EXPIRATION
------------ ----------- -------- ----------------------
<S> <C> <C> <C> <C>
Warrants 22,500 $5.67 January 22, 2002
Warrants 30,000 $4.67 January 22, 2002
Options 45,000 $7.70 September 30, 2002
Warrants 30,000 $7.70 September 30, 2002
Options 50,000 $6.67 November 1, 2002
Warrants 349,600 $7.00 November 3, 2002
Warrants 69,920 $5.43 November 3, 2002
Warrants 34,960 $7.00 November 3, 2002
Options 5,000 $6.50 December 7, 2002
Options 45,000 $3.69 July 8, 2003
Options 14,500 $4.34 July 8, 2003
</TABLE>
7
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TRIO-TECH INTERNATIONAL
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 72% of the Company's net sales in the quarter ended September 25,
1998, 73% for the year ended June 1998 and 83% for the year ending June 1997. A
currency devaluation in 1997 in Thailand and currency weaknesses and volatility
in Thailand, Malaysia and Singapore required downward accounting adjustments in
fiscal 1998 and 1997 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.
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.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased by $317,000 to $6,280,000 as of
September 25, 1998 as compared to June 26, 1998 due to capital expenditures, tax
payments and repayment of short term borrowings, offset by an unrealized
currency translation gain, due to a currency appreciation in Southeast Asia
relative to the U.S. Dollar during the quarter.
The Company's subsidiary, TTI Pte, increased its total line of credit from
$655,000 to $3,125,000. There were no borrowings against this line as of
September 25, 1998. The interest rate on borrowings is at the bank's prime rate
(8.25% at September 25, 1998) plus 1.25%. Borrowings under this agreement are
collateralized by substantially all of TTI Pte's assets.
The Company's subsidiary, TTM, has obtained a line of credit from a bank which
provides for borrowings of $132,000. There were no borrowings under the line as
of September 25, 1998.
8
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The Company's subsidiary, TTBk, has a secured line of credit with a bank which
provides for a total line of credit of $48,000. There were no borrowings under
the line as of September 25, 1998.
The Company's subsidiary, TT Ireland, has a credit agreement with a bank which
provides a term loan of $400,000. Borrowings under these lines amounted to
$312,000 as of September 25, 1998. Interest is at the bank's prime rate (6.7%
at September 25, 1998) plus 3.5%.
The Company has 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 September 25, 1998).
Borrowings under the line amounted to $150,000 as of September 25, 1998.
Approximately $3,400,000 of cash is held in the Company's 55% owned Malaysian
subsidiary. $1,700,000 of this cash is denominated in the currency of Malaysia.
In September 1998 the Malaysian government approved a program to limit the
movement of certain cash balances denominated in Malaysian currency.
MATERIAL CHANGES IN FINANCIAL POSITION
There are no material changes in the financial position.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Gross margin has declined 4.05% for the quarter ended September 25, 1998, as
compared to the corresponding quarter in the prior year, in spite of the
marginal increases in sales for the three-month period compared to the
corresponding period in the prior year. This decline is primarily due to
competition as a result of poor economic conditions.
9
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TRIO-TECH INTERNATIONAL
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Shareholders who wish to present proposals at the Company's Annual
Meeting of Shareholders to be held in 1999 and have proposals set forth in the
Proxy Statement and form of proxy for such meeting in accordance with Rule 14a-8
promulgated under the Securities Exchange Act of 1934, as amended, should submit
their proposals in writing to the Secretary of the Company at 355 Parkside
Drive, San Fernando, California 91340 by no later than July 12, 1999. If a
shareholder proposal is otherwise presented at the 1999 Annual Meeting of
Shareholders, proxies solicited by the Company for that meeting will confer
discretionary authority to vote on any matter so presented at the meeting of
which the Company did not have notice prior to September 24, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
The Registrant filed the following reports on Form 8-K with
the Securities and Exchange Commission during the first
quarter of fiscal 1999:
None
SIGNATURE
Pursuant to the requirements of the Securities and 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/ A. Charles Wilson
-----------------------------------
A. Charles Wilson
Chairman of the Board of Directors
Dated: November 6, 1998
10
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<PAGE>
<ARTICLE> 5
<CIK> 0000732026
<NAME> TRIO-TECH INTERNATIONAL
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-25-1999
<PERIOD-START> JUN-26-1998
<PERIOD-END> SEP-25-1998
<CASH> 3,205
<SECURITIES> 3,724
<RECEIVABLES> 4,399
<ALLOWANCES> 464
<INVENTORY> 2,106
<CURRENT-ASSETS> 13,676
<PP&E> 16,119
<DEPRECIATION> 10,684
<TOTAL-ASSETS> 19,715
<CURRENT-LIABILITIES> 7,396
<BONDS> 0
0
0
<COMMON> 8,669
<OTHER-SE> 334
<TOTAL-LIABILITY-AND-EQUITY> 19,715
<SALES> 5,186
<TOTAL-REVENUES> 5,186
<CGS> 3,584
<TOTAL-COSTS> 3,584
<OTHER-EXPENSES> 1,369
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52
<INCOME-PRETAX> 181
<INCOME-TAX> 80
<INCOME-CONTINUING> 101
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
