FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended December 26, 1997
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
As of February 2, 1998, the Registrant had outstanding approximately 2,710,371*
Shares of Common Stock.
* See PART II. OTHER INFORMATION, ITEM 2 in connection with a three-for-
two stock split, effective October 7, 1997.
This document contains a total of 10 pages.
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<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRIO-TECH INTERNATIONAL
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(In Thousands)
Dec. 26, Jun. 27,
1997 1997 (a)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 5,133 $ 868
Cash deposits 3,484 7,104
Accounts receivable - net 3,276 3,646
Notes and other receivables 456 161
Inventories 2,077 1,784
Prepaid expenses and other current assets 650 280
---------- ------
Total current assets 15,076 13,843
---------- ------
PROPERTY, EQUIPMENT AND CAPITALIZED LEASES, net 3,866 4,421
OTHER ASSETS 378 264
----------- ------
TOTAL ASSETS $ 19,320 $18,528
=========== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 170 $ 150
Accounts payable 2,083 1,121
Accrued expenses 2,926 3,605
Income taxes payable 1,278 1,965
Current portion of long-term debt and capitalized lease 167 198
---------- -------
Total current liabilities 6,624 7,039
---------- -------
LONG-TERM DEBT AND CAPITALIZED LEASES,
net of current portion 553 723
DEFERRED TAXES 648 776
MINORITY INTEREST 2,379 3,527
---------- -------
TOTAL LIABILITIES 10,204 12,065
---------- -------
SHAREHOLDERS' EQUITY:
Common stock; authorized, 15,000,000 shares; issued and
outstanding, 2,691,271 shares at December 26, 1997,
and 1,936,596 shares at June 27, 1997 stated at 8,720 5,075
Retained earnings (accumulated deficit) 58 (334)
Cumulative currency translation 338 1,722
---------- --------
Total shareholders' equity 9,116 6,463
---------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 19,320 $18,528
========== ========
<FN>
(a) DERIVED FROM AUDITED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE FORM
10K FOR THE FISCAL YEAR ENDED JUNE 27, 1997.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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<CAPTION>
TRIO-TECH INTERNATIONAL
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(In Thousands, except Earnings per Share Data)
SIX MONTHS ENDED THREE MONTHS ENDED
-------------------- --------------------
DEC. 26, DEC. 27, DEC. 26, DEC. 27,
1997 1996 1997 1996
--------- --------- -------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 9,906 $ 11,035 $ 4,811 $ 5,419
COST OF SALES 6,467 6,814 3,153 3,492
-------- -------- -------- -------
GROSS PROFIT 3,439 4,221 1,658 1,927
-------- -------- -------- -------
OPERATING EXPENSES
Selling, general and administrative
expenses 2,900 2,778 1,451 1,362
-------- -------- -------- -------
INCOME FROM OPERATIONS 539 1,443 207 565
-------- -------- -------- -------
OTHER INCOME (EXPENSE)
Interest expense (58) (62) (34) (27)
Other income 179 315 66 189
--------- --------- --------- --------
Total 121 253 32 162
--------- --------- --------- --------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 660 1,696 239 727
INCOME TAXES 257 672 95 251
--------- --------- --------- --------
INCOME BEFORE MINORITY INTEREST 403 1,024 144 476
MINORITY INTEREST (11) (653) 37 (274)
--------- --------- --------- --------
NET INCOME $ 392 $ 371 $ 181 $ 202
EARNINGS PER SHARE:
Basic $ 0.19 $ 0.19 $ 0.08 $ 0.10
Diluted $ 0.18 $ 0.18 $ 0.08 $ 0.09
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Basic 2,107 1,937 2,277 2,053
Diluted 2,211 2,049 2,413 2,169
<FN>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
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<CAPTION>
TRIO-TECH INTERNATIONAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In Thousands)
SIX MONTHS ENDED
------------------
DEC. 26, DEC. 27,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 392 $ 371
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization 508 709
Loss on disposal of property and equipment 69
Effect of exchange rate changes on
operating assets (3,101) 11
Changes in assets and liabilities:
Accounts receivable, net 370 734
Notes and other receivables (295) (246)
Inventories (293) (349)
Prepaid expenses and other current assets (370) (165)
Other assets 117 6
Other current liabilities (404) (642)
Deferred taxes (128) 3
--------- --------
Total adjustment (3,596) 130
--------- --------
Net cash (used in) provided by operating activities (3,204) 501
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturity (purchase) of cash deposits 3,620 (1,925)
Capital expenditures, net (1,102) (268)
Minority interest (121) 507
Purchase of investment (21)
--------- --------
Net cash provided by (used in) investing activities 2,397 (1,707)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable and lines of credit (220)
Borrowings under notes payable 21 77
Proceeds from long-term obligations (196)
Repayment of long-term obligations (202) (182)
Issuance of common stock 3,395 162
--------- --------
Net cash used in financing activities 3,214 (359)
--------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,858 314
NET INCREASE (DECREASE) IN CASH 4,265 (1,251)
CASH, BEGINNING OF THE PERIOD 868 2,114
--------- ---------
CASH , END OF THE PERIOD $ 5,133 $ 863
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 55 $ 67
Income taxes $ 413 $ 446
<FN>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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TRIO-TECH INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation
The interim consolidated financial statements as of December 26, 1997, and for
the six-months ended December 26, 1997, are unaudited. In the opinion of
management, the 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 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 27, 1997.
The consolidated results of operations for the six-month periods ending December
26, 1997 and December 27, 1996, are not necessarily indicative of the results
expected for a full year.
Earnings per Share - Earnings per share is based upon the weighted average
number of shares outstanding and common stock equivalents (consisting of
stock options), excluding those common stock equivalents which would be
anti-dilutive.
NOTE 2. Inventories
The composition of inventories is as follows (in thousands):
Dec. 26, June 27,
1997 1997
----------- --------
Raw materials $ 802 $ 551
Work in process 576 526
Finished goods 699 707
---------- -------
$ 2,077 $ 1,784
========== =======
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
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
<PAGE>
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
(in thousands)
Quarter Ended
Dec. 26, 1997 Dec. 27, 1996
------------- -------------
Net Income (Loss):
As Reported $ 181 $ 202
Pro forma ($ 179) ($ 67)
Earnings (Loss) per Share:
As Reported $ 0.08 $ 0.10
Pro forma ($ 0.07) ($ 0.03)
Using the Black Scholes option-pricing model with the assumptions listed
below.
Quarter Ended
Dec. 26, 1997 Dec. 27, 1996
------------ -------------
Volatility 50.6% 48.0%
Expected Life (years) 4.1 1.7
Discount rate 6.3% 6.0%
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
1. Economic Conditions in Southeast Asia
The Company's operations and balance sheet have been affected by recent economic
instability in portions of Southeast Asia, which accounted for approximately 83%
of the Company's net sales in the fiscal years ended 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 semi-conductor 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 or results
of operations.
2. Liquidity and Capital Resources
The Company's working capital increased by $1,648,000 to $8,452,000 as of
December 26,1997 as compared to June 27, 1997 due to proceeds of $3,351,000 from
a private placement of common stock and warrants (see Part II, Item 2), offset
by an unrealized currency translation loss of $1,384,000, due to a currency
devaluation in Southeast Asia relative to the U.S. Dollar.
The Company's subsidiary, TTI Pte, has a secured credit agreement with a bank
which provides for a total line of credit of $ 655,000. Borrowings under these
lines amounted to $100,000 as of December 26, 1997. The interest rate on
borrowings is at the bank's prime rate (7.0% at December 26, 1997) plus 2%.
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 $76,000. There were no borrowings under the line as
of December 26, 1997.
The Company's subsidiary, TTBk, has a secured line of credit with a bank which
provides for a total line of credit of $78,000. There were no borrowings under
the line as of December 26, 1997.
The Company's subsidiary, EETC, has a credit agreement with a bank which
provides a term loan of $400,000. Borrowings under these lines amounted to
$315,000 as of December 26, 1997. Interest is at the bank's prime rate (5.84%
at December 27,1996) 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 (10.0% at December 26, 1997).
Borrowings under the line amounted to $150,000 as of December 26, 1997.
3. Material Changes in Financial Position
Total shareholders' equity was $9,116,000 at December 26,1997 as compared to
$6,463,000 at June 27, 1997, an increase of 41.0%, resulting from an increase of
$3,645,000 in common stock, primarily due to a private placement for $3,351,000
(see Part II, Item 2), offset by an unrealized currency translation loss of
$1,384,000, due to a currency devaluation in Southeast Asia relative to the U.S.
Dollar.
<PAGE>
4. Material Changes in Results of Operations
Total Net sales decreased by 11.2% for the quarter ended December 26, 1997
compared to the corresponding quarter in the prior year, and by 10.2% for the
six-month period compared to the corresponding period in the prior year. This
decline is attributable to a reduction in revenues in Southeast Asia, primarily
in Malaysia, brought about by the economic factors discussed in Note 1 above.
Although the Company held orders for testing of new types of semiconductors, and
expected such testing to begin in late 1997, this work has been rescheduled to
the Summer of 1998 because of production delays encountered by the manufacturers
of these devices.
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in securities.
On September 30, 1997, the Company declared a three-for-two stock split of its
Common Stock, effective October 7, 1997. The stock split took the form of a 50%
stock dividend. Fractional interests resulting from the stock split were
rounded down to the nearest whole share, with the balance being paid in cash. In
connection therewith, the authorized Common Stock of the Company was increased
from 10,000,000 to 15,000,000 shares by means of an amendment to the Company's
Articles of Incorporation.
On October 31, 1997 and November 4, 1997, the Company completed a $3,800,000
private placement of 699,200 shares of common stock with redeemable warrants to
purchase an additional 349,600 shares of common stock. The aggregate
underwriting commission was $380,000. Net proceeds of the offering, which was
placed through Paragon Capital Corporation, amounted to $3,351,000. The offer
and sale of these securities was exempt from registration pursuant to Rule 506
of Regulation D under the Securities Act of 1933. The net proceeds of the
private placement was used to expand the Company's Operations in the United
States, including those of Universal Systems acquired on November 1, 1997, as
well as for working capital and general corporate purposes.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K.
The Company filed two current Reports on Form 8-K during the quarter ended
December 26, 1997. One was dated October 9, 1997 and reported the three-for-two
stock split. The other was dated December 3, 1997 and reported the acquisition
of KTS, Incorporated.
SIGNATURES
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
Registrant
By /s/ A. Charles Wilson
---------------------
A. Charles Wilson
Chairman
Dated: February 4, 1998
<PAGE>
TRIO-TECH INTERNATIONAL
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(unaudited)
(in thousands, except Earnings per Share Data)
SIX MONTHS ENDED THREE MONTHS ENDED
----------------- ------------------
DEC. 26, DEC. 27, DEC. 26, DEC. 27,
1997 1996 1997 1996
-------- -------- -------- --------
Net income $ 392 $ 371 $ 181 $ 202
Basic earnings per share:
Weighted average number of
common share outstanding 2,107 1,937 2,277 2,053
-------- -------- -------- ---------
Basic earnings per share $ 0.19 $ 0.19 $ 0.08 $ 0.10
======== ======== ======== =========
Diluted earnings per share:
Weighted average number of
common shares outstanding 2,107 1,937 2,277 2,053
Dilutive effect of stock
options and warrants after
application of treasury stock
method 104 112 136 116
-------- -------- ------- ---------
Number of shares used to compute
diluted earnings per share 2,211 2,049 2,413 2,169
-------- -------- ------- ---------
Diluted earnings per share $ 0.18 $ 0.18 $ 0.08 $ 0.09
======== ======== ======= =========
Options to purchase 50,000 shares of commons stock at $7.70 per share were
outstanding during the quarter ended December 26, 1997 but were not included in
the computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares. The
options, which expire in September 30, 2003 were still outstanding as of
December 26, 1997.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000732026
<NAME> TRIO-TECH INTERNATIONAL
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUN-26-1998 JUN-26-1998
<PERIOD-START> SEP-27-1997 JUN-28-1997
<PERIOD-END> DEC-26-1997 DEC-26-1997
<CASH> 8617 8617
<SECURITIES> 0 0
<RECEIVABLES> 3276 3276
<ALLOWANCES> 0 0
<INVENTORY> 2077 2077
<CURRENT-ASSETS> 650 650
<PP&E> 3866 3866
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 19320 19320
<CURRENT-LIABILITIES> 6624 6624
<BONDS> 0 0
0 0
0 0
<COMMON> 8720 8720
<OTHER-SE> 396 396
<TOTAL-LIABILITY-AND-EQUITY> 19320 19320
<SALES> 4811 9906
<TOTAL-REVENUES> 4811 9906
<CGS> 3153 6467
<TOTAL-COSTS> 1348 2732
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 34 58
<INCOME-PRETAX> 276 649
<INCOME-TAX> 95 257
<INCOME-CONTINUING> 181 392
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 181 392
<EPS-PRIMARY> .08 .19
<EPS-DILUTED> .08 .18
</TABLE>
