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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION





Washington, D.C. 20549





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FORM 10-K





|
|




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




For the fiscal year ended June 30, 2002





OR





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




Commission File Number 0-13914





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TRIO-TECH INTERNATIONAL


(Exact name of Registrant as specified in its Charter)





California

95-2086631(State or other jurisdiction of

(I.R.S. Employerincorporation or organization)

Identification Number)14731 Califa StreetVan Nuys, California

91411(Address of principal executive offices)

(Zip Code)





Registrants Telephone Number: 818-787-7000





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Securities registered pursuant to Section
12(b) of the Act:





Title of each class

Name of each exchangeOn which registeredCommon Stock, no par value

AMEX





Securities registered pursuant to Section 12(g) of the Act:


None





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Indicate by check mark whether the registrant (1) has filed all reports required to be filed with the Commission by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  þ  No  ̈





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





The aggregate market value of voting stock held by non-affiliates of Registrant, as of September 6, 2002, was approximately $4 million (based upon the last sales price for
shares of Registrants Common Stock as reported by the AMEX on September 6, 2002). 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 6, 2002 was 2,927,551.





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TRIO-TECH INTERNATIONAL





INDEX





PagePart IItem 1

Business

3Item 2

Properties

9Item 3

Legal Proceedings

10Item 4

Submission of matters to a vote of security holders

10Part IIItem 5

Market for registrants common equity and related stockholder matters

11Item 6

Selected financial data

12Item 7

Managements discussion and analysis of financial condition and results of operations

13Item 7A

Quantitative and qualitative disclosures about market risk

24Item 8

Financial statements and supplementary data

26Item 9

Changes in and disagreements with accountants on accounting and financial disclosure

26Part IIIItem 10

Directors and executive officers of the registrant

26Item 11

Executive compensation

26Item 12

Security ownership of certain beneficial owners and management, and related stockholder matters

26Item 13

Certain relationships and related transactions

26Item 14

Controls and procedures

26Part IVItem 15

Exhibits, financial statement schedules, and reports on Form 8-K

26Signatures

29Certifications

30ExhibitsIndependent Auditors Report for the year ended June 30, 2002

31Independent Auditors Report for the years ended June 30, 2001 and 2000

32Consolidated Balance Sheets as of June 30, 2002 and 2001

33Consolidated Statements of Operations and Comprehensive (Loss) Income for the Years Ended June 30, 2002, 2001 and 2000

34Consolidated Statements of Shareholders Equity for the Years Ended June 30, 2002, 2001 and 2000

35Consolidated Statements of Cash Flows for the Years Ended June 30, 2002, 2001 and 2000

36Notes to Consolidated Financial Statements

37







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TRIO-TECH INTERNATIONAL


PART I





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 44 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 industry segments: Testing Services, Manufacturing and Distribution.





Our core business, Testing Services, is expected to show growth in the coming year and has changed the direction of our strategic growth
plan. We currently operate five test facilities, one in the United States, one in Europe and three in Southeast Asia. These facilities provide customers a comprehensive range of testing services, such as burn-in and product life testing for finished
or packaged components.





We manufacture wet processing and cleaning stations used in the manufacture
of semiconductor circuits and temperature controlled chucks that are used to manufacture and test silicon 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.




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Our business in Southeast Asia has an active distribution operation.
Additionally, the Southeast Asia business 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.





Company History





1958

Incorporated in California1976

The Company formed Trio-Tech International Pte. Ltd. (TTI Pte) 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 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.





Analysis of Sales





Complete Business Segment and Geographic Area Information is set forth under Note 15 to the Consolidated Financial Statements for the years ended June 30, 2002, 2001 and
2000 and is included as part of this Form 10-K.





Background Technology





In 2001, the worldwide market for semiconductor devices was estimated at $138 billion, approximately 32% less than the year 2000, with shipments of $204 billion. Most
forecasters see an industry turnaround during fiscal 2003 with shipments growing in the future. The Semiconductor Industry Association (SIA) expects the growth rate to accelerate to 23.2% in 2003 and 20.9% in 2004 with wireless and digital consumer
products leading the growth of semiconductor sales.





In addition to the growing demand for semiconductors,
integrated circuits (ICs) are continually shrinking in size while increasing in capacity, complexity, and versatility. In order to fabricate these semiconductors, manufacturers must continually improve their equipment, packaging and test
facilities. Semiconductor Equipment and Materials International (SEMI) reported recently that worldwide sales of semiconductor manufacturing equipment totaled $28 billion in 2001, a 41% year-over-year decline, the worst drop in sales on record. SEMI
has projected that worldwide semiconductor equipment sales will decline by 3% in 2002, but the chip-making tool market will rebound and increase by 29% in 2003 and 23% in 2004




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The market for semiconductor manufacturing equipment can be divided into
front-end applications, including wafer fabrication and assembly, and back-end applications, comprised of packaging and testing. SIA estimates that the semiconductor equipment market is approximately 70% front-end equipment,
20% back-end equipment and 10% facilities.





Back-End





Trio-Techs test services are concentrated on the back-end screening and test 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 especially 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 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 eight 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 where
each separate integrated device on the wafer is tested for functionality. Our Artic temperature 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 46%, 31% and 29% of sales for the years ended June 30, 2002,
2001 and 2000 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.





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 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.





Products





The Company designs, develops, manufactures and markets equipment for the manufacture and test of semiconductor wafers, devices and other
electronic components. Revenue from the sale of products manufactured represented approximately 26%, 51% and 50% of sales for the years ended June 30, 2002, 2001 and 2000 respectively.




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Front-End Products





Wet Process Stations





Wet process benches are used for cleaning, rinsing and drying semiconductor wafers, magnetic disks, flat panel displays and other microelectronic substrates. The wet process bench product line, which is manufactured by the
Companys subsidiary Universal Systems, 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.





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
that 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 reduces all
varieties 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.





During 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) designed to perform precise, high-speed transfer of IC packages from 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 productivity and minimize human handling including the integration of automatic burn-in boards handling systems and the automatic electrical board check station. We have improvised 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 conditioners (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.





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 30,000 gs (900,000 pounds per square inch), thereby indicating any mechanical weakness in the devices. Leak detection equipment is designed to detect




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leaks in hermetic packaging by first pressurizing the devices in a tracer gas or fluid and then visually scanning for bubble trails emanating
from defective devices. Applications include automotive and aerospace markets.





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 other 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. Revenue from distribution activities represented approximately 29%, 18% and 22% of sales for the years ended June 30, 2002, 2001 and 2000, respectively.





Product Research and Development





We continue to
invest in research and development to improve our products and services. Our previous efforts have been concentrated in products for the Front End and in developing new testing technology that allows us to offer more advanced processes.
The Company incurred research and development costs of $331,000 in fiscal 2002, $216,000 in fiscal 2001 and $205,000 in fiscal 2000.





Testing Services





During 2000 through 2002, the Company developed new equipment
and facilities to participate in a new generation of burn-in technology known as HBI (Hybrid Burn-in) and SBI (Smart Burn-in). This technology has been 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.





Artic Temperature Controlled Wafer Chucks





We continue to develop our range of Artic temperature controlled wafer chucks. In July 1999, the Company introduced its new
range of TC3000 series chucks for production wafer probing applications. These new chucks offer high levels of mechanical stability under high probing loads. A triaxial guarding option is available which enables very precise electrical measurements
on the wafer. This new generation of chucks has been expanded for use in all major production wafer probers and for new applications such as high power device testing. The Company has also applied this new technology to 300 mm chucks in the new
TC31200 temperature chuck for the emerging 12 inch or 300mm wafers.





Wet Process Stations and Chemical
Management Equipment





The Company is actively developing its line of wet process equipment. During 2001, we
completed development of our Chemical Dispense Units (CDUs), which allows us to offer a complete wet process and chemical supply system. Chemical management equipment provides automatic dispensing and control of process chemicals for our own wet
process equipment as well as other brands of wet stations.





In addition, the Company also produced several new
systems that allow photo resist stripping, rinsing and drying, all in a single process chamber. Other tools under development include a sophisticated plating tool and an advanced chemical dispensing tool that utilizes ozone injection systems for
organic cleaning of silicon wafers. Use of ozone injection eliminates the need for toxic chemicals.





Marketing, Distribution and
Services





The Company markets its products and services worldwide, directly and through independent sales
representatives. Additionally we have approximately 16 independent sales representatives operating in the United States and another 25 in various foreign countries. Of the 41 sales representatives, 5 represent the Distribution Segment and the
balance represent the Manufacturing Segment. Trio-Techs United States marketing efforts are coordinated from its California locations. Southeast Asia and European marketing efforts are assigned to its subsidiaries in Singapore and Ireland,
respectively. 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 industries depend on the current and anticipated market demand
for integrated circuits and products utilizing semiconductor devices. In fiscal 2002, 2001, and 2000, sales of




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equipment and services to our two largest customers (Catalyst Semiconductor and AMD) accounted for approximately 55%, 40%, and 28%,
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 year ended June 30, 2002, the Company had sales of $4,640,000 (24%) and $6,079,000 (31%) 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, 2002

June 30, 2001Manufacturing backlog

$
785

$
2,076Testing service backlog


6,615


5,863Distribution backlog


537


509$
7,937

$
8,448





Based upon past experience, the Company does not anticipate any
significant cancellations or renegotiation of sales. 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. Our
current backlog, as of September 6, 2002 is $1,192, $5,174 and $251 for manufacturing, testing and distribution, respectively and totals $6,617.





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.





Competition





There are numerous testing laboratories in the areas in which the Company operates 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. Since the Company has sold and will continue to sell its products to competing laboratories and other test products are available from many other
manufacturers, the Companys competitors can offer the same testing capabilities. This 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 purchase of testing equipment by semiconductor manufacturers and users are potential threats to the Companys future testing services revenues and earnings. Although these
laboratories, and new competitors, may challenge the Company at any time, the Company believes that other factors, including its reputation, long service history and strong customer relationships are more important than pricing factors in
determining the Companys position in the market.





The semiconductor equipment industry is highly
competitive. The principal competitive factors in the industry are product performance, reliability, service and technical support, product improvements, price, established relationships with customers and product familiarity. The Company has
competitors for its various products. However, the Company believes its products compete favorably with respect to each of these factors in the markets in which it operates. 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.





Patents





Trio-Tech 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 chucks. The capitalized cost of the patents was written off because of the impairment assessed by our management in fiscal 2002.





In the semiconductor industry it is typical for companies to receive notices from time to time alleging infringement of patents or other
intellectual property rights of others. We can provide no assurance that we will not receive notices alleging infringement.




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Moreover, the cost of litigation of any claim or damages resulting from infringement of patents or other intellectual property could materially and adversely affect our business, financial
condition and results of operations.





Employees





As of June 30, 2002, the Company had approximately 36 employees in the United States, 351 in Southeast Asia and 10 in Ireland for a total of approximately 397 employees.
None of the Companys employees are represented by a labor union. There are approximately 311 employees in the testing segment, 66 employees in the manufacturing segment and 20 in the distribution segment. Currently, as of September 6, 2002,
there are approximately 391 employees.





ITEM 2
PROPERTIES





The Company believes that its existing facilities are adequate and suitable
to meet the Companys needs for the foreseeable future. From time to time contractual agreements arise and the Company believes that it has anticipated future needs.





The following table sets forth information as to the location and general character of the principal manufacturing and testing facilities of the Registrant:





Location

Principal Use/Segment

Approx. Sq. Ft. Occupied

Owned (O) or Leased (L) Expiration Date14731 Califa Street

Headquarters/

10,000

(L) Jan. 2005Van Nuys, CA 9l411

Testing/Manufacturing6951-A Via Del Oro

Manufacturing

15,000

(L) Feb. 2004San Jose, CA 95119Abbey Road

Testing

18,400

(O)Deansgrange Co.Dublin, Ireland1004, Toa Payoh North, SingaporeHEX 07-01/07,

Testing

6,833

(L) Sept. 2003HEX 03-01/03,

Testing/Manufacturing

2,959

(L) Sept. 2003HEX 03-16/17,

Testing

1,983

(L) Jul. 2002 *2HEX 01-08/15

Testing/Manufacturing

6,865

(L) Jan. 2003 *2HEX 01-16/17

Testing

1,983

(L) Feb. 2004HEX 02-08/10,

Testing

2,959

(L) Aug. 2005HEX 02-11/15

Testing

3,905

(L) Apr. 20051008, Toa Payoh North, SingaporeHEX 03-01/06,

Testing

7,345

(L) Feb. 2003 *2HEX 03-09/15,

Logistics

4,435

(L) Jan. 2003 *2HEX 03-16/18,

Distribution

5,130

(L) Jan. 2003 *2HEX 01-08,

Power Substation

603

(L) Jun. 2003 *1HEX 07-17/18,

Testing

4,315

(L) Nov. 2003HEX 07-01,

Testing

3,466

(L) Jan. 2004Plot 1A, Phase 1

Testing

49,924

(O)Bayan Lepas Free Trade Zone11900 Penang327, Chalongkrung Road,

Testing

11,300

(O)Lamplathew, Lat Krabang,Bangkok 10520, Thailand




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Lot No. B7, Kawasan MIEL

Manufacturing

24,142

(O)Batang Kali, Phase II,43300 Batang KaliSelangor Darul Ehsan, Malaysia


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|*1 |  | The Company built and owns a Power Substation building, which building is situated on property that the Company leases. Although the lease expires in June 2003,
the Company anticipates that the landlord will offer similar terms on such lease at renewal and does not believe that material expenses will be incurred.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|*2 |  | With respect to the various leases that expire during FY 2003, 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.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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.





ITEM 4SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





None.




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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 2001September 30, 2000

7.00

5.50December 31, 2000

6.25

3.00March 31, 2001

4.50

3.13June 30, 2001

3.70

3.00Fiscal 2002September 30, 2001

4.02

2.96December 31, 2001

3.26

2.48March 31, 2002

3.25

2.50June 30, 2002

3.06

2.65Fiscal 2003July 1, 2002 toSeptember 6, 2002

2.65

1.90





There were approximately 609 shareholders of record of our common
stock as of September 6, 2002. Approximately 2,115,528 shares are held by Cede and Co., a clearinghouse that holds stock certificates in street name for an unknown number of shareholders.





The Company has never declared any cash dividends on its common stock. Any future determinations 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. It is anticipated that no dividends will be paid to holders of common stock in the foreseeable future.





EQUITY COMPENSATION PLAN INFORMATION





Plan Category

Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)

Weighted-average exercise price of outstanding options, warrants and rights (b)

Number of securities remaining available for future issuance under equity
compensation plans(excluding securitiesreflected in column (a) (c)Equity compensation plans approved by security holders (1) Company's 1988 Stock Option Plan

27,000

$3.6670

-0-(2) Company's 1998 Stock Option Plan

250,500

$4.5215

49,500(3) Directors Stock Option Plan

197,000

$4.0253

103,000Equity compensation plans not approved by security holders options granted outside of plan:

0

$0.0000

0Total

474,500

$4.2668

152,500




11




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##### Table of Contents




ITEM 6SELECTED FINANCIAL DATA





June 30, 2002


June 30, 2001

June 30, 2000

June 30, 1999


June 30, 1998(In thousands except share and per share amounts)Consolidated Statements of IncomeNet sales

$
19,617


$
36,133

$
26,943

$
21,181


$
21,852Income (loss) from Operations


(3,609
)


1,072


1,310


(207
)


969Net (Loss) Income


(3,547
)


1,163


1,034


195



831Net income per share :Basic


(1.21
)


0.40


0.37


0.07



0.34Diluted


(1.21
)


0.39


0.36


0.07



0.33Weighted average common shares outstandingBasic


2,928



2,884


2,759


2,745



2,413Diluted


2,928



3,006


2,895


2,757



2,484Consolidated Balance SheetsCurrent assets

$
13,405


$
15,501

$
17,279

$
12,723


$
14,036Current liabilities


6,486



7,599


8,349


5,934



7,439Working capital


6,919



7,902


8,930


6,789



6,597Total assets


19,075



24,150


22,712


18,932



19,331Long-term debt and capitalized leases


986



1,745


586


962



426Shareholders' equity

$
8,618


$
11,609

$
10,448

$
9,051


$
8,763




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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 following discussion should be read in conjunction with the Companys Consolidated Financial Statements, including the related notes thereto, and other
financial information included herein. In addition, in order to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, we hereby notify our readers that the factors set forth in Note
Concerning Forward-Looking Statements prior to Part IItem 1Business on page 3 hereof and Certain Factors that May Affect Our Future Results as set forth below in this Item 7, as well as other factors, in the
past have affected and in the future could affect our actual results, and could cause our results for future periods to differ materially from those expressed in any forward looking statements made by or on our behalf, including without limitation
those made in this report. In addition, past operating results are not necessarily indicative of the results to be expected in future periods.





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 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 following table set forth our revenue components for the past three years





Revenue Components





Year EndedJune 30, 2002


June 30, 2001


June 30, 2000Net Sales:Testing

45.58
%

30.75
%

28.66
%Manufacturing

25.60


51.11


49.68Distribution

28.82


18.14


21.66Total

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 (who purchase our testing equipment.). Our revenue is heavily concentrated on two major
customers (See Business section and Note 13 to the financial statements for reference).





Our cost of sales is made
up of the cost of materials used, obsolescence costs, labor, depreciation, utilities (which is our major part of consumption for testing services), and overhead relating to manufacturing, testing and distribution.





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





Critical Accounting Policies





We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements





Use of Estimates





The Companys financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and judgments that significantly affect the
reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The Company regularly evaluates these estimates, including those related to inventory valuation, revenue recognition and
income taxes. These estimates are based on historical experience and on assumptions that are believed by management to be reasonable under the circumstances. Actual results may differ materially from these estimates, which may impact the carrying
values of assets and liabilities.




13




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##### Table of Contents

Inventory Valuation





We value our inventories at the lower of cost or market. We write down inventories for unsalable, excess or obsolete raw materials, work-in-process and finished goods by charging such write-downs to
cost of sales. In addition to write downs based on newly introduced parts, statistical and judgmental assessments are calculated for the remaining inventory based on salability and obsolescence.





Revenue Recognition





Revenue from product sales made to customers is recognized when the risk of loss for the product sold passes to the customer and any right of return can be quantified, which is generally when goods are shipped or upon the completion
of services. The Company estimates an allowance for sales returns based on historical experience with product returns. Testing revenue is recognized when the services are provided.





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, the taxable income generated in foreign countries will not offset the net loss generated in the U.S. Therefore, we always 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





The Company reviews long-lived assets such as goodwill and fixed assets for possible impairment whenever, in managements estimate, circumstances indicate that the carrying amount may not be
recoverable, in terms of SFAS No. 121. To the extent the carrying value of the asset exceeds its fair value, which is determined using undiscounted cash flows, a write down to fair value is made and a charge is recorded against operations.





Year Ended June 30, 2002 (2002) Compared to Year Ended June 30, 2001 (2001)





Sales





Net sales decreased by $16,516 or 45.7% from $36,133 in 2001 to $19,617 in 2002, due to the global downturn in the semiconductor industry and world economic conditions. However, we believe our backlog by quarter in 2002 indicates
signs of possible recovery in the first half of our 2003 fiscal year.





LOGO





Geographically, net sales into and within the United States decreased
$3,170 or 28.2% from $11,253 in 2001 to $8,083 in 2002. The decrease was attributable to a downturn in sales of burn-in-boards, Artic Temperature Controlled Chucks and wet process benches. Net sales within Southeast Asia decreased $8,396 or 44.4%
from $18,489 in 2001 to $10,093 in 2002 mainly due to lower manufacturing and distribution volumes. Net sales for Europe decreased $5,282 or 78.1% from $6,761 in 2001 to $1,479




14




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##### Table of Contents

in 2002. This decrease was due primarily to a decline in demand for testing services, which occurred when several large customers moved from
Europe to Southeast Asia. We have managed to recapture some of this business in Southeast Asia, due to the fact that our testing services were already established in regions to where the customers relocated.





The Manufacturing Segment sales decreased $13,446 or 72.8% from $18,468 in 2001 to $5,022 in 2002 due to conservative capital spending by
OEMs for the Artic Temperature Controlled Chunks, wet process benches and the COBIS-II Burn-in Board Systems. The Testing Services Segment sales, Company-wide, decreased $2,170 or 19.5% from $11,112 in 2001 to $8,942 in 2002 due to the further
downturn in global economic conditions which has created a tough and competitive environment. However, even in this environment our Testing Segment was able to secure contracts for its newly developed Hybrid Burn-in (HBI) and Smart-Burn-In (SBI)
technology in its new facilities in Singapore. The Distribution Segment decreased $900 or 13.7% from $6,553 in 2001 to $5,653 in 2002. This segment is dependent on the capital expenditure plans of our customers, which remains weak.





Cost of Sales





The Companys cost of sales varies depending on the mix of sector and geographic sales and deceased $10,823 or 40.5% from $26,749 in 2001 to $15,926 in 2002. As a percentage of sales, the cost of
sales increased 7.2% from 74% in 2001 to 81.2% in 2002. This increase in cost of sales, as a percentage of sales, was mainly due to an inventory write down of $511 and certain costs that remained fixed. The increase was also due to the decline in
sales and change in the sales and product mix.





Operating Expenses





Operating expenses decreased by $1,012 or 12.2% from $8,312 in fiscal 2001 to $7,300 in fiscal 2002. As a percentage of total revenue, our
operating expenses in fiscal 2002 increased from 23% in fiscal 2001 to 37% in fiscal 2002, due mainly to the decrease in our total revenue and recording of impairment losses relating to fixed assets and intangible assets.





General and Administrative





General and Administrative (G&A) expenses decreased by $1,998 or 32.6% from $6,136 in 2001 to $4,138 primarily due to the implementation of cost cutting measures and a reduction in
amortization of intangibles through asset impairment. These cost-cutting measures consisted of (1) reducing headcount and related expenses such as payroll and payroll-related costs such as bonuses which has been accomplished through layoffs,
reduction in management, shortened work weeks, salary reductions and periodical closures (2) reducing plant capacity by moving to smaller facilities and (4) reducing insurance, travel and other miscellaneous expenses. As a percentage of sales,
G&A increased by 4.1% from 17% in 2001 to 21.1% in 2002 due to certain expenses that are fixed and thus do not decrease even though sales decreased.





Selling Expenses





Selling expenses decreased by $678 or
35.5% from $1,911 in 2001 to $1,233 in 2002 due to reduction in volume-related expenses such as commissions. As a percentage of sales, selling expenses increased 1% from 5.3% in 2001 to 6.3% in 2002 due to certain fixed cost elements included in
selling expenses.





Research and Development





Research and Development increased by $115 or 53.2% from $216 in 2001 to $331 in 2002. This increase is primarily due to managements decision to invest in research
and development to improve its Automated Wet Benches. The Company produced several new systems that allow photo resist stripping, rinsing and drying, all in a single process chamber. Other tools under development include a sophisticated plating tool
and an advanced chemical dispensing tool that utilizes ozone injection systems for organic cleaning of silicon wafers.





Impairment loss





In 2002, the Company recorded an impairment loss of approximately $1,631
based on its examination of estimated undiscounted future cash flows, which are generated by the subsidiaries where certain long-lived assets (goodwill and certain fixed assets) were used. The impairment of $1,631 consisted of (1) $393 in goodwill,
related to the Companys acquisition of manufacturing product lines in the United States; (2) $121 in intangibles, used in its manufacturing segment (within the United States); and $1,117 of fixed assets, consisting of machinery and equipment,
furniture and fixtures, leasehold improvements, and demonstration (54% pertaining to the Southeast Asia Testing Segment and 46% pertaining to the United States Manufacturing Segment). The Testing Segment incurred a one time impairment of $603, of
which $534 of impairment was a write down because of obsolescence due to a new generation of burn-in technology known as HBI (Hybrid Burn-in) and SBI (Smart Burn-in).




15




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##### Table of Contents




Gain/(Loss) on Sale of Property, Plant and Equipment





The gain on sale of property, plant and equipment increased by $82 from a loss of $49 in 2001 to income of $33 in 2002 due to a
gain on disposal of assets, mainly in Malaysia.





Income (Loss) from Operations





For segment reporting purposes, the loss from operations in our manufacturing segment increased by $3,887 from a loss of $197 in fiscal
2001 to a loss of $4,084 in fiscal 2002, due to eroding margins and a decrease in sales of the Artic Temperature Controlled Chunks, Semi-automatic Wet Process Benches and the COBIS-II Burn-in Board. The Manufacturing Segment also included a one-time
impairment charge of $1,028 to write down intangible assets and fixed assets based on the estimated undiscounted cash flow generated through where these intangible assets and fixed assets were used.





Income from operations in our Testing Services Segment increased by $28 or 3.8% from $743 in fiscal 2001 to $771 in 2002 due to the rapid
implementation of cost saving measures during a decline in demand. The Testing segment also incurred a one-time impairment charge of $534 related to a write-down in fixed assets due to a new generation of burn-in technology.





Income (loss) from operations in our distribution segment decreased by $445 from income of $390 in 2001 to a loss of $55 in 2002 due to
the tough and competitive environment, which reduced our sales and changed our product mix.





Corporate operating
income was reduced from operating income of $136 in 2001 to an operating loss of $241 in 2002 due to the amount of overhead being charged on lower sales volumes.





Interest Expenses





Interest expense increased by $8 or 4%,
from $199 in 2001 to $207 in 2002, due to increases in lines of credit, capitalized leases and financing activity for capital expenditures.





Other Income (Expense)





Other income decreased by $419 or
55.5% from $755 in 2001 to $336 in 2002. Other income during 2002 was made up mainly of (1) interest income of $182, (2) rental income of $90, (3) royalties from sale of RTE product line of $25 and, (4) miscellaneous income for $39. The decrease in
other income from 2001 to 2002 was due to lower interest, lower rental income and the Companys reversal of an accrual of $295 during 2001 for the settlement of a civil action.





Income Tax





Current income tax
expense for fiscal 2002 was approximately $33, a decrease of $393 compared to the current income tax expense of $426 for fiscal 2001. The decrease in current income tax expense for fiscal 2002 was due mainly to the net loss of $3,611 generated in
the U.S. compared to the net loss of $154 in fiscal 2001 in the U.S., representing a significant increase in the loss of $3,457. Minor operating losses of $102 were incurred in Thailand and Ireland for fiscal 2002, whereas the income before income
taxes of $283 in Singapore and Malaysia was offset by the loss of $50 resulting in income before income taxes of $131 generated by operations conducted in foreign countries, compared to the income before income taxes of $1,782 for fiscal 2001,
representing a decrease of $1,651, a significant decrease in income before income taxes generated in foreign countries.





Regarding the deferred portion of income tax expense, we incurred a deferred income tax expense of $20 in Singapore for fiscal 2002 compared to a deferred income tax benefit of $71 available in Singapore for fiscal 2001. The deferred
income tax expense in 2002 arose as a result of the timing differences related to the recording of depreciation expense for book and tax purposes.





Because the net loss incurred in the U.S did not offset the taxable income in Singapore and Malaysia, we still incurred a total income tax expense of $53 for fiscal 2002 including changes in deferred
income tax assets and liabilities, comparing to a total income tax expense of $355 for fiscal 2001, a decrease of $302 or 85.1%. Due to the fact that we paid foreign income taxes and had a full valuation against our deferred tax assets, our
effective tax rate decreased from 22% for fiscal 2001 to approximately 2% for fiscal 2002.





Net Loss




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##### Table of Contents




As a result of all of the factors analyzed above, the net loss attributable to
common shares for the fiscal year ended June 30, 2002 was approximately $3,547, which represented a decrease of $4,710 from net income of approximately $1,163 attributed to common shares for fiscal 2001, a 405% change. Consequently, basic loss per
share for fiscal 2002 decreased to a loss of $1.21 per share, from basic earnings per share of $0.40 in fiscal 2001, which represented a change of $1.61 from net income to net loss, a 405% change. Diluted loss per share for fiscal 2002 was $1.21 per
share, a decrease of $1.60 per share from diluted earnings per share of $0.39 for fiscal 2001.





Year Ended June 30, 2001
(2001) Compared to Year Ended June 30, 2000 (2000)





Sales





Net sales increased by $9,190 or 34.1% from $26,943 in 2000 to $36,133 in 2001, as we were able to stay ahead of the current
downturn in the semiconductor cycle due to our established customer base.





Geographically, net sales in the United
States decreased $3,179 or 22.0% from $14,432 in 2000 to $11,253 in 2001. The decrease was attributable to Wet Benches that were exported to Europe. Net sales for the Southeast Asia operations increased $8,368 or 82.7% from $10,121 in 2000 to
$18,489 in 2001 due mainly to higher manufacturing and testing volumes. Net sales for Europe increased $3,868 or 133.7% from $2,893 in 2000 to $6,761 in 2001. The increase was due primarily (1) to an increase of $321 in testing and (2) an increase
in Wet Bench exports.





The Manufacturing Segment sales increased $5,107 or 38.2% from $13,361 in 2000 to $18,468
in 2001 due to higher volumes of the Artic Temperature Controlled Chucks and the COBIS-II Burn-in Board Systems. The Testing Services Segment sales increased $3,389 or 43.9% from $7,723 in 2000 to $11,112 in 2001 due to the introduction of the new
HBI technology and the achievement of the QS 9000 certification. The Distribution Segment increased $694 or 11.8% from $5,859 in 2000 to $6,553 in 2001 due to a slight increase in demand for test equipment and a change in selling emphasis between
existing products.





Cost of Sales





The Companys cost of sales varies depending on the mix of sector and geographic sales and increased $6,902 or 34.8% from $19,847 in 2000 to $26,749 in 2001. As a
percentage of sales, it increased 0.3% from 73.7% in 2000 to 74% in 2001. The cost as a percentage of sales remained rather constant despite the significant increase in sales and change in the product mix. Various other factors including unit
volumes, yield issues associated with production at factories, ramp of new technologies, variations in inventory valuation and mix of shipments will continue to affect the amount of cost of sales and the variability of gross margin percentages in
future quarters.





Operating Expenses





Operating expenses increased by $2,526 or 43.7% from $5,786 in 2000 to $8,312 in 2001. This increase is consistent with the increase in our total revenue for fiscal 2001.
As a percentage of revenue, our operating expense increased by 1.5% from 21.5% in 2000 to 23.0% in 2001 due to the increase on our total revenue in fiscal 2001.





General and Administrative





General and Administrative
(G&A) expenses increased by $1,566 or 34.3% from $4,570 in 2000 to $6,136 primarily due to increases in headcount and related expenses such as payroll and payroll related costs, bonuses, travel and entertainment, insurance and
increased depreciation on office equipment and vehicles. Other increases included the plant expansion in Southeast Asia and the relocation expenses related thereto. As a percentage of sales, G&A was consistent at 17% for fiscal 2001 and fiscal
2000.





Selling Expenses





Selling expenses increased by $91 or 5% from $1,820 in 2000 to $1,911 in 2001 due to increases in commissions along with the increase in our total revenue. As a percentage
of total revenue, selling expenses decreased 1.5% from 6.8% in 2000 to 5.3% in 2001 due to the increase in total revenue.





Research and Development




17




---

##### Table of Contents

Research and Development increased by $11 or 5.4% from $205 in fiscal 2000 to $216 in fiscal 2001. This increase is
primarily due to increased payroll and payroll related costs and supplies offset by decreased travel to Original Equipment Manufacturers (OEMs).





(Gain)/Loss on Disposal of Property, Plant and Equipment





The net loss on disposal of property, plant and equipment during fiscal 2001 was $49 and related to the sale of one of the Companys Singapore facilities. The loss was immaterial compared to the net gain of $809 realized in
fiscal 2000.





Income from Operations





For segment reporting purposes, income from operations from the manufacturing segment decreased by $315 or 266.9% from a profit of $118 in fiscal 2000 to a loss of $197 in
fiscal 2001 due to a change in the product mix.





Income from operations in the testing services segment decreased
$460 or 38.2% from $1,203 in fiscal 2000 to $743 in fiscal 2001 due to the closure of the testing facility in Kuala Lumpur.





Income from operations in the distribution segment increased by $712 or 221.1% from a loss of $322 in fiscal 2000 to income of $390 in fiscal 2001 due to a change in sales mix from lower margin equipment to more profitable new
technology products.





Corporate operating profit was reduced by $175 or 56.3% from $311 in fiscal 2000 to $136 in
fiscal 2001 due to reductions in overhead charged through to divisions and subsidiaries in order to afford divisions and all subsidiaries greater control locally.





Interest Expense





Interest
expense increased in 2001 by $107 or 116.3%, from $92 in fiscal 2000 to $199 in fiscal 2001, due to increases in lines of credit, capitalized leases and financing activity for capital expenditures.





Other Income





Other income has increased by $448 or 145.9% from $307 in fiscal 2000 to $755 in fiscal 2001 primarily due to costs in 2000 associated with the closure of our Kuala Lumpur facility. The Company also reversed an accrued
liability of $295 during 2001 that was held for the settlement of the civil action, in which the Company was named along with 106 other defendants that alleged that they may have caused or contributed to soil and underground contamination, which was
subsequently dismissed





Income Tax





Current income tax expense for fiscal 2001 was approximately $426, an increase of $458 compared to the current income tax benefit of $32 for fiscal 2000. The increase in
current income tax expense for fiscal 2001 was due mainly to the income before income taxes of $1,782 generated by foreign operations, compared to income before income tax of $1,254 generated by foreign operations in fiscal 2000 , representing a
significant increase in the income before income taxes generated by foreign operations of $528. The operating loss of $154 incurred in the U.S. for fiscal 2001 decreased from income before income taxes of $271 in fiscal 2000 in the U.S., resulting
in a decrease in income of $425, a significant decrease in income generated in the U.S.





Regarding the deferred
portion of income tax expense, we reported a deferred income tax benefit of $71 in Singapore for fiscal 2001 compared to a deferred income tax expense of $138 incurred in Singapore for fiscal 2000 because the deferred income tax liability in
Singapore was over-accrued in fiscal 2000 and reversed in fiscal 2001.





Because the net loss incurred in the U.S
did not offset the taxable income in foreign countries, we still incurred a total income tax expense of $355 for fiscal 2001 including changes in deferred income tax assets and liabilities, comparing to a total income tax expense of $106 for fiscal
2000, an increase in the expense of $249 or 235%. Due to the fact that we paid foreign income taxes and had a full valuation against our deferred tax assets, our effective tax rate increased from 7% for fiscal 2000 to approximately 22% for fiscal
2001.





Net Income





As a result of all of the factors analyzed above, the net income attributable to common shares for fiscal 2001 was approximately $1,163, which represented an increase of $129 from net income of
approximately $1,034 attributable to common shares for fiscal 2000, an 11% change. Consequently, basic earnings per share of $0.37 for fiscal 2000 increased to $0.40 for fiscal 2001, which represented an increase of $0.03, a 8% change. Diluted
earnings per share increased by $0.03 or 8% from $0.36 per share for fiscal 2000 to $0.39 per share in fiscal 2001.




18




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##### Table of Contents

Liquidity and Capital Resources





We had working capital (defined as current assets minus current liabilities) of approximately $6,919 as of June 30, 2002, which represented a decrease of approximately $983 compared with working
capital of $7,902 as of June 30, 2001, a 12.4% decrease. Historically, the Company had positive working capital for the eight fiscal years prior to the fiscal year ended June 30, 2002. We believe that the Company has the ability to maintain positive
working capital in the near future.





The Companys credit rating provides ready and ample access to funds in
global capital markets. At June 30, 2002, the Company had available short-term lines of credit totaling $7,668 of which $6,441 was unused.





Entity with Facility

Type of facility

Interest Rates


Credit Limit

Unused portionTrio-Tech Malaysia

Line of Credit

6.80
%

$
40

$
40Trio-Tech Kuala Lumpur

Line of Credit

6.80
%


50


50Trio-Tech Singapore

Line of Credit

7.00
%


2,548


2,407Trio-Tech Singapore

Line of Credit

6.25
%


4,530


3,819Trio-Tech International

Line of Credit

5.75
%


500


125$
7,668

$
6,441





The above line of credit ($500 used and $125 unused at June 30, 2002) available to
Trio-Tech International in the U.S. expired in December 2001. We applied to renew this line of credit with a commercial bank and the bank is still in the document processing stage as of the reporting date.





Even though the Company suffered a significant net loss in the fiscal year ended June 30, 2002, management of the Company still believes
that the Company has the economic wherewithal to satisfy its cash needs for the next twelve months plus one day as a going concern business. Managements belief is based, in part, on the following: (1) we have a fixed cash deposit of
approximately $5.9 million (of which approximately $4.7 million is available immediately); (2) we had backlog of $7.9 million as of June 30, 2002 (current backlog of $6,617 at September 6, 2002); (3) our accounts receivable turnover ratio is
approximately 4.6 times per year (78 days of sales in accounts receivable) in fiscal 2002; (4) our financing facilities available as of June 30, 2002 were approximately $6.3 million upon which we are able to draw at any time; and (5) our efforts in
fiscal 2002 to cut costs and expenses were effective. These cost cutting measures consisted of (1) reducing headcount and related expenses such as payroll and payroll-related costs such as bonuses which has been accomplished through layoffs,
reduction in management, shortened work weeks, salary reductions and periodical closures (2) reducing plant capacity by moving to smaller facilities and (4) reducing insurance, travel and other miscellaneous expenses. We anticipate that the costs
and expenses in fiscal 2003 will be lower than those in fiscal 2002 and, accordingly, cash disbursement needs should be lower also. However, we cannot provide any assurance that costs and expenses in fiscal 2003 or thereafter will not be higher than
those in fiscal 2002.





The following contractual obligations servicing table describes our overall future cash
obligations based on various contracts in the next five years:





Payments Due by PeriodTotal

Less than 1 Year

1 - 3 Years

4 - 5 Years

After 5 YearsLines of Credit

$
1,227

$
1,227

$
0

$
0

$
0Notes Payable


1,426


785


567


65


9Capital Leases


784


429


262


93


0Operating leases


1,092


622


466


4


0$
4,529

$
3,063

$
1,295

$
162

$
9





Fiscal 2002





Net cash used in operating activities during the year ended June 30, 2002 was $1,718 compared to net cash of $5,062 provided by operating
activities during the year ended June 30, 2001. The downward change of approximately $6,780 or 133.9% reflects the fact that our operating cash flow was significantly affected by the economic downturn and decrease in capital investment demand from
semiconductor industry. The $1,718 of net cash used in operating activities in fiscal 2002 was primarily attributable to net loss of $3,547 and a decrease of $2,396 in accounts payable and accrued liabilities, respectively. The cash flow from our
accounts receivable in fiscal 2002 was only $275 compared to $1,611 in fiscal 2001, a change of 82.9% reflecting




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##### Table of Contents

the fact that our total revenue in fiscal 2002 decreased and accounts receivable turnover times decreased. The cash flow from our inventory was only $409 compared $804 in fiscal 2001 reflecting
the fact that our inventory turnover times decreased. In fiscal 2002, the larger item for one-time non-cash item was attributed to impairment loss of $1,631, which did not incur in fiscal 2001.





Net cash provided by investing activities during fiscal 2002 was $1,106 compared to $7,202 used by investing activities in fiscal 2001. The change was a swing of
$8,308, or 115.4%. The net cash provided by investing activities was due mainly to the decrease of $2,002 in short-term deposits, compared to the increase in short-term deposits of $2,541 in fiscal 2001, reflecting a swing of $4,543 or a change of
178.8%. In fiscal 2002, our capital expenditures were $919 which related to the investment in testing segment covering Southeast Asia, Ireland, and the U.S. Compared to the capital expenditure of $4,451 in fiscal 2001, we reduced our investment by
$3,532 or by 79.4% as a result of economic downturn. We increased our investment in marketable securities by $120 in fiscal 2002 comparing to $0 in fiscal 2001.





Net cash provided by financing activities during fiscal 2002 was $371, reflecting a decrease of $1,145 or 75.5% compared to $1,516 provided by financing activities during fiscal 2001. The cash outflow
in financing activities included $1,976 of payments on lines of credit, long-term debts and capital lease obligations which was offset by a cash inflow of $2,347 from additional borrowing under lines of credit and long term debt. In fiscal 2001
proceeds under long-term debt borrowings and the lines of credit were $2,858 compared to payments on lines of credit, long-term debt and capitalized lease obligations of $1,698 Additionally, $356 was received in fiscal 2001 from the issuance of
common stock, of which there were no common stock issuances in fiscal 2002.





Approximately $3,090 of cash deposits
are held in the Companys 55% owned Malaysian subsidiary. $488 of this cash is denominated in the currency of Malaysia. On September 1, 1998, the government of Malaysia announced its intention to limit the movement of certain cash balances
denominated in Malaysian currency. The $488 is currently available for movement, as the Central Bank of Malaysia has authorized $1,800 for movement and the Company has previously utilized $358 of this authorization. During 2001, limits on the
movement of cash balances were removed. In addition, approximately $3,161 is available as dividend (after making deductions for income tax) pursuant to Malaysian regulations in force from July 1, 2000. There is an additional amount of $2,083 that is
used as collateral for the Singapore credit facility.





Fiscal 2001





Net cash provided by operating activities during the year ended June 30, 2001 was $5,062 compared to $1,164 provided by operating
activities during the year ended June 30, 2000. The change was an increase of $3,898 and 334.9%. The cash flow provide by operating activities in fiscal 2001 was mainly related to net income of $1,163 and a decrease of $1,611 in accounts
receivables, $804 in inventories and $683 in other receivables, respectively. Comparing to cash decrease of $1,677 in fiscal 2000, cash collection of $1,611 in accounts receivable in fiscal 2001 was much better reflecting a swing of $3,288 or a
change of 196.1%. We built up our inventory in fiscal 2000 by an increase of $943 in the ending inventory whereas we reduced our inventory in fiscal 2001 by $804, reflecting a swing of $1,747 or a change of 185.3%. We reduced our other receivable by
$683 in fiscal 2001 comparing to an increase of $563 in other receivable in fiscal 2000, reflecting a swing of $1,246 or a change of 213.7%. However, the largest cash outflow in fiscal 2001 was $1,096 in accounts receivable and accrued liabilities
comparing to an increase of $2,437 in accounts payable and accrued liabilities in fiscal 2000, which indicated that we paid all accounts payable and liabilities in fiscal 2001 by using the ample cash inflow analyzed above.





Net cash used in investing activities during fiscal 2001 was $7,202 compared to $549 used in investing activities during fiscal 2000. The
net cash used in investing activities was due mainly to two reasons: (1) capital expenditures of $4,451 which included a Power Sub-station and enhanced air conditioning for its new HBI Test facilities in Southeast Asia coupled with investment in the
European Operations Test Equipment and U.S. Operations for Manufacturing equipment, and (2) an increase in cash deposits of $2,541. Comparing to capital expenditure of $1,327 in fiscal 2000, the capital expenditure of $4,451 in fiscal 2001,
representing an increase of $3,124 or 235.4%, reflected the belief that management anticipated the increase in demand from semiconductor industry. The increase in short-term deposit in fiscal 2001 just presented that we had extra cash in hand, which
would be used in fiscal 2002.





Net cash provided by financing activities during fiscal 2001 was $1,516 compared to
$138 used in financing activities in fiscal 2000. The change was a swing of $1,654 or 1,198.6%. The cash outflow from financing activities included $1,698 of payments on lines of credit, long-term debts and capital lease obligations, and was offset
by a cash inflow of $2,858 from additional borrowing under lines of credit and long-term debts compared to payments of $677 in fiscal 2000 and additional borrowings of $126 in fiscal 2001. In addition, certain option holders exercised their options
in fiscal 2001. Consequently, we received proceeds of $356 in fiscal 2001 comparing to proceeds of $413 in fiscal 2000. Issuing shares of common stock provided us with additional cash sources in both fiscal 2001 and 2000.





Recently Issued Accounting Pronouncements




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In July 2001, the Financial Standards Board (FASB) issued Financial
Accounting Standards (SFAS), No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 replaces Accounting Principles Board Opinion No. 16 (APB No. 16), Business
Combination, and eliminates pooling-of-interests accounting prospectively. It also provides guidance on purchase accounting related to the recognition of intangible assets and accounting for negative goodwill. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only approach. Under SFAS No. 142, goodwill will be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired. Upon adoption of SFAS No.
142, amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 ceased, and intangible assets acquired prior to July 1, 2001 that did not meet the criteria for recognition under SFAS No. 141 were required to be
reclassified to goodwill. Companies are required to adopt SFAS No. 142 for fiscal years beginning after December 15, 2001. In connection with the adoption of SFAS No. 142, companies will be required to perform a transitional goodwill impairment
assessment. The Company adopted SFAS No. 142 for the fiscal year commencing July 1, 2002. During the year ended June 30, 2002, the Company wrote off all of the outstanding balance of approximately $393 of goodwill. During the years ended June 30,
2002 and 2001, goodwill amortization totaled approximately $NIL and $34.





In June 2001, Financial Accounting
Standard Board issued Statement of Financial Accounting Standards, No. 143, Accounting for Asset Retirement Obligations, (SFAS No. 143). FAS No. 143 is effective for fiscal years beginning after June 15, 2002. SFAS No. 143
requires that any legal obligation related to the retirement of long-lived assets be quantified and recorded as a liability with the associated asset retirement cost capitalized on the balance sheet in the period it is incurred when a reasonable
estimate of the fair value of the liability can be made. The Company believes the adoption of this statement will have no material impact on its consolidated financial statements.





In August 2001, Financial Accounting Standard Board issued Statement of Financial Accounting Standards, No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, (SFAS No. 144). SFAS No. 144 supersedes SFAS No. 121 and is effective for fiscal years beginning after December 15, 2001. SFAS No. 144 provides a single, comprehensive accounting model for impairment and disposal
of long-lived assets and discontinued operations. The Company does not expect that the adoption of SFAS No. 144 will have significant impact on its consolidated financial statements.





In April 2002, Financial Accounting Standard Board issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. This statement eliminates the current requirement that gains and losses on debt extinguishment must be classified as extraordinary items in the income statement. Instead, such gains and losses will be classified as
extraordinary items only if they are deemed to be unusual and infrequent, in accordance with the current GAAP criteria for extraordinary classification. In addition, SFAS 145 eliminates an inconsistency in lease accounting by requiring that
modifications of capital leases that result in reclassification as operating leases be accounted for consistent with sale-leaseback accounting rules. The statement also contains other nonsubstantive corrections to authoritative accounting
literature. The changes related to debt extinguishment will be effective for fiscal years beginning after May 15, 2002, and the changes related to lease accounting will be effective for transactions occurring after May 15, 2002. Adoption of this
standard will not have any immediate effect on the Companys consolidated financial statements. The Company will apply this guidance prospectively.





In June 2002, Financial Accounting Standard Board issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses accounting for restructuring and
similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of a companys commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value.
Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amount recognized. The provisions of SFAS 146 are to be applied prospectively to exit or disposal activities initiated after December 31, 2002.
The Company does not expect that the adoption of this standard will have any immediate effect on its consolidated financial statements.





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 the fiscal year
ending June 30, 2002 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




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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, factors 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. Although through the fourth quarter of 2001 we had reported profits for twenty-eight consecutive quarters, we were not be able to sustain such profitability for the past four quarters.





The semiconductor industry cycles have a large effect on our business





Our business depends primarily upon the capital expenditures of semiconductor manufacturers, assemblers and other testing companies worldwide. These industries 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 for 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 tested 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.




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Our dependence on international sales involves significant risk





Sales and services to customers outside the United States accounted for approximately 59%, 69% and 46% of our net revenues for fiscal 2002, 2001 and 2000, respectively.
Approximately 51%, 51% and 38% of our net revenues in fiscal 2002, 2001 and 2000, 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 that region. 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 Dollars, Malaysian Ringitt and other currencies. Consequently, a portion of our costs, revenues and operating margins may be affected by fluctuations in exchange
rates, primarily between the U.S. Dollar and such foreign currencies. We are also affected by fluctuations in exchange rates if there is a mismatch between our foreign currency denominated assets and liabilities. Foreign currency adjustments
resulted in an increase of $262 to shareholders equity for fiscal 2002, a decrease of $358 to shareholders equity for fiscal 2001 and a decrease of $50 to shareholders equity for fiscal 2000.





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 Arctic temperature test systems. Additionally, in 2001, we were
granted patents for certain aspects of our new ranges of Arctic temperature chucks. However, generally we do not rely on patent or trade secret protection for our products or technology. Competitors may be able to copy and replicate our technology
and designs. 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.





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 Companys 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 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 2002, 2001, and 2000, sales of equipment and services to our two largest customers accounted for approximately 55%, 40%, and 28%, 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 certain of our
products and services





If our competitors or we sell testing equipment to semiconductor manufacturers and
assemblers, the likelihood that they will make further purchases of such equipment, or that they will contract for testing services by our laboratories, may be affected. 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, 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.




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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 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 acquisition





We are not dependent on 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. We cannot assure you 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, and 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 36.05% of the outstanding shares of common stock, including options held by them that are exercisable within 60 days of the date 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.





Possible dilutive effect of outstanding options and warrants





As of June 30, 2002, there were 656,165 shares of common stock reserved for issuance upon exercise of outstanding stock options and warrants. The outstanding options and warrants are currently exercisable at exercise prices ranging
from $2.72 to $8.00 per share. We anticipate that the trading price of our common stock at the time of exercise of any such outstanding options or warrants will exceed the exercise price under those options and warrants. 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




24




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##### Table of Contents

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 expect any material loss with respect to our investment portfolio.





The outstanding aggregate principal balance on loans to us and on our lines of credit range from 5.75% to 7.25% per annum. As of June 30, 2002, the outstanding
principal balance on these loans was approximately $2,653. These interest rates are subject to change and we cannot predict any increase or decrease in rates, if any.





Period ending June 30,

2003


2004


2005


2006


2007


There -after


Total

Fair ValueLoans:denominated by Singapore Dollars

$
541


$
191


















$
732

$
732Interest rate (fixed)


6.50
%


6.50
%denominated by Singapore Dollars

$
203


$
188


$
125














$
516

$
516Interest rate (variable)


7.25
%


7.25
%


7.25
%denominated Irish Pound

$
14


$
20


$
22


$
24


$
17


$
2


$
99

$
99Interest rate (variable)


6.94
%


6.94
%


6.94
%


6.94
%


6.94
%


6.94
%denominated Irish Pound

$
27


$
10


$
11


$
12


$
12


$
7


$
79

$
79Interest rate (variable)


6.44
%


6.44
%


6.44
%


6.44
%


6.44
%


6.44
%Line of credit:denominated by Singapore Dollars

$
141






















$
141

$
141Interest rate (variable)


7.00
%denominated by Singapore Dollars

$
711






















$
711

$
711Interest rate (variable)


6.25
%denominated by U.S. Dollars

$
375






















$
375

$
375Interest rate (variable)


5.75
%Total

$
2,012


$
409


$
158


$
36


$
29


$
9


$
2,653

$
2,653





Foreign Currency Exchange Rate
Risk.    Although the majority of our sales, cost of manufacturing and marketing are transacted in U.S. dollars, significant portions of our revenues are denominated in Singapore, Malaysian and other currencies. Consequently,
a portion of our costs, revenues and operating margins may be affected by fluctuations in exchange rates, primarily between the U.S. Dollar and such foreign currencies. We are also affected by fluctuations in exchange rates if there is a mismatch
between our foreign currency denominated assets and liabilities. Foreign currency adjustments resulted in an increase of $262 to shareholders equity for fiscal 2002, a decrease of $358 to shareholders equity for fiscal 2001 and $50 to
shareholders equity for fiscal 2000.





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.




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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 28 of this Annual Report on Form 10-K.





ITEM 9CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL                   DISCLOSURE





None





PART III





The information required by Items 10 through 13 of Part III of this Form 10-K
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 2002.





ITEM 14CONTROLS AND PROCEDURES





Not applicable





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 28 hereof:





1.  Independent Auditors Report





2.  Consolidated Balance Sheets





3.  Consolidated Statements of Income and Comprehensive Income





4.  Consolidated Statements of Shareholders Equity





5.  Consolidated Statements of Cash Flows





6.  Notes to
Consolidated Financial Statements





(b)  REPORTS ON FORM 8-K:





The Company did not file any reports on Form 8-K during the quarter ended June 30, 2002.





(c)  EXHIBITS:





Number

Description3.1

Articles of Incorporation, as currently in effect. [Previously filed as Exhibit 3.1 to the Annual Report on Form 10-K for June 30, 1988.]3.2

Bylaws, as currently in effect. [Previously filed as Exhibit 3.2 to the Annual Report on Form 10-K for June 30, 1988.]4.1

Form of Redeemable Warrants to purchase Common Stock issued in May 2000.*10.1

Credit Facility Letter dated January 4, 2001, between Trio-Tech International Pte. Ltd. and Standard Chartered Bank. [Previously filed as Exhibit 10.9 to the
Annual Report on Form 10-K for June 30, 2001.]10.2

1998 Stock Option Plan. [Previously filed as Exhibit 1 to the Companys proxy statement filed under regulation 14A on October 27, 1997]. **10.3

Directors Stock Option Plan. [Previously filed as Exhibit 2 to the Companys proxy statement filed under regulation 14A on October 27, 1997].
**




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10.4

Real Estate Lease dated February 1, 1999 between Martinvale Development Company and Universal Systems. [Previously filed as Exhibit 10.12 to the 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 for Block 1004 Toa Payoh North #07-01/07 and #03-01/03.
[Previously filed as Exhibit 10.13 to the 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 for Block 1004 Toa Payoh North #03-16/17. [Previously filed as
Exhibit 10.14 to the 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 for Block 1004 Toa Payoh North #01-08/15. [Previously filed
as Exhibit 10.15 to the 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 for Block 1004 Toa Payoh North #01-16/7. [Previously filed
as Exhibit 10.16 to the 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 for Block 1008 Toa Payoh North #03-01/06. [Previously filed
as Exhibit 10.17 to the 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 for Block 1008 Toa Payoh North #03-09/15 and #03-16/18.
[Previously filed as Exhibit 10.18 to the 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 for Block 1008 Toa Payoh North #01-08. [Previously filed as
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 for Block 1008 Toa Payoh North #07-17/18. [Previously
filed as Exhibit 10.20 to the 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 for Block 1008 Toa Payoh North #07-01. [Previously filed as
Exhibit 10.21 to the 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 for Block 1004 Toa Payoh North #02-11/15. *10.15

Real Estate Lease dated June 10, 2002 between JTC Corporation and Trio-Tech International PTE for Block 1004 Toa Payoh North #02-08/10. *10.16

Credit Facility Letter dated November 16, 2001 and June 24, 2002, between Trio-Tech International Pte. Ltd. and Standard Chartered Bank. *10.17

Credit Facility Letter dated July 24, 2002, between Trio-Tech International Pte. Ltd. and OCBC Bank. *10.18

Credit Facility Letter dated May 21, 2002, between Trio-Tech (M) Sdn Bhd and HSBC Bank Malaysia Berhad *10.19

Credit Facility Letter dated January 22, 2002, between Trio-Tech (KL) Sdn Bhd and Public Bank Berhad. *10.20

Real Estate Lease dated November 8, 2001 between Elbar Investments, L.P. and Trio-Tech International for 14731 Califa Street, Van Nuys *10.21

Amendment to the Directors Stock Option Plan * **21.1

Subsidiaries of the Registrant (100% owned by the Registrant except as otherwise stated):Trio-Tech International Pte. Ltd., a Singapore Corporation




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Trio-Tech Test Services Pte. Ltd., a Singapore CorporationTrio-Tech Reliability Services, a California CorporationExpress Test Corporation, A California CorporationEuropean Electronic Test Center, Ltd., A Cayman Islands CorporationTrio-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 Corporation23.1

Independent Auditors Consent (BDO International) *23.2

Independent Auditors Consent (Deloitte & Touche LLP) *99.1

Section 906 Certification. *


---

|* |  | Filed electronically herewith
|- |  | -----------------------------

|** |  | Indicates management contracts or compensatory plans or arrangements required to be filed as an exhibit to this report.
|-- |  | -----------------------------------------------------------------------------------------------------------------------



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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 INTERNATIONALBy:

/s/    VICTOR H.M.
TINGVICTOR H.M. TING Vice President and Chief Executive
Officer


Date:  October 8, 2002





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 A. Charles Wilson

Director Chairman of the Board

October 8, 2002/S/    S. W. YONG
S. W. Yong

Director Chief Executive Officer and President

October 8, 2002/S/    VICTOR H.M.
TING Victor H.M. Ting

Vice President, Chief Financial Officer and Principal Accounting Officer

October 8, 2002/S/    JASON T.
ADELMAN Jason T. Adelman

Director

October 8, 2002/S/    RICHARD M.
HOROWITZ Richard M. Horowitz

Director

October 8, 2002/S/    WILLIAM L.
SLOVER William L. Slover

Director

October 8, 2002




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##### Table of Contents




CERTIFICATIONS





I, S. W. Yong, certify that:





1.  I have reviewed this annual report on Form 10-K of Trio-Tech International;





2.  Based on my knowledge, this annual 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 annual report; and





3.  Based on my knowledge, the financial statements, and other financial information included in this annual
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 annual report.





Date:  October 8, 2002





S/    S. W. YONGS. W. Yong, Chief Executive Officer and
President





I, Victor H.M. Ting, certify that:





1.  I have reviewed this annual report on Form 10-K of Trio-Tech International;





2.  Based on my knowledge, this annual 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 annual report; and





3.  Based on my knowledge, the financial statements, and other financial information included in this annual
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 annual report.





Date:  October 8, 2002





S/    VICTOR H.M.
TINGVictor H.M. Ting, Chief Financial Officer (Principal Financial Officer)




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##### Table of Contents




INDEPENDENT AUDITORS REPORT





Board of Directors


Trio-Tech International


Van Nuys,
California:





We have audited the accompanying consolidated balance sheet of Trio-Tech International and
subsidiaries (the Company) as of June 30, 2002, and the related consolidated statements of operations and comprehensive (loss) income, shareholders equity, and cash flows for the year ended June 30, 2002. 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 audit.





We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides 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, 2002, and the results of their operations and their cash flows for the year ended June 30, 2002 in conformity with accounting principles generally accepted in the United States of America.








BDO INTERNATIONAL/s/    BDO INTERNATIONALSingapore September 6,
2002







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##### Table of Contents




INDEPENDENT AUDITORS REPORT





Board of Directors


Trio-Tech International


Van Nuys,
California:





We have audited the accompanying consolidated balance sheet of Trio-Tech International and
subsidiaries (the Company) as of June 30, 2001 and the related consolidated statements of operations and comprehensive (loss) income, shareholders equity, and cash flows for the years ended June 30, 2001 and 2000. 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 audit.





We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, 2001 and the results of their operations and their cash flows the years ended June 30, 2001 and 2000 in conformity with accounting principles generally accepted in the United States of America.





DELOITTE & TOUCHE LLP


/s/    DELOITTE & TOUCHE LLP





Los Angeles, California


September 7, 2001




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##### Table of Contents

TRIO-TECH INTERNATIONAL AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


(In thousands, except share amounts)





Note

June 30, 2002


June 30, 2001ASSETSCURRENT ASSETS:Cash

2

$
1,128


$
1,149Short term deposits

2


5,906



7,693Investments in marketable securities

2


554Trade accounts receivable, less allowance for doubtful accounts of $174 in 2002 and 2001 respectively


2


4,148



4,432Other receivables




527



162Inventories, less provision for obsolete stock of $716 and $205 in 2002 and 2001 respectively

3


1,014



1,918Prepaid expenses and other current assets




128



147Total current assets




13,405



15,501PROPERTY, PLANT AND EQUIPMENT, Net

4


5,593



7,534INTANGIBLE ASSETS

5






526OTHER ASSETS




77



589TOTAL ASSETS



$
19,075


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

6

$
1,227



Accounts payable




1,717



2,646Accrued expenses

7


2,315



3,689Income taxes payable

9


106



168Current portion of notes payable

8


785



698Current portion of capitalized leases

10


336



398Total current liabilities




6,486



7,599NOTES PAYABLE, net of current portion

8


641



1,265CAPITALIZED LEASES, net of current portion

10


345



480DEFERRED INCOME TAXES

9


669



649TOTAL LIABILITIES




8,141



9,993COMMITMENTS AND CONTINGENCIES

10MINORITY INTEREST




2,316



2,548SHAREHOLDERS EQUITY:Common stock; no par value, authorized, 15,000,000 shares; issued and outstanding 2,927,551 shares and 2,927,596 (2002
and 2001) respectively

11


9,423



9,423Additional paid-in capital

11


270(Accumulated deficit ) retained earnings

11


(658
)


2,889Accumulated other comprehensive income-marketable securities

11


24Accumulated other comprehensive loss-foreign currency

11


(441
)


(703
)Total shareholders equity




8,618



11,609TOTAL LIABILITIES AND SHAREHOLDERS EQUITY



$
19,075


$
24,150





See notes to consolidated financial statements.




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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME


(In thousands, except per share amounts)





Year EndedJune 30, 2002


June 30, 2001


June 30, 2000NET SALES

$
19,617


$
36,133


$
26,943COST OF SALES


15,926



26,749



19,847GROSS PROFIT


3,691



9,384



7,096OPERATING EXPENSES:General and administrative


4,138



6,136



4,570Selling


1,233



1,911



1,820Research and development


331



216



205Impairment loss


1,631







(Gain)/loss on disposal of property, plant and equipment


(33
)


49



(809
)Total


7,300



8,312



5,786(LOSS) INCOME FROM OPERATIONS


(3,609
)


1,072



1,310OTHER INCOME (EXPENSE)Interest expense


(207
)


(199
)


(92
)Other income (expense)


336



755



307Total


129



556



215(LOSS) INCOME BEFORE INCOME TAXES AND MINORITY INTEREST


(3,480
)


1,628



1,525INCOME TAXES


53



355



106(LOSS) INCOME BEFORE MINORITY INTEREST


(3,533
)


1,273



1,419MINORITY INTEREST


14



110



385NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHARES


(3,547
)


1,163



1,034OTHER COMPREHENSIVE INCOME (LOSS):Unrealized gain on investment


24







Foreign currency translation adjustment


262



(358
)


(50
)COMPREHENSIVE (LOSS) INCOME

$
(3,261
)

$
805


$
984(LOSS) EARNINGS PER SHAREBasic

$
(1.21
)

$
0.40


$
0.37Diluted

$
(1.21
)

$
0.39


$
0.36WEIGHTED AVERAGE NUMBER OF COMMON AND POTENTIAL COMMON SHARES OUTSTANDINGBasic


2,928



2,884



2,759Diluted


2,928



3,006



2,895





See notes to consolidated financial statements.




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TRIO-TECH INTERNATIONAL AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (IN THOUSANDS)





Common StockNumber of Shares

Amount

Additional Paid-in Capital

Retained Earnings/ Accumulated Deficit


Accumulated Other Comprehensive (Loss)


TotalBalance, July 1, 1999

2,741

$
8,654

$
0

$
692


$
(295
)

$
9,051Exercise of stock options

21


45













45Exercise of stock warrants

74


368













368Net income










1,034







1,034Translation adjustment














(50
)


(50
)Balance, June 30, 2000

2,836


9,067


0


1,726



(345
)


10,448Exercise of stock warrants

43


214













214Exercise of stock options

48


142













142Net income










1,163







1,163Translation adjustment














(358
)


(358
)Balance, 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 on investment (net of tax)












24



24Translation adjustment














262



262Balance, June 30, 2002

2,927

$
9,423

$
270

$
(658
)

$
(417
)

$
8,618





See notes to consolidated financial statements.




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##### Table of Contents




TRIO-TECH INTERNATIONAL AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)


INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS





Year EndedJune 30, 2002

June 30, 2001

June 30, 2000CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income

$
(3,547)

$
1,163

$
1,034Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:Depreciation and amortization


1,705


1,632


1,523Bad debt expense


66


60


34Inventory provision


511


34


(14)Impairment loss


1,631





Stock compensation


24





(Gain)/loss on sale of property and equipment


(33)


49


(809)Deferred income taxes


20


(71)


138Minority interest, net


14


(53)


210Changes in operating assets and liabilities:Accounts receivable, net


275


1,611


(1,677)Other receivables


(310)


683


(563)Inventories


409


804


(943)Prepaid expenses and other current assets


(25)


320


(377)Accounts payable and accrued expenses


(2,396)


(1,096)


2,437Income taxes payable


(62)


(74)


171Net cash (used in) provided by operating activities


(1,718)


5,062


1,164CASH FLOWS FROM INVESTING ACTIVITIES:Short term deposits


2,002


(2,541)


(653)Marketable securities


(120)Capital expenditures


(919)


(4,451)


(1,327)Other assets


80


(263)


(363)Proceeds from sale of property and equipment


63


53


1,794Net cash provided by (used in) investing activities


1,106


(7,202)


(549)CASH FLOWS FROM FINANCING ACTIVITIES:Payments on lines of credit


(783)


(806)


(246)Borrowings under lines of credit


2,275


565


126Principal payments of debt and capitalized leases


(1,193)


(892)


(431)Proceeds from long-term debt


72


2,293Issuance of common stock





356


413Net cash provided by (used in) financing activities


371


1,516


(138)EFFECT OF EXCHANGE RATE CHANGES ON CASH


220


(183)


(114)NET (DECREASE)/INCREASE IN CASH


(21)


(807)


363CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR


1,149


1,956


1,593CASH AND CASH EQUIVALENTS, END OF YEAR

$
1,128

$
1,149

$
1,956SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid during the year for:Interest

$
200

$
184

$
126Income taxes

$
95

$
134

$
161





See notes to consolidated financial statements.




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##### Table of Contents




TRIO-TECH INTERNATIONAL AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended June 30, 2002, 2001 and 2000


(In thousands, except per share and share amounts)





1.    ORGANIZATION AND BASIS OF PRESENTATION





Trio-Tech International
(the Company or TTI thereafter) was incorporated in 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 industry 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. Ltd.

100
%

Dublin, IrelandTrio-Tech International Pte. Ltd.

100
%

SingaporeTrio-Tech Test Services Pte. Ltd.

100
%

SingaporeTrio-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, Malaysia





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 intercompany 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 2002, 2001 and 2000
are a 52, 53 and 52-week reporting period, respectively. For simplicity purposes the Company refers to its fiscal year end as June 30.





Revenue RecognitionRevenue from product sales made to customers is recognized when the risk of loss for the product sold passes to the customer and any right of return can be quantified, which is
generally when goods are shipped or upon the completion of services. The Company estimates an allowance for sales returns based on historical experience with product returns. Testing revenue is recognized when the services are provided.





Cash and Cash EquivalentsThe Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash.





Short Term DepositsShort Term deposits
consist of bank balances and amounts invested in interest earning instruments having maturity of 3 to12 months. Approximately $3,090 of cash deposits are held in the Companys 55% owned Malaysian subsidiary. $488 of this cash is denominated in
the currency of Malaysia. On September 1, 1998, the government of Malaysia announced its intention to limit the movement of certain cash balances denominated in




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##### Table of Contents

Malaysian currency. The $488 is currently available for movement, as the Central Bank of Malaysia has authorized $1,800 for movement and the Company has previously utilized $358 of this
authorization. During 2001, limits on the movement of cash balances were removed. In addition, approximately $3,161 is available as dividend (after making deductions for income tax) pursuant to Malaysian regulations in force from July 1, 2000. There
is an additional amount of $2,083 that is used as collateral for the Singapore credit facility.





Investments in
Marketable SecuritiesInvestments in marketable securities are accounted for under Statements 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. Management has determined that all securities in the investment portfolio are classified appropriately as available-for-sale. During the fiscal years ended June 30, 2002, 2001, and 2000 the Company
recognized comprehensive income (net of tax) of $24, $0 and $0, 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 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 the year ended June 30, 2002, the Company recorded an impairment loss against the carrying value of fixed assets in the amount of $1,117.





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 statement of operations.





Intangible AssetsGoodwill, which represents the excess of purchase price over the fair value of net-assets acquired, is
amortized on a straight-line basis over the expected period to be benefited and ranged from 20 to 25 years. Patents and certifications are expenses that are amortized over the expected period to be benefited and range between 7 years (for
certifications) and 18 years (for patents). The Company assesses the recoverability of intangible assets by determining whether the amortization over the remaining life can be recovered through undiscounted future net cash flows of the acquired
assets. In fiscal 2002 the Company assessed that the remaining goodwill of $393 and patents and certifications of $121 could not be recovered from undiscounted future net cash flows of the acquired assets, and as a result, the Company recorded an
impairment charge of $514 on intangible assets.





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 is comprised of net income and all
changes to shareholders equity except those due to investments by owners and distributions to owners.





Foreign Currency Translation and TransactionsTransaction gains and losses result from a change in exchange rates between the functional currency and the currency in which a foreign currency transaction is denominated.
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.





Assets and liabilities of the
Companys subsidiaries outside the U.S. are translated into the US dollar at the prevailing exchange rate in effect at each period end. Revenue and expenses are translated into the US dollar at the average exchange rate during the reporting
period. Any difference resulting from using the current rate and average rate in determination of retained earnings is accounted for as a translation adjustment and reported as part of comprehensive income or loss in the equity section.




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Impairment of Long-lived AssetsStatement of the Financial Accounting
Standards No. 121 Accounting for the Impairment of Long-Lived Assets and for the Long-Lived Assets to be disposed of (SFAS No. 121) establishes guidelines regarding when impairment losses on long-lived assets, which include plant and
equipment, and certain identifiable intangible assets, should be recognized and how impairment losses should be measured. The Company reviews such assets for possible impairment whenever circumstances indicate that the carrying amount may not be
recoverable. To the extent the carrying value of the asset exceeds its fair value, which is determined using undiscounted cash flows, a write down to fair value is made. In the fiscal year ended June 30, 2002, the Company recorded an impairment loss
of approximately $1,631 based on its examination of future cash flows, which are generated by the subsidiaries where certain long-lived assets (goodwill, patent, and certain fixed assets) were used.





The impairment of $1,631 consisted of (1) $393 in goodwill, related to the Companys acquisition of manufacturing product lines in
the United States; (2) $121 in patents and certifications which were used in its manufacturing segment (within the United States); and $1,117 of fixed assets, consisting of machinery and equipment, furniture and fixtures, leasehold improvements, and
demonstration (54% pertaining to Southeast Asia and 46% pertaining to the United States). The Testing Segment incurred a one-time impairment of $603, of which $534 of impairment was a write down because of obsolescence due to a new generation of
burn-in technology known as HBI (Hybrid Burn-in) and SBI (Smart Burn-in). Impairment of $519 was recorded primarily as a result of the decline in the technology industry in the United States.





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 $9,267 at June 30, 2002.





Research and Development CostsThe Company incurred
research and development costs of $331 in 2002, $216 in 2001 and $205 in 2000 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 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.





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.




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##### Table of Contents




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





Year EndedJune 30, 2002


June 30, 2001

June 30, 2000Net (loss) income used to compute basic and diluted earnings per share

$
(3,301
)

$
1,163

$
1,034Weighted average number of common shares outstandingbasic


2,928,000



2,884,000


2,759,000Dilutive effect of stock options and warrants






122,000


136,000Number of shares used to compute earnings per sharediluted


2,928,000



3,006,000


2,895,000





Stock options and warrants to purchase 656,165 shares at prices
ranging from $2.72 to $8.00 per share were outstanding during 2002 and were excluded in the computation of diluted EPS because their effect would have been antidilutive.





Stock options and warrants to purchase 612,165 shares at prices ranging from $3.67 to $8.00 per share were outstanding during 2001 and were excluded in the computation of
diluted EPS because their effect would have been antidilutive. Stock options and warrants to purchase 36,870 shares at a price of $8.00 per share were outstanding during 2000 and were excluded in the computation of diluted EPS because their effect
would have been antidilutive.





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 subject to change with the market interest rates.





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 its credit policies do not result in significant adverse risk and historically has not experienced significant credit related losses.








Year EndedJune 30,


June 30,


June 30,2002


2001


2000Beginning

$
174


$
221


$
219Additions charged to cost and expenses


66



60



34Recovered


(25
)


(85
)


(32
)Actual write-offs


(41
)


(22
)


Ending

$
174


$
174


$
221





Recently Issued Accounting PronouncementsIn July 2001,
the Financial Standards Board (FASB) issued Financial Accounting Standards (SFAS), No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 replaces
Accounting Principles Board Opinion No. 16 (APB No. 16), Business Combination, and eliminates pooling-of-interests accounting prospectively. It also provides guidance on purchase accounting related to the recognition of intangible assets
and accounting for negative goodwill. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Under SFAS No. 142, goodwill will be tested annually and whenever events or circumstances occur
indicating that goodwill might be impaired. Upon adoption of SFAS No. 142, amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 ceased, and intangible assets acquired prior to July 1, 2001 that did not meet
the criteria for recognition under SFAS No. 141 were required to be reclassified to goodwill. Companies are required to adopt SFAS No. 142 for fiscal years beginning after December 15, 2001. In connection with the adoption of SFAS No. 142, companies
will be




40




---

##### Table of Contents

required to perform a transitional goodwill impairment assessment. The Company adopted SFAS No. 142 for the fiscal year commencing July 1, 2002. During the year ended June 30, 2002, the Company
wrote off all of the outstanding balance of approximately $393 of goodwill. During the years ended June 30, 2002 and 2001, goodwill amortization totaled approximately $NIL and $34.





In June 2001, Financial Accounting Standard Board issued Statement of Financial Accounting Standards, No. 143, Accounting for Asset Retirement Obligations,
(SFAS No. 143). FAS No. 143 is effective for fiscal years beginning after June 15, 2002. SFAS No. 143 requires that any legal obligation related to the retirement of long-lived assets be quantified and recorded as a liability with the
associated asset retirement cost capitalized on the balance sheet in the period it is incurred when a reasonable estimate of the fair value of the liability can be made. The Company believes the adoption of this statement will have no material
impact on its financial statements.





In August 2001, Financial Accounting Standard Board issued Statement of
Financial Accounting Standards, No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, (SFAS No. 144). SFAS No. 144 supersedes SFAS No. 121 and is effective for fiscal years beginning after December 15,
2001. SFAS No. 144 provides a single, comprehensive accounting model for impairment and disposal of long-lived assets and discontinued operations. The Company does not expect that the adoption of SFAS No. 144 will have significant impact on its
consolidated financial statements.





In April 2002, Financial Accounting Standard Board issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This statement eliminates the current requirement that gains and losses on debt extinguishment must be classified as
extraordinary items in the income statement. Instead, such gains and losses will be classified as extraordinary items only if they are deemed to be unusual and infrequent, in accordance with the current GAAP criteria for extraordinary
classification. In addition, SFAS 145 eliminates an inconsistency in lease accounting by requiring that modifications of capital leases that result in reclassification as operating leases be accounted for consistent with sale-leaseback accounting
rules. The statement also contains other nonsubstantive corrections to authoritative accounting literature. The changes related to debt extinguishment will be effective for fiscal years beginning after May 15, 2002, and the changes related to lease
accounting will be effective for transactions occurring after May 15, 2002. Adoption of this standard will not have any immediate effect on the Companys consolidated financial statements. The Company will apply this guidance prospectively.





In June 2002, Financial Accounting Standard Board issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. SFAS No. 146 requires that the
liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of a companys commitment to an exit plan. SFAS No. 146 also
establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amount recognized. The provisions of SFAS 146 are to be
applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not expect that the adoption of this standard will have any immediate effect on its consolidated financial statements.





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.    INVENTORIES





Inventories consist of the following:





June 30, 2002


June 30, 2001Raw materials

$
938


$
1,369Work in progress


287



327Finished goods


505



427Less: provision for obsolete inventory


(716
)


(205
)$
1,014


$
1,918





4.    PROPERTY, PLANT AND EQUIPMENT




41




---

##### Table of Contents




Property, plant and equipment consist of the following:





Useful Life in years

June 30, 2002

June 30, 2001Building and improvements

3-20

$
847

$
1,059Leasehold improvements

3-27


1,677


2,524Machinery and equipment

3-7


4,872


7,113Furniture and fixtures

3-5


367


766Equipment under capital leases

3-5


1,807


2,0039,570


13,465Less:Accumulated depreciation and amortization




3,402


4,825Accumulated amortization on equipment under capital leases




575


1,106$
5,593

$
7,534





Depreciation and amortization expense during fiscal year ended June
30, 2002, 2001 and 2000 was $1,685, $1,548 and $1,443 respectively.





5.    INTANGIBLE ASSETS





Intangible assets consist of the following:





June 30, 2002

June 30, 2001Goodwill, net of accumulated amortization of  $0 (2002) and $730 (2001)

$


$
393Patent net of accumulated amortization of $0 (2002) and $86 (2001)





133Total

$
0

$
526




42




---

##### Table of Contents




6.    LINES OF CREDIT





June 30, 2002

June 30, 2001Revolving line of credit denominated by Singapore dollars payable to a commercial bank for working capital purposes, to
borrow up to $2,548 with an interest rate at the bank's prime rate (5.75% at June 30, 2002) plus 1.25%. The line of credit is renewable in June 2003 and is collateralized by a registered charge over fixed deposits, corporate gaurantee andregistered
fixed charge over power sub-station.

$
141

$Revolving line of credit denominated by Singapore dollars payable to a commercial bank for working capital purposes, to
borrow up to $4,530 with an interest rate at the bank's prime rate (5.25% at June 30, 2002) plus 1.00%. The line of credit is renewable annually at fiscal year end and collaterilized by Trio-Tech International Pte. Ltd. accounts
receivable.


711Revolving line of credit denominated by United States dollars, payable to a commercial bank for working capital
purposes, to borrow up to $500 with an interest rate at the bank's prime rate (4.0% at June 30, 2002) plus 1.75%. The line of credit expired in December 2001 and the bank is still under the document processing stage at September 6, 2002. The line is
collateralized by Trio-Tech Intenternational accounts receivable and inventories.


375Lines of credit

$
1,227

$
0





|The |  | lines of credit have various financial covenants. The Company was in compliance with all such debt covenants at June 30, 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------




7.    ACCRUED EXPENSES





Accrued expenses consist of the following:





June 30, 2002

June 30, 2001Payroll and related

$
948

$
1,751Commissions


205


338Customer deposits


41


215Legal and audit


235


150Sales tax


311


27Utilities


95


473Warranty


305


262Other accrued expenses


175


473Total

$
2,315

$
3,689




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##### Table of Contents




8.    NOTES PAYABLE





Notes payable consist of the following:





June 30, 2,002

June 30, 2,001Note 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 $43 through September 2003, collateralized by the relevant equipment.

$
732


1,186Note 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% and 6.25% at June 30, 2002 and 2001) plus 1.5% per annum, payable in monthly installments of $17 through February 2005, collateralized by the relevant equipment, a fixed deposit and a
corporate guarantee.


516


601Mortgage note payable denominated by Irish Pounds to the Industrial Credit Corporation for purchasing a building,
maturing in July 2007, bearing interest at the bank's prime rate (3.44% and 4.88% at June 30, 2002 and 2001) plus 3.5% per annum, payable in monthly installments of $2.2 through July 2007, collateralized by the relevant building.


99


112Mortgage 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 (3.44% and 4.88% at June 30, 2002 and 2001) plus 3% per annum, payable in monthly installments of $1.2 through May 2008, collateralized by the relevant building.


79


641,426


1,963Less current portion


785


698Notes payable

$
641

$
1,265





Maturities of notes payable as of June 30, 2002 are as follows





YearEndingJune 30,



Amount2003



$  7852004



4092005



1582006



362007



29Thereafter



9$1,426




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##### Table of Contents




9.    INCOME TAXES





The 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, 2002, 2001 and 2000 are as follows:





June 30, 2002


June 30, 2001


June 30, 2000Domestic

$
(3,611
)

$
(154
)

$
271Foreign


131



1,782



1,254$
(3,480
)

$
1,628


$
1,525





On a consolidated basis, the Companys net income tax
provision (benefits) are as follows:





June 30, 2002

June 30, 2001


June 30, 2000Current:Federal

$


$
1


$
73State


3Foreign


30


425



(105
)33


426



(32
)Deferred:FederalStateForeign


20


(71
)


138$
53

$
355


$
106





The reconciliation between the U.S. federal statutory tax rate and
the effective income tax rate is as follows:





June 30, 2002


June 30, 2001


June 30, 2000Statutory federal tax rate

(34
)%

34
%

34
%State taxes, net of federal benefit

(6
)

6


6Foreign tax rate reduction

13


(8
)

(12
)Other

2


4


4Change in valuation allowance

27


(14
)

(25
)Effective rate

2
%

22
%

7
%





The Company has net operating loss carry forwards of approximately $4.3 million for
federal income tax purposes (which will expire through 2021) and $1.7 million for state income tax purposes (which will expire through 2005) at June 30, 2002. 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.




45




---

##### Table of Contents




The components of deferred income tax assets (liabilities) are as follows:





June 30, 2002


June 30, 2001Deferred tax assets:Net operating loss carry forward

$
1,375


$
809Fixed asset impairment


206Inventory valuation


174Depreciation


14



6Provision for bad debts


5



61Reserve for obsolescence


65



72Accrued vacation


15Accrued expenses


46Other






17Total deferred tax assets


1,900



965Deferred tax liabilities:Depreciation


432



415Other


237



234Total deferred income tax liabilities


669



649Subtotal


1,231



316Valuation allowance


(1,900
)


(965
)Net deferred tax liability

$
(669
)

$
(649
)





The valuation allowance increased (decreased) by $935, ($234) and
($391) in fiscal 2002, 2001 and 2000 respectively.





10.    COMMITMENTS AND CONTINGENCIES





The Company leases certain of its facilities and equipment under long-term agreements expiring at various dates through 2007.
Certain of these leases require the Company to pay real estate taxes and insurance and provide for escalation of lease costs based on certain indices. Future minimum payments under capital leases and noncancellable operating leases as of June 30,
2002 are as follows:





Year ending June 30,

Capital Leases


Rental Commitments2003

$
429


$
6222004


163



3622005


99



1042006


48



42007


45



Thereafter






Total future minimum lease payments


784


$
1,092Less amount representing interest


(103
)Present value of net minimum lease payments


681Less current portion of capital lease obligations


(336
)Long-term obligations under capital leases

$
345








Total rental expense on all
operating leases, both cancelable and noncancellable, amounted to $705 in 2002, $765 in 2001 and $543 in 2000. Total rental income under sublease agreements was $90 in 2002, $118 in 2001, and $169 in 2000.





On August 24, 1995, the Company was named in a civil action brought against 106 defendants alleging that they may have caused or
contributed to soil and groundwater contamination that required the defendants to pay $3,750 to the Federal Environmental Protection Agency to settle. On April 6, 2001, the Company was dismissed from this action.





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.




46




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##### Table of Contents




11. TRANSACTIONS IN SHAREHOLDERS EQUITY





Fiscal 2002





On October 16, 2001, the Board of Directors granted 50,000 options to all directors with an exercise price of $2.72 per share, $0.48 lower than the market price of $3.20 at the grant date. These options have a five-year contractual
life and vested immediately. Consequently, the Company recognized $24 of stock compensation expense in fiscal 2002.





On October 16, 2001, the Board of Directors granted options under the 1998 Plan, as defined in note 12 below, covering 116,000 shares of common stock to 55 employees with an exercise price equal to the market price at the grant date.
These options have a five-year contractual life and will vest 25% on the grant date and then 25% on each anniversary date. According to APB No. 25, no stock compensation was recognized for these 116,000 options. In addition, the Board of Directors
extended the life of 27,000 existing options for one year. On the measurement date, there was no intrinsic value on these options; therefore, no stock compensation was recognized for this transaction during 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.





Approximately $3,090 of
cash deposits are held in the Companys 55% owned Malaysian subsidiary. $488 of this cash is denominated in the currency of Malaysia. On September 1, 1998, the government of Malaysia announced its intention to limit the movement of certain cash
balances denominated in Malaysian currency. The $488 is currently available for movement, as the Central Bank of Malaysia has authorized $1,800 for movement and the Company has previously utilized $358 of this authorization. During 2001, limits on
the movement of cash balances were removed. In addition, approximately $3,161 is available as dividend (after making deductions for income tax) pursuant to Malaysian regulations in force from July 1, 2000. There is an additional amount of $2,083
that is used as collateral for the Singapore credit facility.





Fiscal 2001





The option holders, under the Directors Plan, exercised 10,000 options with an exercise price of $2.82 per share. Consequently, the
Company issued 10,000 shares of common stock in exchange for aggregate proceeds of $28.





The option holders, under
the 1998 Plan, exercised 38,000 options with an exercise price of $3.00 per share. Consequently, the Company issued 38,000 shares of common stock in exchange for proceeds of $114.





The warrant holders exercised 43,000 warrants at $5.00 per share. Consequently the Company issued 43,000 shares of common stock in exchange for proceeds of $214.





Based on variable accounting method, the Company determined that no additional stock compensation expense was
recognized in fiscal 2001 for the repricing transactions related to 45,000 options, which occurred in fiscal 2000.





Fiscal 2000





The option holders exercised 21,000 options with an exercise price of $2.17
per share. Consequently, the Company issued 21,000 shares of common stock in exchange for proceeds of $45.





The
warrant holders exercised 73,740 warrants at $5.00 per share. Consequently the Company issued 73,740 shares of common stock in exchange for proceeds of $368.





On December 7, 1999, the Company changed the exercise price of 45,000 options granted on September 30, 1997 from original exercise price of $7.00 per share to $5.00 per share. The Company adopted FASB
Interpretation No. 44 (FIN 44) and accounted for this repricing transaction by using variable accounting method. No additional stock compensation expense was recognized for the fiscal year ended June 30, 2000.





12. STOCK OPTIONS AND WARRANTS





The Company has three stock option plans under which officers, directors and employees are eligible to receive options to purchase shares of the Companys common stock. One of these plans, adopted in 1988, has been terminated
except for outstanding options, which are still exercisable, to purchase an aggregate of 27,000 shares. Additionally, the Board of Directors issues non-qualified options at their discretion at a price not less than fair market value at the date of
grant.




47




---

##### Table of Contents




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
250,500 options have been granted as of June 30, 2002.





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 six individuals) receive options to purchase
the Companys common stock at a price of 85% of the fair market value of the underlying shares on the date of grant. 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 197,000 options have been granted as of June 30, 2002.





The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its Plans. Accordingly, stock compensation
based on the intrinsic value of these options granted Had compensation cost for the Companys Plan been determined based upon the fair value at the grant date for awards under this Plan consistent with the methodology prescribed under SFAS No.
123, the Companys net income and earnings per share would have been reduced to the pro forma amounts indicated below:





Year EndedJune 30, 2002


June 30, 2001

June 30, 2000Net (Loss) Income:As Reported

$
(3,547
)

$
1,163

$
1,034Pro forma

$
(3,733
)

$
822

$
699Basic Earnings per Share:As Reported

$
(1.21
)

$
0.40

$
0.37Pro forma

$
(1.27
)

$
0.29

$
0.25Diluted Earnings per Share:As Reported

$
(1.21
)

$
0.39

$
0.36Pro forma

$
(1.27
)

$
0.27

$
0.24








The fair value of options
granted during fiscal 2002, 2001, and 2000 was $0.94, $5.40, and $4.95 per share and aggregate $186, $341, and $335 for total options granted by using the Black-Scholes option pricing model with the assumptions listed below:





Year EndedJune 30, 2002


June 30, 2001


June 30, 2000Volatility

45.9
%

56.7
%

52.6
%Risk free interest rate

3.16
%

4.97
%

6.18
%Expected life (years)

2.17


2.54


2.93





The following tables summarize the stock option and warrant
activities for the three years ended June 30, 2002:




48




---

##### Table of Contents

Number of Options


Weighted Average Price

Number of Options Exercisable

Weighted Average Exercise PriceOutstanding OptionsBeginning outstanding options at June 30, 1999

269,813


$
4.77Granted

134,000



4.95Exercised

(20,625
)


2.17Total outstanding options at June 30, 2000

383,188



5.89

307,938

$
4.32Granted

86,000



5.40Exercised

(47,688
)


3.33Canceled

(13,500
)


5.41Total outstanding options at June 30, 2001

408,000



4.83

334,000


4.66Granted

166,000



2.84Exercised

0Canceled

(99,500
)


4.93Total outstanding options at June 30, 2002

474,500


$
4.27

347,750

$
4.36Number of Warrants


Weighted Average Price

Number of Warrants Exercisable

Weighted Average Exercise PriceOutstanding WarrantsBeginning outstanding warrants at June 30, 1999

536,980


$
7.15Granted

36,870



8.00Exercised

(73,740
)


5.00Total outstanding warrants at June 30, 2000

500,110



5.20

500,110

$
5.20Granted

9,915



8.00Exercised

(42,830
)


5.00Canceled

(233,030
)


5.00Total outstanding warrants at June 30, 2001

234,165



5.56

234,165


5.56Canceled

(52,500
)


4.81Total outstanding warrants at June 30, 2002

181,665


$
5.77

181,665

$
5.77





The following tables summarize information concerning outstanding
and exercisable options and warrants at June 30, 2002:





June 30, 2002Options Outstanding

Options ExercisableGrant Price
Range

Number Outstanding

Remaining Contractual
Life

Weighted Average Exercise Price

Number Exercisable

Exercise Price$2.70$3.69

263,000

1.76

$3.2874

176,000

$3.3306$3.70$4.69

14,500

0.03

4.3400

14,500

4.3400$4.70$5.69

126,000

0.57

5.3270

104,000

5.2600$5.70$6.69

71,000

0.30

6.0000

53,250

6.0000474,500

2.65

$4.2700

347,750

$4.3600





June 30, 2002Warrants Outstanding

Warrants ExercisableGrant Price
Range

Number Outstanding

Remaining Contractual
Life

Weighted Average Exercise Price

Number Exercisable

Exercise Price$4.70$5.69

134,880

0.34

$5.0000

134,880

$5.0000$5.70$8.00

46,785

0.34

8.0000

46,785

8.0000181,665

0.34

$5.7700

181,665

$5.7700




49




---

##### Table of Contents




13.    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,

2002


2001


2000SalesCustomer A

24
%

15
%

15
%Customer B

31
%

25
%

13
%Accounts ReceivableCustomer A

24
%

16
%Customer B

24
%

25
%





14.    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, 2002:





Entity with Facility

Type of facility

Interest Rates


Credit Limit

Unused portionTrio-Tech Malaysia

Line of Credit

6.80
%

$
40

$
40Trio-Tech Kuala Lumpur

Line of Credit

6.80
%


50


50Trio-Tech Singapore

Line of Credit

7.00
%


2,548


2,407Trio-Tech Singapore

Line of Credit

6.25
%


4,530


3,819Trio-Tech International

Line of Credit

5.75
%


500


125$
7,668

$
6,441





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 intersegment sales are sales from the manufacturing segment to the testing and distribution segment. Total intersegment sales were $38 in 2002, $370 in 2001, and $503 in 2000. Corporate assets
mainly consist of cash and prepaid expenses. Corporate expenses mainly consist of salaries, insurance, professional expenses and directors fees.




50




---

##### Table of Contents

Business Segment Information:


Net Sales

Operating Income (loss)


Assets

Depr. and Amort.

Capital ExpendituresManufacturing

2002

$
5,022

$
(4,084
)

$
2,932

$
410

$
2172001

$
18,468

$
(197
)

$
6,898

$
488

$
1632000

$
13,361

$
118


$
9,020

$
450

$
436Testing Services

2002


8,942


771



15,654


1,187


4742001


11,112


743



16,563


1,051


3,8062000


7,723


1,203



11,553


924


654Distribution

2002


5,653


(55
)


399


104


182001


6,553


390



350


92


4782000


5,859


(322
)


2,081


149


237Corporate and

2002





(241
)


90


4


15unallocated

2001





136



339


1


42000





311



58Total Company

2002

$
19,617

$
(3,609
)

$
19,075

$
1,705

$
7242001

$
36,133

$
1,072


$
24,150

$
1,632

$
4,4512000

$
26,943

$
1,310


$
22,712

$
1,523

$
1,327





Geographic Area Information:





United States


Europe


Southeast Asia

Eliminations and Other


Total CompanyNet sales to

2002

$
8,083


1,479


10,093

(38
)

$
19,617customers

2001

$
11,253


6,761


18,489

(370
)

$
36,1332000

$
14,432


2,893


10,121

(503
)

$
26,943Operating

2002

$
(3,428
)

(153
)

213

(241
)

$
(3,609
)Income (loss)

2001

$
(484
)

64


1,356

136


$
1,0722000

$
132


27


840

311


$
1,310Property, plant

2002

$
160


463


5,010

(40
)

$
5,593and equipment

2001

$
869


424


6,241




$
7,534net

2000

$
996


259


3,242




$
4,497




51




---

##### Table of Contents

16.    QUARTERLY FINANCIAL DATA (UNAUDITED)





The Companys summarized quarterly financial data are as follows:





Year ended June 30, 2001

Sep. 30,


Dec. 31,


Mar. 31,


Jun. 30,Net Sales

$
9,158


$
12,035


$
7,877


$
7,063Expenses


8,875



11,133



7,797



6,700Income before income taxes and minority interest


283



902



80



363Income taxes


(68
)


(211
)


35



(111
)Income before minority interest


215



691



115



252Minority interest


(31
)


(53
)


(2
)


(24
)Net Income

$
184


$
638


$
113


$
228Net income per share:Basic

$
0.06


$
0.22


$
0.04


$
0.08Diluted

$
0.06


$
0.22


$
0.04


$
0.08





Year ended June 30, 2002

Sep. 30,


Dec. 31,


Mar. 31,


Jun. 30,Net Sales

$
5,136


$
4,812


$
4,657


$
5,012Expenses


5,509



5,616



4,973



6,999Loss before income taxes and minority interest


(373
)


(804
)


(316
)


(1,987
)Income taxes


(42
)


(26
)






15Loss before minority interest


(415
)


(830
)


(316
)


(1,972
)Minority interest


15



38



4



(71
)Net Loss

$
(400
)

$
(792
)

$
(312
)

$
(2,043
)Net loss per share:Basic

$
(0.14
)

$
(0.27
)

$
(0.11
)

$
(0.70
)Diluted

$
(0.14
)

$
(0.27
)

$
(0.11
)

$
(0.70
)




52