10-Q
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 March 31, 2018
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 non-accelerated filer,
or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
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Large Accelerated Filer
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☐
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Accelerated Filer
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☐
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Non-Accelerated Filer
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☐
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Smaller reporting company
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☒
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(Do not check if a smaller reporting company)
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Emerging growth company
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☐
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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 May 1, 2018, there were 3,553,055 shares of the
issuer’s Common Stock, no par value,
outstanding.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION, OTHER
INFORMATION AND SIGNATURE
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Page
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2
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3
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6
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7
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8
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31
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50
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50
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51
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51
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51
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51
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51
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51
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51
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52
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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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ASSETS
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CURRENT
ASSETS:
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Cash
and cash equivalents
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$5,376
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$4,772
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Short-term
deposits
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678
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787
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Trade
accounts receivable, less allowance for doubtful accounts of $262
and $247
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8,617
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9,009
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Other
receivables
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392
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401
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Inventories,
less provision for obsolete inventories of $706 and
$686
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2,369
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1,756
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Prepaid
expenses and other current assets
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219
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226
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Asset
held for sale
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96
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86
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Total current assets
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17,747
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17,037
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NON-CURRENT
ASSETS:
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Deferred
tax assets
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453
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375
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Investment
properties, net
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1,231
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1,216
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Property,
plant and equipment, net
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12,881
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11,291
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Other
assets
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2,315
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1,922
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Restricted
term deposits
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1,761
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1,657
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Total
non-current assets
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18,641
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16,461
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TOTAL ASSETS
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$36,388
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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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$1,311
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$2,556
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Accounts
payable
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2,099
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3,229
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Accrued
expenses
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4,648
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3,043
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Income
taxes payable
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1,117
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233
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Current
portion of bank loans payable
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376
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260
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Current
portion of capital leases
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260
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228
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Total current liabilities
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9,811
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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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1,593
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1,552
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Capital leases,
net of current portion
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614
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531
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Deferred
tax liabilities
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404
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295
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Other
non-current liabilities
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43
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44
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Total
non-current liabilities
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2,654
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2,422
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TOTAL LIABILITIES
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$12,465
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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; 3,553,055 and
3,523,055 shares issued and outstanding, respectively, as at March
31, 2018, and June 30, 2017
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$11,023
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$10,921
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Paid-in
capital
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3,246
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3,206
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Accumulated
retained earnings
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4,850
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4,341
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Accumulated
other comprehensive gain-translation adjustments
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3,248
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1,633
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Total Trio-Tech International shareholders'
equity
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22,367
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20,101
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Non-controlling
interest
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1,556
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1,426
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TOTAL
EQUITY
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$23,923
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$21,527
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TOTAL LIABILITIES AND EQUITY
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$36,388
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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
UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
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Revenue
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Manufacturing
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$3,124
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$4,230
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$11,862
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$11,221
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Testing
services
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4,913
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3,977
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14,454
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12,204
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Distribution
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2,033
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1,581
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5,175
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4,360
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Others
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34
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37
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110
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115
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10,104
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9,825
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31,601
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27,900
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Cost of Sales
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Cost
of manufactured products sold
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2,530
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3,345
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9,246
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8,762
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Cost
of testing services rendered
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3,491
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2,597
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9,881
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8,069
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Cost
of distribution
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1,821
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1,407
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4,598
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3,899
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Others
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30
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29
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89
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71
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7,872
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7,378
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23,814
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20,801
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Gross Margin
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2,232
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2,447
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7,787
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7,099
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Operating Expenses:
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General
and administrative
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1,773
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1,659
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5,339
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5,178
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Selling
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181
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222
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612
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587
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Research
and development
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75
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51
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377
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156
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(Gain)
/ Loss on disposal of property, plant and equipment
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(31)
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30
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(20)
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38
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Total
operating expenses
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1,998
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1,962
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6,308
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5,959
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Income from Operations
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234
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485
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1,479
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1,140
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Other (Expenses) / Income
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Interest
expense
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(64)
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(43)
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(174)
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(149)
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Other income,
net
|
111
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45
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311
|
358
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Total
other income
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47
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2
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137
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209
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Income from Continuing Operations before Income
Taxes
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281
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487
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1,616
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1,349
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Income Tax Expenses
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(980)
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(106)
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(1,035)
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(256)
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Income from continuing operations before non-controlling interest,
net of tax
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(699)
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381
|
581
|
1,093
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|
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Discontinued Operations (Note 19)
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Loss
from discontinued operations, net of tax
|
(6)
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(1)
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(11)
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(4)
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NET (LOSS)/INCOME
|
(705)
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380
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570
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1,089
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Less:
income attributable to non-controlling interest
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34
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30
|
61
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126
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Net (Loss) / Income Attributable to Trio-Tech International Common
Shareholder
|
$(739)
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$350
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$509
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$963
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|
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Amounts Attributable to Trio-Tech International Common
Shareholders:
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|
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(Loss)
/ Income from continuing operations, net of tax
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(736)
|
351
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520
|
970
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Loss
from discontinued operations, net of tax
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(3)
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(1)
|
(11)
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(7)
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|
Net (Loss) / Income Attributable to Trio-Tech International Common
Shareholders
|
$(739)
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$350
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$509
|
$963
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|
|
|
|
|
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|
Basic Earnings per Share:
|
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Basic
per share from continuing operations attributable to Trio-Tech
International
|
$(0.21)
|
$0.10
|
$0.15
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$0.28
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Basic
earnings per share from discontinued operations attributable to
Trio-Tech International
|
$-
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$-
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$-
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$-
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|
Basic Earnings per Share from Net Income
Attributable to Trio-Tech International
|
$(0.21)
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$0.10
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$0.15
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$0.28
|
|
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Diluted Earnings per Share:
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Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
|
$(0.20)
|
$0.10
|
$0.14
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$0.27
|
|
Diluted
earnings per share from discontinued operations attributable to
Trio-Tech International
|
$-
|
$-
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$-
|
$-
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|
Diluted Earnings per Share from Net Income
|
|
|
|
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Attributable to Trio-Tech International
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$(0.20)
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$0.10
|
$0.14
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$0.27
|
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|
|
|
|
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Weighted
average number of common shares outstanding
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|
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|
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Basic
|
3,553
|
3,523
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3,553
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3,523
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Dilutive
effect of stock options
|
219
|
116
|
225
|
54
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|
Number of shares used to compute earnings per share
diluted
|
3,772
|
3,639
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3,778
|
3,577
|
See notes to condensed consolidated financial
statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
UNAUDITED (IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income Attributable to Trio-Tech
International Common Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) / income
|
$(705)
|
$380
|
$570
|
$1,089
|
|
Foreign
currency translation, net of tax
|
849
|
290
|
1,809
|
(1,087)
|
|
Comprehensive Income
|
144
|
670
|
2,379
|
2
|
|
Less:
comprehensive income / (loss)attributable to non-controlling
interest
|
142
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(38)
|
255
|
(75)
|
|
Comprehensive Income Attributable to Trio-Tech International Common
Shareholders
|
$2
|
$708
|
$2,124
|
$77
|
|
|
|
|
|
|
See notes to condensed consolidated financial
statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY
(IN THOUSANDS)
Nine Months ended March 31, 2018
|
|
|
|
|
Accumulated Other
Comprehensive
|
|
|
|
|
|
|
|
|
|
|
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|
Balance
at June 30, 2017
|
3,523
|
$10,921
|
$3,206
|
$4,341
|
$1,633
|
$1,426
|
$21,527
|
|
Stock
option expenses
|
-
|
-
|
40
|
-
|
-
|
-
|
40
|
|
Net
income
|
-
|
-
|
-
|
509
|
-
|
61
|
570
|
|
Dividend
declared by subsidiary
|
-
|
-
|
-
|
-
|
-
|
(125)
|
(125)
|
|
Exercise of
options
|
20
|
51
|
-
|
-
|
-
|
-
|
51
|
|
Issue
of restricted shares to consultant
|
10
|
51
|
-
|
-
|
-
|
-
|
51
|
|
Translation
adjustment
|
-
|
-
|
-
|
-
|
1,615
|
194
|
1,809
|
|
Balance
at Mar. 31, 2018
|
3,553
|
11,023
|
3,246
|
4,850
|
3,248
|
1,556
|
23,923
|
Nine Months ended March 31, 2017
|
|
|
|
|
Accumulated Other
Comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2016
|
3,513
|
$10,882
|
3,188
|
$3,025
|
2,162
|
$1,614
|
$20,871
|
|
Stock
option expenses
|
-
|
-
|
16
|
-
|
-
|
-
|
16
|
|
Net
income
|
-
|
-
|
-
|
963
|
-
|
126
|
1,089
|
|
Dividend
declared by subsidiary
|
-
|
-
|
-
|
-
|
-
|
(177)
|
(177)
|
|
Issue
of restricted shares to consultant
|
10
|
39
|
-
|
-
|
-
|
-
|
39
|
|
Translation
adjustment
|
-
|
-
|
-
|
-
|
(886)
|
(201)
|
(1,087)
|
|
Balance
at Mar. 31, 2017
|
3,523
|
10,921
|
3,204
|
3,988
|
1,276
|
1,362
|
20,751
|
See notes to condensed consolidated financial
statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED (IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Operating Activities
|
|
|
|
Net
income
|
$570
|
$1,089
|
|
Adjustments
to reconcile net income to net cash flow provided by operating
activities
|
|
|
|
Depreciation
and amortization
|
1,594
|
1,358
|
|
Stock
option expenses
|
40
|
16
|
|
Issue
of restricted shares to consultant
|
51
|
39
|
|
Reversal
of provision for obsolete inventories
|
(4)
|
(5)
|
|
Bad
debt recovery, net
|
-
|
(15)
|
|
Accrued
interest expense, net of accrued interest income
|
148
|
132
|
|
(Gain)
/ Loss on sale of property, plant and equipment - continued
operations
|
(20)
|
8
|
|
Write-off
of property, plant and equipment
|
-
|
30
|
|
Warranty
recovery, net
|
1
|
(6)
|
|
Deferred
tax provision
|
33
|
88
|
|
Changes
in operating assets and liabilities, net of acquisition
effect
|
|
|
|
Trade
accounts receivable
|
392
|
491
|
|
Other receivables
|
9
|
286
|
|
Other assets
|
(327)
|
(199)
|
|
Inventories
|
(506)
|
(729)
|
|
Prepaid expenses and other current assets
|
7
|
(44)
|
|
Accounts payable and accrued expenses
|
250
|
491
|
|
Income tax payable
|
884
|
(17)
|
|
Net Cash Provided by Operating Activities
|
3,122
|
3,013
|
|
|
|
|
|
Cash Flow from Investing Activities
|
|
|
|
Proceeds
from maturing of unrestricted and restricted term deposits and
short-term deposits, net
|
484
|
488
|
|
Investments
in restricted and unrestricted deposits
|
(281)
|
(421)
|
|
Additions
to property, plant and equipment
|
(2,050)
|
(1,467)
|
|
Proceeds
from disposal of plant, property and equipment
|
42
|
83
|
|
Net Cash Used in Investing Activities
|
(1,805)
|
(1,317)
|
|
|
|
|
|
Cash Flow from Financing Activities
|
|
|
|
Repayment
on lines of credit
|
(7,397)
|
(6,171)
|
|
Proceeds
from bank loans and capital leases
|
6,570
|
5,850
|
|
Proceeds from
exercising of stock options
|
51
|
-
|
|
Dividends
paid to non-controlling interest
|
(125)
|
(177)
|
|
Repayment
of bank loans and capital leases
|
(554)
|
(547)
|
|
Net Cash Used in Financing Activities
|
(1,455)
|
(1,045)
|
|
|
|
|
|
Effect of Changes in Exchange Rate
|
742
|
(449)
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
604
|
202
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
4,772
|
3,807
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$5,376
|
$4,009
|
|
|
|
|
|
Supplementary Information of Cash Flows
|
|
|
|
Cash
paid during the period for:
|
|
|
|
Interest
|
$138
|
$132
|
|
Income
taxes
|
$225
|
$122
|
|
|
|
|
|
Non-Cash Transactions
|
|
|
|
Capital
lease of property, plant and equipment
|
$228
|
$49
|
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
third 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:
|
|
|
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
(Suzhou) 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 unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(“U.S. 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 U.S. 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 nine months ended
March 31, 2018 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
These
amendments in ASU 2018-02 ASC Topic 220: Income Statement –
Reporting Comprehensive Income. The amendments provide financial
statement preparers with an option to reclassify stranded tax
effects within Accumulated Other Comprehensive Income to retained
earnings in each period in which the effect of the change in the
U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act
(or portion thereof) is recorded. The
amendments in ASC Topic 220 are effective for public business
entities for fiscal years beginning after December 15, 2018, 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 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 2017-07 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 will have no 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 2016-15 ASC Topic 230
—Statement of Cash
Flows: These amendments provide
cash flow 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 2016-02 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 amendments in ASU 2016-01 ASC Financial Instruments ─
Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities: The amendments among other things
–(a) requires equity investments (except those accounted for
under the equity method of accounting, or those that result in
consolidation of the investee) to be measured at fair value with
changes in fair value recognized in net income, (b) Requires public
business entities to use the exit price notion when measuring the
fair value of financial instruments for disclosure purposes,
Requires separate presentation of financial assets and financial
liabilities by measurement category and form of financial asset
(i.e., securities or loans and receivables), (c) Eliminates the
requirement for public business entities to disclose the method(s)
and significant assumptions used to estimate the fair value that is
required to be disclosed for financial instruments measured at
amortized cost. For public companies, these amendments are
effective for fiscal years beginning after December 15, 2017,
including 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 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 will have no 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.
Other new pronouncements issued but not yet effective until after
March 31, 2018 are not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
3. TERM
DEPOSITS
|
|
Mar.
31,
2018
(Unaudited)
|
|
|
|
|
|
|
Short-term
deposits
|
$602
|
$824
|
|
Currency
translation effect on short-term deposits
|
76
|
(37)
|
|
Total short-term deposits
|
678
|
787
|
|
Restricted
term deposits
|
1,662
|
1,722
|
|
Currency
translation effect on restricted term deposits
|
99
|
(65)
|
|
Total restricted term deposits
|
1,761
|
1,657
|
|
Total Term deposits
|
$2,439
|
$2,444
|
Restricted term 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 that do not qualify as cash equivalents.
4. TRADE 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 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 potentially will 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 believes the
allowance for doubtful accounts as of March 31, 2018, and June 30,
2017 was adequate.
The following table represents the changes in the allowance for
doubtful accounts:
|
|
Mar.
31,
2018
(Unaudited)
|
|
|
Beginning
|
$247
|
$270
|
|
Additions
charged to expenses
|
-
|
65
|
|
Recovered
|
(1)
|
(78)
|
|
Write-off
|
-
|
(2)
|
|
Currency
translation effect
|
16
|
(8)
|
|
Ending
|
$262
|
$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 March 31, 2018. 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 March 31, 2018.
|
|
|
|
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 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 March 31, 2018,
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:
|
|
Mar.
31,
2018
(Unaudited)
|
|
|
|
|
|
|
Raw
materials
|
$1,293
|
$1,047
|
|
Work
in progress
|
1,294
|
1,045
|
|
Finished
goods
|
362
|
365
|
|
Less:
provision for obsolete inventories
|
(706)
|
(686)
|
|
Currency
translation effect
|
126
|
(15)
|
|
|
$2,369
|
$1,756
|
The
following table represents the changes in provision for obsolete
inventories:
|
|
Mar.
31,
2018
(Unaudited)
|
|
|
|
|
|
|
Beginning
|
$686
|
$697
|
|
Additions
charged to expenses
|
-
|
6
|
|
Usage
- disposition
|
(4)
|
(6)
|
|
Currency
translation effect
|
24
|
(11)
|
|
Ending
|
$706
|
$686
|
7. ASSET HELD FOR SALE
During
the fourth quarter of 2015, the operations in Malaysia planned to
sell its factory building in Penang, Malaysia. In May 2015,
Trio-Tech Malaysia was approached by a potential buyer to purchase
the factory building. Negotiation is still ongoing and is subject
to approval by Penang Development Corporation. In accordance with
ASC Topic 360, during fiscal year 2015, the property was
reclassified from investment property, which had a net book value
of RM 371, or approximately $92, to asset held for sale, since
there was an intention to sell the factory building. The net book
values of the building were RM 371, or approximately $96, as at
March 31, 2018 and RM 371, or approximately $86, as at June 30,
2017. As at end of March 31, 2018, management is still actively
looking for a suitable buyer.
8. INVESTMENTS
Investments were nil as at March 31, 2018 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 bidding 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 2017 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 installments, amounting 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 subsequent discussions with the developer and the
overall China market outlook, the completion date is currently
estimated to be December 31, 2019.
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 March 31, 2018. The exchange rate is
based on the market exchange rate as of March 31,
2018.
|
|
|
|
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
|
|
-
|
(28)
|
|
Gross
investment in rental property
|
|
13,179
|
2,094
|
|
Accumulated
depreciation on rental property
|
Mar 31, 2018
|
(5,431)
|
(863)
|
|
Net investment in property – China
|
|
7,748
|
1,231
|
The following table presents the Company’s investment in
properties in China as of June 30, 2017. The exchange rate is based
on the exchange rate as of June 30, 2017, published by the Monetary
Authority of Singapore.
|
|
|
|
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
|
Jun
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 March 31, 2018 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 Amount
(U.S. Dollars)
|
|
Reclassification
of rental property – Penang Property I
|
Dec
31, 2012
|
681
|
181
|
|
Gross
investment in rental property
|
|
681
|
181
|
|
Accumulated
depreciation on rental property
|
June 30, 2015
|
(310)
|
(83)
|
|
Reclassified
as “Asset held for sale”
|
June
30, 2015
|
(371)
|
(98)
|
|
Net investment in property – Malaysia
|
|
-
|
-
|
Rental Property I – MaoYe
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. The tenant terminated the
contract in end July 2015, due to the downsizing of their overall
operations. 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 $22 and
$75 for the three and nine months ended March 31, 2018,
respectively, and $24 and $76 for the same periods in the last
fiscal year, respectively.
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 and nine months ended March 31, 2018 and
for the same periods in the last fiscal year.
Other Properties III – Fu Li
In fiscal 2010, TTCQ entered into a Memorandum of 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. Management
is actively looking for a suitable tenant.
Properties purchased from Fu Li generated a rental income of $12
and $35 for the three and nine months ended March 31, 2018,
respectively, while it generated a rental income of $13 and $39,
respectively, for the same periods 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 March 31, 2018 the net book
value was RM 369, or approximately $96.
Summary
Total rental income for all investment properties in China was $34
and $110 for the three and nine months ended March 31, 2018,
respectively, and was $37 and $115, respectively, for the same
periods in the last fiscal year.
Depreciation
expenses for all investment properties in China were $25 and $74
for the three and nine months ended March 31, 2018, respectively,
and were $24 and $71, respectively, for the same periods in the
last fiscal year.
10. OTHER ASSETS
Other
assets consisted of the following:
|
|
Mar.
31, 2018
(Unaudited)
|
|
|
Down-payment
for purchase of investment properties
|
$1,645
|
$1,645
|
|
Down-payment
for purchase of property, plant and equipment
|
515
|
280
|
|
Deposits
for rental and utilities
|
140
|
139
|
|
Currency
translation effect
|
15
|
(142)
|
|
Total
|
$2,315
|
$1,922
|
11. LINES OF CREDIT
The 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 March 31, 2018, the Company had certain lines of credit that
are collateralized by restricted deposits.
|
Entity
with
|
Type
of
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
Lines
of Credit
|
Ranging from 1.8%
to 5.5%
|
-
|
$4,730
|
$4,390
|
Trio-Tech (Malaysia) Sdn. Bhd.
|
Lines
of Credit
|
Ranging from 3.6%
to 5%
|
-
|
$816
|
$816
|
Trio-Tech (Tianjin) Co., Ltd.
|
Lines
of Credit
|
Ranging from 4.9%
to 6.3%
|
-
|
$1,589
|
$618
|
As of June 30, 2017, the Company had certain lines of credit that
are collateralized by restricted deposits.
|
Entity
with
|
Type
of
|
|
|
|
|
|
|
|
|
|
|
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
Lines of
Credit
|
Ranging from
1.6% to 5.5%
|
-
|
$4,496
|
$2,815
|
|
Trio-Tech (Malaysia)
Sdn. Bhd.
|
Lines of
Credit
|
Ranging from
3.6% to 5%
|
-
|
$734
|
$734
|
|
Trio-Tech (Tianjin)
Co., Ltd.
|
Lines of
Credit
|
5.22%
|
-
|
$885
|
$10
|
12. ACCRUED EXPENSES
Accrued expenses consisted of the
following:
|
|
Mar.
31, 2018
(Unaudited)
|
|
|
Payroll
and related costs
|
$1,292
|
$1,568
|
|
Commissions
|
125
|
107
|
|
Customer
deposits
|
620
|
218
|
|
Legal
and audit
|
327
|
283
|
|
Sales
tax
|
10
|
80
|
|
Utilities
|
127
|
142
|
|
Warranty
|
49
|
49
|
|
Accrued
purchase of materials and property, plant and
equipment
|
1,305
|
33
|
|
Provision
for re-instatement
|
289
|
295
|
|
Other
accrued expenses
|
280
|
319
|
|
Currency
translation effect
|
224
|
(51)
|
|
Total
|
$4,648
|
$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.
|
|
Mar.
31,
2018
(Unaudited)
|
|
|
Beginning
|
$48
|
$76
|
|
Additions
charged to cost and expenses
|
19
|
46
|
|
Utilization
/ reversal
|
(18)
|
(73)
|
|
Currency
translation effect
|
1
|
(1)
|
|
Ending
|
$50
|
$48
|
14. BANK LOANS PAYABLE
|
Bank
loans payable consisted of the following:
|
Mar.
31, 2018
(Unaudited)
|
|
|
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% and 5.25% at March 31, 2018 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 $2,931 and 2,671, as at March 31, 2018 and June 30, 2017,
respectively.
|
1,805
|
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 March 31,
2018 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 $219 and $224, as at
March 31, 2018 and June 30, 2017, respectively.
|
342
|
196
|
|
|
|
|
|
Total Bank loans payable
|
2,147
|
1,931
|
|
|
|
|
|
Current
portion of bank loans payable
|
399
|
271
|
|
Currency
translation effect on current portion of bank loans
|
(23)
|
(11)
|
|
Current
portion of bank loan payable
|
376
|
260
|
|
Long
term portion of bank loans payable
|
1,748
|
1,660
|
|
Currency
translation effect on long-term portion of bank loans
|
(155)
|
(108)
|
|
Long
term portion of bank loans payable
|
$1,593
|
$1,552
|
Future minimum payments (excluding interest) as at March 31, 2018
were as follows:
|
2018
|
$376
|
|
2019
|
393
|
|
2020
|
277
|
|
2021
|
262
|
|
2022
|
67
|
|
Thereafter
|
594
|
|
Total obligations and commitments
|
$1,969
|
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 99, or approximately
$26, based on the exchange rate as at March 31, 2018 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 274, or approximately $44, based on the exchange
rate as at March 31, 2018 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
$85 and $766 for the three and nine months ended March 31, 2018,
respectively, as compared to $20 and $302, respectively, for
the same periods 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 unaudited for the nine months
ended March 31:
Business Segment
Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$11,862
|
$188
|
$7,035
|
$86
|
$63
|
|
|
2017
|
$11,221
|
$(153)
|
$8,321
|
$141
|
$89
|
|
|
|
|
|
|
|
|
|
|
2018
|
14,454
|
1,281
|
24,790
|
1,432
|
1,987
|
|
|
2017
|
12,204
|
990
|
18,814
|
1,141
|
1,378
|
|
|
|
|
|
|
|
|
|
|
2018
|
5,175
|
337
|
631
|
-
|
-
|
|
|
2017
|
4,360
|
235
|
679
|
2
|
-
|
|
|
|
|
|
|
|
|
|
|
2018
|
110
|
(38)
|
3,732
|
76
|
-
|
|
|
2017
|
115
|
(20)
|
3,229
|
74
|
-
|
|
|
|
|
|
|
|
|
|
|
2018
|
-
|
-
|
28
|
-
|
-
|
|
|
2017
|
-
|
-
|
28
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
2018
|
-
|
(289)
|
172
|
-
|
-
|
|
|
2017
|
-
|
88
|
464
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
2018
|
$31,601
|
$1,479
|
$36,388
|
$1,594
|
$2,050
|
|
|
2017
|
$27,900
|
$1,140
|
$31,535
|
$1,358
|
$1,467
|
The following segment information is unaudited for the three months
ended March 31:
Business Segment
Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3,124
|
$(105)
|
$7,035
|
$30
|
$26
|
|
|
2017
|
$4,230
|
$169
|
$8,321
|
$42
|
$11
|
|
|
|
|
|
|
|
|
|
|
2018
|
4,913
|
428
|
24,790
|
519
|
517
|
|
|
2017
|
3,977
|
200
|
18,814
|
376
|
692
|
|
|
|
|
|
|
|
|
|
|
2018
|
2,033
|
117
|
631
|
-
|
-
|
|
|
2017
|
1,581
|
101
|
679
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
2018
|
34
|
(18)
|
3,732
|
26
|
-
|
|
|
2017
|
37
|
(14)
|
3,229
|
24
|
-
|
|
|
|
|
|
|
|
|
|
|
2018
|
-
|
-
|
28
|
-
|
-
|
|
|
2017
|
-
|
-
|
28
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
2018
|
-
|
(188)
|
172
|
-
|
-
|
|
|
2017
|
-
|
29
|
464
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
2018
|
$10,104
|
$234
|
$36,388
|
$575
|
$543
|
|
|
2017
|
$9,825
|
$485
|
$31,535
|
$442
|
$703
|
* Fabrication services is
a discontinued operation (Note 19).
17. OTHER INCOME, NET
Other
income / (expenses) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
19
|
14
|
39
|
26
|
|
Other
rental income
|
28
|
24
|
81
|
74
|
|
Exchange
(loss)/ gain
|
(5)
|
(88)
|
(27)
|
93
|
|
Other
miscellaneous income
|
69
|
95
|
218
|
165
|
|
Total
|
$111
|
$45
|
$311
|
$358
|
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 2014 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 Tax
Cuts and Jobs Act (the “Tax Act”) was enacted on
December 22, 2017, and reduced the U.S. federal corporate tax rate
from 35% to 21%, eliminated corporate Alternative Minimum Tax,
modified rules for expensing capital investment, and limits the
deduction of interest expense for certain companies. The Tax Act is
a fundamental change to the taxation of multinational companies,
including a shift from a system of worldwide taxation with some
deferral elements to a territorial system, current taxation of
certain foreign income, a minimum tax on low tax foreign earnings,
and new measures to curtail base erosion and promote U.S.
production.
As the
Company has a June 30 fiscal year end, the lower corporate income
tax rate will be phased in, resulting in a lower US statutory
federal rate. Accounting Standard Codification (“ASC”)
740 requires filers to record the effect of tax law changes in the
period enacted. The Company recognized income tax expenses of $900
related to the one-time deemed repatriation. No expenses have been
recognized related to the deferred tax re-measurement and minimum
tax on low tax foreign earnings.
Discussion
of the certain material provisions affecting the Company is
provided below.
One-Time Mandatory Repatriation
One of
the effects of the Tax Act is to transition from world wide to
territorial tax system, The Tax Act requires a mandatory one-time
repatriation of certain post-1986 earnings and profits that were
deferred from US taxation by Company’s foreign subsidiaries.
The Company recognized an income tax expense and payable of $900
for the three and nine months ended March 31, 2018. The basis of
the tax is on cash held and specified assets which are taxed at
15.5% and 8.0%, respectively. The Company may elect to pay the
repatriation tax over an 8-year period.
The
computation of the post-1986 earning and profits used estimates and
are preliminary amounts which will be finalized during the
measurement period.
Minimum Tax on Low Tax Foreign Earnings
The Tax
Act implemented the inclusion in gross income for the “global
intangible low-tax income” for any taxable year beginning on
or after January 1, 2018. This provision significantly expands
current taxation of foreign subsidiary corporate earnings. The
Company must generally include in current income all earnings of
the foreign subsidiaries in excess of the assumed deemed return on
tangible assets of the foreign subsidiaries. The Company has not
computed the impact of the provisions to determine whether to elect
to either provide for the minimum tax as future income tax expense
as a period expense or as a deferred tax on the related investment
in foreign subsidiaries.
Deferred Tax Re-Measurement
The
re-measurement is based on the expected reversals of the deferred
taxes at the estimated US federal tax rates of 28% for current
fiscal year and 21% for future fiscal years. As the Company
established a full valuation allowance on the US deferred tax
assets, the Company has not recognized any income tax effects for
the deferred tax re-measurement under the Tax Act.
Effective Tax Rate Effects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before Income Taxes
|
$281
|
$487
|
$1,616
|
$1,349
|
|
Income
Taxes Expenses
|
$980
|
$106
|
$1,035
|
$256
|
|
Effective
tax rate
|
348.75%
|
21.77%
|
64%
|
18.98%
|
The Act
impacted the Company’s effective tax rate which recorded at
348.75% for fiscal 2018 compared to 21.77% for fiscal 2017. This
tax effects were primarily due to estimated charge of $900 recorded
as a component of provision for income taxes from continuing
operations.
The
Company had an income tax expense of $980 and $1,035 for the three
and nine months ended March 31, 2018, respectively, as compared to
income tax expense of $106 and $256, respectively, for the same
periods in the last fiscal year. The increase in income tax
expenses was mainly due to higher incomes generated by the
subsidiaries which has carry forward tax losses which was partially
offset by increase in deferred tax for timing differences recorded
by Singapore and Malaysia operation. The income tax expenses
included withholding 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 March 31,
2018 and June 30, 2017.
As per the Staff Accounting Bulletin No. 118 (“SAB
118”) issued by SEC “no related provisional amount
would be included in an entity’s financial statements for
those specific income tax effects for which a reasonable estimate
cannot be determined”. Based on the SAB 118 guidance, the
company did not provide for tax payable in Q2 of the financial year
2018 as it was unable to determine a reasonable estimate to be
included as provisional amounts.
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 $58 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 either the three or nine months ended
March 31, 2018 and 2017. 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 from discontinued operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$-
|
$-
|
$-
|
$-
|
|
Cost
of sales
|
-
|
-
|
-
|
-
|
|
Gross
margin
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
General
and administrative
|
-
|
-
|
-
|
1
|
|
Total
|
-
|
-
|
-
|
1
|
|
|
|
|
|
|
|
Other
expenses
|
(3)
|
-
|
(5)
|
(3)
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
(3)
|
-
|
(5)
|
(1)
|
|
|
|
|
|
|
|
Less:
Loss attributable to Non-controlling interest
|
(3)
|
(1)
|
(6)
|
-
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
$(6)
|
$(1)
|
$(11)
|
$(4)
|
The Company does not provide a separate cash flow statement for the
discontinued operation, as the impact of the discontinued operation
was immaterial.
20. EARNINGS PER SHARE
The Company adopted ASC Topic 260, Earnings Per Share.
Basic earnings per share
(“EPS”) are 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income attributable to Trio-Tech International common shareholders
from continuing operations, net of tax
|
$(736)
|
351
|
520
|
970
|
|
Loss
attributable to Trio-Tech International common shareholders from
discontinued operations, net of tax
|
(3)
|
(1)
|
(11)
|
(7)
|
|
Net Income Attributable to Trio-Tech International Common
Shareholders
|
$(739)
|
350
|
509
|
963
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic
|
3,553
|
3,523
|
3,553
|
3,523
|
|
|
|
|
|
|
|
Dilutive
effect of stock options
|
219
|
116
|
225
|
54
|
|
Number of shares used to compute earnings per share -
diluted
|
3,772
|
3,639
|
3,778
|
3,577
|
|
|
|
|
|
|
|
Basic
earnings per share from continuing operations attributable to
Trio-Tech International
|
$(0.21)
|
0.10
|
0.15
|
0.28
|
|
Basic earnings
per share from discontinued operations attributable to Trio-Tech
International
|
-
|
-
|
-
|
-
|
|
Basic earnings per share from net income attributable to Trio-Tech
International
|
$(0.21)
|
$0.10
|
$0.15
|
$0.28
|
|
|
|
|
|
|
|
Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
|
$(0.20)
|
0.10
|
0.14
|
0.27
|
|
Diluted
earnings per share from discontinued operations attributable to
Trio-Tech International
|
-
|
-
|
-
|
|
|
Diluted earnings per share from net income attributable to
Trio-Tech International
|
$(0.20)
|
$0.10
|
$0.14
|
$0.27
|
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.
These two plans are administered by the Board, which also
establishes the terms of the awards.
On
September 14, 2017, the Company’s Board of Directors
unanimously adopted the 2017 Employee Stock Option Plan (the
“2017 Employee Plan”) and the 2017 Directors Equity
Incentive Plan (the “2017 Directors Plan”) each of
which was approved by the shareholders on December 4, 2017. At
present, the 2017 Employee Plan provides for awards of up to
300,000 shares of the Company’s Common Stock to its
employees, consultants and advisors. At present, the 2017 Directors
Plan provides for awards of up to 300,000 shares of the
Company’s Common Stock to the members of the Company’s
Board of Directors in the form of non-qualified options and
restricted stock. These two plans are administered by the Board,
which also establishes the terms of the awards.
Assumptions
The
fair value for the options granted were estimated using the
Black-Scholes option pricing model with the following weighted
average assumptions, assuming no expected dividends:
|
|
|
|
|
March 31,
|
|
|
|
|
|
Expected
volatility
|
|
|
|
Risk-free interest
rate
|
|
|
|
Expected life
(years)
|
2.50 – 3.25
|
2.50 – 3.25
|
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.
2017 Employee Stock Option Plan
The
Company’s 2017 Employee Plan permits the grant of stock
options to its employees covering up to an aggregate of 300,000
shares of Common Stock. Under the 2017 Employee Plan, all options
must be granted with an exercise price of not less than fair value
as of the grant date and the options granted must be exercisable
within a maximum of ten years after the date of grant, or such
lesser period of time as is set forth in the stock option
agreements. The options may be exercisable (a) immediately as of
the effective date of the stock option agreement granting the
option, or (b) in accordance with a schedule related to the date of
the grant of the option, the date of first employment, or such
other date as may be set by the Compensation Committee. Generally,
options granted under the 2017 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 2017 Employee Plan).
On
March 23, 2018, the Company granted options to purchase 60,000
shares of its Common Stock to employee directors pursuant to the
2017 Employee Plan during the nine month ended March 31, 2018. The
Company recognized stock-based compensation expenses of $4 in the
nine months ended March 31, 2018 under the 2017 Employee Plan. The
balance of unamortized stock-based compensation of $11 based on
fair value on the grant date related to options granted under the
2017 Employee Plan is to be recognized over a period of three
years. No stock options were exercised during the three and nine
months ended March 31, 2017.
As of
March 31, 2018, there were vested employee stock options covering a
total of 15,000 shares of Common Stock. The weighted-average
exercise price was $5.98 and the weighted average contractual term
was 4.98 years. The total fair value of vested employee stock
options was $90 and remains outstanding as of March 31,
2018.
A
summary of option activities under the 2017 Employee Plan during
the Nine-month period ended March 31, 2018 is presented as
follows:
|
|
|
Weighted
Average
Exercise
Price
|
Weighted
Average Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
Outstanding
at July 1, 2017
|
-
|
$-
|
-
|
$-
|
|
Granted
|
60,000
|
5.98
|
4.98
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding at March 31, 2018
|
60,000
|
5.98
|
4.98
|
-
|
|
Exercisable at March 31, 2018
|
60,000
|
5.98
|
4.98
|
-
|
A
summary of the status of the Company’s non-vested employee
stock options during the nine months ended March 31, 2018 is
presented below:
|
|
|
Weighted Average
Grant-Date
Fair
Value
|
|
|
|
|
|
Non-vested
at July 1, 2017
|
-
|
$-
|
|
Granted
|
60,000
|
5.98
|
|
Vested
|
(15,000)
|
5.98
|
|
Forfeited
|
-
|
-
|
|
Non-vested at March 31, 2018
|
45,000
|
$3.83
|
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 nine months ended March 31, 2018. There were no
options exercised during the nine months ended March 31, 2018. The
Company recognized stock-based compensation expenses of $3 in the
nine months ended March 31, 2018 under the 2007 Employee Plan. The
balance unamortized stock-based compensation of $2 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.
On
March 30, 2017, the Company granted options to purchase 37,500
shares of its Common Stock to employee directors pursuant to the
2007 Employee Plan during the nine months ended March 31, 2017. The
Company recognized stock-based compensation expenses of $4 in the
nine months ended March 31, 2017 under the 2007 Employee Plan. The
balance of unamortized stock-based compensation of $6 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. No
stock options were exercised during the three and nine months ended
March 31, 2017.
As of
March 31, 2018, there were vested employee stock options covering a
total of 98,750 shares of Common Stock. The weighted-average
exercise price was $3.43 and the weighted average contractual term
was 1.98 years.
As of
March 31, 2017, there were vested employee stock options covering a
total of 79,375 shares of Common Stock. The weighted-average
exercise price was $3.36 and the weighted average contractual term
was 2.61 years.
A
summary of option activities under the 2007 Employee Plan during
the Nine-month period ended March 31, 2018 is presented as
follows:
|
|
|
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 March 31, 2018
|
127,500
|
3.52
|
2.35
|
285
|
|
Exercisable at March 31, 2018
|
98,750
|
3.43
|
1.98
|
230
|
A
summary of option activities under the 2007 Employee Plan during
the Nine-month period ended March 31, 2017 is presented as
follows:
|
|
|
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
|
37,500
|
4.14
|
5.00
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding at March 31, 2017
|
127,500
|
$3.52
|
3.35
|
$79
|
|
Exercisable at March 31, 2017
|
79,375
|
$3.36
|
2.61
|
$62
|
A
summary of the status of the Company’s non-vested employee
stock options during the nine months ended March 31, 2018 is
presented below:
|
|
|
Weighted Average
Grant-Date
Fair
Value
|
|
|
|
|
|
Non-vested
at July 1, 2017
|
48,125
|
$3.77
|
|
Granted
|
-
|
-
|
|
Vested
|
(19,375)
|
(3.43)
|
|
Forfeited
|
-
|
-
|
|
Non-vested at March 31, 2018
|
28,750
|
$3.83
|
A
summary of the status of the Company’s non-vested employee
stock options during the nine months ended March 31, 2017 is
presented below:
|
|
|
Weighted Average
Grant-Date
Fair
Value
|
|
|
|
|
|
Non-vested
at July 1, 2016
|
38,750
|
$3.22
|
|
Granted
|
37,500
|
4.14
|
|
Vested
|
(28,125)
|
(3.19)
|
|
Forfeited
|
-
|
-
|
|
Non-vested at March 31, 2017
|
48,125
|
$3.77
|
2017 Directors Equity Incentive Plan
The
2017 Directors Plan permits the grant of options covering up to an
aggregate of 300,000 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.
On
March 23, 2018, the Company granted options to purchase 80,000
shares of its Common Stock to directors pursuant to the 2017
Directors Plan with an exercise price equal to the fair market
value of Common Stock (as defined under the 2017 Directors Plan in
conformity with Regulation 409A or the Internal Revenue Code of
1986, as amended) at the date of grant. The fair value of the
options granted to purchase 80,000 shares of the Company’s
Common Stock was approximately $478 based on the fair value of
$5.98 per share determined by the Black Scholes option pricing
model. As all of the stock options granted under the 2017 Directors
Plan vest immediately at the date of grant, there were no unvested
stock options granted under the 2017 Directors Plan as of March 31,
2018. The Company recognized stock-based compensation expenses of
$33 in the nine months ended March 31, 2018 under the 2017
Directors Plan.
A
summary of option activities under the 2017 Directors Plan during
the nine months ended March 31, 2018 is presented as
follows:
|
|
|
Weighted
Average
Exercise
Price
|
Weighted
Average Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
Outstanding
at July 1, 2017
|
-
|
$-
|
-
|
$-
|
|
Granted
|
80,000
|
5.98
|
4.98
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding at March 31, 2018
|
80,000
|
5.98
|
4.98
|
-
|
|
Exercisable at March 31, 2018
|
80,000
|
5.98
|
4.98
|
-
|
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.
The
Company did not grant any options pursuant to the 2007 Director
Plan during the nine months ended March 31, 2018. There were 20,000
worth of stock options exercised during the nine month period ended
March 31, 2018. The Company did not recognize any stock based
compensation expenses during the nine months ended March 31,
2018.
On
March 30, 2017, the Company granted options to purchase 50,000
shares of its Common Stock to directors pursuant to the 2007
Directors Plan with an exercise price equal to the fair market
value of Common Stock (as defined under the 2007 Directors Plan in
conformity with Regulation 409A or the Internal Revenue Code of
1986, as amended) at the date of grant. The fair value of the
options granted to purchase 50,000 shares of the Company’s
Common Stock was approximately $207 based on the fair value of
$4.14 per share determined by the Black Scholes option pricing
model. 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 March 31,
2017. The Company recognized stock-based compensation expenses of
$12 in the nine months ended March 31, 2017 under the 2007
Directors Plan. No stock options were exercised during the nine
months ended March 31, 2017. There were 80,000 shares of Common
Stock available for grant under the 2007 Directors
Plan.
A
summary of option activities under the 2007 Directors Plan during
the nine months ended March 31, 2018 is presented as
follows:
|
|
|
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
|
(20,000)
|
2.59
|
-
|
-
|
|
Forfeited
or expired
|
(5,000)
|
2.07
|
-
|
-
|
|
Outstanding at March 31, 2018
|
390,000
|
3.41
|
2.30
|
911
|
|
Exercisable at March 31, 2018
|
390,000
|
3.41
|
2.30
|
911
|
A
summary of option activities under the 2007 Directors Plan during
the nine months ended March 31, 2017 is presented as
follows:
|
|
|
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
|
50,000
|
4.14
|
5.00
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
(50,000)
|
2.30
|
-
|
-
|
|
Outstanding at March 31, 2017
|
415,000
|
$3.36
|
3.18
|
$325
|
|
Exercisable at March 31, 2017
|
415,000
|
$3.36
|
3.18
|
$325
|
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 and
nine months ended March 31, 2018 and 2017.
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 unaudited financial statements and notes in Item I
above and with the audited consolidated financial statements and
notes, and 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 99.7% 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 March 31, 2018. 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 operating results from
fabrication services as a discontinued operation. The Real Estate
segment contributed only 0.3% 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 United States (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, solder ability 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.
Third Quarter Fiscal 2018 Highlights
●
Total
revenue increased by $279, or 2.84%, to $10,104 for the third
quarter of fiscal 2018, as compared to $9,825 for the same period
in fiscal 2017.
●
Manufacturing
segment revenue decreased by $1,106, or 26.15%, to $3,124 for the
third quarter of fiscal 2018, as compared to $4,230 for the same
period in fiscal 2017.
●
Testing
segment revenue increased by $936, or 23.54%, to $4,913 for the
third quarter of fiscal 2018, as compared to $3,977 for the same
period in fiscal 2017.
●
Distribution
segment revenue increased by $452, or 28.59%, to $2,033 for the
third quarter of fiscal 2018, as compared to $1,581 for the same
period in fiscal 2017.
●
Real
estate segment revenue decreased by $3, or 8.1%, to $34 for the
third quarter of fiscal 2018, as compared to $37 for the same
period in fiscal 2017.
●
Gross
profit margin in absolute dollars decreased by $215, or 8.79%, to
$2,232 for the third quarter of fiscal 2018, as compared to $2,447
for the same period in fiscal 2017.
●
The
overall gross profit margin decreased by 2.81% to 22.09% for the
third quarter of fiscal 2018, from 24.90% for the same period in
fiscal 2017.
●
Income
from operations for the third quarter of fiscal 2018 was $234, a
decrease of $251 or 51.75%, as compared to $485 for the same period
in fiscal 2017.
●
General
and administrative expenses increased by $114, or 6.87%, to $1,773
for the third quarter of fiscal year 2018, from $1,659 for the same
period in fiscal year 2017.
●
Selling
expenses decreased by $41, or 18.47%, to $181 for the third quarter
of fiscal year 2018, from $222 for the same period in fiscal year
2017.
●
(Gain)/Loss
on disposal of property, plant and equipment increased by $61 to
gain of $31 for the third quarter of fiscal year 2018, from loss of
$30.
●
Other
income increased by $66 to $111 in the third quarter of fiscal year
2018 compared to $45 in the same period in fiscal year
2017.
●
Tax
expenses for the third quarter of fiscal year 2018 was $980, an
increase of $874, as compared to $106 in the same period in fiscal
year 2017 due primarily to a one-time Repatriation
Tax.
●
During
the third quarter of fiscal year 2018, loss from continuing
operations before non-controlling interest, net of tax was $699, a
decrease of $1,080, as compared to income of $381 for the same
period in fiscal year 2017.
●
Net
income attributable to non-controlling interest for the third
quarter of fiscal year 2018 was $34, as compared to $30 in the same
period in fiscal year 2017.
●
Working
capital increased by $448, or 18%, to $7,936 as of March 31,
2018,as compared to $7,488 as of June 30, 2017.
●
Loss
per share for the three months ended March 31, 2018 was $(0.21), a
decrease of $0.31, as compared to earning per share of $0.10 for
the same period in fiscal year 2017.
●
Total
assets increased by $2,890 or 8.63% to $36,388 as of March 31,
2018, as compared to $33,498 as of June 30, 2017.
●
Total
liabilities increased by $494 or 4.13% to $12,465 as of March 31,
2018, as 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
and nine months ended March 31, 2018 and 2017,
respectively.
|
|
|
|
|
|
|
|
Mar. 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
30.9%
|
43.1%
|
37.5%
|
40.2%
|
|
Testing
Services
|
48.7
|
40.5
|
45.7
|
43.7
|
|
Distribution
|
20.1
|
16.1
|
16.4
|
15.6
|
|
Real
Estate
|
0.3
|
0.3
|
0.4
|
0.5
|
|
|
|
|
|
|
|
Total
|
100.0%
|
100.0%
|
100.0%
|
100.0%
|
Revenue for the three and nine months ended March 31, 2018 was
$10,104 and $31,601, respectively, an increase of $279 and
$3,701 respectively, when compared to the revenue for the same
periods of the prior fiscal year. As a percentage, revenue
increased by 2.84% and 13.27% for the three and nine months ended
March 31, 2018, respectively, when compared to total revenue for
the same periods of the prior year.
For the three months ended March 31, 2018, the $279 increase in
overall revenue was primarily due to
●
an
increase in the testing segment in the Singapore, Malaysia and
Tianjin operations.
●
an
increase in the distribution segment in the Malaysia and Singapore
operations
These increases were partially offset by the
●
decrease
in the manufacturing segment in the Singapore operations and U.S.
operations,
●
decrease
in the real estate segment in China operations.
For the nine months ended March 31, 2018, the $3,701 increase in
overall revenue was primarily due to
●
an
increase in the testing segment in the Singapore, Malaysia and
China operations,
●
an
increase in the distribution segment in the Singapore and Malaysia
operations
●
an
increase in the manufacturing segment in the U.S.
operations
These increases were partially offset by the
●
decrease
in the manufacturing segment in the Singapore operations,
and
●
decrease
in the real estate segment in China operations.
Revenue into and within China, the Southeast Asia region and other
countries (except revenue into and within the U.S.) increased by
$397 (or 4.22%) to $9,803, and by $3,683 (or 13.77%) to $30,422 for
the three and nine months ended March 31, 2018, respectively, as
compared with $9,406 and $26,739, respectively, for the same
periods of last fiscal year.
Revenue into and within the U.S. was $300 and $1,179 for the three
and nine months ended March 31, 2018, respectively, a decrease of
$119 and an increase of $17, respectively, from $419 and $1,162 for
the same periods of last fiscal year, respectively.
Revenue for the three and nine months ended March 31, 2018 is
discussed within the four segments as follows:
Manufacturing Segment
Revenue in the manufacturing segment as a percentage of total
revenue was 30.9% and 37.5% for the three and nine months ended
March 31, 2018, respectively, a decrease of 12.2% and 2.78% of
total revenue, respectively, when compared to the same periods of
the last fiscal year. The absolute amount of revenue
decreased by $1,106 to $3,124 from $4,230 and increased by $641 to
$11,862 from $11,221 for the three and nine months ended March 31,
2018, respectively, compared to the same periods of the last fiscal
year.
The revenue in the manufacturing segment from a major customer
accounted for 47.4% and 55.9% of our total revenue in the
manufacturing segment for the three months ended March 31, 2018 and
2017, respectively, and 47.4% and 56.0% of our total revenue in the
manufacturing segment for the nine months ended March 31, 2018 and
2017, 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
48.7% and 45.7% for the three and nine months ended March 31, 2018,
an increase of 8.2% and 2.0%, respectively, of total revenue when
compared to the same periods of the last fiscal
year. The absolute amount of revenue increased by $936
to $4,913 from $3,977 for the three months ended March 31, 2018 and
by $2,250 to $14,454 from $12,204 for the nine months ended March
31, 2018, compared to the same periods of the last fiscal
year.
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 20.1% and 16.4% for the three and nine months ended
March 31, 2018, an increase of 4.0% and 0.8%, respectively,
when compared to the same periods of the prior fiscal
year. The absolute amount of revenue increased by $452
to $2,033 from $1,581, and increased by $815 to $5,175 from $4,360
for the three and nine months ended March 31, 2018, respectively,
compared to the same periods of the last fiscal
year.
Demand in the distribution segment varies depending on the demand
for our customers’ products and 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 0.3% and 0.4% of total net
revenue for the three and nine months ended March 31, 2018. The
absolute amount of revenue in the real estate segment decreased by
$3 to $34 from $37 and by $5 to $110 from $115 for the three and
nine months ended March 31, 2018, respectively, compared to the
same periods of the last fiscal year. The decrease was
primarily due to a decrease in rental income in the real
estate segment for the three and nine months ended March 31,
2018.
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
were 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 $2,094 and $1,944 as at March 31, 2018 and June 30,
2017, respectively. The carrying value of these investment
properties in China was RMB 7,748 and RMB 8,242, or approximately
$1,231 and $1,216 as at March 31, 2018 and June 30, 2017,
respectively. For the three and nine
months ended March 31, 2018, these properties generated a
total rental income of $34 and $110, respectively, as compared to
$37 and $115, respectively, for the same periods of the last fiscal
year. 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 and nine months ended March 31, 2018, and 2017.
“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, 2019.
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 is continuing and will continue in
fiscal 2019, when the operational and financial systems in our
Malaysia operation 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. 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 Three Months Ended March 31, 2018 and March 31,
2017
The following table sets forth certain consolidated statements of
income data as a percentage of revenue for the three months ended
March 31, 2018 and 2017, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
100.0%
|
100.0%
|
|
Cost
of sales
|
77.9
|
75.1
|
|
Gross Margin
|
22.1%
|
24.9%
|
|
Operating
expenses
|
|
|
|
General
and administrative
|
17.5%
|
16.9%
|
|
Selling
|
1.8
|
2.3
|
|
Research
and development
|
0.7
|
0.5
|
|
(Gain)
/ Loss on disposal of property, plant and equipment
|
(0.3)
|
0.3
|
|
Total
operating expenses
|
19.7%
|
20.0%
|
|
Income from Operations
|
2.4%
|
4.9%
|
Overall Gross Margin
Overall gross margin as a percentage of revenue decreased by 2.8%
to 22.1% for the three months ended March 31, 2018, from24.9% in
the same period of the last fiscal year. In terms of absolute
dollar amounts, gross profits decreased by $215 to $2,232 for the
three months ended March 31, 2018, from $2,447 as compared to the
same period of the last fiscal year. There was a decrease in gross
profit margin, in absolute dollars, across all the
segments.
Gross profit margin as a percentage of revenue in the manufacturing
segment decreased by 1.9% to 19.0% for the three months ended March
31, 2018, from 20.9% in the same period of the last fiscal year.
The decrease in gross margin was due to the change in product mix
of some operations and Singapore operations, where there was an
increase in sales of products that had lower profit margins and a
decrease in sales of products that had higher profit margins as
compared to the same period of last fiscal year. As a result, the
increase in manufacturing revenue was lower than the increase in
cost for the three months ended March 31, 2018, as compared to the
same period last fiscal year. In absolute dollar amounts, gross
profits in the manufacturing segment decreased by $291 to $594 for
the three months ended March 31, 2018 from $885 for the same period
of last fiscal year.
Gross profit margin as a percentage of
revenue in the testing segment decreased by 5.8% to 28.9% for the
three months ended March 31, 2018, from 34.7% in the same period of
the last fiscal year. The decrease in profit margin as a
percentage of revenue was mainly due to a decrease in high margin
testing revenue in Asia operations. Furthermore, there was an
increase in compliance costs in the Malaysia operations which
resulted in an increase in the cost of sales. In absolute dollar
amounts, gross profit in the testing segment increased by $42 to
$1,422 for the three months ended March 31, 2018 from $1,380 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 our products, but also by our
product mix, which changes frequently as a result of changes in
market demand. Gross profit margin as a percentage of revenue in
the distribution segment decreased by 0.6% to 10.4% for the three
months ended March 31, 2018, from 11.0% in the same period of the
last fiscal year. The operations resulting in an decrease in sales
of products that had higher profit margin and an increase in sales
of products that had lower profit margin, 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
March 31, 2018 was $212, an increase of $38 as compared to $174 in
the same period of last fiscal year.
Gross profit margin as a percentage of revenue in the real estate
segment was 11.8% for the three months ended March 31, 2018, as
compared to 21.6% in the same period of the last fiscal year. In
absolute dollar amounts, gross profit in the real estate segment
for the three months ended March 31, 2018 was $4, a decrease of
$4 from $8 in the same period of last fiscal
year. The decrease was primarily due to a decrease in
rental income from the MaoYe and Fu Li investment property, as
compared to the same period in the last fiscal year.
Operating Expenses
Operating expenses for the three months ended March 31, 2018 and
2017 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
General
and administrative
|
$1,773
|
$1,659
|
|
Selling
|
181
|
222
|
|
Research
and development
|
75
|
51
|
|
(Gain)
/ Loss on disposal of property, plant and equipment
|
(31)
|
30
|
|
Total
|
$1,998
|
$1,962
|
General and administrative expenses increased by $114, or 6.9%,
from $1,659 to $1,773 for the three months ended March 31, 2018
compared to the same period of last fiscal year. The increase in
the general and administrative expenses was mainly attributable to
the U.S., Malaysia and Tianjin, China operations, which was
partially offset by the decrease in the Singapore
operations.
The increase in general and administrative expenses was primarily
due to the increase in payroll related expenses in the U.S.,
Malaysia and staff welfare expenses in China operations. This
increase was partially offset by a decrease in the Singapore
operations as a result of lower payroll and bonus in the three
months ended March 31, 2018 as compared to the same period of last
fiscal year.
Selling expenses decreased by $41 or 18.5%, for the three months
ended March 31, 2018, from $222 to $181, as compared to the same
period of the last fiscal year. The decrease was mainly due to a
decrease in commission expenses in the Singapore operations in the
three months ended March 31, 2018 as compared to the same period of
last fiscal year.
Research and development expenses increased by $24, for the three
months ended March 31, 2018, from $51 to $75, as compared to the
same period of the last fiscal year. The increase was mainly
attributable to the increase of Singapore manufacturing
operations.
Gain
on disposal of property, plant and equipment for the three months
ended March 31, 2018, was $31 as compared to loss on disposal of
property, plant and equipment of $30 for the same period of the
last fiscal year. The change was mainly attributable to the gain on
disposal of property, plant and equipment in Malaysia testing
operations.
Income from Operations
Income from operations was $234 for the three months ended March
31, 2018, as compared to $485 for the same period of last fiscal
year. The decrease was mainly due to the decrease in gross profit
margin as discussed earlier.
Interest Expense
Interest expense for the third quarter of fiscal years 2018 and
2017 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Interest expense
|
$64
|
$43
|
Interest expense increased by $21 to $64 from $43 for the three
months ended March 31, 2018. The increase was due to higher bank
loan payable for the three months ended March 31,2018, which was
$1,969 as compared to 1,812 for the same period in prior
year.
Other Income
Other income for the three months ended March 31, 2018 and 2017
were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Interest
income
|
$19
|
$14
|
|
Other
rental income
|
28
|
24
|
|
Exchange
loss
|
(5)
|
(88)
|
|
Other
miscellaneous income
|
69
|
95
|
|
Total
|
$111
|
$45
|
Other income for the three months ended March 31, 2018 was $111, an
increase of $66 as compared to $45 for the same period last fiscal
year. This increase was mainly attributable to decrease of $83 in
foreign exchange loss .Foreign exchange loss of for the three
months ended March 31, 2018 was $5 as compared to a loss of $88 for
the same period in last fiscal year.
Income Tax Expenses
Income tax expenses for the three months ended March 31, 2018 were
$980, an increase of 874 as compared to $106 for the same period of
last fiscal year. The increase in income tax expenses was mainly
due to the provision of tax expenses effect of the Tax Cuts
and Jobs Act which requires a mandatory one-time repatriation of
certain post-1986 earnings and profits that were deferred from US
taxation by Company’s foreign subsidiaries and partially
offset by the decrease in withholding tax payment by the Singapore
operation.
Non-controlling Interest
As of March 31, 2018, we held a 55% interest in Trio-Tech
(Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI
International Pte. Ltd. and PTSHI Indonesia, and a 76% interest in
Prestal Enterprise Sdn. Bhd. The non-controlling interest for the
three months ended March 31, 2018, in the net income of
subsidiaries was $34, compared to $30 for the same period of the
previous fiscal year. The increase in the non-controlling
interest in the net income of subsidiaries was attributable to the
increase in net income generated by the Malaysia manufacturing and
testing operation compared to the same period in the last fiscal
year.
Net (Loss) / Income
Net loss was $739 for the three months
ended March 31, 2018, as compared to net income of $350 for the
three months ended March 31, 2018. The change in net income was
mainly due to the provision for tax expenses of $980, due to
the effect of the Tax Cuts and Jobs Act and also decrease in
gross profit margin, as discussed
earlier.
Loss per Share
Basic loss per share from continuing operations was $0.21 for the
three months ended March 31, 2018 as compared to earnings per share
of $0.10 for the same period in the last fiscal year. Basic
earnings per share from discontinued operations were nil for both
the three months ended March 31, 2018 and 2017.
Diluted loss per share from continuing operations was $0.20 for the
three months ended March 31, 2018 as compared to earnings per share
of $0.10 for the same period in the last fiscal year. Diluted
earnings per share from discontinued operations were nil for both
the three months ended March 31, 2018 and 2017.
Segment Information
The revenue, gross margin and income from each segment for the
third quarter of fiscal years 2018 and 2017, respectively, are
presented below. As the revenue and gross margin for each segment
have been discussed in the previous section, only the comparison of
income 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 March 31,
2018 and 2017 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$3,124
|
$4,230
|
|
Gross margin
|
19.0%
|
20.9%
|
|
(Loss) / Income from operations
|
$(105)
|
$169
|
Loss from operations in the manufacturing segment was $105 for
the three months ended March 31, 2018, as compared to a gain of
$169 in the same period of the last fiscal year. The decline of
$274 was primarily due to a lower demand from our major customer
and also different product mix which decreased our gross profit
margin. Furthermore, the decrease in operating expenses are lower
than the decrease in gross profit, resulting in a loss from
operations. Operating expenses for the manufacturing segment were
$699 and $716 for the three months ended March 31, 2018 and 2017,
respectively. The decrease in operating expenses was
mainly due to a decrease in selling expenses of $43, which was
partially offset by an increase in general and administrative of
$11, increase in corporate overhead by $12 and research and
development cost of $3, as compared to the same period of last
fiscal year. The decrease in selling expenses was primarily due to
a lower agent commission expenses as the commissionable revenue
decreased in Singapore operations. The increase in general and
administrative expenses was due to an increase in payroll related
expenses in U.S. operations. The increase in corporate overhead
expenses was due to a change in the corporate overhead allocation
method as compared to the same period last fiscal year. 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 March 31, 2018 and 2017
were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$4,913
|
$3,977
|
|
Gross margin
|
28.9%
|
34.7%
|
|
Income from operations
|
$428
|
$200
|
Income from operations in the testing segment for the three months
ended March 31, 2018 was $428, an increase of $228 compared to $200
in the same period of last fiscal year. The increase in operating
income was mainly attributable to an increase of $42 in gross
margin and a decrease of $186 in operating expenses. Operating
expenses were $994 and $1,180 for the three months ended March 31,
2018 and 2017, respectively. The decrease in operating expenses was
mainly attributable to a decrease in corporate overhead expenses by
$264 and increase in gain from disposal of fixed assets by $61,
which was partially offset by an increase in general and
administrative expenses by $117 and research and development cost
by $21. The increase in general and administrative expenses was due
to a revision in the method of allocation of payroll related
expenses between segments in the Singapore operations and payroll
related expenses in the China operations. The decrease in corporate
overhead expenses was due to a change in the corporate overhead
allocation method as compared to the same period last fiscal year.
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 March 31, 2018 and
2017 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$2,033
|
$1,581
|
|
Gross margin
|
10.4%
|
11.0%
|
|
Income from operations
|
$117
|
$101
|
Income from operations in the distribution segment increased by $16
to $117 for the three months ended March 31, 2018, as compared to
$101 in the same period of last fiscal year. The increase in
operating income was primarily due to an increase in gross margin
by $38 as discussed earlier, which was partially offset by an
increase in operating expenses of $22. Operating expenses were $95
and $73 for the three months ended March 31, 2018 and 2017,
respectively.
Real Estate Segment
The revenue, gross margin and loss from operations for the real
estate segment for the three months ended March 31, 2018 and 2017
were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$34
|
$37
|
|
Gross margin
|
11.8%
|
21.6%
|
|
Loss from operations
|
$(18)
|
$(14)
|
Loss from operations in the real estate segment for the three
months ended March 31, 2018 was $18, as compared to loss of $14 for
the same period of the last fiscal year. The increase in
operating loss was mainly due to a decrease in gross margin as
discussed earlier.
Corporate
The (loss) / income from operations for corporate for the three
months ended March 31, 2018 and 2017 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Loss) / income from operations
|
$(188)
|
$29
|
Corporate operating loss for the three months ended March 31, 2018
was 188 as compared to income of $29 in the same period of the last
fiscal year. The change from an operating income to an
operating loss was mainly attributable to the change in
corporate overhead allocation
method during the three months ended March 31, 2018,
as compared to the same period last
fiscal year.
Comparison of the Nine Months Ended March 31, 2018 and March 31,
2017
The following table sets forth certain consolidated statements of
income data as a percentage of revenue for the nine months ended
March 31, 2018 and 2017, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
100.0%
|
100.0%
|
|
Cost
of sales
|
75.4
|
74.6
|
|
Gross Margin
|
24.6%
|
25.5%
|
|
Operating
expenses:
|
|
|
|
General
and administrative
|
16.9%
|
18.6%
|
|
Selling
|
1.9
|
2.1
|
|
Research
and development
|
1.2
|
0.6
|
|
(Gain)/Loss
on sale of property, plant & equipment
|
(0.1)
|
0.1
|
|
Total
operating expenses
|
19.9%
|
21.4%
|
|
Income from Operations
|
4.7%
|
4.1%
|
Overall Gross Margin
Overall gross margin as a percentage of revenue decreased by 0.9%
to 24.6% for the nine months ended March 31, 2018, from 25.5% in
the same period of last fiscal year, primarily due to a decrease in
the gross profit margin in the testing and real estate segments,
which was partially offset by an increase in the gross profit
margin in the manufacturing and distribution segments. In terms of
absolute dollar amounts, gross profits increased by $688 to $7,787
for the nine months ended March 31, 2018, from $7,099 for the same
period of the last fiscal year.
Gross profit margin as a percentage of revenue in the manufacturing
segment increased by 0.2% to 22.1% for the nine months ended March
31, 2018, from 21.9% in the same period of the last fiscal year. In
absolute dollar amounts, gross profit increased by $157 to $2,616
for the nine months ended March 31, 2018 as compared to $2,459 for
the same period in last fiscal year. The increase in absolute
dollar amount of gross margin was primarily due to the change in
product mix of some operations, where there was an increase in
sales of products that had higher profit margins and a decrease in
sales of products that had lower profit margins as compared to the
same period of last fiscal year. As a result, the increase in
manufacturing revenue was higher than the increase in cost for the
nine months ended March 31, 2018, as compared to the same period
last fiscal year.
Gross profit margin as a percentage of revenue in the testing
segment decreased by 2.3% to 31.6% for the nine months ended March
31, 2018 from 33.9% in the same period of the last fiscal
year. The decrease in profit margin as a percentage of revenue
was mainly due to a decrease in high margin testing revenue in Asia
operations. Furthermore, there was an increase in compliance costs
in the Malaysia operations which increased in the cost of sales. As
significant portions of our cost of goods sold are fixed for
testing segment, gross profit is impacted when demand from testing
customer slow down for some operations. In terms of absolute dollar
amounts, gross profit in the testing segment increased by $438 to
$4,573 for the nine months ended March 31, 2018, from $4,135 for
the same period of the last fiscal
year.
Gross profit margin as a percentage of
revenue in the distribution segment increased by 0.5% to 11.1% for
the nine months ended March 31, 2018, from 10.6% in the same period
of the last fiscal year. In terms of absolute dollar amounts,
gross profit in the distribution segment for the nine months ended
March 31, 2018 was $577, an increase of $116 as compared to $461 in
the same period of the last fiscal year. The increase in gross
margin was due to the change in product mix, as this segment had
fewer sales of products with a lower profit margin as compared to
the same period of last fiscal year. The gross profit margin
of the distribution segment was not only affected by the market
price of our products, but also our product mix, which changes
frequently as a result of changes in market
demand.
Gross
profit margin as a percentage of revenue in the real estate segment
decreased by 19.2% to 19.1% for the nine months ended March 31,
2018, from 38.3% in the same period of the last fiscal year. In
terms of absolute dollar amounts, gross profit decreased by $23 to
$21 for the nine months ended March 31, 2018 as compared to $44 for
the same period in last fiscal year. The decrease was due to the a reversal of overprovision for
taxes in the nine months ended Mar 31, 2017 while there was none in
the same period this fiscal year and also decrease in rental income
from both investment properties, MaoYe and FuLi, as compared to the
same period in the last fiscal year.
Operating Expenses
Operating expenses for the nine months ended March 31, 2018 and
2017 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
General
and administrative
|
$5,339
|
$5,178
|
|
Selling
|
612
|
587
|
|
Research
and development
|
377
|
156
|
|
(Gain)/
Loss on disposal of property, plant and equipment
|
(20)
|
38
|
|
Total
|
$6,308
|
$5,959
|
General and administrative expenses increased by $161, or 3.1%,
from $5,178 to $5,339 for the nine months ended March 31, 2018
compared to the same period of the last fiscal year. There was an
increase in general and administrative expenses in the U.S. and
Tianjin, China operations, which was partially offset by the
decrease in general and administrative expenses in all other
operations.
The increase in general and administrative expenses was primarily
due to the increase in payroll related expenses in the U.S. and
China operations and also increase in staff welfare expenses in
China operations. This increase was partially offset mainly by a
decrease in payroll related expenses in the Singapore operations
for the nine months ended March 31, 2018, as compared to the same
period of last fiscal year.
Selling expenses increased by $25, or 4.3%, for the nine months
ended March 31, 2018, from $587 to $612 compared to the same period
of the last fiscal year. The increase was mainly due to an increase
in commission expenses in the U.S. and Singapore operations as the
commissionable revenue increased as compared to the same period of
last fiscal year.
Research and development expenses increased by $221, for the nine
months ended March 31, 2018, from $156 to $377, as compared to the
same period of the last fiscal year. The increase was mainly
attributable to the increase of Singapore operations and partially
offset by the decrease in U.S. operations.
Gain on disposal of property, plant and equipment for the nine
months was $20 as compared to a loss on disposal of property, plant
& equipment of $38, for the same period of the last fiscal
year. The change was mainly attributable to the gain on disposal of
property, plant and equipment from Malaysia
operations.
Income from Operations
Income from operations was $1,479 for the nine months ended March
31, 2018 as compared to $1,140 for the same period of the last
fiscal year. The increase was mainly due to the increase in gross
profit margin being greater than the increase in operating
expenses, as discussed earlier.
Interest Expense
Interest expense for the nine months ended March 31, 2018 and 2017
were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Interest expense
|
$174
|
$149
|
Interest expense increased by $25 to $174 from $149 for the nine
months ended March 31, 2018 as compared to the same period of the
last fiscal year. The increase is due to higher bank
loan.
Other Income
Other income for the nine months ended March 31, 2018 and 2017 were
as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Interest
income
|
$39
|
$26
|
|
Other
rental income
|
81
|
74
|
|
Exchange
(loss)/ gain
|
(26)
|
94
|
|
Other
miscellaneous income
|
217
|
164
|
|
Total
|
$311
|
$358
|
Other income for
the nine months ended March 31, 2018 was $311, a decrease of $47 as
compared to $358 for the same period last fiscal year. This
decrease was mainly attributable to decrease of foreign exchange
gain. Foreign exchange loss of $26 for the nine months ended March
31, 2018 as compared to and exchange gain of $94 for the same
period last fiscal year and also a non-recurring reimbursement
income.
Income Tax Expenses
Income tax expense for the nine months ended March 31, 2018 was
$1,035, an increase of $779, as compared to $256 for the same
period of last fiscal year. The increase in income tax expenses was
mainly due to the provision of tax expenses effect of the
Tax Cuts and Jobs Act which requires a mandatory one-time
repatriation of certain post-1986 earnings and profits that were
deferred from US taxation by Company’s foreign subsidiaries
and partially offset by the decrease
in the withholding tax payment by the Singapore
operation.
Non-controlling Interest
As of March 31, 2018, we held a 55% interest in Trio-Tech Malaysia,
Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International Pte. Ltd. and
PTSHI Indonesia, and a 76% interest in Prestal Enterprise Sdn. Bhd.
The net income attributable to our non-controlling interest in
these subsidiaries for the nine months ended March 31, 2018 was
$61, a decrease of $65, as compared to $126 for the same period of
last fiscal year. The decrease was attributable to the
decrease in net income generated by the Malaysia testing operations
due to a decrease in gross profit margin and other income as
compared to the same period in the last fiscal year
Loss from Discontinued Operations
Loss from discontinued operations was $11 for the nine months ended
March 31, 2018, an increase of $4 as compared to a loss of $7 for
the same period of the last fiscal year.
Net Income
Net income was $570 for the nine months ended March 31, 2018,
decrease of $519, as compared to a net income of $1,089 for the
same period in the last fiscal year. The decrease was mainly due to
the provision of tax expenses of $900 effect of the Tax Cuts
and Jobs Act and offset by the
increase in operating income as discussed
earlier.
Earnings per Share
Basic earnings per share from continuing operations was $0.15 for
the nine months ended March 31, 2018 as compared to $0.28 for the
same period in the last fiscal year. Basic earnings per share from
discontinued operations were nil for both the nine months ended
March 31, 2018 and 2017.
Diluted earnings per share from continuing operations was $0.14 for
the nine months ended March 31, 2018 as compared to $0.27 for the
same period in the last fiscal year. Diluted earnings per share
from discontinued operations were nil for both the nine months
ended March 31, 2018 and 2017.
Segment Information
The revenue, gross profit margin, and income or loss from each
segment for the nine months ended March 31, 2018 and 2017,
respectively, are presented below. As the segment
revenue and gross margin for each segment have been discussed in
the previous section, only the comparison of income from operations
is discussed below.
Manufacturing Segment
The revenue, gross margin and income or loss from operations for
the manufacturing segment for the nine months ended March 31, 2018
and 2017 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$11,862
|
$11,221
|
|
Gross margin
|
22.1%
|
21.9%
|
|
Income / (loss) from operations
|
$188
|
$(153)
|
Income
from operations from the manufacturing segment was $188 for
the nine months ended March 31, 2018, an improvement of $341 as
compared to a loss of $153 in the same period of the last fiscal
year, due to an increase of gross profit margin by $157 and
decrease in operating expenses by $184. Operating expenses for the
manufacturing segment were $2,428 and $2,612 for the nine months
ended March 31, 2018 and 2017, respectively. The decrease in
operating expenses of $184 was mainly due to a decrease in general
and administrative expenses of $626, which was partially offset by
an increase in corporate overhead of $281, and increase in research
and development expenses of $163 as compared to the same period of
last fiscal year. The decrease in general and administrative
expenses was primarily due to a revision in the method of
allocation of payroll related expenses between segments in the
Singapore operations and lower of software license fees in the
Singapore operations.
Testing Segment
The revenue, gross margin and income from operations for the
testing segment for the nine months ended March 31, 2018 and 2017
were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$14,454
|
$12,204
|
|
Gross margin
|
31.6%
|
33.9%
|
|
Income from operations
|
$1,281
|
$990
|
Income
from operations in the testing segment for the nine months ended
March 31, 2018 was $1,281, an increase of $291 compared to $990 in
the same period of the last fiscal year. The increase in
operating income was attributable to an increase in gross profit of
$438 and increase of operating expenses of $147. Operating
expenses were $3,292 and $3,145 for the nine months ended March 31,
2018 and 2017, respectively. The increase in operating expenses was
mainly attributable to an increase in general and administrative
expenses of $638 which was partially offset by a decrease in
corporate overhead of $514.The increase in general and
administrative expenses was due to a revision in the method of
allocating payroll related expenses between segments in the
Singapore operations and an increase in payroll related expenses in
the Tianjin, China operations. The decrease in corporate overhead
expenses was due to a change in the corporate overhead allocation
method as compared to the same period last fiscal year. 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 nine months ended March 31, 2018 and
2017 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$5,175
|
$4,360
|
|
Gross margin
|
11.1%
|
10.6%
|
|
Income from operations
|
$337
|
$235
|
Income
from operations in the distribution segment for the nine months
ended March 31, 2018 was $337, an increase of $102 as compared to
$235 in the same period of the last fiscal year. The increase
in operating income was primarily due to an increase in gross
profit margin of $116 which were partially offset by an increase in
operating expenses of $14. Operating expenses were $240 and $226
for the nine months ended March 31, 2018 and 2017,
respectively.
Real Estate Segment
The revenue, gross margin and loss from operations for the real
estate segment for the nine months ended March 31, 2018 and 2017
were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$110
|
$115
|
|
Gross margin
|
19.1%
|
38.3%
|
|
Loss from operations
|
$(38)
|
$(20)
|
Loss from operations in the real estate segment for the nine months
ended March 31, 2018 was $38, an increase of $18 as compared to a
loss of $20 for the same period of the last fiscal
year. The increase in operating loss was mainly due to
an increase in gross loss of $23 and decrease of operating expenses
of $5, as discussed earlier. Operating expenses were $59 and $64
for the nine months ended March 31, 2018 and 2017,
respectively.
Corporate
The (loss)/ gain from operations for corporate for the nine months
ended March 31, 2018 and 2017 were as
follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Loss) / income from operations
|
$(289)
|
$88
|
Operating loss in the corporate office for the nine months ended
March 31, 2018 was $289, representing a change of $377, as compared
to an income of $88 for the same period of the last fiscal
year. The change from an operating income to an
operating loss was mainly attributable to a different
corporate overhead allocation
method during the nine months ended March 31, 2018,
as compared to the same period last
fiscal year.
Financial Condition
During the nine months ended March 31, 2018 total assets increased
by $2,890 from $33,498 as at June 30, 2017 to $36,388. The increase
in total assets was primarily due to an increase in cash and cash
equivalents, inventory, deferred tax assets, property, plant and
equipment, other assets, and restricted term deposits, which were
partially offset by a decrease in short term deposits, trade
accounts receivable, other receivables and prepaid
expenses.
Cash and cash equivalents were $5,376 as at March 31, 2018,
reflecting an increase of $604 from $4,772 as at June 30, 2017,
mainly due to uplift of short-term deposit in the Malaysia
operation. This increase was partially offset by the decrease in
utilization of credit facilities in our Singapore
operation.
Short-term
deposits were $678 as at March 31, 2018, reflecting a decrease of
$109 from $787 as at June 30, 2017, primarily due to uplift of
short-term deposit in the Malaysia
operation.
As at
March 31, 2018, the trade accounts receivable balance decreased by
$392 to $8,617 from $9,009 as at June 30, 2017, mainly due to
shorter collection cycles in the Singapore operations and foreign
currency exchange difference between the functional currency and
U.S. dollars for the nine months ended March 31, 2018. The number
of days’ sales outstanding in accounts receivables was 75 and
83 days at the end of the third quarter of fiscal year 2018 and for
the fiscal year ended 2017, respectively.
As at
March 31, 2018, other receivables were $392, reflecting a decrease
of $9 from $401 as at June 30, 2017. The decrease was primarily due
to decrease of input tax in Singapore operations and offset by
increase of tax incentives in the China operations in the third
quarter of fiscal year 2018.
Inventories as at March 31, 2018 were $2,369, reflecting an
increase of $613, 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 $219 as at March 31, 2018 compared to $226 as
at June 30, 2017. The decrease of $7 was primarily due to
capitalization of fixed asset in Malaysia operation and partially
offset by increase of insurance and software related
prepayment.
Property, plant and equipment, net increased by $1,590 from $11,291
as at June 30, 2017, to $12,881 as at March 31, 2018, mainly due to
higher capital expenditure in the Singapore, Malaysia and Tianjin,
China operations and a foreign currency exchange difference between
the functional currency and U.S. dollars for the nine months ended
March 31, 2018.
Other assets increased by $393 to $2,315 as at March 31, 2018, as
compared to $1,922 as at June 30, 2017. This was mainly due to
increase of down payment of assets from June 30, 2017 to March 31,
2018.
Restricted term deposits increased by $104 to $1,761 as at March
31, 2018, as compared to $1,657 as at June 30, 2017. This was
primarily due to the foreign currency exchange difference between
functional currency and U.S. dollars from June 30, 2017 to March
31, 2018.
Utilized lines of credit decreased by $1,245 to $1,311 as at March
31, 2018 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 decreased by $1,130 to $2,099 as at March 31,
2018, as compared to $3,229 as at June 30, 2017. This was mainly
due to the foreign currency exchange difference between the
functional currency and U.S. dollars for the nine months ended
March 31, 2018.
Accrued expenses increased by $1,605 to $4,648 as at March 31,
2018, 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 and Tianjin, China operations.
Bank loans payable increased by $157 to $1,969 as at March 31,
2018, 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 increased by $115 to $874 as at March 31, 2018, as
compared to $759 as at June 30, 2017. This was due to new capital
leases in the Malaysia operations, partially offset by repayment of
capital leases by the Singapore operations.
Liquidity Comparison
Net
cash provided by operating activities increased by $109 to $3,122
for the nine months ended March 31, 2018, compared to $3,013 during
the same period of the last fiscal year. The increase in net cash
generated by operating activities was primarily due to increase in
cash inflow of $223 in inventories and increase of provision of tax
payable of 901. These were partially offset by a decrease in cash
inflow from other receivable of $277, account payable and accrued
expenses of $ 241 and other assets of $128.
Net
cash used in investing activities increased by $488 to $1,805 for
the nine months ended March 31, 2018, compared to $1,317 during the
same period of the last fiscal year. The increase was
primarily due to $583 in capital spending. This increase in net
cash used in investing activities was partially offset by the $140
increase in proceeds from maturing of restricted and unrestricted
deposits.
Net
cash used in financing activities increased by $410 to $1,455 for
the nine months ended March 31, 2018, compared to $1,045 during the
same period of the last fiscal year. The increase was mainly due to
an increase in repayment for lines of credit of $1,226, which was
partially offset by an increase in cash generated through
borrowings from bank loans and capital leases in repayment of
$720.
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, except as 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 March 31, 2018, 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 March 31, 2018 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. During the third quarter of fiscal 2018, the
operational and financial systems in Singapore have been
substantially transitioned to the new system. This implementation
effort will continue in fiscal 2019, when the operational and
financial systems in our Malaysia operation 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 fiscal 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.
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
Not applicable.
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 February 22, 2018, 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 February 22, 2018 was $3.91. The aggregate
consideration in professional services received by the Company from
the vendor was not less than $39,100. 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.
|
31.1
|
|
Rule 13a-14(a) Certification of Principal Executive Officer of
Registrant
|
|
|
|
|
|
31.2
|
|
Rule 13a-14(a) Certification of Principal Financial Officer of
Registrant
|
|
|
|
|
|
32
|
|
Section 1350 Certification
|
|
|
|
|
101.INS XBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly
authorized.
|
|
TRIO-TECH INTERNATIONAL
/s/ Victor H.M. Ting
VICTOR H.M. TING
Vice President and Chief Financial Officer
(Principal Financial Officer)
Dated: May 18, 2018
|