TRIO-TECH INTERNATIONAL - Quarter Report: 2003 September (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the Quarterly Period Ended September 30, 2003

OR

Commission File Number 1-14523

TRIO-TECH INTERNATIONAL

Registrant’s Telephone Number: 818-787-7000

     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  þ  No  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes  o  No  þ

Number of shares of common stock outstanding as of November 3, 2003 is 2,927,542.

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TRIO-TECH INTERNATIONAL
INDEX TO CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE

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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AMOUNTS)

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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)

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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)

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               Business Segment Information:

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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES

The discussions of Trio-Tech International’s (the “Company”) business and activities set forth in this Form 10-Q and in other past and future reports and announcements by the Company may contain forward-looking statements within meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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 following factors, among others, 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 and volatility 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 profitably integrating acquired businesses, if any, into the Company; risks associated with conducting business internationally and especially in Southeast Asia, including currency fluctuations and devaluation, currency restrictions, local laws and restrictions, and possible social, political and economic instability; and other economic, financial and regulatory factors beyond the Company’s control. See the discussions elsewhere in this Form 10-Q for more information. In some cases, you can identify forward-looking statements by the use of terminology such as “may”, “will”, “expects”, “plans”, “anticipates”, “estimates”, “potential”, “believes”, “can impact”, “continue”, or the negative thereof or other comparable terminology.

We undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events.

Overview

Founded in 1958, Trio-Tech International provides third-party semiconductor testing and burn-in services primarily through its laboratories in Southeast Asia. At or from its facilities in California and Southeast Asia, the Company also designs, manufactures and markets equipment and systems used in the testing and production of semiconductors, and distributes semiconductor processing and testing equipment manufactured by others.

During the three months ended September 30, 2003, total assets decreased by $888 from $16,711 at June 30, 2003 to $15,823 at September 30, 2003. The majority of the decrease was in cash, investments in marketable securities and trade accounts receivable but offset with the increase in short-term deposits, net property, plant & equipment and prepaid expenses. The increase in net property, plant and equipment was due to acquisition of equipment and extension of building in the Thailand subsidiary. On the other hand, prepaid expenses increased as a result of prepayments on insurance. The decrease in cash was a result of payments on lines of credit, notes payable, capital lease obligations and accounts payable. The decrease in trade accounts receivable was due to the lower sales achieved in the three months ended September 30, 2003.

The accounts receivable turnover index (defined as net sales divided by average ending accounts receivable less bad debt allowance, multiplied by 4) totaled 4.56 times at September 30, 2003, compared with 5.45 times at June 30, 2003 and 5.41 times at September 30, 2002. The accounts receivable at September 30, 2003 decreased by $535 or 14.7%, compared to accounts receivable at June 30, 2003. Net sales for the three months ended September 30, 2003 were $2,065 or 34.9% lower than net sales for the three months ended September 30, 2002. The significant decrease in sales was the primary factor in the deterioration in the accounts receivable turnover index.

The inventory turnover index (defined as cost of sales divided by average ending inventory, multiplied by 4) was 11.12 times at September 30, 2003, down from 15.75 times at June 30, 2003, and down from 18.19 times at September 30, 2002. Inventories increased marginally by $7 when compared with June 30, 2003 and increased by $236 when compared with September 30, 2002. The increase in inventories when compared with the same period last year was attributable to an increase in raw materials of $180 and $117 in finished goods purchased at the end of this quarter in anticipation of large orders expected in the next quarter. However, this was offset with the decrease in work-in-progress of $23.

The investments in marketable securities decreased by $482 from $485 at June 30, 2003 to $3 at September 30, 2003. The cash proceeds from the disposal of marketable securities were invested in a short term deposit. As a result, the short term deposits increased by $283 from $4,308 at June 30, 2003 to $4,591 at September 30, 2003.

During fiscal 2003, the additions to property, plant and equipment totaled $545, including fixed assets under capital lease arrangements.

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Total liabilities at September 30, 2003 were $5,250, reflecting a decrease of $763 from $6,013 at June 30, 2003. The decrease was due mainly to payments on lines of credit, accounts payable, notes payable and capitalized lease obligations, but offset by an increase of $54 in accrued expenses. As of September 30, 2003, total liabilities were 62.4% of total capital, compared with 70% at June 30, 2003. The Company believes its strong credit rating provides ready and ample access to funds in the global capital market.

The following table sets forth our revenue components for the three months ended September 30, 2003 and 2002, respectively.

     Revenue Components (Unaudited)

Geographically, we operate in the U.S., Singapore, Malaysia, Thailand, and Ireland. Our customers are mainly concentrated in Southeast Asia and they are either semiconductor chip manufacturers or testing facilities that purchase our testing equipment.

Our cost of sales is made up of the cost of inventories, labor, depreciation, utilities (which is a major component of costs for testing services), and overhead relating to manufacturing, testing and distribution segments.

Our operating expenses can be classified into three general categories: selling expense, general and administrative expense, and research and development expense. Selling expenses include expenses such as sales commissions, payroll and payroll taxes for employees working in the selling department, advertising, utilities and other expenses directly related to selling activities. General and administrative expenses include management payroll, property taxes, rental expense, depreciation of fixed assets used by the management function, utilities, employee fringe benefits, office supplies, travel and entertainment, professional expense, outside services and other expenses related to management and administration processes. Research and development expenses include payroll and payroll tax, travel, and any other expenses that are directly related to research activities.

Critical Accounting Policies

In response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policy,” the Company identified the most critical accounting principles upon which its financial status depends. The Company determined that those critical accounting principles are related to the use of estimates, inventory valuation, revenue recognition, income tax and impairment of intangibles and other long-lived assets. The Company states these accounting policies in the relevant sections in this management’s discussion and analysis, including the Recently Issued Accounting Pronouncements discussed below.

Use of Estimates

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and judgments that significantly affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The Company regularly evaluates these estimates, including those related to inventory valuation, revenue recognition and income taxes. These estimates are based on historical experience and on assumptions that are believed by management to be reasonable under the circumstances. The most important estimates included in the financial statements are the allowance for doubtful accounts, provision for inventory obsolescence, the estimated useful life of long-lived assets, and valuation allowance for deferred tax assets. Actual results may differ materially from these estimates, which may impact the carrying values of assets and liabilities.

Inventory Valuation

We value our inventories at the lower of cost or market. We write down inventories for not saleable, excess, or obsolete raw materials, work-in-process and finished goods by charging such write-downs to cost of sales. In addition to write downs based on newly introduced parts, statistical and judgmental assessments are calculated for the remaining inventory based on salability and obsolescence.

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Revenue Recognition

The Company has three business segments: Manufacturing, Distribution, and Testing services.

In the Manufacturing Segment, the products manufactured are mainly back-end products that require installation work and certain minor training work in the field with the customer’s employees, depending on whether the machine or equipment is standardized or customized. The value of this type of arrangement varies depending on the quantity of equipment ordered by the customer and on the complexity of the equipment set. In general, the common practice is to recognize revenue upon shipment of the product, provided that both title and risk of loss have passed to the customer, collection is reasonably assured and the customer has accepted the shipment in terms of any customer acceptance provisions. In general, the sales contracts are written such that they may list separate installation (including training) and upgrades as a separate line item. Not all machinery and equipment manufactured requires installation work. In the case where installation is required we allocate a portion of the invoice value to the machine and the remaining portion to the value of the installation work to be performed, based on the relative fair value of the elements. The revenue allocated to installation and training is recognized upon completion of the installation and training services. The allocation of value between the machinery and the installation and training work is based on our specific historical experience of the relative fair values of the elements. Such allocation is a critical accounting estimate for our revenue recognition purposes.

In the Distribution Segment, the products distributed are front-end and back-end products that may require certain installation work. In general, the common practice is to recognize revenue upon shipment of the distributed product, provided that both title and risk of loss have passed to the customer, collection is reasonably assured and the customer has accepted the shipment in terms of any customer acceptance provisions. In those cases where installation is required, the installation work in the distribution segment is normally less than 40 hours of our technician labor. Similar to those in the manufacturing segment, our sales contracts are written so that they may list separate installation (including training) and upgrades as a separate line item. In addition, most front-end products (which account for approximately 62.3% and 73.3% of the total revenue in the Distribution Segment for the period ended September 30, 2003 and September 30, 2002, respectively) do not require installation work. In the case where installation is required, we allocate a portion of the invoice value to the distributed product and the remaining portion to the value of the installation work to be performed, based on the relative fair value of the elements. The revenue allocated to installation and training is recognized upon completion of the installation and training services. The allocation of value between the distributed products and the installation and training work is based on our specific historical experience of the relative fair values of the elements. Such allocation is a critical accounting estimate for our revenue recognition purposes.

The Company estimates an allowance for sales returns based on historical experience with product returns.

Regarding the Testing Segment, revenue is recognized when testing services have been rendered.

Income Tax

We account for income taxes in accordance with Statement of Financial Accounting Standards No 109, “Accounting for Income Taxes” (“SFAS No. 109”). SFAS No. 109 requires an entity to recognize deferred tax liabilities and assets. Deferred tax assets and liabilities are recognized for the future tax consequence attributable to the difference between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are measured using the enacted tax rate expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date.

Our foreign subsidiaries are subject to income taxes in the regions where they operate. Because of the different income tax jurisdictions, net losses generated in the U.S. cannot be utilized to offset the taxable income generated in foreign countries. Therefore, we may incur certain income tax expenses in any fiscal year.

For US income tax purposes, no provision has been made for US taxes on undistributed earnings of overseas subsidiaries with which the Company intends to continue to reinvest. It is not practicable to estimate the amount of additional tax that might be payable on the foreign earnings if they were remitted as dividends, were lent to the Company, or if the Company should sell its stock in the subsidiary. However, the Company believes that US foreign tax credits and net operating losses available would substantially eliminate any additional tax effects.

Impairment of Long-Lived Assets

Effective July 1, 2002, we adopted the provisions of Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). SFAS No. 144 requires that long-lived assets be reviewed for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets.

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Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

Comparison of Three Months Ended September 30, 2003 (“2004”) and September 30, 2002 (“2003”)

Sales

Net sales decreased by $2,065 or 34.9% from $5,915 in 2003 to $3,850 in 2004. This decrease was due mainly to the sudden reduction in demand for low-margin products in the Distribution Operation and equipment sales in the Manufacturing Operations. Additionally, in such poor market sentiment, equipment sales became very competitive. We anticipate that the recovery in the semiconductor industry will be slow as indicated by our quarterly backlog graph.

Net sales in the Manufacturing Segment decreased by $839 or 48.1% from $1,745 in 2003 to $906 in 2004. The decrease was attributable mainly to operations in the United States, which were affected by the conservative capital spending of customers. Decreased demand for Artic Controlled Chucks resulted in a decrease in sales of approximately $203, a 62.5% decrease in the number of such units sold combined with a 33.2% decrease in their average selling price as compared to 2003. Approximately $400 of the aggregate decrease related to the decrease in sales of Wet Process Stations, an 83.3% decrease in the number of such units sold combined with a 68.3% decrease in their average selling price as compared to 2003. Additionally, no burn-in systems were sold in Singapore during the quarter, compared to $325 of sales in 2003. However, this was offset with the increase in sales of $80 in Burn-in Boards, an 11.9% increase in the number of units sold combined with a 63.8% increase in the average selling price as compared to 2003.The types of products we manufacture cover a broad spectrum, resulting in a wide range of prices (the selling price of our products range from $5 to $200). Revenue in the Manufacturing Segment depends heavily on customers’ specific demands which correlate to their capital budgets.

Net sales in the Testing Services Segment decreased by $280 or 10.9% from $2,564 in 2003 to $2,284 in 2004. The decrease was attributable to lower activities in our Singapore operation where a decrease in demand for burn-in services resulted in a $356 reduction in sales, with the average selling price reduced by 16.3% as compared to 2003. However, this was offset by an increase in sales of $77 by the Thailand operation over 2003, with no material effect on the average selling price.

Net sales in the Distribution Segment decreased by $946 or 58.9% from $1,606 in 2003 to $660 in 2004. Of such decrease, $767 represented a reduction in demand for low margin products, with a 42.5% drop in quantity sold, and a 39.3% decrease in the average selling price with a price ranging from $0.1 to $1. The remaining $179 of such decrease was due to a reduction in demand for vibration and other products, with a 20% drop in quantity sold and a 58.8% decrease in the average selling price of such products (the price of the products ranges from $11 to $46). Revenue in the Distribution Segment depends heavily on customers’ specific demands, which correlate to their capital budgets.

Geographically, net sales into and within the United States decreased by $800 or 41.9% from $1,908 in fiscal 2003 to $1,108 in fiscal 2004, which was attributable primarily to diminished demand in the U.S. for front-end low margin products from the Distribution Segment in Singapore, and Wet Process Stations from one of the U.S. operations.

Net sales into and within Singapore decreased by $793 or 30.3% from $2,615 in 2003 to $1,822 in 2004. The decrease of $793 was mainly due to low demand for burn-in services and burn-in equipment.

Net sales into and within Malaysia decreased by $508 or 90.2% from $563 in 2003 to $55 in 2004. The decrease of $508 was mainly due to the low demand for burn-in services. For the same reason, net sales into and within Thailand decreased by $48 or 8% from $597 in 2003 to $549 in 2004. Revenue from a customer, who moved their production from Malaysia to its facility in Thailand, decreased in anticipation of their relocation from Malaysia to Thailand.

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Net sales into and within other foreign countries, including Europe, increased by $95 or 38.8% from $245 in 2003 to $340 in 2004, primarily due to an increase in demand for burn-in boards.

Cost of Sales

The Company’s cost of sales decreased by $1,246 or 29.9% from $4,171 in 2003 to $2,925 in 2004. Of the overall decrease of $1,246, the majority was related to a decrease in material costs of $1,183, which is consistent with the reduction in Distribution and Manufacturing sales. In addition, labor costs and overhead were reduced by $37 and $18, respectively. However, as a percentage of sales, the cost of sales increased 5.5% from 70.5% in 2003 to 76.0% in 2004. This increase in cost of sales, as a percentage of sales, was due primarily to an increase in utility rates and usage over the same period last year, with no material effect on the selling price.

Operating Expenses

Operating expenses decreased by $458 or 27.2% from $1,682 in 2003 to $1,224 in 2004. Of the $458 reduction in operating expense, the majority was due to (1) a diminished loss on disposal of fixed assets of $108, (2) a reduction of $310 in payroll and payroll related costs, (3) reduced commission and warranty of $19, and (4) a decrease in travel and insurance expense of $24. As a percentage of sales, operating expenses increased by 3.4% from 28.4% in 2003 to 31.8% in 2004, due to certain costs which remain fixed despite the significant decrease in sales.

General and Administrative

General and Administrative (“G&A”) expenses decreased by $300 or 23.4% from $1,283 in 2003 to $983 in 2004. As a percentage of sales, G&A increased 3.8% from 21.7% in 2003 to 25.5% in 2004 due to certain costs which remain fixed despite the significant decrease in sales. Of the decrease in expenses, (1) a reduction in bonus provisions of $136 in the Singapore Operations and Corporate headquarters was due to poorer performance in the first quarter of fiscal 2004, (2) salaries were reduced by $60 in the Southeast Asia operations and $56 in the U.S. operations as part of the implementation of cost cutting measures, (3) insurance, travel and entertainment were reduced by $32 due to continued implementation of cost-cutting measures, and (4) $16 was the result of a decrease in miscellaneous expenses.

Selling Expenses

Selling expenses decreased by $55 or 21.2% from $260 in 2003 to $205 in 2004. As a percentage of sales, selling expenses increased 0.9% from 4.4% in 2003 to 5.3% in 2004. Of the $55, (1) $13 was related to a decrease in commission expense as a result of a decrease in commission-related sales in the Distribution and Manufacturing segments, (2) $31 was due to a decrease in salaries, mainly in the Singapore operations, as a result of a reduction in headcount, and (3) $11 was due to a decrease in miscellaneous expenses as a result of cost-cutting measures implemented during fiscal 2004.

Research and Development

Research and Development expenses increased by $5 or 18.5% from $27 in 2003 to $32 in 2004. This increase was primarily due to the bonuses paid in 2004 to the research group in our profitable, U.S. operation based on their fiscal year 2003 performance, while no such bonuses were paid in 2003.

Loss on Disposal of Property, Plant and Equipment

The loss on disposal of property, plant and equipment decreased by $108 from $112 in 2003 to $4 in 2004 related to the disposal of the obsolete burn-in facilities in Southeast Asia in 2003, replaced with investments in new technology.

Income (Loss) from Operations

For segment reporting purposes, the loss from operations in our Manufacturing Segment increased by $151 from $130 in 2003 to $281 in 2004. This was due to eroding margins resulting from a significant decrease in sales and a decrease in demand for Wet Process Stations and burn-in systems by 86.4% of total decline in manufacturing sales from 2003. However, total expenses in this segment decreased by 28.8% from $1,887 in 2003 to $1,213 in 2004. In addition, the costs of sales and operating expenses comprised of fixed and semi-fixed elements, such as salaries, rental, and insurance, which remained unchanged despite the significant drop in sales.

Income from operations in our Testing Services Segment decreased by $205 or 71.4% from $287 in 2003 to $82 in 2004 mainly due to a decrease in burn-in services in our Singapore operation of $387 from $2,017 in 2003 to $1,630 in 2004 and an increase of $113 in material costs in utility rates and usage as compared to 2003.

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The loss in our Distribution operation increased $21 from $17 in 2003 to $38 in 2004. The majority of the decrease was due to a decrease in sales volume from the low-margin front-end products. Additionally, due to the competition in the market for chambers, vibration products and interface systems, customers took advantage of price reductions to obtain necessary equipment, which reduced our margins. The prices of products distributed by us range widely from $0.1 to $46.

Corporate operating loss decreased from a $78 loss in 2003 to a $62 loss in 2004. This is mainly due to a compensation cost of $14 charged in 2003 because of the grant of certain stock options having exercise prices at less than the then fair market value of the underlying Common Stock. No similar compensation cost was required to be charged in 2004 as all stock options granted in 2004 had exercise prices equal to the fair market value of the underlying Common Stock.

Interest Expense

Interest expense decreased $16 or 31.4% in 2004 due primarily to a repayment of $300 on the line of credit in the United States and payments of $719 on long-term debt and capitalized leases.

Other Income

Other income increased by $23 or 20% from $115 in 2003 to $138 in 2004. The increase of $23 was due to an increase in rental income of $18 and an increase in a net gain of $65 on disposal of marketable securities. However, these were offset with an increase in currency exchange loss of $45, a decrease of $13 in dividend and interest income, and a decrease in other miscellaneous income of $2.

Income Tax

Current income tax expense for 2004 was approximately $15, a decrease of $53, or 77.9% compared to the income tax expense of $68 for 2003, mainly due to lower profits generated from Southeast Asia. Because of the different income tax jurisdictions, the taxable income generated in foreign countries will not offset the net loss generated in the U.S. Therefore, we generally incur certain income tax expenses in any fiscal year.

Net Income (Loss)

As a result of all of the factors analyzed above, the net loss attributable to common shares for the quarter ended September 30, 2003 was approximately $265, which represented a reduction of $321 from a net income of approximately $56 attributable to common shares for the quarter ended September 30, 2002. Consequently, basic earning per share for the quarter ended September 30, 2003 decreased to a loss of $0.09 per share, from basic earnings per share of $0.02 in 2003, which represented a change of $0.11 from net income to net loss. Diluted loss per share for 2004 was $0.09 per share, representing a decrease of $0.11 per share from diluted income per share of $0.02 for 2003.

Liquidity and Capital Resources

We had working capital (defined as current assets minus current liabilities) of approximately $6,312 as of September 30, 2003, which represented a decrease of approximately $715 compared to working capital of $7,027 as of June 30, 2003, a 10.2% decrease. The current ratio (defined as current assets divided by current liabilities) was 2.59 times as of September 30, 2003 compared to 2.57 times as of June 30, 2003. The quick ratio (defined as current assets less inventory, divided by current liabilities) also decreased slightly to 2.32 times as of September 30, 2003 from 2.34 times as of June 30, 2003. We believe that the consistency of both the current and quick ratios at September 30, 2002 compared to those at September 30, 2003 indicate the strong liquidity position of the Company and its ability to meet its short term obligations. The Company had positive working capital for the nine fiscal years prior to the year ended June 30, 2003. We believe that the Company has the ability to maintain positive working capital and strong liquidity in the near future.

During the three month period ended September 30, 2003, total assets decreased by $888 from $16,711 at June 30, 2003 to $15,823 at September 30, 2003. Most of the decrease was in cash and accounts receivable as a result of payments on lines of credit, notes payable, capital lease obligations, and accounts payable. In addition, the bulk of the investments in marketable securities were disposed of to realize the gain from the market. The overall impact resulted in a reduction in working capital of $715.

The Company’s credit rating provides ready and ample access to funds in global capital markets. At September 30, 2003, the Company had available short-term lines of credit totaling $3,032 of which $2,887 was unused.

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Even though the Company suffered a net loss for the three months ended September 30, 2003, management of the Company still believes that the Company has the economic wherewithal to satisfy its cash needs for the next twelve months plus one day as a going concern business. Management’s belief is based, in part, on the following: (1) we have short term deposits of approximately $4,591 (of which approximately $3,382 is available immediately); (2) we had backlog of $5,602 as of September 30, 2003; (3) our accounts receivable turnover ratio is approximately 4.56 times per year (80 days of sales in accounts receivable) for the period ended September 30, 2003; (4) our financing facilities available as of September 30, 2003 were approximately $2,887 upon which we are able to draw at any time; and (5) our efforts in 2004 to further cut costs and expenses were effective. These cost cutting measures were implemented through a freeze in headcount; reducing and consolidating the plant capacity in order to reduce variable costs; and reducing insurance, travel and other miscellaneous expenses. We anticipate that the costs and expenses in fiscal 2004 will be lower than those in fiscal 2003 and, accordingly, cash disbursement needs should be lower also. However, we cannot provide any assurance that costs and expenses in fiscal 2004 or thereafter will not be higher than those in fiscal 2003.

Net cash provided by operating activities during the three months ended September 30, 2003 was $434, reflecting a decrease of $484 or 52.7%, compared to net cash of $918 provided by operating activities during the three months ended September 30, 2002. The decrease of $484 in cash provided by operating activities was primarily attributable to the increase in net loss of $321, offset by the decrease in accounts receivable of $957 as a result of the decrease in net sales, utilization of cash to pay down accounts payable of $565 and an increase in other receivables and inventory of $401 as a result of the slow down in the industry.

Net cash used in investing activities during the three months ended September 30, 2003 was $169 compared to $595 of net cash used in the three months ended September 30, 2002. The $426 decrease in cash used was mainly attributable to an increase in the proceeds from disposal of marketable securities of $257, a continued reduction in the capital expenditures of $500 and a lower investment in new marketable securities of $75, offset by the additional investment in short-term deposits of $425.

Net cash used in financing activities during the three months ended September 30, 2003 was $876, reflecting an increase of $238 compared to $638 used in financing activities during 2003. The cash outflow in financing activities included (1) $157 of net repayments on lines of credit, and (2) $719 from payments of long-term debts and capital lease obligations. During the three months ended September 30, 2002, the cash outflow in financing activities included $290 from payments on long-term debt and capitalized lease obligations, and $348 from net payments and borrowings on lines of credit.

Approximately $1,557 of cash deposits as of September 30, 2003 is held in the Company’s 55% owned Malaysian subsidiary. Of such amount, $1,291 is denominated in the currency of Malaysia, of which $165 is currently available for movement to overseas, as authorized by the Central Bank of Malaysia. There are additional amounts available for distribution as dividends (after making deductions for income tax) pursuant to Malaysian regulations.