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TRIO-TECH INTERNATIONAL - Quarter Report: 2001 September (Form 10-Q)

Form 10-Q for the Quarter ended September 30, 2001
 
 
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 30, 2001
 
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
 
          Indicate by check mark whether the registrant (1) has filed all reports required to be filed with the Commission by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
 
Number of shares of common stock outstanding as of November 2, 2001 is 2,927,596
 
 
TRIO-TECH INTERNATIONAL
 
INDEX TO CONSOLIDATED FINANCIAL INFORMATION,
OTHER INFORMATION AND SIGNATURES
 
     
Page
Part I.
  
Financial Information
      
Item 1.
  
Condensed Consolidated Financial Statements
      
       
3
 

  
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the
     Three Months Ended Sept. 30, 2001 and Sept. 30, 2000 (Unaudited)
    
4
 

       
5
 
       
6
 
Item 2.
       
11
 
Item 3.
       
13
 
Part II.
  
Other Information
      
Item 1.
       
14
 
Item 2.
       
14
 
Item 3.
       
14
 
Item 4.
       
14
 
Item 5.
       
14
 
Item 6.
       
14
 
    
14
 
 

 
TRIO–TECH INTERNATIONAL AND SUBSIDIARIES
 
ITEM 1.     CONSOLIDATED FINANCIAL STATEMENTS
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share amounts)
 
  
Sept. 30,
2001
  
June 30,
2001(a)
ASSETS
  
 
  
 
CURRENT ASSETS:
  
 
  
 
          Cash
  
$   1,141
  
$   1,149
          Cash deposits
  
6,886
  
7,693
          Trade accounts receivable, less allowance for doubtful accounts of $181 at Sept. 30,
               2001 and $174 at June 30, 2001
  
4,182
  
4,432
          Other receivables
  
161
  
162
          Inventories
  
2,002
  
1,918
          Prepaid expenses and other current assets
  
207
  
147
  
  
                   Total current assets
  
14,579
  
15,501
PROPERTY, PLANT AND EQUIPMENT, Net
  
7,508
  
7,534
OTHER ASSETS, Net
  
1,079
  
1,115
  
  
TOTAL ASSETS
  
$23,166
  
$24,150
  
  
LIABILITIES AND SHAREHOLDERS’ EQUITY
  
 
  
 
CURRENT LIABILITIES:
  
 
 
   
 
 
          Line of credit
  
$         40
  
$       —  
          Accounts payable
  
2,220
  
2,646
          Accrued expenses
  
3,466
  
3,689
          Income taxes payable
  
185
  
168
          Current portion of long-term debt and capitalized leases
  
1,059
  
1,096
  
  
                   Total current liabilities
  
6,970
  
7,599
  
  
LONG-TERM DEBT AND CAPITALIZED LEASES, net of current portion
  
1,654
  
1,745
  
  
DEFERRED INCOME TAXES
  
668
  
649
  
  
MINORITY INTEREST
  
2,536
  
2,548
  
  
COMMITMENTS AND CONTINGENCIES
  
 
  
 
SHAREHOLDERS’ EQUITY:
  
 
  
 
          Common stock; no par value, authorized, 15,000,000 shares; issued and outstanding
               2,927,596 shares at Sept. 30, 2001 and June 30, 2001, respectively
  
9,423
  
9,423
          Retained earnings
  
2,489
  
2,889
          Accumulated other comprehensive loss
  
(574
)
  
(703
)
  
  
                   Total shareholders’ equity
  
11,338
  
11,609
  
  
          TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  
$23,166
  
$24,150
  
  
(a)
 
Derived from audited consolidated financial statements included in the Form 10K for the fiscal year ended June 30, 2001.
 
See notes to condensed consolidated financial statements.

 
TRIO–TECH INTERNATIONAL AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE (LOSS) INCOME
(Unaudited, in thousands, except per share amounts)
 
  
Three Months
Ended
  
Sept. 30,
2001
  
Sept. 30,
2000
NET SALES
  
$5,136
    
$9,158
 
COST OF SALES
  
4,041
    
6,711
 
  
    
 
GROSS PROFIT
  
1,095
    
2,447
 
OPERATING EXPENSES:
  
 
    
 
 
          General and administrative
  
1,182
    
1,464
 
          Selling
  
284
    
706
 
          Research and development
  
47
    
49
 
  
    
 
                   Total
  
1,513
    
2,219
 
  
    
 
(LOSS) INCOME FROM OPERATIONS
  
(418
)
    
228
 
OTHER INCOME (EXPENSE):
  
 
    
 
 
          Interest expense
  
(51
)
    
(30
)
 
          Other income
  
96
    
85
 
  
    
 
                   Total
  
45
    
55
 
  
    
 
(LOSS) INCOME BEFORE INCOME TAXES AND MINORITY INTEREST
  
(373
)
    
283
 
INCOME TAXES
  
(42
)
    
(68
)
 
  
    
 
(LOSS) INCOME BEFORE MINORITY INTEREST
  
(415
)
    
215
 
MINORITY INTEREST
  
15
    
(31
)
 
  
    
 
NET (LOSS) INCOME
  
(400
)
    
184
 
  
    
 
OTHER COMPREHENSIVE (LOSS) INCOME :
  
 
    
 
 
          Foreign currency translation adjustment
  
129
    
(152
)
 
  
    
 
COMPREHENSIVE (LOSS) INCOME
  
$    (271
)
    
$       32
 
  
    
 
EARNINGS (LOSS) PER SHARE:
  
 
    
 
 
          Basic
  
$  (0.14
)
    
$   0.06
 
  
    
 
          Diluted
  
$  (0.14
)
    
$   0.06
 
  
    
 
WEIGHTED AVERAGE NUMBER OF COMMON AND POTENTIAL COMMON
     SHARES OUTSTANDING:
  
 
    
 
 
          Basic
  
2,928
    
2,850
 
          Diluted
  
2,928
    
3,037
 
 
 
See notes to condensed consolidated financial statements.

 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in Thousands)
 
  
Three Months
Ended
  
Sept. 30,
2001
  
Sept. 30,
2000
CASH FLOWS FROM OPERATING ACTIVITIES:
    
 
    
 
Net (loss) income
    
$    (400
)
    
$    184
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating
     activities:
    
 
    
 
          Depreciation and amortization
    
439
    
353
          Gain on sale of property and equipment
    
—  
    
(17
)
          Deferred income taxes
    
19
    
(5
)
          Minority interest, net
    
(15
)
    
32
          Changes in operating assets and liabilities:
    
 
    
 
                   Accounts receivable, net
    
250
    
(1,162
)
                   Other receivables
    
1
    
184
                   Inventories
    
(84
)
    
(1,207
)
                   Prepaid expenses and other current assets
    
(60
)
    
(373
)
                   Accounts payable and accrued expenses
    
(649
)
    
2,102
                   Income taxes payable
    
17
    
118
    
    
                             Net cash (used in) provided by operating activities
    
(482
)
    
209
    
    
CASH FLOWS FROM INVESTING ACTIVITIES:
    
 
    
 
Cash deposits
    
807
    
42
Capital expenditures
    
(209
)
    
(1,425
)
Other assets
    
21
    
280
Proceeds from sale of property and equipment
    
1
    
30
    
    
                             Net cash provided by (used in) investing activities
    
620
    
(1,073
)
    
    
CASH FLOWS FROM FINANCING ACTIVITIES:
    
 
    
 
Payments on lines of credit
    
—  
    
(241
)
Borrowings under lines of credit
    
40
    
309
Principal payments of debt and capitalized leases
    
(308
)
    
(154
)
Proceeds from long-term debt
    
89
    
332
Issuance of common stock
    
—  
    
112
    
    
                             Net cash (used in) provided by financing activities
    
(179
)
    
358
    
    
EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
33
    
(60
)
NET DECREASE IN CASH
    
(8
)
    
(566
)
CASH, BEGINNING OF PERIOD
    
1,149
    
1,956
    
    
CASH, END OF PERIOD
    
$1,141
    
$1,390
    
    
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    
 
    
 
Cash paid during the period for:
    
 
    
 
          Interest
    
$       41
    
$       37
    
    
          Income taxes
    
$       27
    
$       38
    
    
 
See notes to condensed consolidated financial statements.

 
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share and share amounts)
 
Note 1.    Basis of Presentation
 
          The interim condensed consolidated financial statements as of Sept. 30, 2001 and for the three-months ended Sept 30, 2001 and Sept. 30, 2000, respectively, are unaudited. In management’s opinion, the unaudited consolidated financial statements reflect all adjustments necessary, consisting of normal recurring accruals, for a fair statement of the results for the interim periods presented.
 
          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 30, 2001.
 
          The consolidated results of operations for the three-month period ending Sept. 30, 2001, is not necessarily indicative of the results expected for a full year.
 
          Recently Issued Accounting Pronouncements—In July 2001, the Financial Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”), No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 replaces Accounting Principles Board Opinion No. 16 (APB No. 16), “Business Combination,” and eliminates pooling-of-interests accounting prospectively. It also provides guidance on purchase accounting related to the recognition of intangible assets and accounting for negative goodwill. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Under SFAS No. 142, goodwill will be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired. Upon adoption of SFAS No. 142, amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 will cease, and intangible assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under SFAS No. 141 will be reclassified to goodwill. Companies are required to adopt SFAS No. 142 for fiscal years beginning after December 15, 2001. In connection with the adoption of SFAS No. 142, companies will be required to perform a transitional goodwill impairment assessment. The Company has not yet determined the effects, if any, that SFAS No. 142 will have on its consolidated financial position and results of operations. During the quarter ended Sept. 30, 2001, goodwill amortization totaled approximately $8.
 
Note 2.    Inventories
 
          The composition of inventories is as follows:
 
  
Sept. 30,
2001
  
June 30,
2001
Raw materials
    
$1,147
    
$1,180
Work in progress
    
393
    
311
Finished goods
    
462
    
427
    
    
    
$2,002
    
$1,918
    
    

 
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 three Stock Option Plans. 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 (loss) income and (loss) earnings per share would have been the pro forma amounts indicated below:
 
  
Three Months Ended
  
Sept. 30,
2001
  
Sept. 30,
2000
Net (Loss) Income:
  
 
  
 
          As Reported
  
$ (400
)
  
$  184
          Pro forma
  
$ (468
)
  
$ (198
)
Basic (Loss) Earnings per Share:
  
 
  
 
          As Reported
  
$(0.14
)
  
$0.06
          Pro forma
  
$(0.16
)
  
$(0.07
)
 
          The preceding calculation uses the Black Scholes option-pricing model with the assumptions listed below:
 
  
Three Months Ended
  
Sept. 30,
2001
  
Sept. 30,
2000
Volatility
  
55.99
%
  
52.61
%
Risk free interest rate
  
3.91
%
  
5.85
%
Expected life (years)
  
2.31
  
3.17
 
Note 4.    Earnings per Share (EPS)
 
          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:
 
  
Sept. 30,
2001
  
Sept. 30,
2000
Net (loss) income used to compute basic and diluted earnings
     per share
    
$    (400
)
      
$    184
 
    
      
 
Weighted average number of common shares outstanding—basic
    
2,928
      
2,850
 
Dilutive effect of stock options and warrants
    
—  
      
187
 
    
      
 
          Number of shares used to compute earnings per share—diluted
    
2,928
      
3,037
 
    
      
 
 

 
          The following options and warrants were outstanding during and as of the quarter ended Sept. 30, 2001 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 and therefore were anti-dilutive:
 
Three Months Ended Sept. 30, 2001
Options and Warrants Outstanding
    
Options and Warrants
Exercisable
Number
Outstanding
    
Weighted Average
Remaining
Contractual Life
    
Exercise
Price
    
Number
Exercisable
    
Exercise
Price
27,000
        
0.20
        
3.67
        
27,000
        
3.67
 
30,000
        
0.32
        
4.69
        
30,000
        
4.69
 
22,500
        
0.32
        
3.67
        
22,500
        
3.67
 
40,000
        
1.00
        
5.00
        
40,000
        
5.00
 
15,000
        
1.00
        
5.00
        
15,000
        
5.00
 
15,000
        
1.00
        
5.00
        
15,000
        
5.00
 
69,920
        
1.10
        
5.00
        
69,920
        
5.00
 
34,960
        
1.10
        
5.00
        
34,960
        
5.00
 
9,915
        
1.11
        
8.00
        
9,915
        
8.00
 
75,000
        
1.14
        
5.00
        
75,000
        
5.00
 
5,000
        
1.19
        
5.00
        
5,000
        
5.00
 
40,000
        
1.78
        
3.69
        
40,000
        
3.69
 
14,500
        
1.78
        
4.34
        
10,875
        
4.34
 
30,000
        
2.78
        
2.82
        
30,000
        
2.82
 
75,500
        
3.49
        
6.00
        
37,750
        
6.00
 
36,870
        
0.61
        
8.00
        
36,870
        
8.00
 
37,000
        
3.78
        
5.37
        
37,000
        
5.37
 
40,000
        
3.97
        
5.63
        
20,000
        
5.63
 
4,000
        
4.51
        
3.40
        
1,000
        
3.40
 
        
        
        
        
 
622,165
        
2.31
        
4.83
        
557,790
        
4.69
 
        
        
        
        
 

 
Note 5.    Long-term debt and capitalized leases
 
          Long-term debt and capitalized leases consist of the following:
 
  
Sept. 30,
2001
Machinery loans, due in various installments through 2003 bearing interest at 6.5%,
     collateralized by equipment
    
$1,103
 
Notes payable, due in various installments through 2005 bearing interest at prime plus 1.5%
     (Bank’s prime rate of 6.25% at Sept. 30, 2001), collateralized by equipment
    
615
 
Capitalized lease obligations, due in various installments through 2008 bearing interest at
     rates ranging from 4.63% to 13.39%, collateralized by leased assets
    
811
 
Mortgage loan, due in monthly installments through 2008, bearing interest at prime plus 3%
     and 3.52% (Bank’s prime rate of 4.61% and 4.72% at Sept. 30, 2001), collateralized by
     building
    
184
 
    
 
    
2,713
 
Less current portion
    
1,059
 
    
 
    
$1,654
 
    
 
 
Note 6.    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.
 
          All intersegment sales are sales from the manufacturing segment to the testing and distribution segments.
 
Business Segment Information:
 
    
Three Months
Ended
Sept. 30,
  
Net
Sales
  
Operating
Income
(loss)
  
Assets
  
Depr.
and
Amort.
  
Capital
Expenditures
Manufacturing
      
2001
    
$1,468
    
$(642
)
    
$   5,991
    
$109
      
$       27
 
      
2000
    
4,921
    
8
    
8,620
    
126
      
56
 
Testing Services
      
2001
    
2,289
    
226
    
16,603
    
301
      
169
 
      
2000
    
2,602
    
59
    
16,089
    
211
      
1,145
 
Distribution
      
2001
    
1,379
    
29
    
354
    
28
        
      
2000
    
1,635
    
(14
)
    
536
    
16
      
220
 
Corporate and unallocated
      
2001
         
(31
)
    
218
    
1
      
13
 
      
2000
         
175
    
103
           
4
 
Total Company
      
2001
    
$5,136
    
$(418
)
    
$23,166
    
$439
      
$    209
 
      
2000
    
9,158
    
228
    
25,348
    
353
      
1,425
 

 
Geographic Area Information:
    
Three Months
Ended
Sept. 30,
  
United
States
  
Europe
  
Southeast
Asia
    
Eliminations
and Other
  
Total
Company
Net sales to customers
      
2001
    
$1,952
    
572
      
2,618
        
(6
)
      
$5,136
 
      
2000
    
$3,091
    
1,886
      
4,351
        
(170
)
      
$9,158
 
Operating Income (loss)
      
2001
    
$    (419
)
    
(99
)
      
131
        
(31
)
      
$    (418
)
 
      
2000
    
$      (33
)
    
(106
)
      
192
        
175
      
$    228
 
Property, plant and equipment—net
      
2001
    
$    823
    
439
      
6,246
        
 
      
$7,508
 
      
2000
    
$    966
    
236
      
4,285
        
 
      
$5,487
 
 

 
ITEM2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In thousands, except share amounts)
 
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. A forward-looking statement may, in some cases, be identified by use of terminology such as “may,” “will,” “expects,” “plans,” anticipates,” “estimates,” “potential,” “believes,” “can impact,” “continue,” and by other comparable terminology or by the negative of any of the foregoing. 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.
 
 
Three Months Ended Sept. 30, 2001 (“2002”) Compared to the Three Months Ended Sept. 30, 2000 (“2001”)
 
          Net sales decreased by $4,022 or 43.9% from $9,158 in 2001 to $5,136 in 2002, due to the global down turn in the semiconductor industry and world economic conditions. We anticipate that the current fiscal year will continue to have lower sales than fiscal year 2001.
 
          Geographically, net sales in the United States decreased $1,139 or 36.8% from $3,091 in 2001 to $1,952 in 2002. The decrease was attributable to decreases in burn in board sales, Artic Temperature Controlled Chucks and wet process benches. Net sales for the Southeast Asia operations decreased $1,733 or 39.8% from $4,351 in 2001 to $2,618 in 2002 due mainly to lower manufacturing (down 87%), distribution (down 15.6%) and testing (down 8.6%) volumes. Net sales for Europe decreased $1,314 or 69.7% from $1,886 in 2001 to $572 in 2002 due to a decline in demand for Artic Temperature Controlled Chucks and wet process benches.
 
          The Manufacturing Segment sales, Company-wide, decreased $3,453 or 70.2% from $4,921 in 2001 to $1,468 in 2002 due to a decrease in demand for the Artic Temperature Controlled Chucks, Wet Process Benches and the COBIS-II Burn-in Board Systems. The Testing Services Segment sales, Company-wide, decreased $313 or 12% from $2,602 in 2001 to $2,289 in 2002 due to the global down turn in the semiconductor industry and world economic conditions. The Distribution Segment, Company-wide, decreased $256 or 15.7% from $1,635 in 2001 to $1,379 in 2002 due to the decrease in demand for test equipment.
 
          Cost of sales decreased $2,670 or 39.8% from $6,711 in 2001 to $4,041 in 2002. As a percentage of sales, it increased 5.4% from 73.3% in 2001 to 78.7% in 2002. The cost as a percentage of sales increased due to the sharp decline in sales and change in the sales and product mix which varies depending on the mix of sector and geographic sales.
 
          Operating expenses decreased by $706 or 31.8% from $2,219 in 2001 to $1,513 in 2002. This decrease is consistent with the level of sales and as a percentage of sales increased by 5.1% from 24.2% in 2001 to 29.3% in 2002.
 
          General and Administrative (“G&A”) expenses decreased by $282 or 19.3% from $1,464 in 2001 to $1,182 in 2002 primarily due to implementation of cost cutting measures which reduced the headcount and related

expenses such as payroll and payroll related costs such as bonuses. As a percentage of sales, G&A increased by 7% from 16% in 2001 to 23% in 2002.
 
          Selling expenses decreased by $422 or 59.8% from $706 in 2001 to $284 in 2002 due to reductions in amounts paid for commissions. As a percentage of sales, selling expenses decreased 2.2% from 7.7% in 2001 to 5.5% in 2002.
 
          Research and Development expenses decreased by $2 or 4.1% from $49 in 2001 to $47 in 2002. This decrease is primarily due to decreased payroll and payroll related costs and supplies offset by increased travel to Original Equipment Manufacturers.
 
          The Manufacturing Segment loss from operations increased by $650 from income of $8 in 2001 to a loss of $642 in 2002 due to eroding margins and lower volumes of Artic Temperature Controlled Chucks, Semi-Automatic Wet Process Benches and the COBIS-II Burn-in Board Systems. The Testing Services Segment income from operations increased $167 from $59 in 2001 to $226 in 2002 due to the rapid implementation of cost saving measures. The Distribution Segment income from operations increased by $43 from a loss of $14 in 2001 to income of $29 in 2002 due to a change in sales mix from lower margin equipment to more profitable new technology products.
 
          Interest expense increased in 2002 by $21 or 70%, from $30 in 2001 to $51 in 2002, due to increases in lines of credit, capitalized leases and financing activity for capital expenditures.
 
          Other income has increased by $11 or 12.9% from $85 in 2001 to $96 in 2002 primarily due to interest income.
 
Liquidity and Capital Resources
 
          Net cash used by operating activities during the period ended September 30, 2001 (“2002”) was $482 compared to $209 provided by operating activities during the period ended September 30, 2000 (“2001”). The negative cash flow from operating activities in 2002 was comprised of a decrease in accounts receivables of $250, an increase in deferred income taxes and income taxes payable of $19 and $17, respectively, $439 of non-cash depreciation and amortization and decrease in other receivables of $1. These amounts were more than offset by negative cash flow comprised of a net loss of $400, a decrease in accounts payable and accrued expenses of $649, $15 in minority interest, and an increase of $60 in prepaid expenses and other current assets and $84 in inventories.
 
          Net cash provided by investing activities during 2002 was $620 compared to $1,073 used by investing activities in 2001. The decrease in net cash provided by investing activities was a result of (1) capital expenditures of $209 which included enhancement of air conditioning for its HBI Test facilities in Southeast Asia coupled with investment in BIB Test equipment, (2) a decrease in cash deposits of $807, (3) a decrease in other assets of $21 and (4) proceeds from sale of property and equipment of $1.
 
          Net cash used in financing activities during 2002 was $179 compared to $358 provided by financing activities in 2001. The cash outflow from financing activities include $308 of payments on lines of credit, long term obligations and capitalized leases, which was offset by proceeds of $129 from additional borrowing under lines of credit and long term obligations.
 
          Cash and cash deposits have historically been the Company’s primary source of liquidity. The Company has a committed line of credit with a bank, aggregating $2,547 and lines of credit with various other banks, totaling $817, which were used to support short-term borrowing and commercial paper comprised of letters of credit, trust receipts, shipping and banker’s guarantees. These lines of credit and their anticipated cyclical increases are sufficient to finance buildups in inventories and other cash requirements.

 
          Cash deposits and corporate guarantees (the Company guarantees, but subsidiaries are the primary debtor) collateralize the first line of credit with a bank, aggregating $2,547, and contain certain debt covenants including maintaining a minimum net worth. The Company was in compliance with all debt covenants on September 30, 2001. There were no borrowings under these lines at September 30, 2001 and these lines of credit expire between December 2001 (expected to be renewed) and July 2002. Interest rates for these lines are from 6.97% and 9.5%.
 
          The Company has various other machinery term loans, capitalized lease obligations and notes payable used for financing equipment and leasehold improvements with various banks and lending institutions aggregating $2,529. The equipment and improvements financed collateralizes these loans. Interest rates range from 4.63% to 13.39%. These term loans expire between March 2002 and January 2008 (see Note 5 to the Condensed Consolidated Financial Statements).
 
          The Company has two credit agreements that provide for mortgage loans totaling $375. Borrowings under the mortgage loans amounted to $116 and $67 as of September 30, 2001. Interest is at the bank’s prime rate (4.72% and 4.61% at September 30, 2001) plus 3.52% on the first loan and 3.0% on the second loan. The loans will expire in July 2007 and May 2008, respectively.
 
          Approximately $2,756 of cash deposits are held in the Company’s 55% owned Malaysian subsidiary. $2,260 of this cash is denominated in the currency of Malaysia. Of the $2,260, $1,471 is currently available for movement, as the Central Bank of Malaysia has authorized $1,800 for movement and the Company has utilized $329 of this authorization. In addition, approximately $4,098 is available as a dividend (after making deductions for income tax) pursuant to Malaysian regulations in force from July 1, 2000. There is an additional amount of $1,132 that is used as collateral for the Singapore credit facility.
 
Material Changes in Financial Position
 
          None
 
Material Changes in Results of Operations
 
          Due to the global downturn in the economy, net sales for the Company decreased by 43.9% during the three months ended September 30, 2001 as compared to the corresponding period in the prior year. We also are uncertain if sales will increase in the ensuing quarters of fiscal year 2002. Therefore, we believe that the current fiscal year will have lower sales than fiscal year 2001.
 
ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
          Interest Rate Risk.    We do not use derivative financial instruments in our investment portfolio. Our investment portfolio is generally comprised of cash deposits. Our policy is to place these investments in instruments that meet high credit quality standards. These securities are subject to interest rate risk, and could decline in value if interest rates fluctuate. Due to the short duration and conservative nature of our investment portfolio, we do not expect any material loss with respect to our investment portfolio.
 
          Foreign Currency Exchange Rate Risk.    Although the majority of our sales, cost of manufacturing and marketing are transacted in U.S. dollars, significant portions of our revenues are denominated in Singapore, Malaysian and other currencies. Consequently, a portion of our costs, revenues and operating margins may be affected by fluctuations in exchange rates, primarily between the U.S. Dollar and such foreign currencies. We are also affected by fluctuations in exchange rates if there is a mismatch between our foreign currency denominated assets and liabilities. Foreign currency adjustments resulted in an increase of $129 to shareholders’ equity for the three months ended September 30, 2001, a decrease of $358 to shareholders’ equity for the three months ended September 30, 2000 and a decrease of $50 to shareholders’ equity for the three months ended September 30, 1999.

 
          From time to time, we try to partially mitigate the effects of currency fluctuations over the short term by the hedging of foreign currency exposure through U.S. Dollar borrowings and forward foreign exchange rate contracts, as well as purchasing non-Southeast Asian currency denominated short-term instruments. We also try to reduce our risks by purchasing certain equipment and supplies in U.S. Dollars and seeking payment, when possible, in U.S. Dollars. However, we may not be successful in our attempts to mitigate our exposure to exchange rate fluctuations. Those fluctuations could have a material adverse effect on the Company’s financial results.

 
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
 
          None
 
          (b)  Reports on Form 8-K
 
          The Registrant filed the following reports on Form 8-K with the Securities and Exchange Commission during the first quarter of fiscal 2002:
 
          None

 
SIGNATURES
 
          Pursuant to the requirements 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.
 
 
TR
IO-TECH INTERNATIONAL
 
 
 
/s/    VICTOR H.M. TING                    
 
By
:                                                                                                             
 
Vic
tor H.M. Ting
 
Vic
e President and Chief Financial Officer
 
Da
ted: November 9, 2001
 
 
/s/    A. CHARLES WILSON                                     
 
By
:                                                                                                             
 
A.
Charles Wilson
 
Ch
airman of the Board of Directors
 
Da
ted: November 9, 2001