SEC Connect
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Quarterly Period Ended December 31, 2016
OR
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition Period from ___ to ___
Commission File Number 1-14523
TRIO-TECH INTERNATIONAL
(Exact name of Registrant as specified in its Charter)
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California
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95-2086631
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification Number)
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16139 Wyandotte Street
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Van Nuys, California
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91406
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(Address of principal executive offices)
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(Zip Code)
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Registrant's
Telephone Number, Including Area
Code: 818-787-7000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required
to submit and post such
files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
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Large Accelerated Filer
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☐
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Accelerated Filer
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☐
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Non-Accelerated Filer
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☐
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Smaller Reporting Company
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☒
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
☐ No ☒
As of February 1, 2017, there were 3,513,055 shares of the
issuer’s Common Stock, no par value,
outstanding.
TRIO-TECH INTERNATIONAL
INDEX TO CONDENSED CONSOLIDATED
FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE
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Page
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1
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1
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2
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4
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5
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6
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27
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46
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46
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47
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47
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47
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47
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47
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47
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47
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48
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FORWARD-LOOKING STATEMENTS
The
discussions of Trio-Tech International’s (the
“Company”) business and activities set forth in this
Form 10-Q and in other past and future reports and announcements by
the Company may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended,
and assumptions regarding future activities and results of
operations of the Company. In light of the “safe
harbor” provisions of the Private Securities Litigation
Reform Act of 1995, the following factors, among others, could
cause actual results to differ materially from those reflected in
any forward-looking statements made by or on behalf of the Company:
market acceptance of Company products and services; changing
business conditions or technologies and volatility in the
semiconductor industry, which could affect demand for the
Company’s products and services; the impact of competition;
problems with technology; product development schedules; delivery
schedules; changes in military or commercial testing specifications
which could affect the market for the Company’s products and
services; difficulties in profitably integrating acquired
businesses, if any, into the Company; risks associated with
conducting business internationally and especially in Southeast
Asia, including currency fluctuations and devaluation, currency
restrictions, local laws and restrictions and possible social,
political and economic instability; changes to government policies,
potential legislative changes in U.S. and global financial and
equity markets, including market disruptions and significant
interest rate fluctuations; and other economic, financial and
regulatory factors beyond the Company’s control. Other than
statements of historical fact, all statements made in this
Quarterly Report are forward-looking, including, but not limited
to, statements regarding industry prospects, future results of
operations or financial position, and statements of our intent,
belief and current expectations about our strategic direction,
prospective and future financial results and condition. In some
cases, you can identify forward-looking statements by the use of
terminology such as “may,” “will,”
“expects,” “plans,”
“anticipates,” “estimates,”
“potential,” “believes,” “can
impact,” “continue,” or the negative thereof or
other comparable terminology. Forward-looking statements involve
risks and uncertainties that are inherently difficult to predict,
which could cause actual outcomes and results to differ materially
from our expectations, forecasts and assumptions.
Unless
otherwise required by law, we undertake no obligation to update
forward-looking statements to reflect subsequent events, changed
circumstances, or the occurrence of unanticipated events. You are
cautioned not to place undue reliance on such forward-looking
statements.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (IN
THOUSANDS, EXCEPT NUMBER OF SHARES)
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ASSETS
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CURRENT
ASSETS:
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Cash
and cash equivalents
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$4,336
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$3,807
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Short-term
deposits
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658
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295
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Trade
accounts receivable, less allowance for doubtful accounts of $243
and $270
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7,577
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8,826
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Other
receivables
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316
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596
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Inventories,
less provision for obsolete inventory of $661 and $697
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1,666
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1,460
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Prepaid
expenses and other current assets
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363
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264
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Asset
held for sale
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82
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92
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Total current assets
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14,998
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15,340
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NON-CURRENT
ASSETS:
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Deferred
tax assets
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371
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401
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Investment
properties, net
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1,234
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1,340
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Property,
plant and equipment, net
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10,290
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11,283
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Other
assets
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1,882
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1,788
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Restricted
term deposits
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1,921
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2,067
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Total
non-current assets
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15,698
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16,879
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TOTAL ASSETS
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$30,696
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$32,219
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LIABILITIES
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CURRENT
LIABILITIES:
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Lines
of credit
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$1,419
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$2,491
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Accounts
payable
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3,730
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2,921
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Accrued
expenses
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2,681
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2,642
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Income
taxes payable
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204
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230
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Current
portion of bank loans payable
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235
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342
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Current
portion of capital leases
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209
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235
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Total current liabilities
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8,478
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8,861
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NON-CURRENT
LIABILITIES:
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Bank
loans payable, net of current portion
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1,454
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1,725
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Capital leases,
net of current portion
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398
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503
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Deferred
tax liabilities
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237
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216
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Other
non-current liabilities
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42
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43
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Total
non-current liabilities
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2,131
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2,487
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TOTAL LIABILITIES
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$10,609
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$11,348
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COMMITMENT
AND CONTINGENCIES
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-
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-
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EQUITY
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TRIO-TECH
INTERNATIONAL’S SHAREHOLDERS' EQUITY:
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Common
stock, no par value, 15,000,000 shares authorized; 3,513,055 shares
issued and outstanding as at December 31, 2016, and June 30,
2016
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$10,882
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$10,882
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Paid-in
capital
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3,189
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3,188
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Accumulated
retained earnings
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3,638
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3,025
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Accumulated
other comprehensive gain-translation adjustments
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918
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2,162
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Total Trio-Tech International shareholders'
equity
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18,627
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19,257
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Non-controlling
interest
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1,460
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1,614
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TOTAL
EQUITY
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$20,087
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$20,871
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TOTAL LIABILITIES AND EQUITY
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$30,696
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$32,219
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See notes to condensed consolidated financial
statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME
UNAUDITED (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
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Revenue
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Manufacturing
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$3,320
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$3,276
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$6,991
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$6,416
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Testing
services
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4,070
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3,701
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8,227
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7,484
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Distribution
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1,675
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1,359
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2,779
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2,334
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Others
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39
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18
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78
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50
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9,104
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8,354
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18,075
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16,284
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Cost of Sales
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Cost
of manufactured products sold
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2,622
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2,471
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5,417
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4,580
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Cost
of testing services rendered
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2,658
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2,499
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5,472
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5,257
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Cost
of distribution
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1,501
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1,240
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2,492
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2,093
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Others
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29
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29
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42
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61
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6,810
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6,239
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13,423
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11,991
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Gross Margin
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2,294
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2,115
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4,652
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4,293
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Operating Expenses:
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General
and administrative
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1,776
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1,599
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3,519
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3,261
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Selling
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180
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141
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365
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312
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Research
and development
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52
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51
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105
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97
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Loss
/ (gain) on disposal of property, plant and equipment
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8
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(4)
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8
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(4)
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Total
operating expenses
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2,016
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1,787
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3,997
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3,666
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Income from Operations
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278
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328
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655
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627
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Other Income / (Expenses)
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Interest
expenses
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(48)
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(51)
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(106)
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(104)
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Other income,
net
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203
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18
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313
|
226
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Total
other income / (expenses)
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155
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(33)
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207
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122
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Income from Continuing Operations before Income
Taxes
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433
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295
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862
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749
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Income Tax Expenses
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(67)
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(86)
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(150)
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(153)
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Income
from continuing operations before non-controlling interest, net of
tax
|
366
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209
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712
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596
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Discontinued Operations (Note 19)
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(Loss)
/ income from discontinued operations, net of tax
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(4)
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6
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(3)
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(4)
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NET INCOME
|
362
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215
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709
|
592
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Less:
net income attributable to non-controlling interest
|
52
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25
|
96
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143
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Net Income Attributable to Trio-Tech International Common
Shareholder
|
$310
|
$190
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$613
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$449
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Amounts Attributable to Trio-Tech International Common
Shareholders:
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Income
from continuing operations, net of tax
|
316
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188
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619
|
452
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(Loss)
/ income from discontinued operations, net of tax
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(6)
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2
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(6)
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(3)
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Net Income Attributable to Trio-Tech International Common
Shareholders
|
$310
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$190
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$613
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$449
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Basic Earnings per Share:
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Basic
per share from continuing operations attributable to Trio-Tech
International
|
$0.09
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$0.05
|
$0.18
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$0.13
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Basic
earnings per share from discontinued operations attributable to
Trio-Tech International
|
$-
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$-
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$-
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$-
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Basic Earnings per Share from Net Income
|
|
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Attributable to Trio-Tech International
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$0.09
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$0.05
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$0.18
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$0.13
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Diluted Earnings per Share:
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|
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Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.09
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$0.05
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$0.17
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$0.13
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Diluted
earnings per share from discontinued operations attributable to
Trio-Tech International
|
$-
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$-
|
$-
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$-
|
Diluted Earnings per Share from Net Income
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|
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Attributable to Trio-Tech International
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$0.09
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$0.05
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$0.17
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$0.13
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Weighted
average number of common shares outstanding
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|
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Basic
|
3,513
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3,513
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3,513
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3,513
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Dilutive
effect of stock options
|
56
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16
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39
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12
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Number
of shares used to compute earnings per share diluted
|
3,569
|
3,529
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3,552
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3,525
|
See notes to condensed consolidated financial
statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
UNAUDITED (IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
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|
|
|
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Comprehensive Income Attributable to Trio-Tech
International Common Shareholders:
|
|
|
|
|
|
|
|
|
|
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Net
income
|
$362
|
$215
|
$709
|
$592
|
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Foreign
currency translation, net of tax
|
(1,094)
|
22
|
(1,377)
|
(1,403)
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|
Comprehensive (Loss) / Income
|
(732)
|
237
|
(668)
|
(811)
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Less:
comprehensive (loss) / income attributable to non-controlling
interest
|
(16)
|
114
|
(37)
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(138)
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Comprehensive (Loss) / Income Attributable to Trio-Tech
International Common Shareholders
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$(716)
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$123
|
$(631)
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$(673)
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|
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See
notes to condensed consolidated financial
statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
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|
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Accumulated Other
Comprehensive
|
|
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|
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|
|
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$
|
$
|
$
|
$
|
$
|
$
|
|
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)
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|
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
|
-
|
-
|
1
|
-
|
-
|
-
|
1
|
|
Net
income
|
-
|
-
|
-
|
613
|
-
|
96
|
709
|
|
Dividend
declared by subsidiary
|
-
|
-
|
-
|
-
|
-
|
(117)
|
(117)
|
|
Translation
adjustment
|
-
|
-
|
-
|
-
|
(1,244)
|
(133)
|
(1,377)
|
|
Balance
at Dec. 31, 2016
|
3,513
|
10,882
|
3,189
|
3,638
|
918
|
1,460
|
20,087
|
See notes to condensed consolidated financial
statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (IN THOUSANDS)
UNAUDITED (IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Operating Activities
|
|
|
|
Net
income
|
$709
|
$592
|
|
Adjustments
to reconcile net income to net cash flow provided by operating
activities
|
|
|
|
Depreciation
and amortization
|
916
|
937
|
|
Stock
option expenses
|
1
|
55
|
|
Inventory
recovery
|
(4)
|
(45)
|
|
Bad
debt recovery, net
|
(16)
|
(6)
|
|
Accrued
interest expense, net of accrued interest income
|
95
|
98
|
|
Loss
/ (Gain) on sale of property, plant and equipment - continued
operations
|
8
|
(4)
|
|
Impairment
loss
|
-
|
2
|
|
Warranty
recovery, net
|
(9)
|
(14)
|
|
Deferred
tax provision
|
51
|
(14)
|
|
Changes
in operating assets and liabilities, net of acquisition
effect
|
|
|
|
Trade
accounts receivable
|
1,265
|
261
|
|
Other receivables
|
280
|
63
|
|
Other assets
|
(226)
|
-
|
|
Inventories
|
(275)
|
(559)
|
|
Prepaid expenses and other current assets
|
(99)
|
(36)
|
|
Accounts payable and accrued liabilities
|
1,001
|
71
|
|
Income tax payable
|
(26)
|
(52)
|
|
Net Cash Provided by Operating Activities
|
3,671
|
1,349
|
|
|
|
|
|
Cash Flow from Investing Activities
|
|
|
|
Proceeds
from maturing of unrestricted and restricted term deposits and
short-term deposits, net
|
-
|
63
|
|
Investments
in restricted and unrestricted deposits
|
(421)
|
-
|
|
Additions
to property, plant and equipment
|
(764)
|
(314)
|
|
Proceeds
from disposal of plant, property and equipment
|
83
|
55
|
|
Net Cash Used in Investing Activities
|
(1,102)
|
(196)
|
|
|
|
|
|
Cash Flow from Financing Activities
|
|
|
|
Repayment
on lines of credit
|
(4,503)
|
(4,388)
|
|
Proceeds
from bank loans and capital leases
|
3,516
|
4,428
|
|
Dividends
paid to non-controlling interest
|
(117)
|
-
|
|
Repayment
of long-term bank loans and capital leases
|
(371)
|
(339)
|
|
Net Cash Used in by Financing Activities
|
(1,475)
|
(299)
|
|
|
|
|
|
Effect of Changes in Exchange Rate
|
(565)
|
(195)
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
529
|
659
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
3,807
|
3,711
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$4,336
|
$4,370
|
|
|
|
|
|
Supplementary Information of Cash Flows
|
|
|
|
Cash
paid during the period for:
|
|
|
|
Interest
|
$91
|
$105
|
|
Income
taxes
|
$83
|
$157
|
|
|
|
|
|
Non-Cash Transactions
|
|
|
|
Capital
lease of property, plant and equipment
|
$49
|
$192
|
See notes to condensed consolidated financial
statements.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AND NUMBER OF
SHARES)
1. ORGANIZATION AND BASIS OF PRESENTATION
Trio-Tech International (“the Company” or
“TTI” hereafter) was incorporated in fiscal year 1958
under the laws of the State of California. TTI provides
third-party semiconductor testing and burn-in services primarily
through its laboratories in Southeast Asia. In addition, TTI
operates testing facilities in the United States. The
Company also designs, develops, manufactures and markets a broad
range of equipment and systems used in the manufacturing and
testing of semiconductor devices and electronic components. In the
second quarter of fiscal year 2017, TTI conducted business in four
business segments: Manufacturing, Testing Services, Distribution
and Real Estate. TTI has subsidiaries in the U.S., Singapore,
Malaysia, Thailand and China as follows:
|
|
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.
(100% owned by Trio-Tech Malaysia Sdn. Bhd.)
|
55%
|
|
Selangor, Malaysia
|
|
Prestal Enterprise Sdn. Bhd.
(76% owned by Trio-Tech International Pte. Ltd.)
|
76%
|
|
Selangor, Malaysia
|
|
Trio-Tech (Suzhou) Co., Ltd. *
|
100%
|
|
Suzhou, China
|
|
Trio-Tech (Shanghai) Co., Ltd. * (Dormant)
|
100%
|
|
Shanghai, China
|
|
Trio-Tech (Chongqing) Co. Ltd. *
|
100%
|
|
Chongqing, China
|
|
SHI International Pte. Ltd. (Dormant)
(55% owned by Trio-Tech International Pte. Ltd)
|
55%
|
|
Singapore
|
|
PT SHI Indonesia (Dormant)
(100% owned by SHI International Pte. Ltd.)
|
55%
|
|
Batam, Indonesia
|
|
Trio-Tech (Tianjin) Co., Ltd. *
|
100%
|
|
Tianjin, China
|
* 100% owned by Trio-Tech International Pte.
Ltd.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”) for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation
S-X. All significant inter-company accounts and
transactions have been eliminated in consolidation. The unaudited
condensed consolidated financial statements are presented in U.S.
dollars. The accompanying condensed consolidated
financial statements do not include all the information and
footnotes required by U.S. GAAP for complete financial
statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered
necessary for fair presentation have been
included. Operating results for the six months ended
December 31, 2016 are not necessarily indicative of the results
that may be expected for the fiscal year ending June 30,
2017. For further information, refer to the consolidated
financial statements and footnotes thereto included in the
Company's annual report for the fiscal year ended June 30,
2016.
The Company’s operating results are presented based on the
translation of foreign currencies using the respective
quarter’s average exchange rate.
2. NEW ACCOUNTING PRONOUNCEMENTS
The amendments in Accounting Standards Update (“ASU”)
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 Accounting Standards Update (“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 Accounting Standards Update (“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, 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 Accounting Standards Update (“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 Accounting Standards Update (“ASU”)
2016-15 ASC Topic 230 —Statement of Cash Flows (“ASC
Topic 230”): These amendments provide cashflow statement
classification guidance. For public business entities, 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, the ASU is effective for fiscal
years beginning after December 15, 2020, and interim periods within
those fiscal years. While early application will be permitted for
all organizations for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2018, the Company
has not yet determined if it will early adopt. The effectiveness of
this update is not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
The amendments in ASU 2016-09 ASC Topic 718: Compensation –
Stock Compensation (“ASC Topic 718”) are issued to
simplify several aspects of the accounting for share-based payment
award transactions, including (a) income tax consequences (b)
classification of awards as either equity or liabilities; and (c)
classification on the statement of cash flows. For public business
entities, the amendments are effective for annual periods beginning
after December 15, 2016, and interim periods within those annual
periods. Early adoption is permitted for any entity in any interim
or annual period. If an entity early adopts the amendments in an
interim period, any adjustments should be reflected as of the
beginning of the fiscal year that includes that interim period. An
entity that elects early adoption must adopt all of the amendments
in the same period. The Company does not intend to early adopt and
has not yet determined the effects on the Company’s
consolidated financial position or results of operations on the
adoption of this update.
The amendments in ASU 2016-02 ASC Topic 842: Leases (“ASC
Topic 842”) are required to recognize the following for all
leases (with the exception of short-term leases) at the
commencement date 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 business. While early adoption is permitted, the
Company has not elected to early adopt. The effectiveness of this
update is not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
The amendments in ASU 2015-14 ASC Topic 606: Deferral of the
Effective Date (“ASC Topic 606”) defers the effective
date of update 2014-09 for all entities by one year. For a public
entity, the amendments in ASU 2014-09 are effective for annual
reporting periods beginning after December 15, 2017, including
interim periods within that reporting period. Earlier application
is permitted only as of annual reporting periods beginning after
December 15, 2016, including interim reporting periods within that
reporting period. The Company has not yet determined if it will
early adopt. The effectiveness of this update is not expected to
have a significant effect on the Company’s consolidated
financial position or results of operations.
The Financial Accounting Standards Board (“FASB”) has
issued converged standards on revenue recognition. Specifically,
the Board has issued ASU 2014-09, ASC Topic 606. ASU 2014-09
affects any entity using U.S. GAAP that either enters into
contracts with customers to transfer goods or services or enters
into contracts for the transfer of non-financial assets unless
those contracts are within the scope of other standards (e.g.,
insurance contracts or lease contracts). ASU 2014-09 will supersede
the revenue recognition requirements in ASC Topic 605, Revenue
Recognition (“ASC Topic 605”), and most
industry-specific guidance. ASU 2014-09 also supersedes some cost
guidance included in Subtopic 605-35, Revenue
Recognition—Construction-Type and Production-Type Contracts.
In addition, the existing requirements for the recognition of a
gain or loss on the transfer of non-financial assets that are not
in a contract with a customer (e.g., assets within the scope of ASC
Topic 360, Property, Plant, and Equipment, (“ASC Topic
360”), and intangible assets within the scope of Topic 350,
Intangibles—Goodwill and Other) are amended to be consistent
with the guidance on recognition and measurement (including the
constraint on revenue) in ASU 2014-09. For a public entity, the
amendments in ASU 2014-09 are effective for annual reporting
periods beginning after December 15, 2016, including interim
periods within that reporting period. As the new 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 evaluation of the impact of this standard on its
business and found the adoption of this standard should not have a
material effect on its Consolidated Financial
Statements.
The amendments in ASU 2015-11 ASC Topic 330: Simplifying the
Measurement of Inventory (“ASC Topic 330”) specify that
an entity should measure inventory at the lower of cost and net
realizable value. Net realizable value is the estimated selling
prices in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation.
Subsequent measurement is unchanged for inventory measured using
Last-In-First-Out or the retail inventory method. The amendments in
ASU 2015-011 are effective for public business entities for fiscal
years beginning after December 15, 2016, and interim periods within
those fiscal years. A reporting entity should apply the amendments
retrospectively to all periods presented. While early adoption is
permitted, the Company has not elected to early adopt. The adoption
of this update is not expected to have a significant effect on the
Company’s consolidated financial position or results of
operations.
FASB amended ASU 2014-15 Subtopic 205-40, Presentation of Financial
Statements – Going Concern (“ASC Topic 205”) to
define management’s responsibility to evaluate whether there
is substantial doubt about an organization’s ability to
continue as a going concern and to provide related footnote
disclosures. Under GAAP, financial statements are prepared under
the presumption that the reporting organization will continue to
operate as a going concern, except in limited circumstances. The
going concern basis of accounting is critical to financial
reporting because it establishes the fundamental basis for
measuring and classifying assets and liabilities. Currently, GAAP
lacks guidance about management’s responsibility to evaluate
whether there is substantial doubt about the organization’s
ability to continue as a going concern or to provide related
footnote disclosures. ASU 2014-15 provides guidance to an
organization’s management, with principles and definitions
that are intended to reduce diversity in the timing and content of
disclosures that are commonly provided by organizations today in
the financial statement footnotes. The amendments in ASU 2014-15
are effective for annual periods ending after December 15, 2016,
and interim periods within annual periods beginning after December
15, 2016. While early application is permitted for annual or
interim reporting periods for which the financial statements have
not previously been issued, the Company has not elected to early
adopt. The effectiveness of this update does not have a significant
effect on the Company’s consolidated financial position or
results of operations.
Other new pronouncements issued but not yet effective until after
December 31, 2016 are not expected to have a significant effect on
the Company’s consolidated financial position or results of
operations.
3. TERM
DEPOSITS
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Short-term
deposits
|
$723
|
$301
|
Currency
translation effect on short-term deposits
|
(65)
|
(6)
|
|
Total short-term deposits
|
658
|
295
|
|
Restricted
term deposits
|
2,070
|
2,085
|
|
Currency
translation effect on restricted term deposits
|
(149)
|
(18)
|
|
Total restricted term deposits
|
1,921
|
2,067
|
|
Total Term deposits
|
$2,579
|
$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 that do not qualify as cash equivalents.
4. TRADE ACCOUNTS RECEIVABLE
AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable consists of customer obligations due under
normal trade terms. Although management generally does not require
collateral, letters of credit may be required from customers in
certain circumstances. Management periodically performs credit
evaluations of customers’ financial conditions.
Senior management reviews accounts receivable on a periodic basis
to determine if any receivables potentially will be uncollectible.
Management includes any accounts receivable balances that are
determined to be uncollectible in the allowance for doubtful
accounts. After all reasonable attempts to collect a receivable
have failed, the receivable is written off against the allowance.
Based on the information available, management believed the
allowance for doubtful accounts as of December 31, 2016, and June
30, 2016 was adequate.
The following table represents the changes in the allowance for
doubtful accounts:
|
|
|
|
|
|
|
|
|
Beginning
|
$270
|
$313
|
|
Additions
charged to expenses
|
65
|
21
|
|
Recovered
/ write-off
|
(80)
|
(48)
|
|
Currency
translation effect
|
(12)
|
(16)
|
|
Ending
|
$243
|
$270
|
5. LOANS RECEIVABLE FROM PROPERTY DEVELOPMENT
PROJECTS
The following table presents Trio-Tech (Chongqing) Co. Ltd
(“TTCQ”)’s loan receivable from property
development projects in China as of December 31, 2016. The exchange
rate is based on the date published by the Monetary
Authority of Singapore as of March 31, 2015, since the net loan
receivable was “nil” as at December 31,
2016.
|
|
|
|
Loan Amount (U.S. Dollars)
|
|
Short-term loan receivables
|
|
|
|
|
JiangHuai
(Project – Yu Jin Jiang An)
|
May
31, 2013
|
2,000
|
325
|
|
Less:
allowance for doubtful receivables
|
|
(2,000)
|
(325)
|
|
Net loan receivables from property development
projects
|
|
-
|
-
|
|
|
|
|
|
Long-term loan receivables
|
|
|
|
|
Jun
Zhou Zhi Ye
|
Oct
31, 2016
|
5,000
|
814
|
|
Less:
transfer – down-payment for purchase of investment
property
|
|
(5,000)
|
(814)
|
|
Net loan receivables from property development
projects
|
|
-
|
-
|
The following table presents TTCQ’s loan receivable from
property development projects in China as of June 30, 2016. The
exchange rate is based on the date published by the
Monetary Authority of Singapore as of March 31, 2015, since the net
loan receivable was “nil” as at June 30,
2016.
|
|
|
|
Loan Amount
(U.S. Dollars)
|
|
Short-term loan receivables
|
|
|
|
|
JiangHuai
(Project – Yu Jin Jiang An)
|
May
31, 2013
|
2,000
|
325
|
|
Less:
allowance for doubtful receivables
|
|
(2,000)
|
(325)
|
|
Net loan receivables from property development
projects
|
|
-
|
-
|
|
|
|
|
|
Long-term loan receivables
|
|
|
|
|
Jun
Zhou Zhi Ye
|
Oct
31, 2016
|
5,000
|
814
|
|
Less:
transfer – down-payment for purchase of investment
property
|
|
(5,000)
|
(814)
|
|
Net loan receivables from property development
projects
|
|
-
|
-
|
On November 1, 2010, TTCQ entered into a Memorandum Agreement with
JiangHuai Property Development Co. Ltd. (“JiangHuai”)
to invest in their property development projects (Project - Yu Jin
Jiang An) located in Chongqing City, China. Due to the short-term
nature of the investment, the amount was classified as a loan based
on ASC Topic 310-10-25 Receivables, amounting to Renminbi
(“RMB”) 2,000, or approximately $325. The loan was
renewed, but expired on May 31, 2013. TTCQ is in the legal process
of recovering the outstanding amount of $325. TTCQ did not generate
other income from JiangHuai for the quarter ended December 31,
2016, or for the fiscal year ended June 30, 2016. Based on
TTI’s financial policy, a provision for doubtful receivables
of $325 on the investment in JiangHuai was recorded during the
second quarter of fiscal 2014 based on TTI’s financial
policy.
On November 1, 2010, TTCQ entered into a Memorandum Agreement with
JiaSheng Property Development Co. Ltd. (“JiaSheng”) to
invest in their property development projects (Project B-48 Phase
2) located in Chongqing City, China. Due to the short-term nature
of the investment, the amount was classified as a loan based on ASC
Topic 310, amounting to RMB 5,000, or approximately $814 based on
the exchange rate as at March 31, 2015 published by the Monetary
Authority of Singapore. The amount was unsecured and repayable at
the end of the term. The loan was renewed in November 2011 for a
period of one year, which expired on October 31, 2012 and was again
renewed in November 2012 and expired in November 2013. On November
1, 2013, the loan was transferred by JiaSheng to, and is now
payable by, Chong Qing Jun Zhou Zhi Ye Co. Ltd. (“Jun Zhou
Zhi Ye”), and the transferred agreement expired on October
31, 2016. Prior to the second quarter of fiscal year 2015, the loan
receivable was classified as a long-term receivable. The book value
of the loan receivable approximates its fair value. In the second
quarter of fiscal year 2015, the loan receivable was transferred to
down payment for purchase of investment property that is being
developed in the Singapore Themed Resort Project (see Note
8).
6. INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
$1,025
|
$967
|
|
Work
in progress
|
1,201
|
909
|
|
Finished
goods
|
207
|
279
|
|
Less:
provision for obsolete inventory
|
(661)
|
(697)
|
|
Currency
translation effect
|
(106)
|
2
|
|
|
$1,666
|
$1,460
|
The
following table represents the changes in provision for obsolete
inventory:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
$697
|
$764
|
|
Additions
charged to expenses
|
-
|
22
|
|
Usage
- disposition
|
(4)
|
(86)
|
|
Currency
translation effect
|
(32)
|
(3)
|
|
Ending
|
$661
|
$697
|
7. ASSET HELD FOR
SALE
During the fourth quarter of 2015, the operations in Malaysia
planned to sell its factory building in Penang, Malaysia. In May
2015, Trio-Tech Malaysia was approached by a potential buyer to
purchase the factory building. Negotiation is still ongoing and is
subject to approval by Penang Development Corporation. In
accordance with ASC Topic 360, during fiscal year 2015, the
property was reclassified from investment property, which had a net
book value of RM 371, or approximately $92, to assets held for
sale, since there was an intention to sell the factory building.
The net book values of the building were RM371, or approximately
$82, for three month ended December 31, 2016 and RM 371, or
approximately $92, for year ended June 30, 2016.
8. INVESTMENTS
Investments were nil as at December 31, 2016 and June 30,
2016.
During the second quarter of fiscal year 2011, the Company entered
into a joint venture agreement with JiaSheng to develop real estate
projects in China. The Company invested RMB 10,000, or
approximately $1,606 based on the exchange rate as of March 31,
2014, published by the Monetary Authority of Singapore, for a 10%
interest in the newly formed joint venture, which was incorporated
as a limited liability company, Chong Qing Jun Zhou Zhi Ye Co. Ltd.
(the “joint venture”), in China. The agreement
stipulated that the Company would nominate two of the five members
of the Board of Directors of the joint venture and had the ability
to assign two members of management to the joint venture. The
agreement also stipulated that the Company would receive a fee of
RMB 10,000, or approximately $1,606 based on the exchange rate as
of March 31, 2014, published by the Monetary Authority of
Singapore, for the services rendered in connection with obtaining
priority to bid in certain real estate projects from the local
government. Upon signing of the agreement, JiaSheng paid the
Company RMB 5,000 in cash, or approximately $803 based on the
exchange rate published by the Monetary Authority of Singapore as
of March 31, 2014. The remaining RMB 5,000, which was not recorded
as a receivable as the Company considered the collectability
uncertain, would be paid over 72 months commencing in 36 months
from the date of the agreement when the joint venture secured a
property development project stated inside the joint venture
agreement. The Company considered the RMB 5,000, or approximately
$803 based on the exchange rate as of March 31, 2014, published by
the Monetary Authority of Singapore, received in cash from
JiaSheng, the controlling venturer in the joint venture, as a
partial return of the Company’s initial investment of
RMB10,000, or approximately $1,606 based on the exchange rate as of
March 31, 2014, published by the Monetary Authority of Singapore.
Therefore, the RMB 5,000 received in cash was offset against the
initial investment of RMB 10,000, resulting in a net investment of
RMB 5,000 as of March 31, 2014. The Company further reduced its
investments by RMB 137, or approximately $22, towards the losses
from operations incurred by the joint venture, resulting in a net
investment of RMB 4,863, or approximately $781 based on exchange
rates published by the Monetary Authority of Singapore as of March
31, 2014.
“Investments” in the real estate segment were the cost
of an investment in a joint venture in which we had a 10% interest.
During the second quarter of fiscal year 2014, TTCQ disposed of its
10% interest in the joint venture. The joint venture had to raise
funds for the development of the project. As a joint-venture
partner, TTCQ was required to stand guarantee for the funds to be
borrowed; considering the amount of borrowing, the risk involved
was higher than the investment made and hence TTCQ decided to
dispose of the 10% interest in the joint venture investment. On
October 2, 2013, TTCQ entered into a share transfer agreement with
Zhu Shu. Based on the agreement, the purchase price was to be paid
by (1) RMB 10,000 worth of commercial property in Chongqing China,
or approximately $1,634 based on exchange rates published by the
Monetary Authority of Singapore as of October 2, 2013, by
non-monetary consideration and (2) the remaining RMB 8,000, or
approximately $1,307 based on exchange rates published by the
Monetary Authority of Singapore as of October 2, 2013, by cash
consideration. The consideration consisted of (1) commercial units
measuring 668 square meters to be delivered in June 2016 and (2)
sixteen quarterly equal installments of RMB500 per quarter
commencing from January 2014. Based on ASC Topic 845 Non-monetary
Consideration, the Company deferred the recognition of the gain on
disposal of the 10% interest in joint venture investment until such
time that the consideration is paid, so that the gain can be
ascertained. The recorded value of the disposed investment
amounting to $783, based on exchange rates published by the
Monetary Authority of Singapore as of June 30, 2014, is classified
as “other assets” under non-current assets, because it
is considered a down payment for the purchase of the commercial
property in Chongqing. TTCQ performed a valuation on a certain
commercial unit and its market value was higher than the carrying
amount. The first three 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 (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 in
properties in China as of December 31, 2016. The exchange rate is
based on the exchange rate as of December 30, 2016, published by
the Monetary Authority of Singapore.
|
|
|
|
Investment Amount
(U.S.
Dollars)
|
|
Purchase
of rental property – Property I - MaoYe
|
Jan
04, 2008
|
5,554
|
894
|
|
Purchase
of rental property – Property II -
JiangHuai
|
Jan
06, 2010
|
3,600
|
580
|
|
Purchase
of rental property – Property III - Fu Li
|
Apr
08, 2010
|
4,025
|
648
|
|
Currency
translation
|
|
-
|
(225)
|
|
Gross
investment in rental property
|
|
13,179
|
1,897
|
|
Accumulated
depreciation on rental property
|
Dec 31, 2016
|
(4,608)
|
(663)
|
|
Net investment in property – China
|
|
8,571
|
1,234
|
The
following table presents the Company’s investment in
properties in China as of June 30, 2016. The exchange rate is based
on the exchange rate as of June 30, 2016, published by the Monetary
Authority of Singapore.
|
|
|
|
Investment
Amount
(U.S.
Dollars)
|
|
Purchase
of rental property – Property I - MaoYe
|
Jan
04, 2008
|
5,554
|
894
|
|
Purchase
of rental property – Property II -
JiangHuai
|
Jan
06, 2010
|
3,600
|
580
|
|
Purchase
of rental property – Property III - Fu Li
|
Apr
08, 2010
|
4,025
|
648
|
|
Currency
translation
|
|
-
|
(139)
|
|
Gross
investment in rental property
|
|
13,179
|
1,983
|
|
Accumulated
depreciation on rental property
|
Jun
30, 2016
|
(4,278)
|
(643)
|
|
Net investment in property – China
|
|
8,901
|
1,340
|
The following table presents the Company’s investment
properties in Malaysia as of December 31, 2016. The exchange rate
is based on the exchange rate as of June 30, 2015, published by the
Monetary Authority of Singapore.
|
|
|
|
Investment
Amount
(U.S.
Dollars)
|
Reclassification of rental property – Penang Property
I
|
Dec 31, 2012
|
681
|
181
|
|
Gross investment in rental property
|
|
681
|
181
|
|
Accumulated depreciation on rental property
|
June 30, 2015
|
(310)
|
(83)
|
Reclassified as “Assets held for sale”
|
June 30, 2015
|
(371)
|
(98)
|
Net investment in property – Malaysia
|
|
-
|
-
|
The following table presents the Company’s investment
properties in Malaysia as of June 30, 2016. The exchange rate is
based on the exchange rate as of June 30, 2015, published by the
Monetary Authority of Singapore.
|
|
|
|
Investment Amount
(U.S.
Dollars)
|
|
Reclassification
of rental property – Penang Property I
|
Dec
31, 2012
|
681
|
181
|
|
Gross
investment in rental property
|
|
681
|
181
|
|
Accumulated
depreciation on rental property
|
June 30, 2015
|
(310)
|
(83)
|
|
Reclassified
as “Assets held for sale”
|
June
30, 2015
|
(371)
|
(98)
|
|
Net investment in property – Malaysia
|
|
-
|
-
|
Rental Property I – 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 rented
this property to a third party on July 13, 2008. The term of the
rental agreement was five years. The rental agreement was renewed
on July 16, 2014 for a further period of five years. The rental
agreement provides for a rent increase of 8% every year after July
15, 2015 through July 15, 2018. However, this rental agreement
(1,104 square meters at a monthly rental of RMB 39, or
approximately $6) was terminated on July 31, 2015. TTCQ identified
a new tenant and signed a new rental agreement (653 square meters
at a monthly rental of RMB 39, or approximately $6) on August 1,
2015. This rental agreement provides for a rent increase of 5%
every year on January 31, commencing with 2017 until the rental
agreement expires on July 31, 2020. TTCQ signed a new rental
agreement (451 square meters at a monthly rental of RMB 27, or
approximately $4) on January 29, 2016. This rental agreement
provides for a rent increase of 5% every year on February 28,
commencing with 2017 until the rental agreement expires on February
28, 2019.
Property purchased from MaoYe generated a rental income of $26 and
$52 for the three and six months ended December 31, 2016,
respectively, and $6 and $28 for the same periods in the last
fiscal year, respectively.
Rental Property II - JiangHuai
In fiscal year 2010, TTCQ purchased eight units of commercial
property in Chongqing, China from Chongqing JiangHuai Real Estate
Development Co. Ltd. (“JiangHuai”) for a total purchase
price of RMB 3,600, or approximately $580. TTCQ rented all of these
commercial units to a third party until the agreement expired in
January 2012. TTCQ then rented three of the eight commercial units
to another party during the fourth quarter of fiscal year 2013
under a rental agreement that expired on March 31, 2014. Currently
all the units are vacant and TTCQ is working with the developer to
find a suitable buyer to purchase all the commercial units. TTCQ
has yet to receive the title deed for these properties; however,
TTCQ has the vacancies in possession with the exception of two
units, which are in the process of clarification. TTCQ is in the
legal process to obtain the title deed, which is dependent on
JiangHuai completing the entire project. In August 2016, TTCQ
performed a valuation on one of the commercial units and its market
value was higher than the carrying amount.
Property purchased from JiangHuai did not generate any rental
income during the three and six months ended December 31, 2016 and
2015.
Other Properties III – Fu Li
In fiscal 2010, TTCQ entered into a Memorandum Agreement with
Chongqing FuLi Real Estate Development Co. Ltd.
(“FuLi”) to purchase two commercial properties totaling
311.99 square meters (“office space”) located in Jiang
Bei District Chongqing. Although TTCQ currently rents its office
premises from a third party, it intends to use the office space as
its office premises. The total purchase price committed and paid
was RMB 4,025, or approximately $648. The development was completed
and the property was handed over during April 2013 and the title
deed was received during the third quarter of fiscal
2014.
The two commercial properties were leased to third parties under
two separate rental agreements, one of which expired in April 2014
and the other of which expired in August 2014.
For the unit for which the agreement expired in April 2014, a new
tenant was identified and a new agreement was executed, which
expires on April 30, 2017. The new agreement carried an increase in
rent of 20% in the first year. Thereafter the rent increases by
approximately 8% for the subsequent years until April
2017.
For the unit for which the agreement expired in August 2014, a new
tenant was identified and a rental agreement was executed, which
agreement was to expire on August 9, 2016. The agreement carried an
increase in rent of approximately 21% in the first year. Thereafter
the rent was to increase by approximately 6% for the subsequent
year. The tenant of this unit defaulted on payment of the quarterly
rental due in August 2015, however the rental deposit is available
to offset the outstanding rent. In early October 2015, TTCQ issued
a legal letter to this tenant on the outstanding amounts, to which
the tenant has not responded. As of the date of this report, the
August 2014 rental agreement (161 square meters at a monthly rental
of RMB 16, and approximately $2) was terminated.
A new rental agreement with a new tenant (161 square meters at a
monthly rental of RMB 14, or approximately $2) was signed on
October 21, 2015. This rental agreement provides for a rent
increase of 6% after the first year, commencing from the year 2016
until the rental agreement expires on October 20, 2017. The tenant
of this unit had defaulted on payment of the monthly rental due for
February 2016, however the rental deposit has been offset and the
balance amount recognized as other income. In March 2016, TTCQ
issued a legal letter to this tenant on the outstanding amounts, to
which the tenant has not responded. A new rental agreement with a
new tenant (161 square meters at a monthly rental of RMB 14, or
approximately $2) was signed commencing from April 1, 2016 until
the rental agreement expires on March 31, 2018.
Properties purchased from Fu Li were rented to a third party
effective fourth quarter of fiscal year 2012 and generated a rental
income of $13 and $26 for the three and six months ended December
31, 2016, respectively, while it generated a rental income of $12
and $22, respectively, for the same periods in the last fiscal
year.
Penang Property I
During
the fourth quarter of 2015, the operations in Malaysia planned to
sell its factory building in Penang, Malaysia. In accordance to ASC
Topic 360, the property was reclassified from investment property,
which had a net book value of RM 371, or approximately $98, to
assets held for sale since there was an intention to sell the
factory building. In May 2015, Trio-Tech (Malaysia) Sdn. Bhd.
(“TTM”) was approached by a potential buyer to purchase
the factory building. On September 14, 2015, application to sell
the property was rejected by Penang Development Corporation
(“PDC”). The rejection was based on the business
activity of the purchaser not being 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 December 31, 2016, the
net book value was RM 369, or approximately $82.
Summary
Total rental income for all investment properties in China was $39
and $78 for the three and six months ended December 31, 2016,
respectively, and was $18 and $50, respectively, for the same
periods in the last fiscal year.
Rental
income from the Penang property was nil for both the three and six
months ended December 31, 2016 and 2015, 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 $24 and $47
for the three and six months ended December 31, 2016, respectively,
and were $26 and $52, respectively, for the same periods in the
last fiscal year.
10. OTHER ASSETS
Other
assets consisted of the following:
|
|
|
|
|
|
|
|
|
Down-payment
for purchase of investment properties
|
$1,645
|
$1,645
|
|
Down-payment
for purchase of property, plant and equipment
|
291
|
113
|
|
Deposits
for rental and utilities
|
139
|
138
|
|
Currency
translation effect
|
(193)
|
(108)
|
|
Total
|
$1,882
|
$1,788
|
11. LINES OF CREDIT
The carrying value of the Company’s lines of credit
approximates its fair value because the interest rates associated
with the lines of credit are adjustable in accordance with market
situations when the Company borrowed funds with similar terms and
remaining maturities.
As of December 31, 2016, the Company had certain lines of credit
that are collateralized by restricted deposits.
|
Entity with
|
Type of
|
Interest
|
|
|
|
|
|
|
|
|
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
Lines of Credit
|
Ranging from 1.6% to 5.5%
|
-
|
$4,626
|
3,495
|
Trio-Tech
(Malaysia) Sdn. Bhd.
|
Lines of Credit
|
Ranging from 6.3% to 6.7%
|
-
|
$702
|
702
|
|
Trio-Tech
(Tianjin) Co., Ltd.
|
Lines
of Credit
|
Ranging
from 4.9% to 6.3%
|
-
|
$720
|
432
|
As of June 30, 2016, the Company had certain lines of credit that
are collateralized by restricted deposits.
|
Entity with
|
Type of
|
Interest
|
|
|
|
|
|
|
|
|
|
|
Trio-Tech
International Pte. Ltd., Singapore
|
Lines of Credit
|
Ranging from 1.6% 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
|
12. ACCRUED EXPENSES
Accrued expenses consisted of the
following:
|
|
|
|
|
|
|
|
|
Payroll
and related costs
|
$1,354
|
$1,311
|
|
Commissions
|
106
|
47
|
|
Customer
deposits
|
166
|
91
|
|
Legal
and audit
|
194
|
297
|
|
Sales
tax
|
92
|
110
|
|
Utilities
|
128
|
115
|
|
Warranty
|
67
|
78
|
|
Accrued
purchase of materials and property, plant and
equipment
|
89
|
50
|
|
Provision
for re-instatement
|
295
|
308
|
|
Other
accrued expenses
|
339
|
331
|
|
Currency
translation effect
|
(149)
|
(96)
|
|
Total
|
$2,681
|
$2,642
|
13. WARRANTY ACCRUAL
The Company provides for the estimated costs that may be incurred
under its warranty program at the time the sale is recorded. The
warranty period of the products manufactured by the Company is
generally one year or the warranty period agreed with the customer.
The Company estimates the warranty costs based on the historical
rates of warranty returns. The Company periodically assesses
the adequacy of its recorded warranty liability and adjusts the
amounts as necessary.
|
|
|
|
|
|
|
|
|
Beginning
|
$76
|
$103
|
|
Additions
charged to cost and expenses
|
16
|
80
|
|
Utilization
/ reversal
|
(25)
|
(105)
|
|
Currency
translation effect
|
(5)
|
(2)
|
|
Ending
|
$62
|
$76
|
14. BANK LOANS PAYABLE
Bank loans payable consisted of the
following:
|
|
|
|
|
|
|
|
|
Note payable denominated in RM to a commercial
bank for expansion plans in Malaysia, maturing in August 2024,
bearing interest at the bank’s prime rate plus 1.50% (5.25%
and 5.45% at December 31, 2016 and June 30, 2016) per annum, with
monthly payments of principal plus interest through August 2024,
collateralized by the acquired building with a carrying value
of $2,577 and 2,898, as at
December 31, 2016 and June 30, 2016,
respectively.
|
1,825
|
2,052
|
|
|
|
|
|
Note
payable denominated in U.S. dollars to a commercial bank for
expansion plans in Singapore and its subsidiaries, maturing in
March 2017, bearing interest at the bank’s lending rate (7.5%
for both December 31, 2016 and June 30, 2016) with monthly payments
of principal plus interest through April 2017. This note payable is
secured by plant and equipment with a carrying value of $259 and
294, as at December 31, 2016 and June 30, 2016,
respectively.
|
61
|
154
|
|
|
|
|
|
Total Bank loans payable
|
1,886
|
2,206
|
|
|
|
|
|
Current
portion of bank loan payable
|
261
|
352
|
|
Currency
translation effect on current portion of bank loan
|
(26)
|
(10)
|
|
Current portion of bank loan payable
|
235
|
342
|
|
Long
term portion of bank loan payable
|
1,625
|
1,854
|
|
Currency
translation effect on long-term portion of bank loan
|
(171)
|
(129)
|
|
Long term portion of bank loans payable
|
$1,454
|
$1,725
|
Future minimum payments (excluding interest) as at December 31,
2016 were as follows:
|
2017
|
$235
|
|
2018
|
189
|
|
2019
|
199
|
|
2020
|
209
|
|
2021
|
221
|
|
Thereafter
|
636
|
|
Total
obligations and commitments
|
$1,689
|
Future minimum payments (excluding interest) as at June 30, 2016
were as follows:
|
2017
|
$342
|
|
2018
|
204
|
|
2019
|
215
|
|
2020
|
226
|
|
2021
|
239
|
|
Thereafter
|
841
|
|
Total
obligations and commitments
|
$2,067
|
15. COMMITMENTS AND CONTINGENCIES
TTM has capital commitments for the purchase of equipment and other
related infrastructure costs amounting to RM 1,697, or
approximately $378, based on the exchange rate as at December 30,
2016 published by the Monetary Authority of Singapore, as compared
to the capital commitment as at June 30, 2016 amounting to RM
1,153, or approximately $287.
Trio-Tech (Tianjin) Co. Ltd. in China has capital commitments for
the purchase of equipment and other related infrastructure costs
amounting to RMB 2,819, or approximately $406, based on the
exchange rate as on December 30, 2016 published by the Monetary
Authority of Singapore, as compared to the capital commitment as at
June 30, 2016 amounting to RMB 597, or approximately
$93.
Deposits with banks in China are not insured by the local
government or agency, and are consequently exposed to risk of loss.
The Company believes the probability of a bank failure, causing
loss to the Company, is remote.
The Company is, from time to time, the subject of litigation claims
and assessments arising out of matters occurring in its normal
business operations. In the opinion of management, resolution of
these matters will not have a material adverse effect on the
Company’s financial statements.
16. BUSINESS
SEGMENTS
In fiscal year 2017, the Company operates in four segments; the
testing service industry (which performs structural and electronic
tests of semiconductor devices), the designing and manufacturing of
equipment (which equipment tests the structural integrity of
integrated circuits and other products), distribution of various
products from other manufacturers in Singapore and Southeast Asia
and the real estate segment in China.
The revenue allocated to individual countries was based on where
the customers were located. The allocation of the cost of
equipment, the current year investment in new equipment and
depreciation expense have been made on the basis of the primary
purpose for which the equipment was acquired.
All inter-segment revenue was from the manufacturing segment to the
testing and distribution segments. Total inter-segment revenue was
$20 and $302 for the three and six months ended December 31, 2016,
respectively, as compared to $29 and $144, respectively, for
the same periods in the last fiscal year. Corporate
assets mainly consisted of cash and prepaid expenses. Corporate
expenses mainly consisted of stock option expenses, salaries,
insurance, professional expenses and directors' fees. Corporate
expenses are allocated to the four segments. The following segment
information table includes segment operating income or loss after
including the corporate expenses allocated to the segments, which
gets eliminated in the consolidation.
The following segment information is unaudited for the six months
ended December 31:
Business Segment Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
$6,991
|
$(322)
|
$8,114
|
$99
|
$78
|
|
|
2015
|
$6,416
|
$371
|
$5,870
|
$107
|
$19
|
|
|
|
|
|
|
|
|
|
|
2016
|
8,227
|
790
|
18,325
|
765
|
686
|
|
|
2015
|
7,484
|
360
|
20,285
|
777
|
295
|
|
|
|
|
|
|
|
|
|
|
2016
|
2,779
|
134
|
651
|
2
|
-
|
|
|
2015
|
2,334
|
70
|
803
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
2016
|
78
|
(6)
|
3,147
|
50
|
-
|
|
|
2015
|
50
|
(70)
|
3,424
|
53
|
-
|
|
|
|
|
|
|
|
|
|
|
2016
|
-
|
-
|
29
|
-
|
-
|
|
|
2015
|
-
|
-
|
28
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
2016
|
-
|
59
|
430
|
-
|
-
|
|
|
2015
|
-
|
(104)
|
80
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
2016
|
$18,075
|
$655
|
$30,696
|
$916
|
$764
|
|
|
2015
|
$16,284
|
$627
|
$30,490
|
$937
|
$314
|
The following segment information is unaudited for the three months
ended December 31:
Business Segment Information:
|
|
Three months
Ended
Dec. 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
2016
|
$3,320
|
$(229)
|
$8,114
|
$49
|
$67
|
|
|
2015
|
$3,276
|
$129
|
$5,870
|
$53
|
$2
|
|
|
|
|
|
|
|
|
|
Testing
Services
|
2016
|
4,070
|
388
|
18,325
|
377
|
336
|
|
|
2015
|
3,701
|
282
|
20,285
|
374
|
58
|
|
|
|
|
|
|
|
|
|
Distribution
|
2016
|
1,675
|
100
|
651
|
1
|
-
|
|
|
2015
|
1,359
|
51
|
803
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
2016
|
39
|
(8)
|
3,147
|
25
|
-
|
|
|
2015
|
18
|
(46)
|
3,424
|
26
|
-
|
|
|
|
|
|
|
|
|
|
Fabrication *
|
2016
|
-
|
-
|
29
|
-
|
-
|
|
Services
|
2015
|
-
|
-
|
28
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Corporate
&
|
2016
|
-
|
27
|
430
|
-
|
-
|
|
Unallocated
|
2015
|
-
|
(88)
|
80
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Total
Company
|
2016
|
$9,104
|
$278
|
$30,696
|
$452
|
$403
|
|
|
2015
|
$8,354
|
$328
|
$30,490
|
$453
|
$60
|
* Fabrication services is
a discontinued operation (Note 19).
17. OTHER INCOME, NET
Other
income / (expenses) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
8
|
4
|
12
|
7
|
|
Other
rental income
|
25
|
24
|
50
|
48
|
|
Exchange
gain / (loss)
|
120
|
(92)
|
182
|
92
|
|
Other
miscellaneous income
|
50
|
82
|
69
|
79
|
|
Total
|
$203
|
$18
|
$313
|
$226
|
18. INCOME TAX
The Company is subject to income taxes in the U.S. and numerous
foreign jurisdictions. Significant judgment is required in
determining the provision for income taxes and income tax assets
and liabilities, including evaluating uncertainties in the
application of accounting principles and complex tax laws. The
statute of limitations, in general, is open for years 2004 to 2016
for tax authorities in those jurisdictions to audit or examine
income tax returns. The Company is under annual review by the
tax authorities of the respective jurisdiction to which the
subsidiaries belong.
The Company had no material adjustments to its liabilities for
unrecognized income tax benefits according to the provisions of ASC
Topic 740 Income Tax.
The Company had an income tax expense
of $67 and $150 for the three and six months ended December 31,
2016, respectively, as compared to income tax expense of $86 and
$153, respectively, for the same periods in the last fiscal year.
The decrease in income tax expenses was mainly due to higher
incomes generated by the subsidiaries which has carry forward tax
losses which was partially offset by increase in deferred tax for
timing differences recorded by Singapore and Malaysia
operation.
The Company recognizes tax benefits from uncertain tax positions
only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities based on the
technical merits of the position. Although the Company believes
that the uncertain tax positions are adequately reserved, no
assurance is provided that the final tax outcome of these matters
may not be materially different. Adjustments are made to these
reserves when facts and circumstances change, such as the closing
of tax audit or the refinement of an estimate. To the extent that
the final tax outcome of these matters is different than the
amounts recorded, such differences may affect the provision for
income taxes in the period in which such determination is made and
could have a material impact on the financial condition and
operating results. The provision for income taxes includes the
effect of any reserves that the Company believes are appropriate,
as well as the related net interest and penalties.
The income tax expenses included withholding tax held by related
companies that were not recoverable from the Inland Revenue Board
in Singapore.
The Company accrues penalties and interest related to unrecognized
tax benefits when necessary as a component of penalties and
interest expenses, respectively. The Company had not accrued any
penalties or interest expenses relating to unrecognized benefits at
December 31, 2016 and June 30, 2016.
19. DISCONTINUED OPERATION AND CORRESPONDING
RESTRUCTURING PLAN
The
Company’s Indonesia operation and the Indonesia
operation’s immediate holding company, which comprise the
fabrication services segment, suffered continued operating losses
from fiscal year 2010 to 2014, and the cash flow was minimal from
fiscal year 2009 to 2014. The Company established a restructuring
plan to close the fabrication services operation, and in accordance
with ASC Topic 205, Presentation of Financial Statement
Discontinued Operations (“ASC Topic 205”), from fiscal
year 2015 onwards, the Company presented the operation results from
fabrication services as a discontinued operation as the Company
believed that no continued cash flow would be generated by the
discontinued component and that the Company would have no
significant continuing involvement in the operations of the
discontinued component.
In
accordance with the restructuring plan, the Company’s
Indonesia operation is negotiating with its suppliers to settle the
outstanding balance of accounts payable of $56 and has no
collection for accounts receivable. The Company’s fabrication
operation in Batam, Indonesia is in the process of winding up the
operations. The Company anticipates that it may incur costs and
expenses when the winding up of the subsidiary in Indonesia takes
place. Management has assessed the costs and expenses to be
immaterial, thus no accrual has been made.
In
January 2010, the Company established a restructuring plan to close
the Testing operation in Shanghai, China. Based on the
restructuring plan and in accordance with ASC Topic 205, the
Company presented the operation results from Shanghai as a
discontinued operation as the Company believed that no continued
cash flow would be generated by the discontinued component
(Shanghai subsidiary) and that the Company would have no
significant continuing involvement in the operations of the
discontinued component. The Shanghai operation has an outstanding
balance of accounts payable of $34 and is collecting the accounts
receivable of $1.
The
discontinued operations in Shanghai and in Indonesia incurred
general and administrative expenses of $1 for both three and six
months ended December 31, 2016, and $2 for both the same periods in
the last fiscal year. The Company
anticipates that it may incur additional costs and expenses when
the winding up of the business of the subsidiary through which the
facilities operated takes place. Management has assessed the costs
and expenses to be immaterial, thus no accrual has been
made.
Income / (loss) from discontinued operations was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$-
|
$-
|
$-
|
$-
|
|
Cost
of sales
|
-
|
-
|
-
|
-
|
|
Gross
margin
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
General
and administrative
|
1
|
2
|
1
|
2
|
|
Total
|
1
|
2
|
1
|
2
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
(1)
|
(2)
|
(1)
|
(2)
|
|
|
|
|
|
|
|
Other
income / (expenses)
|
(3)
|
8
|
(2)
|
(2)
|
|
|
|
|
|
|
|
Income
/ (loss) from discontinued operations
|
$(4)
|
$6
|
$(3)
|
$(4)
|
The Company does not provide a separate cash flow statement for the
discontinued operation, as the impact of the discontinued operation
was immaterial.
20. EARNINGS PER SHARE
The Company adopted ASC Topic 260, Earnings Per Share.
Basic earnings per share
(“EPS”) are computed by dividing net income available
to common shareholders (numerator) by the weighted average number
of common shares outstanding (denominator) during the
period. Diluted EPS give effect to all dilutive
potential common shares outstanding during a period. In,
computing diluted EPS, the average price for the period is used in
determining the number of shares assumed to be purchased from the
exercise of stock options and warrants.
As of December 31, 2016, there were 455,000 stock options
outstanding, of which 125,000 stock options with exercise prices
ranging from $3.62 to $3.81 per share were excluded in the
computation of diluted EPS because they were
anti-dilutive.
As of December 31, 2015, there were 315,000 stock options
outstanding, of which 200,000 stock options with exercise prices
ranging from $3.10 to $3.81 per share were excluded in the
computation of diluted EPS because 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
attributable to Trio-Tech International common shareholders from
continuing operations, net of tax
|
$316
|
$188
|
$619
|
$452
|
|
(Loss)
/ income attributable to Trio-Tech International common
shareholders from discontinued operations, net of tax
|
(6)
|
2
|
(6)
|
(3)
|
|
Net Income Attributable to Trio-Tech International Common
Shareholders
|
$310
|
$190
|
$613
|
$449
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic
|
3,513
|
3,513
|
3,513
|
3,513
|
|
|
|
|
|
|
|
Dilutive
effect of stock options
|
56
|
16
|
39
|
12
|
|
Number
of shares used to compute earnings per share - diluted
|
3,569
|
3,529
|
3,552
|
3,525
|
|
|
|
|
|
|
|
Basic
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.09
|
0.05
|
0.18
|
0.13
|
|
Basic earnings
per share from discontinued operations attributable to Trio-Tech
International
|
-
|
-
|
-
|
-
|
|
Basic earnings per share from net income attributable to Trio-Tech
International
|
$0.09
|
$0.05
|
$0.18
|
$0.13
|
|
|
|
|
|
|
|
Diluted
earnings per share from continuing operations attributable to
Trio-Tech International
|
$0.09
|
0.05
|
0.17
|
0.13
|
|
Diluted
earnings per share from discontinued operations attributable to
Trio-Tech International
|
-
|
-
|
-
|
-
|
|
Diluted earnings per share from net income attributable to
Trio-Tech International
|
$0.09
|
$0.05
|
$0.17
|
$0.13
|
21. STOCK OPTIONS
On
September 24, 2007, the Company’s Board of Directors
unanimously adopted the 2007 Employee Stock Option Plan (the
“2007 Employee Plan”) and the 2007 Directors Equity
Incentive Plan (the “2007 Directors Plan”) each of
which was approved by the shareholders on December 3, 2007. Each of
those plans was amended by the Board in 2010 to increase the number
of shares covered thereby, which amendments were approved by the
shareholders on December 14, 2010. At present, the 2007 Employee
Plan provides for awards of up to 600,000 shares of the
Company’s Common Stock to its employees, consultants and
advisors. The Board also amended the 2007 Directors Plan in
November 2013 to further increase the number of shares covered
thereby from 400,000 shares to 500,000 shares, which amendment was
approved by the shareholders on December 9, 2013. At present, the
2007 Directors Plan provides for awards of up to 500,000 shares of
the Company’s Common Stock to the members of the
Company’s Board of Directors in the form of non-qualified
options and restricted stock. These two plans are administered by
the Board, which also establishes the terms of the
awards.
Assumptions
The
fair value for the options granted were estimated using the
Black-Scholes option pricing model with the following weighted
average assumptions, assuming no expected dividends:
|
|
Six
Months Ended
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Expected
volatility
|
62.05%
to 104.94%
|
|
62.05%
to 104.94%
|
|
Risk-free
interest rate
|
0.30%
to 0.78%
|
|
0.30%
to 0.78%
|
|
Expected
life (years)
|
2.50
|
|
2.50
|
The
expected volatilities are based on the historical volatility of the
Company’s stock. Due to higher volatility, the observation is
made on a daily basis. The observation period covered is consistent
with the expected life of options. The expected life of the options
granted to employees has been determined utilizing the
“simplified” method as prescribed by ASC Topic 718
Stock Based Compensation,
which, among other provisions, allows companies without access to
adequate historical data about employee exercise behavior to use a
simplified approach for estimating the expected life of a "plain
vanilla" option grant. The simplified rule for estimating the
expected life of such an option is the average of the time to
vesting and the full term of the option. The risk-free rate is
consistent with the expected life of the stock options and is based
on the United States Treasury yield curve in effect at the time of
grant.
2007 Employee Stock Option Plan
The
Company’s 2007 Employee Plan permits the grant of stock
options to its employees covering up to an aggregate of 600,000
shares of Common Stock. Under the 2007 Employee Plan, all options
must be granted with an exercise price of not less than fair value
as of the grant date and the options granted must be exercisable
within a maximum of ten years after the date of grant, or such
lesser period of time as is set forth in the stock option
agreements. The options may be exercisable (a) immediately as of
the effective date of the stock option agreement granting the
option, or (b) in accordance with a schedule related to the date of
the grant of the option, the date of first employment, or such
other date as may be set by the Compensation Committee. Generally,
options granted under the 2007 Employee Plan are exercisable within
five years after the date of grant, and vest over the period as
follows: 25% vesting on the grant date and the remaining balance
vesting in equal installments on the next three succeeding
anniversaries of the grant date. The share-based compensation will
be recognized in terms of the grade method on a straight-line basis
for each separately vesting portion of the award. Certain option
awards provide for accelerated vesting if there is a change in
control (as defined in the 2007 Employee Plan).
The
Company did not grant any options pursuant to the 2007 Employee
Plan during the six months ended December 31, 2016. There were no
options exercised during the six months ended December 31, 2016.
The Company recognized stock-based compensation expenses of $1 in
the six months ended December 31, 2016 under the 2007 Employee
Plan. The balance unamortized stock-based compensation of $3 based
on fair value on the grant date related to options granted under
the 2007 Employee Plan is to be recognized over a period of three
years. The weighted-average remaining contractual term for
non-vested options was 4.22 years.
The
Company did not grant any options pursuant to the 2007 Employee
Plan during the six months ended December 31, 2015, The Company
recognized stock-based compensation expenses of $4 in the six
months ended December 31, 2015 under the 2007 Employee Plan. There
was no balance of unamortized stock-based compensation based on
fair value on the grant date related to options granted under the
2007. No stock options were exercised during the six months ended
December 31, 2015. The weighted-average remaining contractual term
for non-vested options was 0.94 years.
As of
December 31, 2016, there were vested employee stock options
covering a total of 60,000 shares of Common Stock. The
weighted-average exercise price was $3.26 and the weighted average
contractual term was 2.26 years. The total fair value of vested
employee stock options was $195 and remains outstanding as of
December 31, 2016.
As of
December 31, 2015, there were vested employee stock options
covering a total of 41,250 shares of Common Stock. The
weighted-average exercise price was $3.29 and the weighted average
contractual term was 2.86 years. The total fair value of vested
employee stock options was $136 and remains outstanding as of
December 31, 2015.
A
summary of option activities under the 2007 Employee Plan during
the six-month period ended December 31, 2016 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
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
-
|
-
|
-
|
-
|
|
Outstanding at December 31,
2016
|
90,000
|
$3.26
|
2.91
|
$10
|
|
Exercisable at December 31,
2016
|
60,000
|
$3.26
|
2.26
|
$8
|
A
summary of option activities under the 2007 Employee Plan during
the six-month period ended December 31, 2015 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
|
$-
|
|
Granted
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
(80,000)
|
4.35
|
-
|
-
|
|
Outstanding at December 31,
2015
|
50,000
|
$3.26
|
2.87
|
$-
|
|
Exercisable at December 31,
2015
|
41,250
|
$3.29
|
2.86
|
$-
|
A
summary of the status of the Company’s non-vested employee
stock options during the six months ended December 31, 2016 is
presented below:
|
|
|
Weighted
Average
Grant-Date
Fair
Value
|
|
|
|
|
|
Non-vested
at July 1, 2016
|
38,750
|
$3.22
|
|
Granted
|
-
|
-
|
|
Vested
|
(8,750)
|
3.10
|
|
Forfeited
|
-
|
-
|
|
Non-vested at December 31,
2016
|
30,000
|
$3.26
|
A
summary of the status of the Company’s non-vested employee
stock options during the six months ended December 31, 2015 is
presented below:
|
|
|
|
|
|
|
|
|
Non-vested
at July 1, 2015
|
17,500
|
$1.69
|
|
Granted
|
-
|
-
|
|
Vested
|
(8,750)
|
(1.69)
|
|
Forfeited
|
-
|
-
|
|
Non-vested at December 31,
2015
|
8,750
|
$1.69
|
2007 Directors Equity Incentive Plan
The
2007 Directors Plan permits the grant of options covering up to an
aggregate of 500,000 shares of Common Stock to its directors in the
form of non-qualified options and restricted stock. The exercise
price of the non-qualified options is 100% of the fair value of the
underlying shares on the grant date. The options have five-year
contractual terms and are generally exercisable immediately as of
the grant date.
During the first two quarters of fiscal year 2017, the Company did
not grant any options pursuant to the 2007 Directors Plan. There
were no stock options exercised during the six-month period ended
December 31, 2016. The Company did not recognize any stock-based
compensation expenses during the six months ended December 31,
2016.
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 December, 31,
2016. No stock options were exercised during the six months ended
December 31, 2015.
A
summary of option activities under the 2007 Directors Plan during
the six months ended December 31, 2016 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
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
(50,000)
|
2.30
|
-
|
-
|
|
Outstanding at December 31,
2016
|
365,000
|
$3.25
|
3.18
|
$68
|
|
Exercisable at December 31,
2016
|
365,000
|
$3.25
|
3.18
|
$68
|
A
summary of option activities under the 2007 Directors Plan during
the six months ended December 31, 2015 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
|
50,000
|
2.69
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
or expired
|
(150,000)
|
4.35
|
-
|
-
|
|
Outstanding at December 31,
2015
|
265,000
|
$3.07
|
2.98
|
$40
|
|
Exercisable at December 31,
2015
|
265,000
|
$3.07
|
2.98
|
$40
|
22. FAIR
VALUE OF FINANCIAL INSTRUMENTS APPROXIMATE CARRYING
VALUE
In accordance with the ASC Topic 825, the following presents assets
and liabilities measured and carried at fair value and classified
by level of the following fair value measurement hierarchy in
accordance to ASC 820:
There were no transfers between Levels 1 and 2 during the three and
six months ended December 31, 2016 and 2015.
Term deposits (Level 2) – The carrying amount approximates
fair value because of the short maturity of these
instruments.
Restricted term deposits (Level 2) – The carrying amount
approximates fair value because of the short maturity of these
instruments.
Lines of credit (Level 3) – The carrying value of the lines
of credit approximates fair value due to the short-term nature of
the obligations.
Bank loans payable (Level 3) – The carrying value of the
Company’s bank loan payables approximates its fair value as
the interest rates associated with long-term debt is adjustable in
accordance with market situations when the Company borrowed funds
with similar terms and remaining maturities.
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN
THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Overview
The following should be read in conjunction with the condensed
consolidated unaudited financial statements and notes in Item I
above and with the audited consolidated financial statements and
notes, and the information under the headings “Risk
Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in
our Annual Report on Form 10-K for the fiscal year ended June 30,
2016.
Trio-Tech
International (“TTI”) was incorporated in 1958 under
the laws of the State of California. As used herein, the term
“Trio-Tech” or “Company” or
“we” or “us” or “Registrant”
includes Trio-Tech International and its subsidiaries unless the
context otherwise indicates. Our mailing address and executive
offices are located at 16139 Wyandotte Street, Van Nuys, California
91406, and our telephone number is (818) 787-7000.
The
Company is a provider of reliability test equipment and services to
the semiconductor industry. Our customers rely on us to verify that
their semiconductor components meet or exceed the rigorous
reliability standards demanded for aerospace, communications and
other electronics products.
TTI generated approximately 99.6% of its revenue from its three
core business segments in the test and measurement industry, i.e.
manufacturing of test equipment, testing services and distribution
of test equipment during the three months ended December 31, 2016.
To reduce our risks associated with sole industry focus and
customer concentration, the Company expanded its business into the
real estate investment and oil and gas equipment fabrication
businesses in 2007 and 2009, respectively. The Company’s
Indonesia operation and the Indonesia operation’s immediate
holding company, which comprised the fabrication services segment,
suffered continued operating losses since it commenced its
operations, and the cash flow was minimal in the past years. The
Company established a restructuring plan to close the fabrication
services operation, and in accordance with ASC Topic 205,
Presentation of Financial Statement Discontinued Operations
(“ASC Topic 205”), the Company presented the operation
results from fabrication services as a discontinued operation. The
Real Estate segment contributed only 0.4% to the total revenue and
has been insignificant since the property market in China has
slowed down due to control measures in China.
Manufacturing
TTI
develops and manufactures an extensive range of test equipment used
in the "front end" and the "back end" manufacturing processes of
semiconductors. Our equipment includes leak detectors, autoclaves,
centrifuges, burn-in systems and boards, HAST testers, temperature
controlled chucks, wet benches and more.
Testing
TTI
provides comprehensive electrical, environmental, and burn-in
testing services to semiconductor manufacturers in our testing
laboratories in Southeast Asia and the United States (U.S.). Our
customers include both manufacturers and end-users of semiconductor
and electronic components, who look to us when they do not want to
establish their own facilities. The independent tests are performed
to industry and customer specific standards.
Distribution
In addition to marketing our proprietary products, we distribute
complementary products made by manufacturers mainly from the U.S.,
Europe, Taiwan and Japan. The products include environmental
chambers, handlers, interface systems, vibration systems, shaker
systems, solderability testers and other semiconductor equipment.
Besides equipment, we also distribute a wide range of components
such as connectors, sockets, LCD display panels and touch-screen
panels. Furthermore, our range of products are mainly targeted for
industrial products rather than consumer products whereby the life
cycle of the industrial products can last from 3 years to 7
years.
Real Estate
Beginning in 2007, TTI has invested in real estate property in
Chongqing, China, which has generated investment income from the
rental revenue from real estate we purchased in Chongqing, China,
and investment returns from deemed loan receivables, which are
classified as other income. The rental income is generated from the
rental properties in MaoYe and FuLi in Chongqing, China. In the
second quarter of fiscal 2015, the investment in JiaSheng, which
was deemed as loans receivable, was transferred to down payment for
purchase of investment property in China.
Second Quarter Fiscal 2017 Highlights
●
Total
revenue increased by $750, or 9.0%, to $9,104 for the second
quarter of fiscal 2017, as compared to $8,354 for the same period
in fiscal 2016.
●
Manufacturing
segment revenue increased by $44, or 1.3%, to $3,320 for the second
quarter of fiscal 2017, as compared to $3,276 for the same period
in fiscal 2016.
●
Testing
segment revenue increased by $369, or 10.0%, to $4,070 for the
second quarter of fiscal 2017, as compared to $3,701 for the same
period in fiscal 2016.
●
Distribution
segment revenue increased by $316, or 23.3%, to $1,675 for the
second quarter of fiscal 2017, as compared to $1,359 for the same
period in fiscal 2016.
●
Real
estate segment revenue increased by $21, or 116.7%, to $39 for the
second quarter of fiscal 2017, as compared to $18 for the same
period in fiscal 2016.
●
Gross
profit margin in absolute dollars increased by $179, or 8.5%, to
$2,294 for the second quarter of fiscal 2017, as compared to $2,115
for the same period in fiscal 2016.
●
The
overall gross profit margin decreased by 0.1% to 25.2% for the
second quarter of fiscal 2017, from 25.3% for the same period in
fiscal 2016.
●
Income
from operations for the second quarter of fiscal 2017 was $278, a
decrease of $50 or 15.2%, as compared to $328 for the same period
in fiscal 2016.
●
General
and administrative expenses increased by $177, or 11.1%, to $1,776
for the second quarter of fiscal year 2017, from $1,599 for the
same period in fiscal year 2016.
●
Selling
expenses increased by $39, or 27.7%, to $180 for the second quarter
of fiscal year 2017, from $141 for the same period in fiscal year
2016.
●
Other
income increased by $185 to $203 in the second quarter of fiscal
year 2017 compared to $18 in the same period in fiscal year
2016.
●
Tax
expense for the second quarter of fiscal year 2017 was $67, a
decrease of $19, as compared to $86 in the same period in fiscal
year 2016.
●
During
the second quarter of fiscal year 2017, income from continuing
operations before non-controlling interest, net of tax was $366, an
increase of $157, as compared to $209 for the same period in fiscal
year 2016.
●
Net
income attributable to non-controlling interest for the second
quarter of fiscal year 2017 was $52, as compared to $25 in the same
period in fiscal year 2016.
●
Working
capital increased by $41, or 0.6%, to $6,520 as of December 31,
2016, compared to $6,479 as of June 30, 2016.
●
Earnings
per share for the three months ended December 31, 2016 was $0.09,
an increase of $0.04, as compared to $0.05 for the same period in
fiscal year 2016.
●
Total
assets decreased by $1,523 or 4.7% to $30,696 as of December 31,
2016, compared to $32,219 as of June 30, 2016,
●
Total
liabilities decreased by $739 or 6.5% to $10,609 as of December 31,
2016, compared to $11,348 as of June 30, 2016.
Results of Operations and Business Outlook
The following table sets forth our revenue components for the three
and six months ended December 31, 2016 and 2015,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
36.5%
|
39.2%
|
38.7%
|
39.4%
|
|
Testing
Services
|
44.7
|
44.3
|
45.5
|
46.0
|
|
Distribution
|
18.4
|
16.3
|
15.4
|
14.3
|
|
Real
Estate
|
0.4
|
0.2
|
0.4
|
0.3
|
|
|
|
|
|
|
|
Total
|
100.0%
|
100.0%
|
100.0%
|
100.0%
|
Revenue for the three months and six months ended December 31, 2016
was $9,104 and $18,075, respectively, an increase of $750 and
$1,791, respectively, when compared to the revenue for the same
periods of the prior fiscal year. As a percentage, revenue
increased by 9.0% and 11.0% for the three and six months ended
December 31, 2016, respectively, when compared to total revenue for
the same periods of the prior year.
For the three months ended December 31, 2016, the $750 increase in
overall revenue was primarily due to
●
an
increase in the manufacturing segment in the Singapore and Suzhou,
China, operations,
●
an
increase in the testing segment in the Singapore, Malaysia and
Bangkok, Thailand operations,
●
an
increase in the distribution segment in the Singapore, Malaysia and
Suzhou, China, operations and
●
an
increase in the real estate segment in China.
These increases were partially offset by the
●
decrease
in revenue in the manufacturing segment in the U.S. operations
and
●
decrease
in the testing segment in China operations.
For the six months ended December 31, 2016, the $1,791 increase in
overall revenue was primarily due to
●
an
increase in the manufacturing segment in Singapore
operations,
●
an
increase in the testing segment in the Singapore, Malaysia and
Bangkok, Thailand operations,
●
an
increase in the distribution segment in the Singapore and Suzhou,
China operations and
●
an
increase in the real estate segment in China.
These increases were partially offset by the
●
decrease
in revenue in the manufacturing segment in the U.S. operations
and
●
decrease
in the testing segment in China operations.
Revenue into and within China, the Southeast Asia regions and other
countries (except revenue into and within the U.S.) increased by
$968 (or 12.2%) to $8,906, and by $1,856 (or 12.0%) to $17,332 for
the three months and six months ended December 31, 2016,
respectively, as compared with $7,938 and $15,476, respectively,
for the same periods of last fiscal year.
Revenue into and within the U.S. was $198 and $743 for the three
months and six months ended December 31, 2016, respectively, a
decrease of $218 and $65, respectively, from $416 and $808 for the
same periods of last fiscal year, respectively.
Revenue for the three and six months ended December 31, 2016 is
discussed within the four segments as follows:
Manufacturing Segment
Revenue in the manufacturing segment as a percentage of total
revenue was 36.5% and 38.7% for the three and six months ended
December 31, 2016, respectively, a decrease of 2.7% and 0.7% of
total revenue, respectively, when compared to the same periods of
the last fiscal year. The absolute amount of revenue
increased by $44 to $3,320 from $3,276 and increased by $575 to
$6,991 from $6,416 for the three and six months ended December 31,
2016, respectively, compared to the same periods of the last fiscal
year.
Revenue in the manufacturing segment for the three and six month
periods ended December 31, 2016 increased primarily due to an
increase in the manufacturing revenue from customers in our
Singapore and Suzhou, China operations, which was partially offset
by a decrease in revenue in our U.S operations. The decrease in U.S
operations was caused by a delay in orders by a
customer.
The revenue in the manufacturing segment from a major customer
accounted for 55.7% and 38.3% of our total revenue in the
manufacturing segment for the three months ended December 31, 2016
and 2015, respectively, and 57.0% and 42.0% of our total revenue in
the manufacturing segment for the six months ended December 31,
2016 and 2015, respectively.
The future revenue in our manufacturing segment will be
significantly affected by the purchase and capital expenditure
plans of this major customer, if the customer base cannot be
increased.
Testing Services Segment
Revenue in the testing segment as a percentage of total revenue was
44.7% and 45.5% for the three and six months ended December 31,
2016, an increase of 0.4% and a decrease of 0.5%, respectively, of
total revenue when compared to the same periods of the last fiscal
year. The absolute amount of revenue increased by $369
to $4,070 from $3,701 and by $743 to $8,227 from $7,484 for the
three and six months ended December 31, 2016, respectively,
compared to the same periods of the last fiscal
year.
Revenue in the testing segment for the three and six-month period
ended December 31, 2016 increased primarily due to an increase in
testing volume as a result of an increase in orders from customers
in our Singapore, Malaysia and Bangkok, Thailand operations. The
increase was partially offset by a decrease in testing revenue in
our China operations due to a decrease in the average selling price
and a decrease in volume.
Demand for testing services varies from country to country
depending on changes taking place in the market and our
customers’ forecasts. As it is difficult to
accurately forecast fluctuations in the market, management believes
it is necessary to maintain testing facilities in close proximity
to our customers in order to make it convenient for them to send us
their newly manufactured parts for testing and to enable us to
maintain a share of the market.
Distribution Segment
Revenue in the distribution segment as a percentage of total
revenue was 18.4% and 15.4% for the three and six months ended
December 31, 2016, an increase of 2.1% and 1.1%, respectively,
when compared to the same periods of the prior fiscal
year. The absolute amount of revenue increased by $316
to $1,675 from $1,359, and increased by $445 to $2,779 from $2,334
for the three and six months ended December 31, 2016, respectively,
compared to the same periods of the last fiscal
year.
Revenue in the distribution segment for the three and six month
periods ended December 31, 2016 increased primarily due to an
increase in demand for products in the Singapore, Malaysia and
China operations.
Demand in the distribution segment varies depending on the demand
for our customers’ products and the changes taking place in
the market and our customers’ forecasts. Hence it
is difficult to accurately forecast fluctuations in the
market.
Real Estate Segment
The real estate segment accounted for 0.4% of total net revenue for
both the three and six months ended December 31, 2016. The absolute
amount of revenue in the real estate segment increased by $21 to
$39 from $18 and by $28 to $78 from $50 for the three and six
months ended December 31, 2016, respectively, compared to the same
periods of the last fiscal year. The increase was primarily
due to an increase in rental income in the real estate segment
for the three and six months ended December 31, 2016 as described
below.
The two main revenue components for the real estate segment were
investment income and rental income.
During
fiscal year 2007, TTI invested in real estate property in
Chongqing, China, which has generated 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 $1,897 and $1,983 as at December 31, 2016 and June
30, 2016, respectively. The carrying value of these investment
properties in China was RMB 8,571 and RMB 8,901, or approximately
$1,234 and $1,340 as at December 31, 2016 and June 30, 2016,
respectively. For the three and six
months ended December 31, 2016, these properties generated a
total rental income of $39 and $78, respectively, as compared to
$18 and $50, respectively, for the same periods of the last fiscal
year. TTCQ’s investment in properties that generated rental
income is discussed further in this Form 10-Q.
TTCQ
has yet to receive the title deed for properties purchased from
JiangHuai. TTCQ is in the legal process of obtaining the title
deed, which is dependent on JiangHuai completing the entire
project. JiangHuai property did not generate any income during the
three and six months ended December 31, 2016, and
2015.
“Investments”
in the real estate segment were the cost of an investment in a
joint venture in which we had a 10% interest. During the second
quarter of fiscal year 2014, TTCQ disposed of its 10% interest in
the joint venture. The joint venture had to raise funds for the
development of the project. As a joint-venture partner, TTCQ was
required to stand guarantee for the funds to be borrowed;
considering the amount of borrowing, the risk involved was higher
than the investment made and hence TTCQ decided to dispose of the
10% interest in the joint venture investment. On October 2, 2013,
TTCQ entered into a share transfer agreement with Zhu Shu. Based on
the agreement, the purchase price was to be paid by (1) RMB 10,000
worth of commercial property in Chongqing China, or approximately
$1,634 based on exchange rates published by the Monetary Authority
of Singapore as of October 2, 2013, by non-monetary consideration
and (2) the remaining RMB 8,000, or approximately $1,307 based on
exchange rates published by the Monetary Authority of Singapore as
of October 2, 2013, by cash consideration. The consideration
consisted of (1) commercial units measuring 668 square meters to be
delivered in June 2016 and (2) sixteen quarterly equal installments
of RMB500 per quarter commencing from January 2014. Based on ASC
Topic 845 Non-monetary Consideration, the Company deferred the
recognition of the gain on disposal of the 10% interest in joint
venture investment until such time that the consideration is paid,
so that the gain can be ascertained. The recorded value of the
disposed investment amounting to $783, based on exchange rates
published by the Monetary Authority of Singapore as of June 30,
2014, is classified as “other assets” under non-current
assets, because it is considered a down payment for the purchase of
the commercial property in Chongqing. TTCQ performed a valuation on
a certain commercial unit and its market value was higher than the
carrying amount. The first three installment amounts of RMB 500
each due in January 2014, April 2014 and July 2014. were all
outstanding until the date of disposal of the investment in the
joint venture. Out of the outstanding RMB 8,000, TTCQ had received
RMB 100 during May 2014.
On
October 14, 2014, TTCQ and Jun Zhou Zhi Ye entered into a
memorandum of understanding. Based on the memorandum of
understanding, both parties have agreed to register a sales and
purchase agreement upon Jun Zhou Zhi Ye obtaining the license to
sell the commercial property (the Singapore Themed Resort Project)
located in Chongqing, China. The proposed agreement is for the sale
of shop lots with a total area of 1,484.55 square meters as
consideration for the outstanding amounts owed to TTCQ by Jun Zhou
Zhi Ye as follows:
a) Long
term loan receivable RMB 5,000, or approximately $814, as disclosed
in Note 5, plus the interest receivable on long term loan
receivable of RMB 1,250;
b)
Commercial units measuring 668 square meters, as mentioned above;
and
c) RMB
5,900 for the part of the unrecognized cash consideration of RMB
8,000 relating to the disposal of the joint venture.
The consideration does not include the remaining outstanding amount
of RMB 2,000, or approximately $326, which will be paid to TTCQ in
cash.
The shop lots are to be delivered to TTCQ upon completion of the
construction of the shop lots in the Singapore Themed Resort
Project. The initial targeted date of completion was December 31,
2016. Based on discussions with the developers, the completion date
is estimated to be December 31, 2018.
The share transfer (10% interest in the joint venture) was
registered with the relevant authorities in China during October
2016.
Uncertainties and Remedies
There are several influencing factors which create uncertainties
when forecasting performance, such as the constantly changing
nature of technology, specific requirements from the customer,
decline in demand for certain types of burn-in devices or
equipment, decline in demand for testing services and fabrication
services, and other similar factors. One factor that
influences uncertainty is the highly competitive nature of the
semiconductor industry. Another is that some customers are unable
to provide a forecast of the products required in the upcoming
weeks; hence it is difficult to plan for the resources needed to
meet these customers’ requirements due to short lead time and
last minute order confirmation. This will normally result in a
lower margin for these products, as it is more expensive to
purchase materials in a short time frame. However, the
Company has taken certain actions and formulated certain plans to
deal with and to help mitigate these unpredictable
factors. For example, in order to meet manufacturing
customers’ demands upon short notice, the Company maintains
higher inventories, but continues to work closely with its
customers to avoid stock piling. We have also been improving
customer service from staff by keeping our staff up to date on the
newest technology and stressing the importance of understanding and
meeting the stringent requirements of our
customers. Finally, the Company is exploring new markets
and products, looking for new customers, and upgrading and
improving burn-in technology while at the same time searching for
improved testing methods of higher technology chips.
We are in the process of implementing an Enterprises Resources
Planning (“ERP”) system, as part of multi-year plan to
integrate and upgrade our systems and processes. The implementation
of this ERP system is scheduled to occur in phases over the next
few years, and began with the migration of certain of our
operational and financial systems in our Singapore operations to
the new ERP system during the second quarter of fiscal 2017. This
implementation effort will continue in the third and fourth
quarters of fiscal 2017, when the operational and financial systems
in Singapore will be substantially transitioned to the new system.
Implementation of a new ERP system involves risks and
uncertainties. Any disruptions, delays or deficiencies in the
design or implementation of the new system could result in
increased costs and adversely affect our ability to timely report
our financial results, which could negatively impact our business
and results of operations.
The Company’s primary exposure to movements in foreign
currency exchange rates relates to non-U.S. dollar-denominated
sales and operating expenses in its subsidiaries. Strengthening of
the U.S. dollar relative to foreign currencies adversely affects
the U.S. dollar value of the Company’s foreign
currency-denominated sales and earnings, and generally leads the
Company to raise international pricing, potentially reducing demand
for the Company’s products. Margins on sales of the
Company’s products in foreign countries and on sales of
products that include components obtained from foreign suppliers
could be materially adversely affected by foreign currency exchange
rate fluctuations. In some circumstances, for competitive or other
reasons, the Company may decide not to raise local prices to fully
offset the dollar’s strengthening, or at all, which would
adversely affect the U.S. dollar value of the Company’s
foreign currency-denominated sales and earnings. Conversely, a
strengthening of foreign currencies relative to the U.S. dollar,
while generally beneficial to the Company’s foreign currency
denominated sales and earnings could cause the Company to reduce
international pricing, thereby limiting the benefit. Additionally,
strengthening of foreign currencies may also increase the
Company’s cost of product components denominated in those
currencies, thus adversely affecting gross margins.
There are several influencing factors which create uncertainties
when forecasting performance of our real estate segment, such as
obtaining the rights by the joint venture to develop the real
estate projects in China, inflation in China, currency fluctuations
and devaluation, and changes in Chinese laws, regulations, or their
interpretation.
Comparison of the Three Months Ended December 31, 2016 and December
31, 2015
The following table sets forth certain consolidated statements of
income data as a percentage of revenue for the three months ended
December 31, 2016 and 2015, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
100.0%
|
100.0%
|
|
Cost
of sales
|
74.8
|
74.7
|
|
Gross Margin
|
25.2%
|
25.3%
|
|
Operating
expenses
|
|
|
|
General
and administrative
|
19.5%
|
19.1%
|
|
Selling
|
2.0
|
1.7
|
|
Research
and development
|
0.6
|
0.6
|
|
Loss
on disposal of property, plant and equipment
|
0.1
|
-
|
|
Total
operating expenses
|
22.2%
|
21.4%
|
|
Income from Operations
|
3.0%
|
3.9%
|
Overall Gross Margin
Overall gross margin as a percentage of revenue was approximately
constant, at 25.2% and 25.3% for the three months ended December
31, 2016 and 2015, respectively. Decrease in the gross profit
margin in the manufacturing segment was offset by an increase in
gross profit margin in the testing segment, distribution segment
and real estate segment. In terms of absolute dollar amounts, gross
profits increased by $179 to $2,294 for the three months ended
December 31, 2016, from $2,115 as compared to the same period of
the last fiscal year.
Gross profit margin as a percentage of revenue in the manufacturing
segment decreased by 3.6% to 21.0% for the three months ended
December 31, 2016, from 24.6% in the same period of the last fiscal
year. The decrease in gross margin was due to the change in product
mix in the Singapore and Suzhou, China operations, where there was
an increase in sales of products that had lower profit margins and
a decrease in sales of products that had higher profit margins as
compared to the same period of last fiscal year. In our U.S.
operations, a delay in sales due to external factors also
contributed to a decrease in the gross margin. As a result, the
increase in cost was higher than the increase in manufacturing
revenue for the three months ended December 31, 2016, as compared
to the same period last fiscal year. In absolute dollar amounts,
gross profits in the manufacturing segment decreased by $107 to
$698 for the three months ended December 31, 2016 from $805 for the
same period of last fiscal year.
Gross profit margin as a percentage of revenue in the testing
segment increased by 2.2% to 34.7% for the three months ended
December 31, 2016, from 32.5% in the same period of the last fiscal
year. The increase was primarily due to an increase in
testing volume in the Singapore, Malaysia and Bangkok, Thailand
operations, which was partially offset by the decrease in gross
profit margin in the Tianjin, China operations due to a lower
selling price. Significant portions of our cost of goods
sold are fixed in the testing segment. Thus, as the
demand of services and factory utilization increase, the fixed
costs are spread over the increased output, which increases the
gross profit margin. Overall, the testing operations increased
their capacity utilization. In absolute dollar amounts, gross
profit in the testing segment increased by $210 to $1,412 for the
three months ended December 31, 2016 from $1,202 for the
same period of the last fiscal
year.
Gross profit margin of the distribution segment is not only
affected by the market price of our products, but also by our
product mix, which changes frequently as a result of changes in
market demand. Gross profit margin as a percentage of revenue in
the distribution segment increased by 1.6% to 10.4% for the three
months ended December 31, 2016, from 8.8% in the same period of the
last fiscal year. The increase in gross margin as a percentage
of revenue was due to the change in product mix in the distribution
segment, as the Singapore, Malaysia and Suzhou, China had an
increase in sales of products that had higher profit margin and a
decline in sales of products that had lower profit margin, as
compared to the same period of last fiscal year. In terms of
absolute dollar amounts, gross profit in the distribution segment
for the three months ended December 31, 2016 was $174, an increase
of $55 as compared to $119 in the same period of last fiscal
year.
Gross profit margin as a percentage of revenue in the real estate
segment was 25.6% for the three months ended December 31, 2016, as
compared to a gross loss margin of 61.1% in the same period of the
last fiscal year. In absolute dollar amounts, gross profit in the
real estate segment for the three months ended December 31, 2016
was $10, an improvement of $21 from a gross loss of $11 in the
same period of last fiscal year. The improvement was
primarily due to an increase in rental income from both investment
properties, MaoYe and FuLi, due to an increase in space rented out,
as compared to the same period in the last fiscal
year.
Operating Expenses
Operating expenses for the three months ended December 31, 2016 and
2015 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
General
and administrative
|
$1,776
|
$1,599
|
|
Selling
|
180
|
141
|
|
Research
and development
|
52
|
51
|
|
Loss
/ (gain) on disposal of property, plant and equipment
|
8
|
(4)
|
|
Total
|
$2,016
|
$1,787
|
General and administrative expenses increased by $177, or 11.1%,
from $1,599 to $1,776 for the three months ended December 31, 2016
compared to the same period of last fiscal year. The increase in
the general and administrative expenses was mainly attributable to
the increase in expenses in the Singapore and Malaysia operations,
which was partially offset by the decrease in the Tianjin, Suzhou
and Chongqing, China operations.
The increase in general and administrative expenses was primarily
due to the increase in payroll related and bonus expenses in the
Singapore and Malaysia operations, as well as an increase in
software licensing expense in the Singapore operations. This
increase was partially offset by a decrease in legal and
professional feels in the Chongqing, China operations, a decrease
in headcount and payroll related expense in the Suzhou and Tianjin,
China operations as part of cost cutting measures and a decrease in
stock option expenses for the three months ended December 31, 2016
as compared to the same period of last fiscal year.
Selling expenses increased by $39, or 27.7%, for the three months
ended December 31, 2016, from $141 to $180, as compared to the same
period of the last fiscal year. The increase was mainly due to an
increase in entertainment expense and commission expenses in
the Singapore operations as the commissionable revenue increased,
and an increase in travel expenses in the Singapore and Malaysia
operations as compared to the same period last fiscal
year.
Income from Operations
Income from operations was $278 for the three months ended December
31, 2016, as compared to $328 for the same period of last fiscal
year. The decrease was mainly due to the increase in operating
expenses, which was partially offset with the increase in gross
margin, as previously discussed.
Interest Expense
Interest expense for the second quarter of fiscal years 2016 and
2015 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Interest expense
|
$(48)
|
$(51)
|
Interest expense decreased by $3 to $48 from $51 for the three
months ended December 31, 2016. Lines of credit utilized were
$1,419 as at December 31, 2016 as compared to $1,472 as at December
31, 2015. We are trying to keep our debt at a minimum in order to
save financing costs. As of December 31, 2016, the Company had
unused lines of credit of $4,629 as compared to $5,626 as at
December 31, 2015.
Other Income
Other income for the three months ended December 31, 2016 and 2015
were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Other
income
|
$83
|
$110
|
|
Exchange
gain/loss
|
120
|
(92)
|
|
Other income, net
|
$203
|
$18
|
Other income for the three months ended December 31, 2016 was $203,
an increase of $185 as compared to $18 for the same period last
fiscal year. This increase was mainly attributable to foreign
currency exchange difference between functional currency and U.S.
dollars contributing to an exchange gain of $120 for the three
months ended December 31, 2016 as compared to an exchange loss of
$92 for the same period in last fiscal year.
Income Tax Expenses
Income tax expenses for the three months ended December 31, 2016
were $67, a decrease of $19 as compared to $86 for the same period
last fiscal year. The decrease in income tax expenses was mainly
due to an increase in income in the subsidiaries which has carry
forward tax losses and lower withholding tax payment, which was
partially offset by an increase in deferred tax for timing
differences recorded by Singapore and Malaysia
operation.
We record a provision for income taxes for the anticipated tax
consequences of the reported results of operations using the asset
and liability method. Under this method, we recognize deferred tax
assets and liabilities for the expected future tax consequences of
temporary differences between the financial reporting and tax bases
of assets and liabilities, as well as for operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are
measured using the tax rates that are expected to apply to taxable
income for the years in which those tax assets and liabilities are
expected to be realized or settled. We record a valuation allowance
to reduce our deferred tax assets to the net amount that we believe
is more likely than not to be realized.
Tax expense for the three months ended December 31, 2016 and 2015
included $5 and $3, respectively, representing the tax withheld by
the China, Malaysia and Thailand subsidiaries for the payments made
to the Singapore subsidiary that is not recoverable. The taxes
withheld by the China, Malaysia and Thailand subsidiaries were paid
to the Inland Revenue department of the respective
countries.
Non-controlling Interest
As of December 31, 2016, we held a 55% interest in Trio-Tech
(Malaysia) Sdn. Bhd., Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI
International Pte. Ltd. and PTSHI Indonesia, and a 76% interest in
Prestal Enterprise Sdn. Bhd. The non-controlling interest for the
three months ended December 31, 2016, in the net income of
subsidiaries, was $52, an increase of $27 compared to $25 for the
same period of the previous fiscal year. The increase in the
non-controlling interest in the net income of subsidiaries was
attributable to the increase in net income generated by the
Malaysia testing operation due to an increase in other income as
compared to the same period in the last fiscal year.
(Loss) / Income from Discontinued Operations
Loss from discontinued operations was $4 for the three months ended
December 31, 2016, as compared to an income of $6 for the same
period of the last fiscal year. The change in income from
discontinued operations was primarily due to an increase in other
expenses by $12 for the three months ended December 31, 2016, as
compared to the same period last fiscal year.
Net Income
Net income was $310 for the three months ended December 31, 2016,
an increase of $120 as compared to net income of $190 for the three
months ended December 31, 2015. The increase in net income was
mainly due to the increase in gross profit margin and other income
due to exchange differences, which were partially offset by the
increase in operating expenses, as discussed earlier.
Earnings per Share
Basic and diluted earnings per share from continuing operations was
$0.09 for the three months ended December 31, 2016 as compared to
$0.05 for the same period in the last fiscal year. Basic and
diluted earnings per share from discontinued operations were nil
for both the three months ended December 31, 2016 and
2015.
Segment Information
The revenue, gross margin and income from each segment for the
second quarter of fiscal years 2017 and 2016, respectively, are
presented below. As the revenue and gross margin for each segment
have been discussed in the previous section, only the comparison of
income from operations is discussed below.
Manufacturing Segment
The revenue, gross margin and (loss) / income from operations
for the manufacturing segment for the three months ended December
31, 2016 and 2015 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$3,320
|
$3,276
|
|
Gross margin
|
21.0%
|
24.6%
|
|
(Loss) / income from operations
|
$(229)
|
$129
|
Loss from operations in the manufacturing segment was $229 for
the three months ended December 31, 2016, a deterioration of $358,
as compared to an income of $129 in the same period of the last
fiscal year. The deterioration was primarily due to a decrease of
$107 in the gross margin, as discussed earlier, and an increase of
$251 in operating expenses. Operating expenses for the
manufacturing segment were $927 and $676 for the three months ended
December 31, 2016 and 2015, respectively. The increase
in operating expenses was mainly due to an increase in general and
administrative expenses of $199, an increase in selling expenses of
$28 and an increase in corporate overhead by $23, as compared to
the same period of last fiscal year. The increase in general and
administrative expenses was primarily due to the increase in
headcount, payroll related expenses and software license expenses
in the Singapore operations. This increase was partially offset by
a decrease in payroll related expenses in the Suzhou, China
operations, as compared to the same period last fiscal year. The
increase in selling expenses was due to an increase in
entertainment expenses, travel expenses and commission expenses in
the Singapore operations as the commissionable revenue increased as
compared to the same period last fiscal year. The increase in
corporate overhead expenses was due to a change in the corporate
overhead allocation method as compared to the same period last
fiscal year. Corporate charges are allocated on a pre-determined
fixed charge basis.
Testing Segment
The revenue, gross margin and income from operations for the
testing segment for the three months ended December 31, 2016 and
2015 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$4,070
|
$3,701
|
|
Gross margin
|
34.7%
|
32.5%
|
|
Income from operations
|
$388
|
$282
|
Income from operations in the testing segment for the three months
ended December 31, 2016 was $388, an increase of $106 compared to
$282 in the same period of last fiscal year. The increase in
operating income was mainly attributable to an increase of $210 in
gross margin, as discussed earlier, which was partially offset by
an increase of $104 in operating expenses. Operating expenses
were $1,024 and $920 for the three months ended December 31, 2016
and 2015, respectively. The increase in operating expenses was
mainly attributable to an increase in general and administrative
expenses by $75 because of an increase in payroll related expenses
in the Singapore and Malaysia operations and an increase in
travelling expenses in the Tianjin, China operations, and an
increase of $12 in selling expenses due to an increase in
commission expenses in the Singapore operations, and an increase in
loss on disposal of property, plant and equipment of $8 for the
three months ended December 31, 2016, while there was no such loss
on disposal for the same period in the last fiscal
year.
Distribution Segment
The revenue, gross margin and income from operations for the
distribution segment for the three months ended December 31, 2016
and 2015 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$1,675
|
$1,359
|
|
Gross margin
|
10.4%
|
8.8%
|
|
Income from operations
|
$100
|
$51
|
Income from operations in the distribution segment increased by $49
to $100 for the three months ended December 31, 2016, as compared
to $51 in the same period of last fiscal year. The increase in
operating income was mainly due to an increase in gross profit by
$55, which was partially offset by an increase in operating
expenses by $6. Operating expenses were $74 and $68 for the three
months ended December 31, 2016 and 2015, respectively. Operating
expenses increased mainly due to an increase in general and
administrative expenses of $20, mainly due to payroll related
expenses in the Singapore operations, and a decrease in gain on
sale of property, plant and equipment in the Malaysia operations of
$4 as there was no such sale in the three months ended December 31,
2016 as compared to last fiscal year. The increase was partially
offset by a $17 decrease in corporate charges. Corporate charges
are allocated on a pre-determined fixed charge basis.
Real Estate Segment
The revenue, gross margin and loss from operations for the real
estate segment for the three months ended December 31, 2016 and
2015 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$39
|
$18
|
|
Gross margin / (loss)
|
25.6%
|
(61.1)%
|
|
Loss from operations
|
$(8)
|
$(46)
|
Loss from operations in the real estate segment for the three
months ended December 31, 2016 was $8, a decrease of $38, as
compared to $46 for the same period of the last fiscal
year. The decrease in operating loss was mainly due to
an increase in gross margin as discussed earlier, which was
partially offset by a decrease in operating expenses of $17. The
operating expenses were $18 and $35 for the three months ended
December 31, 2016 and 2015, respectively. The decrease in operating
expenses as compared to the same quarter in last fiscal year was
primarily due to a decrease legal and professional
expense.
Corporate
The income / (loss) from operations for corporate for the three
months ended December 31, 2016 and 2015 were as
follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Income / (Loss) from operations
|
$27
|
$(88)
|
Corporate
operating loss changed by $115 to an income of $27 for the three
months ended December 31, 2016 from a loss of $88 in the same
period of the last fiscal year. The change from
operating loss to income was mainly due to a decrease in general
and administrative expense due to a decrease in provision for bonus
and stock option expenses as compared to the same period in last
fiscal year. There were no stock options granted during the three
months ended December 31, 2016, while stock options covering an
aggregate of 50,000 shares were granted to directors during the
same period of last fiscal year, resulting in no stock option
expenses for the three months ended December 31, 2016, as compared
to $51 for the same period of last
fiscal year.
Comparison of the Six Months Ended December 31, 2016 and December
31, 2015
The following table sets forth certain consolidated statements of
income data as a percentage of revenue for the three months ended
December 31, 2016 and 2015, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
100.0%
|
100.0%
|
|
Cost
of sales
|
74.3
|
73.6
|
|
Gross Margin
|
25.7%
|
26.4%
|
|
Operating
expenses:
|
|
|
|
General
and administrative
|
19.6%
|
20.0%
|
|
Selling
|
2.0
|
1.9
|
|
Research
and development
|
0.6
|
0.6
|
|
Total
operating expenses
|
22.2%
|
22.5%
|
|
Income from Operations
|
3.5%
|
3.9%
|
Overall Gross Margin
Overall gross margin as a percentage of revenue decreased by 0.7%
to 25.7% for the six months ended December 31, 2016, from 26.4% in
the same period of last fiscal year, primarily due to a decrease in
the gross profit margin in the manufacturing segment, which was
partially offset by an increase in the gross profit margin in the
testing segment and real estate segment. In terms of absolute
dollar amounts, gross profits increased by $359 to $4,652 for the
six months ended December 31, 2016, from $4,293 for the same period
of the last fiscal year.
Gross profit margin as a percentage of revenue in the manufacturing
segment decreased by 6.1% to 22.5% for the six months ended
December 31, 2016, from 28.6% in the same period of the last fiscal
year. In absolute dollar amounts, gross profit decreased by $262 to
$1,574 for the six months ended December 31, 2016 as compared to
$1,836 for the same period in last fiscal year. The decrease in
absolute dollar amount of gross margin was primarily due to the
change in product mix in the Singapore and Suzhou, China
operations, where there was an increase in sales of products that
had lower profit margins and a decrease in sales of products that
had higher profit margins as compared to the same period of last
fiscal year. In our U.S. operations, a delay in orders from a
customer while also contributed to a decrease in the gross margin.
As a result, the increase in cost was higher than the increase in
manufacturing revenue for the six months ended December 31, 2016,
as compared to the same period last fiscal year.
Gross profit margin as a percentage of revenue in the testing
segment increased by 3.7% to 33.5% for the six months ended
December 31, 2016 from 29.8% in the same period of the last fiscal
year. The increase was primarily due to an increase in testing
volume in the Singapore, Malaysia and Bangkok, Thailand operations.
Despite a decrease in testing volume in the Suzhou, China
operations, gross margin increased due to a reduction in headcount.
These increases in gross margin were partially offset by a decrease
in gross margin in the Tianjin, China operations because of lower
average selling price despite higher volume. As the demand for
services and factory utilization increase, the fixed costs are
spread over an increased output, which increases the gross profit
margin. In terms of absolute dollar amounts, gross profit in the
testing segment increased by $528 to $2,755 for the six months
ended December 31, 2016, from $2,227 for the
same period
of the last fiscal year.
Gross profit margin as a percentage of revenue in the distribution
segment remained constant at 10.3% for the six months ended
December 31, 2016 and 2015, respectively. In terms of absolute
dollar amounts, gross profit in the distribution segment for the
six months ended December 31, 2016 was $287, an increase of $46 as
compared to $241 in the same period of the last fiscal year. The
increase in gross margin in absolute dollars was due to the change
in product mix, as this segment had fewer sales of products with a
lower profit margin as compared to the same period of last fiscal
year. The gross profit margin of the distribution segment was
not only affected by the market price of our products, but also our
product mix, which changes frequently as a result of changes in
market demand.
Gross
profit margin as a percentage of revenue in the real estate segment
was 46.2% for the six months ended December 31, 2016, an
improvement of 68.2% from gross loss margin of 22.0% for the same
period in the last fiscal year. In terms of absolute dollar
amounts, gross profit in the real estate segment for the six months
ended December 31, 2016 was $36, an improvement of $47 from a
gross loss $11 in the same period of the last fiscal year. The
improvement was primarily due to an
increase in rental income from both investment properties, MaoYe
and FuLi, due to an increase in space rented during the period, and
a decrease in cost of sales, due to a reversal of overprovision for
taxes, as compared to the same period in the last fiscal
year.
Operating Expenses
Operating expenses for the six months ended December 31, 2016 and
2015 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
General
and administrative
|
$3,519
|
$3,261
|
|
Selling
|
365
|
312
|
|
Research
and development
|
105
|
97
|
|
Loss
/ (gain) on disposal of property, plant and equipment
|
8
|
(4)
|
|
Total
|
$3,997
|
$3,666
|
General and administrative expenses increased by $258, or 7.9%,
from $3,261 to $3,519 for the six months ended December 31, 2016
compared to the same period of the last fiscal year. There was an
increase in general and admin expenses in the Singapore and
Malaysia operations, which was partially offset by the decrease in
general and administrative expenses in all other
operations.
The increase in general and administrative expenses was primarily
due to the increase in payroll related and bonus expenses in the
Singapore and Malaysia operations, as well as an increase in
software licensing expense in the Singapore
operations. This
increase was partially offset by a decrease in legal and
professional feels in the Chongqing, China operations, a decrease
in headcount and payroll related expense in the Suzhou and Tianjin,
China operations as part of cost cutting measures, there not being
certain payroll related expenses in the Bangkok, Thailand
operations and a decrease in stock option expenses for the six
months ended December 31, 2016 as compared to the same period of
last fiscal year.
Selling expenses increased by $53, or 17.0%, for the six months
ended December 31, 2016, from $312 to $365 compared to the same
period of the last fiscal year, which was mainly due to an increase
in entertainment expenses and commission expenses as a result of an
increase in commissionable sales in our Singapore operations, and
increase in travel expenses in our Singapore and Malaysia
operations.
Income from Operations
Income from operations was $655 for the six months ended December
31, 2016 as compared to $627 for the same period of the last fiscal
year. The increase was mainly due to the increase in gross profit
margin being greater than the increase in operating expenses, as
discussed earlier.
Interest Expense
Interest expense for the six months ended December 31, 2016 and
2015 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Interest expense
|
$(106)
|
$(104)
|
Interest expense increased by $2 to $106 from $104 for the six
months ended December 31, 2016 as compared to the same period of
the last fiscal year.
Other Income
Other income for the six months ended December 31, 2016 and 2015
were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Other
income
|
$131
|
$134
|
|
Exchange
gain
|
182
|
92
|
|
Other income, net
|
$313
|
$226
|
Other income for the six months ended December 31, 2016 was $313,
an increase of $87 as compared to $226 for the same period last
fiscal year. This increase was mainly attributable to foreign
currency exchange difference between functional currency and U.S.
dollars contributing to an exchange gain of $182 for the six months
ended December 31, 2016 as compared to $92 for the same period last
fiscal year.
Income Tax Expenses
Income tax expense for the six months ended December 31, 2016 was
$150, a decrease of $3, as compared to $153 for the same period of
last fiscal year. The decrease in income tax expense was due to an
increase in income in the subsidiaries which have carry forward tax
losses and lower withholding tax payment, which was partially
offset by an increase in deferred tax for timing differences
recorded by Singapore and Malaysia operation
We record a provision for income taxes for the anticipated tax
consequences of the reported results of operations using the asset
and liability method. Under this method, we recognize deferred tax
assets and liabilities for the expected future tax consequences of
temporary differences between the financial reporting and tax bases
of assets and liabilities, as well as for operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are
measured using the tax rates that are expected to apply to taxable
income for the years in which those tax assets and liabilities are
expected to be realized or settled. We record a valuation allowance
to reduce our deferred tax assets to the net amount that we believe
is more likely than not to be realized.
Tax expenses for the six months ended December 31, 2016 and 2015
included $28 and $23, respectively, representing the tax withheld
by the China, Malaysia and Thailand subsidiaries for the payments
made to the Singapore subsidiary that is not recoverable. The taxes
withheld by the China, Malaysia and Thailand subsidiaries were paid
to the Inland Revenue department of the respective
countries.
Non-controlling Interest
As of December 31, 2016, we held a 55% interest in Trio-Tech
Malaysia, Trio-Tech (Kuala Lumpur) Sdn. Bhd., SHI International
Pte. Ltd. and PTSHI Indonesia, and a 76% interest in Prestal
Enterprise Sdn. Bhd. The net income attributable to our
non-controlling interest in these subsidiaries for the six months
ended December 31, 2016 was $96, a decrease of $47, as compared to
$143 for the same period of last fiscal year. The decrease was
attributable to the decrease in net income generated by the
Malaysia testing operations due to higher operating expenses as
compared to the same period in the last fiscal year.
(Loss) / Income from Discontinued Operations
Loss from discontinued operations was $3 for the six months ended
December 31, 2016, a decrease of $1 as compared to a loss of $4 for
the same period of the last fiscal year.
Net Income
Net income was $613 for the six months ended December 31, 2016, an
increase of $164, as compared to a net income of $449 for the same
period in the last fiscal year. The improvement was mainly due to
an increase in gross margin and other income due to exchange
differences, which was partially offset by an increase in operating
expenses as discussed earlier.
Earnings per Share
Basic earnings per share from continuing operations was $0.18 for
the six months ended December 31, 2016 as compared to $0.13 for the
same period in the last fiscal year. Basic earnings per share from
discontinued operations were nil for both the six months ended
December 31, 2016 and 2015.
Diluted earnings per share from continuing operations was $0.17 for
the six months ended December 31, 2016 as compared to $0.13 for the
same period in the last fiscal year. Diluted earnings per share
from discontinued operations were nil for both the six months ended
December 31, 2016 and 2015.
Segment Information
The revenue, gross profit margin, and income or loss from each
segment for the six months ended December 31, 2016 and 2015,
respectively, are presented below. As the segment
revenue and gross margin for each segment have been discussed in
the previous section, only the comparison of income from operations
is discussed below.
Manufacturing Segment
The revenue, gross margin and income or loss from operations for
the manufacturing segment for the six months ended December 31,
2016 and 2015 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$6,991
|
$6,416
|
|
Gross margin
|
22.5%
|
28.6%
|
|
(Loss) / Income from operations
|
$(322)
|
$371
|
Loss from operations from the manufacturing segment was $322
for the six months ended December 31, 2016, a deterioration of $693
as compared to an income of $371 in the same period of the last
fiscal year, primarily due to a decrease in gross margin by $262
coupled with an increase in operating expenses. Operating expenses
for the manufacturing segment were $1,896 and $1,465 for the six
months ended December 31, 2016 and 2015, respectively. The increase
in operating expenses of $431 was mainly due to an increase in
general and administrative expenses of $346, an increase in selling
expenses of $18 and an increase in corporate overhead by $59, as
compared to the same period of last fiscal year. The increase in
general and administrative expenses was primarily due to the
increase in headcount, payroll related expenses, software license
expenses, depreciation expenses and bank charges in the Singapore
operations. This increase was partially offset by a decrease in
payroll related expenses in the Suzhou, China operations, as
compared to the same period last fiscal year. The increase selling
expenses is due to an increase in entertainment expenses, travel
expense, and commission expenses in the Singapore operations as the
commissionable revenue increased as compared to the same period
last fiscal year. The increase in corporate overhead expenses is
due to increase in allocation in corporate expenses which is
charged on a predetermined fixed basis, which is higher as compared
to the same period last fiscal year.
Testing Segment
The revenue, gross margin and income from operations for the
testing segment for the six months ended December 31, 2016 and 2015
were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$8,227
|
$7,484
|
|
Gross margin
|
33.5%
|
29.8%
|
|
Income from operations
|
$790
|
$360
|
Income from operations in the testing segment for the six months
ended December 31, 2016 was $790, an increase of $430 compared to
$360 in the same period of the last fiscal year. The increase
in operating income was attributable to an increase in gross profit
of $528, which was partially offset by an increase in operating
expenses of $98. Operating expenses were $1,965 and $1,867 for
the six months ended December 31, 2016 and 2015, respectively. The
increase in operating expenses was mainly attributable to an
increase in selling expenses, general and administrative expenses
and corporate overheads. Selling expenses increased due to an
increase in travelling expenses in our Malaysia and Tianjin
operations and higher commission expenses due to an increase in
commissionable sales in our Singapore operations. The increase in
general and administrative expenses was due to payroll related
expenses in the Singapore and Malaysia operations, an increase in
travelling expenses in the Tianjin, China operations and an
increase in loss on disposal of property, plant and equipment of $8
for the six months ended December 31, 2016, while there was no such
loss on disposal for the same period in the last fiscal year. The
increase in corporate overhead expenses was due to increase in
allocation in corporate expenses which is charged on a
predetermined fixed basis, which was higher as compared to the same
period last fiscal year.
Distribution Segment
The revenue, gross margin and income from operations for the
distribution segment for the six months ended December 31, 2016 and
2015 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$2,779
|
$2,334
|
|
Gross margin
|
10.3%
|
10.3%
|
|
Income from operations
|
$134
|
$70
|
Income from operations in the distribution segment for the six
months ended December 31, 2016 was $134, as increase of $63 as
compared to $70 in the same period of the last fiscal
year. The increase in operating income was mainly due to an
increase in gross profit, as discussed earlier, and a decrease in
operating expenses. Operating expenses were $153 and $171 for the
six months ended December 31, 2016 and 2015, respectively. The
decrease in operating expenses was mainly due to a decrease in
allocation of corporate expenses, which is charged on a
predetermined fixed basis, which was lower than corporate expenses
in the same period in last fiscal year, and there being no disposal
of property, plant and equipment for the six months ended December
31, 2016, as compared to gain on disposal of property, plant and
equipment amounting to $4 for the same period in last fiscal year,
which was partially offset by an increase in general and
administrative expenses due to payroll related expenses in the
Singapore operations.
Real Estate Segment
The revenue, gross loss or margin and loss from operations for the
real estate segment for the six months ended December 31, 2016 and
2015 were as follows:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue
|
$78
|
$50
|
|
Gross margin / (loss)
|
46.2%
|
(22.0)%
|
|
Loss from operations
|
$(6)
|
$(70)
|
Loss from operations in the real estate segment for the six months
ended December 31, 2016 was $6, a decrease of $64 as compared to a
loss of $70 for the same period of the last fiscal
year. The decrease in operating loss was mainly due to
an increase in gross profit, as discussed earlier, and a decrease
in operating expenses. Operating expenses decreased by $17 to $42
for the six months ended December 31, 2016 as compared to $59 for
the same period in the last fiscal year. The decrease in operating
expenses was mainly due to a decrease in legal fees and
professional expenses.
Corporate
The loss from operations for corporate for the six months ended
December 31, 2016 and 2015 were as
follows:
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(Unaudited)
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Income / (loss) from operations
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$59
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$(104)
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Operating income in the corporate office for the six months ended
December 31, 2016 was $59, an improvement of $163, as compared to
$104 for the same period of the last fiscal year. This
was mainly due to a decrease in stock option expenses and
staff-related expenses. Stock option expenses for the six months
ended December 31, 2016 was $1, a decrease of $54 from $55 for the
same period in the last fiscal year.
Financial Condition
During the six months ended December 31, 2016 total assets
decreased by $1,523, from $32,219 as at June 30, 2016 to $30,696 as
at December 31, 2016. The decrease in total assets was primarily
due to a decrease in trade accounts receivables, other receivables,
asset held for sale, deferred tax assets, investment properties,
property, plant and equipment and restricted term deposits, which
were partially offset by an increase in cash and cash equivalents,
short term deposits, inventories and prepaid expenses.
Cash and cash equivalents were $4,336 as at December 31, 2016,
reflecting an increase of $529 from $3,807 as at June 30,
2016, primarily due to an improvement in collections from our major
customers in the Singapore, Malaysia and Bangkok, Thailand
operations. The increase was partially offset by the decrease due
to placements in short term deposit in the Malaysia operations. The
number of days’ sales outstanding in accounts receivables was
82 days at the end of the second quarter of fiscal year 2017 and 87
days for the fiscal year ended 2016. The cash inflow from the
improvement in collections was partially offset by the cash outflow
from the payment of bonus in the Singapore and Malaysia
operations.
Short-term deposits were $658 as at December 31, 2016, reflecting
an increase of $363 from $295 as at June 30, 2016, primarily due to
placement of deposit of RM 1.7 million equivalent approximately
$379 by the Malaysia operations. This increase was partially offset
by the currency translation.
At December 31, 2016, the trade accounts receivable balance
decreased by $1,249 to $7,577 from $8,826 as at June 30, 2016,
primarily due to an improvement in collection in the Singapore and
Malaysia operations, outstanding payment received from a major
customer in the U.S. operations and a decrease in revenue in the
China operations for the second quarter of fiscal 2017. The number
of days’ sales outstanding was 82 days at the end of the
second quarter of fiscal 2017 compared to 87 days at the end of
fiscal year 2016. The decrease in days’ sales outstanding was
primarily due to improved collections processes in the Singapore
operations for the six months ended December 31, 2016, as compared
to the year-end of last fiscal year.
At December 31, 2016, other receivables were $316 reflecting a
decrease of $280 from $596 as at June 30, 2016. The decrease was
primarily due to transfer of down-payment for purchase of property,
plant and equipment to fixed assets, decreased advance payments to
creditors and goods and services tax receivables in the Singapore
operations during the six months ended December 31,
2016.
Inventories at December 31, 2016 were $1,666, an increase of $206
compared to $1,460 as at June 30, 2016. The number of days’
inventory held was 52 days at the end of the second quarter of
fiscal 2017 compared to 38 days at the end of fiscal year
2016. The higher days’ inventory on hand
was mainly due to a decrease in
utilization of the inventory by the Singapore operations in the
six-month period ended December 31, 2016, as compared to the year
end of fiscal 2016.
Prepaid expenses and other current assets were $363 as at December
31, 2016, as compared to $264 as at June 30, 2016. The increase of
$99 was primarily due to prepayments for rental and insurance upon
renewal by the Singapore and Tianjin, China
operations.
Investment properties, net in China as at December 31, 2016 were
$1,234, a decrease of $106 from $1,340 as at June 30,
2016. The decrease was primarily due to depreciation
charged and by the foreign currency exchange difference between the
functional currency and U.S. dollars for the six months ended
December 31, 2016.
Property, plant and equipment decreased by $993 from $11,283 as at
June 30, 2016 to $10,290 as at December 31, 2016, mainly due to
depreciation charges amounting to $916, foreign currency exchange
difference between functional currency and U.S. dollars from June
30, 2016 to December 31, 2016, and an increase in the disposal of
fixed assets by the Malaysia operations for the six months’
period ended December 31, 2016.
Restricted term deposits decreased by $146 from $2,067 as at June
30, 2016 to $1,921 as at December 31, 2016. This decrease was due
to the foreign currency exchange difference between functional
currency and U.S. dollars from June 30, 2016 to December 31, 2016
which was partially offset by the interest income from the
restricted deposits.
Other assets increased by $94 from $1,788 as at June 30, 2016 to
$1,882 as at December 31, 2016. The increase in other assets
was primarily due to down-payment for purchase of property, plant
and equipment for capital purchases in the Tianjin, China
operations and by the foreign currency exchange difference between
functional currency and U.S. dollars from June 30, 2016 to December
31, 2016.
Utilized lines of credit as at December 31, 2016 decreased by
$1,072 to $1,419, from to $2,491 as at June 30, 2016. The decrease
in lines of credit was mainly due to re-payment of lines of credit
by the Singapore and Tianjin, China operations and foreign currency
exchange difference between functional currency and U.S. dollars
from June 30, 2016 to December 31, 2016.
Accounts payable as at December 31, 2016 increased by $809 to
$3,730 from $2,921 as at June 30, 2016. The increase was mainly due
to the increase in creditors’ turnover in the Singapore
operations and increased purchases for a new project in the
Malaysian operations in the second quarter of fiscal year 2017, as
compared to the end of fiscal year 2016. This increase was
partially offset by the decrease in the Tianjin, China operations
due to non-recurring payments to suppliers which did not exist
during the second quarter of fiscal year 2017, as compared to the
end of fiscal year 2016.
Accrued expenses as at December 31, 2016 increased by $39 to $2,681
from $2,642 as at June 30, 2016. The increase in accrued expenses
was mainly due to an increase in commission expenses and accrued
purchases in the Singapore operations and an increase in customer
deposits in the Singapore and Chongqing, China operations. These
increases were partially offset by the reversal of overprovision of
sales tax in the Chongqing, China operations, reversal of accrued
legal expenses in the Singapore, Malaysia and Tianjin, China
operations and foreign currency exchange difference between
functional currency and U.S. dollars from June 30, 2016 to December
31, 2016,
Bank loans payable as at December 31, 2016 decreased by $378 to
$1,689, as compared to $2,067 as at June 30, 2016. This was due to
the repayment of loans by the Singapore and Malaysia operations and
by the foreign currency exchange difference between functional
currency and U.S. dollars from June 30, 2016 to December 31,
2016.
Capital leases as at December 31, 2016 decreased by $131 to $607,
as compared to $738 as at June 30, 2016. This was due to the
repayment of capital leases by the Singapore and Malaysia
operations and by the foreign currency exchange difference between
functional currency and U.S. dollars from June 30, 2016 to December
31, 2016. The decrease was partially offset by an increase in
capital leases in the Malaysia operations.
Liquidity Comparison
Net cash provided by operating activities increased by $2,322 to
$3,671 for the six months ended December 31, 2016, compared to
$1,349 during the same period of the last fiscal year. The increase
in net cash generated by operating activities was primarily due to
increase in net income of $117 from June 30, 2016 and an increase
in working capital by $41. The increase in working capital was
mainly caused by the increase accounts payable and accrued expenses
by $930, and decrease in trade accounts receivable by $1,249, other
receivables by $217. These were partially offset by the increase in
inventories by $284 and an increase in net income by $117, increase
in prepaid expenses by $63.
Net cash used in investing activities increased by $906 to $1,102
for the six months ended December 31, 2016, compared to $196 during
the same period of the last fiscal year. The increase in
cash outflow in the investing activities was primarily due to an
increase in investments in restricted and un-restricted deposits by
$421, an increase in capital spending by $450 and a decrease in
proceeds from maturing restricted term deposits by $63 during the
six months ended December 31, 2016. These decreases were partially
offset by the increase in proceeds from disposal of property, plant
and equipment by $28.
Net cash used in financing activities increased by $1,176 to $1,475
for the six months ended December 31, 2016, compared to $299 during
the same period of the last fiscal year. The increase was mainly
due to dividends payment to non-controlling interest of $117 and an
increase in repayments of bank loans and capital leases by $32.
Moreover, cash generated from financing activities decreased due to
a decrease in borrowings from bank loans and capital leases by $912
and decrease in proceeds from lines of credit by $115.
We believe that our projected cash flows from operations, borrowing
availability under our revolving lines of credit, cash on hand,
trade credit and the secured bank loan will provide the necessary
financial resources to meet our projected cash requirements for at
least the next 12 months.
Critical Accounting Estimates & Policies
There have been no significant changes in the critical accounting
policies, except as disclosed in “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” included in the most recent Annual Report on Form
10-K.
ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND
PROCEDURES
An evaluation was carried out by the Company’s Chief
Executive Officer and Chief Financial Officer of the effectiveness
of the Company’s disclosure controls and procedures (as
defined in Rule 13a-15(e) or 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of December 31, 2016, the end
of the period covered by this Form 10-Q. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that these disclosure controls and procedures were
effective at a reasonable level.
Except as discussed below, there has been no change in the
Company’s internal control over financial reporting during
the fiscal quarter ended December 31, 2016 that has materially
affected or are reasonably likely to materially affect the
Company’s internal control over financial reporting.
Enterprise Resource Planning (ERP) Implementation
We are in the process of implementing an ERP System, as part of a
multi-year plan to integrate and upgrade our systems and processes.
The implementation of this ERP system is scheduled to occur in
phases over the next few years, and began with the migration of
certain of our operational and financial systems in our Singapore
operations to the new ERP system during the second quarter of
Fiscal 2017. This implementation effort will continue in the third
and fourth quarters of Fiscal 2017, when the operational and
financial systems in Singapore will be substantially transitioned
to the new system.
As a phased implementation of this system occurs, we are
experiencing certain changes to our processes and procedures which,
in turn, result in changes to our internal control over financial
reporting. While we expect the new ERP system to strengthen our
internal financial controls by automating certain manual processes
and standardizing business processes and reporting across our
organization, management will continue to evaluate and monitor our
internal controls as processes and procedures in each of the
affected areas evolve.
TRIO-TECH INTERNATIONAL
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
Not applicable.
Not applicable.
Item 2.
Unregistered Sales of Equity
Securities and Use of Proceeds
Malaysia and Singapore regulations prohibit the payment of
dividends if the Company does not have sufficient retained earnings
and tax credit. In addition, the payment of dividends can only be
made after making deductions for income tax pursuant to the
regulations. Furthermore, the cash movements from the
Company’s 55% owned Malaysian subsidiary to overseas are
restricted and must be authorized by the Central Bank of Malaysia.
California law also prohibits the payment of dividends if the
Company does not have sufficient retained earnings or cannot meet
certain asset to liability ratios.
Item 3.
Defaults Upon Senior
Securities
Not applicable.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5.
Other
Information
Not applicable.
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31.1
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Rule 13a-14(a) Certification of Principal Executive Officer of
Registrant
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31.2
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Rule 13a-14(a) Certification of Principal Financial Officer of
Registrant
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32
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Section 1350 Certification
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly
authorized.
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TRIO-TECH INTERNATIONAL
/s/
Victor H.M. Ting
VICTOR H.M. TING
Vice President and Chief Financial Officer
(Principal Financial Officer)
Dated: February 10, 2017
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