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UNITED
STATES SECURITIES AND EXCHANGE COMMISSION





Washington, D.C. 20549





---




FORM 10-Q





|xQUARTERLY |  | REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|---------- |  | -----------------------------------------------------------------------------




For the Quarterly Period Ended December 31, 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 (State or other jurisdiction of incorporation or organization)

95-2086631 (I.R.S. Employer Identification Number)





14731 Califa Street, Van Nuys, California

91411(Address of principle executive offices)

(Zip Code)





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  x    No  ̈





Number of shares of common stock outstanding as of February 1, 2002 is 2,927,596





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TRIO-TECH INTERNATIONAL





INDEX TO CONSOLIDATED FINANCIAL INFORMATION,


OTHER INFORMATION AND SIGNATURE





PagePart I.

Financial InformationItem 1.

Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets as of Dec. 31, 2001 and June 30, 2001 (Unaudited)

3Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three and Six Months Ended Dec. 31, 2001 and Dec. 31, 2000 (Unaudited)

4Condensed Consolidated Statements of Cash Flows for the Six Months Ended Dec. 31, 2001 and Dec. 31, 2000 (Unaudited)

5Notes to Condensed Consolidated Financial Statements (Unaudited)

7Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

13Item 3.

Quantitative and Qualitative Disclosures about Market Risk

17Part II.

Other Information

18Item 1.

Legal Proceedings

18Item 2.

Changes in Securities and Use of Proceeds

18Item 3.

Defaults upon Senior Securities

18Item 4.

Submission of Matters to a Vote of Security Holders

18Item 5.

Other Information

18Item 6.

Exhibits and Reports on Form 8-K

18Signatures

19




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TRIOTECH INTERNATIONAL AND SUBSIDIARIES





ITEM 1.    CONSOLIDATED FINANCIAL STATEMENTS





CONDENSED CONSOLIDATED BALANCE SHEETS


(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AMOUNTS)





Dec. 31, 2001


June 30, 2001(a)ASSETSCURRENT ASSETS:Cash

$
1,387


$
1,149Cash deposits


6,472



7,693Trade accounts receivable, less allowance for doubtful accounts of $145 at Dec. 31, 2001 and $174 at June 30, 2001


3,875



4,432Other receivables


146



162Inventories


1,808



1,918Prepaid expenses and other current assets


225



147Total current assets


13,913



15,501PROPERTY, PLANT AND EQUIPMENT, Net


6,900



7,534OTHER ASSETS, Net


736



1,115TOTAL ASSETS

$
21,549


$
24,150LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Lines of credit

$
374


$
Accounts payable


2,018



2,646Accrued expenses


2,961



3,689Income taxes payable


111



168Current portion of long-term debt and capitalized leases


1,091



1,096Total current liabilities


6,555



7,599LONG-TERM DEBT AND CAPITALIZED LEASES, net of current portion


1,469



1,745DEFERRED INCOME TAXES


640



649MINORITY INTEREST


2,489



2,548COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITY:Common stock; no par value, authorized, 15,000,000 shares; issued and outstanding 2,927,596 shares at Dec. 31, 2001 and June 30,
2001, respectively


9,423



9,423Retained earnings


1,696



2,889Accumulated other comprehensive loss


(723
)


(703
)Total shareholders equity


10,396



11,609TOTAL LIABILITIES AND SHAREHOLDERS EQUITY

$
21,549


$
24,150


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|(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.




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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)





Six Months Ended


Three Months EndedDec. 31, 2001


Dec. 31, 2000


Dec. 31, 2001


Dec. 31, 2000NET SALES

$
9,948


$
21,193


$
4,812


$
12,035COST OF SALES


7,759



15,512



3,717



8,801GROSS PROFIT


2,189



5,681



1,095



3,234OPERATING EXPENSES:General and administrative


2,242



3,178



1,059



1,714Selling


598



1,339



314



633Research and development


166



105



119



56Impairment loss (Note 1)


542







542Total


3,548



4,622



2,034



2,403(LOSS) INCOME FROM OPERATIONS


(1,359
)


1,059



(939
)


831OTHER INCOME (EXPENSE)Interest expense


(104
)


(186
)


(53
)


(156
)Other income


285



312



188



227Total


181



126



135



71(LOSS) INCOME BEFORE INCOME TAXES AND MINORITY INTEREST


(1,178
)


1,185



(804
)


902INCOME TAXES


(68
)


(279
)


(26
)


(211
)(LOSS) INCOME BEFORE MINORITY INTEREST


(1,246
)


906



(830
)


691MINORITY INTEREST


53



(84
)


38



(53
)NET (LOSS) INCOME


(1,193
)


822



(792
)


638OTHER COMPREHENSIVE LOSS:Foreign currency translation adjustment


(20
)


(214
)


(149
)


(62
)COMPREHENSIVE (LOSS) INCOME

$
(1,213
)

$
608


$
(941
)

$
576(LOSS) EARNINGS PER SHARE:Basic

$
(0.41
)

$
0.29


$
(0.27
)

$
0.22Diluted

$
(0.41
)

$
0.28


$
(0.27
)

$
0.22WEIGHTED AVERAGE NUMBER OF COMMON AND POTENTIAL COMMON SHARES OUTSTANDINGBasic


2,928



2,859



2,928



2,874Diluted


2,928



2,957



2,928



2,879





See notes to condensed consolidated financial statements.




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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES





ITEM 1.    CONSOLIDATED FINANCIAL STATEMENTS





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED, IN THOUSANDS)





Six Months EndedDec. 31, 2001


Dec. 31, 2000CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income

$
(1,193
)

$
822Adjustments to reconcile net (loss) income tonet cash (used in) provided by operating activities:Depreciation and amortization


871



733Impairment loss


542



Loss on sale of property and equipment


3



Deferred income taxes


(9
)


(2
)Minority interest, net


(59
)


(15
)Changes in operating assets and liabilities:Accounts receivable, net


557



(1,847
)Other receivables


16



(144
)Inventories


110



35Prepaid expenses and other current assets


(78
)


26Accounts payable and accrued expenses


(1,356
)


1,190Income taxes payable


(57
)


488Net cash (used in) provided by operating activities


(653
)


1,286CASH FLOWS FROM INVESTING ACTIVITIES:Cash deposits


1,221



(477
)Capital expenditures


(22
)


(2,437
)Other assets


(103
)


(25
)Proceeds from sale of property and equipment


22



32Net cash provided by (used in) investing activities


1,118



(2,907
)CASH FLOWS FROM FINANCING ACTIVITIES:Payments on lines of credit


(174
)


(241
)Borrowings under lines of credit


550



72Principal payments of debt and capitalized leases


(579
)


(166
)Proceeds from long-term debt






1,768Issuance of common stock






328Net cash (used in) provided by financing activities


(203
)


1,761EFFECT OF EXCHANGE RATE CHANGES ON CASH


(24
)


(142
)NET INCREASE (DECREASE) IN CASH


238



(2
)CASH, BEGINNING OF PERIOD


1,149



1,956CASH, END OF PERIOD

$
1,387


$
1,954SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid during the period for:Interest

$
94


$
61Income taxes

$
125


$
38





Continued





See notes to condensed consolidated financial statements.







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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES





ITEM 1.    CONSOLIDATED FINANCIAL STATEMENTS





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)





NON-CASH INVESTING AND FINANCING ACTIVITIES





During the six months ended December 31, 2001, the Company financed acquisitions of equipment amounting to $36 and $278 under notes payable and capital
lease arrangements, respectively.





Concluded





See notes to condensed consolidated financial statements.




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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)





NOTE 1.    Basis of Presentation





The interim condensed consolidated financial statements as of Dec. 31, 2001 and for the three and six-months ended Dec. 31, 2001 and Dec. 31, 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 the fiscal year ended June 30, 2001.





The consolidated results of operations for the three and six-months
periods ended Dec. 31, 2001 are not necessarily indicative of the results expected for a full year.





Recently issued
Accounting PronouncementsIn July 2001, the Financial Standards Board 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, 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 comsummated 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.





SFAS No. 144, Impairment or Disposal of Long-Lived Assets, will become effective for the Company on July 1, 2002.
SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and provides guidance on implementation issues related to SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, and addresses the accounting for a segment of a business accounted for as a discontinued operation. The Company is currently assessing the impact of the adoption of this statement on its financial position
and results of operations.





Write-Down of Long-Lived Assets





The Company periodically assesses the impairment of long-lived assets, including identifiable intangibles in accordance with the provisions of SFAS No. 121, Accounting for the
Impairment of Long Lived Assets and for Long-Lived Assets to be Disposed Of. The Company also periodically assesses the impairment of enterprise level goodwill in accordance with the provisions of APB Opinion No. 17, Intangible
Assets. As part of its review of its second quarter financial results, the Company performed an impairment assessment of goodwill, other identifiable intangible assets and fixed assets in connection with all of its acquisitions. The impairment
assessment was performed to determine whether any impairment existed. The impairment indicators included, but were not limited to, the decline in the Companys stock price, the net book value of assets, and the overall decline in industry
growth rates which have negatively impacted the Companys revenues and forecasted revenue growth rates. Also, current economic indicators suggest that these lower growth rates may continue for an indefinite period. As a result, the Company
recorded a $542 impairment charge to reduce goodwill by $393, other intangible assets by $80 and fixed assets by $69 associated with all of the Companys acquisitions to reflect their current estimated fair market value. Fair market value was
determined based on the estimated fair value of the equipment and the remaining intangible assets. Prior to the impairment charge, the goodwill and intangible assets related to the acquisition of Universal Systems consisted of 14.4% of the
Companys total goodwill, intangible assets and fixed asset balance and the impairment of the goodwill, intangible assets and fixed assets related to the acquisition of Universal Systems consisted of 100% of the $542 impairment charge, which is
included as part of the manufacturing segment. The estimates and assumptions used under our assessment may change in the short term resulting in the need to further write-down other long-lived assets.





Although the Company has no present intention of discontinuing operations at Universal Systems, it is monitoring this situation closely and may in the
future determine to discontinue such operations. A decision by the Company to discontinue such operations could result in additional write-downs, the amount of which, while presently undeterminable, could be up to an additional $1,000.




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NOTE 2.    Inventories





The composition of inventories is as follows:





Dec. 31, 2001

June 30, 2001Raw materials

$
1,012

$
1,180Work in progress


240


311Finished goods


556


427$
1,808

$
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 three plans been determined based upon the fair value at the grant date for awards under the plans 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 reduced to the pro forma amounts indicated below:





Six Months EndedDec. 31, 2001


Dec. 31, 2000Net (Loss) Income:As Reported

$
(1,193
)

$
822Pro forma

$
(1,428
)

$
705Basic (Loss) Earnings per Share:As Reported

$
(0.41
)

$
0.29Pro forma

$
(0.49
)

$
0.25





The preceding calculation uses the Black Scholes option-pricing model with the
assumptions listed below:





Six Months EndedDec. 31, 2001


Dec. 31, 2000Volatility

63.11
%

60.55
%Risk free interest rate

4.38
%

4.98
%Expected life (years)

2.84


2.81




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NOTE 4.    Earnings per Share (EPS)





The following table is a reconciliation of the weighted average shares used in the computation of the basic and diluted EPS for the periods presented
herein:





Six Months Ended

Three Months EndedDec. 31, 2001


Dec. 31, 2000

Dec. 31, 2001


Dec.31, 2000Net (loss) income used to compute basic and diluted (loss) earnings per share

$
(1,193
)

$
822

$
(792
)

$
638Weighted average number of common shares outstandingbasic


2,928



2,859


2,928



2,874Dilutive effect of stock options and warrants






98






5Number of shares used to compute earnings per sharediluted


2,928



2,957


2,928



2,879





The following options and warrants were outstanding during and as of the six
months ended December 31, 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:





December 31, 2001Options and Warrants Outstanding

Options and Warrants ExercisableGrant Price
Range

Number Outstanding

Weighted Average Remaining Contractual Life

Weighted Average Exercise Price

Number Exercisable

Exercise Price$3.00$3.59

125,000

4.70

3.2064

35,000

3.2057$3.60$4.19

67,000

1.21

3.6806

67,000

3.6806$4.20$4.79

14,500

1.44

4.3400

14,500

4.3400$4.80$5.39

157,000

1.40

5.0523

157,000

5.0523$5.40$6.00

111,500

3.31

5.8823

55,750

5.8823$6.01$8.00

46,785

0.46

8.0000

46,785

8.0000521,785

2.84

4.5924

376,035

4.7095




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NOTE 5.    Long-term debt and capitalized leases





Long-term debt and capitalized leases consist of the following:





Dec. 31, 2001Machinery loans, due in various installments through 2003 bearing interest at 6.5%, collateralized by equipment

$
920Notes payable, due in various installments through 2005 bearing interest at prime plus 1.5% (Banks prime rate of 5.75% at Dec. 31, 2001), collateralized by equipment


546Capitalized lease obligations, due in various installments through 2008 bearing interest at rates ranging from 4.50 %to 13%, collateralized by leased assets


922Mortgage loan, due in monthly installments through 2008, bearing interest at prime plus 3% and 3.5% (Banks prime rate of 3.81% and 4.49% at Dec. 31, 2001), collateralized by building


1722,560Less current portion


1,091Long-term debt and capitalized leases

$
1,469





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.




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##### Table of Contents





Business Segment Information:





Six Months Ended


Three Months EndedDec. 31, 2001


Dec. 31, 2000


Dec. 31, 2001


Dec. 31, 2000NET SALESManufacturing

$
2,778


$
11,800


$
1,310


$
6,879Testing Services


4,503



5,822



2,214



3,220Distribution


2,667



3,571



1,288



1,936Corporate and unallocated














Total Company


9,948



21,193



4,812



12,035OPERATING INCOME (LOSS)Manufacturing


(1,651
)


411



(1,008
)


403Testing Services


385



510



159



451Distribution


(6
)


(17
)


(34
)


(3
)Corporate and unallocated


(87
)


155



(56
)


(20
)Total Company


(1,359
)


1,059



(939
)


831ASSETSManufacturing


5,242



8,309



5,242



8,309Testing Services


15,806



17,725



15,806



17,725Distribution


374



516



374



516Corporate and unallocated


127



192



127



192Total Company


21,549



26,742



21,549



26,742DEPRECIATION AND AMORTIZATIONManufacturing


213



229



118



120Testing Services


602



467



301



256Distribution


54



36



26



20Corporate and unallocated


2



1



1



Total Company


871



733



446



396CAPITAL EXPENDITURESManufacturing


105



60



79



4Testing Services


217



2,088



49



943Distribution


1



285



1



65Corporate and unallocated


13



4







Total Company

$
336


$
2,437


$
129


$
1,012







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Geographic Area Information:





Six Months Ended


Three Months EndedDec. 31, 2001


Dec. 31, 2000


Dec. 31, 2001


Dec. 31, 2000NET SALESUnited States

$
3,860


$
6,037


$
1,909


$
2,947Southeast Asia


5,158



11,487



2,540



7,135Europe


962



4,067



389



2,181Eliminations and Other


(32
)


(398
)


(26
)


(228
)Total Company


9,948



21,193



4,812



12,035OPERATING INCOME (LOSS)United States


(1,222
)


72



(803
)


105Southeast Asia


155



905



24



713Europe


(203
)


(73
)


(104
)


33Eliminations and Other


(89
)


155



(56
)


(20
)Total Company


(1,359
)


1,059



(939
)


831PROPERTY, PLANT AND EQUIPMENT, NetUnited States


733


$
884


$
733


$
884Southeast Asia


5,797



4,840



5,797



4,840Europe


410



405



410



405Eliminations and Other


(40
)






(40
)


Total Company

$
6,900


$
6,129


$
6,900


$
6,129




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##### Table of Contents

|ITEM |  | 2.    
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
|---- |  | ----------------------------------------------------------------------

RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER 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.





Overview





Trio-Tech designs, develops, manufactures and markets a broad range of equipment and systems used in the manufacture and testing of
semiconductor devices and electronic components. In addition, we operate test facilities in the United States, Europe and Southeast Asia that provide semiconductor-testing services to component manufacturers and users.





The Company operates in three industry segments: Manufacturing, Testing Services and Distribution.





We manufacture wet processing and cleaning stations used in the manufacture of semiconductor circuits and temperature controlled chucks that are used to manufacture and
test semiconductor wafers and other microelectronic substrates in what is commonly called the front-end, or creation of semiconductor circuits. Additionally, we also manufacture centrifuges, leak detectors, HAST (Highly Accelerated
Stress Test) systems and burn-in systems that are used primarily in the back-end of the semiconductor manufacturing process to test finished semiconductor devices and electronic components.





We currently operate five test facilities, one in the United States, one in Europe and three in Southeast Asia. These provide customers a comprehensive
range of testing services, such as burn-in and product life testing, for finished or packaged components. During 2000 and 2001, we closed two test facilities due to uncertainties in the Semiconductor industry.





Our business in Southeast Asia has an active distribution operation. This provides marketing and support to distribute our own manufactured equipment in
addition to distributing complimentary products from other manufacturers that are used by the Companys customers and other semiconductor and electronics manufacturers.





Recent events





Corporate Headquarters change of location





In January of 2002, the Company and its Trio-Tech Systems division moved to a new location. Our new address is 14731 Califa Street, Van Nuys, California
91411 and new telephone number is (818) 787-7000.





Write-Down of Long-Lived Assets





The Company periodically assesses the impairment of long-lived assets, including identifiable intangibles in accordance with the provisions of SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets to be Disposed Of. The Company also periodically assesses the impairment of enterprise level goodwill in accordance with the provisions of APB Opinion No.
17, Intangible Assets. As part of its review of its second quarter financial results, the Company performed an impairment assessment of goodwill, other identifiable intangible assets and fixed assets in connection




13




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##### Table of Contents

with all of its acquisitions. The impairment assessment was performed to determine whether any impairment existed. The impairment indicators included, but were not limited to, the decline in the
Companys stock price, the net book value of assets, and the overall decline in industry growth rates which have negatively impacted the Companys revenues and forecasted revenue growth rates. Also, current economic indicators suggest that
these lower growth rates may continue for an indefinite period. As a result, the Company recorded a $542 impairment charge to reduce goodwill by $393, other intangible assets by $80 and fixed assets by $69 associated with all of the Companys
acquisitions to reflect their current estimated fair market value. Fair market value was determined based on the estimated fair value of the equipment and the remaining intangible assets. Prior to the impairment charge, the goodwill and intangible
assets related to the acquisition of Universal Systems consisted of 14.4% of the Companys total goodwill, intangible assets and fixed asset balance and the impairment of the goodwill, intangible assets and fixed assets related to the
acquisition of Universal Systems consisted of 100% of the $542 impairment charge, which is included as part of the manufacturing segment. The estimates and assumptions used under our assessment may change in the short term resulting in the need to
further write-down other long-lived assets.





Although the Company has no present intention of discontinuing operations at
Universal Systems, it is monitoring this situation closely and may in the future determine to discontinue such operations. A decision by the Company to discontinue such operations could result in additional write-downs, the amount of which, while
presently undeterminable, could be up to an additional $1,000.





Results of Operations





Three Months Ended Dec. 31, 2001 (2002) Compared to the Three Months Ended Dec. 31, 2000 (2001)





Sales





Net sales decreased by $7,223 or 60% from
$12,035 in 2001 to $4,812 in 2002, due to the global turn down 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 into the United States decreased $1,038 or 35.2% from $2,947 in 2001 to $1,909 in 2002. The decrease was attributable to
decreases in burn-in board sales, Artic Temperature Controlled Chucks and wet process benches. Net sales into Southeast Asia decreased $4,595 or 64.4% from $7,135 in 2001 to $2,540 in 2002 due mainly to lower manufacturing, distribution and testing
volumes. Net sales into Europe decreased $1,792 or 82.2% from $2,181 in 2001 to $389 in 2002 due to a decline in demand for testing services, movement of several large customers to Southeast Asia and a decline in demand for Artic Temperature
Controlled Chucks and wet process benches.





The Manufacturing Segment sales, Company-wide, decreased $5,569 or 81% from $6,879
in 2001 to $1,310 in 2002 due to a decrease in demand for and a shift to conservative capital spending by OEMs 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 $1,006 or 31.2% from $3,220 in 2001 to $2,214 in 2002 due to the global down turn in the semiconductor industry and world economic conditions. The Distribution Segment, Company-wide, decreased $648 or 33.5%
from $1,936 in 2001 to $1,288 in 2002 due to a decrease in demand for and a shift to conservative capital spending for test equipment by many of our customers.





Cost of Sales





Cost of sales decreased $5,084 or 57.8% from $8,801 in 2001 to $3,717 in 2002. Despite reducing
headcount and hours worked per week, as a percentage of sales, it increased 4.1% from 73.1% in 2001 to 77.2% in 2002. The increase in cost of sales, as a percentage of sales was due in part to the fact that certain costs remain fixed. Such increase
was also due to the decline in sales and change in the sales and product mix, which varies depending on the mix of sector and geographic sales.





Operating Expenses





Operating expenses decreased by $369 or 15.4% from $2,403 in 2001 to $2,034 in 2002.
Operating expenses included the one-time impairment charge to reduce goodwill, intangible assets and fixed assets for the Companys past acquisitions to reflect their current estimated fair market value. The remaining portion of the decrease is
consistent with the level of sales as a percentage of sales operating expenses increased due to the fact that certain costs remain fixed despite the sudden drop in sales volume.





The Manufacturing Segment income from operations decreased from income of $403 in 2001 to a loss of $1,008 in 2002 due to eroding margins from the decrease in volumes of the Artic
Temperature Controlled Chucks, Semi-Automatic Wet Process Benches and the COBIS-II Burn-in Board Systems. The Manufacturing Segment included the one time impairment charge of $542 to reduce goodwill, intangible assets and fixed assets for the
Companys past acquisitions to reflect their current




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estimated fair market value. The Testing Services Segment income from operations decreased by $292 from $451 in 2001 to
$159 in 2002 due to the sudden drop in volume despite rapid implementation of cost saving measures. The Distribution Segment loss from operations increased by $31 from $3 in 2001 to $34 in 2002 due to a change in sales and product mix. Corporate
operating loss has increased by $36 from $20 in 2001 to $56 in 2002 due to the amount of overhead being charged on lower sales volume.





General and Administrative





General and Administrative (G&A) expenses decreased by $655 or 38.2%
from $1,714 in 2001 to $1,059 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 7.8% from 14.2% in 2001 to 22% in 2002.





Selling Expenses





Selling expenses decreased by $319 or 50.4% from $633 in 2001 to $314 in 2002 due to reductions in amounts paid for commissions. As a percentage of sales, selling expenses increased 1.2%
from 5.3% in 2001 to 6.5% in 2002.





Research and Development





Research and Development increased by $63 or 112.5% from $56 in 2001 to $119 in 2002. This increase is primarily due to the management reclassification of costs relating to Automated Wet
Benches offset with decreased payroll and payroll-related costs.





Interest Expense





Interest expense decreased in 2002 by $103 or 66%, from $156 in 2001 to $53 in 2002, due to reclassifications of other income in 2001 offset with increases in lines of credit,
capitalized leases and financing activity for capital expenditures.





Other Income





Other income has decreased by $39 or 17.2% from $227 in 2001 to $188 in 2002 due to a lower interest rate on fixed deposits, offset with the reversal of provision for a reduction in
marketable securities.





Six Months Ended Dec. 31, 2001 (2002) Compared to the Six Months Ended Dec. 31, 2000 (2001)





Sales





Net sales
decreased by $11,245 or 53.1% from $21,193 in 2001 to $9,948 in 2002, due to the global turn down 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 into the United States decreased $2,177 or 36.1% from $6,037 in 2001 to $3,860 in 2002.
The decrease was attributable to decreases in burn-in board sales, Artic Temperature Controlled Chucks and wet process benches. Net sales into Southeast Asia decreased $6,329 or 55.1% from $11,487 in 2001 to $5,158 in 2002 due mainly to lower
manufacturing, distribution and testing volumes. Net sales into Europe decreased $3,105 or 76.3% from $4,067 in 2001 to $962 in 2002 due to a decline in demand for testing services, movement of several large customers to Southeast Asia and a decline
in demand for Artic Temperature Controlled Chucks and wet process benches.





The
Manufacturing Segment sales, Company-wide, decreased $9,022 or 76.5% from $11,800 in 2001 to $2,778 in 2002 due to a decrease in demand for and a shift to conservative capital spending by OEMs 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 $1,319 or 22.7% from $5,822 in 2001 to $4,503 in 2002 due to the global down turn in the semiconductor industry and world economic
conditions. The Distribution Segment, Company-wide, decreased $904 or 25.3% from $3,571 in 2001 to $2,667 in 2002 due to a decrease in demand for and a shift to conservative capital spending for test equipment by many of our customers.





Cost of Sales





Cost of sales decreased
$7,753 or 50% from $15,512 in 2001 to $7,759 in 2002. Despite reducing headcount and hours worked per week, as a percentage of sales, it increased 4.8% from 73.2% in 2001 to 78% in 2002. The increase in cost of sales, as a




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percentage of sales was due in part to the fact that certain costs remain fixed. Such increase was also due to the decline in sales and change in the sales and product mix, which varies depending
on the mix of sector and geographic sales.





Operating Expenses





Operating expenses decreased by $1,074 or 23.2% from $4,622 in 2001 to $3,548 in 2002. Operating expenses included the one-time impairment charge of $542 to reduce goodwill, intangible
assets and fixed assets for the Companys past acquisitions to reflect their current estimated fair market value. The remaining portion of the decrease is consistent with the level of sales as a percentage of sales operating expenses increased
due to the fact that certain costs remain fixed despite the drop in sales volume.





The Manufacturing Segment income from
operations decreased from income of $411 in 2001 to a loss of $1,651 in 2002 due to eroding margins from the decrease in volumes of the Artic Temperature Controlled Chucks, Semi-Automatic Wet Process Benches and the COBIS-II Burn-in Board Systems.
The Manufacturing Segment included the one-time impairment charge of $542 to reduce goodwill, intangible assets and fixed assets for the Companys past acquisitions to reflect their current estimated fair market value. The Testing Services
Segment income from operations decreased by $125 from $510 in 2001 to $385 in 2002 due to the drop in volume despite rapid implementation of cost saving measures. The Distribution Segment loss from operations decreased by $11 from $17 in 2001 to $6
in 2002 due to a change in sales and product mix. Corporate operating loss has increased by $242 from operating income of $155 in 2001 to a operating loss of $87 in 2002 due to the amount of overhead being charged on lower sales volume.





General and Administrative





General and Administrative (G&A) expenses decreased by $936 or 29.5% from $3,178 in 2001 to $2,242 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 7.5% from 15% in 2001 to 22.5% in 2002.





Selling Expenses





Selling expenses decreased by $741 or
55.3% from $1,339 in 2001 to $598 in 2002 due to reductions in amounts paid for commissions. As a percentage of sales, selling expenses decreased .31% from 6.32% in 2001 to 6.01% in 2002.





Research and Development





Research and Development
increased by $61 or 58.1% from $105 in 2001 to $166 in 2002. This increase is primarily due to the management reclassification of costs relating to Automated Wet Benches offset with decreased payroll and payroll-related costs.





Interest Expense





Interest expense
decreased in 2002 by $82 or 44.1%, from $186 in 2001 to $104 in 2002, due to reclassifications of other income in 2001 offset with increases in lines of credit, capitalized leases and financing activity for capital expenditures.





Other Income





Other income has
decreased by $27 or 8.7% from $312 in 2001 to $285 in 2002 due to lower interest rate in fixed deposits offset with the reversal of provision for a reduction in marketable securities.





Liquidity and Capital Resources





Net cash used in operating activities during 2002 was
$653 compared to $1,286 provided by operating activities during 2001. The negative cash flow from operating activities in 2002 was comprised of a decrease in accounts receivables of $557, a loss on the sale of property and equipment of $3, non-cash
depreciation and amortization and impairment of long-lived assets of $871 and of $542, respectively. Inventories and other receivables decreased $110 and $16, respectively. These amounts were more than offset by negative cash flow comprised of a net
loss of $1,193, a decrease in accounts payable and accrued expenses of $1,356, a decrease in deferred income taxes and income taxes payable of $9 and $57, respectively, an increase of $59 in minority interest and $78 in prepaid expenses and other
current assets.





Net cash provided by investing activities during 2002 was $1,118 compared to $2,907 used in investing
activities in the 2001 year. The net cash provided by investing activities was a result of (1) capital expenditures of $22 which included enhancement of electrical







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facilities for the HBI Test facilities in Southeast Asia coupled with investment in BIB Test equipment, RVSI Laser
Scanners, Systemation Tape and Reel and further development of the Application Laboratory in Universal Systems (2002 the Company financed acquisitions of equipment amounting to $36 and $278 under notes payable and capital lease arrangements,
respectively.), (2) a decrease in cash deposits of $1,221, (3) an increase in other assets of $103 mainly relating to the Patent for the Artic Temperature Controlled Chuck and (4) proceeds from sale of property and equipment of $22.





Net cash used in financing activities during 2002 was $203 compared to $1,761 provided by financing activities in 2001. The cash outflow from
financing activities include $753 of payments on lines of credit, long term obligations and capitalized leases, which was offset by proceeds of $550 from additional borrowing under lines of credit.





Cash and cash deposits have historically been the Companys primary source of liquidity. The Company has committed lines of credit with the banks,
aggregating $7,342, inclusive of accounts receivables financing and lines of credit with various other banks, totaling $585, 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 $2,432, and
contain certain debt covenants including maintaining a minimum net worth. The Company was in compliance with all debt covenants on December 31, 2001. There were no borrowings under this line at December 31, 2001 and this line of credit expires July
2002. Interest rates for this line is from between 9.5%.





The line of $4,324, mainly for accounts receivable financing, contains
the debt covenant to maintain a minimum net worth, with which the Company was in compliance on December 31, 2001. The interest rate is at the banks prime rate (5.25% at December 31, 2001) plus 1%.





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 $2,388. The equipment and improvements financed collateralizes these loans. Interest rates range from 4.5% to 13%. 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 $364. Borrowings under the mortgage loans amounted to $109 and $63 as of December 31, 2001. Interest is at the banks prime rate (4.49% and 3.81% at December 31, 2001) plus 3.5% on the first loan and 3% on the second loan. The
loans will expire in July 2007 and May 2008, respectively (see Note 5 to the Condensed Consolidated Financial Statements).





Approximately $1,027 of cash deposits are held in the Companys 55% owned Malaysian subsidiary. $523 of this cash is denominated in the currency of Malaysia. Of the $523, $216 is currently available for movement as authorized by the
Central Bank of Malaysia. There are additional amounts available as dividends (after making deductions for income tax) pursuant to Malaysian regulations in force from July 1, 2000.





Material Changes in Financial Position





See heading Write-Down of Long-Lived Assets under
Recent Events for discussion of Material Changes in Financial Position.





Material Changes in Results of Operations





Due to the global downturn in the economy, net sales for the Company decreased by 60% during the three months ended December 31, 2001 as compared to the
corresponding period in the prior year.





Although the Company has no present intention of discontinuing operations at Universal
Systems, it is monitoring this situation closely and may in the future determine to discontinue such operations. A decision by the Company to discontinue such operations could result in additional write-downs, the amount of which, while presently
undeterminable, could be up to an additional $1,000.





ITEM 3.    
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




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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 a
decrease of $20 to shareholders equity for the six months ended December 31, 2001, a decrease of $214 to shareholders equity for the six months ended December 31, 2000 and an increase of $46 to shareholders equity for six months
ended December 31, 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.





TRIO-TECH INTERNATIONAL





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 second quarter of fiscal 2002:





None







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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.





TRIO-TECH INTERNATIONALBy:

/s/    VICTOR H.M. TINGVictor H.M. Ting Vice President and Chief Financial Officer Dated: February 8, 2002





By:

/s/    A. CHARLES WILSONA. Charles Wilson Chairman of the Board of
Directors Dated: February 8, 2002




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