<PAGE>
=============================================================================
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 24, 1999
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
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 [ ] No [X]
Number of shares of common stock outstanding as of October 29, 1999
is 2,747,3935
=============================================================================
<PAGE>
TRIO-TECH INTERNATIONAL
INDEX TO CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information.................................................................................... 3
Item 1. Consolidated Financial Statements...................................................................... 3
Condensed Consolidated Balance Sheets as of September 24, 1999 and June 25, 1999....................... 3
Condensed Consolidated Statements of Income for the Three Months Ended September 24, 1999
and September 25, 1998................................................................................. 4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 24, 1999
and September 25, 1998................................................................................ 5
Notes to Condensed Consolidated Financial Statements................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................................. 9
Part II. Other Information........................................................................................ 10
Item 1. Legal Proceedings...................................................................................... 10
Item 2. Changes in Securities and Use of Proceeds.............................................................. 10
Item 3. Defaults upon Senior Securities........................................................................ 10
Item 4. Submission of Matters to a Vote of Security Holders.................................................... 10
Item 5. Other Information...................................................................................... 10
Item 6. Exhibits and Reports on Form 8-K....................................................................... 10
Signatures ......................................................................................................... 10
</TABLE>
<PAGE>
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Sept. 24, June 25,
ASSETS 1999 1999 (a)
-------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,470,000 $ 1,593,000
Cash deposits 4,302,000 4,499,000
Trade accounts receivable, less allowance
for doubtful accounts of $262,000 on
September 24, 1999 and $219,000 on
June 25, 1999 5,069,000 4,460,000
Other receivables 484,000 282,000
Inventories 1,951,000 1,799,000
Prepaid expenses and other
Current assets 99,000 90,000
-------------- ---------------
Total current assets 13,375,000 12,723,000
PROPERTY AND EQUIPMENT, Net 5,319,000 5,538,000
OTHER ASSETS, Net 680,000 671,000
-------------- ---------------
TOTAL ASSETS $ 19,374,000 $ 18,932,000
============== ===============
CURRENT LIABILITIES:
Lines of credit $ 163,000 $ 364,000
Accounts payable 2,883,000 1,989,000
Accrued expenses 3,097,000 3,005,000
Income taxes payable 83,000 71,000
Current portion of long-term debt
and capitalized leases 506,000 505,000
-------------- ---------------
Total current liabilities 6,732,000 5,934,000
-------------- ---------------
LONG-TERM DEBT AND
CAPITALIZED LEASES,
Net of current portion 866,000 962,000
-------------- ---------------
DEFERRED INCOME TAXES 439,000 582,000
-------------- ---------------
MINORITY INTEREST 2,419,000 2,403,000
-------------- ---------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock; authorized,
15,000,000 shares; issued and
outstanding, 2,747,335 shares
(September 24, 1999) and 2,741,334 shares
(June 25, 1999) stated at 8,654,000 8,654,000
Retained earnings 736,000 692,000
Accumulated other comprehensive loss (472,000) (295,000)
-------------- ---------------
Total shareholders' equity 8,918,000 9,051,000
-------------- ---------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 19,374,000 $ 18,932,000
============== ===============
</TABLE>
(a) Derived from audited consolidated financial statements included in the Form
10K for the fiscal year ended June 25, 1999. See notes to condensed consolidated
financial statements.
See notes to condensed consolidated financial statements.
3
<PAGE>
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
Sept. 24, Sept. 25,
1999 1998
-------------- -------------
<S> <C> <C>
NET SALES $ 5,556,000 $ 5,186,000
COST OF SALES 4,122,000 3,504,000
-------------- -------------
GROSS PROFIT 1,434,000 1,682,000
OPERATING EXPENSES:
General and administrative 872,000 910,000
Selling 438,000 571,000
Research and development costs 50,000 80,000
-------------- -------------
Total 1,360,000 1,561,000
-------------- -------------
INCOME (LOSS) FROM OPERATIONS 74,000 121,000
OTHER INCOME (EXPENSES)
Interest expense (21,000) (52,000)
Other income 10,000 102,000
-------------- -------------
Total (11,000) 50,000
-------------- -------------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 63,000 171,000
INCOME TAXES 47,000 (80,000)
-------------- -------------
INCOME BEFORE MINORITY INTEREST 110,000 91,000
MINORITY INTEREST (66,000) 10,000
-------------- -------------
NET INCOME 44,000 101,000
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustment (177,000) 178,000
-------------- -------------
COMPREHENSIVE INCOME (LOSS) $ (133,000) $ 279,000
============== =============
EARNINGS PER SHARE:
Basic $ 0.02 $ 0.04
============== ==============
Diluted $ 0.02 $ 0.04
============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON POTENTIAL SHARES OUTSTANDING
Basic 2,742,000 2,754,000
Diluted 2,758,000 2,769,000
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
Sept. 24, Sept. 25,
1999 1998
-------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 44,000 $ 101,000
Adjustments to reconcile net income to
net cash (used in) provided by operations:
Depreciation and amortization 364,000 265,000
(Gain)/loss on sale of property and equipment 0 78,000
Deferred income taxes (143,000) 5,000
Minority interest (1,000) (35,000)
Changes in assets and liabilities:
Accounts receivable (609,000) 189,000
Other receivables (202,000) 53,000
Inventories (152,000) (50,000)
Prepaid expenses and other current assets (9,000) (84,000)
Other assets (24,000) (1,000)
Accounts payable and accrued expenses 998,000 384,000
-------------- -------------
Net cash (used in) provided by operating activities 266,000 905,000
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Certificates of deposit 197,000 223,000
Capital expenditures (155,000) (898,000)
------------- -------------
Net cash (used in) provided by investing activities 42,000 (675,000)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on lines of credit (214,000) (481,000)
Borrowings under lines of credit 14,000 143,000
Principal payments of long-term obligations
and capitalized leases (96,000) (30,000)
Repurchase of common stock 0 (39,000)
------------- ------------
Net cash provided by (used in) financing activities (296,000) (407,000)
------------- ------------
EFFECT OF EXCHANGE RATE ON CASH (135,000) 148,000
NET INCREASE/(DECREASE) IN CASH (123,000) (29,000)
CASH, BEGINNING OF PERIOD 1,593,000 3,234,000
-------------- --------------
CASH, END OF PERIOD $ 1,470,000 $ 3,205,000
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest 21,000 12,000
Income taxes 30,000 121,000
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. Basis of Presentation
The interim condensed consolidated financial statements as of September 24, 1999
and as of September 25, 1998, respectively, and for the three-months ended
September 24, 1999 and as of September 25, 1998, 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 25, 1999.
The consolidated results of operations for the three-month periods ending
September 24, 1999 and September 25, 1998, 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. 24, June, 25,
1999 1999
---------- ----------
<S> <C> <C>
Raw materials $ 1,004 $ 839
Work in process 553 383
Finished goods 394 577
---------- ----------
$ 1,951 $ 1,799
========== ==========
</TABLE>
NOTE 3. 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:
<TABLE>
<CAPTION>
Quarter Ended
Sept. 24, 1999 Sept. 25, 1998
-------------- --------------
<S> <C> <C>
Net Income (Loss):
(in thousands)
As Reported $ 44 $ 101
Pro forma ($ 55) ($ 3)
Earnings (Loss) per Share:
As Reported $ 0.02 $ 0.04
Pro forma ($ 0.02) ($ 0.00)
</TABLE>
The preceding calculation uses the Black Scholes option-pricing model with the
assumptions listed below:
<TABLE>
<CAPTION>
Quarter Ended
Sept. 24, 1999 Sept. 25, 1998
-------------- --------------
<S> <C> <C>
Volatility 42.25% 49.45%
Expected Life (years) 2.37 3.74
Discount rate 5.15% 5.36%
</TABLE>
6
<PAGE>
NOTE 4. 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. 24, Sept. 25,
1999 1998
--------------- --------------
<S> <C> <C>
Net income used to compute basic
and diluted earnings per share $ 44,000 $ 101,000
--------------- --------------
Weighted average number of common
shares outstanding - basic 2,742,000 2,754,000
Dilutive effect of stock options and warrants 16,000 15,000
Number of shares used to compute
--------------- --------------
diluted earnings per share 2,758,000 2,769,000
=============== ==============
</TABLE>
The following options and warrants were outstanding during and as of the quarter
ended December 25, 1998September 24, 1999 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:
Type Shares Price Expiration
---- ------ ----- ----------
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 15,000 $5.31 September 30, 2002
Options 37,500 $6.67 November 3, 2002
Warrants 349,600 $7.00 November 3, 2000
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
Options 45,000 $4.34 July 12, 2004
7
<PAGE>
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 2. 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 58% of the Company's net sales for the three months ending
September 24, 1999 and 71% for the year ended June 1999. A 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's Southeast
Asian consolidated results of operations have been profitable, extended economic
instability could adversely affect the Company's financial condition, results of
operations or cash flows. On September 1, 1998, the government of Malaysia
announced its limitation in the movement of certain cash balances denominated in
Malaysian currency.
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 believes it has implemented modifications necessary to ensure
Year 2000 compliance, other than with respect to 55% owned Trio-Tech Malaysia.
The Company anticipates that 55% owned Trio-Tech Malaysia will be compliant by
December 1999.
In addition, the Company is in the on-going 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.
Quarter Ended September 24, 1999 ("2000") Compared to Quarter Ended September
- -----------------------------------------------------------------------------
25, 1998 ("1999")
- ----------------
Net sales increased by $370,000 or 7.1% from $5,186,000 in 1999 to $5,556,000 in
2000 due primarily to an upturn in the semiconductor industry. Net sales for the
Far East operations decreased $528,000 or 7.8% from $3,752,000 in 1999 to
$3,223,000 in 2000 due mainly to lower testing volume in Singapore.
8
<PAGE>
Cost of sales increased $618,000 or 17.6% from $3,504,000 in 1999 to $4,122,000
in 2000. As a percentage of sales, it increased 6.6% from 67.6% in 1999 to 74.2%
in 2000. This decrease in profitability is primarily due to a shift in relative
sales from high margin test services to lower margin distribution sales.
Operating expenses decreased by $171,000 or 11.4% from $1,481,000 in 1999 to
$1,310,000 in 2000 as a result of a series of implemented cost controls.
Research and development expenses decreased by $30,000 to $50,000 in 2000 from
$80,000 in 1999 due to the maturity in the development of a range of Artic
Temperature Controlled Chucks.
Interest expense decreased in 1999 by $31,000 or 59.6%, from $52,000 in 1999 to
$21,000 in 2000, due to decreases in lines of credit.
Other income has decreased by $92,000 or 90.2% from $102,000 in 1999 to $10,000
in 2000 primarily due sale tax and additional provisions in the doubtful
accounts, off-set by interest income earned on certificates of deposit in
Malaysia.
Liquidity and Capital Resources
The Company's working capital decreased by $146,000 to $6,6433,000 as of
September 24, 1999 as compared to June 25, 1999 due to capital expenditures, tax
payments and repayment of short term borrowings and an unrealized currency
translation loss, due to a currency depreciation in Southeast Asia relative to
the U.S. Dollar during the quarter.
The Company's subsidiary, TTI Pte, has obtained a line of credit from a bank
which provides for a line of credit of $2,952,000. There were no borrowings
against this line as of September 24, 1999. The interest rate on borrowings is
at the bank's prime rate (6.25% at September 24, 1999) plus 1.25%. Borrowings
under this agreement are collateralized by substantially all of TTI Pte's
assets.
The Company's subsidiary, TTKL, has obtained a line of credit from a bank which
provides for borrowings of $132,000. Borrowings under the line amounted to
$14,000 as of September 24, 1999.
The Company's subsidiary, TTBk, has a secured line of credit with a bank which
provides for a total line of credit of $50,000. There were no borrowings under
the line as of September 24, 1999.
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
$264,000 as of September 24, 1999. Interest is at the bank's prime rate (2.65%
at September 24, 1999) 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 (7.75% at September 24, 1999).
Borrowings under the line amounted to $150,000 as of December 25, 1998September
24, 1999.
Approximately $3,500,000 of cash is held in the Company's 55% owned Malaysian
subsidiary. $2,000,000 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 have not been any material changes in the financial position since the end
of the last Fiscal Year End.
Material Changes in Results of Operations
The gross profit margin has declined 76.60% for the quarter ended September 24,
1999, as compared to the corresponding quarter in the prior year, and is
primarily due to a shift in relative sales from high margin test services to
lower margin distribution sales.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ----------------------------------------------------------------------------
Because the Company comes within the definition "a small business issuer" the
Quantitative and Qualitative Disclosures about Market Risk is not applicable.
9
<PAGE>
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
Not applicable
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 or quarter of fiscal 2000:
None
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
By: /s/ Victor H.M. Ting
---------------------------------------
VICTOR H.M. TING
Vice President and
Chief Financial Officer
Dated: November 4, 1999
By: /s/ A. Charles Wilson
---------------------------------------
A. Charles Wilson
Chairman of the Board of Directors
Dated: November 4, 1999
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000732026
<NAME> TRIO-TECH INTERNATIONAL
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUN-25-1999
<PERIOD-END> SEP-24-1999
<CASH> 1,470
<SECURITIES> 4,302
<RECEIVABLES> 5,815
<ALLOWANCES> 262
<INVENTORY> 1,951
<CURRENT-ASSETS> 13,375
<PP&E> 10,599
<DEPRECIATION> 5,280
<TOTAL-ASSETS> 19,374
<CURRENT-LIABILITIES> 6,732
<BONDS> 0
0
0
<COMMON> 8,654
<OTHER-SE> 264
<TOTAL-LIABILITY-AND-EQUITY> 19,374
<SALES> 5,556
<TOTAL-REVENUES> 5,556
<CGS> 4,122
<TOTAL-COSTS> 4,122
<OTHER-EXPENSES> 1,322
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 91
<INCOME-TAX> 47
<INCOME-CONTINUING> 44
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
