Blueprint
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
☑
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
fiscal year ended June 30, 2017
OR
☐ TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
Transition Period from ___ to ___
Commission
File Number 1-14523
TRIO-TECH INTERNATIONAL
(Exact
name of Registrant as specified in its Charter)
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California
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95-2086631
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
Number)
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16139 Wyandotte Street
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Van Nuys, California
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91406
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
Telephone Number: 818-787-7000
Securities
registered pursuant to Section 12(b) of the Act:
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Title of each
class
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Name of each exchange on which
registered
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Common
Stock, no par value
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The NYSE
MKT
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a
well-known seasoned issuer, as defined in rule 405 of the
Securities Act. ☐ Yes ☑ No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. ☐ Yes ☑ No
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 (§232.405 of this chapter) 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (§229.405) is not contained herein, and
will not be contained, to the best of Registrant’s knowledge,
in a definitive proxy statement or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ☑
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definition of
“large accelerated filer,” “accelerated
filer”, “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act. Large Accelerated Filer ☐ Accelerated Filer ☐
Non-Accelerated Filer (Do not check if a smaller reporting company)
☐ Smaller Reporting Company ☒ Emerging Growth
Company ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No
The
aggregate market value of voting stock held by non-affiliates of
Registrant, based upon the closing price of $3.32 for shares of the
registrant’s Common Stock on December 31, 2016, the last
business day of the registrants most recently completed second
fiscal quarter as reported by the NYSE MKT, was approximately
$6,653,000. In calculating such aggregate market value, shares of
Common Stock held by each officer, director and holder of 5% or
more of the outstanding Common Stock (including shares with respect
to which a holder has the right to acquire beneficial ownership
within 60 days) were excluded because such persons may be deemed to
be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other
purposes.
The
number of shares of Common Stock outstanding as of September 1,
2017 was 3,523,055.
Documents
Incorporated by Reference
Part
III of this Form 10-K incorporates by reference information from
Registrant’s Proxy Statement for its 2017 Annual Meeting of
Shareholders to be filed with the Commission under Regulation 14A
within 120 days of the end of the fiscal year covered by this Form
10-K.
TRIO-TECH INTERNATIONAL
INDEX
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Page
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Part I
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Item
1
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Business
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1
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| Item 1A |
Risk
factors |
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| Item 1B |
Unresolved staff
comments |
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Item
2
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Properties
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6
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Item
3
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Legal
proceedings
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7
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Item
4
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Mine
safety disclosures
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7
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Part II
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Item
5
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Market
for registrant’s common equity, related stockholder matters
and issuer purchases of equity securities
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7
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Item
6
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Selected
financial data
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8
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Item
7
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Management’s
discussion and analysis of financial condition and results of
operations
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8
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Item
7A
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Quantitative
and qualitative disclosures about market risk
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24
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Item
8
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Financial
statements and supplementary data
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24
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Item
9
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Changes
in and disagreements with accountants on accounting and financial
disclosure
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24
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Item
9A
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Controls
and procedures
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24
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| Item 9B |
Other
information |
25
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Part III
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Item
10
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Directors,
executive officers and corporate governance
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26
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Item
11
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Executive
compensation
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26
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Item
12
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Security
ownership of certain beneficial owners and management and related
stockholder matters
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26
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Item
13
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Certain
relationships and related transactions, and director
independence
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26
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Item
14
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Principal
accountant fees and services
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26
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Part IV
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Item
15
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Exhibits
and financial statement schedules
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26
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Item
16
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Form
10-K summary
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26
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Signatures
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27
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Exhibits
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28
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Report
of independent registered public accounting firm
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F-1
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Consolidated
Balance Sheets as of June 30, 2017 and 2016
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F-2
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Consolidated
Statements of Operations and Comprehensive Income for the Years
Ended June 30, 2017 and 2016
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F-3
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Consolidated
Statements of Shareholders’ Equity for the Years Ended June
30, 2017 and 2016
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F-5
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Consolidated
Statements of Cash Flows for the Years Ended June 30, 2017 and
2016
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F-6
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Notes
to Consolidated Financial Statements
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F-7
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TRIO-TECH INTERNATIONAL
PART I
ITEM 1 – BUSINESS (IN THOUSANDS, EXCEPT PERCENTAGES AND SHARE
AMOUNTS)
Cautionary Statement Regarding Forward-Looking
Statements
The discussions of Trio-Tech International’s (the
“Company”) business and activities set forth in this
Form 10-K and in other past and future reports and announcements by
the Company may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended,
and assumptions regarding future activities and results of
operations of the Company. In light of the “safe
harbor” provisions of the Private Securities Litigation
Reform Act of 1995, the following factors, among others, could
cause actual results to differ materially from those reflected in
any forward-looking 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; credit risks in the Chinese
real estate industry; changes in macroeconomic conditions
and credit market conditions; and
other economic, financial and regulatory factors beyond the
Company’s control. 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.
Unless
otherwise required by law, the Company undertakes 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.
General
Trio-Tech
International was incorporated in 1958 under the laws of the State
of California. As used herein, the term "Trio-Tech" or
"Company” or “we” or “us” or
“Registrant” includes Trio-Tech International and its
subsidiaries unless the context otherwise indicates. The mailing
address and executive offices are located at 16139 Wyandotte
Street, Van Nuys, California 91406, and the telephone number is
(818) 787-7000.
During
fiscal year 2017, the Company operated its business in four
segments: manufacturing, testing services, distribution and real
estate. Geographically, the Company operates in the United States
(“U.S.”), Singapore, Malaysia, Thailand and China. It
operates six testing service facilities; one in U.S. and five in
Asia. It operates two manufacturing facilities: one in the
U.S. and the other in Asia. Its distribution segment and real
estate segment operate primarily in Asia. Its major customers are
concentrated in Asia and they are either semiconductor chip
manufacturers or testing facilities that purchase testing
equipment. For information relating to revenues, profit and loss
and total assets for each of the segments, see Note 19 - Business
Segments contained in the consolidated financial statements
included in this Form 10-K.
Company History – Certain Highlights up to Fiscal Year
2017
2013
Trio-Tech
International Pte. Ltd., Singapore, Trio-Tech (Malaysia) Sdn. Bhd.,
Trio-Tech (SIP) Co., Ltd. Trio-Tech
(Bangkok) Co., Ltd. and Trio-Tech (Tianjin) Co., Ltd. re-certified
to ISO 9001:2008 standards.
Trio-Tech
International Pte. Ltd., Singapore, re-certified to ISO 14001:2004
standards. Trio-Tech Malaysia
(Malaysia) Sdn. Bhd. achieved ISO/TS16949 LOC certification.
Trio-Tech Tianjin
Co., Ltd. re-certified to ISO/TS16949 LOC certification.
Trio-Tech
International Pte. Ltd., Singapore, re-certified to biz SAFE Level
3 Workplace Safety and Health standards.
2014
Trio-Tech
International Pte. Ltd., Singapore, re-certified to ISO 17025:2005
standards.
Universal (Far
East) Pte. Ltd. Singapore re-certified to ISO 9001:2008
standards.
2015
Trio-Tech
(Tianjin) Co., Ltd., re-certified to ISO 9001:2008
standards.
Trio-Tech
International Pte. Ltd., Singapore, Trio-Tech (Malaysia) Sdn. Bhd.
and Trio-Tech (Bangkok) Co., Ltd. re-certified to ISO 9001:2008
standards. (Aug 2015)
Trio-Tech
International Pte. Ltd., Singapore, re-certified to ISO 14001:2004
standards. (Aug 2015)
2016
Trio-Tech
(Tianjin) Co., Ltd., re-certified to ISO 14001:2004 standards.
(July 2016)
Trio-Tech
(Tianjin) Co., Ltd., re-certified to OHSAS 18001:2007 standards.
(July 2016)
2017
Trio-Tech
International Pte. Ltd., Singapore, re-certified to biz SAFE Level
3 Workplace Safety and Health standards.
Overall Business Strategies
Our core business is and historically has been in the semiconductor
industry (testing services, manufacturing and distribution).
Revenue from this industry accounted for 99.6% of our revenue
for both fiscal year 2017 and 2016. The semiconductor industry has
experienced periods of rapid growth, but has also experienced
downturns, often in connection with, or in anticipation of,
maturing product cycles of both semiconductor companies’ and
their customers’ products and declines in general economic
conditions. 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. Real Estate segment contributed only 0.4% to the
total revenue for fiscal 2017 and has been insignificant since the
property market in China has slowed down due to control measures in
China. We are continuing the process of winding-up the oil &
gas equipment fabrication operations, which discontinued its
operations in December 2012.
To
achieve our strategic plan for our semiconductor business, we
believe that we must pursue and win new business in the following
areas:
●
Primary markets – Capturing
additional market share within our primary markets by offering
superior products and services to address the needs of our major
customers.
●
Growing markets – Expanding our
geographic reach in areas of the world with significant growth
potential.
●
New markets
– Developing new products and
technologies that serve wholly new markets.
●
Complementary strategic relationships
– Through complementary acquisitions or
similar arrangements, we believe we can expand our markets and
strengthen our competitive position. As part of our growth
strategy, the Company continues to selectively assess opportunities
to develop strategic relationships, including acquisitions,
investments and joint development projects with key partners and
other businesses.
Business Segments
Testing Services
Our
testing services are rendered to manufacturers and purchasers of
semiconductors and other entities who either lack testing
capabilities or whose in-house screening facilities are
insufficient for testing devices in order for them to make sure
that these products meet certain commercial specifications.
Customers outsource their test services either to accommodate
fluctuations in output or to benefit from economies that can be
offered by third party service providers.
Our
laboratories perform a variety of tests, including stabilization
bake, thermal shock, temperature cycling, mechanical shock,
constant acceleration, gross and fine leak tests, electrical
testing, microprocessor equipment contract cleaning services,
static and dynamic burn-in tests, reliability lab services and
vibration testing. We also perform qualification testing,
consisting of intense tests conducted on small samples of output
from manufacturers who require qualification of their processes and
devices.
We use
our own proprietary equipment for certain burn-in, centrifugal and
leak tests, and commercially available equipment for various other
environmental tests. We conduct the majority of our testing
operations in Asia with facilities in Singapore, Malaysia, Thailand
and China, which have been certified to the relevant ISO quality
management standards.
Manufacturing
We
manufacture both front-end and back-end semiconductor test
equipment and related peripherals at our facilities in Singapore
and the U.S.
Front-End Products
Artic Temperature Controlled Wafer Chucks
Artic
Temperature Controlled Wafer Chucks are used for test,
characterization and failure analysis of semiconductor wafers and
such other components at accurately controlled cold and hot
temperatures. These systems provide excellent performance to meet
the most demanding customer applications. Several unique mechanical
design features provide excellent mechanical stability under high
probing forces and across temperature ranges.
Wet Process Stations
Wet
Process Stations are used for cleaning, rinsing and drying
semiconductor wafers, flat panel display magnetic disks, and other
microelectronic substrates. After the etching or deposition of
integrated circuits, wafers are typically sent through a series of
100 to 300 additional processing steps. At many of these processing
steps, the wafer is washed and dried using Wet Process
Stations.
Back-End Products
Autoclaves and HAST (Highly Accelerated Stress Test)
Equipment
We
manufacture autoclaves, HAST systems and specialized test fixtures.
Autoclaves provide pressurized, saturated vapor (100% relative
humidity) test environments for fast and easy monitoring of
integrated circuit manufacturing processes. HAST systems provide a
fast and cost-effective alternative to conventional non-pressurized
temperature and humidity testing.
Burn-in Equipment and Boards
We
manufacture burn-in systems, burn-in boards and burn-in board test
systems. Burn-in equipment is used to subject semiconductor devices
to elevated temperatures while testing them electrically to
identify early product failures and to assure long-term
reliability. Burn-in boards are used to mount devices during high
temperature environmental stressing tests.
We
provide integrated burn-in automation solutions to improve
products’ yield, reduce processing downtime and improve
efficiency. In addition, we develop a cooling solution, which is
used to cool or maintain the temperature of high power heat
dissipation semiconductor devices.
Component Centrifuges and Leak Detection Equipment
We
manufacture centrifuges that perform high speed constant
acceleration to test the mechanical integrity of ceramic and other
hermetically sealed semiconductor devices and electronic parts for
high reliability and aerospace applications. Leak detection
equipment is designed to detect leaks in hermetic packaging. The
bubble tester is used for gross leak detection. A visual bubble
trail will indicate when a device is defective.
Distribution
In
addition to marketing our proprietary products, we distribute
complementary products made by manufacturers mainly from the U.S.,
Europe, Taiwan and Japan. The products include environmental
chambers, handlers, interface systems, vibration systems, shaker
systems, solderability testers and other, semiconductor equipment.
Besides equipment, we also distribute a wide range of components
such as connectors, sockets, LCD display panels and touch-screen
panels. Furthermore, our range of products are mainly targeted for
industrial products, the life cycle of which can last from 3 years
to 7 years, rather than consumer products which have a shorter life
cycle.
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.
Product Research and Development
We
focus our research and development activities on improving and
enhancing both product design and process technology. We conduct
product and system research and development activities for our
products in Singapore and the U.S. Research and development
expenses were $208 and $200 in fiscal year 2017 and 2016,
respectively.
Marketing, Distribution and Services
We
market our products and services worldwide, directly and through
independent sales representatives and our own marketing sales team.
We have approximately five independent sales representatives
operating in the U.S. and another twenty-one in various foreign
countries. Of the twenty-six sales representatives, eight are
representing the distribution segment and eighteen are representing
the testing services segment and the manufacturing segment for
various products and services produced and provided from our
facilities in different locations.
Dependence on Limited Number of Customers
In
fiscal years 2017 and 2016, combined sales of equipment and
services to our three largest customers accounted for approximately
66.2% and 69.8%, respectively, of our total net revenue. Of those
sales, $21,105 (54.8%) and $20,862 (60.6%) were from one major
customer. Although the major customer is a U.S. company, the
revenue generated from it was from facilities located outside of
the U.S. The majority of our sales and services in fiscal years
2017 and 2016 were to customers outside of the U.S.
Backlog
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The following table
sets forth the Company's backlog at the dates
indicated:
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For the
Year Ended June 30,
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Manufacturing
backlog
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$4,414
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$3,657
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Testing services
backlog
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1,105
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818
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Distribution
backlog
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1,686
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1,292
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341
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537
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$7,546
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$6,304
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*Real
estate backlog is based on the rental income from a non-cancellable
lease.
Based
on our past experience, we do not anticipate any significant
cancellations or re-negotiation of sales. The purchase orders for
the manufacturing, testing services and distribution businesses
generally require delivery within 12 months from the date of the
purchase order and certain costs are incurred before delivery. In
the event of a cancellation of a confirmed purchase order, we
require our customers to reimburse us for all costs
incurred. We do not
anticipate any difficulties in meeting delivery schedules. The
backlog is based on estimates provided by our customers and is not
based on customer’s purchase order as it is a practice that
the purchase orders are provided only during the process of
delivery.
Materials and Supplies
Our
products are designed by our engineers and are assembled and tested
at our facilities in the U.S., China and Singapore. We purchase all
parts and certain components from outside vendors for assembly
purposes. We have no written contracts with any of our key
suppliers. As these parts and components are available from a
variety of sources, we believe that the loss of any one of our
suppliers would not have a material adverse effect on our results
of operations taken as a whole.
Competition
Our
ability to compete depends on our ability to develop, introduce and
sell new products or enhanced versions of existing products on a
timely basis and at competitive prices, while reducing our
costs.
There
are numerous testing laboratories in the areas where we operate
that perform a range of testing services similar to those
offered. However, due to severe competition in the Asia
testing and burn-in services industry there has been a reduction in
the total number of competitors. The existence of competing
laboratories and the purchase of testing equipment by semiconductor
manufacturers and users are potential threats to our future testing
services revenue and earnings. Although these laboratories
and new competitors may challenge us at any time, we believe that
other factors, including reputation, long service history and
strong customer relationships, are instrumental in determining our
position in the market.
The
distribution segment sells a wide range of equipment to be used for
testing products. As the semiconductor equipment industry is highly
competitive, we offer a one-stop service alternative to customers
by complementing our products with design consultancy and other
value-added services.
The
principal competitive factors in the manufacturing industry include
product performance, reliability, service and technical support,
product improvements, price, established relationships with
customers and product familiarity. We make every effort to compete
favorably with respect to each of these factors. Although we
have competitors for our various products, we believe that our
products compete favorably with respect to each of the above
factors. We have been in business for more than 59 years and have
operation facilities mostly located in Asia. Those factors
combined have helped us to establish and nurture long-term
relationships with customers and will allow us to continue doing
business with our existing customers upon their relocation to other
regions where we have a local presence or are able to
reach.
Patents
In
fiscal years 2017 and 2016, we did not register any patents within
the U.S.
It is
typical in the semiconductor industry to receive notices from time
to time alleging infringement of patents or other intellectual
property rights of others. We do not believe that we infringe on
the intellectual property rights of any others. However, should any
claims be brought against us, the cost of litigating such claims
and any damages could materially and adversely affect our business,
financial condition, and results of operations.
Employees
As of
June 30, 2017, we had approximately 679 full time employees and no
part time employees. Geographically, approximately 9 full time
employees were located in the U.S. and approximately 670 full time
employees in Asia. None of our employees are represented by a labor
union.
There
were approximately 57 employees in the manufacturing segment, 585
employees in the testing services segment, 4 employees in the
distribution segment, 3 employees in the real estate segment and 30
employees in general administration, logistics and
others.
ITEM 1A – RISK FACTORS
As a
smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934, we are not required to provide the
information required by this item.
ITEM 1B –
UNRESOLVED STAFF COMMENTS
Not
applicable.
ITEM 2 – PROPERTIES
As of
the date of filing of this Form 10-K, we believe that we are
utilizing approximately 82% of our fixed property capacity. We also
believe that our existing facilities are adequate and suitable to
cover any sudden increase in our needs in the foreseeable
future.
The
following table presents the relevant information regarding the
location and general character of our principal manufacturing and
testing facilities:
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Location
|
Segment |
|
Owned (O) or Leased (L)
& Expiration Date
|
|
16139 Wyandotte Street, Van Nuys,
CA 91406,
United States of America
|
Corporate,
Testing Services/ Manufacturing
|
5,200
|
(L) Mar 2020
|
|
1004, Toa Payoh North, Singapore
Unit No. HEX 07-01/07,
|
Testing Services
|
6,864
|
(L) Sept. 2017*1
|
|
Unit No. HEX 07-01/07, (ancillary site)
|
Testing Services
|
2,605
|
(L) Sept. 2017*1
|
|
Unit No. HEX 03-01/02/03,
|
Testing Services /Manufacturing
|
2,959
|
(L) Sept. 2017*1
|
|
Unit No. HEX 01-08/15,
|
Testing Services /Manufacturing/
Logistics Store
|
6,864
|
(L) Jan. 2020
|
|
Unit No. HEX 01-08/15, (ancillary site)
|
Testing Services /Manufacturing
|
351
|
(L) Jan. 2020
|
|
1008, Toa Payoh North, Singapore
Unit No. HEX 03-09/17,
|
Manufacturing
|
6,099
|
(L) Jan. 2020
|
|
Unit No. HEX 03-09/17, (ancillary site)
|
Manufacturing
|
70
|
(L) Jan. 2020
|
|
Unit No. HEX 01-09/10/11,
|
Manufacturing
|
2,202
|
(L) Nov. 2017*1
|
|
Unit No. HEX 01-15/16,
|
Manufacturing
|
1,400
|
(L) Sept. 2017*1
|
|
Unit No. HEX 01-08,
|
Manufacturing
|
603
|
(L) Jun. 2020
|
|
Unit No. HEX 01-12/14,
|
Manufacturing
|
1664
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(L) Jul. 2019
|
|
Plot 1A, Phase 1
Bayan Lepas Free Trade Zone
11900 Penang, Malaysia
|
Manufacturing
|
42,013
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(O)
|
|
Lot No. 11A, Jalan SS8/2,
Sungai Way Free Industrial Zone,
47300 Petaling Jaya,
Selangor Darul Ehsan, Malaysia
|
Testing Services
|
78,706
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(O)
|
|
Lot No. 4, Kawasan MIEL
No. B-11-03, Jalan Persiaran Multimedia,
I-City Seksyen 7, 40000 Shah Alam, Selangor
|
Software Development Office/ Manufacturing
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470
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(L) Mar 2018
|
|
327, Chalongkrung Road,
Lamplathew, Lat Krabang,
Bangkok 10520, Thailand
|
Testing Services
|
34,433
|
(O)
|
|
No. 5, Xing Han Street, Block A
#04-15/16, Suzhou Industrial Park
China 215021
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Testing Services
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6,200
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(L) Jan 2018
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27-05, Huang Jin Fu Pan.
No. 26 Huang Jin Qiao Street
Hechuan District Chongqing
China 401520
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Real Estate
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969
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(L) Aug. 2019
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B7-2, Xiqing Economic Development Area International Industrial
Park
Tianjin City, China 300385.
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Testing Services
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53,550
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(L) April 2021
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*1
Leases for these premises are expected to be extended upon
expiry.
ITEM 3 – LEGAL PROCEEDINGS
The
Company is, from time to time, the subject of litigation claims and
assessments arising out of matters occurring in its normal business
operations. In the opinion of management, resolution of these
matters will not have a material adverse effect on our financial
statements.
There
are no material proceedings to which any director, officer or
affiliate of the Company, any beneficial owner of more than five
percent of the Company’s Common Stock, or any associate of
such person is a party that is adverse, to the Company or its
properties.
ITEM 4 – MINE SAFETY DISCLOSURES.
Not
applicable.
PART II
ITEM 5 – MARKET FOR REGISTRANT'S COMMON EQUITY,
RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our
Common Stock is traded on the NYSE MKT under the symbol
“TRT.” The following table sets forth, for the periods
indicated, the range of high and low sales prices of our Common
Stock as quoted by the NYSE MKT:
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Fiscal
year ended June 30, 2016
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Quarter
ended September 30, 2015
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$3.20
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$2.26
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Quarter
ended December 31, 2015
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$3.25
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$2.42
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Quarter
ended March 31, 2016
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$3.34
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$2.40
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Quarter
ended June 30, 2016
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$4.00
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$3.00
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Fiscal
year ended June 30, 2017
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Quarter
ended September 30, 2016
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$4.19
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$2.60
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Quarter
ended December 31, 2016
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$3.63
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$2.75
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Quarter
ended March 31, 2017
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$4.48
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$3.25
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Quarter
ended June 30, 2017
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$6.04
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$4.02
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Stockholders
As of September 1, 2017, there were 3,523,055 shares of our Common
Stock issued and outstanding, and the Company had approximately 62
record holders of Common Stock. The
number of holders of record does not include the number of persons
whose stock is in nominee or “street name” accounts
through brokers.
Dividend Policy
We did
not declare any cash dividends in either fiscal year 2017 or fiscal
year 2016.
The
determination as to whether to
pay any future cash dividends will depend upon our earnings
and financial position at that time and other factors as the Board
of Directors may deem appropriate. California law prohibits the
payment of dividends if a corporation does not have sufficient
retained earnings or cannot meet the statutory asset to liability
ratio. There is no assurance that dividends will be paid to holders of Common Stock
in the foreseeable future.
ITEM 6 - SELECTED FINANCIAL DATA.
As a
smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934, we are not required to provide the
information required by this item.
ITEM
7 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT
PERCENTAGES AND SHARE AMOUNTS)
The following discussion and analysis should be read in conjunction
with our disclaimer on “Forward-Looking Statements,”
“Item 1. Business,” and our Consolidated Financial
Statements, the notes to those statements and other financial
information contained elsewhere in this Annual Report on
Form 10-K.
During
fiscal years 2017 and 2016, Trio-Tech International operated in
four segments: manufacturing, testing services, distribution and
real estate. In fiscal year 2017, revenue from the manufacturing,
testing services, distribution and real estate segments represented
39.7%, 43.0%, 16.9% and 0.4% of our revenue, respectively, as
compared to 42.1%, 44.3%, 13.2% and 0.4% respectively, in fiscal
year 2016.
Semi-conductor
testing and manufacturing (assembly) of test equipment is our core
business. We provide
third-party semiconductor testing and burn-in services primarily
through our laboratories in Asia. At or from our facilities in the
U.S. and Asia we also design, manufacture and market equipment and
systems to be used in the testing and production of semiconductors,
and distribute semiconductor processing and testing equipment
manufactured by other vendors.
We
expanded our market share in the semiconductor testing segment,
primarily in Tianjin and Malaysia. In fiscal year 2011, the
Company’s Singapore subsidiary registered a 100% wholly owned
subsidiary, Trio-Tech (Tianjin) Co. Ltd. (“TTTJ”),
located in the Xiqing Economic Development Area International
Industrial Park in Tianjin City, People’s Republic of
China.
Our
distribution segment operates primarily in Asia. This segment
markets and supports distributing complementary products supplied
by other manufacturers that are used by its customers and other
semiconductor and electronics manufacturers. We believe this will
help us to reduce our exposure to multiple risks arising from being
a mere distributor of manufactured products from
others.
The main revenue component for the real estate segment was rental
income.
No investment income was recorded as “revenue” by the
real estate segment in either of fiscal years 2017 or
2016.
During fiscal year 2007, the Company’s Singapore subsidiary
invested in real estate property in Chongqing, China, which has
generated investment income from rental revenue and investment
returns from deemed loan receivables, which are classified as other
income. The rental income is generated from the rental properties
in MaoYe, JiangHuai and FuLi in Chongqing, China. In the second
quarter of fiscal 2015, the investment in JiaSheng, which was
deemed as loans receivable, was transferred to down payment for
purchase of investment property in China.
Trio-Tech
Chongqing Co., Ltd. (“TTCQ”) invested RMB 5,554 in
rental properties in MaoYe during fiscal year 2008, RMB 3,600 in
rental properties in JiangHuai during fiscal year 2010 and RMB
4,025 in rental properties in FuLi during fiscal year 2010. The
total investment in properties in China was RMB 13,179, or
approximately $1,944 and $1,983 in fiscal years 2017 and 2016,
respectively. The carrying value of these investment properties in
China was RMB 8,242 and RMB 8,901, or approximately $1,216 and
$1,340, in fiscal years 2017 and 2016, respectively. These
properties generated a total rental income of $152 and $122 for
fiscal years 2017 and 2016, respectively. TTCQ’s investment
in properties that generated rental income is discussed further in
this Form 10-K.
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
fiscal 2017 and 2016.
On October 14, 2014, TTCQ and Jun Zhou Zhi Ye entered into a
memorandum of understanding. Based on the memorandum of
understanding, both parties agreed to register a sales and purchase
agreement upon Jun Zhou Zhi Ye obtaining a license to sell the
commercial property (the Singapore Themed Resort Project) located
in Chongqing, China. The proposed agreement is for the sale of shop
lots with a total area of 1,484.55 square meters as consideration
for the outstanding amounts owed to TTCQ by Jun Zhou Zhi Ye as
follows:
a)
Long
term loan receivable RMB 5,000, or approximately $814, as disclosed
in Note 5, plus the interest receivable on long term loan
receivable of RMB 1,250;
b)
Commercial
units measuring 668 square meters, as mentioned above;
and
c)
RMB
5,900 for the part of the unrecognized cash consideration of RMB
8,000 relating to the disposal of the joint venture.
The consideration does not include the remaining outstanding amount
of RMB 2,000, or approximately $326, which will be paid to TTCQ in
cash.
The shop lots are to be delivered to TTCQ upon completion of the
construction of the shop lots in the Singapore Themed Resort
Project. The initial targeted date of completion was December 31,
2016. Based on discussions with the developers, the completion date
is estimated to be December 31, 2018.
The share transfer (10% interest in the joint venture) was
registered with the relevant authorities in China in October
2016.
Fiscal Year 2017
Highlights (in Thousands)
●
Total revenue
increased by $4,084, or 11.9%, to $38,538 in fiscal year 2017
compared to $34,454 in fiscal year 2016.
●
Manufacturing
segment revenue increased by $779, or 5.4%, to $15,289 in fiscal
year 2017 compared to $14,510 in fiscal year 2016.
●
Testing services
segment revenue was $16,586 in fiscal year 2017, an increase of
$1,306, or 8.5%, compared to $15,280 in fiscal year
2016.
●
Distribution
segment revenue was $6,511 in fiscal year 2017, an increase of
$1,969, or 43.4%, compared to $4,542 in fiscal year
2016.
●
Real estate segment
revenue increased by $30, or 24.6%, to $152 in fiscal year 2017
compared to $122 in fiscal year 2016.
●
Gross profit
margins decreased by 0.9% to 24.6% in fiscal year 2017 compared to
25.5% in fiscal year 2016.
●
| General and
administrative expenses increased by $462, or 7.2%, to $6,911 in
fiscal year 2017 compared to $6,449 in fiscal year
2016. |
●
| Selling expenses
increased by $131, or 19.4%, to $807 in fiscal year 2017 compared
to $676 in fiscal year 2016. |
●
Loss on disposal of
property, plant and equipment was $47 in fiscal year 2017, a
deterioration of $63 as compared to a gain of $16 in fiscal year
2016.
●
Income from
operations was $1,489 in fiscal year 2017, an increase of $29, as
compared to $1,460 in fiscal year 2016.
●
Income from
continuing operations before income taxes was $1,801 in fiscal year
2017, an increase of $499, as compared to $1,302 in fiscal year
2016.
●
Other income
increased by $468 to $514 in fiscal year 2017 compared to $46 in
fiscal year 2016.
●
Tax expense for
fiscal year 2017 was $341 compared to $237 in fiscal year
2016.
●
Total assets
increased by $1,279, or 4.0%, to $33,498 as of June 30, 2017
compared to $32,219 as of June 30, 2016.
●
Working capital
increased by $1,009, or 15.6 %, to $7,488 as of June 30, 2017
compared to $6,479 as of June 30, 2016.
●
Net income
attributable to Trio-Tech International for the fiscal year 2017
was $1,316 compared to $779 in fiscal year 2016.
●
Net income
attributable to non-controlling interest for the fiscal year 2017
was $139 compared to $282 in fiscal year 2016.
The
highlights above are intended to identify some of our most
significant events and transactions during our fiscal year 2017.
However, these highlights are not intended to be a full discussion
of our results for the year. These highlights should be read in
conjunction with the discussion in this Item 7 and with our
consolidated financial statements and footnotes accompanying this
Annual Report.
General Financial Information
During
the fiscal year ended June 30, 2017, total assets increased by
$1,279, from $32,219 in fiscal year 2016 to $33,498 in fiscal year
2017. The increase was primarily due to an increase in cash and
cash equivalents, short-term deposits, trade accounts receivable,
inventories, property, plant and equipment and other assets. The
increase was partially offset by the decrease in other receivables,
prepaid expenses and other current assets, assets held for sale,
investment properties, restricted term deposits and deferred tax
assets.
Cash
and cash equivalents at June 30, 2017 were $4,772, an increase of
$965, or 25.3%, compared to $3,807 at June 30, 2016. The increase
was mainly due to improvement in collection from major customers in
the Singapore and Bangkok, Thailand operations, loan drawdown in
the Tianjin, China operations, and collection of rental income in
the Chongqing, China operations. The increase in cash and cash
equivalents was partially offset by the decrease in collections due
to a decrease in sales in the U.S. operations, placements in short
term deposit in the Malaysia operations and capital expenditure in
the Singapore, Bangkok, Thailand, and Malaysia
operations.
Short-term
deposits at June 30, 2017 were $787, an increase of $492, compared
to $295 at June 30, 2016. The increase in short-term deposits was
primarily due to placement of deposit by the Malaysia operations.
This increase was offset by the uplift of fixed deposit in the
Malaysia operations and currency translation.
Trade
accounts receivable at June 30, 2017 was $9,009, representing an
increase of $183, or 2.1%,
compared to $8,826 at June 30, 2016. The increase was attributable
to an increase in revenue during the fourth quarter of fiscal year
2017. Sales in the fourth quarter from all of the segments in
fiscal year 2017 was $10,638, an increase of $1,823, or 20.7%,
compared to the sales of $8,815 in fourth quarter of fiscal year
2016. The number of days’ sales
outstanding in accounts receivables was 83 days and 87 days for the
fiscal years ended June 30, 2017 and 2016, respectively. The
decrease in days’ sales outstanding was primarily due to
improved collections processes in the Singapore and Bangkok,
Thailand operations for fiscal year ended 2017, as compared to the
year-end of the last fiscal year.
Inventories
as at June 30, 2017 were $1,756, an increase of $296, or 20.3%,
compared to $1,460 at June 30, 2016. The number of days’
inventory held was 48 days at the end of fiscal 2017, compared to
38 days at the end of fiscal year 2016. The higher days’
inventory on hand was mainly due to an increase in inventory
purchased to meet the demand in the Singapore operations in the
fiscal year ended June 30, 2017.
Property,
plant and equipment at June 30, 2017 were $11,291, an increase of
$8, compared to $11,283 at June 30, 2016. The increase in property,
plant and equipment was mainly due to higher capital expenditures
in fiscal 2017 as compared to fiscal year 2016, partially offset by
the disposal of certain assets in the Malaysia and Tianjin, China
operations as part of operation review, and the foreign currency exchange difference between
functional currency and U.S. dollar from June 30, 2016 to
June 30, 2017. Capital expenditures in fiscal year 2017 increased
by $628, to $2,285 as compared to $1,657 for fiscal year 2016. The
increase in capital expenditures in the Singapore, Malaysia and
Bangkok, Thailand operations was partially offset by the lower
capital expenditures in the Tianjin, China operations in fiscal
year 2017.
Other
assets at June 30, 2017 were $1,922, an increase of $134, or 7.5%,
compared to $1,788 at June 30, 2016. The increase in other assets
was primarily due to down payments for capital purchases in the
Malaysia operations and by the currency translation difference
between functional currency and U.S. dollars from June 30, 2016 to
June 30, 2017.
As at
June 30, 2017, other receivables were $401, a decrease of $195, or
32.7%, compared to $596 at June 30, 2016. The decrease was
primarily due to the transfer of down payment for purchase of
property, plant and equipment to fixed assets in the Singapore
operations during the fiscal year ended 2017.
Prepaid
expenses and other current assets at June 30, 2017 were $226, a
decrease of $38 from $264 at June 30, 2016. The decrease was
mainly due certain items for which prepayments were completed
during fiscal year 2017 in the Singapore operations.
Investment
properties in China at June 30, 2017 were $1,216, a decrease of
$124 from $1,340 at June 30, 2016. The decrease was primarily
due to the depreciation charged during fiscal year 2017. The
currency translation also contributed to the decrease. Investment
property in Malaysia as at June 30, 2017 and 2016 were
nil.
Restricted
term deposits at June 30, 2017 decreased by $410 or 19.8%, to
$1,657 compared to $2,067 at June 30, 2016. The decrease was mainly
due to an uplift of fixed deposit in
the Singapore operations and currency translation difference
between functional currency and U.S. dollar from
June 30, 2016 to June 30, 2017.
Deferred
tax assets at June 30, 2017 were $375, a decrease of $26 as
compared to $401 as at June 30, 2016. The decrease was mainly
caused by timing differences in our Malaysia and Tianjin, China
operations.
Total
liabilities at June 30, 2017 were $11,971, an increase of $623, or
5.5%, compared to $11,348 at June 30, 2016. The increase in
liabilities was primarily due to the increase in lines of credit,
accounts payable, accrued expenses, deferred tax liabilities, and
capital leases, which was partially offset by the decrease in bank
loan payable.
Utilized
lines of credit as at June 30, 2017 increased by $65 to $2,556,
from to $2,491 as at June 30, 2016. The increase in lines of credit
was mainly due to the increase in drawdown of lines of credit by
the Tianjin, China operations, partially offset by the repayment of
lines of credit by the Singapore operation.
Accounts
payable as at June 30, 2017 increased by $308 to $3,229 from $2,921
as at June 30, 2016. The increase was mainly due to the increase in
purchases in the Singapore operations, and increased cost of sales
because of increased minimum wages passed on by sub-contractors to
the Malaysian operations during fiscal year 2017, as compared to
the end of fiscal year 2016. This increase was partially offset by
the decrease in accounts payable in the Suzhou, China operations
due to a decrease in purchases.
Accrued
expenses as at June 30, 2017 increased by $401 to $3,043 from
$2,642 as at June 30, 2016. The increase was mainly because of an
increase in payroll related expenses in the Singapore, Malaysia and
Tianjin, China operations, and an increase in commission and
customer deposits in the Singapore operations. This increase was
partially offset by the currency translation difference between
functional currency and U.S. dollars from June 30, 2016 to June 30,
2017.
Deferred
tax liabilities as at June 30, 2017 increased by $79 to $295 from
to $216 as at June 30, 2016. The increase was mainly caused by
timing differences in our Singapore, Malaysia and Tianjin, China
operations.
Capital
leases as at June 30, 2017 increased by $21 to $759, as compared to
$738 as at June 30, 2016. This was due to the increase in capital
leases in the Malaysia operations. The increase was partially
offset by the repayment of capital leases by the Singapore
operations and currency translation difference between functional
currency and U.S. dollars from June 30, 2016 to June 30,
2017.
Bank
loans payable as at June 30, 2017 decreased by $255 to $1,812, as
compared to $2,067 as at June 30, 2016. This was due to the
repayment of loans by the Malaysia operations and by the currency
translation difference between functional currency and U.S. dollars
from June 30, 2016 to June 30, 2017. The decrease as partially
offset by an increase in bank loans in the Singapore
operations.
Critical Accounting Estimates & Policies
The
discussion and analysis of the Company’s financial condition
presented in this section are based upon our consolidated financial
statements, which have been prepared in accordance with generally
accepted accounting principles in the U.S. During the preparation
of the consolidated financial statements we are required to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, we evaluate
our estimates and judgments, including those related to sales,
returns, pricing concessions, bad debts, inventories, investments,
fixed assets, intangible assets, income taxes and other
contingencies. We base our estimates on historical experience and
on various other assumptions that we believe are reasonable under
current conditions. Actual results may differ from these estimates
under different assumptions or conditions.
In response to the SEC’s Release No.
33-8040, Cautionary
Advice Regarding Disclosure about Critical Accounting
Policy, we
have identified the most critical accounting policies upon
which our financial status depends. We
determined that those critical accounting policies are related to
the inventory valuation, allowance for doubtful accounts, revenue
recognition, impairment of property, plant and equipment,
investment property and income tax. These accounting policies are
discussed in the relevant sections in this management’s
discussion and analysis, including the Recently Issued Accounting
Pronouncements discussed below.
Accounts Receivable and Allowance for Doubtful
Accounts
During
the normal course of business, we extend unsecured credit to our
customers in all segments. Typically, credit terms require payment
to be made between 30 to 90 days from the date of the sale. We
generally do not require collateral from customers. We maintain our
cash accounts at credit-worthy financial institutions.
The
Company’s management considers the following factors when
determining the collectability of specific customer accounts:
customer credit-worthiness, past transaction history with the
customer, current economic industry trends, and changes in customer
payment terms. The Company includes any account balances that are
determined to be uncollectible, along with a general reserve, in
the overall allowance for doubtful accounts. After all attempts to
collect a receivable have failed, the receivable is written off
against the allowance. Based on the information available to
management, the Company believed that its allowance for doubtful
accounts was adequate as of June 30, 2017.
Inventory Valuation
Inventories of our manufacturing and distribution segments
consisting principally of raw materials, works in progress, and
finished goods are stated at the lower of cost, using the first-in,
first-out (“FIFO”) method, or market value. The
semiconductor industry is characterized by rapid technological
change, short-term customer commitments and rapid changes in
demand. Provisions for estimated excess and obsolete inventory are
based on regular reviews of inventory quantities on hand and the
latest forecasts of product demand and production requirements from
our customers. Inventories are written down for not saleable,
excess or obsolete raw materials, works-in-process and finished
goods by charging such write-downs to cost of sales. In addition to
write-downs based on newly introduced parts, statistics and
judgments are used for assessing provisions of the remaining
inventory based on salability and obsolescence.
Property, Plant and Equipment & Investment
Property
Property, plant and equipment and investment properties are stated
at cost, less accumulated depreciation and amortization.
Depreciation is provided for over the estimated useful lives of the
assets using the straight-line method. Amortization of leasehold
improvements is provided for over the lease terms or the estimated
useful lives of the assets, whichever is shorter, using the
straight-line method.
Maintenance, repairs and minor renewals are charged directly to
expense as incurred. Additions and improvements to property and
equipment are capitalized. When assets are disposed of, the related
cost and accumulated depreciation thereon are removed from the
accounts and any resulting gain or loss is included in the
consolidated statements of operations and comprehensive income or
loss.
Foreign Currency Translation and Transactions
The United States dollar (“U.S. dollar”) is the
functional currency of the U.S. parent company. The Singapore
dollar, the national currency of Singapore, is the primary currency
of the economic environment in which the operations in Singapore
are conducted. We also have business entities in Malaysia,
Thailand, China and Indonesia, of which the Malaysian ringgit
(“RM”), Thai baht, Chinese renminbi (“RMB”)
and Indonesian rupiah, are the national currencies. The Company
uses the U.S. dollar for financial reporting purposes.
The Company translates assets and liabilities of its subsidiaries
outside the U.S. into U.S. dollars using the rate of exchange
prevailing at the balance sheet date, and the statement of
operations is measured using average rates in effect for the
reporting period. Adjustments resulting from the translation of the
subsidiaries’ financial statements from foreign currencies
into U.S. dollars are recorded in shareholders' equity as part of
accumulated comprehensive income or loss - translation adjustment.
Gains or losses resulting from transactions denominated in
currencies other than functional currencies of the Company’s
subsidiaries are reflected in income for the reporting
period.
Revenue Recognition
Revenue derived from testing services is recognized when testing
services are rendered. Revenue generated from sale of products in
the manufacturing and distribution segments are recognized when
persuasive evidence of an arrangement exists, delivery of the
products has occurred, customer acceptance has been obtained (which
means the significant risks and rewards of ownership have been
transferred to the customer), the price is fixed or determinable
and collectability is reasonably assured. Certain products sold in
the manufacturing segment require installation and training to be
performed.
Revenue from product sales is also recorded in accordance with the
provisions of ASC Topic 605 (Emerging Issues Task Force (“EITF”)
Statement 00-21), Revenue Arrangements with
Multiple Deliverables and
Staff Accounting Bulletin (SAB) 104 Revenue Recognition in
Financial Statements,
(“ASC Topic 605”) which generally require revenue
earned on product sales involving multiple-elements to be allocated
to each element based on the relative fair values of those
elements. Accordingly, the Company allocates revenue to each
element in a multiple-element arrangement based on the
element’s respective fair value, with the fair value
determined by the price charged when that element is sold and
specifically defined in a quotation or contract. The Company
allocates a portion of the invoice value to products sold and the
remaining portion of invoice value to installation work in
proportion to the fair value of products sold and installation work
to be performed. Training elements are valued based on hourly
rates, which the Company charges for these services when sold apart
from product sales. The fair value determination of products sold
and the installation and training work is also based on our
specific historical experience of the relative fair values of the
elements if there is no easily observable market price to be
considered. In fiscal year 2017 and 2016, the installation revenues
generated in connection with product sales were immaterial and were
included in the product sales revenue line on the consolidated
statements of operations and comprehensive income or
loss.
In the real estate segment: (1) revenue from property development
is earned and recognized on the earlier of the dates when the
underlying property is sold or upon the maturity of the agreement;
if this amount is uncollectible, the agreement empowers the
repossession of the property, and (2) rental revenue is recognized
on a straight-line basis over the terms of the respective leases.
This means that, with respect to a particular lease, actual amounts
billed in accordance with the lease during any given period may be
higher or lower than the amount of rental revenue recognized for
the period. Straight-line rental revenue is commenced when the
tenant assumes possession of the leased premises. Accrued
straight-line rents receivable represents the amount by which
straight-line rental revenue exceeds rents currently billed in
accordance with lease agreements.
Joint Venture
The Company analyzes its investments in joint ventures to determine
if the joint venture is a variable interest entity (a
“VIE”) and would require consolidation. The Company (a)
evaluates the sufficiency of the total equity at risk, (b) reviews
the voting rights and decision-making authority of the equity
investment holders as a group, and whether there are any guaranteed
returns, protection against losses, or capping of residual returns
within the group and (c) establishes whether activities within the
venture are on behalf of an investor with disproportionately few
voting rights in making this VIE determination. The Company would
consolidate a venture that is determined to be a VIE if it was the
primary beneficiary. Beginning January 1, 2010, a new accounting
standard became effective and changed the method by which the
primary beneficiary of a VIE is determined. Through a primarily
qualitative approach, the variable interest holder, if any, who has
the power to direct the VIE’s most significant activities is
the primary beneficiary. To the extent that the joint venture does
not qualify as VIE, the Company further assesses the existence of a
controlling financial interest under a voting interest model to
determine whether the venture should be consolidated.
Equity Method
The Company analyzes its investments in joint ventures to determine
if the joint venture should be accounted for using the equity
method. Management evaluates both Common Stock and in-substance
Common Stock as to whether they give the Company the ability to
exercise significant influence over operating and financial
policies of the joint venture even though the Company holds less
than 50% of the Common Stock and in-substance Common Stock. If so,
the net income of the joint venture will be reported as
“Equity in earnings of unconsolidated joint ventures, net of
tax” in the Company’s consolidated statements of
operations and comprehensive income or loss.
Cost Method
Investee
companies not accounted for under the consolidation or the equity
method of accounting are accounted for under the cost method of
accounting. Under this method, the Company’s share of the
earnings or losses of such investee companies is not included in
the consolidated balance sheet or consolidated statements of
operations and comprehensive income or loss. However, impairment
charges are recognized in the consolidated statements of operations
and comprehensive income or loss. If circumstances suggest that the
value of the investee company has subsequently recovered, such
recovery is not recorded.
Long-Lived Assets & Impairment
Our business requires heavy investment in manufacturing facilities
and equipment that are technologically advanced but can quickly
become significantly under-utilized or rendered obsolete by rapid
changes in demand. We have recorded intangible assets with finite
lives related to our acquisitions.
We evaluate our long-lived assets with finite lives for impairment
whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. Factors
considered important that could result in an impairment review
include significant underperformance relative to expected
historical or projected future operating results, significant
changes in the manner of use of the assets or the strategy for our
business, significant negative industry or economic trends, and a
significant decline in our stock price for a sustained period of
time. Impairment is recognized based on the difference between the
fair value of the asset and its carrying value, and fair value is
generally measured based on discounted cash flow analysis, if there
is significant adverse change.
In our business in the future, we may be required to record
impairment charges on our long-lived assets. There was no
impairment in fiscal years 2017 and 2016.
Fair Value Measurements
Under the standard ASC Topic 820, Fair Value
Measurements and Disclosures
(“ASC Topic
820”), fair value refers to the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between participants in the market in which the
reporting entity transacts its business. ASC Topic 820 clarifies
the principle that fair value should be based on the assumptions
market participants would use when pricing the asset or liability.
In support of this principle, ASC Topic 820 establishes a fair
value hierarchy that prioritizes the information used to develop
those assumptions. Under the standard, fair value measurements
would be separately disclosed by level within the fair value
hierarchy.
Income Tax
We account for income taxes using the liability method in
accordance with the provisions of ASC Topic 740, Accounting for Income
Taxes (“ASC Topic 740”), which requires an entity to
recognize deferred tax liabilities and assets. Deferred tax assets
and liabilities are recognized for the future tax consequence
attributable to the difference between the tax bases of assets and
liabilities and their reported amounts in the financial statements,
which will result in taxable or deductible amounts in future years.
Further, the effects of enacted tax laws or rate changes are
included as part of deferred tax expenses or benefits in the period
that covers the enactment date. Management believed that it was
more likely than not that the future benefits from these timing
differences would not be realized. Accordingly, a full allowance
was provided as of June 30, 2017 and 2016.
The calculation of tax liabilities involves dealing with
uncertainties in the application of complex global tax regulations.
We recognize potential liabilities for anticipated tax audit issues
in the U.S. and other tax jurisdictions based on our estimate of
whether, and the extent to which, additional taxes will be due. If
the estimate of tax liabilities proves to be less than the ultimate
assessment, a further charge to expense would result.
Stock Based Compensation
We adopted the fair value recognition provisions under ASC Topic
718, Share
Based Payments (“ASC
Topic 718”), using the modified prospective application
method. Under this transition method, compensation cost recognized
during the twelve months ended June 30, 2017 included the
applicable amounts of: (a) compensation cost of all share-based
payments granted prior to, but not yet vested as of, July 1, 2016
(based on the grant-date fair value estimated in accordance with
the original provisions of ASC Topic 718) and (b) compensation cost
for all share-based payments granted subsequent to June 30,
2017.
Non-controlling Interests in Consolidated Financial
Statements
We adopted ASC Topic 810, Consolidation
(“ASC Topic 810”). This
guidance establishes accounting and reporting standards for the
non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. This guidance requires that
non-controlling interests in subsidiaries be reported in the equity
section of the controlling company’s balance sheet. It also
changes the manner in which the net income of the subsidiary is
reported and disclosed in the controlling company’s income
statement.
Loan Receivables
The loan receivables are classified as current assets carried at
face value and are individually evaluated for impairment. The
allowance for loan losses reflects management’s best estimate
of probable losses determined principally on the basis of
historical experience and specific allowances for known loan
accounts. All loans or portions thereof deemed to be uncollectible
or to require an excessive collection cost are written off to the
allowance for losses.
Interest Income
Interest income on loans is recognized on an accrual basis.
Discounts and premiums on loans are amortized to income using the
interest method over the remaining period to contractual maturity.
The amortization of discounts into income is discontinued on loans
that are contractually 90 days past due or when collection of
interest appears doubtful.
Recent Accounting Pronouncements
The amendments in Accounting Standards Update (“ASU”)
2017-11: Earnings Per Share
(Topic 260); Distinguishing
Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic
815). For public companies, these amendments are effective for
annual periods beginning after December 15, 2018, including interim
periods within those periods. While early application is permitted,
including adoption in an interim period, the Company has not
elected to early adopt. The effectiveness of this update is not
expected to have a significant effect on the Company’s
presentation of consolidated financial position or results of
operations.
The amendments in ASU 2017-09 — Compensation—Stock
Compensation (ASC Topic 718 ):
Scope of Modification Accounting: These amendments provide guidance
on determining which changes to the terms and conditions of
share-based payment awards require an entity to apply modification
accounting under Topic 718. For public companies, these amendments
are effective for annual periods beginning after December 15, 2017,
including interim periods within those periods. While early
application is permitted, including adoption in an interim period,
the Company has not elected to early adopt. The effectiveness of
this update is not expected to have a significant effect on the
Company’s presentation of consolidated financial position or
results of operations.
The amendments in ASU 2017-08 ASC Subtopic 310-20 —
'Receivables—Nonrefundable
Fees and Other Costs (“ASC Subtopic 310-20”): These
amendments shorten the amortization period for certain callable
debt securities held at a premium. For public companies, these
amendments are effective for annual periods beginning after
December 15, 2018, including interim periods within those periods.
While early application is permitted, including adoption in an
interim period, the Company has not elected to early adopt. The
effectiveness of this update is not expected to have a significant
effect on the Company’s presentation of consolidated
financial position or results of operations.
The amendments in ASU 2017-07 ASC Topic 715 —
'Compensation
— Retirement Benefits:
These amendments improve the presentation of net periodic pension
Cost and Net Periodic Postretirement Benefit Cost. For public
companies, these amendments are effective for annual periods
beginning after December 15, 2017, including interim periods within
those periods. While early application is permitted, including
adoption in an interim period, the Company has not elected to early
adopt. The effectiveness of this update is not expected to have a
significant effect on the Company’s presentation of
consolidated financial position or results of
operations.
The amendments in ASU 2017-05 ASC Subtopic 610-20 —
'Other Income
– Gains and Losses from the Derecognition of Nonfinancial
Assets (“ASC Subtopic
610-20”): These amendments clarify the scope of asset
derecognition Guidance and Accounting for Partial Sales of
Nonfinancial Assets. For public companies, these amendments are
effective for annual periods beginning after December 15, 2017,
including interim periods within those periods. While early
application is permitted, including adoption in an interim period,
the Company has not elected to early adopt. The effectiveness of
this update is not expected to have a significant effect on the
Company’s presentation of consolidated financial position or
results of operations.
The amendments in ASU 2017-04 ASC Topic 350 —
'Intangibles -
Goodwill and Other: These
amendments simplify the test for goodwill impairment. For public
companies, these amendments are effective for annual periods
beginning after December 15, 2019, including interim periods within
those periods. While early application is permitted, including
adoption in an interim period, the Company has not elected to early
adopt. The effectiveness of this update is not expected to have a
significant effect on the Company’s presentation of
consolidated financial position or results of
operations.
The amendments in ASU 2017-01 ASC Topic 805 —
'Business
Combinations: These amendments
clarify the definition of a business. The amendments affect all
companies and other reporting organizations that must determine
whether they have acquired or sold a business. For public
companies, these amendments are effective for annual periods
beginning after December 15, 2017, including interim periods within
those periods. While early application is permitted, including
adoption in an interim period, the Company has not elected to early
adopt. The effectiveness of this update is not expected to have a
significant effect on the Company’s presentation of
consolidated financial position or results of
operations.
The amendments in ASU 2016-18 ASC Topic 230 —
'Statement of Cash
Flows: These amendments provide
cash flow statement classification guidance. For public business
entities, these amendments are effective for fiscal years beginning
after December 15, 2017, and interim periods within those fiscal
years. While early application is permitted, including adoption in
an interim period, the Company has not elected to early adopt. The
effectiveness of this update is not expected to have a significant
effect on the Company’s presentation of consolidated
financial position and statement of cash flows.
The amendments in ASU 2016-17 ASC Topic 810 —
Consolidation:
These amendments require an entity to recognize the income tax
consequences of an intra-entity transfer of an asset other than
inventory when the transfer occurs. For public business entities,
these amendments are effective for annual reporting periods
beginning after December 15, 2017, and interim periods within those
fiscal years. While early application is permitted, including
interim reporting periods within those annual reporting periods,
the Company has not elected to early adopt. The effectiveness of
this update is not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
The amendments in ASU 2016-16 ASC Topic 740 —
Income
Taxes: These amendments require
an entity to recognize the income tax consequences of an
intra-entity transfer of an asset other than inventory when the
transfer occurs. For public business entities, these amendments are
effective for annual reporting periods beginning after December 15,
2017, including interim reporting periods within those annual
reporting periods. While early application is permitted, including
adoption in an interim period, the Company has not elected to early
adopt. The effectiveness of this update is not expected to have a
significant effect on the Company’s consolidated financial
position or results of operations.
The amendments in ASU 2016-15 ASC Topic 230
—Statement of Cash
Flows: These amendments provide
cashflow statement classification guidance. For public business
entities, the amendments are effective for fiscal years beginning
after December 15, 2017, and interim periods within those fiscal
years. While early application is permitted, including adoption in
an interim period, the Company has not elected to early adopt. The
effectiveness of this update is not expected to have a significant
effect on the Company’s consolidated financial position or
results of operations.
The amendments in ASU 2016-13 ASC Topic 326: Financial Instruments
—Credit losses
are issued for the measurement of all
expected credit losses for financial assets held at the reporting
date based on historical experience, current conditions, and
reasonable and supportable forecasts. For public companies that are
not SEC filers, ASC Topic 326 is effective for fiscal years
beginning after December 15, 2020, and interim periods within those
fiscal years. While early application will be permitted for all
organizations for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018, the Company has
not yet determined if it will early adopt. The effectiveness of
this update is not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
The amendments in ASU 2016-09 ASC Topic 718: Compensation
– Stock Compensation are issued
to simplify several aspects of the accounting for share-based
payment award transactions, including (a) income tax consequences
(b) classification of awards as either equity or liabilities; and
(c) classification on the statement of cash flows. For public
business entities, the amendments are effective for annual periods
beginning after December 15, 2016, and interim periods within those
annual periods. Early adoption is permitted for any entity in any
interim or annual period. If an entity early adopts the amendments
in an interim period, any adjustments should be reflected as of the
beginning of the fiscal year that includes that interim period. An
entity that elects early adoption must adopt all of the amendments
in the same period. The Company has not elected to early adopt and
has not yet determined the effects on the Company’s
consolidated financial position or results of operations on the
adoption of this update.
The amendments in ASU 2016-02 ASC Topic 842: Leases require companies to recognize the following for
all leases (with the exception of short-term leases) at the
commencement date of the applicable lease: (a) a lease liability,
which is a lessee’s obligation to make lease payments arising
from a lease, measured on a discounted basis; and (b) a
right-of-use asset, which is as an asset that represents the
lessee’s right to use, or control the use of, a specified
asset for the lease term. These amendments become effective for
fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years, for a variety of entities
including a public company. While early adoption is permitted, the
Company has not elected to early adopt. The effectiveness of this
update is not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
The Financial Accounting Standards Board (“FASB”) has
issued converged standards on revenue recognition. Specifically,
the Board has issued ASU 2014-09, ASC Topic 606 (“ASU
2014-09”). ASU 2014-09 affects any entity using U.S. GAAP
that either enters into contracts with customers to transfer goods
or services or enters into contracts for the transfer of
non-financial assets unless those contracts are within the scope of
other standards (e.g., insurance contracts or lease contracts). ASU
2014-09 will supersede the revenue recognition requirements in ASC
Topic 605, Revenue Recognition (“ASC Topic 605”), and
most industry-specific guidance. ASU 2014-09 also supersedes some
cost guidance included in Subtopic 605-35, Revenue
Recognition—Construction-Type and Production-Type Contracts.
In addition, the existing requirements for the recognition of a
gain or loss on the transfer of non-financial assets that are not
in a contract with a customer (e.g., assets within the scope of ASC
Topic 360, Property, Plant, and Equipment, (“ASC Topic
360”), and intangible assets within the scope of Topic 350,
Intangibles—Goodwill and Other) are amended to be consistent
with the guidance on recognition and measurement (including the
constraint on revenue) in ASU 2014-09. For a public entity, the
amendments in ASU 2014-09 would be effective for annual reporting
periods beginning after December 15, 2016, including interim
periods within that reporting period. However, ASU 2015-14 ASC
Topic 606: Deferral of the Effective
Date (“ASC Topic
606”) defers the effective date of ASU 2014-09 for all
entities by one year. Earlier application is permitted only as of
annual reporting periods beginning after December 15, 2016,
including interim reporting periods within that reporting period.
The Company has not yet determined if it will early adopt. As the
new standards, will supersede substantially all existing revenue
guidance affecting the Company under GAAP, it could impact revenue
and cost recognition on sales across all the Company's business
segments. The Company carried out an initial evaluation of the
impact of this standard on its business and concluded the adoption
of this standard did not have a significant effect on its
Consolidated Financial Statements. While we are continuing to
assess all potential impacts, the Company has not presently
selected a transition method as we believe there will not be any
significant impact of this new guidance on the
Company.
The amendments in ASU 2015-11 ASC Topic 330: Simplifying the
Measurement of Inventory (“ASC Topic 330”) specify that
an entity should measure inventory at the lower of cost and net
realizable value. Net realizable value is the estimated selling
prices in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation.
Subsequent measurement is unchanged for inventory measured using
Last-In-First-Out or the retail inventory method. The amendments in
ASC Topic 330 are effective for public business entities for fiscal
years beginning after December 15, 2016, and interim periods within
those fiscal years. A reporting entity should apply the amendments
retrospectively to all periods presented. While early adoption is
permitted, the Company has not elected to early adopt. The adoption
of this update is not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
FASB amended ASU 2014-15 Subtopic 205-40, Presentation of Financial
Statements – Going Concern (“ASC Topic 205”) to define
management’s responsibility to evaluate whether there is
substantial doubt about an organization’s ability to continue
as a going concern and to provide related footnote disclosures.
Under GAAP, financial statements are prepared under the presumption
that the reporting organization will continue to operate as a going
concern, except in limited circumstances. The going concern basis
of accounting is critical to financial reporting because it
establishes the fundamental basis for measuring and classifying
assets and liabilities. Currently, GAAP lacks guidance about
management’s responsibility to evaluate whether there is
substantial doubt about the organization’s ability to
continue as a going concern or to provide related footnote
disclosures. ASC Topic 205 provides guidance to an
organization’s management, with principles and definitions
that are intended to reduce diversity in the timing and content of
disclosures that are commonly provided by organizations today in
the financial statement footnotes. The amendments in ASC Topic 205
are effective for annual periods beginning after December 15, 2016,
and interim periods within annual periods beginning after December
15, 2016. While early application is permitted for annual or
interim reporting periods for which the financial statements have
not previously been issued, the Company has not elected to early
adopt. The effectiveness of this update does not have a significant
effect on the Company’s consolidated financial position or
results of operations.
Other new pronouncements issued but not yet effective until after
June 30, 2017 are not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
Comparison of Operating Results
The
following table presents certain data from the consolidated
statements of operating income as a percentage of net sales for the
fiscal years ended June 30,
2017 and 2016:
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
Revenue
|
100.0%
|
100.0%
|
|
Cost
of sales
|
75.4
|
74.5
|
|
Gross Margin
|
24.6%
|
25.5%
|
|
Operating
expenses:
|
|
|
|
General
and administrative
|
17.9%
|
18.7%
|
|
Selling
|
2.1
|
2.0
|
|
Research
and development
|
0.5
|
0.6
|
|
(Gain)
/ loss on disposal of property, plant and equipment
|
0.1
|
0.0
|
|
Total
operating expenses
|
20.6%
|
21.3%
|
|
Income from Operations
|
4.0%
|
4.2%
|
Overall Revenue
The
overall revenue is composed of the revenues from the manufacturing,
testing services, distribution and real estate segments. The
following table presents the components of the overall revenue
realized in fiscal years 2017 and 2016 in percentage format,
respectively.
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
Manufacturing
|
39.7%
|
42.1%
|
|
Testing
|
43.0
|
44.3
|
|
Distribution
|
16.9
|
13.2
|
|
Real
estate
|
0.4
|
0.4
|
|
Total
|
100.0%
|
100.0%
|
|
|
|
|
Revenue
in fiscal year 2017 was $38,538, an increase of $4,084 or 11.9%,
compared to $34,454 in fiscal year 2016. The increase in revenue
was due to an increase in sales across all segments. The extent of
the increase in sales from fiscal year 2016 to fiscal year 2017 was
offset by the currency translation to U.S. dollars from our
subsidiaries’ functional currency.
As a
percentage of total revenue, the revenue generated by the
manufacturing segment in fiscal year 2017 accounted for 39.7%, a
decrease of 2.4%, as compared to 42.1% in fiscal year 2016. In
terms of dollar amount, the revenue generated by the manufacturing
segment in fiscal year 2017 was $15,289, reflecting an increase of
$779, or 5.4%, compared to $14,510 in fiscal year 2016. The
increase in revenue generated by the manufacturing segment was due
to the higher demand of manufacturing services in the Singapore
operations, which was offset by a decrease in volume in the
manufacturing segment in our U.S. and Suzhou, China
operations.
Backlog
in the manufacturing segment was $4,414 as at June 30, 2017,
representing an increase of $757 from $3,657 as at June 30, 2016.
We expect the demand for our products to continue to increase at a
slower pace in fiscal year 2018 as compared to fiscal year 2017,
depending on the global market for testing equipment and
systems.
As a
percentage of total revenue, the revenue generated by the testing
services segment in fiscal year 2017 accounted for 43.0% of total
sales, a decrease of 1.3% compared to 44.3% in fiscal year 2016. In
terms of dollar amount, the revenue generated by the testing
services segment for fiscal year 2017 was $16,586, reflecting an
increase of $1,306, compared to $15,280 for fiscal year 2016. The
increase in revenue generated by the testing segment was
primarily attributable to our Singapore, Malaysia and Bangkok,
Thailand operations. The increase in the Singapore operations was
due to receiving orders from new testing customers and our existing
customers increasing their order for certain product categories,
which is dependent on the demand for their products, while the
increase in the Malaysia and Bangkok, Thailand operations were due
to an increase in orders from major customers. These increases were
partially offset by the decrease in revenue as a result of lower
volume in the Suzhou, China operations during fiscal year 2017, the
currency translation effect in the Tianjin, China operations
despite higher revenue in local currency. The extent of increase in
revenue was also negatively impacted by the currency translation
effect from our subsidiaries’ functional currency to U.S.
dollars. Demand for testing services varies from country to country
depending on changes taking place in the market and our
customers’ forecasts. Because it is difficult to accurately
forecast fluctuations in the market, we believe that 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.
Backlog
in the testing services segment as at June 30, 2017 was $1,105, an
increase of $287 as compared to $818 at June 30, 2016. The increase
in backlog was mainly from our Suzhou, China operations. The
backlog depends on the orders received from customers, which are in
turn dependent upon the customers’ inventory
levels.
As a
percentage of total revenue, the revenue generated by the
distribution segment in fiscal year 2017 accounted for 16.9% of
total sales, an increase of 3.7% compared to 13.2% in fiscal year
2016. In terms of dollar amount, revenue for fiscal year 2017 was
$6,511, an increase of $1,969, or 43.4%, compared to $4,542 for
fiscal year 2016. The increase in our distribution segment was due
to the increase in orders for certain products from existing
customers and new customers in our Singapore and operations in
fiscal year 2017. This increase was partially offset by a decrease
in orders in our Malaysia operations and currency translation
effect in the Suzhou, China operations despite higher revenue in
local currency.
Backlog
in the distribution segment as at June 30, 2017 was $1,686,
reflecting an increase of $394 compared to the backlog of $1,292 at
June 30, 2016. The increase in backlog was mainly due to an
increase in orders from customers due to an increase in the demand
for the customer’s products and expansion of our customer
base. We believe that our competitive advantage in the distribution
segment is our design and engineering capabilities in components
and touch screen products, which allow customization to meet the
specific requirement of our customers. Product volume for the
distribution segment depends on sales activities such as placing
orders, queries on products and backlog. Equipment and
electronic component sales are very competitive, as the products
are readily available in the market.
As a
percentage of total revenue, the revenue generated by the real
estate segment was 0.4% of total sales in both fiscal years 2017
and 2016. In terms of dollar value, revenue for fiscal year 2017
was $152, an increase of $30, or 24.6%, compared to $122 for fiscal
year 2016. Our real estate segment saw an increase in rental income
from our MaoYe and FuLi properties in fiscal year 2017 as certain
vacant units in fiscal year 2016 were leased in fiscal year
2017.
Backlog
in the real estate segment as at June 30, 2017 was $341, a decrease
of $196 as compared to $537 at June 30, 2016. The decrease in
backlog was mainly due to fewer instances of renewal of expired
rental agreements of certain properties in our China operations
during fiscal year 2017 as compared to fiscal year
2016.
Overall Gross Margin
Overall
gross margin as a percentage of revenue was 24.6% in fiscal year
2017, a decrease of 0.9% compared to 25.5% in fiscal year 2016. The
decrease in gross margin as a percentage of revenue was mainly
attributable to the manufacturing and distribution segments. In
terms of dollar value, the overall gross profit for fiscal year
2017 was $9,462, an increase of $693, or 7.9%, compared to $8,769
for fiscal year 2016. The increase in the dollar value of overall
gross margin was mainly due to the increase in the testing
segment.
The
gross margin as a percentage of revenue in the manufacturing
segment was 20.9% in fiscal year 2017, a decrease of 3.2% compared
to 24.1% in fiscal year 2016. In terms of dollar amount, gross
profit for the manufacturing segment in fiscal year 2017 was
$3,198, a decrease of $304, or 8.7%, compared to $3,502 in fiscal
year 2016. The decrease in absolute dollar amount of gross margin
was mainly due to a change in product mix in our Suzhou, China
operations, and a decrease in high profit margin sales in our U.S.
operations. The decrease in gross margin percentage was due to the
change in product mix, as this segment had fewer sales of products
with a higher profit margin as compared to the same period of last
fiscal year.
The
gross margin as a percentage of revenue in the testing services
segment was 33.3% in fiscal year 2017, an increase of 2.6% compared
to 30.7% in fiscal year 2016. In terms of dollar amounts, gross
profit in the testing services segment in fiscal year 2017 was
$5,529, an increase of $836, or 17.8%, compared to $4,693 in fiscal
year 2016. The increase
in gross profit margin was primarily due to the increase in revenue
brought about by an increase in orders in our Singapore, Malaysia
and Bangkok, Thailand operations, as discussed earlier. A
significant portion of our cost of goods sold is fixed in the
testing segment. Thus, as the demand of services and factory
utilization increases, the fixed costs are spread over the
increased output, which increases the gross profit margin. Overall,
the testing operations increased their utilization.
The
gross margin as a percentage of revenue in the distribution segment
was 10.5% in fiscal year 2017, a decrease of 2.2% compared to 12.7%
in fiscal year 2016. The
decrease in gross margin percentage was due to the change in
product mix, as this segment had fewer sales of products with a
higher profit margin as compared to the same period of last fiscal
year. In terms of dollar amount, gross profit in the distribution
segment was $683, an increase of $108, or 18.8%, compared $575 in
fiscal year 2016. The gross 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.
The
gross margin as a percentage of revenue in the real estate segment
was 34.2% in fiscal year 2017, an improvement of 35.0% compared to
a gross loss of 0.8% in fiscal year 2016. In absolute dollar
amount, gross margin in the real estate segment was $52 in fiscal
year 2017, an improvement of $53, as compared to a gross loss of $1
in fiscal year 2016. The improvement was due to an increase in
revenue from both investment properties, MaoYe and FuLi, because of
an increase in space rented during the period and a decrease in
cost of sales due a change in tax structure between fiscal years
2017 and 2016.
Operating Expenses
Operating
expenses for the fiscal years ended June 30, 2017 and 2016 were as
follows:
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
General
and administrative
|
$6,911
|
$6,449
|
|
Selling
|
807
|
676
|
|
Research
and development
|
208
|
200
|
|
Loss
/ (gain) on disposal of property, plant and equipment
|
47
|
(16)
|
|
Total
|
$7,973
|
$7,309
|
General
and administrative expenses increased by $462, or 7.2%, from $6,449
in fiscal year 2016 to $6,911 in fiscal year 2017. The increase was mainly attributable to an
increase in payroll expenses in our U.S., Singapore, Malaysia,
Tianjin, China operations, and an increase in professional and
software related expenses in the Singapore operations. These
increases were partially offset by a decrease in headcount and
payroll related expenses in our Suzhou, China operations, and a
decrease in legal and property management fees in our Chongqing,
China operations.
Selling
expenses were $807 and $676 in fiscal years 2017 and 2016,
respectively, reflecting an increase of $131, or 19.4%. The
increase was mainly due to an increase in travel expenses in our
Singapore, Malaysia and Tianjin, China operations, and an increase
in commission in our Singapore operations as a result of an
increase in commissionable sales. These increases were offset by a
decrease in commission in our U.S. operations.
During
fiscal year 2017, there was a loss in disposal of property, plant
and equipment amounting to $47, as compared to a gain of $16 in
fiscal year 2016. The change of $63 is because certain assets that
were no longer required were disposed during financial year 2017,
resulting in a loss. The change is mainly due to fixed assets
written off in the Malaysia and Tianjin, China operations as part
of routine operational review of assets during the fiscal
year.
Income from Operations
Income
from operations was $1,489 in fiscal year 2017, an increase of $29,
as compared to $1,460 in fiscal year 2016. The increase was mainly
due to an increase in revenue, which was partially offset by the
increase in the cost of sales and operating expenses, as discussed
earlier.
Interest Expenses
The
interest expenses for fiscal years 2017 and 2016 were as
follows:
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
Interest expenses
|
$202
|
$204
|
Interest
expenses decreased by $2, or 1.0%, to $202 in fiscal year 2017 from
$204 in fiscal year 2016.
Other
Income, Net
Other
income, net for fiscal years 2017 and 2016 was as
follows:
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
Interest
income
|
$33
|
18
|
|
Other
rental income
|
99
|
97
|
|
Exchange
gain / (loss)
|
96
|
(371)
|
|
Other
miscellaneous income
|
286
|
302
|
|
Total
|
$514
|
$46
|
Other
income increased by $468 to $514 for fiscal year 2017 as compared
to $46 for fiscal year 2016. The increase in other income in fiscal
year 2017 was mainly due to an exchange gain of $96 as compared to
an exchange loss of $371 in fiscal year 2016, in addition to an
increase in interest income. This was partially offset by a
decrease in other miscellaneous income.
Income Tax Expenses / Benefits
Income
tax expenses for fiscal year 2017 were $341, as compared to $237
for fiscal year 2016. The increase in income tax expenses was due
to an increase in taxes withheld by the Malaysia, Thailand and
China subsidiaries for the payments made to the Singapore
subsidiary. These taxes withheld are paid to the Inland Revenue
department of the respective countries and are not recoverable. In
addition, there was a change from deferred tax benefit in the same
period last fiscal year to deferred tax expense for timing
differences recorded by the Malaysia operations.
At June
30, 2017, the Company had net operating loss carry-forward of
approximately nil and $148 for U.S. federal and state tax purposes,
respectively, expiring through 2033. The Company also had tax
credit carry-forward of approximately $211 for U.S. federal income
tax purposes expiring through 2020. Management of the Company is
uncertain whether it is more likely than not that these future
benefits will be realized. Accordingly, a full valuation allowance
was established.
Loss / Income from Discontinued Operations
Loss
from discontinued operations was $5 in fiscal year 2017, as
compared to $4 in fiscal year 2016. The loss was attributable to
currency translation effect in the discontinued operations. We
discontinued our fabrication segment in fiscal year
2013.
The
discontinued operation in Shanghai was wound up in March 2017. The
operation did not incur any general and administrative expenses in
either fiscal year 2017 or 2016.
Non-controlling Interest
As of
June 30, 2017, we held an indirect 55% interest each in Trio-Tech
(Malaysia) Sdn. Bhd. (“TTM”), Trio-Tech (Kuala Lumpur)
Sdn. Bhd. (“TTKL”), SHI and PT SHI, and a 76% interest
in Prestal Enterprise Sdn. Bhd. (“Prestal”).
The non-controlling interest for
fiscal year 2017, in the net income of subsidiaries, was $139, a
decrease of $143 compared to the non-controlling interest in the
net income of $282 for the previous fiscal year. The decrease
in the non-controlling interest in the net income of subsidiaries
was primarily attributable to the lower net income generated by the
Malaysia operations in fiscal year 2017, as compared to the
previous fiscal year.
Net Income Attributable to Trio-Tech International Common
Shareholders
Net
income for fiscal year 2017 was $1,316, an increase of $537, as
compared to $779 for fiscal year 2016. The increase during fiscal
year 2017 was due to the increase in revenue and other income, and
decrease in share of net income to non-controlling interest,
partially offset by the increase in cost of goods sold, operating
expenses and income tax expenses, as discussed
earlier.
Earnings per Share
Basic
earnings per share from continuing operations was $0.38 in fiscal
year 2017, as compared to $0.22 in fiscal year 2016. Basic earnings
per share from discontinued operations was nil for both fiscal
years 2017 and 2016.
Diluted
earnings per share from continuing operations was $0.36 in fiscal
year 2017, as compared to $0.22 in fiscal year 2016. Diluted
earnings per share from discontinued operations was nil for both
fiscal years 2017 and 2016.
Segment Information
The
revenue, gross margin and income or loss from each segment for
fiscal years 2017 and 2016 are presented below. As the segment
revenue and gross margin have been discussed in the previous
section, only the comparison of income or loss from operations is
discussed below.
Manufacturing Segment
The
revenue, gross margin and loss from operations for the
manufacturing segment for fiscal years 2017 and 2016 were as
follows:
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
Revenue
|
$15,289
|
$14,510
|
|
Gross
margin
|
20.9%
|
24.1%
|
|
Income
from operations
|
$75
|
$260
|
Income
from operations in the manufacturing segment was $75 in fiscal year
2017, a decrease of $185, as compared to $260 in fiscal year 2016.
The change was attributable to a decrease in gross margin by $304,
as discussed earlier, and decrease in operating expenses by $119.
Operating expenses were $3,123 and $3,242 for fiscal years 2017 and
2016, respectively. The decrease in
operating expenses was mainly due to a decrease in general admin
expenses. This decrease was partially offset by an increase in
allocation of corporate charges, which are allocated on a
predetermined fixed charge basis.
Testing Services Segment
The
revenue, gross margin and income from operations for the testing
services segment for fiscal years 2017 and 2016 were as
follows:
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
Revenue
|
$16,586
|
$15,280
|
|
Gross
margin
|
33.3%
|
30.7%
|
|
Income
from operations
|
$1,112
|
$1,010
|
Income
from operations in the testing services segment in fiscal year 2017
was $1,112, an increase of $102 compared to $1,010 in fiscal year
2016. The increase in operating income was attributable to an
increase in revenue by $1,306 and increase in gross margin by $836,
as discussed earlier, and partially offset by an increase in
operating expenses by $734. Operating expenses were $4,417 and
$3,683 for fiscal years 2017 and 2016, respectively. The increase
in operating expenses was mainly attributable to an increase in general and administrative expenses,
selling expenses, and loss on disposal of property, plant and
equipment. General and administrative expenses increased due to an
increase in payroll related expenses in the Singapore, Malaysia and
Tianjin, China operations, software related expenses in the
Singapore operations, professional expenses in the Malaysian
operations and an increase in tax and welfare expenses in the
Tianjin, China operations. Selling expenses increased due to travel
expenses in the Singapore, Malaysia, and Tianjin, China operations
and commission expenses in the Singapore operations. Increase in
commission expenses was due to increase in commissionable sales.
During fiscal year 2017, certain assets that were no longer
required were disposed of, resulting in a loss. These increases
were partially offset by a decrease in allocation of corporate
charges, which are allocated on a predetermined fixed charge
basis.
Distribution Segment
The
revenue, gross margin and income from operations for the
distribution segment for fiscal years 2017 and 2016 were as
follows:
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
Revenue
|
$6,511
|
$4,542
|
|
Gross
margin
|
10.5%
|
12.7%
|
|
Income
from operations
|
$345
|
$224
|
Income
from operations in the distribution segment was $345 in fiscal year
2017, an increase of $121, as compared to $224 in fiscal year 2016.
The increase was mainly due to the increase in revenue of $1,969
and an increase in gross margin of $108, as discussed earlier, and
decrease in operating expenses by $13. Operating expenses were $338
and $351 for fiscal years 2017 and 2016, respectively. The
decrease in allocation of corporate
charges, which are allocated on a predetermined fixed charge
basis, was partially offset by increases in general and
administrative and selling expenses in our Singapore
operations.
Real Estate
The
revenue, gross margin and loss from operations for the real estate
segment for fiscal years 2017 and 2016 were as
follows:
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
Revenue
|
$152
|
$122
|
|
Gross
margin
|
34.2%
|
(0.8)%
|
|
Loss
from operations
|
$(38)
|
$(100)
|
Loss
from operations in the real estate segment decreased by $62, from
$100 in fiscal year 2016 as compared to $38 in fiscal year 2017.
The decrease in operating loss was primarily due to the increase in
revenue by $30 and increase in gross margin by $53, as discussed
earlier, and decrease in operating expenses by $9. Operating
expenses were $90 and $99 for fiscal years 2017 and 2016,
respectively.
Corporate
The
following table presents the (loss) or income from operations for
Corporate for fiscal years 2017 and 2016,
respectively:
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
(Loss)/
income from operations
|
$(5)
|
$66
|
In
fiscal year 2017, Corporate operating loss was $5, a deterioration
of $71 compared to an operating income of $66 in fiscal year 2016.
This was mainly due to an increase in corporate expenses mainly in
payroll related expenses and information systems related expenses.
These increases were partially offset by the increase corporate
charges allocated to other segments. Allocation is based on a
predetermined fixed charge basis.
Liquidity
The
Company’s core businesses—testing services,
manufacturing and distribution—operate in a volatile
industry, in which its average selling prices and product costs are
influenced by competitive factors. These factors create pressures
on sales, costs, earnings and cash flows, which impact liquidity.
Net
cash provided by operating activities increased by $2,939 to $3,953
for the twelve months ended June 30, 2017 from $1,014 in the same
period of the last fiscal year. Together with an increase of $394
in net income, net cash generated by operating activities was
mainly due to an improvement in collection from accounts receivable
by $756, a decrease in other receivables by $398, decrease in other
assets by $107, an increase in other payables by $952 and an
increase in deferred tax liability by $176. These were partially
offset by an increase in inventories by $45.
Net
cash used in investing activities increased by $782 to an outflow
of $2,362 for the twelve months ended June 30, 2017 from an outflow
of $1,580 for the same period of last fiscal year. The
increase in net cash used in investing activities was primarily due
to an increase in cash outflow of $628 from additions to property,
plant and equipment, and $450 from investments in restricted and
unrestricted deposits, in addition to a decrease in cash inflow of
$129 from disposal of property, plant and equipment. The increase
in net cash used in investing activities was partially offset by a
decrease of $425 in proceeds from maturing of restricted and
unrestricted deposits.
Net
cash used in financing activities for the twelve months ended June
30, 2017 was $349, representing a change of $584 compared to
$235 net cash generated from financing activities during the twelve
months ended June 30, 2016. Cash outflow increased mainly due to an
increase in repayment of lines of credit by $901. The increase in
cash outflow was partially offset by an increase in cash inflow of
$331 from borrowings from bank loans.
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 loans will provide the necessary
financial resources to meet our projected cash requirements for at
least the next 12 months. Should we find an attractive capital
investment, we may seek additional debt or equity financing in
order to fund the transaction, in the form of bank financing,
convertible debt, or the issuance of Common Stock.
Capital Resources
Our working capital (defined as current assets minus current
liabilities) has historically been generated primarily from the
following sources: operating cash flow, availability under our
revolving line of credit, and short-term loans. The working capital
was $7,488 as of June 30, 2017, representing an increase of $1,009,
or 15.6%, compared to working capital of $6,479 as of June 30,
2016. The increase in working capital was mainly due to increases
in current assets such as cash and cash equivalents, short-term
deposits, trade receivables, inventories and decreases in current
liabilities such as, income taxes payable, current portion of bank
loans payable and current
portion of capital leases. Such fluctuations were partially offset
by decreases in current assets such as prepaid expenses and other
current assets, and assets held for sale and increases in current
liabilities such as lines of credit, trade payable and accrued
expenses, as discussed above.
The majority of our capital expenditures are based on demands from
our customers, as we are operating in a capital-intensive
industry. Our capital expenditures were $2,283 and $1,657 for
fiscal year 2017 and fiscal year 2016, respectively. The capital
expenditures in fiscal year 2017 were mainly in the Singapore and
Malaysia operations, which provide testing services to one of our
major customers. We financed our capital expenditures and other
operating expenses through operating cash flows, revolving lines of
credit and long-term debts.
Our
credit rating provides us with ready and adequate access to funds
in the global market. At June 30, 2017, we had available unused
lines of credit totaling $3,559.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
Lines
of Credit
|
Ranging
from 4.0% to 7.5%
|
-
|
$4,496
|
$2,815
|
|
Trio-Tech
(Malaysia) Sdn. Bhd.
|
Lines
of Credit
|
Ranging
from 6.3% to 6.7%
|
-
|
$734
|
$734
|
|
Trio-Tech
(Tianjin) Co., Ltd.
|
Lines
of Credit
|
5.2%
|
-
|
$885
|
$10
|
On
January 20, 2017, Trio-Tech Tianjin signed an agreement with a bank
for an Accounts Receivable Financing facility with the bank for RMB
6,000, or approximately $871. Interest is charged at the
bank’s lending rate plus a floating interest rate. The
effective interest rate is 120% of the bank’s lending rate.
The financing facility was set up to facilitate the growing testing
operations in our Tianjin operations in China. The bank account for
this facility was set up on January 20, 2017 and put to use during
fiscal year 2017.
At June
30, 2016, we had available unused lines of credit totaling
$5,241.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
Lines
of Credit
|
Ranging
from 1.6% to 5.5%
|
-
|
$5,745
|
$3,856
|
|
Trio-Tech
(Malaysia) Sdn. Bhd.
|
Lines
of Credit
|
Ranging
from 6.3% to 6.7%
|
-
|
$783
|
$783
|
|
Trio-Tech
(Tianjin) Co., Ltd.
|
Lines
of Credit
|
Ranging
from 4.9% to 6.3%
|
-
|
$1,204
|
$602
|
On May
3, 2016, Trio-Tech Tianjin used the facility amounting to RMB 2
million, or approximately $301, and on June 23, 2016, further used
an additional facility of RMB 2 million, or approximately
$301.
Off-Balance Sheet Arrangements
We do
not consider the Company to have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
As a
smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934, we are not required to provide the
information required by this item.
ITEM
8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
information called for by this item is included in the Company's
consolidated financial statements beginning on page F-1 of this
Annual Report on Form 10-K.
ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A – CONTROLS AND
PROCEDURES
An
evaluation was carried out by the Company’s Chief Executive
Officer and Chief Financial Officer (the principal executive and
principal financial officers, respectively, of the Company) of the
effectiveness of the Company’s disclosure controls and
procedures (as defined in Rule 13a-15(e) or 15d-15(e) promulgated
under the Securities Exchange Act of 1934, as amended) as of June
30, 2017, the end of the period covered by this Form 10-K. Based
upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company’s disclosure
controls and procedures were effective as of June 30,
2017.
Additionally,
management has the responsibility for establishing and maintaining
adequate internal control over financial reporting for the Company
and thus also assessed the effectiveness of our internal controls
over financial reporting as of June 30, 2017. Management used the
framework set forth in the report entitled “Internal Control
– Integrated Framework” published by the Committee of
Sponsoring Organizations of the Treadway Commission in 2013 to
evaluate the effectiveness of the Company’s internal control
over financial reporting.
Internal
control over financial reporting refers to the process designed by,
or under the supervision of, our Chief Executive Officer and Chief
Financial Officer, and effected by our Board of Directors,
management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purpose in
accordance with U.S. generally accepted accounting principles, and
includes those policies and procedures that:
1.
Pertain to the
maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of
the Company;
2.
Provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S.
generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorization of management and directors of the Company;
and
3.
Provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, and use or disposition of the Company’s assets
that could have a material effect on the financial
statements.
Internal
control over financial reporting cannot provide absolute assurance
of achieving financial reporting objectives because of its inherent
limitations. Internal control over financial reporting is a process
that involves human diligence and compliance and is subject to
lapses in judgment and breakdowns resulting from human failures.
Internal control over financial reporting also can be circumvented
by collusion or improper management override. Because of such
limitations, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known
features of the financial reporting process. Therefore, it is
possible to design into the process safeguards to reduce, though
not eliminate, the risk.
Based
on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company’s internal controls over
financial reporting were effective as of June 30,
2017.
Changes in Internal Control Over Financial Reporting
Except as discussed below, there has been no change in the
Company’s internal control over financial reporting
during the fourth quarter of Fiscal 2017, which were identified in
connection with management’s evaluation required by paragraph
(d) of rules 13a-15 and 15d-15 under the Exchange Act, that
have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial
reporting.
Enterprise Resource Planning (ERP) Implementation
We are in the process of implementing an ERP System, as part of a
multi-year plan to integrate and upgrade our systems and processes.
The implementation of this ERP system is scheduled to occur in
phases over the next few years, and began with the migration of
certain of our operational and financial systems in our Singapore
operations to the new ERP system during the second quarter of
Fiscal 2017. This implementation effort continued in the third and
fourth quarters of Fiscal 2017 and will continue in Fiscal 2018,
when the operational and financial systems in Singapore and
Malaysia 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.
ITEM 9B – OTHER INFORMATION
None.
PART III
The
information required by Items 10 through 14 of Part III of this
Form 10-K (information regarding our directors and executive
officers, executive compensation, security ownership of certain
beneficial owners, management, related stockholder matters, and
certain relationships and related transactions and principal
accountant fees and services, respectively) is hereby incorporated
by reference from the Company's Proxy Statement to be filed with
the Securities and Exchange Commission within 120 days after the
end of fiscal year 2017.
PART IV
ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
(a)
(1 and 2) FINANCIAL
STATEMENTS AND SCHEDULES:
The
following financial statements, including notes thereto and the
independent auditors' report with respect thereto, are filed as
part of this Annual Report on Form 10-K, starting on page F-1
hereof:
1.
Report of
Independent Registered Public Accounting Firm
2.
Consolidated
Balance Sheets
3.
Consolidated
Statements of Operations and Comprehensive Income
(Loss)
4.
Consolidated
Statements of Shareholders' Equity
5.
Consolidated
Statements of Cash Flows
6.
Notes to
Consolidated Financial Statements
(b)
The
exhibits filed as part of this Annual Report on Form 10-K are set
forth on the Exhibit Index immediately preceding such exhibits, and
are incorporated herein by reference.
ITEM 16 – FORM 10-K SUMMARY
Not
applicable.
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
|
|
TRIO-TECH
INTERNATIONAL
By:
/s/ Victor H.M.
Ting
VICTOR H.M.
TING
Vice President
and Chief Financial
Officer
September 20,
2017
|
Pursuant to the
requirement of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the
Registrant and in the capacity and on the dates
indicated.
|
|
/s/ A. Charles Wilson
A. Charles Wilson, Director
Chairman of the Board
September 20, 2017
/s/ S.W.Yong
S. W. Yong,
Director
President, Chief Executive Officer
(Principal Executive Officer)
September 20, 2017
/s/ Victor H. M. Ting
Victor H.M. Ting, Director
Vice President, Chief Financial Officer
(Principal Financial Officer)
September 20, 2017
/s/ Jason T. Adelman
Jason T. Adelman, Director
September 20, 2017
/s/ Richard M. Horowitz
Richard M. Horowitz, Director
September 20, 2017
|
EXHIBITS:
|
Number
|
Description
|
|
|
|
|
3.1
|
Articles
of Incorporation, as currently in effect. [Incorporated by
reference to Exhibit 3.1 to the Registrant’s Annual Report on
Form 10-K for June 30, 1988.]
|
|
3.2
|
Bylaws,
as currently in effect. [Incorporated by reference to Exhibit 3.2
to the Registrant’s Annual Report on Form 10-K for June 30,
1988.]
|
|
|
Amendment
to 2007 Employee Stock Option Plan [Incorporated by reference to
Exhibit A to the Registrant’s Proxy Statement for its Annual
Meeting held December 14, 2010.]**
|
|
|
Amendment
to 2007 Directors Equity Incentive Plan [Incorporated by reference
to Exhibit B to the Registrant’s Proxy Statement for its
Annual Meeting held December 14, 2010.]**
|
|
|
Amendment
to 2007 Directors Equity Incentive Plan [Incorporated by reference
to Appendix A to the Registrant’s Proxy Statement for its
Annual Meeting held December 9, 2013.]**
|
|
21.1
|
Subsidiaries
of the Registrant (100% owned by the Registrant except as otherwise
stated)
|
|
|
Express
Test Corporation (Dormant), a California Corporation
|
|
|
Trio-Tech
Reliability Services (Dormant), a California
Corporation
|
|
|
KTS
Incorporated, dba Universal Systems (Dormant), a California
Corporation
|
|
|
European
Electronic Test Center. Ltd., a Cayman Islands Corporation
(Operation ceased on November 1, 2005)
|
|
|
Trio-Tech
International Pte. Ltd., a Singapore Corporation
|
|
|
Universal
(Far East) Pte. Ltd., a Singapore Corporation
|
|
|
Trio-Tech
International (Thailand) Co., Ltd., a Thailand
Corporation
|
|
|
Trio-Tech
(Bangkok) Co., Ltd., a Thailand Corporation
|
|
|
Trio-Tech
(Malaysia) Sdn Bhd., a Malaysia Corporation (55% owned by the
subsidiary of Registrant)
|
|
|
Trio-Tech
(Kuala Lumpur) Sdn Bhd., a Malaysia Corporation (100% owned by
Trio-Tech Malaysia)
|
|
|
Prestal
Enterprise Sdn. Bhd., a Malaysia Corporation (76% owned by the
Registrant)
|
|
|
Trio-Tech
(SIP) Co., Ltd., a China Corporation
|
|
|
Trio-Tech
(Shanghai) Co., Ltd., a China Corporation (Windup in March 30,
2017)
|
|
|
Trio-Tech
(Chongqing) Co. Ltd., (100% owned by Trio-Tech International Pte.
Ltd., a Singapore Corporation)
|
|
|
SHI
International Pte. Ltd, a Singapore Corporation (55% owned
Trio-Tech International Pte. Ltd., a Singapore
Corporation)
|
|
|
PT SHI
Indonesia, an Indonesia Corporation (100% owned by SHI
International Pte. Ltd., a Singapore Corporation)
|
|
|
Trio-Tech
(Tianjin) Co., Ltd., a China Corporation (100% owned by Trio-Tech
International Pte. Ltd., a Singapore Corporation)
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm*
|
|
31.1
|
Rule
13a-14(a) Certification of Principal Executive Officer of
Registrant*
|
|
31.2
|
Rule
13a-14(a) Certification of Principal Financial Officer of
Registrant*
|
|
32
|
Section
1350 Certification. *
|
|
|
|
|
101.INS*
|
XBRL
Instance Document
|
|
101.SCH*
|
XBRL
Taxonomy Extension Schema
|
|
101.CAL*
|
XBRL
Taxonomy Extension Calculation Linkbase
|
|
101.DEF*
|
XBRL
Taxonomy Extension Definition Linkbase
|
|
101.LAB*
|
XBRL
Taxonomy Extension Label Linkbase
|
|
101.PRE*
|
XBRL
Taxonomy Extension Presentation Linkbase
|
* Filed
electronically herewith.
** Indicates
management contracts or compensatory plans or arrangements required
to be filed as an exhibit to this report
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Board of Directors and Shareholders
Trio-Tech International
Van Nuys, California
We have audited the accompanying consolidated balance sheets of
Trio-Tech International and Subsidiaries (the
“Company”) as of June 30, 2017 and 2016, and the
related consolidated statements of operations and comprehensive
income (loss), shareholders' equity and cash flows for each of the
years in the two-year period ended June 30, 2017. The Company's
management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Trio-Tech International and Subsidiaries as of June 30,
2017 and 2016, and the results of their operations and their cash
flows for each of the years in the two-year period ended June 30,
2017 in conformity with accounting principles generally accepted in
the United States of America.
Mazars LLP
PUBLIC ACCOUNTANTS AND
CHARTERED ACCOUNTANTS
/s/ Mazars
LLP
Singapore
September
20, 2017
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
AUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
|
|
|
|
|
ASSETS
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
and cash equivalents
|
$4,772
|
$3,807
|
|
Short-term
deposits
|
787
|
295
|
|
Trade
accounts receivable, less allowance for doubtful accounts of $247
and $270
|
9,009
|
8,826
|
|
Other
receivables
|
401
|
596
|
|
Inventories,
less provision for obsolete inventory of $686 and $697
|
1,756
|
1,460
|
|
Prepaid
expenses and other current assets
|
226
|
264
|
|
Assets
held for sale
|
86
|
92
|
|
Total current assets
|
17,037
|
15,340
|
|
NON-CURRENT
ASSETS:
|
|
|
|
Deferred
tax assets
|
375
|
401
|
|
Investment
properties, net
|
1,216
|
1,340
|
|
Property,
plant and equipment, net
|
11,291
|
11,283
|
|
Other
assets
|
1,922
|
1,788
|
|
Restricted
term deposits
|
1,657
|
2,067
|
|
Total
non-current assets
|
16,461
|
16,879
|
|
TOTAL ASSETS
|
$33,498
|
$32,219
|
|
|
|
|
|
LIABILITIES
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
Lines
of credit
|
$2,556
|
$2,491
|
|
Accounts
payable
|
3,229
|
2,921
|
|
Accrued
expenses
|
3,043
|
2,642
|
|
Income
taxes payable
|
233
|
230
|
|
Current
portion of bank loans payable
|
260
|
342
|
|
Current
portion of capital leases
|
228
|
235
|
|
Total current liabilities
|
9,549
|
8,861
|
|
NON-CURRENT
LIABILITIES:
|
|
|
|
Bank
loans payable, net of current portion
|
1,552
|
1,725
|
|
Capital
leases, net of current portion
|
531
|
503
|
|
Deferred
tax liabilities
|
295
|
216
|
|
Other
non-current liabilities
|
44
|
43
|
|
Total non-current liabilities
|
2,422
|
2,487
|
|
TOTAL LIABILITIES
|
$11,971
|
$11,348
|
|
|
|
|
|
EQUITY
|
|
|
|
TRIO-TECH
INTERNATIONAL’S SHAREHOLDERS' EQUITY:
|
|
|
|
Common
stock, no par value, 15,000,000 shares authorized; 3,523,055 shares
issued and outstanding as at June 30, 2017 and 3,513,055 shares
issued and outstanding June 30, 2016
|
$10,921
|
$10,882
|
|
Paid-in
capital
|
3,206
|
3,188
|
|
Accumulated
retained earnings
|
4,341
|
3,025
|
|
Accumulated
other comprehensive gain-translation adjustments
|
1,633
|
2,162
|
|
Total Trio-Tech International shareholders'
equity
|
20,101
|
19,257
|
|
Non-controlling
interests
|
1,426
|
1,614
|
|
TOTAL EQUITY
|
$21,527
|
$20,871
|
|
TOTAL LIABILITIES AND EQUITY
|
$33,498
|
$32,219
|
See notes to consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
AUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
Products
|
$15,289
|
$14,510
|
|
Testing services
|
16,586
|
15,280
|
|
Distribution
|
6,511
|
4,542
|
|
Others
|
152
|
122
|
|
|
38,538
|
34,454
|
|
Cost of Sales
|
|
|
|
Cost
of products sold
|
12,091
|
11,008
|
|
Cost
of testing services rendered
|
11,057
|
10,587
|
|
Cost
of distribution
|
5,828
|
3,967
|
|
Others
|
100
|
123
|
|
|
29,076
|
25,685
|
|
|
|
|
|
Gross Margin
|
9,462
|
8,769
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
General
and administrative
|
6,911
|
6,449
|
|
Selling
|
807
|
676
|
|
Research
and development
|
208
|
200
|
|
Gain/
(loss) on disposal of property, plant and equipment
|
47
|
(16)
|
|
Total
operating expenses
|
7,973
|
7,309
|
|
|
|
|
|
Income from Operations
|
1,489
|
1,460
|
|
|
|
|
|
Other Income / (Expenses)
|
|
|
|
Interest expenses
|
(202)
|
(204)
|
|
Other income, net
|
514
|
46
|
|
Total other income / (expenses)
|
312
|
(158)
|
|
|
|
|
|
Income from Continuing Operations before Income
Taxes
|
1,801
|
1,302
|
|
|
|
|
|
Income Tax Expenses
|
(341)
|
(237)
|
|
|
|
|
|
Income
from continuing operations before non-controlling interests, net of
tax
|
1,460
|
1,065
|
|
|
|
|
|
Discontinued Operations (Note 24)
|
|
|
|
Loss
from discontinued operations, net of tax
|
(5)
|
(4)
|
|
NET INCOME
|
1,455
|
1,061
|
|
|
|
|
|
Less:
net income attributable to non-controlling interests
|
139
|
282
|
|
Net Income Attributable to Trio-Tech International Common
Shareholders
|
$1,316
|
$779
|
|
|
|
|
|
Amounts Attributable to Trio-Tech International Common
Shareholders:
|
|
|
|
Income
from continuing operations, net of tax
|
1,325
|
788
|
|
Loss
from discontinued operations, net of tax
|
(9)
|
(9)
|
|
Net Income Attributable to Trio-Tech International Common
Shareholders
|
$1,316
|
$779
|
|
|
|
|
|
Basic Earnings per Share:
|
|
|
|
Basic
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.38
|
$0.22
|
|
Basic
loss per share from discontinued operations attributable to
Trio-Tech International
|
$-
|
$-
|
|
Basic Earnings per Share from Net Income
|
|
|
|
Attributable to Trio-Tech International
|
$0.38
|
$0.22
|
|
|
|
|
|
Diluted Earnings per Share:
|
|
|
|
Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.36
|
$0.22
|
|
Diluted
loss per share from discontinued operations attributable to
Trio-Tech International
|
-
|
-
|
|
Diluted Earnings per Share from Net Income
|
|
|
|
Attributable to Trio-Tech International
|
$0.36
|
$0.22
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
|
Basic
|
3,523
|
3,513
|
|
Dilutive
effect of stock options
|
121
|
22
|
|
Number
of shares used to compute earnings per share diluted
|
3,644
|
3,535
|
See notes to consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income Attributable to Trio-Tech
International Common Shareholders:
|
|
|
|
|
|
|
|
Net
income
|
1,455
|
1,061
|
|
Foreign
currency translation, net of tax
|
(679)
|
(832)
|
|
Comprehensive Income
|
776
|
229
|
|
Less:
comprehensive (loss) / income attributable to the non-controlling
interests
|
(11)
|
59
|
|
Comprehensive Income Attributable to Trio-Tech International Common
Shareholders
|
$787
|
$170
|
|
|
|
|
See notes to consolidated financial statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
|
|
|
|
|
Accumulated Other
Comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
$
|
$
|
$
|
$
|
|
Balance
at June 30, 2015
|
3,513
|
10,882
|
3,087
|
2,246
|
2,771
|
1,736
|
20,722
|
|
|
|
|
|
|
|
|
|
|
Stock
option expenses
|
-
|
-
|
101
|
-
|
-
|
-
|
101
|
|
Net
income
|
-
|
-
|
-
|
779
|
-
|
282
|
1,061
|
|
Dividend
declared by subsidiary
|
-
|
-
|
-
|
-
|
-
|
(181)
|
(181)
|
|
Translation
adjustment
|
-
|
-
|
-
|
-
|
(609)
|
(223)
|
(832)
|
|
Balance
at June 30, 2016
|
3,513
|
10,882
|
3,188
|
3,025
|
2,162
|
1,614
|
20,871
|
|
|
|
|
|
|
|
|
|
|
Stock
option expenses
|
-
|
-
|
18
|
-
|
-
|
-
|
18
|
|
Net
income
|
-
|
-
|
-
|
1,316
|
-
|
139
|
1,455
|
|
Dividend
declared by subsidiary
|
-
|
-
|
-
|
-
|
-
|
(177)
|
(177)
|
|
Issue
of restricted shares to consultant
|
10
|
39
|
-
|
-
|
-
|
-
|
39
|
|
Translation
adjustment
|
-
|
-
|
-
|
-
|
(529)
|
(150)
|
(679)
|
|
Balance
at June 30, 2017
|
3,523
|
10,921
|
3,206
|
4,341
|
1,633
|
1,426
|
21,527
|
See accompanying notes to consolidated financial
statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN
THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Operating Activities
|
|
|
|
Net
income
|
$1,455
|
$1,061
|
|
Adjustments
to reconcile net income to net cash flow provided by operating
activities
|
|
|
|
Depreciation
and amortization
|
1,836
|
1,838
|
|
Bad
debt expenses, net
|
(15)
|
(27)
|
|
Inventory
recovery
|
-
|
(64)
|
|
Warranty
recovery, net
|
(27)
|
(25)
|
|
Accrued
interest expense, net accrued interest income
|
180
|
193
|
|
Fixed
assets written off
|
30
|
-
|
|
Issuance
of shares to service provider
|
39
|
-
|
|
Loss/
(gain) on disposal of property, plant and equipment
|
17
|
(16)
|
|
Stock
compensation expenses
|
18
|
101
|
|
Deferred
tax (benefit) / provision
|
104
|
(72)
|
|
Changes
in operating assets and liabilities
|
|
|
|
Trade
accounts receivables
|
(168)
|
(924)
|
|
Other
receivables
|
191
|
(207)
|
|
Other
assets
|
(235)
|
(342)
|
|
Inventories
|
(300)
|
(255)
|
|
Prepaid
expenses and other current assets
|
38
|
(20)
|
|
Accounts
payable and accrued expenses
|
787
|
(165)
|
|
Income
tax payable
|
3
|
(66)
|
|
Other
non-current liabilities
|
-
|
4
|
|
Net Cash Provided by Operating Activities
|
3,953
|
1,014
|
|
Cash Flow from Investing Activities
|
|
|
|
Proceeds
from maturing of unrestricted and restricted term deposits,
net
|
488
|
63
|
|
Additions
to property, plant and equipment
|
(2,285)
|
(1,657)
|
|
Investments
in restricted and un-restricted deposits
|
(651)
|
(201)
|
|
Proceeds
from disposal of property, plant and equipment
|
86
|
215
|
|
Net Cash Used in Investing Activities
|
(2,362)
|
(1,580)
|
|
Cash Flow from Financing Activities
|
|
|
|
Repayment
on lines of credit
|
(8,915)
|
(8,014)
|
|
Dividends
paid on non-controlling interest
|
(177)
|
(181)
|
|
Repayment
of bank loans and capital leases
|
(721)
|
(703)
|
|
Proceeds
from bank loans and capital leases
|
9,464
|
9,133
|
|
Net Cash Generated from / (Used in) Financing
Activities
|
(349)
|
235
|
|
Effect of Changes in Exchange Rate
|
(277)
|
427
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
965
|
96
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
|
3,807
|
3,711
|
|
CASH AND CASH EQUIVALENTS, END OF YEAR
|
$4,772
|
$3,807
|
|
Supplementary Information of Cash Flows
|
|
|
|
Cash
paid during the period for:
|
|
|
|
Interest
|
$185
|
$204
|
|
Income
taxes
|
$170
|
$241
|
|
Non-Cash Transactions
|
|
|
|
Capital
lease of property, plant and equipment
|
$295
|
$279
|
See accompanying notes to consolidated financial
statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2017 AND 2016
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
1.
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES.
Basis of Presentation and Principles of Consolidation
- Trio-Tech International (the “Company”
or “TTI” hereafter) was incorporated in fiscal 1958
under the laws of the State of California. TTI provides
third-party semiconductor testing and burn-in services primarily
through its laboratories in Asia. In addition, TTI operates testing
facilities in the U.S. 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 fiscal 2017, TTI conducted business in
the foregoing four segments: Manufacturing (assembly), Testing
Services, Distribution and Real Estate. TTI has subsidiaries in the
U.S., Singapore, Malaysia, Thailand and China as
follows:
|
|
Ownership
|
Location
|
|
|
|
|
|
Express Test Corporation (Dormant)
|
100%
|
Van Nuys, California
|
|
Trio-Tech Reliability Services (Dormant)
|
100%
|
Van Nuys, California
|
|
KTS Incorporated, dba Universal Systems (Dormant)
|
100%
|
Van Nuys, California
|
|
European Electronic Test Centre (Dormant)
|
100%
|
Dublin, Ireland
|
|
Trio-Tech International Pte. Ltd.
|
100%
|
Singapore
|
|
Universal (Far East) Pte. Ltd. *
|
100%
|
Singapore
|
|
Trio-Tech International (Thailand) Co. Ltd. *
|
100%
|
Bangkok, Thailand
|
|
Trio-Tech (Bangkok) Co. Ltd.
|
100%
|
Bangkok, Thailand
|
|
(49% owned by Trio-Tech International Pte. Ltd. and 51% owned by
Trio-Tech International (Thailand) Co. Ltd.)
|
|
|
|
Trio-Tech (Malaysia) Sdn. Bhd.
(55% owned by Trio-Tech International Pte. Ltd.)
|
55%
|
Penang and Selangor, Malaysia
|
|
Trio-Tech (Kuala Lumpur) Sdn. Bhd.
|
55%
|
Selangor, Malaysia
|
|
(100% owned by Trio-Tech Malaysia Sdn. Bhd.)
|
|
|
|
Prestal Enterprise Sdn. Bhd.
|
76%
|
Selangor, Malaysia
|
|
(76% owned by Trio-Tech International Pte. Ltd.)
|
|
|
|
Trio-Tech (SIP) Co., Ltd. *
|
100%
|
Suzhou, China
|
|
Trio-Tech (Shanghai) Co., Ltd. **
|
100%
|
Shanghai, China
|
|
Trio-Tech (Chongqing) Co. Ltd. *
|
100%
|
Chongqing, China
|
|
SHI International Pte. Ltd. (Dormant)
(55% owned by Trio-Tech International Pte. Ltd)
|
55%
|
Singapore
|
|
PT SHI Indonesia (Dormant)
(100% owned by SHI International Pte. Ltd.)
|
55%
|
Batam, Indonesia
|
|
Trio-Tech (Tianjin) Co., Ltd. *
|
100%
|
Tianjin, China
|
* 100%
owned by Trio-Tech International Pte. Ltd.
**
Windup in March 30, 2017
The
consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of
America (‘‘U.S. GAAP’’). The basis of
accounting differs from that used in the statutory financial
statements of the Company’s subsidiaries and equity investee
companies, which are prepared in accordance with the accounting
principles generally accepted in their respective countries of
incorporation. In the opinion of management, the consolidated
financial statements have reflected all costs incurred by the
Company and its subsidiaries in operating the
business.
All
dollar amounts in the financial statements and in the notes herein
are United States dollars (‘‘U.S.
dollars’’) unless otherwise designated.
Liquidity – The Company
earned net income attributable to common shareholders of $1,316 and
$779 for fiscal years 2017 and 2016, respectively.
The
Company’s core businesses -- testing services, manufacturing
(assembly) and distribution - operate in a volatile industry,
whereby its average selling prices and product costs are influenced
by competitive factors. These factors create pressures on sales,
costs, earnings and cash flows, which will impact liquidity.
Foreign Currency Translation and Transactions —
The U.S. dollar is the functional
currency of the U.S. parent company. The Singapore dollar, the
national currency of Singapore, is the primary currency of the
economic environment in which the operations in Singapore are
conducted. The Company also has business entities in Malaysia,
Thailand, China and Indonesia, of which the Malaysian ringgit
(“RM”), Thai baht, Chinese renminbi (“RMB”)
and Indonesian rupiah, are the national currencies. The Company
uses the U.S. dollar for financial reporting
purposes.
The Company translates assets and liabilities of its subsidiaries
outside the U.S. into U.S. dollars using the rate of exchange
prevailing at the fiscal year end, and the consolidated statements
of operations and comprehensive income or loss is translated at
average rates during the reporting period. Adjustments resulting
from the translation of the subsidiaries’ financial
statements from foreign currencies into U.S. dollars are recorded
in shareholders' equity as part of accumulated other comprehensive
gain - translation adjustments. Gains or losses resulting from
transactions denominated in currencies other than functional
currencies of the Company’s subsidiaries are reflected in
income for the reporting period.
Use of Estimates — The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Among the more significant estimates included
in these financial statements are the estimated allowance for
doubtful accounts receivable, reserve for obsolete inventory,
reserve for warranty, impairments and the deferred income tax asset
allowance. Actual results could materially differ from those
estimates.
Revenue Recognition — Revenue derived from testing
services is recognized when testing services are rendered. Revenues
generated from sales of products in the manufacturing and
distribution segments are recognized when persuasive evidence of an
arrangement exists, delivery of the products has occurred, customer
acceptance has been obtained (which means the significant risks and
rewards of ownership have been transferred to the customer), the
price is fixed or determinable and collectability is reasonably
assured. Certain products sold (in the manufacturing segment)
require installation and training to be performed.
Revenue
from product sales is also recorded in accordance with the
provisions of ASC Topic 605 and Staff Accounting Bulletin
(“SAB”) 104 Revenue
Recognition in Financial Statements, (“ASC Topic
605”), which generally require revenue earned on product
sales involving multiple-elements to be allocated to each element
based on the relative fair values of those elements. Accordingly,
the Company allocates revenue to each element in a multiple-element
arrangement based on the element’s respective fair value,
with the fair value determined by the price charged when that
element is sold and specifically defined in a quotation or
contract. The Company allocates a portion of the invoice value to
products sold and the remaining portion of invoice value to
installation work in proportion to the fair value of products sold
and installation work to be performed. Training elements are valued
based on hourly rates, which services the Company charges for when
sold apart from product sales. The fair value determination of
products sold and the installation and training work is also based
on our specific historical experience of the relative fair values
of the elements if there is no easily observable market price to be
considered. In fiscal years 2017 and 2016, the installation
revenues generated in connection with product sales were immaterial
and were included in the product sales revenue line on the
consolidated statements of operations and comprehensive income or
loss.
In the
real estate segment: (1) revenue from property development is
earned and recognized on the earlier of the dates when the
underlying property is sold or upon the maturity of the agreement;
if this amount is uncollectible, the agreement empowers the
repossession of the property, and (2) rental revenue is recognized
on a straight-line basis over the terms of the respective leases.
This means that, with respect to a particular lease, actual amounts
billed in accordance with the lease during any given period may be
higher or lower than the amount of rental revenue recognized for
the period. Straight-line rental revenue is commenced when the
tenant assumes possession of the leased premises. Accrued
straight-line rents receivable represents the amount by which
straight-line rental revenue exceeds rents currently billed in
accordance with lease agreements.
GST / Indirect Taxes — The Company’s policy is to
present taxes collected from customers and remitted to governmental
authorities on a net basis. The Company records the amounts
collected as a current liability and relieves such liability upon
remittance to the taxing authority without impacting revenues or
expenses.
Accounts Receivable and Allowance for Doubtful Accounts
— During the normal course of business, the Company
extends unsecured credit to its customers in all segments.
Typically, credit terms require payment to be made between 30 to 90
days from the date of the sale. The Company generally does not
require collateral from our customers.
The
Company’s management considers the following factors when
determining the collectability of specific customer accounts:
customer credit-worthiness, past transaction history with the
customer, current economic industry trends, and changes in customer
payment terms. The Company includes any account balances that are
determined to be uncollectible, along with a general reserve, in
the overall allowance for doubtful accounts. After all attempts to
collect a receivable have failed, the receivable is written off
against the allowance. Based on the information available to
management, the Company believed that its allowance for doubtful
accounts was adequate as of June 30, 2017 and 2016.
Warranty Costs — The Company provides for the
estimated costs that may be incurred under its warranty program at
the time the sale is recorded in its manufacturing segment. The
Company estimates 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.
Cash and Cash Equivalents — The Company considers all
highly liquid investments with an original maturity of three months
or less when purchased to be cash equivalents.
Term Deposits — Term deposits consist of bank
balances and interest-bearing deposits having maturities of 4 to 12
months. As of June 30, 2017,
the Company held approximately $687 of
unrestricted term deposits in the company’s Malaysian
subsidiary and $100 of unrestricted term deposits in the
Company’s 100% owned Thailand subsidiary, which were
denominated in RM and Thai baht, as compared to $199 and $96 as of
June 30, 2016, respectively.
Restricted Term Deposits — The Company held certain term
deposits in the Singapore and Malaysia operations which were
considered restricted as they were held as security against certain
facilities granted by the financial institutions. As of June 30,
2017 the Company held
approximately $1,450 of restricted term deposits in the
Company’s 100% owned Trio-Tech International Pte. Ltd., which
were denominated in Singapore currency, and $207 of restricted term
deposits in the Company’s 55% owned Malaysian subsidiary,
which were denominated in RM, as compared to June 30, 2016 when the
Company held approximately $1,853 of restricted term deposits in
the Company’s 100% owned Trio-Tech International Pte. Ltd.,
which were denominated in Singapore currency, and $214 of
restricted term deposits in the Company’s 55% owned Malaysian
subsidiary, which were denominated in the currency of
Malaysia.
Inventories — Inventories in the Company’s
manufacturing and distribution segments consisting principally of
raw materials, works in progress, and finished goods are stated at
the lower of cost, using the first-in, first-out
(“FIFO”) method, or market value. The semiconductor
industry is characterized by rapid technological change, short-term
customer commitments and rapid changes in demand. Provisions for
estimated excess and obsolete inventory are based on our regular
reviews of inventory quantities on hand and the latest forecasts of
product demand and production requirements from our customers.
Inventories are written down for not saleable, excess or obsolete
raw materials, works-in-process and finished goods by charging such
write-downs to cost of sales. In addition to write-downs based on
newly introduced parts, statistics and judgments are used for
assessing provisions of the remaining inventory based on salability
and obsolescence.
Property, Plant and Equipment & Investment Property
— Property, plant and equipment, and investment property are
stated at cost, less accumulated depreciation and amortization.
Depreciation is provided for over the estimated useful lives of the
assets using the straight-line method. Amortization of leasehold
improvements is provided for over the lease terms or the estimated
useful lives of the assets, whichever is shorter, using the
straight-line method.
Maintenance,
repairs and minor renewals are charged directly to expense as
incurred. Additions and improvements to the assets are capitalized.
When assets are disposed of, the related cost and accumulated
depreciation thereon are removed from the accounts and any
resulting gain or loss is included in the consolidated statements
of operations and comprehensive income or loss.
Long-Lived Assets and Impairment – The Company’s
business requires heavy investment in manufacturing facilities and
equipment that are technologically advanced but can quickly become
significantly under-utilized or rendered obsolete by rapid changes
in demand.
The
Company evaluates the long-lived assets, including property, plant
and equipment and investment property, for impairment whenever
events or changes in circumstances indicate that the carrying value
of such assets may not be recoverable. Factors considered important
that could result in an impairment review include significant
underperformance relative to expected historical or projected
future operating results, significant changes in the manner of use
of the assets or the strategy for our business, significant
negative industry or economic trends, and a significant decline in
the stock price for a sustained period of time. Impairment is
recognized based on the difference between the fair value of the
asset and its carrying value, and fair value is generally measured
based on discounted cash flow analysis, if there is significant
adverse change.
The
Company applies the provisions of ASC Topic 360, Accounting for the Impairment or Disposal of
Long-Lived Assets (“ASC Topic 360”) to property,
plant and equipment. ASC Topic 360 requires that long-lived assets
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable through the estimated undiscounted cash flows
expected to result from the use and eventual disposition of the
assets. Whenever any such impairment exists, an impairment loss
will be recognized for the amount by which the carrying value
exceeds the fair value.
Leases — The Company leases certain property,
plant and equipment in the ordinary course of business. The leases
have varying terms. Some may have included renewal and/or purchase
options, escalation clauses, restrictions, penalties or other
obligations that the Company considered in determining minimum
lease payments. The leases were classified as either capital leases
or operating leases, in accordance with ASC Topic 840, Accounting for Leases (“ASC Topic
840”). The Company records monthly rental expense equal to
the total amount of the payments due in the reporting period over
the lease term in accordance with U.S. GAAP. The difference between
rental expense recorded and the amount paid is credited or charged
to deferred rent, which is included in accrued expenses in the
accompanying consolidated balance sheets.
The Company’s management expects that in the normal course of
business, operating leases will be renewed or replaced by other
leases. The future minimum operating lease payments, for which the
Company is contractually obligated as of June 30, 2017, are
disclosed in these notes to the consolidated financial
statements.
Assets under capital leases are capitalized using interest rates
appropriate at the inception of each lease and are depreciated over
either the estimated useful life of the asset or the lease term on
a straight-line basis. The present value of the related lease
payments is recorded as a contractual obligation. The future
minimum annual capital lease payments are included in the total
future contractual obligations as disclosed in the notes to the
consolidated financial statements.
Comprehensive Income or Loss — ASC Topic 220, Reporting Comprehensive
Income, (“ASC Topic
220”), establishes standards for reporting and
presentation of comprehensive income or loss and its components in
a full set of general-purpose financial statements. The Company has
chosen to report comprehensive income or loss in the statements of
operations. Comprehensive income or loss is comprised of net income
or loss and all changes to shareholders’ equity except those
due to investments by owners and distributions to
owners.
Income Taxes — The
Company accounts for income taxes using the liability method in
accordance with ASC Topic 740, Accounting for Income
Taxes (“ASC Topic
740”). ASC Topic 740 requires an entity to recognize
deferred tax liabilities and assets. Deferred tax assets and
liabilities are recognized for the future tax consequence
attributable to the difference between the tax bases of assets and
liabilities and their reported amounts in the financial statements,
which will result in taxable or deductible amounts in future years.
Further, the effects of enacted tax laws or rate changes are
included as part of deferred tax expenses or benefits in the period
that covers the enactment date.
The
calculation of tax liabilities involves dealing with uncertainties
in the application of complex global tax regulations. The Company
recognizes potential liabilities for anticipated tax audit issues
in the U.S. and other tax jurisdictions based on its estimate of
whether, and the extent to which, additional taxes will be due. If
payment of these amounts ultimately proves to be unnecessary, the
reversal of the liabilities would result in tax benefits being
recognized in the period when the Company determines the
liabilities are no longer necessary. If the estimate of tax
liabilities proves to be less than the ultimate assessment, a
further charge to expense would result.
Retained Earnings — It is
the intention of the Company to reinvest earnings of its foreign
subsidiaries in the operations of those subsidiaries. Accordingly,
no provision has been made for U.S. income and foreign withholding
taxes that would result if such earnings were repatriated. These
taxes are undeterminable at this time. The amount of earnings
retained in subsidiaries was $10,126 and $8,843 at June 30, 2017
and 2016, respectively.
Research and Development Costs — The Company incurred research and development
costs of $208 and $200 in fiscal year 2017 and in fiscal year 2016,
respectively, which were charged to operating expenses as
incurred.
Stock Based Compensation — The Company adopted the fair value
recognition provisions under ASC Topic 718, Share Based Payments
(“ASC Topic 718”) using
the modified prospective application method. Under this transition
method, compensation cost recognized during the twelve months ended
June 30, 2017 included the applicable amounts of:
(a) compensation cost of all share-based payments granted
prior to, but not yet vested as of July 1, 2017 (based on the
grant-date fair value estimated in accordance with the original
provisions of ASC Topic 718) and (b) compensation cost for all
share-based payments granted subsequent to June 30,
2017.
Earnings per Share — Computation of basic earnings per share is
conducted by dividing net income available to common shares
(numerator) by the weighted average number of common shares
outstanding (denominator) during a reporting period. Computation of
diluted earnings per share gives effect to all dilutive potential
common shares outstanding during a reporting period. In computing
diluted earnings per share, the average market price of common
shares for a reporting period is used in determining the number of
shares assumed to be purchased from the exercise of stock
options.
Fair Values of Financial Instruments — Carrying values of trade accounts
receivable, accounts payable, accrued expenses, and term deposits
approximate their fair value due to their short-term maturities.
Carrying values of the Company’s lines of credit and
long-term debt are considered to approximate their fair value
because the interest rates associated with the lines of credit and
long-term debt are adjustable in accordance with market situations
when the Company tries to borrow funds with similar terms and
remaining maturities. See Note 17 for detailed discussion of the
fair value measurement of financial
instruments.
ASC
Topic 820 defines fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The financial assets and financial liabilities that require
recognition under the guidance include available-for-sale
investments, employee deferred compensation plan and foreign
currency derivatives. The guidance establishes a hierarchy for
inputs used in measuring fair value that maximizes the use of
observable inputs and minimizes the use of unobservable inputs by
requiring that the observable inputs be used when available.
Observable inputs are inputs that market participants would use in
pricing the asset or liability developed based on market data
obtained from sources independent of us. Unobservable inputs are
inputs that reflect our assumptions about the assumptions market
participants would use in pricing the asset or liability developed
based on the best information available under the circumstances. As
such, fair value is a market-based measure considered from the
perspective of a market participant who holds the asset or owes the
liability rather than an entity-specific measure. The hierarchy is
broken down into three levels based on the reliability of inputs as
follows:
●
Level
1—Valuations based on quoted prices in active markets for
identical assets or liabilities that we have the ability to access.
Since valuations are based on quoted prices that are readily and
regularly available in an active market, valuation of these
products does not entail a significant degree of judgment.
Financial assets utilizing Level 1 inputs include U.S. treasuries,
most money market funds, marketable equity securities and our
employee deferred compensation plan;
●
Level
2—Valuations based on quoted prices in markets that are not
active or for which all significant inputs are observable, directly
or indirectly. Financial assets and liabilities utilizing Level 2
inputs include foreign currency forward exchange contracts, most
commercial paper and corporate notes and bonds; and
●
Level
3—Valuations based on inputs that are unobservable and
significant to the overall fair value measurement. Financial assets
utilizing Level 3 inputs primarily include auction rate securities.
We use an income approach valuation model to estimate the exit
price of the auction rate securities, which is derived as the
weighted-average present value of expected cash flows over various
periods of illiquidity, using a risk adjusted discount rate that is
based on the credit risk and liquidity risk of the
securities.
Concentration of Credit Risk — Financial instruments that subject the
Company to credit risk compose of trade accounts receivable. The
Company performs ongoing credit evaluations of its customers for
potential credit losses. The Company generally does not require
collateral. The Company believes that its credit policies do not
result in significant adverse risk and historically it has not
experienced significant credit related losses.
Investments - The Company analyzes its investments to
determine if it is a variable interest entity (a “VIE”)
and would require consolidation. The Company (a) evaluates the
sufficiency of the total equity at risk, (b) reviews the voting
rights and decision-making authority of the equity investment
holders as a group, and whether there are any guaranteed returns,
protection against losses, or capping of residual returns within
the group, and (c) establishes whether activities within the
venture are on behalf of an investor with disproportionately few
voting rights in making this VIE determination. The Company would
consolidate an investment that is determined to be a VIE if it was
the primary beneficiary. The primary beneficiary of a VIE is
determined by a primarily qualitative approach, whereby the
variable interest holder, if any, has the power to direct
the VIE’s most significant activities and is the primary
beneficiary. A new accounting standard became effective and
changed the method by which the primary beneficiary of a VIE is
determined. Through a primarily qualitative approach, whereby the
variable interest holder, if any, who has the power to direct the
VIE’s most significant activities and is the primary
beneficiary. To the extent that the investment does not qualify as
VIE, the Company further assesses the existence of a controlling
financial interest under a voting interest model to determine
whether the investment should be consolidated.
Equity Method - The Company analyzes its investments to
determine if they should be accounted for using the equity method.
Management evaluates both Common Stock and in-substance Common
Stock to determine whether they give the Company the ability to
exercise significant influence over operating and financial
policies of the investment even though the Company holds less than
50% of the Common Stock and in-substance Common Stock. The net
income of the investment, if any, will be reported as “Equity
in earnings of unconsolidated joint ventures, net of tax” in
the Company’s consolidated statements of operations and
comprehensive income.
Cost Method - Investee companies not accounted for under the
consolidation or the equity method of accounting are accounted for
under the cost method of accounting. Under this method, the
Company’s share of the earnings or losses of such Investee
companies is not included in the consolidated balance sheet or
statements of operations and comprehensive income or loss. However,
impairment charges are recognized in the consolidated statements of
operations and comprehensive income or loss. If circumstances
suggest that the value of the investee Company has subsequently
recovered, such recovery is not recorded.
Loan Receivables from Property Development Projects - The
loan receivables from property development projects are classified
as current asset, carried at face value and are individually
evaluated for impairment. The allowance for loan losses
reflects management’s best estimate of probable losses
determined principally on the basis of historical experience and
specific allowances for known loan accounts. All loans or portions
thereof deemed to be uncollectible or to require an excessive
collection cost are written off to the allowance for
losses.
Interest
income on the loan receivables from property development projects
are recognized on an accrual basis. Discounts and premiums on loans
are amortized to income using the interest method over the
remaining period to contractual maturity. The amortization of
discounts into income is discontinued on loans that are
contractually 90 days past due or when collection of interest
appears doubtful.
Contingent Liabilities - Certain conditions may exist as of
the date the financial statements are issued, which may result in a
loss to the Company, but which will only be resolved when one or
more future events occur or fail to occur. The Company’s
management and its legal counsel assess such contingent
liabilities, and such assessment inherently involves an exercise of
judgment. In assessing loss contingencies related to legal
proceedings that are pending against the Company or un-asserted
claims that may result in such proceedings, the Company’s
legal counsel evaluates the perceived merits of any legal
proceedings or un-asserted claims as well as the perceived merits
of the amount of relief sought or expected to be sought
therein.
If the
assessment of a contingency indicates that it is probable that a
material loss has been incurred and the amount of the liability can
be estimated, then the estimated liability would be accrued in the
Company’s financial statements. If the assessment indicates
that a potentially material loss contingency is not probable, but
is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an
estimate of the range of possible loss if determinable and
material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed unless
they involve guarantees, in which case the nature of the guarantee
would be disclosed.
2. NEW ACCOUNTING PRONOUNCEMENTS
The amendments in Accounting Standards Update (“ASU”)
2017-11: Earnings Per Share (Topic
260); Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic
815). For public companies, these amendments are effective for
annual periods beginning after December 15, 2018, including interim
periods within those periods. While early application is permitted,
including adoption in an interim period, the Company has not
elected to early adopt. The effectiveness of this update is not
expected to have a significant effect on the Company’s
presentation of consolidated financial position or results of
operations.
The amendments in ASU 2017-09— Compensation—Stock
Compensation (“ASC Topic
718”): Scope of Modification Accounting: These amendments
provide guidance on determining which changes to the terms and
conditions of share-based payment awards require an entity to apply
modification accounting under Topic 718. For public companies,
these amendments are effective for annual periods beginning after
December 15, 2017, including interim periods within those periods.
While early application is permitted, including adoption in an
interim period, the Company has not elected to early adopt. The
effectiveness of this update is not expected to have a significant
effect on the Company’s presentation of consolidated
financial position or results of operations.
The amendments in ASU 2017-08 ASC Subtopic 310-20 —
'Receivables—Nonrefundable
Fees and Other Costs (“ASC Subtopic 310-20”): These
amendments shorten the amortization period for certain callable
debt securities held at a premium. For public companies, these
amendments are effective for annual periods beginning after
December 15, 2018, including interim periods within those periods.
While early application is permitted, including adoption in an
interim period, the Company has not elected to early adopt. The
effectiveness of this update is not expected to have a significant
effect on the Company’s presentation of consolidated
financial position or results of operations.
The amendments in ASU 2017-07 ASC Topic 715 —
'Compensation
— Retirement Benefits (“ASC Topic 715”): 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 (“ASC Topic
350”): 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 (“ASC Topic
805”): These amendments clarify the definition of a business.
The amendments affect all companies and other reporting
organizations that must determine whether they have acquired or
sold a business. For public companies, these amendments are
effective for annual periods beginning after December 15, 2017,
including interim periods within those periods. While early
application is permitted, including adoption in an interim period,
the Company has not elected to early adopt. The effectiveness of
this update is not expected to have a significant effect on the
Company’s presentation of consolidated financial position or
results of operations.
The amendments in ASU 2016-18 ASC Topic 230 —
'Statement of Cash
Flows (“ASC Topic
230”): 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
(“ASC Topic 810”): These
amendments require an entity to recognize the income tax
consequences of an intra-entity transfer of an asset other than
inventory when the transfer occurs. For public business entities,
these amendments are effective for annual reporting periods
beginning after December 15, 2017, and interim periods within those
fiscal years. While early application is permitted, including
interim reporting periods within those annual reporting periods,
the Company has not elected to early adopt. The effectiveness of
this update is not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
The amendments in ASU 2016-16 ASC Topic 740 —
Income
Taxes (“ASC Topic
740”): These amendments require an entity to recognize the
income tax consequences of an intra-entity transfer of an asset
other than inventory when the transfer occurs. For public business
entities, these amendments are effective for annual reporting
periods beginning after December 15, 2017, including interim
reporting periods within those annual reporting periods. While
early application is permitted, including adoption in an interim
period, the Company has not elected to early adopt. The
effectiveness of this update is not expected to have a significant
effect on the Company’s consolidated financial position or
results of operations.
The amendments in ASU 2016-15 ASC Topic 230
—Statement of Cash Flows
(“ASC Topic 350”): These
amendments provide cashflow statement classification guidance. For
public business entities, the amendments are effective for fiscal
years beginning after December 15, 2017, and interim periods within
those fiscal years. While early application is permitted, including
adoption in an interim period, the Company has not elected to early
adopt. The effectiveness of this update is not expected to have a
significant effect on the Company’s consolidated financial
position or results of operations.
The amendments in ASU 2016-13 ASC Topic 326: Financial
Instruments—Credit losses (“ASC Topic 326”) are issued for the
measurement of all expected credit losses for financial assets held
at the reporting date based on historical experience, current
conditions, and reasonable and supportable forecasts. For public
companies that are not SEC filers, 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 (“ASC Topic 842”) require companies to
recognize the following for all leases (with the exception of
short-term leases) at the commencement date of the applicable
lease: (a) a lease liability, which is a lessee’s obligation
to make lease payments arising from a lease, measured on a
discounted basis; and (b) a right-of-use asset, which is as an
asset that represents the lessee’s right to use, or control
the use of, a specified asset for the lease term. These amendments
become effective for fiscal years beginning after December 15,
2018, including interim periods within those fiscal years, for a
variety of entities including a public company. While early
adoption is permitted, the Company has not elected to early adopt.
The effectiveness of this update is not expected to have a
significant effect on the Company’s consolidated financial
position or results of operations.
The Financial Accounting Standards Board (“FASB”) has
issued converged standards on revenue recognition. Specifically,
the Board has issued ASU 2014-09, ASC Topic 606 (“ASU
2014-09”). ASU 2014-09 affects any entity using U.S. GAAP
that either enters into contracts with customers to transfer goods
or services or enters into contracts for the transfer of
non-financial assets unless those contracts are within the scope of
other standards (e.g., insurance contracts or lease contracts). ASU
2014-09 will supersede the revenue recognition requirements in ASC
Topic 605, Revenue Recognition (“ASC Topic 605”), and
most industry-specific guidance. ASU 2014-09 also supersedes some
cost guidance included in Subtopic 605-35, Revenue
Recognition—Construction-Type and Production-Type Contracts.
In addition, the existing requirements for the recognition of a
gain or loss on the transfer of non-financial assets that are not
in a contract with a customer (e.g., assets within the scope of ASC
Topic 360, Property, Plant, and Equipment, (“ASC Topic
360”), and intangible assets within the scope of Topic 350,
Intangibles—Goodwill and Other) are amended to be consistent
with the guidance on recognition and measurement (including the
constraint on revenue) in ASU 2014-09. For a public entity, the
amendments in ASU 2014-09 would be effective for annual reporting
periods beginning after December 15, 2016, including interim
periods within that reporting period. However, ASU 2015-14 ASC
Topic 606: Deferral of the Effective
Date (“ASC Topic
606”) defers the effective date of ASU 2014-09 for all
entities by one year. Earlier application is permitted only as of
annual reporting periods beginning after December 15, 2016,
including interim reporting periods within that reporting period.
The Company has not yet determined if it will early adopt. As the
new standards, will supersede substantially all existing revenue
guidance affecting the Company under GAAP, it could impact revenue
and cost recognition on sales across all the Company's business
segments. The Company carried out an initial evaluation of the
impact of this standard on its business and concluded the adoption
of this standard did not have a significant effect on its
Consolidated Financial Statements. While we are continuing to
assess all potential impacts, the Company has not presently
selected a transition method as we believe there will not be any
significant impact of this new guidance on the
Company.
The amendments in ASU 2015-11 ASC Topic 330: Simplifying the
Measurement of Inventory (“ASC Topic 330”) specify that
an entity should measure inventory at the lower of cost and net
realizable value. Net realizable value is the estimated selling
prices in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation.
Subsequent measurement is unchanged for inventory measured using
Last-In-First-Out or the retail inventory method. The amendments in
ASC Topic 330 are effective for public business entities for fiscal
years beginning after December 15, 2016, and interim periods within
those fiscal years. A reporting entity should apply the amendments
retrospectively to all periods presented. While early adoption is
permitted, the Company has not elected to early adopt. The adoption
of this update is not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
FASB amended ASU 2014-15 Subtopic 205-40, Presentation of Financial
Statements – Going Concern (“ASC Topic 205”) to define
management’s responsibility to evaluate whether there is
substantial doubt about an organization’s ability to continue
as a going concern and to provide related footnote disclosures.
Under GAAP, financial statements are prepared under the presumption
that the reporting organization will continue to operate as a going
concern, except in limited circumstances. The going concern basis
of accounting is critical to financial reporting because it
establishes the fundamental basis for measuring and classifying
assets and liabilities. Currently, GAAP lacks guidance about
management’s responsibility to evaluate whether there is
substantial doubt about the organization’s ability to
continue as a going concern or to provide related footnote
disclosures. ASC Topic 205 provides guidance to an
organization’s management, with principles and definitions
that are intended to reduce diversity in the timing and content of
disclosures that are commonly provided by organizations today in
the financial statement footnotes. The amendments in ASC Topic 205
are effective for annual periods beginning after December 15, 2016,
and interim periods within annual periods beginning after December
15, 2016. While early application is permitted for annual or
interim reporting periods for which the financial statements have
not previously been issued, the Company has not elected to early
adopt. The effectiveness of this update does not have a significant
effect on the Company’s consolidated financial position or
results of operations.
Other new pronouncements issued but not yet effective until after
June 30, 2017 are not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
3. TERM DEPOSITS
|
|
|
|
|
|
|
|
|
Short-term
deposits
|
$824
|
$301
|
Currency
translation effect on short-term deposits
|
(37)
|
(6)
|
Total short-term deposits
|
787
|
295
|
|
Restricted
term deposits
|
1,722
|
2,085
|
Currency
translation effect on restricted term deposits
|
(65)
|
(18)
|
|
Total restricted term deposits
|
1,657
|
2,067
|
|
Total Term deposits
|
$2,444
|
$2,362
|
Restricted deposits represent the amount of cash pledged to secure
loans payable granted by financial institutions and serve as
collateral for public utility agreements such as electricity and
water and performance bonds related to customs duty payable.
Restricted deposits are classified as non-current assets, as they
relate to long-term obligations and will become unrestricted only
upon discharge of the obligations. Short-term deposits represent
bank deposits, which do not qualify as cash
equivalents.
4. TRADE ACCOUNTS RECEIVABLE
AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts
receivable are customer obligations due under normal trade terms.
The Company performs continuing credit evaluations of its
customers’ financial conditions, and although management
generally does not require collateral, letters of credit may be
required from its customers in certain circumstances.
Senior
management reviews trade accounts receivable on a periodic basis to
determine if any receivables will potentially be uncollectible.
Management includes any trade accounts receivable balances that are
determined to be uncollectible in the allowance for doubtful
accounts. After all attempts to collect a receivable
have failed, the receivable is written off against the
allowance. Based on the information available to us,
management believed the allowance for doubtful accounts as of June
30, 2017 and June 30, 2016 was adequate.
The
following table represents the changes in the allowance for
doubtful accounts:
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
Beginning
|
$270
|
$313
|
|
Additions charged
to expenses
|
65
|
21
|
|
Recovered
|
(78)
|
(39)
|
|
Write-off
|
(2)
|
(9)
|
|
Currency
translation effect
|
(8)
|
(16)
|
|
Ending
|
$247
|
$270
|
5. LOANS RECEIVABLE FROM PROPERTY DEVELOPMENT PROJECTS
The
following table presents TTCQ’s loans receivable from
property development projects in China as of June 30, 2017 and as
of June 30, 2016. The exchange rate is based on the historical
rate published by the Monetary Authority of Singapore as on
March 31, 2015, since the net loan receivable was “nil”
as at June 30, 2017 and as at June 30, 2016.
|
|
Loan Expiry
|
|
|
|
|
Date
|
|
|
|
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 receivable 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 receivable 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 RMB 2,000, or
approximately $325. The loan was renewed, but expired on May 31,
2013. TTCQ did not generate other income from JiangHuai for the
fiscal year ended June 30, 2017 and June 30, 2016. Based on
TTI’s financial policy, a provision for doubtful receivables
of $325 on the investment in JiangHuai was recorded during the
second quarter of fiscal 2014. 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:
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
$1,047
|
$$967
|
|
Work in
progress
|
1,045
|
909
|
|
Finished
goods
|
365
|
279
|
|
Less: provision for
obsolete inventory
|
(686)
|
(697)
|
|
Currency
translation effect
|
(15)
|
2
|
|
|
$1,756
|
$$1,460
|
The
following table represents the changes in provision for obsolete
inventory:
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
|
|
|
|
Beginning
|
$697
|
$764
|
|
Additions charged
to expenses
|
6
|
22
|
|
Usage -
disposition
|
(6)
|
(86)
|
|
Currency
translation effect
|
(11)
|
(3)
|
|
Ending
|
$686
|
$697
|
7. ASSETS HELD FOR SALE
During
the fourth quarter of 2015, the operations in Malaysia planned to
sell its factory building in Penang, Malaysia. In May 2015,
Trio-Tech Malaysia was approached by a potential buyer to purchase
the factory building, negotiation is still ongoing with buyers 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 $98, to assets held for
sale, since there was an intention to sell the factory building.
The net book values of the building were RM371, or $86, for fiscal
years 2017 and RM 371, or approximately $92, for fiscal year 2016.
As at end of fiscal year 2017, management is still actively looking for a suitable
buyer.
8. INVESTMENTS
Investments were nil as at June 30, 2017 and as at June 30,
2016.
During the second quarter of fiscal year 2011, the Company entered
into a joint venture agreement with JiaSheng to develop real estate
projects in China. The Company invested RMB 10,000, or
approximately $1,606 based on the exchange rate as of March 31,
2014, published by the Monetary Authority of Singapore, for a 10%
interest in the newly formed joint venture, which was incorporated
as a limited liability company, Chong Qing Jun Zhou Zhi Ye Co. Ltd.
(the “joint venture”), in China. The agreement
stipulated that the Company would nominate two of the five members
of the Board of Directors of the joint venture and had the ability
to assign two members of management to the joint venture. The
agreement also stipulated that the Company would receive a fee of
RMB 10,000, or approximately $1,606 based on the exchange rate as
of March 31, 2014, published by the Monetary Authority of
Singapore, for the services rendered in connection with 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 (the
“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. 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 discussions with the developers, the completion date
is estimated to be December 31, 2018.
The Share Transfer Agreement (10% interest in the joint venture)
was registered with the relevant authorities in China during
October 2016.
9. INVESTMENT
PROPERTIES
The
following table presents the Company’s investment properties
in China as of June 30, 2017. The exchange rate is based on the
market rate as of June 30, 2017.
|
|
Investment Date
|
|
|
|
|
|
|
|
|
Purchase
of Property I – MaoYe
|
Jan
04, 2008
|
5,554
|
894
|
|
Purchase
of Property II – JiangHuai
|
Jan
06, 2010
|
3,600
|
580
|
|
Purchase
of Property III – FuLi
|
Apr
08, 2010
|
4,025
|
648
|
|
Currency
translation
|
|
-
|
(178)
|
|
Gross
investment in rental properties
|
|
13,179
|
1,944
|
|
|
|
|
|
Accumulated
depreciation on rental properties
|
June
30, 2017
|
(4,937)
|
(728)
|
|
|
|
|
|
Net
investment in properties – China
|
|
8,242
|
1,216
|
The
following table presents the Company’s investment properties
in China as of June 30, 2016. The exchange rate is based on the
exchange rate as of June 30, 2016 published by the Monetary
Authority of Singapore.
|
|
Investment Date
|
|
|
|
|
|
|
|
|
Purchase
of Property I – MaoYe
|
Jan
04, 2008
|
5,554
|
894
|
|
Purchase
of Property II – JiangHuai
|
Jan
06, 2010
|
3,600
|
580
|
|
Purchase
of Property III – FuLi
|
Apr
08, 2010
|
4,025
|
648
|
|
Currency
translation
|
|
-
|
(139)
|
|
Gross
investment in rental properties
|
|
13,179
|
1,983
|
|
|
|
|
|
Accumulated
depreciation on rental properties
|
June
30, 2016
|
(4,278)
|
(643)
|
|
|
|
|
|
Net
investment in properties – China
|
|
8,901
|
1,340
|
The
following table presents the Company’s investment properties
in Malaysia as of June 30, 2017 and June 30, 2016. The exchange
rate is based on the exchange rate as of June 30, 2015 published by
the Monetary Authority of Singapore.
|
|
Investment Date
|
|
|
|
|
|
|
|
|
Reclassification
of Penang Property I
|
Dec
31, 2012
|
681
|
181
|
|
Gross
investment in rental property
|
|
681
|
181
|
|
|
|
|
|
Accumulated
depreciation on rental property
|
June
30, 2015
|
(310)
|
(83)
|
|
Reclassified
as “Assets held for sale”
|
June
30, 2015
|
(371)
|
(98)
|
|
Net
investment in rental property - Malaysia
|
|
-
|
-
|
Rental Property I - 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. 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 $102 and
$78 for the years ended June
30, 2017 and 2016, 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 generated a rental income of nil
for both the years ended June 30, 2017 and 2016.
Rental Property III – FuLi
In fiscal 2010, TTCQ entered into a Memorandum Agreement with
Chongqing FuLi Real Estate Development Co. Ltd.
(“FuLi”) to purchase two commercial properties totaling
311.99 square meters (“office space”) located in Jiang
Bei District Chongqing. Although TTCQ currently rents its office
premises from a third party, it intends to use the office space as
its office premises. The total purchase price committed and paid
was RMB 4,025, or approximately $649. The development was
completed and the property was handed over during April 2013 and
the title deed was received during the third quarter of fiscal
2014.
The two commercial properties were leased to third parties under
two separate rental agreements, one of which expired 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 expired in March 31, 2018 which
provides for a rent increase of 5% every year on April 1,
commencing with 2016 until the rental agreement expires on March
31, 2018.
Property purchased from FuLi generated a rental income of $50 and
$44 for the years ended June 30, 2017 and 2016,
respectively.
Penang Property
During the fourth quarter of 2015, the operations in Malaysia
planned to sell its factory building in Penang, Malaysia. In
accordance to ASC Topic 360, the property was reclassified from
investment property, which had a net book value of RM 371, or
approximately $98, to assets held for sale since there was an
intention to sell the factory building. In May 2015, TTM was
approached by a potential buyer to purchase the factory building.
On September 14, 2015, application to sell the property was
rejected by 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 June 30, 2017, the net book value was
RM 371, or approximately $86.
Summary
Total
rental income for all investment properties (Property I, II and
III) in China was $152 for the year ended June 30, 2017, and was
$122 for the same period in the last fiscal year.
Rental
income from the Penang property was nil for the years ended June
30, 2017 and 2016, as the property in Penang, Malaysia was vacant
at the date of this report. In the fourth quarter of fiscal year
2015, the Penang property was reclassified from investment property
to assets held for sale.
Depreciation
expenses for all investment properties in China were $98 and $103
for the years ended June 30, 2017, and 2016,
respectively.
10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and
equipment consisted of the following:
|
|
Estimated
Useful Life
|
For
the Year Ended June 30,
|
|
|
|
|
|
|
Building
and improvements
|
3-20
|
$5,070
|
$5,002
|
|
Leasehold
improvements
|
3-27
|
5,614
|
5,591
|
|
Machinery
and equipment
|
3-7
|
22,858
|
24,106
|
|
Furniture
and fixtures
|
3-5
|
941
|
823
|
|
Equipment
under capital leases
|
3-5
|
928
|
1,171
|
|
Property, plant and
equipment, gross
|
|
$35,411
|
$36,693
|
|
Less:
accumulated depreciation
|
|
(21,751)
|
(22,828)
|
|
Accumulated
amortization on equipment under capital leases
|
|
(776)
|
(633)
|
|
Total
accumulated depreciation
|
|
$(22,527)
|
$(23,461)
|
|
Property,
plant and equipment before currency translation effect,
net
|
|
12,884
|
13,232
|
|
Currency
translation effect
|
|
(1,593)
|
(1,949)
|
|
Property, plant and equipment, net
|
|
$11,291
|
$11,283
|
Depreciation
and amortization expenses for property, plant and equipment during
fiscal years 2017 and 2016 were $1,738 and $1,735,
respectively.
11. OTHER ASSETS
|
Other
assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
For the
Year Ended June 30,
|
|
|
2017
|
2016
|
|
|
|
|
|
Down
payment for purchase of investment properties
|
$1,645
|
$1,645
|
|
Down
payment for purchase of property, plant and equipment
|
280
|
113
|
|
Deposits
for rental and utilities
|
139
|
138
|
|
Currency
translation effect
|
(142)
|
(108)
|
|
Total
|
$1,922
|
$1,788
|
12. 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.
The Company’s credit rating provides it with readily and
adequate access to funds in global markets.
As of June 30, 2017, the Company had certain lines of credit that
are collateralized by restricted deposits.
|
Entity
with
|
|
Type
of
|
|
|
|
|
|
Facility
|
|
Facility
|
|
|
|
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
|
Lines of
Credit
|
Ranging from 3.96% to
7.5%
|
-
|
$4,496
|
$2,815
|
|
Trio-Tech
(Malaysia) Sdn. Bhd.
|
|
Lines of
Credit
|
Ranging from 6.3% to
6.7%
|
-
|
$734
|
$734
|
|
Trio-Tech
(Tianjin) Co., Ltd.
|
|
Lines of
Credit
|
5.22%
|
-
|
$885
|
$10
|
On
January 20, 2017, Trio-Tech Tianjin signed an agreement with a bank
for an Accounts Receivable Financing facility with the bank for RMB
6,000, or approximately $871 based on the market rate. Interest is
charged at the bank’s lending rate plus a floating interest
rate. The effective interest rate is 120% of the bank’s
lending rate. The financing facility was set up to facilitate the
growing testing operations in our Tianjin operations in China. The
bank account for this facility was set up on January 20, 2017 and
has started use in fiscal year 2017.
As of June 30, 2016, the Company had certain lines of credit that
are collateralized by restricted deposits.
|
Entity
with
|
|
Type
of
|
|
|
|
|
|
Facility
|
|
Facility
|
|
|
|
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
|
Lines of
Credit
|
Ranging from 1.6% to
5.5%
|
-
|
$5,745
|
$3,856
|
|
Trio-Tech
(Malaysia) Sdn. Bhd.
|
|
Lines of
Credit
|
Ranging from 6.3% to
6.7%
|
-
|
$783
|
$783
|
|
Trio-Tech
(Tianjin) Co., Ltd.
|
|
Lines of
Credit
|
Ranging from 4.9% to 6.3%
|
-
|
$1,204
|
$602
|
On May 3, 2016, Trio-Tech Tianjin used the facility amounting to
RMB 2 million, or approximately $301, and on June 23, 2016, further
used an additional facility of RMB 2 million, or approximately
$301.
13. ACCRUED
EXPENSES
|
Accrued expenses
consisted of the following:
|
For the
Year Ended June 30,
|
|
|
|
|
|
|
|
|
|
Payroll
and related costs
|
1,568
|
1,311
|
|
Commissions
|
107
|
47
|
|
Customer
deposits
|
218
|
91
|
|
Legal
and audit
|
283
|
297
|
|
Sales
tax
|
80
|
110
|
|
Utilities
|
142
|
115
|
|
Warranty
|
49
|
78
|
|
Accrued
purchase of materials and property, plant and
equipment
|
33
|
50
|
|
Provision
for re-instatement
|
295
|
308
|
|
Other
accrued expenses
|
319
|
331
|
|
Currency
translation effect
|
(51)
|
(96)
|
|
Total
|
$3,043
|
$2,642
|
14. 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 for 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.
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
Beginning
|
$76
|
$103
|
|
Additions
charged to cost and expenses
|
46
|
80
|
|
Utilization
/ reversal
|
(73)
|
(105)
|
|
Currency
translation effect
|
(1)
|
(2)
|
|
Ending
|
$48
|
$76
|
15. BANK LOANS PAYABLE
Bank
loans payable consisted of the following:
|
|
|
|
|
Note payable denominated in RM for expansion plans
in Malaysia, maturing in August 2024, bearing interest at the
bank’s prime rate less 1.50% (5.25% and 5.45% at June 30,
2017 and June 30, 2016) per annum, with monthly payments of
principal plus interest through August 2024, collateralized by the
acquired building with a carrying value of $2,671
and 2,898, as at June 30, 2017 and
June 30, 2016, respectively.
|
1,735
|
2,052
|
|
|
|
|
|
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 7.5% for June
30, 2017 and June 30, 2016) with monthly payments of principal plus
interest through April 2017. This note payable is secured by plant
and equipment with a carrying value of $224 and $294, as at June
30, 2017 and June 30, 2016, respectively.
|
196
|
154
|
|
|
|
|
|
Total bank loans payable
|
1,931
|
2,206
|
|
|
|
|
|
Current
portion of bank loan payable
|
271
|
352
|
|
Currency
translation effect on current portion of bank loan
|
(11)
|
(10)
|
|
Current
portion of bank loan payable
|
260
|
342
|
|
Long
term portion of bank loan payable
|
1,660
|
1,854
|
|
Currency
translation effect on long-term portion of bank loan
|
(108)
|
(129)
|
|
Long
term portion of bank loans payable
|
$1,552
|
$1,725
|
Future
minimum payments (excluding interest) as of June 30, 2017 were as
follows:
|
2018
|
$260
|
|
2019
|
273
|
|
2020
|
274
|
|
2021
|
225
|
|
2022
|
236
|
|
Thereafter
|
544
|
|
Total
obligations and commitments
|
$1,812
|
Future
minimum payments (excluding interest) as of June 30, 2016 were as
follows:
|
2017
|
$342
|
|
2018
|
204
|
|
2019
|
215
|
|
2020
|
226
|
|
2021
|
239
|
|
Thereafter
|
841
|
|
Total
obligations and commitments
|
$2,067
|
16. COMMITMENTS AND CONTINGENCIES
The
Company leases certain of its facilities and equipment under
long-term agreements expiring at various dates through fiscal year
2017 and thereafter. Certain of these leases require the Company to
pay real estate taxes and insurance and provide for escalation of
lease costs based on certain indices.
Future
minimum payments under capital leases and non-cancelable operating
leases and net rental income under non-cancelable sub-leased
properties as of June 30, 2017 were as follows:
|
|
|
|
|
|
|
For the Year Ending
June 30,
|
|
|
|
|
|
2018
|
$228
|
$536
|
$(33)
|
$503
|
|
2019
|
197
|
423
|
(25)
|
398
|
|
2020
|
193
|
224
|
(26)
|
198
|
|
2021
|
95
|
-
|
-
|
-
|
|
2022
|
46
|
-
|
-
|
-
|
Total future
minimum lease payments
|
$759
|
$1,183
|
$(84)
|
$1,099
|
|
Less: amount
representing interest
|
-
|
|
|
|
|
Present value of
net minimum lease payments
|
759
|
|
|
|
|
Less: current
portion of capital lease obligations
|
228
|
|
|
|
|
Long-term
obligations under capital leases
|
531
|
|
|
|
Future
minimum payments under capital leases and non-cancelable operating
leases and net rental income under non-cancelable sub-leased
properties as of June 30, 2016 were as follows:
|
|
|
|
|
|
|
For the Year Ending
June 30,
|
|
|
|
|
|
2017
|
$235
|
$598
|
$(24)
|
$574
|
|
2018
|
212
|
269
|
(24)
|
245
|
|
2019
|
156
|
204
|
(24)
|
180
|
|
2020
|
103
|
115
|
-
|
115
|
|
2021
|
32
|
114
|
-
|
114
|
Total future
minimum lease payments
|
$738
|
$1,300
|
$(72)
|
$1,228
|
|
Less: amount
representing interest
|
-
|
|
|
|
|
Present value of
net minimum lease payments
|
738
|
|
|
|
|
Less: current
portion of capital lease obligations
|
235
|
|
|
|
|
Long-term
obligations under capital leases
|
503
|
|
|
|
The
Company purchased equipment under the capital lease agreements with
rates ranging from 1.88% to 7.50%. These agreements mature ranging
from July 2017 to May 2021.
Total
rental expense on all operating leases, cancelable and
non-cancelable, amounted to $747 and $743 in fiscal years 2017 and
2016 respectively.
Trio-Tech
(Malaysia) Sdn. Bhd. has a capital lease for the purchase of
equipment and other related infrastructure costs amounting to RM
684, or approximately $159 based on the exchange rate on June 30,
2017 published by the Monetary Authority of Singapore, as compared
to RM 1,153, or approximately $287 for the last fiscal
year.
Trio-Tech
Tianjin Co. Ltd has a capital lease for the purchase of equipment
and other related infrastructure costs amounting to RMB 1,260, or
approximately $186 based on the exchange rate on June 30, 2017
published by the Monetary Authority of Singapore, as compared to
RMB 597, or approximately $93 based on the exchange rate on June
30, 2016 published by the Monetary Authority of Singapore, for last
fiscal year.
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.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS APPROXIMATE CARRYING
VALUE
In accordance with ASC Topic 825 and 820, the following presents
assets and liabilities measured and carried at fair value and
classified by level of fair value measurement
hierarchy:
There were no transfers between Levels 1 and 2 during the fiscal
year ended June 30, 2017 and for the same period in last fiscal
year.
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.
18. CONCENTRATION OF CUSTOMERS
The
Company had one major customer that accounted for the following
revenue and trade accounts receivable:
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
Revenue
|
|
|
|
- Customer A
|
54.8%
|
60.6%
|
|
|
|
|
|
Trade
Accounts Receivable
|
|
|
|
- Customer A
|
60.6%
|
66.9%
|
19. BUSINESS SEGMENTS
In fiscal year 2017, the Company operated 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 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 sales were sales from the manufacturing segment to
the testing and distribution segment. Total inter-segment sales
were $725 in fiscal year 2017 and $1,086 in fiscal year 2016.
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 on a pre-determined fixed amount calculated based on the
annual budgeted sales, except the Malaysia operation, which is
calculated based on actual sales. The following segment information
table includes segment operating income or loss after including
corporate expenses allocated to the segments, which gets eliminated
in the consolidation.
Business
Segment Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$15,289
|
$75
|
$8,229
|
$186
|
$99
|
|
|
2016
|
$14,510
|
$260
|
$7,944
|
$202
|
$79
|
|
|
|
|
|
|
|
|
|
Testing
Services
|
2017
|
16,586
|
1,112
|
20,871
|
1,550
|
2,186
|
|
|
2016
|
15,280
|
1,010
|
19,849
|
1,531
|
1,574
|
|
|
|
|
|
|
|
|
|
Distribution
|
2017
|
6,511
|
345
|
617
|
2
|
-
|
|
|
2016
|
4,542
|
224
|
662
|
2
|
4
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
2017
|
152
|
(38)
|
3,511
|
98
|
-
|
|
|
2016
|
122
|
(100)
|
3,306
|
103
|
-
|
|
|
|
|
|
|
|
|
|
Fabrication
Services*
|
2017
|
-
|
-
|
29
|
-
|
-
|
|
|
2016
|
-
|
-
|
30
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Corporate
&
Unallocated
|
2017
|
-
|
(5)
|
241
|
-
|
-
|
|
|
2016
|
-
|
66
|
428
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Total
Company
|
2017
|
$38,538
|
$1,489
|
$33,498
|
$1,836
|
$2,285
|
|
|
2016
|
$34,454
|
$1,460
|
$32,219
|
$1,838
|
$1,657
|
*
Fabrication services is a discontinued
operation (Note 24).
20. OPERATING LEASES
Operating leases arise from the leasing of the Company’s
commercial and residential real estate investment property. Initial
lease terms generally range from 12 to 60 months. Depreciation
expense for assets subject to operating leases is taken into
account primarily on the straight-line method over a period of
twenty years in amounts necessary to reduce the carrying amount of
the asset to its estimated residual value. Depreciation expenses
relating to the property held as investments in operating leases
was $97 and $103 for fiscal years 2017 and 2016,
respectively.
Future minimum rental income in China to be received from fiscal
year 2018 to fiscal year 2021 on non-cancellable operating leases
is contractually due as follows as of June 30, 2017:
|
2018
|
$157
|
|
2019
|
107
|
|
2020
|
67
|
|
2021
|
6
|
|
|
$337
|
Future minimum rental income in China to be received from fiscal
year 2017 to fiscal year 2021 on non-cancellable operating leases
is contractually due as follows as of June 30, 2016:
|
2017
|
$174
|
|
2018
|
149
|
|
2019
|
116
|
|
2020
|
84
|
|
2021
|
7
|
|
|
$530
|
21. OTHER INCOME, NET
Other
income, net consisted of the following:
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
Interest
income
|
33
|
18
|
|
Other
rental income
|
99
|
97
|
|
Exchange
gain / (loss)
|
96
|
(371)
|
|
Other
miscellaneous income
|
286
|
302
|
|
Total
|
$514
|
$46
|
22. INCOME TAXES
On a consolidated basis, the Company’s net income tax
provisions were as follows:
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
Current:
|
|
|
|
Federal
|
$-
|
$-
|
|
State
|
2
|
2
|
|
Foreign
|
235
|
300
|
|
|
$237
|
$302
|
|
Deferred:
|
|
|
|
Federal
|
$-
|
$-
|
|
State
|
-
|
-
|
|
Foreign
|
104
|
(65)
|
|
|
104
|
(65)
|
|
Total
provisions
|
$341
|
$237
|
The
reconciliation between the U.S. federal tax rate and the effective
income tax rate was as follows:
|
|
For
the Year Ended June 30,
|
|
|
|
|
|
Statutory federal
tax rate
|
(34.00)%
|
(34.00)%
|
|
State taxes, net of
federal benefit
|
(6.00)
|
(6.00)
|
|
Foreign tax related
to profits making subsidiaries
|
20.23
|
19.45
|
|
NOL
Expiration
|
(0.03)
|
(0.21)
|
|
Other
|
(0.86)
|
(0.50)
|
|
Changes in
valuation allowance
|
1.54
|
3.08
|
|
Effective
rate
|
(19.12)%
|
(18.18)%
|
At June 30, 2017, the Company had net operating loss carry-forward
of approximately nil and $148 for U.S. federal and state tax
purposes, respectively, expiring through 2033. The Company also had
tax credit carry-forward of approximately $211 for U.S. federal
income tax purposes expiring through 2020. Management of the
Company is uncertain whether it is more likely than not that these
future benefits will be realized. Accordingly, a full valuation
allowance was established.
At June 30, 2016, the Company had net operating loss carry-forward
of approximately $129 and $293 for U.S. federal and state tax
purposes, respectively, expiring through 2024. The Company also had
tax credit carry-forward of approximately $834 for federal income
tax purposes expiring through 2033. Management of the Company is
uncertain whether it is more likely than not that these future
benefits will be realized. Accordingly, a full valuation allowance
was established.
The
components of deferred income tax assets (liabilities) were as
follows:
|
|
For the Year Ended June 30,
|
|
Deferred
tax assets:
|
|
|
|
Net operating
losses and credits
|
$710
|
$1,498
|
|
Inventory
valuation
|
99
|
99
|
|
Provision for bad
debts
|
107
|
128
|
|
Accrued
vacation
|
35
|
40
|
|
Accrued
expenses
|
751
|
1,262
|
|
Investment in
subsidiaries
|
60
|
169
|
|
Unrealized
gain
|
23
|
11
|
|
Total deferred tax
assets
|
$1,785
|
$3,207
|
|
Deferred tax
liabilities:
|
|
|
|
Unrealized
loss
|
(29)
|
(34)
|
|
Depreciation
|
(266)
|
(182)
|
|
Total deferred
income tax liabilities
|
$(295)
|
$(216)
|
|
|
|
|
|
Subtotal
|
1,490
|
2,991
|
|
Valuation
allowance
|
(1,410)
|
(2,806)
|
|
Net
deferred tax assets
|
$80
|
$185
|
|
|
|
|
|
Presented
as follows in the balance sheets:
|
|
|
|
Deferred tax
assets
|
375
|
401
|
|
Deferred tax
liabilities
|
(295)
|
(216)
|
|
Net
deferred tax assets
|
$80
|
$185
|
The valuation allowance was decreased by $1,396 and $257 in fiscal
year years 2017 and 2016, respectively.
For U.S. income tax purposes, no provision has been made for U.S.
taxes on undistributed earnings amounting to $1,283 and $694 as at
June 30, 2017 and 2016, respectively, of overseas subsidiaries with
which the Company intends to continue to reinvest. It is not
practicable to estimate the amount of additional tax that might be
payable on the foreign earnings if they were remitted as dividends
or lent to the Company, or if the Company should sell its stock in
the subsidiary. However, the Company believes that the existing
U.S. foreign tax credits and net operating losses available would
substantially eliminate any additional tax effects.
23. UNRECOGNIZED TAX BENEFITS
The Company adopted ASC Topic 740, Accounting for Income
Taxes - Interpretation of Topic
740.
A reconciliation of the beginning and ending amount of unrecognized
tax benefits is as follows:
|
Balance at June 30, 2016 and June 30, 2017
|
$(250)
|
The Company accrues penalties and interest on unrecognized tax
benefits as a component of penalties and interest expense,
respectively. The Company has not accrued any penalties or interest
expense relating to the unrecognized benefits at June 30, 2017 and
June 30, 2016.
The major tax jurisdictions in which the Company files income tax
returns are the U.S., Singapore, Malaysia, China, and Thailand. The
statute of limitations, in general, is open for years 2005 to 2015
for tax authorities in those jurisdictions to audit or examine
income tax returns. The Company is under annual review by the
governments of Singapore, Malaysia, China, and Thailand. However,
the Company is not currently under tax examination in any other
jurisdiction.
24.
DISCONTINUED
OPERATION AND CORRESPONDING RESTRUCTURING PLAN
The
Company’s Indonesia operation and the Indonesia
operation’s immediate holding company, which comprise the
fabrication services segment, suffered continued operating losses
from fiscal year 2010 to 2014, and the cash flow was minimal from
fiscal year 2009 to 2014. The Company established a restructuring
plan to close the fabrication services operation, and in accordance
with ASC Topic 205, Presentation of Financial Statement
Discontinued Operations (“ASC Topic 205”), from fiscal
year 2015 onwards, the Company presented the operation results from
fabrication services as a discontinued operation as the Company
believed that no continued cash flow would be generated by the
discontinued component and that the Company would have no
significant continuing involvement in the operations of the
discontinued component.
In
accordance with the restructuring plan, the Company’s
Indonesia operation is negotiating with its suppliers to settle the
outstanding balance of accounts payable of $56 and has no
collection for accounts receivable. The Company’s fabrication
operation in Batam, Indonesia is in the process of winding up the
operations. The Company anticipates that it may incur costs and
expenses when the winding up of the subsidiary in Indonesia takes
place.
In
January 2010, the Company established a restructuring plan to close
the Testing operation in Shanghai, China. Based on the
restructuring plan and in accordance with ASC Topic 205, the
Company presented the operation results from Shanghai as a
discontinued operation as the Company believed that no continued
cash flow would be generated by the discontinued component
(Shanghai subsidiary) and that the Company would have no
significant continuing involvement in the operations of the
discontinued component. The Shanghai operation has completed its
winding up process as of March 30, 2017.
The
discontinued operations in Shanghai and in Indonesia incurred
general and administrative expenses of $1 and $7 for the year ended
June 30, 2017 and 2016.
Income
/ (Loss) from discontinued operations was as follows:
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
Revenue
|
$-
|
$-
|
|
Cost
of sales
|
-
|
-
|
|
Gross
loss
|
-
|
-
|
|
Operating
expenses
|
|
|
|
General
and administrative
|
1
|
7
|
|
Selling
|
-
|
-
|
|
Impairment
|
-
|
-
|
|
Total
|
1
|
7
|
Loss
from discontinued operation
|
(1)
|
(7)
|
|
|
(4)
|
3
|
|
Net income / (loss) from discontinued operation
|
$(5)
|
$(4)
|
The
Company does not provide a separate cash flow statement for the
discontinued operation, as the impact of this discontinued
operation is immaterial.
25. 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.
Options
to purchase 542,500 shares of Common Stock at exercise prices
ranging from $2.07 to $4.14 per share were outstanding as of June
30, 2017. No outstanding options were excluded in the computation
of diluted EPS for fiscal year 2017 since all options were
dilutive.
Options
to purchase 366,250 shares of Common Stock at exercise prices
ranging from $2.07 to $3.26 per share were outstanding as of June
30, 2016. All the other outstanding options were excluded in the
computation of diluted EPS for fiscal year 2016 since they were
anti-dilutive.
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:
|
|
For the
Year Ended June 30,
|
|
|
|
|
|
|
|
|
|
Income
attributable to Trio-Tech International common shareholders from
continuing operations, net of tax
|
$1,325
|
$788
|
|
Income
/ (loss) attributable to Trio-Tech International common
shareholders from discontinued operations, net of tax
|
$(9)
|
$(9)
|
|
Net income attributable to Trio-Tech International common
shareholders
|
$1,316
|
$779
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic
|
3,523
|
3,513
|
|
Dilutive
effect of stock options
|
121
|
22
|
Number of shares used to compute earnings per share -
diluted
|
3,644
|
3,535
|
|
|
|
|
|
Basic Earnings per Share:
|
|
|
|
Basic
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.38
|
$0.22
|
|
Basic
loss per share from discontinued operations attributable to
Trio-Tech International
|
$-
|
$-
|
|
Basic Earnings per Share from Net Income
|
|
|
|
Attributable to Trio-Tech International
|
$0.38
|
$0.22
|
|
|
|
|
|
Diluted Earnings per Share:
|
|
|
|
Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.36
|
$0.22
|
|
Diluted
loss per share from discontinued operations attributable to
Trio-Tech International
|
-
|
-
|
|
Diluted Earnings per Share from Net Income
|
|
|
|
Attributable to Trio-Tech International
|
$0.36
|
$0.22
|
|
|
|
|
26. STOCK OPTIONS
On
September 24, 2007, the Company’s Board of Directors
unanimously adopted the 2007 Employee Stock Option Plan (the
“2007 Employee Plan”) and the 2007 Directors Equity
Incentive Plan (the “2007 Directors Plan”) each of
which was approved by the shareholders on December 3, 2007. Each of
those plans was amended by the Board in 2010 to increase the number
of shares covered thereby, which amendments were approved by the
shareholders on December 14, 2010. At present, the 2007 Employee
Plan provides for awards of up to 600,000 shares of the
Company’s Common Stock to employees, consultants and
advisors. The Board also amended the 2007 Directors Plan in
November 2013 to further increase the number of shares covered
thereby from 400,000 shares to 500,000 shares, which amendment was
approved by the shareholders on December 9, 2013. The 2007
Directors Plan provides for awards of up to 500,000 shares of the
Company’s Common Stock to the members of the Board of
Directors in the form of non-qualified options and restricted
stock. These two plans 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:
|
|
For the Year Ended
June 30,
|
|
|
2017
|
2016
|
|
Expected
volatility
|
47.29 % to
104.94
|
%
|
60.41 % to
104.94
|
%
|
|
Risk-free interest
rate
|
0.30 % to
0.78
|
%
|
0.30 % to
0.78
|
%
|
|
Expected life
(years)
|
2.50
|
|
2.50
|
|
The
expected volatilities are based on the historical volatility of the
Company’s stock. Due to higher volatility, the observation is
made on a daily basis for the twelve months ended June 30, 2017.
The observation period covered is consistent with the expected life
of options. The expected life of the options granted to employees
has been determined utilizing the “simplified” method
as prescribed by ASC Topic 718 Stock Based Compensation, which,
among other provisions, allows companies without access to adequate
historical data about employee exercise behavior to use a
simplified approach for estimating the expected life of a
"plain vanilla" option grant. The simplified rule for estimating
the expected life of such an option is the average of the time to
vesting and the full term of the option. The risk-free rate is
consistent with the expected life of the stock options and is based
on the United States Treasury yield curve in effect at the time of
grant.
2007 Employee Stock Option Plan
The
Company’s 2007 Employee Plan permits the grant of stock
options to its employees covering up to an aggregate of 600,000
shares of Common Stock. Under the 2007 Employee Plan, all options
must be granted with an exercise price of not less than fair value
as of the grant date and the options granted must be exercisable
within a maximum of ten years after the date of grant, or such
lesser period of time as is set forth in the stock option
agreements. The options may be exercisable (a) immediately as of
the effective date of the stock option agreement granting the
option, or (b) in accordance with a schedule related to the date of
the grant of the option, the date of first employment, or such
other date as may be set by the Compensation Committee. Generally,
options granted under the 2007 Employee Plan are exercisable within
five years after the date of grant, and vest over the period as
follows: 25% vesting on the grant date and the remaining balance
vesting in equal installments on the next three succeeding
anniversaries of the grant date. The share-based compensation will
be recognized in terms of the grade method on a straight-line basis
for each separately vesting portion of the award. Certain option
awards provide for accelerated vesting if there is a change in
control (as defined in the 2007 Employee Plan).
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 twelve months ended June 30, 2017.
The Company recognized stock-based compensation expenses of $6 in
the twelve months ended June 30, 2017 under the 2007 Employee Plan.
The balance of unamortized stock-based compensation of $5 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 twelve months
ended June 30, 2017. The weighted-average remaining contractual
term for non-vested options was 4.22 years.
On
March 21, 2016, the Company granted options to purchase 40,000
shares of its Common Stock to employee directors pursuant to the
2007 Employee Plan during the twelve months ended June 30, 2016.
The Company recognized stock-based compensation expenses of $2 in
the twelve months ended June 30, 2016 under the 2007 Employee Plan.
The balance of unamortized stock-based compensation of $3 based on
fair value on the grant date related to options granted under the
2007 Employee Plan is to be recognized over a period of two years.
No stock options were exercised during the twelve months ended June
30, 2016. The weighted-average
remaining contractual term for non-vested options was 4.72 years.
There were 271,875 shares of Common Stock available for grant under
the 2007 Employee Plan.
As of
June 30, 2017, there were vested employee stock options that were
exercisable 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 2.36 years. The total fair value of vested and
outstanding employee stock options as of June 30, 2017 was
$267.
As of
June 30, 2016, there were vested employee stock options that were
exercisable covering a total of 51,250 shares of Common Stock. The
weighted-average exercise price was $3.28 and the weighted average
contractual term was 2.82 years. The total fair value of vested and
outstanding employee stock options as of June 30, 2016 was
$168.
A
summary of option activities under the 2007 Employee Plan during
the twelve-month period ended June 30, 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
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited or
expired
|
-
|
-
|
-
|
-
|
|
Outstanding at June
30, 2017
|
127,500
|
$3.52
|
3.10
|
$187
|
|
Exercisable at June
30, 2017
|
79,375
|
$3.36
|
2.36
|
$129
|
The
aggregate intrinsic value of the 127,500 shares of common stock
upon exercise of options was $187.
A
summary of option activities under the 2007 Employee Plan during
the twelve-month period ended June 30, 2016 is presented as
follows:
|
|
|
Weighted
Average
Exercise
Price
|
Weighted Average
Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
Outstanding at July
1, 2015
|
130,000
|
$3.93
|
1.57
|
$13
|
|
Granted
|
40,000
|
3.26
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited or
expired
|
(80,000)
|
4.35
|
-
|
-
|
|
Outstanding at June
30, 2016
|
90,000
|
$3.26
|
3.42
|
$30
|
|
Exercisable at June
30, 2016
|
51,250
|
$3.28
|
2.82
|
$16
|
The
aggregate intrinsic value of the 90,000 shares of common stock upon
exercise of options was $30.
A
summary of the status of the Company’s non-vested employee
stock options during the twelve months ended June 30, 2017 is
presented below:
|
|
|
Weighted Average
Grant-Date
|
|
|
|
|
|
Non-vested at July
1, 2016
|
38,750
|
$3.22
|
|
Granted
|
37,500
|
4.14
|
|
Vested
|
(28,125)
|
3.19
|
|
Forfeited
|
-
|
-
|
|
Non-vested at June
30, 2017
|
48,125
|
$3.77
|
A
summary of the status of the Company’s non-vested employee
stock options during the twelve months ended June 30, 2016 is
presented below:
|
|
|
Weighted Average
Grant-Date
|
|
|
|
|
|
Non-vested at July
1, 2015
|
17,500
|
$1.69
|
|
Granted
|
40,000
|
-
|
|
Vested
|
(18,750)
|
-
|
|
Forfeited
|
-
|
-
|
|
Non-vested at June
30, 2016
|
38,750
|
$3.22
|
2007 Directors Equity Incentive Plan
The
2007 Directors Plan permits the grant of options covering up to an
aggregate of 500,000 shares of Common Stock to its non-employee
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 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 June 30,
2017. The Company recognized stock-based compensation expenses of
$12 in the fiscal year 2017 under the 2007 Directors Plan. No stock
options were exercised during the twelve months June 30, 2017.
There were 80,000 shares of Common
Stock available for grant under the 2007 Directors
Plan.
On
March 21, 2016, the Company granted options to purchase 150,000
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 150,000 shares of the Company’s
Common Stock was approximately $489 based on the fair value of
$3.26 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 June 30,
2016. The Company recognized stock-based compensation expenses of
$42 in the fiscal year 2016 under the 2007 Directors Plan.
There were 80,000 shares of Common
Stock available for grant under the 2007 Directors
Plan.
On
October 5, 2015, 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 $51 based on the fair value of $2.69
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 June 30, 2016.
The Company recognized stock-based compensation expenses of $55 in
the fiscal year ended June 30, 2016 under the 2007 Directors
Plan.
There
were no stock options were exercised during the twelve months June
30, 2017, hence there were no proceeds from exercise of stock
options during fiscal year 2017. The Company recognized stock-based
compensation expenses of $12 in the twelve-month period ended June
30, 2017 under the 2007 Directors Plan.
No
stock options were exercised during the twelve months June 30,
2016, hence there were no proceeds from exercise of stock options
during fiscal year 2016. The Company recognized stock-based
compensation expenses of $99 in the twelve-month period ended June
30, 2016 under the 2007 Directors Plan.
As of
June 30, 2017, there were vested director stock options covering a
total of 415,000 shares of Common Stock. The weighted-average
exercise price was $3.36 and the weighted average remaining
contractual term was 2.93 years. The total fair value of vested
directors' stock options as of June 30, 2017 was $1,393. All of our
director stock options vest immediately at the date of grant. There
were no unvested director stock options as of June 30,
2017.
As of
June 30, 2016, there were vested director stock options covering a
total of 415,000 shares of Common Stock. The weighted-average
exercise price was $3.14 and the weighted average remaining
contractual term was 3.29 years. The total fair value of vested
directors' stock options as of June 30, 2016 was $1,301. All of our
director stock options vest immediately at the date of grant. There
were no unvested director stock options as of June 30,
2016.
A
summary of option activities under the 2007 Directors Plan during
the twelve months ended June 30, 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
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited or
expired
|
(50,000)
|
2.30
|
-
|
-
|
|
Outstanding at June
30, 2017
|
415,000
|
3.36
|
2.93
|
673
|
|
Exercisable at June
30, 2017
|
415,000
|
3.36
|
2.93
|
673
|
A
summary of option activities under the 2007 Directors Plan during
the twelve months ended June 30, 2016 is presented as
follows:
|
|
|
Weighted
Average
Exercise
Price
|
Weighted Average
Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
Outstanding at July
1, 2015
|
365,000
|
$3.65
|
1.99
|
$53
|
|
Granted
|
200,000
|
3.12
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited or
expired
|
(150,000)
|
4.35
|
-
|
-
|
|
Outstanding at June
30, 2016
|
415,000
|
3.14
|
3.29
|
198
|
|
Exercisable at June
30, 2016
|
415,000
|
3.14
|
3.29
|
198
|
27. NON-CONTROLLING INTEREST
In accordance with the provisions of ASC Topic 810, the Company has
classified the non-controlling interest as a component of
stockholders’ equity in the accompanying consolidated balance
sheets. Additionally, the Company has presented the net income
attributable to the Company and the non-controlling ownership
interests separately in the accompanying consolidated
financial statements.
Non-controlling interest represents the minority
stockholders’ share of 45% of the equity of Trio-Tech
Malaysia Sdn. Bhd., 45% interest in SHI International Pte.
Ltd., and 24% interest in Prestal Enterprise Sdn. Bhd., which are
subsidiaries of the Company.
The table below reflects a reconciliation of the equity
attributable to non-controlling interest:
|
|
For the
Year Ended June 30,
|
|
Non-controlling
interest
|
|
|
|
Beginning
balance
|
$1,614
|
$1,736
|
|
Net
income
|
139
|
282
|
|
Dividend declared
by a subsidiary
|
(177)
|
(181)
|
|
Translation
adjustment
|
(150)
|
(223)
|
|
Ending
balance
|
$1,426
|
$1,614
|
28. RELATED PARTY TRANSACTION
Other than those disclosed in this report, there were no related
party transactions in fiscal year 2017 and 2016.