Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For
the Quarterly Period Ended September 30, 2016
OR
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For
the Transition Period from ___ to ___
Commission
File Number 1-14523
TRIO-TECH INTERNATIONAL
(Exact
name of Registrant as specified in its Charter)
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California
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95-2086631
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification Number)
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16139 Wyandotte Street
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Van Nuys, California
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91406
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's Telephone Number, Including Area
Code: 818-787-7000
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site,
if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
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Large
Accelerated Filer
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☐
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Accelerated
Filer
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☐
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Non-Accelerated
Filer
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☐
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Smaller
Reporting Company
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☒
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(Do
not check if a smaller reporting company)
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As
of November 1, 2016, there were 3,513,055 shares of the
issuer’s Common Stock, no par value,
outstanding.
TRIO-TECH INTERNATIONAL
INDEX TO CONDENSED CONSOLIDATED
FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE
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Page
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Part
I.
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Financial
Information
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1
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1
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2
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4
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5
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6
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26
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37
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37
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Part
II.
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Other
Information
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38
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38
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38
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38
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38
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38
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38
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39
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FORWARD-LOOKING STATEMENTS
The
discussions of Trio-Tech International’s (the
“Company”) business and activities set forth in this
Form 10-Q and in other past and future reports and announcements by
the Company may contain forward-looking statements within 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 statements 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; changes in U.S. and global
financial and equity markets, including market disruptions and
significant interest rate fluctuations; and other economic,
financial and regulatory factors beyond the Company’s
control. Other than statements of historical fact, all statements
made in this Quarterly Report are forward-looking, including, but
not limited to, statements regarding industry prospects, future
results of operations or financial position, and statements of our
intent, belief and current expectations about our strategic
direction, prospective and future financial results and condition.
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. Forward-looking statements
involve risks and uncertainties that are inherently difficult to
predict, which could cause actual outcomes and results to differ
materially from our expectations, forecasts and
assumptions.
Unless
otherwise required by law, we undertake no obligation to update
forward-looking statements to reflect subsequent events, changed
circumstances, or the occurrence of unanticipated events. You are
cautioned not to place undue reliance on such forward-looking
statements.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (IN
THOUSANDS, EXCEPT NUMBER OF SHARES)
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September 30,
2016
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June 30,
2016
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ASSETS
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(Unaudited)
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CURRENT
ASSETS:
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Cash
and cash equivalents
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$4,216
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$3,807
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Short-term
deposits
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702
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295
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Trade
accounts receivable, less allowance for doubtful accounts of $330
and $270
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8,109
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8,826
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Other
receivables
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354
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596
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Inventories,
less provision for obsolete inventory of $688 and $697
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1,179
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1,460
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Prepaid
expenses and other current assets
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313
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264
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Assets
held for sale
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89
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92
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Total current assets
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14,962
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15,340
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NON-CURRENT
ASSETS:
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Deferred
tax asset
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401
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401
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Investment
properties, net
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1,309
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1,340
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Property,
plant and equipment, net
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11,032
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11,283
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Other
assets
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1,786
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1,788
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Restricted
term deposits
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2,041
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2,067
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Total non-current assets
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16,569
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16,879
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TOTAL ASSETS
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$31,531
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$32,219
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LIABILITIES
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CURRENT
LIABILITIES:
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Lines
of credit
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$1,531
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$2,491
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Accounts
payable
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3,311
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2,921
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Accrued
expenses
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2,681
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2,642
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Income
taxes payable
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202
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230
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Current
portion of bank loans payable
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295
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342
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Current
portion of capital leases
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226
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235
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Total current liabilities
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8,246
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8,861
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NON-CURRENT
LIABILITIES:
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Bank
loans payable, net of current portion
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1,623
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1,725
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Capital leases,
net of current portion
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437
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503
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Deferred
tax liabilities
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246
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216
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Other
non-current liabilities
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43
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43
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Total non-current liabilities
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2,349
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2,487
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TOTAL LIABILITIES
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$10,595
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$11,348
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COMMITMENT
AND CONTINGENCIES
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-
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-
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EQUITY
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TRIO-TECH
INTERNATIONAL’S SHAREHOLDERS' EQUITY:
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Common
stock, no par value, 15,000,000 shares authorized; 3,513,055 shares
issued and outstanding as at September 30, 2016, and June 30,
2016
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$10,882
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$10,882
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Paid-in
capital
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3,189
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3,188
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Accumulated
retained earnings
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3,328
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3,025
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Accumulated
other comprehensive gain-translation adjustments
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1,944
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2,162
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Total Trio-Tech International shareholders' equity
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19,343
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19,257
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Non-controlling
interest
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1,593
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1,614
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TOTAL
EQUITY
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$20,936
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$20,871
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TOTAL LIABILITIES AND EQUITY
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$31,531
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$32,219
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See
notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME / (LOSS)
UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
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Three Months Ended
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Sept. 30,
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Sept. 30,
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2016
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2015
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Revenue
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Manufacturing
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$3,671
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$3,140
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Testing
services
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4,157
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3,783
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Distribution
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1,104
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975
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Others
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39
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32
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8,971
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7,930
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Cost of Sales
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Cost
of manufactured products sold
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2,795
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2,109
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Cost
of testing services rendered
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2,814
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2,758
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Cost
of distribution
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991
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853
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Others
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13
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32
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6,613
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5,752
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Gross Margin
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2,358
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2,178
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Operating Expenses:
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General
and administrative
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1,743
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1,662
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Selling
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185
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171
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Research
and development
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53
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46
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Impairment
loss of property, plant and equipment
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-
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-
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Total
operating expenses
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1,981
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1,879
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Income from Operations
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377
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299
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Other Income
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Interest
expenses
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(58)
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(53)
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Other income,
net
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110
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208
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Total
other income
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52
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155
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Income from Continuing Operations before Income
Taxes
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429
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454
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Income Tax Expenses
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(83)
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(67)
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Income
from continuing operations before non-controlling interest, net of
tax
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346
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387
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Other Operating Activities
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Equity
in earnings of unconsolidated joint venture, net of
tax
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-
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-
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Discontinued Operations (Note 18)
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Income
/ (loss) from discontinued operations, net of tax
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1
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(10)
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NET INCOME
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347
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377
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Less:
net income attributable to the non-controlling
interest
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44
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118
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Net Income Attributable to Trio-Tech International Common
Shareholder
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$303
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$259
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Amounts Attributable to Trio-Tech International Common
Shareholders:
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Income
from continuing operations, net of tax
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303
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264
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Loss
from discontinued operations, net of tax
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-
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(5)
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Net Income Attributable to Trio-Tech International Common
Shareholders
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$303
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$259
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Basic Earnings per Share:
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Basic
per share from continuing operations attributable to Trio-Tech
International
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$0.09
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$0.08
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Basic
earnings per share from discontinued operations attributable to
Trio-Tech International
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$-
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$-
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Basic Earnings per Share from Net Income
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Attributable to Trio-Tech International
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$0.09
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$0.08
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Diluted Earnings per Share:
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Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
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$0.08
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$0.08
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Diluted
earnings per share from discontinued operations attributable to
Trio-Tech International
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$-
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$-
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Diluted Earnings per Share from Net Income
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Attributable to Trio-Tech International
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$0.08
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$0.08
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Weighted
average number of common shares outstanding
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Basic
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3,513
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3,513
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Dilutive
effect of stock options
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66
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8
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Number
of shares used to compute earnings per share diluted
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3,579
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3,521
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See
notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME / (LOSS)
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Comprehensive Income / (Loss) Attributable to Trio-Tech
International Common Shareholders:
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Sept. 30, 2016
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Sept. 30, 2015
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Net
income
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347
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377
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Foreign
currency translation, net of tax
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(283)
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(1,425)
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Comprehensive Income / (Loss)
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64
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(1,048)
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Less:
comprehensive loss attributable to the non-controlling
interests
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(21)
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(252)
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Comprehensive Income / (Loss) Attributable to Trio-Tech
International Common Shareholders
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$85
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$(796)
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See
notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
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Common
Stock
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Additional Paid-in
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Accumulated Retained
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Accumulated Other
Comprehensive
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Non- Controlling
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Shares
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Amount
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Capital
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Earnings
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Income
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Interest
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Total
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|
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$
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$
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$
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$
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$
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$
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Balance
at June 30, 2015
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3,513
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10,882
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3,087
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2,246
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2,771
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1,736
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20,722
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Stock
option expenses
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-
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-
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101
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-
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-
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-
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101
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Net
income
|
-
|
-
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-
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779
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-
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282
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1,061
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Dividend
declared by subsidiary
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-
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-
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-
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-
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-
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(181)
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(181)
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Translation
adjustment
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-
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-
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-
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-
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(609)
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(223)
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(832)
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Balance
at June 30, 2016
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3,513
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10,882
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3,188
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3,025
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2,162
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1,614
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20,871
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Stock
option expenses
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-
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-
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1
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-
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-
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-
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1
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Net
income
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-
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-
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-
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303
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-
|
44
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347
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Translation
adjustment
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-
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-
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-
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-
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(218)
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(65)
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(283)
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Balance
at Sept. 30, 2016
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3,513
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10,882
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3,189
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3,328
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1,944
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1,593
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20,936
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See
notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (IN THOUSANDS)
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Three Months Ended
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Sept. 30,
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Sept. 30,
|
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2016
|
2015
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(Unaudited)
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(Unaudited)
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Cash Flow from Operating Activities
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Net
income
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$347
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$377
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Adjustments
to reconcile net income to net cash flow provided by operating
activities
|
|
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Depreciation
and amortization
|
464
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484
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|
Stock
compensation
|
1
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4
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Inventory
reversal
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(3)
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(51)
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|
Bad
debt provision
|
61
|
-
|
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Accrued
interest expense, net accrued interest income
|
54
|
33
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|
Write-off
of property, plant and equipment
|
-
|
2
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Warranty
recovery, net
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(8)
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(3)
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Deferred
tax benefit
|
31
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(5)
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Changes
in operating assets and liabilities, net of acquisition
effects
|
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Trade
accounts receivable
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656
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(75)
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Other receivables
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242
|
11
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Other assets
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(35)
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18
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|
Inventories
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275
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(52)
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|
Prepaid expenses and other current assets
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(49)
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(62)
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Accounts payable and accrued expenses
|
458
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49
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|
Income taxes payable
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(28)
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(39)
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Other non-current liabilities
|
-
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(3)
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|
Net Cash Provided by Operating Activities
|
2,466
|
688
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|
|
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Cash Flow from Investing Activities
|
|
|
|
Proceeds
from maturing of restricted term deposits and short-term
deposits
|
-
|
38
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|
Investments
in restricted & un-restricted deposits
|
(421)
|
-
|
|
Additions
to property, plant and equipment
|
(361)
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(254)
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|
Proceeds
from disposal of plant, property and equipment
|
-
|
19
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|
Net Cash Used in Investing Activities
|
(782)
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(197)
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|
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Cash Flow from Financing Activities
|
|
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Repayment
on lines of credit
|
(2,897)
|
(2,647)
|
|
Repayment
of bank loans and capital leases
|
(189)
|
(169)
|
|
Proceeds
from long-term bank loans
|
1,917
|
3,087
|
|
Net Cash (Used in) / Provided by Financing Activities
|
(1,169)
|
271
|
|
|
|
|
|
Effect of Changes in Exchange Rate
|
(106)
|
(472)
|
|
|
|
|
|
NET INCREASE IN CASH
|
409
|
290
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
3,807
|
3,711
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$4,216
|
$4,001
|
|
|
|
|
|
Supplementary Information of Cash Flows
|
|
|
|
Cash
paid during the period for:
|
|
|
|
Interest
|
$49
|
$53
|
|
Income
taxes
|
$56
|
$91
|
|
|
|
|
|
Non-Cash Transactions
|
|
|
|
Capital
lease of property, plant and equipment
|
$-
|
$-
|
See
notes to condensed consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AND NUMBER OF
SHARES)
1. ORGANIZATION AND BASIS OF PRESENTATION
Trio-Tech
International (“the Company” or “TTI”
hereafter) was incorporated in fiscal year 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 testing
facilities in the United States. The Company also
designs, develops, manufactures and markets a broad range of
equipment and systems used in the manufacturing and testing of
semiconductor devices and electronic components. In the first
quarter of fiscal year 2017, TTI conducted business in four
business segments: Manufacturing, Testing Services, Distribution
and Real Estate. TTI has subsidiaries in the U.S., Singapore,
Malaysia, Thailand and China as follows:
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Ownership
|
Location
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Express
Test Corporation (Dormant)
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100%
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Van
Nuys, California
|
|
Trio-Tech
Reliability Services (Dormant)
|
100%
|
Van
Nuys, California
|
|
KTS
Incorporated, dba Universal Systems (Dormant)
|
100%
|
Van
Nuys, California
|
|
European
Electronic Test Centre (Dormant)
|
100%
|
Dublin,
Ireland
|
|
Trio-Tech
International Pte. Ltd.
|
100%
|
Singapore
|
|
Universal
(Far East) Pte. Ltd. *
|
100%
|
Singapore
|
|
Trio-Tech
International (Thailand) Co. Ltd. *
|
100%
|
Bangkok,
Thailand
|
|
Trio-Tech
(Bangkok) Co. Ltd.
|
100%
|
Bangkok,
Thailand
|
|
(49%
owned by Trio-Tech International Pte. Ltd. and 51% owned by
Trio-Tech International (Thailand) Co. Ltd.)
|
|
|
|
Trio-Tech
(Malaysia) Sdn. Bhd.
(55%
owned by Trio-Tech International Pte. Ltd.)
|
55%
|
Penang
and Selangor, Malaysia
|
|
Trio-Tech
(Kuala Lumpur) Sdn. Bhd.
|
55%
|
Selangor,
Malaysia
|
|
(100%
owned by Trio-Tech Malaysia Sdn. Bhd.)
|
|
|
|
Prestal
Enterprise Sdn. Bhd.
|
76%
|
Selangor,
Malaysia
|
|
(76%
owned by Trio-Tech International Pte. Ltd.)
|
|
|
|
Trio-Tech
(Suzhou) Co., Ltd. *
|
100%
|
Suzhou,
China
|
|
Trio-Tech
(Shanghai) Co., Ltd. * (Dormant)
|
100%
|
Shanghai,
China
|
|
Trio-Tech
(Chongqing) Co. Ltd. *
|
100%
|
Chongqing,
China
|
|
SHI
International Pte. Ltd. (Dormant)
(55%
owned by Trio-Tech International Pte. Ltd)
|
55%
|
Singapore
|
|
PT
SHI Indonesia (Dormant)
(100%
owned by SHI International Pte. Ltd.)
|
55%
|
Batam,
Indonesia
|
|
Trio-Tech
(Tianjin) Co., Ltd. *
|
100%
|
Tianjin,
China
|
*
100% owned by Trio-Tech International Pte. Ltd.
The
accompanying un-audited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles (“GAAP”) for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. All significant inter-company accounts and
transactions have been eliminated in consolidation. The unaudited
condensed consolidated financial statements are presented in U.S.
dollars. The accompanying condensed consolidated
financial statements do not include all the information and
footnotes required by GAAP for complete financial
statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered
necessary for fair presentation have been
included. Operating results for the three months ended
September 30, 2016 are not necessarily indicative of the results
that may be expected for the fiscal year ending June 30,
2017. For further information, refer to the consolidated
financial statements and footnotes thereto included in the
Company's annual report for the fiscal year ended June 30,
2016.
The
Company’s operating results are presented based on the
translation of foreign currencies using the respective
quarter’s average exchange rate.
2. NEW ACCOUNTING PRONOUNCEMENTS
The
amendments in Accounting Standards Update (“ASU”)
2016-15 ASC Topic 230 —Statement of Cash Flows (“ASC
Topic 230”): These amendments provide cashflow statement
classification guidance. For public business entities for fiscal
years beginning after December 15, 2017, and interim periods within
those fiscal years. While early application is permitted, including
adoption in an interim period, the Company has not elected to early
adopt. The effectiveness of this update is not expected to have a
significant effect on the Company’s consolidated financial
position or results of operations.
The
amendments in ASU 2016-13 ASC Topic 326: Financial Instruments
—Credit Losses (“ASC Topic 326”) are issued for
the measurement of all expected credit losses for financial assets
held at the reporting date based on historical experience, current
conditions, and reasonable and supportable forecasts. For public
companies that are not SEC filers, the ASU is effective for fiscal
years beginning after December 15, 2020, and interim periods within
those fiscal years. While early application will be permitted for
all organizations for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2018, the Company
has not yet determined if it will early adopt. The effectiveness of
this update is not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
The
amendments in ASU 2016-09 ASC Topic 718: Compensation – Stock
Compensation (“ASC Topic 718”) are issued to simplify
several aspects of the accounting for share-based payment award
transactions, including (a) income tax consequences (b)
classification of awards as either equity or liabilities; and (c)
classification on the statement of cash flows. For public business
entities, the amendments are effective for annual periods beginning
after December 15, 2016, and interim periods within those annual
periods. Early adoption is permitted for any entity in any interim
or annual period. If an entity early adopts the amendments in an
interim period, any adjustments should be reflected as of the
beginning of the fiscal year that includes that interim period. An
entity that elects early adoption must adopt all of the amendments
in the same period. The Company does not intend to early adopt and
has not yet determined the effects on the Company’s
consolidated financial position or results of operations on the
adoption of this update.
The
amendments in ASU 2016-02 ASC Topic 842: Leases (“ASC Topic
842”) are required to recognize the following for all leases
(with the exception of short-term leases) at the commencement date:
(a) a lease liability, which is a lessee’s obligation to make
lease payments arising from a lease, measured on a discounted
basis; and (b) a right-of-use asset, which is as an asset that
represents the lessee’s right to use, or control the use of,
a specified asset for the lease term. These amendments become
effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years, for a variety
of entities including a public business While early adoption is
permitted, the Company has not elected to early adopt. The
effectiveness of this update is not expected to have a significant
effect on the Company’s consolidated financial position or
results of operations.
The
amendments in ASU 2015-14 ASC Topic 606: Deferral of the Effective
Date (“ASC Topic 606”) defers the effective date of
update 2014-09 for all entities by one year. For a public entity,
the amendments in ASU 2014-09 are effective for annual reporting
periods beginning after December 15, 2017, including interim
periods within that reporting period. Earlier application is
permitted only as of annual reporting periods beginning after
December 15, 2016, including interim reporting periods within that
reporting period. The Company has not yet determined if it will
early adopt. The effectiveness of this update is not expected to
have a significant effect on the Company’s consolidated
financial position or results of operations.
The
amendments in ASU 2015-11 ASC Topic 330: Simplifying the
Measurement of Inventory (“ASC Topic 330”) specify that
an entity should measure inventory at the lower of cost and net
realizable value. Net realizable value is the estimated selling
prices in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation.
Subsequent measurement is unchanged for inventory measured using
Last-In-First-Out or the retail inventory method. The amendments in
ASU 2015-011 are effective for public business entities for fiscal
years beginning after December 15, 2016, and interim periods within
those fiscal years. A reporting entity should apply the amendments
retrospectively to all periods presented. While early adoption is
permitted, the Company has not elected to early adopt. The adoption
of this update is not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
The Financial Accounting
Standards Board (“FASB”) has issued converged standards
on revenue recognition. Specifically, the Board has issued ASU
2014-09, ASC Topic 606. ASU 2014-09 affects any entity using U.S.
GAAP that either enters into contracts with customers to transfer
goods or services or enters into contracts for the transfer of
non-financial assets unless those contracts are within the scope of
other standards (e.g., insurance contracts or lease contracts). ASU
2014-09 will supersede the revenue recognition requirements in ASC
Topic 605, Revenue Recognition (“ASC Topic 605”), and
most industry-specific guidance. ASU 2014-09 also supersedes some
cost guidance included in Subtopic 605-35, Revenue
Recognition—Construction-Type and Production-Type Contracts.
In addition, the existing requirements for the recognition of a
gain or loss on the transfer of non-financial assets that are not
in a contract with a customer (e.g., assets within the scope of ASC
Topic 360, Property, Plant, and Equipment, (“ASC Topic
360”), and intangible assets within the scope of Topic 350,
Intangibles—Goodwill and Other) are amended to be consistent
with the guidance on recognition and measurement (including the
constraint on revenue) in ASU 2014-09. For a public entity, the
amendments in ASU 2014-09 are effective for annual reporting
periods beginning after December 15, 2016, including interim
periods within that reporting period. As the new standard will
supersede substantially all existing revenue guidance affecting the
Company under GAAP, it could impact revenue and cost recognition on
sales across all the Company's business segments. The Company
carried out an evaluation on the impact and found the adoption of
this standard to have immaterial effects on its Consolidated
Financial Statements.
FASB
amended ASU 2014-15 Subtopic 205-40, Presentation of Financial
Statements – Going Concern (“ASC Topic 205”) to
define management’s responsibility to evaluate whether there
is substantial doubt about an organization’s ability to
continue as a going concern and to provide related footnote
disclosures. Under GAAP, financial statements are prepared under
the presumption that the reporting organization will continue to
operate as a going concern, except in limited circumstances. The
going concern basis of accounting is critical to financial
reporting because it establishes the fundamental basis for
measuring and classifying assets and liabilities. Currently, GAAP
lacks guidance about management’s responsibility to evaluate
whether there is substantial doubt about the organization’s
ability to continue as a going concern or to provide related
footnote disclosures. ASU 2014-15 provides guidance to an
organization’s management, with principles and definitions
that are intended to reduce diversity in the timing and content of
disclosures that are commonly provided by organizations today in
the financial statement footnotes. The amendments in ASU 2014-15
are effective for annual periods ending after December 15, 2016,
and interim periods within annual periods beginning after December
15, 2016. While early application is permitted for annual or
interim reporting periods for which the financial statements have
not previously been issued, the Company has not elected to early
adopt. The effectiveness of this update does not have a significant
effect on the Company’s consolidated financial position or
results of operations.
Other
new pronouncements issued but not yet effective until after
September 30, 2016 are not expected to have a significant effect on
the Company’s consolidated financial position or results of
operations.
3. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL
ACCOUNTS
Accounts
receivable consists of customer obligations due under normal trade
terms. Although management generally does not require collateral,
letters of credit may be required from the customers in certain
circumstances. Management periodically performs credit evaluations
of customers’ financial conditions.
Senior
management reviews accounts receivable on a periodic basis to
determine if any receivables will potentially be uncollectible.
Management includes any accounts receivable balances that are
determined to be uncollectible in the allowance for doubtful
accounts. After all reasonable attempts to collect a
receivable have failed, the receivable is written off against the
allowance. Based on the information available,
management believed the allowance for doubtful accounts as of
September 30, 2016 and June 30, 2016 was
adequate.
The following table represents
the changes in the allowance for doubtful
accounts:
|
|
Sept. 30,
2016
(Unaudited)
|
June 30,
2016
|
|
Beginning
|
$270
|
$313
|
|
Additions
charged to expenses
|
63
|
21
|
|
Recovered
|
(2)
|
(48)
|
|
Currency
translation effect
|
(1)
|
(16)
|
|
Ending
|
$330
|
$270
|
4. LOANS RECEIVABLE FROM PROPERTY DEVELOPMENT
PROJECTS
The
following table presents Trio-Tech (Chongqing) Co. Ltd
(‘TTCQ’)’s loan receivable from property
development projects in China as of September 30, 2016. The
exchange rate is based on the date published by the
Monetary Authority of Singapore as of March 31, 2015, since the net
loan receivable was “nil” as at September 30,
2016.
|
|
Loan Expiry
Date
|
Loan Amount
(RMB)
|
Loan Amount
(U.S. Dollars)
|
|
Short-term loan receivables
|
|
|
|
|
JiangHuai
(Project – Yu Jin Jiang An)
|
May
31,2013
|
2,000
|
325
|
|
Less:
allowance for doubtful receivables
|
|
(2,000)
|
(325)
|
|
Net loan receivables from property development
projects
|
|
-
|
-
|
|
|
|
|
|
|
Long-term loan receivables
|
|
|
|
|
Jun
Zhou Zhi Ye
|
Oct
31, 2016
|
5,000
|
814
|
|
Less:
transfer – down-payment for purchase of investment
property
|
|
(5,000)
|
(814)
|
|
Net loan receivables from property development
projects
|
|
-
|
-
|
The
following table presents TTCQ’s loan receivable from property
development projects in China as of June 30, 2016. The exchange
rate is based on the date published by the Monetary
Authority of Singapore as of March 31, 2015, since the net loan
receivable was “nil” as at June 30, 2016.
|
|
Loan Expiry
Date
|
Loan Amount
(RMB)
|
Loan Amount
(U.S. Dollars)
|
|
Short-term loan receivables
|
|
|
|
|
JiangHuai
(Project – Yu Jin Jiang An)
|
May
31,2013
|
2,000
|
325
|
|
Less:
allowance for doubtful receivables
|
|
(2,000)
|
(325)
|
|
Net loan receivables from property development
projects
|
|
-
|
-
|
|
|
|
|
|
|
Long-term loan receivables
|
|
|
|
|
Jun
Zhou Zhi Ye
|
Oct
31, 2016
|
5,000
|
814
|
|
Less:
transfer – down-payment for purchase of investment
property
|
|
(5,000)
|
(814)
|
|
Net loan receivables from property development
projects
|
|
-
|
-
|
On
November 1, 2010, TTCQ entered into a Memorandum Agreement with
JiangHuai Property Development Co. Ltd. (“JiangHuai”)
to invest in their property development projects (Project - Yu Jin
Jiang An) located in Chongqing City, China. Due to the short-term
nature of the investment, the amount was classified as a loan based
on ASC Topic 310-10-25 Receivables, amounting to Renminbi
(“RMB”) 2,000, or approximately $325. The loan was
renewed, but expired on May 31, 2013. TTCQ is in the legal process
of recovering the outstanding amount of $325. TTCQ did not generate
other income from JiangHuai for the quarter ended September 30,
2016, or for the fiscal year ended June 30, 2016. Based on
TTI’s financial policy, a provision for doubtful receivables
of $325 on the investment in JiangHuai was recorded during the
second quarter of fiscal 2014 based on TTI’s financial
policy.
On
November 1, 2010, TTCQ entered into a Memorandum Agreement with
JiaSheng Property Development Co. Ltd. (“JiaSheng”) to
invest in their property development projects (Project B-48 Phase
2) located in Chongqing City, China. Due to the short-term nature
of the investment, the amount was classified as a loan based on ASC
Topic 310, amounting to RMB 5,000, or approximately $814 based on
the exchange rate as at March 31, 2015 published by the Monetary
Authority of Singapore. The amount was unsecured and repayable at
the end of the term. The loan was renewed in November 2011 for a
period of one year, which expired on October 31, 2012 and was again
renewed in November 2012 and expired in November 2013. On November
1, 2013 the loan was transferred by JiaSheng to, and is now payable
by, Chong Qing Jun Zhou Zhi Ye Co. Ltd. (“Jun Zhou Zhi
Ye”), and the transferred agreement expired on October 31,
2016. Prior to the second quarter of fiscal year 2015, the loan
receivable was classified as a long-term receivable. The book value
of the loan receivable approximates its fair value. In the second
quarter of fiscal year 2015, the loan receivable was transferred to
down payment for purchase of investment property that is being
developed in the Singapore Themed Resort Project (see Note
7).
5. INVENTORIES
Inventories
consisted of the following:
|
|
Sept. 30,
2016
(Unaudited)
|
June 30,
2016
|
|
|
|
|
|
Raw
materials
|
$942
|
$967
|
|
Work
in progress
|
712
|
909
|
|
Finished
goods
|
229
|
279
|
|
Less:
provision for obsolete inventory
|
(688)
|
(697)
|
|
Currency
translation effect
|
(16)
|
2
|
|
|
$1,179
|
$1,460
|
The
following table represents the changes in provision for obsolete
inventory:
|
|
Sept. 30,
2016
(Unaudited)
|
June 30,
2016
|
|
|
|
|
|
Beginning
|
$697
|
$764
|
|
Additions
charged to expenses
|
-
|
22
|
|
Usage
- disposition
|
(3)
|
(86)
|
|
Currency
translation effect
|
(6)
|
(3)
|
|
Ending
|
$688
|
$697
|
6. ASSETS HELD FOR
SALE
During
the fourth quarter of 2015, the operations in Malaysia planned to
sell its factory building in Penang, Malaysia. In May 2015,
Trio-Tech Malaysia was approached by a potential buyer to purchase
the factory building. Negotiation is still ongoing and is subject
to approval by Penang Development Corporation. In accordance with
ASC Topic 360, during fiscal year 2015, the property was
reclassified from investment property, which had a net book value
of RM 371, or approximately $92, to assets held for sale, since
there was an intention to sell the factory building. The net book
values of the building were RM371, or approximately $89, for three
month ended September 30, 2016 and RM 371, or approximately $92,
for year ended June 30, 2016.
7. INVESTMENTS
Investments were
nil as at September 30, 2016 and June 30, 2016.
During
the second quarter of fiscal year 2011, the Company entered into a
joint-venture agreement with JiaSheng to develop real estate
projects in China. The Company invested RMB 10,000, or
approximately $1,606 based on the exchange rate as of March 31,
2014 published by the Monetary Authority of Singapore, for a 10%
interest in the newly formed joint venture, which was incorporated
as a limited liability company, Chong Qing Jun Zhou Zhi Ye Co. Ltd.
(the “joint venture”), in China. The agreement
stipulated that the Company would nominate two of the five members
of the Board of Directors of the joint venture and had the ability
to assign two members of management to the joint venture. The
agreement also stipulated that the Company would receive a fee of
RMB 10,000, or approximately $1,606 based on the exchange rate as
of March 31, 2014 published by the Monetary Authority of Singapore,
for the services rendered in connection with obtaining priority to
bid in certain real estate projects from the local government. Upon
signing of the agreement, JiaSheng paid the Company RMB 5,000 in
cash, or approximately $803 based on the exchange rate published by
the Monetary Authority of Singapore as of March 31, 2014. The
remaining RMB 5,000, which was not recorded as a receivable as the
Company considered the collectability uncertain, would be paid over
72 months commencing in 36 months from the date of the agreement
when the joint venture secured a property development project
stated inside the joint venture agreement. The Company considered
the RMB 5,000, or approximately $803 based on the exchange rate as
of March 31, 2014 published by the Monetary Authority of Singapore,
received in cash from JiaSheng, the controlling venturer in the
joint venture, as a partial return of the Company’s initial
investment of RMB10,000, or approximately $1,606 based on the
exchange rate as of March 31, 2014 published by the Monetary
Authority of Singapore. Therefore, the RMB 5,000 received in cash
was offset against the initial investment of RMB 10,000, resulting
in a net investment of RMB 5,000 as of March 31, 2014. The Company
further reduced its investments by RMB 137, or approximately $22,
towards the losses from operations incurred by the joint-venture,
resulting in a net investment of RMB 4,863, or approximately $781
based on exchange rates published by the Monetary Authority of
Singapore as of March 31, 2014.
“Investments”
in the real estate segment were the cost of an investment in a
joint venture in which we had a 10% interest. During the second
quarter of fiscal year 2014, TTCQ disposed of its 10% interest in
the joint venture. The joint venture had to raise funds for the
development of the project. As a joint-venture partner, TTCQ was
required to stand guarantee for the funds to be borrowed;
considering the amount of borrowing, the risk involved was higher
than the investment made and hence TTCQ decided to dispose of the
10% interest in the joint venture investment.
On
October 2, 2013, TTCQ entered into a share transfer agreement with
Zhu Shu. Based on the agreement, the purchase price was to be paid
by (1) RMB 10,000 worth of commercial property in Chongqing China,
or approximately $1,634 based on exchange rates published by the
Monetary Authority of Singapore as of October 2, 2013, by
non-monetary consideration and (2) the remaining RMB 8,000, or
approximately $1,307 based on exchange rates published by the
Monetary Authority of Singapore as of October 2, 2013, by cash
consideration. The consideration consisted of (1) commercial units
measuring 668 square meters to be delivered in June 2016 and (2)
sixteen quarterly equal installments of RMB500 per quarter
commencing from January 2014. Based on ASC Topic 845 Non-monetary
Consideration, the Company deferred the recognition of the gain on
disposal of the 10% interest in joint venture investment until such
time that the consideration is paid, so that the gain can be
ascertained. The recorded value of the disposed investment
amounting to $783, based on exchange rates published by the
Monetary Authority of Singapore as of June 30, 2014, is classified
as “other assets” under non-current assets, because it
is considered a down payment for the purchase of the commercial
property in Chongqing. TTCQ performed a valuation on a certain
commercial unit and its market value was higher than the carrying
amount. The first three installment amounts of RMB 500 each due in
January 2014, April 2014 and July 2014 were all outstanding until
the date of disposal of the investment in the joint venture. Out of
the outstanding RMB 8,000, TTCQ had received RMB 100 during May
2014. However, the transferee, Jun Zhou Zhi Ye, has not registered
the share transfer (10% interest in the joint venture) with the
relevant authorities in China as of the date of this
report.
On
October 14, 2014, TTCQ and Jun Zhou Zhi Ye entered into a
memorandum of understanding. Based on the memorandum of
understanding, both parties have agreed to register a sales and
purchase agreement upon Jun Zhou Zhi Ye obtaining the license to
sell the commercial property (the Singapore Themed Resort Project)
located in Chongqing, China. The proposed agreement is for the sale
of shop lots with a total area of 1,484.55 square meters as
consideration for the outstanding amounts owed to TTCQ by Jun Zhou
Zhi Ye as follows:
a)
Long term loan
receivable RMB 5,000, or approximately $814, as disclosed in Note
4, plus the interest receivable on long term loan receivable of RMB
1,250;
b)
Commercial units
measuring 668 square meters, as mentioned above; and
c)
RMB 5,900 for the
part of the unrecognized cash consideration of RMB 8,000 relating
to the disposal of the joint venture.
The
shop lots are to be delivered to TTCQ upon completion of the
construction of the shop lots in the Singapore Themed Resort
Project, and the initial targeted date of completion was no later
than December 31, 2016. However, should there be further delays in
the project completion, based on the discussion with the developers
it is estimated to be completed by December 31, 2018. The
consideration does not include the remaining outstanding amount of
RMB 2,000, or approximately $326, which will be paid to TTCQ in
cash.
8. INVESTMENT
PROPERTIES
The
following table presents the Company’s investment in
properties in China as of September 30, 2016. The exchange rate is
based on the exchange rate as of September 30, 2016 published by
the Monetary Authority of Singapore.
|
|
Investment
Date
|
Investment
Amount
(RMB)
|
Investment Amount
(U.S. Dollars)
|
|
Purchase of rental property – Property I - MaoYe
|
Jan 04, 2008
|
5,554
|
894
|
|
Purchase of rental property – Property II -
JiangHuai
|
Jan 06, 2010
|
3,600
|
580
|
|
Purchase of rental property – Property III - Fu
Li
|
Apr 08, 2010
|
4,025
|
648
|
|
Currency translation
|
|
-
|
(147)
|
|
Gross investment in rental property
|
|
13,179
|
1,975
|
|
Accumulated depreciation on rental property
|
Sep
30, 2016
|
(4,443)
|
(666)
|
|
Net investment in property – China
|
|
8,736
|
1,309
|
The
following table presents the Company’s investment in
properties in China as of June 30, 2016. The exchange rate is based
on the exchange rate as of June 30, 2016 published by the Monetary
Authority of Singapore.
|
|
Investment
Date
|
Investment
Amount
(RMB)
|
Investment Amount
(U.S. Dollars)
|
|
Purchase of rental property – Property I - MaoYe
|
Jan 04, 2008
|
5,554
|
894
|
|
Purchase of rental property – Property II -
JiangHuai
|
Jan 06, 2010
|
3,600
|
580
|
|
Purchase of rental property – Property III - Fu
Li
|
Apr 08, 2010
|
4,025
|
648
|
|
Currency translation
|
|
-
|
(139)
|
|
Gross investment in rental property
|
|
13,179
|
1,983
|
|
Accumulated depreciation on rental property
|
Sep
30, 2016
|
(4,278)
|
(643)
|
|
Net investment in property – China
|
|
8,901
|
1,340
|
The
following table presents the Company’s investment properties
in Malaysia as of September 30, 2016. The exchange rate is based on
the exchange rate as of June 30, 2015 published by the Monetary
Authority of Singapore.
|
|
Investment
Date
|
Investment
Amount
(RM)
|
Investment Amount
(U.S. Dollars)
|
|
Reclassification
of rental property – Penang Property I
|
Dec
31, 2012
|
681
|
181
|
|
Gross
investment in rental property
|
|
681
|
181
|
|
Accumulated
depreciation on rental property
|
June
30, 2015
|
(310)
|
(83)
|
|
Reclassified
as “Assets held for sale”
|
June
30, 2015
|
(371)
|
(98)
|
|
Net investment in property – Malaysia
|
|
-
|
-
|
The
following table presents the Company’s investment properties
in Malaysia as of June 30, 2016. The exchange rate is based on the
exchange rate as of June 30, 2015 published by the Monetary
Authority of Singapore.
|
|
Investment
Date
|
Investment
Amount
(RM)
|
Investment Amount
(U.S. Dollars)
|
|
Reclassification
of rental property – Penang Property I
|
Dec
31, 2012
|
681
|
181
|
|
Gross
investment in rental property
|
|
681
|
181
|
|
Accumulated
depreciation on rental property
|
June
30, 2015
|
(310)
|
(83)
|
|
Reclassified
as “Assets held for sale”
|
June
30, 2015
|
(371)
|
(98)
|
|
Net investment in property – Malaysia
|
|
-
|
-
|
Rental Property I – Mao Ye
In
fiscal 2008, TTCQ purchased an office in Chongqing, China from
MaoYe Property Ltd. (“MaoYe”), for a total cash
purchase price of RMB 5,554, or approximately $894. TTCQ rented
this property to a third party on July 13, 2008. The term of the
rental agreement was five years. The rental agreement was renewed
on July 16, 2014 for a further period of five years. The rental
agreement provides for a rent increase of 8% every year after July
15, 2015. The renewed agreement expires on July 15, 2018; however,
this rental agreement (1,104 square meters at a monthly rental of
RMB 39, or approximately $6) was terminated on July 31, 2015. TTCQ
identified a new tenant and signed a new rental agreement (653
square meters at a monthly rental of RMB 39, or approximately $6)
on August 1, 2015. This rental agreement provides for a rent
increase of 5% every year on January 31, commencing with 2017 until
the rental agreement expires on July 31, 2020. TTCQ signed a new
rental agreement (451 square meters at a monthly rental of RMB 27,
or approximately $4) on January 29, 2016. This rental agreement
provides for a rent increase of 5% every year on January 29,
commencing with 2017 until the rental agreement expires on February
28, 2019.
Property
purchased from MaoYe generated a rental income of $26 during the
three months ended September 30, 2016 as compared to $22 for the
same period in last fiscal year.
Rental Property II - JiangHuai
In
fiscal year 2010, TTCQ purchased eight units of commercial property
in Chongqing, China from Chongqing JiangHuai Real Estate
Development Co. Ltd. (“JiangHuai”) for a total purchase
price of RMB 3,600, or approximately $580. TTCQ rented all of these
commercial units to a third party until the agreement expired in
January 2012. TTCQ then rented three of the eight commercial units
to another party during the fourth quarter of fiscal year 2013
under a rental agreement that expired on March 31, 2014. Currently
all the units are vacant and TTCQ is working with the developer to
find a suitable buyer to purchase all the commercial units. TTCQ
has yet to receive the title deed for these properties; however,
TTCQ has the vacancies in possession with the exception of two
units, which are in the process of clarification. TTCQ is in the
legal process to obtain the title deed, which is dependent on
JiangHuai completing the entire project. In August 2016, TTCQ
performed a valuation on one of the commercial units and its market
value was higher than the carrying amount.
Property
purchased from JiangHuai did not generate any rental income during
the three months ended September 30, 2016 and 2015.
Other Properties III – Fu Li
In
fiscal 2010, TTCQ entered into a Memorandum Agreement with
Chongqing FuLi Real Estate Development Co. Ltd.
(“FuLi”) to purchase two commercial properties totaling
311.99 square meters (“office space”) located in Jiang
Bei District Chongqing. Although TTCQ currently rents its office
premises from a third party, it intends to use the office space as
its office premises. The total purchase price committed and paid
was RMB 4,025, or approximately $648. The development was completed
and the property was handed over during April 2013 and the title
deed was received during the third quarter of fiscal
2014.
The
two commercial properties were leased to third parties under two
separate rental agreements, one of which expired in April 2014 and
the other of which expired in August 2014.
For
the unit for which the agreement expired in April 2014, a new
tenant was identified and a new agreement was executed, which
expires on April 30, 2017. The new agreement carried an increase in
rent of 20% in the first year. Thereafter the rent increases by
approximately 8% for the subsequent years until April
2017.
For
the unit for which the agreement expired in August 2014, a new
tenant was identified and a rental agreement was executed, which
agreement was to expire on August 9, 2016. The agreement carried an
increase in rent of approximately 21% in the first year. Thereafter
the rent was to increase by approximately 6% for the subsequent
year. The tenant of this unit defaulted on payment of the quarterly
rental due in August 2015, however the rental deposit is available
to offset the outstanding rent. In early October 2015, TTCQ issued
a legal letter to this tenant on the outstanding amounts, to which
the tenant has not responded. As of the date of this report, the
August 2014 rental agreement (161 square meters at a monthly rental
of RMB 16, and approximately $2) was terminated.
A
new rental agreement with a new tenant (161 square meters at a
monthly rental of RMB 14, or approximately $2) was signed on
October 21, 2015. This rental agreement provides for a rent
increase of 6% after the first year, commencing from the year 2016
until the rental agreement expires on October 20, 2017. The tenant
of this unit had defaulted on payment of the monthly rental due for
February 2016, however the rental deposit has been offset and the
balance amount recognized as other income. In March 2016, TTCQ
issued a legal letter to this tenant on the outstanding amounts, to
which the tenant has not responded. A new rental agreement with a
new tenant (161 square meters at a monthly rental of RMB 14, or
approximately $2) was signed commencing from April 1, 2016 until
the rental agreement expires on March 31, 2018.
Properties
purchased from Fu Li were rented to a third party effective fourth
quarter of fiscal year 2012 and generated a rental income of $13
for the three months ended September 30, 2016, and $10 for the same
period in the last fiscal year.
Penang Property I
During
the fourth quarter of 2015, the operations in Malaysia planned to
sell its factory building in Penang, Malaysia. In accordance to ASC
Topic 360, the property was reclassified from investment property,
which had a net book value of RM 371, or approximately $98, to
assets held for sale since there was an intention to sell the
factory building. In May 2015, Trio-Tech (Malaysia) Sdn. Bhd.
(‘TTM’) was approached by a potential buyer to purchase
the factory building. On September 14, 2015, application to sell
the property was rejected by Penang Development Corporation
(‘PDC’). The rejection was based on the business
activity of the purchaser not suitable to the industry that is
being promoted on the said property. PDC made an offer to purchase
the property, which was not at the expected value and the offer
expired on March 28, 2016. However, management is still actively
looking for a suitable buyer. As of September 30, 2016 the net book
value was RM 369, or approximately $89.
Summary
Total
rental income for all investment properties in China was $39 for
the three months ended September 30, 2016, and was $32 for the same
period in the last fiscal year.
Depreciation
expenses for all investment properties in China were $23 for the
three months ended September 30, 2016 and $26 for the same period
in the last fiscal year.
9. OTHER ASSETS
Other
assets consisted of the following:
|
|
Sept. 30, 2016
(Unaudited)
|
June 30,
2016
|
|
Down-payment
for purchase of investment properties
|
$1,530
|
$1,536
|
|
Down-payment
for purchase of property, plant and
equipment
|
120
|
115
|
|
Deposits
for rental and utilities
|
136
|
137
|
|
Total
|
$1,786
|
$1,788
|
10. LINES OF CREDIT
Carrying
value of the Company’s lines of credit approximates its fair
value because the interest rates associated with the lines of
credit are adjustable in accordance with market situations when the
Company borrowed funds with similar terms and remaining
maturities.
As
of September 30, 2016, the Company had certain lines of credit that
are collateralized by restricted deposits.
|
Entity with
|
Type of
|
Interest
|
Expiration
|
Credit
|
Unused
|
|
Facility
|
Facility
|
Rate
|
Date
|
Limitation
|
Credit
|
|
|
|
|
|
|
|
|
Trio-Tech International Pte. Ltd.,
Singapore
|
Lines of Credit
|
Ranging from 1.6% to 5.5%
|
-
|
$5,675
|
$4,444
|
|
|
|
|
|
||
|
Trio-Tech (Malaysia) Sdn. Bhd
|
Lines of Credit
|
Ranging from 6.3% to 6.7%
|
-
|
$759
|
$759
|
|
|
|
|
|
||
|
|
Lines of Credit
|
Ranging from 4.9% to 6.3%
|
-
|
$749
|
$449
|
As
of June 30, 2016, the Company had certain lines of credit that are
collateralized by restricted deposits.
|
Entity with
|
Type of
|
Interest
|
Expiration
|
Credit
|
Unused
|
|
Facility
|
Facility
|
Rate
|
Date
|
Limitation
|
Credit
|
|
|
|
|
|
|
|
|
Trio-Tech International Pte. Ltd.,
Singapore
|
Lines of Credit
|
Ranging from 1.6% to 5.5%
|
-
|
$5,745
|
$3,856
|
|
|
|
|
|
||
|
Trio-Tech (Malaysia) Sdn. Bhd.
|
Lines of Credit
|
Ranging from 6.3% to 6.7%
|
-
|
$783
|
$783
|
|
|
|
|
|
||
|
|
Lines of Credit
|
Ranging from 4.9% to 6.3%
|
-
|
$1,204
|
$602
|
11. ACCRUED EXPENSES
Accrued
expenses consisted of the following:
|
|
Sept. 30,
2016
(Unaudited)
|
June 30,
2016
|
|
Payroll
and related costs
|
$1,310
|
$1,311
|
|
Commissions
|
73
|
47
|
|
Customer
deposits
|
24
|
91
|
|
Legal
and audit
|
335
|
297
|
|
Sales
tax
|
115
|
110
|
|
Utilities
|
107
|
115
|
|
Warranty
|
68
|
78
|
|
Accrued
purchase of materials
|
90
|
50
|
|
Provision
for re-instatement
|
295
|
308
|
|
Other
accrued expenses
|
289
|
331
|
|
Currency
translation effect
|
(25)
|
(96)
|
|
Total
|
$2,681
|
$2,642
|
12. WARRANTY ACCRUAL
The
Company provides for the estimated costs that may be incurred under
its warranty program at the time the sale is
recorded. The warranty period of the products
manufactured by the Company is generally one year or the warranty
period agreed with the customer. The Company estimates
the warranty costs based on the historical rates of warranty
returns. The Company periodically assesses the adequacy of its
recorded warranty liability and adjusts the amounts as
necessary.
|
|
Sept. 30,
2016
(Unaudited)
|
June 30,
2016
|
|
Beginning
|
$76
|
$103
|
|
Additions
charged to cost and expenses
|
10
|
80
|
|
Reversal
|
(18)
|
(105)
|
|
Currency
translation effect
|
(1)
|
(2)
|
|
Ending
|
$67
|
$76
|
13. BANK LOANS PAYABLE
Bank
loans payable consisted of the following:
|
|
|
Sept. 30,
2016
(Unaudited)
|
June 30,
2016
|
|
Note
payable denominated in RM to a commercial bank for expansion plans
in Malaysia, maturing in August 2024, bearing interest at the
bank’s prime rate plus 1.50% (5.25% and 5.45% at September
30, 2016 and June 30, 2016) per annum, with monthly payments of
principal plus interest through August 2024, collateralized by the
acquired building with a carrying value of $2,800 and 2,898, as at
September 30, 2016 and June 30, 2016, respectively.
|
|
1,815
|
1,919
|
|
|
|
|
|
|
Note
payable denominated in U.S. dollars to a commercial bank for
expansion plans in Singapore and its subsidiaries, maturing in
March 2017, bearing interest at the bank’s lending rate (7.5%
and 7.3% at September 30, 2016 and June 30, 2016) with monthly
payments of principal plus interest through April 2017. This note
payable is secured by plant and equipment with a carrying value of
$275 and 294, as at September 30, 2016 and June 30, 2016,
respectively.
|
|
103
|
148
|
|
|
|
|
|
|
Current portion
|
|
(295)
|
(342)
|
|
Long term portion of bank loans
payable
|
|
$1,623
|
$1,725
|
Future minimum payments
(excluding interest) as at September 30, 2016 were as
follows:
|
2017
|
$295
|
|
2018
|
202
|
|
2019
|
213
|
|
2020
|
224
|
|
2021
|
236
|
|
Thereafter
|
748
|
|
Total
obligations and commitments
|
$1,918
|
Future minimum payments
(excluding interest) as at June 30, 2016 were as
follows:
|
2017
|
$342
|
|
2018
|
204
|
|
2019
|
215
|
|
2020
|
226
|
|
2021
|
239
|
|
Thereafter
|
841
|
|
Total
obligations and commitments
|
$2,067
|
14. COMMITMENTS AND CONTINGENCIES
TTM
has capital commitments for the purchase of equipment and other
related infrastructure costs amounting to RM 1,659, or
approximately $400, based on the exchange rate as at September 30,
2016 published by the Monetary Authority of Singapore, as compared
to the capital commitment as at June 30, 2016 amounting to RM
1,153, or approximately $287.
Trio-Tech
(Tianjin) Co. Ltd. in China has capital commitments for the
purchase of equipment and other related infrastructure costs
amounting to RMB 48, or approximately $7, based on the exchange
rate as on September 30, 2016 published by the Monetary Authority
of Singapore, as compared to the capital commitment as at June 30,
2016 amounting to RMB 597, or approximately $93.
Deposits
with banks in China are not insured by the local government or
agency, and are consequently exposed to risk of loss. The Company
believes the probability of a bank failure, causing loss to the
Company, is remote.
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.
15. BUSINESS
SEGMENTS
In
fiscal year 2017, the Company operates in four segments; the
testing service industry (which performs structural and electronic
tests of semiconductor devices), the designing and manufacturing of
equipment (which equipment tests the structural integrity of
integrated circuits and other products), distribution of various
products from other manufacturers in Singapore and Southeast Asia
and the real estate segment in China.
The
real estate segment did not record other income for the first
quarter of fiscal 2017 and first quarter of fiscal year 2016, based
on the average exchange rate for the respective periods published
by the Monetary Authority of Singapore. Due to the short-term
nature of the investments, the investments were classified as loan
receivables based on ASC Topic 310. Thus the investment income was
classified under other income, which is not part of the below
table.
The
revenue allocated to individual countries was based on where the
customers were located. The allocation of the cost of equipment,
the current year investment in new equipment and depreciation
expense have been made on the basis of the primary purpose for
which the equipment was acquired.
All
inter-segment revenue was from the manufacturing segment to the
testing and distribution segments. Total inter-segment revenue was
$283 for the three months ending September 30, 2016, as compared to
$115 for the same period in the last fiscal
year. Corporate assets mainly consisted of cash and
prepaid expenses. Corporate expenses mainly consisted of stock
option expenses, salaries, insurance, professional expenses and
directors' fees. Corporate expenses are allocated to the four
segments. The following segment information table includes segment
operating income or loss after including the corporate expenses
allocated to the segments, which gets eliminated in the
consolidation.
The
following segment information is un-audited for the three months
ended September 30, 2016 and September 30, 2015:
Business Segment Information:
|
|
Three Months
Ended
Sept. 30,
|
Net Revenue
|
Operating
Income / (Loss)
|
Total Assets
|
Depr. and Amort.
|
Capital Expenditures
|
|
Manufacturing
|
2016
|
$3,671
|
$(93)
|
$7,716
|
$50
|
$11
|
|
|
2015
|
3,140
|
242
|
5,618
|
54
|
17
|
|
|
|
|
|
|
|
|
|
Testing
Services
|
2016
|
4,157
|
402
|
19,219
|
388
|
350
|
|
|
2015
|
3,783
|
78
|
20,495
|
403
|
237
|
|
|
|
|
|
|
|
|
|
Distribution
|
2016
|
1,104
|
34
|
695
|
1
|
-
|
|
|
2015
|
975
|
19
|
749
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
2016
|
39
|
2
|
3,304
|
25
|
-
|
|
|
2015
|
32
|
(24)
|
3,530
|
27
|
-
|
|
|
|
|
|
|
|
|
|
Fabrication
|
2016
|
-
|
-
|
30
|
-
|
-
|
|
Services
*
|
2015
|
-
|
-
|
26
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Corporate
&
|
2016
|
-
|
32
|
567
|
-
|
-
|
|
Unallocated
|
2015
|
-
|
(16)
|
62
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Total
Company
|
2016
|
$8,971
|
377
|
31,531
|
464
|
361
|
|
|
2015
|
$7,930
|
$299
|
$30,480
|
$484
|
$254
|
*
Fabrication Services is a discontinued operation (Note
18).
16. OTHER
INCOME
Other
income consisted of the following:
|
|
Three
Months Ended
September
30,
|
|
|
|
2016
|
2015
|
|
Interest
income
|
4
|
3
|
|
Other
rental income
|
25
|
24
|
|
Exchange
gain
|
62
|
184
|
|
Other
miscellaneous income / (expenses)
|
19
|
(3)
|
|
Total
|
$110
|
$208
|
17. INCOME TAX
The
Company is subject to income taxes in the U.S. and numerous foreign
jurisdictions. Significant judgment is required in determining the
provision for income taxes and income tax assets and liabilities,
including evaluating uncertainties in the application of accounting
principles and complex tax laws. The statute of limitations, in
general, is open for years 2004 to 2016 for tax authorities in
those jurisdictions to audit or examine income tax returns. The
Company is under annual review by the tax authorities of the
respective jurisdiction to which the subsidiaries
belong.
The Company had no material adjustments to its
liabilities for unrecognized income tax benefits according to the
provisions of ASC Topic 740 Income Tax.
The Company had an income tax expense
of $83 for the three months ended September 30, 2016 as compared to
an income tax expense of $67 for the same period in the last fiscal
year. The increase in income tax expenses was mainly due to
increase in deferred tax for the timing differences recorded by the
Singapore and Malaysia operations for the three months
ended September 30, 2016, as compared to the same period in
the last fiscal year. This increase was partially offset by the
decrease in income tax expenses mainly due to the increase in
income in the subsidiaries which has carry forward tax
losses.
The
Company recognizes tax benefits from uncertain tax positions only
if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities based on the
technical merits of the position. Although the Company believes
that the uncertain tax positions are adequately reserved, no
assurance is provided that the final tax outcome of these matters
may not be materially different. Adjustments are made to these
reserves when facts and circumstances change, such as the closing
of tax audit or the refinement of an estimate. To the extent that
the final tax outcome of these matters is different than the
amounts recorded, such differences may affect the provision for
income taxes in the period in which such determination is made and
could have a material impact on the financial condition and
operating results. The provision for income taxes includes the
effect of any reserves that the Company believes are appropriate,
as well as the related net interest and penalties.
The
income tax expenses included with-holding tax held by related
companies that were not recoverable from the Inland Revenue Board
in Singapore.
The
Company accrues penalties and interest related to unrecognized tax
benefits when necessary as a component of penalties and interest
expenses, respectively. The Company had not accrued any
penalties or interest expenses relating to unrecognized benefits at
September 30, 2016 and June 30, 2016.
18. DISCONTINUED OPERATION AND CORRESPONDING
RESTRUCTURING PLAN
The
Company’s Indonesia operation and the Indonesia
operation’s immediate holding company, which comprise the
fabrication services segment, suffered continued operating losses
from fiscal year 2010 to 2014, and the cash flow was minimal from
fiscal year 2009 to 2014. The Company established a restructuring
plan to close the fabrication services operation, and in accordance
with ASC Topic 205, Presentation of Financial Statement
Discontinued Operations (“ASC Topic 205”), from fiscal
year 2015 onwards, the Company presented the operation results from
fabrication services as a discontinued operation as the Company
believed that no continued cash flow would be generated by the
discontinued component and that the Company would have no
significant continuing involvement in the operations of the
discontinued component.
In
accordance with the restructuring plan, the Company’s
Indonesia operation is negotiating with its suppliers to settle the
outstanding balance of accounts payable of $56 and has no
collection for accounts receivable. The Company’s fabrication
operation in Batam, Indonesia is in the process of winding up the
operations. The Company anticipates that it may incur costs and
expenses when the winding up of the subsidiary in Indonesia takes
place. Management has assessed the costs and expenses to be
immaterial, thus no accrual has been made.
In
January 2010, the Company established a restructuring plan to close
the Testing operation in Shanghai, China. Based on the
restructuring plan and in accordance with ASC Topic 205, the
Company presented the operation results from Shanghai as a
discontinued operation as the Company believed that no continued
cash flow would be generated by the discontinued component
(Shanghai subsidiary) and that the Company would have no
significant continuing involvement in the operations of the
discontinued component. The Shanghai operation has an outstanding
balance of accounts payable of $35 and is collecting the accounts
receivable of $2.
The
discontinued operations in Shanghai and in Indonesia did not incur
general and administrative expenses for the three months ended
September 30, 2016, and did not incur general and administrative
expenses for the same period in the last fiscal year. The Company
anticipates that it may incur additional costs and expenses when
the winding up of the business of the subsidiary through which the
facilities operated takes place. Management
has assessed the costs and expenses to be immaterial, thus no
accrual has been made.
Loss
/ income from discontinued operations for the three months ended
September 30, 2016 and 2015 were as follows:
|
|
Three
Months Ended
September
30,
|
|
|
|
2016
|
2015
|
|
Revenue
|
$-
|
$-
|
|
Cost
of sales
|
-
|
-
|
|
Gross
margin
|
-
|
-
|
|
Operating
expenses
|
|
|
|
General
and administrative
|
-
|
-
|
|
Selling
|
-
|
-
|
|
Impairment
loss of property, plant and equipment
|
-
|
-
|
|
Total
|
-
|
-
|
|
Income
from discontinued operation
|
-
|
-
|
|
Other
income / (charges)
|
2
|
(10)
|
|
Net
(loss) / income from discontinued operation
|
2
|
(10)
|
|
Less:
net (income) / loss attributable to the non-controlling
interest
|
-
|
(5)
|
|
(Loss)
/ income from discontinued operation, net of tax
|
$2
|
(5)
|
The
Company does not provide a separate cash flow statement for the
discontinued operation, as the impact of this discontinued
operation was immaterial.
19. EARNINGS PER SHARE
The Company adopted ASC Topic 260,
Earnings Per
Share. Basic Earnings Per Share
(“EPS”) 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 give 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 the
exercise of stock options and warrants.
Stock
options to purchase 125,000 of Common Stock at exercise prices
ranging from $3.62 to $3.81 per share were outstanding as of
September 30, 2016 and were excluded in the computation of diluted
EPS because their effect would have been
anti-dilutive.
Stock
options to purchase 495,000 of Common Stock at exercise prices
ranging from $2.26 to $3.2 per share were outstanding as of
September 30, 2015.
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:
|
|
Three
Months Ended
|
|
|
|
September
30,
|
|
|
|
2016
(Unaudited)
|
2015
(Unaudited)
|
|
Income
attributable to Trio-Tech International common shareholders from
continuing operations, net of tax
|
$303
|
$264
|
|
Loss
attributable to Trio-Tech International common shareholders from
discontinued operations, net of tax
|
-
|
(5)
|
|
Net income attributable to Trio-Tech International common
shareholders
|
$303
|
$259
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic
|
3,513
|
3,513
|
|
Dilutive
effect of stock options
|
66
|
8
|
|
Number
of shares used to compute earnings per share –
diluted
|
3,579
|
3,521
|
|
|
|
|
|
Basic
earnings per share from continuing operations attributable to
Trio-Tech International
|
0.09
|
0.08
|
|
|
|
|
|
Basic
earnings per share from discontinued operations attributable to
Trio-Tech International
|
-
|
-
|
|
Basic earnings
per share from net loss attributable to Trio-Tech
International
|
$0.09
|
$0.08
|
|
|
|
|
|
Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
|
0.08
|
0.08
|
|
|
|
|
|
Diluted
earnings per share from discontinued operations attributable to
Trio-Tech International
|
-
|
-
|
|
Diluted
earnings per share from net loss attributable to Trio-Tech
International
|
$0.08
|
$0.08
|
|
|
|
|
20. STOCK OPTIONS
On
September 24, 2007, the Company’s Board of Directors
unanimously adopted the 2007 Employee Stock Option Plan (the
“2007 Employee Plan”) and the 2007 Directors Equity
Incentive Plan (the “2007 Directors Plan”) each of
which was approved by the shareholders on December 3, 2007. Each of
those plans was amended by the Board in 2010 to increase the number
of shares covered thereby, which amendments were approved by the
shareholders on December 14, 2010. At present, the 2007 Employee
Plan provides for awards of up to 600,000 shares of the
Company’s Common Stock to its employees, consultants and
advisors. The Board also amended the 2007 Directors Plan in
November 2013 to further increase the number of shares covered
thereby from 400,000 shares to 500,000 shares, which amendment was
approved by the shareholders on December 9, 2013. At present, the
2007 Directors Plan provides for awards of up to 500,000 shares of
the Company’s Common Stock to the members of the
Company’s Board of Directors in the form of non-qualified
options and restricted stock. These two plans are administered by
the Board, which also establishes the terms of the
awards.
Assumptions
The fair value for the options granted were
estimated using the Black-Scholes option pricing model with the
following weighted average assumptions, assuming no expected
dividends:
|
|
|
Three
Months Ended
September
30,
|
|||||
|
|
|
2016
|
|
2015
|
|||
|
|
|
|
|
|
|
|
|
|
Expected
volatility
|
|
|
60.41%
to 104.94
|
%
|
|
71.44%
to 104.94
|
%
|
|
Risk-free
interest rate
|
|
|
0.30%
to 0.78
|
%
|
|
0.30%
to 0.78
|
%
|
|
Expected
life (years)
|
|
|
2.50
|
|
|
2.50
|
|
The expected volatilities are based on the
historical volatility of the Company’s stock. Due to higher
volatility, the observation is made on a daily basis. The
observation period covered is consistent with the expected life of
options. The expected life of the options granted to employees has
been determined utilizing the “simplified” method as
prescribed by ASC Topic 718 Stock Based
Compensation, which, among
other provisions, allows companies without access to adequate
historical data about employee exercise behavior to use a
simplified approach for estimating the expected life of a "plain
vanilla" option grant. The simplified rule for estimating the
expected life of such an option is the average of the time to
vesting and the full term of the option. The risk-free rate is
consistent with the expected life of the stock options and is based
on the United States Treasury yield curve in effect at the time of
grant.
2007 Employee Stock Option Plan
The
Company’s 2007 Employee Plan permits the grant of stock
options to its employees covering up to an aggregate of 600,000
shares of Common Stock. Under the 2007 Employee Plan, all options
must be granted with an exercise price of not less than fair value
as of the grant date and the options granted must be exercisable
within a maximum of ten years after the date of grant, or such
lesser period of time as is set forth in the stock option
agreements. The options may be exercisable (a) immediately as of
the effective date of the stock option agreement granting the
option, or (b) in accordance with a schedule related to the date of
the grant of the option, the date of first employment, or such
other date as may be set by the Compensation Committee. Generally,
options granted under the 2007 Employee Plan are exercisable within
five years after the date of grant, and vest over the period as
follows: 25% vesting on the grant date and the remaining balance
vesting in equal installments on the next three succeeding
anniversaries of the grant date. The share-based compensation will
be recognized in terms of the grade method on a straight-line basis
for each separately vesting portion of the award. Certain option
awards provide for accelerated vesting if there is a change in
control (as defined in the 2007 Employee Plan).
The
Company did not grant any options pursuant to the 2007 Employee
Plan during the three months ended September 30, 2016. There were
no options exercised during the three months ended September 30,
2016. The Company recognized stock-based compensation expenses of
$1 in the three months ended September 30, 2016 under the 2007
Employee Plan. The balance of unamortized stock-based compensation
of $3 based on fair value on the grant date related to options
granted under the 2007 Employee Plan is to be recognized over a
period of three years. The weighted-average remaining contractual
term for non-vested options was 3.96years.
The
Company did not grant any options pursuant to the 2007 Employee
Plan during the three months ended September 30, 2015. There were
no options exercised during the three months ended September 30,
2015. The Company recognized stock-based compensation expenses of
$4 in the three months ended September 30, 2015 under the 2007
Employee Plan. There was no balance of unamortized stock-based
compensation based on fair value on the grant date related to
options granted under the 2007. The weighted-average remaining
contractual term for non-vested options was 1.19years.
As
of September 30, 2016, there were vested employee stock options
covering a total of 51,250 shares of Common Stock. The
weighted-average exercise price was $3.28 and the weighted average
contractual term was 2.57 years. The total fair value of vested
employee stock option was $168 and remains outstanding as of
September 30, 2016.
As
of September 30, 2015, there were vested employee stock options
covering a total of 112,500 shares of Common Stock. The
weighted-average exercise price was $4.06 and the weighted average
contractual term was 1.03 years. The total fair value of vested
employee stock option was $457 and remains outstanding as of
September 30, 2015.
A
summary of option activities under the 2007 Employee Plan during
the three months ended September 30, 2016 is presented as
follows:
|
|
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at July 1, 2016
|
90,000
|
$3.26
|
3.42
|
$30
|
|
Granted
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding
at September 30, 2016
|
90,000
|
$3.26
|
3.17
|
$31
|
|
Exercisable
at September 30, 2016
|
51,250
|
$3.28
|
2.57
|
$17
|
A
summary of option activities under the 2007 Employee Plan during
the three months ended September 30, 2015 is presented as
follows:
|
|
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at July 1, 2015
|
130,000
|
$3.93
|
1.57
|
$-
|
|
Granted
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding
at September 30, 2015
|
130,000
|
$3.93
|
1.32
|
$-
|
|
Exercisable
at September 30, 2015
|
112,500
|
$4.06
|
1.03
|
$-
|
A
summary of the status of the Company’s non-vested employee
stock options during the three months ended September 30, 2016 is
presented below:
|
|
Options
|
Weighted
Average Grant-Date
Fair
Value
|
|
Non-vested
at July 1, 2016
|
38,750
|
$3.22
|
|
Granted
|
-
|
-
|
|
Vested
|
-
|
-
|
|
Forfeited
|
-
|
-
|
|
Non-vested
at September 30, 2016
|
38,750
|
$3.22
|
A
summary of the status of the Company’s non-vested employee
stock options during the three months ended September 30, 2015 is
presented below:
|
|
Options
|
Weighted
Average Grant-Date
Fair
Value
|
|
Non-vested
at July 1, 2015
|
17,500
|
$1.69
|
|
Granted
|
-
|
-
|
|
Vested
|
-
|
-
|
|
Forfeited
|
-
|
-
|
|
Non-vested
at September 30, 2015
|
17,500
|
$1.69
|
2007 Directors Equity Incentive Plan
The
2007 Directors Plan permits the grant of options covering up to an
aggregate of 500,000 shares of Common Stock to its directors in the
form of non-qualified options and restricted stock. The exercise
price of the non-qualified options is 100% of the fair value of the
underlying shares on the grant date. The options have five-year
contractual terms and are generally exercisable immediately as of
the grant date.
During
the first quarter of fiscal year 2017, the Company did not grant
any options pursuant to the 2007 Directors Plan. There were no
stock options exercised during the three-month period ended
September 30, 2016. The Company did not recognize any stock-based
compensation expenses during the three months ended September 30,
2016.
During
the first quarter of fiscal year 2016, the Company did not grant
any options pursuant to the 2007 Directors Plan. There were no
stock options exercised during the three-month period ended
September 30, 2015. The Company did not recognize any stock-based
compensation expenses during the three months ended September 30,
2015.
As
of September 30, 2016, there were vested stock options granted
under the 2007 Directors Plan covering a total of 415,000 shares of
Common Stock. The weighted-average exercise price was $3.14 and the
weighted average remaining contractual term was 3.04 years. Both
the aggregate intrinsic value of such stock options outstanding and
the aggregate intrinsic value of such options exercisable as of
September 30, 2016 were $204. As all of the stock options granted
under the 2007 Directors Plan vest immediately at the date of
grant, there were no unvested stock options granted under the 2007
Directors Plan as of September 30, 2016.
As
of September 30, 2015, there were vested stock options granted
under the 2007 Directors Plan covering a total of 365,000 shares of
Common Stock. The weighted-average exercise price was $3.64 and the
weighted average remaining contractual term was 1.74 years. Both
the aggregate intrinsic value of such stock options outstanding and
the aggregate intrinsic value of such options exercisable as of
September 30, 2015 were $13. As all of the stock options granted
under the 2007 Directors Plan vest immediately at the date of
grant, there were no unvested stock options granted under the 2007
Directors Plan as of September 30, 2015.
A summary of option activities under the 2007
Directors Plan during the three months ended September 30, 2016 is
presented as follows:
|
|
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
Outstanding
at July 1, 2016
|
415,000
|
$3.14
|
3.29
|
$198
|
|
Granted
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding
at September 30, 2016
|
415,000
|
$3.14
|
3.04
|
$204
|
|
Exercisable
at September 30, 2016
|
415,000
|
$3.14
|
3.04
|
$204
|
A summary of option activities
under the 2007 Directors Plan during the three months ended
September 30, 2015 is presented as follows:
|
|
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
Outstanding
at July 1, 2015
|
365,000
|
$3.64
|
1.99
|
$53
|
|
Granted
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding
at September 30, 2015
|
365,000
|
$3.64
|
1.74
|
$13
|
21. FAIR VALUE OF FINANCIAL INSTRUMENTS APPROXIMATE
CARRYING VALUE
In
accordance with the ASC Topic 825, the following presents assets
and liabilities measured and carried at fair value and classified
by level of the following fair value measurement hierarchy in
accordance to ASC 820:
There
were no transfers between Levels 1 and 2 during the three months
ended September 30, 2016 and 2015.
Term
deposits (Level 2) – The carrying amount approximates fair
value because of the short maturity of these
instruments.
Restricted
term deposits (Level 2) – The carrying amount approximates
fair value because of the short maturity of these
instruments.
Lines
of credit (Level 3) – The carrying value of the lines of
credit approximates fair value due to the short-term nature of the
obligations.
Bank
loans payable (Level 3) – The carrying value of the
Company’s bank loan payables approximates its fair value as
the interest rates associated with long-term debt is adjustable in
accordance with market situations when the Company borrowed funds
with similar terms and remaining maturities.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN
THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Overview
The following should be read in conjunction with the condensed
consolidated financial statements and notes in Item I above and
with the audited consolidated financial statements and notes, the
information under the headings “Risk Factors” and
“Management’s discussion and analysis of financial
condition and results of operations” in our Annual Report on
Form 10-K for the fiscal year ended June 30, 2016.
Trio-Tech
International (“TTI”) 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 16139 Wyandotte Street, Van Nuys, California
91406, and our telephone number is (818) 787-7000.
The
Company is a provider of reliability test equipment and services to
the semiconductor industry. Our customers rely on us to verify that
their semiconductor components meet or exceed the rigorous
reliability standards demanded for aerospace, communications and
other electronics products.
TTI
generated approximately 99.6% of its revenue from its three core
business segments in the test and measurement industry, i.e.
manufacturing of test equipment, testing services and distribution
of test equipment during the three months ended September 30, 2016.
To reduce our risks associated with sole industry focus and
customer concentration, the Company expanded its business into the
real estate investment and oil and gas equipment fabrication
businesses in 2007 and 2009, respectively. The Company’s
Indonesia operation and the Indonesia operation’s immediate
holding company, which comprised the fabrication services segment,
suffered continued operating losses since it commenced its
operations, and the cash flow was minimal in the past years. The
Company established a restructuring plan to close the fabrication
services operation, and in accordance with ASC Topic 205,
Presentation of Financial Statement Discontinued Operations
(“ASC Topic 205”), the Company presented the operation
results from fabrication services as a discontinued operation. The
Real Estate segment contributed only 0.4% to the total revenue and
has been insignificant since the property market in China has
slowed down due to control measures in China.
Manufacturing
TTI
develops and manufactures an extensive range of test equipment used
in the "front end" and the "back end" manufacturing processes of
semiconductors. Our equipment includes leak detectors, autoclaves,
centrifuges, burn-in systems and boards, HAST testers, temperature
controlled chucks, wet benches and more.
Testing
TTI
provides comprehensive electrical, environmental, and burn-in
testing services to semiconductor manufacturers in our testing
laboratories in Southeast Asia and the United States. Our customers
include both manufacturers and end-users of semiconductor and
electronic components, who look to us when they do not want to
establish their own facilities. The independent tests are performed
to industry and customer specific standards.
Distribution
In
addition to marketing our proprietary products, we distribute
complementary products made by manufacturers mainly from the United
States, Europe, Taiwan and Japan. The products include
environmental chambers, handlers, interface systems, vibration
systems, shaker systems, solderability testers and other
semiconductor equipment. Besides equipment, we also distribute a
wide range of components such as connectors, sockets, LCD display
panels and touch-screen panels. Furthermore, our range of products
are mainly targeted for industrial products rather than consumer
products whereby the life cycle of the industrial products can last
from 3 years to 7 years.
Real Estate
Beginning
in 2007, TTI has invested in real estate property in Chongqing,
China, which has generated investment income from the rental
revenue from real estate we purchased in Chongqing, China, and
investment returns from deemed loan receivables, which are
classified as other income. The rental income is generated from the
rental properties in MaoYe and FuLi in Chongqing, China. In the
second quarter of fiscal 2015, the investment in JiaSheng, which
was deemed as loans receivable, was transferred to down payment for
purchase of investment property in China.
First Quarter Fiscal Year 2017 Highlights
●
Total
revenue increased by $1,041, or 13.1%, to $8,971 in the first
quarter of fiscal year 2017, compared to $7,930 for the same period
in fiscal year 2016.
●
Manufacturing
segment revenue increased by $531, or 16.9%, to $3,671 for the
first quarter of fiscal year 2017, compared to $3,140 for the same
period in fiscal year 2016.
●
Testing
segment revenue increased by $374, or 9.9%, to $4,157 for the first
quarter of fiscal year 2017, compared to $3,783 for the same period
in fiscal year 2016.
●
Distribution
segment revenue increased by $129, or 13.2%, to $1,104 for the
first quarter of fiscal year 2017, compared to $975 for the same
period in fiscal year 2016.
●
Real
estate segment rental revenue increased by $7, or 21.9%, to $39 for
the first quarter of fiscal year 2017, compared to $32 for the same
period in fiscal year 2016.
●
The
overall gross profit margins decreased by 1.2% to 26.3% for the
first quarter of fiscal year 2017, from 27.5% for the same period
in fiscal year 2016.
●
Income
from operations was $377 the first quarter of fiscal year 2017, an
improvement of $78, as compared to an income from operations of
$299 for the same period in fiscal year 2016.
●
General
and administrative expenses increased by $81, or 4.9%, to $1,743
for the first quarter of fiscal year 2017, from $1,662 for the same
period in fiscal year 2016.
●
Selling
expenses increased by $14, or 8.2%, to $185 for the first quarter
of fiscal year 2017, from $171 for the same period in fiscal year
2016.
●
Other
income decreased by $98 to $110 in the first quarter of fiscal year
2017 compared to $208 in the same period in fiscal year
2016.
●
Tax
expense increased by $16 to $83 in the first quarter of fiscal year
2017 compared to $67 in the same period in fiscal year
2016.
●
During
the first quarter of fiscal year 2017, income from continuing
operations before non-controlling interest, net of tax was $346, as
compared to an income of $387 for the same period in fiscal year
2016.
●
During
the first quarter of fiscal year 2017, gain from discontinued
operations net of tax was $1, as compared to a loss of $10 for the
same period in fiscal year 2016.
●
Net
income attributable to non-controlling interest for the first
quarter of fiscal year 2017 was $44, a decrease of $74, as compared
to $118 in the same period in fiscal year 2016.
●
Working
capital increased by $237, or 3.7%, to $6,716 as of September 30,
2016 compared to $6,479 as of June 30, 2016.
●
Basic
Earnings per share for the first quarter of fiscal year 2017 were
$0.09, as compared to earnings per share of $0.08 for the same
period in fiscal year 2016.
●
Dilutive
Earnings per share for the first quarter of fiscal year 2017 were
$0.08, as compared to earnings per share of $0.08 for the same
period in fiscal year 2016.
●
Total
assets decreased by $688 or 2.1% to $31,531 as of September 30,
2016 compared to $32,219 as of June 30, 2016.
●
Total
liabilities decreased by $753 or 6.6% to $10,595 as of September
30, 2016 compared to $11,348 as of June 30, 2016.
Results of Operations and Business Outlook
The
following table sets forth our revenue components for the three
months ended September 30, 2016 and 2015,
respectively.
|
Revenue
Components
|
Three
Months Ended
September
30,
|
|
|
|
2016
|
2015
|
|
Revenue:
|
|
|
|
Manufacturing
|
40.9%
|
39.6%
|
|
Testing
Services
|
46.4
|
47.7
|
|
Distribution
|
12.3
|
12.3
|
|
Real
Estate
|
0.4
|
0.4
|
|
Total
|
100.0%
|
100.0%
|
Revenue
for the three months ended September 30, 2016 was $8,971, an
increase of $1,041 when compared to the revenue for the same period
of the prior fiscal year. As a percentage, revenue increased by
13.1% for the three months ended September 30, 2016 when compared
to revenue for the same period of the prior year.
For the three months ended
September 30, 2016, there was an increase in revenue across all
segments. Revenue from our manufacturing
segment increased in the Singapore and United States operations,
which was partially offset with a decrease in manufacturing revenue
in the Suzhou, China operation. Revenue from our testing operations
increased in Malaysia, Thailand and Singapore, which was partially
offset with a decrease in our testing revenue in the Suzhou, China
operation. Revenue from our distribution segment increased
primarily in the Singapore operation, which was partially offset
with a decrease in our distribution revenue in the Malaysia and
Suzhou, China operation.
Total
revenue into and within China, the Southeast Asia regions and other
countries (except revenue into and within the United States)
increased by $888, or 11.8%, to $8,426 for the three months ended
September 30, 2016, as compared with $7,538 for the same period of
last fiscal year. The increase was mainly due to an
increase in the manufacturing segment in the Singapore operations,
increase in the testing segment in Malaysia, Thailand and Singapore
operations, and increase in the distribution segment in the
Singapore operation, which was partially offset by a decrease in
our manufacturing and testing segments in our Suzhou, China
operations and decrease in our distribution revenue in the Malaysia
and Suzhou, China operation.
Total
revenue into and within the United States was $545 for the three
months ended September 30, 2016, an increase of $153 from $392 for
the same period of the prior year. The increase in the three months
result was mainly due to an increase in orders from existing and
new customers in the first quarter of fiscal year 2017 as compared
to the same period in fiscal year 2016.
Revenue
within our four current segments for the three months ended
September 30, 2016 is discussed below.
Manufacturing Segment
Revenue
in the manufacturing segment as a percentage of total revenue was
40.9% for the three months ended September 30, 2016, an increase of
1.3% of total revenue when compared to 39.6% in the same period of
the last fiscal year. The absolute amount of revenue
increased by $531 to $3,671 for the three months ended September
30, 2016, compared to $3,140, for the same period of the last
fiscal year.
Revenue
in the manufacturing segment for the three months ended September
30, 2016 increased primarily due to an increase in orders by
customers in the Singapore and United States operations, which was
offset by a decrease in demand in the Suzhou, China
operations.
The
revenue in the manufacturing segment from a major customer
accounted for 53.8% and 45.9% of our total revenue in the
manufacturing segment for the three months ended September 30, 2016
and 2015, respectively. The future revenue in our manufacturing
segment will be significantly affected by the purchase and capital
expenditure plans of this major customer, if the customer base
cannot be increased.
Testing Services Segment
Revenue
in the testing segment as a percentage of total revenue was 46.4%
for the three months ended September 30, 2016, a decrease of 1.3%
of total revenue when compared to 47.7% for the same period of the
last fiscal year. The absolute amount of revenue
increased by $374 to $4,157 for the three months ended
September 30, 2016, as compared to $3,783 for the same period of
the last fiscal year.
Revenue
in the testing segment for the three months ended September 30,
2016 increased primarily due to an increase in our Malaysia,
Thailand and Singapore operations, but was partially offset by a
decrease in testing volume in our Suzhou, China operation, in
addition to lower average selling price and exchange fluctuations
despite an increase in demand in our Tianjin, China operation. The
increase in Singapore, Malaysia and Thailand was caused by an
increase in orders from our major customers, which we believe was
due to an increase in demand for their products.
Demand
for testing services varies from country to country depending on
changes taking place in the market and our customers’
forecasts. As it is difficult to accurately forecast
fluctuations in the market, management believes it is necessary to
maintain testing facilities in close proximity to our customers in
order to make it convenient for them to send us their newly
manufactured parts for testing and to enable us to maintain a share
of the market.
Distribution Segment
Revenue
in the distribution segment accounted for 12.3% of total revenue
for both the three months ended September 30, 2016 and September
30, 2015. The absolute amount of revenue increased by
$129 to $1,104 for the three months ended September 30, 2016,
compared to $975 for the same period of the last fiscal
year.
Revenue
in the distribution segment for the three months ended September
30, 2016 increased primarily due to an increase in revenue
generated from existing customers in the Singapore
operations.
Demand
for the distribution segment varies depending on the demand for our
customers’ products, the changes taking place in the market
and our customers’ forecasts. Hence it is
difficult to accurately forecast fluctuations in the
market.
Real Estate Segment
The
real estate segment accounted for 0.4% of total revenue for both
the three months ended September 30, 2016 and September 30, 2015.
The absolute amount of revenue in the real estate segment increased
by $7 to $39 for the three months ended September 30, 2016,
compared to $32 for the same period of the last fiscal year. The
increase was primarily due to an increase in rental income in the
real estate segment for the three months ended September 30, 2016
as described below.
The
two main revenue components for the real estate segment were
investment income and rental income.
During
fiscal year 2007, TTI invested in real estate property in
Chongqing, China, which has generated investment income from rental
revenue and investment returns from deemed loan receivables, which
are classified as other income. The rental income is generated from
the rental properties in MaoYe, JiangHuai and FuLi in Chongqing,
China. In the second quarter of fiscal 2015, the investment in
JiaSheng, which was deemed as loans receivable, was transferred to
down payment for purchase of investment property in
China.
Trio-Tech
Chongqing Co., Ltd. (“TTCQ”) invested RMB 5,554 in
rental properties in Maoye during fiscal year 2008, RMB 3,600 in
rental properties in JiangHuai during fiscal year 2010 and RMB
4,025 in rental properties in FuLi during fiscal year 2010. The
total investment in properties in China was RMB 13,179, or
approximately $1,975 and $1,983 as at September 30, 2016 and June
30, 2016, respectively. The carrying value of these investment
properties in China was RMB 8,736 and RMB 8,901, or approximately
$1,309 and $1,340 as at September 30, 2016 and June 30, 2016,
respectively. These properties generated a total rental income of
$39 and $32 for the three months ended September 30, 2016 and
September 30, 2015, respectively. TTCQ’s investment in
properties that generated rental income is discussed further in
this Form 10-Q.
TTCQ
has yet to receive the title deed for properties purchased from
JiangHuai. TTCQ is in the legal process of obtaining the title
deed, which is dependent on JiangHuai completing the entire
project. JiangHuai property did not generate any income during the
three months ended September 30, 2016, and 2015.
“Investments”
in real estate segment was the cost of an investment in a joint
venture in which we had 10% interest. During the second quarter of
fiscal year 2014, TTCQ disposed of its 10% interest in the joint
venture. The joint venture had to raise funds for the development
of the project. As a joint-venture partner, TTCQ was required to
stand guarantee for the funds to be borrowed; considering the
amount of borrowing, the risk involved was higher than the
investment made and hence TTCQ decided to dispose of the 10%
interest in the joint venture investment. On October 2, 2013, TTCQ
entered into a share transfer agreement with Zhu Shu. Based on the
agreement the purchase price was to be paid by (1) RMB 10,000 worth
of commercial property in Chongqing, China, or approximately $1,634
based on exchange rates published by the Monetary Authority of
Singapore as of October 2, 2013, by non-monetary consideration and
(2) the remaining RMB 8,000, or approximately $1,307 based on
exchange rates published by the Monetary Authority of Singapore as
of October 2, 2013, by cash consideration. The consideration
consists of (1) commercial units measuring 668 square meters to be
delivered in June 2016 and (2) sixteen quarterly equal installments
of RMB 500 per quarter commencing from January 2014. Based on ASC
Topic 845 Non-monetary Consideration, (“ASC Topic
845”), the Company deferred the recognition of the gain on
disposal of the 10% interest in joint venture investment until such
time that the consideration is paid, so that the gain can be
ascertained. The recorded value of the disposed investment
amounting to $783, based on exchange rates published by the
Monetary Authority of Singapore as of June 30, 2014, is classified
as “other assets” under non-current assets, because it
is considered a down payment for the purchase of the commercial
property in Chongqing. TTCQ performed a valuation on a certain
commercial unit and its market value was higher than the carrying
amount. The first three installment amounts of RMB 500 each due in
January 2014, April 2014 and July 2014 were all outstanding until
the date of disposal of the investment in joint venture. Out of the
outstanding RMB 8,000, TTCQ had received RMB 100 during May
2014.
On
October 14, 2014, TTCQ and Jun Zhou Zhi Ye entered into a
memorandum of understanding. Based on the memorandum of
understanding, both parties have agreed to register a sales and
purchase agreement upon Jun Zhou Zhi Ye obtaining the license to
sell the commercial property (the Singapore Themed Resort Project)
located in Chongqing, China. The proposed agreement is for the sale
of shop lots with a total area of 1,484.55 square meters as
consideration for the outstanding amounts owed to TTCQ by Jun Zhou
Zhi Ye as follows:
a) Long term loan receivable RMB 5,000, or approximately
$814, as disclosed in Note 4, plus the interest receivable on long
term loan receivable of RMB 1,250;
b) Commercial units measuring 668 square meters, as
mentioned above; and
c) RMB 5,900 for the part of the unrecognized cash
consideration of RMB 8,000 relating to the disposal of the joint
venture.
The
shop lots are to be delivered to TTCQ upon completion of the
construction of the shop lots in the Singapore Themed Resort
Project, which is expected to be no later than December 31, 2016.
However, should there be further delays in the project completion,
based on the discussion with the developers it is estimated to be
completed by December 31, 2018. The consideration does not include
the remaining outstanding amount of RMB 2,000, or approximately
$326, which will be paid to TTCQ in cash.
Uncertainties and Remedies
There
are several influencing factors which create uncertainties when
forecasting performance, such as the ever-changing nature of
technology, specific requirements from the customer and decline in
demand for certain types of burn-in devices or equipment, decline
in demand for testing services and fabrication services, and other
similar factors. One factor that influences uncertainty
is the highly competitive nature of the semiconductor industry.
Another is that some customers are unable to provide a forecast of
the products required in the upcoming weeks; hence it is difficult
to plan for the resources needed to meet these customers’
requirements due to short lead time and last minute order
confirmation. This will normally result in a lower margin for these
products, as it is more expensive to purchase materials in a short
time frame. However, the Company has taken certain
actions and formulated certain plans to deal with and to help
mitigate these unpredictable factors. For example, in
order to meet manufacturing customers’ demands upon short
notice, the Company maintains higher inventories, but continues to
work closely with its customers to avoid stock piling. We
have also been improving customer service from staff by keeping our
staff up to date on the newest technology and stressing the
importance of understanding and meeting the stringent requirements
of our customers. Finally, the Company is exploring new
markets and products, looking for new customers, and upgrading and
improving burn-in technology while at the same time searching for
improved testing methods of higher technology chips.
There
are several influencing factors which create uncertainties when
forecasting performance of our real estate segment, such as
obtaining the rights by the joint venture to develop the real
estate projects in China, inflation in China, currency fluctuations
and devaluation, changes in Chinese laws, regulations, or their
interpretation.
Comparison of the First Quarter Ended September 30, 2016 and
September 30, 2015
The
following table sets forth certain consolidated statements of
income data as a percentage of revenue for the first quarter of
fiscal years 2016 and 2015, respectively:
|
|
Three
Months Ended
September
30,
|
|
|
|
2016
|
2015
|
|
Revenue
|
100.0%
|
100.0%
|
|
Cost
of sales
|
73.7
|
72.5
|
|
Gross Margin
|
26.3%
|
27.5%
|
|
Operating
expenses
|
|
|
|
General
and administrative
|
19.4%
|
21.0%
|
|
Selling
|
2.1
|
2.1
|
|
Research
and development
|
0.6
|
0.6
|
|
Impairment
loss of property, plant and equipment
|
0.0
|
0.0
|
|
Total
operating expenses
|
22.1%
|
23.7%
|
|
Income / (Loss) from Operations
|
4.2%
|
3.8%
|
Overall Gross Margin
Overall
gross margin as a percentage of revenue decreased by 1.2% to 26.3%
for the three months ended September 30, 2016, from 27.5% for the
same period of the last fiscal year, primarily due to a decrease in
the gross profit margin in the manufacturing and distribution
segments. The increase was partially offset by an increase in gross
profit margin in the testing and real estate segments.
Gross
profit margin as a percentage of revenue in the manufacturing
segment decreased by 8.9% to 23.9% for the three months ended
September 30, 2016, as compared to 32.8% for the same period in
last fiscal year. The decrease in gross profit margin was primarily
due to the sales of low profit margin products being higher than
the sale of high profit margin products in the three months ended
September 30, 2016. In absolute dollar amounts, gross profits in
the manufacturing segment decreased by $155 to $876 for the three
months ended September 30, 2016, from $1,031 for the same period in
the last fiscal year.
Gross profit margin as a percentage of revenue in
the testing segment increased by 5.2% to 32.3% for the three months
ended September 30, 2016, from 27.1% in the same period of the last
fiscal year. The increase was primarily due to an increase in
testing volume in our Singapore, Malaysia and Thailand
operations. The increase in testing volume in the Singapore,
Malaysia and Thailand operations was higher than the decrease in
testing volume in the Suzhou, China operation. In the Tianjin,
China operation, lower average selling price despite higher volume
resulted in a lower profit margin. Significant portions of our cost of goods
sold are fixed in the testing segment. Thus, as the
demand of services and factory utilization increases, the fixed
costs are spread over the increased output, which increases the
gross profit margin. In absolute dollar amounts, gross profit in
the testing segment increased by $318 to $1,343 for the three
months ended September 30, 2016 from $1,025 for the
same period of the last fiscal
year.
Gross
profit margin of the distribution segment is not only affected by
the market price of the products we distribute, but also the mix of
products we distribute, which changes frequently as a result of
changes in market demand. Gross profit margin as a percentage of
revenue in the distribution segment decreased by 2.3% to 10.2% for
the three months ended September 30, 2016, from 12.5% in the same
period of the last fiscal year. The decrease in gross margin
was due to the decrease in sales of high profit margin products as
compared to the same period of last fiscal year. In terms of
absolute dollar amounts, gross profit in the distribution segment
for the three months ended September 30, 2016 was $113 as compared
to $122 in the same period of the last fiscal
year.
Gross
profit margin as a percentage of revenue in the real estate segment
was 66.7% for the three months ended September 30, 2016, as
compared to nil in the same period of the last fiscal year. In
absolute dollar amounts, gross profit in the real estate segment
was $26 and nil, respectively, for the three months ended September
30, 2016 and 2015. The increase in the gross profit
margin as a percentage of revenue was mainly due to an increase in
rental revenue and a decrease in taxes.
Operating Expenses
Operating
expenses for the first quarter of fiscal years 2016 and 2015 were
as follows:
|
|
Three Months
Ended
September
30,
|
|
|
(Unaudited)
|
2016
|
2015
|
|
General
and administrative
|
$1,743
|
$1,662
|
|
Selling
|
185
|
171
|
|
Research
and development
|
53
|
46
|
|
Impairment
loss of property, plant and equipment
|
-
|
-
|
|
Loss
on disposal of property, plant and equipment
|
-
|
-
|
|
Total
|
$1,981
|
$1,879
|
General
and administrative expenses increased by $81, or 4.9%, from $1,662
to $1,743 for the three months ended September 30, 2016 compared to
the same period of last fiscal year. The increase in general and
administrative expenses was mainly attributable to the increase in
administrative expenses in the Singapore operations due to an
increase in payroll related expenses from an increase in headcount,
an increase in provision for bonus, and provision for doubtful
debts. This increase was partially offset by payroll-related cost
control measures in the Suzhou, China operation and there not being
certain payroll related expenses in the Thailand operation for the
three months ended September 30, 2016 compared to the same period
of last fiscal year.
Selling
expenses increased by $14, or 8.2%, from $171 to $185 for the three
months ended September 30, 2016, compared to the same period of the
last fiscal year. The increase was mainly due to an increase in
travel and commission expenses in the testing segment of our
Singapore operations as a result of an increase in commissionable
revenue.
Income from Operations
Income
from operations was $377 for the three months ended September 30,
2016, an improvement of $78, as compared to an income from
operations of $299 for the three months ended September 30, 2015.
The increase was mainly due to the increase in gross profit which
was partially offset by the increase in operating expenses, as
previously discussed.
Interest Expense
Interest
expense for the three months ended September 30, 2016 and 2015 were
as follows:
|
|
Three
Months Ended
September
30,
|
|
|
(Unaudited)
|
2016
|
2015
|
|
Interest expenses
|
$58
|
$53
|
Interest
expense increased by $5 to $58 for the three months ended September
30, 2016, primarily due to an increase in capital lease in the
Malaysia operations and interest paid on credit facility in the
Tianjin, China operations as compared to the same period of last
fiscal year. We are trying to keep our debt at a minimum in order
to save financing costs. As of September 30, 2016, the
Company had an unused line of credit of $5,652.
Other Income
Other
income for the three months ended September 30, 2016 and 2015 were
as follows:
|
|
Three
Months Ended
September
30,
|
|
|
|
2016
|
2015
|
|
Interest
income
|
4
|
3
|
|
Other
rental income
|
25
|
24
|
|
Exchange
gain
|
62
|
184
|
|
Other
miscellaneous income / (expenses)
|
19
|
(3)
|
|
Total
|
$110
|
$208
|
Other
income decreased by $98 to $110 for the three months ended
September 30, 2016 from $208 as compared to the same period in the
last fiscal year. The decrease was primarily due to a decrease in
exchange gain, which was partially offset by an increase in other
miscellaneous income. The decrease in exchange rate of $122 to $62
for the three months ended September 30, 2016 from $184 as compared
to the same period in last fiscal year was mainly due to
transactional foreign exchange differences in the Singapore and
Malaysia operations.
Income Tax Expenses
The
Company had an income tax expense of $83 for the three months ended
September 30, 2016 as compared to an income tax expense of $67 for
the same period in the last fiscal year. The increase in income tax
expenses was mainly due to increase in deferred tax for the timing
differences recorded by the Singapore and Malaysia operations for
the three months ended September 30, 2016, as compared to the same
period in the last fiscal year. This increase was partially offset
by the decrease in income tax expenses mainly due to the increase
in income in the subsidiaries which has carry forward tax
losses.
Income / Loss from Discontinued Operations, net of tax
Income
from discontinued operations, net of tax, was $2 for the three
months ended September 30, 2016, as compared to a loss of $10 for
the same period in last fiscal year.
Non-controlling Interest
As
of September 30, 2016, we held a 55% interest in Trio-Tech
(Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI
International Pte. Ltd., and PT. SHI Indonesia. We also held a 76%
interest in Prestal Enterprise Sdn. Bhd. The share of net income
from the subsidiaries by the non-controlling interest for the three
months ended September 30, 2016 was $44, a decrease of $74 compared
to the share of net income of $118 for the same period of the
previous fiscal year. The decrease in the net income of
the non-controlling interest in the subsidiaries was attributable
to the decrease in net income generated by the Malaysia operations
as compared to the same period in the previous fiscal
year.
Net Income
Net
income for the three months ended September 30, 2016 was $303, an
improvement of $44, as compared to a net income of $259 for the
same period last fiscal year.
Earnings per Share
Basic
earnings per share from continuing operations was $0.09 for the
three months ended September 30, 2016 as compared to $0.08 for the
same period in the last fiscal year. Basic earnings per share from
discontinued operations were nil for both the three months ended
September 30, 2016 and 2015.
Diluted
earnings per share from continuing operations was $0.08 for the
three months ended September 30, 2016 as compared to $0.08 for the
same period in the last fiscal year. Diluted earnings per share
from discontinued operations were nil for both the three months
ended September 30, 2016 and 2015.
Segment Information
The
revenue, gross margin and income or loss from operations for each
segment during the first quarter of fiscal year 2017 and fiscal
year 2016 are presented below. As the revenue and gross margin for
each segment have been discussed in the previous section, only the
comparison of income or loss from operations is discussed
below.
Manufacturing Segment
The
revenue, gross margin and (loss) / income from operations for the
manufacturing segment for the three months ended September 30, 2016
and 2015 were as follows:
|
|
Three
Months Ended
September
30,
|
|
|
(Unaudited)
|
2016
|
2015
|
|
Revenue
|
$3,671
|
$3,140
|
|
Gross margin
|
23.9%
|
32.8%
|
|
(Loss) / income from operations
|
$(93)
|
$242
|
Loss
from operations from the manufacturing segment was $93 as
compared to an income from operations of $242 in the same period of
the last fiscal year, primarily due to an increase in operating
expenses and a decrease in gross margin, as discussed earlier.
Operating expenses for the manufacturing segment were $969 and $789
for the three months ended September 30, 2016 and 2015,
respectively. The $180 increase in operating expenses was mainly
due to an increase in general and administrative expenses by $147
and an increase in corporate overhead by $36. Corporate charges are
allocated on a pre-determined fixed charge basis. The increase in
general and administrative expenses was mainly attributable to the
increase in administrative expenses in the Singapore operations due
to an increase in payroll related expenses caused by the increase
in headcount, an increase in provision for bonus, and provision for
doubtful debts.
Testing Segment
The
revenue, gross margin and income from operations for the testing
segment for the three months ended September 30, 2016 and 2015 were
as follows:
|
|
Three
Months Ended
September
30,
|
|
|
(Unaudited)
|
2016
|
2015
|
|
Revenue
|
$4,157
|
$3,783
|
|
Gross margin
|
32.3%
|
27.1%
|
|
Income from operations
|
$402
|
$78
|
Income
from operations in the testing segment for the three months ended
September 30, 2016 was $402, an increase of $324 compared to $78 in
the same period of the last fiscal year. The increase in
operating income was mainly attributable to an increase in revenue
and gross margin, as discussed earlier. Gross margin increased by
$318 while operating expenses decreased by $6. Operating
expenses were $941 and $947 for the three months ended September
30, 2016 and 2015, respectively. The decrease in general and
administrative expenses was mainly due to decrease in
payroll-related cost in the Suzhou, China operation and there not
being certain payroll related expenses in the Thailand operation
which decrease was partially offset by the increase in selling
expenses in the testing segment of the Singapore operation due to
an increase in travel and commission expenses as a result of an
increase in commissionable revenue.
Distribution Segment
The
revenue, gross margin and income from operations for the
distribution segment for the three months ended September 30, 2016
and 2015 were as follows:
|
|
Three
Months Ended
September
30,
|
|
|
(Unaudited)
|
2016
|
2015
|
|
Revenue
|
$1,104
|
$975
|
|
Gross margin
|
10.2%
|
12.5%
|
|
Income / from operations
|
$34
|
$19
|
Income
from operations was $34, for the three months ended September 30,
2016, as compared to an income from operations of $19 for the same
period of last fiscal year. The increase of $15 was mainly due
to a decrease in operating expenses. Gross profit decreased by $9
while operating expenses decreased by $24. Operating expenses were
$79 and $103 for the three months ended September 30, 2016 and
2015, respectively. The decrease in operating expenses was mainly a
decrease in general and administrative expenses due cost control
measures in the Suzhou, China operation, and a decrease in
corporate charges, which are allocated on a pre-determined fixed
charge basis.
Real Estate Segment
The
revenue, gross margin and income / (loss) from operations for the
real estate segment for the three months ended September 30, 2016
and 2015 were as follows:
|
|
Three
Months Ended
September
30,
|
|
|
(Unaudited)
|
2016
|
2015
|
|
Revenue
|
$39
|
$32
|
|
Gross margin
|
66.7%
|
0.0%
|
|
Income / (loss) from operations
|
$2
|
$(24)
|
Income
from operations in the real estate segment for the three months
ended September 30, 2016 was $2, an improvement of $26 compared to
a loss of $24 for the same period of the last fiscal
year. The change was mainly due to an increase in gross
margin. The operating expenses were $24 for both the three months
ended September 30, 2016 and 2015, respectively.
Corporate
The
income / (loss) from operations for Corporate for the three months
ended September 30, 2016 and 2015 was as
follows:
|
|
Three
Months Ended
September
30,
|
|
|
(Unaudited)
|
2016
|
2015
|
|
Income / (loss) from operations
|
$32
|
$(16)
|
Corporate
operating income was $32 for the three months ended September 30,
2016, an increase of $48 from a loss of $16 in the same period of
the last fiscal year. The increase in operating income
was mainly due to the change in allocation of corporate
overhead.
Financial Condition
During
the three months ended September 30, 2016 total assets decreased by
$668 from $32,219 as at June 30, 2016 to $31,531. The decrease in
total assets was primarily due to a decrease in trade accounts
receivable, other receivables, inventory, investment properties in
China, property, plant and equipment and restricted term deposits,
which were partially offset by an increase in cash and cash
equivalents, short term deposits and prepaid expenses. Foreign
exchange fluctuation in currency translation was one of the causes
for the decrease in total assets.
Cash
and cash equivalents were $4,216 as at September 30, 2016,
reflecting an increase of $409 from $3,807 as at June 30,
2016, primarily due to improved collections in the Singapore
operations, which were partially offset by the decrease due to
payment of lines of credit and bank loans payable.
Short
term deposits were $702 as at September 30, 2016,
reflecting an increase of $407 from $295 as at June 30, 2016,
primarily due to increased deposits by the Malaysia
operation.
At
September 30, 2016, the trade accounts receivable balance decreased
by $717 to $8,109, from $8,826 as at June 30, 2016, primarily due
to an improvement in the collection in the Singapore operations,
the decrease in revenue in the distribution segment in the Malaysia
operations, and the overall decrease in revenue in China’s
Suzhou operations for the first three months of fiscal year 2017 as
compared to the revenue in the fourth quarter of last fiscal year.
The number of days’ sales outstanding in accounts receivables
was 85 and 87 days at the end of the first quarter of fiscal year
2017 and for the fiscal year ended 2016, respectively.
At
September 30, 2016 other receivables were $354, reflecting a
decrease of $242 from $596 as at June 30, 2016. The decrease was
primarily due to the capitalization of down payment of fixed assets
in the Singapore operations in the first quarter of fiscal year
2017.
Inventories
at September 30, 2016 were $1,179, a decrease of $281, as compared
to $1,460 as at June 30, 2016. The increase in inventory was mainly
due to higher sales in the Singapore operations, where the
inventory turnover had improved.
Prepaid
expenses were $313 as at September 30, 2016 compared to $264 as at
June 30, 2016. The increase of $49 was primarily due to prepayment
for insurance by the Singapore and Malaysia
operations.
Investment
properties, net in China as at September 30, 2016 were $1,309, a
decrease of $31 from $1,340 as at June 30, 2016. The
decrease was primarily due to depreciation charged and by the
foreign currency exchange difference between the functional
currency and U.S. dollars for the three months ended September 30,
2016.
Property,
plant and equipment, net decreased by $251 from $11,283 as at June
30, 2016, to $11,032 as at September 30, 2016, mainly due to
depreciation charges being higher than the capital expenditures
mainly in the Malaysia and Tianjin operations in China and the
foreign currency exchange difference between the functional
currency and U.S. dollars for the three months ended September 30,
2016.
Restricted
cash as at September 30, 2016 decreased by $26 to $2,041, as
compared to $2,067 as at June 30, 2016. This was due to
foreign currency exchange difference between functional currency
and U.S. dollars from June 30, 2016 to September 30, 2016 which was
partially offset by the interest income from the restricted
deposits.
Utilized
lines of credit as at September 30, 2016 decreased by $960 to
$1,531 compared to $2,491 as at June 30, 2016, which was mainly due
to the lower utilization of lines of credit by the Singapore
operation and Suzhou, China operation in the first quarter of
fiscal year 2017.
Accounts
payable as at September 30, 2016 increased by $390 to $3,311, as
compared to $2,921 as at June 30, 2016. This was due to the
increase in sales during the first quarter of fiscal year
2017.
Accrued
expenses as at September 30, 2016 increased by $39 to $2,681, as
compared to $2,642 as at June 30, 2016. The increase in accrued
expenses was mainly due to an increase in purchase accruals,
decrease in warranty provision and the increase in commission
expenses which was due to the increase in commissionable sales in
the Singapore operations.
Bank
loans payable as at September 30, 2016 decreased by $149 to $1,918,
as compared to $2,067 as at June 30, 2016. This was due to the
repayment of loans by the Singapore and Malaysia
operations.
Capital
leases as at September 30, 2016 decreased by $75 to $663, as
compared to $738 as at June 30, 2016. This was due to the repayment
of capital leases by the Singapore operations.
Liquidity Comparison
Net
cash provided by operating activities increased by $1,778 to an
inflow of $2,466 for the three months ended September 30, 2016 from
an inflow of $688 in the same period of the last fiscal year. The
increase in net cash inflow provided by operating activities was
primarily due to increased cash inflow of $731 from accounts
receivables, increased cash inflow of $231 from other receivables,
decreased cash outflow of $409 from accounts payable and accrued
expenses and decreased cash outflow of $327 from inventories. These
were partially offset by increased cash outflow of $53 from other
assets.
Net
cash used in investing activities increased by $585 to an outflow
of $782 for the three months ended September 30, 2016 from an
outflow of $197 for the same period of the last fiscal
year. The cash outflow was primarily due to the
investments in restricted and unrestricted deposits of $421 and an
increase in capital expenditure by $107. In addition, there was no
cash inflow from investing activities in the three months ended
September 30, 2016, while there were proceeds of $38 received from
maturing of restricted term deposits and short-term deposits and
proceeds of $19 from disposal of property, plant and equipment
during the same period of the last fiscal year.
Net
cash used in financing activities for the three months ended
September 30, 2016 was $1,169, representing an increase of
$1,440, as compared to net cash inflow of $271 during the three
months ended September 30, 2015. In the first quarter of fiscal
year 2017, there was more cash outflow due to repayment of lines of
credit and bank loans by the Singapore, Tianjin, China and Malaysia
operations and repayment of capital leases by the Singapore and
Malaysia operations compared the first quarter of fiscal year 2016,
while in the first quarter of fiscal 2016, there was more cash
inflow due to borrowings from lines of credit, bank loans and
capital leases compared to the three months ended September 30,
2016.
We
believe that our projected cash flows from operations, borrowing
availability under our revolving lines of credit, cash on hand,
trade credit and the secured bank loan will provide the necessary
financial resources to meet our projected cash requirements for at
least the next 12 months.
Critical Accounting Estimates & Policies
There
have been no significant changes in the critical accounting
policies from those, disclosed in “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” included in the most recent Annual Report on Form
10-K.
ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
ITEM 4. CONTROLS AND
PROCEDURES
An
evaluation was carried out by the Company’s Chief Executive
Officer and Chief Financial Officer of the effectiveness of the
Company’s disclosure controls and procedures (as defined in
Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of
1934, as amended) as of September 30, 2016, the end of the period
covered by this Form 10-Q. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that these
disclosure controls and procedures were effective at a reasonable
level.
During
the period covered by this report, there have been no changes in
the Company’s internal control over financial reporting that
have materially affected or are reasonably likely to materially
affect the Company’s internal control over financial
reporting.
TRIO-TECH INTERNATIONAL
PART II. OTHER INFORMATION
Not
applicable.
Item 1A. Risk Factors
Not
applicable
Malaysia
and Singapore regulations prohibit the payment of dividends if the
Company does not have sufficient retained earnings and tax credit.
In addition, the payment of dividends can only be made after making
deductions for income tax pursuant to the regulations. Furthermore,
the cash movements from the Company’s 55% owned Malaysian
subsidiary to overseas are restricted and must be authorized by the
Central Bank of Malaysia. California law also prohibits the payment
of dividends if the Company does not have sufficient retained
earnings or cannot meet certain asset to liability
ratios.
Item 3.
Defaults Upon Senior
Securities
Not
applicable.
Item 4.
Mine Safety Disclosures
Not
applicable.
Not
applicable.
Item 6. Exhibits
|
Exhibit No.
|
|
Description
|
|
31.1
|
|
Rule
13a-14(a) Certification of Principal Executive Officer of
Registrant
|
|
31.2
|
|
Rule
13a-14(a) Certification of Principal Financial Officer of
Registrant
|
|
32
|
|
Section
1350 Certification
|
|
|
|
|
|
101.INS
|
|
XBRL
Instance Document
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase
|
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
TRIO-TECH INTERNATIONAL
|
|
|
|
By:
|
/s/
Victor H.M. Ting
VICTOR
H.M. TING
Vice
President and Chief Financial Officer
(Principal
Financial Officer)
Dated:
November 14, 2016
|
-39-