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, 2017
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
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(I.R.S. Employer
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incorporation or organization)
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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 nonaccelerated
filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,”
“accelerated filer”, “smaller reporting
company”, and "emerging growth company" in Rule 12b2 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)
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Emerging
growth company
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☐ |
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
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, 2017, there were 3,533,055 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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Item
1.
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2
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3
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5
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6
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7
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Item
2.
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28
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Item
3.
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41
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Item
4.
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41
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Part II.
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Other Information
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Item
1.
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42
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Item 1A.
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42
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Item 2.
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42
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Item 3.
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42
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Item
4.
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42
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Item
5.
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42
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Item
6.
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42
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43
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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 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,
2017
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June
30,
2017
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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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$3,188
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$4,772
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Short-term
deposits
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1,043
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787
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Trade
accounts receivable, less allowance for doubtful accounts of $250
and $247
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10,172
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9,009
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Other
receivables
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302
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401
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Inventories,
less provision for obsolete inventory of $692 and $686
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2,482
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1,756
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Prepaid
expenses and other current assets
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336
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226
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Assets
held for sale
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87
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86
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Total current assets
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17,610
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17,037
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NON-CURRENT
ASSETS:
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Deferred
tax asset
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432
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375
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Investment
properties, net
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1,216
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1,216
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Property,
plant and equipment, net
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11,542
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11,291
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Other
assets
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2,220
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1,922
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Restricted
term deposits
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1,686
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1,657
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Total
non-current assets
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17,096
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16,461
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TOTAL ASSETS
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$34,706
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$33,498
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LIABILITIES
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CURRENT
LIABILITIES:
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Lines
of credit
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$1,581
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$2,556
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Accounts
payable
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3,766
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3,229
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Accrued
expenses
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3,483
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3,043
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Income
taxes payable
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255
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233
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Current
portion of bank loans payable
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343
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260
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Current
portion of capital leases
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214
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228
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Total current liabilities
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9,642
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9,549
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NON-CURRENT
LIABILITIES:
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Bank
loans payable, net of current portion
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1,650
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1,552
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Capital leases,
net of current portion
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491
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531
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Deferred
tax liabilities
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324
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295
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Other
non-current liabilities
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45
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44
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Total
non-current liabilities
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2,510
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2,422
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TOTAL LIABILITIES
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$12,152
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$11,971
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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; 3,533,055 shares
issued outstanding as at September 30, 2017, and 3,523,055 shares
as at June 30, 2017
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$10,972
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$10,921
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Paid-in
capital
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3,207
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3,206
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Accumulated
retained earnings
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4,916
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4,341
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Accumulated
other comprehensive gain-translation adjustments
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2,007
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1,633
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Total Trio-Tech International shareholders'
equity
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21,102
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20,101
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Non-controlling
interest
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1,452
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1,426
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TOTAL
EQUITY
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$22,554
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$21,527
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TOTAL LIABILITIES AND EQUITY
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$34,706
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$33,498
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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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2017
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2016
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Revenue
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Manufacturing
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$4,765
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$3,671
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Testing
services
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4,605
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4,157
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Distribution
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1,536
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1,104
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Others
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39
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39
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10,945
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8,971
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Cost of Sales
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Cost
of manufactured products sold
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3,649
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2,795
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Cost
of testing services rendered
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3,139
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2,814
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Cost
of distribution
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1,368
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991
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Others
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29
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13
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8,185
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6,613
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Gross Margin
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2,760
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2,358
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Operating Expenses:
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General
and administrative
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1,839
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1,743
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Selling
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179
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185
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Research
and development
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184
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53
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Loss
on disposal of property, plant and equipment
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11
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-
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Total
operating expenses
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2,213
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1,981
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Income from Operations
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547
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377
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Other Income
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Interest
expenses
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(58)
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(58)
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Other income,
net
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158
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110
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Total
other income
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100
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52
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Income from Continuing Operations before Income
Taxes
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647
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429
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Income Tax Expenses
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(42)
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(83)
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Income
from continuing operations before non-controlling interest, net of
tax
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605
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346
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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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(Loss)
/ income from discontinued operations, net of tax
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(3)
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1
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NET INCOME
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602
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347
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Less:
net income attributable to the non-controlling
interest
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27
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44
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Net Income Attributable to Trio-Tech International Common
Shareholder
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$575
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$303
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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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576
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303
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Loss
from discontinued operations, net of tax
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(1)
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-
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Net Income Attributable to Trio-Tech International Common
Shareholders
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$575
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$303
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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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$0.16
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$0.09
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Basic
earnings per share from discontinued operations attributable to
Trio-Tech International
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$-
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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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$0.16
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$0.09
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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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$0.16
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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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$0.16
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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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3,533
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3,513
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Dilutive
effect of stock options
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140
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66
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Number
of shares used to compute earnings per share diluted
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3,673
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3,579
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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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|
Three
Months Ended
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Sept.
30,
|
Sept.
30,
|
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2017
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2016
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Comprehensive Income Attributable to Trio-Tech
International Common Shareholders:
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|
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Net
income
|
602
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347
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Foreign
currency translation, net of tax
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375
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(283)
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Comprehensive Income
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977
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64
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Less:
comprehensive income / (loss) attributable to the non-controlling
interests
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27
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(21)
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Comprehensive Income Attributable to Trio-Tech International Common
Shareholders
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$950
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$85
|
|
|
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|
See notes to condensed consolidated financial
statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
Three Months ended September 30, 2017
|
|
Common
Stock
|
Additional Paid-in
|
Accumulated Retained
|
Accumulated Other
Comprehensive
|
Non- Controlling
|
|
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Shares
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Amount
|
Capital
|
Earnings
|
Income
|
Interest
|
Total
|
|
|
$
|
$
|
$
|
$
|
$
|
$
|
|
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Balance
at June 30, 2017
|
3,523
|
10,921
|
3,206
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4,341
|
1,633
|
1,426
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21,527
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Stock
option expenses
|
-
|
-
|
1
|
-
|
-
|
-
|
1
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|
Net
income
|
-
|
-
|
-
|
575
|
-
|
27
|
602
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|
Dividend declared
by subsidiary
|
-
|
-
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-
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-
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-
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(2)
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(2)
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Issue of restricted
shares to consultant
|
10
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51
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-
|
-
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-
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-
|
51
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Translation
adjustment
|
-
|
-
|
-
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-
|
374
|
1
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375
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Balance
at Sept. 30, 2017
|
3,533
|
10,972
|
3,207
|
4,916
|
2,007
|
1,452
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22,554
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Three Months ended September 30, 2016
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|
Common
Stock
|
Additional Paid-in
|
Accumulated Retained
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Accumulated Other
Comprehensive
|
Non- Controlling
|
|
|
|
|
Shares
|
Amount
|
Capital
|
Earnings
|
Income
|
Interest
|
Total
|
|
|
$
|
$
|
$
|
$
|
$
|
$
|
|
|
Balance
at June 30, 2016
|
3,513
|
10,882
|
3,188
|
3,025
|
2,162
|
1,614
|
20,871
|
|
Stock
option expenses
|
-
|
-
|
1
|
-
|
-
|
-
|
1
|
|
Net
income
|
-
|
-
|
-
|
303
|
-
|
44
|
347
|
|
Translation
adjustment
|
-
|
-
|
-
|
-
|
(218)
|
(65)
|
(283)
|
|
Balance
at Sept. 30, 2016
|
3,513
|
10,882
|
3,189
|
3,328
|
1,944
|
1,593
|
20,936
|
See notes to condensed consolidated financial
statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
|
|
Three
Months Ended
|
|
|
|
Sept.
30,
|
Sept.
30,
|
|
|
2017
|
2016
|
|
|
(Unaudited)
|
(Unaudited)
|
|
Cash Flow from Operating Activities
|
|
|
|
Net
income
|
$602
|
$347
|
|
Adjustments
to reconcile net income to net cash flow provided by operating
activities
|
|
|
|
Depreciation
and amortization
|
500
|
464
|
|
Stock
compensation
|
1
|
1
|
|
Reversal
of provision for obsolete inventory
|
(2)
|
(3)
|
|
Bad
debt provision
|
-
|
61
|
|
Accrued
interest expense, net accrued interest income
|
51
|
54
|
|
Issuance
of shares to service provider
|
51
|
-
|
|
Loss
on disposal of property, plant and equipment
|
11
|
-
|
|
Warranty
recovery, net
|
(7)
|
(8)
|
|
Deferred
tax benefit
|
(26)
|
31
|
|
Changes
in operating assets and liabilities, net of acquisition
effects
|
|
|
|
Trade
accounts receivable
|
(1,163)
|
656
|
|
Other
receivables
|
99
|
242
|
|
Other
assets
|
(262)
|
(35)
|
|
Inventories
|
(699)
|
275
|
|
Prepaid
expenses and other current assets
|
(110)
|
(49)
|
|
Accounts
payable and accrued expenses
|
935
|
458
|
|
Income
taxes payable
|
22
|
(28)
|
|
Net Cash Provided by Operating Activities
|
3
|
2,466
|
|
|
|
|
|
Cash Flow from Investing Activities
|
|
|
|
Investments
in restricted & un-restricted Short-term deposits
|
(234)
|
(421)
|
|
Additions
to property, plant and equipment
|
(529)
|
(361)
|
|
Net Cash Used in Investing Activities
|
(763)
|
(782)
|
|
|
|
|
|
Cash Flow from Financing Activities
|
|
|
|
Repayment
on lines of credit
|
(2,935)
|
(2,897)
|
|
Repayment
of bank loans and capital leases
|
(186)
|
(189)
|
|
Dividends
paid on non-controlling interest
|
(2)
|
-
|
|
Proceeds
from long-term bank loans
|
2,198
|
1,917
|
|
Net Cash Used in Financing Activities
|
(925)
|
(1,169)
|
|
|
|
|
|
Effect of Changes in Exchange Rate
|
101
|
(106)
|
|
|
|
|
|
NET (DECREASE) / INCREASE IN CASH
|
(1,584)
|
409
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
4,772
|
3,807
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$3,188
|
$4,216
|
|
|
|
|
|
Supplementary Information of Cash Flows
|
|
|
|
Cash
paid during the period for:
|
|
|
|
Interest
|
$49
|
$49
|
|
Income
taxes
|
$52
|
$56
|
|
|
|
|
|
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 2018, 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:
|
|
|
Ownership
|
|
Location
|
|
Express Test Corporation (Dormant)
|
|
100%
|
|
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 (SIP) Co., Ltd. *
|
|
100%
|
|
Suzhou, 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, 2017 are not necessarily indicative of the results
that may be expected for the fiscal year ending June 30,
2018. 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,
2017.
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”) 2017-11: Earnings Per Share
(Topic 260); Distinguishing
Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic
815). For public companies, these amendments are effective for
annual periods beginning after December 15, 2018, including interim
periods within those periods. 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
presentation of consolidated financial position or results of
operations.
The amendments in ASU 2017-09 — Compensation—Stock
Compensation (ASC Topic 718 ):
Scope of Modification Accounting: These amendments provide guidance
on determining which changes to the terms and conditions of
share-based payment awards require an entity to apply modification
accounting under Topic 718. For public companies, these amendments
are effective for annual periods beginning after December 15, 2017,
including interim periods within those periods. 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 presentation of consolidated financial position or
results of operations.
The amendments in ASU 2017-08 ASC Subtopic 310-20 —
'Receivables—Nonrefundable
Fees and Other Costs (“ASC Subtopic 310-20”): These
amendments shorten the amortization period for certain callable
debt securities held at a premium. For public companies, these
amendments are effective for annual periods beginning after
December 15, 2018, including interim periods within those periods.
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 presentation of consolidated
financial position or results of operations.
The amendments in ASU 2017-07 ASC Topic 715 —
'Compensation
— Retirement Benefits:
These amendments improve the presentation of net periodic pension
Cost and Net Periodic Postretirement Benefit Cost. For public
companies, these amendments are effective for annual periods
beginning after December 15, 2017, including interim periods within
those periods. 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 presentation of
consolidated financial position or results of
operations.
The amendments in ASU 2017-05 ASC Subtopic 610-20 —
'Other Income
– Gains and Losses from the Derecognition of Nonfinancial
Assets (“ASC Subtopic
610-20”): These amendments clarify the scope of asset
derecognition Guidance and Accounting for Partial Sales of
Nonfinancial Assets. For public companies, these amendments are
effective for annual periods beginning after December 15, 2017,
including interim periods within those periods. 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 presentation of consolidated financial position or
results of operations.
The amendments in ASU 2017-04 ASC Topic 350 —
'Intangibles -
Goodwill and Other: These
amendments simplify the test for goodwill impairment. For public
companies, these amendments are effective for annual periods
beginning after December 15, 2019, including interim periods within
those periods. 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 presentation of
consolidated financial position or results of
operations.
The amendments in ASU 2017-01 ASC Topic 805 —
'Business
Combinations: These amendments
clarify the definition of a business. The amendments affect all
companies and other reporting organizations that must determine
whether they have acquired or sold a business. For public
companies, these amendments are effective for annual periods
beginning after December 15, 2017, including interim periods within
those periods. 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 presentation of
consolidated financial position or results of
operations.
The amendments in ASU 2016-18 ASC Topic 230 —
'Statement of Cash
Flows: These amendments provide
cash flow statement classification guidance. For public business
entities, these amendments are effective 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 presentation of consolidated
financial position and statement of cash flows.
The amendments in ASU 2016-17 ASC Topic 810 —
Consolidation:
These amendments require an entity to recognize the income tax
consequences of an intra-entity transfer of an asset other than
inventory when the transfer occurs. For public business entities,
these amendments are effective for annual reporting periods
beginning after December 15, 2017, and interim periods within those
fiscal years. While early application is permitted, including
interim reporting periods within those annual reporting periods,
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 2016-16 ASC Topic 740 —
Income
Taxes: These amendments require
an entity to recognize the income tax consequences of an
intra-entity transfer of an asset other than inventory when the
transfer occurs. For public business entities, these amendments are
effective for annual reporting periods beginning after December 15,
2017, including interim reporting periods within those annual
reporting periods. 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 2016-15 ASC Topic 230
—Statement of Cash
Flows: These amendments provide
cashflow statement classification guidance. For public business
entities, the amendments are effective 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
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, ASC Topic 326 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 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. The company has adopted the ASU and concluded that
the effectiveness of this update does not have a significant effect
on the Company’s consolidated financial position or results
of operations.
The amendments in ASU 2016-02 ASC Topic 842: Leases require companies to recognize the following for
all leases (with the exception of short-term leases) at the
commencement date of the applicable lease: (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 company. 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 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”). 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 would be effective for annual reporting
periods beginning after December 15, 2016, including interim
periods within that reporting period. However, ASU 2015-14 ASC
Topic 606: Deferral of the Effective
Date (“ASC Topic
606”) defers the effective date of ASU 2014-09 for all
entities by one year. 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 adopted these standards. As the new standards,
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 initial evaluation of the impact of this
standard on its business and concluded the adoption of this
standard did not have a significant effect on its Consolidated
Financial Statements. While we are continuing to assess all
potential impacts, the Company has not presently selected a
transition method as we believe there will not be any significant
impact of this new guidance on the Company.
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
ASC Topic 330 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. The company has adopted
the ASU and concluded that 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, 2017 are not expected to have a significant effect on
the Company’s consolidated financial position or results of
operations.
3. TERM
DEPOSITS
|
|
Sep.
30,
2017
(Unaudited)
|
June
30,
2017
|
|
|
|
|
|
Short-term
deposits
|
$1,026
|
$824
|
|
Currency
translation effect on short-term deposits
|
17
|
(37)
|
|
Total short-term deposits
|
1,043
|
787
|
|
Restricted
term deposits
|
1,658
|
1,722
|
|
Currency
translation effect on restricted term deposits
|
28
|
(65)
|
|
Total restricted term deposits
|
1,686
|
1,657
|
|
Total Term deposits
|
$2,165
|
$2,444
|
Restricted deposits represent the amount of cash pledged to secure
loans payable granted by financial institutions and serve as
collateral for public utility agreements such as electricity and
water and performance bonds related to customs duty payable.
Restricted deposits are classified as non-current assets, as they
relate to long-term obligations and will become unrestricted only
upon discharge of the obligations. Short-term deposits represent
bank deposits, which do not qualify as cash
equivalents.
4. 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, 2017 and June 30, 2017 was
adequate.
The following table represents the changes in the allowance for
doubtful accounts:
|
|
Sept.
30,
2017
(Unaudited)
|
June
30,
2017
|
|
Beginning
|
$247
|
$270
|
|
Additions charged
to expenses
|
-
|
65
|
|
Recovered
|
(1)
|
(78)
|
|
Write-off
|
-
|
(2)
|
|
Currency
translation effect
|
4
|
(8)
|
|
Ending
|
$250
|
$247
|
5. 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, 2017. 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,
2017.
|
|
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, 2017. 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,
2017.
|
|
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,
2017, or for the fiscal year ended June 30, 2017. 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. TTCQ is in the legal process of recovering the outstanding
amount of $325.
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
8).
6. INVENTORIES
Inventories consisted of the following:
|
|
Sept.
30,
2017
(Unaudited)
|
June
30,
2017
|
|
|
|
|
|
Raw
materials
|
$1,187
|
$1,047
|
|
Work
in progress
|
1,647
|
1,045
|
|
Finished
goods
|
307
|
365
|
|
Less:
provision for obsolete inventory
|
(692)
|
(686)
|
|
Currency
translation effect
|
33
|
(15)
|
|
|
$2,482
|
$1,756
|
The following table represents the changes in provision for
obsolete inventory:
|
|
Sept.
30,
2017
(Unaudited)
|
June
30,
2017
|
|
|
|
|
|
Beginning
|
$686
|
697
|
| Additions charged to expenses |
-
|
6
|
|
Usage - disposition
|
(2)
|
(6)
|
|
Currency translation effect
|
8
|
(11)
|
| Ending |
$692
|
$686
|
7. ASSETS HELD FOR
SALE
During the fourth quarter of 2015, Trio-Tech (Malaysia) Sdn. Bhd.
(‘TTM’) planned to sell its factory building in Penang,
Malaysia. In May 2015, TTM 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
$87, for three month ended September 30, 2017 and RM 371, or
approximately $86, for year ended June 30, 2017. As at end
of September 30, 2017,
management is still actively looking
for a suitable buyer.
8. INVESTMENTS
Investments
were nil as at September 30, 2017 and June 30, 2017.
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.
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
5, 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
consideration does not include the remaining outstanding amount of
RMB 2,000, or approximately $326, which will be paid to TTCQ in
cash.
The
shop lots are to be delivered to TTCQ upon completion of the
construction of the shop lots in the Singapore Themed Resort
Project. The initial targeted date of completion was December 31,
2016. Based on discussions with the developers, the completion date
is estimated to be December 31, 2018.
The
share transfer (10% interest in the joint venture) was registered
with the relevant authorities in China as of end October
2016.
9. INVESTMENT
PROPERTIES
The following table presents the Company’s investment in
properties in China as of September 30, 2017. The exchange rate is
based on the market rate as of September 30, 2017.
|
|
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, 2017
|
(5,102)
|
(767)
|
|
Net investment in property – China
|
|
8,077
|
1,216
|
The following table presents the Company’s investment in
properties in China as of June 30, 2017. The exchange rate is based
on the market rate as of June 30, 2017.
|
|
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
|
|
-
|
(178)
|
|
Gross
investment in rental property
|
|
13,179
|
1,944
|
|
Accumulated
depreciation on rental property
|
June
30, 2017
|
(4,937)
|
(728)
|
|
Net investment in property – China
|
|
8,242
|
1,216
|
The following table presents the Company’s investment
properties in Malaysia as of September 30, 2017 and June 30, 2017.
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 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 rental 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 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 $27
during the three months ended September 30, 2017 as compared to $26
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, 2017 and for the
same period in the last fiscal year.
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 $649. 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 will expire in April
2019 which provides for a rent increase of 5% every year on May 1,
commencing with 2017 until the rental agreement expires on April
30, 2019 and the other of which will expire in March 31, 2018 which
provides for a rent increase of 5% every year on April 1,
commencing with 2016 until the rental agreement will expire on
March 31, 2018.
Properties purchased from Fu Li generated a rental income of $12
for the three months ended September 30, 2017, and $13 for the same
period in the last fiscal year.
Penang Property I
During the fourth quarter of 2015, TTM 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, 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, 2017 the net book
value was RM 369, or approximately $87.
Summary
Total rental income for all investment properties in China was $39
for the three months ended September 30, 2017, and was $39 for the
same period in the last fiscal year.
Depreciation expenses for all investment properties in China were
$25 for the three months ended September 30, 2017 and $26 for the
same period in the last fiscal year.
10. OTHER ASSETS
Other
assets consisted of the following:
|
|
Sept.
30, 2017
(Unaudited)
|
June
30, 2017
|
|
Down
payment for purchase of investment properties
|
$1,645
|
$1,645
|
|
Down
payment for purchase of property, plant and equipment
|
538
|
280
|
|
Deposits
for rental and utilities
|
140
|
139
|
|
Currency
translation effect
|
(103)
|
(142)
|
|
Total
|
$2,220
|
$1,922
|
11. 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, 2017, 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%
|
-
|
$4,571
|
$3,875
|
|
Trio-Tech
(Malaysia) Sdn. Bhd.
|
Lines
of Credit
|
Ranging
from 6.3% to 6.7%
|
-
|
$746
|
$746
|
|
Trio-Tech
(Tianjin) Co., Ltd.
|
Lines
of Credit
|
Ranging
from 4.9% to 6.3%
|
-
|
$903
|
$18
|
As of June 30, 2017, 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 3.96% to 7.5%
|
-
|
$4,496
|
$2,815
|
|
Trio-Tech
(Malaysia) Sdn. Bhd.
|
Lines
of Credit
|
Ranging from 6.3% to 6.7%
|
-
|
$734
|
$734
|
|
Trio-Tech
(Tianjin) Co., Ltd.
|
Lines
of Credit
|
5.22%
|
-
|
$885
|
$10
|
12. ACCRUED EXPENSES
Accrued
expenses consisted of the following:
|
|
Sept.
30, 2017
(Unaudited)
|
June
30, 2017
|
|
Payroll
and related costs
|
$1,587
|
$1,568
|
|
Commissions
|
109
|
107
|
|
Customer
deposits
|
419
|
218
|
|
Legal
and audit
|
302
|
283
|
|
Sales
tax
|
104
|
80
|
|
Utilities
|
121
|
142
|
|
Warranty
|
41
|
49
|
|
Accrued
purchase of materials
|
101
|
33
|
|
Provision
for re-instatement
|
289
|
295
|
|
Other
accrued expenses
|
361
|
319
|
|
Currency
translation effect
|
49
|
(51)
|
|
Total
|
$3,483
|
$3,043
|
13. 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,
2017
(Unaudited)
|
June
30,
2017
|
|
Beginning
|
$48
|
$76
|
|
Additions
charged to cost and expenses
|
5
|
46
|
|
Utilization/reversal
|
(12)
|
(73)
|
|
Currency
translation effect
|
1
|
(1)
|
|
Ending
|
$42
|
$48
|
14. BANK LOANS PAYABLE
Bank loans payable consisted of the following:
|
|
Sept.
30, 2017
(Unaudited)
|
June
30, 2017
|
|
Note
payable denominated in RM for expansion plans in Malaysia, maturing
in August 2024, bearing interest at the bank’s prime rate
less 1.50% (5.25% and 5.25% at September 30, 2017 and June 30,
2017) per annum, with monthly payments of principal plus interest
through August 2024, collateralized by the acquired building with a
carrying value of $2,704 and 2,671, as at September 30, 2017 and
June 30, 2017, respectively.
|
1,567
|
1,735
|
|
|
|
|
|
Note
payable denominated in U.S. dollars for expansion plans in
Singapore and its subsidiaries, maturing in April 2020, bearing
interest at the bank’s lending rate (3.96% and 3.96% for
September 30, 2017 and June 30, 2017) with monthly payments of
principal plus interest through June 2020. This note payable is
secured by plant and equipment with a carrying value of $212 and
$224, as at September 30, 2017 and June 30, 2017,
respectively.
|
398
|
196
|
|
|
|
|
|
Long term portion of bank loans payable
|
$1,965
|
$1,931
|
|
Current
portion of bank loan payable
|
342
|
271
|
|
Currency
translation effect on current portion of bank loan
|
1
|
(11)
|
|
Current portion of bank loan payable
|
343
|
260
|
|
Long
term portion of bank loan payable
|
1,623
|
1,660
|
|
Currency
translation effect on long-term portion of bank loan
|
27
|
(108)
|
|
Long term portion of bank loans payable
|
$1,650
|
$1,552
|
Future minimum payments (excluding interest) as at September 30,
2017 were as follows:
|
2018
|
$343
|
|
2019
|
359
|
|
2020
|
324
|
|
2021
|
231
|
|
2022
|
182
|
|
Thereafter
|
554
|
|
Total
obligations and commitments
|
$1,993
|
Future minimum payments (excluding interest) as at June 30, 2017
were as follows:
|
2018
|
$260
|
|
2019
|
273
|
|
2020
|
274
|
|
2021
|
225
|
|
2022
|
236
|
|
Thereafter
|
544
|
|
Total
obligations and commitments
|
$1,812
|
15. COMMITMENTS AND CONTINGENCIES
TTM has capital commitments for the purchase of equipment and other
related infrastructure costs amounting to RM 806, or approximately
$191, based on the exchange rate as at September 30, 2017 published
by the Monetary Authority of Singapore, as compared to the capital
commitment as at June 30, 2017 amounting to RM 684, or
approximately $159.
Trio-Tech (Tianjin) Co. Ltd. in China has capital commitments for
the purchase of equipment and other related infrastructure costs
amounting to RMB 3,376, or approximately $356, based on the
exchange rate as on September 30, 2017 published by the Monetary
Authority of Singapore, as compared to the capital commitment as at
June 30, 2017 amounting to RMB 1,260, or approximately
$186.
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.
16. BUSINESS
SEGMENTS
In fiscal year 2018, 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 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
$95 for the three months ending September 30, 2017, as compared to
$283 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, 2017 and September 30,
2016:
Business Segment Information:
|
|
Three
Months
Ended
Sept.
30,
|
Net
Revenue
|
Operating
Income
/ (Loss)
|
Total
Assets
|
Depr.
And
Amort.
|
Capital
Expenditures
|
|
Manufacturing
|
2017
|
$4,765
|
186
|
8,194
|
28
|
35
|
|
|
2016
|
$3,671
|
(93)
|
7,716
|
50
|
11
|
|
|
|
|
|
|
|
|
|
Testing
Services
|
2017
|
4,605
|
336
|
22,129
|
447
|
494
|
|
|
2016
|
4,157
|
402
|
19,219
|
388
|
350
|
|
|
|
|
|
|
|
|
|
Distribution
|
2017
|
1,536
|
101
|
573
|
-
|
-
|
|
|
2016
|
1,104
|
34
|
695
|
1
|
-
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
2017
|
39
|
(10)
|
3,568
|
25
|
-
|
|
|
2016
|
39
|
2
|
3,304
|
25
|
-
|
|
|
|
|
|
|
|
|
|
Fabrication
|
2017
|
-
|
-
|
28
|
-
|
-
|
|
Services
*
|
2016
|
-
|
-
|
30
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Corporate
&
|
2017
|
-
|
(66)
|
214
|
-
|
-
|
|
Unallocated
|
2016
|
-
|
32
|
567
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Total
Company
|
2017
|
$10,945
|
547
|
34,706
|
500
|
529
|
|
|
2016
|
$8,971
|
377
|
31,531
|
464
|
361
|
* Fabrication Services is a discontinued operation (Note
19).
17. OTHER
INCOME
Other income consisted of the following:
|
|
Three
Months Ended September 30,
|
|
|
|
2017
(Unaudited)
|
2016
(Unaudited)
|
|
Interest
income
|
8
|
4
|
|
Other
rental income
|
26
|
25
|
|
Exchange
(loss) /gain
|
(6)
|
62
|
|
Bad
debt recovery
|
1
|
-
|
|
Other
miscellaneous income
|
129
|
19
|
|
Total
|
$158
|
$110
|
18. 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 2017
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 $42 for the three months ended September 30, 2017 as compared to
an income tax expense of $83 for the same period in the last fiscal
year. The decrease in income tax expenses was mainly due to
increase in deferred tax income for the timing differences recorded
by Malaysia operations for the three months ended September
30, 2017, as compared to the same period in the last fiscal
year.
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, 2017 and June 30, 2017.
19. 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 $57 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.
The discontinued operations in Indonesia did not incur general and
administrative expenses for the three months ended September 30,
2017, 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, 2017 and 2016 were as follows:
|
|
Three
Months Ended
September
30,
|
|
|
|
2017
(Unaudited)
|
2016
(Unaudited)
|
|
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
(charges) / income
|
(3)
|
1
|
|
Net
income / (loss) from discontinued operation
|
2
|
(1)
|
|
Less:
net loss attributable to the non-controlling interest
|
-
|
-
|
|
Loss
from discontinued operation, net of tax
|
$(1)
|
-
|
The Company does not provide a separate cash flow statement for the
discontinued operation, as the impact of this discontinued
operation was immaterial.
20. 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.
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,
|
|
|
|
2017
(Unaudited)
|
2016
(Unaudited)
|
|
Income
attributable to Trio-Tech International common shareholders from
continuing operations, net of tax
|
$576
|
$303
|
|
Loss
attributable to Trio-Tech International common shareholders from
discontinued operations, net of tax
|
(1)
|
-
|
|
Net income attributable to Trio-Tech International common
shareholders
|
$575
|
$303
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic
|
3,533
|
3,513
|
|
Dilutive
effect of stock options
|
140
|
66
|
|
Number
of shares used to compute earnings per share –
diluted
|
3,673
|
3,579
|
|
|
|
|
|
Basic
earnings per share from continuing operations attributable to
Trio-Tech International
|
0.16
|
0.09
|
|
|
|
|
|
Basic
earnings per share from discontinued operations attributable to
Trio-Tech International
|
-
|
-
|
|
Basic earnings
per share from net loss attributable to Trio-Tech
International
|
$0.16
|
$0.09
|
|
|
|
|
|
Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
|
0.16
|
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
|
$0.16
|
$0.08
|
|
|
|
|
21. 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. 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.
Each of those plans terminated by its respective terms on September
24, 2017. The 2007 Employee Plan provided for awards of up to
600,000 shares of the Company’s Common Stock to employees,
consultants and advisors. The 2007 Directors Plan provided for
awards of up to 500,000 shares of the Company’s Common Stock
to the members of the Board of Directors in the form of
non-qualified options and restricted stock. These two plans were
administered by the Board, which also established 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,
|
||
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
Expected volatility
|
|
60.41%
to104.94 %
|
|
60.41%
to104.94 %
|
|
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 terminated by its terms on
September 24, 2017 and no further options may be granted
thereunder. However, the options outstanding thereunder continue to
remain outstanding and in effect in accordance with their terms.
The Employee Plan permitted 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 were required to
be granted with an exercise price of not less than fair value as of
the grant date and the options granted were required to 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 were permitted to 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, 2017. There were
no options exercised during the three months ended September 30,
2017. The Company recognized stock-based compensation expenses of
$1 in the three months ended September 30, 2017 under the 2007
Employee Plan. The balance of unamortized stock-based compensation
of $4 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 3.97 years.
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 3.96 years.
As of September 30, 2017, there were vested employee stock options
covering a total of 79,375shares of Common Stock. The
weighted-average exercise price was $3.36 and the weighted average
contractual term was 2.11 years.
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.
A summary of option activities under the 2007 Employee Plan during
the three months ended September 30, 2017 is presented as
follows:
|
|
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average Remaining Contractual Term (Years)
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at July 1, 2017
|
127,500
|
$3.52
|
3.10
|
$187
|
|
Granted
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding
at September 30, 2017
|
127,500
|
$3.52
|
2.85
|
$220
|
|
Exercisable
at September 30, 2017
|
79.375
|
$3.36
|
2.11
|
$149
|
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 the status of the Company’s non-vested employee
stock options during the three months ended September 30, 2017 is
presented below:
|
|
Options
|
Weighted
Average
Grant-Date
Fair Value
|
|
Non-vested
at July 1, 2017
|
48,125
|
$3.77
|
|
Granted
|
-
|
-
|
|
Vested
|
-
|
-
|
|
Forfeited
|
-
|
-
|
|
Non-vested
at September 30, 2017
|
48,125
|
$3.77
|
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
|
2007 Directors Equity Incentive Plan
The
2007 Directors Plan terminated by its terms on September 24, 2017
and no further options may be granted thereunder. However, the
options outstanding thereunder continue to remain outstanding and
in effect in accordance with their terms. The Director Plan
permitted 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 2018, 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, 2017. The Company did not recognize any stock-based
compensation expenses during the three months ended September 30,
2017.
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.
As of September 30, 2017, 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 $3.36 and the
weighted average remaining contractual term was 2.68 years. Both
the aggregate intrinsic value of such stock options outstanding and
the aggregate intrinsic value of such options exercisable as of
September 30, 2017 were $781. 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, 2017.
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.
A summary of option activities under the 2007 Directors Plan during
the three months ended September 30, 2017 is presented as
follows:
|
|
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
Outstanding
at July 1, 2017
|
415,000
|
$3.36
|
2.93
|
$673
|
|
Granted
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding
at September 30, 2017
|
415,000
|
$3.36
|
2.68
|
$781
|
|
Exercisable
at September 30, 2017
|
415,000
|
$3.36
|
2.68
|
$781
|
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
|
22. 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, 2017 and 2016.
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, 2017.
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, 2017.
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 Asia and the U.S. 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 U.S.,
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 $1,974, or 22.0%, to $10,945 in the first
quarter of fiscal year 2018, compared to $8,971 for the same period
in fiscal year 2017.
●
Manufacturing
segment revenue increased by $1,094, or 29.8%, to $4,765 for the
first quarter of fiscal year 2018, compared to $3,671 for the same
period in fiscal year 2017.
●
Testing
segment revenue increased by $448, or 10.8%, to $4,605 for the
first quarter of fiscal year 2018, compared to $4,157 for the same
period in fiscal year 2017.
●
Distribution
segment revenue increased by $432, or 39.1%, to $1,536 for the
first quarter of fiscal year 2018, compared to $1,104 for the same
period in fiscal year 2017.
●
Real
estate segment rental revenue was $39 for the first quarter of both
fiscal year 2018 and 2017.
●
The
overall gross profit margin decreased by 1.1% to 25.2% for the
first quarter of fiscal year 2018, from 26.3% for the same period
in fiscal year 2017.
●
Income
from operations was $547 the first quarter of fiscal year 2018, an
improvement of $170, as compared to an income from operations of
$377 for the same period in fiscal year 2017.
●
General
and administrative expenses increased by $96, or 5.5%, to $1,839
for the first quarter of fiscal year 2018, from $1,743 for the same
period in fiscal year 2017.
●
Selling
expenses decreased by $6, or 3.2%, to $179 for the first quarter of
fiscal year 2018, from $185 for the same period in fiscal year
2017.
●
Other
income decreased by $48 to $158 in the first quarter of fiscal year
2018 compared to $110 in the same period in fiscal year
2017.
●
Tax
expense decreased by $41 to $42 in the first quarter of fiscal year
2018 compared to $83 in the same period in fiscal year
2017.
●
During
the first quarter of fiscal year 2018, income from continuing
operations before non-controlling interest, net of tax was $605, as
compared to an income of $346 for the same period in fiscal year
2017.
●
Net
income attributable to non-controlling interest for the first
quarter of fiscal year 2018 was $27, a decrease of $17, as compared
to $44 in the same period in fiscal year 2017.
●
Working
capital increased by $480, or 6.4%, to $7,968 as of September 30,
2017 compared to $7,488 as of June 30, 2017.
●
Basic
Earnings per share for the first quarter of fiscal year 2018 were
$0.16, as compared to earnings per share of $0.09 for the same
period in fiscal year 2017.
●
Dilutive
Earnings per share for the first quarter of fiscal year 2018 were
$0.16, as compared to earnings per share of $0.08 for the same
period in fiscal year 2017.
●
Total
assets increased by $1,208 or 3.6% to $34,706 as of September 30,
2017 compared to $33,498 as of June 30, 2017.
●
Total
liabilities increased by $181 or 1.5% to $12,152 as of September
30, 2017 compared to $11,971 as of June 30, 2017.
Results of Operations and Business Outlook
The following table sets forth our revenue components for the three
months ended September 30, 2017 and 2016,
respectively.
|
Revenue
Components
|
Three
Months Ended
September
30,
|
|
|
|
2017
|
2016
|
|
Revenue:
|
|
|
|
Manufacturing
|
43.5%
|
40.9%
|
|
Testing
Services
|
42.1
|
46.4
|
|
Distribution
|
14.0
|
12.3
|
|
Real
Estate
|
0.4
|
0.4
|
|
Total
|
100.0%
|
100.0%
|
Revenue for the three months ended September 30, 2017 was $10,945,
an increase of $1,974 when compared to the revenue for the same
period of the prior fiscal year. As a percentage, revenue increased
by 22.0% for the three months ended September 30, 2017 when
compared to revenue for the same period of the prior
year.
For the three months ended September 30, 2017, there was an
increase in revenue across all segments except for the real estate
segment. The extent of the increase in sales from fiscal year 2016
to fiscal year 2017 was offset by the currency translation to U.S.
dollars from our subsidiaries’ functional
currency.
Total revenue into and within China, the Southeast Asia regions and
other countries (except revenue into and within the United States)
increased by $1,992, or 23.6%, to $10,418 for the three months
ended September 30, 2017, as compared with $8,426 for the same
period of last fiscal year. The increase was mainly due
to an increase in the manufacturing segment in the Singapore and
Suzhou, China operations, increase in the testing segment in the
Singapore, Malaysia and Tianjin, China operations, and increase in
the distribution segment in the Singapore operation, which was
partially offset by a decrease in the testing segment in our
Bangkok, Thailand and Suzhou, China operations and decrease in the
distribution revenue in our Suzhou, China operation.
Total revenue into and within the U.S. was $527 for the three
months ended September 30, 2017, a decrease of $18 from $545 for
the same period of the prior year. The decrease in the three months
result was mainly due to a decrease in orders from existing
customers in the first quarter of fiscal year 2018 as compared to
the same period in fiscal year 2017.
Revenue within our four current segments for the three months ended
September 30, 2017 is discussed below.
Manufacturing Segment
Revenue in the manufacturing segment as a percentage of total
revenue was 43.5% for the three months ended September 30, 2017, an
increase of 2.6% of total revenue when compared to 40.9% in the
same period of the last fiscal year. The absolute amount
of revenue increased by $1,094 to $4,765 for the three months ended
September 30, 2017, compared to $3,671, for the same period of the
last fiscal year.
Revenue in the manufacturing segment for the three months ended
September 30, 2017 increased primarily due to an increase in orders
by customers in the Singapore and Suzhou, China operations, which
was offset by a decrease in demand in the U.S.
operations.
The revenue in the manufacturing segment from a major customer
accounted for 37.9% and 53.8% of our total revenue in the
manufacturing segment for the three months ended September 30, 2017
and 2016, 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
42.1% for the three months ended September 30, 2017, a decrease of
4.3% of total revenue when compared to 46.4% for the same period of
the last fiscal year. The absolute amount of revenue
increased by $448 to $4,605 for the three months ended
September 30, 2017, as compared to $4,157 for the same period of
the last fiscal year.
Revenue in the testing segment for the three months ended September
30, 2017 increased primarily due to an increase in our Singapore,
Malaysia and Tianjin, China operations, but was partially offset by
a decrease in testing volume in our Bangkok, Thailand and Suzhou,
China operations. The increase in Singapore, Malaysia and Tianjin,
China 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 as a percentage of total
revenue was 14.0% for the three months ended September 30, 2017, an
increase of 1.7% of total revenue when compared to 12.3% in the
same period of the last fiscal year. The absolute amount
of revenue increased by $432 to $1,536 for the three months ended
September 30, 2017, compared to $1,104 for the same period of the
last fiscal year.
Revenue in the distribution segment for the three months ended
September 30, 2017 increased primarily due to an increase in
revenue generated from existing and new 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, 2017 and September 30,
2016. The absolute amount of revenue in the real estate segment was
$39 for the three months ended September 30, 2017, and
2016.
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 $1,983 and $1,944 as at September 30, 2017 and June
30, 2017, respectively. The carrying value of these investment
properties in China was RMB 8,077 and RMB 8,242, or approximately
$1,216 and $1,216 as at September 30, 2017 and June 30, 2017,
respectively. These properties generated a total rental income of
$39 for both the three months ended September 30, 2017 and
September 30, 2016, 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, 2017, and 2016.
“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.
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
consideration does not include the remaining outstanding amount of
RMB 2,000, or approximately $326, which will be paid to TTCQ in
cash.
The
shop lots are to be delivered to TTCQ upon completion of the
construction of the shop lots in the Singapore Themed Resort
Project. The initial targeted date of completion was December 31,
2016. Based on discussions with the developers, the completion date
is estimated to be December 31, 2018.
The
share transfer (10% interest in the joint venture) was registered
with the relevant authorities in China as of end October
2016.
Uncertainties and Remedies
There are several influencing factors which create uncertainties
when forecasting performance, such as the constantly changing
nature of technology, specific requirements from the customer,
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 believe that we have
improved customer service from staff by keeping our staff through
our efforts to keep 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.
We are in the process of implementing an Enterprise Resource
Planning (“ERP”) system, as part of a multi-year plan
to integrate and upgrade our systems and processes. The
implementation of this ERP system is scheduled to occur in phases
over the next few years, and began with the migration of certain of
our operational and financial systems in our Singapore operations
to the new ERP system during the second quarter of Fiscal 2017.
This implementation effort will continue in Fiscal 2018, when the
operational and financial systems in Singapore will be
substantially transitioned to the new system. Implementation of a
new ERP system involves risks and uncertainties. Any disruptions,
delays or deficiencies in the design or implementation of the new
system could result in increased costs and adversely affect our
ability to timely report our financial results, which could
negatively impact our business and results of
operations.
The Company’s primary exposure to movements in foreign
currency exchange rates relates to non-U.S. dollar-denominated
sales and operating expenses in its subsidiaries. Strengthening of
the U.S. dollar relative to foreign currencies adversely affects
the U.S. dollar value of the Company’s foreign
currency-denominated sales and earnings, and generally leads the
Company to raise international pricing, potentially reducing demand
for the Company’s products. Margins on sales of the
Company’s products in foreign countries and on sales of
products that include components obtained from foreign suppliers
could be materially adversely affected by foreign currency exchange
rate fluctuations. In some circumstances, for competitive or other
reasons, the Company may decide not to raise local prices to fully
offset the dollar’s strengthening, or at all, which would
adversely affect the U.S. dollar value of the Company’s
foreign currency-denominated sales and earnings. Conversely, a
strengthening of foreign currencies relative to the U.S. dollar,
while generally beneficial to the Company’s foreign currency
denominated sales and earnings could cause the Company to reduce
international pricing, thereby limiting the benefit. Additionally,
strengthening of foreign currencies may also increase the
Company’s cost of product components denominated in those
currencies, thus adversely affecting gross margins.
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, and changes in Chinese laws, regulations, or their
interpretation.
Comparison of the First Quarter Ended September 30, 2017 and
September 30, 2016
The following table sets forth certain consolidated statements of
income data as a percentage of revenue for the first quarter of
fiscal years 2017 and 2016, respectively:
|
|
Three
Months Ended
September
30,
|
|
|
|
2017
|
2016
|
|
Revenue
|
100.0%
|
100.0%
|
|
Cost
of sales
|
74.8
|
73.7
|
|
Gross Margin
|
25.2%
|
26.3%
|
|
Operating
expenses
|
|
|
|
General
and administrative
|
16.8%
|
19.4%
|
|
Selling
|
1.6
|
2.1
|
|
Research
and development
|
1.7
|
0.6
|
|
Loss
on disposal of property, plant and equipment
|
0.1
|
0.0
|
|
Total
operating expenses
|
20.2%
|
22.1%
|
|
Income from Operations
|
5.0%
|
4.2%
|
Overall Gross Margin
Overall gross margin as a percentage of revenue decreased by 1.1%
to 25.2% for the three months ended September 30, 2017, from 26.3%
for the same period of the last fiscal year, primarily due to a
decrease in the gross profit margin in the manufacturing, testing
and real estate segments. The increase was partially offset by an
increase in gross profit margin in the distribution
segment.
Gross profit margin as a percentage of revenue in the manufacturing
segment decreased by 0.5% to 23.4% for the three months ended
September 30, 2017, as compared to 23.9% 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, 2017. In absolute dollar amounts, gross profits in
the manufacturing segment increased by $240 to $1,116 for the three
months ended September 30, 2017, from $876 for the same period in
the last fiscal year.
Gross profit margin as a percentage of revenue in the testing
segment decreased by 0.5% to 31.8% for the three months ended
September 30, 2017, from 32.3% in the same period of the last
fiscal year. The decrease was primarily due to a decrease in
high-margin testing volume in our Thailand operations and an
increase in compliance cost in our Malaysia operations. Significant
portions of our cost of goods sold are fixed in the testing
segment. Thus, as the demand of services and factory
utilization decreases, the fixed costs are spread over the
decreased output, which decreases the gross profit margin. In
absolute dollar amounts, gross profit in the testing segment
increased by $123 to $1,466 for the three months ended September
30, 2017 from $1,343 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 increased by 0.7%
to 10.9% for the three months ended September 30, 2017, from 10.2%
in the same period of the last fiscal year. The increase in
gross margin was due to the increase in sales of high profit margin
products in our Singapore and Suzhou, China operations 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, 2017 was $168 as compared to $113 in the
same period of the last fiscal year.
Gross profit margin as a percentage of revenue in the real estate
segment was 25.6% for the three months ended September 30, 2017, as
compared to 66.7% in the same period of the last fiscal year. In
absolute dollar amounts, gross profit in the real estate segment
was $10 and $26, respectively, for the three months ended September
30, 2017 and 2016. The decrease in the gross profit
margin was mainly due to an increase in taxes.
Operating Expenses
Operating expenses for the first quarter of fiscal years 2017 and
2016 were as follows:
|
|
Three Months
Ended
September
30,
|
|
|
(Unaudited)
|
2017
|
2016
|
|
General
and administrative
|
$1,839
|
$1,743
|
|
Selling
|
179
|
185
|
|
Research
and development
|
184
|
53
|
|
Loss
on disposal of property, plant and equipment
|
11
|
-
|
|
Total
|
$2,213
|
$1,981
|
General and administrative expenses increased by $96, or 5.5%, from
$1,743 to $1,839 for the three months ended September 30, 2017
compared to the same period of last fiscal year. The increase in
general and administrative expenses was mainly attributable to the
increase in staff welfare related expenses in the Malaysia and
Tianjin, China operations and the increase in compliance expense in
the Malaysia operation. This increase was partially offset by
payroll-related cost control measures in the Suzhou, China
operation for the three months ended September 30, 2017 compared to
the same period of last fiscal year.
Selling expenses decreased by $6, or 3.2%, from $185 to $179 for
the three months ended September 30, 2017, compared to the same
period of the last fiscal year. The decrease was mainly due to a
decrease in travel and commission expenses in the manufacturing
segment of our Singapore operations as a result of a decrease in
commissionable revenue.
Research and development expenses increased by $131, or 247.2%,
from $53 to $184 for the three months ended September 30, 2017,
compared to the same period of the last fiscal year. The increase
was mainly due to a one-off project in the Suzhou, China
operations.
Income from Operations
Income from operations was $547 for the three months ended
September 30, 2017, an improvement of $170, as compared to an
income from operations of $377 for the three months ended September
30, 2016. 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, 2017 and
2016 were as follows:
|
|
Three
Months Ended
September
30,
|
|
|
(Unaudited)
|
2017
|
2016
|
|
Interest expenses
|
$58
|
$58
|
Interest expense was $58 for both the three months ended September
30, 2017 and 2016. We are trying to keep our debt at a minimum in
order to save financing costs. As of September 30, 2017,
the Company had an unused line of credit of $4,639.
Other Income
Other income for the three months ended September 30, 2017 and 2016
were as follows:
|
|
Three
Months Ended September 30,
|
|
|
|
2017
|
2016
|
|
Interest
income
|
8
|
4
|
|
Other
rental income
|
26
|
25
|
|
Exchange
(loss)/ gain
|
(6)
|
62
|
|
Bad
debt recovery
|
1
|
-
|
|
Other
miscellaneous income
|
129
|
19
|
|
Total
|
$158
|
$110
|
Other income increased by $48 to $158 for the three months ended
September 30, 2017 from $110 as compared to the same period in the
last fiscal year. The increase was primarily due to a non-recurring
reimbursement income, which was partially offset by the change from
exchange gain to an exchange loss. The deterioration of exchange
gain by $68 from $62 for the three months ended September 30, 2016
to an exchange loss of $6 for the three months ended September 30,
2017 was mainly due to transactional foreign exchange differences
in the Malaysia operation.
Income Tax Expenses
The Company had an income tax expense of $42 for the three months
ended September 30, 2017 as compared to an income tax expense of
$83 for the same period in the last fiscal year. The decrease in
income tax expenses was mainly due to a change from deferred tax
benefit in the same period last fiscal year to deferred tax expense
for timing differences recorded by the Malaysia
operation.
Loss / income from Discontinued Operations, net of tax
Loss from discontinued operations, net of tax, was $3 for the three
months ended September 30, 2017, as compared to an income of $1 for
the same period in last fiscal year.
Non-controlling Interest
As of September 30, 2017, 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 $27, a decrease of $17 compared
to the share of net income of $44 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, 2017 was $575,
an improvement of $272, as compared to a net income of $303 for the
same period last fiscal year.
Earnings per Share
Basic earnings per share from continuing operations was $0.16 for
the three months ended September 30, 2017 as compared to $0.09 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, 2017 and 2016.
Diluted earnings per share from continuing operations was $0.16 for
the three months ended September 30, 2017 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, 2017 and 2016.
Segment Information
The revenue, gross margin and income or loss from operations for
each segment during the first quarter of fiscal year 2018 and
fiscal year 2017 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,
2017 and 2016 were as follows:
|
|
Three
Months Ended
September
30,
|
|
|
(Unaudited)
|
2017
|
2016
|
|
Revenue
|
$4,765
|
$3,671
|
|
Gross margin
|
23.4%
|
23.9%
|
|
Income / (loss) from operations
|
$186
|
$(93)
|
Income from operations from the manufacturing segment was $186
as compared to a loss from operations of $93 in the same period of
the last fiscal year, primarily due to an increase in gross margin,
as discussed earlier, and a decrease in operating expenses. Gross
profit increased by $240 while operating expenses decreased by $38.
Operating expenses for the manufacturing segment were $930 and $969
for the three months ended September 30, 2017 and 2016,
respectively. The $39 decrease in operating expenses was mainly due
to a decrease in general and administrative expenses by $288 which
was partially offset by an increase in research and development
expenses by $131, as discussed earlier, and an increase in
corporate overhead by $128. The decrease in general and
administrative expenses was mainly attributable to a revision in
method of allocation of payroll related expenses between segments
in the Singapore operations. Corporate charges are allocated on a
pre-determined fixed charge basis.
Testing Segment
The revenue, gross margin and income from operations for the
testing segment for the three months ended September 30, 2017 and
2016 were as follows:
|
|
Three
Months Ended
September
30,
|
|
|
(Unaudited)
|
2017
|
2016
|
|
Revenue
|
$4,605
|
$4,157
|
|
Gross margin
|
31.8%
|
32.3%
|
|
Income from operations
|
$336
|
$402
|
Income from operations in the testing segment for the three months
ended September 30, 2017 was $336, a decrease of $66 compared to
$402 in the same period of the last fiscal year. The decrease
in operating income was mainly attributable to an increase in
operating expenses. Operating expenses were $1,130 and $941 for the
three months ended September 30, 2017 and 2016,
respectively. The
$189 increase in operating expenses was mainly due to an increase
in general and administrative expenses by $299, which was partially
offset by a decrease in corporate overhead by $123. The increase in
general and administrative expenses was mainly due to a revision in
method of allocation of payroll related expenses between segments
in the Singapore operations, an increase in staff welfare related
expenses in the Malaysia and Tianjin, China operations and the
increase in compliance expense in the Malaysia operation. Corporate
charges are allocated on a pre-determined fixed charge
basis.
Distribution Segment
The revenue, gross margin and income from operations for the
distribution segment for the three months ended September 30, 2017
and 2016 were as follows:
|
|
Three
Months Ended
September
30,
|
|
|
(Unaudited)
|
2017
|
2016
|
|
Revenue
|
$1,536
|
$1,104
|
|
Gross margin
|
10.9%
|
10.2%
|
|
Income / from operations
|
$101
|
$34
|
Income from operations was $101, for the three months ended
September 30, 2017, as compared to an income from operations of $34
for the same period of last fiscal year. The increase of $67
was mainly due to an increase in gross margin, as discussed
earlier, and a decrease in operating expenses. Gross profit
increased by $55 while operating expenses decreased by $12.
Operating expenses were $67 and $79 for the three months ended
September 30, 2017 and 2016, respectively. The decrease in
operating expenses was mainly a due to a decrease in general and
administrative expenses by $8 and a decrease in corporate overhead
by $4. General and administrative expenses decreased due to cost
control measures in the Suzhou, China operation. Corporate charges
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,
2017 and 2016 were as follows:
|
|
Three
Months Ended
September
30,
|
|
|
(Unaudited)
|
2017
|
2016
|
|
Revenue
|
$39
|
$39
|
|
Gross margin
|
25.6%
|
66.7%
|
|
(Loss) / income from operations
|
$(10)
|
$2
|
Loss from operations in the real estate segment for the three
months ended September 30, 2017 was $10, a deterioration of $12
compared to an income of $2 for the same period of the last fiscal
year. The change was mainly due to a decrease in gross
margin, as discussed earlier. Operating expenses were $20 and $24
for the three months ended September 30, 2017 and 2016,
respectively.
Corporate
The income / (loss) from operations for Corporate for the three
months ended September 30, 2017 and 2016 was as
follows:
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Three
Months Ended
September
30,
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(Unaudited)
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2017
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2016
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(Loss) / income from operations
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$(66)
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$32
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Corporate operating loss was $66 for the three months ended
September 30, 2017, a change of $98 from an income of $32 in the
same period of the last fiscal year. The change from an
operating income to an operating loss was mainly attributable to an
increase in general and administrative expenses by $97 due to an
increase in payroll related expenses and professional
fees.
Financial Condition
During the three months ended September 30, 2017 total assets
increased by $1,208 from $33,498 as at June 30, 2017 to $34,706.
The increase in total assets was primarily due to an increase in
short term deposits, trade accounts receivable, inventory, prepaid
expenses, property, plant and equipment, restricted term deposits,
other assets and deferred tax assets, which were partially offset
by a decrease in cash and cash equivalents and other
receivables.
Cash and cash equivalents were $3,118 as at September 30, 2017,
reflecting a decrease of $1,584 from $4,772 as at June 30,
2017, primarily due lower utilization of credit facilities in our
Singapore operation and prepayment in the Tianjin, China operation,
which were partially offset by the increase due to improved
collection in the Malaysia and U.S. operations.
Short term deposits were $1,043 as at September 30, 2017,
reflecting an increase of $256 from $787 as at June 30, 2017,
primarily due to placement of deposit by the Malaysia
operation.
As at September 30, 2017, the trade accounts receivable balance
increased by $1,163 to $10,172, from $9,009 as at June 30, 2017,
primarily due to the increase in revenue for the first three months
of fiscal year 2018 as compared to the revenue in the fourth
quarter of last fiscal year in the Singapore and Suzhou, China
operations and longer collection cycles in the Singapore
operations. The increase was partially offset by the decrease in in
the Bangkok, Thailand operations due to the decrease in revenue for
the first three months of fiscal year 2018 as compared to the
revenue in the fourth quarter of last fiscal year. The number of
days’ sales outstanding in accounts receivables for the Group
was 79 and 83 days at the end of the first quarter of fiscal year
2018 and for the fiscal year ended 2017, respectively.
As at September 30, 2017 other receivables were $302, reflecting a
decrease of $99 from $401 as at June 30, 2017. 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
2018.
Inventories as at September 30, 2017 were $2,482, an increase of
$726, as compared to $1,756 as at June 30, 2017. The increase in
inventory was mainly due to a delay in shipment as a result of
external factors and higher inventory turnover days in the
Singapore operations.
Prepaid expenses were $336 as at September 30, 2017 compared to
$226 as at June 30, 2017. The increase of $110 was primarily due to
prepayment for software related expenses in the Singapore operation
and insurance in the Singapore and Tianjin, China
operations.
Investment properties, net in China was $1,216 for both as at
September 30, 2017 and as at June 30,
2017.
Property, plant and equipment, net increased by $251 from $11,291
as at June 30, 2017, to $11,542 as at September 30, 2017, mainly
due higher capital expenditure in the Singapore operations and
foreign currency exchange difference between the functional
currency and U.S. dollars for the three months ended September 30,
2017, which was partially offset by depreciation charges being
higher than the capital expenditure in the Tianjin, China
operation.
Restricted cash increased by $29 to $1,686 as at September 30,
2017, as compared to $1,657 as at June 30, 2017. This
was primarily due to foreign currency exchange difference between
functional currency and U.S. dollars from June 30, 2017 to
September 30, 2017.
Other assets increased by $298 to $2,220 as at September 30, 2017,
as compared to $1,922 as at June 30, 2017. This was
mainly due to long-term renovation down-payment in the Tianjin,
China operations and foreign currency exchange difference between
functional currency and U.S. dollars from June 30, 2017 to
September 30, 2017.
Utilized lines of credit decreased by $975 to $1,581 as at
September 30, 2017 compared to $2,556 as at June 30, 2017, which
was mainly due to lower utilization of lines of credit by the
Singapore operation in the first quarter of fiscal year
2018.
Accounts payable increased by $537 to $3,766 as at September 30,
2017, as compared to $3,229 as at June 30, 2017. This was due to
the increase in creditor turnover days in the Singapore operation
and project purchases in the Suzhou, China operation, partially
offset by repayment of payables outstanding as at June 30, 2017 by
the Tianjin, China operations.
Accrued expenses increased by $440 to $3,483 as at September 30,
2017, as compared to $3,043 as at June 30, 2017. The increase in
accrued expenses was mainly due to an increase in purchase accruals
in the Singapore operations.
Bank loans payable increased by $181 to $1,993 as at September 30,
2017, as compared to $1,812 as at June 30, 2017. This was due to an
additional loan made by the Singapore operation, partially offset
by repayment of bank loans by the Malaysia operation.
Capital leases decreased by $54 to $705 as at September 30, 2017,
as compared to $759 as at June 30, 2017. This was due to the
repayment of capital leases by the Singapore and Malaysia
operations.
Liquidity Comparison
Net cash provided by operating activities decreased by $2,463 to an
inflow of $3 for the three months ended September 30, 2017 from an
inflow of $2,466 in the same period of the last fiscal year. The
decrease in net cash inflow provided by operating activities was
primarily due to a decrease in cash inflow of $1,819 from accounts
receivables and $143 from other receivables, and an increase in
cash outflow of $974 from inventories and $227 from other assets.
These were partially offset by a decrease in cash outflow of $477
from accounts payable and accrued expenses.
Net cash used in investing activities decreased by $19 to an
outflow of $763 for the three months ended September 30, 2017 from
an outflow of $782 for the same period of the last fiscal
year. The decrease in cash outflow was primarily due to
a decrease in investments in restricted and unrestricted deposits
of $187, which was partially offset by an increase in cash outflow
of $168 from an increase in capital expenditure.
Net cash used in financing activities for the three months ended
September 30, 2017 was $925, representing a decrease of $244,
as compared to $1,169 during the three months ended September 30,
2016. The decrease was mainly attributable to a $281 increase in
cash inflow from borrowings from bank loans and capital leases,
which was partially offset by an increase in cash outflow of $38
from repayment of lines of credit.
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, 2017, 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.
Except as discussed below, there has been no change in the
Company’s internal control over financial reporting during
the fiscal quarter ended September 30, 2017 that has materially
affected or are reasonably likely to materially affect the
Company’s internal control over financial
reporting.
Enterprise Resource Planning (ERP) Implementation
We are in the process of implementing an ERP System, as part of a
multi-year plan to integrate and upgrade our systems and processes.
The implementation of this ERP system is scheduled to occur in
phases over the next few years, and began with the migration of
certain of our operational and financial systems in our Singapore
operations to the new ERP system during the second quarter of
Fiscal 2017. This implementation effort will continue in Fiscal
2018, when the operational and financial systems in Singapore will
be substantially transitioned to the new system.
As a phased implementation of this system occurs, we are
experiencing certain changes to our processes and procedures which,
in turn, result in changes to our internal control over financial
reporting. While we expect the new ERP system to strengthen our
internal financial controls by automating certain manual processes
and standardizing business processes and reporting across our
organization, management will continue to evaluate and monitor our
internal controls as processes and procedures in each of the
affected areas evolve.
Enhancement of Automated Manufacturing System
During the first quarter of 2018, we enhanced the automated
manufacturing system used by our Malaysia operation resulting in a
material change in internal controls over financial reporting. The
enhancement automates the process of invoice generation and
matching of customer payments against invoices. We believe the
enhancement was necessary to support increased volumes and
transaction complexities related to our business as well to reduce
the number of manual processes employed by the
Company.
TRIO-TECH INTERNATIONAL
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
Not applicable.
Item 1A. Risk Factors
Not applicable
Item 2.
Unregistered Sales of
Equity Securities and Use of Proceeds
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.
On September 21, 2017, the Company issued to one vendor an
aggregate of 10,000 shares of the Common Stock of the Company in
exchange for professional services rendered, which offer and sale
was not registered under the Securities Act. The closing sales
price of the Common Stock on September 21, 2017 was $5.08. The
aggregate consideration in professional services received by the
Company from the vendor was not less than $50,800. The offer and
sale of the shares to the vendor were exempt from registration
under the Securities Act under Section 4(a)(2) of the Securities
Act. No other unregistered sales of securities by the Company
occurred during the period covered by this Form 10-Q.
Item 3.
Defaults Upon Senior
Securities
Not applicable.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5.
Other Information
Not applicable.
Item 6. Exhibits
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Rule 13a-14(a) Certification of Principal Executive Officer of
Registrant
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Rule 13a-14(a) Certification of Principal Financial Officer of
Registrant
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Section 1350 Certification
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly
authorized.
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TRIO-TECH INTERNATIONAL
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By:
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/s/
Victor H.M. Ting
VICTOR H.M. TING
Vice President and Chief Financial Officer
(Principal Financial Officer)
Dated: November 9, 2017
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-43-