<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 26, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-13914
TRIO-TECH INTERNATIONAL
(Exact name of Registrant as specified in its Charter)
California 95-2086631
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
355 Parkside Drive
San Fernando, California 91340
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number: 818-365-9200
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, no par value Nasdaq Small Cap
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed with the Commission by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months, (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No
[_]
Based on the closing sales price on June 26, 1998, the aggregate market value
of the voting stock held by nonaffiliates of the registrant was $4,781,435.
Number of shares of common stock outstanding as of August 26, 1998 is 2,744,396
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K. [_]
DOCUMENTS INCORPORATED BY REFERENCE
The number of pages in this filing is 35. The Exhibit Index begins on page 15.
===============================================================================
-1-
<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: November 3, 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 November 3, 1998
-------------------------------
A. Charles Wilson, Director
Chairman of the Board
/s/ S. W. Yong November 3, 1998
-------------------------------
S. W. Yong, Director
President and Chief Executive
Officer
/s/ Victor H.M. Ting November 3, 1998
-------------------------------
Victor H.M. Ting
Vice President, Chief Financial Officer
and Principal Accounting Officer
/s/ Jason T. Adelman November 3, 1998
-------------------------------
Jason T. Adelman, Director
/s/ Frank S. Gavin November 3, 1998
-------------------------------
Frank S. Gavin, Director
/s/ Richard C. Horowitz November 3, 1998
-------------------------------
Richard C. Horowitz, Director
/s/ F.D. (Chuck) Rogers November 3, 1998
-------------------------------
F.D. (Chuck) Rogers, Director
/s/ William L. Slover November 3, 1998
-------------------------------
William L. Slover, Director
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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
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<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.
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<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 (394,000) 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.
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<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
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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>
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<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>
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<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-
