-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AnNTq/Ax4kduIf+FTVEzeoaNhGtxuuWmIFBOZYAjlc2VXc/On/WgirUiPbVBk0Jn 6eQdr77T5o2StphNVHLS4w== 0000898430-98-003818.txt : 19981104 0000898430-98-003818.hdr.sgml : 19981104 ACCESSION NUMBER: 0000898430-98-003818 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980626 FILED AS OF DATE: 19981103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIO TECH INTERNATIONAL CENTRAL INDEX KEY: 0000732026 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 952086631 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-14523 FILM NUMBER: 98737200 BUSINESS ADDRESS: STREET 1: 355 PARKSIDE DR CITY: SAN FERNANDO STATE: CA ZIP: 91340 BUSINESS PHONE: 8183659200 MAIL ADDRESS: STREET 1: 355 PARKSIDE DRIVE CITY: SAN FERNANDO STATE: CA ZIP: 91340 10-K/A 1 FORM 10-K/A =============================================================================== 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- 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 -18- INDEPENDENT AUDITORS' REPORT Board of Directors Trio-Tech International San Fernando, California: We have audited the accompanying consolidated balance sheets of Trio-Tech International and subsidiaries (the Company) as of June 26, 1998 and June 27, 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended June 26, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Trio-Tech International and subsidiaries as of June 26, 1998 and June 27, 1997, and the results of their operations and their cash flows for each of the three years in the period ended June 26, 1998 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP /s/ DELOITTE & TOUCHE LLP Los Angeles, California September 4, 1998 -19-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------------------------------------------------------------ June 26, June 27, ASSETS Notes 1998 1997 --------- ------------------ ------------------ CURRENT ASSETS: 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 =============== ===============
See notes to consolidated financial statements. -20-
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended -------------------------------------------------------------- June 26, June 27, June 28, Notes 1998 1997 1996 ----- --------- ---------- -------- 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
See notes to consolidated financial statements. -21-
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 ------------------- ------------ ---------------------- ----------------- ------------- 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 ========= ============= ============= ============ ============
See notes to consolidated financial statements. -22- TRIO-TECH INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------- Year Ended ------------------------------------------- June 26, June 27, June 28, 1998 1997 1996 ----------- ----------- ----------- 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 =========== =========== ===========
continued See notes to consolidated financial statements. -23- 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
The fair value of the net assets acquired in connection with the purchase of Universal Systems (see Note 1) is summarized as follows: Net assets $ 500,000 Acquisition costs 24,000 ----------- Purchase price $ 524,000 ===========
See notes to consolidated financial statements. -24- TRIO-TECH INTERNATIONAL AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 26, 1998 JUNE 27, 1997 AND JUNE 28, 1996 - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - Trio-Tech International and subsidiaries (the "Company" or "TTI") is a designer and manufacturer of equipment used to test the structural integrity of semiconductor devices that must meet high- reliability specifications. The Company also owns and operates testing facilities that perform structural and electronic testing of semiconductor devices and acts as a distributor of electronic testing equipment in Singapore and other Southeast Asian countries. The consolidated financial statements include the accounts of the Company and its principal subsidiaries: Trio-Tech International Pte Ltd (TTI Pte), Trio-Tech Test Services Pte Ltd (TTTS Pte), Express Test, European Electronic Test Centre (EETC), Trio-Tech Bangkok (TTBk), Trio-Tech Malaysia (TTM) (a 55% owned subsidiary of TTI Pte), Prestal Enterprise Sdn Bhd (PESB) (a 73% owned subsidiary of TTI Pte) and Universal Systems. All material intercompany transactions, profits and balances have been eliminated. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounting Period - The Company's fiscal reporting period coincides with the 52-53 week period ending on the last Friday in June. Cash and Cash Deposits - Cash and cash deposits consists of bank balances and amounts invested in interest earning instruments having a maturity of 12 months or less. Approximately $3,000,000 of cash is held in the Company's 55% owned Malaysian subsidiary. $1,300,000 of this cash is denominated in the currency of Malaysia. On September 1, 1998, the government of Malaysia announced its intention to limit the movement of certain cash balances denominated in Malaysian currency. Inventories- Inventories are stated at the lower of cost, using the first- in, first-out (FIFO) method, or market. Property and Equipment - Property and equipment and capitalized leases are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided over the estimated useful lives of the assets or the terms of the leases, whichever are shorter, using the straight-line method. Estimated useful lives range from 3 to 45 years. Capital grants from the Industrial Development Authority in Ireland are accounted for when claimed by reducing the cost of the related assets. The grants are amortized over the depreciable lives of those assets. Foreign Currency Translation - All assets and liabilities of operations outside the United States have been translated at the foreign exchange rates in effect at year-end. Revenues and expenses for the year are translated at average exchange rates in effect during the year. Unrealized translation gains and losses are not included in determining net income but are accumulated and reported as a separate component of shareholders' equity. Net realized gains and losses resulting from foreign currency transactions are credited or charged to income. 73% of the Company's revenues are earned in Singapore, Malaysia and Thailand. These countries have been significantly affected, and will continue to be affected, by currency volatility in the Southeast Asia Region. Other Assets - The excess of cost over net assets acquired is included in other assets and is being amortized over 5-10 years. The Company reviews the carrying value of all intangible assets on a regular basis, and if future cash flows are believed insufficient to recover the remaining carrying value of an intangible asset, the carrying value is written down in the period the impairment is identified to its estimated fair value. Taxes on Income - Deferred taxes are computed annually for differences between the financial statement basis and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized. -25- 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:
June 26, June 27, June 28, 1998 1997 1996 ----------------- ----------------- ----------------- 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 ================= ================= =================
New Accounting Pronouncements - In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. The Company anticipates adopting this standard for fiscal 1999. The Company is unable to determine whether the adoption will have a material impact on the financial position or results of operations of the Company. In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. The Company adopted this pronouncement for the year ended June 26, 1998. Reclassification - Certain reclassifications have been made to the previous year's financial statements to conform to current year presentation. Fair Values of Financial Instruments - The carrying value of trade accounts receivable, inventories, trade accounts payable and accrued expenses approximate the fair value due to their short-term maturities. The carrying value of the Company's lines of credit are considered to approximate their fair value because the interest rates are based on variable reference rates. The amount of long-term debt is not significant. Concentration of credit risk - Financial instruments that subject the Company to credit risk consists primarily of accounts receivables. Concentration of credit risk with respect to accounts receivable is generally diversified due to the number of entities composing the Company's customer base and their geographic dispersion. The Company had one major customer which accounted for 16% of the Company's sales during fiscal year 1998; this customer represented 9% of accounts receivable at June 26, 1998. Two major customers which accounted for 13% and 22% of the Company's sales during -26- 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:
June 26, June 27, June 28, 1998 1997 1996 ------------------ ------------------ ------------------ 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 ================== ================== ==================
2. INVENTORIES Inventories consist of the following:
June 26, June 27, 1998 1997 ------------------ ------------------ 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 ================== ==================
3. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
June 26, June 27, 1998 1997 ------------------ ------------------ 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 ================== ==================
-27- 4. OTHER ASSETS Other assets consist of the following:
June 26, June 27, 1998 1997 ------------------ ------------------ 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 ================== ==================
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:
June 26, June 27, 1998 1997 ------------------ ------------------ Payroll and related $ 1,280,000 $ 1,655,000 Other 2,524,000 1,950,000 ------------------ ------------------ Total $ 3,804,000 $ 3,605,000 ================== ==================
-28- 7. LONG-TERM DEBT AND CAPITALIZED LEASES Long-term debt and capitalized leases consist of the following:
June 26, June 27, 1998 1997 --------------- --------------- 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 ================== ==================
Maturities of long-term debt as of June 26, 1998 are as follows (exclusive of capital lease obligations):
Fiscal Year ---------- 1999 $ 103,000 2000 134,000 2001 140,000 2002 40,000 --------------- $ 417,000 ==============
8. TAXES ON INCOME The provision for income taxes consists of the following:
Year Ended ---------------------------------------------------------------- June 26, June 27, June 28, 1998 1997 1996 ----------------- ----------------- ----------------- 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 ================= ================= =================
-29- The pre-tax income (loss) before minority interest related to domestic and foreign operations is as follows:
Year Ended ------------------------------------------------------------- June 26, June 27, June 28, 1998 1997 1996 ------------- ----------------- -------------- 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 ================= ================= =================
The reconciliation between the U.S. federal statutory tax rate and the effective income tax rate is as follows:
Year Ended ---------------------------------------------------------------------- June 26, June 27, June 28, 1998 1997 1996 -------------------- -------------------- -------------------- 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% ==================== ==================== ====================
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:
June 26, June 27, 1998 1997 -------------------- -------------------- 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) ==================== ====================
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- 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:
Capital Rental Fiscal Year Leases Commitment ------------- -------------------- -------------------- 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 ==================== ====================
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-
Year Ended Year Ended June 26, 1998 June 27, 1997 ----------------- ----------------- 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
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.
Year Ended Year Ended June 26, 1998 June 27, 1997 ----------------- ----------------- Volatility 49.3% 41.7% Risk free interest rate 5.36-5.69% 6.1% Expected life (years) 3.9 2.1
The following tables summarize information concerning outstanding and exercisable options at June 26, 1998 and June 27, 1997.
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 ---------------- -------------------- --------------------- ----------------- --------------------- 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 ================ ==================== ================= ================= =================
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- The following table summarizes the stock option activity for the three years ended June 26, 1998:
Number of Stock Options Shares ------------------------------------------------------------------------------ ------------- 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 =============
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.
1998 1997 1996 ------------------- ------------------- ------------------- 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 ================== ================== ===================
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Operating profit: 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 =========== =========== ===========
-34- The Company exports a portion of its equipment. Export sales by geographic area are as follows:
June 26, June 27, June 28, 1998 1997 1996 ----------- ----------- ----------- 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 =========== =========== ===========
13. QUARTERLY FINANCIAL DATA (UNAUDITED) The Company's summarized quarterly financial data are as follows:
Year ended June 27, 1997 SEP. 27, DEC. 27, MAR. 28, JUN. 27, ---------------- --------------- -------------- -------------- 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 ================ =============== ============== ==============
Year ended June 27, 1997 SEP. 26, DEC. 26, MAR. 27, JUN. 26, ---------------- --------------- -------------- -------------- 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 ================ =============== ============== ==============
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