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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE
ACT OF 1934
 For the fiscal year ended June 30, 2004 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE ACT OF 1934
 Commission File Number 1-14523 TRIO-TECH INTERNATIONAL  California
(State or other jurisdiction of
incorporation or organization)
    
    95-2086631
(I.R.S. Employer
Identification Number)
 14731 Califa Street
Van Nuys, California
(Address of principal executive offices)
    
    91411
(Zip Code)
 818-787-7000
 Securities registered pursuant to Section 12(b) of the Act: Title of each class
Common Stock, no par value
    
    Name of each exchange
On which registered
AMEX
 Securities registered pursuant to Section 12(g) of the Act:
None Indicate by check mark whether the registrant (1) has filed all reports
required to be filed 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrants knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K. þ Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes o No þ The aggregate market value of voting stock held by non-affiliates of
Registrant, as of December 26, 2003 was approximately $10.8 million (based upon
the last sales price for shares of Registrants Common Stock as reported by the
AMEX on December 26, 2003, the last business day of the Companys most recently
completed second fiscal quarter). Shares of Common Stock held by each officer,
director and holder of 5% or more of the outstanding Common Stock (including
shares with respect to which a holder has the right to acquire beneficial
ownership within 60 days) have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes. The number of shares of Common Stock outstanding as of September 10, 2004
was 2,964,542.




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TRIO-TECH INTERNATIONAL INDEX  
 PagePart IItem 1   Business
    
    
    3Item 2   Properties
    
    
    9Item 3   Legal Proceedings
    
    
    11Item 4   Submission of matters to a vote of security holders
    
    
    11Part IIItem 5   Market for registrants common equity, related stockholder matters and Issuer
Purchases of Equity Securities
    
    
    12Item 6   Selected financial data
    
    
    13Item 7   Managements discussion and analysis of financial condition and results of operations
    
    
    14Item 7A Quantitative and qualitative disclosures about market risk
    
    
    32Item 8   Financial statements and supplementary data
    
    
    33Item 9   Changes in and disagreements with accountants on accounting and financial disclosure
    
    
    33Item 9A Controls and Procedures
    
    
    34Item 9B Other Information
    
    
    34Part IIIItem 10   Directors and executive officers of the registrant
    
    
    34Item 11   Executive compensation
    
    
    34Item 12  Security ownership of certain beneficial owners and management and related stockholder matters
    
    
    34Item 13   Certain relationships and related transactions
    
    
    34Item 14   Principal Accountant Fees and Services
    
    
    34Part IVItem 15   Exhibits, financial statement schedules, and reports on Form 8-K
    
    
    34Signatures
    
    
    38Exhibits
    
    
    39Report of Independent Registered Public Accounting Firm
    
    
    42Consolidated Balance Sheets as of June 30, 2004 and 2003
    
    
    43Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years
Ended June 30, 2004, 2003 and 2002
    
    
    44Consolidated Statements of Shareholders Equity for the Years Ended June 30, 2004,
2003 and 2002
    
    
    45Consolidated Statements of Cash Flows for the Years Ended June 30, 2004, 2003 and
2002
    
    
    46Notes to Consolidated Financial Statements
    
    
    47Exhibit 10.27Exhibit 10.28Exhibit 10.29Exhibit 10.30Exhibit 10.31Exhibit 10.32Exhibit 10.33Exhibit 10.34Exhibit 31.1Exhibit 31.2Exhibit 32
  2




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TRIO-TECH INTERNATIONAL 
  NOTE CONCERNING FORWARD-LOOKING STATEMENTS The discussions of Trio-Tech Internationals (the Company) business and
activities set forth in this Form 10-K and in other past and future reports and
announcements by the Company may contain forward-looking statements within the
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-K, including under the heading
Certain Risks That May Affect Our Future Results, 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. 
 ITEM 1  BUSINESS Trio-Tech International was incorporated in 1958 under the laws of the State of
California. As used herein, the term Trio-Tech or Company or we or us
or Registrant includes Trio-Tech International and its subsidiaries unless
the context otherwise indicates. Our mailing address and executive offices are
located at 14731 Califa Street, Van Nuys, California 91411, and our telephone
number is (818) 787-7000. With more than 46 years dedicated to the semiconductor and related industries,
we have applied our expertise to our global customer base in test services,
design, engineering, manufacturing, and distribution. General Founded in 1958, Trio-Tech International provides third-party semiconductor
testing and burn-in services primarily through its laboratories in Southeast
Asia. The Company also designs, manufactures and markets equipment and systems
used in the testing and production of semiconductors at its facilities in
California and Southeast Asia, and distributes semiconductor processing and
testing equipment manufactured by others. The Company operates in three business segments: Testing Services,
Manufacturing and Distribution. We currently operate five testing facilities, one in the United States, one in
Europe and three in Southeast Asia. These facilities provide customers with a
full range of testing services, such as burn-in and product life testing for
finished or packaged components. In fiscal 2004, Ireland operation received
certification from one of its customers as an approved programming house. The
Ireland operation now focuses on providing programming services, and continues
to focus on service and tape and reel. Subsequent to the year end we acquired a
division in Malaysia which provides burn-in services for a large electronic
product manufacturer. We manufacture Artic Temperature Controlled Wafer Chucks, which are used for
test, characterization and failure analysis of 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. During the third quarter of fiscal 2004, the
manufacturing of Wet Process Stations by one of the operations in the United
States, Universal Systems of San Jose, CA, was moved to Singapore, and this
transition was completed by end of fiscal 2004. 3




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Our operation in Southeast Asia has an active distribution business.
Additionally, the Southeast Asia operation markets and supports distribution of
their own manufactured equipment in addition to distributing complementary
products from other manufacturers that are used by the Companys customers and
other semiconductor and electronics manufacturers. Trio-Tech Services Pte.
Ltd., a dormant wholly owned subsidiary of Trio-Tech International Pte. Ltd.,
was renamed to Universal (Far East) Pte. Ltd. Subsequent to the fiscal year
end, one of the operations in Trio-Tech International Pte. Ltd., the Singapore
Distribution operation, transferred its assets to Universal (Far East) Pte.
Ltd. for the purpose of expanding this operation through this entity. On July 1, 2004, subsequent to fiscal year end, Trio-Tech Malaysia completed
its acquisition of a burn-in testing division for an aggregate cash purchase
price of 3,500,000 Ringgit Malaysia, representing approximately $921,053 on
March 29, 2004 based on the spot exchange rate published in Federal Reserve as
of that date and acquired additional related assets for a purchase price of
1,126,995 Ringgit Malaysia (or approximately $296,578 based on the spot
exchange rate published in Federal Reserve as of July 1, 2004). This division
was previously owned by a competitor. Company History 1958
    
    Incorporated in California1976
    
    The Company formed Trio-Tech International Pte. Ltd. in Singapore.1984
    
    The Company formed the European Electronic Test Center (EETC), a Cayman Islands domiciled subsidiary,
to operate a test facility in Dublin, Ireland.1985
    
    The Companys Singapore subsidiary entered into a joint-venture agreement, Trio-Tech Malaysia, to
operate a test facility in Penang.1986
    
    Trio-Tech International listed on the NASDAQ Small Cap market under the symbol TRTC.1988
    
    The Company acquired the Rotating Test Equipment Product Line of Genisco Technology Corporation.1990
    
    Trio-Tech International acquired Express Test Corporation in California.
Trio-Tech Malaysia opened a new facility in Kuala Lumpur.1992
    
    Trio-Tech Singapore opened Trio-Tech Bangkok, Thailand.
Trio-Tech Singapore achieved ISO 9002 certification.1994
    
    Trio-Tech Malaysia started a new components assembly operation in Batang Kali.1995
    
    Trio-Tech Singapore achieved ISO 9001 certification.1997
    
    In November 1997, the Company acquired KTS Incorporated, dba Universal Systems of Campbell, California.1998
    
    In September 1998, the Company listed on AMEX under the symbol TRT.2000
    
    Trio-Tech Singapore achieved QS 9000 certification.
Trio-Tech Malaysia closed its facility in Batang Kali.2001
    
    The Company divested the Rotating Test Equipment Product Line.
Trio-Tech Malaysia closed its facility in Kuala Lumpur.2003
    
    Trio-Tech Singapore opened a sales office in China known as Trio-Tech (Suzhou) Co. Ltd.
Trio-Tech Malaysia scaled down its facility in Penang.2004
    
    The Company moved its Wet Process Station manufacturing from Campbell, California to Singapore.
Trio-Tech Test Services Pte. Ltd. was renamed Universal (Far East) Pte. Ltd.
Trio-Tech Malaysia acquired a burn-in testing division in Malaysia.
 4




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Background The semiconductor industry entered calendar 2004 in the midst of an up cycle,
after experiencing the worst downturn ever seen in 2001 and flat sales in 2002.
The worldwide market for the semiconductor industry was estimated at $166.4
billion in 2003, with a forecast growth of 19.4% to $194.6 billion in 2004 and
5.8% to $206.0 billion in 2005. According to the Semiconductor Industry
Association (SIA), the industry growth is being driven by strong demand for
microchips for a broad range of applications, including personal computers,
cellular telephones, consumer electronics, wired and wireless
telecommunications infrastructure, and automotive. Semiconductor Equipment and
Materials International (SEMI) reported recently that semiconductor capital
equipment totaled $18.7 billion, or 86% higher than the first half of 2003.
SEMI has observed strong double-digit billings growth is observed in all
regions with the exception of North America. SEMI projected that Taiwan and
China will be the two regions experiencing the strongest year over year growth.
SEMI announced that the industry is anticipated to sell $36.2 billion of new
chip manufacturing, testing and assembly equipment in 2004. Its forecast
indicates that the equipment market will grow 24% in 2005 and the cyclic market
growth will contract slightly in 2006 before resuming low double digit growth
in 2007. Back-End Trio-Techs test services are concentrated on the back-end screening and
testing of semiconductor devices. With the high concentration of semiconductor
assembly and packaging facilities in Southeast Asia, a large demand exists for
third party test services in this region. Customers use third party test
services to accommodate fluctuations in output or to benefit from economies
that can be offered by third party service providers. Finished devices are put through a series of tests, such as burn-in and
electrical testing, to ensure that they meet the necessary performance and
quality standards, before shipment to the customer. Our component
centrifuges, leak detectors, HAST equipment and COBIS burn-in systems are all
used to test and screen finished semiconductor devices to ensure that they meet
the specifications required by the manufacturers and customers. Front-End Semiconductor devices are fundamental building blocks used in electronic
equipment and systems. Each semiconductor device consists of an integrated
circuit designed to perform a specific electronic function. Integrated circuits
are manufactured through a series of complex steps on a wafer substrate,
etching or depositing the circuit pattern on a surface, typically a circular
silicon wafer, measuring three to twelve inches in diameter. Multiple
integrated circuit patterns are transferred to the wafer, and each completed
integrated circuit is called a device or die. The number of devices or dies
depends on the size of the circuit and the size of the wafer. Manufacturers
can significantly increase the number of devices or dies per wafer by shrinking
the circuit size or by expanding the wafer size. The transition to increased
wafer size, from 200mm (8 inch) to 300mm (12 inch) wafers, is currently
underway throughout the industry. After etching or deposition of integrated circuits, wafers are typically sent
through a series of 100 to 300 additional processing steps. At many of these
process steps, the wafer is washed and dried using Wet Process Stations, which
we manufacture. The finished wafer is then put through a series of tests in which each separate
integrated device on the wafer is tested for functionality. Our Artic
Temperature Controlled Chucks are used with a wafer prober to test
semiconductor wafers at accurately controlled temperatures. After testing, the
wafer is diced or cut up, and each die is then placed into a packaging
material, usually plastic or ceramic, with lead wires to permit mounting onto
printed circuit boards. Testing Services We own and operate facilities that provide testing services for semiconductor
devices and other electronic components to meet the requirements of military,
aerospace, industrial and commercial applications. Testing services
represented approximately 47%, 45% and 46% of sales for the fiscal years ended
June 30, 2004, 2003 and 2002, respectively. The Company uses its own proprietary equipment for certain burn-in, centrifugal
and leak tests, and commercially available equipment for various other
environmental tests. The Company conducts the majority of its testing
operations in Southeast Asia with facilities in Singapore, Malaysia and
Thailand. All of the facilities in Southeast Asia are ISO 9002 as well as QS
9000 certified. The Company also operates test facilities in Ireland. We are
also in the process to obtain certification under TS16949 for all the Southeast
Asia facilities. The testing services are used by manufacturers and purchasers of semiconductors
and other components who either lack testing capabilities or whose in-house
screening facilities are insufficient for testing devices to military or
certain commercial 5




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specifications. For those customers with adequate in-house capabilities, we
offer testing services for their overflow requirements and also provide
independent testing verification services. Trio-Techs laboratories perform a variety of tests, including stabilization
bake, thermal shock, temperature cycling, mechanical shock, constant
acceleration, gross and fine leak tests, electrical testing, static and dynamic
burn-in tests, and vibration testing. The laboratories also perform
qualification testing, consisting of intense tests conducted on small samples
of output from manufacturers who require qualification of their processes and
devices. Manufacturing Products The Company designs, develops, manufactures and markets equipment for the
manufacturing and testing of semiconductor wafers, devices and other electronic
components. Revenue from the sale of products manufactured by the Company
represented approximately 37%, 22% and 26% of sales for the fiscal years ended
June 30, 2004, 2003 and 2002, respectively. Front-End Products Wet Process Stations Wet Process Stations are used for cleaning, rinsing and drying semiconductor
wafers, magnetic disks, flat panel displays and other microelectronic
substrates. This product line includes manual, semi-automated and automated wet
process stations, and features radial and linear robots, state-of-the-art PC
touch-screen controllers and sophisticated scheduling and control software. The
Wet Process Station was manufactured by the Companys subsidiary, Universal
Systems, through the first nine months of fiscal 2004. Thereafter, the Company
moved its Wet Process Station manufacturing, along with all its equipment, from
Universal Systems to Trio-Tech International Pte. Ltd. in Singapore. Artic Temperature Controlled Wafer Chucks The Artic Temperature Controlled Chucks are used for test, characterization and
failure analysis of semiconductor wafers and other components at accurately
controlled hot and cold temperatures. Several models are available with
temperature ranges from -65°C to +400°C and in diameters from 4 to 12 inch.
These systems provide excellent performance to meet the most demanding customer
applications. Several unique mechanical design features, for which patents are
pending, provide excellent mechanical stability under high probing forces and
across the temperature ranges. Back-End Products Autoclaves and HAST (Highly Accelerated Stress Test) Equipment We manufacture a range of autoclaves and HAST systems and specialized test
fixtures. Autoclaves provide pressurized, saturated vapor (100% relative
humidity) test environments for fast and easy monitoring of integrated circuit
manufacturing processes. HAST equipment, which provides a pressurized high
temperature environment with variable humidity, is used to determine the
moisture resistance of plastic encapsulated devices. HAST provides a fast and
cost-effective alternative to conventional non-pressurized temperature and
humidity testing. Burn-in Equipment and Boards We manufacture burn-in systems, burn-in boards and burn-in board test systems.
Burn-in equipment is used to subject semiconductor devices to elevated
temperatures while testing them electrically to identify early product failures
and to assure long-term reliability. Burn-in testing approximates, in a
compressed time frame, the electrical and thermal conditions to which the
device would be subjected during its normal life. The Company manufactures the COBIS II burn-in system which offers
state-of-the-art dynamic burn-in capabilities and a Windows-based operating
system with full data logging and networking features. The Company developed,
and now offers, a new Power Line Conditioner for the COBIS II, which decreases
the type and frequency of electrical interruptions. The Company also offers
burn-in boards for its BISIC, COBIS and COBIS II burn-in systems and other
brands of burn-in systems. Burn-in boards are used to mount devices during
high temperature environmental stressing. The Burn-in Board Tester is an
extremely accurate software programmable burn-in board tester, which can be
programmed to check up to 1024 sockets pins. In 2000 through 2002, the Company developed several new products to complement
the burn-in processes, including semi-automatic (LUBIBM) and automatic burn-in
board loaders & unloaders (LUBIB). These products were designed to perform
precise, high-speed transfer of IC packages from the semiconductor holding tray
to the burn-in board, or vice-versa, while maintaining the integrity of the
ICs leads. Additional features have been further integrated into the LUBIB to
improve 6




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productivity and minimize human handling including the integration of automatic
burn-in board handling systems and the automatic electrical board check
station. We have improved the LUBIBM with built-in test functions for a major
microprocessor company to study device characteristics and to weed out device
failures. Burn-in-board cleaning systems (CUBIB) are designed to perform wet or
dry cleaning for burn-in boards and other modular boards. Recently, we jointly
developed a fully automatic CUBIB with one of our major customers. We also
recently developed and introduced a new innovation, the burn-in Socket Contact
Conditioner (SCC), which removes fragments of solder residue from the contact
pins of an IC Socket, improving the productivity of the test process and
reducing contact failure on socket pins. In 2002 through 2003, the Company was the major supplier to build Smart Burn-In
(SBI) electrical equipment to test microprocessors for one customer. This
equipment is regarded as a high-end method of testing microprocessor devices.
While providing integrated burn-in solutions, our sales team presented the
total burn-in automation solutions (in the BITS conference in Phoenix, Arizona
in March 2003) to improve products yield, reduce process downtime and improve
efficiency. In addition, the Company developed a cooling solution for high
power heat dissipation semiconductor devices. This solution involves the
cooling or maintaining of the temperature of high power semiconductor devices. In 2003 through 2004, the Company was the major supplier to build System Level
Test (SLT) equipment to test the microprocessors of one customer. This
equipment is used at the final stage of testing these microprocessor devices. Component Centrifuges and Leak Detection Equipment Component centrifuges and leak detection equipment are used to test the
mechanical integrity of ceramic and other hermetically sealed semiconductor
devices and electronic parts for high reliability and aerospace applications.
The companys centrifuges spin these devices and parts at specific acceleration
rates, creating gravitational forces (gs) up to 30,000gs, thereby indicating
any mechanical weakness in the devices. Leak detection equipment is designed to
detect leaks in hermetic packaging. The first stage of the test includes
pressurizing the devices in a tracer gas for fine leaks or fluid for gross
leaks. The bubble tester is used for gross leak detection. A visual bubble
trail will indicate when a device is defective. Distribution Activities The Companys Singapore subsidiary continues to develop its international
distribution division. The distribution operation markets, sells and supports
our products in Southeast Asia. In addition to our own products, this
operation also distributes complementary products from other manufacturers
based in the United States, Europe, Japan and other countries. These products
are widely used by high quality and volume production manufacturers in the
semiconductor and electronic industries. The products include environmental
chambers, shaker systems, handlers, interface systems, vibration systems,
solderability testers and other manufacturing products. Subsequent to the fiscal year end, one of the operations in Trio-Tech
International Pte. Ltd., the Singapore Distribution operation, transferred its
assets to its subsidiary Universal (Far East) Pte. Ltd., for the purpose of
expanding this operation through this entity. Revenue from distribution activities represented approximately 16%, 33% and 29%
of sales for the years ended June 30, 2004, 2003 and 2002, respectively. Product Research and Development We continue to invest in research and development to improve our products and
services. The Company incurred research and development costs of $117,000 in
fiscal 2004, $121,000 in fiscal 2003 and $331,000 in fiscal 2002. We will continue to develop new testing technology that allows us to offer more
advanced processes. During 2000 through 2002, the Company developed new
equipment and facilities to participate in a new generation of burn-in
technology known as HBI and SBI. This technology was developed to meet the
unique test requirements of the latest microprocessor products. The HBI and SBI
test systems are multiple positions, independently programmable systems that
can economically run long test times at unique burn-in conditions. We
developed significant facilities, including a power sub-station and improved
environmental controls, to house the HBI and SBI technology. While the semiconductor industry in the United States continues to adjust to
implementing the 12 inch wafer, the test equipment market for chucks continued
to remain slow for the remaining 4, 6 and 8 inch wafer markets. With this
coming trend, we anticipate that our U.S operation will shift their focus from
research and development on Front End products to concentrate on the
refurbished equipment market, which is anticipated to be strong in the
recovering semiconductor market. 7




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Marketing, Distribution and Services The Company markets its products and services worldwide, directly and through
independent sales representatives. We have approximately 11 independent sales
representatives operating in the United States and another 13 in various
foreign countries. Of the 24 sales representatives, 3 represent the
Distribution Segment and the others represent the Manufacturing and Testing
Segment. Trio-Techs United States marketing efforts are coordinated from its
California location. Southeast Asia marketing efforts are assigned to its
subsidiary in Singapore. The Company advertises its products in trade journals
and participates in trade shows. Independent testing laboratories, users, assemblers and manufacturers of
semiconductor devices, including many, large well-known corporations, purchase
the Companys products and services. These customers depend on the current and
anticipated market demand for integrated circuits and products utilizing
semiconductor devices. In fiscal 2004, 2003, and 2002, sales of equipment and
services to our two largest customers (Catalyst Semiconductor and Advanced
Micro Devices) accounted for approximately 51.8%, 49.3%, and 55%, respectively,
of our net revenues. Our ability to maintain close, satisfactory relationships
with our customers is essential to our stability and growth. The loss of or
reduction or delay in orders from our significant customers, or delays in
collecting accounts receivable from our significant customers, could adversely
affect our financial condition and results of operations. During the fiscal
year ended June 30, 2004, the Company had sales of $2,853,000 (15%) and
$7,074,000 (37%) to Catalyst Semiconductor and AMD, respectively. Backlog The following table sets forth the Companys backlog at the dates indicated
(amounts in thousands): June 30,
    
    June 30,2004
    
    2003Manufacturing backlog
    
    $
    3,440
    
    
    $
    582Testing service backlog
    
    
    4,058
    
    
    
    5,138Distribution backlog
    
    
    852
    
    
    
    206$
    8,350
    
    
    $
    5,926
 Based upon past experience, the Company does not anticipate any significant
cancellations or renegotiation of sales, and if there is any cancellation of
confirmed purchase order, the customer will need to reimburse the Company on
all costs that were incurred. The purchase orders for manufacturing, testing
and distribution require delivery within the next 12 months. The Company does
not anticipate any difficulties in meeting delivery schedules. Manufacturing and Supply The Companys products are designed by its engineers and are assembled and
tested at its facilities in California, Singapore and Ireland. We purchase all
parts, and certain components, from outside sources for assembly by the
Company. We have no written contracts with any of our key suppliers. As these
parts and components are available from a variety of sources, the Company
believes that the loss of any one of our suppliers would not have a material
adverse effect on its business taken as a whole. Competition There are numerous competing testing laboratories in Southeast Asia that
perform a range of testing services similar to those offered by the Company.
However, recent severe competition and attrition in the Asian test and burn-in
services industry has reduced the total number of the Companys competitors to
approximately three. Product performance and reliability in the Testing
Segment, although fundamentally equivalent, are provided by using our own
proprietary equipment for certain burn-in, centrifugal and leak tests. As the
Company has sold and will continue to sell its products to competing
laboratories, and as other test products are available from many other
manufacturers, the Companys competitors can offer the same testing
capabilities. Testing equipment is also available to semiconductor
manufacturers and users who might otherwise use outside testing laboratories,
including the Company, to perform environmental testing. The existence of
competing laboratories and the availability of testing equipment to
semiconductor manufacturers and users pose competitive threats to the Companys
future testing services revenues and earnings. Although the aforementioned
laboratories and new competitors may challenge the 8




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Company at any time, the Company believes that other factors, including its
reputation, long service history and strong customer relationships, are
important factors in determining the Companys position in the market. The Southeast Asia Distribution Segment sells a range of more than 27 different
testing products, of which 3% are front-end products, the sales volumes of
which are highly dependent on customer capital expenditure plans. The market
for this segment is very competitive as a few competitors are already
established. Through 46 years dedicated to the semiconductor and related
industries, we have formed lasting relationships with key suppliers in our
Distribution Segment which allows us to competitively price our distributed
products. The semiconductor equipment manufacturing industry is highly competitive.
There are approximately three competitors in our Manufacturing Segment for
Burn-in Boards and Burn-in Ovens and at least twelve competitors for Wet
Process Stations in Asia. In the United States, we have one competitor for
HAST Systems, one for Artic Thermal Chucks, and one for Gross Leak Test
Equipment. There can be no assurance that competition will not increase or that
the Companys technological advantages may not be reduced or lost as a result
of technological advances by competitors or changes in semiconductor processing
technology. We continue to invest in research and development to improve our
products and services. We believe that the principal competitive factors in the manufacturing industry
include product performance, reliability, service and technical support,
product improvements, price, established relationships with customers and
product familiarity. The Company makes every effort to compete favorably with
respect to each of these factors. For example, we believe that the products
manufactured by the Company meet or exceed customer applications through unique
design features, which applications demand systems that work year after year in
a production setting. Our manufactured systems have a track record of
reliability. The Company has been in business for more than 46 years and has
facilities in several regions of the world. The Company believes those factors
have combined not only to help establish long-term relationships with customers
but also to allow it to continue to do business with customers upon their
relocation to other regions in which the Company conducts business. The
Company believes that its pricing of manufactured and distributed systems is
competitive in the market. Our competitive position in the markets we are
serving is not readily determinable, because there is no information publicly
available regarding our competitors who are privately held companies. Patents Trio-Techs Manufacturing Segment holds a United States Patent granted in 1987
in relation to its pressurization humidity testing equipment. The Company also
holds a United States Patent granted in 1994 on certain aspects of its Artic
temperature test systems. In 2000, the Company filed, and was granted in 2001,
a new United States patent (20 years) for several aspects of its new range of
Artic Temperature Controlled Chucks. Although the Company believes these
patents are an integral part of our Manufacturing Segment, the capitalized cost
of the patents was written off in fiscal 2002 because of the impairment
assessed by our management. This assessment was based on an examination of the
estimated undiscounted future cash flows which were generated by the
subsidiaries where certain long-lived assets (goodwill and certain fixed
assets) are used. In fiscal 2002, 2003 and 2004, the Company did not register any patent within
U.S. It is typical in the semiconductor industry to receive notices from time to
time alleging infringement of patents or other intellectual property rights of
others. The Company does not believe that it infringes on the intellectual
property rights of others. However, should any claims therefor be brought
against the Company, the cost of litigating such claims, and any damages that
may result therefrom, could materially and adversely affect our business,
financial condition or results of operations. Employees As of June 30, 2004 the Company had approximately 14 employees in the United
States, 347 in Southeast Asia and 10 in Ireland for a total of approximately
371 employees. None of the Companys employees are represented by a labor
union. As of June 30, 2004, there were approximately 274 employees in the
testing segment, 77 employees in the manufacturing segment, 18 in the
distribution segment and 2 in Corporate. 
 ITEM 2  PROPERTIES At this time, the Company believes that it uses about 62.8% of its fixed
property capacity. The Company also believes that its existing facilities are
under-utilized and are adequate and suitable to cover any sudden increase in
the Companys needs in the foreseeable future. The following table sets forth information as to the location and general
character of the principal manufacturing and testing facilities of the
Registrant: 9




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##### Table of Contents



Owned (O)Approx.
    
    or Leased (L)Sq. Ft.
    
    ExpirationLocation
    
    Principal Use/Segment
    
    Occupied
    
    Date14731 Califa Street
    
    Headquarters/
    
    
    10,000
    
    
    (L) Jan. 2005 *1Van Nuys, CA 9l411
    
    Testing/ManufacturingAbbey Road
    
    Testing
    
    
    18,400
    
    
    (O)Deansgrange Co.Dublin, Ireland1004, Toa Payoh North, SingaporeHEX 07-01/07,
    
    Testing
    
    
    6,864
    
    
    (L) Sept. 2006HEX 03-01/03,
    
    Testing/Manufacturing
    
    
    2,959
    
    
    (L) Sept. 2006HEX 03-16,
    
    Testing
    
    
    976
    
    
    (L) Sept. 2006HEX 01-08/15
    
    Testing/Manufacturing
    
    
    6,864
    
    
    (L) Jan. 2006HEX 01-16/17
    
    Testing
    
    
    1,983
    
    
    (L) Jan. 2006HEX 02-08/10,
    
    Testing
    
    
    2,959
    
    
    (L) Aug. 2005HEX 02-11/15
    
    Testing
    
    
    3,905
    
    
    (L) Apr. 2005 *1HEX 04-17
    
    Testing
    
    
    1,006
    
    
    (L) May. 2007HEX 04-14/16
    
    Testing
    
    
    2,929
    
    
    (L) May. 2007HEX 03-08/10
    
    Testing
    
    
    2,959
    
    
    (L) May. 20071008, Toa Payoh North, SingaporeHEX 03-01/06,
    
    Testing
    
    
    7,345
    
    
    (L) Feb. 2006HEX 03-09/17,
    
    Logistics/Universal(FE)
    
    
    6,099
    
    
    (L) Jan. 2006HEX 01-08,
    
    Transformer Room
    
    
    603
    
    
    (L) Jun. 2006HEX 07-17/18,
    
    Testing
    
    
    4,315
    
    
    (L) Nov. 2006HEX 07-01,
    
    Testing
    
    
    3,466
    
    
    (L) Jan. 2007HEX 02-17
    
    Universal (FE)
    
    
    832
    
    
    (L) May. 2007HEX 02-15/16
    
    Universal (FE)
    
    
    1,400
    
    
    (L) Jul. 2007HEX 01-S3/S4
    
    Power Substation
    
    
    1,628
    
    
    (L) Sept. 2006Plot 1A, Phase 1
    
    Subleased
    
    
    49,924
    
    
    (O) *2Bayan Lepas Free Trade Zone11900 Penang327, Chalongkrung Road,
    
    Testing
    
    
    11,300
    
    
    (O)Lamplathew, Lat Krabang,Bangkok 10520, ThailandLot No. B7, Kawasan MIEL
    
    Subleased
    
    
    24,142
    
    
    (O) *2Batang Kali, Phase II,43300 Batang KaliSelangor Darul Ehsan, Malaysia
  *
    
    1 With respect to the various leases that expire during fiscal 2005, the
Company anticipates that the landlord will offer similar terms on each
such lease at renewal and does not believe that material expenses will be
incurred.*
    
    2 The premises are subleased to a third party. 10




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##### Table of Contents



ITEM 3 LEGAL PROCEEDINGS The Company is, from time to time, the subject of litigation claims and
assessments arising out of matters occurring in its normal business operations.
In the opinion of management, resolution of these matters will not have a
material adverse effect on the Companys financial statements. There are no material proceedings to which any director, officer or affiliate
of the Registrant, any beneficial owner of more than five percent of the
Registrants common stock, or any associate of such person is a party that is
adverse to the Registrant or its properties. There was no litigation relating to environmental action which arose from
operations. 
 ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 11




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##### Table of Contents



PART II 
 ITEM 5 MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Registrants common stock is traded on the American Stock Exchange under
the symbol TRT. The following table sets forth, for the periods indicated,
the range of high and low sales prices of our common stock as quoted by AMEX: Quarter Ended
    
    High
    
    LowFiscal 2003September 30, 2002
    
    
    2.65
    
    
    
    1.87December 31, 2002
    
    
    2.30
    
    
    
    1.51March 31, 2003
    
    
    2.30
    
    
    
    1.86June 30, 2003
    
    
    2.45
    
    
    
    1.86Fiscal 2004September 30, 2003
    
    
    3.60
    
    
    
    2.40December 31, 2003
    
    
    4.25
    
    
    
    3.24March 31, 2004
    
    
    4.65
    
    
    
    3.59June 30, 2004
    
    
    5.00
    
    
    
    4.25
 The Company has never declared any cash dividends on its common stock. Any
future determination as to cash dividends will depend upon the earnings and
financial position of the Company at that time and such other factors as the
Board of Directors may deem appropriate. California law prohibits the payment
of dividends if the Company does not have sufficient retained earnings or
cannot meet certain asset to liability ratios. It is anticipated that no
dividends will be paid to holders of common stock in the foreseeable future. The following table sets forth certain information regarding equity
compensation plans of the Company: EQUITY COMPENSATION PLAN INFORMATIONNumber ofsecuritiesremaining availablefor future issuanceunder equityNumber of
    
    
    
    
    
    compensation planssecurities to be
    
    
    
    
    
    (excludingissued upon
    
    Weighted-average
    

    securitiesexercise of
    
    exercise price of
    
    reflected in columnoutstanding options
    
    outstanding options
    
    (a))Plan Category
    
    (a)
    
    (b)
    
    (c)Equity compensation plans
approved by security holders:(1) Companys 1988
Stock Option Plan
    
    
    213,500
    
    
    $
    3.95
    
    
    
    86,500(2) Directors Stock
Option Plan
    
    
    132,000
    
    
    $
    3.24
    
    
    
    168,000Equity compensation plans not
approved by security holders:
    
    
    0
    
    
    $
    0.00
    
    
    
    0Total
    
    
    345,500
    
    
    $
    3.68
    
    
    
    254,500
 12




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##### Table of Contents



ITEM 6  SELECTED FINANCIAL DATA
(In thousands, except Earnings (Loss) per share) June 30,
    
    June 30,
    
    June 30,
    
    June 30,
    
    June 30,2004
    
    2003
    
    2002
    
    2001
    
    2000Consolidated Statements of OperationsNet sales
    
    $
    19,154
    
    
    $
    21,246
    
    
    $
    19,617
    
    
    $
    36,133
    
    
    $
    26,943Income (loss) from operations
    
    
    36
    
    
    
    (287
    )
    
    
    (3,579
    )
    
    
    1,383
    
    
    
    1,180Net Income (Loss)
    
    
    220
    
    
    
    (81
    )
    
    
    (3,547
    )
    
    
    1,163
    
    
    
    1,034Earnings (Loss) per share :Basic
    
    
    0.07
    
    
    
    (0.03
    )
    
    
    (1.21
    )
    
    
    0.40
    
    
    
    0.37Diluted
    
    
    0.07
    
    
    
    (0.03
    )
    
    
    (1.21
    )
    
    
    0.39
    
    
    
    0.36Weighted average common shares outstandingBasic
    
    
    2,939
    
    
    
    2,928
    
    
    
    2,928
    
    
    
    2,884
    
    
    
    2,759Diluted
    
    
    3,000
    
    
    
    2,928
    
    
    
    2,928
    
    
    
    3,006
    
    
    
    2,895Consolidated Balance SheetsCurrent assets
    
    $
    12,798
    
    
    $
    11,493
    
    
    $
    13,405
    
    
    $
    15,501
    
    
    $
    17,279Current liabilities
    
    
    5,429
    
    
    
    4,466
    
    
    
    6,486
    
    
    
    7,599
    
    
    
    8,349Working capital
    
    
    7,369
    
    
    
    7,027
    
    
    
    6,919
    
    
    
    7,902
    
    
    
    8,930Total assets
    
    
    18,000
    
    
    
    16,711
    
    
    
    19,075
    
    
    
    24,150
    
    
    
    22,712Long-term debt and capitalized leases
    
    
    793
    
    
    
    836
    
    
    
    986
    
    
    
    1,745
    
    
    
    586Shareholders equity
    
    $
    9,024
    
    
    $
    8,590
    
    
    $
    8,618
    
    
    $
    11,609
    
    
    $
    10,448
 13




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##### Table of Contents



ITEM 7  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) The discussions of Trio-Tech Internationals (the Company) business and
activities set forth in this Form 10-K 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; market demand for higher-end semiconductor equipment; the impact
of competition on products and pricing; losses or curtailments of purchases
from key customers; 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-K for more information. In some cases, you can identify
forward-looking statements by the use of terminology such as may, will,
opinion, 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. The Company operates in three distinct segments: Sales, Manufacturing,
and Testing. 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. (i) Results of operations and business outlook The following table sets forth our revenue components for the past three years: Revenue Components Year EndedJune 30,
    
    June 30,
    
    June 30,2004
    
    2003
    
    2002Net Sales:Testing
    
    
    46.50
    %
    
    
    44.74
    %
    
    
    45.58
    %Manufacturing
    
    
    37.18
    
    
    
    22.00
    
    
    
    25.60Distribution
    
    
    16.32
    
    
    
    33.26
    
    
    
    28.82Total
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
 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 core business, Testing Services, experienced a decline in sales in the last
fiscal year, especially in Singapore, due to a fall in demand for certain
products. Nevertheless, we are expecting an increasing trend for burn-in
services in Southeast Asia in fiscal 2005 with increased demand for a certain
new type of burn-in device. However, we have yet to receive the confirmed
backlog. In fiscal 2004, Ireland operation received certification from one of
its customers as an approved programming house. The operation in Ireland plans
to continue to service existing customers and search for new business
opportunities. In addition, with the newly acquired burn-in division in
Malaysia from a competitor, we managed to service a large electronic product
manufacturer with whom we had been pursuing a business relationship for some
time. This acquisition benefited not only our Testing segment, but also our
Manufacturing segment where we have higher sales for burn-in boards. 14




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##### Table of Contents



We saw higher backlog from the Singapore Manufacturing operation towards the
end of the year. This increased backlog was derived mainly from burn-in boards
and Smart Burn-In (SBI) electrical testers to test microprocessors, which were
in high demand by our major customers in Asia. In fiscal 2005, we anticipate that the
business volume will come in mainly from Southeast Asia. The U.S. operation
will continue to purchase refurbished equipment so that the operation can
remain competitive in the used equipment market. We anticipate that there will be a change in product mix for Singapore
Distribution operation from low margin front-end products to equipment sales
according to the market trend. The backlog for Equipment sales increased by
threefold, to $852 in fiscal 2004, mainly from Vibration products and two new
products, Camera Modules and Film Deposition Systems. Camera Modules and
components, which are in the imaging technology industry, are in demand across
the Asian region, and Film Deposition Systems are important for manufacturing
process in Semiconductor industries and research institutions. The key performance indicators for the Company are based on market demand.
Sales activities such as bookings, backlog, and queries on products also formed
part of our performance indicators, as well as customers forecasts and the
financial results of customers and competitors. Statistics obtained from the
Semiconductor Industry Association (SIA) give reasonable inference of the
upward trend of electronic materials until 2006, after which time no forecast
has been given. The SIA report indicated that strong double-digit billings
growth is observed in all regions with the exception of North America. The
report also shows that Asia makes up 63% of the semiconductor market region.
Taiwan and China are two regions experiencing the strongest year over year
growth. The Company believes the current market trend indicates that the overall
semiconductor market is responding to the increase in demand for computer and
consumer electronics. The activity level increased specifically in the
information technology, medical and military markets. Increasing demand for
equipment, including burn-in systems and boards, can be seen in the Asian
region, China and India. However, the Semiconductor equipment capital spending
budgets in the U.S were reduced due to lower growth expectation in the next two
quarters because of the slow economy in the U.S. This resulted from, among
other things, higher oil prices, an unstable Mideast region and lower consumer
confidence. There are several influencing factors which create uncertainties when
forecasting performance, such as the ever-changing nature of technology, i.e.
specific requirements from the customer, decline in demand for certain types of
burn-in devices or equipment, and other similar factors. One of these factors
is the highly competitive nature of the Semiconductor industry. Another is
that some customers are unable to provide a forecast of the products required
for the next few weeks, hence it is difficult for our Singapore Manufacturing
operation to plan out the resources needed to meet these customers
requirements. This will normally result in a lower margin for these products as
it is more expensive to purchase materials in a short time frame. However, the
Company has taken action to protect itself and formulated plans for dealing
with these unpredictable factors. For example, in order to meet customers
demands on short notice, the operation has already begun to stockpile
materials. The drawback is that if customers cancel orders, the Company is
responsible for finding other buyers for these materials. We will be
instituting further cost cutting measures such as combining certain plants
together, finding solutions to cut utilities rates, remaining economic in scale
and maintaining a lean headcount, among others. Furthermore, we have begun
subcontracting certain areas of manufacturing functions to ease supervisory and
administrative work. Finally, the Company is exploring new business
opportunities such as selling new products. (ii) Financial information During the fiscal year ended June 30, 2004, total assets increased by $1,289
from $16,711 at June 30, 2003 to $18,000 at June 30, 2004. The majority of the
increase was in short-term deposits, other receivables and inventories, but
offset with a decrease in investments in marketable securities of $485. The increase in short-term deposits of $1,341 from $4,308 at June 30, 2003 to
$5,649 at June 30, 2004 mainly derived from cash proceeds from the disposal of
marketable securities and the withdrawal of previously invested funds. All of
the $485 of the investments in marketable securities at June 30, 2003 were sold
in the first quarter of 2004 in order to take advantage of the increase in
market value, utilize the profit and exit the market. The Company also withdrew
previously invested funds of $210, which were held in trust by an independent
investing firm, for further investment in the newly acquired burn-in testing
operation in Malaysia. Cash decreased by $138 from $1,495 at June 30, 2003 to $1,357 at June 30, 2004
as the Company reinvested additional cash balances into short-term deposits.
Furthermore, the early repayment of a loan in Singapore and the payment of 2003
bonuses contributed to the decrease in cash. Inventories increased by $360 from June 30, 2003 to $1,409 at June 30, 2004
attributable to the Singapore Manufacturing and Distribution operations. The
Singapore Manufacturing operation began work on new orders and turned the
finished goods into revenue towards the end of fourth quarter. On the other
hand, the Singapore Distribution operation purchased inventories, which 15




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##### Table of Contents



happened to be in transit, to cater to the higher backlog as of June 30, 2004.
As a result, the work in progress increased by $534, which was offset with a
decrease in finished goods of $242. The increase in other receivables also contributed to the increase in total
assets. The increase in other receivables mainly derived from the down payment
for the renovation of SBI (Smart Burn-in) facilities of $377 in Singapore as
well as the deposit of $92 paid for the acquisition of the testing operation in
Malaysia. These offset the withdrawal of previously invested funds of $210 from
the independent investing firm, which withdrawal is described above. Total liabilities at June 30, 2004 were $6,866, reflecting an $853 increase
from $6,013 at June 30, 2003. Accounts payable at June 30, 2004 increased by
$1,236 since June 30, 2003 due mainly to a rise in quantity of materials
purchased before payment for a few of the operations in Southeast Asia at the
end of the fourth quarter. This was offset by a decrease in lines of credit,
notes payable and capitalized leases as a result of net payments of $154, $35
and $190 respectively. During the year fiscal 2004, Universal Systems
negotiated with the bank to terminate the capitalized lease assets with an
early redemption of $74 before relocating its operation and assets from San
Jose, California to another subsidiary in Singapore. As of June 30, 2004, total
liabilities (excluding minority interest) were 76.1% of total capital, compared
with 70% at June 30, 2003. Total liabilities as a percentage of total capital
was higher in fiscal 2004 mainly due to higher accounts payable, as mentioned
earlier. The Company believes its strong cash position provides ready and
ample access to funds in the global capital market. Critical Accounting Policies We prepare the consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements require the use of estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period.
Management periodically evaluates the estimates and judgments made. Management
bases its estimates and judgments on historical experience and on various
factors that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates as a result of different assumptions or
conditions. In response to the SECs Release No. 33-8040, Cautionary Advice Regarding
Disclosure About Critical Accounting Policy, We identified the most critical
accounting principles upon which its financial statements depend. The
following critical accounting policies affect the more significant judgments
and estimates used in the preparation of our consolidated financial statements. Accounts Receivable and Allowance for Doubtful Accounts During the normal course of business, we extend unsecured credit to its
customers. Typically credit terms require payment to be made between 30 to 60
days of the sale. We do not require collateral from its customers. We
maintain our cash accounts at credit worthy financial institutions. We regularly evaluate and monitor the creditworthiness of each customer on a
case-by-case basis. We include any account balances that are determined to be
uncollectible, along with a general reserve, in the overall allowance for
doubtful accounts. After all attempts to collect a receivable have failed, the
receivable is written off against the allowance. Based on the information
available to management, we believe that our allowance for doubtful accounts
was adequate as of June 30, 2004. Inventory Valuation Our inventories are stated at the lower of cost (on a first-in, first-out
basis) or market value. Our industry is characterized by rapid technological
change, shore-term customer commitments and rapid changes in demand. We make
provisions for estimated excess and obsolete inventory based on our regular
reviews of inventory quantities on hand and the latest forecasts of product
demand and production requirements from our customers. 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, statistics and judgments are
used for assessing provision of the remaining inventory based on salability and
obsolescence. In fiscal 2004, certain inventories with provision were sold in
connection with products sales generating zero or little margin, which led to
the reduction of inventory provision and contributed partially a flat margin in
the product sales generated in Manufacturing segment. Revenue Recognition Revenues generated from sales of products in Manufacturing and Distribution
segments are recognized when persuasive evidence of an arrangement exists,
delivery of the products has occurred, customer acceptance has been obtained,
which means the significant risks and rewards of the ownership have been
transferred to the customer, the price is fixed or determinable and 16




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##### Table of Contents



collectibility is reasonably assured. Certain products sold (in Manufacturing
segment) may require installation and training to be performed. Revenue from product sales is also recorded in accordance with the provisions
of Emerging Issues Task Force (EITF) Statement 00-21 Revenue Arrangements with
Multiple Deliverables and Staff Accounting Bulletin (SAB) 104 Revenue
Recognition in Financial Statements which generally requires revenue earned on
product sales involving multiple-elements to be allocated to each element based
on the relative fair values of those elements. Accordingly, we allocate
revenue to each element in a multiple-element arrangement based on the
elements respective fair value, with the fair value determined by the price
charged when that element is sold and specifically defined in a quotation or
contract. We allocate a portion of the invoice value to products sold and the
remaining portion of invoice value to installation work in proportion of the
fair value of products sold and installation work to be performed. Training
elements are valued based on hourly rates, which we charge for these services
when sold apart from product sales. The fair value determination of products
sold and the installation and training work is also based on our specific
historical experience of the relative fair values of the elements if there is
no easily determinable market price to be considered. In fiscal 2004 and 2003,
the installation revenues generated in connection with product sales were
immaterial and included in the product sales revenue line on the consolidated
statement of income. We estimate an allowance for sales returns based on
historical experience with product returns. Revenue derived from testing service is recognized when testing services are
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. Whenever any such
impairment exists, an impairment loss will be recognized for the amount by
which the carrying value exceeds the fair value. 17




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##### Table of Contents



Results of Operations Comparison of Year Ended June 30, 2004 (2004) and June 30, 2003 (2003) 2004
    
    2003Net Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of Sales
    
    
    75.5
    %
    
    
    76.5
    %Gross Margin
    
    
    24.5
    %
    
    
    23.5
    %Operating ExpensesGeneral and administrative
    
    
    19.7
    %
    
    
    18.8
    %Selling
    
    
    4.6
    %
    
    
    3.3
    %Research and development
    
    
    0.6
    %
    
    
    0.6
    %Impairment Loss
    
    
    0.0
    %
    
    
    1.7
    %(Gain) Loss on disposal of PP&E
    
    
    -0.5
    %
    
    
    0.5
    %Total Operating Expenses
    
    
    24.4
    %
    
    
    24.9
    %Income from operations
    
    
    0.1
    %
    
    
    -1.4
    %
 Overall Net Sales and Gross Margin Overall sales for fiscal 2004 were $19,154, down $2,092 from fiscal 2003 by a
difference of 9.85%. This decrease in sales was primarily due to the
significant drop in sales in the Distribution segment, as well as decreased
activity in the Testing segment, both of which offset the surge in sales in the
Manufacturing segment, especially in the fourth quarter. Overall gross margin
increased marginally by less than 1% from 23.5% in fiscal 2003 to 24.5% in
fiscal 2004, primarily attributable to the Distribution segment even though
sales in that segment decreased significantly. Distribution Segment The revenue and gross margin for the Distribution segment for fiscal years 2004
and 2003 were as follow: (In Thousands, unaudited)
    
    2004
    
    2003Revenue
    
    $
    3,124
    
    
    $
    7,067Gross margin
    
    
    13.5
    %
    
    
    5.3
    %
 Net sales in the Distribution segment decreased 55.8%, a decrease of $3,943
from $7,067 in fiscal 2003 to $3,124 in fiscal 2004. The bulk of the sales
decline was attributable to the decrease in unit volume of low-margin products,
which experienced a reduction in sales revenue of $3,926 from fiscal 2003 to
fiscal 2004, along with a 34.7% drop in quantity sold and a 49.6% reduction in
selling price. Sales of Vibration products and Reflow ovens fell by $115, with
a drop of 33.3% in quantity sold. The demand for Vibration products diminished
as this equipment had an average unit selling price greater than $100.
Customers in the United States remained conservative in making large
investments, hence demand was low. Customers showed a preference to purchase
substitute equipment at an average selling price below $30. As for Reflow
ovens, customers developed more stringent requirements in technology, and our
existing vendor was unable to satisfy the change. We will continue to search
for other vendors who can meet our customers requirements. However, the unit
selling price of Vibration products and Reflows ovens increased by 30.5% over
fiscal 2003 due to our ability to meet customers specialized demands, hence
their willingness to pay more for this benefit. Additionally, spare parts and
services increased sales by $117. Despite the decline in sales in the Distribution segment overall, the margin
showed an improvement of 8.2% from 5.3% in fiscal 2003 to 13.5% in fiscal 2004
due to the decreased sales of low-margin products combined with the improvement
in average unit selling price of Vibration products and Reflow ovens. This
contributed mainly to the slight improvement in the overall gross margin
compared to fiscal 2003. 18




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##### Table of Contents



Testing Segment The revenue and gross margin for the Testing segment for fiscal years 2004 and
2003 were as follow: (In Thousands, unaudited)
    
    2004
    
    2003Revenue
    
    $
    8,908
    
    
    $
    9,505Gross margin
    
    
    29.2
    %
    
    
    38.4
    %
 The Testing segment also experienced some deterioration in sales. Sales dropped
by 6.3% from $9,505 in fiscal 2003 to $8,908 in fiscal 2004. Burn-in volume for
this segment decreased due to a change in customers burn-in requirements. We
adjusted to meet these specifications, but still suffered a lower margin of
9.2% from fiscal 2003 because of operating with fixed costs. Also contributing
was the fall in product life cycle for one particular type of burn-in, and one
new type of burn-in has yet to ramp up as expected. Additionally, we adopted a
reduction in service fees of approximately 13.3% in an effort to maintain
existing customers and attract new ones in an increasingly competitive market. Gross margin dropped by 9.3%, from 38.5% in fiscal 2003 to 29.2% in fiscal 2004
due to several factors. First, the Company reduced service fees in an effort
to retain existing customers and capture new ones in an increasingly
competitive market. Second, material costs, such as utilities, increased due
to higher usage of certain products and some new administrative charges from
the vendor of utilities were imposed. In order to counter the above, the
Singapore Testing operation is working diligently to obtain more business for
the latest type of burn-in, and will be closely monitoring costs to maintain
them at the minimum level. Although the Thailand operation saw boosted sales in fiscal 2004, it generated
a lower margin due to a change in product mix, as more services at a lower
margin were provided to one particular customer with whom Trio-Tech has a long
standing relationship. Manufacturing Segment The revenue and gross margin for the Manufacturing segment for fiscal years
2004 and 2003 were as follow: (In Thousands, unaudited)
    
    2004
    
    2003Revenue
    
    $
    7,122
    
    
    $
    4,674Gross margin
    
    
    19.3
    %
    
    
    19.1
    %
 The setbacks in sales in the Testing and Distribution Segments were partially
offset by an improvement in sales in the Manufacturing segment, resulting an
overall increase in sales of 52.4% from $4,674 in fiscal 2003 to $7,122 in
fiscal 2004. The market conditions for the microelectronics market remained
positive as indicated by the improved backlog, which increased from $582 in
fiscal 2003 to $3,440 in fiscal 2004. Sales of burn-in systems and burn-in
boards increased, as did sales derived from fabrication and upgrading
customers equipment. The Singapore Manufacturing operation was chosen by a
customer to be its major supplier to build systems for the testing of
microprocessor, and anticipates that it will continue to provide this service.
This same operation also procured the business of burn-in boards sales to its
new customer. Sales of burn-in boards were $851 in fiscal 2004, an increase in the quantity
sold of 175.6% with a drop in unit selling price of 7.2%. Sales of burn-in
systems were $1,758, a 585% increase in quantity sold and a 44.1% decrease in
unit selling price over fiscal 2003. Even though the unit selling price
decreased for all these products, the dollar volume resulting from the
substantial increase in the quantity sold of burn-in boards and burn-in systems
exceeded the dollar volume resulting from the drop in selling price. The sales
of Artic Temperature Controlled Chucks contributed the decrease of $160 due to
the decrease in both quantity and the unit selling price. Gross margin as a percentage of sales remained relatively flat at 19%, but the
dollar volume increased by $475 from $892 in fiscal 2003 to $1,367 in fiscal
2004, which was consistent with the increase in sales. Another factor which
contributed to a flat margin was due to the sale of certain inventories with
provision generating zero or little margin. Geographically, net sales into and within the United States region decreased by
47.9%, from $9,038 in fiscal 2003 to $4,706 in fiscal 2004. The drop in demand
in the U.S. for front-end products from the Singapore Distribution segment
contributed to 90.4% of the decline. It was also due in part to the decline in
demand for Artic Temperature Controlled Chucks as Semiconductor equipment
capital spending budgets in the U.S. appear to have been reduced based on lower
growth expectations for the second half of 2004. In addition, the U.S.
Manufacturing operation was moved from San Jose, California to Singapore at the
very end of the third quarter, hence we predict a temporary lack of bookings
for Wet Process Stations while we prepare for the manufacturing process and
determine the needs of the customers in this new region. Net sales into and
within Ireland increased 33.1%, from $943 in fiscal 2003 from $1,255 in fiscal
2004. Responsible for the increase was a boost in programming 19




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##### Table of Contents



services in the Ireland operation. Net sales into and within the Southeast Asia
region increased by 18.0% from $11,306 in fiscal 2003 to $13,344 in fiscal
2004, as there was higher demand for Burn-in Boards and Systems in Malaysia and
Singapore. Operating Expenses The operating expenses for fiscal years 2004 and 2003 were as follow: (In Thousands, unaudited)
    
    2004
    
    2003General and administrative
    
    $
    3,769
    
    
    $
    3,992Selling
    
    $
    875
    
    
    $
    702Research and development
    
    $
    117
    
    
    $
    121Impairment Loss
    
    $
    4
    
    
    $
    358(Gain) loss on disposal of PP&E
    
    $
    (101
    )
    
    $
    115$
    4,664
    
    
    $
    5,288
 As a percentage of sales, operating expenses dropped by 0.6% from 24.9% in
fiscal 2003 to 24.4% in fiscal 2004. This was a result of the slight movements
in all the operating expense items as a percentage of sales. As a percentage
of sales, general and administrative expenses increased slightly by 0.9% from
18.8% in fiscal 2003 to 19.7% in fiscal 2004. General and administrative expenses decreased by $223 from fiscal 2003 to
fiscal 2004. Several factors contributed to this reduction, including
diminished bonus provisions of $127 in the Singapore operation as a few of the
operations did not meet their bonus payment criteria. Salaries were cut back
by $117 in Southeast Asia and $101 in the United States operation as part of
cost cutting measures. Insurance and rental diminished by $33 in Universal
Systems after the operation along with its assets were moved from San Jose,
California to Singapore. In fiscal 2003, the Company granted certain stock
options which had an exercise price less than that of the fair market value
resulting in a $14 compensation cost. In fiscal 2004, as all options were
granted at fair market value, no similar compensation costs were incurred.
Finally, miscellaneous costs fell by $6. This was all offset by higher
depreciation of $25 due to renovations and additional purchases of equipment in
Southeast Asia; addition withholding tax of $10 from Malaysia operation;
additional provision for doubtful debts of $9; and incremental
tele-communication expenses of $9 due to overseas travel. Additionally, a
reversal in provision for contingent liabilities of $51 occurred in the third
quarter of fiscal 2003, as the court case was settled in favor of Trio-Tech and
we were not liable for the compensation. No such reversal of provision
occurred in 2004. Likewise, in fiscal 2004 Corporate officers bonuses in the
amount of $17 were paid, whereas in fiscal 2003, $54 in bonuses were reversed
out as the group did not meet its bonus payment criteria As a percentage of sales, selling expenses increased marginally by 1.3% from
3.3% in fiscal 2003 to 4.6% in 2004. Selling expenses as a whole increased by
$173. One reason for this was the increase in commission of $43 in the U.S.
operation due to a higher number of commissionable sales, and a $60 increase in
commissions in Singapore Manufacturing and Distribution for the same reason.
Another reason was the higher warranty cost of $165 due to more numerous
equipment sales for the Singapore Manufacturing and Distribution segments.
Higher travel costs of $16 were incurred in Singapore mainly for the purpose of
transferring the manufacturing of Wet Process Stations from San Jose to
Singapore. Greater participation in semiconductor shows and conferences
resulted in higher trade show costs of $13 for fiscal 2004. Finally, there was
an increase in miscellaneous costs of $2. This was offset with a reduction in
salaries of $50 in the Southeast Asia operation through a reduction in
headcount. Also, there was a savings of $49 in salaries in the U.S. as the
sales staff at Universal Systems was laid off in the third quarter of 2003, and
a savings in rent and utilities of $27 as this same facility was closed down. Research and development remained relatively flat from fiscal 2003 to fiscal
2004. (Gain)/Loss on Disposal of Property, Plant and Equipment The loss on disposal of fixed assets of $115 in fiscal 2003, was related to the
write off of obsolete burn-in facilities in Southeast Asia in fiscal 2003. On
the other hand, the gain on disposal of $101 in fiscal 2004 was derived from

the Ireland and Thailand operations. Ireland operation sold equipment which
had been written off several years ago, hence enabling us to recognize $62 of
the sales proceeds as a total gain for the operation. Also, the Thailand
operation made a substantial sale of boards to one of its customers, realizing
a gain of $39. 20




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##### Table of Contents



Income (loss) from operations The income (loss) from operations for fiscal years 2004 and 2003 were as
follow: (In Thousands, unaudited)
    
    2004
    
    2003Manufacturing Segment
    
    $
    (205
    )
    
    $
    (802
    )Testing Segment

    
    $
    241
    
    
    $
    803Distribution Segment
    
    $
    (27
    )
    
    $
    (212
    )Corporate
    
    $
    27
    
    
    $
    (76
    )$
    36
    
    
    $
    (287
    )
 The Company turned the operating loss of $287 in fiscal 2003 to an operating
income of $36 in fiscal 2004. The improvement was mainly attributed to the
Manufacturing and Distribution Segments, which have more than offset the
decline in operating income for the Testing Segment. The operating loss in the Manufacturing Segment declined by $597, from $802 in
fiscal 2003 to $205 in fiscal 2004. The reduction in operating loss resulted in
part from the transfer of the Universal Systems manufacturing operation from
San Jose to Singapore in the third quarter of 2004. Hence, certain fixed costs
which were incurred in fiscal 2003 were not repeated in fiscal 2004. General &
administrative costs as a percentage of sales decreased from 21.8% in fiscal
2003 to 12.4% in fiscal 2004, while selling expenses as a percentage of sales
dropped from 8% to 5.4%, mainly due to the significant rise in sales of 52.4%.
The decline in general & administrative costs of 9.4% and selling expenses of
2.6% as a percentage of sales was mainly attributed to Universal System. After
Universal System moved its manufacturing operation, along with all its
equipment, to Trio-Tech International Pte. Ltd. in Singapore, this resulted in
a savings in high fixed costs, such as salaries of $148, rental of $60,
commissions of $15, and research and development costs of $12 when compared to
fiscal 2003. The Distribution Segment also contributed to the improvement in operating
income. Its operating loss decreased by $185 from $212 in fiscal 2003 to $27 in
fiscal 2004. This improvement was mainly due to the change in product mix,
which improved gross margin as mentioned earlier. Operating expenses for
Vibration products and Reflow ovens remained similar to those in fiscal 2003
which, along with the increase in price, contributed to the decrease in
operating loss for the Distribution Segment. Corporate also contributed to the improvement in the overall operating income.
The corporate office attempts to reimburse its operating expenses by imposing a
fee to all subsidiaries on a fixed percentage of total revenue. Due to the
increase in Singapore Manufacturing sales in the fourth quarter, while the rate
remained unchanged, the fees collected in fiscal 2004 were more than corporate
operating expenses. This is unlikely to recur in fiscal 2005. Hence, Corporate
went from an operating loss of $76 in fiscal 2003 to an operating income of $27
in fiscal 2004, an increase of $103. The above were more than enough to offset the decrease in operating income for
the Testing Segment, which declined from $803 in fiscal 2003 to $241 in fiscal
2004. The cost of goods sold and operating expenses in the Testing segment,
comprised of fixed and semi-fixed costs such as rental, depreciation, and
administrative salaries, remained fixed despite the overall decrease in sales.
With the increase in cost of goods sold as mentioned earlier due to higher
utilities costs, the operating income declined by $562. Interest Expense The interest expenses for fiscal years 2004 and 2003 were as follow: (In Thousands, unaudited)
    
    2004
    
    2003Interest expense
    
    $
    (120
    )
    
    $
    (185
    )
 Interest expense decreased by $65 in fiscal 2004 as compared to fiscal 2003.
One reason for this was the lower interest incurred on lines of credit as the
Singapore and U.S. operations repaid their lines of credit during the end of
2003 and the beginning of 2004. Also, lower interest was incurred on a term
loan in the Singapore operation as most of its loan was repaid. Offsetting
this was the interest from additional borrowings obtained for the building of
extensions, burn-in systems and other equipment during the year by the
Singapore operation. Other Income Other income for fiscal years 2004 and 2003 were as follow: (In Thousands, unaudited)
    
    2004
    
    2003Other income
    
    $
    372
    
    
    $
    347
 21




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##### Table of Contents



Other income increased $25 from fiscal 2003 to fiscal 2004. One contributing
factor to this was increased rental income due to the leasing out of factories
in Ireland and Malaysia, which contributed $80. Another cause was increased
net gain on disposal of marketable securities of $66. Offsetting these increases
was a loss on currency exchange of $12 in 2004 versus an exchange gain of $9 in
2003 for a total difference of $21. Also, we experienced a decrease of $19 in
dividends and interest income, a decline in royalty income of $20, a drop of $52
in sundry income, and a decrease of $9 in miscellaneous income. Income Tax The total income tax provision decreased by $81 or 74.5%, from $94 in fiscal
2003 to $13 in fiscal 2004. Of the change of $81, there was an increase of $28
related to the current portion of income tax due to the increase of $29 in
foreign income tax provision and a decrease of $1 in state income tax provision
compared to those in fiscal 2003. The rest was related to the deferred portion
of income taxes benefit. An increase of $29 in current portion of foreign
income tax expense was a result of tax provision of approximately $19 incurred
in Ireland operation due to the gain of $62 on disposal of equipment and the
remaining $10 of current portion of income tax provision incurred in Malaysia
operation due to the increase in its operating income. The deferred income tax portion was changed from provision of $42 in fiscal
2003 to benefit of $67 in fiscal 2004. The swing was approximately $$109,
which was attributed to a decrease of deferred tax liability incurred mainly in
Singapore. The decrease in deferred income tax expense was the result of the
timing differences related to the recording of depreciation expenses for book
and tax purposes and net operating loss carried forward in Singapore and
Malaysia. We did not recognize any income tax benefits related to the net
operating losses generated in the U.S. We believe that when the future taxable
income exceeds the cumulative losses, it is likely that such benefits will be
realized. The Companys effective income tax rate decreased from 75% in fiscal 2003 to 5%
in fiscal 2004. The decrease in the effective income tax rate in fiscal 2004
was due to a change from net loss of $125 before income tax to net income of
$288 before income tax and due to a change in the income tax provision of $94
in fiscal 2003 to income tax provision of $13 in fiscal 2004. As discussed
above, the decrease of deferred tax liability in Singapore contributed to the
decrease of total income tax provision which in turn contributed to the
decrease of effective income tax rate. In addition, the net loss in the U.S.
was decrease from $231 in fiscal 2003 to $87 in fiscal 2004 and net income in
foreign countries increased from $106 in fiscal 2003 to $375 in fiscal 2004,
both of which contributed to the decrease of effective income tax rate. The Company files income tax returns in the U.S., Singapore, Thailand,
Malaysia, and Ireland, respectively. Income taxes are provided in those
countries where taxable income is earned. Income in one country is not offset
by losses in another country. Accordingly, no benefit is provided for losses
in the countries except where the loss can be carried back against income
recognized in previous years. In essence, the effect of providing tax against
taxable income while not providing benefit for losses results in an effective
tax rate that differs from the federal statutory rate. The nature and terms of
income tax holidays, abatements, rate reductions and similar arrangements
granted by foreign taxing authorities and their impact on the provision for
income taxes are as follows:  1.
    
    Capital allowances are available in the Southeast Asia operation to
offset taxable income, which is the same as accelerated allowance on fixed
assets. This reduces the income tax payable and creates deferred tax
liabilities for the next few years.2.
    
    Reinvestment allowances can only offset the tax payable if the expansion,
modernization or diversification is carried out in a promoted area. Net (Loss) Income As a result of all of the factors analyzed above, the net income for the fiscal
year ended June 30, 2004 was approximately $220, which represented an increase
of $301 from a net loss of $81 for fiscal 2003, or a 371.6% change. Basic
earnings per share for fiscal 2004 increased to $0.07 per share from a basic
loss per share of $0.03 in fiscal 2003, which represented an increase of $0.10,
a 333.3% change. Diluted earnings per share for fiscal 2004 was $0.07 per
share, an increase of $0.10 per share from a diluted loss per share of $0.03
for fiscal 2003. 22




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##### Table of Contents



Year Ended June 30, 2003 (2003) Compared to Year Ended June 30, 2002 (2002) 2003
    
    2002Net Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of Sales
    
    
    76.5
    %
    
    
    81.2
    %Gross Margin
    
    
    23.5
    %
    
    
    18.8
    %Operating ExpensesGeneral and administrative
    
    
    18.8
    %
    
    
    21.1
    %Selling
    
    
    3.3
    %
    
    
    6.1
    %Research and development
    
    
    0.6
    %
    
    
    1.7
    %Impairment Loss
    
    
    1.7
    %
    
    
    8.3
    %(Gain) Loss on disposal of PP&E
    
    
    0.5
    %
    
    
    -0.2
    %Total Operating Expenses
    
    
    24.9
    %
    
    
    37.0
    %Income from operations
    
    
    -1.4
    %
    
    
    -18.2
    %
 Overall Net Sales and Gross margin Net sales for the Company increased overall by 8.3% from $19,617 in fiscal 2002
to $21,246 in fiscal 2003, a difference of $1,629. The increase in sales was
primarily derived from the Distribution and Testing segments, which offset the
decrease in sales in the Manufacturing segment. Overall gross margin increased
by 4.7% from 18.8% in fiscal 2002 to 23.5% in fiscal 2003. The greater portion
of this increase was attributable to the Manufacturing segment, which recovered
from a loss to a positive gross margin in spite of a drop in sales. Distribution Segment The revenue and gross margin for the Distribution segment for fiscal years 2003
and 2002 were as follow: (In Thousands, unaudited)
    
    2003
    
    2002Revenue
    
    $
    7,067
    
    
    $
    5,653Gross margin
    
    
    5.3
    %
    
    
    9.1
    %
 The Distribution segment sales increased from $5,653 in fiscal 2002 to $7,067
in fiscal 2003, due to a surge in sales of low margin front-end products. An
additional low margin front-end product of a similar nature to that of our
existing products was responsible for this surge. Sales of low-margin products
were $1,213, a 24.9% decline in quantity sold but a 50% increase in the selling
price, whereas the sales of Test chambers and Reflow ovens were $201 in fiscal
2003 with a 46.7% rise in quantity sold and a drop in selling price of 58.1%.
Test chambers and Reflow ovens were also in higher demand as we were able to
keep the cost of these machines reasonably priced with a selling price ranging
from $11 to $46, which fell within customers capital budgets. Gross margin dropped by 3.8%, from 9.1% in fiscal 2002 to 5.3% in fiscal 2003,
due to fierce competition in the capital equipment market and the decrease in
customers capital spending budgets. Conversely, some customers took advantage
of price reductions to obtain necessary equipment, which also impacted our
gross margin. The increase in sales volume for Test Chambers and Reflow ovens
was not sufficient to offset the effects of the price reduction. Testing Segment The revenue and gross margin for the Testing segment for fiscal years 2003 and
2002 were as follow: (In Thousands, unaudited)
    
    2003
    
    2002Revenue
    
    $
    9,505
    
    
    $
    8,942Gross margin
    
    
    38.4
    %
    
    
    38.4
    %
 The Testing segment also experienced an increase in sales in the Thailand and
Singapore operations, where sales increased from $8,942 in fiscal 2002 to
$9,505 in fiscal 2003. The Thailand operation secured new contracts from
existing customers, as well as 23




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##### Table of Contents



secured new customers, and one particular type
of burn-in device was in high demand from the Testing operation in Singapore.
However, one particular customer in Malaysia shifted their production to
Thailand, and revenue from this customer decreased in anticipation of this
relocation. As a result, sales were not as high as they otherwise may have
been. Gross margin as a percentage of sales remained relatively flat at 38.4%, but
the margin in dollars increased by $218 to $3,655 in fiscal 2003, which was
consistent with the increase in sales. Manufacturing Segment The revenue and gross margin for the Manufacturing segment for fiscal years
2003 and 2002 were as follow: (In Thousands, unaudited)
    
    2003
    
    2002Revenue
    
    $
    4,674
    
    
    $
    5,022Gross margin
    
    
    19.1
    %
    
    
    -6.7
    %
 The increase in the Distribution and Testing sales was offset by a decrease in
sales in the Manufacturing segment, which was mainly attributable to the United
States operation. The net sales in the Manufacturing segment experienced a
general decline of $348, from $5,022 in fiscal 2002 to $4,674 in fiscal 2003.
The continued pessimistic outlook of the electronics industry and the threat of
war in the Middle East for most of fiscal 2003 forced manufacturers to delay
capital spending. Customers remained conservative in spending due to the
overall pessimistic outlook of the electronics industry. Sales of Artic
Temperature Controlled Chucks dropped $356, a 16.1% decrease in quantity sold
and a 24.7% decrease in the selling price. Rate Turn Tables sales fell $315, a
100% reduction in quantity sold with no change in selling price, and were
completely fazed-out in fiscal 2003. Sales of Environmental Test equipment
dropped $257, a 33.3% decline in quantity sold with a 39.3% drop in selling
price. Fortunately, the decline in Manufacturing segment sales was offset by an
increase in sales of burn-in systems as a result of our ability to meet
customers specialized demands, and therefore the ability to charge more for
these products. The sales of Burn-in Boards fell $47, a 36% drop in quantity
sold and a 50% reduction in the selling price. This overall decline was offset
by a climb in sales of Burn-in Systems of $258, with a 14.3% decrease in
quantity sold but a 75.1% increase in selling price. Wet Process Stations
sales increased by $114 in spite of a 47.4% decrease in quantity sold, due to a
102.1% hike in selling price. HAST Equipment sales rose $210 due to a 300%
growth in quantity sold and a 13.9% decrease in selling price. Despite the decrease in Manufacturing Segment sales, the gross margin increased
from a negative 6.7% in fiscal 2002 to a positive 19.1% in fiscal 2003 mainly
due lower cost of goods sold incurred in fiscal 2003. This increase in fact
contributed to the bulk of the improvement in the overall gross margin for the
Company. The cost of goods sold included an inventory obsolescence of $511 in
the United States operation in 2002, which did not recur in 2003. Likewise,
lower depreciation expenses of $234 incurred as no depreciation was charged on
fixed assets that were impaired in fiscal 2002 and did not recur in fiscal
2003. Finally, the United States operations reduced headcount as part of cost
cutting measures thereby reducing payroll related costs by $484. Geographically, net sales into and within the United States increased by 11.8%,
from $8,083 in fiscal 2002 to $9,038 in fiscal 2003. This was a result of an
increasing demand in the U.S. for front-end products from the Distribution
segment in Singapore and HAST equipment from one of the local operations. Net
sales into and within the Southeast Asia region increased 12% from $10,093 in
fiscal 2002 to $11,306 in fiscal 2003, primarily attributable to a new burn-in
testing service in the Thailand operation and an increase in demand for burn-in
equipment in Singapore as a result of the ability to meet customers
specifications. Net sales into and within Ireland and other countries
decreased by 36.2% from $1,479 in fiscal 2002 to $943 in fiscal 2003 due to a
decline in demand for testing services, which occurred when several large
customers moved out of Europe, and lower Manufacturing sales from Singapore and
the Unites States into Europe and other countries as well. Operating Expenses The operating expenses for fiscal 2003 and 2002 were as follows: (In Thousands, unaudited)
    
    2003
    
    2002General and administrative
    
    $
    3,992
    
    
    $
    4,141Selling
    
    $
    702
    
    
    $
    1,200Research and development
    
    $
    121
    
    
    $
    331Impairment Loss
    
    $
    358
    
    
    $
    1,631(Gain) on disposal of PP&E
    
    $
    115
    
    
    $
    (33
    )$
    5,288
    
    
    $
    7,270
 24




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##### Table of Contents



Operating expenses decreased by $1,982 or 27.3% from $7,270 in fiscal 2002 to
$5,288 in fiscal 2003. As a percentage of total revenue, our operating
expenses in fiscal 2003 decreased from 37% to 24.9% in fiscal 2002. General and Administrative (G&A) expenses decreased by $149 or 3.6% from
$4,141 in fiscal 2002 to $3,992 in fiscal 2003. As a percentage of sales, G&A
decreased by 2.3% from 21.1% in 2002 to 18.8% in fiscal 2003. Although we
experienced a $333
decrease in G&A during fiscal 2003 as a result of a decrease in payroll related
expenses, primarily in the U.S. operations, such decrease was offset by a $264
increase in payroll expenses in Southeast Asia as operations there increased
based on increased sales. In addition, we had a $40 decrease in rental,
relocation, and insurance expenses due to relocation to smaller facilities in
Van Nuys, California in 2002, and a $40 decrease in depreciation expense as no
depreciation was charged on fixed assets that were impaired in fiscal 2002 and
did not recur in fiscal 2003. Selling expenses decreased by $498 or 41.5% from $1,200 in fiscal 2002 to $702
in fiscal 2003. As a percentage of sales, selling expenses decreased 2.8% from
6.1% in fiscal 2002 to 3.3% in fiscal 2003. Of the $498, (1) $195 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)
$127 was related to a decrease in warranty expenses incurred in Southeast Asia,
reflecting the fact that the amount of products sold requiring warranty was
reduced in fiscal 2003, (3) a $60 decrease was due to an impairment loss
recorded in fiscal 2002 which did not recur in fiscal 2003, (4) an approximate
$50 decrease in travel and related costs was due to fewer sales trips made in
the second half of fiscal 2003 as a result of the Iraq war and the SARS
outbreak in Asia, and (5) a $66 decrease in other expense items was a result of
cost-cutting measures implemented during fiscal 2003. Research and development expense decreased by $210 or 63.4% from $331 in fiscal
2002 to $121 in fiscal 2003. This decrease was due primarily to managements
decision to reduce research and development activities on its Wet Process
Stations and Artic Temperature Controlled Chucks, based on reduced demand for
these customized products in the Manufacturing Segment. Impairment loss Impairment loss decreased by $1,273 or 78.1%, from $1,631 in fiscal 2002 to
$358 in fiscal 2003. The decrease of $1,273 was primarily due to the remaining
fixed and intangible assets written to their fair value in fiscal 2003, which
were not written down previously. The Company recorded an impairment loss
based on its examination of the estimated undiscounted future cash flows
generated by the subsidiaries where certain long-lived assets (certain fixed
assets) were used. The impairment loss of $358 in fiscal 2003 consisted of machinery and
equipment, furniture and fixtures, and leasehold improvements (pertaining to
the Malaysia and Singapore Testing operations) due to changes in demand for
certain burn-in services which in turn made certain of our existing burn-in
facilities obsolete. (Gain) Loss on Sale of Property, Plant and Equipment The disposal of property, plant and equipment resulted in a decrease of $148
from a gain of $33 in fiscal 2002 to a loss of $115 in fiscal 2003. The
disposal loss was related to the disposal of the obsolete burn-in facilities in
Southeast Asia due to new developments and advancement in technology. Income (loss) from operations The income (loss) from operations for fiscal years 2003 and 2002 were as
follow: (In Thousands, unaudited)
    
    2003
    
    2002Manufacturing Segment
    
    $
    (802
    )
    
    $
    (4,013
    )Testing Segment
    
    $
    803
    
    
    $
    680Distribution Segment
    
    $
    (212
    )
    
    $
    (69
    )Corporate
    
    $
    (76
    )
    
    $
    (177
    )$
    (287
    )
    
    $
    (3,579
    )
 The substantial reduction in the operating loss from $3,579 in fiscal 2002, to
$287 in fiscal 2003 was mainly attributed to the Manufacturing and Testing
Segment and Corporate, which have more than to offset the increase in operating
loss for Distribution Segment. The operating loss in Manufacturing Segment decreased by $3,211 from $4,013 in
fiscal 2003 to $802 in fiscal 2002, mainly due to lower cost of goods sold as
mentioned earlier. In addition, the operating expenses further decreased such
as the reduction of $1,045 in impairment loss of machinery and equipment was
recorded in fiscal 2002 but was not repeated in fiscal 2003. No depreciation
was charged on the machinery and equipment that were impaired in fiscal 2002,
hence there was a reduction of $98 25




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in depreciation expense in fiscal 2003.
Payroll related expenses were reduced by $343 as a part of cost cutting
measures implemented in fiscal 2003. Concurrently, rental, insurance, travel,
legal and auditing fees and commission were cut by $202 for the same reason.
Finally, a reduction in research and development costs resulted in a savings of
$210 due to a change in demand for products sold by our Manufacturing segment. Testing Segment and Corporate also
contributed to the reduction in operating
loss. The operating loss for Testing Segment increased by $123 from $680 in
fiscal 2002 to $803 in fiscal 2003. Its operating expenses decreased mainly due
to the impairment loss of $130 which consisted of machinery and equipment,
furniture, and leasehold improvements pertaining to the Malaysia and Singapore
operations recorded in fiscal 2002 but was not repeated in fiscal 2003. The operating loss in Corporate reduced from $177 in fiscal 2002 to $76 in
fiscal 2003 due to an increase in allocated charges on the subsidiaries, which
was contributed from a significant reduction in sales for one particular
product with a lower allocated charge. This was offset by the increase in tax
fees of $53 for the appointment of a new firm to assist in the tax computation
rather than computing internally. Additionally, compensation costs of $14 were
charged because of the grant of certain stock options with an exercise price at
less than the fair market value of the underlying Common Stock. The above were more than to offset the increase in operating loss for
Distribution Segment, which increased from $69 in fiscal 2002 to $212 in fiscal
2003, mainly attributed to the decrease in gross margin mentioned earlier.
Despite there was a significant increase in Distribution Segment sales, the
operating loss did not reduce as the bulk of the sales increase derived from
low margin front-end products. Hence, the margin that derived from such
products was minimal. Interest Expenses The interest expenses for fiscal 2003 and fiscal 2002 were as follows: (In Thousands, unaudited)
    
    2003
    
    2002Interest expense
    
    $
    (185
    )
    
    $
    (207
    )
 Interest expense decreased by $22 or 10.6%, from $207 in fiscal 2002 to $185 in
fiscal 2003. This decrease was primarily due to net repayments of $932 on the
line of credit and payments of $1,284 on long-term debt and capitalized leases. Other Income The other income for fiscal 2003 and fiscal 2002 were as follows: (In Thousands, unaudited)
    
    2003
    
    2002Other income
    
    $
    347
    
    
    $
    306
 Other income increased by $41 or 13.4% from $306 in fiscal 2002 to $347 in
fiscal 2003. Changes in other income in fiscal 2003 compared to those in
fiscal 2002 consisted mainly of (1) an increase in gain on disposal of
marketable securities of $50, (2) an increase in exchange gain of $116 in
fiscal 2003 and, (3) a decrease in interest income of $99 in fiscal 2003. Income Tax The total income tax provision increased by $41 or 77% from $53 in fiscal 2002
to $94 in fiscal 2003. Of the change of $41, $19 was related to the current
portion of income tax due to the increase of $18 in foreign income tax expense
and $1 in state income tax expense compared to those in fiscal 2002. The
remaining $22 related to the deferred portion of income taxes expense. The
increase of $18 in current foreign income tax expense was a result of an
increase in income in Thailand from a loss of $36 in fiscal 2002 to an income
of $288 in fiscal 2003, which was offset by the decrease in income in Singapore
of $466 in fiscal 2002 to $182 in fiscal 2003. Though Singapore had a higher
income in fiscal 2002, the allowance on depreciation for tax purposes reduced
the taxable income and thus resulted in a lower tax provision in fiscal 2002. The deferred portion of income tax provision increased by $22 from $20 in
fiscal 2002 to $42 in fiscal 2003, which was attributed to the increase in the
deferred tax liability incurred mainly in Singapore. The increase in deferred
income tax expense was the result of the timing differences related to the
recording of depreciation expense for book and tax purposes. We did not
recognize any income tax benefits related to the losses generated in the U.S.
We believe that when the future taxable income exceeds the cumulative losses,
it is likely that such benefits will be realized. The Companys effective income tax rate increased from 2% in fiscal 2002 to 75%
in fiscal 2003. The increase in the effective income tax rate in fiscal 2003
was due to the decrease in net loss generated in the U.S. and the increase in
the net income before taxes generated by the operations conducted in foreign
countries. In addition, the net loss incurred in the U.S. cannot offset the 26




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taxable income in Singapore and Thailand. Therefore, the main portion of
income tax expense of $94 was incurred in Singapore and Thailand. The Company files income tax returns in the U.S., Singapore, Thailand,
Malaysia, and Ireland, respectively. Income taxes are provided in those
countries where taxable income is earned. Income in one country is not offset
by losses in another country. Accordingly, no benefit is provided for losses
in the countries except where the loss can be carried back against income
recognized in previous years. This has the effect of providing tax against
taxable income while not providing benefit for losses, which results in an
effective tax rate that differs from the federal statutory rate. The nature
and terms of income tax holidays, abatements, rate reductions and similar
arrangements granted by foreign taxing authorities and their impact on the
provision for income taxes are as follows:  1.
    
    Capital allowances are available in the Southeast Asia operations to
offset taxable income, which is the same as accelerated allowance on fixed
assets. This reduces the income tax payable and creates deferred tax
liabilities for the next few years.2.
    
    Reinvestment allowances can only offset the tax payable if the expansion,
modernization or diversification is carried out in a promoted area. Net (Loss) Income As a result of all of the factors analyzed above, the net loss for the fiscal
year ended June 30, 2003 was approximately $81, which represented a decrease in
losses of $3,466 from a net loss of $3,547 for fiscal 2002, or a 97.7% change.
Basic loss per share for fiscal 2003 decreased to $0.03 per share, from a basic
loss per share of $1.21 in fiscal 2002, which represented a decrease of $1.18,
a 97.7% change. Diluted loss per share for fiscal 2003 was $0.03 per share, a
decrease of $1.18 per share from diluted loss per share of $1.21 for fiscal
2002. Liquidity and Capital Resources We believe our financial condition is strong. The working capital (defined as
current assets minus current liabilities) of $7,370 as of June 30, 2004
increased by $343, or 4.88%, compared to working capital of $7,027 as of June
30, 2003. The current ratio (defined as current assets divided by current
liabilities) was 2.36 times as of June 30, 2004 compared to 2.57 as of June 30,
2003. The Company had positive working capital for the ten fiscal years prior
to the year ended June 30, 2004. We believe that the Company has the ability
to maintain positive working capital and strong liquidity in the near future. Management believes the Company has the economic wherewithal to satisfy any
short-term funding for several reasons. We have cash provided by operating
activities of $1,854 after adjusting for non-cash items and movements in
working capital and our collection of accounts receivable is approximately 70
days which is consistent with last year and is adequate for our purposes.
Furthermore, the manufacturing operation in San Jose, California, which
consistently showed a loss, was moved to Singapore without additional work
force. We anticipate that it will ease the working capital used to finance
that operation. The Burn-in testing operation in Malaysia acquired on July 1, 2004 will need
significant capital expenditure of $578 to renovate the office, plant and
facilities for new products, replace existing equipments and purchase new
equipments. Currently, internal funding is used for the first two payment of
$576 for the total acquisition cost of approximately $921 (2,000 Ringgit
Malaysian) The balance of the purchase price for this burn-in operation of
approximately $395 (1,500 Ringgit Malaysian) was paid in the form of a bank
guaranteed which will mature in six months at December 31, 2004. In addition, the backlog from Singapore Manufacturing ramped up beginning in
the last quarter of fiscal 2004. Accordingly, we anticipate that there will be
more purchases of raw materials to meet the orders in the next few quarters,
and the unused credit facilities will be utilized to fund this area. At June 30, 2004, the Company had available short-term lines of credit totaling
$3,699, of which $3,553 was unused. However, of this $3,553, the line of credit
of Trio-Tech Singapore of $2,925 expired in July 2004. The Company anticipates
that it will renew this line of credit at a later date. Entity with Facility
    
    Type of
    
    Interest
    
    Credit
    
    UnusedTrio-Tech Malaysia
    
    Line of Credit
    
    
    7.00
    %
    
    $
    91
    
    
    $
    91Trio-Tech Bangkok
    
    Line of Credit
    
    
    6.75
    %
    
    
    98
    
    
    
    98Trio-Tech Singapore
    
    Line of Credit
    
    
    5.5 to 6.0
    %
    
    
    3,510
    
    
    
    3,364$
    3,699
    
    
    $
    3,553
 27




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##### Table of Contents



The Company procured long-term loans of $773 and capitalized leases of $111 in
fiscal 2004 to finance capital purchases, and another loan of approximately
$1,000 has yet to be drawn down. The following contractual obligations servicing table describes our overall
future cash obligations based on various current contracts in the next five
years: Payments Due by Period (at June 30, 2004)Less than
    
    1 - 3
    
    4 - 5
    
    AfterTotal
    
    1 Year
    
    Years
    
    Years
    
    5 YearsLines of Credit
    
    $
    146
    
    
    $
    146
    
    
    $
    
    
    
    $
    
    
    
    $
    Notes Payable
    
    
    1,089
    
    
    
    506
    
    
    
    583
    
    
    
    
    
    
    
    Capital Leases
    
    
    456
    
    
    
    246
    
    
    
    202
    
    
    
    8
    
    
    
    Operating Leases
    
    
    1,373
    
    
    
    654
    
    
    
    719
    
    
    
    
    
    
    
    $
    3,064
    
    
    $
    1,552
    
    
    $
    1,504
    
    
    $
    8
    
    
    $
    
 Other requirements will be for the expansion of the new Distribution operation
in Singapore, where we anticipate the purchase of raw materials for Wet Process
Stations and for new products. There were no other capital commitments except
those that were disclosed as of June 30, 2004.. Fiscal 2004 Net cash provided by operating activities during the year ended June 30, 2004
doubled from net cash of $927 provided by operating activities during the year
ended June 30, 2003 to a net cash of $1,856. Movements in working capital
included increases in accounts payable and accrued expenses, and decreases in
accounts receivable and inventories. The increase in accounts payable and accrued expenses of $2,161 over June 30,
2003 was mainly due to larger orders for purchase of materials, especially in
the Singapore operation, to meet orders in the first quarter of 2005. There was
a sudden increase in our Manufacturing backlog in 2004, which went from $582 in
June 2003 to $3,440 in June 2004. However, accounts receivable decreased by $588 at June 30, 2004 as compared to
June 30, 2003. This was mainly attributable to the lower sales generated from
the Singapore Testing and Distribution operation. As a result, sales in
Southeast Asia decreased by $605 to $4,100 in the last quarter of fiscal 2004
as compared to the same quarter in fiscal 2003. Nevertheless, the accounts
receivable turnover index (defined as net sales divided by average ending
accounts receivable less bad debt allowance) remains consistent at 5 times at
June 30, 2003 and 2004, indicating that the Company remains efficient in its
collection. Inventories decreased by $324 at June 30, 2004 as compared to June 30, 2003,
which was mainly attributed to the decline in inventories of $310 in Universal
System. These inventories were either turned into finished goods and sold off
or transferred to Singapore in the third quarter of fiscal 2004; none was in
the operation thereafter. The provision for stock obsolescence in Universal
Systems of $250 was written off after the transfer and the carry value of the
inventories was taken up in the Singapore subsidiary. On the other hand, the
Singapore Manufacturing operation and Distribution operation started to stock
up inventories during the fourth quarter of fiscal 2004, to work on new orders
and to cater for the higher backlog as of June 30, 2004. Hence, the inventory
turnover index (defined as cost of sales divided by average ending inventory)
was 11.77 times at June 30, 2004, down from 15.75 times at June 30, 2004. The bulk of the cash provided from investing activities during the year 2004
was invested in short-term deposits, because of our view that cash will be
required in the short term for new investments in Malaysia. The investments in
short-term deposits increased $1,341 from $4,308 in June 30, 2003 to $5,649 in
June 30, 2004. This contributed mainly to the net cash used in investing
activities during the year ended June 30, 2004 of $1,581, compared to net cash
provided by investing activities of $1,346 during the year ended June 30, 2003.
In addition, capital expenditures increased by $470 in 2004 mainly due to the
acquisition of burn-in systems and the extension of a building. These were
offset with the higher proceeds of $241 mainly from sales of equipment and
lower purchase of marketable securities of $533 in 2004. Net cash used in financing activities during the year ended June 30, 2004 was
$464, reflecting a decrease of $1,287 compared to the $1,751 used in financing
activities during 2003. Out of the decrease of $1,287, $1,166 was due to lower
net repayment on lines of credit, debt and capitalized leases during the year
ended June 30, 2004 compared to net repayments of $1,681 for the year ended
June 30, 2003. In addition, cash of $104 was received from stock options
exercised during the year ended June 30, 2004. Approximately $2,011 of short-term deposits as of June 30, 2004 is held in the
Companys 55% owned Malaysian subsidiary. Of such amount, $1,742 is
denominated in the currency of Malaysia, of which $147 is currently available
for movement 28




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##### Table of Contents



overseas, 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. Fiscal 2003 Net cash provided by operating activities during the year ended June 30, 2003
was $927, reflecting a significant increase of $2,644, compared to a net cash
of $1,717 used in operating activities during the year ended June 30, 2002.
Movements in working capital included increases in accounts receivable,
accounts payable and accrued expenses and a decrease in inventories. The increase in accounts receivable of $222 was mainly attributable to the
higher net sales of 8.3% for the fiscal year ended June 30, 2003 compared to
June 30, 2002. The increased sales were the primary factor in the improvement
in the accounts receivable turnover. The accounts receivable turnover index
(defined as net sales divided by average ending accounts receivable less bad
debt allowance) totaled 5.45 times as at June 30, 2003, compared with 4.21
times at June 30, 2002 also indicating that the company believes that the
foregoing reflects its consistent emphasis on the collection of accounts
receivable. Accounts payables and accrued expense increased by $1,540 over June 30, 2002
mainly due to an increase in purchases of finished goods in one of the U.S
operations to cater for the sudden increase in their backlog from $111 as at
June 30, 2002 to $1,001 as at June 30, 2003. In addition, a potential sales
rebate of $163 was accrued in the Singapore operation after finalization of
pricing with a customer. However, inventory decreased by $445 at June 30, 2003 as compared to June 30,
2002, which was due to the improvement in the inventory turnover index. The
inventory turnover index (defined as cost of sales divided by average ending
inventory) was 15.75 times at June 30, 2003, up from 10.86 times at June 30,
2002. Net cash provided from investing activities increased $105 from $1,241 at June
30, 2002 to $1,346 at June 30, 2003. The change was contributed mainly from
higher proceeds from disposal of marketable securities of $109, an increase in
short term deposits of $53 and a reduction in purchases on marketable
securities of $139. This was offset with an increase in capital expenditures
of $122 in the Testing segment for business expansion in Southeast Asia and
lower proceeds from sales of equipment by $63. Net cash used in financing activities during the year ended June 30, 2003 was
$1,751, reflecting a decrease of $1,843 compared to $92 provided by financing
activities during the year ended June 30, 2002. Out of the decrease of $1,843,
$1,681 was due to lower net repayment on lines of credit, debt and capitalized
leases during the year ended June 30, 2003 compared to net borrowings of $96
for the year ended June 30, 2002. In addition, higher dividends of $66 were
paid out to the minority interest during the year ended June 30, 2002. Approximately $806 of cash deposits as of June 30, 2003 is held in the
Companys 55% owned Malaysian subsidiary. Of such amounts, $535 was
denominated in the currency of Malaysia, of which $168 is currently available
for movement overseas, 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. Corporate Guarantee Arrangement The Company provides a corporate guarantee to one of its subsidiaries in
Southeast Asia of approximately $1,462 to secure line-of-credit and term loans
from a bank to finance the operations of such subsidiary. With the strong
financial position of the subsidiary company, the Company believes this
corporate guarantee arrangement will have no material impact on its liquidity
or capital resources. Recently Issued Accounting Pronouncements In January 2003, the FASB issued Financial Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46, as
amended by FIN 46(R),
issued in January 2003, requires an investor with a majority of the variable
interests in a variable interest entity to consolidate the entity and also
requires majority and significant variable interest investors to provide
certain disclosures. A variable interest entity is an entity in which the
equity investors do not have a controlling financial interest or the equity
investment at risk is insufficient to finance the entitys activities without
receiving additional subordinated financial support from other parties. The
provisions of FIN 46(R) are applicable for fiscal years ending after December
15, 2004. The Company does not have any variable interest entities that must
be consolidated. CERTAIN RISKS THAT MAY AFFECT OUR FUTURE RESULTS We hereby caution stockholders, prospective investors in Trio-Tech
International and other readers that the following important factors, among
others, in some cases have affected, and in the future could affect, our stock
price or cause our actual results for 29




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the fiscal year ending June 30, 2004 and future fiscal years and quarters to
differ materially from those expressed in any forward-looking statements, oral
or written, made by or on behalf of us. Our operating results are affected by a variety of factors Our operating results are affected by a wide variety of factors that could
materially affect revenues and profitability or lead to significant variability
of quarterly or annual operating results. These factors include, among others,
components relating to:  
    
    economic and market conditions in the semiconductor industry;  
    
    market acceptance of our products and services;  
    
    changes in technologies in the semiconductor industry, which could affect demand for our products and services;  
    
    changes in testing processes;  
    
    the impact of competition;  
    
    the lack of long-term purchase or supply agreements with customers and vendors;  
    
    changes in military or commercial testing specifications, which could affect
the market for our products and services;  
    
    difficulties in profitably integrating acquired businesses, if any, into the Company;  
    
    the loss of key personnel or the shortage of available skilled employees;  
    
    international political or economic events;  
    
    currency fluctuations; and  
    
    other technological, economic, financial and regulatory factors beyond our control. Unfavorable changes in these or other factors could materially and adversely
affect our financial condition or results of operations. We may not be able to
generate revenue growth and any revenue growth that is achieved may not be
sustained. Our business, results of operations and financial condition would be
materially adversely affected if operating expenses increase and are not
subsequently followed by increased revenues. The semiconductor industry cycles affect our business Our business depends primarily upon the capital expenditures of semiconductor
manufacturers, assemblers and other testing companies worldwide. These
industries in turn depend on the current and anticipated market demand for
integrated circuits and products utilizing semiconductor devices. The global
semiconductor industry generally, and the semiconductor testing equipment
industry in particular, are volatile and cyclical, with periodic capacity
shortages and excess capacity. In periods of excess capacity, the industry
sharply cuts its purchases of capital equipment, including our distributed
products, and reduces testing volumes, including our testing services. Excess
capacity also causes downward pressure on the selling prices of our products
and services. Our operating results have been adversely affected by past downturns and
slowdowns. There is no assurance that there will not be downturns or slowdowns
in the future that may adversely affect our financial condition or operating
results. In addition, if one or more of our primary customers reduces its or
their purchases or use of our products or testing services, our financial
results could be materially and adversely affected. We anticipate that we will
continue to be primarily dependent on the semiconductor industry for the
foreseeable future. Rapid technological changes may make our products obsolete or result in
decreased prices or increased expenses Technology changes rapidly in the semiconductor industry and may make our
services or products obsolete. Advances in technology may lead to significant
price erosion for products which we test with our older testing technologies.
Our success will depend in part on our ability to develop and offer more
advanced testing technologies and processes in the future, to anticipate both
future demand and the technology to supply that demand, to enhance our current
products and services, to provide those products and services at competitive
prices on a timely and cost-effective basis and to achieve market acceptance of
those products and services. To accomplish these goals, we may be required to
incur significant engineering expenses. As new products or services are
introduced, we may experience warranty claims or product returns. We may not
be able to accomplish these goals correctly or timely enough. If we fail in
our efforts, our products and services may become obsolete or less competitive. Our dependence on international sales involves significant risk Sales and services to customers outside the United States accounted for
approximately 70%, 58% and 59% of our net revenues for fiscal 2004, 2003 and
2002, respectively. Approximately 69%, 53% and 51% of our net revenues in
fiscal 2004, 2003 and 2002, respectively, were generated from business in
Southeast Asia. We expect that our non-U.S. sales and services will continue
to generate the major part of our future revenues. Testing services in
Southeast Asia were performed primarily for American companies, and to a lesser
extent German companies, selling products and doing business in those regions. 30




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International business operations may be adversely affected by many factors
including fluctuations in exchange rates, imposition of government controls,
trade restrictions, political, economic and business events and social and
cultural differences. We may incur losses due to foreign currency fluctuations Significant portions of our revenues are denominated in Singapore and Euro
dollars, Malaysian ringgit, Thai baht 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 translation adjustments resulted in an increase
of $155 to shareholders equity for fiscal 2004, an increase of $18 to
shareholders equity for fiscal 2003 and an increase of $262 to shareholders
equity for fiscal 2002. We try to reduce our risk of foreign currency fluctuations 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. We do not rely on patents to protect our products or technology We hold U.S. patents relating to our pressurization humidity testing equipment
and certain aspects of our Artic temperature test systems. Additionally, in
fiscal 2001, we were granted patents for certain aspects of our new ranges of
Artic temperature controlled chucks. However, although we believe our patents
are integral to our business, generally we do not rely on patent or trade
secret protection for our products or technology. Competitors may develop
technologies similar to or more advanced than ours. We cannot assure you that
our current or future products will not be copied or will not infringe on the
patents of others. Moreover, the cost of litigation of any claim or damages
resulting from infringement of patents or other intellectual property could
adversely affect our business, financial condition and results of operations. Intense competition can adversely affect our operating results The semiconductor equipment and testing industries are intensely competitive.
Significant competitive factors include price, technical capabilities, quality,
automation, reliability, product availability and customer service. We face
competition from established and potential new competitors, many of whom have
greater financial, engineering, manufacturing and marketing resources than our
resources. New products or testing facilities offered by our competitors could
cause a decline in our revenues or a loss of market acceptance of our existing
products and services. Increased competitive pressure could also lead to
intensified price-based competition. Price-based competition may result in
lower prices, adversely affecting our operating results. Loss, reduction or delay of orders from significant customers could adversely
affect our financial condition The semiconductor manufacturing industry is highly concentrated, with a
relatively small number of large manufacturers and assemblers accounting for a
substantial portion of our revenues from product sales and testing revenues.
Our experience has been that sales to particular customers may fluctuate
significantly from quarter to quarter and year to year. In fiscal 2004, 2003,
and 2002, sales of equipment and services to our two largest customers
accounted for approximately 52%, 49%, and 55%, respectively, of our net
revenues. Our ability to maintain close, satisfactory relationships with our
customers is essential to our stability and growth. The loss of or reduction
or delay in orders from our significant customers, or delays in collecting
accounts receivable from our significant customers, could adversely affect our
financial condition and results of operations. There is a limited market for our testing products and services If testing equipment is purchased by semiconductor manufacturers and
assemblers, it may reduce the likelihood that they will make further purchases
of such equipment, or use our laboratories for testing services. Although
military or other specifications require certain testing to be done by
independent laboratories, over time other current customers may have less need
for our testing services. We believe that there is a growing trend toward
outsourcing of the integrated circuit test process. As a result, we anticipate
continued growth in the test laboratory business. However, there is no
assurance that this trend will continue. In an attempt to diversify our sales
mix, we may seek to develop and introduce new or advanced products, and to
acquire other companies in the semiconductor equipment manufacturing business. Acquisition and integration of new businesses could disrupt our ongoing
business, distract management and employees, increase our expenses and
adversely affect our business A portion of any future growth may be accomplished through the acquisition of
other entities. The success of those acquisitions will depend, in part, on our
ability to integrate the acquired personnel, operations, products, services and
technologies into our 31




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organization, to retain and motivate key personnel of the acquired entities and
to retain the customers of those entities. We may not be able to identify
suitable acquisition opportunities, obtain financing on acceptable terms to
bring the acquisition to fruition or to integrate such personnel, operations,
products or services. The process of identifying and closing acquisition
opportunities and integrating acquisitions into our operations may distract our
management and employees, disrupt our ongoing business, increase our expenses
and materially and adversely affect our operations. We may also be subject to
certain other risks if we acquire other entities, such as the assumption of
additional liabilities. We may issue additional equity securities or incur
debt to pay for future acquisitions. We do not have contracts with key suppliers We have no written contracts with any of our suppliers. Our suppliers may
terminate their relationships with us at any time without notice. There can be
no assurance that we will be able to find satisfactory replacement suppliers or
that new suppliers would not be more expensive than the current suppliers if
any of our suppliers were to terminate their relationship with us. We are highly dependent on key personnel Our success has depended, and, to a large extent will depend, on the continued
services of S.W. Yong, our Chief Executive Officer and President, Victor H. M.
Ting, our Vice President and Chief Financial Officer, our other key senior
executives and engineering, marketing, sales, productions and other personnel.
We do not have an employment agreement with Mr. Yong or Mr. Ting, but we are
the beneficiary of key man life insurance in the amount of $6 million on Mr.
Yong and $2 million on Mr. Ting. The loss of these key personnel, who would be
difficult to replace, could harm our business and operating results.
Competition for management in our industry is intense and we may be
unsuccessful in attracting and retaining the executive management and other key
personnel that we require. Our management has significant influence over corporate decisions Currently our officers and directors and their affiliates beneficially own
approximately 32.8% of the outstanding shares of common stock, including
options held by them that are exercisable within 60 days of the date of filing
of this 10-K. As a result, they may be able to significantly influence matters
requiring approval of the shareholders, including the election of directors,
and may be able to delay or prevent a change in control of the Company. We have not paid cash dividends We have never paid any cash dividends on our common stock. We anticipate that
the future earnings, if any, will be retained for use in the business or for
other corporate purposes. We do not expect to pay cash dividends on our common
stock in the future. Additionally, California law prohibits the payment of
dividends if the Company does not have sufficient retained earnings or cannot
meet certain asset to liability ratios. Thus, there is no assurance that the
Company would be permitted to pay dividends in the future. Possible dilutive effect of outstanding options As of June 30, 2004, there were 345,500 shares of common stock reserved for
issuance upon exercise of outstanding stock options. The outstanding options
are currently exercisable at exercise prices ranging from $2.25 to $6.00 per
share. We anticipate that the trading price of our common stock at the time of
exercise of any such outstanding options will exceed the exercise price under
those options. Thus such exercise will have a dilutive effect on our
shareholders. The market price for our common stock is subject to fluctuation The trading price of our common stock has from time to time fluctuated widely.
The trading price may similarly fluctuate in the future in response to
quarter-to-quarter variations in our operating results, announcements of
innovations or new products by us or our competitors, general conditions in the
semiconductor industry and other events or factors. In addition, in recent
years, broad stock market indices in general, and the securities of technology
companies in particular, have experienced substantial price fluctuations on a
daily basis. Fluctuations in the trading price of our common stock may
adversely affect our liquidity. 
 ITEM 7A  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 and thus subject
us to market risk due to those fluctuations. Due to the short duration and
conservative nature of our investment portfolio, we do not 32




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##### Table of Contents



expect any material loss with respect to our investment portfolio, though no
assurances can be given that material losses will not occur. The outstanding aggregate principal balance on loans to us and on our lines of
credit range from 4.50% to 7.25% per annum. As of June 30, 2004, the
outstanding principal balance on these loans was approximately $1,235. These
interest rates are subject to change and we cannot predict an increase or
decrease in rates, if any. There-
    
    
    
    
    
    FairPeriod ending June 30,
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    after
    
    Total
    
    ValueLoans:denominated by Singapore Dollars
    
    $
    145
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    145
    
    
    $
    145Interest rate (varaible)
    
    
    7.25
    %denominated by Singapore Dollars
    
    $
    195
    
    
    $
    195
    
    
    $
    65
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    455
    
    
    $
    455Interest rate (fixed)
    
    
    6.25
    %
    
    
    6.25
    %
    
    
    6.25
    %denominated by Singapore Dollars
    
    $
    58
    
    
    $
    61
    
    
    $
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    140
    
    
    $
    140Interest rate (fixed)
    
    
    5.59
    %
    
    
    5.59
    %
    
    
    5.59
    %denominated by Thailand Baht
    
    $
    59
    
    
    $
    59
    
    
    $
    59
    
    
    $
    30
    
    
    
    
    
    
    
    
    
    
    $
    207
    
    
    $
    207Interest rate (variable)
    
    
    4.50
    %
    
    
    4.50
    %
    
    
    4.50
    %
    
    
    4.50
    %denominated Irish Pound
    
    $
    32
    
    
    $
    28
    
    
    $
    28
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    88
    
    
    $
    88Interest rate (variable)
    
    
    5.59
    %
    
    
    5.59
    %
    
    
    5.59
    %denominated Irish Pound
    
    $
    17
    
    
    $
    16
    
    
    $
    17
    
    
    $
    4
    
    
    
    
    
    
    
    
    
    
    $
    54
    
    
    $
    54Interest rate (variable)
    
    
    5.11
    %
    
    
    5.11
    %
    
    
    5.11
    %
    
    
    5.11
    %Line of credit:denominated by Singapore Dollars
    
    $
    146
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    146
    
    
    $
    146Interest rate (variable)Total
    
    $
    652
    
    
    $
    359
    
    
    $
    190
    
    
    $
    34
    
    
    $
    
    
    
    $
    
    
    
    $
    1,235
    
    
    $
    1,235
 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 and Euro dollars,
Malaysian ringgit, Thai Baht 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 translation adjustments resulted in an increase of $155 to
shareholders equity for fiscal 2004, an increase of $18 to shareholders
equity for fiscal 2003 and an increase of $262 to shareholders equity for
fiscal 2002. We try to reduce our risk of foreign currency fluctuations 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. 
 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information called for by this item is included in the Companys
consolidated financial statements beginning on page 42 of this Annual Report on
Form 10-K. 
 ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE None 33




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##### Table of Contents



ITEM 9A  CONTROLS AND PROCEDURES An evaluation was carried out by the Companys Chief Executive Officer and
Chief Financial Officer of the effectiveness of the Companys disclosure
controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the
Securities Exchange Act of 1934, as amended) as of June 30, 2004, the end of
the period covered by this Form 10-K. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that these disclosure
controls and procedures were effective. During the period covered by this
report, there have been no changes in the Companys internal control over
financial reporting that have materially affected or are reasonably likely to
materially affect the Companys internal control over financial reporting. 
 ITEM 9B  OTHER INFORMATION Not applicable 
 PART III The information required by Items 10 through 14 of Part III of this Form 10-K
(information regarding our directors and executive officers, executive
compensation, security ownership of certain beneficial owners, management,
related stockholder matters, and certain relationships and related transactions
and principal accountant fees and services, respectively) is hereby
incorporated by reference from the Companys Proxy Statement to be filed with
the Securities and Exchange Commission within 120 days after the end of fiscal
2004. 
 PART IV 
 ITEM 15  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1 and 2)
    
    FINANCIAL STATEMENTS AND SCHEDULES:The following financial statements, including notes thereto and the
independent auditors report with respect thereto, are filed as part
of this Annual Report on Form 10-K, starting on page 42 hereof:1.    Report of Independent Public Registered Accounting Firm2.    Consolidated Balance Sheets3.    Consolidated Statements of Income and Comprehensive (Loss) Income4.    Consolidated Statements of Shareholders Equity5.    Consolidated Statements of Cash Flows6.    Notes to Consolidated Financial Statements(b)
    
    REPORTS ON FORM 8-K:The Registrant filed the following reports on Form 8-K with the
Securities and Exchange Commission during the last quarter of the
fiscal year ended June 30, 2004:Form 8-K, filed April 7, 2004 (with a date of earliest event reported
of March 29, 2004) reporting under Item 5.(c)
    
    EXHIBITS:
 Number
    
    Description3.1
    
    Articles of Incorporation, as currently in effect. [Incorporated by
reference to Exhibit 3.1 to the Registrants Annual Report on Form 10-K
for June 30, 1988.]3.2
    
    Bylaws, as currently in effect. [Incorporated by reference to Exhibit
3.2 to the Registrants Annual Report on Form 10-K for June 30, 1988.]10.1
    
    Credit Facility Letter dated January 4, 2001, between Trio-Tech
International Pte. Ltd. and Standard Chartered Bank. [Incorporated by
reference to Exhibit 10.9 to the Registrants Annual Report on Form 10-K
for June 30, 2001.]10.2
    
    1998 Stock Option Plan. [Incorporated by reference to Exhibit 1 to the
Companys proxy statement filed under regulation 14A on October 27, 1997].
**
 34




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##### Table of Contents



Number
    
    Description10.3
    
    Directors Stock Option Plan. [Incorporated by reference to Exhibit 2 to
the Companys proxy statement filed under regulation 14A on October 27,
1997]. **10.4
    
    Real Estate Lease dated February 1, 1999 between Martinvale Development
Company and Universal Systems. [Incorporated by reference to Exhibit 10.12
to the Registrants Annual Report on Form 10-K for June 30, 1999.]10.5
    
    Real Estate Lease dated February 16, 2001 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Block 1004 Toa Payoh North
#07-01/07 and #03-01/03. [Incorporated by reference to Exhibit 10.13 to
the Registrants Annual Report on Form 10-K for June 30, 2001.]10.6
    
    Real Estate Lease dated May 13, 1999 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Block 1004 Toa Payoh North
#03-16/17. [Incorporated by reference to Exhibit 10.14 to the
Registrants Annual Report on Form 10-K for June 30, 2001.]10.7
    
    Real Estate Lease dated October 13, 1999 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Block 1004 Toa Payoh North
#01-08/15. [Incorporated by reference to Exhibit 10.15 to the Registrants
Annual Report on Form 10-K for June 30, 2001.]10.8
    
    Real Estate Lease dated December 7, 2000 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Block 1004 Toa Payoh North
#01-16/7. [Incorporated by reference to Exhibit 10.16 to the Registrants
Annual Report on Form 10-K for June 30, 2001.]10.9
    
    Real Estate Lease dated January 3, 2000 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Block 1008 Toa Payoh North
#03-01/06. [Incorporated by reference to Exhibit 10.17 to the Registrants
Annual Report on Form 10-K for June 30, 2001.]10.10
    
    Real Estate Lease dated October 13, 1999 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Block 1008 Toa Payoh North
#03-09/15 and #03-16/18. [Incorporated by reference to Exhibit 10.18 to
the Registrants Annual Report on Form 10-K for June 30, 2001.]10.11
    
    Real Estate Lease dated May 2, 2000 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Block 1008 Toa Payoh North #01-08.
[Incorporated by reference to Exhibit 10.19 to the Annual Report on Form
10-K for June 30, 2001.]10.12
    
    Real Estate Lease dated September 12, 2000 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Block 1008 Toa Payoh North
#07-17/18. [Incorporated by reference to Exhibit 10.20 to the
Registrants Annual Report on Form 10-K for June 30, 2001.]10.13
    
    Real Estate Lease dated October 30, 2000 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Block 1008 Toa Payoh North #07-01.
[Incorporated by reference to Exhibit 10.21 to the Registrants Annual
Report on Form 10-K for June 30, 2001.]10.14
    
    Real Estate Lease dated February 26, 2002 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Block 1004 Toa Payoh North
#02-11/15. [Incorporated by reference to Exhibit 10.14 to the Registrants
Annual Report on Form 10-K for June 30, 2002.]10.15
    
    Real Estate Lease dated June 10, 2002 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Block 1004 Toa Payoh North
#02-08/10. [Incorporated by reference to Exhibit 10.15 to the
Registrants Annual Report on Form 10-K for June 30, 2002.]10.16
    
    Credit Facility Letter dated November 16, 2001 and June 24, 2002,
between Trio-Tech International Pte. Ltd. and Standard Chartered Bank.
[Incorporated by reference to Exhibit 10.16 to the Registrants Annual
Report on Form 10-K for June 30, 2002.]10.17
    
    Credit Facility Letter dated July 24, 2002, between Trio-Tech
International Pte. Ltd. and OCBC Bank. [Incorporated by reference to
Exhibit 10.17 to the Registrants Annual Report on Form 10-K for June 30,
2002.]10.18
    
    Credit Facility Letter dated May 21, 2002, between Trio-Tech (M) Sdn Bhd
and HSBC Bank Malaysia Berhad. [Incorporated by reference to Exhibit 10.18
to the Registrants Annual Report on Form 10-K for June 30, 2002.]
 35




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##### Table of Contents



Number
    
    Description10.19
    
    Credit Facility Letter dated January 22, 2002, between Trio-Tech (KL)
Sdn Bhd and Public Bank Berhad. [Incorporated by reference to Exhibit
10.19 to the Registrants Annual Report on Form 10-K for June 30, 2002.]10.20
    
    Real Estate Lease dated November 8, 2001 between Elbar Investments, L.P.
and Trio-Tech International for 14731 Califa Street, Van Nuys.
[Incorporated by reference to Exhibit 23.1 to the Registrants Annual
Report on Form 10-K for June 30, 2002.]10.21
    
    Amendment to the Directors Stock Option Plan [Incorporated by reference
to Exhibit 10.21 to the Registrants Annual Report on Form 10-K for June
30, 2002.] **10.22
    
    Credit Facility Letter dated January 28, 2003, between Trio-Tech (M) Sdn
Bhd and HSBC Bank Malaysia Berhad [Incorporated by reference to Exhibit
10.22 to the Registrants Annual Report on Form 10-K for June 30, 2003.]10.23
    
    Credit Facility Letter dated September 20, 2002, between KTS
Incorporated and Bank of America. [Incorporated by reference to Exhibit
10.23 to the Registrants Annual Report on Form 10-K for June 30, 2003.]10.24
    
    Real Estate Lease dated January 12, 2001 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Toa Payoh North #01-S3/S4.
[Incorporated by reference to Exhibit 10.24 to the Registrants Annual
Report on Form 10-K for June 30, 2003.]10.25
    
    Sales and Purchase Agreement, dated March 29, 2004 between TS Matrix BHD
and Trio Tech (Malaysia) SDN BHD. [Incorporated by reference to Exhibit
99.1 to the Registrants Form 8-K filed on July 15, 2004.]10.26
    
    Sub-tenancy Agreement, dated July 1, 2004 between TS Matrix BHD and Trio
Tech (Malaysia) SDN. BHD. [Incorporated by reference to Exhibit 10.1 to
the Registrants Amended Form 8-K filed on August 20, 2004.]10.27
    
    Real Estate Lease dated April 28, 2004 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Block 1004 Toa Payoh North
#04-14/16 and #04-17. *10.28
    
    Real Estate Lease dated April 28, 2004 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Block 1004 Toa Payoh North
#03-08/10. *10.29
    
    Real Estate Lease dated April 19, 2004 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Block 1008 Toa Payoh North #02-17.
*10.30
    
    Real Estate Lease dated May 26, 2004 between JTC Corporation and
Trio-Tech International Pte. Ltd. for Block 1008 Toa Payoh North
#02-15/16. *10.31
    
    Credit Facility Letter dated July 7, 2003, between Trio-Tech
International Pte. Ltd, and Hong Leong Finance Limited.*10.32
    
    Credit Facility Letter dated October 2, 2003, between Trio-Tech Bangkok
and Kasikornbank Public Company Limited.*10.33
    
    Credit Facility Letter dated October 7, 2003, between Trio-Tech
International Pte. Ltd, and DBS Bank Ltd.*10.34
    
    Credit Facility Letter dated August 11, 2003 between Trio-Tech
International Pte. Ltd. and Standard Chartered Bank.*21.1
    
    Subsidiaries of the Registrant (100% owned by the Registrant except as otherwise stated):Trio-Tech International Pte. Ltd., a Singapore CorporationTrio-Tech Test Services Pte. Ltd., a Singapore Corporation, was renamed Universal (Far East) Pte. Ltd.Trio-Tech Reliability Services, a California CorporationExpress Test Corporation, A California CorporationEuropean Electronic Test Center. Ltd. A Cayman Islands Corporation
 36




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##### Table of Contents



Number
    
    DescriptionTrio-Tech Malaysia, a Malaysia Corporation (55% owned by the Registrant)Trio-Tech Kuala Lumpur, a Malaysia Corporation (100% owned by Trio-Tech Malaysia)Trio-Tech Bangkok, a Thailand CorporationTrio-Tech Thailand, a Thailand CorporationPrestal Enterprise Sdn. Bhd., a Malaysia Corporation (76% owned by the Registrant)KTS Incorporated, dba Universal Systems, a California CorporationTrio-Tech (Suzhou) Co. Ltd., a China Corporation23.1
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer of Registrant*31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer of Registrant*32
    
    Section 1350 Certification. *
 * Filed electronically herewith ** Indicates management contracts or compensatory plans or arrangements
required to be filed as an exhibit to this report. 37




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##### Table of Contents



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. TRIO-TECH INTERNATIONAL By:
    
    /s/ Victor H.M. TingVICTOR H.M. TINGVice President andChief Financial OfficerDate: September 22, 2004
 Pursuant to the requirement of the Securities Exchange Act of 1934, the
following persons on behalf of the Registrant and in the capacities and as of
the dates indicated have signed this report below. /s/ A. Charles Wilson
    
    September 22, 2004A. Charles Wilson, DirectorChairman of the Board/s/ S. W. Yong
    
    September 22 2004S. W. Yong, DirectorPresident, Chief Executive Officer(Principal Executive Officer)/s/ Victor H.M. Ting
    
    September 22, 2004Victor H.M. TingVice President, Chief Financial Officer(Principal Financial Officer)/s/ Jason T. Adelman
    
    September 22, 2004Jason T. Adelman, Director/s/ Richard M. Horowitz
    
    September 22, 2004Richard M. Horowitz, Director
 38




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##### Table of Contents



Exhibit 31.1 CERTIFICATIONS I, S. W. Yong, certify that: 1. I have reviewed this Annual Report on Form 10-K of Trio-Tech International,
a California corporation; 2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report; 4. The registrants other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrants disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrants internal
control over financial reporting that occurred during the registrants most
recent fiscal quarter (the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial reporting;
and 5. The registrants other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the registrants board of
directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrants ability to record, process,
summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control over
financial reporting. Date: September 22, 2004 /s/S. W. YONGS. W. Yong, Chief ExecutiveOfficer and President (Principal Executive
Officer)
 39




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##### Table of Contents



Exhibit 31.2 I, Victor H.M. Ting, certify that: 1. I have reviewed this Annual Report on Form 10-K of Trio-Tech International,
a California corporation; 2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report; 4. The registrants other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrants disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrants internal
control over financial reporting that occurred during the registrants most
recent fiscal quarter (the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial reporting;
and 5. The registrants other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the registrants board of
directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrants ability to record, process,
summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control over
financial reporting. Date: September 22, 2004 /s/ VICTOR H.M. TINGVictor H.M. Ting, Chief Financial Officerand Vice President (Principal Financial
Officer)
 40




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Exhibit 32 SECTION 1350 CERTIFICATION Each of the undersigned, S.W. Yong, President and Chief Executive Officer of
Trio-Tech International, a California corporation (the Company), and Victor
H.M. Ting, Vice President and Chief Financial Officer of the Company, do hereby
certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge (1) the
annual report on Form 10-K of the Company for the year ended June 30, 2004, as
filed with the Securities and Exchange Commission on the date hereof (the
Report), fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended, and (2) the information
contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. /s/ S. W. YONGName: S. W. YongTitle: President and Chief Executive OfficerDate: September 22, 2004/s/ VICTOR H. M. TINGName: Victor H.M. TingTitle: Vice President and
Chief Financial OfficerDate: September 22, 2004
 A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature
that appears in typed form within the electronic version of this written
statement required by Section 906, has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request. 41




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REPORT OF INDEPENDENT PUBLIC REGISTERED ACCOUNTING FIRM Board of Directors
Trio-Tech International
Van Nuys, California: We have audited the accompanying consolidated balance sheets of Trio-Tech
International and subsidiaries (the Company) as of June 30, 2004 and 2003,
and the related consolidated statements of operations and comprehensive income
(loss), shareholders equity, and cash flows for the three years ended June 30,
2004. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Trio-Tech International and
subsidiaries as of June 30, 2004 and 2003, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
2004 in conformity with accounting principles generally accepted in the United
States of America. BDO International /s/BDO InternationalSingaporeSeptember 14, 2004
 42




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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT NUMBER OF SHARES) June 30,
    
    June 30,Note
    
    2004
    
    2003ASSETSCURRENT ASSETS:Cash
    
    
    2
    
    
    $
    1,357
    
    
    $
    1,495Short-term deposits
    
    
    2
    
    
    
    5,649
    
    
    
    4,308Investments in marketable securities
    
    
    2
    
    
    
    
    
    
    
    485Trade accounts receivable, less allowance for doubtful
accounts of $165 and $157
    
    
    2
    
    
    
    3,695
    
    
    
    3,643Other receivables
    
    
    
    
    
    
    583
    
    
    
    373Inventories, less provision for obsolete inventory
of $445 and $735
    
    
    3
    
    
    
    1,409
    
    
    
    1,049Prepaid expenses and other current assets
    
    
    
    
    
    
    105
    
    
    
    140Total current assets
    
    
    
    
    
    
    12,798
    
    
    
    11,493PROPERTY, PLANT AND EQUIPMENT, Net
    
    
    4
    
    
    
    5,202
    
    
    
    5,210OTHER ASSETS, Net
    
    
    
    
    
    
    
    
    
    
    8TOTAL ASSETS
    
    
    
    
    
    $
    18,000
    
    
    $
    16,711LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Lines of credit
    
    
    5
    
    
    $
    146
    
    
    $
    300Accounts payable
    
    
    
    
    
    
    2,316
    
    
    
    1,080Accrued expenses
    
    
    6
    
    
    
    2,166
    
    
    
    2,096Income taxes payable
    
    
    9
    
    
    
    49
    
    
    
    56Current portion of notes payable
    
    
    8
    
    
    
    506
    
    
    
    632Current portion of capitalized leases
    
    
    10
    
    
    
    246
    
    
    
    302Total current liabilities
    
    
    
    
    
    
    5,429
    
    
    
    4,466NOTES PAYABLE, net of current portion
    
    
    8
    
    
    
    583
    
    
    
    492CAPITALIZED LEASES, net of current portion
    
    
    10
    
    
    
    210
    
    
    
    344DEFERRED INCOME TAXES
    
    
    9
    
    
    
    644
    
    
    
    711TOTAL LIABILITIES
    
    
    
    
    
    
    6,866
    
    
    
    6,013COMMITMENTS AND CONTINGENCIES
    
    
    10
    
    
    
    
    
    
    
    MINORITY INTEREST
    
    
    
    
    
    
    2,110
    
    
    
    2,108SHAREHOLDERS EQUITY:Common stock; no par value, 15,000,000 shares authorized;
2,964,562 and 2,927,542 shares issued and outstanding
    
    
    11
    
    
    
    9,527
    
    
    
    9,423Paid-in capital
    
    
    11
    
    
    
    284
    
    
    
    284Accumulated deficit
    
    
    11
    
    
    
    (519
    )
    
    
    (739
    )Accumulated other comprehensive income-unrealized gain
    
    
    11
    
    
    
    
    
    
    
    45Accumulated other comprehensive loss-translation adjustments
    
    
    11
    
    
    
    (268
    )
    
    
    (423
    )Total shareholders equity
    
    
    
    
    
    
    9,024
    
    
    
    8,590TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    
    
    
    
    $
    18,000
    
    
    $
    16,711
 See notes to consolidated financial statements. 43




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##### Table of Contents



TRIO-TECH INTERNATIONAL AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT EARNINGS (LOSS) PER SHARE) Years EndedJune 30,
    
    June 30,
    
    June 30,Note
    
    2004
    
    2003
    
    2002NET SALES- PRODUCT SALES
    
    
    
    
    
    $
    10,246
    
    
    $
    11,741
    
    
    $
    10,675- SERVICES
    
    
    
    
    
    
    8,908
    
    
    
    9,505
    
    
    
    8,94219,154
    
    
    
    21,246
    
    
    
    19,617COST OF SALES- COST OF GOODS SOLD
    
    
    
    
    
    
    8,145
    
    
    
    10,395
    
    
    
    10,421- COSTS OF SERVICE RENDERED
    
    
    
    
    
    
    6,309
    
    
    
    5,850
    
    
    
    5,50514,454
    
    
    
    16,245
    
    
    
    15,926GROSS PROFIT
    
    
    
    
    
    
    4,700
    
    
    
    5,001
    
    
    
    3,691OPERATING EXPENSES:General and administrative
    
    
    
    
    
    
    3,769
    
    
    
    3,992
    
    
    
    4,141Selling
    
    
    
    
    
    
    875
    
    
    
    702
    
    
    
    1,200Research and development
    
    
    
    
    
    
    117
    
    
    
    121
    
    
    
    331Impairment Loss
    
    
    
    
    
    
    4
    
    
    
    358
    
    
    
    1,631(Gain) loss on disposal of property, plant & equipment
    
    
    
    
    
    
    (101
    )
    
    
    115
    
    
    
    (33
    )Total
    
    
    
    
    
    
    4,664
    
    
    
    5,288
    
    
    
    7,270INCOME (LOSS) FROM OPERATIONS
    
    
    
    
    
    
    36
    
    
    
    (287
    )
    
    
    (3,579
    )OTHER INCOME (EXPENSE)Interest expense
    
    
    
    
    
    
    (120
    )
    
    
    (185
    )
    
    
    (207
    )Other income
    
    
    14
    
    
    
    372
    
    
    
    347
    
    
    
    306Total
    
    
    
    
    
    
    252
    
    
    
    162
    
    
    
    99INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST
    
    
    
    
    
    
    288
    
    
    
    (125
    )
    
    
    (3,480
    )INCOME TAXES
    
    
    9
    
    
    
    13
    
    
    
    94
    
    
    
    53INCOME (LOSS) BEFORE MINORITY INTEREST
    
    
    
    
    
    
    275
    
    
    
    (219
    )
    
    
    (3,533
    )MINORITY INTEREST
    
    
    
    
    
    
    (55
    )
    
    
    138
    
    
    
    (14
    )NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
SHARES
    
    
    
    
    
    
    220
    
    
    
    (81
    )
    
    
    (3,547
    )OTHER COMPREHENSIVE (LOSS) INCOME :Unrealized (gain) loss on investment
    
    
    
    
    
    
    (45
    )
    
    
    21
    
    
    
    24Foreign currency translation adjustment
    
    
    
    
    
    
    155
    
    
    
    18
    
    
    
    262COMPREHENSIVE INCOME (LOSS)
    
    
    
    
    
    $
    330
    
    
    $
    (42
    )
    
    $
    (3,261
    )EARNINGS (LOSS) PER SHARE:Basic
    
    
    
    
    
    $
    0.07
    
    
    $
    (0.03
    )
    
    $
    (1.21
    )Diluted
    
    
    
    
    
    $
    0.07
    
    
    $
    (0.03
    )
    
    $
    (1.21
    )WEIGHTED AVERAGE NUMBER OF COMMON AND
POTENTIAL COMMON SHARES OUTSTANDINGBasic
    
    
    
    
    
    
    2,939
    
    
    
    2,928
    
    
    
    2,928Diluted
    
    
    
    
    
    
    3,000
    
    
    
    2,928
    
    
    
    2,928
 See notes to consolidated financial statements. 44




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##### Table of Contents



TRIO-TECH INTERNATIONAL AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (IN THOUSANDS) Accum-ulatedCommon Stock
    
    Additional
    
    RetainedEarnings/
    
    OtherCompre-Number of
    
    
    
    
    
    Paid-in
    
    Accumulated
    
    hensiveShares
    
    Amount
    
    Capital
    
    Deficit
    
    (Loss)
    
    TotalBalance, June 30, 2001
    
    
    2,927
    
    
    $
    9,423
    
    
    $
    0
    
    
    $
    2,889
    
    
    $
    (703
    )
    
    $
    11,609Stock compensation due to
issuance of options
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    24Other
    
    
    
    
    
    
    
    
    
    
    246
    
    
    
    
    
    
    
    
    
    
    
    246Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,547
    )
    
    
    
    
    
    
    (3,547
    )Unrealized gain in marketable securities (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    24Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    262
    
    
    
    262Balance, June 30, 2002
    
    
    2,927
    
    
    
    9,423
    
    
    
    270
    
    
    
    (658
    )
    
    
    (417
    )
    
    
    8,618Stock compensation due to
issuance of options
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    14Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81
    )
    
    
    
    
    
    
    (81
    )Unrealized gain in marketable securities (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    21Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    18Balance, June 30, 2003
    
    
    2,927
    
    
    
    9,423
    
    
    
    284
    
    
    
    (739
    )
    
    
    (378
    )
    
    
    8,590Cash received from stock
options exercised
    
    
    37
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    220
    
    
    
    
    
    
    
    220Unrealized loss in marketable securities (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45
    )
    
    
    (45
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155
    
    
    
    155Balance, June 30, 2004
    
    
    2,964
    
    
    $
    9,527
    
    
    $
    284
    
    
    $
    (519
    )
    
    $
    (268
    )
    
    
    9,024
 See notes to consolidated financial statements. 45




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##### Table of Contents



TRIO-TECH INTERNATIONAL AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOW (IN THOUSANDS)
 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Years EndedJune 30,
    
    June 30,
    
    June 30,2004
    
    2003
    
    2002CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    220
    
    
    $
    (81
    )
    
    $
    (3,547
    )Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    1,145
    
    
    
    1,271
    
    
    
    1,705Bad debt expense (recovery), net
    
    
    14
    
    
    
    (17
    )
    
    
    41Inventory provision
    
    
    
    
    
    
    19
    
    
    
    511Impairment loss
    
    
    4
    
    
    
    358
    
    
    
    1,631Stock Compensation
    
    
    
    
    
    
    14
    
    
    
    24(Gain) Loss on sale of property and equipment
    
    
    (101
    )
    
    
    115
    
    
    
    (33
    )(Gain) Loss on disposal of marketable securities
    
    
    (115
    )
    
    
    (49
    )
    
    
    1Deferred income taxes
    
    
    (67
    )
    
    
    42
    
    
    
    20Minority interest, net
    
    
    55
    
    
    
    (138
    )
    
    
    14Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (66
    )
    
    
    522
    
    
    
    300Other receivables
    
    
    (206
    )
    
    
    (175
    )
    
    
    (310
    )Inventories
    
    
    (360
    )
    
    
    (36
    )
    
    
    409Prepaid expenses and other current assets
    
    
    35
    
    
    
    (12
    )
    
    
    (25
    )Accounts payable and accrued expenses
    
    
    1,305
    
    
    
    (856
    )
    
    
    (2,396
    )Income taxes payable
    
    
    (7
    )
    
    
    (50
    )
    
    
    (62
    )Net cash provided by (used in) operating activities
    
    
    1,856
    
    
    
    927
    
    
    
    (1,717
    )CASH FLOWS FROM INVESTING ACTIVITIES:Short term deposits
    
    
    (1,341
    )
    
    
    1,719
    
    
    
    1,666Capital expenditures
    
    
    (1,040
    )
    
    
    (570
    )
    
    
    (448
    )Purchase of marketable securities
    
    
    (4
    )
    
    
    (537
    )
    
    
    (676
    )Other assets
    
    
    8
    
    
    
    69
    
    
    
    80Proceeds from disposal of marketable securites
    
    
    555
    
    
    
    665
    
    
    
    556Proceeds from sale of property and equipment
    
    
    241
    
    
    
    
    
    
    
    63Net cash (used in) provided by investing activities
    
    
    (1,581
    )
    
    
    1,346
    
    
    
    1,241CASH FLOWS FROM FINANCING ACTIVITIES:Net payments and borrowings on lines of credit
    
    
    (155
    )
    
    
    (932
    )
    
    
    1,205Principal payments of debt and capitalized leases
    
    
    (1,359
    )
    
    
    (1,284
    )
    
    
    (1,181
    )Proceeds from long-term debt
    
    
    999
    
    
    
    535
    
    
    
    72Dividends paid to minority interest
    
    
    (53
    )
    
    
    (70
    )
    
    
    (4
    )Cash received from stock options exercised
    
    
    104
    
    
    
    
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (464
    )
    
    
    (1,751
    )
    
    
    92EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    51
    
    
    
    (34
    )
    
    
    242NET (DECREASE)/INCREASE IN CASH
    
    
    (138
    )
    
    
    488
    
    
    
    (142
    )CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    1,495
    
    
    
    1,007
    
    
    
    1,149CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    1,357
    
    
    $
    1,495
    
    
    $
    1,007SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid during the year for:Interest
    
    $
    120
    
    
    $
    182
    
    
    $
    200Income taxes
    
    $
    91
    
    
    $
    102
    
    
    $
    95NON-CASH INVESTING AND FINANCING ACTIVITIES- Acquisition of property, plant and equipment under capital finance lease
    
    $
    135
    
    
    $
    363
    
    
    $
    276- Capitalization of property, plant and equipment paid in advance
    
    $
    
    
    
    $
    329
    
    
    $
    
 See notes to consolidated financial statements. 46




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##### Table of Contents



TRIO-TECH INTERNATIONAL AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004, 2003 AND 2002 (IN THOUSANDS, EXCEPT PER SHARE AND
NUMBER OF SHARES) 1. ORGANIZATION AND BASIS OF PRESENTATION Trio-Tech International (the Company or TTI thereafter) was incorporated in
fiscal 1958 under the laws of the State of California. TTI provides
third-party semiconductor testing and burn-in services primarily through its
laboratories in Southeast Asia. In addition, TTI operates test facilities in
the United States and Europe. The Company also designs, develops, manufactures
and markets a broad range of equipment and systems used in the manufacture and
testing of semiconductor devices and electronic components. TTI conducts
business in three business segments: Testing Services, Manufacturing and
Distribution. TTI has subsidiaries in the U.S., Singapore, Malaysia, Thailand,
and Ireland as follows: Ownership
    
    LocationExpress Test Corporation
    
    
    100
    %
    
    Van Nuys, CaliforniaTrio-Tech Reliability Services
    
    
    100
    %
    
    Van Nuys, CaliforniaKTS Incorporated, dba Universal Systems
    
    
    100
    %
    
    San Jose, CaliforniaEuropean Electronic Test Centre.
    
    
    100
    %
    
    Dublin, IrelandTrio-Tech International Pte. Ltd.
    
    
    100
    %
    
    SingaporeTrio-Tech Test Services Pte. Ltd.
    
    
    100
    %
    
    Singapore(renamed as Universal (Far East) Pte. Ltd.)Trio-Tech Thailand
    
    
    100
    %
    
    Bangkok, ThailandTrio-Tech Bangkok
    
    
    100
    %
    
    Bangkok, ThailandTrio-Tech Malaysia
    
    
    55
    %
    
    Penang, MalaysiaTrio-Tech Kuala Lumpur  100% owned by
Trio-Tech Malaysia
    
    
    55
    %
    
    Selangor, MalaysiaPrestal Enterprise Sdn. Bhd.
    
    
    76
    %
    
    Selangor, MalaysiaTrio-Tech (Suzhou) Co. Ltd.
    
    
    100
    %
    
    Suzhou, China
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements are
prepared in accordance with accounting principles generally accepted in the
United States of America, which include the accounts of the Company and its
subsidiaries. All significant inter-company accounts and transactions have been
eliminated in consolidation. The consolidated financial statements are
presented in U.S. dollars. Use of Estimates The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Among the more significant
estimates included in these financial statements are the estimated accounts
receivable allowance for doubtful accounts, reserve for obsolete inventory, and
the deferred income tax asset allowance. Actual results could materially
differ from those estimates. Accounting Period The Companys fiscal reporting period coincides with the
52-53 week period ending on the last Friday in June. Fiscal 2004, 2003 and
2002 are 52-week reporting periods, respectively. For simplicity purposes the
Company refers to its fiscal year end as June 30. Revenue Recognition Revenues generated from sales of products in the
Manufacturing and Distribution segments are recognized when persuasive evidence
of an arrangement exists, delivery of the products has occurred, customer
acceptance has been obtained, which means the significant risks and rewards of
the ownership have been transferred to the customer, the price is fixed or
determinable and collectibility is reasonably assured. Certain products sold
(in the Manufacturing segment) require installation and training to be
performed. Revenue from product sales is also recorded in accordance with the provisions
of Emerging Issues Task Force (EITF) Statement 00-21 Revenue Arrangements with
Multiple Deliverables and Staff Accounting Bulletin (SAB) 104 Revenue
Recognition in Financial Statements which generally requires revenue earned on
product sales involving multiple-elements to be allocated to 47




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##### Table of Contents



each element based on the relative fair values of those elements. Accordingly,
the Company allocates revenue to each element in a multiple-element arrangement
based on the elements respective fair value, with the fair value determined by
the price charged when that element is sold and specifically defined in a
quotation or contract. The Company allocates a portion of the invoice value to
products sold and the remaining portion of invoice value to installation work
in proportion of the fair value of products sold and installation work to be
performed. Training elements are valued based on hourly rates, which the
Company charges for these services when sold apart from product sales. The
fair value determination of products sold and the installation and training
work is also based on our specific historical experience of the relative fair
values of the elements if there is no easily determinable market price to be
considered. In fiscal 2004 and 2003, the installation revenues generated in
connection with product sales were immaterial and included in the product sales
revenue line on the consolidated statement of income. The Company estimates an
allowance for sales returns based on historical experience with product
returns. Revenue derived from testing service is recognized when testing
services are rendered. Accounts Receivable and Allowance for Doubtful Accounts During the normal
course of business, the Company extends unsecured credit to its customers.
Typically credit terms require payment to be made between 30 to 60 days of the
sale. We do not require collateral from its customers. The Company maintains
its cash accounts at credit worthy financial institutions. The Company regularly evaluates and monitors the creditworthiness of each
customer on a case-by-case basis. The Company includes any account balances
that are determined to be uncollectible, along with a general reserve, in the
overall allowance for doubtful accounts. After all attempts to collect a
receivable have failed, the receivable is written off against the allowance.
Based on the information available to management, the Company believed that its
allowance for doubtful accounts was adequate as of June 30, 2004. Warranty Costs The Company provides for the estimated costs that may be
incurred under its warranty program at the time the sale is recorded. The
Company estimates the warranty costs based on the historical rates of warranty
returns. The Company periodically assesses the adequacy of its recorded
warranty liability and adjusts the amounts as necessary. See Note 7 for the
change in the accrued warranty costs. Short Term Deposits Short Term deposits consist of bank balances and interest
bearing deposits having maturity of 1 to 12 months. As of June 30, 2004,
approximately $2,011 of short-term deposits are held in the Companys 55% owned
Malaysian subsidiary. $1,742 of this amount is denominated in the currency of
Malaysia. Out of the $1,742, $147 is currently available for movement to
overseas, 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. As of June 30, 2003, approximately $806 of short-term deposits were held in the
Companys 55% owned Malaysian subsidiary. Five hundred and thirty five dollars
of this amount was denominated in the currency of Malaysia. Out of the $535,
$168 was then available for movement to overseas, 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. Investments in Marketable Securities Investments in marketable securities are
accounted for under the Statement of Financial Accounting Standards (SFAS) No.
115. Marketable equity securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported in a separate component of shareholders
equity. Realized gains and losses and declines in value judged to be other
than temporary on available-for-sale securities are included in investment
income. The Company recognized comprehensive loss (net of tax) of $45 during
the fiscal year ended June 30, 2004 and comprehensive income (net of tax) of
$21 and $24, during the fiscal years ended June 30, 2003 and June 30, 2002,
respectively, based on its proportionate interest in the subsidiary where the
marketable securities are recorded. Inventories Inventories consist principally of raw materials, work in
progress, and finished goods and are stated at the lower of cost, using the
first-in, first-out (FIFO) method, or market value. Property, Plant and Equipment Property, plant and equipment are stated at
cost, less accumulated depreciation and amortization. Depreciation is provided
for over the estimated useful lives of the assets, using the straight-line
method. Amortization of leasehold improvements is provided for over the term of
the leases or the estimated useful lives of the assets, whichever is the
shorter, using the straight-line method. Capital grants from the Industrial
Development Authority in Ireland are accounted for when claimed by reducing the
cost of the related assets. The grants are amortized over the depreciable
lives of those assets. The Company reviews the carrying value of its fixed
assets for possible impairment annually and whenever events or changes in
circumstances indicate the carrying amount of the assets may not be
recoverable. Impairment losses are charged to operations when recognized.
During fiscal 2003 and 2004, the Company recorded an impairment loss against
the carrying value of fixed assets in the amount of $358 and $4 respectively. 48




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Maintenance, repairs and minor renewals are charged directly to expense as
incurred. Additions and betterments to property and equipment are capitalized.
When assets are disposed of, the related cost and accumulated depreciation
thereon are removed from the accounts and any resulting gain or loss is
included in the statement of operations. Impairment of Long-Lived Assets Effective July 1, 2002, the Company applies
the provisions of Statement of Financial Accounting Standard No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No.
144) to property, plant and equipment, and intangible assets such as patents.
SFAS No. 144 requires that long-lived assets be reviewed for impairment
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.
Whenever any such impairment exists, an impairment loss will be recognized for
the amount by which the carrying value will be recognized for the amount by
which the carrying value exceeds the fair value. In the fiscal year ended June 30, 2003, the Company recorded an impairment loss
of approximately $358 based on its examination of future undiscounted cash
flows, which are generated by the subsidiaries where certain long-lived assets
(goodwill, patent, and certain fixed assets) were used. The impairment of $358
consisted of machinery and equipment, furniture and fixtures, and leasehold
improvements (pertaining to the Malaysia and Singapore Testing operations) due
to changes in demand for certain burn-in services which in turn made certain of
our existing burn-in facilities obsolete. There was an impairment loss of
Long-Lived Assets of approximately $4 pertaining to the Thailand operation in
the fiscal year ended June 30, 2004. Comprehensive Income (Loss) The Company adopted Statement of Financial
Accounting Standard No. 130, Reporting Comprehensive Income, (SFAS No. 130)
issued by the FASB. SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income (loss) and its components in a full set of
general-purpose financial statements. The Company has chosen to report
comprehensive income (loss) in the statements of operations and comprehensive
income (loss). Comprehensive income (loss) is comprised of net income (loss)
and all changes to shareholders equity except those due to investments by
owners and distributions to owners. Foreign Currency Translation and Transactions The financial position and
results of operations of certain of the Companys subsidiaries are measured
using currencies, namely, Singapore Dollar, Malaysia Ringgit, Thai Baht and
Euro Dollar, other than the U.S. Dollar as their functional currency. They
represent an increase or decrease in (a) the actual functional current cash
flows realized upon settlement of foreign currency transactions and (b) the
expected functional currency cash flows on unsettled foreign currency
transactions. All transaction gains and losses are included in other income or
expense. Accordingly, for these subsidiaries all assets and liabilities are
translated into U.S. dollars at the current exchange rates as of the respective
balance sheet date. Revenue and expense items are translated at the average
exchange rates prevailing during the period. Cumulative gains and losses from
the translation of these subsidiaries financial statements are reported as a
separate component of shareholders equity. Income Taxes The Company accounts for income taxes using the liability method
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 taxes 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, which will result in taxable or
deductible amounts in future years. Further, the effects of enacted tax laws
or rate changes are included as part of deferred tax expenses or benefits in
the period that covers the enactment date. A valuation allowance is recognized
if it is more likely than not that some portion, or all of, a deferred tax
asset will not be realized. For US income tax purposes, no provision has been made for US taxes on
undistributed earnings of oversea 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, or 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. Retained earnings It is the intention of the Company to reinvest earnings of
its foreign subsidiaries in the operations of those subsidiaries. Accordingly,
no provision has been made for U.S. income and foreign withholding taxes that
would result if such earnings were repatriated. These taxes are undeterminable
at this time. The amount of earnings retained in subsidiaries was $7,518 at
June 30, 2004. Research and Development Costs The Company incurred research and development
costs of $117 in fiscal 2004, $121 in fiscal 2003 and $331 in fiscal 2002 that
were charged to operating expenses as incurred. Stock Based Compensation Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123), establishes a fair
value method of accounting for stock-based compensation plans and for 49




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transactions in which a company acquires goods or services from employees and
non-employees in exchange for equity instruments. SFAS No. 123 also gives the
option, with respect to employees only, to account for stock-based
compensation, utilizing the intrinsic method, in accordance with Accounting
Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock issued to
Employees. The Company adopts APB No. 25 and FIN 44 for measurement and
recognition of employee stock-based compensation. The Company has adopted the intrinsic value method of accounting for employee
stock options as permitted by Statement of Financial Accounting Standards No.
123, Accounting for Stock-based Compensation (SFAS No. 123) and discloses the
pro forma effect on net loss and loss per share as if the fair value based
method had been applied. For equity instruments, including stock options,
issued to non-employees, the fair value of the equity instruments or the fair
value of the consideration received, whichever is more readily determinable is
used to determine the value of services or goods received and the corresponding
charge to operations. The following table illustrates the effect on net income (loss) and earnings
(loss) per share as if the Company had applied the fair value recognition
provision of SFAS No. 123 to stock-based employee compensation. June 30,
    
    June 30,
    
    June 30,2004
    
    2003
    
    2002Net income (loss) : as reported
    
    $
    220
    
    
    $
    (81
    )
    
    $
    (3,547
    )Add: stock based employee compensation
included in reported income
    
    
    
    
    
    
    14
    
    
    
    24Deduct: total stock based employee
compensation expense determined under
fair value method for all awards
    
    
    (42
    )
    
    
    (18
    )
    
    
    (186
    )Pro forma net income (loss)
    
    $
    178
    
    
    $
    (85
    )
    
    $
    (3,709
    )Income (loss) per share - basicAs reported
    
    $
    0.07
    
    
    $
    (0.03
    )
    
    $
    (1.21
    )Pro forma
    
    $
    0.06
    
    
    $
    (0.03
    )
    
    $
    (1.27
    )Income (loss) per share - dilutedAs reported
    
    $
    0.07
    
    
    $
    (0.03
    )
    
    $
    (1.21
    )Pro forma
    
    $
    0.06
    
    
    $
    (0.03
    )
    
    $
    (1.27
    )
 As required by SFAS No. 123, the Company provides the following disclosure of
estimated values for these awards. The weighted-average grant-date fair value
of options granted during fiscal 2004, 2003, and 2002 was $2.66, $2.25, and
$3.20 per share, respectively, and aggregate $42, $18, and $186, respectively,
for total options granted by using the Black-Scholes option pricing model with
the assumptions listed below: Years EndedJune 30, 2004
    
    June 30, 2003
    
    June 30, 2002Volatility
    
    
    41.9
    %
    
    
    37.2
    %
    
    
    45.9
    %Risk free interest rate
    
    
    2.76
    %
    
    
    2.27 - 2.93
    %
    
    
    2.37 - 3.16
    %Expected life (years)
    
    
    2.00
    
    
    
    2.00
    
    
    
    2.17
 Earnings per Share The Company adopted SFAS No. 128, Earnings per Share
(EPS). Basic Earnings Per Share is computed by dividing net income available
to common shareholders (numerator) by the weighted average number of common
shares outstanding (denominator) during the period. Diluted EPS gives effect
to all dilutive potential common shares outstanding during a period. In
computing diluted EPS, the average price for the period is used in determining
the number of shares assumed to be purchased from exercise of stock options and
warrants. 50




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Stock options to purchase 345,500 shares at prices ranging from $2.25 to $6.00
per share were outstanding during fiscal 2004. The following options were
excluded in the computation of diluted EPS because the exercise price was
greater than the average market price of the common shares and therefore were
anti-dilutive: Type
    
    Shares
    
    Price
    
    ExpirationOptions
    
    
    20,000
    
    
    $
    5.63
    
    
    September 18, 2005Options
    
    
    32,000
    
    
    $
    5.37
    
    
    July 10, 2005Options
    
    
    48,000
    
    
    $
    6.00
    
    
    March 27, 2005
 Stock options to purchase 349,500 shares at prices ranging from $2.25 to $6.69
per share were outstanding during fiscal 2003 and were excluded in the
computation of diluted EPS because their effect would have been antidilutive. 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: June 30,
    
    June 30,
    
    June 30,2004
    
    2003
    
    2002Net income (loss) used to compute basic
and diluted earnings (loss) per share
    
    $
    220
    
    
    $
    (81
    )
    
    $
    (3,547
    )Weighted average number of common
shares outstanding - basic
    
    
    2,939
    
    
    
    2,928
    
    
    
    2,928Dilutive effect of stock options and warrants
    
    
    61
    
    
    
    
    
    
    
    Number of shares used to compute
earnings per share - diluted
    
    
    3,000
    
    
    
    2,928
    
    
    
    2,928
 Fair Values of Financial Instruments The carrying value of trade accounts
receivable and accounts payable approximate their fair value due to their
short-term maturities. The carrying values of the Companys lines of credit
and long-term debt are considered to approximate their fair value because the
interest rates are based on the interest rates that are currently available to
the Company for issuance of debt with similar terms and remaining maturities. Concentration of credit risk Financial instruments that subject the Company
to credit risk consists primarily of accounts receivable. Concentration of
credit risk with respect to accounts receivable is generally diversified due to
the number of entities composing the Companys customer base and their
geographic dispersion.The Company performs ongoing credit evaluations of its
customers for potential credit losses. The Company generally does not require
collateral. The Company believes that its credit policies do not result in
significant adverse risk and historically it has not experienced significant
credit related losses. The following table represents the changes in the allowance for doubtful
accounts: Years EndedJune 30,
    
    June 30,
    
    June 30,2004
    
    2003
    
    2002Beginning
    
    $
    157
    
    
    $
    174
    
    
    $
    174Additions charged to cost and expenses
    
    
    18
    
    
    
    
    
    
    
    66Recovered
    
    
    (4
    )
    
    
    (17
    )
    
    
    (25
    )Actual write-offs
    
    
    (6
    )
    
    
    
    

    
    
    (41
    )Ending
    
    $
    165
    
    
    $
    157
    
    
    $
    174
 Recently Issued Accounting Pronouncements In January 2003, the FASB issued
Financial Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities. FIN 46, as amended by FIN 46(R), issued in January 2003, requires an
investor with a majority of the variable interests in a variable interest
entity to consolidate the entity and also requires majority and significant
variable interest investors to provide certain disclosures. A variable
interest entity is an entity in which the equity 51




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investors do not have a controlling financial interest or the equity investment
at risk is insufficient to finance the entitys activities without receiving
additional subordinated financial support from other parties. The provisions
of FIN 46(R) are applicable for fiscal years ending after December 15, 2004.
The Company does not have any variable interest entities that must be
consolidated as of June 30, 2004.  Reclassification Certain reclassifications have been made to the previous
years financial statements to conform to current year presentation, with no
effect on previously reported net income.  3.
    
    INVENTORIESInventories consist of the following: June 30,
    
    June 30,2004
    
    2003Raw materials
    
    $
    652
    
    
    $
    873Work in progress
    
    
    700
    
    
    
    166Finished goods
    
    
    502
    
    
    
    745Less: provision for obsolete inventory
    
    
    (445
    )
    
    
    (735
    )$
    1,409
    
    
    $
    1,049
  4.
    
    PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment consist of the following: Useful
    
    June 30,
    
    June 30,Life in years
    
    2004
    
    2003Building and improvements
    
    
    3-20
    
    
    $
    817
    
    
    $
    843Leasehold improvements
    
    
    3-27
    
    
    
    2,347
    
    
    
    1,895Machinery and equipment
    
    
    3-7
    
    
    
    4,655
    
    
    
    3,461Furniture and fixtures
    
    
    3-5
    
    
    
    363
    
    
    
    350Equipment under capital leases
    
    
    3-5
    
    
    
    1,279
    
    
    
    1,8969,461
    
    
    
    8,445Less:Accumulated depreciation and
amortization
    
    
    
    
    
    
    3,417
    
    
    
    2,453Accumulated amortization on
equipment under capital leases
    
    
    
    
    
    
    842
    
    
    
    782$
    5,202
    
    
    $
    5,210
 Depreciation and amortization expense during fiscal year ended June 30,
2004, 2003 and 2002 was $1,145, $1,271 and $1,705, respectively. 52




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5.
    
    LINES OF CREDIT June 30,
    
    June 30,2004
    
    2003Revolving line of credit denominated by Singapore dollars payable to a
commercial bank for working capital purposes, to borrow up to $2,925
with an interest rate at the banks prime rate (5.75% at June 30, 2004)
plus 0.25%. The line of credit is renewable in July 2004 and is
collateralized
by Trio-Tech International Pte. Ltd. accounts receivable
    
    $
    146
    
    
    $
    Revolving line of credit denominated by United States dollars, payable
to a commercial bank for working capital purposes, to borrow up to $300
with an interest rate at banks prime rate (4.00% at June 30, 2003) plus
1.75%. The line was cancelled during the year. This line of credit was
previously collateralized by Trio-Tech International accounts receivable
and inventories.
    
    
    
    
    
    
    300Lines of credit
    
    $
    146
    
    
    $
    300
 The lines of credit have various financial covenants. The Company was in
compliance with all such debt covenants at June 30, 2004.  6.
    
    ACCRUED EXPENSESAccrued expenses consist of the following: June 30,
    
    June 30,2004
    
    2003Payroll and related
    
    $
    954
    
    
    $
    967Commissions
    
    
    64
    
    
    
    46Customer Deposits
    
    
    39
    
    
    
    24Legal and audit
    
    
    113
    
    
    
    109Sales tax
    
    
    271
    
    
    
    288Utilities
    
    
    201
    
    
    
    134Warranty
    
    
    162
    
    
    
    165Provision for sales volume rebate
    
    
    3
    
    
    
    164Provision for building sinking fund
    
    
    34
    
    
    
    17Accrual for construction work performed
    
    
    
    
    
    
    28Rental provisions
    
    
    27
    
    
    
    25Other accrued expenses
    
    
    298
    
    
    
    129Total
    
    $
    2,166
    
    
    $
    2,096
 53




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##### Table of Contents



7.
    
    WARRANTY ACCRUAL June 30,
    
    June 30,2004
    
    2003Beginning
    
    $
    165
    
    
    $
    305Additions charged to cost and expenses
    
    
    41
    
    
    
    1Recovered
    
    
    
    
    
    
    (126
    )Actual write-offs
    
    
    (44
    )
    
    
    (15
    )Ending
    
    $
    162
    
    
    $
    165
 54




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##### Table of Contents



8.
    
    NOTES PAYABLENotes payable consists of the following: June 30,
    
    June 30,2004
    
    2003Note payable denominated by Singapore Dollars to a commercial
bank for purchasing certain equipment, maturing in September 2003,
bearing interest at 6.5% per annum, payable in monthly installments
of $48 through September 2003. This note payable was previously
collateralized by the relevant equipment.
    
    $
    
    
    
    
    210Note payable denominated by Singapore Dollars to a commercial
bank for purchasing certain equipment, maturing in February 2005,
bearing interest at the banks prime rate (5.75% at June 30, 2004)
plus 1.5% per annum, payable in monthly installments
of $17 through February 2005, collateralized by the relevant
equipment, with a fixed deposit and a corporate guarantee.
    
    
    145
    
    
    
    330Note payable denominated by Singapore Dollars to a commercial
bank for purchasing certain equipment, maturing in October 2005,
bearing interest at a fixed rate (5.50% at June 30, 2003) per annum
payable in monthly installments of $16 through October 2005.
This note payable was cancelled before its maturity and was
previously collateralized by majority of the accounts receivable.
    
    
    
    
    
    
    413Note payable denominated by Singapore Dollars to a commercial
bank for purchasing certain equipment, maturing in October 2006,
bearing interest at the banks prime rate (5.75% at June 30, 2004)
plus 0.5% per annum, payable in monthly installments of $16
thorugh October 2006 with no collateral.
    
    
    455
    
    
    
    Note payable denominated by Singapore Dollars to a commercial
bank for purchasing certain equipment, maturing in October 2006,
bearing interest at the banks prime rate (2.95% at June 30, 2004)
plus 2.64% per annum, payable in monthly installments of $5
thorugh October 2006, with no collateral.
    
    
    140
    
    
    
    Note payable denominated by Thailand Baht to a commercial
bank for extension of a building, maturing in September 2005,
bearing interest at a fixed rate (4.5% at June 30, 2004), payable
in monthly installments of $31 through September 2006, with
no collateral.
    
    
    207
    
    
    
    Mortgage note payable denominated in Irish Pounds to the Industrial
Credit Corporation for purchasing a building, maturing in July 2007,
bearing interest at the banks prime rate (2.09% and 2.73% at June 30,
2004 and 2003) plus 3.5% per annum, payable in monthly installments
of $2 through July 2007, collateralized by the relevant building.
    
    
    88
    
    
    
    107Mortgage note payable denominated by Irish Pounds to the Industrial
Credit Corporation for purchasing a building, maturing in May 2008,
bearing interest at the banks prime rate (2.11% and 2.54% at June 30,
2004 and 2003) plus 3% per annum, payable in monthly installments.
of $1 through May 2008, collateralized by the relevant building.
    
    
    54
    
    
    
    641,089
    
    
    
    1,124Less current portion
    
    
    (506
    )
    
    
    (632
    )Notes payable
    
    $
    583
    
    
    $
    492
 55




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##### Table of Contents



Maturities of notes payable as of June 30, 2004 are as follows: YearEndingJune 30,2005
    
    $
    5062006
    
    
    3592007
    
    
    1902008
    
    
    342009
    
    
    Thereafter
    
    
    $
    1,089
  9.
    
    INCOME TAXESThe Company generates taxable income and loss in the U.S., Singapore,
Thailand, Malaysia, and Ireland, respectively, and files income tax returns
in these countries. The summarized income or loss before income taxes in
the U.S. and foreign countries for the fiscal years ended June 30, 2004,
2003 and 2002 are as follows: June 30,
    
    June 30,
    
    June 30,2004
    
    2003
    
    2002U.S.
    
    $
    (87
    )
    
    $
    (231
    )
    
    $
    (3,611
    )Foreign
    
    
    375
    
    
    
    106
    
    
    
    131$
    288
    
    
    $
    (125
    )
    
    $
    (3,480
    )
  On a consolidated basis, the Companys net income tax provision
(benefits) are as follows: June 30,
    
    June 30,
    
    June 30,2004
    
    2003
    
    2002Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    3
    
    
    
    4
    
    
    
    3Foreign
    
    
    77
    
    
    
    48
    
    
    
    3080
    
    
    
    52
    
    
    
    33Deferred:Foreign
    
    
    (67
    )
    
    
    42
    
    
    
    20$
    13
    
    
    $
    94
    
    
    $
    53
  The reconciliation between the U.S. federal statutory tax rate and the
effective income tax rate is as follows: June 30,
    
    June 30,
    
    June 30,2004
    
    2003
    
    2002Statutory federal tax rate
    
    
    34
    %
    
    
    (34
    )%
    
    
    (34
    )%State taxes, net of federal benefit
    
    
    6
    
    
    
    (6
    )
    
    
    (6
    )Foreign tax rate reduction
    
    
    (37
    )
    
    
    28
    
    
    
    13Other
    
    
    
    
    
    
    4
    
    
    
    2Changes in valuation allowance
    
    
    2
    
    
    
    83
    
    
    
    27Effective rate
    
    
    5
    %
    
    
    75
    %
    
    
    2
    %
  At June 30, 2004, the Company had net operating loss carry forwards of
approximately $5.1 million for federal income tax purposes (which will
expire through fiscal 2024) and $0.2 million for state income tax purposes
(which will expire through fiscal 2009). Management of the Company is
uncertain whether it is more likely than not these future benefits will be
realized. Accordingly, a full valuation allowance has been established. 56




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##### Table of Contents



The components of deferred income tax assets (liabilities) are as follows: June 30,
    
    June 30,2004
    
    2003Deferred tax assets:Net operating loss carry forward
    
    $
    1,721
    
    
    $
    1,632Fixed asset impairment
    
    
    
    
    
    
    Inventory valuation
    
    
    141
    
    
    
    254Depreciation
    
    
    99
    
    
    
    51Provision for bad debts
    
    
    8
    
    
    
    5Accrued vacation
    
    
    10
    
    
    
    17Accrued expenses
    
    
    40
    
    
    
    44Other
    
    
    
    
    
    
    1Total deferred tax assets
    
    
    2,019
    
    
    
    2,004Deferred tax liabilities:Depreciation
    
    
    449
    
    
    
    584Other
    
    
    195
    
    
    
    127Total deferred income tax liabilities
    
    
    644
    
    
    
    711Subtotal
    
    
    1,375
    
    
    
    1,293Valuation allowance
    
    
    (2,019
    )
    
    
    (2,004
    )Net deferred tax liability
    
    $
    (644
    )
    
    $
    (711
    )
  The valuation allowance increased by $15, $104 and $935 in fiscal 2004,
2003 and 2002, respectively.  10.
    
    COMMITMENTS AND CONTINGENCIESThe Company leases certain of its facilities and equipment under long-term
agreements expiring at various dates through fiscal 2009. Certain of these
leases require the Company to pay real estate taxes and insurance and
provide for escalation of lease costs based on certain indices. Future
minimum payments under capital leases and non-cancelable operating leases
as of June 30, 2004 are as follows: Capital
    
    RentalYear ending June 30,
    
    Leases
    
    Commitments2005
    
    $
    266
    
    
    $
    6542006
    
    
    125
    
    
    
    4882007
    
    
    64
    
    
    
    2302008
    
    
    32
    
    
    
    12009
    
    
    8
    
    
    
    Thereafter
    
    
    
    
    
    
    Total future minimum lease payments
    
    
    495
    
    
    $
    1,373Less amount representing interest
    
    
    (39
    )Present value of net minimum lease payments
    
    
    456Less current portion of capitalized lease obligations
    
    
    (246
    )Long-term obligations under capital leases
    
    $
    210
  Total rental expense on all operating leases, both cancelable and
non-cancelable, amounted to $658 in fiscal 2004, $733 in fiscal 2003 and
$705 in fiscal 2002.  The Company is, from time to time, the subject of litigation claims and
assessments arising out of matters occurring in its normal business
operations. In the opinion of management, resolution of these matters will
not have a material adverse effect on the Companys financial statements. 57




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11. TRANSACTIONS IN SHAREHOLDERS EQUITY Fiscal 2004 On July 14, 2003, the Board of Directors granted options under the 1998
Plan, covering 61,000 shares of Common Stock to 30 employees and 35,000
shares of Common Stock to 4 directors with an exercise price of $2.66 per
share equal to the market price at the grant date. The options granted to
directors vested in full on the grant date. The options granted to the
employees have a five-year contractual life and vested 25% on the grant
date and will vest as to an additional 25% on each anniversary date.
According to APB No. 25, no stock compensation was recognized for these
96,000 options. On the measurement date, there was no intrinsic value on
these options. Therefore, no stock compensation expense was recognized for
this transaction during fiscal 2004. Option holders under the Directors Plan exercised options covering 5,000
shares of the Companys Common Stock with an exercise price of $2.72 per
share. Consequently, the Company issued 5,000 shares of Common Stock in
exchange for aggregate proceeds of $14. Option holders under the Directors Plan exercised options covering 25,000
shares of the Companys Common Stock with an exercise price of $2.82 per
share. Consequently, the Company issued 25,000 shares of Common Stock in
exchange for aggregate proceeds of $70. Option holders under the 1998 Plan exercised options covering 2,000 shares
of the Companys Common Stock with an exercise price of $3.20 per share and
options covering 5,000 shares at exercise price of $2.66 per share.
Consequently, the Company issued 7,000 shares of Common Stock in exchange
for aggregate proceeds of $20. Fiscal 2003 On July 16, 2002, the Board of Directors granted options under the 1998
Plan covering 35,000 shares of Common Stock to 5 directors with an exercise
price lower than the market price at the grant date. These options granted
have a five-year contractual life and vested immediately. The Company
recognized the stock compensation expense of $14 according to APB No. 25 on
June 30, 2003. No options were exercised in fiscal 2003. Based on variable accounting method, the Company determined that no
additional stock compensation expense was recognized in fiscal 2003 for the
repricing transactions related to 45,000 options, which occurred in fiscal
2000. Fiscal 2002 On October 16, 2001, the Board of Directors granted options under the 1998
Plan, covering 116,000 shares of Common Stock to 55 employees and 50,000
shares of Common Stock to 5 directors with an exercise price of $2.72 per
share equal to the market price at the grant date. The options granted to
directors vested in full on the grant date. The options granted to the
employees have a five-year contractual life and vested 25% on the grant
date and then 25% on each anniversary date. Consequently, the Company
recognized the stock compensation expense of $24 according to APB No. 25 in
fiscal 2002. Based on variable accounting method, the Company determined that no
additional stock compensation expense was recognized in fiscal 2002 for the
repricing transactions related to 45,000 options, which occurred in fiscal
2000. On December 8, 1997, the Companys shareholders approved the Companys 1998
Stock Option Plan (the 1998 Plan) under which employees, officers,
directors and consultants receive options to purchase the Companys Common
Stock at a price that is not less than 100 percent of the fair market value
at the date of grant. Options under the 1998 Plan have a five-year
contractual life and vest at the rate of 25% at the grant date and 25% at
each anniversary after the granting date. There are 300,000 shares
authorized for grant under the 1998 Plan, and options to acquire 213,500
shares were outstanding as of June 30, 2004. On December 8, 1997, the Companys shareholders approved the Directors
Stock Option Plan (the Directors Plan under which duly elected
non-employee Directors and the President (if he or she is a director of the
Company) of the Company (currently four individuals) receive options to
purchase the Companys Common Stock at a price of 100% of the fair market
value of the underlying shares on the date of grant. Each option granted
under Plan shall have a five-year contractual life and be exercisable
immediately commencing as of the date of grant. There are 300,000 shares
authorized for grant under the Directors Plan and options to acquire
132,000 shares were outstanding as of June 30, 2004. 58




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The following tables summarize the stock option and warrant activities for
the three years ended June 30, 2002, 2003, 2004: Number
    
    WeightedNumber
    
    Weighted
    
    of
    
    Averageof
    
    Average
    
    Options
    
    ExerciseOutstanding Options
    
    Options
    
    Price
    
    Exercisable
    
    PriceBeginning outstanding options at June 30, 2001
    
    
    408,000
    
    
    $
    4.92Granted
    
    
    166,000
    
    
    
    3.05Exercised
    
    
    Canceled
    
    
    (99,500
    )
    
    
    4.93Total outstanding options at June 30, 2002
    
    
    474,500
    
    
    
    4.27
    
    
    
    347,750
    
    
    $
    4.36Granted
    
    
    35,000
    
    
    
    2.25ExercisedCanceled
    
    
    (160,000
    )
    
    
    4.49Total outstanding options at June 30, 2003
    
    
    349,500
    
    
    
    3.96
    
    
    
    296,000
    
    
    
    4.05Granted
    
    
    96,000
    
    
    
    2.74Exercised
    
    
    (37,000
    )
    
    
    2.81Canceled
    
    
    (63,000
    )
    
    
    3.99Total outstanding options at June 30, 2004
    
    
    345,500
    
    
    $
    3.68
    
    
    
    278,875
    
    
    $
    3.85
 Year Ended June 30, 2004Options Outstanding

    
    Options ExercisableWeighted AverageGrant
    
    Number
    
    Remaining
    
    Weighted Average
    
    NumberPrice Range
    
    Outstanding
    
    Contractual Life
    
    Exercise Price
    
    Exercisable
    
    Exercise Price$2.50 - $3.69
    
    
    240,500
    
    
    
    2.70
    
    
    
    2.85
    
    
    
    178,875
    
    
    
    2.82$3.70 - $4.69
    
    
    5,000
    
    
    
    4.76
    
    
    
    4.25
    
    
    
    1,250
    
    
    
    4.25$4.70 - $5.69
    
    
    52,000
    
    
    
    1.10
    
    
    
    5.47
    
    
    
    50,750
    
    
    
    5.46$5.70 - $6.69
    
    
    48,000
    
    
    
    0.75
    
    
    
    6.00
    
    
    
    48,000
    
    
    
    6.00345,500
    
    
    
    2.03
    
    
    
    3.68
    
    
    
    278,875
    
    
    
    3.85
 12. CONCENTRATION OF CUSTOMERS The Company had two major customers that accounted for the following
accounts receivable and sales during the periods ended: Years ended June 30,
    
    2004
    
    2003
    
    2002Sales- Customer A
    
    
    15
    %
    
    
    17
    %
    
    
    24
    %- Customer B
    
    
    37
    %
    
    
    33
    %
    
    
    31
    %Accounts Receivable- Customer A
    
    
    15
    %
    
    
    10
    %
    
    
    24
    %- Customer B
    
    
    32
    %
    
    
    28
    %
    
    
    24
    %
 59




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##### Table of Contents



13. UNUSED FINANCING FACILITIES The Company has various credit facilities available to it. The following
table summarizes the credit facilities available to the Company and the
unutilized portion of the facilities at June 30, 2004: Entity with Facility
    
    Type of
    
    Interest
    
    Credit
    
    UnusedTrio-Tech Malaysia
    
    Line of Credit
    
    
    7.00
    %
    
    $
    91
    
    
    $
    91Trio-Tech Bangkok
    
    Line of Credit
    
    
    6.75
    %
    
    
    98
    
    
    
    98Trio-Tech Singapore
    
    Line of Credit
    
    
    5.5 to 6.0
    %
    
    
    3,510
    
    
    
    3,364$
    3,699
    
    
    $
    3,553
 14. OTHER INCOME Other income consists of the following: June 30,
    
    June 30,
    
    June 30,2004
    
    2003
    
    2002Interest Income
    
    $
    78
    
    
    $
    83
    
    
    $
    182Rental Income
    
    
    169
    
    
    
    89
    
    
    
    90Royalty Income
    
    
    
    
    
    
    20
    
    
    
    25Dividend Income
    
    
    11
    
    
    
    25
    
    
    
    20Exchange (loss) gain
    
    
    (12
    )
    
    
    9
    
    
    
    (107
    )Sales of other products
    
    
    
    
    
    
    52
    
    
    
    77Gain (loss) on disposal on marketable securities
    
    
    115
    
    
    
    49
    
    
    
    (1
    )Other miscellaneous income
    
    
    11
    
    
    
    20
    
    
    
    20Total
    
    $
    372
    
    
    $
    347
    
    
    $
    306
 15. BUSINESS SEGMENTS The Company operates principally in three industry segments, the testing
service industry (that performs structural and electronic tests of
semiconductor devices), the designing and manufacturing of equipment (that
tests the structural integrity of integrated circuits and other products),
and the distribution of various products from other manufacturers in
Singapore and Southeast Asia. The following net sales were based on
customer location rather than subsidiary location. The allocation of the cost of equipment, the current year investment in new
equipment and depreciation expense have been made on the basis of the
primary purpose for which the equipment was acquired. All inter-segment sales are sales from the manufacturing segment to the
testing and distribution segment. Total inter-segment sales were $151 in
fiscal 2004, $41 in fiscal 2003, and $38 in fiscal 2002. Corporate assets
mainly consist of cash and prepaid expenses. Corporate expenses mainly
consist of salaries, insurance, professional expenses and directors fees. 60




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Business Segment Information: Year
    
    
    
    
    
    Operating
    
    
    
    
    
    Depr.Ended
    
    Net
    
    Income
    
    
    
    
    
    and
    
    CapitalJun. 30,
    
    Sales
    
    (loss)
    
    Assets
    
    Amort.
    
    ExpendituresManufacturing
    
    FY 2004
    
    $
    7,122
    
    
    $
    (205
    )
    
    $
    2,423
    
    
    $
    99
    
    
    $
    165FY 2003
    
    
    4,674
    
    
    
    (802
    )
    
    
    2,494
    
    
    
    88
    
    
    
    5FY 2002
    
    
    5,022
    
    
    
    (4,013
    )
    
    
    2,939
    
    
    
    410
    
    
    
    217Testing Services
    
    FY 2004
    
    
    8,908
    
    
    
    241
    
    
    
    14,893
    
    
    
    910
    
    
    
    783FY 2003
    
    
    9,505
    
    
    
    803
    
    
    
    13,431
    
    
    
    1,068
    
    
    
    1,212FY 2002
    
    
    8,942
    
    
    
    680
    
    
    
    15,646
    
    
    
    1,187
    
    
    
    474Distribution
    
    FY 2004
    
    
    3,124
    
    
    
    (27
    )
    
    
    588
    
    
    
    129
    
    
    
    227FY 2003
    
    
    7,067
    
    
    
    (212
    )
    
    
    415
    
    
    
    109
    
    
    
    45FY 2002
    
    
    5,653
    
    
    
    (69
    )
    
    
    399
    
    
    
    104
    
    
    
    18Corporate and
    
    FY 2004
    
    
    
    
    
    
    27
    
    
    
    96
    
    
    
    7
    
    
    
    unallocated
    
    FY 2003
    
    
    
    
    
    
    (76
    )
    
    
    371
    
    
    
    6
    
    
    
    FY 2002
    
    
    
    
    
    
    (177
    )
    
    
    91
    
    
    
    4
    
    
    
    15Total Company
    
    FY 2004
    
    $
    19,154
    
    
    $
    36
    
    
    $
    18,000
    
    
    $
    1,145
    
    
    $
    1,175FY 2003
    
    $
    21,246
    
    
    $
    (287
    )
    
    $
    16,711
    
    
    $
    1,271
    
    
    $
    1,262FY 2002
    
    $
    19,617
    
    
    $
    (3,579
    )
    
    $
    19,075
    
    
    $
    1,705
    
    
    $
    724
 Geographic Area Information: Elimin-Year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ationsEnded
    
    United
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    TotalJun. 30,
    
    States
    
    Europe
    
    Singapore
    
    Thailand
    
    Malaysia
    
    Other
    
    CompanyNet sales to
    
    FY 2004
    
    $
    4,706
    
    
    
    1,255
    
    
    
    9,944
    
    
    
    2,534
    
    
    
    866
    
    
    
    (151
    )
    
    
    19,154customers
    
    FY 2003
    
    $

    9,038
    
    
    
    943
    
    
    
    8,682
    
    
    
    1,992
    
    
    
    632
    
    
    
    (41
    )
    
    
    21,246FY 2002
    
    $
    8,083
    
    
    
    1,479
    
    
    
    8,177
    
    
    
    1,377
    
    
    
    539
    
    
    
    (38
    )
    
    
    19,617Operating
    
    FY 2004
    
    $
    (216
    )
    
    
    (23
    )
    
    

    184
    
    
    
    48
    
    
    
    16
    
    
    
    27
    
    
    
    36Income (loss)
    
    FY 2003
    
    $
    (167
    )
    
    
    (140
    )
    
    
    73
    
    
    
    17
    
    
    
    6
    
    
    
    (76
    )
    
    
    (287
    )FY 2002
    
    $
    (3,050
    )
    
    
    (480
    )
    
    
    104
    
    
    
    18
    
    
    
    7
    
    
    
    (178
    )
    
    
    (3,579
    )Property, plant
    
    FY 2004
    
    $
    8
    
    
    
    380
    
    
    
    3,557
    
    
    
    886
    
    
    
    411
    
    
    
    (40
    )
    
    
    5,202and
equipment - net
    
    FY 2003
    
    $
    104
    
    
    
    446
    
    
    
    3,514
    
    
    
    844
    
    
    
    342
    
    
    
    (40
    )
    
    
    5,210FY 2002
    
    $
    160
    
    
    
    463
    
    
    
    3,528
    
    
    
    807
    
    
    
    675
    
    
    
    (40
    )
    
    
    5,593
 61




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16. QUARTERLY FINANCIAL DATA (UNAUDITED) The Companys summarized quarterly financial data are as follows: Year ended June 30, 2003
    
    Sep. 30,
    
    Dec. 31,
    
    Mar. 31,
    
    Jun. 30,Revenues
    
    $
    5,915
    
    
    $
    5,051
    
    
    $
    5,561
    
    
    $
    4,719Expenses
    
    
    5,789
    (a)
    
    
    4,996
    
    
    
    5,545
    (b)
    
    
    5,041
    (c)Income (loss) before income taxes and minority interest
    
    
    126
    
    
    
    55
    
    
    
    16
    
    
    
    (322
    )Income taxes
    
    
    68
    
    
    
    (18
    )
    
    
    21
    
    
    
    23Income before minority interest
    
    
    58
    
    
    
    73
    
    
    
    (5
    )
    
    
    (345
    )Minority interest
    
    
    (2
    )
    
    
    18
    
    
    
    33
    
    
    
    89Net income (loss)
    
    $
    56
    
    
    $
    91
    
    
    $
    28
    
    
    $
    (256
    )Net income (loss) per share:Basic
    
    $
    0.02
    
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    (0.09
    )Fully diluted
    
    $
    0.02
    
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    (0.09
    )
 Year ended June 30, 2004
    
    Sep. 30,
    
    Dec. 31,
    
    Mar. 31,
    
    Jun. 30,Revenues
    
    $
    3,850
    (d)
    
    $
    5,056
    
    
    $
    5,042
    
    
    $
    5,206Expenses
    
    
    4,046
    
    
    
    4,816
    (e)
    
    
    4,869
    (f)
    
    
    5,135
    (g)(Loss) income before income taxes and minority interest
    
    
    (196
    )
    
    
    240
    
    
    
    173
    
    
    
    71Income taxes
    
    
    15
    
    
    
    18
    
    
    
    7
    
    
    
    (27
    )(Loss) income before minority interest
    
    
    (211
    )
    
    
    222
    
    
    
    166
    
    
    
    98Minority interest
    
    
    (54
    )
    
    
    (4
    )
    
    
    2
    
    
    
    1Net (loss) income
    
    $
    (265
    )
    
    $
    218
    
    
    $
    168
    
    
    $
    99Net (loss) income per share:Basic
    
    $
    (0.09
    )
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    0.03Fully diluted
    
    $
    (0.09
    )
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    0.03
  (a)
    
    The expenses include a loss on disposal of property, plant and machinery
of $112 derived from Singapore.  (b)

    
    Cost of sales increased with the exceptionally high sales for the
distribution of low margin front-end products of $1,600.  (c)
    
    This includes an impairment of $358 consisting of machinery and
equipment, furniture and fixtures, and leasehold improvements (pertaining
to the Malaysia and Singapore Testing Segments).  (d)
    
    Sales dropped sharply from Q4 FY2003 mainly due to the decline in
Distribution sales from low-margin front-end products of $1,154, which
offset by an increase in the sales of burn-in boards.  (e)
    
    Gross margin at 28.1% in Q3 FY2004 was comparatively higher than the
other quarters. This was attributed from Manufacturing and Distribution
segment.  (f)
    
    This includes a gain on disposal of equipment of $62 derived from
Ireland.  (g)
    
    Selling expenses increased to 6.2% of sales in Q4 FY2004 from an average
of 4.6% due to commission payment towards end of the fiscal year. The
expenses also include a gain on disposal of boards of $39 derived from
Thailand. 62




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17. SUBSEQUENT EVENTS Trio-Tech Malaysia (Buyer), one of the Malaysia subsidiaries, entered
into an agreement with TS Matrix Bhd, a Malaysian company (Seller), on
March 29, 2004 under which Buyer agreed to acquire certain assets of
Seller utilized by the burn-in testing division of Seller for an aggregate
cash purchase price of 3,500 Ringgit Malaysia. A portion of the purchase
price (350 Ringgit Malaysia, representing approximately $92 on March 29,
2004 based on the spot exchange rate published in Federal Reserve as of
that date) was paid on March 29, 2004 by way of a deposit and was credited
towards the aggregate purchase price at the closing of the transaction.
The acquisition was completed on July 1, 2004. At the closing, the
balance of the purchase price was paid, of which approximately $434 (or
1,650 Ringgit Malaysia was paid in cash) and approximately $395 (or 1,500
Ringgit Malaysia) was paid in the form of a bank-guaranteed note. The
note payable will mature in six months from the closing date of the
acquisition on July 1, 2004. Buyer also acquired on July 1, 2004
additional assets which Seller had been leasing for a purchase price of
approximately $297 (or 1,127 Ringgit Malaysia ). Except as otherwise
noted, the foregoing United States Dollar amounts were calculated based on
the spot exchange rate published in Federal Reserve as of July 1, 2004.
The source of the funds for this acquisition was the general working
capital of Buyer. The above newly acquired division will be accounted for under the purchase
method and addresses the initial recognition and measurement of goodwill
and other intangible assets acquired in a business combination. The
Company will recognize $493 as the valuation of customer listing will be
amortized over 5 years. The current fiscal reporting period of the Company coincides with the
52-53 week period ending the last Friday in June. Subsequent to the
year-end, the Board of Directors approved the change of the fiscal report
period to end on the last day of June, effective July 1, 2004. 63